Collector,
Central Excise, Bombay Vs. M/S. S.D. Fine Chemicals Pvt.
Ltd. [1995] INSC 208 (30
March 1995)
Jeevan
Reddy, B.P. (J) Jeevan Reddy, B.P. (J) Sen, S.C. (J) B.P. Jeevan Reddy, J.:
CITATION:
1995 SCC Supl. (2) 336 JT 1995 (3) 353 1995 SCALE (2)550
ACT:
HEAD NOTE:
1. In
this appeal preferred by the Collector, Central Excise, Bombay under Section 35(L) of the Central
Excise Act, 1944 (hereinafter referred to as 'the Act'), the question is
whether the distillation and recrystallisation carried out by the respondent
amounts to 'manufacture'? The respondent, M/s. S.D.Fine Chemical Pvt.Ltd., arc
engaged in the manufacturing of laboratory chemicals and fine chemi- cals. They
also undertake repacking and purification of laboratory and fine chemicals. In the
classification list filed by them on April 1, 1983, they claimed that the
process of purification and distillation undertaken by them does not amount to
process of manufacture and accordingly, claimed exemption from duty in respect
of such goods under Notification No. 77 of 1983 dated March 1, 1981 The
Assistant Collector agreed with the respondent but his order was revised by the
Collector (Appeals who held that the processes undertaken by the respondent do
amount to manufacture. Inasmuch as a new commodity known to the market emerges
as a result of such processes, he held, they are liable to excise duty. The
respondent filed an appeal before the Customs, Excise and Gold (Control)
Appellate Tri- bunal, New
Delhi which was heard
in the first instance by a Bench of two Members. The Member (Technical) agreed
with the respondent. The held that the processes undertaken by the respondent
is merely for improving the quality or purity of the chemicals and does not
amount to...... fracture. He observed that even after purification, the
chemicals are, known by the very same name and that there was no change in the
chemical formula even after purification. The simple process of distillation
and recrystallisation of the chemi- cals does not amount to manufacture for the
purposes of the Act, he held. The Member (Judicial) however, took a con- trary
view. The was of the opinion that the process undertaken by the respondent is
not a simple process and that the said process "brings in a transformation
which will change the name, character and use". The Member (Judicial)
further observed, "the ordinary chemicals cannot be used in laboratory
without it undergoing purification. They are traded in different commercial
name and has altogether different use. So long as the trade recognises it as a
different commodity and its uses are different, the item has to be recognised as
a different goods and became excisable goods". In view of the difference
of opinion between the two Members, the matter was referred to a third Member.
The third Member held in favour of the respondent manufacturer on the following
reasoning "As can be gathered, the key test is 355 whether the commodity
which is subjected to the process of manufacture can no longer be regarded as
the original commodity. In my view in the instant case this test has not been
satisfied as the chemicals prior to the two processes concerned herein
continues to remain the same after being subjected to the processes, admittedly
with only a change in increase in purity. The commodity retains its identity
substantially through the processing stage. Therefore, it cannot be said to
have been manufactured."
2. it
would be evident from the opinion of the third Member that he did not deal with
the several aspects dealt with in the opinions of the two differing members. He
did not also indicate whether he agrees or disagrees with the findings recorded
by the Member (Judicial), viz., that after the processes undertaken by the
respondent, the chemicals bear a different chemical name and have an altogether
dif- ferent use. The third Member did not also deal with the holding of the
Member (Judicial) that after the processes undertaken by the respondent, the
chemical became a different commercial commodity.
3. The
expression 'manufacture' is defined in clause (f) of Section 2 of the Act The
definition, as substituted by Finance Act (No. 25) of 1975, with effect from March 1, 1975 reads thus:
"
manufacture' includes any process,- (i)incidental or ancillary to de completion
of a manufactured product;
(ii)which
is specified in relation to any goods in the Section or Chapter notes of the
Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture,
and the word 'manufacture' shall be construed accordingly and shall include not
only a person who employs hired labour in the production or manufacture of
excisable goods, but also any person who engages in their production or
manufacture on his own account."
