Full Judgment Text
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PETITIONER:
COLLECTOR, CENTRAL EXCISE, BOMBAY
Vs.
RESPONDENT:
M/S. S.D. FINE CHEMICALS PVT. LTD.
DATE OF JUDGMENT30/03/1995
BENCH:
JEEVAN REDDY, B.P. (J)
BENCH:
JEEVAN REDDY, B.P. (J)
SEN, S.C. (J)
CITATION:
1995 SCC Supl. (2) 336 JT 1995 (3) 353
1995 SCALE (2)550
ACT:
HEADNOTE:
JUDGMENT:
B.P. JEEVAN REDDY, J.:
1. In this appeal preferred by the Collector, Central
Excise, Bombay under Section 35(L) of the Central Excise
Act, 1944 (hereinafter referred to as ’the Act’), the
question is whether the distillation and recrystallisation
carried out by the respondent amounts to ’manufacture’? The
respondent, M/s. S.D.Fine Chemical Pvt.Ltd., arc engaged in
the manufacturing of laboratory chemicals and fine chemi-
cals. They also undertake repacking and purification of
laboratory and fine chemicals. In the classification list
filed by them on April 1, 1983, they claimed that the
process of purification and distillation undertaken by them
does not amount to process of manufacture and accordingly,
claimed exemption from duty in respect of such goods under
Notification No. 77 of 1983 dated March 1, 1981 The
Assistant Collector agreed with the respondent but his order
was revised by the Collector (Appeals who held that the
processes undertaken by the respondent do amount to
manufacture. Inasmuch as a new commodity known to the
market emerges as a result of such processes, he held, they
are liable to excise duty. The respondent filed an appeal
before the Customs, Excise and Gold (Control) Appellate Tri-
bunal, New Delhi which was heard in the first instance by a
Bench of two Members. The Member (Technical) agreed with
the respondent. The held that the processes undertaken by
the respondent is merely for improving the quality or purity
of the chemicals and does not amount to...... fracture. He
observed that even after purification, the chemicals are,
known by the very same name and that there was no change in
the chemical formula even after purification. The simple
process of distillation and recrystallisation of the chemi-
cals does not amount to manufacture for the purposes of the
Act, he held. The Member (Judicial) however, took a con-
trary view. The was of the opinion that the process
undertaken by the respondent is not a simple process and
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that the said process "brings in a transformation which will
change the name, character and use". The Member (Judicial)
further observed, "the ordinary chemicals cannot be used in
laboratory without it undergoing purification. They are
traded in different commercial name and has altogether
different use. So long as the trade recognises it as a
different commodity and its uses are different, the item has
to be recognised as a different goods and became excisable
goods". In view of the difference of opinion between the
two Members, the matter was referred to a third Member. The
third Member held in favour of the respondent manufacturer
on the following reasoning
"As can be gathered, the key test is
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whether the commodity which is subjected to
the process of manufacture can no longer be
regarded as the original commodity. In my
view in the instant case this test has not
been satisfied as the chemicals prior to the
two processes concerned herein continues to
remain the same after being subjected to the
processes, admittedly with only a change in
increase in purity. The commodity retains its
identity substantially through the processing
stage. Therefore, it cannot be said to have
been manufactured."
2. it would be evident from the opinion of the third
Member that he did not deal with the several aspects dealt
with in the opinions of the two differing members. He did
not also indicate whether he agrees or disagrees with the
findings recorded by the Member (Judicial), viz., that after
the processes undertaken by the respondent, the chemicals
bear a different chemical name and have an altogether dif-
ferent use. The third Member did not also deal with the
holding of the Member (Judicial) that after the processes
undertaken by the respondent, the chemical became a
different commercial commodity.
3. The expression ’manufacture’ is defined in clause (f)
of Section 2 of the Act The definition, as substituted by
Finance Act (No. 25) of 1975, with effect from March 1, 1975
reads thus:
" manufacture’ includes any process,-
(i)incidental or ancillary to de completion of
a manufactured product;
(ii)which is specified in relation to any
goods in the Section or Chapter notes of the
Schedule to the Central Excise Tariff Act,
1985 as amounting to manufacture, and the word
’manufacture’ shall be construed accordingly
and shall include not only a person who
employs hired labour in the production or
manufacture of excisable goods, but also any
person who engages in their production or
manufacture on his own account."
