1. Purchase of brake lining blanks and subsequent drilling, trimming, and chamfering — determination of whether such processes amount to manufacturing under Section 2(1), Central Excises and Salt Act, 1944. (Para 1 )
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1997 Supreme(SC) 476
SUPREME COURT OF INDIA
A.M Ahmadi, C.J.I., B P Jeevan Reddy, J.
BRAKES INDIA LTD., APPELLANT
VERSUS
SUPDT. OF CENTRAL EXCISE AND OTHERS, RESPONDENTS.
Civil Appeals No. 384 of 1987 with No. 168 of 1988, decided on March 13, 1997.
Important Points
A process constitutes "manufacturing" if it transforms a product to give it a character and utility it previously lacked, regardless of whether the product's name changes or if the process consists of a single or multiple steps.
Subject
Tax Law - Central Excise
Act Referred
CENTRAL EXCISE ACT: S.3, S.2(f)
Headnote
(A) Central Excises and Salt Act, 1944 - Section 2(1) - Manufacturing - Process of drilling, trimming and chamfering of brake lining blanks - If a process effects a change in a product which facilitates its utility, it is not a simple process but one incidental or ancillary to the completion of a manufactured product - Character or use test - If a transformation takes place which makes the product have a character and use of its own, which it did not bear earlier, the process amounts to manufacture irrespective of whether there has been a single process or several processes. (Para 1)
Facts of the case:
The appellant purchased brake lining blanks and subjected them to the processes of drilling, trimming, and chamfering. It was observed that these blanks could not be used by owners of motor vehicles or by automobile manufacturers in the manufacture of vehicles without undergoing these specific processes.
Findings of Court:
The processes of drilling, trimming, and chamfering transformed the blanks into a product usable for its intended purpose, thereby satisfying the test for manufacturing.
Issues: Whether the process of drilling, trimming, and chamfering brake lining blanks amounts to manufacturing within the meaning of Section 2(1) of the Central Excises and Salt Act, 1944.
Ratio Decidendi: The court held that the "character or use test" is the correct standard; a process constitutes manufacturing if it results in a transformation that gives the product a character and utility it did not previously possess, regardless of whether the product retains its original name.
Result: Appeals dismissed.
Facts of the case:
The appellant purchased brake lining blanks and subjected them to the processes of drilling, trimming, and chamfering. It was observed that these blanks could not be used by owners of motor vehicles or by automobile manufacturers in the manufacture of vehicles without undergoing these specific processes.
Findings of Court:
The processes of drilling, trimming, and chamfering transformed the blanks into a product usable for its intended purpose, thereby satisfying the test for manufacturing.
Issues: Whether the process of drilling, trimming, and chamfering brake lining blanks amounts to manufacturing within the meaning of Section 2(1) of the Central Excises and Salt Act, 1944.
Ratio Decidendi: The court held that the "character or use test" is the correct standard; a process constitutes manufacturing if it results in a transformation that gives the product a character and utility it did not previously possess, regardless of whether the product retains its original name.
Result: Appeals dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether the process of drilling, trimming, and chamfering brake lining blanks constitutes manufacturing within the meaning of Section 2(1) of the Central Excises and Salt Act, 1944. (Para 1 )
3. A process constitutes manufacturing if it transforms a product to have a character and use of its own, facilitating utility, regardless of whether the product's name changes. (Para 1 , 2 )
4. Transformation that makes a product have a character and use of its own, which it did not bear earlier, amounts to manufacture under the Central Excises and Salt Act. (Para 1 )
5. Appeals dismissed with no order as to costs. (Para 2 )
6. What constitutes manufacturing under the Central Excises and Salt Act, 1944?
Manufacturing occurs when a process effects a transformation that gives a product a character and use of its own which it did not previously possess, thereby facilitating its utility. (Para 1 )
7. Is the change in the name of a commodity a definitive test for manufacturing?
No, relying solely on whether a commodity takes a new name after a process can be deceptive, as manufacturers may retain the same name for the end product. (Para 1 )
8. Does the number of processes involved affect whether a transformation is considered manufacturing?
No, a process amounts to manufacture if a transformation occurs that gives the product a distinct character and use, regardless of whether it involves a single process or several processes. (Para 1 )
ORDER
1. We have heard the learned counsel for the appellant. The short question is whether brake lining blanks purchased by the appellant when put to the process of drilling, trimming and chamfering can be said to amount to manufacturing within the meaning of Section 2(1) of the Central Excises and Salt Act, 1944. The High Court has examined this question in considerable detail and has then observed in paragraph 15 as under :
"If by a process, a change is effected in a product, which was not there previously, and which change facilitates the utility of the product for which it is meant, then the process is not a simple process, but a process incidental or ancillary to the completion of a manufactured product. It will not always be safe solely to go by a test as to whether the commodity after the change takes in a new name, though in stated circumstances, it may be useful to resort to it. This may prove deceptive sometimes, for it will suit the manufacturer to retain and stamp the same name to the end product also. The character or use test has been given due importance by pronouncements of the Supreme Court. When adopting a particular process, if a transformation takes place, which makes the product have a character and use of its own, which it did not bear earlier, then the process would amount to manufacture within the meaning of Section 2(f) irrespective of the fact whether there has been a single process or have been several processes."
2. The learned Single Judge from whose judgment the Division Bench was considering the appeal had pointed out that brake lining blanks could not be used by owners of motor vehicles without holes and trimming and chamfering. The learned Single Judge also pointed out that it was only after this process which the blank brake linings underwent that they could be used by automobile manufacturers in the manufacture of their vehicles. We are of a the opinion that both the learned Single Judge as well as the Division Bench applied the correct test and we see no reason to interfere therewith. The appeals are, therefore, dismissed with no order as to costs.
