Tata Engineering and Locomotive Vs. Collr. of C. Ex. - Court Judgment

Excerpt:
1. this is an appeal preferred against the impugned order dated 24-5-1988 passed by the collector of central excise & customs, pune.2. the point to be considered in this case is whether gauges/templates (measuring instruments) lifting tackles, trolleys, conveyors, carrier (material handling equipments) manufactured by the appellants and utilised for captive consumption are eligible for exemption under notification no. 217/86-c.e., dated 2-4-1986. this notification exempts "inputs" used in or in relation to the manufacture of goods notified under modvat. however, as per the proviso to the notification it excludes from purview of said exemption apparatus, machinery, equipments etc. "used for" the manufacture of the goods. by the impugned order, the collector held that items in question are excluded by the explanation and hence, they would not qualify for exemption.hence this appeal.3. relevant notification no. 217/86-c.e., dated 2-4-1986 reads as under:- "exemption to modvat items if used within the factory of production in the manufacture of finished goods.- 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 specified in column (2) of the table hereto annexed (hereinafter referred to as 'input') manufactured in a factory and used within the factory of production, in or in relation to the manufacture of final products specified in column (3) of the said table, from the whole of the duty of excise leviable thereon, which is specified in the schedule to the central excise tariff act, 1985 (5 of 1986): provided that nothing contained in this notification shall apply to inputs used in or in relation to the manufacture of final products which are exempt from the whole of duty of excise leviable thereon or is chargeable to nil rate of duty. explanation.- for the purposes of this notification, 'inputs' does not include; (i) machines, machinery, plant, equipments apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products." 4. arguing for the appellants shri v. laxmikumaran, learned advocate, submitted that the items in question should come under the first part of the notification to claim exemption and next it should be considered whether they come under the exclusion clause or not to deny benefit. he said that these measuring instruments and material handling equipments are covered by the main part of the notification as they are inputs used in or in relation to the manufacture of the goods. he said that these are used within the factory of production in or in relation to the manufacture of final products and, as such, they are inputs as envisaged in first part of the notification and relied upon the ratio of the decision of the supreme court in the case of m/s. j.k. cotton spinning and weaving mills ltd., (air 1965 sc 1310). however, he contended that these are not used for manufacturing of the goods but only for measuring dimension or for transporting them from the place as the case may be and, as such, they do not come under the proviso to notification to exclude these items and to deny benefit. he contended that it is not correct to say that machinery, equipments, apparatus etc. are ineligible for exemption merely because they are machines as it was held by the collector but only machines which do take part in production are excluded in the exclusion clause. he said that various types of machineries, appliances viz., machines providing motive power like engines etc., machines made for transporting goods like tractors, trains, machines used for excavating, levelling, road laying etc., machineries meant for processing of goods like those used in the refineries, reacting tanks etc., machineries which alter the temperature like air conditioners, refrigerators etc., testing machines, measuring machines etc. weighing machines, material handling equipments like cranes etc. do not produce goods and such type of machines are not excluded from the exclusion clause. the phrase 'used for producing or processing of any goods' is not redundant or otiose and serves a specified purpose. he said that sub-assembly of the machinery is manufactured by a manufacturer and used within the factory of manufacture for the manufacture of a machinery which is cleared on payment of duty from the factory, such sub-assembly would undoubtedly qualify for the exemption under notification no. 217/86-c.e. it is clear from the proviso to notification that machineries which do not produce goods, do not come within the purview of the exclusion clause and, accordingly, modvat is permissible on such items. he strongly relied upon a decision of the tribunal in the case of ws industries (india) ltd. v. collector of central excise, reported in 1991 (56) e.l.t. 433 (tribunal) and the order of the tribunal bearing nos.a-722-723/91-cal dated 31-10-1991 passed by east regional bench in the case of straw products ltd. v. collector of central excise and customs, bhubaneswar, [1992 (59) e.l.t. 572 (tri.) in support of his contention.he drew our attention to the relevant portion of the findings in the case of w.s. industries (supra) while interpreting explanation to rule 57-a of the central excise rules, 1944 which is similar to proviso to the present notification no. 217/86-c.e. wherein it was observed that what is excluded from the purview of the rule is only such apparatus, tools and appliances among other things, which are used for producing or processing of any goods or for bringing about any change in any substance in relation to the manufacture of the final product. he said that similarly the items in question do not bring about any change in any substance in relation to the manufacture of final product nor any processing of the material takes place as such by these devices and, hence, these items are not excluded from the exclusion clause.5. on the other hand, shri k.k. bhatia, learned jcdr for the revenue while countering the arguments submitted that there is no dispute whether it is 'inputs' or not in terms of first part of the notification but undoubtedly it does not 'include' under exclusion clause and, as such, exemption provided in the first part of the notification is not applicable. he said that explanation clause refers to that machinery, apparatus etc. used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products and word "or" has been used in disjunctive manner. accordingly, any item used for producing or processing of any goods or bringing about any change in any substance in or in relation to the manufacture of the final products cannot be considered to be inputs for the purpose of claiming exemption. he said that process or change of process in any manner has to be understood in the wider sense and this has been clearly spelt out in the decision of the supreme court in the case of collector of central excise v. rajasthan state chemical works, reported in 1991 (55) e.l.t. 444 (s.c.). he said that according to that decision, process of handling/lifting/pumping/transfer/transportation of raw material is also a process in or