Full Judgment Text
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Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.3169 OF 2009
[Arising out of SLP(C) No.5861/2007]
Jai Bhagwan Oil & Flour Mills … Appellant
Vs.
Union of India & Ors. … Respondents
J U D G M E N T
R.V.RAVEENDRAN, J.
Leave granted. Heard counsel.
2. By notification dated 23.7.1971 the Government of India formulated a
‘Transport Subsidy Scheme’ for grant of subsidy on the transport of raw
materials and finished goods to and from certain selected areas with a view to
promote growth of industries in such areas. Clause 6 contains the details of the
Scheme. Sub-clause (i) thereof provided that “a transport subsidy will be given
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to the industrial units located in selected areas in respect of raw materials which
are brought into and finished goods which are taken out of such areas .” Sub-
clause (iv) specified the north-eastern region including the State of Assam as
one of the selected areas to which the scheme was made applicable. Sub-clause
(xii) required the State Government to set up a Committee consisting of
Director of Industries, a representative of the State Industries Department, a
representative of the State Finance Department, and a nominee of the Central
Government (Ministry of Industrial Development), to scrutinize and settle all
claims for transport subsidy arising in the State. The said Committee was
required to call upon the applicants for subsidy, to provide proof of raw
materials imported into the State and finished goods exported out of the State
by their industrial units, to decide their eligibility for transport subsidy. The
Committee was also required to scrutinize and settle the claims in the manner
indicated in the scheme. The words ‘industrial unit’, ‘raw material’ and
‘finished goods’ were defined in sub-clauses (a), (h) and (i) of clause (4) of the
scheme, as follows :-
“(a) ‘Industrial Unit’ means an industrial unit where a manufacturing
programme is carried on.
(h) ‘Raw material’ means any raw material actually required and used by
an industrial unit in its manufacturing programme as approved by the
Government of India and/or by the Government of State/Union Territory in
which the industrial unit is located.”
(i) ‘Finished goods’ means the goods actually produced by an industrial
unit in accordance with the manufacturing programme approved by the
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Government of India and/or the Government of the State/union Territory in
which the industrial unit is located.”
3. The appellant claimed that it has its industrial unit at Tinsukia, Assam;
that it was engaged in the manufacturing activity of crushing mustard seeds and
producing two distinct products namely mustard oil and oil cake, as finished
goods; and that it was registered under the transport subsidy scheme, after
verification as provided in the Scheme. It was also claimed that crushing of
mustard seeds yielded 30-34% mustard oil and 60-64% oil cake, each product
having a separate identity and different markets.
4. The appellant made several claims for grant of transport subsidy in
respect of raw materials, oil cake and oil, from time to time. According to
appellant, after giving credit to Rs.5,88,421/- released as subsidy, the amount
due towards subsidy claim till August, 1993, was Rs.58,44,531/-. As there was
inordinate delay in settling the claims, the appellant filed a writ petition in the
year 1996, seeking a direction for release of the said transport subsidy amount.
The said writ petition was disposed of on 15.5.1996 with a direction to
scrutinize appellant’s claim and if found eligible, disburse the amount.
The State Government scrutinized and recommended to the Government of
India, the release of Rs.58,44,531 as transport subsidy to the appellant. On
18.6.1997, the Government of India sanctioned and released Rs.44,14,922 as
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transport subsidy as against the recommended claim of Rs.58,44,531. On
14.7.1997 the Government of India issued a clarification that the transport
subsidy under the said scheme would not be applicable in regard to oil cake as it
was only a by product. Aggrieved by the disallowance of transport subsidy for
oil cake, appellant filed another writ petition (C.R. No.376/1997) for release of
subsidy in respect of oil cake, as sanctioned by the State Level Committee. A
learned Single Judge of the Guwahati High Court by order dated 4.10.1982
rejected the writ petition. The writ appeal filed by the appellant was also
dismissed on 27.10.2008. The said order is challenged in this appeal.
5. The learned Single Judge and the Division Bench have held that the term
‘finished goods’ used in the Scheme would not include oil cake, which was
only a by-product or waste produced while manufacturing mustard oil; and
transport subside was available only in regard to the finished product intended
to be produced by the process of manufacture, which in this case was mustard
oil. The High Court held that ‘finished goods’ refers to goods produced in an
industrial unit by a process of manufacture and “manufacture” means
production of an item distinct and different from the raw material, having a
separate identity; and that the appellant had failed to place before the court
necessary material to explain (i) the process and technology in the manufacture
of oil cake; (ii) the composition of the oil cake; (iii) the purpose and use of oil
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cake; and (iv) the product name in the market and the marketability of oil cake
as a finished goods. The High Court held that in the absence of such material, it
will not be possible to decide whether ‘oil cake’ was a ‘finished goods’ for the
purpose of the Scheme, or merely the residuary waste generated as a by-product
while producing mustard oil as the finished goods.
