Customs, Excise and Gold Tribunal - Delhi
National Organic Chemical Industries ... vs Collector Of Central Excise on 25 January, 1985
Equivalent citations: 1985(21)ELT252(TRI-DEL)
ORDER V.T. Raghavachari, Member (J)
1. The appellants M/s. National Organic Chemical Industries Limited used to receive chlorine from M/s. Calico Chemicals, Bombay for conversion into vinyl chloride by reacting the said chlorine with their own ethylene. They had filed classification list with reference to such work mentioning therein the fee charged by them for conversion, the same to be taken up for purposes of calculation of duty. They did so claiming that they were entitled to such benefit under Notification No. 119/75-C.E., dated 30-4-19)5. They claimed that the work of conversion of chlorine into vinyl chloride was job work and under the said notification duty could be assessed only on the charges collected for the said job work. The Asstt. Collector of Central Excise, Bombay-6 did not agree with the said contention and held that whereas the chlorine received by the appellants was only a raw material, the vinyl chloride handed over by the appellants to the customer was altogether a new product known by a different name and as such the process of conversion cannot be considered as job work entitling th e appellants to the benefit under Notification No. 119/75. On appeal to the Appellate Collector of Central Excise, Bombay, the said order of the Assistant Collector was confirmed and the appeal was dismissed. It is against the said order dated 6-3-1976 that the appellants preferred a revision petition to the Government of India which on transfer to this Tribunal under Section 35-P of the Central Excises and Salt Act is now being disposed of as an appeal.
2. The appeal was initially heard by a Special Bench consisting of three members who took into consideration the judgments of several High Courts as also an order of this Tribunal and in view of the conflict amongst the said several cases, placed the matter before the President for constituting a special bench of more than three members for a proper determination. In pursuance thereof the appeal was later heard by this Special Bench of 5 members.
3. Sri R.M. Parekh, Manager (Legal) of the appellants appeared for the appellants. Srimiti V. Zutshi, Senior Departmental Representative and Shri A.S. Sundar Rajan, Junior Departmental Representative appeared for the respondent.
4. During the course of the hearing of the above appeal, Sri V. Sridharan, authorised representative of M/s. Thirumalai Chemicals Limited made an application for being heard as an intervener since a similar question arises for determination in ED(SB)(T) Appeal No. 270/81-D and Appeal No. 490/81-D. Under order dated 19-9-1984 Sri Sridharan was permitted by the bench to make submissions as an intervener but without reference to the facts of his own appeal and confining himself to the arguments and submissions made in the present appeal to the extent to which he wished to supplement the arguments of the parties to this appeal.
5. The admitted facts are that the appellants manufacture ethylene and that the chlorine bought by the appellants as well as the chlorine made available to them by M/s. Calico Chemicals is reacted with the ethylene of the appellants for conversion into vinyl chloride. The quantity of vinyl chloride to be handed over to M/s. Calico Chemicals is calculated with reference to an agreed formula and after handing over the said quantity of vinyl chloride the balance is utilised by the appellants for further conversion into Poly Vinyl Chloride. The question for determination is whether with reference to the vinyl chloride that is handed over to M/s. Calico Chemicals, the appellants are to pay excise duty on the value of the said vinyl chloride or whether they are liable to pay duty only on the amount charged by them as conversion charges. The department contends that duty is payable on the value of the vinyl chloride while the appellants contend to the contrary relying upon Notification No. 119/75-C.E.
6. The said notification reads as follows :
"In exercise of the powers conferred by Sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), manufactured in a factory as a job work, from so much of the duty of excise leviable thereon as is in excess of the duty calculated on the basis of the amount charged for the job work.
Explanation.-For the purposes of this notification the expression 'job work' shall mean such items of work where an article intended to undergo manufacturing process is supplied to the job worker and that article is returned by the job worker to the supplier, after article has undergone the intended manufacturing process, on charging only for the job work done by him."
In terms of the explanation to the said notification the expression 'job work' would mean that :
(i) an article must be handed over by the customer to the assessee ;
(ii) a manufacturing process must be carried out by the assessee to the said article ;
(iii) the article must then be returned to the customer ; and
(iv) the assessee must have charged the customer only for the job work done by him.
In the present case the article handed over by the customer is chlorine ; the process carried out by the appellants is reacting the said chlorine with its own ethylene the article returned by the appellants to the customer is vinyl chloride; charges are collected by the appellants from the customer as towards conversion charges only such charges evidently being inclusive of the cost of ethylene supplied by the appellants.