4. The
definition is thus an inclusive definition. The purpose of the definition is to
include certain processes and activities within the ambit of the said
definition which may not otherwise amount to manufacture, as ordinarily
understood. This inclusion is in addition to the normal meaning and context of
the expression ,manufacture'. The said expression has been the subject matter
of several deci- sions of this Court to which a brief reference is necessary to
bring out the principles enunciated therein. In Union of India v. Delhi Cloth
and General Mills (1963 Suppl (1) S.C.R.586) the revenue wanted to levy a duty
upon 'refined oil' which was obtained by the respondent-manufacturer at an
intermediate stage of production of vanaspati. The respondent cleansed the oil
purchased by him by applying certain processes and thus obtained 'refined oil'.
But the respondent did not apply the process of deodorisation before
hydrogenating the refined oil. The case of the Revenue was that even non-deodorised
refined ground-nut/til oil is 'refined oil' as known to the consumers and the
commercial community. The respondent's case, however, was that the 'refined
oil' as known to the consumers and the commercial community is necessarily the deodorised
refined oil. After referring to the material produced by both the parties, this
Court upheld the respondent's contention and held that "without deodorisation,
the oil is not 'refined oil' as is known to the consumers and the com- 356 mercial
community',. This Court further held "that the raw oil purchased by the
respondent for the purpose of manufac- ture of vanaspati does not become at any
stage 'refined oil' as is known to the consumers and the commercial
community".
For
this reason, it was held that refined oil obtained by the respondent at stage
anterior to hydrogenation is not 'vegetable nonessential oil' or by 'all sorts'
in or in relation to the manufacture of which any process is ordinarily carried
on with the aid of power within the meaning of Item 12 of the 1st Schedule to
the Act. So far as legal position is concerned, this Court stated it in the
following words:
"Excise
duty is on the manufacture of goods and not on the sale. Mr. Pathak is
therefore right in his contention that the fact that the substance produced by
them at an immediate stage is not put in the market would not make any
difference. If from the raw material has been brought into existence a new
substance by the application of processes one or more of which are with the aid
of power and that substance is the same as "refined oil" as known to
the market an excise duty may be leviable under Item 23 (the present item 12)-.
5. The
Court then dealt with the next argument of the appellant-Union of India that
even if it is held that the respondent did not manufacture 'refined oil' as
known to the market, even so they must be held to manufacture some kind of
'non-essential vegetable oil' within the meaning of Item
23.
This Court rejected the said argument with reference to the meaning of the
expressions "manufacture" and "goods", in the following
words:
"The
word "manufacture" used as a verb is generally understood to mean as
'bringing into existence a new substance' and does not mean merely 'to produce
some change in a substance,' however minor in consequence the change may be.
This distinction is well brought about in a passage thus quoted in Permanent
Edition of Words and Phrases, Vol.
26
from an American Judgment. The passage runs thus:- 'Manufacture' implies a
change, but every change is not manufacture and yet every change of an article
is the result of treatment, labour and manipulation. But something more is
necessary and there must be transformation;
a new
and different article must emerge having a distinctive name, character or
use'."
6. The
Court then referred to and dealt with the meaning of expression 'goods'
occurring in Section 3 and observed thus:
"These
definitions make it clear that to become "goods" an article must be
something which can ordinarily come to the market to be bought and sold.
This
consideration of the meaning of the word "goods" provides strong
support for the view that "manufacture" which is liable to excise
duty under the Central Excises and Salt Act, 1944 must be the 'bringing into
existence of a new substance known to the market'. "But", says the
learned counsel, "look at the definition of "manufacture" in die
definition clause of the Act and you will find that "manufacture" is
defined thus: 'Manufacture ' includes any process incidental or ancillary to
the completion of a manufactured product.
[S.2(f)].
" We are unable to agree with the learned counsel that by inserting this
definition of the word "manufacture" in S.2(f) the legislature
intended to equate "processing" to "manufacture" and
intended to 357 make mere "processing" as distinct from
"manufacture" in the same sense of bringing into existence of a new
substance known to the market, liable to duty. The sole purpose of inserting
this definition is to make it clear that at certain places in the Act the word
'manufacture' has been used to mean a process incidental to the manufacture of
the article.
