1. This group of appeals deals with question as to whether slitting and cutting amount to manufacture in respect of steel sheets, plastic laminating sheets and metallized lacquered polyester films.
2. It was contended by the appellant-assessees before the lower authorities that the above activity will not amount to manufacture. But the adjudicating authority did not agree with the same. We shall take up the issue of steel sheets which was slit and whether such a process would amount to manufacture or not.
3. In this group of cases, a show cause notice dated 29-1-2000 was issued by the office of the Directorate General of Anti-Evasion, Mumbai, calling upon the appellants in Appeals E/2550 and 2551/01 to pay duty of Rs. 42,89,48,256/- under the proviso to Sub-section (1) of Section 11A of the Central Excise Act. The notice also proposed to impose penalty of equal amount under Section 11AC of the Act. The notice also proposed to levy interest and confiscate land, building, etc. In the notice, it has been specifically stated in paragraphs 9 to 9.4 as follows :- "9. It is seen that flat-rolled products of iron or non-alloy steel of a width of 600 mm or more and hot-rolled are classifiable under Heading 72.08 of the Schedule to CETA, 1985. Similarly, flat-rolled products of iron or non-alloy steel of a width of 600 mm or more and cold-rolled (cold-reduced) are classifiable under Heading 72.09 of the Schedule. The flat-rolled products of iron or non-alloy steel having specific dimensions of a width of less than 600 mm are classifiable under Heading 72.11 of the Schedule. The process of conversion of hot-rolled flat-rolled products of iron or non-alloy steel of a width less than 600 mm of required dimensions leads to emergence of a commercially distinct commodity. The goods falling under Heading No. 72.08 are being transformed into excisable goods falling under Heading No. 72.11 which are known commercially as such having distinct name, character and use. Similarly the process of conversion of cold-rolled flat-rolled products of iron or non-alloy steel of a width of more than 600 mm falling under Heading 72.09 into cold-rolled flat-rolled products of iron or non-alloy steel of required dimensions of a width of less than 600 mm leads to emergence of excisable goods falling under Heading 72.11 having a commercially distinct name, character and use.
9.1 Thus the above process of conversion amounts to manufacture as per the definition of manufacture under Section 2(f) of Central Excise Act, 1944, chargeable to appropriate Central Excise Duty in terms of Section 3 of the Act at the rates as specified in the Schedule to the Central Excise Tariff Act under Heading 72.11 thereof. It was observed during the investigation that M/s. Vijlal Vithaldas & Sons was engaged in the manufacture of flat-rolled products of iron or non-alloy steel (both hot-rolled and cold-rolled) of width less than 600 mm out of flat-rolled products of iron or non-alloy steel (both hot-rolled and cold-rolled) of width more than 600 mm. It was seen that both hot-rolled coils (HR coils) and cold-rolled coils (CR coils) of mild steel (non-alloy steel) of width of more than 600 mm was being converted with the help of slitting machines into flat-rolled products of width less than 600 mm. Therefore, aforesaid activity carried out by M/s.
Vijlal Vithaldas & Sons amount to manufacture.
9.2 Similarly it was seen that flat-rolled products of iron or non-alloy steel of a width of 600 mm or more, which are clad, plated or coated are classifiable under Heading 72.10 while flat-rolled products of iron or non-alloy steel of a width of less than 600 mm which are clad, plated or coated are classifiable under Heading 72.12. Thus the process of conversion of flat-rolled products which are clad, plated or coated from a width of more than 600 mm falling under Heading 72.10 into products of a width of less than 600 mm of required dimensions leads to emergence of new excisable goods falling under Heading 72.11 of the Schedule which is having a commercially distinct name, character and use. Thus the above process of conversion of flat-rolled products of iron or non-alloy steel which are clad, plated or coated from a width of more than 600 mm into products of a width of less than 600 mm of required dimensions amounts to manufacture as per Section 2(f) of CEA, 1944 and chargeable to excise duty in terms of Section 3 of CEA, 1944 at the rate specified in Heading 72.11 of the Schedule to the CETA, 1985. Similarly, it was seen that flat-rolled products of stainless steel of a width of 600 mm or more are classifiable under Heading 72.19 and flat-rolled products of stainless steel of a width of less than 600 mm are classifiable under Heading 72.20. The process of conversion of flat-rolled products of stainless steel of a width less than 600 mm of required dimensions leads to emergence of excisable goods having distinct name, character and use falling under Heading 72.20. Thus the above process of conversion of flat-rolled products of stainless steel from a width of more than 600 mm amounts to manufacture as per Section 2(f) of CEA, 1944 chargeable to excisable duty under Section 3 of the CEA, 1944 at the rate specified in Heading No. 72.20 of the Schedule to CETA, 1985.
