TMI Blog2022 (2) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... red for applying the varnish). Thus, it is more than apparent that the colour solution supplied in 20/50 Kg drums from Fiabila cannot be regarded as nail enamel - The packing of nail enamel as contemplated in HSN General Explanatory Notes and the Cosmetics Act has special significance, as without the goods being packed in the specified packing they will not be classifiable or commercially known as nail enamel. The nail enamel takes its name, character and use as such only after being packed in the manner provided. A conjoint reading of the definition of manufacture in section 2(f) (iii) of the Excise Act and Chapter Note 5 of Chapter 33 of the First Schedule to the Excise Act and the aforesaid treatment adopted on the goods (colour solution) by the appellant would render the product marketable to the consumer as nail enamel and, therefore, the appellant would be covered by the exemption notification dated 10.06.2003 since the appellant has adopted such a treatment to the goods that rendered them marketable to the consumer. It is, therefore, not possible to accept the contention advanced by learned authorised representative appearing for the Department that the only change bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification, which is the relevant clause, is reproduced below: 4. The exemption contained in this notification shall not apply to such goods which have been subjected to only one or more of the following processes , namely, preservation during storage, cleaning operations, packing or repacking of such goods in a unit container or labeling or re-labelling of containers, sorting, declaration or alteration of retail sale price and have not been subjected to any other process or processes amounting to manufacture in the States of Uttarakhand or Himachal Pradesh. (emphasis supplied) 2. The processes, namely, preservation during storage, cleaning operations, packing or repacking of such goods in a unit container or labelling or re-labelling of containers, sorting, declaration or alteration of retail sale price can be called peripheral activities. 3. Manufacture is defined in section 2(f) of the Excise Act to include any process,- (i) incidental or ancillary to the completion of a manufactured product; (ii) which is specified in relation to any goods in the section or Chapter notes of the First Schedule as amounting to manufacture; or (iii) which, in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d they are not marketable as nail enamel. It is only because of the processes that are undertaken by the appellant that the manufacture of nail enamel takes place and the goods are rendered marketable to the consumer. 7. According to the appellant the following processes are undertaken on the raw material procured from Fiabila: (i) testing as per the requirement of the buyer; (ii) testing and ensuring compliance of the raw materials as well as finished goods to the mandate of the Cosmetics Act and the BIS Act with respect to colour, odour, appearance, foreign particles, heat liability, clarity and gloss, %age solid, viscosity, set to touch time, dry through time, bottle tone, heavy metals, arsenic, adhesion test, scratch test and blush test for which tests parameters, tolerance range and even apparatuses have been prescribed under law; (iii) homogenization of the colour solution by stirring it with the help of pneumatic stirrer; (iv) mixing of thixo lacquer in predetermined quantity with the colour solution in the kettle and homogenization of the mixture; (v) adjusting the viscosity of the resultant product so that it can be filled in the small bottle with brush a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearances of Nail Enamel by the party. (emphasis supplied) 10. The show cause notice also invoked the extended period of limitation since the period of dispute is from 2013-14 up to June 2017 under section 11A (4) of the Excise Act. The appellant filed an interim reply as also a final reply to the aforesaid show cause notice denying the allegations mentioned therein and stated that it was entitled to benefit of the exemption notification. 11. The Additional Director General however, did not agree with the submissions made by the appellant in the reply filed to the show cause notice and denied the benefit of the exemption notification to the appellant. The relevant paragraphs of the order are reproduced below: 38. The Noticee s conentions under paras C.1 and C.2 are as follows:- C.1 That it has been alleged in the SCN that the test reports of samples received from CRCL revealed that finished products and Colour solution were found to have similar composition and characteristics while the r/m Thixo Lacquer was a solvent only. Further, it has been alleged that Shri Tejas S. Gupte, in his statement dated 18.04.2017, had stated that almost all the quality parameters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxxxxxxxxxx 38.2.1. On a careful reading of the relevant portion of the judgment reproduced hereinabove it becomes clear that even if the resultant product achieves superior quality after the activities and even if the resultant product has different viscosity from that of the product before the activity carried out by the manufacturer, even if the penetration becomes different after the activity carried out by the manufacturer, these activities cannot be considered to be amounting to manufacture for the purpose of