7. At the outset it may be appropriate to dispose of certain contentions raised for the respondent by Sri Sundar Rajan which do not appear to us to be acceptable. We refer to his contention regarding ^chlorine being supplied by M/s. Standard Alkali and not directly by M/s. Calico Chemicals and his further contention that no invoices had been raised for conversion charges but only debit notes. But Sri Parekh mentions that the supply of chlorine by M/s. Standard Alkali was at the instance and on behalf of M/s. Calico Chemicals and that the debit notes were adopted as a convenient method of accounting instead of receiving invoices and setting up by payment on those invoices. We accept the said explanation and are, therefore, satisfied that no conclusion need be drawn against the appellants on these facts. Sri Sundar Rajan further points out that nowhere in the contract or the classification list is there any reference to job work and that conversion charges alone are mentioned in the classification list. But the fact that no reference is made to the work as job work would not disentitle the appellants to the benefit of the notification if on facts they prove that the work that they did was job work only as defined in the notification. We have further noted that at the instance of the bench an affidavit had been filed for the appellants regarding other by-products during conversion and the manner of disposal thereof. In the said affidavit of Sri T.P. Bawa Singh it had been mentioned that certain by-products such as Trichioroethane, Tetra-chloroethane and Hydrogen chloride gas are produced as byproducts but these are of no commercial value and are thus disposed of". Sri Parekh, in fact, further pointed out that the appellants offered to hand over the hydrogen chloride gas to M/s. Calico Chemicals free of cost but that the said offer was not acted upon. It was also pointed out that in the classification list of excisable goods produced (page 11 to 13 of the paper book) these by-products were also disclosed as duty-free and waste products for destruction. Yet another submission made by Sri Sundar Rajan was that it was the ethylene of the appellants that underwent reacting process with chlorine supplied by M/s. Calico Chemicals and not vice versa. He, therefore, contended that it was to the ethylene that a manufacturing process was carried out and not to the chlorine. This contention not merely does not appeal to us but further appears to be against the case of the department itself at earlier stages. For instance the Order-in-Original itself reads that the chlorine supplied to the appellants is covered by the appellants into vinyl chloride and not that the ethylene of the appellant is converted into vinyl chloride. In the affidavit of Sri C.P. Bhatt, Assistant Collector of Customs and Central Excise, Division Thane IV, dated 29-6-1964 filed before this Tribunal the process is referred to in detail and it is mentioned that the ethylene is introduced at the top of the absorber and same reacts with chlorine to form dichloroethane. Therefore, this affidavit also makes no distinction that it is the ethylene which is converted into vinyl chloride and not chlorine into vinyl chloride. Further in any chemical process involving two chemicals there can be no distinction as to which of the two is converted into the end-product, the fact being that both of them undergo chemical reaction and change, leading to the emergence of the final end-product. Therefore, we can proceed to the determination of the matter in issue without further reference to these points of minor controversy raised by Sri Sundar Rajan.
8. Since the matter has come before this bench of five members in view of conflicts in earlier judicial pronouncements, we feel it would be better to take note of these judgments at this stage. This notification came up for consideration before the Gujarat High Court in the case of Anup Engineering Limited v. Union of India (1978 E L.T. J 533). Four cases were disposed of under that judgment, the contention for the department in the said cases being that the assessees manufactured articles which were entirely different from the raw material supplied to them by the customers and that such raw material completely lost its original identity and it was not the raw material that was returned to the customer but altogether a new article. The department had, therefore, contended that the four appellants were not entitled to the benefit of Notification 119/75. The details of the nature of work claimed to be job work are not given in the judgment except to state, with reference to one of the applications, that materials such as tin plates, sheets, tubes, pipes, etc., are supplied by the customer for carrying out job work and making equipments and components. From paragraph 3 of the judgment it is further seen that the department in its affidavit in reply had in fact complained of the lack of such details, stating that such details as also the description of the equipments and components manufactured were being deliberately kept back. Dealing with the contention of the department that substantially and materially new articles were being returned to the customer and the work would therefore not be a job work, the Court held that unless a new article known to trade emerges after the manufacturing process is completed, no excise duty could be levied at all and, therefore, if benefit of the notification is to be refused on the basis that a new article had emerged, the exemption under the notification would be meaningless. Two examples were cited in the said judgment of such job work which would attract the application of the exemption notification. They were of a customer taking to the factory brass sheets and getting them converted into brass pots and a customer taking a piece of suit length to a factory where it is cut and stitched into a suit. The Gujarat High Court extended the benefit of the notification to the four appellants in the said case.
