1. The Collector of Central Excise, Bombay-I has preferred this appeal against the order dated 22-9-1984 passed by the Collector of Central Excise (Appeals), Bombay by which he had set aside the order dated 16-11-1979 passed by the Assistant Collector of Central Excise of erstwhile Division-K of the Collectorate and holding that the respondents herein have to pay duty only on the amount of job charges collected by them from their customers. The respondents manufacture tooth brushes falling under Tariff Item 68 on job work basis and for this purpose, they get materials from M/s. Ciba Geigy of India Ltd. The respondents filed a classification list claiming exemption under Notification No. 119/75, dated 30-4-1975. The Assistant Collector denied the exemption claimed in the classification list by the respondents on the ground that entirely different articles were manufactured by the respondents and as such they were not eligible for the exemption as contained in Notification 119/75 for job work. The order of the Assistant Collector on the classification list denying the exemption as above was itself challenged before the Collector (Appeals), who held that the benefit of the notification cannot be denied to the respondents merely because the material supplied by the customers has undergone such a change at the hands of the respondents that a totally new article emerges. The Collector found support for his finding in certain High Court decisions including that of the Hon'ble Gujarat High Court in the case of Anup Engineering Ltd. v. Union of India -1978 ELT J-533.
2. The learned Departmental Representative, Shri L.C. Chakraborthy, appearing for the Appellant Collector contended that the issue regarding interpretation of Notification 119/75 had come up for a detailed consideration before the Larger Bench of this Tribunal in the case of National Organic Chemical Industries Ltd. (NOCIL) v. Collector of Central Excise, Bombay -1985 (21) ELT 252. In this decision, the Larger Bench has taken into consideration all the High Court decisions on the subject including that of the Gujarat High Court in M/s. Anup Engineering Ltd. case. The Tribunal had held that the words 'manufacturing process' used in the explanation to the Notification No.119/75, refer to those processes, incidental or ancillary to the completion of the manufactured product and not to the usual activities that are normally understood to comprise of the activity of manufacture. The Tribunal, Shri Chakraborthy argued, had made a distinction between primary manufacture and secondary manufacture based on the definition of the term in the Act and had concluded that what the Notification 119/75 covers in respect of job work is manufacture in the nature of secondary manufacture. According to the learned Departmental Representative, the requirement of the notification is that a manufactured product should be given by the customer to the job worker which should be returned by the job worker after undertaking certain other processes of manufacture. In the case of the respondents, however, no manufactured product was given but several materials like bristle, plastic handles, packing materials, were given to them by their customers Ciba Geigy out of which the respondents manufactured a complete tooth brush, a product entirely different from the materials received from their customers. Therefore, theirs is not job work as per the criteria laid down in the Larger Bench decision of the Tribunal, according to the department. Therefore, the Collector (Appeals)'s order holding that they are eligible for the exemption should be reversed. In this connection, it was also urged that the decision of the Larger Bench is binding on this Bench.
3. Shri R.G. Sheth, the learned Counsel appearing for the respondents contended that the appellants herein carried certain processes on the materials received by them from their customers and they are returning the tooth brush after such process to their customers. The learned Counsel urged that the operations carried on by them will amount to job work in the real sense of the term. The identity of the tooth brush, according to them, is not lost as all its characteristics are present in the article .returned. Even, according to the Larger Bench decision, the learned Counsel pointed out that merely because by reason of the activity of the job worker, a new product has come into existence, then what was entrusted to him by the customer would not for that reason itself rule out the applicability of the notification. Moreover, the case dealt with by the Larger Bench of the Tribunal was one where chlorine is received by the appellants and reacted with their ethylehe to form vinyl chloride and in that case, the counsel pointed out, the essential identity of the original article was held to be totally lost.
This was not so in the case of the respondents here. The learned Counsel further relied upon the case law reported in K.E.C.International Ltd. v. U.O.I. -1988 (36) ELT 31 (Bom.) : 1985 (19) ELT 80 (Bom.) : 1986 (26) ELT 685 (Bom.) as supporting of the respondent's contention that it is not necessary for the job worker to return the same article to the supplier of the material. The Collector (Appeals) being bound by the decision of the Bombay High Court had correctly followed the same. The learned Counsel also submitted in the alternative, if it is held against them, then in that case, the valuation should be as per the criteria laid down by the Hon'ble Supreme Court in the case of Ujagar Prints v. Union of India -1989 (39) ELT 493 (SC).
4. We have carefully considered the submissions made by the learned Departmental Representative and the learned Counsel. The question involves interpretation of Notification 119/75 which runs as follows: "In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), manufactured in a factory as a job work, from so much of the duty of excise leviable thereon as is in excess of the duty calculated on the basis of the amount charged for the job work.
