Full Judgment Text
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PETITIONER:
SOUTH BIHAR SUGAR MILLS LTD., ETC.
Vs.
RESPONDENT:
UNION OF INDIA & ORS.
DATE OF JUDGMENT:
05/02/1968
BENCH:
SHELAT, J.M.
BENCH:
SHELAT, J.M.
WANCHOO, K.N. (CJ)
BACHAWAT, R.S.
VAIDYIALINGAM, C.A.
CITATION:
1968 AIR 922 1968 SCR (3) 21
CITATOR INFO :
D 1971 SC2333 (5,6)
R 1973 SC 425 (8)
R 1977 SC 597 (34)
R 1980 SC 86 (6)
R 1982 SC 127 (8)
R 1984 SC 420 (13)
RF 1985 SC 746 (14)
D 1986 SC 281 (8)
RF 1986 SC1097 (6)
R 1988 SC1164 (4)
R 1988 SC2176 (4)
R 1989 SC 603 (8)
F 1989 SC 622 (4)
F 1989 SC1153 (6,7)
R 1990 SC 59 (3)
R 1990 SC1676 (11)
E 1990 SC1893 (4)
ACT:
Central Excise & Salt Act, 1944 Schedule 1, item
14A--Appellants manufacturing mixture of gases containing
carbon dioxide by burning limestone with coke in lime--Using
only the carbon dioxide from the mixture for refining
sugarcane juice and for producing soda ash by solvay ammonia
soda process--Whether the mixture of gases was kiln gas or
compressed carbon dioxide covered by Item 14-H.
HEADNOTE:
The appellant companies manufactured sugar by carbonation
process. land paid excise duty on sugar manufactured by them
under item 1 of Sch. 1 to the Central Excise and Salt Act,
1944. According to an affidavit filed on behalf of the
respondents, these manufacturers employed a process of
burning lime-stone with coke in a lime kiln with a regulated
amount of air whereby a mixture of gases was generated
consisting of carbon dioxide, nitrogen, oxygen and a small
quantity of carbon monoxide. The gas thus produced was
thereafter compressed so as to achieve pressure exceeding
atmospheric pressure and then passed through a tank
containing sugarcane juice so as to remove impurities from
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it and to refine the juice. For this process of refining it
was only the carbon dioxide in the gas which was used and
the other gases i.e. nitrogen, oxygen and carbon monoxide
escaped into the atmosphere by a vent provided for the
purpose. The carbon dioxide content in this mixture of
gases ranged from 27 to 36.5%. Similarly, another company
manufactured soda ash by solvay ammonia soda process for
which also carbon dioxide is required and this was produced
by the petitioner by burning lime-stone with coke in a kiln
in the same manner as the appellant ’sugar manufacturing
companies employing the carbonation process. The
respondents regarded all the companies as manufacturers of
compressed carbon dioxide and levied excise duty on them
under Item 14-H in Sch. 1 to the Act.
The appellants filed writ petitions in the High Court
challenging the validity of this excise duty but these
petitions were dismissed.
It was contended, inter alia, on behalf- of the appellants
that the lime kiln was maintained to generate a mixture of
gases and not carbon dioxide and at no stage in the process
of generating this mixture and passing it through the
sugarcane juice was carbon dioxide-which formed one of the
contents of the mixture--either compressed, liquidified or
solidified. The mixture of gases so generated was not
carbon dioxide as known to the market nor was it according
to the specifications laid down by the Indian Standards
Institution which required the carbon dioxide content to be
at least 99%. Therefore the excise duty sought to be
recovered on the content of carbon dioxide in the mixture of
gases could not fall under Item 14-H. Furthermore the duty
being on goods it could be charged only on goods known as
carbon dioxide in the trade and marketable as such.
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HELD : The gas generated by the appellant companies was kiln
gas and not carbon dioxide as known to the trade, i.e., to
those who deal in it or who use’ it. The kiln gas in
question. therefore is neither carbon. dioxide nor
compressed carbon dioxide known as such to the commercial
community and therefore cannot attract Item 14-H in the
First Schedule.
