Commissioner of Central Excise, Vs. M/S
Gurukripa Resins Pvt. Ltd.
J U D G M E N T
D.K. JAIN, J.:
1. The Commissioner of Central
Excise has preferred this batch of Civil Appeals under Section 35-L(b) of the
Central Excise Act, 1944 (for short "the Act"), questioning the correctness
of the orders passed by the Customs, Excise and Service Tax Appellate Tribunal,
West Regional Bench at Mumbai (for short "the Tribunal") whereby the
appeals filed by the respondent-assessee (for short "the assessee")
have been allowed and the applications filed by the Commissioner for
rectification of mistakes in the main orders have been dismissed.
2. As all the appeals
involved a common question of law, pertaining to the same assessee, these were heard
together and are being disposed of by this common judgment. However, in order to
appreciate the issue involved and the rival stands thereon, for the sake of convenience,
we shall advert to the facts emerging from C.A. No. 7627 of 2005 arising out of
Tribunal's order in appeal No. E/1050/03-Mum and E/Rom-691/04- Mum.
3. The assessee, a body Corporate,
is engaged in the manufacture and clearance of "Rosin" and
"Turpentine Oil". As per some literature placed on record,
"Rosin" is the resinous constituent of the Oleo-resin exuded by various
species of pine, known in commerce as crude turpentine. The separation of the
Oleo-resin into the essential oil-spirit of turpentine and common Rosin is
effected by distillation in large copper stills. "Rosin" and
"Turpentine Oil" are classifiable under Chapter Heading Nos. 38.06 and
38.05 respectively of the First Schedule to the Central Excise Tariff Act, 1985
(for short "the Tariff Act").
The assessee filed the requisite classification
declarations with the Deputy Commissioner, Central Excise, classifying their finished
goods i.e. "Rosin" under the Sub- heading 3806.19 and
"Turpentine Oil" under Sub-heading 3805.19, both bearing `nil' rate
of duty, on the ground that the said goods were being manufactured by them without
the aid of power. The Deputy Commissioner accepted the classifications under the
said Sub-headings but treated the said goods as "in or in relation to the manufacture
of which any process is ordinarily carried on with the aid of power",
attracting rate of duty @ 16%.
According to the Deputy Commissioner the
assessee is using 5 Hp electric motor for lifting water from the well for
storage tank at the ground level; the main raw material namely, Oleo-pine Rosin
is lifted to the manufacturing platform by manually operated chain pulley block;
the raw material is heated in a melting tank - a "Bhatti" fired with coal;
the molten raw material is then transferred to settling tanks where it is kept in
the liquid form and stirred by manually operated agitators so that the
impurities may settle down; the impurities are separated and purified raw material
is transferred in the main tank (Distillery) where it is again heated upto
1800C; at this temperature, the vapours of turpentine oil are formed and
finally the
"Turpentine Oil" is collected by the
process of distillation through the condensers by sprinkling water on the
condensers from the water storage tanks installed at a height of 30 ft.; water
for the tanks is lifted from the storage tanks at the ground level by using 2 Hp
electric motor. "Rosin" which settles down in the Distillery, is
collected separately. The Deputy Commissioner was of the view that the water being
an important input for the manufacturing process of "Rosin" and
"Turpentine Oil", its further lifting upto the height of 30 ft. with
the aid of an electric motor for the purpose of condensing the vapours of Turpentine
Oil, it cannot be said that the said goods were being manufactured without the aid
of power. He 3 accordingly held that the assessee was liable to pay Central
Excise duty at the aforesaid rate.
4. Being aggrieved, the assessee
preferred appeal to the Commissioner of Customs and Central Excise (Appeals). The
Commissioner (Appeals), affirmed the view taken by the Deputy Commissioner,
observing that the water stored in the overhead tank being pumped in the first
instance by using electricity to operate pump before it falls on the condensers
by gravity, it was clear that certain processes are undertaken in or in
relation to the manufacture of the said products with the aid of power.
5. Being dissatisfied
with the order passed by the Commissioner (Appeals), the assessee carried the matter
in further appeal to the Tribunal. The Tribunal, placing reliance on the
clarification issued by the Ministry of Finance vide letter No. B-36/11/77-TRU dated
10th/16th January, 1978, wherein it was clarified that so long as the use of power
is limited to drawing water into a cooling tank through which condensation
coils pass, manufacture of Rosin cannot be said to be with the aid of power,
for the purpose of Notification No. 179/77-CE dated 18th June, 1977, came to the
conclusion that the said clarification was binding on the revenue, including the
Commissioner (Appeals), the same being a Circular beneficial to the assessee. Drawing
support from the decision of this Court in Collector of Central Excise, Vadodara
Vs. Dhiren Chemical 4 Industries1, the Tribunal came to the conclusion that in
light of the said clarification the decision of this Court in Collector of Central
Excise, Jaipur Vs. Rajasthan State Chemical Works, Deedwana, Rajasthan cannot
be relied upon by the revenue. Accordingly, the appeal preferred by the
assessee was allowed by the Tribunal.
