Central Excise, Chennai-II Vs. M/S. Tarpaulin International  INSC 582 (4
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.5341 OF
2005 Commissioner of Central Excise, Chennai-II Commissionerate
............Appellant Versus M/s. Tarpaulin International ...........Respondent
WITH CIVIL APPEAL NOS.6624-6626 OF 2002 Commissioner of Central Excise,
Chennai-II Commissionerate ...........Appellant Versus M/s. Tarpaulin
International & Ors. ..........Respondents WITH CIVIL APPEAL NOS.7563-7564
OF 2005 Commissioner of Central Excise, Chennai-II Commissionerate
...........Appellant Versus Rohini Mills Pvt. Ltd. ...........Respondent 1 WITH
CIVIL APPEAL NO.7628 OF 2005 Commissioner of Central Excise, Chennai-II
Commissionerate ...........Appellant Versus Geotex Mills Pvt. Ltd.
...........Respondent WITH CIVIL APPEAL NO.7629 OF 2005 Commissioner of Central
Excise, Chennai-II Commissionerate ...........Appellant Versus Bharat Textile
Proofing Industries Ltd. ...........Respondent WITH CIVIL APPEAL NOS.1453-1455
OF 2008 Commissioner of Central Excise, Chennai ...........Appellant Versus
M/s. Pondicherry Water Proofers Etc.Etc. ...........Respondents 2 WITH CIVIL
APPEAL NOS.309-311 OF 2006 Commissioner of Central Excise, Chennai-II
Commissionerate ...........Appellant Versus F. Harley and Company
These appeals, which are at the instance of the Commissioner of
Central Excise, raise a common issue, viz., whether the tarpaulin made-ups
which are prepared after cutting and stitching the tarpaulin fabric and fixing
the eye-lets would involve the process of manufacture and, hence, would fall
within the definition of `manufacture' ?
The issue above mentioned has come up in the light of the
following facts which can be briefly stated as follows: we take M/s Tarpaulin
International Civil Appeal No. 5341 of 2005 as the lead case.
noticee is carrying on the business of producing and selling `tarpaulin
made-ups'. The `tarpaulin made-ups' are nothing but the tarpaulin cloth which
is prepared by making solution of wax, aluminum stearate and pigments which are
mixed and the solution is heated in a vessel and transferred to a tank. Grey
cotton canvas fabric is then dipped into this solution and passed through two
rollers, where after the canvas is dried by exposure to atmosphere. Thereafter,
the tarpaulin made-ups are prepared by cutting the cloth into various sizes and
stitched and eye- lets are fitted. The noticee states that the process of mere
cutting, stitching and putting eyelets does not amount to manufacture and
hence, the department cannot levy Excise Duty on tarpaulin made-ups.
the view of the department is that, the "made-ups" prepared by means
of cutting, stitching and fixing of eye-lets amounts to manufacture and, hence,
they are exigible to duty under the Central Excise Tariff Act, 1985 (for short
A show cause notice was issued by a competent authority dated
31.8.1995, inter alia directing the noticee to show cause as to why tarpaulin
made-ups be not classified under chapter sub-heading 63.01 and the
corresponding duty of Rs.57,33,262/- be demanded. The assessees 4 had filed
their replies inter alia contending that no manufacturing process was involved
in the conversion tarpaulin fabric into tarpaulin made-ups.
OF CENTRAL EXCISE:
After adjudication, the matter was decided by the Commissioner of
Central Excise, vide Order no. 10/1997. Being aggrieved, the assessee went up
in appeal before Customs, Excise and Gold (Control) Appellate Tribunal, South
Zonal Bench at Chennai. The Tribunal vide its order dated 24.04.1998 remitted
the matter to the Commissioner of Central Excise for de novo adjudication after
due consideration of all material evidence. The Commissioner, vide order in
Original no. 24/2000 dated 28.11.2000 decided the issue in favour of the
Department. The Commissioner concluded by holding that the tarpaulin made-ups
were specifically covered under Tariff heading 63.01. The Commissioner in terms
of Rule 3(a) of the Interpretative Rules, stated that the heading which
provides more specific description is to be preferred to the heading that
provides a general description.
EXCISE AND SERVICE TAX APPELLATE TRIBUNAL:
Aggrieved by the Commissioner's order dated 28.11.2000, the
noticee/assessee filed appeal before the Tribunal. It was contended on behalf
of the assessee that conversion of Tarpaulin fabric into "Tarpaulin made
ups" does not amount to manufacture for the purpose of levy of central
excise duty. However, Revenue contended that tarpaulin made- ups are a distinct
marketable commodity known to Trade and therefore, it should be held to be
excisable. It was also contended that, on account of the specific coverage of
the item in the Central Excise Tariff, it would be exigible to duty.
