CASE NO.: Appeal (civil) 6197 of 2001 PETITIONER: COMMISSIONER OF CENTRAL EXCISE, JAIPUR RESPONDENT: M/S MAHAVIR ALUMINIUM LTD DATE OF JUDGMENT: 11/05/2007 BENCH: ASHOK BHAN & C.K. THAKKER JUDGMENT:
J U D G M E N T
C.K. THAKKER, J.
1. A short question which arises for our
consideration in the present appeal is whether the
process of conversion of Aluminium Ingots into
Aluminium Billets during the intermediate stage by the
process of re-melting and adding other alloys amounts to
‘manufacture’ within the meaning of Section 2(f) of the
Central Excise Act, 1944 (hereinafter referred to as ‘the
Act’) and Central Excise Duty is chargeable thereon?
2. The facts of the case are that M/s Mahavir
Aluminium Ltd., Bhiwadi (hereinafter referred to as ‘the
Assessee’) was engaged in the manufacture of Aluminium
Products falling under Chapter 76 of the Central Excise
Tariff Act, 1985. The assessee was manufacturing
Aluminium Billets and was consuming it captively for the
manufacture of Aluminium Irrigation Pipes exempted
from payment of duty. The assessee was also selling the
said commodity in the market by paying Excise Duty.
3. It was the case of the Commissioner of Central
Excise, Jaipur (hereinafter referred to as ‘the Revenue’)
that the assessee did not mention the facts in
classification lists/declarations filed under Rule 173 B of
the Central Excise Rules, 1944 nor produced record
relating to production of Aluminium Billets used for
captive consumption and production of Aluminium
Irrigation Pipes. A notice was, therefore, issued to the
assessee on January 2, 1996 to show cause why an
amount of Rs.1,16,56,476/- towards clearance of
Aluminium Billets for captive consumption by
suppressing the fact that such consumption was for
manufacture of fully exempt products should not be
recovered as duty and why penalty should not be
imposed along with penalty.
4. By an order-in-original dated August 8, 1997,
demand of Rs.44,35,637/- was confirmed for the period
between June, 1995 and December, 1995. The demand
beyond the period of six months was held to be barred by
time. Penalty of Rs.10,00,000/- was also imposed.
5. An appeal filed by the assessee against the
order-in-original was allowed by the Custom, Excise and
Gold (Control) Appellate Tribunal (‘CEGAT’ for short) on
February 16, 2000, setting aside the order-in-original
passed by the Commissioner and remanding the matter
for fresh disposal in accordance with law.
6. Hearing was afforded to the assessee thereafter
by the Commissioner and considering the rival
submissions of the parties, the Commissioner held that
Aluminium Billets had come into existence as a result of
conversion of Aluminium Scraps, Ingots and other
alloying materials by process of melting. Billets are thus
a commodity distinct from Ingots. The Commissioner also
recorded a finding that “Aluminium Billets, besides being
used captively, were also sold in the marked by the
assessee on payment of duty @ 15% adv.”
7. The Commissioner concluded :
“Regarding whether aluminum billets
produced at the intermediate stage by the
assessee as per the process discussed in para
A supra amounts to manufacture. I find that a
billet as different article emerged as a result of
melting of ingots/scrap of aluminium and
other alloying metals and is having distinct
name, character or use and as per Section 3 of
Central Excise Act, 1944 these are goods
which can ordinarily be bought and sold in the
market. The assessee is also selling the same
in the market apart from captive consumption
for manufacture of irrigation aluminium pipes.
Thus, billet is altogether a different product
than an ingot of aluminium know to the
market and has different use and character. In
the assessee’s case also they could not have
manufactured extruded pipes form aluminium
ingots. Accordingly aluminium ingots and
billets are altogether different goods”.
(emphasis supplied)
8. He, therefore, held that the production of
Aluminium Billets from Aluminium Ingots/Scraps and
other alloying materials amounted to ‘manufacture’
within the meaning of Section 2(f) of the Act and was
chargeable to Central Excise Duty under sub-heading
7601.10 of Chapter 76 of the Central Excise Tariff Act,
1985.
9. The assessee being aggrieved by the order-in-
original passed by the Commissioner, preferred an appeal
to CEGAT. CEGAT observed that there was substance in
the contention raised by the assessee that the process
carried out by the assessee of Melting Ingots into Round
Ingots for the purpose of extrusion did not amount to
‘manufacture’ and the taxable commodity remained the
same although in different form. CEGAT stated that
“mere change in physical form of shape or substance
does not amount to manufacture”. It, therefore, allowed
the appeal and set aside the order passed by the
Commissioner. The said order is challenged by the
Revenue in this Court.
