Commissioner of C. Ex. Vs. Usha India Ltd. - Court Judgment

Excerpt:
1. in the present appeal, filed by the revenue, the issue involved is whether the process of conversion of transformer from one model to another model, undertaken by m/s. usha (india) ltd., amounts to manufacture.2. shri r.k. sharma, ld. sdr, submitted that the respondents manufacture transformers and rectifiers and semi-conductor devices; that they also undertake repairs of old transformers; that as the repair undertaken by them resulted in the conversion of model bot 3460 to model hett 3900, the assistant commissioner under adjudication order nos. 152-153/97, dt. 16.04.1997, demanded the duty and imposed penalty holding that process amounted to manufacture as bot 3460 is a low capacity transformer compared to hett 3900 transformer and the cost of repair/rewinding would be more than repair and reconditioning only; that the commissioner (appeals), under the impugned orders, has set aside the adjudication order, holding that upgradation of a machine would not amount to manufacture so long as the said up-gradation does not bring into existence goods with a new name, character and use; that both models being transformers, the process does not amount to manufacture. the ld. sdr, further, submitted that as the capacity of the transformer has been changed instead of repair, the process involved in changing the capacity amounts to manufacture. he relied upon the decision in the case of gehring india v. cce, kanpur, 1999 (32) r.l.t. 559 wherein the process of modifying and honing machine usuable for honing break drums only to make it usable for honing both the brake drums and the cylinder block was held to be a process amounting to manufacture. he also relied upon the decision in becco engineering co. ltd. v. cce, new delhi, 1995 (79) e.l.t. 705 (t). the ld. sdr also mentioned that core of the transformer is main part which has been changed; that the respondents did not undertake the simple repair of the transformer as they had brought out a new transformer into existence; that engineering products are known by their model no.and once their model is changed their name, character and use change and, as such, the process undertaken by the respondents amount to manufacture within the meaning of term `manufacture' under section 2(f) of the central excise act.3. opposing the appeal shri r. santhanam, ld. advocate, submitted that the respondents had only undertaken the repairs of the transformer; that, even after change of model, the transformer remains transformer and as such no new product comes into existence. he relied upon the decision in shriram refrigeration industries ltd. v. cce, hydrabad, 1986 (26) e.l.t. 353 (t) wherein it was held that no manufacture was involved when the original defective parts were replaced by new parts and identity of the product was not lost. he also relied upon the decision in the case of enfield india ltd. v. cce, madras, 1996 (88) e.l.t. 773 (t), in which tribunal held that the change or upgradation of the machine or change of some parts cannot be taken to be manufacture of a new product for excise purposes. he also relied upon the decision of the apex court in u.o.i, v. j.g. glass industries ltd. -1998 (97) e.l.t. 5 (s.c.) and state of tamil nadu v. pyare lal malhotra, 1983 (13) e.l.t. 1982 (s.c.) wherein it was held "before attracting fresh levy, it is also necessary to determine whether they have ceased to be goods of one taxable description and become those of a commercially different category and description." finally he referred to boards's circular no. 454/20/99 cx., dated 12.04.1999 in which it was clarified that upgrading of old and used computer system would not amount to manufacture.decorative laminates (india) pvt. ltd. v. cce, banglore - 1996 (86) e.l.t. 186 (s.c.) 5. we have considered the submissions of both the sides. it has been held by the supreme court in the famous case of u.o.i, v. delhi cloth and general mills, 1977 (1) e.l.t. 0 99) (s.c.) that 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 vol. 26, from american judgment. the passage is seen 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; a new and different article must emerge, having a distinctive name, character or use." 6. the supreme court again in j.g. glass case, supra, laid down a two-fold test for deciding whether the process is that of 'manufacture'. "first, whether by the said process a different commercial commodity comes into an existence or whether the identity of the original commodity ceases to exist; secondly, whether the commodity which was already in existence will serve no purpose but for the said process. in other words, whether the commodity already in existence will be of no commercial use but for the said process." applying these tests to the matter in hand, the only conclusion which one can reach is that the process undertaken by the respondents does not amount to manufacture in as much as a new and different article having a distinctive name, character or use does not emerge. transformer remains transformer and it performs the same functions. similar views have been expressed by the board in circular dated 12.04.1999 wherein the question considered was whether upgradation of computer system by increasing the storage/processing capacity of computers system would amount to manufacture. the board has clarified in the negative as the upgradation does not bring into existence goods with a distinct new name, character or use. the supreme court's decisions, relied upon by the ld. sdr, are not applicable to the facts in the present case as in decorative laminates case, a new product known as `slip proof commercial plywood' came into existence as a result of applying phenol formaldehyde resin on duty-paid plywood under 100% heat and pressure.similarly in laminated packings case, supra, lamination of kraft paper with polyethylene brought into existence a different commodity distinct from kraft paper. such is not the case in the present matter as transformer after repair or change in model remains a transformer only and a new commodity known to the market does not emerge. in becco engg.co. case the process was treated to be amounting to manufacture as the tribunal observed that the operations carried out by the appellants brought into existence a completely new model of lathe machine capable of performing some other functions and different functions that could not have been performed by the old mode-1. in gehring india also the honing machine changed into a new machine which would be used for honing not only brake drums but also cylinder block. in the matter before us, the findings given by the adjudicating authority only mentions about the transformer becoming of a better model with high capacity and not a new distinct commodity known as such in the market.thus following the ratio of the supreme court's decision, relied upon by the ld. advocate for the respondents, we find no reason to interfere with the impugned order. accordingly we reject the appeal filed by the revenue.

Judgment:
1. In the present appeal, filed by the Revenue, the issue involved is whether the process of conversion of transformer from one model to another model, undertaken by M/s. Usha (India) Ltd., amounts to manufacture.

