Bombay High Court
Premji Haridas & Co. vs Municipal Corpn. Of Greater Bombay on 23 February, 1996
Equivalent citations: 1997(89)ELT658(BOM)
Author: S.H. Kapadia
Bench: S.H. Kapadia
JUDGMENT
1. The short point which involves consideration by this Court in the present matter is whether the conversion of Castor Oil (Commercial) into Castor Oil (BP)-British Pharmacopia, is a manufacturing process which brings into existence a new commercial product after the process of filtration.
2. The facts giving rise to this Writ Petition, briefly, are as follows.
3. Since 1978 upto 1983, petitioners imported Castor Oil into Greater Bombay and after filtering the same, used the Castor Oil for exportation to various countries abroad as Castor Oil (BP). Upto August, 1983, the Corporation refunded to the petitioners, the octroi duties paid in respect of the quota exported of Castor Oil (BP). However, after August, 1983, without giving reasons, the Corporation refused to refund to the petitioners, the octroi duty paid by them from time to time in respect of Castor Oil imported by them and exported as Castor Oil (BP) on the ground that the conversion of Castor Oil (Commercial) into Castor Oil (BP) was a manufacturing process and, therefore, the petitioners were not entitled to refund of the octroi duty under the Bombay Municipal Corporation's Refund of Octroi Rules, 1965. On that basis, the Corporation also refused to extend or grant R-Form facilities to the petitioners as provided under Rules VII and VIII of Part II of the Bombay Municipal Corporation Exemption from octroi (Free Gift etc.) Rules, 1966. It is not necessary in the present case to highlight the correspondence because the main point which arises for consideration in the present case is whether the Castor Oil undergoes any change in its characteristics, condition or state because of superior filtration so as to amount to a manufacturing process, particularly when the Castor Oil (Commercial) gets converted into Castor Oil (BP). At this stage it may be mentioned that Castor Oil (Commercial) can be used for Industrial purpose like manufacture of soaps whereas Castor Oil (BP) could be used for any purpose including medicinal preparations or even in Pharmaceutical products being manufactured.
4. Mr. Bharucha, learned Counsel appearing on behalf of the petitioners contended that in the present case, octroi duty is leviable by the Bombay Municipal Corporation when a product is imported into the City limits for use, consumption or sale. It is contended by the learned Counsel appearing on behalf of the petitioner that in the present case, the petitioners import Castor Oil (Commercial) and by the process of superior filtration, the impurities which exist in the Castor Oil (Commercial) are allowed to settle down and after the impurities are removed, a purified Castor Oil comes into existence which is Castor Oil (BP). Mr. Bharucha contends that the purified Castor Oil is known as Castor Oil (BP) because it is set out as a standard in the British Pharmacopia just as certain products are set out as standard in Indian Pharmacopia. Mr. Bharucha further refers to the Certificate at Page 53 given by an Expert in support of his contention to show that the Castor Oil of a good quality is not very different from the Castor Oil (BP) and it is required to go through filtration to change from one grade of Castor Oil to a different grade after impurities are removed and after moisture is brought down below 0.25 per cent. The said Certificate is at Page 53 of the Writ Petition. The said Certificate is given by an Expert which also indicates that filtration is a process which is used to remove impurities including moisture and visual impurities. Due to the filtration, the characteristics of the Oil does not change in any manner, but a good duality Castor Oil which passes as Castor Oil medicinal or Castor Oil (BP) standard is obtained. According to the said Certificate, the filtering process cannot be called as a manufacturing process. It is simply a filtration process where no chemical composition of Oil changes and even by storing the Castor Oil for three weeks or so on exposure to sun-rays, the Castor Oil, without filtration process, would be converted into Castor Oil (BP). In other words, it is contended on behalf of the petitioners that filtration does not amount to manufacture. It is contended that no new commodity comes into existence. It is contended that at the highest, the quality of the Castor Oil improves with the removal of the impurities by the process of filtration. According to Mr. Bharucha learned counsel appearing for the petitioners, there are various stages of the filtration process viz. filtration through a filter press followed by centrifuging treatment with acid/alkali