It was observed during the investigation that M/s. Vijlal Vithaldas & Sons were engaged in the manufacture of flat-rolled products of stainless steel of a width less than 600 mm out of flat-rolled products of stainless steel of width of more than 600 mm. It was seen that stainless steel coils of width of more than 600 mm were being converted with the help of slitting machines into flat-rolled products of width less than 600 mm. Therefore aforesaid activity carried by M/s. Vijlal Vithaldas & Sons amounts to manufacture.
9.3 Similarly, it was seen that flat-rolled products of alloy steel other than stainless steel of a width of more than 600 mm are classifiable under Heading 72.25 and flat-rolled products of alloy steel other than stainless steel of a width less than 600 mm are classifiable under Chapter Heading 72.26. The process of conversion of flat-rolled products of alloy steel other than stainless steel of a width of more than 600 mm into flat-rolled products of alloy steel other than stainless steel of less than 600 mm of required dimensions leads to emergence of excisable goods having distinct name, character and use falling under Heading 72.26. Thus the above process of conversion of flat-rolled products of alloy steel other than stainless steel of width more than 600 mm to products of width less than 600 mm amounts to manufacture as per Section 2(f) of CEA, 1944 chargeable to excise duty in terms of Section 3 of CEA, 1944 at the rate specified in Heading No. 72.26 of the Schedule. It was observed during the investigation that M/s. Vijlal Vithaldas & Sons was engaged in the manufacture of flat-rolled products of alloy steel other than stainless steel of a width less than 600 mm of required dimensions out of flat-rolled products of alloy steel other than stainless steel of width of more than 600 mm. It was seen that alloy steel coils of width of more than 600 mm were being converted with the help of cutting/slitting machines into flat-rolled products of width less than 600 mm. The aforesaid activity carried out by M/s. Vijlal Vithaldas & Sons amounts to manufacture inasmuch as excisable goods having commercially different name, character and use falling under Heading No. 72.26 have been manufactured.
9.4 As already narrated supra M/s. Vijlal Vithaldas & Sons are engaged in the conversion of mild steel HR/CR Coils, stainless steel coils and other alloy steel coils into flat-rolled slitted products of width less than 600 mm which resulted the emergence of a new and distinct commercial commodity having distinct name, character and use and falling under different headings of the Schedule to the Central Excise Tariff. It is also observed that the manufacturing process involves significant value addition due to cost incurred on various items like consumption of electricity, deployment of labour, loading and unloading charges, etc. for conversion of HR/CR/SS coils into flat-rolled slitted products of width less than 600 mm. It was also observed that each of the coils received in the premises of M/s. Vijlal Vithaldas & Sons had a distinct coil No. and specifications provided by the original manufacturer of the said coils. The conversion of HR/CR/SS coils of a width more than 600 mm into flat-rolled products of width less than 600 mm and other flat-rolled products resulted in the loss of identity of each of these coils." "Details of CR/HR coils slitted and Central excise duty to be paid by M/s. Vijlal Vithaldas & Sons, Taloja 4. The assessee filed its reply dated 30th August, 2000. At paragraph 25 of the reply, it is stated that there was no loss of identity of hot-rolled/cold-rolled coils received by them merely as a result of slitting/cutting or the activities undertaken by them. As aforesaid, there was no new distinct product emerged. On the basis of the submissions made before the adjudicating authority, the Commissioner (Adjudication) by her order dated 6-6-2001 confirmed the duty of Rs. 42,89,48,256/- and imposed a penalty of equal amount under Section 11AC of the Central Excise Act and ordered payment of interest in terms of Section 11AB of the Act and confiscated the land, building, etc., with an option of redemption fine of Rs. 2 crores. On the other appellant, namely Yogesh K. Shah, a penalty of Rs. 5 crores was imposed under Rule 209A of the Central Excise Rules. The other appellants, in respect of steel sector, concerned in this group are Progressive Steel Processors Pvt. Ltd., appellants in Appeals E/2679 and 2681/01 and Sanjiv Som-prakash Suri, appellant in Appeal E/2680/01.