2. Shri R.K. Sharma, ld. SDR, submitted that the Respondents manufacture transformers and rectifiers and semi-conductor devices; that they also undertake repairs of old transformers; that as the repair undertaken by them resulted in the conversion of Model BOT 3460 to Model HETT 3900, the Assistant Commissioner under Adjudication Order Nos. 152-153/97, dt. 16.04.1997, demanded the duty and imposed penalty holding that process amounted to manufacture as BOT 3460 is a low capacity transformer compared to HETT 3900 transformer and the cost of repair/rewinding would be more than repair and reconditioning only; that the Commissioner (Appeals), under the impugned Orders, has set aside the Adjudication Order, holding that upgradation of a machine would not amount to manufacture so long as the said up-gradation does not bring into existence goods with a new name, character and use; that both models being transformers, the process does not amount to manufacture. The ld. SDR, further, submitted that as the capacity of the transformer has been changed instead of repair, the process involved in changing the capacity amounts to manufacture. He relied upon the decision in the case of Gehring India v. CCE, Kanpur, 1999 (32) R.L.T. 559 wherein the process of modifying and honing machine usuable for honing break drums only to make it usable for honing both the brake drums and the cylinder block was held to be a process amounting to manufacture. He also relied upon the decision in Becco Engineering Co. Ltd. v. CCE, New Delhi, 1995 (79) E.L.T. 705 (T). The ld. SDR also mentioned that core of the transformer is main part which has been changed; that the Respondents did not undertake the simple repair of the transformer as they had brought out a new transformer into existence; that Engineering products are known by their Model No.and once their model is changed their name, character and use change and, as such, the process undertaken by the Respondents amount to manufacture within the meaning of term `Manufacture' under Section 2(f) of the Central Excise Act.

3. Opposing the appeal Shri R. Santhanam, ld. Advocate, submitted that the Respondents had only undertaken the repairs of the transformer; that, even after change of Model, the transformer remains transformer and as such no new product comes into existence. He relied upon the decision in Shriram Refrigeration Industries Ltd. v. CCE, Hydrabad, 1986 (26) E.L.T. 353 (T) wherein it was held that no manufacture was involved when the Original defective parts were replaced by new parts and identity of the product was not lost. He also relied upon the decision in the case of Enfield India Ltd. v. CCE, Madras, 1996 (88) E.L.T. 773 (T), in which Tribunal held that The change or upgradation of the machine or change of some parts cannot be taken to be manufacture of a new product for excise purposes. He also relied upon the decision of the Apex Court in U.O.I, v. J.G. Glass Industries Ltd. -1998 (97) E.L.T. 5 (S.C.) and State of Tamil Nadu v. Pyare Lal Malhotra, 1983 (13) E.L.T. 1982 (S.C.) wherein it was held "before attracting fresh levy, it is also necessary to determine whether they have ceased to be goods of one taxable description and become those of a commercially different category and description." Finally he referred to Boards's Circular No. 454/20/99 CX., dated 12.04.1999 in which it was clarified that upgrading of old and used computer system would not amount to manufacture.Decorative Laminates (India) Pvt. Ltd. v. CCE, Banglore - 1996 (86) E.L.T. 186 (S.C.) 5. We have considered the submissions of both the sides. It has been held by the Supreme Court in the famous case of U.O.I, v. Delhi Cloth and General Mills, 1977 (1) E.L.T. 0 99) (S.C.) that 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 Vol. 26, from American judgment. The passage is seen 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; a new and different article must emerge, having a distinctive name, character or use." 6. The Supreme Court again in J.G. Glass case, supra, laid down a two-fold test for deciding whether the process is that of 'manufacture'. "First, whether by the said process a different commercial commodity comes into an existence or whether the identity of the original commodity ceases to exist; secondly, whether the commodity which was already in existence will serve no purpose but for the said process. In other words, whether the commodity already in existence will be of no commercial use but for the said process." Applying these tests to the matter in hand, the only conclusion which one can reach is that the process undertaken by the Respondents does not amount to manufacture in as much as a new and different article having a distinctive name, character or use does not emerge. Transformer remains transformer and it performs the same functions. Similar views have been expressed by the Board in circular dated 12.04.1999 wherein the question considered was whether upgradation of computer system by increasing the storage/processing capacity of computers system would amount to manufacture. The Board has clarified in the negative as the upgradation does not bring into existence goods with a distinct new name, character or use. The Supreme Court's decisions, relied upon by the ld. SDR, are not applicable to the facts in the present case as in Decorative Laminates case, a new product known as `slip proof commercial plywood' came into existence as a result of applying Phenol Formaldehyde Resin on duty-paid plywood under 100% heat and pressure.

Similarly in Laminated Packings case, supra, lamination of Kraft Paper with Polyethylene brought into existence a different commodity distinct from Kraft paper. Such is not the case in the present matter as transformer after repair or change in model remains a transformer only and a new commodity known to the market does not emerge. In Becco Engg.

Co. case the process was treated to be amounting to manufacture as the Tribunal observed that the operations carried out by the Appellants brought into existence a completely new model of lathe machine capable of performing some other functions and different functions that could not have been performed by the old mode-1. In Gehring India also the honing machine changed into a new machine which would be used for honing not only brake drums but also cylinder block. In the matter before us, the findings given by the Adjudicating Authority only mentions about the transformer becoming of a better model with high capacity and not a new distinct commodity known as such in the market.

Thus following the ratio of the Supreme Court's decision, relied upon by the ld. Advocate for the Respondents, we find no reason to interfere with the impugned Order. Accordingly we reject the appeal filed by the Revenue.