in relation to manufacture if integrally connected with further operations leading to manufacture of goods. he said that term 'manufacture' is inclusive of the term 'manufacture' given in section 2(f) of the act and in that sense any activity connected with manufacturing process is deemed to be in connection or in relation to the manufacture.6. we have carefully considered the arguments advanced on both sides and perused the records. it is clear from the explanation or proviso to notification that if instruments, apparatus, and appliances are excluded by the explanation they would not qualify for exemption.hence, the point to be considered is whether the items in question are covered by the explanation clause or not. in the case of m/s. doypack systems private limited v. union of india [air 1988 s.c. 782] supreme court held that 'in relation to' is a very broad expression and its meaning includes associated with or in connection. further, in the case of m/s. j.k. cotton spinning and weaving mills ltd., (supra) it was held:- "the expression 'in the manufacture of goods' should normally encompass the entire process carried on by the dealer in converting raw materials into finished goods. where any particular process is so integrally connected with the ultimate production of goods that but for that process manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression 'in the manufacture of goods'." it is not the case of the party that the items in question are not associated with and on the other hand, it was urged that they are instruments and material handling equipments are associated or used in relation to the manufacture of the final products and, are, therefore, eligible for exemption under notification no. 217/86-c.e. and relied upon the ratio of the decision of the supreme court in the case of m/s.j.k. cotton spinning and weaving mills ltd., but it is claimed that material handling equipments and measuring instruments are not used in the production of the goods and since they are not taking part in the production, as such, they are not excluded in the exclusion clause in the said notification. but the supreme court held in the case of rajasthan state chemical works (supra) that the transfer of raw material to the reacting vessel is a preliminary operation but it is part of a continuous process but for which the manufacture would be impossible. the handling of raw materials for the purpose of such transfer is then integrally connected with the process of manufacture.we are not convinced with the argument advanced by the appellants' counsel that ratio of this decision is not applicable since it was with reference to a different notification. we feel ratio of this decision is relevant and decision of the supreme court is binding on us. in fact, it was emphatically stated by the appellants' counsel in the propositions placed before us that it is impossible to manufacture final product, viz., motor vehicles and motor vehicle parts without these instruments, appliances and machineries. in fact, time and again it was held by the supreme court where any particular process is so integrally connected with the ultimate production of the goods that but for that process manufacture or processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture.7. the terms 'manufacture' 'in or in relation to manufacture' in the manufacture of the goods, their meanings have been discussed at length in the case of rajasthan state chemical works (supra) based upon the earlier decision of the supreme court in the case of m/s. j.k. cotton spinning & weaving mills ltd., and delhi cloth and general mills. the relevant observations in the said decision is reproduced as under :- "clause 2(f) gives an inclusive definition of the term 'manufacture'. according to the dictionary, the term 'manufacture' means a process which results in an alteration or change in the goods which are subjected to the process of manufacturing leading to the production of a commercially new article. in determining what constitutes 'manufacture' no hard and fast rule can be applied and each case must be decided on its own facts having regard to the context in which the term is used in the provision under consideration. manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. naturally, manufacture is the result of one or more process through which the original commodities are made to pass. the nature and extent of processing may vary from one class to another. there may be several stages of processing, a different kind of processing at each stage. with each process suffered the original commodity experiences a change. 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. but it is only when the change or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. manufacture thus involves series of processes. process in manufacture or in relation to manufacture implies not only the production but the various stages through which the raw material is subjected to change by different operations. it is the cumulative effect of the various processes to which the raw material is subjected to, manufactured product emerges. therefore, each step towards such production would be a process in relation to the manufacture. where any particular process is so integrally connected with the ultimate production of goods that but for that process manufacture or processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture. there is no warrant for limiting the meaning of the expression in the manufacture of goods' to the process of production of goods only. the expression 'in the manufacture of goods' takes within its encompass all processes which are directly related to the actual production. thus "processing" may be an intermediate stage in manufacture and until some change has taken place and the commodity retains a continuing substantial identity through the processing stage, we cannot say that it has been manufactured. that does not, however, mean that any operation in the course of such process is not in relation to the manufacture." 