2015 Supreme(SC) 398

SUPREME COURT OF INDIA
A.K. Sikri, R.F. Nariman, JJ.
M/S. SERVO-MED INDUSTRIES PVT. LTD. – APPELLANT
VERSUS
COMMISSIONER OF CENTRAL EXCISE, MUMBAI – RESPONDENT
CIVIL APPEAL NO.583 OF 2005
Decided on : 07-05-2015

IMPORTANT POINTS
Where the goods remain exactly the same even after a particular process, no manufacture is involved; like processes which remove foreign matter from goods or which clean goods complete in themselves.
Where the goods remain essentially the same after the particular process there can be no manufacture.
Where the goods are transformed into something different and/or new after a particular process, but the said goods are not marketable; no manufacture of goods takes place.
Where the goods are transformed into goods which are different and/or new after a particular process, such goods being marketable as such it is manufacture.

Headnote:(a) Words and Phrases – Manufacture – Takes place on the application of one or more processes – Each process may lead to a change in the goods, but every change does not amount to manufacture – By manufacture there must be a transformation whereby something new and different comes into being – By manufacture there must emerge an article which has a distinctive name, character or use – No transformation takes place if the character and the end use of the first product continue to be the same – Transformation also does not take place when foreign matter is removed from an article or additions are made to the article to preserve it or increase its shelf life. (Para 9, 10, 11)

       2005 (186) E.L.T. 385 (S.C.); 1983 (13) E.L.T. 1542 (S.C.); 1995 (75) ELT 35 (S.C.); 1995 (75) ELT 35 (S.C.); (1961) 2 SCR 14 – Relied upon

       1999 (114) E.L.T. 166 (Tribunal); 1999 (112) E.L.T. 305 (Tribunal) – Cited with approval

       (b) Words and Phrases – Manufacture – Essential character test character test – Essential characters of input material should change in manufacture – Exceptions – Where essential characters of the raw material did not change due to manufacture include raw tobacco and bidi patti, raw and processed hides and skins, raw tobacco and chewing tobacco, paddy and rice, groundnut oil and hydrogenated groundnut oil. (Para 18, 19)

       Civil Appeal No.8958 of 2003; (1961) 2 SCR 14; (1980) 3 SCR 1271 – Relied upon

       (c) Words and Phrases – Manufacture – If by a process(es) of transformation the product gains a character and use which it did not have earlier, it is manufacture. (Para 20)

       (1997) 10 SCC 717; (1986) 26 ELT 3 (S.C.); 2007 (210) E.L.T. 171 (S.C.) – Relied upon

       (d) Words and Phrases – Manufacture – Syringes and needles – Remain as such before and after sterilization – Sterilization merely making the articles commercially usable – Not manufacture. (Para 24, 30)

       1998 (97) E.L.T. 5 (S.C.) – Relied upon

       1990 (49) ELT 326; (2002) 4 SCC 710 – Distinguished

       (e) Words and Phrases – Manufacture – If a number of integrally connected processes are required to be applied on the raw material to make the finish product commercially expedient, each such process integral in relation to manufacture would amount to manufacture. (Para 26)

       (1991) 4 SCC 473 – Relied upon

       Facts of the case:

       Between June 1995 and March 1997, the appellants purchased syringes and needles in bulk from the open market. They would then sterilize the syringes and the needles and put one syringe and one needle in an unassembled form in a printed plastic pouch. The syringe and the needle were capable of use only once and, hence, were disposable. The plastic pouches so packed were sold to an industrial customer, namely, M/s. Hoechst Marion Roussel Ltd. The pouches bore the brand name ‘Behring’. The brand name ‘Behring’ belonged to the purchaser.

       By a show cause notice dated 25.1.1996, the Department asked the assessee to show cause as to why the said syringes and needles, be made to pay excise duty again as a result of sterilization. The show cause notice alleged that sterilization brings about a change in the character of the final product, which now becomes disposable syringes and needles. Therefore, a new commodity having a different character has come into existence. In their reply to the show cause notice dated 1.10.1996, the petitioners claimed that the activity of sterilization would not amount to manufacture. They said that no new product comes into existence by merely sterilizing disposable syringes and needles which continue to be disposable syringes and needles post-sterilization. No new product, therefore, came into existence as a result of sterilization.

       By an order dated 31.12.1997, the Assistant Commissioner Central Excise held that the process of sterilization was essential to complete manufacture before the products are sold in the market. This being so, the process of sterilization was found to be an integral and inextricable part of the manufacturing process to make the product marketable. It was further held that the process of sterilization brings about a transformation of the product by making something non-sterile sterile.

       By his order dated 25.2.1999, the Commissioner of Central Excise (Appeals) set aside the said order, reasoning that the process of sterilization does not bring about any change in the basic structure of syringes and needles even though post-sterilization the value of the product gets enhanced. He further held that under Section 2(f) of the Central Excise Act, there is no mention of the test of integral or inextricable process and found that the wrong test had been applied to arrive at the wrong result.

       The CESTAT in turn set aside the order of the Commissioner of Central Excise (Appeals).

       Finding of the Court:

       The impugned judgment dated 18.6.2004 has not applied the law correctly.

       Result: Appeal allowed.