TMI Blog2008 (3) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... there is lack of legislative competence on the part of the concerned Legislature to bring in such a legislation and further, assuming the legislation meets the test of legislative competence, it is violative of Article 14 of the Constitution of India. The aforesaid writ petitions were listed along with W.A. No.1524/07 2. In the course of hearing of the writ appeal, on behalf of the appellant therein, it was contended that the decision rendered by the Division Bench in M/s Vindhyanchal Distilleries Private Ltd. Vs. State of M.P. and others, (2007) 7 VST 197 (MP) has not appropriately considered the decision rendered in Som Distilleries and Breweries Pvt. Ltd. vs. State of M.P. and another, 1997 (1) JLJ 319 and various other aspects which deserve consideration. The Division Bench hearing the writ appeal thought it apposite to refer the matter to a larger bench. The question that has been referred reads as follows: "Whether bottling of liquor amounts to manufacture of liquor or only packaging so as to attract the Service Tax?" 3. It is worth-noting that W.A. No.1524/07 was held to be not maintainable by the Full Bench and in that backdrop, the reference was not answ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e process of manufacturing involves various stages, viz., manufacture of rectified spirit at distilleries; transportation of rectified spirit from distilleries to manufacturing warehouses; manufacturing activity (blending) to make rectified spirit fit for human consumption; bottling, sealing, packaging of country spirit. It is contended that after the rectified spirit is rendered fit for human consumption the same is filled in bottles or some other packing mode as specified by the Excise Commissioner under the supervision of the Officer-in-Charge of the warehouses and sealing of the bottles is carried out as per specification and labels are affixed on each bottle and thereafter on demand of retail contractors and upon proof of payment into treasury of the issue price recoverable for it, the CS-1 license issues bottles of country spirit to the retail contractor. The 1915 Act contains provisions with regard to the manufacture, supply and sale of liquor. Chapter IV of the 1915 Act deals with the manufacture, possession and sale of liquor. Section 13 of the Act creates a bar on manufacture and collection of intoxicant except under the authority and subject to the terms and conditions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability to the contractors obtaining the supplies from them. The Bench referred to Section 65(76b) of the Act and the provisions under the 1995 Rules and Section 2(d) of the 1944 Act which defines excisable goods, the conditions of the tender, especially condition No.6 and the transactions as per tender notice and relied upon the decision rendered in Tamil Nadu Kalyana Mandapam Assn. Vs. Union of India, 2004 (62) RLT 115 (SC)=(2004) 5 SCC 632 wherein imposition of service tax on mandap keepers was upheld on the foundation that it was permissible to lift the service tax on the catering services provided by the mandap keepers and the contention that it did tantamount to tax on land was rejected, and further adverted to the concept 'in relation to' as has been dealt with in the case of Tamil Nadu Kalyana Mandapam Assn.(supra) and thereafter expressed the view as under:- "It is clear from the transaction that only the service was to be provided for the purpose of packaging, which was controlled under the condition of tender notice and separate charges were paid for bottling, labelling and sealing, which were not forming part of the price of the country spirit. For country spi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he apex court held that all processes do not constitute manufacture. In our opinion, it merely by providing service for bottling a new commodity, does not come into being new article, it is clearly a service provided. Manufacture is complete as soon as by the application of one or more process, the raw material undergoes some change. The moment there is a transformation into a new commodity commercially known as a separate and distinct commodity having its own character and use, "manufacture" takes place as held by the apex Court in Aditya Mills Limited vs. Union of India, (1989) 73 STC 195: (1988) 4 5CC 315. In Collector of Central Excise, Madras vs. Kutty Flusi Doors Furniture Co. (P) Ltd., (1988) 70 STC 314: AIR 1988 SC 1164,it is held that by conversion of timber logs into sawn timber, no new produce emerged by sawing of timber, therefore, higher excise duty on sawn timber was not leviable." After so holding, the Division Bench referred to the decision rendered in Som Distilleries Breweries Pvt. Ltd. (supra) and distinguished the same by observing as under: ". . .The decision is of no assistance to the question involved in the present case. It was rendered in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unless there is anything repugnant in the subject or context- (a) xx xx x (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 First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture, or (iii) which in relation to the goods specified in the Third Schedule involves packing or repacking of such goods in a unit container or labeling or relabeling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the produce marketable to the consumer; and the work 'manufacture' 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." 