8. following the ratio of the aforesaid decision and in view of the fact that the items in question are used in relation to the manufacture of the final products, we concur with the view taken by the collector that the impugned goods are not eligible for exemption under notification no. 217/86-c.e.with due respects to hon'ble judicial member, my views and orders in the matter are as follows : 10. i observe that there is a lot of force in the learned counsel's pleading that machines, machinery, plant, equipment, apparatus or appliances are of various types and many of them are not used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of final products, whereas the notification no. 217/86 excludes only those which are so utilised. in my opinion, if the intention was to exclude all kinds of machine, machinery, plant equipment, apparatus tool or appliances without exception, then it was not necessary to qualify these words with the phrase "used for production or processing of any goods or for bringing any change in any substance in or in relation to the manufacture of final products".11. learned counsel has given many examples, but it will not be appropriate to make any general observation with regard to them, inter alia, because some of these can have multiple uses and their actual use may vary from case to case and, therefore, a finding must await a decision on merits of each individual case. however, it is clear that the word production or processing or bringing about any change have been used in the context of production or manufacture of a marketable commodity. if, therefore, any one of them was used, per se, for purely research, teaching or training purposes or a demonstration during an exhibition, it could hardly be said to be used for the purposes of the act or the notification.12. it is significant that the notification talks of use within the factory of production in or in relation to the manufacture of final products.13. the words used in or in relation to the manufacture of the final products have, therefore, been so used in a rather restricted sense and it is well established that a notification is required to be interpreted strictly.14. undoubtedly the words in or in relation to the manufacture have a very wide scope and expand the meaning of the word 'manufacture'. they do imply and include operations and activities which are integrally connected with the production or manufacture of the final goods and cover operations like handling and transfer of raw material etc. and we have to keep the supreme court's interpretation of the expression 'in or in relation to the manufacture of the goods' in mind and take it to encompass the entire process carried for converting the raw materials into the finished goods. but we have to see the context in which the supreme court has made its famous observations in the case of m/s. j.k.spinning and weaving mills ltd., & delhi cloth and general mills as also the rajasthan state chemical works cited before us.15. in the notification no. 217/86, however, it is the restricted sense in which they appear to be used and the whole intention appears to be to allow a manufacturer self use of the goods produced by him in his own factory and not to charge duty in cases of such captive consumption excepting of course the machines etc., which are used for production or processing or bringing about a change in substance.16. in my opinion in the context of this notification and the intention behind it the measuring instruments and the material handling equipments could not be considered as one of the types mentioned in the exclusion clause for the simple reason that measuring instruments merely measure and do not cause any change in any substance and, therefore, such an equipment could not be said to produce or process any goods. similarly the carrier or handling equipment may lift or transport or convey but does not by itself produce or process any goods or cause any change in any substance.17. thus use of such items apparently falls in a category different from that of producer machinery or processing equipment etc. for processing or production or causing a change in substance. if there was no such distinction, then there was hardly any need for using such phraseology and it would have been enough to name the excludible category of items and straight away and say used in or in relation to the manufacture and the intervening words were not called for.18. it may also be mentioned that in the case of rajasthan state chemical works, the hon'ble supreme court has in paragraph 16 emphasized the context of notification and made its observations in the following words "in our view the word "processed" in the context in which it appears in the aforesaid notification includes an operation or activity in relation to manufacture".19. it is important to remember in this respect that same and similar words or phrases may be used in different notifications (and other provisions) in different sense depending upon the context and cases, where they are used in broader sense have to be distinguished from cases, where they are used in restricted sense keeping in view inter aha the exact words used and the inten tion of the legislature (and the purpose of exemption in case of notification).20. in view of the above discussion, i feel that whereas in the first flush, one is tempted to apply the aforesaid judgments straightaway and be done with but on second thoughts and deeper consideration, the distinction sought to be made out by the learned counsel, appeals.21. the order of the south regional bench in the case of w.s.industries india ltd. reported in 1991 (56) e.l.t. 433 cited by the learned counsel also distinguishes between apparatus, tools and appliances among other things which are used for producing or processing of any goods or for bringing about any change in any substance in relation to the manufacture of final product from others.in respect of pyrometric cones used as an essential aid in the manufacture of ceramic materials and specially designed for being placed in the furnace to give an indication of the degree of firing, the south regional bench has observed that "so far as cone is concerned, as such, it does not bring about any change in any substance or in relation to the manufacture of final product nor any processing of the material takes place as such by these devices. therefore, pyrometric cone cannot be said to be falling under the excluded category although it was used in or in relation to the manufacture of the final product".22. the pyrometric cone from the description given in this order appears to be only a type of measuring instrument. indeed as per this order the department itself had accepted that pyrometric cones were used for indicating the temperature in the furnace in the case of iron and steel manufacture to be eligible for the benefit of the modvat credit, as per the pleadings of the appellants in that case which do not appear to have been contradicted .23. therefore, while accepting that the words 'in or in relation' to have a wide scope, even wider than the words 'pertaining to' or 'relating to', the emphasis in the notification on the clause under the explanation seems to indicate direct or immediate use in actual production or processing of goods or bringing about any change in any substance (- of course - in or in relation to the manufacture of the final products).24. in view of the above discussion following the ratio of the south regional bench's order in the case of w.s. industries cited above, i accept the appeal.in view of the difference of opinion between the hon'ble judicial member and the vice president, the matter is submitted to the hon'ble president for reference to a third member on the following point: "whether in view of the supreme court's judgment in the case of m/s. j.k. cotton spinning and weaving mills ltd. and delhi cloth and general mills and the rajasthan state chemical works, the appeal was required to be dismissed or in view of the phraseology used in clause (1) of the explanation, a restricted meaning was required to