Thus in
the very item under which the excise duty is claimed in these cases, we find
the words: "in or in relation to the manufacture of which any process is
ordinarily carried on with the aid of power." The definition of
'manufacture' as in S.2(f) puts it beyond any possibility of controversy that
if power is used for any of the numerous processes that are required to turn
the raw material into a finished article known to the market the clause will be
applicable; and an argument that power is not used in the whole process of
manufacture using the word in its ordinary sense, will not be available. It is
only with this limited purpose that the legislature, in our opinion, inserted
this definition of the word 'manufacture' in the definition section and not
with a view to make the mere " processing" of goods as liable to
excise duty. -
7. In
South Bihar Sugar Mills Ltd. & Anr.Etc. v. Union of India & Anr. (1968 (3) S.C.R. 2 1), the above
interpretation was affirmed.
8. In
Empire Industries Ltd. & Ors. v. Union
of India & Ors. (1985 (3) S.C.C.314) the question arose whether the process
of bleaching, dyeing, printing of grey cloth amounts to 'manufacture' as
defined in the Act. It may not be necessary to set out the reasoning in this
case inasmuch as the very same question was considered later by a Constitution
Bench of this Court in M/s. Ujagar Prints & Ors. v. Union of India & Ors. (1989 (3)S.C.C.488). We will,
therefore, refer to the reasoning in Ujagar Prints.
The
facts in Ujager Prints, were these: the customers supplied the grey fabric to
the appellant who carried out operations of bleaching, dyeing, printing,
glazing, shrink- proofing etc. against payment of processing charges. The
ownership of the cloth rested with the customers who got these processes done to
their specifications from the ap- pellant on payment of processing charges. The
question was whether the appellant can be said to ham: undertaken 'manufacture'
as defined in the Act. M.N. Venkatachahah, J, as the then learned Judge was
dealt with several decisions of this Court including those referred to above as
well as the decisions rendered by this Court under different Saks Tax
enactments [including M/s. Tungabhadra Industries Ltd. and enunciated the
principle in the following words:
.LM15
"The prevalent and generally accepted test to ascertain that there is
"manufacture" is whether the change or the series of changes brought
about by the application of processes take the commodity to the point where,
commercially, it can no longer be regarded as the original commodity but is,
instead, recognised as a distinct and new article that has emerged as a result
of the processes. The principles are clear. But difficulties arise in their
application in individual cases. There might be borderline cases where either
conclusion with equal justification be reached.
Insistence
on any sharp or intrinsic distinction between 'processing' and 'manufacture',
we are afraid, results in an oversimplification of both and tends to blur their
interdependence in cases such as the present one."
9. The
learned Judge then dealt with 358 argument that if the expression 'manufacture'
defined under Section 2(f) of the Act is understood in a broad sense to include
processes, which in truth do not amount to manufacture, the definition and the
very Act would fall outside Entry 84 of List-I of the Seventh Schedule to the
Constitution. The learned Judge rejected the argument holding "at all
events, even if the impost on process is not one under envy 84, List 1, but is
an impost on "processing" distinct from "manufacture" die
levy could yet be supported by entry 97, List-I even- without the aid of the
wider principle recognised and adopted in Dhillon Case". The learned Judge
then referred to the principle of the decision in Union of India v, H.S. Dhillon
(1971 (2) S.C.C.779) and observed:
"So
far as the exclusive competence of the Union Parliament to legislate is
concerned all that is necessary is to find out whether the particular topic of
legislation is in List 11 or List III. if it is not, it is not necessary to go
any further or search for the field in List 1. Union Parliament has exclusive
power to legislate upon that topic or field. Of course, it has concurrent power
also in respect of the subjects in List HI." 10.In Collector of Central
Excise, Madras v. M/s. Kutty Flush Doors and Furniture Co. (P) Ltd. (1988
Suppl.S.C.C.239), this Court observed, after referring to the principle of
Delhi Cloth and General Mills (supra) and South Bihar Sugar Mills (supra), to
die following effect.
