REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5341 OF 2005

Commissioner of Central Excise,  Chennai-II Commissionerate                                            ..……….Appellant

Versus M/s. Tarpaulin International                                            ..….…..Respondent

WITH

CIVIL APPEAL NOS.6624-6626 OF 2005

Commissioner of Central Excise,  Chennai-II  Commissionerate                                            .……….Appellant

Versus

M/s. Tarpaulin International & Ors.                                 .….…..Respondents

WITH

CIVIL APPEAL NOS.7563-7564 OF 2005

Commissioner of Central Excise,  Chennai-II  Commissionerate                                              .……….Appellant

Versus

Rohini Mills Pvt. Ltd.                                                        ..….…..Respondent

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WITH

CIVIL APPEAL NO.7628 OF 2005

Commissioner of Central Excise,  Chennai-II  Commissionerate                                              .……….Appellant

Versus

Geotex Mills Pvt. Ltd.                                                       ..….…..Respondent

WITH

CIVIL APPEAL NO.7629 OF 2005

Commissioner of Central Excise,  Chennai-II  Commissionerate                                              .……….Appellant

Versus

Bharat Textile Proofing Industries Ltd.                             ..….…..Respondent

WITH

CIVIL APPEAL NOS.1453-1455 OF 2008

Commissioner of Central Excise, Chennai                         .……….Appellant

Versus

M/s. Pondicherry Water Proofers Etc.Etc.                       ..….…..Respondents

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WITH

CIVIL APPEAL NOS.309-311 OF 2006

Commissioner of Central Excise,  Chennai-II  Commissionerate                                              .……….Appellant

Versus

F. Harley and Company                                                     ..….…..Respondent

J U D G M E N T   

H.L. DATTU, J:   

ISSUE:  

                  These appeals, which are at the instance of the Commissioner of  

Central  Excise,  raise  a  common  issue,  viz.,  whether  the  tarpaulin  

made-ups which are prepared after cutting and stitching the tarpaulin  

fabric  and  fixing  the  eye-lets  would  involve  the  process  of  

manufacture  and,  hence,  would  fall  within  the  definition  of  

‘manufacture’ ?

FACTS:

2)             The issue above mentioned has come up in the light of the  

following  facts  which  can  be  briefly  stated  as  follows:  we  take  M/s  

Tarpaulin International Civil Appeal No. 5341 of 2005 as the lead case.  

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The  noticee  is  carrying  on  the  business  of  producing  and  selling  

‘tarpaulin  made-ups’.  The  ‘tarpaulin  made-ups’  are  nothing  but  the  

tarpaulin cloth which is prepared by making solution of wax, aluminum  

stearate and pigments which are mixed and the solution is heated in a  

vessel and transferred to a tank. Grey cotton canvas fabric is then dipped  

into this solution and passed through two rollers, where after the canvas  

is dried by exposure to atmosphere. Thereafter, the tarpaulin made-ups  

are prepared by cutting the cloth into various sizes and stitched and eye-

lets  are  fitted.  The  noticee  states  that  the  process  of  mere  cutting,  

stitching and putting eyelets does not amount to manufacture and hence,  

the  department  cannot  levy  Excise  Duty  on  tarpaulin  made-ups.  

However, the view of the department is that, the “made-ups” prepared by  

means of cutting, stitching and fixing of eye-lets amounts to manufacture  

and, hence, they are exigible to duty under the Central Excise Tariff Act,  

1985 (for short `the Act’).  

3)  A show cause notice was issued by a competent authority dated  

31.8.1995,  inter  alia  directing  the  noticee  to  show  cause  as  to  why  

tarpaulin made-ups be not classified under chapter sub-heading 63.01 and  

the corresponding duty of Rs.57,33,262/- be demanded.  The assessees  

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had filed their replies inter alia contending that no manufacturing process  

was involved in the conversion tarpaulin fabric into tarpaulin made-ups.

