TMI Blog2003 (11) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Revenue Central Board of Excise Customs New Delhi To All Chief Commissioners of Central Excise. All Director General of Central Excise. All Commissioners of Central Excise (Appeals) All Commissioners of Central Excise Circular No. 584/21/2001-CX, dated 7 September, 2001 issued by the Government of India, Ministry of Finance (Department of Revenue), Central Board of Excise Customs, New Delhi vide F.No. 139/12/99-CX.4, dated 7-9-2001. Whether slitting of HR/CR coils of Iron and steel sheets into strips would amount to manufacture - Regarding. A question has arisen as to whether1. cutting of HR/CR coils of iron and steel into sheets and slitting of HR/CR coils/sheets of iron and steel into strips would amount to manufacture. The matter relating to cutting of HR/CR2. coils of larger width and running length in the form of coil into sheets of the same width but specific sizes was considered in Tariff Conference of Chief Commissioner held at Mumbai at 29-8-2000 and the general view was that the activity would not amount to manufacture. The matter has been further examined in the Board. As far as slitting of HR/CR coils of iron3. and steel into strips of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the Central Excise Tariff. The trade and field formations may be8. suitably informed. Receipt of this Circular may please be9. acknowledge. Sd/- (S.C. Bhatia) Under Secretary (CX. 4)" 3.The petitioners have assailed this circular on various grounds. There is no dispute amongst the parties regarding the basic facts of these petitions. Facts in brief are recapitulated in the following paragraphs. 4.The petitioners are job workers engaged in de-coiling the sheet coils and cutting these coils by using Cutter Machine into desired length, size and dimension needed by the respective buyers. By the aforementioned circular, respondent Nos. 1 2 have unilaterally chosen to decide that even mere cutting (without anything more), constitutes manufacture of new excisable goods and would, therefore, attract liability of duty of Excise. A bare reading of this circular, particularly Para 4 of the circular, clearly indicates that there are two possible points of view. According to the one point of view, cutting and slitting amounts to manufacture and consequently is liable for the duty of excise. The other view is that mere slitting is not a process or manufacture. The product b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the requirements of respective buyers. It is further incorporated that the material is subjected to all above process including cutting, a new product 'sheet' different from 'strip' emerges. Therefore, the process of cutting of 'strip in coil form' or into 'sheets' would amount to manufacture. 7.In the counter-affidavit reliance has been placed on Indandas v. Phadke, AIR 1982 SC 127. In the said case, the court laid down three broad categories which amount to manufacturing activities. These categories are set out as under :- 1. It must be proved that a certain commodity was produced. 2. That the process of production must involve either labour or machinery. 3. That the end product which comes into existence after the manufacturing process is complete and should have a different name and should be put to a different use. In other words, the commodity should be so transformed so as to loose its original character. 8.It may be pertinent to mention that the Solicitor General of India, Mr. Harish Salve, appeared for the revenue/respondent in this case. It is incorporated in the order sheet of 28-5-2002 that the learned Counsel appearing for UOI, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factured, has suffered a duty under a particular tariff item, does not exclude the finished product from being excisable to fresh duty if the Tariff Act provides for it. In the said case, though the cotton fabric had suffered duty under Tariff Item 19(1), the Tariff Act has made bedsheets, pillow covers etc. also dutiable under the same tariff item, therefore, the respondent is liable to pay excise duty on bedsheets, pillow covers, napkins, etc. manufactured by it. 11.Though in the counter-affidavit the preliminary objection regarding maintainability of the writ petitions is missing yet during the course of hearing the learned Counsel for the respondents did submit that the petitioners have alternative remedy of filing appeals. Therefore, the present writ petitions are not maintainable. It is also submitted that mere cutting and slitting into small pieces as desired by the customer would not amount to manufacture. The basic ingredients for manufacture is emergence of new product known to the commercial world. 12.On court's request, Mr. V. Lakshmikumaran, Advocate very ably assisted the court as an Amicus Curiae. Mr. R. Santhanam, Advocate appeared as the lead counsel in these p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sawn timber is not "manufacture" as no new product emerges. 17.Reliance has also been placed on State of Orissa v. Titaghur Paper Mills Co. Limited reported as AIR 1985 SC 1293. In this case the Supreme Court held that mere change in form does not amount to manufacture. The court in para 127 (10) of the judgment observed that timber and sized or dressed logs are one and the same commercial commodity. Beams, rafters and planks would also be timber. 18.It has been canvassed that to constitute manufacture, a new and different article must emerge having a distinct name, character or use. Reliance has been placed on Collector of Central Excise, Chandigarh v. Steel Strips Ltd. reported as 1995 (77) E.L.T. 248 (S.C.). In this case the court observed that cold-rolled steel strips produced out of duty paid hot-rolled steel strips do not undergo a process of manufacture hence not liable to duty again. 