21 August 1970
Supreme Court


Case number: Appeal (civil) 887 of 1968






DATE OF JUDGMENT: 21/08/1970


CITATION:  1971 AIR 2333            1971 SCR  (1) 936

ACT: Central  Excise  & Salt Act 1 of 1944, s. 3 read  with  Item 26A(2) First Schedule--Duty leviable on circles in any  form or   size--Uncut   circles   whether   dutiable--Manufacture Production of uncut circles whether manufacture.

HEADNOTE: The respondents were manufacturers of utensils.  They  first prepared the alloys known as kansi & brass.  These were then turned into, billets which were rolled into uncut circles by the  agents  of  the respondents.  The  uncut  circles  were trimmed  by the respondents and after further work  on  them were  converted  into utensils.  Under item  Z6A(2)  of  the First Schedule to the Central Excises and Salt Act 1 of 1944 excise duty was leviable inter alia on circles in, any  form or  size.   The Union of India imposed excise  duty  at  the stage when the uncut circles were prepared on the view  that these  were manufactured circles in any form or size  within the  meaning  of the aforesaid item  26A.   The  respondents filed a suit to challenge the levy.  They contended that (i) only  trimmed  circles and not uncut circles  were  circles within  the  meaning  of the item and (ii)  that  the  uncut circles had not undergone any such changes as could be  held to amount to manufacture.  The suit was decreed by the trial court and the decree was upheld by the first appellate court and  the High Court.  With special leave the Union of  India appealed to this Court.  Al owing the appeal HELD  :  (i)  Item 26A  clearly  mentions  the  manufactures amongst others of circles in any from or size.  The argument that  only trimmed circles can be treated as circles and  as finished  product  for purposes of’ item 26A  could  not  be accepted  because  that item itself  envisages  excise  duty being levied on circles in any form or size.  Uncut  circles are certainly circles in any form or size.  There is nothing in  item 26A from which an inference can be drawn  that  the intention of the legislature was to tax trimmed circles  and not uncut circles.  Further no evidence had been led to show that in the commercial community these uncut circles are not known as circles. [939 B-G] (ii)  In item 26A the legislature has laid down that  excise duty  shall  be leviable on billets at a lower rate  and  on manufactures  of  circles at a higher rate.   The  provision



itself  makes it clear that the legislature was  aware  that billets are converted into circles. and it was decided  that excise  duty  should be, leviable at all stages.   When  the legislature  used the word manufacture’ in  connection  with circles after having taken account of the fact that  billets were  already subjected to excise duty, it is  obvious  that the  process,  by  which the  billets  were  converted  into circles   was   held  by  the  legislature  to   amount   to manufacture.  The word.  manufacture’ is defined in  s.2(f) of the Act as including any process incidental or ancillary- to the Completion of a manufactured product.  The rolling of a billet into a circle is certainly a process in the  course of completion of the manufactured product viz. circle-. [941 F-H] 937 So  far as the respondents were concerned they  started  the process  of  manufacture  of utensils  by  initially  taking metals in crude form as raw materials.  Two different  kinds of  materials  in each case were mixed together  to  prepare alloys  of  kansi & brass.  These alloys were  then  brought into  the  form  of billets and later on  the  billets  were rolled  into  circles.  It could not be contended  that  the whole of this process could not be described as  manufacture of circles. [942 C-D] Union of India. v. Delhi Cloth & General Mills, [1963] Supp. 1  S.C.R. 586 and South Bihar Sugar Mills Ltd. v.  Union  of India & Ors. [1968] 3 S.C.R. 21, distinguished.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 887 of 1968. Appeal  from the judgment and decree dated July 25, 1967  of the Punjab and Haryana High Court in Regular Second  Appeal No. 910 of 1965. Niren  De, Attorney-General and S. P. Nayar, for the  appel- lant. W.   S. Barlingay, V. C. Mahajan and Hira Lal Jain, for res- pondent No. 1. B. Datta, for respondent No. 2. The Judgment of the Court was delivered by Bhargava  J.  This  appeal by special  leave-arises  out  of proceedings  started  by  institution  of  a  suit  by   the respondents,  challenging the imposition of excise  duty  on circles  of  kansi  and brass prepared  in  the  process  of manufacturing utensils.  The facts, which have been found by the  High Court of Punjab and Haryana and the lower  courts and  which are not disputed, are that the respondents  carry on  business,  at Rewari of manufacturing  kansi  and  brass utensils.   For that purpose, they procure copper,  tin  and zinc.  Kansi is prepared as an alloy of copper and tin, and brass  as  an alloy of copper and zinc.  These  alloys  are prepared  by  melting the metals and mixing  them  together. These alloys are then converted into billets.  These billets are  thus of two kinds, viz., of kansi and of brass.   These billets are then sent by the respondents to, their agent who runs a rolling mills in Rewari, and the rolling mills  roll the  billets into uncut circles.  Subsequently, these  uncut circles  are  trimmed after further work on them,  they  are converted  into utensils and sold as such in the  market  by the  respondents.  The appellant imposed excise duty at  the stage  when  the  rolling mills prepared  circles  from  the billets  under  Item  26A of the First  Schedule  read  with section 3 of the Central Excises and Salt Act No. 1 of 1944 (hereinafter  referred  to  as  "the  Act").   The  relevant



