1997 (9) TMI 288 - AT - Central Excise

Polyvinyl Alcohol Conversion Not Manufacturing; Amendment Prospective with Deeming Fiction

The Tribunal concluded that the process of converting polyvinyl alcohol powder into a solution does not amount to manufacture as it does not result in a ... Plastics Issues Involved:1. Whether the conversion of polyvinyl alcohol powder into a solution amounts to manufacture.2. Whether the amendment to Chapter Note 6 with effect from 1-3-1988 was clarificatory or prospective.3. Whether the benefit of Notification No. 175/86 as amended by 216/86 applies.4. Whether the show cause notice was time-barred.5. Whether the calculation of assessable value was correct.Issue-wise Detailed Analysis:1. Whether the conversion of polyvinyl alcohol powder into a solution amounts to manufacture:The appellants contended that the process of converting polyvinyl alcohol powder into a solution does not amount to manufacture as there is no chemical change, relying on the Government of India's clarification and Chapter Note 3. The Department argued that under Chapter Note 6, such conversion is considered a manufacturing process. The Tribunal observed that merely converting polyvinyl alcohol powder into a solution does not result in a new product; it remains a synthetic resin with the same name, character, and use. Therefore, the process does not amount to manufacture, and no new excisable commodity came into existence.2. Whether the amendment to Chapter Note 6 with effect from 1-3-1988 was clarificatory or prospective:The appellants argued that the amendment to Chapter Note 6 was prospective and not retrospective. They supported their argument by citing various Supreme Court judgments. The Department maintained that the amendment was clarificatory, referring to the Tribunal's order in the case of Collector of Central Excise, Bombay v. Bright Bros. Ltd. The Tribunal, however, concluded that the amendment introduced a deeming fiction for the first time, indicating that it was not clarificatory but prospective. This view was supported by the fact that no such provision existed earlier, necessitating the amendment.3. Whether the benefit of Notification No. 175/86 as amended by 216/86 applies:The appellants claimed entitlement to exemption under Notification 175/86 as amended by 216/86, arguing that this aspect was not considered by the authorities. The Tribunal did not find it necessary to delve into this issue further, given their conclusion that the process did not amount to manufacture.4. Whether the show cause notice was time-barred:The appellants contended that the show cause notice was time-barred. This issue was not extensively discussed in the judgment, as the primary focus was on whether the process constituted manufacture and the nature of the amendment to Chapter Note 6.5. Whether the calculation of assessable value was correct:The appellants argued that the authorities had incorrectly calculated the assessable value by not deducting the tax element from the price. This issue was also not elaborated upon in the judgment, as the Tribunal's primary focus was on the nature of the manufacturing process and the amendment to Chapter Note 6.Separate Judgments:The Vice President and one Member (J) agreed that the process did not amount to manufacture and that the amendment was prospective. However, another Member (J) dissented, relying on the Tribunal's earlier decision in the Bright Bros. Ltd. case, which held that such conversion amounts to manufacture. Consequently, the matter was referred to a Larger Bench to resolve the difference of opinion.Final Order:The majority opinion favored referring the matter to a Larger Bench to determine whether the amendment to Chapter Note 6 was clarificatory or prospective and whether the process of dissolving polyvinyl alcohol powder in water amounted to manufacture.