1. Petitioner No. 1 is a Private Limited Company registered under the Companies Act, 1956, and inter alia manufactures copper wires and strips/conductors of all sorts including insulated rectangular copper strips/conductors. In or about 1968-69 petitioner No. 1 started manufacturing varnish bonded glass-fiber covered rectangular copper strips/conductors. For the manufacture of the said products, petitioner No. 1 receive rolled E.C. grade imported copper rods and the said copper rods are flattened in the factory into strips. The strips, which are in coil form, are annealed and are taken on horizontal lapping and bonding machine, where firstly a layer of enamel is applied and thereafter one layer of fiber-glass yarn is lapped. The strips simultaneously pass through horizontal ovens for baking the enamel. The same process is repeated for additional layers of fiber-glass yarn and enamel coating to get the required insulation on the products. At the end of the process, the copper strips are insulated with fiber-glass yarn and bonded with enamel.
2. On April 18, 1968, the petitioner No. 1 filed a classification list under Rule 173-B of the Central Excise Rules, 1944, and classified the products i.e. Varnish bonded glass-fiber covered rectangular copper strips/conductors under Tariff Item 26A(2) of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act). Item 26A refers to Copper and the Tariff Description of Item 26A(2) is 'Manufacturers, the following, namely : plates, sheets, circles, strips and foils in any form or size.' The Excise Authorities accepted and approved the said classification. On March 1, 1975, by Finance Act, Tariff Item 68 was introduced imposing levy on all other goods not specified elsewhere. In other words, Item 68 is a residuary item covering goods not specified in Items 1 to 67. On March 16, 1976, Tariff Item 22F was introduced imposing excise duty on 'Mineral fibres and yarn, and manufactures therefrom'. Even after the introduction of the Tariff Items 68 and 22F, the petitioners were clearing their products on paying excise duty under Tariff Item 26A(2). By letter dated April 26, 1977, the respondent No. 3, the Superintendent of Central Excise, called upon the petitioners to file a fresh classification list in respect of insulated copper and aluminium conductors manufactured by petitioner No. 1 from bare copper and aluminium strips. On September 14, 1977, the petitioners filed the fresh classification list under protest under Tariff Item 68 of the Act. The petitioners continued thereafter to pay the duty under Tariff Item 68, though under protest. On September 28, 1977, the Preventive Branch of the Central Excise raided the premises of petitioner No. 1 and in view of certain events that have transpired thereafter, the petitioner No. 1 filed the fresh classification list classifying the product under Tariff Item 22F of the Act. The petitioners thereafter filed the present petition in this Court on June 4, 1978, and the petition was admitted and the Excise Authorities was directed to dispose of the classification list filed by the petitioners.
3. The Assistant Collector of Central Excise, Bombay, by his order dated October 3, 1978, a copy of which is annexed as Exh. M to the petition, held that the products manufactured by the petitioners attract excise duty under Tariff Item 68. The Assistant Collector held that the Glass Fibre bonded rectangular copper conductor or varnish bonded glass-fiber conductors would not come within the scope of Item 22F. The Assistant Collector held that the Tariff Item 26A(2) applies to copper and its alloys as bare metal in any crude form or in any other form. The Assistant Collector felt that the copper strips which are lapped by glass fibre yarn and bonded in enamel is a different finish product having a distinctive character as a conductor and as such cannot be classified under Tariff Item 26A(2) of the Act. In respect of copper strips insulated by paper cover or cotton cover, the Assistant Collector by a separate order dated June 27, 1977, copy of which is annexed as Exh. N to the petition, held that insulating copper/aluminum strips with paper is a fairly sophisticated process and the end products; viz. paper covered copper/aluminum strips is a different article and therefore the process involved must be construed as 'manufacture' and such manufacture would attract duty under Tariff Item No. 68 of the Act. The petitioners carried an appeal against the order of the Assistant Collector, but the appeal came to be dismissed by the Appellate Collector, Central Excise and Customs, Bombay, by an order dated October 6, 1978, a copy of which is annexed as Exh. N colly. to the petition. The Appellate authority took the view that the paper covered copper strips are different from the strips inasmuch as although both of them remain conductors the use of the two is different. The Appellate Authority felt that the bare copper strips are assessable under Tariff Item 26A(2), but when they are covered and insulated with paper or cloth, they become something different and are sold as insulated copper strips and are liable to levy of duty under Tariff Item 68. These three orders are under challenge in this petition filed under Article 226 of the Constitution of India.
