Andhra HC (Pre-Telangana)
Xl Telecom Ltd., Hyderabad vs Superintendent Of Central Excise, ... on 2 February, 1998
Equivalent citations: 1998(2)ALD230, 1998(2)ALT722, 1999(105)ELT263(AP)
Author: T.N.C. Rangarajan
Bench: T.N.C. Rangarajan
ORDER S.V. Maruthi, J.
1. These three writ petitions are disposed of by a common judgment as the issue involved is common to all the writ petitions.
2. WP No.8818/97 is filed by XL Telecom Limited, Hyderabad questioning the circular issued by the Central Board of Excise and Customs, declaring that the process of putting together duty paid articles into a container like carton, kit etc. and bringing into existence a new commercially distinct product namely 'Cable jointing Kits' amounts to manufacture under Section 2(f) of the Central Excise Act, 1944 (in short 'the Act') and classifying the same under heading 85,47 of the Central Excise Tariff Act, 1985. The circular number is 308/24/97-CX, dated 27-3-1997. By virtue of the said circular, the cable jointing Kits were made liable for excise duty under Central Excise and Salt Act, 1944.
3. The petitioner lays underground telephone cables. These cables are made up of several pairs of wires which are all enclosed in a single sheath. There is limitation both in terms of manufacture and ability of handling cables of unlimited lengths suitable for every certain distance. Therefore, it is necessary to lay several cables of different lengths and connect the cables. The object of such connection is to ensure continuity of the individual pairs of wires to provide protective covering to the cable joint to fill inert material inside the cable joint. Ultimately a joint emerges by joining of cables which is a part of cable itself There are various items which are required for the purposes of joining two cables. They arc as follows :
1. Heat Shrink Sleeves,
2. Aluminium Canisters,
3. Branch off clips,
4. Cleaning Tissue Pouch,
5. SS Channels,
6. Sealant Tapes,
7. PVC Tapes,
8. Black Polyester Tape,
9. Cleaning liquid,
10. Splice filling Compound,
11. Earth continuing Wire,
12. Sheath Connector,
13. Adhesive Aluminium foil,
14. PE Sheet, 15- Wire Connectors etc., For the purpose of convenience the Department of Telecommunications purchases what is known as "Cable Jointing Kits". Each kit has all or some of the products which are enumerated in the list above. For the purpose of convenience alone, the Department of Telecommunications and Mahanagar Telephone Nigam Limited purchases various components in the form of kit. The petitioner also manufactures four items namely Heat Shrink Sleeves, Aluminium Cannister, Branch off clips and Cleaning Tissue Pouches falling under Chapter 85-47; 76-16; 76-16 and 48-18 respectively in its factory and pays Excise Duty under the Act. The heal shrink sleeves are manufactured by expanding unexpanded sleeves. These are imported by the petitioner from Germany from its collaborator. The petitioner is in the business of selling cable jointing kits to Department of Telecommunications and Mahanagar Telephone Nigam Ltd. The Excise Authorities on explaining the packing activity involved in preparing the cable jointing kits, concluded that there is no manufacturing activity and therefore, no excise duty was levied on cable jointing kits. While so, on 25-7-1996 a show-cause notice was issued calling upon the petitioner to file a declaration in terms of Rule 173 of the Central Excise Rules and by another letter he called upon the petitioner to furnish certain particulars with respect to cable jointing kits sold by the petitioner for the last six months. The petitioner send a detailed reply to the show-cause notice on 3-8-1996. In the reply, he has stated that there was no manufacturing process involved in putting together the various components of a kit in a box and that no commercial product different from the various components emerged as a result. The first respondent issued another notice on 8-8-1996 directing the petitioner to file declaration. Since Respondents 1 and 2 are insisting on the petitioner filing a declaration with respect to cable jointing kit, the petitioner filed WP No. 16685/96. By interim directions, this Court directed the second respondent to adjudicate on the question whether mere putting together of the various components amounted to manufacture. Thereafter, the second respondent issued a speaking order reiterating the contentions in the show-cause notice on 6-9-1996, The petitioner filed a statutory appeal to the third respondent on 11-9-1996 against the order of the second respondent. Meanwhile the Circular No.308/ 24/97-CX, dated 27-3-1997 was issued and published. By virtue of the said circular, the respondents have declared that the activity involved in cable jointing kit is manufactured and therefore, cable jointing kits are liable for excise duty. Aggrieved by the same the present writ petition is filed.
4. WP No.22078/97 is filed by Surana Telecom Ltd. Hyderabad. The petitioner is a Company incorporated under the provisions of the Indian Companies Act The averments made in the affidavit filed in support of the writ petition are more or less similar to the averments made in WP No.8818/97. The petitioner also sells cable jointing kits.
5. WP No.24242/97 is filed by M/s. Newtech Stewing Telecom Ltd., Hyderabad. The petitioner is a Company incorporated under the provisions of the Indian Companies Act having its registered office at Secuntierabad. The averments made in this affidavit filed in support of the writ petition are more or less similar to the averments made in the WPNo.8818/97. The petitioner also sells cable jointing kits.