The Tribunal after giving due consideration to the submission of
both sides, has come to the conclusion that no `manufacture' was involved in
the conversion of Tarpaulin made-ups.
deciding, the Tribunal has relied on the decision of Andhra Pradesh High Court
in TRC No. 215/90 [State of Andhra Pradesh v. Binny Ltd.], wherein it is held,
that, stitching of the edges of cotton canvas and fitment of eyelets thereto
did not bring about any material change in the essential character of cotton
canvas and it remained cotton fabric. The Tribunal found parity between the
decision of the Andhra Pradesh High Court and the case at hand. Accordingly,
the Tribunal vide order dated 10.01.2005 allowed the appeal filed by the
Being aggrieved by the decision of the Tribunal the Revenue has
filed Civil Appeals and has raised the following question of law for
consideration and decision. They are :- a) Whether the process of converting
`Tarpaulin Fabrics' into `Tarpaulin made-ups' would amount to manufacture when
the said process results in an entirely different commodity with different
marketable value? b) Whether the said process would amount to manufacture as
defined under Section 2(f) of the Central Excise Act, 1944?
Sri R.P. Bhatt, learned senior counsel for the revenue contended,
that, the Tarpaulin made ups are made out of Tarpaulin fabric by cutting
Tarpaulin fabric to a required size, margins are stitched, and eye lets are
punched depending on the requirement of the consumers.
made ups are a distinct marketable commodity and, hence, it should be held
exigible to central excise duty. In aid of his submission, the learned senior
counsel has placed reliance on the observations made 7 Commissioner of Income
Tax, Madras, [2009 (233) ELT 8 (S.C.)]. The learned counsel for the respondents
were absent and, therefore, we did not have the benefit of hearing their
Let us first notice the relevant entries. They are:
63 of Central
Excise Tariff Act, 1985, is expressly made applicable
to made-up articles :
No. 1 reads as :
Chapter applies only to made up articles of any textile fabrics other than
wadding, excluding knitted or crocheted articles other than brassieres,
girdles, corsets, braces and the like."
heading 63.01 deals with Tarpaulin made-ups. The entry is as under:
up textile articles not elsewhere specified including blankets (other than
wool) Tarpaulin Tents, Sails or boats."
`Made up' is defined in Section 5(e) to Section XI of CET reads as: -
`assembled by serving, gumming or otherwise.'
For deciding the above mentioned issue, it is important to
understand the condition which needs to be satisfied for levy of Excise Duty.
The power to levy the excise duty is provided under Chapter II titled `Levy and
Collection of Duty' of the Central Excise Tariff Act, 1985
(hereinafter referred to as `the Act'). The excise duty is levied 8 under
Section 3 of the Act. The basis for the levy of Central Excise duty is on the
production or manufacture of goods within the country.
Section 2(d) of the Act defines the meaning of the expression
`excisable goods' means goods specified in the First Schedule and the Second
Schedule to the Central
Excise Tariff Act, 1985 as being subject to a duty of
excise and includes salt.
At the relevant time the expression "Manufacture" was
defined in Section 2(f) of the Act, as under:- `Manufacture' includes any
process - i. incidental or ancillary to the completion of a manufactured
product; and ii. which is specified in relation to any goods in the Schedule or
Chapter Notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture.
The result of the definition contained in Section 2(f) of the Act
is that the word manufacture means production of an article for use from raw or
prepared materials, by giving these materials new form, quality, properties or
combinations whether by hand labour or machinery. The word includes any process
incidental or ancillary to 9 the process of manufactured product. This Court
has in several judgments starting from Tungabhadra Industries v. CTO, [(1961) 2
SCR 14], Union of India v. Delhi Cloth & General Mills Co.Ltd., [(1997) 5
SCC 767], South Bihar Sugar Mills v. Union of India, [(1968) 3 SCR 21] and line
of other judgments have explained the meaning of the expression `Manufacture'.
In all these judgments, this court has observed that "manufacture implies
a change, but every change is not a manufacture and yet every change in an
article is the result of treatment, labour and manipulation. But something more
is necessary....... There must be transformation, a new and different article
must emerge, having a distinctive name character or use".
The definition was amended and Section 2(f)(ii) was introduced vide Central Excise
Tariff Act with effect from 28.2.1986 by Act 5 of 1986. It is worded thus:
"Manufacture includes any process which is specified in relation to any
goods in the Section or Chapter Notes of the Central Excise Tariff Act, 1985 as amounting to manufacture".
