Commercially distinct product principle upheld as bottle processing amounted to manufacture, but duty demand failed for lack of notice.

Processing plain glass bottles into evacuated, sterile, non-pyrogenic siliconized bottles for plasma storage was held to amount to manufacture because the operations created a commercially distinct product with a different name, character and use; the finished goods were therefore treated as a separate excisable product. A duty demand could not be sustained on a classification basis not put to the assessee in the notice, so the demand for the earlier period was set aside. Once the duty demand failed, the penalty also fell away and was cancelled.

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Issues: (i) Whether the processing of plain glass bottles into evacuated sterile non-pyrogenic siliconized bottles amounted to manufacture and whether the resulting product was classifiable as an ordinary bottle or as a different excisable product; (ii) Whether the demand of duty was sustainable where the classification ultimately upheld by the appellate authority differed from the classification proposed in the show cause notice; (iii) Whether penalty was sustainable.

Issue (i): Whether the processing of plain glass bottles into evacuated sterile non-pyrogenic siliconized bottles amounted to manufacture and whether the resulting product was classifiable as an ordinary bottle or as a different excisable product.

Analysis: The processing involved cleaning, washing, siliconising, evacuation, sealing and sterilisation, together with additional fittings and labelling for use in plasma storage. These operations brought into existence a product known in the market by a distinct commercial description and having a distinct character and use from the plain glass bottles used as input. The presence of the bottle as the main component did not prevent the emergence of a new commercially identifiable excisable product.

Conclusion: The process amounted to manufacture and the resulting goods were correctly treated as a different excisable product, against the assessee on this issue.

Issue (ii): Whether the demand of duty was sustainable where the classification ultimately upheld by the appellate authority differed from the classification proposed in the show cause notice.

Analysis: The notice proposed a classification under one tariff heading, but the appellate authority sustained a different classification without prior notice to the assessee on that basis. A demand founded on a newly made-out case could arise only from the date on which that new case was put to the assessee. The assessee was prejudiced by the absence of notice on the classification ultimately sustained, and the demand for the earlier period could not survive.

Conclusion: The duty demand was not sustainable and was set aside, in favour of the assessee on this issue.

Issue (iii): Whether penalty was sustainable.

Analysis: Once the duty demand itself was set aside on limitation and notice grounds, there was no basis to sustain the penalty imposed.

Conclusion: The penalty was set aside, in favour of the assessee.

Final Conclusion: The appeals succeeded in part: the classification finding against the assessee was sustained, but the duty demand and penalty were annulled.

Ratio Decidendi: A process that produces a commercially distinct product with a different name, character and use constitutes manufacture, but a duty demand cannot be sustained on a classification basis not put to the assessee by notice.

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