6. Thereafter, the revenue
filed an application before the Tribunal for rectification of the said order. In
the said application it was pointed out that apart from the fact that the
decision of this Court in Rajasthan State Chemical Works (supra) was applicable
on the facts of this case, the aforenoted Circular relied upon by it had already
been rescinded vide Circular No. 38/38/94-CX dated 27th May, 1994. However,
distinguishing the decision in Rajasthan State Chemical Works (supra), and
affirming its earlier view that the 1978 Circular still held the field, the Tribunal
dismissed the application. Hence the present appeals by the Commissioner.
7. We have heard learned
counsel for the parties.
8. Mr. Devadatt Kamat,
learned counsel appearing on behalf of the revenue, strenuously urged that the
decisions of the Tribunal are clearly erroneous in as much as it failed to appreciate
that: (i) without the process of condensation of vapours, the final products i.e.
"Turpentine Oil" & 1 (2002) 10 SCC 642 (1991) 4 SCC 473 "Rosin"
cannot be manufactured; (ii) condensation is not possible without sprinkling of
water on the copper stills/coils containing vapours of Turpentine and (iii) for
sprinkling of water lifting of water to a particular height with the aid of an
electric motor is essential, otherwise water would not fall on the coils by the
force of gravity. It was thus, argued that water being an integral part of the manufacturing
process, which would include all stages and all processes which are necessary for
the final product, its lifting to the overhead tank is a process in relation to
the manufacture of the final product and since that process requiring the aid of
power is integrally connected with the manufacture, the assessee is not entitled
to exemption from duty.
It was asserted that the clarification issued
in the year 1978, having been rescinded vide Circular dated 27th May, 1994, the
Tribunal was not justified in relying on the same, more so, when the issue
before the Tribunal stood concluded by the decisions of this Court in Rajasthan
State Chemical Works (supra) as also Impression Prints Vs. Commissioner of Central
Excise, Delhi-13. Placing reliance on the decision of the Constitution Bench of
this Court in Commissioner of Central Excise, Bolpur Vs. Ratan Melting & Wire
Industries4, learned counsel contended that the Circulars issued by the revenue
department cannot be given primacy over the decisions of the Courts. In order to
substantiate his point that it is not necessary that power should be used in
all the processes involved in the manufacture of 3 (2005) 7 SCC 4974 (2008) 13
SCC finished goods, learned counsel placed reliance on the decision rendered by
the Constitution Bench of this Court in Union of India & Anr. Vs. Delhi
Cloth & General Mills Co. Ltd.5. It was thus, stressed that in light of the
settled legal position on the issue by this Court, the impugned decisions
deserve to be set aside.
9. Per contra, Mr. Ajay Majithia,
learned counsel appearing for the assessee, supporting the decisions of the
Tribunal, argued that the water lifted with the aid of power and used for cooling
the coils containing Turpentine vapours cannot be said to be an integral part of
the manufacture of the final product because it does not bring about any change
in the raw material i.e. Olio-pine-Rosin. According to the learned counsel what
is relevant for deciding the issue is the stage at which the aid of power is
required and therefore, in the present case once the water is lifted and stored
in the storage tanks, no further use of power is required as the water falls on
the coils by the force of gravity.
10. The short question in
issue is whether or not the process of lifting of water with the use of power,
to the extent and for the purpose mentioned above, constitutes a process in or
in relation to manufacture of goods, viz. "Rosin" and
"Turpentine Oil", with the aid of power?
11. In order to answer
the question, it would be necessary to determine as to what activity amounts to
a process in or in relation to manufacture of goods? Clause (f) of Section 2 of
the Act, as it existed at the relevant time, defines the word "manufacture"
as follows:- "2(f) "manufacture" includes any process-- (i)
incidental or ancillary to the completion of a manufactured product; (ii) which
is specified in relation to any goods in the section or Chapter notes of the
First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting
to manufacture;"
12. It is manifest that clause
(f) gives an inclusive definition of the term "manufacture". According
to the Dictionary meaning the term "manufacture" means a process
which results in an alteration or change in the goods which are subjected to
the process of manufacturing leading to the production of a commercially new
article. Therefore, manufacture is an end result of one or more processes through
which the original commodities are made to pass. The nature and extent of
processing may vary from one case to another.
There may be several stages of processing, different
kinds of processing at each stage and with each process suffered, original
commodity experiences a change but it is only when a change or series of
changes that takes the commodity to the point where commercially it can no longer
be regarded as an original commodity but instead is recognized as a new and distinct
article that "manufacture" can be said to have taken place.
