Bombay High Court
Extrusion Processes Pvt. Ltd. And ... vs Shri M.C. Thakur, Assistant Collector ... on 23 July, 1987
Equivalent citations: 1988(14)ECR529(BOMBAY)
JUDGMENT H. Suresh, J.
1. In Extrusion Process Pvt. Ltd. v. N.R. Jadhav, Superintendent of Central Excise, [1974 Cen-Cus Apr. 13C (Gujarat)] reported in 1979 Excise Law Times (J 380), in which the present petitioners were themselves the petitioners, a Division Bench of the High Court of Gujarat, while considering the question whether printing and lacquering of extruded shapes and sections or tubes and pipes of aluminium is liable to payment of duty under the Central Excise and Salt Act, 1944 (hereinafter referred to as "the said Act" for the sake of brevity), came to the conclusion that "printing and lacquering do not involve the process of forming a tube from a metal slug or dump which extrusion means. It is therefore clear that since printing and lacquering of plain extruded tubes do not require application of any further process of extrusion, it cannot be covered by sub-item (e) of Item 27." Thereafter after posing a question; Is the process of printing and lacquering then incidental or ancillary to the completion of manufacture of such a tube ?, the Division Bench answered the same as follows:
The definition of 'manufacture' given in Clause (f) clearly suggests that any process before it is regarded as incidental or ancillary to the completion of a manufactured product must have some relation to the manufacture of a finished product. However, unessential that process may be if it is incidental or ancillary to the completion of a manufactured product then that process falls within the compass of the expression "manufacture". Printing and lacquering cannot be said to be incidental or ancillary to the completion of manufacture of the product. They have no relation to the completion of manufacture of tubes because unprinted and unlacquered tubes are by themselves a marketable commodity requiring nothing else for completing their manufacture. Printing and lacquering are therefore, not even remotely connected with the completion of the manufacture of aluminium tubes. It is a process which is independent of the manufacture of aluminium tubes. It is applied for the purpose of enhancing their saleability and not for completing their manufacture. If such a commodity is subjected to central excise duty after it has been once paid on the plain extruded tubes, it will not be a duty on the manufacture or extruded aluminium tubes but it will be a duty on the sale of that commodity. We are therefore of the opinion that the printing and lacquering of plain extruded aluminium do not fall within the ambit of sub-item (e) of Item 27. This is our view on the plain reading of the said sub-item (e) of Item 27 in the light of the provisions of Sub-section (1) of Section 3 of the said Act.
2. In Metal Box Company of India Ltd. v. The Union of India and others, being Misc. Petition No. 511 of 1973, decided on 24th July 1979 of our High Court, while allowing the petition Pendse J. agreed with the above Judgement and clearly held:
The process of manufacture of extruded tubes is not postponed till such tubes are painted, lacquered, printed or fitted with caps. That operation is done only to suit the convenience of the customer and is clearly a post manufactured operational process.
It appears that an appeal preferred against the Judgement in Misc. Petition No. 511 of 1973 was summarily rejected. As against this, the matter has been taken to the Supreme Court where it is still pending.
3. Precisely to meet the situation, the Government sought to amend the law when it introduced certain changes in the Finance (No. 2) Act, 1980, which are as follows:
(a) Under Section 2(f) after Sub-clause (vii), the following sub-clause was inserted, viz ;
(viii) In relation to aluminium include lacquering or printing or both of plain containers.
(b) The First Schedule shall be amended in the manner specified in Parts I and II of the Third Schedule.
(c) In Tariff Item 27 in the First Schedule to the said Act, for sub-item (f), the following sub-item was substituted, viz.
"(f) Containers, plain, lacquered or printed, or lacquered and printed.
4. This amendment is being challenged in this petition as ultra vires Entry No. 84 in List I of Schedule VII to the Constitution of India. The said Entry No. 84 referred to above is as follows:
84. Duties of Excise on tobacco and other goods manufactured or produced in India, except-
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.
The corresponding Entry in the Government of India Act, 1935 was Entry No. 45 of List I, Schedule VII, which read as under:
Duties of excise on tobacco either goods manufactured or produced in India except... .
The said Act was enacted in exercise of the Legislative powers under the said Entry No. 45 of List I of Schedule VII to the Government of India Act, 1935. The corresponding entry in the Constitution of India, as aforesaid, is Entry No. 84 of List I of Schedule VII to the Constitution of India. Section 3 of the said Act is the charging section and lays down that they shall be levied and collected in such manner as may be prescribed duties of excise on excisable goods which is produced or manufactured in India.