9. In Madura Coats Limited v. Collector of Central Excise 1980 E.L.T. 582 (Calcutta) nylon or rayon yarn supplied by customers were to be arranged by M/s. Madura Coats Limited in parallel rows loosely held together by cotton yarn supplied by Madura Coats, the resultant product being called tyre cord wrap sheets. The Court held that no new or different commodity had been manufactured but that even if it were to be held otherwise the party was entitled to benefit under the notification. This judgment was confirmed on an appeal by a Division Bench of the same High Court in the decision reported in 1982 E.L.T. 129 (Calcutta). It was held that a work does not cease to be a job work merely because the job worker supplies some additional articles which do not constitute a substantial part in the manufacturing process but were used merely incidentally. The Division Bench further held (paragraph 8, page 132 of the report) that if the person claiming to do the job work supplies his own materials in substantial proportion and they constitute an important element in the manufacturing process the work will not be a job work. It was held that "if a manufacturing process involves job work as also sale of certain articles or in other words, if the contract is one of labour and sale, it will not be a job work. But the articles supplied and sold by the job worker must constitute a substantial part of the manufacturing process and not merely used incidentally."
10. Another case of the same party M/s. Madura Coats Limited came up for consideration before the Madras High Court, as reported in 1982 E.L.T. 370. The work involved in the said case was twisting of different types of duty paid filaments and spun yarn material supplied by the customer. It was held that the appellant company did not add any material of its own while carrying out the process of twisting and the material thereby underwent a change in physical form only but was still identifiable with the articles supplied by the customer. It was, therefore, held that the job work notification was applicable. There was a further observation also in the said judgment which is relied upon for the respondent in present proceeding. The same reads as follows :
"If during the manufacturing process the materials supplied by third respondent lose their identity and the product that is handed over to the supplier is entirely different in which the articles supplied cannot be identified the concession contemplated in the notification would not be available.
11. The Calcutta High Court had to again consider this notification in the case a? Associated Pigments Limited y. Collector of Central Excise (1983 E.L.T. 876). In that case pure lead supplied by the customers was converted into lead suboxide and lead monoxide and returned. The department had held that the character, use and name in trade parlance of the commodity returned were different from the commodity received (pure lead) and the notification did not apply. The Calcutta High Court rejected the contention of the department and held that the assessees were entitled to the benefit under Notification No. 119/75 and excise duty was to be collected on the job charges only. In coming to that conclusion the Division Bench had referred to the judgment of Gujarat High Court in the Anup Engineering Limited case (cited supra) as also the earlier judgment of the Calcutta High Court itself in the Madura Coats Limited case (1980 E.L.T. 582 and 1982 E.L.T. 129). After discussing the said judgment it is observed at page 880 -
"I respectfully agree with the view taken by the Division Bench of the Gujarat High Court in Anup Engineering Company v. Union of India (supra) and the said decision is also in accord with the view taken by this Court in Madura Coats Limited v. The Collector of Central Excise (supra),"
12. The decisions of this Tribunal referred to before us are four in number. In Orissa Construction Corporation v. Collector of Central Excise (1983 E.L.T. 2382), the assessee had received bars, plates, slabs, etc., and had fabricated radial gates out of the same and erected the same. With reference to the claim for benefit under Notification No. 119/75 it was held by this Tribunal that the sheets of steel and iron have been transformed into new and different articles having a distinct name, character and use and that the identical article received from the customer not having been returned to the customer after it had undergone the manufacturing process the benefit of Notification No. 119/75 was not available.
13 In Indian Steel Rolling Mills v. Collector of Central Excise (1983 E.L.T. 2396) this Tribunal had to consider a case where iron wires received from a customer were converted into iron nails. After taking into consideration the decisions in Anup Engineering and Madura Coats Limited (Calcutta) this Tribunal held that the benefit of Notification No. 119/75 was available to the party.
