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Mysore Acetate and Chemicals Co. Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1984)(18)ELT671TriDel
AppellantMysore Acetate and Chemicals Co.
RespondentCollector of Central Excise
Excerpt:
.....what was meant. it is not what is primarily a "manufacture" but a "manufacturing process" that an article or a manufactured product is to undergo. the act, however, does not speak anywhere of a "manufacturing process". it speaks of a process incidental or ancillary to the completion of the manufactured product. therefore, the words "manufactured in a factory as a job work" in the notification are not to be construed to be primary manufacture of the article in question but is to be interpreted as comprehending only the process that the manufactured article was intended to undergo obviously after its manufacture as ancillary or incidental to the completion of "manufacture". (f) this is the only raison d'itre for the requirement that the article entrusted for undergoing the manufacturing.....
Judgment:
1. In this Revision Application to the Government of India, transferred to the Tribunal and heard as an Appeal pursuant to Section 35P of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act), the facts, in brief, are- (a) the appellant received duty paid Acetic Acid for conversion into Acetic Anhydride on a job work basis after having obtained permission to do so and avail of the benefit of Notification No. 119/75, dated 30th April, 1975 from the Assistant Collector of Central Excise; (b) subsequently, the permission was revoked with the result that the Appellant had to pay an amount of Rs. 4,255.44 as additional duty calculated on the basis that the Notification did not apply to the conversion undertaken by the Appellant; (c) subsequently, a notice requiring the Appellant to show cause as to why the differential duty specified in annexure attached to the notice should not be realised from the Appellant and why the concession under Notification No. 119/75, dated 30th April, 1975 should not be refused; (d) in adjudication, it was held that the Acetic Anhydride manufactured out of Acetic Acid by the Appellant is altogether a different product and has, accordingly, to be assessed in terms of Item 68 of the First Schedule to the Act, without affording any benefit of exemption under the aforesaid Notification No. 119/75; (e) an appeal filed by the Appellant was rejected on the ground that the provisions of the aforesaid notification cannot be made applicable because "the article received by the job worker is not returned as such after undergoing manufacturing process in the premises of the job worker; (a) when, in terms of the notification, an article undergoes a manufacturing process with the job worker, it cannot retain its original identity, since a manufacturing process necessarily involves] a change. The benefit of the Notification cannot be denied on this account. [Reliance on 1978 E.L.T. 533 Anup Engineering Ltd., Ahmedabad v. Union of India)]; (b) Acetic Acid is not a product different from Acetic Anhydride seeing that, after all, Acetic Acid is denuded of one molucule of water. In other words, there is no manufacture.

3. Apart from 1978 E.L.T. 533 {Anup Engineering Ltd., Ahmedabad v.Union of India), it would appear that the construction and applicability of the aforesaid notification came up for consideration in- (i) 1982 (E.L.T. 370 (Mad.) (Madura Coats Ltd. v. Superintendent of Central Excise); (ii) 1982 E.L.T. 129 (Cal.) {Collector of Central Excise, Calcutta v. Madura Coats Ltd.-in Appeal Against 1984 E.L.T. 582); (iii) 1983 E.L.T. 876 (Cal.) {Associated Pigments Ltd. v. Collector of Central Excise, Calcutta).

(i) Order No. C-17/83 [Appeal No. 177/80-C- Waldies Ltd. v. Collector of Central Excise (W.B.), Calcutta-unreported];Orissa Construction Corporation v. Collector of Central Excise--1983 ETRIndian Steel Rolling Mills Ltd., Madras v. Collector of Central Excise, Madras).

5.(a) in the first of the cases decided by the Tribunal, the question for consideration was as to whether the benefit of Notification No.119/75 can be availed of in the case of conversion of lead into litharge. The case of Anup Engineering Ltd. (1978 E.L.T. 533) was cited at the bar. It was held however, that the lead received by the Appellant became a different substance altogether and consequently, the Notification in question did not apply; (b) in the second case before the Tribunal, no case law was cited. The question was if fabrication of radial gates out of sheets of steel and iron can fall within the aforesaid Notification so as to avail of its benefit. It was held that the Appellant cannot avail of the benefit of a levy merely on remuneration for the job work done in terms of the aforesaid Notification, seeing that the identical article is not returned after completion of the job work. "It was sheets of iron and steel that were supplied to the Appellant and he returned radial gates made out of them"; (c) in the third of the cases decided by the Tribunal, however, it was held following 1978 E.L.T. 533 that cutting of wire nails out of wires supplied in running lengths was a job work eligible for the benefit of Notification No. 119/75.

