Case Note & Summary
By way of an appeal under Section 35L of the Central Excise Act, 1944, the Collector of Central Excise, Bombay challenged the order of the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi. The respondent, M/s. S.D. Fine Chemicals Pvt. Ltd., was engaged in manufacturing laboratory chemicals and fine chemicals and also undertook repacking and purification. In the classification list filed on April 1, 1983, the respondent claimed that purification and distillation undertaken by it did not amount to manufacture and claimed exemption from duty under Notification No. 77 of 1983 dated March 1, 1981. The Assistant Collector accepted this contention, but the Collector (Appeals) reversed the order, holding that the processes resulted in a new commodity known to the market and were therefore liable to excise duty. The respondent appealed to the Tribunal, where a two-member bench was divided. The Technical Member agreed with the respondent that the processes merely improved quality or purity, the chemicals were known by the same name, and there was no change in chemical formula. The Judicial Member, however, held that the processes brought about a transformation changing name, character and use, and that ordinary chemicals could not be used in laboratories without purification; they were traded under different commercial names and had different uses, thus becoming different excisable goods. Due to the difference of opinion, the matter was referred to a third member, who decided in favour of the respondent. The third member applied the test of whether the commodity subjected to the process could no longer be regarded as the original commodity, and concluded that the chemicals retained their identity substantially with only an increase in purity, and therefore had not been manufactured. The Supreme Court noted that the third member had not dealt with the findings of the Judicial Member regarding different chemical names, uses, and commercial identity. The Court then examined the definition of 'manufacture' in Section 2(f) of the Central Excise Act, 1944, as substituted by Finance Act, 1975, which is an inclusive definition covering processes incidental or ancillary to completion and specified processes under the Central Excise Tariff Act, 1985. Relying on Delhi Cloth and General Mills, the Court reiterated that manufacture is the bringing into existence of a new substance known to the market, and not every change amounts to manufacture; there must be transformation with a distinctive name, character or use. The Court also emphasized from the same decision that the definition was inserted not to equate processing with manufacture but to include certain incidental processes. The Court referred to South Bihar Sugar Mills as affirming this interpretation and to Ujagar Prints, which propounded the commercial identity test: whether the changes take the commodity to a point where commercially it can no longer be regarded as the original commodity but is recognised as a distinct and new article. The excerpt of the judgment provided ends before the Court's final application of these principles to the facts of the present case, and therefore the final decision is not mentioned in the text.
Headnote
A) Excise Law - Definition of Manufacture - Section 2(f) Central Excise Act, 1944 - The inclusive definition of 'manufacture' includes processes incidental or ancillary to completion of a manufactured product and processes specified in Section or Chapter notes of the Central Excise Tariff Act, 1985; it does not replace the ordinary meaning but adds certain processes to the ambit - Court explained that the definition as substituted by Finance Act, 1975 is inclusive and its purpose is to include processes which may not otherwise amount to manufacture (Paras 3-4). B) Excise Law - Test for Manufacture - New Substance Known to Market - Section 2(f) Central Excise Act, 1944 - Manufacture means bringing into existence a new substance known to the market; a mere change in a substance, however minor, is not manufacture, and there must be transformation with a new and different article having distinctive name, character or use - Court reiterated this principle from Union of India v. Delhi Cloth and General Mills and held that excise duty is on manufacture of goods, not sale (Paras 5-6). C) Excise Law - Processing versus Manufacture - Section 2(f) Central Excise Act, 1944 - The inclusive definition does not equate processing with manufacture; it was inserted for the limited purpose of including processes incidental to the manufacture of an article and not to make mere processing liable to duty - Court quoted Delhi Cloth Mills that the legislature did not intend to tax mere processing as distinct from manufacture in the sense of bringing into existence a new substance known to market (Para 6). D) Excise Law - Commercial Identity Test - Manufacture under Central Excise Act, 1944 - Section 2(f) Central Excise Act, 1944 - The prevalent and generally accepted test is whether the change or series of changes brought about by application of processes take the commodity to the point where commercially it can no longer be regarded as the original commodity but is instead recognised as a distinct and new article - Court referred to Ujagar Prints which rejected any sharp distinction between processing and manufacture as oversimplification and noted borderline cases may arise (Paras 8-9). E) Excise Law - Purification and Distillation of Chemicals - Whether Amounts to Manufacture - Section 2(f) Central Excise Act, 1944 - In the present case, the Tribunal third member held that distillation and recrystallisation did not amount to manufacture because the chemicals continued to remain the same with only an increase in purity and retained identity substantially; however, the Supreme Court observed that the third member did not deal with the findings of the Judicial Member that after the processes, the chemicals bore a different commercial name and had an altogether different use - Final determination of the appeal was not included in the provided excerpt (Paras 1-2, 9).
Issue of Consideration
Whether distillation and recrystallisation carried out by the respondent amount to 'manufacture' under Section 2(f) of the Central Excise Act, 1944
Law Points
- Inclusive definition of manufacture under Section 2(f) Central Excise Act
- 1944
- manufacture requires bringing into existence a new substance known to market
- mere processing or change in purity not sufficient
- commercial identity test
- processing versus manufacture distinction