provisions of the Act are, for convenience, reproduced below 938 Section 3 ( 1) reads as follows " There shall be levied and collected in such manner as  may be prescribed duties of excise on all excisable goods  other than salt which are produced or manufactured in India and  a duty on salt manufactured in, or imported by land into,  any part  of India as, and at the rates, set forth in the  First Schedule." Item 26A of the First Schedule is as follows "Descript on of goods                          Rate of Duty COPPER AND COPPER ALLOYS CONTAINING NOT LESS THAN FIFTY PER CENT, BY WEIGHT OF COPPER,- (1)  in  any  crude  form including  ingots,  bars,  blocks, stabs, billets, shots and poliets. There hundred rupees per matric tonne. (2)  Manufactures,  the  following namely,  plates,  sheets, circles, strips and foils in any form or size. Five hundred rupees per metric tonne. (3) pipes and tubes          Ten per cent ad valorem. it  may be added that we have quoted  this item as it  stood at  the relevant  time and  have  ignored  the  subsequent amendment under which the rates have been increased. The  excise  duty was levied by the appellant on  the  basis that, at  the  stage when the  billet$  were  rolled  into circles, the process of Manufacture of circles was complete and,  consequently, these circles became liable  to  excise duty  at  the  rate mentioned against item  26A(2)  quoted above.   The respondents claimed that the product,,  as  it appeared  in  the  form of uncut circles  after  rolling  of billets by the rolling mills, could not be called circles in the  sense  in which this word is used in  item  26A(2)  and further, that the circles were prepared without  undergoing any such changes as could be held to amount to  manufacture, so that the circles at that stage were not liable to excise duty  under this item.  The trial court decreed  the  suit, holding  that these circles were not liable to excise  duty; and that decree was upheld by the appellate Court and,  in second appeal, by the High Court.  It is this decision  that has  been challenged in’ this appeal by the Union of  India, after obtaining special leave. It appears to us that, on a plain reading of the  provisions of the  Act  and  Item 26A  of  the  First  Schedule,  the contention  raised  on  behalf  of  the  appellant  must  be accepted.  Under section 3, all               939 excisable  goods set forth in the First Schedule, which  are produced or manufactured in India, are made liable to excise duty  at the rates mentioned in the Schedule.   Item  26A(2) clearly  mentions  the  manufactures,  amongst  others,   of circles  in any form or size.  There can be no dispute  that what  the rolling mills prepared by rolling the billets  are circles  in some form or the other and in  different  sizes. The  contention that the uncut circles cannot be held to  be circles  mentioned in this item has, on the face of  it,  no force at all.  Brij Mohan, the karta of the respondent Hindu undivided family business, in his statement himself admitted that the billets are sent to the rolling mills and the  same are converted into P-6 and P-7, i.e., circles or penas.  P-6 and  P-7, according to him, are a kansi circle and  a  brass circle respectively.  He added that the rolling mills  never become the owners of either the billets or the circles.   It is true that, at some stages, he described these circles are