Explanation. - For the purposes of this notification the expression "job work" shall mean such items of work where an article intended to undergo manufacturing process is supplied to the job worker and that article is returned by the job worker to the supplier, after the article has undergone the intended manufacturing process, on charging only for the job work done by him." The Larger Bench of the Tribunal in the NOCIL case had made a detailed study of the judgments of the various High Courts and the Tribunal's own decisions and had laid down the scope of the Notification 119/75 and the meaning to be attached to the words 'job work' in that notification. The judgments considered by the Larger Bench were Anup Engineering Ltd. case -1978 (2) ELT J-533 of the Gujarat High Court, My. Madura Coats Ltd. v. Collector of Centred Excise -1980 (6) ELT 582 of the Calcutta High Court and the Madras High Court decision of M/s.
Madura Qoats Limited reported in 1982 (10) ELT 370 and the Calcutta High Court judgment of Associated Pigrnents Limited v. Collector of Central Excise 1983 (13) ELT 876. Besides, four other decisions of the C.E.G.A.T. itself were also considered. The Tribunal observed that no arguments appeared to have been advanced in these several cases before the High Courts to distinguish between the process of manufacture in the primary sense and the process of manufacture in the secondary sense of incidental or ancillary process leading to the completion of the manufactured product. The principles, thereafter laid down by the Larger Bench in the interpretation of the exemption under Notification 119/75 are as follows: The Notification No. 119/75 contemplates the need for levy and collection of excise duty from the person described as job worker and provides for computation thereof. Excise duty would be recoverable only when a manufacturing activity takes place and as a result a new and distinct product with a distinctive name, character and use comes into existence. Therefore, the mere fact that by reason of the activity of the job worker a new product (processed product) has come into existence than what was entrusted to him by the customer would not for that reason itself rule out the applicability of the notification.
It has, therefore, to be considered what would be the nature of the activity that would be comprehended within the explanation to the notification as job work. It is in this connection that the words "manufacturing process" used in the explanation to the notification become important. It should be noted that the term "manufacture" is not as such defined in the Central Excises & Salt Act. Section 2(f) of the Act contains an inclusive definition. It is to the effect that the term "manufacture" shall include any process incidental or ancillary to the completion of the manufactured product. It, therefore, appears to us that the words "manufacturing process" used in the explanation to the notification refer to those processes incidental or ancillary to the completion of the manufactured product and not to the usual activities that are normally understood to comprise of the activity of manufacture. Therefore, to enable a person to claim the benefit of Notification No. 119/75, he will have to receive an article from the customer and subject the same to a manufacturing process, in the way of a process incidental or ancillary to the completion of the manufactured product and then return the said article to the customer, recovering from the customer charges for such activity only. This interpretation of the notification would also satisfy the requirement that the job worker will have to return to the customer that article which he had received from the customer for subjecting it to the necessary manufacturing process." Applying therefore, these principles laid down by the Larger Bench and by which we are bound to the facts of the present case, it is found from the submissions made before us that the respondents are getting from their customers M/s. Ciba Geigy, materials like bristles, plastic handles, packing materials, which are made into tooth brush by the respondents herein, packed in the packing materials also supplied by their customers and sent to them as fully finished tooth brushes. There is nothing to indicate whether any manufacture in the primary sense had taken place at the hands of the customers M/s. Ciba Geigy. At the same time, it is clear that an entirely new commodity, namely, tooth brush in fully packed condition has emerged at the hands of the respondents, which is entirely different from the material received from the customers. The respondents have used the materials sent by the customer as raw material for the production of fully manufactured tooth brush, which are also packed and ready for marketing. Therefore, the respondents have received raw materials from M/s. Ciba Geigy and have manufactured fully finished tooth brushes out of them. Therefore, it is not the same article or 'that' article which was received from the customers that was returned after processing by the respondents. In this connection, it is pertinent to recall the observations of the Larger Bench: "the use of the words 'that article' in the explanation to the notification cannot be brushed aside an impossibility...'. The article entrusted by the customer should, after the application of the manufacturing process by the job worker, not lose its essential identity entirely but should retain its essential identity subject to the effect of the manufacturing process carried out". We find that in the case of the respondents, this criterion is not satisfied and the process applied by the respondents to the materials received from M/s.
Ciba Geigy results in the emergence of the fully manufactured tooth brush in packed condition and would amount to primary manufacture of tooth brush out of raw materials received. In this view of the matter, therefore, the order of the Assistant Collector holding that the respondents are not eligible for the exemption under Nottification 119/75 is correct in law and as a result, we hold that the impugned order of the Collector (Appeals) is not maintainable which is, therefore, set aside and the department's appeal allowed. We further note the submissions made by the learned Counsel that in case the decision adverse to them is taken in the present appeal, then the principles of valuation of the goods as contained in the case of Union of India v. Ujagar Prints laid down by the Supreme Court should be followed. The reference was specially in the context of the Supreme Court's order that in arriving at the valuation, the raw material value as well as the job work cost should be included, but that the traders' profit should not be included in such a determination of the assessable value. We direct that the department should have regard to this aspect of valuation by implementing this order. The appeal is disposed of in the above terms.