Central Excise Bangalore-II Vs. M/S Osnar Chemical Pvt. Ltd.
[Civil Appeal Nos.
4055-4056 of 2009]
[Civil Appeal No.
5633 of 2009 and Civil Appeal No. 7142 of 2010]
D.K. JAIN, J.:
batch of appeals by the revenue, under Section 35L(b) of the Central Excise
Act, 1944 (for short "the Act") arises out of final orders dated 23rd
December, 2008 in Appeal No. E/379/2007; 25th September, 2008 in Appeal Nos.
Excise/522 & 523/2007 and 28th October, 2009 in Appeal No. E/225/2009 passed
by the Customs, Excise & Service Tax Appellate Tribunal South Zonal Bench, Bangalore
(for short "the Tribunal"). By the impugned orders in cross-appeals by
the revenue and the assessee, the Tribunal has held that the mechanical mixing of
polymer with heated bitumen does not amount to manufacture of a new commercially
identifiable product and therefore, is not exigible to Excise duty under the Act.
these three appeals involve a common question of law, these are being disposed of
by this common judgment. However, in order to appreciate the controversy, the facts
emerging from C.A. Nos. 4055-4056 of 2009, which was treated as the lead case,
are being adverted to. The respondent in this appeal (for short "the assessee")
is engaged in the supply of Polymer Modified Bitumen (for short
We may note that in one
of the appeals (C.A. No.5633/2009), the assessee additionally supplies Crumbled
Rubber Modified Bitumen (for short "CRMB"), stated to be a different kind
of modifier. The assessee entered into a contract with one M/s Afcons Infrastructure
Ltd. (for short "Afcons") for supply of PMB at their work site at
Solur Village, Viswanathpura Post, Bangalore. As per the agreement, the base bitumen
and certain additives were to be supplied by Afcons to the assessee directly at
the site, where the assessee, in its mobile polymer modification plant, was required
to heat the bitumen at a temperature of 1600C with the help of burners.
To this hot bitumen, 1%
Polymer and 0.2% additives were added under constant agitation, for improving its
quality by increasing its softening point and penetration. The process of
agitation was to be continued for a period of 12 to 18 hours till the mixture becomes
homogenous and the required properties were met.
The said bitumen in its
hot agitated condition was mixed with stone aggregates which was then used for
road construction. The resultant product was considered to be a superior
quality binder with enhanced softening point, penetration, ductility, viscosity
and elastic recovery.
is classifiable under Chapter Sub Heading 271320.00 and `Polymers' are classifiable
under Chapter Sub Heading 390190.00 of the Central Excise Tariff Act, 1985 (hereinafter
referred to as "the Tariff Act"). The relevant tariff items read as follows:
"Tariff Item Description
of goods 2713 Petroleum coke, petroleum bitumen and other residues of petroleum
oil or of oils obtained from bituminous minerals. 2713 20 00 Petroleum bitumen 2715
Bituminous mixtures based on natural asphalt, on natural bitumen, on petroleum
bitumen, on mineral tar or on mineral tar pitch (for example, bituminous mastics,
cut backs) 2715 00 90 Other 3901 Polymers of ethylene, in primary forms 3901 90
assessee had been paying Central Excise duty on the PMB processed at their
factory in Mumbai but had not paid the same for the conversion done at the work
site. Consequently, a show cause notice was issued to them by the Commissioner of
Central Excise, Bangalore (hereinafter referred to as "the Commissioner"),
demanding duty in respect of PMB falling under sub-heading 271500.90 of the Tariff
Act, for the period from 18th August 2004 to 19th September 2006.
The Commissioner adjudicated
upon the said show cause notice and vide Order-in-original, dated 23rd April
2007, held that the aforesaid process carried out by the assessee amounted to manufacture
of PMB in terms of Section 2(f) of the Act, irrespective of the fact whether such
process was carried out on their own account or on job work basis and
therefore, was dutiable. He accordingly, confirmed the demand indicated in the
show cause notice.
the assessee filed an appeal before the Tribunal. Reversing the decision of the
Commissioner, the Tribunal has come to the conclusion that since PMB cannot be
bought and sold in the market as it is fit for use only in a molten condition, at
a temperature around 1600C and resultantly cannot be stored unless kept in continuous
agitated state @ 1000C so as to avoid separation of polymer and bitumen; the
process carried out by the assessee does not amount to manufacture. A similar view
has been expressed by the Tribunal in other orders which are the subject matter
of these appeals by the revenue.
