THE CONCEPT OF MANUFACTURE AND DEEMED MANUFACTURE UNDER THE CENTRAL EXCISE ACT

Sasi K.G.

01. INTRODUCTION

The present study is an attempt to deal with the various concepts involved in the manufacture and deemed manufacture under the Central Excise Act, 1944. As the evolution of taxation laws since MODVAT and CENVAT was tremendous, the scope of Central Excise taxation has considerably gone down especially after the 2017 GST System. However, a historical account of the Central Excise taxation especially the precedents by the higher judiciary is relevant, in the light of the fact that tax laws are very complex and dynamic. Hence the paper is relevant.

02. CENTRAL EXCISE ACT, 1944

01. General

The Central Excise Act, 1944 (Act 1 of 1944), an Act to consolidate and amend the law relating to Central Duties of Excise on goods manufactured or produced in certain parts of India, came into force on 28th February, 1944[i]. This Act was extended to Goa, Daman and Diu by Regulation 12 of 1962, to Dadra and Nagar Haveli by Regulation 6 of 1963; to Laccadive, Minicoy and Amindivi Islands by Regulation 8 of 1965 and with effect from 1-2-1983 and to the State of Sikkim vide Notification No. 9/83- C.E., dated 1-2-1983. It extends to the whole of India, though Jammu and Kashmir were not included until 1954 by Sn.2 and Sch. of the Taxation Laws (Extension to Jammu and Kashmir) Act, "1954 (41 of 1954). As per Notification No. 166/87-C.E., dated 11-6-1987, the Central Excises and Salt Act, 1944 extends to the designated area in the Continental Shelf and Exclusive Economic Zone of India as declared by the Notification of the G.O.I., Ministry of External Affairs, No. S.O. 429 (E), dated 18-7-1986.

The Act has been amended thoroughly and it has 85 Sections ranging from Sn.1 to Sn.40 and four schedules.

02. Constitutionality

Recently a bench comprising Justice Madan B Lokur and Justice Adarsh Kumar Goel on 07.11.2016 dismissed an SLP (C) No. 31643/2016 and upheld the constitutional validity of Section 35F of Central Excise Act, 1944 as held by the Jharkhand High Court in Sri Satya Nand Jha v. Union of India and Ors. WP (T) No. 4858 of 2015.

Jharkhand High Court had observed, “No legislation relating to tax can be declared to be illegal, much less unconstitutional, on the ground of being harsh, on the anvil of Article 14 of the Constitution of India otherwise, every tax payer will feel every legislation relating to taxation to be a harsh one. The broader classification is to be seen and not the micro classification.”

However there are attempts by the Central Government to go beyond its vires and to introduce unconstitutional Rules. Once example is the introduction of Rules 96ZQ, 96ZP and 96ZO into corpus of Central Excise Rules, 1944. However when challenged in Court they were omitted w.e.f. 1st March, 2001. The Gujarat High Court in Krishna v. Union SCA/1984/2002 dated 16.03.2012 had observed,

“Rule 96ZQ (5) (ii) of the Central Excise Rules, 1944 is held to be ultra vires Articles 14, 19(1)(g) and 265 of the Constitution of India. It is further held that after the omission of rules 96ZQ, 96ZP and 96ZO of the Rules with effect from 1st March, 2001 no proceedings could have been initiated thereunder and after the omission of section 3A of the Act with effect from 11th May, 2001, without any saving clause, no pending proceeding under the said rules which had not been concluded before the omission came into effect, could be concluded thereafter.”

03. Central excise Act, 1944 and CENVAT

01. CENVAT

VAT is an indirect tax levied at different stages of trade by the government. The primary purpose of VAT is to ensure that there is no duplication or repetition of tax, thereby ensuring that no single entity is overburdened by it. VAT is typically collected by the state government in which the final transaction takes place, putting the onus on respective state commercial tax departments to ensure that it is collected.

CENVAT is an adaptation of VAT, which came into force in the country in 1986 in the form of MODVAT (Modified Value Added Tax). This MODVAT was converted into CENVAT in the early 2000’s with no major changes in its implementation or execution. Today, MODVAT isn’t used as a term and CENVAT is the tax charged by the Central government on products or services at different levels of manufacture.

The CENVAT System was working in harmony with the Central Excise Act, 1944.