6. We are of the considered view that the learned single Judge and the
Division Bench missed the real issue. The question was not whether oil cake
was a by-product or not. There are several manufacturing processes which yield
or produce more than one finished product or manufactured item. When
considering whether the ‘finished goods’ is a marketable product, distinct and
different from the raw material from which it is produced, the fact that the
finished goods is the main product, or is a parallel main product or is a by-
product of the manufacturing process, may not make any difference. The
question to be considered is whether oil cake can be said to be a ‘finished
goods’ produced by an industrial unit in accordance with its manufacturing
programme approved by the state government.
7. The object of the Transport Subsidy Scheme is not augmentation of
revenue, by levy and collection of tax or duty. The object of the Scheme is to
improve trade and commerce between the remote parts of the country with
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other parts, so as to bring about economic development of remote backward
regions. This was sought to be achieved by the Scheme, by making it feasible
and attractive to industrial entrepreneurs to start and run industries in remote
parts, by giving them a level playing field so that they could compete with their
counterparts in central (non-remote) areas. The huge transportation cost for
getting the raw materials to the industrial unit and finished goods to the existing
market outside the side, was making it unviable for industries in remote parts of
the country to compete with industries in central areas. Therefore, industrial
units in remote areas were extended the benefit of subsidized transportation. For
industrial units in Assam and other north-eastern States, the benefit was given
in the form of a subsidy in respect of a percentage of the cost of transportation
between a point in central area (Siliguri in West Bengal) and the actual location
of the industrial unit in the remote area, so that the industry could become
competitive and economically viable. So when the Scheme refers to finished
goods coming out of or being exported from the State (remote area), it refers to
any goods manufactured or produced by an industrial unit in the State in
accordance with the manufacturing programme approved by the central
government and/or the state government. So long as the goods coming out is
something identifiable, something which has undergone a process of
manufacture, something which is marketable and tradable as a commodity,
something that is completely different and distinct from raw material as a
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product, something that was intended to be a definite product of manufacture by
the industrial unit, the product had to be considered as ‘finished goods’ from the
industrial unit. Any goods which goes in as a raw material required/used in the
manufacturing programme of an industrial unit situated in a notified remote
area, or any finished goods that is produced in the industrial unit situated in
such area and exported out of the State, was eligible for the transport subsidy
under the scheme.
8. The scheme itself specifically defines ‘finished goods’ as goods actually
produced by an industrial unit in accordance with the manufacturing
programme as approved by the Central Government and/or the Government of
the State where the industrial unit is located. Two certificates issued by the
State Government (District Industries Centre, Dibrugarh) dated 13.11.1987 and
28.8.1992 clearly state that oil cake was produced by the appellant’s industrial
unit in accordance with its manufacturing programme from 1984 and the
appellant’s industrial unit was engaged in the production of two products -
mustard oil and oil cake. It was further certified that the appellant was capable
of manufacturing, with its existing machinery, 1440 MT of mustard oil and
2880 MT of oil cake. Further, the State Level Committee formed under the
scheme and the State Government have consistently opined that oil cake was
finished goods, entitled to transport subsidy. Until the Central Government gave
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a clarification on 14.7.1997 stating that oil cake should not be treated as a
finished goods for the purpose of subsidy, the State Level Committee, State
Government as also the Central Government had proceeded on the basis that oil
cake was finished goods eligible for transport subsidy. It is not disputed that the
transport subsidy had been sanctioned and disbursed in regard to oil cake
produced by other industrial units in the notified remote areas. The position was
explained in the following communication dated 7.2.2005 from the Government
of Assam (Directorate of Industries & Commerce) to the Ministry of Commerce
and Industry, Government of India:
“Government of Assam agrees to the fact that in crushing of mustard seeds
oil cake is a finished product as it constitutes 64% whereas mustard oil
percentage is 32% (4% loss in manufacturing process). If oil cake is not
considered eligible for transport subsidy the oil mills/mustard seed
crushing units will not be economically viable and the purpose of the
transport subsidy scheme will be defeated as the units located in Assam
will not be able to compete with similar units located outside north
eastern region. Accordingly State Level Committees at different
dates/meetings approved the claims for import of Mustard Seeds (RM) and
export of oil cake as finished product as eligible for transport subsidy.”