10. We have heard the learned counsel for the
parties.
11. It was submitted by the learned counsel for the
Revenue that CEGAT has committed an error of law in
holding that the commodity remained one and the same
and merely the form was changed and as such there was
no ‘manufacture’ and Excise Duty could not be imposed
by the Department.
12. The learned counsel for the assessee, on the
other hand, submitted that CEGAT was right in holding
that there was no change of commodity and hence there
was no ‘manufacture’. Extrusion Ingots which are also
known as Round Ingots or Billets are only a different
form of the same taxable commodity, namely, Wrought
Aluminium under Chapter 7601. The process or
conversion of Melting Ingots into Extrusion Ingots was
not a ‘process of manufacture’ and there is a change in
shape or form of the product. The order of CEGAT, hence,
calls for no interference.
13. Having heard the learned counsel for the
parties, in our opinion, the appeal deserves to be allowed.
The expression ‘manufacture’ is defined in Clause (f) of
Section 2 of the Act which reads thus:
(f) “Manufacture” includes any process:
(i) incidental or ancillary to the completion
of a manufactured product;
(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, (5 of 1986), and the word
“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.
14. It is thus clear that ‘manufacture’ includes any
process under Section 2(f). As observed by this Court
before more than four decades in Union of India &
Another. v. Delhi Cloth & General Mills Co. Ltd. & Ors.,
(1963) Supp (1) SCR 586 : AIR 1963 SC 791, the word
‘manufacture’ is a verb which 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”.
15. In Empire Industries Ltd. v. Union of India,
(1985) 3 SCC 314, it was held that taxable event under
Excise Law is `manufacture’. The moment there is
transformation into a new commodity commercially
distinct and separate commodity having its own
character and name whether be it the result of one
process or several processes, ‘manufacture’ takes place
and liability to excise duty under Section 4 is attracted.
16. In Union Carbide India Ltd. v. Union of India &
Ors., (1986) 2 SCC 547, this Court held that in order to
attract Excise Duty, the article manufactured must be
capable of sale to a consumer. To become goods, an
article must be something which can ordinarily come to
the market to be bought and be sold.
17. In Union of India & Ors. v. J.G. Glass Industries
Ltd. & Ors., (1998) 2 SCC 32, leading decisions came to
be considered by this Court and it was held that a two
fold test emerged for deciding whether the process is that
of ‘manufacture’.
18. The Court after considering earlier decisions,
stated:
“On an analysis of the aforesaid
rulings, a two-old test emerges for
deciding whether the process is that of
“manufacture”. First, whether by the
said process a different commercial
commodity comes into 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 is
already in existence will be of no
commercial use but for the said process”.
19. In the present case, the assessee is not only
captively consuming Aluminium Billets for the
production of Irrigation Pipes but is also selling such
commodity in open market. It is, therefore, clear that the
process of ‘manufacture’ results in emergence of new
commercial commodity, namely, ‘Billets’. The said
commodity has an independent marketability and the
assessee itself has sold Billets in open market by paying
Excise Duty.
20. The entry also makes it clear which is under
Chapter 76. The relevant part reads thus:
Chapter 76 Heading Sub-Heading Description Rate of Duty No. No. of Goods 76.01 7601.10 ingots, billets 16%
21. Ingots and Billets are thus two different
commercial commodities. They have separate, distinct
and identifiable marketability and saleability. The
assessee, no doubt, used Aluminium Billets captively but
is also selling in open market. We are, therefore, of the
view that the Commissioner was right in holding that the
assessee was liable to pay Excise Duty and CEGAT was
wrong in interfering with the order-in-original. The order
of the CEGAT, therefore, is liable to be set aside.
22. For the foregoing reasons, the appeal deserves
to be allowed and is accordingly allowed. The order
passed by CEGAT is set aside and the order-in-original
passed by the Commissioner is restored.
23. The learned counsel for the assessee, however,
submitted that in that case the assessee would be
entitled to MODVAT benefits. If it is so, the assessee can
claim the said benefit. We may make it clear that our
setting aside the order passed by CEGAT in this appeal
would not come in the way of the assessee in claiming
and getting such benefit, if it is otherwise entitled.
24. The appeal is allowed accordingly with no
order as to costs.