Full Judgment Text
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PETITIONER:
UNION OF INDIA
Vs.
RESPONDENT:
DELHI CLOTH & GENERAL MILLS
DATE OF JUDGMENT:
12/10/1962
BENCH:
GUPTA, K.C. DAS
BENCH:
GUPTA, K.C. DAS
SINHA, BHUVNESHWAR P.(CJ)
GAJENDRAGADKAR, P.B.
WANCHOO, K.N.
SHAH, J.C.
CITATION:
1963 AIR 791 1963 SCR Supl. (1) 586
CITATOR INFO :
E 1967 SC1895 (30)
RF 1968 SC 922 (14)
D 1971 SC2333 (5)
R 1973 SC 225 (21)
R 1973 SC 425 (8)
R 1982 SC 127 (8)
RF 1984 SC 420 (13)
RF 1985 SC 746 (14)
D 1986 SC 281 (8)
RF 1986 SC 662 (23,24)
RF 1986 SC1097 (6)
RF 1986 SC1730 (11)
RF 1988 SC 871 (4)
R 1988 SC1164 (4)
R 1988 SC2176 (4)
R 1988 SC2223 (11)
R 1988 SC2237 (6)
APL 1989 SC 79 (2)
R 1989 SC 516 (17,18)
F 1989 SC 622 (4)
F 1989 SC1153 (6,7)
RF 1990 SC 59 (3)
R 1990 SC1579 (37)
R 1990 SC1676 (11)
R 1990 SC1893 (4)
RF 1991 SC2222 (17,23)
RF 1992 SC 224 (15)
RF 1992 SC2055 (6)
ACT:
Excise Duty-Manufacture of Vanaspati-’Refined oil’ if an
intermediate product-Liability-’Manufacturing’ and
’processing’-Distinction-Central Excises and Salt Act, 1944
(1 of 1944), s. 2 (f )-First Schedule, Item 23.
HEADNOTE:
The respondents, who were manufacturers of Vegetable
products known as Vanaspati, were assessed to excise duty
under item 23 of the First Schedule to the Central Excises
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and Salt Act,’ 1944. on what the taxing authorities called
the manufacture of refind oil from raw oil ’Which according
to them fell within the description of ’vegetable non-
essential oils, all sorts, in or in relation to the
manufacture of which any process is ordinarily carried on
with the aid of power". The common case made by the
respondents in their petition under Art. 226 of the
Constitution challenging the imposition was that for the
purpose of manufacturing Vanaspati they purchased groundnut
and til oil from the market and subjected them to different
processed before applying hydrogenation to produce Vanaspati
and that nothing that they produced at any stage was covered
by that item. Affidavits by experts were filed by both the
parties and the High Court found in favour of the
respondents and allowed the petitions. The Union of India
appealed. It was urged on its behalf that before finally
producing Vanaspati the respondents produced at an
intermediate stage what was known as refined oil’ in the
market and although they might not sell it and although
Vanaspati, when produced, was liable to excise duty under
another item, that could not affect their liability.
Held, that excise duty being leviable on the manufacture of
goods and not on their sale, the petitioners would no doubt
be liable if they produced refined oil’, as known in the
market, at an intermediate stage. But it was clear that
there could be no ,refined oil’ as known in the market
without deodorisatio,n according to the specification of the
Indian Standards Institute and the affidavits of the
experts. Since, however, the process
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of, deodorisation was admittedly applied in the
respondents’. factories only after hydrogenation was’
complete,’ they could not said to produce ’refined oil’
at any stage.
Nor could the respondents be held to manufacture kind of non
-essential vegetable oil’. Processing- cannot be equated to
manufacture’ which means bringing into existence a new
substance.
The Legislature by defining the word ’manufacture’ in s.2(f)
of the Act did not intend to make the ’mere processing of
goods liable to duty.
The words "all sorts" in item 23 are intended only-,Po make
it clear that vegetable non-essential oils. whether raw or
refined, from whatever raw material produced, will be liable
to excise duty.
JUDGMENT:
CIVIL APPELLATE, JURISDICTION :Civil. Appeals Nos. 168-170
of 1960.