bleaching and deodorization. Mr. Bharucha contends that these are the various stages of the filtration process which does not amount to manufacture. Mr. Bharucha stated that even if Castor Oil (Commercial) is kept in the open and if it is allowed to be stored in the open, the dirt will settle down and the impurities can be removed by the filtration process which does not amount to manufacturing process. Mr. Bharucha further contends that ultimately Castor Oil medicinal (BP) is nothing, but a transparent Castor Oil and neither the nature nor the condition of the initial product viz. Castor Oil (Commercial) undergoes any change by any process which could be termed as a manufacturing process. Mr. Bharucha contends that octroi duty is levied under Section 192 of the B.M.C. Act on importation of a product into the City limits. Mr. Bharucha contends that Section 192 gets attracted only if there is use, consumption or sale within the city limits. In the present case it is not in dispute that Castor Oil (Commercial) was imported into Bombay from time to time and Castor Oil medicinal (BP) has been exported abroad and it is accordingly contended that since no manufacturing process is involved, octroi duty is not exigible because there is no manufacturing process involved and if no manufacturing process is involved, then it does not fall either under consumption or use or sale and, therefore, Section 192 is not attracted. Mr. Bharucha, on facts of the present case, contends that from 1978 upto 1983, octroi duty was never levied and the petitioners were given the benefit of refund under the Octroi Refund Rules of 1965. Mr. Bharucha further stated that even after 1991, the Corporation has extended the benefit to the petitioners under the E. P. Rules framed by the Corporation. Mr. Bharucha contends that there is nothing to indicate in the Affidavit filed by the Corporation to show that the above process is a manufacturing process. Mr. Bharucha further contends that in the Affidavit filed by the Corporation, the Corporation has not relied upon any Expert's opinion in support of their case that the above filtration process amount to a manufacturing process. Mr. Bharucha further contends that in the present case, the Corporation has also rejected their claim for refund wrongly on the ground of Limitation. Mr. Bharucha contends that the petitioners have applied for refund within the stipulated period of three months which is not in dispute. Mr. Bharucha contends that they have applied from time to time for refund. However, their claim was rejected only in 1985 vide letter dated August 30, 1985 (Exhibit D to the Petition). Mr. Bharucha points out that even thereafter the petitioners had several meetings with the Corporation and their Officers and ultimately, it is only when the Corporation refused the refund vide letter dated 3rd December, 1986 that the present Petition came to be filed on 12th May, 1986. The petitioners were also denied R-Form facility on the ground that the above filtration process amounts to a manufacturing process. Mr. Bharucha accordingly contends that in the present case, the Writ Petition has been filed within three years' from the date when the Corporation rejected the petitioners' claim for refund.
5. Dr. Chandrachud, the learned Counsel appearing on behalf of the Corporation, submitted that in the present case the above filtration process amounts to a manufacturing process. According to the learned Counsel for the Corporation, there are various tests laid down by the Apex Court for determination of the question, as to what amounts to a manufacturing process. Dr. Chandrachud contended that in the present cast, although the nature and the extent of processing may vary from one case to another, yet it is only when the change or a series of changes takes the commodity to the point where commercially it is recognised as a new and distinct article, then manufacturing can be said to have taken place. Dr. Chandrachud contended that in the present case what is imported is Castor Oil (Commercial) and what is exported is Castor Oil (BP). Dr. Chandrachud stated that in the present case, it is not in dispute that what was imported was quite different from what was exported. Dr. Chandrachud contended that in the present case, since Castor Oil (Commercial) was imported, it was something like Castor Oil in a crude form and what was imported was Castor Oil in a refined form, after the above process was carried out and, therefore, there was commercially a new and distinct article which came into existence in the form of Castor Oil (BP). Dr. Chandrachud further contended that in the present case, there was a material difference in the identity between the original commodity and the commodity which came into existence