14. In Waldies Limited v. Collector of Central Excise (Order No. C-17/83, dated 22-2-1983 in Appeal No. 177/80-C) lead received from the customer was converted into litharge. It was held that M/s. Waldies did not apply a further process to complete the manufacture but took the raw materials to manufacture a chemically different substance. On the said conclusion the Tribunal held that the benefit of Notification No. 119/75 was not available. In M/s. Mysore Acetate and Chemicals Company Limited v. Collector of Central Excise, Bangalore 1984 (17) E.L.T. 319 (Kar.) this Tribunal had to consider the case of conversion of Acetic Acid into Acetic Anhydride and whether such work would be a job work entitling benefit under Notification No. 119/75. The Bench unanimously held that it would not be a job work under the said notification, though separate orders to that effect were written by each of the three members constituting the Bench. In fact, the conflict between the various decisions of the several High Courts as also this Tribunal mentioned earlier were all elaborately considered in the order of Sri Gouri Shankar Murthy in the said case, incidentally referring to the fact that in view of such conflict the present appeal had been referred to a Bench of more than three members.
15. It is, thus, seen that there is no disagreement between the High Courts on the points :
(i) that the mere fact that by reason of the job work done a new commodity, but not one in which the articles supplied cannot be identified, had emerged, would not rule our benefit under Notification No. 119/75; and
(ii) that if the job worker supplies or sells his own materials in substantial proportion and they constitute an important element in the manufacturing process the work will not be a job work.
No arguments appear to have been advanced in the several cases before the High Courts to distinguish between the process of manufacture in the primary sense and the process of manufacture in the secondary sense of incidental or ancillary processes leading to the completion of a manufactured product.
16. Before us Sri Parekh placed reliance on the decision in the Anup Engineering case as also the decisions of the Calcutta High Court in the cases of Madura Coats Limited and Associated Pigments Limited. He pointed out that the mere fact that the commodity received from the customer is transformed into another commodity bearing a distinct name and having a distinct use would not for that reason disentitle the benefit under Notification No. 119/75 since as observed in] the above decisions no duty itself could be claimed or collected unless a new excisable commodity had come into existence. He pointed out that the facts of the present case are akin to the facts in the case of Associated Pigments Limited, since just as lead was converted into lead suboxide and lead monoxide in that case, chlorine in the present case is converted into vinyl chloride by reaction with ethylene. He claimed that hence the work would be a job work only as defined in the notification since for the entire chlorine received, except for other small byproducts of no commercial value, the entire vinyl chloride processed out of the chlorine is returned back to the customer.
17. But the argument for the department is to lay stress on the words "that article is returned by the job worker" and to contend that to qualify as job work under this notification the article that has been received from the customer should itself be returned to the customer after the intended manufacturing process had been done on the same. In other words, the contention is that the identity of the article ought not to be lost by reason of the manufacturing process that it undergoes at the hands of the job worker, and that if the identity could not be retained after the manufacturing process it would cease to be a job work as defined in the notification. In this connection they rely upon the observation of the Madras High Court in 1982 E.L.T. 370 extracted earlier. No doubt Sri Parekh contends that the above said observations were unnecessary in the factual circumstances of that case as the judgment of the said case was on the basis that the articles received from the customer retained their identity and there were no additional materials also added by the job worker and the entire quantity of raw material received were returned to the customer and, therefore, there was no need to consider the other case of the identity of the articles being lost and a different product being handed over to the customer. He referred us to the decision of the Supreme Court in Commissioner of Income Tax, Bombay v. Bai Shirinbai (A.I.R. 1963 S.C. 477) in this connection and in particular to the observation at page 480 which reads as under :
"We further agree that the view expressed by the High Court that the ratio in Kikabhai's case need not necessarily be extended to a very different problem presented in the present case not only because the facts me different but because there is an appreciable difference in principle."
But it may be noted that the observation of the Madras High Court extracted supra cannot be said to have been unnecessary for the purpose of arriving at a decision in the said case. On the other hand, those observations were an integral part of the arguments on the basis of which the High Court came to a particular conclusion as regards the applicability of Notification No. 119/75. Therefore, the contention of Sri Parekh that those observations should be ignored, cannot be accepted.
18. As regards the decision of this Tribunal in the Waldies case Sri Parekh points out that the said decision was rendered on 22-2-1983, 18 days after the decision of the Calcutta High Court in the Associated Pigments case and that if the decision of the Calcutta High Court had been brought to the notice of the Tribunal the decision could well have been different. In the circumstances he contends that the decision in the Waldies case should not be followed but that the decision of the Gujarat High Court in the Anup Engineering Limited CL as also the decisions of the Calcutta High Court cited earlier should be followed in the present case.