Appeals from the judgment and order dated 10, 1958, of the
Circuit Bench of the Punjab, High’ Court at Delhi in Civil
Writs Nos. 301, 302. a d. 347 of 1956.
G. S. Pathak, B. Sen and R. H. Dhebar, for the appellants.
N.C. Chatterjee, A. N. Sinha and, Mukherjee, for the
respondent (in C.A. No. 168/60).
A. V. Viswanatha Sastri, Sardar Bahddur, S. N Andley and
Rameshwar Nath,’ for the respondent in (C.A. No. 169/60).
A. V. Viswanatha Sastri, S. K. Kapur, and K K. Jain, for
the respondents (in C.A. No. 170 60).
N. A.: :Palkhivala, J. B. Ddachanji O. C. Mathur and
Ravinder Narain, for the Interveners (in all the appeals.)
1962. October 12. The judgment of the Court was delivered
by
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DAS GUPTA, J.-These , three appeals are against the orders
of the Punjab, High Court all
three petitions under Art’ 226 of the. Constitution. The
three petitions are by three different companies
manufacturing vegetable products known as Vanaspati and they
challenge the legality of the imposition of Excise duty on,
what was called by the taxing authorities as the manufacture
of "refined" from raw oil. These petitions raise a common
question of law. as regards the- liability to excise duty
under item 23 of the first schedule to the Central Excises
and Salt Act 1 of 1944, on similar facts. The petitions
were heard together and disposed’ of by a common judgment
allowing the appeals and directing the. excise’ authorities
to withdraw the impugned.demand of excise duty on the
petitioners. The present appeals have also been heard
together.
The facts alleged in the three separate petitions filed by
the three petitioners the manufacturers of Vanaspati, are
practically the same. It is said that for the purpose of
manufacturing Vanaspati the petitioners purchased groundnut
and (the respondents herein) til oil from the open market
or directly from the manufacturers of such oil. The oils
thus purchased are subjected to different processes in order
to turn them into Vanaspati. It is their case that the only
finished product they manufacture from the raw materials
thus purchased is Vanaspati which is liable to exciseduty
as a vegetable product. They, contend that at no stage do
they produce any new product which can come within the item
described in the Schedule as " vegetable non-essential,
oils.. all sorts in or in relation to the manufacture of
which any process is ordinarily carried on with the aid of
Power." Accordingly, it is, said, the demand for excise duty
on the ground that they produce from the raw oils purchased
a product which is liable., to duty under item 23 of the
Schedule (now item 12) is illegal.
In resisting these petition the Union of India contended, in
substance, that in the course of the
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manufacture of Vanaspati, the vegetable product form raw
groundnut and til oil, the petitioners bring into to
existence at one stage, after carrying out some ’process"
with the aid of power, what is known to market as "’refined
oil". This "refined oil" falls within the description of
"vegetable non-essential oils, all sorts, in or in relation
to the manufacture of which any process is ordinarily
carried on with the aid of power," and so is liable to
excise duty. The affidavit filed. by Mr. P. S Krishnan,
Chief Chemist, Central Revenue, Central
Laboratory,Government of India, in support of this
contention of the appellant, describes the process by which
raw oil is manufactured into Vanaspati thus :-
"The manufacture of vegetable product consists
in hydrogenating oils using a catalyst. The
catalyst is a sensitive material and is liable
to be poisoned and made ineffective if certain
impurities, like mucilaginous, matter, free
oxidised fatty acid and moisture are present.
In order therefore, to successfully
manufacture vegetable product the
hydrogenation has to be done on a refined
vegetable non-essential oil. ’The refined
vegetable non-essential oil (an oil free from
major impurities mentioned in paragraph 2
above) is the penultimate raw material for the
manufacture of vegetable product.
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The vegetable non-essential oils as obtained
by crushing containing the impurities
mentioned ,earlier are raw vegetable
nonessential oils. The process of refining
them consists in adding. an aqueous solution
of an alkali which will combine with the free
fatty acids to form a soap and settle down
with it a large amount of suspended and
mucilaginous matter; after *settling the clear
supernatant layer is drawn off and treated
with an Appropriate quantity of bleaching
earth and carbon is then filtered. In
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this process the colouring matter is removed
and the moisture that was originally present
in the neutralised oil will also be removed.