after undergoing a degree of processing. In the circumstances, it is contended by Dr. Chandrachud that the above process was a manufacturing process. Dr. Chandrachud further contended that in the present case the claim of the petitioners is founded on the application for refund under Octroi Refund Rules of 1965 and the claim of the petitioners is not founded on the Rules in respect of Exemption from Octroi, 1966. Dr. Chandrachud contended that under the Refund Rules of 1965. Rule 3A is very important. The said Rule is relied upon by the learned Counsel for the Corporation in support of his contention that in a matter of this type, the petitioner is entitled to refund of Octroi only if conditions mentioned in Rule 3A are fulfilled Dr. Chandrachud has relied on Rule 3A of the Refund Rules which indicate that refunding is admissible in respect of the articles exported, which articles have not, since their import, changed their original form, condition, state of appearance by any process of manufacture or otherwise, except as specifically provided for in the said Rules. In this case, we are not concerned with the exceptions which are covered by Rule 17 to 21 of the Refund Rules. Dr. Chandrachud contended that in the present case, even if the Castor Oil imported into the City limits is allowed to stay exposed to the sun for ten days and if it undergoes change in the condition or state of appearance, then in that event, the petitioners are not entitled to claim a refund. Dr. Chandrachud, therefore, contends that for the purposes of refund, under Rule 3A, the concept of manufacturing process is narrowed down by the Rule-making authority and it is required to be read restrictively. Dr. Chandrachud also relied upon corresponding Rules with regard to exemption under the Exemption from Octroi Rules on Free Gift, 1966 in order to contra distinguish the concept of manufacturing process under the Octroi Rules of 1965 vis-a-vis the Octroi Rules of 1966. Dr. Chandrachud has also relied on the concept of manufacturing process as mentioned in the E.P. Rules of 1991 to show that in each of the Rules, the concept of manufacturing process is defined separately Dr. Chandrachud contends that in the present case, the entire claim of the petitioners is based on the Rules of Refund of Octroi, 1965 and not on the basis of Rules of Exemption to which R-Form facility applies and so also the case of the petitioners is not based on the E.P. Rules because after 1991, the Corporation has extended the benefit of E.P. Rules, 1991 to the petitioners. Dr. Chandrachud further contends that in the present case, the petitioners have made a claim for refund of octroi, right from 1983 whereas the Petition has been filed as stated herein above, only on 12th May, 1988. Dr. Chandrachud, therefore, contends that the claim of the petitioners is clearly barred by limitation and also on the ground of laches and delays. Dr. Chandrachud contends that the particulars of the claim indicates that the petitioners seek refund for the period of more than three years because they claim refund from August 30, 1983 by Claim No. 15519.
6. In the present case, I find considerable merit in the contentions advanced on behalf of the petitioners. Under Section 192 of the Bombay Municipal Corporation Act, the Corporation is entitled to levy and charge octroi duty in respect of goods imported into City limits. Under Section 192 of the B.M.C. Act, the goods are exigible to payment of octroi duty only if they are used, sold or consumed within City limits, but if the process, as in the present case, does not amount to manufacture, then it cannot come within the ambit of use, consumption or sale and if the process is not a manufacturing process, then Section 192 is not attracted. In this connection, we may straight away also refer to the Refund of Octroi Rules. Rule 3A of the said Rules, 1965 read as follows :
"3A. Conditions of Refund. - Refund of octroi paid on articles imported shall be admissible on their export subject to the compliance inter alia, with the following conditions :
(a) that the articles exported have not since their import changed their original form, conditions, state of appearance by any process of manufacture or otherwise except as specifically provided for in these rules
(b) that the articles exported have not been sold to a person residing within Greater Bombay limits. However, if the articles are for the first time since their import sold to a person residing outside Greater Bombay limits and are exported as a result of such sale refund of octroi shall be admissible provided that the importer continues to be in possession of the said articles till they are exported and provided further that the said exporter and importer remain the same person."
