CASE NO.: Appeal (civil) 1287-128 of 1999 PETITIONER: SHYAM OIL CAKE LTD. RESPONDENT: COLLECTOR OF CENTRAL EXCISE, JAIPUR DATE OF JUDGMENT: 23/11/2004 BENCH: S.N. VARIAVA & DR. AR. LAKSHMANAN & S.H. KAPADIA JUDGMENT:
JUDGMENT
The Judgment of the Court was delivered by
S.N. VARIAVA, J. : These Appeals are against the Judgment dated 16th
November. 1998 of the Customs. Excise and Gold (Control) Appellate Tribunal
(CEGAT).
Briefly stated the facts are as follows :
The Appellants purchase edible vegetable oil from the open market. On the
oil purchased by them excise duty has been paid by the manufacturer. The
Appellants subject this oil to certain processes for the purposes of
refining the oil. After refining the oil. the Appellants sell the refined
edible oil in the market. The Appellants filed, on 1st September, 1984, a
clarification list in respect of the refined oil sought to be cleared the
factory. It was mentioned therein that since no manufacturing activity was
involved, no duty was payable on their clearances. On 17th September, 1984,
the Superintendent of Central Excise returend the Classification List and
called upon the Appellants to clear the goods on payment of excise duty at
the rate of Rs. 100 per metric ton and special excise duty at 5% of the
basic excise duty. The Appellants filed Civil Writ Petition No. 3215 of
1984 in the Rajasthan High Court contending that since there was no
manufacture, excise duty was not payable. On 23rd October, 1984, the
Rajasthan High Court passed an interim order permitting the Appellants to
clear the refined oil from its factory subject to the Appellants furnishing
a solvent security at the rate of Rs. 105 per metric on. This interim order
was confirmed on 5th February, 1987.
Pursuant to the interim order, for the period prior to March 1986, the
Appellants cleared their goods on furnishing security. For the period after
March 1986, the Appellants were issued show-cause notices. The Appellants
filed reply to the show-cause notices. By an order 1st January, 1988 the
Assistant Collector held that the refined oil cleared by the Appellants was
classifiable under Tariff Item 1503.10 and duty of Rs. 40,47,586.25 was
payable by the Appellants. The Appellants filed an Appeal against the Order
of the Assistant Collector.
On 25th January, 1991, Writ Petition No. 3215/84 was finally disposed of by
the Rajasthan High Court. A direction was issued to the Assistant Collector
to decide the issue of classification of the said oils. Pursuant to the
directions of the High Court, the Assistant Collector gave a personal
hearing to the Appellants and then passed Orders dated 18/19th February,
1991 holding that a new and distinct product had been manufactured. It was
held that the said product was classifiable under sub-heading 1503.10 and
duty was payable on the same. Against this Order also, an Appeal was filed
by the Appellants on 2nd March, 1991.
The Appeal filed by the Appellants against the Order dated 1 st January,
1988 was dismissed by the Collector (Appeals) on 30th July, 1991. The
Appellants then filed a further Appeal to CEGAT against the order dated
30th July, 1991.
On 22nd January, 1992, the Collector (Appeals) dismissed the Appeal filed
against the Order dated 18/19th February, 1991. Against this Order, the
Appellants filed Appeals before CEGAT.
The Appeal against Order dated 30th July, 1991, was taken up for hearing by
CEGAT. A difference of opinion arose between the Judicial Member and the
Technical Member. Therefore, the matter was referred to a Third Member of
the Tribunal. The Third Member of the Tribunal agreed with the Technical
Member and held that there was manufacture and the Appellants goods were
classifiable under Tariff Item 1503.10. It is held that duty is leviable on
the same. Against this Order, the present Civil Appeals have been filed.
On 26th February, 1999 the CEGAT also disposed of the Appeal filed by the
Appellants against the Order dated 22nd January, 1992. Against that Order
Civil Appeal No. 3923 of 1999 has been filed.
The question for consideration is whether processing of the edible
vegetable oil. purchased by the Appellants, results in manufacture. It is
not denied that the refined oil, which is derived after the process, is a
marketable commodity.
As set out hereinabove, all the authorities below have held that there is
manufacture and that the refined edible oil falls under Tariff Item
1503.10.