be adopted for the purpose of the exclusion in the context of the notification no. 217/86".26. the ld. counsel, shri lakshmikumaran, appearing for the appellants, addressed the arguments on the point of difference. it was submitted that the preamble to the notification is differently worded from the explanation i to the notification. the preamble indicates exemption to the input manufactured in a factory and used within the factory of production in or in relation to the manufacture of final product. the words "used for producing or processing of any goods or for bringing about any change in any substance" which are found in the explanation are absent in the preamble to the notification. the ld. counsel submitted that the words "in relation" used in the preamble to the notification is of wider scope. the phrase used for producing or processing of any goods occurring in the explanation serves a specific purpose. the interpretation placed by the lower authorities on this explanation would render all machines, equipments and apparatus ineligible for exemption merely because they are machines, etc. the ld.counsel submitted that it is well settled that the exclusion clause in a notification has to be strictly construed so that full effect can be given to the notification. the ld. counsel referred to the tribunal's decision in the case of amrit banaspati co. ltd. - 1989 (44) e.l.t. 562 (tri.) and submitted that the second proviso to the notification 118/75 considered therein is pari materia with the explanation to notification 217/86. the tribunal in the amrit banaspati case interpreted this second proviso. the tribunal held that processing of goods should result in the transformation into a new distinct article and further held that retrieval of lost fibre articles from effluent waste cannot be considered as processing. the ld. counsel reiterated the reliance placed on the tribunal's decision in the case of w.s. industries (india) ltd. - 1991 (56) e.l.t. 433 (tribunal) under rule 57a of the central excise rules relating to modvat for the reason that the provision to that rule is similarly worded excluding from the purview of modvat, apparatus, tools and appliances for producing or processing of any goods or for bringing about any change in any substance in relation to the manufacture of the final product. the ld. counsel, further, argued supreme court decision in the case of collector of central excise v. rajasthan state chemical works (supra) would also support the appellants' case. in that case, the supreme court has distinguished between the terms "processing" and "process", while interpreting notification 179/77, in which the condition was that no process should be carried on with the aid of power. in the present case, notification 217/86 uses the term "processing" for the exclusion clause and not "process". the ld. counsel submitted that the view taken by the hon'ble vice president is the proper view in the matter.27. shri s.k. sharma, ld. jdr relied upon the reasoning given in the order proposed by the hon'ble member (judicial) and submitted that the manufacturing process encompasses all the stages from raw-material and its handling and every process may not bring about a change in the raw-material. appellants, themselves, admitted that the inputs are used in relation to the manufacture of their final products. the explanation i to the notification 217/86 would indicate that exemption is available only to those inputs which go into the final product. appliances and material handling equipments, which bring about change in the raw-material, are not covered. it was further submitted that the second proviso to notification 118/75 is not identically worded as the explanation to notification 217/86. therefore, reliance placed on interpretation of that notification in the amrit banaspati case (supra) is misplaced. the ld. dr contended that processing in the context of notification 217/86 covers all the processes in an integrated manufacturing process.28. the submissions made by both the sides, have been carefully considered. the point is whether gauges/templates (measuring instruments) lifting tackles, trolleys, conveyors, carrier (material handling equipments) manufactured by the appellants and utilised for captive consumption are eligible for exemption under notification 217/86 read with the explanation thereto. the records reveal that admitted position is that these are used in relation to the manufacture of the final products and the dispute is only whether they are hit by the explanation i which says for the purpose of notification inputs do not include machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substances in or in relation to the manufacture of the final product. the question would be whether the items can be said to be such machines or machinery and appliances used for producing or processing of any goods or for bringing about any change in any substance. in the supreme court decision in the case of collector of central excise v. rajasthan state chemical works (supra), the distinction between the term "processing and process" has been brought out. in para 19 of the supreme court decision, the court held that gujarat high court in the case of nirma chemical works v. union of india - 1981 (8) e.l.t. 617 in interpreting the word "process" has assumed that "process" is synonymous to "processing" and has drawn support from the observations of the supreme court in chowgule & co.pvt. ltd. v. union of india - air 1981 sc 1014. the supreme court observed "we are afraid, the observations had not been properly understood or applied in drawing inference that process when used in relation to manufacture must be one that produces a change in the commodity. it has been made clear in dy. commissioner, sales tax, ernakulam v. pio food packers - air 1980 sc 1227 = 1980 (6) e.l.t. 343 (sc) that: 29. it is, therefore, clear from the above exposition of the concept of processing by the supreme court that what is necessary to characterise an operation as processing is that commodity must as a result of the operation experience some change. applying this criterion, it has not been brought out that the items in question like gauges and appliances, lifting tackles and trolleys and conveyors manufactured and captively used by the appellants, herein, are used for processing of the material in the sense to bring about a change therein. so long as this is not established, it cannot be held that such inputs are hit by the explanation for being excluded from the exemption. in this context, the decision of the tribunal in the case of w.s. industries in relation to rule 57a wherein also the exclusion clause is identically worded can also go to support the case of the appellants. in the other case of amrit banaspati also this tribunal had applied the criterion what would amount to process and then came to the conclusion that the retrieval of lost fibres from waste materials would not amount to such processing.in this view of the matter, the order proposed by the vice president is concurred with.

