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PETITIONER:

COLLECTOR, CENTRAL EXCISE, BOMBAY

Vs.

RESPONDENT:

M/S. S.D. FINE CHEMICALS PVT. LTD.

DATE OF JUDGMENT30/03/1995

BENCH:

JEEVAN REDDY, B.P. (J)

BENCH:

JEEVAN REDDY, B.P. (J)

SEN, S.C. (J)

CITATION:

1995 SCC Supl. (2) 336 JT 1995 (3) 353

1995 SCALE (2)550

ACT:

HEADNOTE:

JUDGMENT:

B.P. JEEVAN REDDY, J.:

1. In this appeal preferred by the Collector, Central

Excise, Bombay under Section 35(L) of the Central Excise

Act, 1944 (hereinafter referred to as 'the Act'), the

question is whether the distillation and recrystallisation

carried out by the respondent amounts to 'manufacture'? The

respondent, M/s. S.D.Fine Chemical Pvt.Ltd., arc engaged in

the manufacturing of laboratory chemicals and fine chemi-

cals. They also undertake repacking and purification of

laboratory and fine chemicals. In the classification list

filed by them on April 1, 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 March 1, 1981 The

Assistant Collector agreed with the respondent but his order

was revised by the Collector (Appeals who held that the

processes undertaken by the respondent 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 respondent filed an appeal

before the Customs, Excise and Gold (Control) Appellate Tri-

bunal, New Delhi which was heard in the first instance by a

Bench of two Members. The Member (Technical) agreed with

the respondent. The held that the processes undertaken by

the respondent is merely for improving the quality or purity

of the chemicals and does not amount to...... fracture. 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 recrystallisation of the chemi-

cals does not amount to manufacture for the purposes of the

Act, he held. The Member (Judicial) however, took a con-

trary view. The was of the opinion that the process

undertaken by the respondent is not a simple process and

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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 name 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 respondent manufacturer

on the following reasoning

"As can be gathered, the key test is

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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 instant case this test has not

been satisfied as the chemicals 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 respondent, the chemicals

bear a different chemical name and have an altogether dif-

ferent use. The third Member did not also deal with the

holding of the Member (Judicial) that after the processes

undertaken by the respondent, 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, with effect from March 1, 1975

reads thus:

" manufacture' includes any process,-

(i)incidental or ancillary to de completion of

a manufactured product;

(ii)which is specified in relation to any

goods in the Section or Chapter notes of the

Schedule to the Central Excise Tariff Act,

1985 as amounting to manufacture, and the word

'manufacture' shall be construed accordingly

and shall include not only a person who

employs hired labour in the production or

manufacture of excisable goods, but also any

person who engages in their production or

manufacture on his own account."

4. The definition is thus an inclusive definition. The

purpose of the definition is to include certain processes

and activities within the ambit of the said definition which

may not otherwise amount to manufacture, as ordinarily

understood. This inclusion is in addition to the normal

meaning and context of the expression ,manufacture'. The

said expression has been the subject matter of several deci-

sions of this Court to which a brief reference is necessary

to bring out the principles enunciated therein. In Union of

India v. Delhi Cloth and General Mills (1963 Suppl (1)

S.C.R.586) the revenue wanted to levy a duty upon 'refined

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oil' which was obtained by the respondent-manufacturer at an

intermediate stage of production of vanaspati. The

respondent cleansed the oil purchased by him by applying

certain processes and thus obtained 'refined oil'. But the

respondent did not apply the process of deodorisation before

hydrogenating the refined oil. The case of the Revenue was

that even non-deodorised refined ground-nut/til oil is

'refined oil' as known to the consumers and the commercial

community. The respondent's case, however, was that the

'refined oil' as known to the consumers and the commercial

community is necessarily the deodorised refined oil. After

referring to the material produced by both the parties, this

Court upheld the respondent's contention and held that

"without deodorisation, the oil is not 'refined oil' as is

known to the consumers and the com-

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mercial community',. This Court further held "that the raw

oil purchased by the respondent for the purpose of manufac-

ture of vanaspati does not become at any stage 'refined oil'

as is known to the consumers and the commercial community".

For this reason, it was held that refined oil obtained by

the respondent at stage anterior to hydrogenation is not

'vegetable nonessential oil' or by 'all sorts' in or in

relation to the manufacture of which any process is

ordinarily carried on with the aid of power within the

meaning of Item 12 of the 1st Schedule to the Act. So far

as legal position is concerned, this Court stated it in the

following words:

"Excise duty is on the manufacture of goods

and not on the sale. Mr. Pathak is therefore

right in his contention that the fact that the

substance produced by them at an immediate

stage is not put in the market would not make

any difference. If from the raw material has

been brought into existence a new substance by

the application of processes one or more of

which are with the aid of power and that

substance is the same as "refined oil" as

known to the market an excise duty may be

leviable under Item 23 (the present item 12)-.