5. The argument that slitting and cutting from a jumbo rolls to a lesser dimension will not amount to manufacture is the contention raised by all persons who deal with plastic manufacturers, referred to above, and that question is being dealt with, in respect of Appeals E/3803, 3804/01 and Appeals E/697 to 699/03 and E/297/03.
6. The main question with which we are concerned is whether slitting or cutting of hot-rolled sheets and plastic sheets would amount to manufacture or not, in this group of appeals. Several Counsel appeared for the appellants. Shri V. Sridharan, Advocate and Shri V.S. Nankani, Advocate, appearing for these appellants, argued that as far as this activity is concerned, it cannot be treated as manufacture because the Board itself has stated in its Circular No. 584/21/01-CX.4, dated 7th September, 2001 issued from File No. 139/12/99-CX has treated such an activity as not amounting to manufacture if the resultant coils after slit fall within the same heading of the Tariff. He also stated that the issue has been fully dealt with by the Tribunal in CCE v. Bemcee Ltd. reported in 2003 (151) E.L.T. 545 which decided the same question in favour of the assessees. In that decision, it is specifically contended by learned Counsel, Shri V. Sridharan, that the judgments of the Supreme Court in the cases of CCE v. Kapri International (P) Ltd. - 2002 (142) E.L.T. 10 and Lal Woollen Silk Mitts (P) Ltd. -1999 (108) E.L.T. 7 have been considered and having noted these judgments, the Tribunal has held that the activity of slitting and cutting would not amount to manufacture. He also cited that the case of CCE v. Markfed Vanaspati and Allied Indus. - 2003 (153) E.L.T. 491 where in paragraph 6, the Supreme Court held that the Lal Woollen and Silk Mitts case decided by the Supreme Court was held to be per incuriam, as it did not take note of the judgment rendered by Larger Bench of the same court in the case of CCE v. Universal Cable Ltd. -1995 (77) E.L.T. 268 (S.C.).
It is the contention of the learned Counsel, therefore, that it will not lie the mouth of the department to go beyond what is contained in the Board's circular referred to above.