uncut circles; but he did not dispute that, P-6 and P-7 are, in fact, circle of kansi and brass.  The mere fact that they ate uncut at the stage when they are prepared after  rolling by the rolling mills cannot, therefore, mean that they  are not circles and are not covered by that word as used in item 26A.  No doubt, evidence has been given that,  subsequently, these,  uncut  circles are trimmed and then  converted  into utensils.  The argument of learned counsel that only trimmed circles  can be treated as circles and as  finished  product for  purposes of item 26A cannot be accepted,  because  that item  itself envisages excise duty being levied on  "circles in  any form or size." We, cannot understand  how  it  can possibl y be contended that uncut circles are not circles in any form or size.  There is nothing in the item from  which an  inference  can be  drawn that  the  intention  of  the Legislature  was  to  tax  trimmed  circles  and  not  uncut circles.   If  there  had  been  any  such  intention,   the legislature  would not have used the expression "circles  in any form".  Uncut circles are certainly one from of circles. The  contention further fails, because no evidence has  been led  to show that, in the commercial community, these  uncut circles  are  not known as circles.  In fact,  as  we  have indicated above, the evidence of Brij Mohan himself makes it clear  that these are described as circles.  The only  other witness  examined by the respondents was Mahabir Prasad  who runs  one  of  the  rolling  mills  which  do  the  work  of converting  billets  into  circles on  behalf  of  the  res- pondents.   According  to him, billets  are  converted  into uncut circles which are known as penas.  These uncut circles cannot  be  directly used for preparing  the  utensils.   He added that they have to be converted into circles,  implying that  the uncut circle,,; have to undergo a  further  change before  they  can  be  described  as  circles.   In   cross- examination,  however, he admitted that it is  correct  that the  shape  of  the billets is  changed  into  circles.   On further  cross-examination,, he asserted that he is not  the owner of 940 the  billets  or the circles while they are in  the  rolling mills.  Thus, he himself used the word "circles" without any qualification  when describing the articles prepared in  his mills  as  a  result of rolling  of  billets.   Taking  this evidence together with the fact that the legislature in item 26A, of the First Schedule laid it down that excise duty  is to be levied on circles in any form, it has to be held  that the circles as prepared in the rolling mills were liable  to excise duty. In  support of the decision given by the High Court  to  the contrary, learned counsel for the respondents relied on  two decisions  on this Court in Union of India v. Delhi Cloth  & General Mills,(1) and South Bihar Sugar Mills Ltd., etc.  v. Union  of India and Others (2). In our opinion,  neither  of these, cases supports the contention raised on behalf of the respondents,  and  it appears that the ratio  of  the  first decision  has been misunderstood by the High Court  and  the lower courts.  In the case of Union of India v. Delhi  Cloth & General Mills(2) the contention on behalf of the Union  of India was that, in the course of manufacturer of  Vanaspati, the vegetable product from raw groundnut and til’ oil,  the respondents used to bring into existence at one stage, after carrying  out some processes with the aid of power, what  is known to the market as "refined oil", and 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 under Item 12 of the First   Schedule.   The Court  examined  the  process   of manufacture   of   Vanaspati  and   found   that   vegetable nonessential  oils  as obtained by crushing  containing  the impurities  were  first  produced  as  raw  vegetable   non- essential  oils.   They had then to undergo the  process  of refining which consisted of 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 supernatural  layer  is  drawn  off  and  treated  with   an appropriate  quantity of bleaching earth and carbon is  then filtered.  In 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.  what  was sought to be  taxed  was  the refined oil at this stage; but that contention was rejected, because  the Court held that the oil produced at that  stage is  not  known  as  refined oil  to  the  consumers  in  the commercial community and car,. be described as refined.  oil only after deodrization.  Since the process of deodorization is not carried out before that stage, no refined (1) [1963] Supp. 1. S. C. R. 586. (2) [1968] 3 S. C. R. 21. 941 oil had come into existence and, consequently, the oil could not:  be taxed as such.  That case has no  applicability  to the case before us where the tax is to be imposed on circles in  any  form.   When  the rolling  mills  have  rolled  the billets,  what  comes into existence are  circles  known  as such,  even though they are in uncut form.  The  product  at that  St  age fully satisfies the description  contained  in Item 26A(2). Similarly,  the decision in South Bihar Sugar Mills Ltd.  v. Union  of  India  & Ors. (1) is of no help  on  this  point, because,.  again,  the gas, which was  subjected  to  excise duty, was held by the Court not to be carbon dioxide,  while only  carbon dioxide was liable to duty.  It was  held  that the product that came into existence was a mixture of  gases containing  only  a percentage of carbon dioxide  and  could not,  therefore,  be held to be carbon dioxide  alone  which could  be  subjected to excise duty under Item 14-H  of  the First Schedule. Dr. Barlingay, relying on these two decisions of this Court, urged  a  further point that, when the billets  were  rolled into circles, no process of manufacture was carried out and, consequently,  excise duty could not be charged  under  item 26A which imposes the liability only when goods like circles are manufactured.  Reliance was placed on the interpretation of  the word "manufacture" given in both the cases where  it was  indicated  that manufacture implies the  bringing  into existence of a new substance known to the market.  According to the respondents, the conversion of billets into  circles did not bring any new substance into existence, nor did  it bring  into existence any completed product, so  that  there was  no process of manufacture which alone could render  the circles liable to excise duty.  This argument again  appears to  be  based on a misunderstanding of the law.   There  is, first,  the  circumstance  that, in  item  26A  itself,  the legislature has laid down that excise duty shall be leviable on  billets at a lower rate and on, manufactures of  circles at a higher rate.  This provision itself makes it clear that the  legislature was aware that billets are  converted  into circles,  and  it  was decided that excise  duty  should  be