Judgment:
1. This is an appeal preferred against the impugned order dated 24-5-1988 passed by the Collector of Central Excise & Customs, Pune.

2. The point to be considered in this case is whether gauges/templates (measuring instruments) lifting tackles, trolleys, conveyors, carrier (material handling equipments) manufactured by the appellants and utilised for captive consumption are eligible for exemption under Notification No. 217/86-C.E., dated 2-4-1986. This notification exempts "inputs" used in or in relation to the manufacture of goods notified under MODVAT. However, as per the proviso to the Notification it excludes from purview of said exemption apparatus, machinery, equipments etc. "used for" the manufacture of the goods. By the impugned order, the Collector held that items in question are excluded by the explanation and hence, they would not qualify for exemption.

Hence this appeal.

3. Relevant Notification No. 217/86-C.E., dated 2-4-1986 reads as under:- "Exemption to MODVAT items if used within the factory of production in the manufacture of finished goods.- 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 specified in column (2) of the Table hereto annexed (hereinafter referred to as 'input') manufactured in a factory and used within the factory of production, in or in relation to the manufacture of final products specified in column (3) of the said Table, from the whole of the duty of excise leviable thereon, which is specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986): Provided that nothing contained in this notification shall apply to inputs used in or in relation to the manufacture of final products which are exempt from the whole of duty of excise leviable thereon or is chargeable to nil rate of duty.

Explanation.- For the purposes of this notification, 'inputs' does not include; (i) machines, machinery, plant, equipments apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products." 4. Arguing for the appellants Shri V. Laxmikumaran, learned Advocate, submitted that the items in question should come under the first part of the Notification to claim exemption and next it should be considered whether they come under the exclusion clause or not to deny benefit. He said that these measuring instruments and material handling equipments are covered by the main part of the Notification as they are inputs used in or in relation to the manufacture of the goods. He said that these are used within the factory of production in or in relation to the manufacture of final products and, as such, they are inputs as envisaged in first part of the Notification and relied upon the ratio of the decision of the Supreme Court in the case of M/s. J.K. Cotton Spinning and Weaving Mills Ltd., (AIR 1965 SC 1310). However, he contended that these are not used for manufacturing of the goods but only for measuring dimension or for transporting them from the place as the case may be and, as such, they do not come under the proviso to Notification to exclude these items and to deny benefit. He contended that it is not correct to say that machinery, equipments, apparatus etc. are ineligible for exemption merely because they are machines as it was held by the Collector but only machines which do take part in production are excluded in the exclusion clause. He said that various types of machineries, appliances viz., machines providing motive power like engines etc., machines made for transporting goods like Tractors, Trains, machines used for excavating, levelling, road laying etc., machineries meant for processing of goods like those used in the refineries, reacting tanks etc., machineries which alter the temperature like air conditioners, refrigerators etc., testing machines, measuring machines etc. weighing machines, material handling equipments like cranes etc. do not produce goods and such type of machines are not excluded from the exclusion clause. The phrase 'used for producing or processing of any goods' is not redundant or otiose and serves a specified purpose. He said that sub-assembly of the machinery is manufactured by a manufacturer and used within the factory of manufacture for the manufacture of a machinery which is cleared on payment of duty from the factory, such sub-assembly would undoubtedly qualify for the exemption under Notification No. 217/86-C.E. It is clear from the proviso to Notification that machineries which do not produce goods, do not come within the purview of the exclusion clause and, accordingly, modvat is permissible on such items. He strongly relied upon a decision of the Tribunal in the case of WS Industries (India) Ltd. v. Collector of Central Excise, reported in 1991 (56) E.L.T. 433 (Tribunal) and the order of the Tribunal bearing Nos.

A-722-723/91-CAL dated 31-10-1991 passed by East Regional Bench in the case of Straw Products Ltd. v. Collector of Central Excise and Customs, Bhubaneswar, [1992 (59) E.L.T. 572 (Tri.) in support of his contention.

He drew our attention to the relevant portion of the findings in the case of W.S. Industries (supra) while interpreting explanation to Rule 57-A of the Central Excise Rules, 1944 which is similar to proviso to the present Notification No. 217/86-C.E. wherein it was observed that what is excluded from the purview of the Rule is only such apparatus, tools and appliances among other things, which are used for producing or processing of any goods or for bringing about any change in any substance in relation to the manufacture of the final product. He said that similarly the items in question do not bring about any change in any substance in relation to the manufacture of final product nor any processing of the material takes place as such by these devices and, hence, these items are not excluded from the exclusion clause.

5. On the other hand, Shri K.K. Bhatia, learned JCDR for the Revenue while countering the arguments submitted that there is no dispute whether it is 'inputs' or not in terms of first part of the Notification but undoubtedly it does not 'include' under exclusion clause and, as such, exemption provided in the first part of the Notification is not applicable. He said that explanation clause refers to that machinery, apparatus etc. used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products and word "or" has been used in disjunctive manner. Accordingly, any item used for producing or processing of any goods or bringing about any change in any substance in or in relation to the manufacture of the final products cannot be considered to be inputs for the purpose of claiming exemption. He said that process or change of process in any manner has to be understood in the wider sense and this has been clearly spelt out in the decision of the Supreme Court in the case of Collector of Central Excise v. Rajasthan State Chemical Works, reported in 1991 (55) E.L.T. 444 (S.C.). He said that according to that decision, process of handling/lifting/pumping/transfer/transportation of raw material is also a process in or in relation to manufacture if integrally connected with further operations leading to manufacture of goods. He said that term 'manufacture' is inclusive of the term 'manufacture' given in Section 2(f) of the Act and in that sense any activity connected with manufacturing process is deemed to be in connection or in relation to the manufacture.

