G. Sankaran, Member (T)

1. The captioned appeal was initially filed as a Revision Application before the Central Government which, under Section 35-P of the Central Excises and Salt Act, 1944, has come as transferred proceedings to this Tribunal, for disposal as if it were an appeal filed before it.

2. The facts of the case, as they appear in the impugned order, briefly stated, are that the appellants used to import Vinyl Acetate, a monomer, on which the authorities levied and collected additional (Countervailing) customs duty with reference to Item No. 68 of the Central Excise Tariff Schedule (hereinafter referred to as CET). The monomer is converted into polyvinyl acetate, a polymer. Till 17-6-77, the appellants were paying excise duty on polyvinyl acetate (hereinafter referred to as PVA) under Item No. 15A(1) (ii) CET. The duty paid PVA was used in the manufacture of adhesives described as Nevisol, Nevisol-SH Nevisol-P, Nevisol-W and Nevisol-ST. The appellants also produce polyvinyl alcohol solutions of 9%, 15% and 19.9% by dissolving PVA powder in water. The water solution, according to the impugned order, is a mechanical mixture of dispersed powder in water by means of a high speed stirrer. After 18-6-77 the department informed the appellants that they would be collecting duty on the end products, namely, the aforesaid adhesives under Item 15A (1) (ii) of the CET. This decision was communicated by the Assistant Collector by his order dated 10-4-80. From this order it is seen that the appellants cleared the adhesives during the period from 18-6-77 to 31-10-77 without payment of duty. The Supdt, of Central Excise thereupon had issued a show cause notice dated 7-12-77 asking the appellants to show cause why central excise duty amounting to Rs 1,31,213.22 should not be recovered from them under Rule 10 of the Central Excise Rules, 1944 (hereinafter referred to as the Rules). The Asstt. Collector, in the above-referred-to order, confirmed the demand after holding adjudication proceedings. In their appeal to the Appellate Collector, the appellants maintained that the adhesives were made by modification (mechanical mixing of duty paid synthetic resins, namely, PVA dispersion with water solution of imported polyvinyl alcohol powder on which appropriate countervailing duty was paid at the time of importation. Similarly, the appellants stated with reference to the adhesives of "Nevisol" group that they mixed PVA dispersions with polyvinyl alcohol solutions and Dibutyl Phthalate. The three products were mechanically stirred, resulting in modification. It was urged that there was no chemical modification involved in this process. Therefore, there was no justification to charge duty on the end-products. Mere physical modification did not amount to manufacture. In the circumstances, the status quo ante as it existed before 18-6-1977 should be restored. The Appellate Collector in his order dated 14-2-1980) held that in the case of PVA, Dibutyl Phthalate, was used as a plasticizer arid the mixing process brought about modification of PVA. In the case of polyvinyl alcohol powder, he held that the addition of water and use of a high speed stirrer brought about physical modification. He further held that Item No. 15A CET as amended in the 1977 Budget, took within its scope modified products of PVA without making any distinction between physical modification and chemical modification. Consequently, he rejected the appeal. It is this order which is under challenge before us.

3. We have heard Shri Gopal Prasad, Consultant, on behalf of the appellants and Smt. Vijay Zutshi, SDR, on behalf of the Respondent.

4. The submissions on behalf of the appellants may be summarised thus :-

(a) Prior to 18-6-1977, the Department had classified the water solution of Polyvinyl alcohol powder and the end-products, namely, glue under Item 68 of the CET. With the amendment of the Tariff Item 15A CET by the Finance Bill, 1977, which took effect from 18-6-1977, t