19. The decisions of the various High Courts as also this Tribunal having thus been set forth as also the contentions of both sides, it is now to be considered whether in the facts and circumstances of this case the provisions of Notification No. 119/75 are attracted. As earlier mentioned, chlorine is received by the appellants and reacted with their ethylene to form vinyl chloride. Would this conversion of chlorine into vinyl chloride be a job work as mentioned in the explanation to the notification ? In the present case the charges collected by the appellants from the customer (M/s. Calico Chemicals) were inclusive of the cost of ethylene supplied by the appellants for being reacted with chlorine received from the customer for manufacture of vinyl chloride. The Calcutta High Court had in 1982 E.L.T. 129 (cited supra) any held that if an article belonging to the assessee was sold by the assessee the customer for use in the so-called job work and such articles were substantial in proportion and constituted an important element in the manufacture process the work would be really one of labour and sale and it will not, reformed, be a job work. There could be no doubt that the ethylene sold by appellants to the customer and utilised by the appellants in the manufacture of vinyl chloride was substantial in proportion and constituted an important element in the manufacture of vinyl chloride. So far as the Associated Pigments case (1983 E.L.T. 876) the process of manufacture of lead suboxide and lead monoxide from the pure lead supplied by the customers did not solve supply or sale of any materials by the assessee for use in that manufacturing process, as is noted in the judgment of the High Court itself. There, though the said case dealt with a chemical process it did not involve sale of any additional material by the assessee as to rule out the application of the notification by reason of the test laid down in the earlier Division Bench case. The question whether in cases of contract for labour as well as sale the same would constitute job work as mentioned in Notification No. 119/75, did not se for consideration in the cases before the Madras and Gujarat High Courts and therefore, there had been no need to consider the same, The observations in the decisions of the said High Courts do not lay down any principles which could be considered in constitution or in conflict with the one ehunciated by the Calcutta High Court in 1982 E.L.T. 129 to the effect that where the contract is one of labour and sale, it will not be a job work as mentioned in the notification. Therefore, if that test is applied to the facts of the present case the only conclusion would be that the claim of the appellants for entitlement of the benefit under Notification No. 119/75 should be refused. Therefore, on that ground itself the appeal will have to be dismissed.
But since argument had been addressed at length on both sides as to the scope of the Notification No. 119/75 and the meaning to be attached to the words 'job work' in that notification, we proceed to consider that matter also to record our conclusions.
20. The Notification No. 119/75 contemplates the need for levy and collection of excise duty from the person described as job worker and provides for computation thereof. Excise duty would be recoverable only when a manufacturing activity takes place and as a result a new and distinct product with a distinctive name, character and use comes into existence. Therefore, the mere fact that by reason of the activity of the job worker a new product (processed product) has come into existence than what was entrusted to him by the customer would not for that reason itself rule out the applicability of the notification.
21. It has, therefore, to be considered what would be the nature of the activity that would be comprehended within the explanation to the notification as job work. It is in this connection that the words "manufacturing process" used in the explanation to the notification become important. It should be noted that the term "manufacture" is not as such defined in the Central Excises and Salt Act. Section 2 (f) of the Act contains an inclusive definition. It is to the effect that the term "manufacture" shall include any process incidental or ancillary to the completion of the manufactured product. It, therefore, appears to us that the words "manufacturing process" used in the explanation to the notification refer to those processes incidental or ancillary to the completion of the manufactured product and not to the usual activities that are normally understood to comprise of the activity of manufacture Therefore, to enable a person to claim the benefit of Notification No. 19/75 he will have to receive an article from the customer and subject the same to a manufacturing process, in the way of a process incidental or ancillary to the completion of the manufactured product, and then return the said article to the customer, recovering from the customer charges for. such activity only. This interpretation of the notification would also satisfy the requirement that the job worker will have to return to the customer that article which he had received from the customer for subjecting it to the necessary manufacturing process.