4. Shri Andhyarujina, the learned counsel appearing in support of the petition, submitted that the view taken by the authorities below is totally erroneous and the authorities have proceeded to hold that the insulated copper strips are liable to duty under Tariff Item 68 only on the ground that on insulation the copper strips become a distinct product having distinct name, character and use. The learned counsel urged that the approach of the authorities below was erroneous as merely because some process is carried out on the copper strips it would not acquire the character of a different article nor such process would amount to manufacture as contemplated by Section 2(f) of the Act. Shri Andhyarujina further urges that all along from the year 1968 till 1978, the Department was charging levy under Item 26A(2) of the Act, and the decision to levy duty under Item 68 was on the strength of Tariff Advice 1978 issued on April 1, 1978. Shri Andhyarujina urges that the reliance upon the Tariff Advice is totally erroneous and the orders under challenge cannot be sustained. Shri Lokur, the learned counsel appearing on behalf of the Department, on the other hand urges that the copper strips after undergoing the process of insulation become a different product and is known in the trade circles by different name and, therefore, the authorities below were justified in charging duty under Tariff Item 68 of the Act. Shri Lokur further urges that the use of the insulated copper strips becomes different than the bare copper strips and the view taken by the authorities below requires no interference in these proceedings under Article 226 of the Constitution of India.
5. Before adverting to the nature of process carried on by the petitioners on the copper strips to make it in insulated copper/aluminum strips, it would be convenient to refer to the decision of the Supreme Court reported in : 1980(6)ELT343(SC) in the case of the Dy. Commr. Sales Tax (Law) Board of Revenue (Taxes), Ernakulam v. M/s. Pio Food Packers, to appreciate whether processing of an article would amount to the manufacture of a new and distinct article. The Supreme Court while considering the scope of Section 5-A(1)(a) of the Kerala General Sales Tax Act, observed as follows :
'Section 5-A(1)(a) of the Kerala General Sales Tax Act envisages the consumption of a commodity in the manufacture of another commodity. The goods purchased should be consumed, the consumption should be in the process of manufacture, and the result must be the manufacture of other goods. There are several criteria for determining whether a commodity is consumed in the manufacture of another. The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. Where there is no essential difference in identity between the original commodity and the processed article it is not possible to say that one commodity has been consumed in the manufacture of another. Although it has undergone a degree of processing, it must be regarded as still retaining its original identity.'
The Supreme Court was considering the claim as to whether there is an essential difference between the pineapple fruit and the canned pineapple slices. The Supreme Court made a reference to the decision of the United States Supreme Court in the case of East Taxes Motor Freight Lines v. Frozen Food Express, (1955) 100 L Ed 917, in paragraph 8 of the Judgment and found that the Supreme Court had held that dressed and frozen chicken was not a commercially distinct article from the original chicken. Referring to another decision of the American Court in the case of Anheuser-Busch Brewing Association v. United States, 1907 52 ED 336, in paragraph 10, the Supreme Court quoted the following passage with approval :
'Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labour and manipulation. But something more is necessary............. There must be transformation, a new and different article must emerge, 'having a distinctive name, character to use'. ...........
'At some point processing and manufacturing will merge. But where the commodity retains a continuing substantial identity through the processing stage we cannot say that it has been 'manufactured'.'
From the decision of the Supreme Court, it is obvious that merely because some process is carried on on any article it would not necessarily amount to a manufacture of a fresh article amounting to manufacture under Section 2(f) of the Act.
6. Turning to the facts of the present case, it is not in dispute that the bare copper/aluminum strips are insulated for having advantageously used as a conductor. It is also not in dispute that the bare copper or aluminium strips can be used as a conductor. Its use becomes more convenient by insulting it either by glass-fiber or by paper or cotton cover. In my judgment, such processing would not make it a different or a distinct article than the original article copper strips. The authorities below have observed that the insulated copper strips are known by different name in the trade and therefore it is a different article. Shri Lokur relied upon certain certificates produced by the petitioners, and claimed that after insulation the product is known as insulated copper/aluminum strips and not only as copper/aluminum strips. Shri Andhyarujina very rightly upon the decision of the Supreme Court reported in A.I.R. 1977 S.C. 597 in the case of Dunlop India Ltd. and Madras Rubber Factory Ltd. v. Union of India and others, and submitted that the use of the article was absolutely irrelevant in the context of determining as to which item of the Tariff would be attracted to a certain product. The reliance on the judgment of the Division Bench of this Court reported in 1980 E.L.T. 249 in the case of Garware Nylons Ltd. v. Union of India & Ors. is also appropriate. The Division Bench in paragraph 7 of the Judgment observed that the mere application of a special process or giving it a different name cannot debar the article from being considered as a nylon yarn attracting the duty under Item 18 of the First Schedule. The Division Bench was considering the case as to whether the Nylon Twine is covered by Item 18 which deals inter alia with nylon yarn. The nylon twine is considered as a kind of nylon yarn with a special treatment to make it suitable for being utilised in the manufacture of fishing nets or cords. The Division Bench held that the special process applied to nylon yarn does not change its character as nylon yarn and therefore the mere application of the special process or the fact it is known in the trade by different name is no answer to exclude it from Item 18 and to include it into residuary Item 68. The principle laid down would apply with equal force to the copper strips on which a process is being carried out to make an insulated copper/aluminum strips.