Arijit Prasad, learned counsel appearing for the revenue, vehemently argued that
having regard to the nature of the process involved, PMB and CRMB are different
from bitumen. According to the learned counsel, ordinary bitumen is heated 5upto
a temperature of 2000C, in the Polymer modification plant; to this heated mixture,
polymer is added and samples are taken; if the samples, are found to be
satisfactory, additives are added and the PMB is either stored or dispatched.
It was submitted that
the end products, viz. PMB and CRMB are different from bitumen, inasmuch as polymers
and additives are the raw materials consumed in the process of manufacture of the
said final products and are therefore, covered by the definition of the term
"manufacture" in Section 2(f) of the Act.
To buttress his
submission that PMB and CRMB are exigible to Excise duty, both falling under a specific
entry, learned counsel referred to the Tariff Act, whereunder, while bitumen is
classifiable under Chapter Sub heading 271320.00, and polymer is classifiable
under Chapter Sub Heading 390190.00, the finished products, PMB and CRMB are classifiable
under Chapter Sub Heading 271500.90.
In support of his
submission that PMB and CRMB are commercially known in the market for being bought
and sold and therefore, satisfy the test of marketability which is one of the essential
conditions for the purpose of levy of Excise duty, learned counsel commended us
to the decisions of this Court in Medley Pharmaceuticals Limited Vs. Commissioner
of Central Excise & Customs, Daman and Nicholas Piramal India Ltd. Vs. Commnr.
Of Central Excise, Mumbai.
It was also urged
that Circular No. 88/1/87-CX.3, dated 16th June, 1987, issued by the Department
of Revenue, Ministry of Finance, clarifying that a slight modification of the
grade or quality of bitumen, brought about by the process of air blowing to duty
paid bitumen did not amount to manufacture, was wrongly relied upon by the Tribunal
as it had subsequently been modified by Circular No. 88/1/88-CX.3, dated 1st
July, 1988, wherein the said department had clarified that duty would be chargeable
on blown-grade bitumen.
contra, learned counsel appearing on behalf of the assessees, led by Mr. S.K. Bagaria,
senior advocate, while supporting the decision of the Tribunal, fervently submitted
that based on the documents, evidence and materials on record, the Tribunal has
found, as a fact, that the process of mixing an insignificant dose of polymer
with duty paid bitumen only enhanced the quality of bitumen and did not amount to
manufacture and therefore, in the absence of any plea of 1 2011 (263) E.L.T.
641 (SC)2 2010 (260) E.L.T. 338 (SC) 7 perversity, the finding does not warrant
any interference by this Court. In support of the proposition, learned senior counsel
placed reliance on the decisions of this Court in Commissioner of Central
Excise, Bangalore Vs. Ducksole (I) Ltd. & Ors.3 and Commissioner of Central
Excise, Delhi-III Vs. Uni Products India Ltd. & Ors..
senior counsel vehemently argued that the mechanical process of adding polymer
and additives to heated bitumen to bring into existence the so-called new substance,
known as PMB, did not amount to `manufacture' in terms of Section 2(f) of the Act.
It was explained that by the said process, only the grade or quality of bitumen
is improved by raising its softening point and penetration, for improving the quality
of the road; but even with the improved quality, bitumen remained bitumen with
the same end use.
It was the say of the
learned counsel that a mere improvement in the quality did not amount to
manufacture, as `manufacture' takes place only when there is a transformation
of raw materials into a new and different article, having a distinctive name, character
and use, which is not the case here as the end use of 3 (2005) 10 SCC 4624
(2009) 9 SCC 295 8 both the articles remained the same.
