TMI Blog2022 (9) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, adoption of any other treatment on the goods had rendered the product marketable to the consumers. 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Gazette or from the date of commencement of commercial production, whichever was later. The condition stipulated in paragraph 4 of the 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) 3. 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. 4. 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 specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o lacquer from Fiabila. The colour solution raw material is paint varnish which is available in 5kgs/10kgs/25kgs. packages but since it is of high viscosity, it cannot be filled in small bottles in which nail enamel has to be mandatorily sold in the market under the provisions of the Drugs and Cosmetics Act, 1940 [the Cosmetics Act] read with the Bureau of Indian Standards Act, 2016 [the BIS Act]. The appellant claims that the colour solution is neither known commercially or to the consumers as nail enamel and 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. The thixo lacquer is received in specially built cannisters of 10kgs 8. According to the appellant, Nail Polish is manufactured by mixing predetermined quantity of base solution, colouring solutions and pearls. The mixture of Nail Polish is kept for a period of seven days for maturation. After quality control clearance, the Nail Polish is filled in small glass bottles, labeled/coded, packed and cleared. The manufacture of Nail Polish involves mainly two stage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The party is doing storage, packing or repacking of goods in unit container, labeling or relabeling of containers declaration of MRP on the bottles. The party is packing, re-packing, labeling /relabeling and the said activity is covered under the definition of manufacture as per section 2(f) of the Central Excise Act, 1944 thus, Central Excise duty is chargeable on the said activities. Further, as the party is undertaking process of storage, repacking from bulk to retail and labeling re-labelling of retail containers and do not undertake any other process which amounts to manufacture, the benefit of central excise duty exemption under notification no. 50/2003-CE dated 10.06.2003 seems not admissible to them . Thus, from the above it appears that Central Excise duty is leviable on the manufacture and clearances of Nail Enamel by the party. (emphasis supplied) 11. The show cause notice also invoked the extended period of limitation since the period of dispute is from July 01, 2012 up to June 30, 2017 under section 11A (4) of the Excise Act. The appellant filed a reply to the aforesaid show cause notice denying the allegations mentioned therein and stated that it was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the market and is classified under 33049920. 3.10 It is not disputed that as a result of such blending and mixing in appropriate proportion a new and commercially identifiable product known as nail polish emerges and that prior to such deft and skilled mixing and colour and viscosity monitoring, the ingredients were not regarded and sold as nail polish in the market. 36.1. In this regard, I find that the facts involved in the present case are similar, to the facts involved in the decision of the Hon ble Supreme Court in the case, Commissioenr of Central Excise v. M/s. Osnar Chemical Pvt Ltd. reported in 2012 (276) ELT 0162 (S.C.). 36.1.1. On a careful reading of the 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 manufacture, these activities cannot be considered to be amounting to manufacture for the purpose of levying Central Excise Duty. 36.4. As regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chal Pradesh and, therefore, the appellant would be entitled to the benefit of the area based exemption notification. In this connection the learned counsel submitted that the treatment adopted on the goods (colour solution) by the appellant rendered the product marketable to the consumers as nail enamel; (iv) Nail enamel manufactured by the appellant is packed in less than 10 ml bottles and, therefore, is not subject to MRP based assessment under section 4A of the Excise Act; and (v) The extended period of limitation, in the facts and circumstances of the case, could not have been invoked nor could penalty or interest could have been imposed on the appellant. 15. Shri Sanjay Kumar Singh learned authorised representative appearing for the Department however, supported the impugned order and submitted that: (i) The only change brought about by the appellant is mixing the colouring matter (liquid) to a solvent of similar nature so as to reduce the viscosity; (ii) The appellant is not justified in asserting that by mixing the colouring matter to a solvent of similar nature so as to reduce the viscosity would amount to adoption of any other treatment on the goods to ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n packages of 5kgs/10kgs/25Kgs. The several processes undertaken by the appellant after receipt of the raw material have been enumerated above. They include not only testing as per the requirement of the Cosmetics Act and the 2016 Act but also homogenization of the colour solution by stirring it with the help of pneumatic stirrer and mixing of thixo lacquer in predetermined quantity with the colour solution in the kettle so as to adjust the viscosity of the resultant product so that it can be filled in small bottles as mandatorily prescribed for packing nail polish, with brush attached to the cap of the bottle for application on the nails. Thereafter, the nail enamel is filled in small bottles and labelled with the declaration of the retail sale price. This treatment adopted on the goods, according to the appellant renders the product marketable to the consumers. 20. At this stage it would be useful to refer to Chapters 32 and 33 contained in the Schedule to the Tariff Act. Chapter 32 deals with tanning or dyeing extracts, tannins and their derivatives, dyes, pigments and other colouring matter, paints and varishes, putty and other mastics, inks, whereas Chapter 33 deals with es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired for applying the varnish). 23. It needs to be noted that Chapter Note 2 of HSN is the same as Chapter Note 3 of Chapter 33 to the Excise Tariff Act. 24. It clearly transpire from the aforesaid General Explanatory Notes that the preparations (e.g. varnish), which are suitable for other uses in addition to use as varnish (that is applied on wood) are classified as cosmetics under Chapter 33 only when they are - (a) in packings of a kind sold to the consumer and put up with labels, literature or other indications that they are for use as cosmetics; or put up in a form clearly specialized to such use (e.g. nail varnish put up in small bottles furnished with the brush required 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne who purchase the product for consumption by him, as distinct from a purchaser who trades in it. Therefore for any treatment to fall within the scope of the note to the chapter it must be one that confers upon a product a quality as a result of which the product, which was otherwise not marketable is now rendered marketable. If the product were already marketable any amount of treatment to enhance its marketability would not amount to manufacture within the meaning of this note. That treatment does not render it marketable when it earlier was not. That is the object of the note is also clear from the fact that the processes which is specified in it as manufacture conversion of powder into tablets, labelling or re-labelling of containers intended for consumers, re-packing bulk drugs to retail packs are all activities which result in the products being made marketable to the individual consumers. 27. It is, therefore, not possible to accept the contention advanced by learned authorised representative appearing for the Department that the only change brought about by the appellant when the colouring matter is mixed to a solvent is to reduce the viscosity and this would not amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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