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PETITIONER: UNION OF INDIA

       Vs.

RESPONDENT: DELHI CLOTH & GENERAL MILLS

DATE OF JUDGMENT: 12/10/1962

BENCH: GUPTA, K.C. DAS BENCH: GUPTA, K.C. DAS SINHA, BHUVNESHWAR P.(CJ) GAJENDRAGADKAR, P.B. WANCHOO, K.N. SHAH, J.C.

CITATION:  1963 AIR  791            1963 SCR  Supl. (1) 586  CITATOR INFO :  E          1967 SC1895  (30)  RF         1968 SC 922  (14)  D          1971 SC2333  (5)  R          1973 SC 225  (21)  R          1973 SC 425  (8)  R          1982 SC 127  (8)  RF         1984 SC 420  (13)  RF         1985 SC 746  (14)  D          1986 SC 281  (8)  RF         1986 SC 662  (23,24)  RF         1986 SC1097  (6)  RF         1986 SC1730  (11)  RF         1988 SC 871  (4)  R          1988 SC1164  (4)  R          1988 SC2176  (4)  R          1988 SC2223  (11)  R          1988 SC2237  (6)  APL        1989 SC  79  (2)  R          1989 SC 516  (17,18)  F          1989 SC 622  (4)  F          1989 SC1153  (6,7)  RF         1990 SC  59  (3)  R          1990 SC1579  (37)  R          1990 SC1676  (11)  R          1990 SC1893  (4)  RF         1991 SC2222  (17,23)  RF         1992 SC 224  (15)  RF         1992 SC2055  (6)

ACT: Excise  Duty-Manufacture  of Vanaspati-’Refined oil’  if  an intermediate      product-Liability-’Manufacturing’      and ’processing’-Distinction-Central Excises and Salt Act,  1944 (1 of 1944), s. 2 (f )-First Schedule, Item 23.

HEADNOTE: The   respondents,  who  were  manufacturers  of   Vegetable products  known as Vanaspati, were assessed to  excise  duty under  item 23 of the First Schedule to the Central  Excises

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and  Salt Act,’ 1944. on what the taxing authorities  called the manufacture of refind oil from raw oil ’Which  according to  them  fell  within the description  of  ’vegetable  non- essential  oils,  all  sorts,  in  or  in  relation  to  the manufacture  of which any process is ordinarily  carried  on with  the  aid  of  power".  The common  case  made  by  the respondents  in  their  petition  under  Art.  226  of   the Constitution  challenging  the imposition was that  for  the purpose of manufacturing Vanaspati they purchased  groundnut and til oil from the market and subjected them to  different processed before applying hydrogenation to produce Vanaspati and that nothing that they produced at any stage was covered by that item.  Affidavits by experts were filed by both  the parties   and  the  High  Court  found  in  favour  of   the respondents  and allowed the petitions.  The Union of  India appealed.   It was urged on its behalf that  before  finally producing   Vanaspati   the  respondents  produced   at   an intermediate  stage  what was known as refined oil’  in  the market  and  although they might not sell  it  and  although Vanaspati,  when produced, was liable to excise  duty  under another item, that could not affect their liability. Held, that excise duty being leviable on the manufacture  of goods and not on their sale, the petitioners would no  doubt be  liable  if they produced refined oil’, as known  in  the market,  at  an intermediate stage.  But it was  clear  that there  could  be  no ,refined oil’ as known  in  the  market without deodorisatio,n according to the specification of the Indian  Standards  Institute  and  the  affidavits  of   the experts.  Since, however, the process 587 of,   deodorisation   was   admittedly   applied   in    the respondents’.   factories  only  after  hydrogenation   was’ complete,’ they could not     said to produce ’refined  oil’ at any stage. Nor could the respondents be held to manufacture kind of non -essential vegetable oil’.  Processing- cannot be equated to manufacture’  which  means  bringing into  existence  a  new substance. The Legislature by defining the word ’manufacture’ in s.2(f) of  the Act did not intend to make the ’mere  processing  of goods liable to duty. The words "all sorts" in item 23 are intended only-,Po  make it  clear that vegetable non-essential oils. whether raw  or refined, from whatever raw material produced, will be liable to excise duty.

