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CASE NO.: Appeal (civil)  6197 of 2001

PETITIONER: COMMISSIONER OF CENTRAL EXCISE, JAIPUR

RESPONDENT: M/S MAHAVIR ALUMINIUM LTD

DATE OF JUDGMENT: 11/05/2007

BENCH: ASHOK BHAN & C.K. THAKKER

JUDGMENT: J U D G M E N T

C.K. THAKKER, J.

1.              A short question which arises for our  consideration in the present appeal is whether the  process of conversion of Aluminium Ingots into  Aluminium Billets during the intermediate stage by the  process of re-melting and adding other alloys amounts to  ’manufacture’ within the meaning of Section 2(f) of the  Central Excise Act, 1944 (hereinafter referred to as ’the  Act’) and Central Excise Duty is chargeable thereon? 2.              The facts of the case are that M/s Mahavir  Aluminium Ltd., Bhiwadi (hereinafter referred to as ’the  Assessee’) was engaged in the manufacture of Aluminium  Products falling under Chapter 76 of the Central Excise  Tariff Act, 1985. The assessee was manufacturing  Aluminium Billets and was consuming it captively for the  manufacture of Aluminium Irrigation Pipes exempted  from payment of duty. The assessee was also selling the  said commodity in the market by paying Excise Duty. 3.              It was the case of the Commissioner of Central  Excise, Jaipur (hereinafter referred to as ’the Revenue’)  that the assessee did not mention the facts in  classification lists/declarations filed under Rule 173 B of  the Central Excise Rules, 1944 nor produced record  relating to production of Aluminium Billets used for  captive consumption and production of Aluminium  Irrigation Pipes. A notice was, therefore, issued to the  assessee on January 2, 1996 to show cause why an  amount of Rs.1,16,56,476/- towards clearance of  Aluminium Billets for captive consumption by  suppressing the fact that such consumption was for  manufacture of fully exempt products should not be  recovered as duty and why penalty should not be  imposed along with penalty. 4.              By an order-in-original dated August 8, 1997,  demand of Rs.44,35,637/- was confirmed for the period  between June, 1995 and December, 1995. The demand  beyond the period of six months was held to be barred by  time. Penalty of Rs.10,00,000/- was also imposed. 5.              An appeal filed by the assessee against the  order-in-original was allowed by the Custom, Excise and  Gold (Control) Appellate Tribunal (’CEGAT’ for short) on  February 16, 2000, setting aside the order-in-original  passed by the Commissioner and remanding the matter  for fresh disposal in accordance with law.

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6.              Hearing was afforded to the assessee thereafter  by the Commissioner and considering the rival  submissions of the parties, the Commissioner held that  Aluminium Billets had come into existence as a result of  conversion of Aluminium Scraps, Ingots and other  alloying materials by process of melting. Billets are thus  a commodity distinct from Ingots. The Commissioner also  recorded a finding that "Aluminium Billets, besides being  used captively, were also sold in the marked by the  assessee on payment of duty @ 15% adv." 7.              The Commissioner concluded : "Regarding whether aluminum billets  produced at the intermediate stage by the  assessee as per the process discussed in para  A supra amounts to manufacture. I find that a  billet as different article emerged as a result of  melting of ingots/scrap of aluminium and  other alloying metals and is having distinct  name, character or use and as per Section 3 of  Central Excise Act, 1944 these are goods  which can ordinarily be bought and sold in the  market. The assessee is also selling the same  in the market apart from captive consumption  for manufacture of irrigation aluminium pipes.  Thus, billet is altogether a different product  than an ingot of aluminium know to the  market and has different use and character. In  the assessee’s case also they could not have  manufactured extruded pipes form aluminium  ingots. Accordingly aluminium ingots and  billets are altogether different goods".                         (emphasis supplied)

8.              He, therefore, held that the production of  Aluminium Billets from Aluminium Ingots/Scraps and  other alloying materials amounted to ’manufacture’  within the meaning of Section 2(f) of the Act and was  chargeable to Central Excise Duty under sub-heading  7601.10 of Chapter 76 of the Central Excise Tariff Act,  1985. 9.              The assessee being aggrieved by the order-in- original passed by the Commissioner, preferred an appeal  to CEGAT. CEGAT observed that there was substance in  the contention raised by the assessee that the process  carried out by the assessee of Melting Ingots into Round  Ingots for the purpose of extrusion did not amount to  ’manufacture’ and the taxable commodity remained the  same although in different form. CEGAT stated that  "mere change in physical form of shape or substance  does not amount to manufacture". It, therefore, allowed  the appeal and set aside the order passed by the  Commissioner. The said order is challenged by the  Revenue in this Court. 10.             We have heard the learned counsel for the  parties. 11.             It was submitted by the learned counsel for the  Revenue that CEGAT has committed an error of law in  holding that the commodity remained one and the same  and merely the form was changed and as such there was  no ’manufacture’ and Excise Duty could not be imposed  by the Department. 12.             The learned counsel for the assessee, on the  other hand, submitted that CEGAT was right in holding  that there was no change of commodity and hence there  was no ’manufacture’. Extrusion Ingots which are also