Reading of Rule 3A itself indicates that refund of octroi paid on articles imported shall be admissible on their exports subject to compliance of the conditions and the main condition being that the article exported has not undergone any change in the original form, state of appearance by any process of manufacture or otherwise. In other words, on import of the article, the article must undergo a change by process of manufacture or otherwise. The word "otherwise" should be read as ejusdem generis to the word "manufacture". In other words, mere change of condition or state of appearance cannot be the ground for denying refund. Refund can on denied if the imported article undergoes a change either in the original form or in the condition or in the appearance by a process of manufacture. In the present case, as stated hereinabove, the process involved is a pure process of filtration. There is no mechanical activity involved in the above process. As stated by the Expert in the Certificate, even exposure or storage of the Castor Oil (Commercial) for particular number of days in the sun would lead to the dirt setting down and if after the dirt has settled down, the upper portion is removed, it would be a Castor Oil of a superior grade which is Castor Oil (BP) but that Castor Oil, in its identity and form, remains the same and in the circumstances, the process of filtration which includes bleaching, centrifuging or deodorization cannot, by any stretch of imagination, be termed as a manufacturing activity. For example, centrifuging permits the dirt to settle down. Bleaching is a part of the process. For example, if well-water is bleached, it becomes good for drinking, but that does not involve manufacturing activity. Similarly, deodorization removes the smell. These are only various stages of filtration. After the process of filtration, there is transparency and deodorization. In other words, the quality of the Castor Oil improves. The grade imp roves and it is for this reason that it is indicated in the British Pharmacopia as Castor Oil (BP). At this stage it may also be mentioned that Castor Oil (Commercial) can be used for industrial purpose whereas Castor Oil (BP) can be used nut only for industrial purpose, but can also be used for medicinal purpose. At this stage, I wish to clarify that the end user is not the conclusive test in such matters. End user is a good test in cases of Customs or Excise where specific Notifications are issued from time to time. In the present case, we are concerned with levy of octroi duty and if the above process is not a manufacturing process, then octroi duty cannot be levied because there is no use, consumption or sale as contemplated by Section 192 of the B.M.C. Act read with Rule 3A of the B.M.C. Refund of Octroi Rules, 1965. It is not necessary in the present case to refer to the various authorities cited at the Bar by both the learned Counsel for the parties. Ultimately, it will depend on the facts of each case. However, Dr. Chandrachud contended that in the present case, Castor Oil (BP) is a distinct commodity; that Castor Oil (BP) is known in the commercial circle as separate and distinct from Castor Oil (Commercial). Even the usage of the two commodities are different. As stated hereinabove, we are concerned, in the present case, with the levy of octroi duty. In the present case, if the above process is not a manufacturing process, then the concept of use, consumption or sale, as enshrined in Section 192, is not attracted. In matters of levy of octroi, we have to see provisions of the B.M.C. Act. In levy of octroi, we have to see provisions of Section 192, particularly in order to ascertain as to whether there is manufacturing activity involved by which an imported article undergoes change so as to constitute a new commodity. Merely because the impurity is reduced by a process of filtration and merely because the resultant produce is enriched after removal of impurity, there is no change in the basic substance and, therefore, also I am of the view that there is no manufacturing process or activity involved in the matter and as there is no manufacturing process involved in the matter, then the question of article being consumed, used or sold within the City limits does not arise. In this connection I would like to refer to the judgment of the Supreme Court in the case of Deputy Commissioner, Sales Tax (Law), Board of Revenue (Taxes) Ernakulam v. Pio Food Packers []. In that case also pineapple came to be canned. The question was whether the canned commodity has undergone a manufacturing process. The contention of the Department was that when pineapple is canned, it undergoes a change which amounts to manufacturing process because it is dipped in the sugar syrup and thereafter it is tinned which results in a distinct new article. This contention is rejected by the Supreme Court on the ground that there is no manufacturing activity involved even in the case of a canned pineapple because the basic substance remains the same and merely because the fruit is canned, it cannot be said that it has undergone a change so as to bring into existence a new and distinct commodity/article. Similarly, in the case of Garware Nylons v. Union of India & Ors. [reported in 1980 (6) E.L.T. 249 (Bombay)], the Division Bench was concerned with the question as to whether a yarn, when twisted which becomes a twine, amounts to a manufacturing process. The contention of the Department was that twisting of the yarn is a manufacturing process because the resultant twine is a new product which, in the market, is commercially known as a separate distinct and new product which has a distinct marketability. This argument was rejected by the Division Bench of this Court vide para 11 of the said judgment on the ground that the essence of making or manufacturing is that the output is a different thing from that out of which it is made. In other words, the product which emerges is something different from the thing out of which it is made and if the yarn, after twisting, remains the yarn (although it is known as twine), no new product emerges. Applying the above tests laid down by the Division Bench of this Court in the case of Garware Nylon (supra), I am of the view that in the present case also, if the Castor Oil, after filtration, remains Castor Oil and even if it is known as Castor Oil (BP) no new product emerges. It is also because filtration is not a manufacturing process. In view of the judgment of the Division Bench of this Court in Garware Nylons (supra) which, to my mind, squarely applies to the facts of the present case, I am of the view that there is no manufacturing activity involved in the above filtration process and secondly if there is no manufacturing process involved merely because the output is known as Castor Oil (BP), no new product is said to emerge because in both the cases the Castor Oil is a constant factor. At the highest, Castor Oil (BP) belongs to a superior grade and quality as compared to Castor Oil (Commercial). At this stage I wish to clarify that the Castor Oil (Commercial) is not a crude, as suggested by the learned Counsel for the Corporation and, therefore, that analogy will also not apply.
