1. Dispute over whether distillation and re-crystallization of laboratory chemicals constitute manufacture under the Central Excises and Salt Act, 1944. (Para 1 )
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1995 Supreme(SC) 482
SUPREME COURT OF INDIA
B.P.Jeevan Reddy : S.C.Sen
Collector, Central Excise, Bombay
Versus
S.D.Fine Chemicals Private Limited
Case No. : 2532(nm) of 1992
Date of Decision : 3/30/95
Advocates Appeared: Kuma V.Eaxmi : Mishra R.R. : Murlidhar S. : Srivastava A.K. : Varma V.K.
Important Points
The test for 'manufacture' under the Central Excises and Salt Act is whether a process transforms a commodity into a new, distinct article commercially recognized as different from the original in name, character, or use. Determining whether a process constitutes manufacture is a question of fact.
Subject
Tax Law - Central Excise
Act Referred
CENTRAL EXCISE ACT: S.3, S.2(f)
Headnote
Central Excises and Salt Act, 1944 – Section 35 – Finance Act – Section 2 – Excise Tariff Act, 1985 – Respondents are engaged in manufacturing of laboratory chemicals and fine chemicals underlake repacking and purification of laboratory and fine chemicals classification list filed by claimed that process of purification and distillation undertaken by them does not amount to process of manufacture and accordingly, claimed exemption from duty in respect of such goods under Notification – Assistant Collector agreed with respondents but his order was revised by Collector who held that processes undertaken by respondents do amount to manufacture – Inasmuch as a new commodity known to market emerges as a result of such processes, he held, they are liable to excise duty – Held, Ujagar Prints to try to restrict sweep of definition with reference to Entry 84 List I of the Seventh Schedule to the Constitution. Since the constitutionality of the said definition has been repeatedly upheld with reference of List I (Empire industries and Ujagar Prints), the definition must be understood in terms it is couched. It should also be remembered that question whether a particular process does or does not amount to manufacture as defined always a question of fact to be determined in facts of a given case applying principles enunciated by this court – One of the main tests evolved by this court is whether on account of the processes employed or applied by assessee commodity so obtained is no longer regarded as original commodity but is instead, recognised as a distinct and new article that has emerged as a result of the processes – Appeal disposed.
Legal Category Hierarchy
Advocates:
A.K.SRIVASTAVA, R.R.Mishra, S.MURALIDHARAN, V.Eaxmi Kuma, V.K.VARMA
A.K.SRIVASTAVA, R.R.Mishra, S.MURALIDHARAN, V.Eaxmi Kuma, V.K.VARMA
Table of Contents
2. Whether purification processes merely improve purity or transform chemicals into new commercial commodities with distinct names, characters, and uses. (Para 1 )
3. The court analyzed the distinction between mere processing and manufacture, emphasizing the requirement of a new substance with a distinct commercial identity. (Para 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 )
4. Manufacture is determined by whether the processed commodity is no longer regarded as the original but is recognized as a distinct and new article. (Para 7 , 12 )
5. Matter remitted to the tribunal for a fresh and comprehensive opinion from the third Member. (Para 13 , 14 )
6. What constitutes manufacture under the Central Excises and Salt Act, 1944?
Manufacture involves bringing into existence a new and different article that has a distinctive name, character, or use, such that it can no longer be regarded as the original commodity. (Para 5 , 7 , 12 )
7. Does the inclusive definition of manufacture in Section 2(f) equate mere processing with manufacture?
No. The inclusive definition includes incidental or ancillary processes but does not equate mere processing with the act of bringing a new substance known to the market into existence. (Para 5 , 12 )
8. How is the distinction between manufacture and process determined?
It is a question of fact. The court examines whether the series of changes takes the commodity to a point where it is commercially recognized as a distinct and new article. (Para 7 , 9 , 12 )
9. What is the legal meaning of process in the context of excise duty?
A process is a mode of treatment of materials to produce a result or transform them to a certain stage, which may be subordinate to the further process of manufacture. (Para 10 )
JUDGMENT
B.P. JEEVAN REDDY, J.
(1) IN this appeal preferred by the Collector, central Excise, Bombay under Section 35-E of the central Excises and Salt Act, 1944 (hereinafter referred to as "the. Act"), the question is whether the distillation and re-crystallization carried out by the respondent amounts to manufacture? The respondents, M/s S.D. Fine Chemicals Pvt. Ltd., are engaged in the manufacturing of laboratory chemicals and fine chemicals. They also underlake repacking and purification of laboratory and fine chemicals. In the classification list filed by them on 1/4/1983, they claimed that the process of purification and distillation undertaken by them does not amount to process of manufacture and accordingly, claimed exemption from duty in respect of such goods under Notification No. 77 of 1983 dated 1/3/1983. The Assistant Collector agreed with the respondents but his order was revised by the Collector (Appeals) who held that the processes undertaken by the respondents do amount to manufacture. Inasmuch as a new commodity known to the market emerges as a result of such processes, he held, they are liable to excise duty. The respondents filed an appeal betore the Customs, Excise and Gold (Control) Appellate tribunal, New Delhi which was heard in the first instance by a bench of two Members. The Member (Technical) agreed with the respondents. He held that the process undertaken by the respondents is merely for improving the equality or purity of the chemicals and does not amount to manufacture. He observed that even after purification, the chemicals are known by the very same name and that there was no change in the chemical formula even after purification. The simple process of distillation and re-crystallization of the chemicals does not amount to manufacture for the purposes of the Act, he held. The Member (Judicial) however, took a contrary view. He was of the opinion that the process undertaken by the respondents is not a simple process and that the said process "brings in a transformation which will change the name, character and use". The Member (Judicial) further observed, "the ordinary chemicals cannot be used in laboratory without it undergoing purification. They are traded in different commercial names and has altogether different use. So long as the trade recognises it as a different commodity and its uses are different, the item has to be recognised as a different goods and became excisable goods". In view of the difference of opinion between the two Members, the matter was referred to a third Member. The third Member held in favour of the respondents-manufacturer on the following reasoning
"AS can be gathered, the key test is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity. In my view in the inslant case this test has not been satisfied as the chemical prior to the two processes concerned herein continues to remain the same after being subjected to the processes, admittedly with only a change in increase in purity. The commodity retains its identity substantially through the processing stage. Therefore, it cannot be said to have been manufactured."
(2) IT would be evident from the opinion of the third Member that he did not deal with the several aspects dealt with in the opinions of the two differing Members. He did not also indicate whether he agrees or disagrees with the findings recorded by the Member (Judicial), viz., that after the processes undertaken by the respondents, the chemical bears a different chemical name and have an altogether different use. The third Member did not also deal with the holding of the Member (Judicial) that after the processes undertaken by the respondents, the chemical became a different commercial commodity.
(3) THE expression manufacture is defined in clause (f) of Section 2 of the Act. The definition, as substituted by Finance Act (No. 25 of 1975, will) effect fro
