Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 10
CASE NO.:
Appeal (civil) 7814-7817 of 2004
PETITIONER:
Commissioner of Central Excise,Hyderabad-II.
RESPONDENT:
M/s Aldec Corporation & Others
DATE OF JUDGMENT: 26/09/2005
BENCH:
B.P. SINGH & S.H. KAPADIA
JUDGMENT:
J U D G M E N T
KAPADIA, J.
The issue involved in these civil appeals under section
35L(b) of Central Excise Act, 1944 is \026 whether on the facts
and circumstances of the case, the Commissioner was right in
holding that the fragmented activities of M/s Aldec
Corporation, M/s Vitthaleshwara Painting Industries (VPI) and
M/s Srinivasa Rolling and Engineering Works (SREW) taken
individually or jointly resulted in "manufacture" of a separate,
independent and distinct identifiable product namely, painted
aluminium slat (PAS) for venetian blinds classifiable under
chapter sub-heading 7616.90.
On 8.11.1994, while patrolling, officers of Central
Excise, Hyderabad inspected an auto-trolley bearing
registration No.AHT-8500. On verification of the goods, being
transported by the above trolley and on verification of
documents produced by the driver, the officers found that the
goods in transit were PAS for venetian blinds. The officers
found that the goods in transit did not suffer excise duty and
accordingly, they seized the vehicle on a reasonable belief that
the goods in transit were excisable goods under chapter sub-
heading 7616.90. On 9.11.1994, as a follow-up of the seizure,
the officers visited the premises of M/s Aldec Corporation and
also premises of M/s VPI and M/s SREW under the authority of
the search warrant. As a follow-up, the department issued
show-cause notice on 27.3.1995 alleging purchase of
aluminium sheets from M/s Hindalco Industries Ltd. and paint
from M/s Goodlass Nerolac Paints Ltd., which, the department
alleged, was being used in the manufacture of PAS for venetian
blinds measuring 50mm x .23 mm and 25 mm x .23 mm,
running into mill length (over 100 ft.). According to the show
cause notice, M/s Aldec Corporation bought aluminium sheets
in coil form measuring 472 mm x 2.03 mm and in turn
forwarded the said aluminium sheets to M/s VPI (job processor)
which in turn forwarded the aluminium sheets to SREW (job
processor) for slitting and re-rolling the above sheets into slats
of 50 mm x .23 mm and 25 mm x .23 mm running into more
than 100 ft. M/s SREW thereafter returned back the slats to
VPI who after painting the slats returned them back to M/s
Aldec Corporation which then sold the said PAS as trader in the
market. These PAS were used in the manufacture of venetian
blinds. According to the show-cause notice, M/s Aldec
Corporation paid excise duty on the aluminium sheets bought
from M/s Hindalco under tariff item 76.06. According to the
show-cause notice, the department had examined the documents
seized including balance-sheets and on that basis, it was alleged
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 10
that M/s Aldec Corporation had paid excise duty under tariff
item 76.06 on behalf of so-called job processors, M/s VPI and
M/s SREW. According to the show-cause notice, M/s Aldec
Corporation had paid excise duty which was passed on to the
customers in the past and on obtaining refund from the
department in the name of M/s VPI and M/s SREW, M/s Aldec
Corporation refunded the amounts received from the
department to its customers. According to the show-cause
notice, M/s Aldec Corporation had two partners by the name,
Vinay Asar and Harish Asar, whose father Vallabdas
Purushottamdas Asar was a partner of a firm M/s Sunder Das &
Co. According to the show-cause notice, M/s Sunder Das &
Co. had let out the premises to M/s Aldec Corporation. On
behalf of M/s Sunder Das & Co., lease was signed by Vallabdas
Asar as lessor whereas the lease-deed was signed by Vinay
Asar as partner of M/s Aldec Corporation (lessee). There was
also an agreement between M/s Sunder Das & Co. and M/s
VPI. There was also an agreement between Sunder Das & Co.
and M/s SREW. Both these agreements were for supply of
power, lighting and water to M/s VPI and M/s SREW.