COMMISSIONER OF CENTRAL EXCISE:

4)  After  adjudication,  the  matter  was  decided  by  the  

Commissioner  of  Central  Excise,  vide  Order  no.  10/1997.  Being  

aggrieved, the assessee went up in appeal before Customs, Excise and  

Gold (Control) Appellate Tribunal, South Zonal Bench at Chennai.  The  

Tribunal  vide  its  order  dated  24.04.1998  remitted  the  matter  to  the  

Commissioner  of  Central  Excise  for  de  novo  adjudication  after  due  

consideration of all material evidence. The Commissioner, vide order in  

Original no. 24/2000 dated 28.11.2000 decided the issue in favour of the  

Department.  The Commissioner concluded by holding that the tarpaulin  

made-ups  were  specifically  covered  under  Tariff  heading  63.01.  The  

Commissioner in terms of Rule 3(a) of the Interpretative Rules, stated  

that  the  heading  which  provides  more  specific  description  is  to  be  

preferred to the heading that provides a general description.  

CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL:

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5)  Aggrieved  by  the  Commissioner’s  order  dated  28.11.2000,    the  

noticee/assessee filed appeal  before the Tribunal.  It  was contended on  

behalf of the assessee that conversion of Tarpaulin fabric into “Tarpaulin  

made ups” does not amount to manufacture for the purpose of levy of  

central excise duty.  However, Revenue contended that tarpaulin made-

ups are a distinct marketable commodity known to Trade and therefore, it  

should be held to be excisable. It was also contended that, on account of  

the specific coverage of the item in the Central Excise Tariff, it would be  

exigible to duty.

6)  The  Tribunal  after  giving  due  consideration  to  the  

submission  of  both  sides,  has  come  to  the  conclusion  that  no  

‘manufacture’  was  involved in  the  conversion of  Tarpaulin  made-ups.  

While  so deciding,  the  Tribunal  has relied on the decision of  Andhra  

Pradesh  High Court  in  TRC No.  215/90 [State  of  Andhra  Pradesh v.  

Binny  Ltd.],  wherein  it  is  held,  that,  stitching  of  the  edges  of  cotton  

canvas and fitment of eyelets thereto did not bring about any material  

change in the essential character of cotton canvas and it remained cotton  

fabric.  The Tribunal found parity between the decision of the Andhra  

Pradesh High Court and the case at hand.  Accordingly, the Tribunal vide  

order dated 10.01.2005 allowed the appeal filed by the assessee.

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CIVIL APPEAL  :

7)   Being  aggrieved  by  the  decision  of  the  

Tribunal  the  Revenue  has  filed  Civil  Appeals  and  has  raised  the  

following question of law for consideration and decision. They are :-   

a)  Whether  the  process  of  converting  ‘Tarpaulin  Fabrics’  

into ‘Tarpaulin made-ups’ would amount to manufacture  

when  the  said  process  results  in  an  entirely  different  

commodity with different marketable value?  

b)    Whether the said process would amount to manufacture  

as defined under Section 2(f) of the Central Excise Act,  

1944?

8)  Sri  R.P.  Bhatt,  learned  senior  counsel  for  the  revenue  

contended, that, the Tarpaulin made ups are  made out of Tarpaulin fabric  

by cutting Tarpaulin fabric to a required size, margins are stitched, and  

eye lets  are punched depending on the requirement  of  the consumers.  

Tarpaulin made ups are a distinct marketable commodity and, hence, it  

should be held exigible to central excise duty.  In aid of his submission,  

the learned senior counsel has placed reliance on the observations made  

by this court in the case of Kores India Ltd. Vs. Commissioner of Central  

Excise, Chennai, [2004 (174) ELT 7 (S.C.)] and India Cine Agencies Vs.  

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Commissioner of Income Tax, Madras, [2009 (233) ELT 8 (S.C.)].  The  

learned counsel for the respondents were absent and, therefore, we did  

not have the benefit of hearing their version.  

9) Let us first notice the relevant entries.  They are:           

         Chapter 63 of Central Excise Tariff Act, 1985, is expressly  

made applicable to made-up articles :  

Chapter No. 1 reads as :

“This  Chapter  applies  only to  made up articles  of  any  textile fabrics other than wadding, excluding knitted or  crocheted articles other than brassieres, girdles, corsets,  braces and the like.”  

         Sub heading 63.01 deals with Tarpaulin made-ups.  The  entry is as under:  

         “Made  up  textile  articles  not  elsewhere  specified  including  blankets  (other  than  wool)  Tarpaulin  Tents,  Sails or boats.” Term `Made up’ is defined in Section 5(e) to Section XI  of CET reads as: - ‘assembled by serving, gumming or  otherwise.’