It was not correct to say that because the sugar
manufacturer wants carbon dioxide for carbonation purposes
and sets up a kiln for it that he produces carbon dioxide
and not kiln gas. In fact what he produces is a mixture
known both to trade and science as kiln gas one of the
constituents of which-is, no doubt, carbon dioxide. The
kiln gas which is generated in these is admittedly never
liquified nor solidified and is therefore neither liquified
nor solidified carbon dioxide, assuming that it can be
termed carbon dioxide. It cannot be called compressed
carbon dioxide as understood in the market among those who
deal in compressed carbon dioxide. Compressed carbon
dioxide is understood generally as carbon dioxide compressed
in cylinders with pressure ranging from 1,000 to 1,800 lbs.
per sq. inch. The mere fact that at one stage or the other
kiln gas is pressed at 40 to 45 lbs. per sq. inch by a pump
or otherwise cannot mean that it is compressed carbon
dioxide. At the same time the duty being on manufacture and
not on sale the mere fact that kiln gas generated by these
is not actually sold would not make any difference if what
they generate and use in their manufacturing processes is
carbon dioxide. The fact that the gas so generated has
carbon dioxide below 99% and does, not conform to the
specifications of the Indian Standards Institution also
would not matter for the gas may be sub-standard, provided
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what is produced is carbon dioxide. [32 D-H]
Union of India v, Delhi Cloth & General Mills Ltd. [1963]
Supp. I S.C.R. 586, referred to.
JUDGMENT:
CIVIL APPELLATE/ORIGINAL JURISDICTION: Civil Appeals Nos..
289 to 311 of 1965 and 999 to 1001 of 1967.
Appeals from the judgments, and orders dated July 13, 1964
Of Panjab High Court in Civil Writs Nos. 587-D, 590-D, 592
595-D, 643-D, 851-D, 852-D, 1163, 1164, 1167 and 1196 of
1963, 45 D of 1964, and 994, 588-D, 589-D, 591-D,593-D,594-
D, 1165, 1166, 1168, 1169, 1197, 1240, 1216 and 1155 of 1963
respectively and writ Petition No. 212 of 1966.
Petition under Art. 32 of the Constitution of India for the
enforcement of fundamental rights.
S.V. Gupte, Rameshwar Nath and Mahinder Narain, for the
appellants (in C.As. Nos. 289 to 311 of 1965).
Rameshwar Nath and Mahinder Narain, for the appellants (in
C.A. No. 999 of 1967).
S.Sorabji,’D. S. Dang and Ravinder Narain, for the
appellants (in C. A. No. 1000 of 1967).
S.V Gupte and K. K. Jain, for the appellants (in C.A. No.
1001 of, 1967);.
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N, A.Palkhivala, F. N. Kaka, O. P. Malhotra O. C. Mathur
and Ravinder Narain, for the ’petitioner (in W.P. No, 212 Of
1966).
C.K. Daphtary, Attorney-General, B. Sen, R. H.Dhebar and
S.P. Nayar, for the respondents (in W. P. No. 212 of 1966)
and the respondents (in, C.A. Nos,. 289 to 311 of 1965).
C. K. Daphtary, Attorney-General, and R. H. Dhebar for the
respondents (in C.As. Nos. 999, 1000 and 1001 of 1967).
N. A. Palkhivala, 0. C. Mathur and Ravinder, Narain, for
the intervener (in- C.As. Nos. 289 to 311 of’1965).
The Judgment of the Court *as delivered by
Shelat, J. These appeals, by certificate, are against the
common judgment of the High Court of Punjab which dismissed,
the writ petitions filed by the appellant companies
challenging the legality of excise duty levied against
them, under Item 14-H in-’ Sch. 1 to the Central Excise and
Salt Act, 1 of 1944.. Writ Petition 212 of 1966 by Tata
Chemicals Ltd. also raises die same. question. As both the
appeals and the writ petition raise a common question of law
they were heard together and are disposed of by this common
judgment.