JUDGMENT: CIVIL APPELLATE, JURISDICTION :Civil.  Appeals Nos.  168-170 of 1960. Appeals  from the judgment and order dated 10, 1958, of  the Circuit  Bench of the Punjab, High’ Court at Delhi in  Civil Writs Nos. 301, 302. a d. 347 of 1956. G. S. Pathak, B. Sen and R. H. Dhebar, for the appellants. N.C.  Chatterjee,  A.  N.  Sinha  and,  Mukherjee,  for  the respondent (in C.A. No. 168/60). A. V. Viswanatha Sastri, Sardar Bahddur, S.  N  Andley   and Rameshwar Nath,’ for the respondent in (C.A. No. 169/60). A.   V.  Viswanatha Sastri, S. K. Kapur, and K K. Jain,  for the respondents (in C.A. No. 170 60). N.   A.:  :Palkhivala,  J.  B. Ddachanji O.  C.  Mathur  and Ravinder Narain, for the Interveners (in all the appeals.) 1962.  October 12.  The judgment of the Court was  delivered by

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DAS  GUPTA, J.-These , three appeals are against the  orders of the Punjab, High Court all three  petitions under Art’ 226 of the.  Constitution.   The three   petitions   are   by   three   different   companies manufacturing vegetable products known as Vanaspati and they challenge the legality of the imposition of Excise duty  on, what was called by the taxing authorities as the manufacture of  "refined" from raw oil.  These petitions raise a  common question  of law. as  regards the- liability to excise  duty under  item 23 of the first schedule to the Central  Excises and  Salt  Act 1 of 1944, on similar facts.   The  petitions were  heard together and disposed’ of by a  common  judgment allowing the appeals and directing the. excise’  authorities to  withdraw  the  impugned.demand of  excise  duty  on  the petitioners.   The  present  appeals have  also  been  heard together. The  facts alleged in the three separate petitions filed  by the  three petitioners the manufacturers of  Vanaspati,  are practically  the same.  It is said that for the  purpose  of manufacturing Vanaspati the petitioners purchased  groundnut and  (the respondents  herein) til oil from the open  market or  directly from the manufacturers of such oil.   The  oils thus purchased are subjected to different processes in order to turn them into Vanaspati.  It is their case that the only finished  product  they manufacture from the  raw  materials thus purchased is Vanaspati which is liable to exciseduty as  a vegetable product.  They, contend that at no stage  do they produce any new product which can come within the  item described  in  the Schedule as  "  vegetable  non-essential, oils..  all  sorts in or in relation to the  manufacture  of which  any process is ordinarily carried on with the aid  of Power." Accordingly, it is, said, the demand for excise duty on the ground that they produce  from the raw oils purchased a  product  which is liable., to duty under item 23  of  the Schedule (now item 12) is illegal. In resisting these petition the Union of India contended, in substance, that in the course of the  589 manufacture  of  Vanaspati, the vegetable product  form  raw groundnut  and  til  oil,  the  petitioners  bring  into  to existence  at one stage, after carrying out some   ’process" with the aid of power, what is known to market as  "’refined oil".   This "refined oil" falls within the  description  of "vegetable non-essential oils, all sorts, in or in  relation to  the  manufacture  of which  any  process  is  ordinarily carried  on  with  the aid of power," and so  is  liable  to excise  duty.   The affidavit filed. by Mr. P.  S  Krishnan, Chief      Chemist,      Central      Revenue,       Central Laboratory,Government   of  India,  in  support    of   this contention of the appellant, describes the process by  which raw oil is manufactured into Vanaspati thus :-               "The manufacture of vegetable product consists               in  hydrogenating oils using a catalyst.   The               catalyst is a sensitive material and is liable               to be poisoned and made ineffective if certain               impurities,  like mucilaginous,  matter,  free               oxidised fatty acid and moisture are  present.               In    order   therefore,    to    successfully               manufacture     vegetable     product      the               hydrogenation  has  to be done  on  a  refined               vegetable  non-essential  oil.   ’The  refined               vegetable non-essential oil (an oil free  from               major  impurities  mentioned  in  paragraph  2               above) is the penultimate raw material for the               manufacture of vegetable product.