Let us take the example of CKG Fans Private Limited, a manufacturing company specializing in producing fans of different kinds. This company now requires raw material including steel blades, copper wires, plastic blades, motors, etc. The owner purchases the blades from Daisy Blades Private Limited, paying them a certain amount. Similarly he purchases the copper wires from Carter Private Limited and motors from Moreo Private Limited. Now each time the company purchases any of these input materials, it includes certain excise duties which have been added by the original manufacturer, thereby increasing the tax liability of CKG fans.

CENVAT permits CKG fans to use credit when they purchase an item for their manufacturing process, thereby reducing the overall tax liability, not just for them but also the final consumer. Now if we consider the total CENVAT of raw materials to be Rs 80,000 and the CENVAT on the final product to be Rs 1,00,000, the liability of CKG Fans is (Rs 1,00,000 – Rs 80,000 = Rs 20,000).

CENVAT thereby reduces cascading taxation, ensuring that no party is unduly taxed an additional amount.

02. CENVAT Credit Rules

CENVAT Credit refers to the credit/set-off available to manufacturers when they use certain inputs to complete their product. In the example above, CKG fans can claim credit on the copper wires, fan blades and motors, which can then be readjusted against their final tax liability. This credit eliminates the excise burden on manufacturers at different stages, with simple tax computation at the final stage applicable.

As per the CENVAT Credit Rules, a number of input items are eligible for CENVAT credit, with the rules having a definition for the same. Items which fall under this definition can be claimed as input items, thereby offering credit to manufacturers. Goods which are used by a manufacturer to complete the final product, goods which are used as additional components to provide warranty, goods which help in electricity generation and providing the final output are some of the popular examples of CENVAT inputs.

The first CENVAT Credit Rules was introduced in 2002 along with Service Tax Credit Rules, 2002.  CENVAT Credit Rules, 2002 was replaced by CENVAT Credit Rules, 2004 on 10.09.2004. The 2004 Act was amended as given hereunder.

24/2004-C.E. (N.T.) dated 17.09.2004,

38/2004-C.E. (N.T.) dated 25.11.2004,

03/2005-C.E. (N.T.) dated 28.01.2005,

13/2005-C.E. (N.T.) dated 01.03.2005,

22/2005-C.E. (N.T.) dated 13.05.2005,

27/2005-C.E. (N.T.) dated 16.05.2005,

28/2005-C.E. (N.T.) dated 07.06.2005,

06/2006-C.E. (N.T.) dated 20.03.2006,

08/2006-C.E. (N.T.) dated 19.04.2006,

10/2006-C.E. (N.T.) dated 25.04.2006,

19/2006-C.E. (N.T.) dated 30.09.2006,

31/2006-C.E. (N.T.) dated 30.12.2006, 

07/2007-C.E.(N.T.) dated 21.02.2007,

10/2007-C.E.(N.T.) dated 01.03.2007, 

19/2007-C.E.(N.T.) dated 09.03.2007,

24/2007-C.E.(N.T.) dated 25.04.2007, 

27/2007-C.E.(N.T.) dated 12.05.2007,

32/2007-C.E.(N.T.) dated 03.08.2007,

33/2007-C.E.(N.T.) dated 07.09.2007,

35/2007-C.E.(N.T.) dated 14.09.2007,

10/2008-C.E. (N.T.) dated 01.03.2008,

35/2008-C.E. (N.T.) dated 24.09.2008,

48/2008-C.E. (N.T.) dated 05.12.2008,

50/2008-C.E. (N.T.) dated 31.12.2008,

16/2009-C.E. (N.T.) dated 07.07.2009,

22/2009-C.E. (N.T.) dated 07.09.2009,

6/2010-C.E. (N.T.) dated 27.02.2010. etc.etc.

CENVAT Credit Rules, 2004 was replaced by CENVAT Credit Rules, 2017[ii] and the same came into force  w.e.f. 01.07.2017.

Thus it is evident that the Union Government kept the CENVAT Credit System under instability so that no effective refund at full scale may be possible for small scale tax payers.

Thus an excise or excise tax or excise duty is a type of tax charged on goods produced within the country, as opposed to customs duties which are charged on goods from outside the country, on the production or sale of a good. This tax was operational under the Central Value Added Tax (CENVAT).

03. CENVAT Rates

The Taxation Laws Amendment Act, 2017 (Act 18 of 2017) Section 6 amended Section 3 of the Central Excise Act and provided that “There shall be levied and collected in such manner as may be prescribed a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactured in India as, and at the rates, set forth in the Fourth Schedule.”

Earlier the all the goods listed in The First Schedule had come under the purview of the Act. Some of the goods set forth in the Fourth Schedule are given below.

