South Bihar Sugar Mills Ltd. Vs. Union
of India & Ors  INSC 29 (5 February 1968)
05/02/1968 SHELAT, J.M.
WANCHOO, K.N. (CJ) BACHAWAT, R.S.
CITATION: 1968 AIR 922 1968 SCR (3) 21
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)
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.
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 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
It was contended, inter alia, on behalfof 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.
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
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 what is produced is carbon
dioxide. [32 D-H] Union of India v, Delhi Cloth & General Mills Ltd. 
Supp. I S.C.R. 586, referred to.
CIVIL APPELLATE/ORIGINAL JURISDICTION: Civil
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,594D, 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);.
23 N, A.Palkhivala, F. N. Kaka, O. P.
Malhotra O. C. Mathur and Ravinder Narain, for the 'petitioner (in W.P. No, 212
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 (inC.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
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 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
24 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 25 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
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 production of compressed carbon dioxide which is amenable to excise
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 26 (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
(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 content 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 at that or any other
(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;
27 (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
(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 28 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 29 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 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, by-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 contain 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
Dictionary, (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
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 manufacturing
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
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
It is true as the Revenue contended that the
gas produce through the kiln can be made marketable in the sense that it can 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 31 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 extracted 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 till oil, the respondents brought into
existence at an intermediate stage of manufacturing 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)  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 manufacturer 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 33 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
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
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.