SWAGING CONSTITUTES MANUFACTURE IN TERMS OF SECTION 2(f) OF CENTRAL EXCISE ACT, 1944

[Mr. M. GOVINDARAJAN]

            Section 2(f) of Central Excise Act, 1944 ('Act' for brevity) defines the term 'manufacture'. According to section 2(f), manufacture includes any process-

            >> incidental or ancillary to the completion of a manufactured product;

            >> which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labeling of containers including the declaration or alteration of retail sales price on it or adoption of any other treatment on the goods to render the product marketable to the consumer,

and the word 'manufacture' shall be construed accordingly and shall not only a person who employs hired labor in the production or manufacture of excisable goods but also any person who engages in their production or manufacture on his own account.

            In 'Hawkins Cooker Ltd., V. Collector' - 1996 -TMI - 44760 - (SUPREME COURT OF INDIA) it was held to levy central excise duty it is necessary that a new article should come into existence as a result of manufacturing activity. Unless there is a finding of manufacture, excise duty is not attracted.

            In 'Union of India V. Parle Products Ltd.,' - 1993 -TMI - 43858 - (SUPREME COURT OF INDIA) it was held that the activity or process in order to amount to 'manufacture' must lead to emergence of a new commercial product, different from the one with which the process started.

            In this article it is to be discussed whether swaging constitutes manufacture with reference decided case law.

            Forming operation in which the diameter of bars or tubes is changed by repeated blows of shaped hammers is called 'swaging'. It is important to note that in the mechanics of Forming Processes, the mechanics of rolling is different from the mechanics of forging, which is different from mechanics of drawing, which is different from mechanics of bending and which is different from mechanics of extrusion. The shape that is formed on the metal sheet depends upon the shape of the punch and the shape of the die used to produce the work piece. Depending upon the nature of the desired configuration, the formed shape may be developed over a series of operations or it may be simultaneously formed. A wide variety of punches and dies are used in the swaging machine. The dies are of different shapes, namely, V-dies, W-dies, U-dies, rotary dies etc., The use of these dies would largely depend upon the desired production rate and volume. In rotary swaging the final shape is round because the dies rotate around the work piece while the operation is being performed.

            Swaging is a general term which is applied to a number of Metal Forming Operation. Production Swaging Operations are commonly performed on rotary swaging machines. Swaging has proved to be an economical production method for forming shapes confined to a portion of the total length of a given pipe or tube, by tapering, pointing, reducing or sizing. Swaging process is also used for joining and fastening operations. It is also used in assembling two or more components by joining a bushing to a shift, swaging of rings on to wire for use as electrical connectors, and for attaching fittings to tubes.

            In 'Prachi Industries V. Commissioner of Central Excise, Chandigarh' - [2008 -TMI - 3583 - Supreme court] the Supreme Court made an analysis in its judgment whether swaging constitutes manufacture. In this case M/s Prachi Industries is the small scale unit. It buys duty-paid MS tubes from manufacturers. The said tubes are classified under Heading 73.06 of the Schedule to the Central Excise and Tariff Act, 1985. After receiving the said tube from the manufacturers, the assessee cuts the same into requisite lengths and thereafter put in the swaging machine in which dies are fitted with imparts 'folds' to the flat surface of MS tube/pipe.

            Revenue seeks to demand duty once again under the same heading by treating the process of swaging as 'manufacture'

            The Supreme Court clarified that the judgment in this case is based on interpretation of the word 'manufacture' as defined in Section 2 (f) of the Act. With the introduction of the 1985 Act, the definition of 'manufacture' has been substituted to include 'any process - incidental or ancillary to the completion of a manufactured product'. It becomes clear that the word 'process' must be in relation to manufacture and the process must be incidental to the completion of the manufactured product. The incidental process must be an integral part of manufacture resulting in a finished product which has to be of different physical shape, size and use. The said process must impart a change of lasting character to the original product or raw material. After the process, a new finished product must come into existence. It comes into existence only when it acquires a distinguishable identity. In the present case swaging machine contains dies of different sizes and patterns. Swaging is a process which imparts a change of lasting character to the plane MS pipe or tube by use of dies which exists in the machine. After the process of swaging the identity of the plane MS pipe or tube undergoes a change both in terms of form, shape and user.

            The Supreme Court is of the view that the MS tube/pipe after insertion in the swaging machine receives 'folds' on a portion of the plane MS tube/pipe depending upon the die in the swaging machine. It is the die which gives accurate shape to the work piece. In the present case, the assessee has assigned distinct code numbers and distinct design numbers for different shapes of profiles. This aspect has not been considered by the adjudicating authority which decided the matter in favor of the assessee. The Supreme Court is of view that in the context of Section 2(f) of the Act in the present case the rotary swaging machine with different dies therein imparts a change of lasting character to the plane pipe or tube by use of dies. That, work piece having a distinguishable identity comes into being depending on the shape of the date and the punch used. On facts, the Supreme Court found that after undergoing the swaging process a work piece of a different shape and user emerges and therefore the process of swaging amounts of manufacture under Section 2(f) of the Act.