Union of India Vs. Delhi Cloth &
General Mills [1962] INSC 287 (12 October 1962)
12/10/1962 GUPTA, K.C. DAS 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 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 587 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.
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 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 589 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.
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
590 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." 591 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 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 till 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 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".
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 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.
The appeals are accordingly dismissed with
costs.
Appeals dismissed.
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