5. Prior to the amendment, Tariff Items 27 (e) and (f) mentioned only "extruded shapes and sections including extruded pipes and tubes and containers made of aluminium." Therefore, the question is whether by including the process of lacquering and printing in the inclusive definition of "manufacture" and also in Tariff Item 27 (f), how does the process become a process of "manufacture" or any process incidental or ancillary to the completion of a manufactured product ? In fact, this has been expressly answered in the negative in the petitioners' case before the High Court of Gujarat (see 1979 Excise Law Times (J 380) [1974 Cen-Cus Apr. 13C (Gujarat)] and in the Metal Box case (supra) by our High Court. The amendment must at least indicate as to how a process which was not a process of manufacture as authoritatively held by two High Courts, becomes a process of manufacture.
6. The word "manufacture" has not been denned in the said Act as also under Entry No. 84 of List I of Schedule VII to the Constitution of India. But it is no longer res Integra. In Union of India v. Delhi Cloth and General Mills, , the Supreme Court said as follows:
According to the learned Counsel 'manufacture' is complete as soon as by the application of one or more processes, the raw material undergoes some change. To say this is to equate 'processing' to 'manufacture and for this we can find no warrant in law. 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 Judgement. 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 a transformation; a new and different article must emerge having a distinctive name, character or use.
Therefore, any process of manufacture must bring into existence a new substance, commercially known. It is possible that in a given case, if any process is used amongst other numerous processes so as to turn the raw material into a finished product, such a process becomes necessarily incidental or ancillary to the completion of a manufactured product. But a process is "a post manufactured operational process", as characterised by Pendse J., it would not fall within the definition of "manufacture" at all.
7. In Empire Industries Ltd. v. Union of India, (1985 ECR 1169) , the Supreme Court was considering whether cotton fabrics subjected to the process of bleaching, mercerising, dyeing, printing, water-proofing etc. would bring into existence different and distinct goods, commercially known as such, to attract levy of duty under Section 4 of the Central Excise and Salt Act, 1944. The Court expressly held that such a new substance had been brought into being inasmuch as printed or dyed cloth was a commercially different article from raw cloth, and it is on this basis the challenge by the petitioners was negatived. The Supreme Court, here, was considering certain amendments to the said Act, all in relation to cotton fabrics but including various processes such as bleaching, mercerising, dyeing, printing, shrink-proofing etc. in the concerned Tariff items of the First Schedule. The challenge was the same as in the case before me. But because of its finding that the process brought into existence a new substance and as such amounted to "manufacture" of a commercially new product, the amendment was upheld and it was held to be within the legislative competency of the Parliament.
8. But in this case, it is interesting to note, that there is a reference to the above referred Gujarat case, Extrusion Process Pvt. Ltd. v. N.R.. Jadhav, Superintendent of Central Excise, [1979 Excise Law Times (J 380)] [1974 Cen-Cus Apr. 13C (Gujarat)] which seems to have been approved as can be seen from the following passage:
The petitioners in that case had been printing and lacquering only plain extruded tubes and the question was whether by printing and lacquering the plain extruded tubes of aluminium the petitioners firstly applied any further process of extrusion to these and thereby manufactured tubes. It was held that printing and lacquering were not even remotely connected with the manufacture of aluminium tubes. It was a process independent of the manufacture of aluminium tubes. The question whether a particular process is a process of manufacture or not has to be determined naturally having regard to the facts and circumstances of each case and having regard to the well-known tests laid down by this Court.
Mr. S. Ganesh, teamed Advocate for the petitioners, has, therefore, rightly argued that as fer as the process of printing and lacquering is concerned, it is clear that it cannot be said to be a process of manufacture or process incidental or ancittary to any process of manufacture. If that is so, a mere amendment cannot bring such a change in the meaning of the term 'manufacture' as contemplated under Entry No. 84 of List i of Schedule VII to the Constitution of India.
9. Mr. C J. Shah, appearing for the respondents, submitted that in the Empire Industries Ltd. case (supra) 1985 ECR 1169, an amendment incorporated a process as an item of "manufacture" was held to be valid. He submitted that, therefore, there is no reason as to why and when the Parliament amends the law and includes an item as an item of manufacture, the same should not be accepted by this Court.
10. I am afraid, I cannot accept this submission, because for enacting a law in relation to any excise duty under the said Act, the item must necessarily fall within the meaning of Entry No. 84 of List I of Schedule VII to the Constitution of India. If one has regard for what has been judiciously pronounced in all the `s referred to above, it is clear that the process of printing and lacquering cannot be considered as an item which would fall within the scope of the term "manufacture". If that is so, the Parliament had no legislative competency to make such a law at all and, therefore, that must necessarily be held to be void.
11. Mr. Shah then submitted that if the item cannot fall within the scope of Entry No. 84 of List I of Schedule VII to the Constitution, it can fall under the Residuary Entry, being Entry No. 97 of List I of Schedule VII to the Constitution. In that context, Mr. Shah drew my attention to para 46 of the Judgement in the case of Empire Industries Ltd. .