The appellant companies manufacture sugar by carbonation
process as against sulphitation process employed by some
other manufacturers of sugar and pay excise duty on the
sugar manufactured by them under Item 1 of Sch. 1 to the
Apt. According to the affidavit of V. J. Bakre, Deputy
Chief Chemist of the Central, Revenue Control Laboratory,
these manufacturers bum limestone with coke in a lime kiln
with a regulated amount of air and generate a mixture of
gases consisting of carbon dioxide, nitrogen, oxygen and a
small quantity of carbon monoxide. Most of the oxygen from
the air is used up by the coke in the process of burning
itself. The coke so burnt supplies the heat which
decomposes the limestone so as to generate carbon dioxide.
The gas thus produced is sucked,by a pump through a pipe
which connects the kiln with the inlet side of the pump.
The gas enters the chamber of the pump and is then
immediately compressed by means of the compression stroke of
the pump. At this stage the gas is forced into a narrower
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space and as a result of the compression stroke it acquires
pressure exceeding the atmospheric pressure. The gas so
compressed is let into the delivery pipe, which connects the
outlet side of the pump with the tank containing the
sugarcane juice and enters. the sugarcane juice with the
acquired pressure behind it. But for the compression
resulting in pressure the gas would not bubble in the
sugarcane juice. In the
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tank there, is besides the sugarcane juice milk of lime
which is mixed so as to remove the impurity in and refine
the juice. Thus, it is carbon dioxide which reacts on the
lime and what is produced is an insoluble content known as
calcium carbonate. The other gases viz., nitrogen, ’oxygen,
carbon monoxide do not contribute in the process of
clarification of the sugarcane juice. These are innocuous
so far as the process of clarification of sugarcane juice is
concerned and escape into the atmosphere by a vent provided
in’ the sugarcane juice tank. Along with these gases a
certain amount of carbon dioxide which remains unabsorbed
also escapes. The carbon dioxide content in the mixture of
gases ranges from 27 to 36.5%. Thus, the process involves
the forcing of impure carbon dioxide into a narrower space
within the chamber of the pump where it is compressed and
pushed first into the delivery pipe and then into the, tank
containing the juice. The respondents’ case therefore was
that the process employed by the appellant companies
involves compressing carbon dioxide with the pressure
achieved pushing it through sugarcane juice. The ’appellant
companies therefore produced carbon dioxide through the
lime kiln which was taken first to the Co2 pump and there
compressed and then pushed into the tank.
The Tata Chemicals Ltd. manufactures among other products
soda ash by solvay ammonia soda process. The solvay process
as described by the said V. J. Bakre is as follows
First common salt is dissolved in water and ammonia gas is
passed through such dissolved salt called brine. The
ammonia gas gets absorbed in the brine. The solution so
formed is called AB solution, that is, ammoniated brine.
The AB solution is introduced at the top of a carbonating
tower and passed from section to section. from the top to
the bottom of the tower. At the bottom of the tower
compressed carbon dioxide is forced through at a pressure of
40 to 50 pounds per square inch and is bubbled through the
liquid in all the sections of the tower. The chemical
reactions involved in the tower are: (i) Ammonia Gas plus,
(ii) Carbon dioxide plus, (iii) water of the brine solution.