6. We have carefully considered the arguments advanced on both sides and perused the records. It is clear from the explanation or proviso to notification that if instruments, apparatus, and appliances are excluded by the explanation they would not qualify for exemption.

Hence, the point to be considered is whether the items in question are covered by the explanation clause or not. In the case of M/s. Doypack Systems Private Limited v. Union of India [AIR 1988 S.C. 782] Supreme Court held that 'in relation to' is a very broad expression and its meaning includes associated with or in connection. Further, in the case of M/s. J.K. Cotton Spinning and Weaving Mills Ltd., (supra) it was held:- "The expression 'in the manufacture of goods' should normally encompass the entire process carried on by the dealer in converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression 'in the manufacture of goods'." It is not the case of the party that the items in question are not associated with and on the other hand, it was urged that they are instruments and material handling equipments are associated or used in relation to the manufacture of the final products and, are, therefore, eligible for exemption under Notification No. 217/86-C.E. and relied upon the ratio of the decision of the Supreme Court in the case of M/s.

J.K. Cotton Spinning and Weaving Mills Ltd., but it is claimed that material handling equipments and measuring instruments are not used in the production of the goods and since they are not taking part in the production, as such, they are not excluded in the exclusion clause in the said Notification. But the Supreme Court held in the case of Rajasthan State Chemical Works (supra) that the transfer of raw material to the reacting vessel is a preliminary operation but it is part of a continuous process but for which the manufacture would be impossible. The handling of raw materials for the purpose of such transfer is then integrally connected with the process of manufacture.

We are not convinced with the argument advanced by the appellants' counsel that ratio of this decision is not applicable since it was with reference to a different notification. We feel ratio of this decision is relevant and decision of the Supreme Court is binding on us. In fact, it was emphatically stated by the appellants' counsel in the propositions placed before us that it is impossible to manufacture final product, viz., motor vehicles and motor vehicle parts without these instruments, appliances and machineries. In fact, time and again it was held by the Supreme Court where any particular process is so integrally connected with the ultimate production of the goods that but for that process manufacture or processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture.

7. The terms 'manufacture' 'in or in relation to manufacture' in the manufacture of the goods, their meanings have been discussed at length in the case of Rajasthan State Chemical Works (supra) based upon the earlier decision of the Supreme Court in the case of M/s. J.K. Cotton Spinning & Weaving Mills Ltd., and Delhi Cloth and General Mills. The relevant observations in the said decision is reproduced as under :- "Clause 2(f) gives an inclusive definition of the term 'manufacture'. According to the dictionary, the term 'manufacture' means a process which results in an alteration or change in the goods which are subjected to the process of manufacturing leading to the production of a commercially new article. In determining what constitutes 'manufacture' no hard and fast rule can be applied and each case must be decided on its own facts having regard to the context in which the term is used in the provision under consideration. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the result of one or more process through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered the original commodity experiences a change. 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. But it is only when the change or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. Manufacture thus involves series of processes.

Process in manufacture or in relation to manufacture implies not only the production but the various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to, manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process manufacture or processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture. There is no warrant for limiting the meaning of the expression in the manufacture of goods' to the process of production of goods only. The expression 'in the manufacture of goods' takes within its encompass all processes which are directly related to the actual production. Thus "processing" may be an intermediate stage in manufacture and until some change has taken place and the commodity retains a continuing substantial identity through the processing stage, we cannot say that it has been manufactured. That does not, however, mean that any operation in the course of such process is not in relation to the manufacture." 8. Following the ratio of the aforesaid decision and in view of the fact that the items in question are used in relation to the manufacture of the final products, we concur with the view taken by the Collector that the impugned goods are not eligible for exemption under Notification No. 217/86-C.E.With due respects to Hon'ble Judicial Member, my views and orders in the matter are as follows : 10. I observe that there is a lot of force in the learned Counsel's pleading that machines, machinery, plant, equipment, apparatus or appliances are of various types and many of them are not used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of final products, whereas the Notification No. 217/86 excludes only those which are so utilised. In my opinion, if the intention was to exclude all kinds of machine, machinery, plant equipment, apparatus tool or appliances without exception, then it was not necessary to qualify these words with the phrase "used for production or processing of any goods or for bringing any change in any substance in or in relation to the manufacture of final products".

11. Learned Counsel has given many examples, but it will not be appropriate to make any general observation with regard to them, inter alia, because some of these can have multiple uses and their actual use may vary from case to case and, therefore, a finding must await a decision on merits of each individual case. However, it is clear that the word production or processing or bringing about any change have been used in the context of production or manufacture of a marketable commodity. If, therefore, any one of them was used, per se, for purely research, teaching or training purposes or a demonstration during an exhibition, it could hardly be said to be used for the purposes of the Act or the Notification.