"This
principle is well-settled. This is a question of fact depending upon the
relevant material whether as a result of activity, ne w and different article
emerges having a distinct name, character and use. " .LM0 11.On the
meaning of expression " process", the following statement in the
decision of this Court in Collector of Central Excise, Jaipur v. Rajasthan
State Chemical Works, Deedwana, Rajasthan (1991 (4) S.C.C.473) is relevant:
"The
natural meaning of the word 'process' is a mode of treatment of certain
materials in order to produce a good result, a species of activity performed on
the subject-matter in order to transform or reduce it to a certain stage. A to
Oxford Dictionary one of the meanings of the word 'process' is "a
continuous and regular action or succession of actions taking place or carried
on in a defi- nite manner and leading to the accomplishment of some
result." The activity contemplated by the definition is perfectly general
requiring only the continuous or quick succession. It is not one of the
requisites that the activity should involve some operation on some material in
order to its conversion to some particular stages There is nothing in the
natural meanings of the word 'process' to exclude its application to handling.
There may be a pro- cess which consists only in handling and there may be a
process which involves no handling or not merely handling but use or also use.
It may be a process involving the handling of the material and it need not be a
process involving the use of material. The activity may be subordinate but one
in relation to the further process of manufacture."
12.
The question in the decision was whether the respondent was entitled to the
benefit of a particular exemption notification but that question in turn raised
the question what is 'manufacture' and what is 'process'? The Bench (S. Ranganathan,
Fathima Beevi and N.D. Ojha, JJ.) expressed the aforesaid opinion.
359
13.
The decisions aforesaid make it clear that the definition of the expression
'manufacture' under Section 2(f) of the Act is not confined to the natural
meaning of the expression 'manufacture' but is an expansive definition.
Certain
processes, which may not have otherwise amounted to manufacture, are also
brought within the purview of and placed within the ambit of the said
definition by the Parliament. Not only processes which are incidental and
ancillary to the completion of manufactured product but also those processes as
are specified in relation to any goods in the section or chapter notes of the
schedule to the Central Excise Tariff Act, 1985 are also brought within the
ambit of the definition. As has been repeatedly observed by the Court, though
the principles enunciated are clear, it is their application that presents
difficulties and it does not help to draw "any sharp or intrinsic
distinction between 'processing' and ,manufacture', "which would only
result in an oversimplification of both and tends to blur their interdependence
in cases such as the present one," (Ujagar Points). It would also be not
right, as pointed out in Ujagar Prints to try to restrict the sweep of the
definition with reference to Entry 84 List-I of the seventh Schedule to the
Constitution. Since the constitutionality of the said definition has been
repeatedly upheld with reference to both Entries 84 and 97 of List-I (Empire
Industries and Ujagar Prints), the definition must be understood in terms it is
couched. It should also be remembered that the question whether a particular
process does or does not amount to 'manufacture' as defined under Section 2(f)
is always a question of fact to be determined in the facts of a given case
applying die principles enunciated by this Court. One of the main tests evolved
by this Court is whether on account of the processes employed or applied by the
assessee, the commodity so obtained is no longer regarded as the original
commodity but is, instead, recognised as a distinct and new article that has
emerged as a result of the processes (Ujagar Prints).
14.
Now coming to the facts of the case before us, it is clear from the perusal of
the opinion of the third Member of the Tribunal that he has not dealt with the
cast in a full and proper manner and has disposed of the issue in a cryptic
manner. It has, therefore, become necessary to remit the matter for the fresh
opinion of the third Member of the Tribunal. The third Member shall now hear
the parties and render his opinion afresh on the question referred to him.
He
shall do so within six months from this date. He shall transmit his opinion to
this Court soon after rendering it.
15. If
the third Member, Jyoti Balasundaram, who heard the matter is not available,
the Chairman of die Tribunal shall specify another Member for hearing this
matter.
16.
List the appeal after receipt of the finding/ opinion from the Tribunal.
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