It is necessary, at this stage, to note the concerned Tariff Item. It reads
as follows :
___________________________________________________________________________
“15.03 Fixed vegetable oils, other than
those of heading No. 15.02
1503.10 – Which have undergone, Rs. 5,000
subsequent to their extraction, per tonne any one or more of the
following processes, namely :
(1) Treatment with an alkali or acid (2) Bleaching (3) Deodorisation 1503.90 - Other Nil"
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_
Thus it is to be seen that Tariff Item 15.03 is in respect of “Fixed
vegetable oils other than those under the heading No. 15.02”. Tariff Item
15.03 is sub-divided into two categories. Tariffs Item 1503.10 covers fixed
vegetable oils, which have undergone, subsequent to the extraction, any one
or more of the following processes, namely, (1) Treatment with an alkali or
acid; (2) Bleaching; and (3) Deodorisation. All other fixed vegetable oils
fall under Tariff Item 1503.90. It is fairly not disputed that the
Appellants undertake process mentioned in Tariff Item 1503.10. The question
still remains whether by undergoing such a process there is manufacture.
Prior to 1986, Section 2(f) of the Central Excises and Salt Act, 1944
defined “manufacture” as follows :
“Manufacture” includes any process incidental or ancillary to the
completion of a manufactured product; and
(i) in relation to tobacco, includes the preparation of cigarettes, cigars,
cheroots, biris, cigarette or pipe or hookah tobacco, chewing tobacco or
snuff;
(ia) in relation to manufactured tobacco, includes the labelling or re-
labelling of containers and repacking from bulk packs to retain packs or
the adoption of any other treatment to render the product marketable to the
consumer;
(ii) in relation to salt, includes collection, removal, preparation,
steeping, evaporation, boiling, or any one or more of these processes, the
separation or purification of salt obtained in the manufacture of
saltpetre, the separation of salt from earth or other substance so as to
produce elementary salt, and the excavation or removal of natural saline
deposits or efflorescence;
(iii) in relation to patent or proprietary medicines as defined in Item No.
14E of the First Schedule and in relation to cosmetics and toilet
preparations as defined in Item No. 14F of that Schedule, includes the
conversion of powder into tables or capsules, the labelling or re-labelling
of containers intended for consumers and re-packing from bulk packs to
retail packs or the adoption of any other treatment to render the product
marketable to the consumer:
(iv) in relation to goods comprised in Item No. 18A of the First Schedule,
includes sizing, beaming, warping, wrapping, winding or reeling, or any one
or more of these processes, or the conversion of any form of the said goods
into another form of such goods;
(v) in relation to goods comprised in Item No. 19-I of the First Schedule,
includes bleaching, mercerizing, dying, printing, waterproofing,
rubberizing, shrink-proofing, organdie processing or any other process or
any one or more of these processes;
(vi) in relation to goods comprised in Item No. 21(1) of the First
Schedule, includes milling, raising, blowing, tentering, dyeing or any
other process or any one or more of these processes;
(vii) in relation to goods comprised in Item No. 22(1) of the First
Schedule, includes bleaching, dyeing printing, shrink-proofing, tentering,
heat-setting, crease resistant processing or any other process or any one
or more of these processes.
(viii) In relation to aluminium, includes lacquering or printing
or both of plain containers, and the words, “manufacturer” shall be
construed accordingly and shall include not only a person who employs hired
labour in the production or manufacture of excisable goods but also any
person who engages in their production or manufacture on his own account.”
Thus, under this definition, apart from actual manufacture certain
processes were considered to be manufacture. This did not include the
process of refining edible oil.
With effect from 28th February, 1986 the definition of the term
“manufacture” has been changed. Now under Section 2(f) “Manufacture” has
been defined as follows :
“2(f) “manufacture” includes any process,-
(i) incidental or ancillary to the completion of a manufactured
product; and
(ii) which is specified in relation to any goods in the Section or
Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as
amounting to manufacture;
and the word “manufacturer” shall be construed accordingly and shall
include not only a person who employs hired labour in production or
manufacture of excisable goods, but also any person who engages in their
production or manufacture on his own account.”
Thus, the amended definition enlarges the scope of manufacture by roping in
processes which may or may not strictly amount to manufacture provided
those processes are specified in the Section or Chapter notes of the Tariff
Schedule as amounting to manufacture. It is clear that the Legislature
realised that it was not possible to put in an exhaustive list of various
processes but that some methodology was required for declaring that a
particular process amounted to manufacture. The language of the amended
Section 2(f) indicates that what is required is not just specification of
the goods but a specification of the process and a declaration that the
same amounts to manufacture. Of course, the specification must be in
relation to any goods.
The question whether any manufacture takes place when edible vegetable oil
is processed and refined was considered by a Constitution Bench of this
Court in .M/s. Tungabhadra Industries Ltd. v. The Commercial Tax Officer,
Kurnool, reported in [1961] 2 SCR 14. This Court inter alia considered
whether the refined oil could be said to be in the same form in which it
was when extracted and held as follows :
“Whether raw groundnut oil is converted into refined oil, there is no doubt
processing, but this consists merely in removing from raw groundnut that
constituent part of the raw oil which is not really oil. The elements
removed in the refining process consist of free fatty acids, phosphotides
and unsaponifiable matter. After the removal of this non-oleic matter
therefore, the oil continues to be groundnut oil and nothing more. The
matter removed from the raw groundnut oil not being oil cannot be used,
after separation, as oil or for any purpose for which oil could be used. In
other words, the processing consists in the non-oily content of the raw oil
being separate and removed, rendering the oily content of the oil 100 per
cent. For this reason refined oil continues to be groundnut oil within the
meaning of rules 5(l)(k) and 18(2) notwithstanding that such oil does not
possess the characteristic colour, or taste, odour, etc. of the raw
groundnut oil.”