These react together to form ammonium bicarbonate which
reacts with salt in brine to produce sodium bicarbonate and
ammonium chloride. The sodium bicarbonate thus formed being
much less soluble in the liquid is precipitated and is then
taken out from the bottom of the tower. It is then filtered
and the sodium bicarbonate in moist condition is left on the
bed of the filter and the solution which is mostly of
ammonium chloride is pumped to ammonia reaction tower where
ammonia is produced. Moist sodium bicarbonate is then
washed and is heated in a calciner at 200’ centigrade., The
sodium bicarbonate, gets decomposed to give soda ash, water
and carbon dioxide. Carbon
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dioxide thus produced is reutilised in the cycle of
manufacture of soda ash. It contains 85% pure carbon
dioxide (according to the Company’s expert 50 to 60%) and is
mixed with carbon dioxide sucked by the compressor from the
lime kiln. The whole mixture, which contains about 60% of
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pure carbon dioxide is compressed in the compressor to a
pressure of 40 to 45 lbs. per inch Thus carbon dioxide is
essential in the production of soda ash and is produced by
burning limestone with coke in a kiln in the same manner as
by the, sugar manufacturing concerns which employ
carbonation process. The carbon dioxide so produced in the
kiln is first compressed in the compressor during the
compression stroke, and thereafter the piston compresses
the. gas in the said cylinder at pressure of more than 40 to
50 pounds per square inch. The gas so compressed is
compressed carbon dioxide which comes out of another valve
in the cylinder and comes into the delivery side of the
compressor admixed with carbon dioxide from the calciner.
This gas is throughout at a pressure of 40 to 45 lbs. per
sq. inch. This gas so manufactured is independent of soda
ash. The compressed carbon dioxide so produced does not
lose its identity of being compressed carbon dioxide. Pure
compressed carbon dioxide is isolated from the admixture of
gases in the carbonating tower where chemical reaction takes
place and is used in the manufacture of soda ash. According
to the Revenue the processes employed by the appellant
companies and by Tata. Chemicals Ltd. thus involve produc-
tion of compressed carbon dioxide which is amenable to
excise duty.
Item 14-H of Sch. I reads as follows
"14-H. Compressed, liquefied or solidified gases, the
following
(iv) Carbon acid Fifty per cent Fifty per cent
(carbon dioxide) ad valorem
By a notification dated March 2, 1963 issued under r. 8 (1 )
of the Central Excises Rules, 1944 the Central Government
exempted as from April 24, 1962 carbonic acid utilised in
manufacture of sugar within the factory of production for
clarifying and bleachin sugarcane juice or syrup from so
much of the excess of Rs. 25/- per metric tonne.
The contentions raised on behalf of the appellant companies
and Tata Chemicals Ltd. may be summarised as follows :-
(1) that the lime kiln is maintained to generate a mixture
of gases and not carbon dioxide; 4Sup.C.I./168-3
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(2) that at no stage in the process of generating this
mixture and sucking it into the sugarcane juice for
refining, carbon dioxide which forms one of the contents of
the said mixture is either compressed, liquidified or
solidified;
(3) that the mixture of gases so generated is not carbon
dioxide as known to the market;
(4) that according to the specifications laid down by the
Indian Standards Institution carbon dioxide content has to
be at least 99%;
(5) that the mixture of gases so generated has no other use
except for processing sugarcane juice;
(6) that the said mixture is neither sold nor is marketable
nor known to the trade;
(7) that the excise duty sought to be recovered on the con-
tent of carbon dioxide in the said mixture of gases cannot
fall under Item 14-H;
(8) that these concerns are not manufacturers of carbon
dioxide as carbon dioxide is not separated from the said
mixture of gases by any process nor is the carbon dioxide
content in the said mixture compressed, liquefied or
solidified;
(9) that the mere fact that the said mixture of gases is
passed through a conduit pipe by a process of suction cannot
mean that carbon dioxide becomes compressed carbon dioxide
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at that or any other stage;
(10) that the term "compressed" in Item 14-H contemplates
the form in which the article sought to be levied is
manufactured. There is no separation of carbon dioxide from
the said mixture at any stage nor is it compressed or stored
as carbon dioxide in cylinders; and lastly
(11) that the duty being, on goods it can be charged only on
goods known as carbon dioxide in the trade and marketable as
such.
