Customs, Excise and Gold Tribunal - Delhi
S.A.I.L. vs Collector Of Central Excise on 6 February, 1991
Equivalent citations: 1991(33)ECC316, 1991ECR303(TRI.-DELHI), 1991(54)ELT414(TRI-DEL)
ORDER S.K. Bhatnagar, Member (T)
1. This is an appeal against the order of Collector of Central Excise, Bolpur, dated 20-10-1989.
2. The learned counsel stated that the appellants receive lime stone from mines. A part of this 'lime stone' is crushed in a machine in order to make 'lime fine' required for production of 'sinter'.
3. A question has arisen whether this amounts to a process of manufacture and 'lime fine' was an excisable product.
4. It was their contention that crushing of lime stones into lime fine did not amount to manufacture and lime fine was not an excisable product. Hence, no duty was leviable.
5. The impugned order proceeds on the assumption that the Chapter Note 2 of Chapter 25 equates the processes mentioned therein with the 'manufacture' and consequently the process of converting of any of the products covered under Heading 25.01 to 25.05 constitutes "manufacture". However, Section 2(f) as it stood prior to 28-2-1986 defined the expression "manufacture" in an inclusive manner and included any process incidental or ancillary to the completion of a manufactured product. In the absence of any statutory definition, the expression "manufacture" was interpreted by the Supreme Court on the basis of dictionary meanings in several judgments to mean, to bring into existence a new commercial commodity having a distinctive name, characteristics and use.
6. The interpretation as based on Section 2(f) was in consonance with Entry 84 of the Union's list of the Constitution of India.
7. However, with effect from 28-2-1986, the definition has been substituted by Section 4 of the Central Excise Tariff Act, 1985 which reads 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 grade in the Section or Chapter Notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture;..."
Therefore, by an artificially extended definition of the word 'manufacture' the legislature has reserved upon itself power to equate any process with 'manufacture' by providing accordingly in the Section or Chapter Notes of the Schedule to the Central Excise Tariff Act, 1985.
8. In the facts of the case, Chapter Note 2 of Chapter 25 does not equate inter alia the "process of crushing" as amounting to manufacture "but merely enumerates the forms of products falling under Heading 28.01, 25.03 and 25.05 in which they can be taxed. Therefore, the Legislature has clearly not intended to equate process of crushing (which is not a process of manufacture as per the normal definition) as amounting to manufacture.
9. This becomes clear from a comparison of Chapter Note 2 of Chapter 25 with Chapter Note 2 of Chapter 9, Chapter Note 3 of Chapter 21, Chapter Note 2 of Chapter 24, Chapter Note 5 of Chapter 30, Chapter Note 6 of Chapter 32, Chapter Note 4 of Chapter 33, Chapter Note 6 of Chapter 39 and Chapter Note 2 of Chapter 83.
10. While in Chapter Note 2 of Chapter 25, it has not been expressely provided that the process (es) referred therein "shall amount to manufacture" in all the other Chapter Notes it has been expressly provided that the processes referred therein shall amount to manufacture in respect of specified goods. Thus, the Legislature has made an express provision wherever it has intended to extend the artificial definition.
11. Hence, Chapter Note 2 of Chapter 25 cannot be read in the manner suggested by the Collector. In fact, it does not render any assistance to hold that crushing of the lime stone in the fines constitutes manufacture.
12. It was also their contention that new and different goods having distinct commercial identity, use and characteristic did not emerge as a result of crushing. Further even as per common parlance test, processing in dispute is not manufacture.
13. The learned counsel further stated that in any case the demand is time barred in as much as they had been declaring lime fine in their classification lists filed from time to time and had not suppressed or misstated any fact. Further, the department was fully aware that they were using lime fine in the manufacture of sinter.
14. The learned DR stated that as regards manufacture what constitutes manufacture has been clearly laid down by the Supreme Court in the case of Union of India and Ors. v. Delhi Cloth and General Mills Company Limited and Ors. reported in 1977 (1) J 199 Para 14.