7. As against this, the three departmental representatives argued before us that the strips which have the dimension of lesser than 600 mm has specific meaning assigned to it under the Central Excise Tariff contained in Chapter 72 where in Note l(q), it states that skelp means "hot-rolled narrow strip of width not exceeding 600 mm with rolled (square, slightly round or bevelled) edge". The departmental representative argued that after it is slit, the goods that emerged after such activity takes a character of different type of goods and it is traded in the market as a different commodity than it was in existence earlier. It was specifically argued on the basis of the judgment of the Tribunal in the case of Kores (India) Ltd. v. CCE - 2003 (152) E.L.T. 395 that conversion of jumbo reels of ribbons into spool form for typewriter ribbon and telex ribbon amount to manufacture. The learned Departmental Representative also relied on the judgment of the Supreme Court in the case of Brakes India Ltd. v.Superintendent of Central Excise - 1998 (101) E.L.T. 241 wherein it has been held that drilling, trimming and chamfering of brake lining flanks - purchased from market - amounted to manufacture as without such a process brake lining cannot be used by automobile manufacturers. By adopting a particular process if transformation takes place, which makes the product have a different character and use of its own which did not bear earlier then the process would amount to manufacture under Section 2(f) of the Act. In fact the learned DR adopted the words contained in the head note of the case. It was also specifically emphasised by the learned DR that the judgment of the Supreme Court in the case of Empire Industries Ltd. v. UOI -1985 (20) E.L.T. 179 which held bleaching, mercerising, dyeing, printing, water-proofing, etc., on textile product would amount to manufacture or not. In the said case when we refer, the same refer to the judgment of the English Court of Appeal in the case of Mcnicol and Anr. v. Pinch (1906) 2 Kings Bench 352. The learned judges of the Supreme Court followed the minority judgment of the said case, namely opinion of the Rindley J., who held in the said case as follows :- "Take the manufacture of wool, it is wool when it is on the sheeps back; it is wool when it has passed through the process of sorting and picking which it has to go through in the mill. Is not that the manufacture of wool? I should have thought it most certainly was, although the name 'wool' is applied to it both before the process begin and after it has ended." It is therefore emphasised by the learned Departmental Representative that after the cutting and slitting of the products here, there is a transformation has taken place and it has been treated as different type of commodity. They also relied on the proposition of law that the products in respect of steel were trans-formed from items contained in Headings 72.08 and 72.09 to 72.11. The learned DR also cited the judgment of the Tribunal in the cases of Dipen Textiles (P) Ltd. v. CCE -1992 (62) E.L.T. 430 and Filtech Pharma Lab. Pvt. Ltd. v. CCE - 2000 (120) E.L.T. 372. They also cited the judgment of the Supreme Court in the case of CCE v. Kapri International P. Ltd. [2002 (142) E.L.T. 10 (S.C.) = 2002 (50) RLT 1].
8. We have considered the rival submissions. The case of the department is that when the hot-rolled steel coils of a size ,above 600 mm is cut into dimension less than 600 mm and turn into strips, they attain a transformation and such a product is treated in the market as a different commodity. The emphasis of the DR is that each transformed commodity, namely cut and slit products attain a different character.
It is useful for us to refer to the judgment of the Supreme Court in the case of Empire Industries Ltd, and Ors. v. UOI and Ors. - 1985 (20) E.L.T. 179 for the purpose of decision in this case. In the said case, the question arose was about the various activities done on the textile products, namely, bleaching, mercerising, dyeing, etc., and whether it will amount to manufacture or not. One important question in that case which arose was whether Section 4 of the Central Excise Act after the amendment made therein would be consistently followed or not. The same has been reflected in paragraph 20 of the said judgment. It is true that one of the departmental representatives, Dr. Hitesh Shah, while emphasising the case of the department, strenuously argued that in the judgment of the Court of Appeal in the case of Mcnicol v. Pinch, the judges of the Supreme Court had accepted the minority view of the judgment of the English Court and he relied on paragraph 37 of the said judgment which we have extracted in previous paragraph. To understand the outer extent and the merit of the veracity of the argument of the learned DR, we