1. The writ appeal is directed against the decision of Mohan, J., in W.P. No. 7254 of 1975.
2. In the said writ petition the appellants who are the manufactures of Furacin Syrup, a resin solution which, according to the respondents, is liable to duty under the Central Excises and Salt Act, 1944, under Tariff Item 15-A with effect from 1st March, 1964. However, till 12-6-1964 no duty under the said Tariff Item was levied on the resin solution produced by the appellants. However, duty came to be demanded for the period 13-6-1964 to 4-11-1964. Again there was an interval between 4-11-1964 and 2-6-1968 when the duty was not demanded at all. Later, for the period 3-6-1968 to 15-5-1972 excise duty was levied by the respondents on actual resin content of the resin solution produced by the appellants. However, from 16-5-1972 the excise duty was levied on total weight of the bulk irrespective of the resin content and actually a demanded dated 24-11-1974 was issued to the appellants for payment of Rs. 50,039.82 being the differential duty which was short levied for the period from 1-4-1971 to 13-5-1972. The appellants questioned the validity of the said demanded by filing an appeal before the Appellate Collector of Central Excise on 31st May, 1973 who, by his order dated 21-3-1974, held that the earlier assessments on the basis of the actual resin content in the syrup produced by the appellants and not on the entire quantity of syrup was due to a mistake or inadvertence on the part of the excise authorities and that mistake was realised only subsequently and it is thereafter a show cause notice has been for recovery of the short levy and by an exercise of power under rule 10 the demand has been made for the amount of duty short levied which was not collected by mistake and in that view he dismissed the appeal. Later the appellants filed a revision before the third respondent but without success. Thereafter the appellants moved this court by way of the above, writ petition seeking to quash the said demand mainly on four grounds namely, (1) that the process by which the resin imported by the appellants is diluted so as to from a resin solution will not amount to a process of manufacture so as to attract excise duty under Section 3, that the levy of excise duty is only on manufacture and that the authorities were in error in taking the mere dilution of the synthetic resin imported as a manufacture; (ii) that the resin solution produced by the appellants by the process of diluting the synthetic resin imported by them by adding alcohol is not a manufactured product which is different from the synthetic resin; (iii) that in any even as per the amended provision of Item 15-A unless the process adopted to bring into existence the resin solution is one of those processes mentioned in the Explanation 2 therein, the resin solution cannot be said to be a manufactured product which is liable to excise duty under the Act and (iv) that the impugned demand of differential duty is bad for the reason that the said demand will not fit in with rule 10 of the rules under which the demand has been made. The said writ petition was resisted by the respondents contending that the demand has rightly been made under rule 10 as the short levy was due to an inadvertence and mistake committed by the officers in taking the resin content as the basis for levy and not taking the entire solution as the basis, that the process adopted by the appellants to bring into existence the resin solution which is called 'Furacin syrup' by mixing the synthetic resin imported by them and the alcohol is a manufacturing process and the end product brought into existence by such process is a separate and distinct article having different character and different commercial use. Therefore, the end product has rightly been taken as excisable under Tariff Item 15-A. Mohan, J., without giving his findings on the first two contentions referred to above, proceeded to dismiss the writ petition holding on the third contention that rule 10(1) has properly been invoked, as the short levy was due to the mistake committed by the authorities in levying duty on the resin content of the solution and not on the weight of the entire solution. According to the learned Judge, since rule 10 applies to the facts of the case and the requirements of rule 10(1) has been satisfied before issuing the demand, the demand cannot be successfully questioned. Thus, the learned Judge has not dealt with the basic question as to whether the resin solution produced by the appellants by mixing the synthetic resin imported by them with alcohol amounts to a manufacture and whether the end product is excisable. Before us the learned counsel for the appellants contends that though this point was urged before the learned Judge he has not expressed any opinion on that question and therefore this court has not only to deal with the correctness or otherwise of application of rule 10 to the facts of this case but also consider the nature of the process adopted by the appellants for bringing into existence of the resin solution and whether such process can be taken to be a manufacture process so as to attract the levy of duty under the Central Excises and Salt Act, 1944.
3. The learned counsel for the respondents does not dispute the fact that the question as to whether the end product is excisable at all was in fact canvassed before the learned single Judge. Even otherwise that being a question of law directly arising on the facts put forward in this case, we are of the view that the question as to the applicability of rule 10 will arise only if the article produced by the appellants is excisable, we proceed to deal with the said question even though that question has not been dealt with by the learned single Judge.