5. The Court then dealt with the next argument of the

appellant-Union of India that even if it is held that the

respondent did not manufacture 'refined oil' as known to the

market, even so they must be held to manufacture some kind

of 'non-essential vegetable oil' within the meaning of Item

23. This Court rejected the said argument with reference to

the meaning of the expressions "manufacture" and "goods", in

the following words:

"The word "manufacture" used as a verb is

generally understood to mean as 'bringing into

existence a new substance' and does not mean

merely 'to produce some change in a

substance,' however minor in consequence the

change may be. This distinction is well

brought about in a passage thus quoted in

Permanent Edition of Words and Phrases, Vol.

26 from an American Judgment. The passage

runs thus:-

'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'."

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6. The Court then referred to and dealt with the meaning

of expression 'goods' occurring in Section 3 and observed

thus:

"These definitions make it clear that to

become "goods" an article must be something

which can ordinarily come to the market to be

bought and sold.

This consideration of the meaning of the word

"goods" provides strong support for the view

that "manufacture" which is liable to excise

duty under the Central Excises and Salt Act,

1944 must be the 'bringing into existence of a

new substance known to the market'. "But",

says the learned counsel, "look at the

definition of "manufacture" in die definition

clause of the Act and you will find that

"manufacture" is defined thus: 'Manufacture

'

includes any process incidental or ancillary

to the completion of a manufactured product.

[S.2(f)]. "

We are unable to agree with the learned

counsel that by inserting this definition of

the word "manufacture" in S.2(f) the

legislature intended to equate "processing" to

"manufacture" and intended to

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make mere "processing" as distinct from

"manufacture" in the same sense of bringing

into existence of a new substance known to the

market, liable to duty. The sole purpose of

inserting this definition is to make it clear

that at certain places in the Act the word

'manufacture' has been used to mean a process

incidental to the manufacture of the article.

Thus in the very item under which the excise

duty is claimed in these cases, we find the

words: "in or in relation to the manufacture

of which any process is ordinarily carried on

with the aid of power." The definition of

'manufacture' as in S.2(f) puts it beyond any

possibility of controversy that if power is

used for any of the numerous processes that

are required to turn the raw material into a

finished article known to the market the

clause will be applicable; and an argument

that power is not used in the whole process of

manufacture using the word in its ordinary

sense, will not be available. It is only with

this limited purpose that the legislature, in

our opinion, inserted this definition of the

word 'manufacture' in the definition section

and not with a view to make the mere "

processing" of goods as liable to excise duty.

-

7. In South Bihar Sugar Mills Ltd. & Anr.Etc. v. Union of

India & Anr. (1968 (3) S.C.R. 2 1), the above interpretation

was affirmed.

8. In Empire Industries Ltd. & Ors. v. Union of India &

Ors. (1985 (3) S.C.C.314) the question arose whether the

process of bleaching, dyeing, printing of grey cloth amounts

to 'manufacture' as defined in the Act. It may not be

necessary to set out the reasoning in this case inasmuch as

the very same question was considered later by a

Constitution Bench of this Court in M/s. Ujagar Prints &

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Ors. v. Union of India & Ors. (1989 (3)S.C.C.488). We

will, therefore, refer to the reasoning in Ujagar Prints.

The facts in Ujager Prints, were these: the customers

supplied the grey fabric to the appellant who carried out

operations of bleaching, dyeing, printing, glazing, shrink-

proofing etc. against payment of processing charges. The

ownership of the cloth rested with the customers who got

these processes done to their specifications from the ap-

pellant on payment of processing charges. The question was

whether the appellant can be said to ham: undertaken

'manufacture' as defined in the Act. M.N. Venkatachahah, J,

as the then learned Judge was dealt with several decisions

of this Court including those referred to above as well as

the decisions rendered by this Court under different Saks

Tax enactments [including M/s. Tungabhadra Industries Ltd.

Vs. Commercial Tax Officer, Kurnool (1961 (2) S.C.R.14)]

and enunciated the principle in the following words:

.LM15

"The prevalent and generally accepted test to ascertain that

there is "manufacture" is whether the change or the series

of changes brought about by the application of processes

take the commodity to the point where, commercially, it can

no longer be regarded as the original commodity but is,

instead, recognised as a distinct and new article that has

emerged as a result of the processes. The principles are

clear. But difficulties arise in their application in

individual cases. There might be borderline cases where

either conclusion with equal justification be reached.

Insistence on any sharp or intrinsic distinction between

'processing' and 'manufacture', we are afraid, results in an

oversimplification of both and tends to blur their

interdependence in cases such as the present one."