Thus, this Court has held that prior to refining, it was raw groundnut oil
and after refining even though the characteristic colour, taste and odour
may have changed it remained ground oil. In other words, this Court held
that there was no manufacture of a new and distinct commodity.
This Court has held in a number of decisions that merely because some
process has been carried on it is not necessary that a new commodity has
come into existence. In the case of Commissioner of C. Ex., Chandigarh-I v.
Markfed Vanaspati & Allied Indus, reported in (2003) 153 E.L.T. 491 S.C.,
the question was whether there was any manufacture when earth was processed
and spent earth derived therefrom. This Court held that the burden to prove
of manufacture is always on Revenue. It was held that merely because an
Item falls in a Tariff Entry, it could not be presumed or deemed that there
was manufacture. It was held that to begin with the product was earth and
that even after processing it remained earth. It was held that the duty
having been paid on earth, no duty was leviable on spent earth.
In the case of Collector of Central Excise v. Technoweld Industries,
reported in (2003) 155 E.L.T. 209 S.C., the question was whether the
drawing of wires from wire rods amounted to manufacture. It was held that
both the products were wires and merely because they were covered by two
separate Entries did not mean that the product was excisable. It was held
that in the absence of any manufacture the product did not become excisable
merely because there were two separate Entries.
In the case of Metlex (I) Pvt. Ltd v. Commissioner of C. Ex., New Delhi,
reported in (2004) 165 E.L.T. 129 S.C., it was again held that the burden
of proving of manufacture laid on the Revenue. It was held that laminated/
metalised film remained a film and no new or distinct product has come into
existence.
In the case of Aman Marble Industries Pvt. Ltd. v. Collector of C. Ex.,
Jaipur reported in (2003) 157 E.L.T. 393 S.C., the question was whether
cutting of marble blocks into marble slabs amounted to manufacture. It was
submitted that such an activity had been specifically brought into the
Tariff Item by indicating the process. It was submitted that once the
process had been indicated in the Tariff Item, it would amount to
manufacture. These arguments were negatived. It was held that to start with
the commodity was a marble and even after cutting it remained marble. It
was held that there was no manufacture.
It was submitted that the decision in Aman Marble Industries case is not
laying down the correct law inasmuch as it has not taken not of the amended
definition of the term “manufacture” in Section 2(f). It was submitted that
for a process to amount to manufacture it need not be so mentioned only in
the Section or Chapter Note and that it could also be so mentioned in the
Tariff Item. It was true that the amendment definition has not been taken
note of. We are in agreement with the submission that under the amended
definition, which is an inclusive definition, it is not necessary that only
in the Section or Chapter Note it must be specified that a particular
process amounts to manufacture. It may be open to so specify even in the
Tariff Item. However, either in the Section or Chapter Note or in the
Tariff Entry it must be specified that the process amounts to manufacture.
Merely setting out a process in the Tariff Entry would not be sufficient.
If the process is indicated in the Tariff Entry, without specifying that
the same amounts to manufacture, then the indication of the process is
merely for the purposes of identifying the product and the rate which is
applicable in that product. In order words, for a deeming provision to come
into play it must be specifically stated that a particular process amounts
to manufacture. In the absence of it being so specified the commodity would
not become excisable merely because a separate Tariff Item exists is
respect of that commodity.
In this case, neither in the Section nor in the Chapter Note nor in the
Tariff Item do we find any indication that the process indicated is to
amount to manufacture. To start with the product was edible vegetable oil.
Even after the refining, it remains edible vegetable oil. As actual
manufacture has not taken place, the deeming provision cannot be brought
into play in the absence of it being specifically stated that the process
amounts to manufacture.
In any even, for the period prior to 1986 i.e. before the definition of the
term “Manufacture” was amended, this process could not be taken to amount
to manufacture. Thus for the period prior to 1986 the demand could not have
been sustained in any event.
In this view of the matter, we are unable to sustain the Orders of the
authorities below. It is accordingly held that there is no manufacture and
the refined oil is not excisable. The Orders of the authorities below
holding that there is manufacture and refined oil is excisable are hereby
set aside. The demand notices issued are quashed.
Accordingly, the Appeals are allowed. There will, however, be no order as
to costs.