2004 (2) TMI 61 - SC - Central Excise

Whether a new and marketable product having a distinct name, character and use could be said to have come into existence as a result of the process undertaken by the Appellants? Held that - the tariff item makes no distinction between coated and uncoated tubes, pipes etc. The Board had in June 1988 issued a Circular clarifying that the process of guniting i.e. cement mortar coating on the outside did not amount to manufacture of a new product. By another Circular dated 9th February, 1994 the Board has also clarified that galvanized pipes and tubes continued to be covered by the expression Tubes and Pipes and galvanization does not amount to manufacture. So far as the Appellants are concerned they are merely fixing, rubberizing and painting pipes etc. which are supplied to them by their customers. Of course, some times in order to do the above work they have to cut the pipes and then weld them with flanges in order to restore the pipes to its original length. But, in our view, no process of manufacture has been undertaken and no new commodity has come into existence.

Summary

Issues:
Whether the process undertaken by the appellant results in the creation of a new and marketable product.

Analysis:
The appellant, engaged in fixing rubber linings on pipes and tanks supplied by customers, faced a show-cause notice alleging non-inclusion of various charges in the assessable value. The Assistant Collector dropped the notice, but the Department appealed to the Collector (Appeals), who ruled in their favor. The appellant then appealed to the Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT), which upheld the Collector's decision. The central issue was whether the process undertaken by the appellant resulted in the creation of a new and marketable product.

In analyzing this issue, the Supreme Court referred to various legal precedents. It cited the case of U.O.I. v. D.C.M., where it was held that mere processing of a material does not constitute manufacturing unless a new substance emerges with a distinctive name, character, and use. Similarly, in Indian Hume Pipe Co. Ltd. v. Collector of Central Excise, it was held that merely lining and coating steel pipes did not result in a new product's creation. The court emphasized that Circulars issued by the Central Board of Excise & Customs are binding and noted that the tariff item did not distinguish between coated and uncoated goods.

Further, the court referred to cases like Lathia Industrial Supplies Co. Pvt. Ltd. v. Collector of Central Excise and Telangana Steel Industries v. State of A.P., where it was held that certain processes like rubberizing old rollers or drawing wires from wire rods did not amount to manufacturing new products. The court also highlighted the case of Commissioner of Sales Tax v. Lal Kunwa Stone Crusher (P) Ltd., where it was held that certain processed materials retained their original identity and did not become separate commodities.

Applying these legal principles to the appellant's case, the court found that the appellant's activities of fixing, rubberizing, and painting pipes did not amount to manufacturing a new commodity. Even though some pipes needed cutting and welding, the court concluded that no new product had come into existence. Consequently, the court set aside the decisions of the lower authorities and allowed the appeal, ruling in favor of the appellant.