13. The learned counsel for the petitioners has laid immense emphasis on sub-clause (i) of Clause 2(f) which deals with "incidental or ancillary to the completion of a manufactured product". The learned counsel submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product in question, namely, IMFL. On this subject the opinion of the Ministry of Law is that 'even though the definition under the Central Excise Act are for the purpose of that Act, yet by referential legislation, a few of them have been borrowed by reference to the first Act'. In other words when a definition from an Act is transposed unto another Act, it is the scope of that definition which is imported into the borrowing Act and not the scope of the first Act and the context in which such definition is used in the first Act. Admittedly the scope of the two Acts would be distinct and if the definition is borrowed from the first Act into the second Act having different scope, the same would get disturbed/distorted if the context and scope of the earlier Act is also imported. This is primarily a substitute to writing the entire defining terms in the second Act and not to change the scope of the borrowing Act. Thus just because Central Excise Act does not extend to the manufacture or production of alcoholic beverages meant for human consumption, it cannot be said that the terms 'manufacture' used in Business Auxiliary Service would also not cover the process of making the said pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) are also reimbursed to the CBU by the BO. The alcoholic beverages are sold by or as per the directions of the BO and profit or less on account of manufacturing and sale of alcoholic beverages is entirely on account of manufacturing and sale of alcoholic beverages is entirely on account of BO, who thus holds the property, risk and reward of the products. The CBU receives consideration (i.e. Job charges) for undertaking the manufacturing activity on job work basis. There is no doubt that under such an arrangement, CBU is a service provider providing services to BO. A doubt has arisen, whether or not the CBU provides a taxable service namely, the Business Auxillary Service (BAS) to BO. This taxable services includes any service pro vided or to be provided in relation to production or processing of goods for, or on behalf of the client. This taxable service however, by definition excludes any activity that amounts to "manufacture" within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 from its ambit. The issue in dispute is whether such activity would be hit by the exclusion clause mentioned above. 3.2 In the draft circular dated November, 2006, it was mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). It is a settled law that when a definition from an Act is transposed into the borrowing Act without any reference to the context of such definition in the Act from which it is being borrowed. It is the words of that definition, which is imported into the borrowing Act and not the scope of the first Act and the context in which such definition is used in the first Act. Admittedly the scope of the two Acts would be distinct and if the definition is borrowed from the first Act into the second Act having different scope, the same would get disturbed/distorted if the context and scope of the earlier Act is also imported. Thus, just because Central Excise Act does not extend to the manufacture or production of alcoholic beverages meant for human consumption, it cannot be said that the term 'manufacture' used in BAS would also not cover the process of making the said product, namely, alcoholic beverages. [emphasis supplied] 15. If the basic aspect of manufacture as contained in Section 2(f) of the Act is appreciated, it would convey that the "manufacture" would include "any process incidental or ancillary with the completion of manufactured product". The dictionary clause further e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and exclusive i.e. it may include certain things and exclude others. Limited exclusion of a thing may suggest that other categories of that thing which are not excluded fall within apparently wide or inclusive definition. But the exclusion clause may have to be given a liberal construction if the purpose behind it so requires." In view of the aforesaid principle and regard being had to the exclusionary facet in the Finance Act, though a limited one, it would exclude the manufacturing process as defined under section 2(f) of the 1944 Act. 18. Keeping in view the aforesaid dictionary clauses and circulars issued by the C.B.E. C. it is quite luminescent that word "manufacture" has to be understood in a broader sense and not to be confined or restricted to the excisable product in the Act. It would include all processes which amount to manufacture whether or not the final product is an excisable product. 