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known as Round Ingots or Billets are only a different  form of the same taxable commodity, namely, Wrought  Aluminium under Chapter 7601. The process or  conversion of Melting Ingots into Extrusion Ingots was  not a ’process of manufacture’ and there is a change in  shape or form of the product. The order of CEGAT, hence,  calls for no interference. 13.             Having heard the learned counsel for the  parties, in our opinion, the appeal deserves to be allowed.  The expression ’manufacture’ is defined in Clause (f) of  Section 2 of the Act which reads thus: (f) "Manufacture" includes any process:\027     (i)    incidental or ancillary to the 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, (5 of 1986), and the word  "manufacturer" 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.

14.             It is thus clear that ’manufacture’ includes any  process under Section 2(f). As observed by this Court  before more than four decades in Union of India &  Another. v. Delhi Cloth & General Mills Co. Ltd. & Ors.,  (1963) Supp (1) SCR 586 : AIR 1963 SC 791, the word  ’manufacture’ is a verb which 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". 15.             In Empire Industries Ltd. v. Union of India,  (1985) 3 SCC 314, it was held that taxable event under  Excise Law is ‘manufacture’. The moment there is  transformation into a new commodity commercially  distinct and separate commodity having its own  character and name whether be it the result of one  process or several processes, ’manufacture’ takes place  and liability to        excise duty under Section 4 is attracted. 16.             In Union Carbide India Ltd. v. Union of India &  Ors., (1986) 2 SCC 547, this Court held that in order to  attract Excise Duty, the article manufactured must be  capable of sale to a consumer. To become goods, an  article must be something which can ordinarily come to  the market to be bought and be sold. 17.             In Union of India & Ors. v. J.G. Glass Industries  Ltd. & Ors., (1998) 2 SCC 32, leading decisions came to  be considered by this Court and it was held that a two  fold test emerged for deciding whether the process is that  of ’manufacture’. 18.             The Court after considering earlier decisions,  stated: "On an analysis of the aforesaid  rulings, a two-old test emerges for  deciding whether the  process is  that of  "manufacture".  First,  whether  by the   said  process  a different commercial   commodity  comes into  existence  or

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whether the identity of the original  commodity ceases to exist; secondly,   whether the commodity which was  already in existence will serve no   purpose but  for the said process. In  other words whether the commodity is  already in existence will be of no  commercial use but for the said process".

19.             In the present case, the assessee is not only  captively consuming Aluminium Billets for the  production of Irrigation Pipes but is also selling such  commodity in open market. It is, therefore, clear that the  process of ’manufacture’ results in emergence of new  commercial commodity, namely, ’Billets’. The said  commodity has an independent marketability and the  assessee itself has sold Billets in open market by paying  Excise Duty. 20.             The entry also makes it clear which is under  Chapter 76. The relevant part reads thus: Chapter 76 Heading     Sub-Heading          Description            Rate of Duty No.             No.                        of Goods

76.01        7601.10           ingots, billets         16%

21.             Ingots and Billets are thus two different  commercial commodities. They have separate, distinct  and identifiable marketability and saleability. The  assessee, no doubt, used Aluminium Billets captively but  is also selling in open market. We are, therefore, of the  view that the Commissioner was right in holding that the  assessee was liable to pay Excise Duty and CEGAT was  wrong in interfering with the order-in-original. The order  of the CEGAT, therefore, is liable to be set aside. 22.             For the foregoing reasons, the appeal deserves  to be allowed and is accordingly allowed. The order  passed by CEGAT is set aside and the order-in-original  passed by the Commissioner is restored. 23.             The learned counsel for the assessee, however,  submitted that in that case the assessee would be  entitled to MODVAT benefits. If it is so, the assessee can  claim the said benefit. We may make it clear that our  setting aside the order passed by CEGAT in this appeal  would not come in the way of the assessee in claiming  and getting such benefit, if it is otherwise entitled. 24.             The appeal is allowed accordingly with no  order as to costs.