According to the show-cause notice, the work assigned to M/s
VPI & M/s SREW was to convert aluminium sheets measuring
472 mm x 2.03 mm into 50 mm x .23 mm thickness and 25 mm
x .23 mm thickness. It was further alleged that M/s SREW
collected job work charges not from M/s Aldec Corporation but
from M/s VPI for the work of re-rolling and slitting. In the
light of the aforestated circumstances, the department alleged
that the entire control of all the aforestated activities vested in
M/s Aldec Corporation and with the intention to evade excise
duty, M/s Aldec Corporation called itself a "trader" and called
M/s SREW and M/s VPI as job processors. According to the
show-cause notice, M/s Aldec Corporation was not a trader;
that it was in fact a processor and that M/s Aldec Corporation
had resorted to the aforestated modus operandi with the
intention to evade excise duty by fragmenting the aforestated
different and distinct activities which if taken together resulted
in the manufacture of an independent identifiable product,
namely, painted aluminium slat (PAS), classifiable as a separate
article under chapter sub-heading 7616.90. From the show-
cause notice, one finds that in the year 1986, M/s VPI was
asked by the Superintendent to apply for Central Excise
Licence and to follow central excise procedures. Being
aggrieved, M/s VPI had filed a writ petition in the High Court
of Andhra Pradesh. That writ petition was disposed-of on
10.6.1987 directing M/s VPI to approach the collector. Similar
immunity was also claimed by M/s SREW. The collector
upheld the contentions of M/s VPI and M/s SREW holding that
painting of aluminium sheets did not amount to "manufacture".
The additional collector also came to the conclusion that the
slitting of aluminium sheets did not amount to "manufacture".
Consequently, the additional collector took the view that the
aluminium sheets remained under tariff item 27(6) and there
was no new article produced or manufactured from such
aluminium sheets as a result of slitting and painting so as to fall
under tariff item 68 (as it then stood). However, under the
impugned show-cause notice, the department contended that in
the earlier proceedings, notices were given only to M/s VPI and
to M/s SREW; that no notice was given to M/s Aldec
Corporation; that the earlier proceedings focussed on individual
activity of slitting and the individual activity of painting; that
the various different stages through which the original sheets
had undergone different processes at the behest of M/s Aldec
Corporation was not examined by the department; and that the
department had proceeded on the basis that M/s VPI and M/s
SREW were independent job processors. According to the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 10
department, in the present case, on examination of the
documents and from subsequent recovery, the department
found that M/s Aldec Corporation was the processor and that
M/s VPI and M/s SREW were only its workmen/labourers and,
therefore, the impugned show-cause notice had called upon M/s
Aldec Corporation to show-cause why the above
activity/process taken together should not be treated as
"manufacture", both on first principles as well as under section
2(f) of the said Act, 1944. The impugned show-cause notice,
therefore, did not accept M/s Aldec Corporation as a trader but
as a job processor/manufacturer. In the circumstances, the
show-cause notice, in the present case, has alleged violation of
rule 174 of Central Excise Rules, 1944 read with section 6 of
the said Act, 1944. By the said show-cause notice, the
department has called upon M/s Aldec Corporation to pay duty
amounting to Rs.1.51 crores (approximately) for the period
April 1990 to October 1994. A similar show-cause notice was
also issued by the department on 5.7.1995 for recovery of an
amount of Rs.9.57 lacs (approximately) for the period
December 1994 to April 1995. According to the show-cause
notice, the aluminium sheets bought by M/s Aldec Corporation
from M/s Hindalco was ten times thicker than the slats. The
value of the slat was Rs.230/- per kg. and that these slats were
sold to different buyers whose names find place in the order of
the Commissioner.
In reply to the show-cause notice, M/s Aldec Corporation
submitted that the basis of the show-cause notice was erroneous
because it ignored the previous binding orders of the additional
collector and the commissioner (appeals) stating that the
activities carried by M/s VPI and M/s SREW did not amount to
"manufacture". It was contended that M/s Aldec Corporation
was a trader in aluminium strips in the coil form and that the
department was always aware of its activities as a trader.