It is trite that in determining what constitutes
manufacture no hard and fast rules of universal application can be devised and
each case has to be decided on its own facts having regard to the context in
which the term is used in the provision under consideration, but some broad parameters
laid down in the earlier decisions dealing with the question could be applied to
determine the question whether a particular process carried on in relation to
the final product amounts to manufacture of that product.
13. In Delhi Cloth & General
Mills Co. Ltd. (supra), a question arose whether the assessee was liable to pay
Excise duty on the manufacture of refined oil which fell within item 23 of the
First Schedule to the Central Excises and Salt Act, 1944, bearing 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"? Negativing the contention that the definition of the term
"manufacture" in Section 2(f) of the Act included mere processing, a
Constitution Bench of this Court held that processing was distinct from
manufacture and that for a commodity to be excisable it must be new product
known to the market as such.
It was held that the definition of "manufacture"
as in Section 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 in 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.
14. In M/s J.K. Cotton Spinning
& Weaving Mills Co. Ltd. Vs. Sales Tax Officer, Kanpur & Anr.6, it was
held that where any particular process is so integrally connected with the
ultimate production of goods that but for that process, manufacture or
processing of goods would be commercially inexpedient, the goods required in that
process would fall within the expression "in the manufacture of".
15. In Rajasthan State Chemical
Works (supra), on which heavy reliance was placed on behalf of the revenue, a
bench of three learned Judges of this Court was considering the question
whether the two assessees therein were entitled to the benefit of an exemption notification,
which was available only to the goods "in or in relation to the
manufacture of which no process is ordinarily carried on with the aid of
power". In that case one of the assessees was manufacturing common salt and
for its manufacture, brine was pumped into salt pans by using a diesel pump and
then lifted to a platform by the aid of power.
In the second case for manufacturing lime from
coke and limestone, the raw materials were lifted to a platform at the head of
the kiln with the aid of power. The question was as to whether lifting of salt
pans to a platform by the aid of power and the lifting of raw material to a
platform at the head of the kiln with the aid of power constituted process in
or in relation to manufacture? Referring to earlier decisions of this Court, including
Delhi Cloth General Mills Co. Ltd (supra) and M/s J.K. Cotton Spinning &
Weaving Mills Co. Ltd. (supra) the Court observed thus:
A process is a manufacturing process when it
brings out a complete transformation for the whole components so as to produce a
commercially different article or a commodity. But, that process itself may
consist of several processes which may or may not bring about any change at
every intermediate stage. But the activities or the operations may be so integrally
connected that the final result is the production of a commercially different article.
Therefore, any activity or operation which is the essential requirement and is
so related to the further operations for the end result would also be a process
in or in relation to manufacture to attract the relevant clause in the
exemption notification. In our view, the word `process' in the context in which
it appears in the aforesaid notification includes an operation or activity in
relation to manufacture". XXXX XXXX XXXX XXXX 26.
We are, therefore, of the view that if any operation
in the course of manufacture is so integrally connected with the further operations
which result in the emergence of manufactured goods and such operation is carried
on with the aid of power, the process in or in relation to the manufacture must
be deemed to be one carried on with the aid of power. In this view of the
matter, we are unable to accept the contention that since the pumping of the
brine into the salt pans or the lifting of coke and limestone with the aid of
power does not bring about any change in the raw material, the case is not taken
out of the notification. The exemption under the notification is not available
in these cases. Accordingly, we allow these appeals."
16. A similar question
came up for consideration of this Court in Impression Prints (supra), again strongly
relied upon by learned counsel for the revenue. In that case the assessee was
manufacturing printed bed sheets, bed covers and pillow covers, and for that
purpose the colour was mixed with the help of colour mixing machine, which was
operated with the aid 1of power. The question arose whether the said goods were
manufactured with the aid of power. While holding that the activity of printing
and colouring being integrally connected to the manufacture of printed bed
sheets, bed covers etc., the manufacture of these goods was with the aid of
power, the Court culled out the following parameters from the earlier
pronouncements, which could be applied for determining the question whether a particular
process carried on in respect of the final product amounts to manufacture of that
product:
i.
the
term "manufacture" in Section 2(f) of the Act includes any process
incidental or ancillary to the completion of a manufactured product;
ii.
if
power is used for any of the numerous processes that are required to turn the raw
material into the finished articles then the "manufacture" will be with
the use of power;
iii.
if
power is used at any stage then the argument that power is not used in the
whole process of manufacture, using the word in its ordinary sense, will not be
available;
iv.
the
expression "in the manufacture" would normally encompass the entire process
carried on for converting raw material into goods;
v.
if
a process or activity is so integrally connected to the ultimate production of
goods that but for that process, manufacture or processing of goods is
impossible or commercially inexpedient then the goods required in that process would
be covered by the expression "in the manufacture of";
vi.
it
was not necessary that the word "manufacture" would only refer to the
stage at which ingredients or commodities are used in the actual manufacture of
the final product and
vii.
the
word "manufacture" does not refer only to the using of ingredients which
are directly and actually needed for making the goods.