4. So far as the applicability of rule 10 to the facts of this case is concerned, though the learned counsel for the appellant questions the correctness of the view taken by the learned single Judge, we are of the view that the conclusion arrived at by the learned Judge cannot be taken exception to. Admittedly, for the period 1-4-1971 to 13-5-1972, the excise duty was levied and collected from the appellants only the actual resin content for the resin solution produced by them. Thereafter when they became aware of the fact that excise duty is leviable not on the actual resin content but on the total weight of the entire solution, short levy has arisen and that short levy is due to the mistake committed by the initial authorities in the collection of the excise duty. Rule 10 of the Act provides for the recovery of the duties or charges short levied and it provides that if duties and charges have been short levied through inadvertence, error, collusion or through misconstruction on the part of any officer, the proper authority can require by issuing a notice to the person concerned to show cause as to why he should not pay the amount short levied and sub-rule (2) provides for a determination of the amount actually short levied after hearing the representations if any by the person concerned. Thus it is see that rule 10 will come into the picture when (i) there is a short levy and (ii) when the short levy was due to inadvertence, error, collusion or misconception. In this case, there is a short levy. In view of the fact that the levy is not in accordance with the instructions issued by the Central Board of Revenue that the resin solution should be charged to duty on the basis of the actual resin content but on the basis of the total weight of the solution and that the said levy was due to the mistake committed by the officers in ignoring the Board's instructions. Therefore it should be held that rule 10 has correctly been applied in this case.
5. Coming to the basic question as to whether the process adopted by the appellants to bring into existence the resin solution called 'Furacin syrup' is a manufacturing process so as to attract duty under section 3 which is the charging section under the Act, and whether the end product which is brought into existence by mixing the synthetic resin imported by the appellants with alcohol is a product different in character, nature and use so as to say that the end product is excisable under the provisions of the Act.
6. According to the learned counsel for the appellants what is done is a mere dilution of the synthetic resin which is in a solid from the alcohol to bring into existence a solution which the appellants call by name 'Furacin Syrup' and that this process does not amount to in any sense, a manufacturing process. It is also the appellant's case that the end product which is the resign solution is not different from the original synthetic resin and it continues to have the same properties as the synthetic resin which has been used for producing the resin solution. In support of his submission that mere dilution of synthetic resin or the mere mixing of water or alcohol will not amount to manufacture, the learned counsel for the appellants relies on a decision of the Bombay High Court in Sandoz India Limited v. Union of India and others 1980 E.L.T. 696. In that case the synthetic organic dyes were formulated into a liquid solution. The formulation adopted involved the addition of dispersing agents or diluents which, according to the producers, did not change the dye already manufactured. The question arose as to whether the process of formulation amounted to manufacturing process. According to the producers the process of formulation is only to break the pigment particles for physical aid using dispersing agent or water without any chemical change taking place. Since the Excise Authorities were of the view that the said formulation process amounted to manufacturing process, the matter was taken before the Court and the court held that the original dye which was taken out of the factory was not different from the formulated product which left the factory and therefore the excise authorities were not right in basing the question of excisability merely on the change of the form in the article produced, that the process of formulation adopted by the producers in that case is different from the manufacturing process, that the process of formulation has been resorted only with a view of disperse the dye which is in the concentrated form or in the wet cake form and when the dispersing agents and a solvent is added in order to emulsify the dye, the dye continues to remain the same without any change in its composition or in its characteristic and therefore the end product brought into existence after the formulation is not a product different from the original product out of which the formulated product came. In support of the said view, the court has relied on the decision of the Supreme Court in Union of India v. Delhi Cloth and General Mills Co. Ltd. : 1973ECR56(SC) ] and South Bihar Sugar Mills Ltd. v. Tata Chemicals Ltd., : 1973ECR9(SC) wherein it has been held that the word 'manufacture' implies a change but every change is not a manufacture and yet every change of an article is the result of treatment, labour and manipulation, but something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use. Thus according to the said decisions of the Supreme Court as also the decision of the Bombay High Court referred to above, the word 'Manufacture' implies a change but every change in the raw material is not manufacture and to constitute manufacture there must be a transformation and a new and different article must emerge having a distinctive name, character or use. In Shakti Insulated Wires Pvt. Limited and another v. Union of India and Others 1982 E.L.T. 10 (Bombay), the Bombay High Court again dealt with a similar question. In that case, the copper or aluminium strips were insulated for being advantageously used as a conductor. The insulation was done either by insulating the copper or aluminium strips either by glass-fibre or by paper or cotton cover. The question arose in that case whether the mere application of such process made a different and distinct article than the original article, namely, copper strips or aluminium strips so as to amount to manufacture under section 2(f) of the Central Excise Act. The court while dealing with the question held that as processing is distinct from manufacture and merely because some process is carried on the article produced would not necessarily amount to manufacture of fresh article under section 2(f) of the Central Excise Act and that though at some point processing and manufacturing may merge, where the commodity retains a continuing substantial identity through the process even after the processing it cannot be said that it has been 'manufactured'.