levying Central Excise Duty. xxxxxxxxxxx 52. In light of elaborate discussion and conclusions arrived in paragraph # 34 to 51, I hold that the Show Cause Notice succeeds on merit and hence I hold that the activities carried out at the premises of the Noticee company in Uttarakhand do not amount to Manufacture and the Noticee is only carrying out peripheral activities specified in paragraph 4 of the exemption notification therefore the benefit of Area Based Exemption Number 50/2003-CE dated 10.06.2003 is not available to the Noticee. The Noticee is liable to pay Central Excise Duty on clearance of Nail polish and I hold accordingly. (emphasis supplied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the consumer and, therefore, the appellant would not be entitled to the benefit of exemption notification; (iii) Even if the resultant product achieves superior quality after the activities and even if the resultant product is in different viscosity, it would not amount to manufacture . (iv) The appellant is only conducting peripheral activities contemplated under paragraph 4 of the exemption notification and, therefore, the appellant is not entitled to the benefit of the exemption notification; (v) Just because the raw material and the finished goods fall under different headings, it cannot be presumed that process of obtaining finished product from such raw material would automatically constitute manufacture ; (vi) The valuation could only have been done under section 4A of the Excise Act; and (vii) The Additional Director General was justified in invoking the extended period of limitation in the facts and circumstances of the case. 15. The submissions advanced by the learned counsel for the appellant and the learned authorized representatives appearing for the Department have been considered. 16. The main issue that arises for consideration is whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, cosmetic or toilet preparations. 20. The appellant had purchased thixo lacquer solution from Fiabila and the invoices mention the Harmonized System of Nomenclature [HSN] classification as 3208 90 19. Excise Tariff Heading [CTH] 3208 deals with paints and varnishes (including enamels and lacquers). ETH 3304 deals with Beauty or make-up preparations and preparations for the care of the skin (other than medicaments), including sunscreen or suntan preparations; manicure or pedicure preparations and Nail Polish or lacquers is mentioned against the relevant Excise Tariff Item 3304 99 20. 21. It would also be pertinent to refer to Chapter 33 of HSN and the relevant portion is reproduced below: Chapter 33 Essential Oils and Resinoids, Perfumery, Cosmetic or Toilet Preparatons Chapter Notes: 1. xxxxxxxx 2. Heading Nos. 33.03 to 33.07 apply, inter alia, to products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use. 3. xxxxxxxx GENERAL Headings 33.03 to 33.07 include products, whether or not mixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conjoint reading of the definition of manufacture in section 2(f) (iii) of the Excise Act and Chapter Note 5 of Chapter 33 of the First Schedule to the Excise Act and the aforesaid treatment adopted on the goods (colour solution) by the appellant would render the product marketable to the consumer as nail enamel and, therefore, the appellant would be covered by the exemption notification dated 10.06.2003 since the appellant has adopted such a treatment to the goods that rendered them marketable to the consumer. 25. In this connection reference can be made to the decision of the Tribunal in Lakme Lever Limited vs. Commissioner of Central Excise, Mumbai-III [2001 (127) E.L.T. 790 (Tri.-Mim.)] and the relevant portion of the decision is reproduced below: 3. The goods manufactured by the appellant or obtained by it, all fall under chapter 33 of the tariff. Note 4 to this chapter at the relevant time (1996-97) reads as follows: In relation to products of heading nos. 33.03, 33.04 and 33.05, conversion of powder into tablets, labelling or relabelling of containers intended for consumers or repacking from bulk packs to retail packs or the adoption of any other treatment to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It cannot also be accepted that when the resultant product achieves superior quality, a new product marketable to the consumers as nail enamel does not come into existence as in the present case it has been found as a fact that a new marketable product comes into existence. 27. The decision of the Tribunal in British Cosmetics vs. Collector of Central Excise, New Delhi [1999 (105) E.L.T. 667 (Tribunal)], on which reliance has been placed by learned authorised representative appearing for the Department, does not help the Department. The issue that arose was regarding classification of thinner under sub-Heading 3814 00. The contention of the appellant therein that thinner was different from nail polish remover could not be substantiated nor could it be established that thinner manufactured by them was capable of being used elsewhere than as nail polish remover/diluter. 28. The appellant would, therefore, clearly be entitled to the benefit of the area based exemption notification dated 10.06.2003. 29. The order dated 04.03.2020, passed by the Additional Director General cannot, therefore, be sustained and is set aside. The appeal is, accordingly, allowed. (Order Prono ..... X X X X Extracts X X X X X X X X Extracts X X X X
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