In support of the proposition,
learned senior counsel commended us to a plethora of decisions of this Court, including
M/s. Tungabhadra Industries Ltd. Vs. The Commercial Tax Officer, Kurnool5,
Commissioner of Central Excise, Gujarat Vs. Pan Pipes Resplendents Limited6, Crane
Betel Nut Powder Works Vs. Commissioner of Customs & Central Excise,
Tirupathi & Anr.7 and Union of India & Ors. Vs. Delhi Cloth &
General Mills Co. Ltd. & Ors.
was contended that since the period involved in these appeals is post
substitution of clause (f) in Section 2 of the Act by Act 5 of 1986, which gives
an extended meaning to the expression "manufacture" by including in
terms of sub-clause (ii) to clause (f), any process "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",
the said provision would be applicable. However, wherever the legislature intended
to give an extended or artificial meaning to the said expression in 5 1961 (2)
SCR 14 : AIR 1961 SC 4126 (2006) 1 SCC 7777 (2007) 4 SCC 1558 1977 (1) ELT
(J199) (SC) 9 relation to any goods, it has clearly specified it.
According to the
learned counsel, since the addition of polymer or additives to the bitumen has
not been specified in the Section or Chapter notes of the Tariff Schedule as
amounting to manufacture, the amended definition is of no avail to the revenue.
In support of the contention, heavy reliance was placed on the decisions of this
Court in Commissioner of Central Excise, New Delhi-I Vs. S.R. Tissues Pvt. Ltd.9
and Shyam Oil Cake Ltd. Vs. Collector of Central Excise, Jaipur.
on the two afore-mentioned Circulars, F.No. 88/1/87- CX.3, dated 16th June 1987
and F.No.88/1/88-CX.3, dated 1st July 1988, issued by the Department of Revenue,
Ministry of Finance, clarifying that blown grade bitumen produced by oxidation of
straight grade bitumen is not liable to duty;
counsel submitted that the present case is on a much better footing than the
blown grade bitumen, inasmuch as, unlike oxidation, where chemical change takes
place, in the mixing of polymer and bitumen, no chemical change in bitumen
takes place, and therefore, PMB cannot be subjected to Excise duty as a new
Additionally, 9 2005
(186) E.L.T. 385 (SC)10 2004 (174) E.L.T. 145 (SC) reliance was also placed on Circular
No.623/14/2002-CX., dated 25th February, 2002, wherein the Central Board of
Excise and Customs has clarified that the process of preparation of Hot Asphalt
Mix used in making roads does not amount to manufacture as contemplated under
Section 2(f) of the Act.
was argued that merely because bitumen (the basic material) and PMB (the end material)
are specified under two different headings, it cannot be presumed that the
process of obtaining PMB automatically constituted manufacture, unless in fact
there has been a transformation of bitumen into a new and different product or alternatively,
the Section Notes or Chapter Notes created a deeming fiction by providing an artificial
or extended meaning to the expression `manufacture' in respect of the goods in
In support of the
proposition, learned counsel placed reliance on the decisions of this Court in S.R.
Tissues Pvt. Ltd (supra), Commissioner of Central Excise, Chennai-II Vs. Tarpaulin
International11, Shyam Oil Cake Ltd. (supra), Commissioner of Central Excise, Mumbai
Vs. Lalji Godhoo & Co.12, Commissioner of Central Excise Vs. 11 2010 (256)
E.L.T. 481 (SC)12 2007 (216) E.L.T. 514 (SC) Indian Aluminium Co. Ltd.13 and Hindustan
Zinc Ltd. Vs. Commissioner of Central Excise, Jaipur, wherein it was held that
merely because the raw materials and the finished product fall under two different
tariff entries, it cannot be presumed that the process of obtaining the finished
product from such raw materials automatically constituted manufacture.
counsel also strenuously urged that even if it is assumed that the said process
amounted to manufacture, still PMB cannot be subjected to excise as it is not commercially
marketable. It was argued that for levy of Excise duty, the twin conditions of `manufacture'
and `marketability' have to be satisfied cumulatively. In support of the
proposition, reliance was placed on the decisions of this Court in Hindustan Zinc
Ltd. (supra), Indian Aluminium Co. Ltd. (supra) and Lalji Godhoo & Co. (supra).