15. Manufacture implies a change but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation, a new and different article must emerge having a distinctive name, character or use.
16. Now the item under reference is lime fine. The raw material used is lime stone. The process of conversion is as follows :-
(1) Lime stone is crushed in hammer mill of sinter plant and is converted into fines. This crushed lime stone is called the "lime fines". The name of the raw material is lime stone whereas finished goods are named "Lime fines". Hence, there is a distinct name. The characteristics of lime stone cannot be sintered whereas lime fine can be sintered.
17. The use is also distinct in respect of both the raw material and finished goods. Lime stone is used in the blast furnace directly whereas lime fine is used only in sintering. Further, lime fine is a known lime product in technology. Simplified flow sheet for lime and lime stone products enumerated in Encyclopaedia of Chemical Technology, 3rd Edition Vol. 14 - By Kirk-Othmer may be seen in this regard.
18. In view of the above facts crushing of lime stone into lime fine amounts to manufacture. This is in confirmity with Section 2(f) of Central Excises and Salt Act, 1944, as the same includes incidental and ancillary process for completion of manufacture. The ratio of the decision in the case of Associated Soap Stone Distributing Company (Private) Ltd. v. CCE, Indore reported in 1985 (22) ELT 109 squarely applies to the case as process of grinding/crushing of soap stone was held as manufacture in the Section 2(f). Further in case of crushed product Chapter Note 2 of Chapter 25 supports this view. With reference to the Chapter Notes cited in respect of other Chapters it is submitted that in respect of the processes regarding which dispute had arisen before introduction of new tariff the position has been clarified and the fact that they constitute manufacture has been explicitly indicated. Further Chapter Notes are based on harmonised system applicable universally.
19. The decision of the Calcutta High Court in the case of S.S. Jain and Company v. CCE reported in 1986 (25) ELT 14 mentioned in appeal memo cannot be applied in this case as dismantling of Ship cannot be compared with crushing as dismantling is a reverse process of assembly (which is manufacture).
Bombay High Court Judgment in the case of Extrusion Processes Private Limited v. Assistant Collector of Central Excise reported in 1988 (36) ELT 531 mentioned in the appeal memo also not applicable in this case as the decision was with regard to printing and lacquering on Aluminium container. It is relevant to note that items was a packing material and the same did not change materially after printing. However, their Lordships have observed vide para 18 of the judgment "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" -
This condition is satisfied in the present case.
20. Regarding time bar he would like to state that no classification list, price list or monthly returns were submitted and RG 1 account was not maintained. As such in terms of proviso to Section 11A the extended period of time was applicable.
21. We have considered the submissions of both the sides.
22. We find that the submissions of the learned counsel have a strong force.
23. The issue regarding manufacture is required to be considered in the light of Section 2(f) of Central Excises and Salt Act, 1944, read with the relevant provisions of the Tariff Act.
24. As such after introduction of Central Excise Tariff Act, 1985 "manufacture" includes any process -
(i) incidental or ancillary to the completion of a manufactured product;
(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".
25. Hence if the department proposes to rely upon any process mentioned in any of the Section Notes or the Chapter Notes, it is required to show that it has been specified therein as one amounting to manufacture.
26. In the instant case the department has relied on the Chapter Note 2 of Page 25. Undoubtedly it refers to products which have been ground, powdered, etc., but the processes involved in production thereof have not been specified as those amounting to manufacture. On the contrary as rightly pointed out by the learned counsel wherever the legislature intended that a particular process or processes should be deemed to be 'manufacture' it has been specifically so stated in the Chapter Notes. As for instances, in Chapter Note 2 of Chapter 9:
For the purpose of Heading No. 09.02, blending, sorting, packing or repacking into smaller containers "shall amount to 'manufacture'."
