National Law University Odisha

Indirect Tax Project

Case comment: Air Liquide North India
v. CCE, (2011) 271 ELT 321(SC)
Semester VII
4th year
Submitted to
Ms. Priyanka Anand
Assistant Professor of Law, National Law University
Odisha.
Submitted by
Priscilla Lalnunpuii 12/BA/036
Sakshi Sharma 12/BA/043

Table of Contents
Table of authorities.....................................................................................................................3
Case laws................................................................................................................................3
Statutes...................................................................................................................................3
Facts of the case.........................................................................................................................4
Issue Raised................................................................................................................................5
Arguments advanced..................................................................................................................6
Judgement and reasoning...........................................................................................................8
critical Analysis..........................................................................................................................9

TABLE OF AUTHORITIES

Case laws

CCE v. Lupin Laboratories and Lakme Lever Ltd v CCE, 1999 (107) ELT 170.
BOC (I) Ltd v CCE, 2004 (94) ECC 329.
CCE v. Tarpaulin International, 2010) 256 ELT 481 (SC).
Union of India v Delhi Cloth Mills Co. Ltd, AIR 1963 SC 791.
Statutes

Central Excise Act 1944.

Central Excise Tariff Act 1985.

FACTS OF THE CASE

In the present case the appellant (i.e Air Liquide North India) is engaged in the manufacture
of Oxygen, Nitrogen, Carbon-di-oxide and other gases classifiable under Chapter 28 of the
Act. The assesse had purchased Helium gas during the period commencing from December,
1998 to 31st March, 2001 from the open market in bulk. He had purchased the said gas for
Rs. 520/- per Cum. After the purchase of this Helium Gas the assesse repacked them into
small cylinders after giving them different grades to them and sold them in the open market.
Further, after the buy of Helium Gas, the assesse led different test on the gas so obtained and
on the test's premise and some treatment given, the gas was isolated into different rates
having particular properties and sold at distinctive rates different customers.
Helium was sold from the open market by the assesse and the quality control officer had
conducted various tests and issued analysis report or quality test report stating the results of
the test carried out. On the basis of this tests carried out the assesse issued certificates of
quality at the time of sale to effect that the gas supplied by it confirmed a level of purity and
conformation with the orders of the customer. Also, the assesse had purchased the Helium gas
under a generic description but after the tests and analysis, it was sold to different customers
based on the specific requirements at the profit margin ranging from 40% to 60% in different
cylinders.
Further when the appellant was asked about the process was has been carried out on the
Helium gas before selling it to the customers, the representative of the appellant had refused
to give any detail with regard to the process because according to them, the process carried
out by it was trade secret and would not like to reveal the same.
The respondent went to the Commissioner and adjudicating authorities held that these
processes undertaken by the appellants amounted to manufacture and consequently confirmed
the demand with penalty. An appeal filed by the appellant before the Commissioner (Appeals)
was allowed. Thereafter, an appeal was filed by the Department before the Tribunal and the
Tribunal, by its impugned judgment held that the process undertaken or the treatment given
by the appellant amounted to "manufacture" in terms of Chapter Note 10 of Chapter 28 of the
Act. The aforesaid conclusion arrived at by the Tribunal is under challenge in this appeal.

ISSUE RAISED

Whether, the treatment given or process undertaken by Air Liquid North India Ltd to
Helium gas purchased by it from open market would amount to manufacture,
rendering goods liable to duty under Chapter Note 10 of Chapter 28 of Act?

