Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5
PETITIONER:
THE GRAMOPHONE CO. OF INDIA LTD.
Vs.
RESPONDENT:
THE COLLECTOR OF CUSTOMS, CALCUTTA
DATE OF JUDGMENT: 25/11/1999
BENCH:
S.P.Bharucha R.C.Lahoti, N.Santosh Hegde
JUDGMENT:
----------------
R.C. Lahoti, J.
The appellant is a company engaged in manufacturing
electronic goods. It is a scheduled industry under the
First Schedule of the Industrial (Development and
Regulation) Act, 1951. One of the products of the appellant
company is pre-recorded audio cassettes which is excisable
under Chapter Heading 8524.22 of the Central Excise Tariff
Act, 1985 which reads as ‘audio cassettes’. Though the
appellant is not required to pay central excise duty on pre-
recorded cassettes by virtue of exemption provided by
Notification No.117/90 dated 16.5.90 nonetheless it files
classification lists in respect of such pre-recorded audio
cassettes consistently with the statutory obligation cast on
the appellant. Under the industrial licence granted to the
appellant by the Government of India in the year 1977 for
manufacture of pre-recorded audio cassettes the licensed
capacity as endorsed was 1.2 million pre-recorded cassettes
per annum. The capacity was increased from time to time by
expanding the same under the licences issued by the
Government of India. In April 1987 the existing capacity of
the appellant company was 10 million audio cassettes which
was permitted by the Government of India to be increased to
30 million pre-recorded audio cassettes per annum.
The appellant placed two orders respectively dated
6.11.1989 and 21.12.1989 on M/s Audiomatic Corporation, New
York for import of tape to tape sound transfer equipment and
electric sound E.S.1850 cassette loaders and spare parts.
In exercise of the power conferred by sub-section (1)
of Section 25 of the Customs Act, 1962 on 26.11.1983 the
Government of India issued a notification granting an
exemption from payment of customs duty on goods falling
under Heading No. 98.01 of the First Schedule to the
Customs Tariff Act, 1975 when imported into India for the
initial setting up of an industrial unit for the manufacture
of electronic equipment or the substantial expansion of an
existing industrial unit manufacturing electronic items.
Heading No.98.01, referred to in the abovesaid
notification reads ad under:-
98.01 9801.00 All items of machinery including prime
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5
movers, instruments, apparatus and appliances, control gear
and transmission equipment, auxiliary equipment including
those required for research and development purposes,
testing and quality control) as well as all components
(whether finished or not) or raw materials for the
manufacture of the aforesaid items and their components
required for the initial setting up of a unit or the
substantial expansion of an existing unit, of a specified:
(1) industrial plant, xxx xxx xxx
and spare parts, other raw materials (including
semi-finish material) or consumable stores not exceeding 10%
of the value of the goods specified above provided that such
spare parts, raw material or consumable stores are essential
for the maintenance of the plant or project mentioned in 1
to 6 above."
In view of Chapter 98 Heading No.98.01 of the First
Schedule to the Customs Tariff Act, 1975 and the Exemption
Notification No.315/83, the import contract has to be
registered under clause 5 of the Projects Import
Regulations, 1986 (hereinafter ‘Regulations’, for short).
The appellant moved two applications before the Assistant
Collector of Customs, Calcutta for the registration of the
two contracts referred to hereinabove. The applications
were accompanied by the requisite certificates from the
Department of Electronics, Government of India certifying
that the goods intended to be imported were required for
effecting substantial expansion of the appellant’s industry.
By order dated 20.2.1990 the Assistant Collector of Customs
refused to register the appellant’s contract dated
6.11.1989. Appeals preferred successively before the
Collector (Appeals) and Central Excise Gold Control and
Appellate Tribunal having failed, the aggrieved appellant
has come up to this Court filing this appeal under Section
130-E of the Customs Act.
A perusal of the order of the Tribunal dated 17.9.1990
shows that in the opinion of the Tribunal the appellant
industry was engaged in the activity of duplicating music
recorded on audio cassettes which was a service activity
akin to photo-processing industry and could not be called a
manufacturing activity and therefore the appellant was not
entitled to have the contract registered under Project
Import Regulation, 1986.
The sole question arising for decision is whether the
activity in which the appellant is engaged amounts to a
process necessary for manufacture or production of a
commodity or its activity is designed merely to offer
services of any description.