According to M/s Aldec Corporation, there was no difference
between tariff item 27(6) and tariff item 68 (which existed prior
to 28.2.1986) on one hand and tariff item 76.06 as well as
chapter sub-heading 7616.90 under the Central Excise Tariff
Act, 1985 on the other hand and, therefore, the decision
taken by the department in 1986 was irreversible. In the reply,
M/s Aldec Corporation contended that M/s VPI and M/s SREW
were job processors, which position was accepted by the
department in its earlier decisions in 1986/1987 and, therefore,
it was not open to the department in the year 1995 to contend
that the slats were now classifiable under sub-heading 7616.90.
According to M/s Aldec Corporation, the business of the
corporation was trading and, therefore, it was not required to
obtain licence or registration under the Central Excise Act,
1944. According to M/s Aldec Corporation, the department had
accepted that the activities of M/s VPI and M/s SREW were
non-manufacturing activities and in fact refunds were
sanctioned in favour of these units and, therefore, it was not
open to the department now to allege evasion of excise duty by
M/s Aldec Corporation, as indicated in the show-cause notice,
w.e.f. April 1990. M/s Aldec Corporation, therefore, submitted
that they were traders of aluminium strips in the form of coils
and, therefore, there was no question of payment of excise duty
on such trading activity. However, in reply to the impugned
show-cause notice, vide para 14(h), M/s Aldec Corporation
submitted that they were not concerned with the show-cause
notices given to M/s VPI and M/s SREW. The tenor of the
reply of M/s Aldec Corporation indicates that M/s Aldec
Corporation was a trader whereas M/s VPI and M/s SREW
were job processors whereas according to the department, in
view of the complete control of all the activities by M/s Aldec
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 10
Corporation, the real processor was M/s Aldec Corporation and
not M/s VPI or M/s SREW. In reply, M/s Aldec Corporation
submitted that the excise duty was on the activity of
’manufacture’; the duty of excise was to be imposed on
manufacture of goods; that in the case of M/s Ujagar Prints etc.
v. Union of India & Others reported in 1988 (38) ELT 535, it
has been held by this Court that in the case of processing-
houses, duty was leviable on the processors not because they
were owners of the goods but because they caused the
manufacture of the goods. M/s Aldec Corporation submitted
that they did not cause the manufacture of the goods in the
present case and, therefore, they were not liable. According to
the reply, the ownership of the goods or owners of the plant or
machinery was not relevant. According to M/s Aldec
Corporation (respondent herein), what was relevant was the
nature of the activity and not the nature of the ownership. M/s
Aldec Corporation denied the charge of fragmentation of the
activities. In any event, it was submitted that the facts relating
to the alleged fragmentation were known to the department at
all material times including in the earlier adjudication and,
therefore, it was not open to the department to claim duty
amount retrospectively.
By order dated 30.11.1999, the commissioner confirmed
the demands raised by the department in the show-cause
notices. It was held that at the relevant time, the aluminium
sheets measuring 472 mm x 2.03 mm thickness were
classifiable under chapter sub-heading 7606.20 whereas other
articles of aluminium as final product were classifiable under
chapter sub-heading 7616.90. According to the commissioner,
the process of slitting, rolling and trimming by M/s SREW
constituted "manufacture" because at that stage, the width of
the original aluminium sheets bought from M/s Hindalco was
slitted to smaller sizes and reduced in thickness as indicated in
the above dimensions, which resulted in a separate, independent
identifiable product known in the market as aluminium slats.
According to the commissioner, M/s Aldec Corporation had
used slitting and rolling machines in the course of the
aforestated activities, which resulted manufacture of a finished
product known as ’painted aluminium slat’ for venetian blinds.
The commissioner further found that the real manufacturer of
the aforestated processes was M/s Aldec Corporation and not
M/s VPI and M/s SREW. The commissioner examined various
documents, balance-sheets, income expenditure statements etc.
and came to the conclusion that M/s VPI and M/s SREW had
partners who were wage earners/employees of M/s Aldec
Corporation; and that M/s VPI and M/s SREW were dummies
created for the purposes of fragmenting the various
activities/processes with the idea of evading excise duty.