17. 17.Having considered
the present case on the touchstone of the aforenoted parameters, we are of the
opinion that the activity of the assessee in first lifting the water for
filling up of the storage tank at the ground level and then lifting it further
to the overhead water storage tanks with the aid of electric motors are so
integrally connected to the ultimate manufacture of "Turpentine Oil"
and "Rosin" that but for the said activity the processing of
Oleo-pine Rosin for manufacture of Turpentine Oil and Rosin would not be
possible.
It is common ground that without sprinkling
of water on the coils carrying the vapours of Turpentine Oil, condensation - a
crucial component of distillation which brings about the change of the physical
state of matter from gaseous phase into liquid phase, is not possible. In other
words without the process of condensation, Turpentine Oil, the final product, cannot
be obtained. Similarly, without lifting water from the storage tanks at the
ground level with the aid of electric motor to a higher level, the water cannot
fall on the cooling coils with its gravitational force.
In this fact situation, we hold that the
operation of lifting of the water from the well to the higher levels, is so
integrally connected with the manufacture of "Turpentine Oil" and "Rosin",
that without this activity it is impossible to manufacture the said goods and
therefore, the processing of the said raw material in or in relation to
manufacture of the said final goods is carried on with the aid of power.
18. We may now examine
the ancillary question as to whether the Tribunal was correct in law in
accepting the plea of the assessee that they could not be denied the benefit of
the clarification issued by the Board vide their letter dated 10th/16th
January, 1978, despite the decision of this Court in Rajasthan State Chemical
Works (supra). We are of the view that the decisions of the Tribunal on this
aspect are clearly fallacious for more than one reason. Firstly, the Tribunal
has failed to notice and consider the effect and implication of Circular No.
38/38/94-CX dated 27th May, 1994, issued by the Central Board of Excise and
Customs, withdrawing all instructions/guidelines/tariff advices issued in
respect of the erstwhile First Schedule to the Central Excises and Salt Act, 1944,
which, obviously included the 1978 clarification. Secondly, and more importantly,
it has also erred in not appreciating the ratio decidendi of the decision in Rajasthan
State Chemical Works (supra).
It is well settled proposition of law that a
decision is an authority for what it actually and explicitly decides and not
for what logically flows from it, the precise exercise the Tribunal undertook
in the instant case for distinguishing the said decision, by observing thus : "We
observe that the Supreme Court in that case deals with the use of power while handling
the raw material prior to the commencement of process of production. It is
nobody's case in the present application that the water that is pumped to the overhead
tank is a raw material used in the manufacture of "Rosin"."In Rajasthan
State Chemical Works (supra), the question of law for determination was as to what
kind of "process" carried on in respect of particular goods
constituted "process" in or in relation to "manufacture"
for the purposes of and within the meaning of Section 2(f) of the Act. It was
held that any activity or operation, which is an essential requirement and is
so integrally connected with further operations for production of ultimate
goods that but for that process the manufacture of the final product is
impossible, would be a process in or in relation to manufacture.
In fact, it is manifest from the afore-extracted
paragraph of the judgment that the contention of the assessee that since the stage
at which the power is used does not bring about any change in the raw material,
it cannot be said that such process is carried on with the aid of power, was
specifically rejected. Therefore, the observations of the Tribunal, extracted above,
to the effect that since it is nobody's case that water that is pumped upto the
overhead tank is a raw material used in the manufacture of "Rosin", are
not only misplaced, in our opinion, these are irrelevant for deciding the issue
at hand.
19. In that view of the
matter, when the law on the question at issue before the Tribunal had already
been declared by this Court, the Tribunal should not have based its decisions
on the larification issued by the Board, which otherwise stood rescinded, on the
specious ground that the said clarification issued by the Board was binding on the
Deputy Commissioner as also on the Commissioner (Appeals).
It is well settled proposition of law that Circulars
and instructions issued by the Central Board of Excise and Customs are no doubt
binding in law on the authorities under the respective Statutes but when this
Court or the High Court declares the law on the question arising for consideration,
it would not be appropriate for the Courts or the Tribunal, as the case may be,
to direct that the Board's Circular should be given effect to and not the view expressed
in a decision of this Court or a High Court. [(See: Ratan Melting & Wire
Industries (supra)].
20. In the final
analysis, in light of the foregoing discussion, the decisions of the Tribunal, impugned
in these appeals, cannot be sustained. Resultantly, all the appeals are allowed
and the orders passed by the Tribunal are set aside, leaving the parties to
bear their own costs.
..................................J. (D.K.
JAIN, J.)
................................... J.
(H.L. DATTU J.)
NEW DELHI;
JULY 11, 2011.
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