Code               Classification                                                              Unit                 Percentage

2401                Unmanufactured Tobacco; Tobacco Refuse               Kg                  64.0%

2402 10           Cigars, cheroots and cigarillos, containing tobacco    Tu        12.5% or Rs 4006/1000

2402 20           Cigarettes, containing tobacco                                    Tu        Rs 1280/1000 etc.

2403 11 10      Hukkah or gudaku tobacco                                         Kg                   60%

2403 11 90      Other                                                                           Kg                   60%

2403 19 10      Smoking mixtures for pipes and cigarettes                 Kg                   360%

2403 99 10      Chewing tobacco                                                        Kg                   81%

2403 99 20      Preparations containing chewing tobacco                   Kg                   60%

2710                Petroleum oils and oils from bituminous minerals      Kg       14%+Rs.15/litre

2710 19 20      Aviation turbine Fuel (ATF)                                       Kg                   14%

2711                Petroleum gases and other gaseous hydrocarbons      Kg                   14%

04. Central excise Act, 1944 and Central Sales Tax Act, 1956

As far as Central Sales Tax Act, 1956 is concerned the following goods as defined in Section 2(d) of the Act are out of purview of Central Excise Act, 1944 and Central Goods and Services Act, 2017.

“Sn. 2(d) “goods” means—

(i) petroleum crude;

(ii) high speed diesel;

(iii) motor spirit (commonly known as petrol);

(iv) natural gas;

(v) aviation turbine fuel; and

(vi) alcoholic liquor for human consumption.”

05. Central excise Act, 1944 and Goods and Services Act, 2017

Goods and Services Tax System was introduced in India through the 101^th Constitution Amendment Act, 2016 and the following central legislations.

ACTS

Goods And Services Tax (Compensation To States) Act, 2017

Union Territory Goods And Services Tax Act, 2017

Integrated Goods And Services Tax Act, 2017

Central Goods And Services Tax Act, 2017

RULES

Goods And Services Tax Settlement Of Funds Rules, 2017.

Integrated Goods And Services Tax Rules, 2017

Goods And Services Tax Compensation Cess Rules, 2017

Central Goods And Services Tax Rules, 2017

01. 101^th Constitution Amendment Act, 2016

101^th Constitution Amendment Act, 2016 was passed by Lok Sabha on 06.05.2015 and by Rajya Sabha on 03.08.2016 and the amendment bill was passed by Lok Sabha on 08.08.2016 and received the assent of the President of India on 8th September, 2016. The system of GST came into existence on 01.07.2017. The important changes made in constitution through this law are the insertion of Article 246 (A), Article 269A and Article 279A and the Amendments in the 7th Schedule of the Constitution as far as Union List and State List are concerned along with a few other connected changes. GST is comprised in three parts Central GST (CGST), State GST and Integrated GST (IGST).

Union List

1. Entry 84 of Union List earlier comprised the duties on tobacco, alcoholic liquors, opium, Indian hemp, narcotic drugs and narcotics, medical and toilet preparations. After this amendment, it will comprise of Petroleum crude, high speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel, tobacco and tobacco products. Thus, these are now out of ambit of GST and subject to Union jurisdiction.

As stated earlier tobacco and tobacco products come in the Fourth Schedule of the Central Excise Act, 1944. Petroleum crude, high speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel now come under Central Sales Tax Act, 1956 as per the Taxation Laws Amendment Act, 2017 (Act 18 of 2017).

Entry 92 of Union List Newspapers and on advertisements published therein have been deleted and they are now under GST.

Entry 92C of Union List Service Tax has been now deleted from Union List.

State List

Entry 52 under State List Entry tax for sale in state has been deleted.

Entry 54 under State List Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List I has been now replaced by Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods.

Thus State Governments have now power to tax irrespective Central Excise / Central Sales Tax taxation on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption. However as far as their inter-State or international trade or commerce of such goods Central Customs duty shall attract.

Entry 55 under State List Advertisement taxes have been deleted.

Entry 62 under State List Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling have been replaced by these taxes only to be levied by local governments such as panchayat, municipality, regional council or district council.

Other Important amendments in existing Articles

The residuary power of legislation of Parliament under Article 248 is now subject to Article 246A.

Article 249 has been changed so that if 2/3rd majority resolution is passed by Rajya Sabha, the Parliament will have powers to make necessary laws with respect to GST in national interest.

Article 250 has been amended so that parliament will have powers to make laws related to GST during emergency period.