According to the commissioner, M/s Aldec Corporation had
fragmented the various processes referred to above involved in
the manufacture of PAS for venetian blinds with the intention
to evade duty; that the customers were approaching M/s Aldec
Corporation for job work and that these customers did not
approach M/s VPI or M/s SREW for job work; that in fact M/s
Aldec Corporation was the job worker or in any event, M/s
Aldec Corporation controlled all the activities. According to
the commissioner, in the present case, if one was to look to the
totality of all the processes, the same would come within
section 2(f) of the Act, 1944 and that PAS for venetian blinds
would emerge as an independent product under chapter sub-
heading 7616.90. The commissioner further held that the
earlier decision of the department was not conclusive because
in the earlier proceedings, no notice was given to M/s Aldec
Corporation; that the decisions of the commissioner in the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 10
earlier round in favour of M/s VPI and M/s SREW indicate that
the point of classification alone was put in issue. According to
the commissioner, in the earlier round of litigation, M/s VPI
and M/s SREW had contended that the aluminium sheets
bought from M/s Hindalco came under tariff item 27(6) and
that the slats continued to remain aluminium sheets under item
27(6) and did not constitute a separate product under the tariff
item 68 and, therefore, the question of manufacture under
section 2(f) did not arise for determination. Consequently, the
commissioner confirmed the demand raised in the show-cause
notice.
Aggrieved by the aforesaid decision of the commissioner,
the matter was carried in appeal by M/s Aldec Corporation
(respondent herein) to the Customs, Excise & Service Tax
Appellate Tribunal (hereinafter referred to as "the tribunal").
By the impugned decision, the tribunal came to the conclusion
that in the present case, the aluminium sheets bought by M/s
Aldec Corporation (respondent herein) were cut to aluminium
strips by M/s SREW; that the thickness was reduced to .23 mm;
and that slitting of sheets into strips did not amount to
"manufacture". The tribunal further held that M/s VPI did
painting on strips which did not amount to manufacture. The
tribunal found that the issue involved in the present case stood
decided as far back as 27.8.1987 vide order of the
commissioner holding that the painting activity carried out by
M/s VPI did not amount to "manufacture". Similarly, as far
back as 26.11.1986, the collector had held that the activity of
slitting and rolling did not amount to "manufacture".
According to the tribunal, both the decisions dated 26.11.1986
and 27.8.1987 were accepted and, therefore, the department has
no authority to claim recovery of duty from M/s Aldec
Corporation commencing from April 1990. In the impugned
judgment, the tribunal held that the earlier decisions dated
26.11.1986 and 27.8.1987 did not change with the introduction
of the new tariff w.e.f. 28.2.1986 particularly when the
processes carried out since 1985 remained unchanged. The
tribunal observed that in the impugned decision of the
commissioner, there is no discussion as to how painted
aluminium slats for venetian blinds fell under chapter sub-
heading 7616.90 and, therefore, the tribunal came to the
conclusion that no new excisable product came into existence
classifiable under chapter sub-heading 7616.90. In the
circumstances, the appeals were allowed by the tribunal and the
demand raised by the department was set aside. Hence, these
civil appeals.
Shri K. Radha Krishnan, learned senior counsel
appearing on behalf of the department submitted that the
commissioner had examined the balance-sheets, income and
expenditure statements, the lease-agreements and other
documents while coming to the conclusion that the entire
modus-operandi adopted by M/s Aldec Corporation (respondent
herein) was to evade liability to pay excise duty. It was urged
that the partners of M/s VPI and M/s SREW were workmen and
employees of M/s Aldec Corporation; that they received
salaries from M/s Aldec Corporation; that the expenses of M/s
VPI and M/s SREW were borne by M/s Aldec Corporation; that
the customers treated M/s Aldec Corporation as job processors;
that excise duty was collected by M/s Aldec Corporation on
behalf of M/s VPI and M/s SREW and, therefore, M/s VPI and
M/s SREW were dummy companies. Learned counsel
submitted that the real job worker was M/s Aldec Corporation
and not M/s VPI or M/s SREW. It was urged that on
examination of the documents, the commissioner correctly
found that M/s Aldec Corporation was statutorily obliged to
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 10
obtain registration and licence for the manufacture of painted
aluminium slats for venetian blinds and by not getting itself
registered, breach of rule 174 took place for which M/s Aldec
Corporation was liable. Learned counsel urged that in the
entire decision of the tribunal, there is not a single word on this
issue and consequently, the matter needs to be remitted to the
tribunal. Learned counsel urged that in the past, notices were
given by the department to M/s VPI and M/s SREW in which it
was alleged that the work of painting constituted "manufacture"
and, therefore, the said PAS came within the then tariff item 68.