6. In the counter-affidavit filed by the respondents, it is stated that the said circular was issued by the Board constituted under Section 3 of the Central Board of Revenue Act, 1963. Under Section 37-B(b) of the Act, the said circular is not binding on the Commissioner (Appeals). Since, the petitioner has already filed an appeal he cannot file a writ petition under Article 226 of the Constitution of India. The quasi-judicial authorises are not bound by the circulars issued by the Cenlral Board of Excise and Customs under Section 37-B of the Act. Therefore, the apprehension of the petitioners that the Appellate Authority would decide that the activity involved in cable jointing kits amounts to manufacture, is baseless. It is further slated that the cable jointing kits is combination of 17 items put together as a set and all the different items fall under different chapters by 39, 73, 76 and 85 putting different items together and supplying of the items as a kit is called kitting either the duly paid components are procured from the open market or some components are manufactured and others are bought out side. It is not correct to say that there is no manufacturing activity involved in producing cable jointing kits. Since anew and distinct product known as cable jointing kit, comes into existence having a different name, use and character, kitting would undoubtedly amount to manufacture. Therefore, the writ petition is liable to be dismissed.
7. The Counsel appearing for the petitioners contended that the petitioners manufacture four items as mentioned in the above paragraphs and buy other items. All the items are put in a kit and packed in one kit. The activity of putting duly paid manufactured items in a kit does not amount to manufacture as no process is involved in the said activity. Therefore, Ihe circular issued by the Central Board of Excise and Customs is without authority of law. Under the circular the respondents are levying Central Excise duly treating the activity of the duty paid items either manufactured by the petitioners or bought out by them in one kit as manufacture. Under Section 3 of the Act, duty of excise is leviable on excisable goods which are produced or manufactured. The expression 'manufacture' is defined under Section 2(f). It is an inclusive definition. It includes any process incidental or ancillary to the completion of a manufactured product Therefore, under the Act excise duty is leviable on goods manufactured which includes any process which is incidental or ancillary. In putting duty paid bought out and manufactured items in one kit does not amount to manufacture as no process is involved. When once the activity does not amount to manufacture within the meaning of Section 2(f) no excise duty is leviable and therefore, the circular issued treating activity as manufacture is without authority of law. When once the circular issued is wilhout authority of law the fact that the petitioner preferred an appeal before the Appellate Authority against the order of assessment is not a bar for exercising the jurisdiction under Article 226 of the Constitution of India The Counsel relied on Ihe following judgment in support of his contention.
Union of India v. Delhi Cloth and General Mills, S.B. Sugar Mills v. Union of India, Ujagar Prints v. Union of India, AIR 1989 SC 516, Porritts & Spencer (Asia) Lid. v. Collector of Central Excise, NewDelhi, 1995 (Suppl.) SCC 219 and Moti Laminates Pvt., Ltd v. Collector of Central Excise, Ahemadabad, .
8. While the Counsel for the respondents contended that since the circular is not binding on the authority adjudicating the Us, this Court cannot consider the validity of the circular issued by the respondents. The Counsel also submitted the activity amounts to manufacture.
9. The question, therefore, is whether the activity of putting duty paid manufactured items and duly paid bought out items in one kit and packing them amounts to manufacture. If the answer to the above question is "yes" then the provisions of the Act are attracted and excise duty is leviable. If the answer to the above question is in the negative the provisions of the Act are not applicable and therefore, the circular issued in exercise of the power conferred under Section 37-B is without authority of law and no excise duty is leviable on these items.
10. The respondents have not disputed that the petitioners can purchase the items which are required for the purpose of jointing the two cables namely Heat Shrink Sleeves, Aluminium Canisters, Branch of clips etc. separately and that they are available in the open market as such. His not the case of the respondents that without putting all these items in one kit the items are not marketable. It is also not the case of the respondents that any process is involved in putting all the items in one kit. It is also not the case of the respondents that all the items mentioned are duty paid. The case of the respondents is putting duty paid items in one kit amounts to manufacture while the petitioners contend that it does not amount to manufacture. I have already referred to the definition of manufacture and it is an inclusive definition.
11. The Supreme Court in DCM's case (supra) construing the definition of 'manufacture' observed 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. White making the above observation relied on a passage quoted in Permanent Edition of Words and Phrases, Vol.26 from an American Judge which reads as follows :
"'Manufacture' implies a change, but every change is not manufacture and yet even,' 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.'' In South Bihar Sugar Mills Ltd. v. Union of India, (supra) the Supreme Court followed the decision in DCM Ltd. and observed that :
"The Act charges duty on manufacture of goods. The word "manufacture" implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use."
12. In Ujagar Prints v. Union of India, (supra) the Supreme Court reiterated the view expressed in DCM's case and observed that :
"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. There might be borderline cases where either conclusion with equal justification be reached, insistence on any sharp or intrinsic distinction between 'processing' and 'manufacture', results in an oversimplication of both and tends to blur their interdependence in cases such as the present one."