Article 268 has been amended so that excise duty on medicinal and toilet preparation will be omitted from the state list and will be subsumed in GST.

Article 268A has been repealed so now service tax is subsumed in GST.

Article 269 would empower the parliament to make GST related laws for inter-state trade / commerce. The amendment also provided that Parliament shall, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for a period of five years. This resulted into Goods and Services Tax (Compensation to States) Act, 2017.

02. Goods And Services Tax Laws

The Goods and Services Tax is based on two Parliamentary Acts – the IGST (Integrated Goods and Services Tax) Act and the CGST (Central Goods and Services Tax) Act which were passed in April 2017.

Integrated Goods and Services Tax Act, 2017

Section 5 of the IGST Act provides for the levy and collection of IGST as follows.

There shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent

The integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.

The integrated tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council.

Central Goods and Services Tax Act, 2017

CGST Act, 2017 (Act No. 12 of 2017) was published in the Gazette on 12.04.2017. Originally it extended to the whole of India except the State of Jammu and Kashmir. However through CGST (Extension to Jammu and Kashmir) Act 2017, this problem was addressed. CGST (Removal of Difficulties) Order, 2017 is also an important record in the execution of this Act. CGST Act, 2017 was amended in 2008 also making certain changes in rates etc.

03. CENTRAL EXCISE TARIFF ACT, 1985

01. General

The Central Excise Tariff Act, 1985 (Act 5 of 1986) was published in the official gazette on 19.01.1986 and came into force on 28.02.1986 vide Notification No. G.S.R. 89 (E), dated 5.2.1986, Gazette of India, 1986, Extraordinary, Part II. The Act has five sections and three Schedules which include VII Appendices in addition to Appendix A and Appendix B. First Schedule has XX Sections and 98 Chapters. Each chapter contains coding, classification, unit and tax rate of each taxable item. Each of these chapters contains the details of manufacture and deemed manufacture.

Section 2(f)(ii) of Central Excise Act, 1944 has reference to Central Excise Tariff Act, 1985 as, “(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.”

04. MANUFACTURE UNDER CENTRAL EXCISE ACT, 1944

1. Definition

Manufacture was defined under Section 2(f) of the Central Excise Act. It is an inclusive definition. “Sn.2(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 labelling or re-labelling 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 product marketable to the consumer;

And the word “manufacturer” 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.”

However consequent to the introduction of GST, this definition was amended by The Taxation Laws Amendment Act, 2017 (Act 18 of 2017) passed on 04.05.2017 Section 5(c), Section 2(f)(ii) of the Central Excise Act, 1944 is amended as follows.

“2(f)(ii) which is specified in relation to any goods in the section or Chapter notes of  the Fourth Schedule as amounting to manufacture; or”

As incidence of excise duty arises on production or manufacture of goods, the law does not require the sale of goods from place of manufacture, as a mandatory requirement. Normally, duty is payable on 'removal' of goods. The Central Excise Rules provide that every person who produces or manufactures any 'excisable goods', or who stores such goods in a warehouse, shall pay the duty leviable on such goods in the manner provided in rules or under any other law. No excisable goods, on which any duty is payable, shall be 'removed' without payment of duty from any place, where they are produced or manufactured, or from a warehouse, unless otherwise provided. The word 'removal' cannot be necessarily equated with sale.

2. Concept

Supreme Court in the case of Union of India v. Delhi Cloth Mills 1977 (1) E.L.T. J 199: 1963 AIR 791: 1963 SCR Supl. (1) 586, quoting an American judgment, well brought out the concept of manufacture as given hereunder.

“Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But, something more is necessary and there must be a transformation, a new and different article must emerge having a distinctive name, character or use". Similar decision was given by the Supreme Court in Empire Industries Ltd. v. Union of India 162 ITR 846 (S.C): 1986 AIR 662: 1985 SCR Supl. (1) 292.

It is enough that goods are manufactured/produced to attract duty under Section 3. Whether the goods so produced are consumed, sold or not used thereafter is irrelevant. It depends on the merits of each case. Some important case laws is this regard are stated below.

3. Case Laws

The case laws in this regard are dived into two parts.

01. What manufacture is

In Khetu Ram Bishamber Das v. CCE 1997 (72) ECR 493 Tri Delhi: 1997 (92) ELT 631 Tri Delhi Customs, Excise and Gold Tribunal Delhi held that “raw snuff subjected to various processes with menthol and flavouring substances to produce flavoured snuff is manufacture under Central Excise Act, 1944.