Similarly, in the past, the show-cause notices were given to M/s
SREW, in which it was alleged by the department that the work
of slitting resulted in a new product classifiable under item 68
and, therefore, in the past, according to the learned counsel,
focus was put on individual activities of individual units, which
in the present case is not there. In the present case, according to
the department, if one looks to the totality of all the above
activities taken, individually and/or jointly, would result in the
manufacture of a different, independent identifiable product
known in the market as PAS for venetian blinds. According to
the learned counsel, in view of the aforestated circumstances,
the decisions earlier taken in 1986/1987 by the department were
not binding on the department. It was urged that in the present
case, we are concerned with the concept of "manufacture" both
on first principles as well as under section 2(f) of the Act,
which has not been examined at all by the tribunal. Learned
counsel submitted that the issue of classification was different
from the issue of excisability. Learned counsel submitted that
this difference has not been looked into by the tribunal.
Therefore, learned counsel urged that the impugned decision is
erroneous and liable to be set aside. Learned counsel submitted
that the thickness of aluminium sheets was ten times more than
the thickness of the strips; that there is value-addition in case of
PAS for venetian blinds; that the process of slitting, trimming
and re-rolling changed the structure of the original aluminium
sheets resulting in a distinct identifiable commodity known in
the market as PAS. Reliance was also placed on the names of
the buyers of PAS referred to in the decision of the
commissioner to show that PAS was an independent product
both in terms of manufacture and in terms of marketability.
Shri Vellapally, learned senior counsel appearing on
behalf of the assessee on the other hand submitted that the
combined activity of slitting, trimming, re-rolling and painting
of PAS did not result in production of a new article of
aluminium falling under chapter sub-heading 7616.90. In this
connection, it was submitted that if two different processes,
neither of which by itself amounts to manufacture, are carried
on individually in different factories, no new product comes
into existence. If two factories are owned by one individual, it
will make no difference. Learned counsel submitted that in the
present case, the nature of the process and the nature of the
finished item in contra-distinction to the aluminium sheets
purchased from M/s Hindalco had to be decided and that
question has not been decided by the commissioner. According
to the learned counsel, "article of aluminium" is an expression
used in chapter 76 to distinguish a finished product made of
aluminium from commodity of aluminium which is used as a
raw-material to manufacture various articles. Learned counsel
submitted that in the present case, the evidence produced by
M/s Aldec Corporation (respondent herein) clearly shows that
the strips sold by them was a raw-material suitable for
manufacture of venetian blinds, decorative, lamps etc. and,
therefore, it remained under tariff item 76.06 and it did not
come out of that item into chapter sub-heading 7616.90.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 10
Learned counsel submitted that the process of rolling and
slitting followed by painting did not result in production of a
new article. According to the learned counsel, what M/s Aldec
Corporation purchased was an "aluminium strip" and,
irrespective of the ownership of the processing units, the output
namely PAS still remained an aluminium strip falling under
chapter heading 76.06 as no new item emerged by reason of the
above activities. Learned counsel submitted that painted
aluminium slats are capable of being put to use not just for
venetian blinds but also for making false ceilings, lamps etc.
and, therefore, in common parlance, PAS is known as "painted
slats for venetian blinds". It was urged that the onus of
establishing "manufacture" as also "classification" was on the
department; that the department had failed to discharge its onus;
that the commissioner had made repeated assertions without
any supporting evidence. Learned counsel submitted that the
prior history of adjudication in this regard shows that the
burden was on the department in the present case on the heavier
side to show that the slitting, rolling and painting resulted in
emergence of a new product, both in terms of "manufacture"
and in terms of "marketability". Reliance was also placed on
chapter note (d) to chapter 76 which indicated that the
aluminium strip remained classified under heading 76.06
notwithstanding the processing of such strip in the manner
contemplated by the note. Learned counsel submitted that the
strips sold by M/s Aldec Corporation continued to be classified
under heading 76.06 and became an article of aluminium only
when the venetian blinds were manufactured by the buyers.
