IMPORTANT POINT
Conversion of blank audio cassettes into pre-recorded audio cassettes in bulk quantity by systematic activity would amount to manufacturing activity within meaning of Project Imports Regulation Act.

Headnote:Project Imports Regulations, 1986-Paras 3, 4 and 5-Customs Tariff Act, 1975-Chapter Heading 98.01-Manufacture or processing-Meaning of-Conversion of bank audio cassettes into pre-recorded audio cassettes - Appellant placed orders with foreign Company for import of tape to tape sound transfer equipment and electric sound E.S. 1850 cassette loaders and spare parts-Application for registration of contract under clause 5 of PIR rejected on ground activity of appellant did not amount to manufacturing activity-Not justified-Pre-recorded audio cassettes are goods known in market as distinct and different from blank audio cassettes-Appellant indulged in mass production of pre-recorded audio cassettes-Activity amounts to manufacturing activity-Appellant entitled to get registration of contracts.
       Held : The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name whether it be the result of one process or several processes, manufacture takes place; the transformation of the goods into a new and different article should be such that in the commercial world it is known as another and different article. (Para 13)
       It is not disputed that the machine forming subject matter of the contract in question enables duplicating of audio cassettes from the mother cassette. The mother cassette is loaded in the machine and on being operated the machine multiplies the audio recording on several audio cassettes of a specified number at a high speed. The blank audio cassettes are converted into pre-recorded audio cassettes. This activity is systematically carried on large scale and such pre-recorded audio cassettes are offered in bulk sale to the traders who in turn offer the same for sale to consumers. Pre-recorded audio cassettes are certainly goods known in the market as distinct and different from blank audio cassettes. The two have different uses. A pre-recorded audio cassette is generally sold by reference to its name or title which is suggestive of the contents of the audio recording on the cassette. The appellant is indulging in a mass production of such pre-recorded audio cassettes. It is a manufacturing activity. The appellant s activity cannot be compared with a person sitting in the market extending facility of recording any demanded music or sounds on a blank audio cassette brought by or made available to the customer, which activity may be called a service. The Tribunal was not right in equating the appellant s activity with photo-processing and holding the appellant a service industry. (Paras 9 & 13)
       Held consequently, the Assistant Collector of Customs, Calcutta was not justified in rejecting the appellant s application for registration of the contract dated 6.11.1989 on the ground on which it did. The appellant s application is restored on the file of Assistant Collector of Customs, Calcutta who shall expeditiously hear and dispose of the appellant s application afresh treating the appellant s activity as a manufacturing activity. (Para 14)

JUDGMENT

R.C. Lahoti, J. -The appellant is a company engaged in manufacturing electronic goods. It is a scheduled industry under the First Schedule of the Industrial (Development and Regulation) Act, 1951. One of the products of the appellant company is pre-recorded audio cassettes which is excisable under Chapter Heading 8524.22 of the Central Excise Tariff Act, 1985 which read as audio cassettes . Though the appellant is not required to pay central excise duty on pre-recorded cassettes by virtue of exemption provided by Notification No. 117/90 dated 16.5.90 nonetheless it files classification lists in respect of such pre-recorded audio cassettes consistently with the statutory obligation cast on the appellant. Under the industrial licence granted to the appellant by the Government of India in the year 1977 for manufacture of pre-recorded audio cassettes the licensed capacity as endorsed was 1.2 million pre-recorded cassettes per annum. The capacity was increased from time to time by expanding the same under the licences issued by the Government of India. In April 1987 the existing capacity of the appellant company was 10 million audio cassettes which was permitted by the Government of India to be increased to 30 million pre-recorded audio cassettes per annum.

2. The appellant placed two orders respectively dated 6.11.1989 and 21-12-1989 on M/s. Audiomatic Corporation, New York for import of tape to tape sound transfer equipment and electric sound E.S. 1850 cassette loaders and spare parts.

3. In exercise of the power conferred by sub-section (1) of Section 25 of the Customs Act, 1962 on 26.11.1983 the Government of India issued a notification granting an exempting from payment of customs duty on goods falling under Heading No. 98.01 of the First Schedule to the Customs Tariff Act, 1975 when imported into India for the initial setting up of an industrial unit for the manufacture of electronic equipment or the substantial expansion of an existing industrial unit manufacturing electronic items.

4. Heading No. 98.01, referred to in the abovesaid notification reads as under :-

" 98.01 9801.00 All items of machinery including prime movers, instruments, apparatus and appliances, control gear and transmission equipment, auxiliary equipment including those required for research and development purposes, testing and quality control as well as all components (whether finished or not) or raw materials for the manufacture of the aforesaid items and their components required for the initial setting up of a unit or the substantial expansion of an existing unit, of a specified :

(1) industrial plant,

xxx xxx xxx

and spare parts, other raw materials (including semi-finish material) or consumable stores not exceeding 10% of the value of the goods specified above provided that such spare parts, raw material or consumable stores are essential for the maintenance of the plant or project mentioned in 1 to 6 above."

5. In view of Chapter 98 Heading No. 98.01 of the First Schedule to the Customs Tariff Act, 1975 and the Exemption Notification No. 315/83, the import contract has to be registered under clause 5 of the Projects Import Regulations, 1986 (hereinafter Regulations , for short). The appellant moved two applications before the Assistant Collector of Customs, Calcutta for the registration of the two contracts referred to hereinabove. The applications were accompanied by the requisite certificates from the Department of Electronics, Government of India certifying that the goods intended to be imported were required for effecting substantial expansion of the appellant s industry. By order dated 20.2.1990 the Assistant Collector of Customs refused to register the appellant s contract dated 6.11.1989. Appeals preferred successively before the Collector (Appeals) and Central Excise Gold Control and Appellate Tribunal having failed, the aggrieved appellant ha

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1999 Supreme(SC) 1376

IMPORTANT POINTConversion of blank audio cassettes into pre-recorded audio cassettes in bulk quantity by systematic activity would amount to manufacturing activity within meaning of Project Imports Regulation Act.

Cases Referred (3)

IMPORTANT POINT
Conversion of blank audio cassettes into pre-recorded audio cassettes in bulk quantity by systematic activity would amount to manufacturing activity within meaning of Project Imports Regulation Act.