7. Shri Lokur relied upon the two decisions of the Madras High Court reported in 1980 E.L.T. 775 in the case of Brakes India Limited v. Superintendent of Central Excise, Madras II Division and others and 1980 E.L.T. 609 in the case of Assistant Collector of Central Excise, Vellore v. Subramania Chettiar, in support of the submission that even some process on an article would make it a distinct article and the process would amount to manufacture under Section 2(f) of the Act. In the first decision, the Madras High Court was considering the question as to whether the process of drilling and trimming or chamfering of brake linings blanks amount to manufacture, and found that it is so because what was purchased by the petitioners in that case were brake linings blanks which cannot be used by the customers without drilling and trimming or chamfering. The decision proceeded on the set of its peculiar facts and can have no application to the facts of the present case. The other decision of the Madras High Court is in criminal proceedings and the learned Judge held that though a match stick with a head capable of being ignited by striking, can be deemed to be a 'match' for purposes of levying duty, as the match cannot be ignited without a match box having its sides painted, the packing of matches in boxes is clearly a process identical or ancillary to the completion of the manufacture of 'match' so as to fall within the purview of 'manufacture' under Section 2(f) of the Act. It is really not necessary to consider this judgment any further, because it was delivered on an appeal against acquittal by a criminal Court and in any event I am not inclined to accept the view of the learned Judge. Shri Lokur also referred to a decision of this Court reported in 72 Bom. L.R. 534 in the case of H.R. Syiem v. P.S. Lulla, but in my judgment, that decision has no application whatsoever to the controversy involved in the present petition.
8. In my judgment, the view taken by the authorities below is totally perverse and the submission of Shri Andhyarujina that the authorities below were impressed by the Tariff Advice issued on April 1, 1978 is not without any merit. The learned counsel invited my attention to the Circular dated August 30, 1962 and Board's letter, dated June 30, 1966 and pointed out that all along the Department felt that the paper insulated rectangular cooper conductors are nothing but the strips covered by Item 26A(2), but that view was given a go-by in view of the Tariff Advice dated April 1, 1978 where in a conference it was decided that the strips on being insulated acquires a separate and distinctive character as a conductor and would be assessable under Item 68 of the Tariff. It does appear that the department decided to give go-by to its earlier view in view of this Tariff Advice which was obviously incorrect. Shri Andhyarujina invited my attention to an order dated July 4, 1978 passed by the Assistant Collector in the matter of M/s. Jayant Metal . and pointed out that though the Assistant Collector was satisfied that the insulated strips would be assessable under Tariff Item 26A(2), Item 68 was applied in view of the Tariff Advice. In my judgment, the reliance by the authorities on the Tariff Advice was totally irregular and the decision based on such advice cannot be sustained. Even otherwise, it is impossible to hold that the articles manufactured by the petitioners are liable to assessment under Tariff Item 68. The articles would attract duty only Tariff Item 26A(2). In view of this conclusion, it is not necessary to consider the submission of Shri Andhyarujina that the show cause notice issued by the Department in respect of the job work is illegal.
9. It is required to be made clear that the insulated copper strips would be liable to duty under Tariff Item 26A(2), while the insulated aluminium strips would be liable to duty under Item 27(b) of the Act.
10. Accordingly, the petition succeeds and the rule is made absolute and the order of the Assistant Collector dated October 3, 1978, copy of which is annexed as Exh. M to the petition, and the order of the Assistant Collector dated January 20, 1978 and the order of the Appellate Collector dated 6th October 1978, both of which are annexed as Exh. N colly. to the petition, are set aside, and it is declared that the products manufactured by the petitioners are liable to duty either under Tariff Item 26A(2) or 27(b), as the case may be, and not under Item 68 or 22(f). As the petitioners have paid the duty from time to time under protest, the petitioners would be entitled to file the application for refund. In case the petitioners file the application for refund, the Department should dispose it of within a period of six months from the date of filing.
In the circumstances of the case, there will be no order as to costs.