The contentions of the Revenue, on the other hand, were
(1) that the mixture of gases generated as aforesaid is
nothing but impure carbon dioxide in the sense that
during the process of burning limestone with coke a small
quantity of carbon monoxide is released by the burning of
coke, the other gases in the mixture being nitrogen and
oxygen derived from the’ air which is let into the kiln to
aid combustion;
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(2) that these concerns require carbon dioxide for refining
sugarcane juice and manufacture it out of limestone and
coke. The other gases which get mixed up are unavoidable on
account of the process employed by them;
(3) that these extraneous gases can be separated and the
manufacturers would separate them if what they require is
pure carbon dioxide. They do not do so because carbon
dioxide mixed with other gases produces the same effect in
the process of refining as without them;
(4) that the fact that in the process Of its manufacture
carbon dioxide gets mixed up with other gases does not mean
that carbon dioxide which is intended to be and is in fact
produced loses its characteristics as such. The gas thus
produced contains 30 to 35% carbon dioxide;
(5) that the specifications laid down by the Indian
Standards Institution are not relevant as they are for
cylindered carbon dioxide bought and sold in the market
as pure carbon dioxide;
(6) that carbon dioxide produced by these concerns can be
sold in the condition in which it is produced and used by
other sugar mills and by factories manufacturing soda ash by
solvay process.
In support of their contentions the appellant companies as
also the Tata Chemicals Ltd. relied on the specifications
laid down by the Indian Standards Institution and the
several affidavits made by concerns using carbon dioxide for
the manufacture of their respective goods. As most of them
are identical, it is sufficient to take the affidavit of one
Shantilal Patel as typical. The deponent there asserts that
the company of which he is the senior chemist uses carbon
dioxide in considerable quantity in manufacturing aerated
waters, that carbon dioxide so used contains 99.5% of pure
carbon dioxide, that compressed liquidified or solidified
carbon dioxide as known to the trade or sold in the market
contains a minimum of 99% carbon dioxide conforming to the
specifications of the Indian Standards Institution, that
such carbon dioxide is contained in steel cylinders under a
pressure of minimum of 1000 lbs. per sq. inch and that kiln
or calciner gas is not known to the trade as carbon dioxide
nor is it marketed as such. Dr. Homi Ruttonji whose
affidavit was produced by Tata Chemicals Ltd. states that
for the purpose of manufacturing carbon dioxide an elaborate
plant shown in the annexure to his affidavit would have to
be set up separate from the plant and equipment used in the
manufacture of soda ash and refutes the statement of the
said Bakre that compressed carbon dioxide is forced through
at a pressure of 40 to 45 lbs. per sq. inch or that
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at the bottom of the said carbonating tower pure compressed
carbon dioxide is or can be isolated from the mixture of
gases in that tower where chemical reaction takes place. He
also refutes the statement that the process of generating
kiln gas is independent of the manufacture of soda ash and
states that the process of manufacture of soda ash is a
continuous and integrated process wherein a certain quantity
of kiln gas is released which is directly utilised without
removal or storage in the manufacture of soda ash.
According to him, kiln gas released during the manufacture
of soda ash is never known as carbon dioxide in the market.
To, obtain marketable carbon dioxide from kiln gas an
elaborate plant would be required for separation and
purification and it is such carbon dioxide which becomes
marketable after it is compressed at a pressure of 1000 to
1800 lbs. per sq. inch in cylinders of the specifications
laid down by the Government of India under Rule II of the
Gas Cylinder Rules, 1940.
Notwithstanding the divergence of opinion between the two
experts one thing is clear and that is that in the case of
both sugar and soda ash the manufacturer does require carbon
dioxide for the purpose of producing the two articles and
sets up lime kiln for that purpose. The question is whether
what he actually produces by combusting limestone with coke
is carbon dioxide and if so whetheris compressed carbon
dioxide as contemplated by Item 14-H.
In the Courseof their arguments counsel referred to
certain works on Chemistry in general and sugarcane industry
in particular. There are observations in some of them
which. might throw some light on the question before us.