6.(a) In 1978 E.L.T. 533 {Anup Engineering Ltd. v. Union of India), duty paid article like e.g. tin plates, sheets, tubes, pipes etc. were delivered to the Petitioner for converting them into equipments and components on job work basis. Construeing the aforesaid notification, it was held, inter alia, that "the article supplied by the customer has to undergo manufacturing process as intended. It is obvious, in the context of the excise law, that, unless a new article known to trade emerges after the manufacturing process is completed, Excise Duty cannot be levied at all. That is the very basis of taxation under the excise law. In order to exempt job workers from payment of duty except to the extent of duty on the job work charges, this explanation to the Notification makes it clear that the article which undergoes manufacturing process at the hands of the job worker, must be supplied by the customer and the only thing which the job worker has to do is to subject that article supplied by the customer to the intended manufacturing process. The final result, after the manufacturing process is completed, has to be returned to the customer and the job worker only charges' for the job work done by him. Under these circumstances, it is clear that, though excise duty would be, otherwise leviable on the value of the article as it leaves the job worker's factory, by virtue of the notification, excise duty has to be paid only on the charges for the job work and not on the total value of the article when it leaves the factory of the job worker. No other meaning is possible on the wording on this particular notification"; (b) In 1982 E.L.T. 129, the judgment proceeded on the basis that the tyre cord warp sheets in question were not excisable goods in terms of Item 68. Their lordships observed "it is apparent from the sample that the nylon yarns have not undergone any change and it is difficult to say that any new substance has come out as the nylon yarns have been arranged lengthwise in systematic order". In this view of the matter, it was, that their lordships concluded that- (ii) alternatively, even if the goods fell within the ambit of Item 68 of the First Schedule to the Act, as "goods not elsewhere specified," still, the process involved would be a "job work" in terms of the notification.

(c) In 1983 E.L.T. 876, following the aforesaid two decisions, it was held that the benefit of the exemption under the aforesaid notification is attracted in a case of conversion of pure lead into lead suboxide and lead monoxide; (d) The decision in 1982 E.L.T. 370 is, in reality, a decision to the contrary. In that case, the process involved was merely twisting of three materials and "thereby they undergo only a change in their physical form but are still identifiable and bears the same character in which they have been supplied". It was observed that "if during the manufacturing process, the materials supplied lose their identity and the product that is handed over to the supplier is entirely different in which the article supplied cannot be identified, the concession contemplated in the notification would not be available".

7. In view of the conflict in decisions adverted to supra, if we were to proceed to construe the aforesaid notification, on our own, from first principles, it would appear that- (a) in terms of Section 2(f) of the Act, "manufacture" has been inclusively defined so as to bring within its ambit any process incidental or ancillary to the completion of a manufactured product; (b) it is well settled that an inclusive definition is made use of, to "enlarge the words or phrases occurring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include" (per Lord Watson in Dilworth v. Commissioner of Stamps (1890) A.C. 99"at pp.