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             The  vegetable non-essential oils as  obtained               by   crushing   containing   the    impurities               mentioned    ,earlier   are   raw    vegetable               nonessential  oils.  The process  of  refining               them  consists in adding. an aqueous  solution               of an alkali which will combine with the  free               fatty  acids  to form a soap and  settle  down               with  it  a  large  amount  of  suspended  and               mucilaginous matter; after *settling the clear               supernatant  layer  is drawn off  and  treated               with  an  Appropriate  quantity  of  bleaching               earth and carbon is then filtered.  In               590               this  process the colouring matter is  removed               and  the moisture that was originally  present               in  the neutralised oil will also be  removed.               At this  stage the oil is a refined oil and is               suitable  for  hydrogenation  into   vegetable               product.   This process of refining  generally               involves the use of power and machinery."               He then goes on to say               "’Depending upon the quality of the seed  used               for crushing and that of the original raw  oil               this   refined  oil  will  now  generally   be               suitable for edible purposes of discriminating               users and for the manufacture of toilet  goods               like  hair  oils and high  class  soaps.   For               certain users who are even more discriminating               this  oil  may  be  subjected  ’to  a  further               process of deodorisation.               The  difference  between  raw  vegetable  non-               essential oils and refined vegetable oils will               clearly  be  seen on examination  of  the  two               ’products.  The refined oil will generally  be               colourless  or only slightly coloured.   ’  It               will  be perfectly clear and in many cases  it               may have no odour.  The raw oil, on the  other               hand, will have a certain amount of  turbidity               or  sediment  at the bottom and will  also  be               somewhat  deep in colour.  I further say  that               sometimes   refined  oil  obtained  above   is               subjected    to   a   process    of    further               deodorization.   Such  oil  can  be  correctly               described as refined and deodorised oil.               As far as known to me, the two grades of  oils               are  separately  marketed in the  country;  as               for’  example,  groundnut’ oil’  and  ’refined               groundnut  oil’  the latter generally  with  a               distinctive label when marketed in  containers               of approximately 4 gallons or less." 591  The  experts  who have filed affidavits in support  of  the petitioners’ case agree with Mr. Krishnan that common  oils, like  groundnut, sesame, mustard cottonseed, etc.  in  their raw  stage always contain varying amounts of impurities  and these  impurities have to be removed by different  processes before hydrogenation for the purpose of producing  Vanaspati can be applied.  There is however this important  difference between  the view of Dr. Homi Ruttonji Nanji  who has  filed an  affidavit in support of the petitions, and that  of  Mr. Krishnan  that while according to Mi.  Krishnan the raw  oil which  has been freed from impurities but not deodorised  is sold in the market as refined oil, Dr. Nanji is definite  in his  statement  that  refined oil for  edible  purposes,  as understood by the manufacturers as well as by the trade,  is

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oil to which all the three processes, viz.,  neutralization, bleaching  and deodorisation have been applied.  He goes  on to  say: "In fact I would not regard any oil as refined  oil unless  it  was  also  deodorised,  since  the  failure   to deodorise oil leaves behind in the oil certain impurities in the  shape  of compounds which give off bad  odours."  (Vide para. 5 of his affidavit in the petition filed by the  Delhi Cloth & General Mills do., Ltd.). As  already stated the High Court accepted the  petitioners’ contention that the oil in their hands after some amount  of refinement  in the course of being converted into  Vanaspati was  not liable to excise duty under item 23 (Now  item  12) and so allowed the petitions. In  support of the appeals, Mr. Pathak has advanced  a  two- fold argument.  He first argues that the respondent concerns after  they  buy  the  raw  oil  with  all  its  impurities, manufacture  by  the  application of  certain  processes  of refinement,  a refined oil which is the same as the  refined oil  available in the market, and the aid of power is  taken in some of these 592 processes;  and that it is "refined oil" thus produced  that becomes  after further processes "vegetable product".   When the vegetable product comes into existence it becomes liable to  excise duty as vegetable product under the  present  cl. 13,  which  appears  to be the same as  old  cl.  11.   That however cannot alter the position that at an earlier  stage. these same respondents have manufactured refined oil" as  is known  to the market.  That substance comes squarely  within cl.  23 (now cl. 12) and is therefore liable to  duty  under this clause; and the fact that they do not put this "refined Oil" on the market but use it to produce a finished  product known as vanaspati product cannot affect this liability. 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 intermediate  stage is not put in the market would not  make any  differences 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).  But has it been shown that the  substance produced  by  the petitioners is at any  intermediate  stage before  Vanaspati  comes into existence,  "refined  oil"  as known  to  the market?  We are not satisfied that  this  has been  shown.  As already stated, a summary of  the  numerous processes  necessary  to turn the raw groundnut or  til  oil ’into  vegetable  product has been given in  the  affidavits sworn  to by the experts on both sides., It does not  appear to be disputed that the process of deodorisation is  applied in the petitioners’ factory after hydrogenation is complete. The  appellant’s  case  is  that  before  hydrogenation  has started  the substance in the hands of these petitioners  is "refined  oil"  as  known to the market.   That  raises  the important question whether any  593 oil  is  known  as  "refined  oil’  in  the  market   before deodorization  has taken place.  As already  indicated,  the appellant’s case is that deodorization is not necessary  for "refined oil" to come into existence; the respondents’  case on  the  other  hand  is  that  without  deodorisation   the substance is not "refined oil". We have already referred to the affidavits on this  question as  sworn to by Mr. Krishnan on behalf of the appellant  and