have to quote extensively from the said judgment, as follows :- '35. In England, in the case of Mcnicol and Anr. v. Pinch - (1906) 2 K.B. 352, the "manufacture of saccharin" in the Finance Act, 1901 and the Revenue Act, 1903 was held to mean the "bringing into being as saccharin". There the appellants had subjected certain "330 saccharin" (i.e. Saccharin 330 times as sweet as sugar) to a chemical process, the result of which was that in some cases "550 saccharin" (i.e. saccharin 550 times as sweet as sugar) was produced, in others a mixture sweeter than 330, but not so sweet as 550 saccharin, and in few cases a mixture less sweet than 330 saccharin was there. It was held by the Court of Appeal by Bray and Darling JJ., Ridley, J. dissenting that the appellants were not manufacturing saccharin within the meaning of the Finance Act, 1901, so as to be compelled to take out the excise licence required by Section 9 of that Act and Section 2 of the Revenue Act, 1903, and to obtain from an officer of Inland Revenue a book such as was prescribed by the Regulation No. 633 of the Statutory Rules, 1904, inasmuch as the substance with which the appellants dealt was always saccharin both before and after their treatment of it. Bray J. observed at Pages 359-360 of the report as follows :- 'We have to determine whether upon the facts stated in the case the appellants did manufacture saccharin. Let us see what those facts are. One of the admitted facts is that saccharin is a substance produced from toluene sulphonamide. That is the definition of saccharin. This saccharin was not produced by the appellants from toluene sulphonamide; it was produced (if it can be said to have been produced) from saccharin itself. The appellants have not manufactured saccharin from toluene sulphonamide. The case states hat 330 saccharin is produced without eliminating certain para products, or only eliminating them to a very small extent. Then, in order to convert 330 saccharin into 550, certain of the para compounds have to be eliminated. Then it states that "this mixture" (that is, the 330) "is known commercially as 330 saccharin". The other mixture is known commercially as 550 saccharin. In both cases it is saccharin, and as a dutiable article 330 saccharin does not differ in the smallest degree from 550 saccharin. The same duty is payable on 550 saccharin as on 330 saccharin. What the appellants do is stated thus : "The appellants subjected certain 330 saccharin to a chemical process...This amount of 330 saccharin was not treated in one bulk, but in separate quantities. The result of this treatment was that in some cases 550 saccharin was produced, and in some cases a mixture sweeter than 330 saccharin but not so sweet as 550 saccharin was produced", and in some cases less sweet. But it was always saccharin; it was saccharin before it was treated, and it was saccharin after it was treated.' 36. Darling J. at pages 361-362 of the report made on the following interesting observations :- 'I do not say that to use the word "manufacture" as exactly synonymous with the word "make" or to use the words "to manufacture" as exactly synonymous with the words "to make", is strictly grammatical, but I think that is what the statute has done. I think it possible that in a literary sense "to make" and "to manufacture" may not have precisely the same meaning. One can put cases where the word "manufacture" might be used in somewhat strained way, but perhaps a little more scientifically. Take the case of a carpenter.
A carpenter uses wood; he begins with wood; he makes the wood into boxes. What would you say if you wanted to talk of his manufacturing? Ordinary people would not say that he manufactured wood; they would say he manufactured boxes. But I am not quite sure it might not be strictly said that he manufactures the wood. He applies a process to it. I suppose etymologi-cally "to manufacture" is "to make by hand". Everybody knows that you cannot absolutely make a thing by hand in the sense that you can create matter by hand, because in that sense you can make nothing : "Ex nihilo nihil fit" You can only make one thing out of another. I think the essence of making or of manufacturing is that what is made shall be a different thing from that out of which it is made. Even if it could be strictly said that the carpenter "manufactures" wood it could not be said that he "makes" wood. The same with a man who makes boots; he takes leather, and he makes it into boots. If he simply made leather into leather nobody could possibly say that he was a leather manufacturer, but it would be possible to say that a man who took leather and make it into boots manufactured leather but made boots.
I think it would be possible to say that, and I am not sure it would not be strictly accurate but I cannot read this statute in that way.