Paras 3, 4 and 5 of Project Import Regulations, 1986
which are relevant for the decision of this appeal are
extracted and reproduced hereunder:-
3. Definitions - For the purposes of these
regulations :
(1) "industrial plants" means an industrial system
designed to be employed directly in the performance of any
process or series of processes necessary for manufacture,
production or extraction of a commodity, but does not
include -
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5
(i) establishment designed to offer services of any
description such as hotels, hospitals, photographic studios,
photographic film processing laboratories. photocopying
studios, laundries, garages and workshops; or
(ii) a single machine or a composite machine, within
the machine assigned to it, in Notes 3 and 4 to Section XVI
of the said First Schedule;
4. Eligibility - The assessment under the said
heading No.98.01 shall be available only to those goods
which are imported (whether in one or more than one
consignment) against one or more specific contracts, which
have been registered with the appropriate Customs House in
the manner specified in regulation 5 and such contract or
contracts has or have been so registered.
5. Registration of contracts. (1) Every importer
claiming assessment of the goods falling under the said
heading No.98.01 on or before their
importation shall apply in writing to the proper
officer at the port where the goods are to be imported or
where the duty is to be paid for registration of the
contract or contracts as the case may be."
It is not disputed that the machine forming subject
matter of the contract in question enables duplicating of
audio cassettes from the mother cassette. The mother
cassette is loaded in the machine and on being operated the
machine multiplies the audio recording on several audio
cassettes of a specified number at a high speed. The blank
audio cassettes are converted into pre-recorded audio
cassettes. This activity is systematically carried on large
scale and such pre-recorded audio cassettes are offered in
bulk sale to the traders who in turn offer the same for sale
to consumers. According to the appellant the various
activities involved in the manufacture of a pre-recorded
audio-cassette are as under:
(i) Preparation of a master tape in the studio;
(ii) Manufacture of plastic cassettes parts, like
cassette body, leather case, etc. from plastic raw material
with the help of injection moulding facility;
(iii)Assembly of cassette parts to make a C-O tape;
(iv) High Speed transfer of music signals from 1/2"
master tape to 1/8" pancakes;
(v) Assembly of recorded pancakes into cassettes;
(vi) Polymeric plate making for printing machines;
(vii)Printing of information on cassette body;
(viii) Printing of inlay cards;
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5
(ix) testing and cellowrapping of the finished
cassettes.
The machines which were the subject of the Contract
dated 6.11.1989 were required for the 4th mentioned item,
namely, high speed transfer of music signals from 1/2"
Master Tape to 1/8" pancakes.
The term ‘manufacture’ is not defined in the Customs
Act. In the allied Act, namely the Central Excise Act, 1944
also, the term ‘manufacture’ is not to be found defined
though vide clause (f) of Section 2 an inclusive definition
is given of the term ‘manufacture’ so as to include certain
processes also therein.
‘Manufacture’ came up for the consideration of
Constitution Bench in M/s Ujagar Prints Vs. Union of India
1988 (38) ELT 353 SC. It was held that if there should come
into existence a new article with a distinctive character
and use, as a result of the processing, the essential
condition
justifying manufacture of goods is satisfied. The
following passage in the Permanent Edition of "Words and
Phrases" was referred to with approval in Delhi Cloth and
General Mills AIR 1963 SC 791, 795 :-
"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 or use."
In a series of decisions [to wit, Decorative Laminates
(India) Pvt.Ltd. - (1996) 88 ELT 186, Union of India Vs.
Parle Products Pvt. Ltd. - (1994) 74 ELT 492, Laminate
Packing (P) Ltd. - 1990 (49) ELT 326, Empire Industries
Limited - (1985) 20 ELT 179] the view taken consistently by
this Court is that the moment there is transformation into a
new commodity commercially known as a distinct and separate
commodity having its own character, use and name whether it
be the result of one process or several processes,
manufacture takes place; the transformation of the goods
into a new and different article should be such that in the
commercial world it is known as another and different
article. Pre-recorded audio cassettes are certainly goods
known in the market as distinct and different from blank
audio cassettes. The two have different uses. A pre-
recorded audio cassette is generally sold by reference to
its name or title which is suggestive of the contents of the
audio recording on the cassette. The appellant is indulging
in a mass production of such pre-recorded audio cassettes.
It is a manufacturing activity. The appellant’s activity
cannot be compared with a person sitting in the market
extending facility of recording any demanded music or sounds
on a blank audio cassette brought by or made available to
the customer, which activity may be called a service. The
Tribunal was not right in equating the appellant’s activity
with photo-processing and holding the appellant a service
industry.
For the foregoing reasons we are of the opinion that
the Assistant Collector of Customs, Calcutta was not
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5
justified in rejecting the appellant’s application for
registration of the contract dated 6.11.1989 on the ground
on which it did. The impugned orders of the Assistant
Collector, the Collector (Appeals) and the Tribunal
respectively dated 20.2.1990, 6.3.1990 and 17.9.1990 are set
aside. The appellant’s application is restored on the file
of Assistant Collector of Customs, Calcutta who shall
expeditiously hear and dispose of the appellant’s
application afresh treating the appellant’s activity as a
manufacturing activity. No order as to the costs.