Bought out items packed and sold along with manufactured goods were held by the Supreme Court of India in Hawkins Cookers Ltd. v. Collector of Central Excise 1997 (96) ELT 507 SC, (1997) 11 SCC 309 as manufacture.

In Sri Krishna Keshav Laboratories Ahmedabad 1999, Delhi Tribunal held that empty glass bottles cleaned, siliconised, evacuated, sealed and sterilized and sold as "evacuated bottles" was new a product and therefore amounted to manufacture.

 In Brakes India Ltd. v. Superintendent of Central Excise and Ors. 1998 (101) ELT 241 SC: (1997) 10 SCC 717 Supreme Court held that drilling, trimming and chamfering of Brake lining blanks purchased from the market, after certain processes only, they can be used and hence amounts to manufacture.

In Simplex Castings (P) Ltd. v. Collector of Central Excise 1997 (94) ELT 502, Customes, Excise and Gold Tribunal Delhi held that cutting to size-bending to shape and welding of steel plates as per drawing/specification to form steel bands is new and different product is emerged and hence amounts to manufacture. But mere bending of pipes was held not to be manufacture as held by Ahmedabad Tribunal in PSL Ltd. v. CCE 2008 (127) ECC 188: 2008 (153) ECR 188: 2008 (224) ELT 66.

In C.L. Prem Fabricators, 2010 (250) ELT 260  Ahmedabad Tribunal held that cutting steel sheets and drilling holes in them and described in the invoice as columns, portal, canopy, truss etc. is manufacture.

In Bharat Coking & Coal Ltd, Patna (2000) Calcutta Tribunal held that assembling bought out items viz. coal tubs without wheel, wheel and aides, C&D links, tub blocks etc. amounts to manufacture as a "wheeled coal Tub."

In W.G Maurya Sheraton Hotel and Towers 2002 Tribunal held that chocolate purchased in bulk form and in bars and nuts and dry fruits are added to them and then cut into smaller pieces amounted to manufacture. In this case the judgment of the Chennai Tribunal in Commissioner of Central Excise v. Elgi Equipments: 2001 (130) ELT 876 was relied on.

In Mallur Siddeswara Spinning Mills (P) Ltd. 2004 ELT 166/145 Supreme Court held that generating sets assembled and installed in the factory from bought out components are manufacture as they are only superficially attached and bolted to the ground and so they are not immovable property.

In T.N. State Transport Corporation 2004 (166) ELT 433 Supreme Court held that mixing of aluminium paste lacquer and thinner in exact proportions resulted in the formation of a separate and distinct product with an identity of its own and was known in the market as aluminium paint. It was held that the shelf life of 8-10 hours of the product was sufficient to market it. Therefore, the mixing process would amount to manufacture.

 In Commissioner of Central Excise v. Costa and Co. Pvt. Ltd. 2005 (98) ECC 234: 2004 (173) ELT 394, Mumbai Tribunal has held that,

(i) Processing into preparation for preservation, marketing and being edible amounts to manufacture.

(ii) Packing pouches with predetermined weight quantity are unit containers are manufacture.

(iii) Placing price sticker on packages containing goods is no manufacture.

(iv) Packing date and price sticker on pouches are not a brand name.

In Kores India Ltd. v. CCE 2004 (174) ELT 7 Supreme Court on 23-11-04 held that cutting of Jumbo rolls of type writer/telex rolls, 210 mts cut into 10/5 meters and wound/spooled into metal spools and 10 such spools blister packed and sealed with aluminium foil and the resultant product, Typewriter ribbon is a distinct and identifiable article with distinct name, function and use. Typewriter ribbon, thus was held as manufacture.

In ABEE INFO Consumables Ltd. 2007 (208-2) EL T231 (T-M) - Inkjet refill kit - Repacking of duty paid ink in a syringe for dispensing ink at the time of use on printing ribbons and cartridges for computers. It is a distinct marketable commodity different from ink and syringe in name, character and use. Hence manufacture.

In Atul Industries v. CCE 2007 (210-5) ELT 681 Madras Tribunal has held that conversion of Sugar into big crystals, khadi sugar, and bura sugar amounts to manufacture.

In Prachi Industries v. Commissioner of Central Excise, Chandigarh 2008 (225) ELT 16 Supreme Court held that the process of swaging (producing folds) of M.S. Tubes with die produces a distinguishable product and it is a process of manufacture within the definition of Section 2(f) of the Central Excise Act.

