Per P.S. Bajaj :

The above captioned appeals have been preferred against the common order-in-original dated 19.7.2001 passed by the Commissioner of Central Excise vide which he had confirmed the duty demand of Rs. 20.25,533/- with equal amount of penalty under Section 11-AC and of Rs. 5 lakhs under Rule 173Q on appellants No. 1 and also imposed penalty of Rs.50,000/- on appellant No. 2.

2. The appellants No. 1 (hereinafter referred to as 'Company') is engaged in the manufacture of EPS Mouldings and corrugated boxes/containers falling under Chapter 39 and 48 respectively of the CETA which were exempt from duty during the disputed period. The appellant No. 2 was working as factory manager at that time. The duty demand has been raised against them on three counts-

(i) an amount of Rs. 13,19,175/- has been demanded on account of manufacture of liquid gum by them in their factory and consumption of the same captively in the manufacture of corrugated boxes which were fully exempt from payment of duty;

(ii) duty of Rs. 2,23,277/- has been demanded on the paper cutting waste generated in the process of manufacture of corrugated boxes and cleared by the appellants by issuing commercial invoices; and

(iii) duty of Rs. 4,83,081/- had been demanded on account of inclusion of the value of clearances of liquid gum in the exemption slabs availed by the appellant company under Notification No. 1/93, as is evident from the impugned order-in-original.

The appellants company contested its liability to pay the duty on any of these counts, in reply, to the show cause notice by alleging that they did not manufacture liquid gum, but only prepared the same from the gum powder purchased by them from the market by adding and mixing simply water therein. They also averred that their activity did not amount to manufacture in terms of 2(f) of the Act. Similarly, generation of paper cutting waste in the course of manufacture of corrugated boxes did not amount to manufacture of any goods by them and as such no duty was payable thereon. They also denied that the value of the clearances of the liquid gums were liable to be included in the exemption slabs availed by them under Notification No. 1/93. This demand was not maintainable as no duty was payable by them on the liquid gum itself.

3. The Commissioner through the impugned order confirmed the duty on all the three counts and imposed penalties as detailed above.

4. We have heard both sides. The learned counsel has contended that mere preparation of the liquid gums from the gum powder by mixing water therein did not amount to manufacture of any new distinct product. The liquid gum, according to the learned counsel, is not even marketable for having no self life. Therefore, the demand raised by the Revenue is wholly untenable under the law.

5. The learned SDR has only reiterated the findings of the Commissioner that the activity of the appellants company in preparing the liquid gum from the gum powder amounted to manufacture and as such is dutiable.

6. We have gone through the record and in our view, the contention raised by the learned counsel deserves to be accepted. Admittedly, the appellant company is engaged in the manufacture of corrugated boxes/containers. The Company purchases gum in powder form from the market. That gum powder is converted by the company into liquid gum by simply adding and mixing water therein without the aid or use of any chemical. The also prepared liquid gum is captively used by the company for the manufacture of corrugated boxes/containers. The gum powder purchased by the company is used as an adhesive and even after converting into liquid form by mixing water therein, it remains the adhesive. No new distinct marketable product is brought out into existence by them by mere converting the gum powder into liquid gum with the help of simple water. This activity of the company by no stretch of imagination can be termed as an activity which amounted to manufacture in terms of Section