Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
Subject: C.E. – Conversion of Anhydrous Ammonia into liquor Ammonia (AQueous solution of Ammonia) – Whether amounts to “manufacture”- Regarding.
I am directed to say that doubts have been expressed as to whether conversion of duty paid Anhydrous ammonia into aqueous solution amounts to “manufacture” within the meaning of section 2(f) of the Central Excise Act, 1944.
2. The trade has represented that the Central Excise authorities at Mumbai are taking the view that the process of dilution of duty paid anhydrous ammonia with water to obtain liquor ammonia amounts to “manufacture” within the meaning of Section 2(f) of the CEA and accordingly demanding duty on liquor ammonia so obtained. The trade has stated that earlier Mumbai-III Commissionerate had clarified that conversion of anhydrous ammonia into aqueous solution does not amount to manufacture. It has been further clarified that if the anhydrous ammonia is duty paid, no further duty is payable on the aqueous solution.
3. The Board has carefully examined the matter. It is observed that this issue had been examined in detail in 1986 and as recently as in 1944 by the than Commissioner of Central Excise, Mumbai-III where the view taken was that this activity does not result in “manufacture”.
4. The Board has taken note of the fact that
(i) the activity is a simple one of dissolving ammonia in water under pressure for convenience of transportation. While transporting, at the despatch end, the ammonia is dissolved in water under pressure and at the receiving end the pressure is removed resulting in ammonia gas again becoming available, leaving behind only water. The process of dissolving ammonia in water under pressure is only for a mode of transportation; the aqueous ammonia is not used as such; and
(ii) the process described is a very simple one not requiring any major technology.
5. From the description of Sub-heading No. 2814.00 as appearing in the CETA, 1985, it is clear that both Ammonia (anhydrous) and in aqueous solution (ammonium hydroxide) are included within the same sub-heading 2814.00. Though there are specific entries for hydroxides of other alkali and alkaline-earth metals, such as sodium, potassium, strontium, barium etc., the same is not the case with hydroxide of ammonia, the same being covered within S.H. 2814.00.
6. A closer look at the description appearing against heading 28.14 reveals that the heading supposes to cover the chemical viz. ammonia in either of the two forms anhydrous or in apueous solution. Heading 28.14 of CETA 85 is aligned to HSN, Chapter 28, which classifies both under different sub-headings.
7. Further, the usage of the punctuation mark “comma” in the heading description leads one to presume and quite fairly that the duty is supposed to be charged on the chemical “Ammonia”, in either of the two forms regard in the heading. The basic premise remains that since duty is indicated to be levied on “ammonia”/ the conversion of one of the forms to the forms to the other would not appear to amount to “manufacture” under Section 2(f) of CEA, 1944, moreso, in the absence of any chapter note/ section note indicating the same. Further, Chapter note 1(b) doesn”t throw any light to substantiate the claim that the aforesaid process amount to manufacture sine the same only indicates that the Chapter also covers products dissolved in water and which even in the instant case is not disputed since NH4OH has been specifically defined under Heading 28.14. Technically also, adding of water to a particular substance by any stretch of imagination could not be treated as a process amounting to manufacture.
8. It is further observed that all that is happening is that a method is being applied for transportation of the goods. There are many methods of transportation of goods. In the case of LPG for example, which is commonly used in house-holds, the gas is filled in the Cylinder under pressure and in that circumstances it is in liquid form. It is only when the pressure is removed for cooking purposes that it emerges as a gas. No duty is charged on the LPG in gas form and then in liquid form. The Board is of the view that the analogy applies here. At the despatch end the gods are in the from of gas (Anhydrous Ammonia) and at the receiving end also it emerges in the same form.
9. Under the circumstances and in view of the earlier decision of 1986 of CCE, Mumbai -III and the case law on the subject, the Board has taken the view that no “manufacture” takes place in the said process. Accordingly it is clarified that the process of conversion of anhydrous ammonia into apueous ammonia does not amount to “manufacture” within the meaning of Section 2(f) of the Central Excise Act, 1944 and if the anhydrous ammonia is duty paid no further duty is payable on the aqueous solution.
10. All pending disputes/ assessments on the issue may be settled in the light of these guidelines.