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Dr. Nanji on behalf of the respondents petitioners.  In  his affidavit  Dr. Nanji has also referred to the  specification of "refined oil" by the Indian Standards-Institution and has given  these  in an annexure to his  affidavit.   From  this annexure  we find the following specification by the  Indian Standards Institution:-               "Refined  groundnut oil:-Groundnut  oil  which               has been refined by neutralisation with alkali               bleached  with fuller earth  and/or  Activated               Carbon’,  and deodorised with steam, no  other               chemical agent being used.               refined   by   neutralisation   with   alkali,               bleached  with alkali, bleached with  fullers’               earth and/or Activated Carbon and Deodorised." This  specification  by  the  Indian  Standards  Institution furnishes  very  strong and indeed  almost  incontrovertible support for Dr. Nanji’s view and the respondents’ contention that without deodorisation the Oil is not "’refined oil"  as is  known  to the consumers and  the  commercial  community. Further support, if any was needed, is found in the  several affidavits of several concerns who market refined  groundnut oil  under the brand names-Falika, Tripti,  Kitchen,  Kiran, Temple, Sovereign, Lotus, Nirmal, Dilkhus, Kamdhenu,  Radio, Deer, Dog, Sepoy, Cocogem Tushar and Ginutol. They agree in, asserting that 594 the  oil  is  always deodorised before  it  is  marketed  as refined oil under these brand names.  As against this if has to be noticed that the appellant could not produce  evidence of  one  single  case of marketing of  refined  oil  without deodorisation.   Instead of that Mr. Pathak produced  before us  copies  of extracts of a book by.  Alton Bailey  of  the name  "Cottonseed and Cottonseed Products" and another  book by  the  same  author of the name "Industrial  Oil  and  Fat Products"  and a third book of the name "Vegetable Fats  and Oil" by G. S..Jamiesom. Mr. Jamiesom’s statement does not at all  make  it clear that refined oil is put  on  the  market without deodorisation.  Mr. Bailey appears to have stated in his book on "Industrial Oil and Fat Products" that the  term "refining"  refers  to any purifying treatment  designed  to remove  free  fatty  acids,  phosphatides  or   mucilaginous material, or other gross impurities in the oil; it  excludes "bleaching"  and  also "deodorisation".  The  extracts  from this book also do not clearly show that before deodorisation the  oil which has been refined by the purifying  treatment, is  put  on the market.  The extract from Bailey’s  book  on "Cottonseed  and Cottonseed Products" contains a passage  in these words :-               "In  a  discussion  of  the  composition   and               characteristics of cottonseed oil, three kinds               of  oil are to be distinguished.  They  are  :               (a)  crude  oil,  which is the oil  as  it  is               expressed  from  the seed, and  the  commodity               shipped  from the oil mills; (b) refined  oil,               or  oil  Which has been freed of most  of  its               nonglyceride  constituents by  treatment  with               alkali,  with or without subsequent  bleaching               or deodorisation, and (c) hydrogenated oil." Mr.  Pathak has relied on Bailey ’s statement that  the  oil which   has   been  freed  of  most  of   its   nonglyceride constituents  by  treatment  with alkali,  with  or  Without subsequent bleaching or deodorization is                             595 refined   oil",  for  his  contention  that   even   without deodorisation the oil is known as "refined oil".