105, 106- and cited in p. 270 of Maxwell on Interpretation of Statutes- 12th Edition); (c) it cannot, however be disputed that, if after such an inclusive definition, the things legislatively declared to be included within the definition are mentioned in contradistinction to those which the word defined signify according to its natural import, in any particular context, then, it cannot but mean and imply anything other than what it primarily and naturally means and not the things sought to be included, despite the inclusive definition. Thus, for example, if "retail trade" had been defined to include the business of a hair dresser and the latter is mentioned separately in contradistinction to the former, it cannot be contended that, in that context, "retail trade" still includes any thing other than what it primarily means and the business of a hair dresser comes within it; (d) in the premises, wherever the word "manufacture" occurs in the Act, Rules or the notifications, it may have to be interpreted so as to include any process that is incidental or ancillary to the completion of a product already manufactured. But, then, where a process, by itself incidental or ancillary to the completion of a manufactured product, is separately adverted to in contradistinction to "manufacture", it does not necessarily mean or imply "manufacture" of the product itself. While "manufacture", may include any process incidental to the completion of the manufactured product, such process, by itself, will not amount to a "manufacture". In other words, "manufacture" of a product does not primarily or naturally comprehend any process incidental or ancillary to the completion of the manufactured product. There is a distinction between the two. When, therefore, a process ancillary or incidental to the completion of a manufactured product is separately adverted to it cannot be construed to mean and imply a "manufacture"; (e) the notification in question makes use of the words "manufactured in a factory as a job work," while, in the explanation of "job work", it speaks of a "manufacturing process" to be undergone by an article. It thus speaks of goods manufactured as a job work and seeks to explain what was meant. It is not what is primarily a "manufacture" but a "manufacturing process" that an article or a manufactured product is to undergo. The Act, however, does not speak anywhere of a "manufacturing process". It speaks of a process incidental or ancillary to the completion of the manufactured product. Therefore, the words "manufactured in a factory as a job work" in the notification are not to be construed to be primary manufacture of the article in question but is to be interpreted as comprehending only the process that the manufactured article was intended to undergo obviously after its manufacture as ancillary or incidental to the completion of "manufacture".

(f) this is the only raison d'itre for the requirement that the article entrusted for undergoing the manufacturing process, should, itself, be returned by the job work after it has undergone the intended process. If, on the contrary, the process to be undergone really amounted to "manufacture", involving a substantial change in the article given for job work, it is altogether inconceivable how the selfsame article can be returned by the job worker; (i) there has to be an article i.e. a manufactured product that has already come into existence; (ii) it is that article that is entrusted to a job worker for a process incidental or ancillary to the completion thereof; (iii) it is that identical article that is to be returned by the job worker after it has undergone the intended process; (h) while it is true that, ordinarily, "manufacture" implies a change resulting in finished goods different from the original and having a distinct name, character and use, a process incidental or ancillary to manufacture for completion of the manufactured product does not involve any such change. It is not difficult to conceive of such incidental or ancillary processes that do not result in any change of the basic product but are incidental or ancillary for the completion of the previously manufactured article like e g.

electroplating; (i) it cannot, in the premises, be urged that "manufacture" of excisable goods, in its primary sense, is, itself, comprehended within the aforesaid Notification and accordingly, processes involving basically "manufacture" could be entrusted and carried out as job work, notwithstanding that the resulting products returned after the job work is different from the one entrusted; (j) apart from losing sight of the inherent distinction between "manufacture" in its primary sense and processes incidental or ancillary for the completion of a manufactured product, such an interpretation of the Notification in question nullifies the requirement of the return of the identical article after completion of the job work; (k) (i) it will be observed that in 1982 E.L.T. 129, it was held primarily that there was no manufacture involved. Alternatively, it was held, even if the goods fell within the ambit of Item 68 of the First Schedule to the Act, still, the process involved will be job work in terms of the notification, presumably, because the process (arrangement of nylon yarns systematically) is not other than one merely ancillary or incidental to the completion of the manufactured product and no new substance has come out rather than because the notification applied even when a new commodity was manufactured as job work; (ii) similarly the Madras High Court in 1980 E.L.T. 370 had no difficulty in concluding that if the materials supplied lose their identity, the concession in the Notification is not available; and all the three decisions of the Tribunal, the identity of the articles given for job work is altogether lost in the process to which they were subjected to that was not the case in 8. If, the construction of the notification adopted by the Gujarat and Calcutta High Courts in 1978 E.L.T. 533 and 1983 E.L.T. 876 is to be followed, it is not inconceivable that manufacture of any of the excisable goods falling within Item No, 68 of the First Schedule to the Act can be farmed out on a job work basis so that the assessment of the duty will be on the basis of the job work charges only and not the value of the excisable goods, as per Item 68 of the First Schedule, read with Section 4 of the Act, with the result that they are altogether rendered nugatory.