12. It is significant that the Notification talks of use within the factory of production in or in relation to the manufacture of final products.

13. The words used in or in relation to the manufacture of the final products have, therefore, been so used in a rather restricted sense and it is well established that a Notification is required to be interpreted strictly.

14. Undoubtedly the words in or in relation to the manufacture have a very wide scope and expand the meaning of the word 'manufacture'. They do imply and include operations and activities which are integrally connected with the production or manufacture of the final goods and cover operations like handling and transfer of raw material etc. and we have to keep the Supreme Court's interpretation of the expression 'in or in relation to the manufacture of the goods' in mind and take it to encompass the entire process carried for converting the raw materials into the finished goods. But we have to see the context in which the Supreme Court has made its famous observations in the case of M/s. J.K.Spinning and Weaving Mills Ltd., & Delhi Cloth and General Mills as also the Rajasthan State Chemical Works cited before us.

15. In the Notification No. 217/86, however, it is the restricted sense in which they appear to be used and the whole intention appears to be to allow a manufacturer self use of the goods produced by him in his own factory and not to charge duty in cases of such captive consumption excepting of course the machines etc., which are used for production or processing or bringing about a change in substance.

16. In my opinion in the context of this Notification and the intention behind it the measuring instruments and the material handling equipments could not be considered as one of the types mentioned in the exclusion clause for the simple reason that measuring instruments merely measure and do not cause any change in any substance and, therefore, such an equipment could not be said to produce or process any goods. Similarly the carrier or handling equipment may lift or transport or convey but does not by itself produce or process any goods or cause any change in any substance.

17. Thus use of such items apparently falls in a category different from that of producer machinery or processing equipment etc. for processing or production or causing a change in substance. If there was no such distinction, then there was hardly any need for using such phraseology and it would have been enough to name the excludible category of items and straight away and say used in or in relation to the manufacture and the intervening words were not called for.

18. It may also be mentioned that in the case of Rajasthan State Chemical Works, the Hon'ble Supreme Court has in paragraph 16 emphasized the context of Notification and made its observations in the following words "In our view the word "processed" in the context in which it appears in the aforesaid Notification includes an operation or activity in relation to manufacture".

19. It is important to remember in this respect that same and similar words or phrases may be used in different Notifications (and other provisions) in different sense depending upon the context and cases, where they are used in broader sense have to be distinguished from cases, where they are used in restricted sense keeping in view inter aha the exact words used and the inten tion of the legislature (and the purpose of exemption in case of Notification).

20. In view of the above discussion, I feel that whereas in the first flush, one is tempted to apply the aforesaid judgments straightaway and be done with but on second thoughts and deeper consideration, the distinction sought to be made out by the learned Counsel, appeals.

21. The order of the South Regional Bench in the case of W.S.Industries India Ltd. reported in 1991 (56) E.L.T. 433 cited by the learned Counsel also distinguishes between apparatus, tools and appliances among other things which are used for producing or processing of any goods or for bringing about any change in any substance in relation to the manufacture of final product from others.

In respect of pyrometric cones used as an essential aid in the manufacture of ceramic materials and specially designed for being placed in the furnace to give an indication of the degree of firing, the South Regional Bench has observed that "So far as cone is concerned, as such, it does not bring about any change in any substance or in relation to the manufacture of final product nor any processing of the material takes place as such by these devices. Therefore, pyrometric cone cannot be said to be falling under the excluded category although it Was used in or in relation to the manufacture of the final product".

22. The pyrometric cone from the description given in this order appears to be only a type of measuring instrument. Indeed as per this order the Department itself had accepted that pyrometric cones were used for indicating the temperature in the furnace in the case of iron and steel manufacture to be eligible for the benefit of the MODVAT credit, as per the pleadings of the appellants in that case which do not appear to have been contradicted .

23. Therefore, while accepting that the words 'in or in relation' to have a wide scope, even wider than the words 'pertaining to' or 'relating to', the emphasis in the Notification on the clause under the explanation seems to indicate direct or immediate use in actual production or processing of goods or bringing about any change in any substance (- of course - in or in relation to the manufacture of the final products).

24. In view of the above discussion following the ratio of the South Regional Bench's order in the case of W.S. Industries cited above, I accept the appeal.

In view of the difference of opinion between the Hon'ble Judicial Member and the Vice President, the matter is submitted to the Hon'ble President for reference to a third Member on the following point: "Whether in view of the Supreme Court's judgment in the case of M/s.

J.K. Cotton Spinning and Weaving Mills Ltd. and Delhi Cloth and General Mills and the Rajasthan State Chemical Works, the appeal was required to be dismissed or in view of the phraseology used in Clause (1) of the Explanation, a restricted meaning was required to be adopted for the purpose of the exclusion in the context of the Notification No. 217/86".

