Full Judgment Text
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CASE NO.:
Appeal (civil) 2113 of 1998
PETITIONER:
M/s. Tega India Ltd.
RESPONDENT:
Commissioner, Central Excise, Calcutta-II
DATE OF JUDGMENT: 10/02/2004
BENCH:
S. N. VARIAVA & H. K. SEMA.
JUDGMENT:
JUDGMENT
S. N. VARIAVA, J.
This Appeal is against the Judgment dated 31st December, 1997
passed by the Customs, Excise & Gold (Control) Appellate Tribunal,
New Delhi (for short CEGAT).
Briefly stated the facts are as follows:
The Appellants carry on the business of fixing rubber linings on pipes,
tanks and other such articles. The articles were supplied to them by
their customers. They fixed the lining and returned the articles. They
were issued a show-cause-notice claiming that they were
manufacturing dutiable goods and that they were not declaring the
correct value inasmuch as the value of the articles supplied to them
and the packing, forwarding charges and rubber lining charges had not
been included in the assessable value. The Appellants’ reply was
accepted and the Assistant Collector dropped the show-cause-notice.
The Department preferred an Appeal to the Collector (Appeals).
The Appeal was allowed by the Collector (Appeals). The Appellants
filed an Appeal to CEGAT which has been dismissed by the impugned
order.
The question for consideration is whether a new and marketable
product having a distinct name, character and use could be said to
have come into existence as a result of the process undertaken by the
Appellants.
In the case of U. O. I. vs. D.C.M. reported in 1977 E.L.T. (J 199),
a Constitution Bench of this Court held that manufacturing of
Vanaspati from raw oil did not amount to manufacture of a new
product. It was inter alia observed as follows:
"14. The other branch of Mr. Pathak’s argument is that
even if it be held that the respondents do not manufacture
"refined oil", as is known to the market they must be held
to manufacture some kind of "non-essential vegetable oil"
by applying to the raw material purchased by them, the
processes of neutralization by alkali and bleaching by
activated earth and/or carbon. According to the learned
Counsel "manufacture" is complete as soon as by the
application of one or more processes, the raw material
undergoes some change. To say this is to equate
"processing of manufacture" and for this we can find no
warrant in law. The word "manufacture" used as a verb is
generally understood to mean as "bringing into existence a
new substance" and does not mean merely "to produce
some change in a substance." however minor in
consequence the change may be. This distinction is well
brought about in a passage thus quoted in Permanent
Edition of Words and Phrases, Vol. 26, from an American
Judgment. The passage runs thus :-
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"Manufacture implies a change, but every
change is not manufacture and yet every change of
an article is the result of treatment, labour and
manipulation. But something more is necessary and
there must be transformation; a new and different
article must emerge having a distinctive name,
character and use."
In the case of Indian Hume Pipe Co. Ltd. vs. Collector of Central
Excise reported in 1990 (45) E.L.T. 457 (Tribunal), the question was
whether lining and coating steel pipes with cement amounted to
changing the character of the pipes and bringing into existence a new
product. CEGAT relied upon a Circular issued by the Central Board of
Excise and Customs, which held that cement mortar coating would not
amount to manufacture. It also took note of the tariff item and held
that the tariff item made no distinction between coated and uncoated
pipes. On this basis it is held that by the process of coating a new
product had not come into existence.
In the case of Lathia Industrial Supplies Co. Pvt. Ltd. vs.
Collector of Central Excise reported in 1987 (29) E.L.T. 751 (S.C.), this
Court has held that rubberizing or relining of old and used rollers does
not amount to manufacture. Similarly, in the case of Telangana Steel
Industries vs. State of A.P. reported in 1994 (Vol. 93) Sales Tax Cases
(S.C.), the question was whether wires drawn from duty paid wire rods
were different commodities. This Court noted the tariff item and
observed that the tariff item made no difference between wire rods
and wires whether they were rolled, drawn, galvanized, aluminized,
tinned or coated. This Court held that as both wire rods and wires
form part of the same tariff item they could not be taken as different
commodities for the purpose of assessment of sales tax. On this basis
it was held that the two were not different commodities for the
purposes of sales tax. An identical view has also been taken by this
Court in the case of Collector of Central Excise vs. Technoweld
Industries reported in 2003 (155) E.L.T. 209 (S.C.), wherein this Court
has held that wires drawn from duty paid wire rods were not a
different product and that they were not excisable even though they
fell under two separate entries.
In the case of Commissioner of Sales Tax vs. Lal Kunwa Stone
Crusher (P) Ltd. reported in (2000) 3 SCC 525, this Court has held
that chips, gitti and stone ballast obtained by crushing stone pipes
continued to be stone and that they did not become a separate
commodity or item.
The above authorities reiterate the well established law that
Circulars issued by the Central Board of Excise & Customs are binding.
The law also is that if a tariff item makes no difference between coated
and uncoated goods then the mere process of coating would not
amount to manufacture of some new commodity. Merely because
some extra process is carried on the product would not by itself mean
that a new item has come into existence.
In this case the tariff item reads as follows:
"Heading Sub- Description of goods Rate of duty
No. Heading
No.
(1) (2) (3) (4)
73.03 7303.00 Tubes, pipes and hollow Rs. 100
profiles, of cast iron per tonne
73.04 Tubes, pipes and hollow
profiles, seamless, of iron
(other than cast iron) or
steel
7304.10 - Of iron Rs. 100
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per tonne
7304.90 - Other Rs. 1,500
per tonne "
Thus it is to be seen that the tariff item makes no distinction between
coated and uncoated tubes, pipes etc. The Board had in June 1988
issued a Circular clarifying that the process of guniting i.e. cement
mortar coating on the outside did not amount to manufacture of a new
product. By another Circular dated 9th February, 1994 the Board has
also clarified that galvanized pipes and tubes continued to be covered
by the expression Tubes and Pipes and galvanization does not amount
to manufacture.
So far as the Appellants are concerned they are merely fixing,
rubberizing and painting pipes etc. which are supplied to them by their
customers. Of course, some times in order to do the above work they
have to cut the pipes and then weld them with flanges in order to
restore the pipes to its original length. But, in our view, no process of
manufacture has been undertaken and no new commodity has come
into existence.
We are therefore unable to uphold the view taken by the
Collector (Appeals) and the CEGAT. The Orders passed by these
authorities are set aside. The Appeal is accordingly allowed. There
will be no order as to costs.