(emphasis supplied)
9. In spite of the above, the High Court denied the benefit on the ground
that the appellant had failed to place relevant material to establish the
process/technology of manufacture, the composition and product name, and
purpose, use and marketability of the oil cake, so as to recognize it as a
‘finished goods’. What is contained in reference works/technical Journals, or
well known in trade/industrial circles, need not be established by independent
‘evidence’. It is well known that oil cake is the coarse solid residue obtained
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when oil is extracted from various types of oil seeds like peanuts, soyabeans,
linseed, mustard, sesame and sunflower seeds. Oil cake is produced not only in
oil mills/industries, but also in village level Ghanis . The standard
preservation/detoxification procedure for oil cakes is sun-drying, controlled
mechanical heating or by chemical processing. Oil cake is rich in proteins and
minerals and commonly used as cattle feed and poultry feed. Oil cake
containing toxic elements (as for example oil cake from castor beans) is used as
fertilizer. Oil cake has a wide ready market. It is bulk-purchased by
cattle/poultry feed manufacturers who grind it and mix it with other feed
articles to make cattle/poultry feed. Farmers and owners of cattle/poultry
purchase it in retail, break it or grind it and feed them to cattle/poultry, with or
without additives. It is also used as boiler fuel in some areas. Serious research is
in progress to make it fit for human consumption. The name, method of
manufacture, uses and marketability are well known in trade, industrial,
agricultural and village circles. When any reference book can authenticate these
facts within common knowledge, the High Court was not justified in rejecting
the claim on the ground that special evidence in regard to these aspects was not
placed.
10. The true test to ascertain whether a process is a manufacturing process
producing a new and distinct article is whether the article produced is regarded
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in the trade, by those who deal in it, as a marketable product distinct in identity
from the commodity/raw material involved in the manufacture. (See Deputy
Commissioner of Sales Tax (Law), Ernakulam v. Pio Food Packers – 1980
Supp. (1) SCC 174 and Sterling Foods v. State of Karnataka – 1986 (3) SCC
469). When mustard oil and oil cake are produced from mustard seeds, it is a
process of manufacture. It is certainly not a mere process of cleaning, repairing,
reconditioning, recycling or assembling. A new marketable article distinct from
the raw material, emerges when oil cake is produced from oil seeds. In this
context, we may refer to the century old decision in Dean Linseed Oil Co . v.
United States [78 (1897) Federal Reporter 467] relating to availment of customs
duty drawback. A provision of a Tariff Act provided that where imported
materials, on which duties have been paid, are used in the manufacture or
production of articles in the United States, there shall be allowed on the
exportation of such articles, a drawback equal in amount to the duties paid on
the material used, less one per centum of such duties. The issue before the
American court was whether production of oil cake from linseed, by separation
of linseed into linseed oil and oil cake, was manufacture entitled to the benefit
of duty drawback. The court answered the question by the following brief but
classic analysis:
“…..the linseed was not oil cake, and did not contain oil cake, as such.
The linseed had to be treated, and from this treatment the linseed oil was
produced as one thing, and this oil cake as another thing. The oil cake was
made from the linseed, and was a new article of manufacture.”
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We may also refer to the decision in Devi Das Gopal Krishnan v. State of
Punjab [1967 (3) SCR 557], where this Court negatived the contention that
when oil is extracted from oil seeds, oil was produced and not manufactured.
This Court held that ‘when oil is produced out of the seeds, the process
certainly transforms raw material into a different article for use”. What is stated
about oil produced from oil seeds, will apply equally to the other product of the
manufacturing process, namely oil cake.
11. There can therefore be no doubt that when mustard seeds are subjected to
the process of extraction whereby mustard oil and oil cake are produced, the
process involves manufacture of mustard oil as also the manufacture of oil cake.
Oil cake is a distinct and different entity from mustard seeds and it has a
separate name, character and use different from mustard seed. Oil cake is not a
waste to be thrown away, but a valuable product with a distinct name, character,
use and marketability. There can thus be no doubt that the oil cake was a
finished goods eligible for transport subsidy, until it was specifically excluded
by the central government in the year 1997. We are not however concerned
with the validity or correctness of such exclusion from 1997, in this case.
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12. We therefore allow this appeal, set aside the orders of the Division Bench
and single judge of the High Court and allow the writ petition before the High
Court by declaring that oil cake is ‘finished goods’ for the purpose of transport
subsidy scheme and consequently the appellant was entitled to the subsidy.
Respondents are directed to verify and release the subsidy amount due to the
appellant in regard to oil cake exported out of the State. Compliance within six
months.
…………………………J.
(R V Raveendran)
New Delhi; ………………………..J.
May 4, 2009. (Harjit Singh Bedi)