9. We had previously desired the issues of construction and applicability of the aforesaid Notification to a larger Bench in the case of M/s. National Organic Chemical Industries Ltd., Bombay. In making the said reference however, the conflict between the decision in the Waldies case and 1983 E.L.T. 2382 on the one hand, 1983 E.L.T. 2396 on the other, amongst the decisions of the Tribunal, has not been highlighted.

10. In view of the conflicting decisions of the Tribunal adverted to and of the various High Courts, the papers may be placed before the President for constituting a larger Bench to go into the question of construction and applicability of the aforesaid Notification No.119/75.

11. On the second question, it cannot but be held that, chemically, Acetic Acid and Acetic Anhydride are not identical. Consequently, there is undoubtedly a manufacture of Anhydride from Acetic Acid.

12. With great perspicacity, Brother Murthy has put his finger on the danger spot. In paragraph 8, he brings out the risks of job work or what the assessee will demand to be termed job work. All that he needs is to farm out his raw materials to another to be made into finished excisable product for him. When the goods are ready for return, he will ask for assessment to be made only on what he pays to the "job worker", the job work charge. Thus, a man sends steel sections, blanks etc. to another man who then builds a machine charging a certain price for the work. The first man can demand assessment on only the charge he pays for the fabrication, a mere fraction of the full value of the machine.

To say, as does the appellant, that acetic anhydride is the same substance chemically as acetic acid because a molecule of water has been removed from the acid to form the anhydride, is like saying that carbon dioxide is the same chemically as carbonic acid because it is the latter's anhydride. Or that carbon dioxide (a non-toxic gas) is like carbon monoxide (a highly toxic gas) because they are both compounds of oxygen and carbon, and because the only difference between them is one atom of oxygen more in the former and it would not matter, perhaps, that carbon monoxide is inflammable and a dangerous fire risk whereas carbon dioxide is non-combustible and finds uses in fire extinguishing and for human consumption (charged/aerated beverages).

13. During the hearing, the learned counsel for the department, Mrs.

Zutshi, quoted the famous Delhi Cloth Mill decision of the Supreme Court to argue that when a new product acetic anhydride with different uses character and name was created, excisability becomes inevitable.

We must never forget this fundamental rule. And its universability can be judged by the fact that it applies to more than one set of circumstances. In the matter before it, the court set out to determine whether an excisable product had been created so as to attract the duty of excise. In the course of the discussion it observed "to become goods an article must be something which can ordinarily come to the market to be bought and sold. This consideration of the meaning of the word "goods" provided strong support for the view that "manufacture" which is liable to excise duty under the Central Excises and Salt Act, 1944, must be the bringing into existence, if a new substance known to the market". So to one who would enquire whether the object has become an excisable good, these observations are a sure guide. And to another who would enquire whether an object that has become excisable can avoid such excisability because of some procedure adopted in the act of bringing it into existence, they are again an unfailing path finder.

The court's words leave no one in doubt that were a thing to be created and such creation is an excisable good, then it must bear duty, without regard to the manner in which or the agency by which it is created. The emergence of a new and different article having a distinctive name, character and use is all that matters. There is no denying that acetic anhydride has a distinctive name, character and use of its own, different from acetic acid. Its chemical properties and, indeed, structure are different from acetic acid. That the two possess certain common components and even uses will not make one the same thing as the other, because that is true of thousands upon thousands of substances.

Their names are different. The test is well and truly passed.

Therefore, a new article has emerged and it must bear excise duty, and for this new article there is no exemption.

As the decision is unanimous on the excisability of acetic anhydride, I think there is no need to refer this to a large Bench.

14. The entire case hinges upon the interpretation of Notification No.119/75, dated 30th April, 1975 which reads as under- "In exercise of the powers conferred by Rule 8(1) of the Central Excise Rules, 1944 the Central Government hereby exempts goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), manufactured in a factory as a job work, from so much of the duty of excise leviable thereon as is in excess of duty calculated on the basis of the amount charged for the job work.