19.Reliance has also been placed on Bharat Forge Press Industries (P) Limited v. Collector of Central Excise reported as 1990 (45) E.L.T. 525 (S.C.). In this case the appellant were engaged in manufacture of pipe fitting such as elbow, bends and reducers. The appellants cut the pipes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Prabhat Sound Studios v. Additional Collector of Central Excise reported as 1996 (88) E.L.T. 635 (S.C.) the Supreme Court held : "The manufacturer of tapes may manufacture and sell blank tapes upon which the purchaser would be free to record such sound as he chose. The manufacturer may go one step forward and record sound itself and sell such tapes. It is to cover both eventualities that Tariff item 59 is categorised as it is. But it is altogether different to say that by reason thereof the recording of sound on blank tapes, as done by the appellant on job-work basis, is a manufacturing process. As the Tribunal in M. Basheer Ahamed's case has rightly pointed out, even such a pre-recorded tape can have the sound erased from it and it can be used again for recording other sound." 23.In Collector of Central Excise, Jaipur v. Banswara Syntex Limited reported as 1996 (88) E.L.T. 645 (S.C.) the Supreme Court held the liability to pay excise duty arises at the first stage itself, namely, at the time of manufacture of single ply yarn. This being so the demand raised by the Assistant Collector was not invalid. 24.Learned Amicus Curiae also placed reliance on Deputy Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Courts yet it cannot be ignored when authorities take a different stand because if such trade notice was erroneous, it would have been withdrawn. 29.In the case of Collector of Central Excise, Bombay v. Kores (India) Limited reported as 1997 (89) E.L.T. 441 (S.C.), the Supreme Court held that tariff advice or trade notice issued by the Board are not binding on Tribunal or Courts. The assessee can claim them to be erroneous but Revenue cannot advance arguments contrary to the Tariff Advice or Trade Notice. 30.In Collector of Central Excise, Vadodara v. Dhiren Chemical Industries reported as 2002 (139) E.L.T. 3 (S.C.) a Constitution Bench of the Supreme Court held that if there are circulars issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, then that interpretation will be binding upon the Revenue. 31.It may be pertinent to mention that though in the counter-affidavit no objection has been taken regarding the maintainability of the petitions but during the course of hearing learned Counsel for the respondents urged before the court that these petitions are liable to be dismissed because the petitioners have approac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority of law and jurisdiction. 35.A Division Bench of Bombay High Court in Yashwant Sahakari Sakhar Karkhane Limited v. Union of India Others reported as 1986 (26) E.L.T. 904 (Bom.) observed that if the highest authority constituted under the Act had already pre-determined the question, the statutory remedy has ceased to be a remedy and filing of an appeal/revision becomes an exercise in futility. There can, therefore, be no bar to the maintainability of writ petition under Article 226 of the Constitution. On the strength of these judgments, we can safely state that resorting to alternative remedy of filing appeal would have been an exercise in futility particularly when the impugned circular was sent to the Chief Commissioner and to Directors General of Central Excise. 36.A Division Bench of this Court in Hindustan Motors Limited v. Union of India reported as 2000 (117) E.L.T. 32 (Del.) observed : "In view of the law laid down by the Supreme Court in the case of Orient Paper Mills Limited v. Union of India, 1978 (2) E.L.T. J345 and thereafter by the High Courts of Gujarat Madras in Genset Engineers Pvt. Limited v. Union of India - 1989 (43) E.L.T. 24 and Lakshmi Machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 922 observed : 'The Act charges duty on manufacture of goods. The word "manufacture" implies a change, every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character and use.' 43.In M/s. Hindustan Polymers v. Collector of Central Excise reported as 1989 (43) E.L.T. 165 (S.C.) = JT 1989 (3) SC 674, their Lordships of the Supreme Court observed : "Excise Duty is a duty on the act of manufacture. Manufacture under the excise law, is the process or activity which brings into being articles which are known in the market as goods and to be goods these must be different, identifiable and distinct articles known to the market as such. It is then and then only that manufacture takes place attracting duty. In order to be goods, it was essential that as a result of the activity, goods must come into existence. For articles to be goods, these must be known in the market as such and these must be capable of being sold or are being sold in the market as such. In order, therefore, to be manufacture, there must be activity which brings transformation to the article in such a manner th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be more precise, the input of sodium sulphate in the manufacture of paper would not cease to be of raw material by reason alone of the fact that in the course of the chemical reactions, this ingredient is consumed and burnt up. All the same it remained a raw material. It was held that the relevant test is not the absence of the raw material in the end product, but the dependence of end product for its essential presence at the delivery end of process. What follows from this is that the raw material which we are concerned about is the raw material which is linked with emergence of the end product. It has to be present in the end product whether visibly or invisibly. 