(emphasis supplied). Whether it would be possible to read "manufacture" etymologically as something very different from "make", I think the Act of 1901 uses "manufacture" and "make" as being convertible terms, and that a man who manufactures saccharin under Section 9 is doing the same thing as is called the making of saccharin under Section 5, of the manufacturing of glucose or saccharin under Sub-section (2) of Section 5, and that the appellants did not make saccharin, because they began and ended with saccharin. They did not "make" saccharin, and in my opinion, from the way in which the word is used by the statute, they did not manufacture saccharin, and therefore did not require a licence.' 37. It may, however, be pointed out that when Darling J. dealt with the example of a carpenter, the learned Judge thought it was right that it could not be said that when 'box' is prepared that the carpenter was manufacturing 'wood' but transforming 'wood' into 'box' would certainly be manufacturing 'boxes'. It is well-settled that one cannot absolutely make a thing by hand in the sense that nobody can create matter by hand, it is the transformation of a matter into something else and that 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. Plain wood is certainly different from "box' made of wood. Rindley J. it may be pointed out, disagreed with the view and observed at page 362 of the report that where any process of art is used upon some substance, it is "manufactured". He observed as follows :- To say that a person does not "manufacture" a thing because it has the same name after the process has been passed upon it as it had before seems to me - but I suppose I am wrong - to be simply a question of words. If there had happened to be another word for saccharin of the strength of 550, different from saccharin of the strength of 330, it would almost - I will not say quite - follow from the reasoning of my learned brothers that this would have been a manufacture. I cannot think that that is so. Take the case of the manufacture of steel; and lead it be steel before it goes into works : apply some process to it and it becomes a particular sort of steel. But it is steel both before and after, although steel of different qualities. Is not that the manufacture of steel? I should have thought so. Take the manufacture of wool, it is wool when it is on the sheep's back; it is wool when it had passed through the process of sorting and picking which it has to go through in the mill. Is not that the manufacture of wool? I should have thought it most certainly was, although the name "wool" is applied to it both before the process begins and after it has ended.' The learned judge further observed that in that case saccharin was "manufactured" and manufacture of saccharin does cover a process that was done in that case.' 9. When we go through the said judgment in paragraph 35, it is stated that saccharin which was produced was always saccharin before it was a saccharin after it was treated. But Darling J., says that taking the example of furniture from wood that the carpenter uses the wood; he begins with wood and makes the wood into box size. But he specifically states that he was not sure it may not be strictly said that carpenter had manufactured the wood. He applies a process to it. He supposed etymologically that the manufacture is to make by hand. He finally comes to the conclusion that it is not a manufacture. But Rindley J.view has been reflected in paragraph 37 extracted above. The judgment of the Supreme Court accepted the reasoning of the learned judge Rindley's views. In the later paragraph, the learned judges of the Supreme Court on the basis of the views of Indian Standard Glossary of terms held that there was a manufacture. In fact in paragraph 39, they have said that the manufacture has taken place within the meaning of the amended expression manufacture. The question in that case has been clearly held in paragraph 42 of the said judgment that in terms of what is contained in entry 97 that the legislation is a valid piece of legislation. In our view, therefore, the reliance placed by the learned Departmental Representative, Dr. Hitesh Shah, may not be correct that the learned Judges have accepted the minority judgment of the English Court made in the case of Mcnicol It is to be seen in this case whether in the light of the evidence before the department say that the resultant product which has been emerged after the process of slitting has been correctly assigned the proper tariff entry.
10. The show cause notices in the case of appellant in Appeal 2550/01 proceed on the basis in paragraph 9.2 thereof which inter alia says that after transformation, it has gone to the other entry, namely Headings 72.11 and 72.12. It also states that the product is classifiable as manufactured from Headings 72.19 to 72.20. The evidence of marketability has not been discussed in the show cause notice. The another aspect of the matter is that the Annexure A to the show cause notice simply states that the quantity of hot-rolled sheets which are cut and slit, the total assessable value, the rate of duty and the amount of duty to be paid. It does not state anything about how much of dimensions the product before it was cut and the product after it was cut. In the absence of the evidence regarding emergence of new product with distinct name, character and use and marketability of the same by the department, it will be difficult for us to accept the case of the department.
