2000 (2) TMI 243 - AT - Central Excise

Appellants' Dilution Process Not Manufacturing

The Tribunal held that the process of dilution and addition of fillers by the appellants did not amount to manufacture under Section 2(f) of the Central ... Manufacture - Demand - Valuation Issues Involved:1. Whether the process of dilution and addition of fillers amounts to manufacture under Section 2(f) of the Central Excise Act, 1944.2. Includibility of insurance charges, forwarding charges, and consultancy charges in the assessable value of goods.3. Applicability of the extended period of limitation.4. Clubbing of clearances for SSI exemption.5. Interest and penalty under Section 11AB and Section 11AC of the Central Excise Act.Detailed Analysis:1. Whether the process of dilution and addition of fillers amounts to manufacture under Section 2(f) of the Central Excise Act, 1944:The appellants contended that the process of dilution with water or addition of soda ash as filler does not amount to manufacture. The adjudicating authority, however, held that the appellants were engaged in the manufacture of formulation products, which resulted in new products with distinct names and uses. The Tribunal reviewed several precedents, including the cases of Commissioner of Central Excise v. Mallya Fine Chemicals Pvt. Ltd., Bush Boake Allen India Ltd. v. C.C.E., and others, which established that mere dilution or addition of fillers does not constitute manufacture if no new product with a different name, character, or use emerges. The Tribunal concluded that the process of dilution/addition of filler carried out by the appellants does not amount to manufacture under Section 2(f) of the Central Excise Act, 1944.2. Includibility of insurance charges, forwarding charges, and consultancy charges in the assessable value of goods:The adjudicating authority included these charges in the assessable value. The appellants argued that insurance and forwarding charges should not be included if the factory gate price is available without these charges. Similarly, consultancy charges for sale of technology without supply of goods should not be included. The Tribunal remanded this issue to the jurisdictional Commissioner for verification. If it is found that factory gate prices are available without such charges, they cannot be included in the assessable value. Consultancy charges related to the sale of technology without goods supply should also be excluded.3. Applicability of the extended period of limitation:The appellants argued that the demand for the period subsequent to 27-10-1993 is barred by limitation since all material facts were available to the Department in October 1993. The Tribunal noted that the continued investigation revealed new facts, such as the sale of goods at suppressed prices to M/s. KWHCL from 8th June 1996. Therefore, the extended period of limitation is applicable, and no part of the demand is barred by limitation.4. Clubbing of clearances for SSI exemption:The appellants claimed that if dilution and packing do not amount to manufacture and certain charges are excluded from the assessable value, their clearances would remain within the SSI exemption limit. The Tribunal remanded this issue to the jurisdictional Commissioner for verification. If the clearance value exceeds the SSI limit, the finding of clubbing clearances is upheld. The Tribunal also upheld the finding that the price at which KWHCL sold the goods should be the normal price for determining the assessable value of goods sold by the appellants to KWHCL.5. Interest and penalty under Section 11AB and Section 11AC of the Central Excise Act:The Tribunal agreed that interest under Section 11AB and penalty under Section 11AC cannot be levied for the period before 28-9-1996. However, if duty is payable for the period from 28-9-1996 to 31-1-1997, interest and penalty are warranted. Penalty under Rule 173Q is also justified if any duty liability remains. The quantum of penalty on all appellants, including Dr. S.N. Chadha, is to be re-determined by the adjudicating authority if any duty demand survives.The appeals were disposed of in the above terms.