Per Jyoti Balasundaram :

In this case, a duty demand of Rs. 2,43,702.21 P. has been confirmed on a quantity of 20,000 litres of liquid electrolytes produced in the appellants factory by mixing of duty paid Potassium Hydroxide (Solid KOH) with DI water to obtain solution of required specific gravity (used for formulation processes and testing of cells used in stationery batteries) and a quantity of 61,379.90 litres of solid KOH and LIOH (Lithium Hydroxide) despatched alongwith the stationery batteries manufactured by the appellants to their customers, on the ground that liquid electrolyte is an excisable commodity attracting 15% ad-valorem of Special Excise duty under sub heading 38.23 of the Schedule to the CETA 1985, and not entitled to the benefit of exemption under Notification No. 217/86-CE dated 2.3.86 since the stationery batteries for which the liquid electrolyte was used were exempt from duty under Notification No. 68/86-CE dated 10.2.86. The Adjudicating authority has also imposed a penalty of Rs. 60,000/- upon the appellants.

2. We have heard Shri R. Nambirajan learned Advocate who contends that the mixing of potassium hydroxide with water in the appellants factory and the mixing of potassium hydroxide with lithium hydroxide with water in the customers premises, does not result in manufacture of a new distinct excisable commodity different from the solid form of hydroxide, since potassium hydroxide and lithium hydroxide in solid form are electrolytes, and even after mixing with water, they continue to remain electrolytes. He also contends that even if it is held that mixing of solid KOH and LIOH with water in the premises of various customers of the appellants, amounts to manufacture, even than the Collector of Central Excise, Chandigarh who has passed the impugned order, would have no jurisdiction to adjudicate the demand of 61,379.90 litres since the different customers fell under the jurisdiction of different Collectorates.

3. He cites the Ministry of Finance, Department of Revenue letter dated 30.1.1998 clarifying that the dissolving of duty paid Magnesium chloride in powder form in water to obtain a solution is not a manufacturing activity, since no new commodity comes into existence and therefore, no duty would be leviable on such solution, in support of his contention that the mixing of solid KOH with water and solid KOH and solid LIOH with water does not amount to manufacture.

He also submits that the liquid electrolyte is not marketable in liquid form and that the department has failed to discharge the burden of establishing the marketability of the disputed products. Lastly, he submits that the demand is barred by limitation - the show cause notice dated 3.2.93 covering the period from 14.1.88 to 7.8.92 is beyond the period of six months from the relevant date and the extended period of limitation is not applicable since the appellants were under a bonafide belief, based upon the 1988 Circular cited above that the mixing of electrolyte in solid form with water does not amount to manufacture of a new excisable commodity. He therefore, prays for setting aside the duty demand and the penalty.

4. The learned DR draws our attention to the finding in the impugned order that both the General Manager and the Senior Works Manager of the appellants had admitted that the disputed product was manufactured by mixing DI water with solid KOH and LIOH. He submits that in view of assessee's own admission, they cannot deny that the product is a result of manufacture and that duty is leviable thereon. He contends that non-disclosure by the appellants of the fact of manufacture of liquid electrolyte has given rise to the applicability of the extended period of limitation. In these circumstances, he urges that the impugned order may be upheld and the appeal rejected.

5. We have considered the rival submissions. The appellants who are manufacturers inter-alia of Nickel Cadium batteries/stationery batteries (electric accumulators)