Simple mixing of standardised dye forms did not amount to manufacture, so excise duty and penalties were unsustainable.

Conversion of vat powder into vat paste by mixing glycerine, dispersing agent and water was held not to amount to manufacture under Chapter Note 7 of Chapter 32. The process was only a change in physical form of standardised or formulated dyes, and the Revenue failed to show that the input was unstandardised, unprepared or otherwise outside the formulated category. Because no new and different excisable product emerged, no excise duty was payable and the penalties could not survive. The impugned order confirming duty and penalties was set aside.

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Issues: Whether conversion of vat powder into vat paste by mixing with glycerine, dispersing agent and water amounted to manufacture so as to attract excise duty and penalties.

Analysis: The conversion was held to be a mere change in physical form and shade of standardized or formulated dyes. Chapter Note 7 of Chapter 32 applies only where unformulated, unstandardised or unprepared dyes are converted into formulated, standardised or prepared dyes. The Revenue failed to establish that the vat powder was unstandardised or unprepared; on the contrary, the invoices reflected classification under the heading applicable to standardised/formulated dyes. The process did not bring into existence a new and different excisable product, and the settled position supported by departmental clarification and judicial precedent showed that such mixing did not amount to manufacture.

Conclusion: The process did not amount to manufacture and no duty was payable; the penalties also could not survive.

Final Conclusion: The impugned order confirming duty and penalties was set aside and the appeals were allowed.

Ratio Decidendi: Conversion of one standardised or formulated dye form into another by simple mixing, without transformation from an unprepared or unstandardised state into a prepared or standardised state, does not amount to manufacture under Chapter Note 7 of Chapter 32 of the Central Excise Tariff Act, 1985.

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