19. It will not be out of place to mention that section 65 (76b) while defining refers to the definition of manufacture as contained in Section 2(f) of the Central Excise Act. Thus, in a way it is referral legislation. In this context, we may refer with profit to the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is potable. Colouring and flavouring agents are added at the time of maturation. Thereafter the liquor is supplied in sealed bottles to the retail contractors. This is the process of treatment given to over proof spirit in order to render it fit for human consumption in the form of country liquor. If the process is analysed there cannot be any scintilla of doubt that the process involves the manufacturing one under the provisions of Section 2(f) of the Central Excise Act, 1944. As per the M.P. Country Spirits Rules as well as Cl.6 of the Tender Conditions it is mandatory for a distiller to supply country liquor in sealed bottles and not otherwise. 21. It is urged by the learned counsel for the petitioners that the bottling and sealing done is an integral part of the manufacturing process of country liquor and no exclusive packaging service is provided to the retail contractors. The sealing charges which is being recovered from the retail contractors is, in fact, the manufacturing cost and the charge is not for bottling of the country liquor but in includes the cost of the whole manufacturing of country liquor. 22. In this context, we may refer with profit to the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to receipt money under the contract." 25. In Bharat Sanchar Nigam Ltd. and another vs. Union of India and others, (2006) 3 5CC 1, their Lordships have expressed thus: "42. All the sub-clauses of Article 366(29-A) serve to bring trans actions where one or more of the essential ingredients of a sale as de fined in the Sale of Goods Act, 1930 are absent, within the ambit of purchase and sales for the purposes of levy of sales tax. To this extent only is the principle enunciated in Gannon Dunkerley Ltd. (sic modified). The amendment especially allows specific composite contracts viz, works contracts [sub-clause (b)]; hire purchase contracts [sub-clause (c)], catering contracts [sub-clause (e)] by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax." Thereafter, their Lordships proceeded to state as follows:- "44. Of all the different kinds of composite transactions the drafters of the Forty-sixth Amendment chose three specific situations, a works con tract, a hire purchase contract and a catering contract to bring them within the fiction of a deemed sale. Of these three, the first and third involve a kind of servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction, should ordinarily be held to be binding, save and except where it violates any provisions of law or is contrary to any judgment rendered by the Courts. The reason for giving effect to such executive construction is not only same as contemporaneous which would come within the purview of the maxim temporania caste pesto, even in certain situation a representation made by an authority like Minister presenting the Bill before Parliament may also be found bound thereby." 29. In Commissioner of Central Excise, Bolpur v. Ratan Melting Wire Industries, 2008 (89) RLT 124 (SC-LB)=(2008) 13 SCC 1, the Constitution Bench has held as under: "7. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act inasmuch as the said definition by its import excludes the manufacturing process under the Central Excise Act from the net of service tax. (vi) The Circular F.No.249/1/2006-CX, dtd. 27th Oct., 2008 issued by the Central Board of Excise and Customs clarifies the position that the term 'manufacturing process' as far as bottling is concerned, has to be understood in the context of the decision of the Apex Court and keeping that in view, has taken it out of net of service tax and the said circular is in consonance with the decision rendered by the Apex Court in Sir Shadilal Distillery Chemical Works, Mansurpur (supra). (vii) The process of manufacture as defined under Section 2(14) of the 1915 Act falls within the ambit and sweep of Section 2(f)(i) of the Central Excise Act, 1944 and, therefore, there can be no levy of service tax on manufacture in view of the clear postulate under Section 65(76b) of the Finance Act, 2005. To elaborate: the fundamental concept of manufacture as engrafted under Section 2(14) of the 1915 Act cannot be regarded as alien to the definition of 'manufacture' under Section 2(f)(i) of the Central Excise Act as has been held by the Division Bench in M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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