Learned counsel also
contended that the burden to prove that the process in question constitutes manufacture
and that the goods so manufactured are marketable as new goods, known to the market,
lies on the revenue and the same has not been discharged in the present case. To
support the contention, reliance was placed on Lalji 13 (2006) 8 SCC 31414
(2005) 2 SCC 662 Godhoo & Co. (supra), Metlex (I) (P) Ltd. Vs. Commissioner
of Central Excise, New Delhi15; Hindustan Poles Corpn. Vs. Commissioner of Central
Excise, Calcutta16 and HPL Chemicals Ltd. Vs. Commissioner of Central Excise, Chandigarh.
the learned counsel stressed that in the light of the decisions of this Court
in Commissioner of Central Excise & Customs Vs. Tikatar Industries18, Commissioner
of Central Excise, Navi Mumbai Vs. Amar Bitumen & Allied Products Private Limited19
and Commissioner of Central Excise, Mumbai Vs. Tikitar Industries20, the issue raised
by the revenue in these appeals is no longer res-integra, and therefore, all
the appeals deserved to be dismissed.
Laxmi Kumaran, learned counsel appearing for the assessee in Appeal No.7142 of 2010,
while adopting the arguments advanced by Mr. Bagaria, emphasised that apart from
the fact that in his case the assessee was mixing the additives at the site and
not in a factory, the percentage of 15 (2005) 1 SCC 27116 (2006) 4 SCC 8517
(2006) 5 SCC 20818 2006 (202) E.L.T. 215 (S.C.)19 2006 (202) E.L.T. 213
(S.C.)20 2010 (253) E.L.T. 513 (S.C.) 13 polymer or additives added to bitumen was
inconsequential for determination of the issue at hand, as the predominant test
was whether the treated bitumen underwent any change in its characteristics so
as to acquire a new commercial identity.
In support, learned counsel
referred to McNicol & Anr. Vs. Pinch21, wherein Darling J., delivering the
concurring majority opinion observed that: "You can only make one thing
out of another. I think the essence of making or of manufacturing is that what is
made shall be different thing from that out of which it is made."
In other words, the
counsel submitted that the same test namely, whether the product that emerges
is something different from the goods with which it is made, was observed to be
the determining factor. If bitumen, after its processing with additives and
modifiers, remains bitumen; although it is known as PMB, then no new product
It was asserted that
in the present case, the revenue had failed to prove that with the addition of
polymer or additives, bitumen had undergone any change in its chemical
composition and commercial identity. According to the learned counsel, if the treated
bitumen is not kept at a particular 21 1906 (2) K.B. 352 temperature, bitumen and
polymer get separated and revert to their original state, which shows that no
chemical reaction takes place when both the commodities are mixed.
the question which falls for consideration in all these appeals is whether the addition
and mixing of polymers and additives to base bitumen results in the manufacture
of a new marketable commodity and as such exigible to Excise duty?
expression `manufacture' defined in Section 2(f) of the Act, inter alia includes
any process which is specified in relation to any goods in the Section or
Chapter Notes of First Schedule to the Tariff Act. It is manifest that in order
to bring a process in relation to any goods within the ambit of Section 2(f) of
the Act, the same is required to be recognised by the legislature as manufacture
in relation to such goods in the Section notes or Chapter notes of the First
Schedule to the Tariff Act.
Therefore, in order to
bring petroleum bitumen, falling under CSH 27132000, within the extended or deemed
meaning of the expression `manufacture', so as to fall under CSH 271500900, the
process of its treatment with polymers or additives or with any other compound is
required to be recognised by the 15 legislature as manufacture under the Chapter
notes or Section notes to Chapter .
with the aspect of extended or artificial meaning of the expression `manufacture'
in Section 2(f) of the Act in Shyam Oil Cake Ltd. (supra), this Court had held
as under :- "16. Thus, the amended definition enlarges the scope of
manufacture by roping in processes which may or may not strictly amount to manufacture
provided those processes are specified in the Section or Chapter notes of the Tariff
Schedule as amounting to manufacture.
