TMI Blog2021 (6) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... b of the controversy, as eloquently asserted by Learned Counsel, is the zero rating of the impugned goods owing to which the jurisdictional tax officials were afforded the luxury of contemplating the non-exigibility of the impugned activity to tax as manufacture. On perusal of the germane provisions of Central Excise Act, 1944, viz., definitions, of excisable goods and manufacture , in section 2 in conjunction with section 3, it is clear that the authority to assign rates of duty is restricted to the excisable goods enumerated in the tariff schedule while the levy, and assessment thereof, is conjoined with activity of manufacture that produces those goods. The foundation of the decision in Jayakrishna Flour Mills (P) Ltd , even if not about production of powdered spice is, yet, on taxability under section 65(105)(zzb) of Finance Act, 1994, as provider of business auxiliary services and, though in relation to processing of wheat into wheat powder to which the relied upon clarification of Central Board of Excise Customs pertained, the influence therein of the test prescribed in the several judgments supra is evident. The acceptance of subsequent orders, discarding, in identical circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Counsel that the latter of the references would, in the scheme of taxation empowerment, directly follow from the answer to the first finds resonance with Learned Authorized Representative and we, accordingly, restrict the scope of these proceedings. 3. The appellant, M/s Nilgiri Oil Allied Industries, has contracted with M/s Shalimar Chemical Works Ltd, Kolkata to process whole turmeric and chilly as well as seeds of coriander and cumin supplied by the latter into powder which is then packed and returned. In response to proceedings initiated against them, under section 73 of Finance Act, 1994, for recovery of liability arising from having rendered business auxiliary service , they claimed to have undertaken manufacture within the scope of Central Excise Act, 1944 which, by specific exclusion in section 65(19) of Finance Act, 1994, extinguished the levy under section 65(105)(zzb) of Finance Act, 1994. This was not accepted either by the original authority or by the first appellate authority leading to challenge before the Tribunal. 4. The constitutionally enshrined demarcation even among the several taxable events assigned to the Union by the Seventh Schedule for imposing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aracter of leviability. The duty is attracted not because an article is covered in any one of the items or it falls in the residuary category but it must further have been produced or manufactured and it is capable of being bought and sold in the judgement of the Supreme Court in Moti Laminates Pvt Ltd and others vs. Collector of Central Excise Ahmedabad 1995 (3) SCC 23. 5. It was inevitable that disputes on coverage of activity by the taxing statute, as prequel to disputation of classification within the tariff, have dogged adjudication and appellate authorities; not so much during the first three decades of limited enumeration of excisable goods in the tariff as after incorporation of the residuary compass, of tariff item TI 68,in 1975 which, along with broad spectrum interpretation of legislative intent from the inclusive definition of manufacture in section 2(f) of Central Excise Salt Act, 1944, was conveniently drawn upon by the excise administration to broaden the tax base. The enactment of Central Excise Tariff Act, 1985 that adopted the comprehensive and exhaustive enumeration of the customs tariff as the Schedule to replace the Schedule of Central Excise Salt Act, 1944, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced by him on circular no. 521/17/2000-CX dated 16th March 2000 of Central Board of Excise Customs while discounting the relevance of letter of Central Board of Excise Customs issued from F no. 11/01/2012-CX1 dated 9th July 2013 on which the Tribunal placed substantial emphasis in the decision in Jayakrishna Flour Mills (P) Ltd. Per contra, the decisions relied upon by the Tribunal in Sara Spices were also cited by him as having contributed to a finality that does not brook a revisit. We intend to turn to those decisions presently. 8. The proposition settled by the Supreme Court in Delhi Cloth and General Mills Co Ltd that 15. It is helpful to consider also in this connection the ordinary meaning of the word goods . For, by the very words of the Central Excises and Salt Act 1944, excise duty is leviable on goods . The Act itself does not define goods but defines excisable goods as meaning goods specified in the First Schedule as being subject to a duty of excise and includes salt . On the meaning of the word goods an interesting passage is quoted in the Words and Phrases, Permanent Edition, Vol. 18 from a judgment of a New York Court thus:- The first exposition I have found of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty with its own price structure, custom and other commercial incidents and that there was in that sense a manufacture within the meaning of Section 2(f), even as unamended, is an eminently plausible view and is not shown to suffer from any fallacy after observing that 15 . The prevalent and generally accepted test to ascertain that there is manufacture is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged as a result of the processes. The principles are clear. 