The Handbook of Cane Sugar Engineering by E. Hugot (1960
ed.) at pp. 286 to 289 states that carbon dioxide necessary
for the carbonation process is produced at the same time as
lime in a lime kiln adjacent to the sugar factory. The
combustion of limestone with coke produces kiln gases
consisting of carbon dioxide, carbon monoxide, oxygen,
nitrogen and a certain amount of moisture. The proportion
of carbon dioxide in these kiln gases varies from 25 to 33%
averaging about 30%. The carbon dioxide leaving the washer
is at a temperature of 60’C. Its pressure at the suction of
the pump varies from 1.6 to 5 in of mercury and the delivery
pressure varies from 4 to 10 lbs. per sq. inch. It is also
stated that the,pumps known as Co2 pumps are fully analogous
to air pumps. (see also Cane Sugar’ Handbook by Guildord L.
Spencer and G. P. Meade, p. 138). The carbonation process
according to Hugot is one of the cheapest, cleanest *id most
reliable process in the sugarcane industry ensuring standard
quality of sugar. Roger’s Industrial Chemistry, (6th ed.)
p. 415
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in the chapter dealing with "Alkali and Chlorine production"
states thus
"The kilns used in the process are built and
operated with special precautions to produce
as high a concentration of Co., as possible.
In practice 41 to 43 per cent of Co2 is.
obtained in kiln gases with very little Co or
02, the rest of the gas being N15/2."
At pp. 415 to 417 of the said work, the Solvay process is
described in the same terms as in the affidavit in support
of the, petition of Tata Chemicals Ltd. J.A. Timm in his
General Chemistry (4th ed.), p. 470 states that commercial
carbon dioxide can be obtained as a bye-product of certain
industries, e.g., flue gases R. Norris Shreve in his
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Chemical Process Industries, (3rd ed.) states that there are
three important processes for commercial production of
carbon dioxide, viz., flue gases by burning carbonacious
material, bye-product from fermentation industries through
dextrose breakdown into, alcohol and carbon dioxide and bye-
product of lime kiln operation. He also states that an
absorption system is used for concentrating C02 gas obtained
from sources 1 and 3 to over 99%, and that in all cases the
almost pure carbon dioxide must be given various chemical
treatments for the removal of minor impurities which
contaminate the gas. Similarly, KirkOthmer in the
Encyclopedia of Chemical Technology, (2nd ed.) Vol. 1, p.
722 observe as follows :--
"The carbon dioxide evolved consists of both
that generated by the decomposing limestone
and’ that resulting from combustion of the
carbon in the coke. The kiln gases are
considerably diluted with nitrogen from the
air used to burn the coke; they usually con-
tain 37% to 42% carbon dioxide together with
stone dust, coke ash, particles and gaseous
impurities. The gas is cooled to some extent
in the kiln itself by the upper layers of
stone; it is further cooled and purified in
water scrubbers until it is absolutely free
from dust and tarry matters, and then, in the
more modern plants which make a very pure soda
ash, the gas is finally purified
electrostatically."
Arthur and Elizabeth Rose, in their Condensed Chemical Dic-
tionary, (7th ed.) p. 178 divide commercial carbon dioxide
into two grades, both of them having at least 99% carbon
dioxide. Such carbon dioxide when solidified is packed in
50 lbs. blocks ’in insulated boxes and is at a temperature
of 109’ below zero. When liquified it is packed in steel
cylinders. The uses of solidified or liquefied carbon
dioxide are refrigeration of foods, carbonated beverages,
industrial refrigeration, fire extinguishers, welding etc.
30
These extracts show that commercial carbon dioxide as
brought to the market for being bought or sold and used for
the purposes enumerated above has content of at least 99% of
carbon dioxide and is either compressed and packed in steel
cylinders or liquefied or solidified.