10) For deciding the above mentioned issue, it is important to understand  

the condition which needs to be satisfied for levy of Excise Duty. The  

power to levy the excise duty is provided under Chapter II titled ‘Levy  

and  Collection  of  Duty’  of  the  Central  Excise  Tariff  Act,  1985  

(hereinafter  referred to  as  ‘the  Act’).  The excise  duty  is  levied under  

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Section 3 of the Act. The basis for the levy of Central Excise duty is on  

the production or manufacture of goods within the country.  

 11) Section  2(d)  of  the  Act  defines  the  meaning  of  the  expression  

‘excisable goods’ means goods specified in the First Schedule and the  

Second Schedule to the Central Excise Tariff Act, 1985 as being subject  

to a duty of excise and includes salt.

12)            At the relevant time the expression “Manufacture” was defined in  

Section 2(f) of the Act, as under:-  

‘Manufacture’ includes any process -

i. incidental  or  ancillary  to  the  completion  of  a  

manufactured  product; and  

ii. which is specified in relation to any goods in the  

Schedule or Chapter Notes of the Schedule to the  

Central  Excise  Tariff  Act,  1985 as amounting to  

manufacture.  

13) The result of the definition contained in Section 2(f) of the Act  

is that the word manufacture means production of an article for use  

from raw or prepared materials, by giving these materials new form,  

quality,  properties  or  combinations  whether  by  hand  labour  or  

machinery.  The word includes any process incidental or ancillary to  

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the  process  of  manufactured  product.   This  Court  has  in  several  

judgments starting from Tungabhadra Industries v.  CTO, [(1961) 2  

SCR 14],  Union of  India v.  Delhi  Cloth & General  Mills  Co.Ltd.,  

[(1997)  5  SCC  767],  South  Bihar  Sugar  Mills  v.  Union  of  India,  

[(1968) 3 SCR 21] and line of other judgments have explained the  

meaning of the expression ‘Manufacture’. In all these judgments, this  

court  has  observed  that  “manufacture  implies  a  change,  but  every  

change is not a manufacture and yet every change in an article is the  

result of treatment, labour and manipulation.  But something more is  

necessary.......  There  must  be  transformation,  a  new  and  different  

article must emerge, having a distinctive name character or use”.  

14) The definition was amended and Section 2(f)(ii) was introduced  

vide Central Excise Tariff Act with effect from 28.2.1986 by Act 5 of  

1986. It is worded thus: “Manufacture includes any process which is  

specified in relation to any goods in the Section or Chapter Notes of  

the Central Excise Tariff Act, 1985 as amounting to manufacture”.  

15) Whenever a commodity undergoes a change as a  

result  of  some  operation  performed  on  it  or  in  regard  to  it,  such  

operation would amount to processing of the commodity.  However,  

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this  court  in  the  case  of  India  Cine  Agencies  v.  Commissioner  of  

Income Tax,  Madras,  [2008 (233) ELT 8(SC)] observed,  that,  it  is  

only when the change or a series of changes takes the commodity to  

the  point  where  commercially  it  can  no  longer  be  regarded  as  the  

original commodity but instead is recognized as a new and distinct  

article that a manufacture can be said to take place. This court in the  

case of Union of India v. Delhi Cloth and General Mills, [1977 (1)  

ELT  (J199)]  referring  to  the  meaning  of  expression  manufacture  

explained  in  the  case  of  Anheuser-Busch Brewing Association Vs.  

United States, stated :

"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."

16) Line of cases has settled the law as regards the definition of  

‘manufacture’. Keeping in view the detailed observations made in the  

case of Union of India v. Delhi Cloth and General Mills, [1977 (1)  

ELT (J199)], this court in the case of Bhor Industries Ltd., Bombay v.  

Collector of Central Excise, Bombay, [1989 (40) ELT 280(SC)], has  

stated that “it is necessary, to find out whether there are goods, that is  

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to say, articles as known in the market as separate distinct identifiable  

commodities…… Marketability, therefore, is an essential ingredient  

in  order  to  be  dutiable  under  the  Schedule  to  Central  Tariff  Act,  

1985.”

17) In  Collector  of  Central  Excise  Vs.  Kulay  Flush  Door  and  

Furniture  Co.  (P)  Ltd.,  [(1988)  Supp.  SCC 239],  it  is  stated,  that,  

manufacture implies a change, but every change is not a manufacture  

and yet every change of an article is the result of treatment, labour and  

manipulation.  But something more was necessary and there must be  

transformation,  a  new  and  different  article  must  emerge  having  a  

distinct name, character or use.