7. In any event, it may also be mentioned that in the Random House Dictionary of the English Language, the adjective form of the word 'filtrate' is given as 'filtration' and the meaning of the word 'filtrate' as appearing in the said Dictionary reads as under :
"Filtrate : 1. to filter - n.
2. liquid which has been passed through a filter.adj.filtration.
It is well settled rule of interpretation that in cases involving classification dispute, if there is a doubt on interpretation, then the benefit must go to the assessee. In the present case, the assessee has made out a case to the effect that filtration is not a manufacturing process. In any event, in view of the above facts and circumstances of the case, and applying the above rule of interpretation which is a salutary rule, the petitioners have made out a case for refund of octroi duty.
8. Dr. Chandrachud appearing on behalf of the Corporation, however, contended that in the present case, this Court is not required only to examine the various stages of the filtration process. Dr. Chandrachud further contended that if as a result of the above process, a new commercial product comes into existence then the test of manufacture is satisfied. Dr. Chandrachud further contended that in a matter of this type, the end user plays a very important role. Dr. Chandrachud contended that in the present case, we are concerned with interpretation of Schedule H to the B.M.C. Act which indicates various Headings and which clearly shows that end use of a product is very important in the matter of interpretation of the entries falling in Schedule H to the B.M.C. Act. Dr. Chandrachud further contends that there is no merit in the contention of the petitioners that end use is relevant only in Customs and Excise matters and it is not relevant in matters pertaining to octroi. At this stage, I wish to clarify that in a matter of this type, there cannot be any one single conclusive test. Ultimately, it will depend on facts of each case. In the present case, it is not possible to lay down that only end use should be the test or other tests regarding a new commodity coming into existence should not be looked at. Ultimately, we have to see the facts of each case. Now, applying the contention raised on behalf of the Corporation regarding the end use also. I am satisfied that the petitioners have made out a case for refund. In the present case, it is not in dispute that Castor Oil (BP) cannot be used for Industrial purpose. As stated hereinabove, Castor Oil (BP) can be used for large number of purposes including manufacture of medicinal preparations, pharmaceutical preparations as well as Industrial manufacture. Castor Oil (BP) can be used for manufacture of soaps. This point is not under dispute. This is not a case where Castor Oil (BP) can be used only for medicinal or pharmaceutical preparation. It is conceded even by the Corporation that Castor Oil (BP) can be used for a variety of purposes including Industrial purpose. Now, if that be the case, then in the present case, as stated hereinabove, Castor Oil (BP) is a superior graded Castor Oil which can be used for large number of purposes including industrial purpose like manufacture of soaps. In the circumstances, applying the test of end user also, the petitioners are right in their submission that Castor Oil (BP) is not a product or resultant of manufacturing process. Even by filtration, as is dictated herein above, the resultant is Castor Oil (BP). Today, large number of soaps in the market contain herbal values. They also contain ingredients which have protien. They also have ingredients of medicinal values and in the circumstances, it is not possible to isolate Industrial purpose from medicinal or pharmaceutical purpose/preparation. Today, soaps are available in the market which contain herbs and medicinal ingredients and such soaps are good for the skin and they are used for that purpose. What I am trying to point out in the above analogy is that there is no clear-cut demarkation regarding user between Industrial Castor Oil and Castor Oil (BP). Castor Oil (BP) is nothing, but a graded Castor Oil as stated in British Pharmacopia and the above process of filtration is a simple filtration process which cannot by any stretch of imagination, be termed as a manufacturing process. A house filter which purifies the water in our kitchen does not embody a manufacturing process. It is a simple filtration process which cannot be earmarked as a manufacturing process even if the commodity which comes out may be of a better quality. In the present case, therefore, even applying the test of end user since there is no specified end user coming into existence, there is no merit in the contention advanced on behalf of the Corporation that after the filtration process, Castor Oil (BP) is the resultant of a manufacturing process. It is not the case of the Corporation that Castor Oil (BP) can only be used for medicinal preparation. On the contrary, the Corporation concedes that it can be used for a variety of purposes. One more aspect may also be reiterated In the case of Garware Nylons (supra), the Division Bench of this Court has categorically held that when a yam is twisted, there is no manufacturing process involved although the output is known as twine in the Commercial market and although in the trading, twine is known as a separate commodity commercially, still it retains the characteristics of a yarn and those characteristics are not obliterated by virtue of twisting of the yam into twine. Similarly, in the present case, after the filtration process also the basic characteristics of Castor Oil remain the same and in the above circumstances, the judgment of the Division Bench of this Court in the case of Garware Nylons (supra) squarely applies to the facts of the present case.
