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High Court Of Madhya Pradesh
C.P. Sen and S. Avasthy, JJ.
Tata Export Ltd.
Versus
Union of India
Misc. Petition 1271 of 1982 Of
Decided On : Jul 30,1985
The company manufactured finished leather garments and shoe uppers. There products are exempt from excise duty. For the completion of manufacturing of finished leather, the company applied pigments slurry and nitrocellulose lacquer to the leather in the manufacture of leather. The petitioner mixes, pigment powders like titanium dioxide with certain solvents. These pigments and powders are obtained from the market and are products upon which duty of excise has been paid. After adding preservatives, the mixture of pigment powder and solvents becomes slurry. The slurry is used by the petitioner company for tanning of the leather and is part and parcel of the process to obtain finished leather. Under notification No. 80/80, the Central Government exempted excisable goods leviable thereon if the first clearance did not aggregate 5 lacs in value. The total value of slurry and lacquer did not exceed 5 lacs of rupees in the year in question. The question before the High Court was whether the excise duty was leviable on pigment slurry and nitrocellulose lacquer used by the petitioner for the aforesaid items, whether the goods manufactured were exempted under notification No. 80/80 as their total value was less than 5 lacs though the turn over was over 20 lacs.
Held: Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use.
There must be such a transformation that a new and different article must emerge having a distinctive name, character or use.
Any process or processes creating a new commodity commercially known as a distinct and separate commodity having its own character, use and name would be 'manufacture'. It is settled law that in a case of taxation the burden of proving that the necessary ingredients prescribed by the taxing provision are satisfied is entirely upon the taxing authority.
It is, therefore, primarily for the taxing authority to satisfy the Court that formulation of pigment slurry is entirely distinct commodity having entirely distinct name, character and use as compared with the pigment itself. 982 FLT 10, 1985 ELT 297, 1985 ELT 179 and AIR 1977 SC 597 relied on. [Para 4
It is evident that pigment slurry is merely a mixture made by mixing pigment powders like titanium dioxide with water containing chemical wetting agents. This is done only to facilitate application of pigment to leather. Chemical properties and characteristics of the pigment powder remaining unchanged when it becomes slurry. Pigment slurry is only powder in a wet form. Thus these are not chargeable. [Para 5
(2) Central Excise and Salt Act, 1944-S.2 (f)-manufacture-the resultant product different from the ingredients used-Item No. 14-III (i) of the first schedule is attracted-clearance value-calculation of·
But this cannot be said so far as nitrocellulose lacquer which is being prepared by the petitioner in its factory by mixing certain chemicals such as nitrocellulose, alkyds and combined with solvents with or without pigment depending upon the end-use. So the resultant product is something different from the ingredients used for making them and so the petitioner is manufacturing nitrocellulose lacquer which is leviable to duty under Item No.14 III (i) of the First Schedule. But as the finished product of the petitioner i.e. leather goods, are totally exempted from excise duty, the same cannot be taken into consideration in order to assess excise duty on nitrocellulose under of the exemption granted under Notification No.80/80. Under this notification, nitrocellulose lacquer, would be totally exempted from excise duty in case the value of the clearances of this product is less than 5 lacs. For calculating this amount, the total value of the finished product of the petitioner cannot be taken into consideration as the finished product is totally exempted from excise duty.
Although nitrocellulose lacquer was chargeable to excise duty under Item No. 14 III (i) of the First Schedule, but as the value of production of this article was less than 5 lacs, the petitioner is exempted from paying any duty on this product under Notification No. 80/80. AIR 1975 SC 1891 and 1983 ELR 239 relied on. [Para 5
(3) Finance Act, 1982-S. 51-retrospective effect given to rules 9 and 49 of the Excise Rules, 1944-the change is not ultra-vires of Article 19 (1) (f) of the Constitution.
(4) Excise Rules, 1944-Rr. 9 and 49-giving retrospective effect to the rules-is not ultra vires the Constitution and are not inconsistent with section 37 of the Act. AIR 1975 SC 1891 and 1983 ELT 239 relied on. [Para 6
( 1. ) IN this petition under Article 226 of the Constitution the petitioner is challenging levy of duty on pigment slurry and nitrocellulose lacquer under Central Excises and Salt Act, 1944, and also challenging Section 51 of the Finance Act, 1982 and Notification dated 20-2-1982 giving retrospective effect to Rules 9 and 49 of the Central Excise Rules, 1944, from the date of framing of the rules.
( 2. ) THE petitioner is a Company incorporated under the provisions of the Indian Companies Act, 1956. The petitioner has a factory at Dewas wherein it is manufacturing finished leather, garments and shoe uppers. These products are exempted from excise duty. For the completion of manufacturing of finished leather, the petitioner apply pigment slurry and nitrocellulose lacquer to the leather in the course of manufacture of finished leather. At the said factory, the petitioner has a Research and Development Cell in a separate building about 100 metres from the factory and within the same campus where amongst other activity, the petitioner mixes pigment powders like titanium dioxide with certain solvents. These pigment powders and solvents are obtained from the market and are products upon which the duty of excise has been paid. After adding preservatives, the mixture of pigment powder and solvents become slurry. This slurry is used directly by the petitioner in the tanning of leather and is part and parcel of the process to obtain finished leather. Similarly, in the case of nitrocellulose lacquer, certain chemicals such as nitrocellulose, alkydes etc. are combined with solvents with or without water, with or without pigments depending upon the end use. The resultant mixture is also used by the petitioner for manufacture of finished leather. The pigment slurry as well as nitrocellulose lacquer are used for captive consumption in the petitioners factory. Under Notification No. 80/80, the Central Government exempted excisable goods specified therein from the whole of the duty of excise leviable thereon if the first clearances did not aggregate rupees 5 lacs in value provided that the clearances of all excisable goods manufactured should not exceed rupees 20 lacs in value. The total value of slurry and lacquer did not exceed 5 lacs of rupees in the year in question though the outturn of the finished product i. e. leather was much above 20 lacs in the relevant year. Section 3 of the said Act provides that there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India at the rates set forth in the First Schedule to the Act. Under Section 2 (d) excisable goods means goods specified in the First Schedule as being subject to a duty of excise and includes salt. In Section 2 (f) manufacture includes any process incidental or ancillary to the completion of a manufectured product Rule 9 (1) of the said Rules prescribe the time and manner of payment of duty on excisable goods to be removed from one place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf, whether for consumption, export or manufacture of any other commodity in or outside such place until excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these rules. Under Rule 49 (1) duty is chargeable only on removal of goods from the factory premises or from an approved place of storage. These rules, as they stand, were amended in 1982 but by Section 51 of the Finance Act, 1982 these rules were given retrospective effect from the date of framing of the rules i. e. 1944, as per Notification dated 20-2-1982. Under Item No. 14 I (2) (iii) in the First Schedule to the Act water pigment finishes for leather is chargeable to 10% of excise duty ad valorem and under Item No. 14 III (i) nitrocellulose lacquers, clear and pigmented and nitrocellulose ancilla
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