Pesticide dilution and tariff classification settled: no manufacture before 23-7-1996, and technical grade pesticides fall under Heading 3808.10.

Dilution of pesticides with solvents and the addition of stabilising or dispersing agents did not amount to manufacture for the period before 23-7-1996 because no new product emerged; the duty and penalty demands based on that view could not stand. After insertion of Note 2 to Chapter 38, technical grade pesticides cleared on or after 23-7-1996 were classifiable under Heading 3808.10, following the settled judicial position on the tariff entry; classification under Chapters 28/29 was incorrect. On both issues, the adverse orders were unsustainable and the appeals were allowed with consequential relief.

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Issues: (i) Whether, for the period prior to 23-7-1996, dilution of pesticides with solvents and addition of stabilising, dispersing and similar agents amounted to manufacture so as to attract central excise duty; (ii) Whether technical grade pesticides cleared on or after 23-7-1996 were classifiable under Heading 3808.10 or under Chapters 28/29.

Issue (i): Whether, for the period prior to 23-7-1996, dilution of pesticides with solvents and addition of stabilising, dispersing and similar agents amounted to manufacture so as to attract central excise duty.

Analysis: The earlier Tribunal decision in Markfed had held that such dilution and addition of ancillary ingredients did not bring into existence a new product and therefore did not amount to manufacture. That view had attained finality and was further endorsed by the High Courts in Indichem and Kissan Chemicals, which also held that the Board circular on the subject could not override the settled legal position.

Conclusion: The process did not amount to manufacture for the pre-23-7-1996 period, and the duty and penalty demands based on the contrary view could not stand.

Issue (ii): Whether technical grade pesticides cleared on or after 23-7-1996 were classifiable under Heading 3808.10 or under Chapters 28/29.

Analysis: After introduction of Note 2 to Chapter 38, the Tribunal in Voltas, following the Delhi High Court in Pesticides Manufacturers and Formulators Association of India, held that technical grade pesticides during the relevant period were classifiable under Heading 3808.10. The same reasoning applied to the identical products and period involved here, and the absence of any stay of the High Court judgment required the same classification approach to be followed.

Conclusion: Technical grade pesticides for the post-23-7-1996 period were classifiable under Heading 3808.10, not under Chapters 28/29.

Final Conclusion: The orders confirming duty and penalty were unsustainable on both sets of appeals, and the appeals were allowed with consequential relief.

Ratio Decidendi: Where the process merely dilutes pesticides with additives without creating a new product, it is not manufacture for excise purposes; and after the relevant tariff note, technical grade pesticides fall under Heading 3808.10.

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