As against the above decisions relied on by the learned counsel for the appellants the respondent's learned counsel relied on the following decisions in support of his submission that if by mixing two articles a new article is produced then the mere mixing may amount to manufacture. Maharashtra v. C. P. Manganese : 1SCR1002 is a case where an assessee owned manganese ore mines in Madhya Pradesh and was entering into contracts at various places outside the State for despatch abroad of manganese ore through different ports. The contracts contained specifications of strengths of manganese ore to be supplied with permissible percentages of other ingredients as admixtures. The assessee arranged for the transport of various grades of manganese ore in railway wagons from one or more of the mines, and the order in which trucks were loaded and unloaded was so arranged that the required average consistency or strength of manganese ore specified in the contract was obtained in the course of such unloading. Such type of conglomerate was called by the assessee as an 'oriental mixture'. The question arose whether the said 'oriental mixture came into existence as a result of manufacture and the process of mixing amounted to the manufacturing process. The Supreme Court observed what is to be determined is whether there has been the manufacture of a new product which has a separate commercially current name in the market and the mere giving of a name by the seller to what is really the same product is not the manufacture of a new product and as there is no new process of manufacture of goods in bringing about the 'oriental mixture', the assessee cannot be said to have brought into existence a new manufactured product and that the name 'oriental mixture' represents only an admixture of the manganese ore and other ingredients. We do not see how this decision helps the respondents. The Bombay High Court in Nilgiri Ceylon Tea Supplying Company v. State of Bombay 10 S.T.C. 500 has held that where different brands of tea produced in bulk and without application of any mechanical or chemical process were mixtures so as to conform to a particular mixing formula the mixture was held not to constitute a fresh commodity as neither processing nor alteration of the ingredients of the tea in any manner had taken place. However, this decision of the Bombay High Court was not approved by the Supreme Court in PIO Food Packers Case - 1980 E.L.T. 343 = 1980 46 S.T.C. 63 and the Supreme Court has held that the said decision does not lay down the correct law. In Commr. of Sales Tax, v. Dunken Coffee Mfg. Co. 35 S.T.C. 493 the question arose as to whether mixing and blending of coffee powder with chicory powder to obtain 'french coffee' amounts to manufacture within the definition of Section 2(17) of the Bombay Sales Tax Act. The Bombay High Court observed that for an activity to amount to manufacture it must result in a different commercial article or commodity. It must not be a commodity which is commercially the same as it was before the activity was applied to it, that in some cases the ingredients are totally transformed and, in other cases, they undergo some change, alteration or transformation and yet retain their essential character and properties and that the test in all cases is to ascertain whether the activities result in a commercially different commodity and it is irrelevant whether this result is produced by a mechanical or chemical process or otherwise. The court ultimately held that the activities of the assessee consisted of purchasing coffee seeds, roasting and grinding them and preparing coffee powder out of the seeds and then mixing and blending the coffee powder prepared by them with chicory powder and producing a mixture known as 'french coffee' will amount to a manufacture as the french coffee is commercially a different product. In Brooke Bond India Ltd. v. Union of India and Others : 1984(15)ELT32(AP) , Andhra Pradesh High Court has also taken the same view on more or less similar facts. In that case also the assessee carried on the business of selling, among other things, coffee-chicory mixture. The activities of the assessee consisted of purchasing coffee seeds, roasting and grinding then and preparing coffee powder out of those seeds by mechanical process and thereafter mixing and blending in a particular proportion the said coffee powder with chicory powder and marketing the same as 'Coffee-chicory blend', what is generally known as 'french coffee' in the business market. On those facts, the court had to consider whether the mixing and blending of coffee powder with chicory powder constituted manufacturing process and the outcome is a different and a new commercial commodity which could be subjected to excise duty. The court, after considering the definition of manufacture occurring in section 2(f) as including any process incidental or ancillary to the completion of a manufactured product and following the decision of the Bombay