22. It is in this connection that Sri Sundar Rajan in the course of his arguments made reference to the book "Manufacturing-Material Processing, Management, Careers" by R. Thomas Wright & Thomas R. Jenson published by the Goodheart Willcox Company, INC. He referred to passages at pages 31 and 32 and pointed out that manufacture in the present day consists of two steps, the first being primary processing and the second being secondary processing. He contended that it is the processes involved in secondary processing that would be instances of "manufacturing process" as mentioned in the explanation to the notification, such instances being-
(i) casting and molding ;
(ii) separating;
(iii) forming ;
(iv) conditioning ;
(v) combining ; and
(vi) finishing.
His contention was that in such processes the product, retains its original identity and the product received from the customer could, therefore, be returned after subjecting it to the manufacturing process. He gave several examples thereof but at any rate with reference to two of such examples the test mentioned by him cannot be held to be appropriately satisfied. These are-
(i) conversion of plastic moulding powder into finished plastic articles such as buckets, etc ;
(ii) water to ice.
It may be noted that these instances would more naturally be classified as manufacture in the primary sense, rather than a manufacturing process by way of secondary processing.
23. But Sri Sridharan appearing as an intervener as well as Sri Parekh appearing for the appellants contend that the restricted meaning sought to be attached to the words "that article" would not be proper. Their contention is that not merely some manufacturing process should have been carried out on the article entrusted by the customer which would necessarily result in a change in the article received but that such a change should have resulted in the emergence of a new commodity without which no excise duty itself would have been chargeable. They, therefore, contend that the acceptance of the argument that the very same article as was received from the customer should be returned to the customer would render the exemption notification itself nugatory. They submit that it is only such an interpretation that should be adopted as would make the notification workable rather than one that would make it unworkable. It has been already seen that the very fact that excise duty is to be demanded would require the emergence of a new commodity rather than retention of the old commodity itself. But at the same time the use of the words "that article" in the explanation to the notification cannot be brushed aside as an impossibility. The proper way to reconcile these two contentions would be to hold that the article entrusted by the customer should, after the application of the manufacturing process by the job worker, not lose its essential identity entirely but should retain its essential identity subject to the effects of the manufacturing process carried out. It is only if such an interpretation is adopted that all the stipulations in the notification could be enforced and relief could also be granted. All the above considerations have, in fact, been fully dealt with and discussed in the judgment of learned brother Sri Gouri Shanker Murthy in the decision reported in 1984 E.C.R. 1750. But it would be impossible to categorise the various types of manufacturing processes that would satisfy all the above requirements for claiming benefit under the notification. Each case will have to be dealt with on the facts thereof and decided on its own merits. The only broad guideline for the applicability of the notification would be that the process applied by the job worker should not be in the nature of manufacture in its primary sense and the resultant product should not be so completely distinct as to lose the original identity itself.
24. It would, therefore, be seen that the interpretation we have put on the terms of Notification No. 119/75 is in accordance with the decision of the Madras High Court reported in 1982 E L.T. ?70 and also the decision of the Gujarat High Court reported in 1978 E.L.T. (J 533) (though the two examples cited in the judgment, and extracted supra, would not be in accordance with the present interpretation).
25. This interpretation does not also go against the ratio of the decision of the Calcutta High Court in 1982 E L.T. 129. But it would not be strictly in accordance with the decision of the Calcutta High Court reported in 1983 E.L.T. 876 in so far as that also dealt with a case of chemical conversion but yet the benefit of the notification was extended. But in this connection it may be noted that in the said decision the main question that was being considered was whether the mere fact that not the same article supplied by the customer but entirely a new article is returned would rule out benefit under Notification No. 119/75. It was held that it would not, following the decision of the Gujarat High Court and the earlier decision of the same (Calcutta) High Court. As earlier observed it had been specifically mentioned by the Division Bench in the said judgment that it agreed with the view taken by the Division Bench of the Gujarat High Court as also the earlier Division Bench of the same High Court. No question appears to have been argued about disentitlement to benefit under Notification No. 119/75 on the basis that the process carried out was a chemical process leading to the emergence of entirely a new article distinct in physical, chemical and other properties from the commodity handed over by the customer. We have earlier given our reasons as to why the benefit of the notification cannot be extended in such cases, where a manufacturing process in the nature of primary manufacture is carried out, and why the benefit should be confined only to cases where the manufacturing process carried out by the assessee should be of the nature of an incidental or ancillary process for the completion of the manufactured product. The Madras High Court had in its decision reported in 1982 E.L.T. 370 specifically referred to such an instance and had in the passage cited supra held that where the materials supplied by the customer lose their identity and the product that is returned to the customer is entirely different and in which the article supplied could not be identified the concession contemplated in the notification would not be available, Therefore, we have that decision of the Madras High Court specifically dealing with such a situation. Such a specific contention had not been raised before the Calcutta High Court, though the facts in that case gave rise to such a situation and the High Court had not therefore specifically considered this question and render a specific finding thereon. We may, even at the cost of repetition, state that the crucial factor which has led us to take the view which we have taken is that, in the present case, unlike in the Madras case, the change brought about in the chlorine supplied by the customer (Calico) by the appellants reacting the same with their own ethylene is a fundamental one. Chlorine, designated by the chemical formula CH2, undergoes chemical reaction with ethylene, designated by the formula H2C : CH, resulting in a new product vinyl chloride, designated by the formula CH2 : CHCL in which the identity of the chlorine and ethylene have been lost; the structure, uses, properties and composition of the end product-vinyl chloride-are different from those of chlorine and ethylene.