Whenever a commodity undergoes a change as a result of some
operation performed on it or in regard to it, such operation would amount to
processing of the commodity. However, this court in 10 the case of India Cine
Agencies v. Commissioner of Income Tax, Madras, [2008 (233) ELT 8(SC)]
observed, that, it is only when the change or a series of changes takes the
commodity to the point where commercially it can no longer be regarded as the
original commodity but instead is recognized as a new and distinct article that
a manufacture can be said to take place. This court in the case of Union of
India v. Delhi Cloth and General Mills, [1977 (1) ELT (J199)] referring to the
meaning of expression manufacture explained in the stated :
implies a change but every change is not manufacture and yet every change of an
article is the result of treatment, labour and manipulation.
something more is necessary and there must be transformation, a new and
different article must emerge having a distinctive name, character or
Line of cases has settled the law as regards the definition of
`manufacture'. Keeping in view the detailed observations made in the case of
Union of India v. Delhi Cloth and General Mills, [1977 (1) ELT (J199)], this
court in the case of Bhor Industries Ltd., Bombay v. Collector of Central
Excise, Bombay, [1989 (40) ELT 280(SC)], has stated that "it is necessary,
to find out whether there are goods, that is 11 to say, articles as known in
the market as separate distinct identifiable commodities...... Marketability,
therefore, is an essential ingredient in order to be dutiable under the
Schedule to Central Tariff Act, 1985."
Furniture Co. (P) Ltd., [(1988) Supp. SCC 239], it is stated, that,
manufacture implies a change, but every change is not a manufacture and yet
every change of an article is the result of treatment, labour and manipulation.
But something more was necessary and there must be transformation, a new and
different article must emerge having a distinct name, character or use.
In B.P.L. India Ltd. v. Commissioner of Central Excise, Cochin,
[2002 (143) ELT 3(SC)], throws considerable light on the point. This court
stated that "a question as to when a manufacture of product takes place
within the meaning of Section 2(f) of the Act is mixed question of law and
fact." The process may vary, but it is only the change that will bring
into existence a new and distinct article known to the consumers and the
commercial community as a 12 commercial product, which can be no longer
regarded as the original commodity, can be deemed to be `manufacture'.
In Empire Industries Ltd. v. Union of India, [(1986) 162 ITR
846(SC)], this Court has stated that the transformation into something else
"is a question of degree, whether that something else is a different
commercial commodity having its distinct character, use and name and
commercially known as such from that point of view, is a question depending
upon the facts and circumstances of the case."
In an Australian decision in the case of Adams v Rau, [46 CLR 572
High Court of Australia] shorthand writers were involved in process of taking
notes and later transcribed the notes by using papers.
observed that "The medical practitioner who provides the service of taking
X-rays and furnishes copies of the skiagraph to the patient, although he causes
a new thing or entity to come into existence, is not a producer of goods. Nor
is the artist who makes an etching for a client and provides him with a dozen
copies, a manufacturer of commodities." Hence, the process was not held to
In the case of C.C.E. v. S.R. Tissues Pvt.Ltd., [2005 (186)
E.L.T.385(S.C.)], it was held that just because raw material and finished
product come under two different headings, it cannot be presumed that process
of obtaining finished product from such raw material automatically constitutes
manufacture. Slitting/cutting of jumbo rolls of toilet tissue paper/aluminium
foil into smaller size does not amount to manufacture of the principle that
character and end-use did not undergo any change on account of winding,
cutting/slitting and packing.
It is not in dispute nor it can be disputed that Tarpaulin made
ups are covered under sub-heading 63.01 CETA Schedule. The question is whether
the commodity in question resulted from manufacture as envisaged under Section
2(f) of Central Excise Act. It is now well settled that merely because certain
article falls within the Schedule, it would not be dutiable under the Excise
Law, if the said article is not `Goods' known to the market. Marketability,
therefore, is an essential ingredient in order to be dutiable under Schedule to
Excise Tariff Act, 1985. [See Bhor Industries v. CCE,
[1989 (4) ELT 280], Moti Laminates Pvt. Ltd. v. CCE, [1995 (76) ELT 241], 14
Dharangadhara Chemicals Works Ltd. v. Union of India, [1997 (91) ELT 253].
Is there any manufacture when Tarpaulin sheets are stitched and
eyelets are made? In our view, it does not change basic characteristic of the
raw material and end product. The process does not bring into existence a new
and distinct product with total transformation in the original commodity. The
original material used i.e., the tarpaulin, is still called tarpaulin made-ups
even after undergoing the said process.
cannot be said that the process is a manufacturing process.
there can be no levy of Central Excise duty on the tarpaulin made-ups. The
process of stitching and fixing eyelets would not amount to manufacturing
process, since tarpaulin after stitching and eyeleting continues to be only
cotton fabrics. The purpose of fixing eyelets is not to change the fabrics.
Therefore, even if there is value addition the same is minimum. To attract duty
there should be a manufacture to result in different Goods and the Goods sought
to be subject to duty should be known in the market as such.
24) To sum up, the Tribunal has rightly held that conversion of
Tarpaulin into Tarpaulin made-ups would not amount to manufacture.
find no merit in these appeals. Accordingly, these are dismissed.
as to costs.
...........................J. [ D.K. JAIN ]
...........................J. [ H.L. DATTU ]
August 04, 2010.