In Mali Laminates Private Ltd v. Collector of Central Excise, Ahmedabad, (supra) while reiterating the judgment in DCM's case the Supreme Court observed :
'' Therefore, where the goods are specified in the schedule they are excisable goods but whether such goods can be subjected to duty would depend on whether they were produced or manufactured by the person on whom duty is proposed to be levied. The expression "produced or manufactured" has further been explained by this Court to mean that the goods so produced must satisfy the test of marketability. Consequently, it is always open to an assessee to prove that eventhough the goods in which he was carrying on business were excisable goods being mentioned in the schedule but they could not be subjected to duly as they were not goods either because they were not produced or manufactured by it or if they had been produced or manufactured they were not marketed or capable of being marketed."
The next decision to be considered is Porriils & Spencer (Asia) Ltd. v. CCE, New Delhi, (supra) while reiterating the test laid down in DCM's case it was held :
"Every change does not necessarily fall within the expression 'manufacture' unless it is shown that the process has brought into existence any new product having a distinct identity in the commercial world, hi the absence of any evidence in that behalf which the Revenue ought to have laid, it is difficult to come to the conclusion that excisable goods came into existence by the treatment of cotton and nylon yam into a muiliford yarn."
13. What emerges from the above is excise duty is leviable on goods manufactured. The expression manufacture means bringing into existence a new substance and does not mean merely to produce some change in a substance, however minor in consequence Ihe change may be and as a result of treatment, labour and manipulation there should be transformation in the raw material and as a result of treatment, labour and manipulation a new and different article must emerge having a distinct name, character or use. It is not enough if there is change, the change should result in bringing into existence a new and definite article having a distinctive name, character or use and the said article must be marketable and it should be known to the market as such. In the absence of any one of the ingredients referred to above, the provisions of the Act are not attracted and no excise duty is leviable. Even if the goods so produced were excisable goods mentioned in the schedule, they cannot be subjected to duty unless they are marketed or capable of being marketed. The marketability is one of the principle test in determining the liability to excise duty. In addition the product which is brought into existence must have a distinct identity in the commercial world.
14. Let us apply the above tests to the facts of the present case. As pointed out in the earlier paragraph, the identity of the items placed in the kit is not changed. They are known in the market as such. There is no transformation in the articles which are placed in the kit. They are marketable as such. Further, no process is also involved except that all the articles are put together in one box. It is true that by placing alt these articles in one kit the kit has a distinct name known as 'cable jointing kit'. However, mere is no change in character and use of the articles placed in the kit. In other words, except the test that the articles which are placed in the kit has a distinct name, the other tests have not been satisfied. Therefore, placing different articles in the kit does not amount to manufacture. If once the activity of placing the articles in the kit does not amount to manufacture, the provisions of the Act are not applicable as the levy of excise duty is on the production and manufacture of goods.
15. If the 'cable jointing kit' is not excisable as no manufacture is involved the provisions of the Act are not applicable and the circular issued by the 5th Respondent is without authority of law. If the circular issued is without authority of law. the respondents do not get any jurisdiction to levy Central excise duty on all cable jointing kits. Therefore, the notice issued proposing to lew duty on cable jointing kits pursuant to the impugned circular is without authority of law and jurisdiction.
16. The argument of the learned Counsel for the respondents is that the petitioners have an effective alternative remedy and therefore, they should approach the Departmental authorities and in fact they have filed their explanations and against the order of the Assessing Authority also they filed an appeal before the Collector (Appeals) and the same is pending and therefore, this Court should not exercise the jurisdiction under Article 226 of the Constitution of India, cannot be countenanced as there is no necessity for the petitioners subject to the jurisdiction of authority which has no jurisdiction to levy Central excise duly. If some process is involved in making the 'cable jointing kit' and whether the said process amounts to manufacture or not then perhaps it is a disputed question of fact which can be gone into by the Assessing Authority as well as Appellate Authority and the petitioners can be directed to approach the said authorities as this Court cannot go into the disputed questions of fact. However, where there is no jurisdiction and the action of the Revenue is without authority of law, this Court is not precluded from exercising its jurisdiction under Article 226 of the Constitution of India. It is a case where the respondents have absolutely no jurisdiction to impose Central excise duty on cable jointing kits.
17. The argument of the learned Counsel for the Revenue is that the circular was issued in exercise of the power conferred under Section 37-B of the Act are not binding on Ihe Central Excise Officers of the discretion of the Collector of Central Excise (Appeals) in exercise of his appellate functions and therefore, the apprehension of the petitioners that the Excise Collector, Central Excise (Appeals) would be fpllowing the circular issued by the 5th Respondent is baseless, cannot also be countenanced as this argument is inconsistent with the first argument of the learned Counsel for the Revenue, as he contended that placing the articles in one kit and packing them amounts to manufacture. Further, as pointed out in the earlier paragraphs, the assessee need not be subjected himself to the authority which has no jurisdiction over him or when the authority is attempting to exercise jurisdiction without authority of law. Therefore, the argument of the learned Counsel for the Revenue is rejected.
18. In any view of the matter the action of the respondents is without audiority of law and jurisdiction and hence the petitioners are entitled to succeed and the writ petitions are accordingly allowed with costs. Advocate's fee is Rs. 1,000 in each case.