By TIOL News Service

NEW DELHI, JAN 25, 2017: FACTS: Cryogenic tankers are owned by M/s. VCL, a sister company of M/s. VGL. The liquefied Nitrogen and Argon are re-gassified, and packed in cylinders of 6 cubic metres or 7 cubic metres capacity for retail sale. The cylinders are owned by M/s. VCL. Before filling the gases, the cylinders are cleaned for removal of impurities like moisture, oxygen, carbon dioxide, etc., so that the gases filled in the cylinders are as much free of the impurities of oxygen, moisture, carbon dioxide etc., as possible. Besides pure Argon and Nitrogen, M/s. VCL also make mixtures of gases i.e., Argon with Carbon Dioxide, Argon with Oxygen, Argon with Nitrogen, Nitrogen with Carbon Dioxide, Nitrogen with Oxygen, etc., in which gases are mixed in a fixed proportion and the same are also packed in retail cylinders of 6 or 7 cubic metres capacity. After packing of the Nitrogen, Argon, and gas mixtures in retail cylinders, the same are affixed with a label mentioning the name of the product, purity grade, the level of impurities, batch no. and cylinder no. The labels also bear the name of the marketing company - M/s. Vadilal Chemicals Ltd. (M/s. VCL), a sister company, as well as the monogram of Vadilal group. The labels being affixed on the cylinders.

The CESTAT by the impugned order held that the process deployed in the unit of the assessee did not amount to manufacture within the meaning of Note 10 of Chapter 28 of the Central Excise Tariff Act, 1985.

The Revenue is in appeal before the Supreme Court.

Note 10 of Chapter 28 of the Tariff Act reads as :

"In relation to products of this Chapter, labelling or relabelling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to 'manufacture'."

The Supreme Court observed that the Note 10 of Chapter 28 of the Tariff Act would go to show that the deeming provision contained therein with regard to what would also amount to manufacture is in two parts.

Whether either of the two situations are attracted to the present case, is the moot question that would require an answer from the Court.

The Supreme Court observed that insofar as the first limb of Note 10 of Chapter 28 of the Tariff Act is concerned, even if we proceed on the basis that labelling or relabelling had taken place after transfer of the gases from the bulk containers/tankers to smaller cylinders, Note 10 of Chapter 28 of the Tariff Act mandates that the additional requirement that has to be satisfied so as to attract the deeming provision contained therein is that repacking from bulk packs to retail packs have also taken place.

The Supreme Court referred to a decision of the Tribunal in Ammonia Supply Company vs. CCE, New Delhi reported in 2002-TIOL-179-CESTAT-DEL wherein the Tribunal has taken the view that Amonia coming in tankers cannot be treated to have come in bulk packs.

Supreme Court also referred to a Board Circular dated 08.10.1997 where this question has been dealt with in the following way:-

“In this context clarification have been sought regarding the scope of the expression “relabelling of containers and repacking from bulk packs”. Doubts have been raised as to whether receiving of liquid chemicals in bulk in containers and offloading the same at the dealers premises or godown into available empty vessel and consequent delivery of these material in the very same condition to customers against orders can be held to be an act of repacking operations as envisaged in the said chapter note or not.

Whether an operation amounts to repacking or not, is a question to be decided on facts. However, activity such as simply transferring the material from one container to another container may not be categorised under the scope of this description. The goods are packed either for wholesale or for retail sale. Generally the expression “Packing” is considered as package containing a prepacked commodity and the quantity of product contained therein is also pre-determined. The packing is also generally done without the purchaser being present. The packages also contain information such as name of the manufacturer, quantity, value and other details of the product.”

The decision of the Tribunal in Ammonia Supply Company has attained finality as the Department had not challenged the same.

Having read the relevant part of Note 10 of Chapter 28 of the Tariff Act, the reasoning adopted by the Tribunal in Ammonia Supply Company and the contents of the Circular dated 08.10.1997, the Supreme Court took the view, that the conclusion of the Tribunal does not suffer from any infirmity which would require interference.

That brings to a consideration of the second limb of the requirement stipulated by Note 10 of Chapter 28 of the Tariff Act, namely, deployment of any other treatment to render a product marketable.

The Supreme Court observed that, from the manufacturing activity undertaken by the assessee, as found by the Commissioner himself, the assessee apart from packing pure Argon and Nitrogen in smaller cylinders is also engaged in the activity of mixing of inert gases (like argon, nitrogen, helium etc.) with other gases like oxygen, nitrogen, carbon dioxide and making available such combination to the consumers in smaller cylinders. Whether such mixing of the gases in question amount to manufacture has been gone into by the learned Tribunal in Goyal Gases (P) Ltd. vs. CCE, Meerut.

The decision of the Tribunal in Goyal Gases (P) Ltd to the effect that such activity (mixing of gases) did not amount to manufacture has been affirmed by the Supreme Court by its order dated 03.04.2000 reported in Commissioner of Central Excise vs. Goyal Gases (P) Ltd. - 2002-TIOL-793-SC-CX-LB.

The Supreme Court affirmed the order of the Tribunal and dismissed the Revenue Appeal.

(See 2017-TIOL-34-SC-CX)