At this stage the oil is a refined oil and is
suitable for hydrogenation into vegetable
product. This process of refining generally
involves the use of power and machinery."
He then goes on to say
"’Depending upon the quality of the seed used
for crushing and that of the original raw oil
this refined oil will now generally be
suitable for edible purposes of discriminating
users and for the manufacture of toilet goods
like hair oils and high class soaps. For
certain users who are even more discriminating
this oil may be subjected ’to a further
process of deodorisation.
The difference between raw vegetable non-
essential oils and refined vegetable oils will
clearly be seen on examination of the two
’products. The refined oil will generally be
colourless or only slightly coloured. ’ It
will be perfectly clear and in many cases it
may have no odour. The raw oil, on the other
hand, will have a certain amount of turbidity
or sediment at the bottom and will also be
somewhat deep in colour. I further say that
sometimes refined oil obtained above is
subjected to a process of further
deodorization. Such oil can be correctly
described as refined and deodorised oil.
As far as known to me, the two grades of oils
are separately marketed in the country; as
for’ example, groundnut’ oil’ and ’refined
groundnut oil’ the latter generally with a
distinctive label when marketed in containers
of approximately 4 gallons or less."
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The experts who have filed affidavits in support of the
petitioners’ case agree with Mr. Krishnan that common oils,
like groundnut, sesame, mustard cottonseed, etc. in their
raw stage always contain varying amounts of impurities and
these impurities have to be removed by different processes
before hydrogenation for the purpose of producing Vanaspati
can be applied. There is however this important difference
between the view of Dr. Homi Ruttonji Nanji who has filed
an affidavit in support of the petitions, and that of Mr.
Krishnan that while according to Mi. Krishnan the raw oil
which has been freed from impurities but not deodorised is
sold in the market as refined oil, Dr. Nanji is definite in
his statement that refined oil for edible purposes, as
understood by the manufacturers as well as by the trade, is
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oil to which all the three processes, viz., neutralization,
bleaching and deodorisation have been applied. He goes on
to say: "In fact I would not regard any oil as refined oil
unless it was also deodorised, since the failure to
deodorise oil leaves behind in the oil certain impurities in
the shape of compounds which give off bad odours." (Vide
para. 5 of his affidavit in the petition filed by the Delhi
Cloth & General Mills do., Ltd.).
As already stated the High Court accepted the petitioners’
contention that the oil in their hands after some amount of
refinement in the course of being converted into Vanaspati
was not liable to excise duty under item 23 (Now item 12)
and so allowed the petitions.
In support of the appeals, Mr. Pathak has advanced a two-
fold argument. He first argues that the respondent concerns
after they buy the raw oil with all its impurities,
manufacture by the application of certain processes of
refinement, a refined oil which is the same as the refined
oil available in the market, and the aid of power is taken
in some of these
592
processes; and that it is "refined oil" thus produced that
becomes after further processes "vegetable product". When
the vegetable product comes into existence it becomes liable
to excise duty as vegetable product under the present cl.
13, which appears to be the same as old cl. 11. That
however cannot alter the position that at an earlier stage.
these same respondents have manufactured refined oil" as is
known to the market. That substance comes squarely within
cl. 23 (now cl. 12) and is therefore liable to duty under
this clause; and the fact that they do not put this "refined
Oil" on the market but use it to produce a finished product
known as vanaspati product cannot affect this liability.
Excise duty is on the manufacture of goods and not on the
sale. Mr. Pathak is therefore right in his contention that
the fact that the substance produced by them at an
intermediate stage is not put in the market would not make
any differences If from the raw material has been brought
into existence a new substance by the application of
processes one or more of which are with the aid of power and
that substance is the same as "refined oil" as known to the
market an excise duty may be leviable under Item 23 (the
present item 12). But has it been shown that the substance
produced by the petitioners is at any intermediate stage
before Vanaspati comes into existence, "refined oil" as
known to the market? We are not satisfied that this has
been shown. As already stated, a summary of the numerous
processes necessary to turn the raw groundnut or til oil
’into vegetable product has been given in the affidavits
sworn to by the experts on both sides., It does not appear
to be disputed that the process of deodorisation is applied
in the petitioners’ factory after hydrogenation is complete.