4. The definition is thus an inclusive definition. The
purpose of the definition is to include certain processes
and activities within the ambit of the said definition which
may not otherwise amount to manufacture, as ordinarily
understood. This inclusion is in addition to the normal
meaning and context of the expression ,manufacture’. The
said expression has been the subject matter of several deci-
sions of this Court to which a brief reference is necessary
to bring out the principles enunciated therein. In Union of
India v. Delhi Cloth and General Mills (1963 Suppl (1)
S.C.R.586) the revenue wanted to levy a duty upon ’refined
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oil’ which was obtained by the respondent-manufacturer at an
intermediate stage of production of vanaspati. The
respondent cleansed the oil purchased by him by applying
certain processes and thus obtained ’refined oil’. But the
respondent did not apply the process of deodorisation before
hydrogenating the refined oil. The case of the Revenue was
that even non-deodorised refined ground-nut/til oil is
’refined oil’ as known to the consumers and the commercial
community. The respondent’s case, however, was that the
’refined oil’ as known to the consumers and the commercial
community is necessarily the deodorised refined oil. After
referring to the material produced by both the parties, this
Court upheld the respondent’s contention and held that
"without deodorisation, the oil is not ’refined oil’ as is
known to the consumers and the com-
356
mercial community’,. This Court further held "that the raw
oil purchased by the respondent for the purpose of manufac-
ture of vanaspati does not become at any stage ’refined oil’
as is known to the consumers and the commercial community".
For this reason, it was held that refined oil obtained by
the respondent at stage anterior to hydrogenation is not
’vegetable nonessential oil’ or by ’all sorts’ in or in
relation to the manufacture of which any process is
ordinarily carried on with the aid of power within the
meaning of Item 12 of the 1st Schedule to the Act. So far
as legal position is concerned, this Court stated it in the
following words:
"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 immediate
stage is not put in the market would not make
any difference. 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)-.
5. The Court then dealt with the next argument of the
appellant-Union of India that even if it is held that the
respondent did not manufacture ’refined oil’ as known to the
market, even so they must be held to manufacture some kind
of ’non-essential vegetable oil’ within the meaning of Item
23. This Court rejected the said argument with reference to
the meaning of the expressions "manufacture" and "goods", in
the following words:
"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’."
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6. The Court then referred to and dealt with the meaning
of expression ’goods’ occurring in Section 3 and observed
thus:
"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" 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 die 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
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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 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.
-
7. In South Bihar Sugar Mills Ltd. & Anr.Etc. v. Union of
India & Anr. (1968 (3) S.C.R. 2 1), the above interpretation
was affirmed.
8. In Empire Industries Ltd. & Ors. v. Union of India &
Ors. (1985 (3) S.C.C.314) the question arose whether the
process of bleaching, dyeing, printing of grey cloth amounts
to ’manufacture’ as defined in the Act. It may not be
necessary to set out the reasoning in this case inasmuch as
the very same question was considered later by a
Constitution Bench of this Court in M/s. Ujagar Prints &
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Ors. v. Union of India & Ors. (1989 (3)S.C.C.488). We
will, therefore, refer to the reasoning in Ujagar Prints.
The facts in Ujager Prints, were these: the customers
supplied the grey fabric to the appellant who carried out
operations of bleaching, dyeing, printing, glazing, shrink-
proofing etc. against payment of processing charges. The
ownership of the cloth rested with the customers who got
these processes done to their specifications from the ap-
pellant on payment of processing charges. The question was
whether the appellant can be said to ham: undertaken
’manufacture’ as defined in the Act. M.N. Venkatachahah, J,
as the then learned Judge was dealt with several decisions
of this Court including those referred to above as well as
the decisions rendered by this Court under different Saks
Tax enactments [including M/s. Tungabhadra Industries Ltd.
Vs. Commercial Tax Officer, Kurnool (1961 (2) S.C.R.14)]
and enunciated the principle in the following words:
.LM15
"The prevalent and generally accepted test to ascertain that
there is "manufacture" is whether the change or the series
of changes brought about by the application of processes
take the commodity to the point where, commercially, it can
no longer be regarded as the original commodity but is,
instead, recognised as a distinct and new article that has
emerged as a result of the processes. The principles are
clear. But difficulties arise in their application in
individual cases. There might be borderline cases where
either conclusion with equal justification be reached.
Insistence on any sharp or intrinsic distinction between
’processing’ and ’manufacture’, we are afraid, results in an
oversimplification of both and tends to blur their
interdependence in cases such as the present one."
9. The learned Judge then dealt with
358
argument that if the expression ’manufacture’ defined under
Section 2(f) of the Act is understood in a broad sense to
include processes, which in truth do not amount to
manufacture, the definition and the very Act would fall
outside Entry 84 of List-I of the Seventh Schedule to the
Constitution. The learned Judge rejected the argument
holding "at all events, even if the impost on process is not
one under envy 84, List 1, but is an impost on "processing"
distinct from "manufacture" die levy could yet be supported
by entry 97, List-I even- without the aid of the wider
principle recognised and adopted in Dhillon Case". The
learned Judge then referred to the principle of the decision
in Union of India v, H.S. Dhillon (1971 (2) S.C.C.779) and
observed:
"So far as the exclusive competence of the
Union Parliament to legislate is concerned all
that is necessary is to find out whether the
particular topic of legislation is in List 11
or List III. if it is not, it is not necessary
to go any further or search for the field in
List 1. Union Parliament has exclusive power
to legislate upon that topic or field. Of
course, it has concurrent power also in
respect of the subjects in List HI."