It is clear that the Legislature
realised that it was not possible to put in an exhaustive list of various processes
but that some methodology was required for declaring that a particular process
amounted to manufacture. The language of the amended Section 2(f) indicates
that what is required is not just specification of the goods but a specification
of the process and a declaration that the same amounts to manufacture.
Of course, the specification
must be in relation to any goods. XXX XXX XXX XXX XXX XXX XXX XXX 24. In this case,
neither in the Section Note nor in the Chapter Note nor in the Tariff Item do
we find any indication that the process indicated is to amount to manufacture. To
start with the product was edible vegetable oil. Even after the refining, it remains
edible vegetable oil. As actual manufacture has not taken place, the deeming provision
cannot, be brought into play in the 16 absence of it being specifically stated that
the process amounts to manufacture."
again, in S.R. Tissues Pvt. Ltd. (supra), a question arose whether slitting and
cutting of toilet tissue paper on aluminium foil amounted to manufacture under Section
2(f) of the Act. Answering the question in the negative, this Court had observed
thus :- "15.....In order to make Section 2(f) applicable, the process of cutting/slitting
is required to be recognized by the legislature as a manufacture under the chapter
note or the section note to Chapter 48.
For example, the
cutting and slitting of thermal paper is deemed to be "manufacture" under
Note 13 to Chapter 48. Similarly, Note 3 to Chapter 37 refers to cutting and slitting
as amounting to manufacture in the case of photographic goods. However,
slitting and cutting of toilet tissue paper on aluminium foil has not been treated
as a manufacture by the legislature. In the circumstance, Section 2(f) of the Act
has no application."
the present case, a plain reading of the Schedule to the Act makes it clear that
no such process or processes have been specified in the Section notes or Chapter
notes in respect of petroleum bitumen falling under Tariff Item 27132000 or
even in respect of bituminous mixtures falling under Tariff Item 27150090 to indicate
that the said process amounts to 17 manufacture. Thus, it is evident that the
said process of adding polymers and additives to the heated bitumen to get a
better quality bitumen, viz. PMB or CRMB, cannot be given an extended meaning
under the expression manufacture in terms of Section 2(f) (ii) of the Act.
may now examine whether the process in question, otherwise amounts to
manufacture under the expansive Section 2(f) of the Act. It is trite to state
that "manufacture" can be said to have taken place only when there is
transformation of raw materials into a new and different article having a different
identity, characteristic and use.
It is well settled that
mere improvement in quality does not amount to manufacture. It is only when the
change or a series of changes take the commodity to a point where commercially
it can no longer be regarded as the original commodity but is instead
recognized as a new and distinct article that manufacture can be said to have
taken place. In this behalf the following observations by the Constitution Bench
of this Court in Tungabhadra Industries (supra) are quite apposite :
"In our opinion,
the learned Judges of the High Court laid an undue emphasis on the addition by way
of the absorption of the hydrogen atoms in the process of hardening and on the consequent
inter-molecular changes in the oil. The addition of the hydrogen atoms was effected
in order to saturate a portion of the oleic and linoleic constituents of the oil
and render the oil more stable thus improving its quality and utility. But neither
mere absorption of other matter, nor inter- molecular changes necessarily affect
the identity of a substance as ordinarily understood............
The change here is both
additive and inter- molecular, but yet it could hardly be said that rancid
groundnut oil is not groundnut oil. It would undoubtedly be very bad groundnut
oil but still it would be groundnut oil and if so it does not seem to accord
with logic that when the quality of the oil is improved in that its resistance to
the natural processes of deterioration through oxidation is increased, it
should be held not to be oil." (Emphasis supplied by us)
Delhi Cloth & General Mills Co. Ltd. (supra), yet another Constitution Bench,
exploring the concept of manufacture echoed the following views : "14......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
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." (Emphasis supplied by us)
S.R. Tissues Pvt. Ltd. (supra), the issue for consideration was whether the process
of unwinding, cutting and slitting to sizes of jumbo rolls into toilet rolls, napkins
and facial tissue papers amounted to manufacture. While holding that the said process
did not amount to manufacture this Court inter-alia, held as under : "12.....However,
the end-use of the tissue paper in the jumbo rolls and the end-use of the toilet
rolls, the table napkins and the facial tissues remains the same, namely, for household
or sanitary use.