leviable at both stages.  When the legislature used the word "manufacture" in connection with circles, after having taken account  of the fact that billets were already subjected  to excise  duty, it is obvious that the process, by  which  the billets  were  converted  into  circles,  was  held  by  the legislature   to   amount   to   manufacture.    The    word "manufacture"  is  defined  in section 2(f) of  the  Act  as including  any  process  incidental  or  ancillary  to  the, completion  of  a manufactured product.  The  rolling  of  a billet  into. a circle is certainly a process in the  course of completion of the (1)  [1968] 3 S.C.R. 21. 942 manufactured  product, viz., circles.  In the present  case, as  we have already indicated earlier, the product, that  is sought  to  be  subjected to duty, is a  circle  within  the meaning of that word used in Item 26A(2).  In the other  two cases which came before this Court, the articles  mentioned in the relevant items of the First Schedule were never  held to have come into existence, so that the completed  product, which  was liable to excise duty under the  First  Schedule, was never produced by any process.  In the case before us, circles  in any form are envisaged as the completed  product produced by manufacture which are subjected to excise  duty. The  process  of  conversion of  billets  into  circles  was described  by  the  legislature itself  as  manufacture.  of circles. A  second  aspect  is that, so far as  the  respondents  are concerned,  they  start.  the  process  of  manufacture   of utensils  by  mitially taking metals in crude  form  as  raw materials.  Two different kinds of metals in each case  are mixed together to prepare alloys of kansi and brass.   These alloys are then brought into the form of billets and, later on,  the,  billets are rolled into circles.   It  cannot  be contended that the whole of this process cannot be described as  manufacture of circles.  In this process of  manufacture of  circles,  there  are two stages.  At  the  first  stage, billets are produced and, at the second stage, circles.   In any  case, it has to be held that the circles thus  prepared are  the  result of the process of manufacture.  The  end- result  of this process of manufacture is the production  of circles  in some form which is envisaged as the goods to  be subjected  to excise duty.  The excise duty was,  therefore, correctly levied by the appellant. As  a result, the appeal succeeds and is allowed.  The  suit of the respondent shall stand dismissed.  The costs of  the appeal of respondent I shall be borne by the appellant. G.C.                    Appeal allowed. 943