10.In Collector of Central Excise, Madras v. M/s. Kutty
Flush Doors and Furniture Co. (P) Ltd. (1988
Suppl.S.C.C.239), this Court observed, after referring to
the principle of Delhi Cloth and General Mills (supra) and
South Bihar Sugar Mills (supra), to die following effect.
"This principle is well-settled. This is a
question of fact depending upon the relevant
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material whether as a result of activity, ne
w
and different article emerges having a
distinct name, character and use. "
.LM0
11.On the meaning of expression " process",
the following statement in the decision of
this Court in Collector of Central Excise,
Jaipur v. Rajasthan State Chemical Works,
Deedwana, Rajasthan (1991 (4) S.C.C.473) is
relevant:
"The natural meaning of the word ’process’ is
a mode of treatment of certain materials in
order to produce a good result, a species of
activity performed on the subject-matter in
order to transform or reduce it to a certain
stage. A to Oxford Dictionary one of the
meanings of the word ’process’ is "a
continuous and regular action or succession of
actions taking place or carried on in a defi-
nite manner and leading to the accomplishment
of some result." The activity contemplated by
the definition is perfectly general requiring
only the continuous or quick succession. It
is not one of the requisites that the activity
should involve some operation on some material
in order to its conversion to some particular
stages There is nothing in the natural
meanings of the word ’process’ to exclude its
application to handling. There may be a pro-
cess which consists only in handling and there
may be a process which involves no handling or
not merely handling but use or also use. It
may be a process involving the handling of the
material and it need not be a process
involving the use of material. The activity
may be subordinate but one in relation to the
further process of manufacture."
12. The question in the decision was whether the respondent
was entitled to the benefit of a particular exemption
notification but that question in turn raised the question
what is ’manufacture’ and what is ’process’? The Bench (S.
Ranganathan, Fathima Beevi and N.D. Ojha, JJ.) expressed the
aforesaid opinion.
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13. The decisions aforesaid make it clear that the
definition of the expression ’manufacture’ under Section
2(f) of the Act is not confined to the natural meaning of
the expression ’manufacture’ but is an expansive definition.
Certain processes, which may not have otherwise amounted to
manufacture, are also brought within the purview of and
placed within the ambit of the said definition by the
Parliament. Not only processes which are incidental and
ancillary to the completion of manufactured product but also
those processes as are specified in relation to any goods in
the section or chapter notes of the schedule to the Central
Excise Tariff Act, 1985 are also brought within the ambit of
the definition. As has been repeatedly observed by the
Court, though the principles enunciated are clear, it is
their application that presents difficulties and it does not
help to draw "any sharp or intrinsic distinction between
’processing’ and ,manufacture’, "which would only result in
an oversimplification of both and tends to blur their
interdependence in cases such as the present one," (Ujagar
Points). It would also be not right, as pointed out in
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Ujagar Prints to try to restrict the sweep of the definition
with reference to Entry 84 List-I of the seventh Schedule to
the Constitution. Since the constitutionality of the said
definition has been repeatedly upheld with reference to both
Entries 84 and 97 of List-I (Empire Industries and Ujagar
Prints), the definition must be understood in terms it is
couched. It should also be remembered that the question
whether a particular process does or does not amount to
’manufacture’ as defined under Section 2(f) is always a
question of fact to be determined in the facts of a given
case applying die principles enunciated by this Court. One
of the main tests evolved by this Court is whether on
account of the processes employed or applied by the
assessee, the commodity so obtained is no longer regarded as
the original commodity but is, instead, recognised as a
distinct and new article that has emerged as a result of the
processes
(Ujagar Prints).
14. Now coming to the facts of the case before us, it is
clear from the perusal of the opinion of the third Member of
the Tribunal that he has not dealt with the cast in a full
and proper manner and has disposed of the issue in a cryptic
manner. It has, therefore, become necessary to remit the
matter for the fresh opinion of the third Member of the
Tribunal. The third Member shall now hear the parties and
render his opinion afresh on the question referred to him.
He shall do so within six months from this date. He shall
transmit his opinion to this Court soon after rendering it.
15. If the third Member, Jyoti Balasundaram, who heard the
matter is not available, the Chairman of die Tribunal shall
specify another Member for hearing this matter.
16. List the appeal after receipt of the finding/ opinion
from the Tribunal.
360