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It  will  be unsafe however to base any conclusion  on  this extract  without  knowing the entire context  in  which  the statement  has been made or what has been made or  what  has been said in other parts of the same ’book.  The book itself was not produced before us.  It is worth noticing that while the  above  statement is made by Mr. Bailey  in  respect  of cottonseed  oil,  the  oil with which we  are  concerned  is produced  from  groundnut oil and tit-neither  of  which  is cottonseed.  Apart from all this we are of opinion that  the view  :,of the Indian Standards Institution as regards  what is  refined  oil  as known to the trade  in  India  must  be preferred  to  the  opinion of this author.   In  this  con- nection’  it  has also to be mentioned that  the  affidavits filed  on  behalf  of the respondents are  clear  and  cate- gorical,  while Krishnan’s affidavit on which  reliance  was placed on behalf of the appellant is somewhat vague, halting and not categorical. On  a consideration of all these materials we have no  doubt about the correctness of the respondents’ case that the  raw oil  purchased  by  the  respondents  for  the  purpose   of manufacture  of  Vanaspati  does not  become  at  any  stage "refined  oil"  as  is  known  to  the  consumers  and   the commercial  community.   The first branch  of  Mr.  Pathak’s argument must therefore be rejected. The  other branch of Mr. Pathak’s argument is that even  if it be held that the respondents do not manufacture  "refined oil"  as  is  known  to the market they  must be  held  to manufacture  some kind of "non,essential vegetable  oil"  by applying  to  the  raw  material  purchased  by  them,   the processes  of  neutralisation  by  alkali  and  bleaching by activated  earth and/ or carbon.  According to  the  learned Counsel  "manufacture"  is  complete as  soon.  as*  by  the application 596 of  one or more processes, the raw material  undergoes  some change.    To  say  this  is  to  equate  "’processing"   to "manufacture"  and for this we can find no warrant  in  law. 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." It  is  helpful  to consider also  in  this  connection  the ordinary  meaning  of the word "’goods".  For, by  the  very words  of  the: Central Excises and Salt Act,  1944,  excise duty  is  leviable  on "’goods".  The Act  itself  does  not define  "goods"  but defines "excitable  goods"  as  meaning "goods specified in ’the First Schedule as being, subject to a  duty of excise and includes salt." On the meaning of  the word  "goods" an interesting passage is quoted in the  Words and Phrases, Permanent Edition, Vol. 18, from a judgment  of a New York Court thus:               "The first exposition I have found of the word               ’goods’  is  in Bailey’s Large  Dictionary  of               1732, which defines it simply  ’Merchandise’-,               and  by  Johnson,  who followed  as  the  next

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             lexicographer, it is defined to be movables in               a house; personal or immovable estates; warn,;               freight; merchandise,,"               Webster defines the word "’goods" thus :-               "Goods, noun’ plural, (1) movables; household,               furniture; (2) Personal or movable estate,  as               horses,  cattle,  utensils, etc.,  (3)  Wares;               merchandise;  commodities bought and  sold  by               merchants and traders." 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"  an 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 the  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  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 598 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. Mr.  Pathak  wanted  to  derive  some  assistance,  for  his argument  from the words "all sorts" as used in the  clause. According to him, the words "all sorts" will be  superfluous unless interpreted to mean "whether bringing into  existence a   new  substances  or  not."  The  reasoning  is   clearly fallacious.  The words "all sorts" have been used to make it clear:  that "vegetable non-essential oils" whether  raw  or refined  and  from whatever raw material  produced  will  be liable to excise duty.  Refined oil is one sort; raw oil  is another  sort.   But as the duty is on  the  manufacture  of goods,  that  is,  on  the bringing  into  existence  a  new substance  known to the market, the raw oil or  the  refined oil  must be some substance known to the, market  before  it can be subjected to duty. We  are therefore of opinion that the High Court  was  right in,  its  conclusion that there was no legal basis  for  the demands  of excise duty which were made. on the  petitioners and in directing the authorities to withdraw these demands.

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The appeals are accordingly dismissed with costs. Appeals dismissed.                             599