High Court in Commr. of Sales Tax v. Dunken Coffee Mfg. Co. 35 S.T.C. 493 held that the mixing and blending process is a manufacturing process and the resultant mixture is a distinct commercial product differing in identity from the two ingredients constituting the mixture. On a due consideration of the matter, we are inclined, in this case to follow the decision of the Bombay High Court in Sandoz India Limited v. Union of India and Others 1980 E.L.T. 696 and Shakti Insulated Wires Pvt. Limited and Another v. Union of India and Others 1982 E.L.T. 10. In this case what is done by the appellants is mixing the synthetic resin which is in a solid form with alcohol to convert it into a liquid form and it does not result in any chemical reaction. The resin solution which is brought about by mixing synthetic resin with alcohol if heated, the alcohol evaporates and it results in synthetic resin being brought back in a solid form. The synthetic resin, because it is in a solid form, cannot be used for bonding purposes and therefore it is converted into a liquid by adding alcohol and the end product is used for bounding purposes. Therefore it cannot be said that the end product which was brought into existence by the process of dilution or adding alcohol to resin is a separate product apart from synthetic resin and it continues to have the same characteristics as resin. As a matter of fact, in this case the respondents are seeking to bring even the end product under Tariff Item 15-A which deals with resin. Therefore the respondents themselves have treated the end product as nothing but resin. Though by the process of mixing there is change of form, that by itself cannot be taken to be the product of a manufacturing process. It is well established that though a process brings about a change in the raw material used, every change cannot be taken to constitute a manufacture. If, as a result of the process, raw materials have been transformed into a distinct and commercially a new product, then alone the process can be taken to be a manufacture. In this case, since the end product brought about by the process of mixture or dilution continues to have the same chemical properties as resin, there cannot be said to be any manufacturing process. As already stated, even the respondents have proceeded on the basis that the end product also continues to be still resin and therefore it is again chargeable under Tariff Item 15-A. If the end product is also treated as resin by the respondents themselves, we do not see how the process of mixture or dilution will amount to a manufacture. If there is manufacture, then, the end product is not excisable, for excise duty is leviable on manufacture only and not on any process.
7. Even if we accept the contention of the respondents that the end product produced by the appellants is a new and commercial product apart from the resin which has been used up in the process, then the article cannot be brought to charge under Tariff Item 15-A for that article deals only with resin. Therefore, in any view, the demand issued by the respondents on the basis that the end product continues to be a synthetic resin and therefore it is assessable under Tariff Item 15-A cannot be sustained. If the process is not treated as a manufacture, no excise levy is possible as Section 3 imposes a charge only on manufacture. If the process is treated as a manufacture then the end product will have to be distinct and different from the resin which has been used and it cannot be, therefore, brought under Item 15-A as has been done by the respondents. The end product has been chemically analysed and the Chemical Examiner's report dated 3-6-1964 has been placed before us and it reads as follows -
'The samples mentioned above have been analysed and the sample of Furacin Syrup is an aqueous solution of a synthetic resin. It is excisable under item 15-A of the Current Tariff. The sample of Phenacin 'A' syrup is a liquid composed of phenol formaldehyde (Synthetic resin) and about 15% W/W of water. It is excisable under item 15-A of the Current Central Excise Tariff.'
8. That report shows that the end product still continues to be a synthetic resin and therefore it is excisable under item 15-A. Even after the process of mixture or dilution employed by the appellants, the product continues to be a synthetic resin, then the process adopted by the appellants has nor resulted in any new and commercially different product. Therefore, the Chemical Examiner's Report itself indicates that the process employed is such as not to result in a new and independent product. Therefore we have to hold that the process employed by the appellants is not a manufacture so as to attract a charge under S. 3. In this view of the matter it is unnecessary to go into the contentions urged by the appellants as regards the scope of the amended provision in Tariff Item 15-A. The appeal is allowed and the impugned demand is quashed. There will be no order as to costs.