The predominant test
in such a case is whether the characteristics of the tissue paper in the jumbo roll
enumerated above is different from the characteristics of the tissue paper in
the form of table napkin, toilet roll and facial tissue. In the present case,
the Tribunal was right in holding that the characteristics of the tissue paper
in the jumbo roll are not different from the characteristics of the tissue
paper, after slitting and cutting, in the table napkins, in the toilet rolls
and in the facial tissues." (Emphasis supplied by us)
Deputy Commissioner Sales Tax (Law), Board of Revenue (Taxes), Ernakulam Vs. Pio
Food Packers22, a three Judge Bench of this Court, while deciding whether conversion
of pineapple fruit into pineapple slices for sale in sealed cans amounted to
manufacture, observed as follows:- "4......Commonly, manufacture is the end
result of one or more processes through which the original commodity is made to
The nature and extent
of processing may vary from one case to another, and indeed there may be several
stages of processing and perhaps a different kind of processing at each stage. With
each process suffered, the original commodity experiences a change. But it is
only when the change, or a series of changes, take 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
Where there is no
essential difference in identity between the original commodity and the
processed article it is not possible to say that one commodity has been consumed
in the manufacture of another. Although it has undergone a degree of
processing, it must be regarded as still retaining its original identity. (Emphasis
supplied by us)"
considered the matter on the touchstone of the aforesaid legal position, we are
of the view that the process of mixing polymers and additives with bitumen does
not amount to manufacture. Both the lower authorities have found as a fact 1980
(6) E.L.T. 343 (SC) that the said process merely resulted in the improvement of
quality of bitumen. Bitumen remained bitumen. There was no change in the
characteristics or identity of bitumen and only its grade or quality was
improved. The said process did not result in transformation of bitumen into a new
product having a different identity, characteristic and use. The end use also remained
the same, namely for mixing of aggregates for constructing the roads.
also find substance in the contention urged on behalf of the assessee that the
answer to the issue at hand stands concluded by the dismissal of the Civil Appeals
filed by the revenue against the decision of the Tribunal in the case of Collector
of Central Excise, Vadodara Vs. Tikitar Industries.
In that case the
dispute was whether the process relating to improvement of the quality of bitumen
by raising its softening point and penetration amounted to manufacture of a new
and different commodity. The process involved in improving the quality of bitumen
was oxidation, which converted straight grade bitumen into air blown bitumen. In
revenue's appeal the Tribunal had inter-alia held as under :23 2000 (118)
E.L.T. 468 (Tri.) 22 "
19. The duty paid
bitumen received by the Assessee is boiled so that foreign substances like sand
and stone settle down; thereafter the air is blown into the material for improving
the quality of the bitumen by raising the softening point and penetration; this
makes the bitumen suitable for intended application. It is seen from the process
undertaken by the Assessees that only the quality of the product which has already
suffered duty is improved......" (Emphasis supplied by us)As aforesaid,
revenue's appeal was dismissed by this Court vide order dated 2nd August, 2006
in Tikatar Industries (supra).
We therefore, hold that PMB or CRMB cannot be treated as bituminous mixtures falling
under CSH 27150090 and shall continue to be classified under CSH 27132000 pertaining
to tariff for petroleum bitumen.
view of the opinion expressed above, we deem it unnecessary to deal with the
other grounds urged on behalf of both the sides.
the foregoing reasons, no ground is made out for our interference with the
impugned orders passed by the Tribunal in all the appeals mentioned in paragraph
1 supra. The appeals, being bereft of any merit, are dismissed accordingly,
with no order as to costs.
(ASOK KUMAR GANGULY)