As the Revenue argued these concerns undoubtedly require
carbon dioxide in the processes employed by them while manu-
facturing sugar and soda ash and to meet, their requirement
they have set up lime kilns by which they produce kiln gas
which includes carbon dioxide to the extent of about 30 to
35%, which they in fact use after compressing it through a
pump or otherwise, at one stage or the other in their
manufacturing processes. Nonetheless, is it possible to say
that the lime kilns set up for the aforesaid purpose produce
carbon dioxide and even if it be so, that at one stage or
the other, through the pump or otherwise, the carbon dioxide
so produced becomes compressed carbon dioxide as envisaged
by the legislature when it decided to introduce Item 14-H in
the First Schedule ? It cannot be gain said that by burning
limestone with coke in the kiln the manufacturer actually
produces kiln gas of which one of the constituents
undoubtedly is carbon dioxide and which he utilises while
producing his ultimate excisable goods. But if it is
possible to say that what he produces is carbon dioxide
during the process which Mr. Palkhiwala termed as an
integrated and continuous manufacturing process or
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separately as the Revenue insisted, it is equally possible
to say that the combustion of limestone with coke results in
the manufacture of nitrogen, whose content in the kiln gas
is about 53%. As the text-books produced before us and the
affidavits show, the correct picture is that what is
produced is kiln gas which consists of several gases, viz.,
carbon dioxide, carbon monoxide, oxygen and nitrogen, the
last one being in a larger quantity than carbon dioxide.
The mixture of gases so generated is known as kiln gas in
the trade, i.e. to those who manufacture sugar and soda ash.
The affidavits of concerns which use carbon dioxide
definitely assert that kiln gas is never known in the market
as carbon dioxide nor is it a marketable article in the
sense that it is loose and is not transportable nor is it
brought to the market for being bought and sold unless
carbon dioxide is extracted out of it. Such extraction
requires an elaborate plant. After extraction it would have
to be compressed in cylinders of certain specifications or
liquefied or solidified before it can become a marketable
article.
It is true as the Revenue contended that the gas produce
through the kiln can be made marketable in the sense that it
car be sold in the very same condition in which it is
produced to concerns interested in the carbonation process
through" for example, pipes. But, apart from such a method
of disposal being
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uneconomic and hardly likely to be employed by the trade,
though it is possible in theory, what would be transported
is that which is produced through the kiln, viz., the kiln
gas containing among other things a certain quantity of
carbon dioxide. As one of the text-books points out
carbonation process is employed by manufacturers of sugar
because it is one of the cheapest methods to ensure
production of sugar of standard quality. The fact is that
in employing carbonation process the manufacturer who
requires carbon dioxide produces kiln gas and as that
mixture of gases contains carbon dioxide he pumps through a
pipe that mixture of gases and not carbon dioxide alone ex-
tracted from it. Therefore, in truth and in fact what he
uses is the kiln gas produced by him in the lime kiln. Even
assuming that this gas is compressed either through a narrow
pipe what is compressed is the kiln gas and it is that kiln
gas containing no doubt a certain percentage of carbon
dioxide which is inducted in the sugarcane juice for
refining. The same must also be said of the solvay process
used in the production of soda ash though in that case the
percentage of carbon dioxide is larger than in the case of
refining sugarcane juice.
The Act charges duty on manufacture of goods. The word
"manufacture" implies a change but every change in the raw
material is not manufacture. There must be such a
transformation that a new and different article must emerge
having a distinctive name, character or use. The duty is
levied on goods. As the Act does not define goods, the
legislature must be taken ,to have used that word in its
ordinary, dictionary meaning. The dictionary meaning is
that to become goods it must be something which can
ordinarily come to the market to be bought and sold and is
known to the market. That it would be such an article which
would attract the Act was brought out in Union of India v.
Delhi Cloth & General Mills Ltd.(1) The contention there was
that in the course of manufacture of vanaspati, a vegetable
product from groundnut and til oil, the respondents brought
into existence at an intermediate stage of manufacturing
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refined oil which fell within the description of "vegetable
nonessential oil, all sorts," in Item 23 of the First
Schedule. The contention would seem to assume that the
goods subjected to duty must be goods known as such in the
market. The contention was that the respondents, after they
bought raw oil with all its impurities, manufactured, by
application of certain processes of refinement, refined oil
which was the same as refined Oil available in the market
and that it was "refined oil" which became after further
processes the ultimate, vegetable product. It was argued
that the fact that the vegetable product was the ultimate
(1) [1963] Supp. 1 S.C.R. 586.
