Per : G.P. Agarwal : Short question involved in the present appeal is as to whether "the preparations based on the Ultra Marine Blue in the instant case amounts to 'manufacture' within the meaning of Section 2 (f) of the Central Excises and Salt Act. 1944? If so. whether the appellants were entitled for the benefit of exemption Notification No. 114/73-CE dated 13.4.73 as amended ?"

2. The facts giving rise to the above controvercy in brief are that the appellants after obtaining the L-4 licence as directed by the Range Superintendent filed their Classification List No. 224/87 classifying their product "preparations based on Ultra Marine Blue "under sub-heading No. 3206.90 and claiming exemption under Notification No. 175/86-CI2 and further showing in para III of the classification list liquid blue as not excisable. Subsequently they also claimed the benefit under exemption Notification No. 114/73 as amended. However, on scrutiny of the classification list the Department was of the opinion that the appellants were not eligible for the benefit of exemption Notification No. 1 14/73 or Notification No. 1 75/86. Accordingly, a Show Cause Notice was issued to the appellants to show cause as to why the benefit of the said exemption Notification be not denied and also for liquid blue manufactured by them be not classified under I leading 3206. In reply the appellants submitted that they are purchasing duty paid Ultra Marine Blue from the manufacturers and dilute the same by adding China Clay and Acid Dyes and thereafter pack it in smaller consumer packs and sell the same. On this premises it was their defence that this activity cannot be equated with the process of manufacture. Alternatively it was also claimed that in case it is held that the said activity amounts to manufacture then they will be eligible to exemption under Notification No. 1 14/73. However, the Assistant Collector negatived the said defence of the appellants and approved the said classification list classifying the Ultra Marine Blue and Liquid Blue under sub-heading No. 3206.90 without extending the benefit of exemption Notification No. 114/73 and 175/86. Against that order of the Assistant Collector the appellants filed the appeal before the Collector (Appeals) who while observing that since the Show Cause Notice issued in the instant case did not make any mention regarding grant of benefit of exemption Notification No. 175/86-CE, the Assistant Collector was not correct in denying the benefit of this Notification to the appellants in the impugned order and. therefore, for denying the benefit of this Notification he will have to initiate separate proceedings, confirmed the findings of the Assistant Collector regarding the classification of the subject goods and the denial of benefit under exemption Notification No. 1 14/73. Hence the present appeal.

3. Arguing on behalf of the appellants Shri V. Lakshmikumaran, Ld. Counsel submitted that the appellants are purchasing duty paid Ultra Marine Blue and after purchasing so add China Clay as a dilutant/extender and Acid Dyes without the aid of power and thereafter pack it in a smaller consumer pack and sell the same under different brand names. Elaborating further he submitted that chemically after dilution also Ultra Marine Blue is known and used only as Ultra Marine Blue, thus there is no change in the name, character or use of the product. The Ultra Marine Blue has the same identity after dilution. The China Clay only acts as a dilutant and the acid dye performed no other function except to maintain the parity of shade which was disturbed by the dilution with the addition of the China Clay. The acid dye did not in any way act as a chemical modifier and at best it was a physical modifier of a mechanical nature in inert capacity. Further, the ultra marine pigment and the synthetic organic dye stuffs (Acid dyes) purchased by the appellants were fully standardised, prepared and formulated dyes which was ready for use in