12. I have read the said passage. In the said passage a certain contention advanced on behalf of the petitioners has been dealt with. The argument was to the effect that since the item would not fall within the scope of Entry No. 84 of List I of Schedule VII to the Constitution, it would fall within the scope of Entry No. 97 of List 1 of Schedule VII to the Constitution. It was then submitted that there was no charging section for such an activity and as such the charge must fall, and there cannot be any levy. This argument was considered to be based on misconception and negatived. There is no finding by the Supreme Court that in any event this item would fall under Entry No. 97 of List 1 of Schedule VII to the Constitution. There is no discussion about the Entry No. 97 in the whole of the Judgement. Therefore, 1 am not prepared to accept this contention of Mr. Shah.
13. Mr. Shah then drew my attention to a later Judgement of the Supreme Court, being the case of M/s. Ujagar Prints v. U.O.I, . Here, again, there is nothing that can favour the respondents. In one paragraph it is said that the case of Empire Industries Ltd. requires reconsideration on certain aspects of the case. The other passage on which Mr. Shah relied on is at para three of the Judgement, wherein there is a reference to Bom. Tyres International Ltd. . That is referred to for the purpose of saying that the assessable value of the manufactured goods is to be determined at the factory gate that is at the stage when the manufactured goods leave the factory gate of the processor and it cannot possibly include the selling profit of the trader who subsequently sells the processed fabric. I am afraid, this authority cannot be of any assistance to the respondents. Bombay Tyres International Ltd. came to be decided totally on a different principle in relation to post manufacturing expenses and it is essentially a case under Section 4 of the said Act. It has nothing to do with Section 2(f) of the said Act.
14. In this view of the matter, I must necessarily hold that this amendment as contemplated under Finance (No. 2) Act, 1980 has to be struck down as ultra vires Entry No. 84 in List 1 of Schedule VII to the Constitution of India and, therefore, for want of legislative competency on the part of the Parliament.
15. It appears that during the pendency of this petition, the said Act was revised and a new Act viz. the Central Excise Tariff Act, 1985 (Act No. 5 of 1986) was passed. This Act substituted for the First Schedule to the Central Excises and Salt Act, 1944, a new tariff set out in the Schedule to the said Central Excise Tariff Act. This Act has come into force on 28th February 1986. Tariff Item 83.12 of the new Tariff covers "Containers of base metal" and sub-tariff item 8312.11 reads as under:
8312.11-of aluminium, whether plain, lacquered or printed or lacquered and printed....20%.
Further Chapter Note 2 at the beginning of the said Chapter 83 of the said Central Excise Tariff Act states as under:
2. In relation to sub-heading No. 8312-11, the process of lacquering or printing or both of plain containers shall amount to "manufacture.
Therefore, the petitioners by an amendment incorporated these provisions in the petition and since they are in no way different from the previous ones they have also been challenged on the same ground as in the petition.
16. It can be seen that the said new Tariff Item 8312.11 is thus virtually identical to the previous Tariff Item 27(f) as amended by the Finance (No. 2) Act, 1980. Therefore, for the same reasons as given above, this provision also will have to be struck down.
17. It was sought to be contended on behalf of the respondents that under this new Act viz. The Central Excise Tariff Act, 1985 (5 of 1986), the definition of "manufacture" has been recast as to read as follows:
(f) "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 Section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture.
It was, therefore, argued that whatever is specified in relation to any goods in the Section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 should be considered as amounting to "manufacture".
18. The only rider, I can think of, is that such an item must necessarily fall within the scope of Entry No. 84 of List I of Schedule VII to the Constitution of India. It is not that because Government says a particular process is a process of manufacture, such a process automatically becomes a process of manufacture, as has been done in the present case. It has been judicially construed that a process of "manufacture" must result in coming into existence of a new substance, which is commercially known as such. In the absence of any such commercial transformation, it cannot be said that such a process becomes an item of "manufacture" as contemplated under Entry No. 84 of List I of Schedule VII to the Constitution of India. In the result, the amendment as also the present sub-tariff item will have to be struck down for want of legislative competency on the part of the Parliament.
19. By a recent amendment, the petitioners have also amended the petition by way of an alternative contention that the declaration made by the Government while introducing the Finance (No. 2) Act, 1980 under the Provisional Collection of Taxes Act 1931, should be struck down as ultra vires the said Act. I have, however, not dealt with this contention, as it has not become necessary to do so.
ORDER
20. In the result, the Rule is made absolute in terms of prayers (a), (b), (c), (e) and (f) of the petition. Pursuant to this order, amount to be refunded to the petitioners will have to be done within a period of three months from today. In the circumstances of the case, there will be no order as to costs.
21. At this stage. Mr. Shah for the respondents submits that the operation of my judgment be stayed for a period of four weeks from today. Mr. Ganesh for the petitioners has opposed this submission.
22. Since I have struck down the provision of law as ultra vires the Constitution of India, in my view there can be no stay of the operation of my judgment. I, therefore, reject the application made by Mr. Shah.