47.In Commissioner of Central Excise, Chandigarh v. Markfed Vanaspati and Allied Industries reported as 2003 (153) E.L.T. 491, excise duty was being paid on "earth". "Spent earth" is a residue resulting from treatment of fatty substances. The 'spent earth' remained 'earth' even after processing though its capacity to absorb was reduced, it was held that no excise duty was leviable on 'spent earth'. The facts in this case are quite similar to the facts of the case in hand. In Markfed case 'earth' was reduced to 'spent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at these were nothing but waste or rubbish which is thrown up in the course of manufacture. 50.Mr. V. Lakshmikumaran placed reliance on Moti Laminates Pvt. Limited v. Collector of Central Excise, Ahmedabad reported as 1995 (76) E.L.T. 241 (S.C.). In this case the Supreme Court observed : "The duty of excise being on production and manufacture which means bringing out a new commodity, it is implicit that such goods must be useable, moveable, saleable and marketable. The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling." 51.Learned Amicus Curiae has placed reliance on Hyderabad Industries Limited v. Union of India reported as 1995 (78) E.L.T. 641 (S.C.). The court observed that goods are liable to duty only if they arise as a result of a process of manufacture or production, that is, if they are a new and distinct commercially identifiable article. The cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n und understood. 55. In Computer Graphics Pvt. Limited v. Union of India reported as 1991 (52) E.L.T. 491 (Mad.) learned Single Judge of Madras High Court held that since the main question involved for decision, viz., whether by cutting Jumbo rolls into smaller flats, the petitioner is manufacturing a new and different product has been answered in the negative. 56.A Division Bench of the Madhya Pradesh High Court in Keshaodeo Shivprasad v. Union of India reported as 1992 (61) E.L.T. 404 (M.P.) observed : "The word 'manufacture' implies such a change that the raw material is transformed into a new and different article so emerged has to have a distinct name. The essence of manufacture is the transformation of the parts or basic components into another article of different character and the completion of a manufactured produce is reached after all the processes incidental or ancillary, have been completed. 'Manufacture' implies a change, but every change is not manufacture. Apart from treatment, labour and manipulation, there must be a transformation so that a different article having a distinct name, emerges." 57.Their Lordships of the Supreme Court in Collector of Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'manufacture' properly construed would doubtless cover the transformation but the question is whether that transformation brings about fundamental change, a new substance is brought into existence or a new different article having a distinctive name, character or use results from a particular process or a particular activity. In the instant case, it is not disputed that what the appellant did was to cut the running length fibre (tow) into short length fibre (staple fibre). It undoubtedly brought a change in the substance but did not bring into existence a new substance. The character and use of the substance - man-made fibre remained the same. It is true that by the change in the length of the fibre, it acquired a new name. But, since in this case, the tariff entry recognised the single description man-made fibre with no further sub-division based on length of the fibre and even without distinct enumeration of the various forms of fibre by cutting long fibre into short ones, the respondent did not bring into existence any new product so as to attract any levy under the same tariff entry. Even by cutting the respondent obtained man-made fibre. Such cutting, therefore, involved no m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same product. 61.Mr. R.C. Gupta submitted that the law declared by the Supreme Court in Kapri International (Supra) is in consonance with the judgments delivered by the Supreme Court in a large number of cases and it correctly laid down that wherein the processes applied on the cotton fabrics was not simply cutting the fabrics but in addition to cutting, the processes of hemming and stitching are must to produce "bed sheets, bed spreads, table cloths, napkins, etc., which brings into existence a new marketable commodity having distinct market identity and the Supreme Court rightly held that when new marketable commodity other than the raw material comes into existence, it satisfies the definition of manufacture and the duty is leviable thereon irrespective of the fact whether the tariff head changes or not. 62.Mr. Gupta also placed reliance on State of Maharashtra v. Mahalaxmi Stores reported as 2003 (152) E.L.T. 30 (S.C.) = (2003) 129 STC 79 (S.C.) in which their Lordships of the Supreme Court observed that the activity of crushing big sized stones (boulders) into small sizes does not result in manufacture because no new commercial commodity comes into existence. 63.Mr. Gup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts, hence the conditions of the levy of duty on the duty paid product again are not fulfilled and accordingly the Revenue is not empowered to misuse the powers in the guise of the Circular to declare the cutting/slitting of the steel sheets as manufacture, which the petitioner feels is without the authority of law and deserves to be declared as ultra vires. 68.Mr. R.C. Gupta also placed reliance on Mahalaxmi Stores (Supra), particularly on para 5, which reads as under: "From a perusal of the definition, extracted above, it is clear that the processes of producing, making, extracting, altering, ornamenting, finishing or otherwise, processing, treating or adapting of any goods fall within the meaning of the term "manufacture". But it may be pointed out that every type of variation of the goods or finishing of goods would not amount to manufacture unless it results in emergence of new commercial commodity. In the instant case, the very nature of the activity does not result in manufacture because no new commercial commodity comes into existence." 