11. It is no doubt true in the later judgment of the Tribunal in the case of CCE v. Bemcee Ltd. - 2003 (151) E.L.T. 545 where the learned members of the WRB have answered in favour of the assessees. But while delivering the order, they referred to various decisions brought before them. They said in paragraph 13 of the order in regard to the case of Kapri International, the said judgment has not discussed the facts of that case. In the said case of Kapri International, the question which arose for discussion was as follows :- "3. We have perused the order of the original authority as well as that of the Tribunal. We have no doubt that by cutting the cotton fabrics from running length into small pieces and giving them a definite required shape to form new article like bed sheets, bed spreads, table clothes etc., the respondent has produced a new commodity which has a definite commercial identity in the market." 12. In the instant case, the facts are entirely different. Here after the product has been cut and slit, it remains the steel product. No evidence has been mentioned in the show cause notice nor any evidence by means of affidavit from the persons who deal with them has been produced by the department, stating that the resultant products are known from having a different character, name and use as from the original product. As stated earlier, in the absence of the same, it will be very difficult for us to accept the case of the department. The subsequent judgment of Bemcee Ltd. 2003 (151) E.L.T. 545 has been referred to by the learned Counsel for the appellant for this proposition, namely the change in classification of the final product from that of first product after processing is irrelevant for deciding the excisability. As far as the judgment of the Supreme Court in the case of Lal Woollen and Silk Mills (P) Ltd. is concerned, the same has been answered by the later judgment of the Supreme Court in the case of CCE v. Markfed Vanaspati and Allied Indus. -2003 (153) E.L.T. 491 (S.C.) referred to above. Therefore, in our view, in the absence of any material evidence furnished by the department, we are unable to agree with the stand taken by the department in the instant cases. Our comments regarding hot-rolled sheet products will equally hold good for plastic products. We are therefore of the view that the impugned order passed by the adjudicating authority is wrong in law and therefore set aside.
14. The notice issued to Progressive Steel Processors Pvt. Ltd. and Vijlal Vithaldas & Sons demanded duty only in respect of strips of width of less than 600 mm on the ground that strips of such width would be classifiable in a different subheading and the sheets from which they obtained with the process of cutting to which these appellants subjected them to coil. By not demanding duty on strips or sheets of 600 mm, there is an implicit assumption that it is only when those processes which result in the emergence of goods (strips in this case) which are classifiable in a different tariff heading than the one in which the goods from which they were obtained fall in that manufacture.
The Commissioner adjudicating upon both these notices has specifically said that it is migration from one sub-heading to another that results in the manufacture. These statements, that there is no manufacture when the resultant product falls in the same heading and there is manufacture by the mere fact of the resultant product being classifiable in a different sub-heading or heading of the tariff requires examination. The Supreme Court first laid down the test of manufacture what constitute manufacture in its judgment in UOI v. Delhi Cloth and General Mills - 1977 (1) E.L.T. (J 199). It quoted from the judgment of the U.S. Supreme Court in Anheuser Busch Brewery Association v. United States - 1907 (52) L.E.D., 336. The following words have been quoted. "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". This is the test that, is taken by the Supreme Court, will have to be applied by the assessing authority. In UOI v. J.G. Glass Industries Ltd. - 1998 (97) E.L.T. 5, a Bench of the Supreme Court found that a two-fold test has to be applied to decide whether the process under consideration would amount to manufacture. The first is whether a different commodity emerges and the second whether the commodity which has been already in existence serve no purpose but for the process. However, after having expressed the view, the court went on to decide that printing of names on glass bottles would not be manufacture because the basic character of the commodity does not change and they continue to be bottles. In other words, it applied the test adopted in Delhi Cloth and General Mills. It is therefore the test that has to be followed. The primary purpose of the tariff is to provide an instrument for taxing goods. The level of tax on the goods may be so formulated as to achieve not only collection of revenue, but such objects as restricting consumption or encouraging a particular sector of the industry. A tariff therefore would provide for classification to serve for ease of administration. Frequent amendments of the tariff take place. Thus, for example, sub-heading 84.55 for metal rolling, mills, parts thereof did not have any sub-heading before 1995. These sub-headings were introduced in 1995, one for parts and the second for goods other than parts. The tariff that we are concerned which is based on a Customs Tariff, one relating to import and export of goods. Such a tariff would not necessarily be based upon a concept of manufacture. It is no doubt true that a tariff or other groupings of goods for purposes of taxation would generally follow the flow of commerce. They would recognise the difference in goods in the way that the trade in a particular field or industry would recognise. But such recognition by a trade or industry again is not based on any specific concept of manufacture. It has been held by the Supreme Court that pineapple slices to packed in sugar syrup are not the result of manufacture and do not differ in this respect from unprocessed pineapple. In Deputy Commissioner of Sales Tax v. PIO Food Packers - 1980 (6) E.L.T. 343, the Supreme Court held that this process was not manufacture. In Sterling Foods v. State of Karnataka - 1986 (26) E.L.T. 3 (S.C.), the Court found that no essential different in character between the fresh and the frozen shrimps. By applying the test that is applied by the Commissioner in these two cases, there is, clearly, manufacture. Fresh pineapple and tined pineapple are classifiable in different chapters of the Tariff or as fresh shrimp and frozen shrimp. These examples can be multiplied without Chapter 72 dealing with iron and steel has different entries for the category of products in flat-rolled products. Heading 72.19 is for flat-rolled products of stainless steel, of a width of 600 mm or more. Sub-heading 20 is for these goods not further worked than cold-rolled. Going by the departments' view, cold-rolling would amount to manufacture. Yet the same process has been held by the Supreme Court not to be manufacture.