18) In  B.P.L.  India  Ltd.  v.  Commissioner  of  Central  Excise,  

Cochin,  [2002 (143) ELT 3(SC)],  throws considerable  light  on the  

point. This court stated that “a question as to when a manufacture of  

product takes place within the meaning of Section 2(f) of the Act is  

mixed question of law and fact.” The process may vary, but it is only  

the change that  will  bring into existence a new and distinct  article  

known  to  the  consumers  and  the  commercial  community  as  a  

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commercial product, which can be no longer regarded as the original  

commodity, can be deemed to be ‘manufacture’.

19) In Empire Industries Ltd. v. Union of India, [(1986) 162  ITR  

846(SC)], this Court has stated  that the transformation into something  

else “is a question of degree, whether that something else is a different  

commercial  commodity  having its  distinct  character,  use and name  

and  commercially  known  as  such  from  that  point  of  view,  is  a  

question depending upon the facts and circumstances of the case.”

20) In an Australian decision in the case of Adams v Rau, [46  

CLR 572 High Court of Australia] shorthand writers were involved in  

process of taking notes and later transcribed the notes by using papers.  

Evatt  J.  observed  that  “The  medical  practitioner  who  provides  the  

service of taking X-rays and furnishes copies of the skiagraph to the  

patient,  although  he  causes  a  new  thing  or  entity  to  come  into  

existence, is not a producer of goods. Nor is the artist who makes an  

etching  for  a  client  and  provides  him  with  a  dozen  copies,  a  

manufacturer of commodities.” Hence, the process was not held to be  

manufacture.

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21) In  the  case  of  C.C.E.  v.  S.R.  Tissues  Pvt.Ltd.,  [2005  

(186) E.L.T.385(S.C.)], it was held that just because raw material and  

finished  product   come under  two different  headings,  it  cannot  be  

presumed that process of obtaining finished product from such raw  

material  automatically  constitutes  manufacture.  Slitting/cutting  of  

jumbo rolls  of  toilet  tissue  paper/aluminium foil   into  smaller  size  

does not amount to manufacture of the principle that character and  

end-use  did  not  undergo  any  change  on  account  of  winding,  

cutting/slitting and packing.

22) It is not in dispute nor it can be disputed that Tarpaulin  

made ups are covered under sub-heading 63.01 CETA Schedule. The  

question  is  whether  the  commodity  in  question  resulted  from  

manufacture as envisaged under Section 2(f) of Central Excise Act.  It  

is now well settled that merely because certain article falls within the  

Schedule, it would not be dutiable under the Excise Law, if the said  

article is not `Goods’ known to the market.  Marketability, therefore,  

is an essential  ingredient in order to be dutiable under Schedule to  

Central Excise Tariff Act, 1985. [See Bhor Industries v. CCE, [1989  

(4) ELT 280], Moti Laminates Pvt. Ltd. v. CCE, [1995 (76) ELT 241],  

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Dharangadhara Chemicals Works Ltd. v. Union of India, [1997 (91)  

ELT 253].

23)            Is there any manufacture when Tarpaulin sheets are stitched and  

eyelets are made? In our view, it does not change basic characteristic  

of the raw material and end product. The process does not bring into  

existence a new and distinct product with total transformation in the  

original commodity. The original material used i.e., the tarpaulin, is  

still called tarpaulin made-ups even after undergoing the said process.  

Hence, it cannot be said that the process is a manufacturing process.  

Therefore, there can be no levy of Central Excise duty on the tarpaulin  

made-ups.   The  process  of  stitching  and  fixing  eyelets  would  not  

amount to manufacturing process, since tarpaulin after stitching and  

eyeleting continues to be only cotton fabrics.  The purpose of fixing  

eyelets is not to change the fabrics. Therefore, even if there is value  

addition  the  same is  minimum.   To attract  duty  there  should  be a  

manufacture to result in different Goods and the Goods sought to be  

subject to duty should be known in the market as such.  

24) To sum up, the Tribunal has rightly held that conversion  

of  Tarpaulin  into  Tarpaulin  made-ups  would  not  amount  to  

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manufacture.  We find no merit in these appeals.  Accordingly, these  

are dismissed.  No order as to costs.   

                      ……………… ………J.

                                                                                         [ D.K. JAIN ]

                                                                       ………………………J.                                                                                      [ H.L. DATTU ] New Delhi, August 04, 2010.

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