in Chapter Note 3 of Chapter 21:
In this Chapter, "Pan Masala" means any preparation containing betel nuts and any one or more of other ingredients such as lime, katha (catechu), cardamom, copra, menthol and tobacco; and in relation to such a preparation labelling or relabelling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, "shall amount to 'manufacture'." in Chapter Note 2 of Chapter 24:
In relation to products of Heading Nos. 24.02, 24.03 and 24.04 labelling or relabelling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, "shall amount to 'manufacture'."
in Chapter Note 5 of Chapter 30:
In relation to products of Heading No. 30.03, conversion of powder into tablets or capsules, labelling or relabelling of containers intended for consumers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, "shall amount to 'manufacture'."
in Chapter Note 6 of Chapter 32 :
In relation to synthetic organic dyes (including pigment dyes) of Heading No. 32.04 conversion of unformulated, unstandardised or unprepared forms (for example, wet cakes) of such dyes by
(a) reduction in particle size
(b) addition of dispersing agents of diluents, or
(c) adoption of any other treatment, into their formulated, standardised or prepared forms ready for use in the process of dyeing "shall amount to 'manufacture'."
in Chapter Note 4 of Chapter 33:
In relation to products of Heading Nos. 33.03,33.04 and 33.05 conversion of powder into tablets, labelling or relabelling of containers intended for consumers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the products marketable to the consumer, "shall be construed as 'manufacture'." in Chapter Note 6 of Chapter 39:
In Heading Nos. 39.01 to 39.14 the expression 'primary forms' applies only to the following forms:-
(a) Liquids and pastes, including dispensions (emulsions and suspensions) and solutions;
(b) Blocks of irregular shape, lumps, powders (including moulding powders), granules, flakes and similar bulk forms, and the conversion of any one primary form into another "shall amount to 'manufacture'."
in Chapter Note 2 of Chapter 83 :
In relation to sub-heading No. 8312.11, the process of lacquering or printing or both of plain containers "shall amount to 'manufacture'."
27. We find that there is no such deeming provision incorporated in the Chapter Note 2 of Chapter 25 relied upon by the department.
28. In the absence thereof the department was still at liberty to show that the process in a given case amounted to manufacture if it could show that it resulted into production or creation of a new material or brought into existence a new product known to the market as a distinct commodity. However, it is observed that the department has not produced any material evidence to this effect.
29. The department has drawn our attention to the order of CEGAT reported in 1985 (22) ELT 109 (Tribunal). However, two points are required to be seen with reference to this order.
(i) That it pertains to the period prior to the amendment of the Act and introduction of the new tariff and the position was then different and
(ii) That ratio of this order which is even now valid is as follows :-
"the same process may result in a new and different product in the case of one commodity out not so in the case of another commodity. The case of each commodity therefore stands on its own individual circumstances." This itself shows that merely because grinding and crushing of soap stone lumps into soap stone powder has been held as manufacture in the above case that does not mean automatically that in all cases crushing and grinding constitutes manufacture and it will be required to be demonstrated in case of each commodity as to whether the effect of the operation on the commodity is such that it creates 'something else having a distinctive name, character and use' and the result of processing is recognised in the market as commercially distinct commodity. In the instant case the department has not produced any evidence to the effect that lime fines are known and recognised as commercially a distinct commodity in the market and has merely relied on discription of process & chemical terminology which by itself is not sufficient.
30. In so far as the question of time bar is concerned the appellants have shown that they had been declaring lime fine in their classification list filed from time to time as such no mis-declaration or suppression of facts was involved. The learned SDR has also not denied that the assertion that the Department was even otherwise aware of the existence of sinter plant and the use of lime fine therein.
31. In any eventuality since the appellants have succeeded on merits in showing that no process of manufacture was involved in crushing lime stone into lime fine and lime fine was not an excisable product, therefore they were not required to pay any duty and had committed no offence. Hence, the question of time bar loses its significance.
In view of the above discussion the appeal is accepted as already announced in the open court.