32
product and was chargeable to duty did not alter the
position that at an earlier stage, the respondents
manufactured "refined oil" as known to the market and that
the fact that they did not put this "refined oil" in the
market but used it to produce the finished product did not
affect their liability. This Court held that if a new
substance was brought into existence from raw materials and
that substance was the same as "refined oil" as known to the
market it would be subject to duty. The question,
therefore, was, was the substance sought to be charged
"refined oil" known to the market ? The affidavits showed-
that deodorization was necessary before the product could be
called "refined oil". It was not in dispute that that
process was employed after hydrogenation and not at the
stage when what was called "refined oil" came into existence
at an intermediate stage. No evidence was produced by the
Union of refined oil being brought to the market without
deodorization. It was held that raw oil purchased by the
respondents for the purpose of manufacturing vanaspati did
not become at any stage "refined oil" as known to the
consumers and the commercial community.
The affidavits filed in the instant cases and the scientific
works referred to above show that the mixture of gases
produced from the kiln is known both in trade and in science
as kiln gas and not as carbon dioxide. ’The Revenue has not
produced any affidavit of persons dealing in carbon dioxide
to show that kiln .gas is known to the market as carbon
dioxide. The aforesaid affidavits show that carbon dioxide
known to and brought in the market for being bought and sold
for its diverse uses is carbon dioxide compressed, liquefied
or solidified as Item 14-H describes it. The analogy given
by the learned Attorney-General of a manufacturer of cotton
cloth also producing at an intermediate stage cotton yarn
and such cotton yarn being liable to excise duty would not
help the Revenue as cotton yarn obtained by such a manufac-
turer is known as such in the commercial community and
brought to the market for being bought and sold. That
cannot be said of kiln gas. If kiln gas were to be offered
in discharge of a contract to supply carbon dioxide it would
certainly be rejected on the ground that it is no+, carbon
dioxide but is kiln gas. It is also not correct to say that
because the sugar manufacturer wants carbon dioxide for
carbonation purpose and sets up a kiln for it that he
produces carbon dioxide and not kiln gas. In fact what he
produces is a mixture known both to trade and,, science as
kiln gas, one of the constituents of which is, no doubt,
carbon dioxide. The kiln gas which is generated in these
cases is admittedly never liquefied nor solidified and is
therefore neither liquefied nor solidified carbon dioxide,
assuming that it can be termed carbon dioxide. It cannot be
called compressed carbon dioxide as
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understood in the market among those who deal in compressed
carbon dioxide. Compressed carbon dioxide is understood
generally as carbon dioxide compressed in cylinders with
pressure ranging from 1000 to 1800 lbs. per sq. inch. The
mere fact that at one stage or the other kiln gas is pressed
at 40 to 45 lbs. per sq. inch by a pump or otherwise cannot
mean that it is compressed carbon dioxide. At the same time
the duty being on manufacture and not on sale the mere fact
that kiln gas generated by these concerns is not actually
sold would not make any difference if what they generate and
use in their manufacturing processes is carbon dioxide. The
fact that the gas so generated has carbon dioxide below 99%
and does not conform to the specifications of the Indian
Standards Institution also would not matter for the gas may
be sub-standard, provided what is produced is carbon
dioxide.
In our view, the gas generated by these concerns is kiln gas
and not carbon dioxide as known to the trade i.e., to those
who deal in ’it or who use it. The kiln gas in question
therefore is neither carbon dioxide nor compressed carbon
dioxide known as such to the commercial community and
therefore cannot attract Item 14-H in the First Schedule.
In this view it is not necessary for us to consider certain
other contentions raised by the appellants and the
petitioners in the writ petition.
In the result, the appeals and the writ petition must
allowed and the orders passed by the High Court in the
appeals must be set aside. We hold that the demand notices
served on these concerns are illegal and must be quashed.
The respondents in these appeals as also in the writ
petition will pay costs to the appellants and the petitioner
in the writ petition. The costs will be one hearing fee for
the appeals and a separate set of costs in respect of the
writ petition.
R.K.P.S. Appeals and Petition allowed.
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