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1962 Supreme(SC) 326
SUPREME COURT OF INDIA
12th, October, 1962.
B.P. SINHA, C.J.I., P.B. GAJENDRAGADKAR, K.N. WANCHOO, K.C. DAS GUPTA AND J.C. SHAH, JJ.
Union of India and another Appellants
Versus.
1. Delhi Cloth and General Mills Co. Ltd., (in C. A. No. 168 of 1960),
2. Ganesh Flour Mills Co., Ltd. Delhi (In C. A. No. 169 of 1960) and
3. Modi Sugar Mills and another (In C. A. No. 170 of 1960), Respondents.
M/s. Hindustan Lever Ltd., Intervener.
Civil Appeal Nos. 168 to 170 of 1960.
Advocates appeared
M/s. G. S. Pathak and B. Sen, Senior Advocates, (Mr. R. H. Dhebar, Advocate with them), for Appellants (in all the Appeals). Mr. N. C. Chatterjee, Senior Advocate, (M/s. A. N. Sinha and P. K. Mukherjee Advocates with him) for Respondent (In. C. A. No. 168 of 60);Mr. A. V. Viswanatha Sastri, Senior Advocate, (Mr. Sardar Bahadur Advocate and M/s. S. N. Andley, Rameshwar Nath, Advocates of M/s. Rajindar Narain and Co. with him), for Respondent (In C. A. No., 169 of 1960); Mr. A. V. Viswanatha Sastri Senior Advocate, (M/s. S. K Kapur and K. K Jain, Advocates with him), for Respondent (In C. A. No. 170 of 1960); Mr. N. A. Palkhivala, Senior Advocate (M/s. J. B. Dadachanji, O. C. Mathur, and Ravinder Narain Advocates of M/s. J. B. Dadachanji and Co. with him), for Intervener (In all the appeals).
Civil Writs Nos. 301, 302 and 347 of 1956, D/- 10-4-1958 - Punj. at Delhi.
A.N.SINHA, A.V.VISHWANATHA SASTRI, B.SEN, G.S.PATHAK, J.B.DADACHAN, K.K.JAIN, K.N.ANDLEY, N.A.PALKHIWALA, N.C.CHATTERJI, O.C.MATHUR, P.K.MUKHERJI, R.H.Dhebar, RAJINDAR NARAIN, RAMESHWAR NATH ROY, Ravindra Narayan, S.K.KAPOOR, SARDAR BAHADUR SAHARYA
"Manufacture" for excise duty purposes requires the creation of a new, distinct substance known to the market. Mere processing or change in a substance, without resulting in a marketable product with a distinctive name, character, or use, does not constitute "manufacture."
Headnote:(A) Central Excises and Salt Act, 1944 - Item 23 (now Item 12) of First Schedule - Manufacture of vegetable non-essential oils - Liability to excise duty - To be liable for excise duty, the process must result in the "bringing into existence of a new substance known to the markets" (Paras 14, 18).
(B) Manufacture vs. Processing - "Manufacture" implies a transformation where a new and different article emerges having a distinctive name, character, or use; mere "processing" or producing some change in a substance does not equate to "manufacture" (Para 14).
(C) Meaning of "Goods" - For an article to be considered "goods" under the Act, it must be something which can ordinarily come to the market to be bought and sold (Paras 15-17).
(D) Interpretation of Section 2(f) - The definition of "manufacture" including incidental or ancillary processes is intended to ensure that the use of power at any stage of the process to create a finished article makes the clause applicable, but it does not make mere processing liable to duty (Para 18).
Facts of the case:
Manufacturers of vegetable products purchased raw oils and subjected them to processes including neutralization and bleaching before hydrogenation. Taxing authorities demanded excise duty on the intermediate stage, claiming it was "refined oil." The manufacturers contended that without deodorization, the substance is not "refined oil" as known to the market and no new taxable product was created.
Findings of Court:
The intermediate oil produced before hydrogenation was not "refined oil" as known to the commercial community because it had not undergone deodorization, as per standard specifications. Furthermore, the processes applied did not constitute "manufacture" of a new substance.
Issues: Whether the intermediate product created during the manufacture of vegetable products constitutes "refined oil" liable to excise duty and whether mere processing of raw materials constitutes "manufacture" under the Central Excises and Salt Act, 1944.
Ratio Decidendi: Excise duty is leviable on the manufacture of "goods," which requires the creation of a new substance known to the market. Mere processing that does not result in a distinct, marketable product does not constitute manufacture. Since the intermediate oil lacked deodorization, it did not meet the market definition of "refined oil."
Result: Appeals dismissed.
DAS GUPTA, J. : These three appeals are against the orders of the Punjab High Court allowing three petitions under Art. 226 of the Constitution. The three petitions are by three different companies manufacturing vegetable products Known as "Vanaspati" and they challenge the legality of the imposition of excise duty on what was called by the taxing authorities as the manufacture of "refined oil" from raw oil. These petitions raise a common question of law as regards the liability to excise duty under Item 23 of the first schedule to the Central Excises and Salt Act 1 of 1944, on similar facts. The petitions were heard together and disposed of by a common judgment allowing the appeals and directing the excise authorities to withdraw the impugned demand of excise duty on the petitioners. The present appeals have also been heard together.
2. The facts alleged in the three separate petitions filed by the three petitioners (the respondents herein), the manufacturers of Vanaspati, are practically the same. It is said that for the purpose of manufacturing Vanaspati the petitioners purchased groundnut and til oil from the open market or directly from the manufacturers of such oil. The oils thus purchased are subjected to different processes in order to turn them into Vanaspati. It is their case that the only finished product they manufacture from the raw materials thus purchased is Vanaspati which is liable to excise duty as a vegetable product. They contend that at no stage do they produce any new product which can come within the items described in the Schedule as "vegetable non-essential oils all sorts, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power" Accordingly, it is said, the demand for excise duty on the ground that they produce from the raw oils purchased a product which is liable to duty under item 23 of the Schedule (now item 12) is illegal.
3. In resisting these petitions the Union of India contended, in substance, that in the course of the manufacture of Vanaspati, the vegetable product from raw groundout and til oil, the petitioners bring into existence at one stage, after carrying out some processes with the aid of power, what is known to the market as "refined oil". This "refined oil" falls within the description of "vegetable non-essential oils, all sorts, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power," and so is liable to excise duty. The affidavit files by Mr. P. S. Krishnan, Chief Chemist, Central Revenue, Central Laboratory, Government of India, in support of this contention of the appellant, describes the process by which raw oil is manufactured into Vanaspati thus:-
"The manufacture of vegetable product consists in hydrogenating oils using a catalyst. The catalyst is a sensitive material and is liable to be poisoned and made ineffective if certain impurities like mucilaginous matter, free oxidized fatty acid and moisture are present. In order therefore, to successfully manufacture vegetable product the hydrogenation has to be done on a refined vegetable non-essential oil. The refined vegetable non-essential oil (an oil free from major impurities mentioned in paragraph 2 above) is the penultimate raw material for the manufacture of vegetable product.
The vegetable non essential oils as obtained by crushing containing the impurities mentioned earlier are raw vegetable non-essential oils. The process of refining them consists in adding an aqueous solution of an alkali which will combine with the free fatty acids to form a soap and settle down with it a large amount of suspended and mucilaginous matter; after settling the clear supernatant layer is drawn off and treated with an appropriate quantity of bleaching earth and carbon is then filtered. In this process the colouring matter is removed and the moisture that was originally present in the neutralised oil will also be removed. At this stage the