26. The course open to this Tribunal in such cases of conflict between decisions of different High Courts had been considered by this Tribunal in its decision in the Atma Steel case 1984 (17) E.L.T. 331. Under Section 35H of the Central Excises and Salt Act, 1944 this Tribunal could make a direct reference to the Supreme Court (in cases of conflict in the decisions of High Courts) only when dealing with applications under Section 35G which deal with orders not being orders relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment. The present is a case where the dispute is with reference to the rate of duty. Hence the provisions of Section 35H permitting a direct reference to the Supreme Court are not available. It, therefore, becomes the duty of this Tribunal to, as held in the Atam Steel case, adopt the reasoning of one or the other High Court which appears to it to be more appropriately applicable to the facts of the case before us.
27. Applying the said principle and in view of the discussion earlier regarding the words in the notification, the scope thereof, the interpretation on the words of the notification by the decisions of the High Courts, the need to evolve an interpretation which would make all the stipulations in the notification workable, we hold that the interpretation of the notification by the Madras High Court and the Gujarat High Court (subject to the qualification mentioned earlier regarding the examples cited) have to be adopted, this interpretation not being against the decision of the Calcutta High Court also in the Madura Coats Limited case, though this interpretation may not be fully in accordance with the result of the decision of the Calcutta High Court in the Associated Pigments case. Such a course has become inevitable in view of the conflict between the decisions of the Calcutta and Madras High Courts, as would become apparent when it is seen that the decision in the Associated Pigments case in the Calcutta High Court would have been different if the principle laid down by the Madras High Court had been applied to the facts of the case.
28. So far as the present case is concerned, it should be noted that the chlorine supplied by the customer, on reaction with the ethylene of the appellants, had resulted in the emergence of vinyl chloride as also yet other byproducts, in all of which chlorine in some form is present but the identity of the chlorine as such had been lost. The process of conversion of chlorine into vinyl chloride would really be manufacture in its primary sense and not a manufacturing process in the sense of a process incidental or ancillary to the completion of a manufactured product. It cannot be said, therefore, with any degree of plausibility that it is processed chlorine which is being returned by the appellants to the customer (Calico); such an assertion would strain credibility. What was handed over was chlorine and what was returned was a totally different substance, viayl chloride. This is quite apart from the fact that, in the present case, it is also to be taken into consideration that it is not merely the job or conversion charges that are recovered by the appellants from the customer, but also the cost of ethylene which the appellants produce and which is one of the reactants without which the vinyl chloride would simply not have resulted in the appellants factory,
29. Therefore, so far as the facts of the present case are concerned, it would appear that the appellants would not be a job worker in carrying out the work of conversion of the chlorine of the customer into vinyl chloride, so as to claim the benefit of Notification No. 119/75. It appears to us that the benefit of the notification cannot be claimed with reference to activities in which an article or articles received from a customer are subjected to a chemical process and undergo reaction amongst themselves, or with another commodity provided by the assessee, resulting in the emergence of another chemical product or products in which the identity of the original articles would be totally merged and lost, resulting in physical, chemical and other properties different from those of the article/articles supplied by the customer.
30. In the result, we hold that the orders of the lower authorities refusing the benefit of the Notification No. 119/75 to the appellants are perfectly proper. The same are accordingly confirmed and this appeal is dismissed.