9. Lastly, the question of limitation has been raised by the Corporation. As stated hereinabove, it is contended on behalf of the Corporation that the petitioners have claimed refund belatedly and for a period which exceeds three years and they are not entitled to claim refund. I do not find any merit in the said contention. In the present case, the petitioners got the benefit of refund during the period 1978 upto 1983. It is thereafter that the Corporation denied the benefit of refund. In the present case, as required by the Refund Rules, 1965, the petitioners lodged their claim from time to time as indicated in the particulars of claim at Page 64 of the Writ Petition. The particulars of claim clearly indicate that the petitioners made a claim way back on August 30, 1983 and thereafter from time to time they have lodged their claim for refund as required under the Octroi Rules. However, the Corporation sat over the claim of the petitioners for years together and they did not decide the said claims. It is only by letter dated August 30, 1983 that for the first time the Corporation informed the petitioners that their claim stood rejected. Even thereafter the petitioners were heard from time to time and it is only on 3-12-1986 that the Corporation finally informed the petitioners that their claim for refund stood rejected. In the above circumstances, there is no merit in the contention advanced on behalf of the Corporation that the petitioners' claim was not within the stipulated period. Under the Refund of Octroi Rules, the petitioners were required to lodge their claim for refund which they have mentioned within the stipulated time. However, the Competent Authority did not decide their claim till 1985-1986 and ultimately in the above circumstances, Writ Petition came to be filed. One more aspect may be mentioned that after 1991, the petitioners are given benefit of E.P. Rules, 1991. In the above circumstances, the petitioners have sought refund as per the claims lodged by them and as indicated in the Statement of their claim for refund at Page 64. The said claim is commencing from August 30, 1983 and it is upto 9th October, 1985, amounting to Rs. 13,93,631.23. In the circumstances, there is no merit in the contention advanced on behalf of the Corporation that the claim of the petitioners is time-barred. The petitioners have come well in time. The petitioners, as a diligent assessee, have invoked the Refund of Octroi Rules from time to time and the petitioners have repeatedly represented to the Corporation to grant them refund. Ultimately, the above Writ Petition came to be filed on 12th May [1988] which is well within the period of three years from the date of the rejection of their claim on August 30, 1985 read with the letter dated 3rd December 1986.
10. Before concluding, I wish to clarify that in matters of this type, the Corporation is required to render proper assistance on the technical data to the Court. Merely on the ground of Affidavits filed by their officers, it is not possible in the present case to decide the controversy to the fullest extent. In the present case, the Corporation has [not] relied upon any Affidavit of a person belonging to the market, dealing in Castor Oil. No expert evidence, in the form of an Affidavit, is also annexed to the Petition. No technical data is supplied. No literature also has been supplied. In the above circumstances, it is very difficult in certain cases of this type, to decide the matters, particularly where the dispute concerns trade usage and technical material.
11. Accordingly, the following order is passed :
ORDER Writ Petition is allowed. The Corporation is directed accordingly to work out the refund claim, as per particulars given in Exhibit-Q (Page 64 of the Writ Petition) and refund the amount in accordance with law as laid down hereinabove, on or before 15th April 1996.
In Case the Corporation fails to refund the amount in accordance with this judgment, then the Corporation is hereby directed to pay interest at the rate of 12% per annum after 15th April 1996 till payment.
Accordingly, Writ Petition is allowed with no order as to costs.
Issuance of certified copy of this Judgment/Order is expedited.
Respondent-Corporation to act on an ordinary copy of the Judgment/Order, duly authenticated by the Associate of this Court.