The appellant’s case is that before hydrogenation has
started the substance in the hands of these petitioners is
"refined oil" as known to the market. That raises the
important question whether any
593
oil is known as "refined oil’ in the market before
deodorization has taken place. As already indicated, the
appellant’s case is that deodorization is not necessary for
"refined oil" to come into existence; the respondents’ case
on the other hand is that without deodorisation the
substance is not "refined oil".
We have already referred to the affidavits on this question
as sworn to by Mr. Krishnan on behalf of the appellant and
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Dr. Nanji on behalf of the respondents petitioners. In his
affidavit Dr. Nanji has also referred to the specification
of "refined oil" by the Indian Standards-Institution and has
given these in an annexure to his affidavit. From this
annexure we find the following specification by the Indian
Standards Institution:-
"Refined groundnut oil:-Groundnut oil which
has been refined by neutralisation with alkali
bleached with fuller earth and/or Activated
Carbon’, and deodorised with steam, no other
chemical agent being used.
refined by neutralisation with alkali,
bleached with alkali, bleached with fullers’
earth and/or Activated Carbon and Deodorised."
This specification by the Indian Standards Institution
furnishes very strong and indeed almost incontrovertible
support for Dr. Nanji’s view and the respondents’ contention
that without deodorisation the Oil is not "’refined oil" as
is known to the consumers and the commercial community.
Further support, if any was needed, is found in the several
affidavits of several concerns who market refined groundnut
oil under the brand names-Falika, Tripti, Kitchen, Kiran,
Temple, Sovereign, Lotus, Nirmal, Dilkhus, Kamdhenu, Radio,
Deer, Dog, Sepoy, Cocogem Tushar and Ginutol. They agree in,
asserting that
594
the oil is always deodorised before it is marketed as
refined oil under these brand names. As against this if has
to be noticed that the appellant could not produce evidence
of one single case of marketing of refined oil without
deodorisation. Instead of that Mr. Pathak produced before
us copies of extracts of a book by. Alton Bailey of the
name "Cottonseed and Cottonseed Products" and another book
by the same author of the name "Industrial Oil and Fat
Products" and a third book of the name "Vegetable Fats and
Oil" by G. S..Jamiesom. Mr. Jamiesom’s statement does not at
all make it clear that refined oil is put on the market
without deodorisation. Mr. Bailey appears to have stated in
his book on "Industrial Oil and Fat Products" that the term
"refining" refers to any purifying treatment designed to
remove free fatty acids, phosphatides or mucilaginous
material, or other gross impurities in the oil; it excludes
"bleaching" and also "deodorisation". The extracts from
this book also do not clearly show that before deodorisation
the oil which has been refined by the purifying treatment,
is put on the market. The extract from Bailey’s book on
"Cottonseed and Cottonseed Products" contains a passage in
these words :-
"In a discussion of the composition and
characteristics of cottonseed oil, three kinds
of oil are to be distinguished. They are :
(a) crude oil, which is the oil as it is
expressed from the seed, and the commodity
shipped from the oil mills; (b) refined oil,
or oil Which has been freed of most of its
nonglyceride constituents by treatment with
alkali, with or without subsequent bleaching
or deodorisation, and (c) hydrogenated oil."
Mr. Pathak has relied on Bailey ’s statement that the oil
which has been freed of most of its nonglyceride
constituents by treatment with alkali, with or Without
subsequent bleaching or deodorization is
595
refined oil", for his contention that even without
deodorisation the oil is known as "refined oil".
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It will be unsafe however to base any conclusion on this
extract without knowing the entire context in which the
statement has been made or what has been made or what has
been said in other parts of the same ’book. The book itself
was not produced before us. It is worth noticing that while
the above statement is made by Mr. Bailey in respect of
cottonseed oil, the oil with which we are concerned is
produced from groundnut oil and tit-neither of which is
cottonseed. Apart from all this we are of opinion that the
view :,of the Indian Standards Institution as regards what
is refined oil as known to the trade in India must be
preferred to the opinion of this author. In this con-
nection’ it has also to be mentioned that the affidavits
filed on behalf of the respondents are clear and cate-
gorical, while Krishnan’s affidavit on which reliance was
placed on behalf of the appellant is somewhat vague, halting
and not categorical.