Learned counsel urged that the tariff heading made no
difference between a polished or a coated strip vis-‘-vis
unpolished or uncoated strip and, therefore, the commissioner
had erred in holding that the process adopted by the respondent
constituted "manufacture". Lastly, the learned counsel urged
that the department had accepted orders dated 26.11.1986 and
dated 27.8.1987 passed in favour of M/s SREW and M/s VPI
holding that the process of trimming, slitting, re-rolling and
painting etc. did not amount to "manufacture" and, therefore, it
was impermissible for the department now to contend that it
was in the dark about relevant facts. Learned counsel submitted
that the entire issue was based on the nature of the activities and
when the tribunal came to the conclusion that the different
processes taken individually or jointly did not amount to
"manufacture", it was not necessary for the tribunal to go into
the question of ownership of the processing units. Learned
counsel submitted that whether M/s Aldec Corporation was the
real processor or whether M/s VPI or M/s SREW were the real
processors was not the relevant question and, therefore, the
tribunal was right in not deciding that question in the present
case. In the above circumstances, the learned counsel urged
that no interference is called for in the present case.
Before dealing with the rival contentions of the parties,
we reproduce hereinbelow the relevant headings of Chapter 76
of the Central Excise Tariff Act, 1985:
CHAPTER 76: ALUMINIUM & ARTICLES THEREOF
Heading
No.
Sub-
Heading
No.
Description of Goods
1
2
3
76.06
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 10
Aluminium plates, sheets (including circles)
and strip, of a thickness exceeding 0.2 mm.
7606.20
Of aluminium alloys.
76.16
Other Articles of Aluminium
7616.10.
Nails, tacks, staples, screws, bolts, nuts etc.
7616.90
Others
The basic question which needs to be answered in the
present case is \026 whether M/s Aldec Corporation, M/s VPI and
M/s SREW were engaged in the manufacture of an independent
identifiable distinct product, in terms of manufacture and
marketability. Chargeability is different from liability to pay
duty. Chargeability arises on manufacture under section 3 of
the said 1944 Act. Liability to pay excise duty depends on
classification. Therefore, there is a difference between the
concept of "chargeability" and the concept of "classification".
Levy is a constitutional concept as held in the case of Union of
India & others v. Bombay Tyre International Ltd. reported in
AIR 1984 SC 420. Therefore, under the excise law,
chargeability, classification, valuation and exemption are
different and distinct concepts. In the case of Moti Laminates
Pvt. Ltd. v. Collector of Central Excise, Ahmedabad reported
in 1995 (76) ELT 241, this Court has held that section 3 levies
duty on all excisable goods, provided they are manufactured or
produced. Therefore, where the goods are specified in the
schedule, they are excisable goods but whether such goods can
be subjected to duty would depend on whether they were
produced or manufactured by the person on whom duty is
proposed to be levied. The expression "produced or
manufactured" has been explained to mean that the goods so
produced must satisfy the test of marketability. Therefore, it is
open to an assessee to prove that even though the goods in
which he is carrying on business is excisable, being mentioned
in the schedule, it could not be subjected to duty if it does not
constitute "goods", either because they are not produced or
manufactured or if they have been produced or manufactured,
they were not marketed or capable of being marketed. In short,
the twin test contemplated by the excise law is that the goods
must not only be manufactured but they also should be capable
of being marketed. In the case of Commissioner of Central
Excise, Goa and Chennai v. M.R.F. Ltd., Chennai reported in
(2005) 2 SCC 733, this court held that although the basic
commodity was a tyre cord and the final product was a
rubberised nylon tyre cord, the intermediate product, namely,
dipped nylon tyre cord, could constitute a separate identifiable
product in terms of manufacture and marketability. In that case,
on the question of marketability, the matter had to be remitted
to the commissioner (adjudication). In the case of Hindustan
Zinc Ltd. v. Commissioner of Central Excise Jaipur reported
in 2005 (181) ELT 170, this Court held that emergence of silver
chloride by filtering sulphates from mixture of zinc chloride
was a process which amounted to manufacture. However, no
evidence was led by the department to show that the silver
chloride which emerged out of the said process was capable of
being sold in the market and, therefore, although the department
succeeded in making out a good case on manufacture, it failed
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 10
on marketability for want of evidence. In the said case, this
court found that silver chloride was an independent identifiable
product. However, the department had failed to lead evidence