M. Gouri Shanker Murthy, Member (J)
31. While agreeing in the order proposed to be made by my learned Brother Raghavachari, I have, necessarily, to record my reservations with the observations made in paras 15 and 19 thereof.
32. I am afraid, there was no consensus amongst the decisions of the High Courts-the High Courts of Gujarat and Calcutta in 1978 E.L.T. 53, 1982 E.L.T. 129 and 1983 E.L.T. 876 on the one hand and the High Courts of Madras in 1982 E.L.T. 370 on the other in regard to the points specified in para 15 of the order proposed by my learned Brother and this was the reason for reference to a larger Bench in this Tribunal.
33. In 1978 E.L.T. 533 (Anup Engineering Ltd. v. Union of India), it was categorically held in a case of conversion of duty paid sheets, tubes, etc., into equipments and components on a job work basis, that "the article supplied has to undergo a manufacturing process as intended. It is obvious, in the context of Excise law that unless a new article known to trade emerges after the manufacturing process is completed, excise duty cannot be levied at all. That is the very basis of taxation under the excise law". It was implicit in the aforesaid observations that a new article must necessarily emerge as a result of the manufacturing process, in the first place, for excise duty to be leviable. There was nothing in the judgment to qualify the sweep of the proposition so as to exclude cases in which the articles originally supplied can still be identified in the new and different products that come out on manufacture.
34. Likewise, in 1983 E.L.T. 876 (Associated Pigments Ltd. v. Collector of Central Excise, Calcutta), conversion of pure lead ingots into lead suboxide and lead monoxide was held to be entitled to the benefit of the notification. It can hardly be said that pure lead is identifiable in the new products, lead monoxide or lead suboxide. Nor is there any observation to the effect that the benefit of the notification can be availed of because lead is identifiable in the new products that emerged and that was what attracted the applicability of the Notification No. 119/75. Quite to the contrary, like for example in para 4, "Thus when an article undergoes a manufacturing process, a new or different article emerges... Therefore, the respondents cannot be heard to say that the exemption under the aforesaid notification is confined to those manufacturing processes undertaken by a job worker which do not result in the change of identity of the article handed over by the customer for job work."
35. On the contrary, the decision of the Madras High Court in 1982 E.L.T. 370 (Madura Coats v. Superintendent, Central Excise) is equally categorical in the view that "if during the manufacturing process, the materials supplied lose their identity and the product that is handed over to the supplier is entirely different in which the article supplied cannot be identified, the notification would not be available". It is, perhaps, this observation that lead to the formulation of point No. (i) in para 15 of the order proposed. For one thing, there is nothing in the ratio of the Gujarat and Calcutta High Courts indicating agreement with this view. For another, a careful reading of the aforesaid passage, it may be observed with respect, that it does not lead to the proposition as formulated in para 15. When does an entirely new article emerged It is only when the original article loses its identity so completely that it cannot be identified in the resultant product. It cannot be that an entirely new article is manufactured and yet the original article can still be identified in it. If it can be so identified, no new article has, in reality, emerged. The latter part of the passage in the judgment of Madras High Court extracted supra, is merely to emphasize the loss of identity of the article originally supplied. The passage cannot be construed to mean and signify that there can be a case where a wholly different article emerges on manufacture and yet the original article is identifiable therein and it is only in. such a case that benefit of the notification can be availed of. So long as the identity of the original article remains, a wholly different article does not emerge in a manufacture.
36. Again, the ratio of 1982 E.L.T. 129 (Collector of Central Excise v. Madura Coats Ltd.) was, in reality, there was no manufacture involved. Since "it is apparent from the sample that the nylon yarns have not undergone any change and it is difficult so say that any new substance has come out." It was not that a new commodity had, indeed, come into existence and yet the original articles supplied can still be identified therein. Nor was it the ratio that the extent of supply of material by the job worker in the manufacturing process is determinative of the character of a job work in terms of the notification in question. It was only in the context of the alternative contention for the revenue to the effect that where the contract is one of labour and sale, it will not be a job work in terms of the notification that is observed that though the proposition was correct to some extent, it is very wide and where the supply of material was incidental and immaterial, like for example, thread and buttons by a tailor stitching cloth supplied into garments, it does not cease to be a job work merely on account of it. The question of extent of supply of material by the worker to ascertain and determine the character of the work as job work has neither been raise nor considered in the other decisions so as to decipher consensus amongst them.
37. But for these reservations, I agree with the order proposed.