On a consideration of all these materials we have no doubt
about the correctness of the respondents’ case that the raw
oil purchased by the respondents for the purpose of
manufacture of Vanaspati does not become at any stage
"refined oil" as is known to the consumers and the
commercial community. The first branch of Mr. Pathak’s
argument must therefore be rejected.
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 neutralisation by alkali and bleaching by
activated earth and/ or carbon. According to the learned
Counsel "manufacture" is complete as soon. as* by the
application
596
of one or more processes, the raw material undergoes some
change. To say this is to equate "’processing" to
"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 :-
’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."
It is helpful to consider also in this connection the
ordinary meaning of the word "’goods". For, by the very
words of the: Central Excises and Salt Act, 1944, excise
duty is leviable on "’goods". The Act itself does not
define "goods" but defines "excitable goods" as meaning
"goods specified in ’the First Schedule as being, subject to
a duty of excise and includes salt." On the meaning of the
word "goods" an interesting passage is quoted in the Words
and Phrases, Permanent Edition, Vol. 18, from a judgment of
a New York Court thus:
"The first exposition I have found of the word
’goods’ is in Bailey’s Large Dictionary of
1732, which defines it simply ’Merchandise’-,
and by Johnson, who followed as the next
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lexicographer, it is defined to be movables in
a house; personal or immovable estates; warn,;
freight; merchandise,,"
Webster defines the word "’goods" thus :-
"Goods, noun’ plural, (1) movables; household,
furniture; (2) Personal or movable estate, as
horses, cattle, utensils, etc., (3) Wares;
merchandise; commodities bought and sold by
merchants and traders."
These definitions make it clear that to become "goods" an.
article must be something which can ordinarily come to the
market to be bought and Sold.
This consideration of the meaning of the word "goods" an
provides strong support for the view that "manufacture"
which is liable to excise duty under the Central, Excises
and Salt Act, 1944, must be the "bringing into existence of
a new substance known, to the market." "But," says the
learned Counsel, "look at the definition of ’manufacture’ in
the definition clause of the Act and you will find that
’manufacture’ is defined thus: ’Manufacture’ includes any
process incidental or ancillary to the completion of a
manufactured product (s.2(f)". We are unable. to agree with
the learned Counsel that by inserting this definition of the
word ’,manufacture,, in s. 2 (f) the legislature intended to
equate "processing" to "manufacture" and intended ’to make
mere "Processing" as distinct from "manufacture" in the:
same, sense of bringing into existence of a new substance
known to the market, liable to duty. The sole purpose of
inserting this definition is to make it clear that at
certain places in the Act the word ’manufacture’ has been
used to mean a process incidental to the manufacture of the
article. Thus in the very item under which the excise duty
is claimed in these cases, we find the words : "in or in
relation to the manufacture of which any process is
ordinarily carried on with the aid of power". The
definition of "manufacture’ as in s. 2(f) puts it beyond any
possibility of controversy that if power is used for any of
598
the numerous processes that are required to turn the raw
material into a finished article known to the market the
clause will be applicable; and an argument that power is not
used in the whole process of manufacture using the word in
its ordinary sense, will not be available. It is only with
this limited purpose that the legislature, in our opinion,
inserted this definition of the word ’manufacture’ in the
definition section and not with a view to make the ’mere
"processing" of goods as liable to excise duty.
Mr. Pathak wanted to derive some assistance, for his
argument from the words "all sorts" as used in the clause.
According to him, the words "all sorts" will be superfluous
unless interpreted to mean "whether bringing into existence
a new substances or not." The reasoning is clearly
fallacious. The words "all sorts" have been used to make it
clear: that "vegetable non-essential oils" whether raw or
refined and from whatever raw material produced will be
liable to excise duty. Refined oil is one sort; raw oil is
another sort. But as the duty is on the manufacture of
goods, that is, on the bringing into existence a new
substance known to the market, the raw oil or the refined
oil must be some substance known to the, market before it
can be subjected to duty.
We are therefore of opinion that the High Court was right
in, its conclusion that there was no legal basis for the
demands of excise duty which were made. on the petitioners
and in directing the authorities to withdraw these demands.
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The appeals are accordingly dismissed with costs.
Appeals dismissed.
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