11. In Bhor Industries Ltd vs. Collector of Central Excise, Bombay 1989 SCR (1) 382, the Supreme Court was confronted with the plea of non-leviability to excise duty in relation to goods that were claimed to be non-marketable intermediate products used exclusively for captive consumption and, noting the view of the Tribunal that 5 .if the description of the goods fell into the entry, it was dutiable in the intermediate list and as such the goods had become goods as known to the market and the question of mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule to Central Excises Salt Act, 1944 itself. The initial compilation re-listed the goods that, till the enactment of Government of India Act, 1935 which transferred power to levy duties of central excise from the Provincial governments to the Central Government, had been levied by the several provinces of British India and the subsequent additions, especially after 1947, were in pursuance of tax policy of Government of India culminating in the residuary, all-encompassing entry, incorporated in 1975. Though each of these gave rise to its peculiar genre of disputes, the resolution of these by judicial determination referred supra had established the framework for coverage under Central Excises Salt Act, 1944 by the time that the new Tariff was brought into force. Even thereafter, the very same principles had been applied in disputes wherein some process undertaken after the article assumed its final physical form was considered by tax authorities to be manufacture and, therefore, liable again to excise duty. 14. The Supreme Court arrived at the conclusion of non-taxability in Satnam Overseas vs. Commissioner of Central Excise, New Delhi 2015 (318) ELT 538 (SC) and a catena of other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since 1st September 2009 (coinciding with the commencement of dispute leading to the impugned order), with the qualification ..but does not include any activity that amounts to manufacture of excisable goods as substitute for (v) production of goods on behalf of the client; or but does not include any activity that amounts to manufacture within the meaning of clause (f) of section 2 of Central Excise Act, 1944. 18. With that substitution, the Explanation following was also expanded with (b) excisable goods has the meaning assigned to it in clause (d) of section 2 of the Central Excise Act, 1944 (1 of 1944); (c) manufacture has the meaning assigned to it in clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944) to restrict taxation to activities involving production or processing of goods that do not amount to manufacture of excisable goods which pass the test of transformation into marketable outputs that have distinct use. 19. Before proceeding to apply the test, it is incumbent upon us, at this stage, to consider any key submissions that may render it to be inapplicable. 20. That the products in question are excisable goods , within the meaning of section 2(d) of Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f tax under Finance Act, 1994 on rendering of business auxiliary service but on includability of value of powdered spice, exempted from duty as it was, in the computation of value of goods eligible for exemption accorded to a manufacturer of dutiable ready to eat / ready to cook foods opting to avail the benefit of conditional exemption and slab rates extended to units in the small scale sector. 25. The essence of eligibility flows from conditions in the relevant exemption notification issued under Central Excise Act, 1944 and it is not clear from the order, or the submissions of Learned Authorized Representative, that these are identical to the stipulation in section 65(19) of Finance Act, 1944 that is of concern here. Therefore, the finding on non-excisability of chilly powder in the context of that dispute may not be of relevance here. This is also no less apparent from the eschewing of introduction of the decision in Jayakrishna Flour Mills (P) Ltd as a precedent in that proceeding by either side even as the decisions in Krishna Chander Dutta (Spice) Pvt Ltd vs. Commercial Tax Officer 1994 (70) ELT 501 (SC) and in Crane Betel Nut Powder Works vs. Commissioner of Customs Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in of the test prescribed in the several judgments supra is evident. The acceptance of subsequent orders, discarding, in identical circumstances, the proposal to levy service tax, of the original and appellate authority that followed the clarification of Central Board of Excise Customs on manufacture of wheat products, places a severe restriction on continuation of the controversy vis- -vis levy of service tax. The decision in Jayakrishna Flour Mills (P) Ltd is, unlike the decision in Sara Spices , not deprived of its authority as binding precedent. 29. Each of the whole spices or seeds is subject to processing for production of powder. The transformed product has its own market similar to, and yet independent of, the harvested product that is subjected to processing. It is the particular use to which powdered spice is put to that prompted the establishment of an entire industry. Furthermore, without such processing there would be an unsatiated demand for powdered spice which would have to be undertaken, with additional labour, in domestic kitchens. Every aspect of manufacture , as settled by judicial determination, is, thus, complied with. The applicability of the decision in Jaya ..... X X X X Extracts X X X X X X X X Extracts X X X X
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