9. The learned Judge then dealt with

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argument that if the expression 'manufacture' defined under

Section 2(f) of the Act is understood in a broad sense to

include processes, which in truth do not amount to

manufacture, the definition and the very Act would fall

outside Entry 84 of List-I of the Seventh Schedule to the

Constitution. The learned Judge rejected the argument

holding "at all events, even if the impost on process is not

one under envy 84, List 1, but is an impost on "processing"

distinct from "manufacture" die levy could yet be supported

by entry 97, List-I even- without the aid of the wider

principle recognised and adopted in Dhillon Case". The

learned Judge then referred to the principle of the decision

in Union of India v, H.S. Dhillon (1971 (2) S.C.C.779) and

observed:

"So far as the exclusive competence of the

Union Parliament to legislate is concerned all

that is necessary is to find out whether the

particular topic of legislation is in List 11

or List III. if it is not, it is not necessary

to go any further or search for the field in

List 1. Union Parliament has exclusive power

to legislate upon that topic or field. Of

course, it has concurrent power also in

respect of the subjects in List HI."

10.In Collector of Central Excise, Madras v. M/s. Kutty

Flush Doors and Furniture Co. (P) Ltd. (1988

Suppl.S.C.C.239), this Court observed, after referring to

the principle of Delhi Cloth and General Mills (supra) and

South Bihar Sugar Mills (supra), to die following effect.

"This principle is well-settled. This is a

question of fact depending upon the relevant

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material whether as a result of activity, ne

w

and different article emerges having a

distinct name, character and use. "

.LM0

11.On the meaning of expression " process",

the following statement in the decision of

this Court in Collector of Central Excise,

Jaipur v. Rajasthan State Chemical Works,

Deedwana, Rajasthan (1991 (4) S.C.C.473) is

relevant:

"The natural meaning of the word 'process' is

a mode of treatment of certain materials in

order to produce a good result, a species of

activity performed on the subject-matter in

order to transform or reduce it to a certain

stage. A to Oxford Dictionary one of the

meanings of the word 'process' is "a

continuous and regular action or succession of

actions taking place or carried on in a defi-

nite manner and leading to the accomplishment

of some result." The activity contemplated by

the definition is perfectly general requiring

only the continuous or quick succession. It

is not one of the requisites that the activity

should involve some operation on some material

in order to its conversion to some particular

stages There is nothing in the natural

meanings of the word 'process' to exclude its

application to handling. There may be a pro-

cess which consists only in handling and there

may be a process which involves no handling or

not merely handling but use or also use. It

may be a process involving the handling of the

material and it need not be a process

involving the use of material. The activity

may be subordinate but one in relation to the

further process of manufacture."

12. The question in the decision was whether the respondent

was entitled to the benefit of a particular exemption

notification but that question in turn raised the question

what is 'manufacture' and what is 'process'? The Bench (S.

Ranganathan, Fathima Beevi and N.D. Ojha, JJ.) expressed the

aforesaid opinion.

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13. The decisions aforesaid make it clear that the

definition of the expression 'manufacture' under Section

2(f) of the Act is not confined to the natural meaning of

the expression 'manufacture' but is an expansive definition.

Certain processes, which may not have otherwise amounted to

manufacture, are also brought within the purview of and

placed within the ambit of the said definition by the

Parliament. Not only processes which are incidental and

ancillary to the completion of manufactured product but also

those processes as are specified in relation to any goods in

the section or chapter notes of the schedule to the Central

Excise Tariff Act, 1985 are also brought within the ambit of

the definition. As has been repeatedly observed by the

Court, though the principles enunciated are clear, it is

their application that presents difficulties and it does not

help to draw "any sharp or intrinsic distinction between

'processing' and ,manufacture', "which would only result in

an oversimplification of both and tends to blur their

interdependence in cases such as the present one," (Ujagar

Points). It would also be not right, as pointed out in

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Ujagar Prints to try to restrict the sweep of the 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 to both

Entries 84 and 97 of List-I (Empire Industries and Ujagar

Prints), the definition must be understood in terms it is

couched. It should also be remembered that the question

whether a particular process does or does not amount to

'manufacture' as defined under Section 2(f) is always a

question of fact to be determined in the facts of a given

case applying die 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 the

assessee, the commodity so obtained is no longer regarded as

the original commodity but is, instead, recognised as a

distinct and new article that has emerged as a result of the

processes

(Ujagar Prints).

14. Now coming to the facts of the case before us, it is

clear from the perusal of the opinion of the third Member of

the Tribunal that he has not dealt with the cast in a full

and proper manner and has disposed of the issue in a cryptic

manner. It has, therefore, become necessary to remit the

matter for the fresh opinion of the third Member of the

Tribunal. The third Member shall now hear the parties and

render his opinion afresh on the question referred to him.

He shall do so within six months from this date. He shall

transmit his opinion to this Court soon after rendering it.

15. If the third Member, Jyoti Balasundaram, who heard the

matter is not available, the Chairman of die Tribunal shall

specify another Member for hearing this matter.

16. List the appeal after receipt of the finding/ opinion

from the Tribunal.

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