as to whether the silver chloride which was sold in the market
having 75% silver content and the silver chloride which
emerged as a by-product in filtering sulphate from mixture of
zinc chloride had the same quantity of pure silver. It was found
that the silver chloride which emerged by filtering sulphate
from zinc chloride had only 50-53% silver whereas silver
chloride sold in the market had 75% content of silver. Since the
department had failed to prove marketability, this Court did not
accept the contention of the department that a new product had
emerged. Further, whether an article as envisaged by section
2(f) has been manufactured or not solely depends on whether
the article in question satisfies the test as laid down in the
relevant chapter heading or sub-heading and is known as such
in the commercial community. The coverage of the respective
chapter headings has to be determined in the light of the section
notes and chapter notes. Further, when an article is specified
with reference to the raw material like "Articles of
Aluminium", the general use to which an article is capable of
will be relevant. [See: Airgrill Industries v. Commissioner of
Central Excise reported in 2001 (132) ELT 646 (T) affirmed by
this Court in 2002 (141) ELT A90]. Lastly, the question
whether a process, taken singly or jointly, constitutes
"manufacture" on first principles or under section 2(f) has to be
determined having regard to the facts and circumstances of each
case. The definition of "manufacture" as per section 2(f)
includes any process incidental or ancillary to the completion of
a manufactured product. For example, painting of steel
furniture is incidental or ancillary to the manufacture of steel
furniture. But if the steel furniture is sold without painting and
if painting is done after the furniture is sold then painting will
not amount to manufacture.
Applying the above tests to the facts of the present case,
we find that Note 2 to section XV, under which chapter 76 falls,
has not been considered. Similarly, section 2(b) of section XVI
of the HSN has not been considered. Further, the functional
utility of PAS as deflector of air-flow has not been considered.
The issue as to whether the PAS in question was for general
purpose or was user specific was not considered. In the present
case, the commissioner has not discussed the difference
between the old tariff items 27(6) and 68 vis-‘-vis chapter
heading 76.06 and sub-heading 7616.90 of the Tariff Act, 1985.
Even on marketability, there is no evidence as to the type of
PAS (with particulars of dimension) being sold in the market.
In the circumstances, we do not wish to interfere in the matter.
Ordinarily, we would have remitted the matter to the
commissioner. However, in this case, we find that the
department has accepted the decisions of the Commissioner
(Appeals) and Additional Collector passed in 1986 and 1987
holding that each of the above process do not constitute
"manufacture". The respondent herein has acted on that basis
for at least ten years. Hence, we do not find any intention to
evade duty on the part of the respondent. We cannot expect the
respondent to collect duty from its customers for the last ten
years.
In the present case, it was vehemently urged on behalf of
M/s Aldec Corporation that ownership of the goods or
ownership of the plant or machinery was not relevant. That
what was relevant was the nature of the activity and not the
nature of the ownership. It was urged that it was not necessary
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 10
for the tribunal to go into the question of ownership as it had
taken the view that the activities did not constitute manufacture.
We do not find any merit in this argument. The question of
ownership was directly relatable to the clearances made in the
names of M/s VPI and M/s SREW and, therefore, the tribunal
ought to have adjudicated upon the question as to whether the
clearances were made in the name of dummy firms.
Before concluding, we may state that the tribunal should
have examined the effect of bifurcation of activities by M/s
Aldec Corporation; it should have examined the processes
involved either jointly or singly in the light of the above section
notes, chapter notes, notes to HSN etc. as also the functional
utility of the product. For example, painting after slitting, re-
rolling etc. and before sale of PAS may have a different result
vis-‘-vis painting as an activity per se. Learned counsel for the
respondent, on instruction, says that M/s Aldec Corporation
will get itself registered under protest and without prejudice to
its rights and contentions that the said process, taken jointly
and/or singly, will not constitute manufacture under section 2(f)
and will not make PAS classifiable under sub-heading 7616.90.
We take the above statement on record and accordingly, we are
not examining the question whether the bifurcation impugned
was with the intention to evade duty.
Subject to above, these civil appeals are dismissed, with
no orders as to costs.