Similarly sheets drawing of wire are classifiable in Heading 72.17.
Bars and rods classifiable in Heading 72.13 has also been held to be not manufacture [CCE v. Technoweld Industries (Civil Appeal No. 74 of 2001 -2003 (155) E.L.T. 209 (S.C.))]. Marble in manufacture of which power is ordinary used with the electromotive force used not exceeding 10 horse power is classifiable in sub-heading 21. The other slabs are classifiable in sub-heading 29. Does it follows therefrom that one process of manufacture where the electromotive force used exceeds 10 hp but no such process, it is not. This argument therefore total absurdity.
15. The other side of the argument that merely because of goods are in the same Tariff heading there is no manufacture is equally unacceptable. Sub-heading 12 of Heading 27.11 covers ethylene, propylene, butylene and butadine. Heading 28.15 covers sodium hydroxide, potassium hydroxide. Nobody could seriously argue that making of sodium hydroxide is not from potassium hydroxide manufacture.
This is in fact the view that has been taken by the Supreme Court in Laminated Packaging (P) Ltd. v. CCE - 1990 (49) E.L.T. 326 (S.C.) is contrary to such reasoning.
16. The fact that a particular product after being subjected to a process is classifiable in a different Tariff headings therefore does not establish that it is the result of the manufacture. The correct position then is that irrespective of where the products fall for classification whether the process satisfies the test laid down of the emergence of a commodity with a different names or character.
17. This disposes of the appeals relating to iron and steel. The department's contention with regard to plastic in the remaining appeals has no reference to the Tariff headings. The contention is that the processes of cutting into narrow widths renders the product adaptable to a more specific use. Thus cutting into narrower widths of metallized polyester film by Jalpac India Ltd. and Garware Polyester Ltd. has been held to be manufacture because this is the process that is required for making the final product (zari or other decorative articles). The process of cutting into smaller sheets of laminated plastics by Rajpurohit GMP India Ltd. has been held to be manufacture because the ultimate users cannot use the jumbo reels. If this definition were to be applied, it will lead to the conclusion that anyone of a series of process which result in the conversion of a product into another is manufacture. That is clearly unacceptable. Which process amounts to manufacture is to be determined after considering each of the processes in question. No doubt the cutting of the polyester film and laminated plastics is a necessary step towards the emergence of the final product, zari, laminated product, but to say that each such process itself will be manufacture is simplistic. If this were to be so, it would follow that in the manufacture of a fan blade from a large sheet of steel, each of the articles which emerges at each stage until the fan blades emerges is the result of manufacture. There has been a failure here to apply the test of emergence of new commodity. Sticking together at the edges of two smaller sheets polyester again would not amount to manufacture. It does not result in the emergence of the pouch. The product if it can be so called having three edges cannot fulfil the functions of a pouch, of holding something. It continues to be a sheet.