69.Mr. M.L. Qazi, learned Counsel appearing for the petitioner in CW No. 94/2002, basically adopted the arguments of learned Amicus C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expressions, "Bleached Fabric" has been defined as a fabric which has undergone bleaching treatment and is treated by the Indian Standard Institution as something different from fabric which has not undergone the bleaching operations. Different standards are set out by the same and the views of the Indian Standard Institution can be looked into by the Court with certain amount of creditability." 72.Reliance was placed on Ujagar Prints, etc. etc. v. Union of India Others reported as 1988 (38) E.L.T. 535 (S.C.). In this case the court observed : "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, recognised as a distinct and new article that has emerged as a result of the processes." 73.Reliance has also been placed on Gramophone Co. of India Limited v. Collector of Customs, Calcutta reported as 1999 (114) E.L.T. 770 (S.C.) = (2000) 1 SCC 549. The Court observed : "the view taken consistently by this court is that the moment the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese petitions, we are called upon to adjudicate whether cutting or slitting of steel sheets amount to manufacture? The other question which also calls for determination is whether revenue legislations can be introduced by a mere administrative act of issuing circular? We propose to answer both these issues in the succeeding paragraphs. 79.The expression 'manufacture' has been defined in The Central Excise Act, 1944 as under : '"manufacture" includes any process,- (i) incidental or ancillary to the completion of a manufactured product; and (ii) which is specified in relation to any goods in the section or Chapter notes of Schedule I to the Central Excise Tariff Act, 1985 as amounting to manufacture, and the word "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;" 80.The word 'manufacture' was first given comprehensive explanation in a Constitution Bench judgment in Delhi Cloth and General Mills (Supra). It was held that word manufacture means as bring into existence a new substance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the destination without folding it and when it is folded by the manufacturer, it is sheet in coil form and unfolded it is sheet as such and accordingly there is no difference in the steel sheets in coil form or cut straight to the specific sizes. The coils in running length are produced to save transportation cost and to minimize the wastage as during the cutting of the steel coils. 87.We would now examine the impugned circular in the light of the Judgments delivered by the various courts. The impugned circular itself had also noted the conflict of views whether, the mere slitting is a process or Manufacture? A careful reading of the impugned circular indicates that the Ministry issuing the circular itself was of the opinion that mere slitting does not amount to process of manufacture but perhaps because of the judgment of the Apex Court in Lal Woollen (Supra) the impugned circular was issued. 88.In Civil Appeal No. 74/2001 titled Collector of Central Excise v. Technoweld Industries, reported as 2003 (155) E.L.T. 209, their Lordships of the Supreme Court observed that Lal Woollen (Supra) undoubtedly appears to support the contention of the revenue. The Court further held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustainable and has to be quashed and we order accordingly. 91.Now we propose to examine the other main issue involved in the case, whether in the guise of the Circular the respondents have in fact brought out a revenue legislation for imposing excise duty. The other obvious question which arises for adjudication is whether according to the ambit and scope of Section 37B Excise Duty can be imposed? In order to properly comprehend Section 37B of the Act it is necessary to reproduce Section 37-B, which reads as under : "Instructions to Central Excise Officers. - The Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963), may, if it considers it necessary or expedient so to do for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods, issue such orders, instructions and directions to the Central Excise Officers as it may deem fit, and such officers and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the said Board : Provided that no such orders, inst ructions or directions shall be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his own discretion. This is the essence of judicial and quasi judicial function. The authority exercising such powers cannot be influenced by any directions, instructions or the Circulars that may be issued by any other agency. Consequently, the Circular issued by the respondents cannot be permitted to interfere with the discretion of the judicial and quasi judicial authorities. 96.The power to impose tax is essentially a legislative function and according to our constitutional scheme it cannot be delegated. The Excise Duty which the legislature intends to impose must be imposed directly in accordance with law. By issuing the impugned circular the respondent cannot introduce revenue legislation indirectly. The impugned circular also deserves to be quashed on this ground also. 97.Consequently, the impugned circular dated 7-9-2001 issued by the Ministry of Finance, Department of Revenue, Central Board of Excise Customs is quashed and proceedings emanating from the said Circular also stand quashed. These writ petitions are accordingly allowed. In the facts and circumstances of the case, we direct the parties to bear their own costs. 98.Before, we part with this case, we would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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