ARGUMENTS ADVANCED
The contention put forward on behalf of the appellant were-Firstly, that the appellant had
only conducted various tests like moisture test, etc. to determine quality and quantity of
Helium gas in the cylinders.
Contrary to the above contention put forward by the appellant, the respondent submitted that
even after the activity of testing, Helium gas remained as Helium gas only and there was no
change in the chemical or physical properties. No new product, other than Helium gas came
into existence and, therefore, it cannot be said that the appellant had carried on any
manufacturing activity.
The respondent further added that the gas, when purchased by the appellant, was already
marketable and, therefore, it cannot be said that the testing of the gas by the appellant had
rendered the product marketable. In the circumstances, the process of testing cannot be said
to be said to be a manufacturing process, rendering the product marketable.
Further it was also submitted that the crucial requirement for the application of the last
portion of Chapter Note 10 of Chapter 28 of the Act is that by adoption of some treatment,
the product should become marketable to the consumer. According to the learned counsel, the
product, i.e. Helium gas was already in a marketable state when it was purchased by the
appellant and, therefore, it cannot be said that the appellant made it marketable. To
substantiate his claim, the learned counsel for the appellant relied on the cases of CCE v.
Lupin Laboratories and Lakme Lever Ltd v CCE1.
The learned counsel for the appellant, with the help of a decided case viz. BOC (I) Ltd v
CCE2 argued to substantiate his claim that the issuance of certificate along with the cylinder
at the time of sale does not amount to re-labelling. He also contended that as there was no
suppression of facts of any sort on the part of the appellant, extended period of limitation
could not have been invoked in the present case.
On the contrary, he learned counsel for the respondent submitted that the testing of Helium

1 1999 (107) ELT 170.

2 2004 (94) ECC 329.

gas comes under the category of "treatment" as mentioned in Chapter Note 10 of Chapter 28
of the Act and that the Tribunal has clearly given a finding to that effect. He also submitted
that issuance of a separate certificate along with cylinder at the time of sale containing all the
details regarding moisture, purification, etc. amounted to re-labelling of the gas cylinders. He
also submitted that the revenue authorities were fully justified in invoking the extended
period of limitation as there had been willful suppression of facts on the part of the appellant
with intent to evade payment of duty.

JUDGEMENT AND REASONING

Judgement
The Supreme Court in this case upheld the decision of the Tribunal and held that the
treatment given by the Appellant to Helium gas would amount to manufacture as falls under
chapter note 28 of the chapter 10 and thereby dismissed the appeal without any order as to
costs.
Reasoning
In this case it has been held that there is a difference between marketable to consumer and
marketable to purchaser trading in it. Marketable to consumer means marketability to person
to purchase product for own consumption. Relabelling is not just confined to fixing another
label, giving test certificate is also relabelling. It is also not necessary that the label should be
fixed on the article; it can be given along with the item also. Therefore, giving test certificate
amounts to re labelling.
Selling cylinders to consumers with different marking and certificates to different consumers
is virtually giving different marks or different labels to different cylinders having different
quality and quantity of gas. Therefore, after testing and treatment, the product assumes a
distinct marketability, different from the original marketability.
The Helium gas which was purchased by the Appellant was in itself marketable but this
cannot be negated that by giving different treatment and purifying the gas, a commercially
different kind of gas was being manufactured, a new type of commodity which would suit a
particular purpose.
Helium gas after being graded was having different marketability, which was not there earlier
and hence the gas sold by the Appellant was a distinct commercial commodity in the trade,
rendering it liable to duty under Chapter Note 10 of Chapter 28 of the Act. If the process
undertaken on the product/commodity imparts it a distinct marketability, different than its
original marketability, then it can be said that such process undertaken or treatment given to
confer such distinct marketability would amount to "manufacture" in terms of Chapter note
10 to Chapter 28 of the Act.

CRITICAL ANALYSIS
In the present case the question before the court was whether testing and labelling or
relabelling of the helium gas amount to manufacture or not. Section 2(f) of the Central Excise
Act3 defines manufacture for the purpose of this act. It is an inclusive definition given in the
statute and it is as follows:
Manufacture includes any process, i)
ii)

incidental or ancillary to the completion of a manufactured product;

which is specified in relation to any goods in the Section or Chapter notes of the
First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to

iii)

manufacture; or
which, in relation to the goods specified in the Third Schedule, involves packing
or repacking of such goods in a unit container or labelling or re-labelling of
containers including the declaration or alteration of retail sale price on it or
adoption of any other treatment on the goods to render the product marketable to
the consumer, and the word manufacturer shall be construed accordingly and
shall include not only a person who employs hired labour in the production or
manufacture of excisable goods, but also any person who engages in their
production or manufacture on his own account.4

Section 2(f)(ii) clearly reflects the legislative intent to refer section notes and chapter notes in
order to decide what comes under the preview of manufacture. In the case of CCE v.
Tarpaulin International5, court held that if an article falls in the definition of manufacture
given Central Excise Tariff Act6, then it can be considered as manufacture provided the basic
criteria for determining manufacturing of product must be fulfilled.
In the present case, helium gas was sold in the cylinders which give full details of its quantity,
quality, moisture, purification etc. Also appellants were issuing test certificate with regard to
helium gas.
Chapter Note 10 to Chapter 28 of the Central Excise Act, the manufacturing activity would
mean either;