26. The ld. Counsel, Shri Lakshmikumaran, appearing for the appellants, addressed the arguments on the point of difference. It was submitted that the preamble to the notification is differently worded from the Explanation I to the Notification. The preamble indicates exemption to the input manufactured in a factory and used within the factory of production in or in relation to the manufacture of final product. The words "used for producing or processing of any goods or for bringing about any change in any substance" which are found in the Explanation are absent in the preamble to the Notification. The ld. Counsel submitted that the words "in relation" used in the preamble to the Notification is of wider scope. The phrase used for producing or processing of any goods occurring in the Explanation serves a specific purpose. The interpretation placed by the lower authorities on this Explanation would render all machines, equipments and apparatus ineligible for exemption merely because they are machines, etc. The ld.Counsel submitted that it is well settled that the exclusion clause in a notification has to be strictly construed so that full effect can be given to the notification. The ld. Counsel referred to the Tribunal's decision in the case of Amrit Banaspati Co. Ltd. - 1989 (44) E.L.T. 562 (Tri.) and submitted that the second proviso to the Notification 118/75 considered therein is pari materia with the Explanation to Notification 217/86. The Tribunal in the Amrit Banaspati case interpreted this second proviso. The Tribunal held that processing of goods should result in the transformation into a new distinct article and further held that retrieval of lost fibre articles from effluent waste cannot be considered as processing. The ld. Counsel reiterated the reliance placed on the Tribunal's decision in the case of W.S. Industries (India) Ltd. - 1991 (56) E.L.T. 433 (Tribunal) under Rule 57A of the Central Excise Rules relating to Modvat for the reason that the provision to that Rule is similarly worded excluding from the purview of Modvat, apparatus, tools and appliances for producing or processing of any goods or for bringing about any change in any substance in relation to the manufacture of the final product. The ld. Counsel, further, argued Supreme Court decision in the case of Collector of Central Excise v. Rajasthan State Chemical Works (supra) would also support the appellants' case. In that case, the Supreme Court has distinguished between the terms "processing" and "process", while interpreting Notification 179/77, in which the condition was that no process should be carried on with the aid of power. In the present case, Notification 217/86 uses the term "processing" for the exclusion clause and not "process". The ld. Counsel submitted that the view taken by the Hon'ble Vice President is the proper view in the matter.

27. Shri S.K. Sharma, ld. JDR relied upon the reasoning given in the order proposed by the Hon'ble Member (Judicial) and submitted that the manufacturing process encompasses all the stages from raw-material and its handling and every process may not bring about a change in the raw-material. Appellants, themselves, admitted that the inputs are used in relation to the manufacture of their final products. The Explanation I to the Notification 217/86 would indicate that exemption is available only to those inputs which go into the final product. Appliances and material handling equipments, which bring about change in the raw-material, are not covered. It was further submitted that the second proviso to Notification 118/75 is not identically worded as the Explanation to Notification 217/86. Therefore, reliance placed on interpretation of that Notification in the Amrit Banaspati case (supra) is misplaced. The ld. DR contended that processing in the context of Notification 217/86 covers all the processes in an integrated manufacturing process.

28. The submissions made by both the sides, have been carefully considered. The point is whether gauges/templates (measuring instruments) lifting tackles, trolleys, conveyors, carrier (material handling equipments) manufactured by the appellants and utilised for captive consumption are eligible for exemption under Notification 217/86 read with the Explanation thereto. The records reveal that admitted position is that these are used in relation to the manufacture of the final products and the dispute is only whether they are hit by the Explanation I which says for the purpose of Notification inputs do not include machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substances in or in relation to the manufacture of the final product. The question would be whether the items can be said to be such machines or machinery and appliances used for producing or processing of any goods or for bringing about any change in any substance. In the Supreme Court decision in the case of Collector of Central Excise v. Rajasthan State Chemical Works (supra), the distinction between the term "processing and process" has been brought out. In para 19 of the Supreme Court decision, the Court held that Gujarat High Court in the case of Nirma Chemical Works v. Union of India - 1981 (8) E.L.T. 617 in interpreting the word "process" has assumed that "process" is synonymous to "processing" and has drawn support from the observations of the Supreme Court in Chowgule & Co.

Pvt. Ltd. v. Union of India - AIR 1981 SC 1014. The Supreme Court observed "We are afraid, the observations had not been properly understood or applied in drawing inference that process when used in relation to manufacture must be one that produces a change in the commodity. It has been made clear in Dy. Commissioner, Sales Tax, Ernakulam v. Pio Food Packers - AIR 1980 SC 1227 = 1980 (6) E.L.T. 343 (SC) that: 29. It is, therefore, clear from the above exposition of the concept of processing by the Supreme Court that what is necessary to characterise an operation as processing is that commodity must as a result of the operation experience some change. Applying this criterion, it has not been brought out that the items in question like gauges and appliances, lifting tackles and trolleys and conveyors manufactured and captively used by the appellants, herein, are used for processing of the material in the sense to bring about a change therein. So long as this is not established, it cannot be held that such inputs are hit by the Explanation for being excluded from the exemption. In this context, the decision of the Tribunal in the case of W.S. Industries in relation to Rule 57A wherein also the exclusion clause is identically worded can also go to support the case of the appellants. In the other case of Amrit Banaspati also this Tribunal had applied the criterion what would amount to process and then came to the conclusion that the retrieval of lost fibres from waste materials would not amount to such processing.

In this view of the matter, the order proposed by the Vice President is concurred with.