Explanation.-For the purposes of this notification the expression 'job work' shall mean such items of work where an article intended to undergo manufacturing process is supplied to the job worker and that article is returned by the job worker to the supplier, after the article has undergone the intended manufacturing process, on charging only for the work done by him." Analysing the said notification we find that this notification envisages payment of excise duty only on the charges for the job work done and not on the total value of the articles when it leaves the factory of the job worker so long as it can be shown that the job worker is returning an article after subjecting it to a manufacturing process. The explanation set out in the notification makes clear what is meant by job work and job work in the context of this notification means such items of work where the article is returned by the job worker to the supplier after the article has undergone the intended manufacturing process, charging only for the job work done by him.

15. Interpretating the said notification in Anup Engineering Ltd. v.Union of India (1978 E.L.T. 533 J) the Hon'ble Judges of the Gujarat High Court observed : "It is obvious in the context of the excise law, that unless a new article known to trade emerges after the manufacturing process is completed, excise duty cannot be levied at all. That is the very basis of taxation under the excise law. In order to exempt job workers from payment of duty except to the extent of duty on the job work charges, this Explanation to the Notification makes it clear that the article which undergoes manufacturing process at the hands of the job worker, must be supplied by the customer and the only thing which the job worker has to do is to subject that article supplied by the customer to the intended manufacturing process. The final result after the manufacturing process is completed has to be returned to the customer and the job worker only charges for the job work done by him." In Associated Pigments Limited v. Collector of Central Excise, Calcutta and Ors. [1983 E.L.T. 876 (Cal.)] the Hon'ble Judges of the Calcutta High Court also interpretated Notification No. 119/75 in the same way as the Hon'ble Judges of Gujarat High Court have done and observed that the conversion of pure lead or lead ignots into suboxide and lead monoxide does not amount to manufacture as envisaged by Section 2(f) of the Central Excise Act and therefore they are entitled to exemption under Notification No. 119/75-C.E., dated 30-4-1975. According to their Lordship it is settled law that when an article undergoes a manufacturing process, a new or different article emerges having a distinct name, character and use and therefore, manufacture does not mean merely to produce some change in its substance. Madras High Court in Madura Coats Ltd. v. Supdt. of Central Excise and Ors. (1982 E.L.T.370) had also occasion to interpretate this very Notification No.119/75 and observed as under- "If the material supplied by the customer to the job worker loses its identity during the manufacturing process and becomes a totally different article, which cannot be identified, then, the concession contemplated by Notification No. 119/75-C.E. is not applicable." The law as laid down by all the three High Courts on interpretation of this Notification No. 119/75 seems to be that unless a new article known to trade emerges after the manufacturing process is completed, excise duty cannot be levied at all. If the material supplied by the customer to the job worker loses its identity during the manufacturing process and becomes totally a different article which cannot be identified, then, the concession as contemplated by Notification No.119/75-C.E. is not applicable. In view of all these authoritative pronouncements made by different Hon'ble High Court, it would be futile to refer this matter to a larger Bench and therefore, with respect, I beg to differ with my learned colleague Sh. Murthy on this point.

16. Now, we have to see whether in the present case before us the material supplied by the customer i e. Acetic Acid to the job worker had lost its identity during the manufacturing process and became totally a different article. Admittedly, the Acetic Acid supplied by the appellants was converted into Acetic Anhydride. As per the Chemical Examiner's report, the two products, namely, Acetic Acid and Acetic Anhydride are different and distinct products. A new product had came into existence by a chemical change. The plea that only one molecule of water had been removed from the Acetic Acid for converting it into Acetic Anhydride and therefore no substantial change has taken place , is not tenable. By doing so a new product has come into existence. The formulaes of both these products are different. The new product Acetic Anhydride has a distinct name, character and use of its own different from that of the Acetic Acid. Its chemical properties and structure are different from Acetic Acid. As per the law laid down by the Hon'ble Supreme Court in Union of India v. Delhi Cloth and General Mills Co.

Ltd. (AIRSouth Bihar Sugar Mills Ltd. v. Union of India and Anr., conversion of Acetic Acid into Acetic Anhydride amounts to manufacture as envisaged by Section 2(f) of the Central Excise Act, and therefore, the appellants are not entitled to exemption under Notification No. 119/75-C.E., dated 30-4-1975. I, therefore, reject this appeal.


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