3Central Excise Act 1944

4 Central Excise Act 1944, s. 2(f).
5 (2010) 256 ELT 481 (SC).
6 Central Excise Tariff Act 1985.

(a) Labelling or re-labelling of containers and repacking from bulk packs to retail packs;
OR
(b) An adoption of any other treatment to render the product marketable to the consumer.7
Therefore, either the activity of labelling or of relabelling of cylinders and repackaging from
bulk packs to the retail packs OR the adoption of any kind of treatment to the object so as to
make the product marketable for the consumer will amount to "manufacture".
Now, testing of the Helium gas will fall under the definition of "treatment" as given in
Chapter Note 10 of Chapter 28 of Central Excise Act8. It is clear from the facts of the case
that appellants used to purchase Helium gas from open market and conduct various tests and
after that issued analysis reports or quality reports of the same.
Conducting various kinds of qualitative or quantitative tests upon the helium gas would
amount to giving treatment to the helium gas. Also the fact that the profits margin from the
sale of such helium gas was increased around 40-60% supports the finding of the Tribunal
that if treatment was not given to the helium gas, such distinctive features would have never
come into picture and the sell would not have increased with such a great margin.
Also it is undisputable in the facts that the appellant after conducting various test on helium
gas were involved in issuing separate test certificate accompanying with cylinders of helium
gas at the time of sale which basically contains all details regarding the moisture in gas,
purification of gas, quality of gas etc. which would amount to re-labelling of the gas
cylinders. After testing the gas, writing something on the cylinders about the quality or
quantity of gas and selling it in the market would give a distinct impression on the mind of
public. For them it is a new kind of helium gas with distinct features which are written on it
by the appellant.
The ICU test which was laid down in the case of Union of India v Delhi Cloth Mills Co. Ltd 9,
says that manufacture means bringing into existence anew substance. The substance must be
distinct in Identity, Character and use from the original commodity. Manufacture is the end
result of one or more processes, through which original commodity passes. It implies a
change. A new and different article must emerge having a distinctive name, character or use.10
Now it is not disputed that various tests were conducted on the said gas and thereby slight
changes have been brought into the character of it. The fact that the gas was earlier not sold in
7 Central Excise Act, Chapter Note 10 of Chapter 28.
8 Central Excise Act, Chapter Note 10 of Chapter 28.
9 AIR 1963 SC 791.
10 Ibid

market with this demand as such is already established in the case from the fact that the said
gas, after the various tests and treatment given, was sold at a profit margin of 40% to 60%,
which clearly shows that earlier in the eye of consumers it was not marketable. It was not
being purchased by the direct consumers. After the test and treatment given and relabelling
done by the appellants on cylinder which suggests the quality of product, consumers
perceived it in different sense from the original helium gas and accordingly the drastic change
was seen in the sale of the said gas.
If it was really being sold in original form as such, then the customers and consumers of the
helium gas of Appellants could have purchased said gas from the Appellant's suppliers
directly. Further it is also established in the facts that the gas was segregated in different
cylinders with different properties and, therefore, the rate at which the gas was purchased by
the Appellant and the rate at which it was sold to its customers were substantially different.
In the circumstances, it cannot be said that no treatment was given to the gas purchased by
the Appellant.
It is also pertinent to elucidate on the phrase "marketable to the consumer". The word
"consumer" in this clause refers to the person who purchases the product for his consumption,
as distinct from a purchaser who trades in it. The marketability of the product to "the
purchaser trading in it" is distinguishable from the marketability of the product to "the
purchaser purchasing the same for final consumption" as in the latter case, the person
purchases the product for his own consumption and in that case, he expects the product to be
suitable for his own purpose and the consumer might purchase a product having
marketability, which it did not possess earlier.
The phrase "marketable to the consumer" would naturally mean the marketability of the
product to "the person who purchases the product for his own consumption". Hence, there is
no room for doubt left that the helium gas was manufactured by the appellants as per the
definition given in Chapter Note 10 of Chapter 28 of the Central Excise Act.