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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               355               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- 356 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               357               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 358 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. 359 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. 360