In Becton Dickinson (P) Ltd. 2008 (226-3) ELT 464 Delhi Tribunal held that process of sterilizing needles and syringes purchased/imported amount to manufacture since only after such process, the goods become distinct and marketable. The same principle was upheld by Tribunals in Servo Med Industries (P) Ltd. v. CCE 2004 (172) EL T 318 (T) and India Medtronics (P) Ltd. v. Assessee 2006 (199) ELT 347 (T) etc.

In Infosys Technologies Ltd. v. Special Commissioner of Commercial Taxes, Chennai 2009 (233) EL T 56 (Mad.): 2008 (7) TMI 266 Madras High Court held that if the software whether customized or non-customized satisfies the Rules as a 'goods', it will also be 'goods' for the purpose of Sales Tax. Unbranded / customized software developed and sold by the petitioner with or without obligation, for system upgradation, repairs and maintenance or employee training are 'Goods' within Art. 366(12) of the Constitution of India r/w Sec. 2(d) of the Central Sales Tax Act 1956. Similar judgments are produced in Tata Consultancy Services v. State of A.P. 2004 (178) ELT 22 (SC).

In Ge Be Private Limited v. Commissioner of Customs, Bangalore, Bangalore Customs, Excise and Gold (Control) Appellate Tribunal held that 100% E.O.U. imports duty free Medical Diagnostic Imaging Equipments & parts. They test the goods and repack for export. Testing and repacking is "Manufacture." The same is validated by CBEC, Circular No. 12211995 Gus. dated 28. 11. 1995.

In Qazi Noorul H.H.H. Petrol Pump v. Dy. Director, E.S.I. Corporation 2009 (240) EL T 481 (SC) Supreme Court held that for the concept of manufacture, definition under one Statute is not applicable to another. Eg.: Pumping oil is a manufacturing process under Factories Act, 1948 not under Central Excise Act.

In VIRGO Industries (Engineers) (P) Ltd. v. Commissioner of Central excise C.M.A. No.1303 of 2009 & M.P.No.1 of 2009 dated 19.03.2015 Madras High Court held that Signages (Illuminated Signs) manufactured and erected at IOC retail outlets is manufacture of excisable goods and that demand on this behalf by Excise authorities were valid.

In Arihant Tiles and Marbles Pvt. Ltd. v. I.T.O., Udaipur, 2010 (249) ELT 161 (SC) Supreme Court held that conversion of marble blocks by sawing into slabs and tiles and polishing amounts to manufacture. Not accepting as manufacture in I.T. side VIS. 80 T.A. will have revenue implications in Central Excise.

In Eco Valley Farms and Foods Ltd. v. CCE 2010 (250) ELT 132 Madras Tribunal held that mushrooms cultivated in EOU and cleared to D.T.A. dutiable results in production of new identifiable and distinct product more so when there is packing and branding to make them marketable within the scope of manufacture.

In Commissioner of Income Tax – V, New Delhi v. M/s Oracle Software India Ltd. 2010 (1) TMI 9: 2010 (250) E.L.T. 161 (SC): [2010] 320 ITR 546 (SC): 2010 (1) SCR 543: 2010 (2) SCC 677: 2010 (6) JT 369: 2010 (1) SCALE 425: [2010] 228 CTR 433, Supreme Court held that manufacture covers process by which article rendered fit for specific use. Blank Compact Disc transformed into software loaded disc is not duplication - Blank or recordable media (house) gets converted into programme embedded in master media by intricate process. Marketed copies are goods - Thus it is manufacture.

In N.C.R. Corporation India (P) Ltd. v. CCE, Pondicherry 2010 (251) ELT 380 Chennai Tribunal held that loading of imported software on A.T.Ms amounts to manufacture.

In Xerox India Ltd. v. CCE 2011 (270) ELT 395 Delhi Tribunal held that old photo copy machine’s cannibalised parts along with new ones, assembled within a new frame/body. Product coming into existence have new commercial identity and therefore is manufacture.

In Nestle India Ltd. v. CCE 2011 (270) ELT 575 Delhi Tribunal held that intermixing of bought out vitamins for further captive use and ratio-wise mixture are manufacture.

In Air Liquide North India (P) Ltd. v. CCE 2011 (271) ELT 321 (SC) Supreme Court held that testing and certification of products amounts to manufacture. Relabeling means not merely fixing another label but giving certificate also and is covered under S. 2(f). Marketability to consumer is different from that for trader.

In Nitin Patki v. CCE, Thane-II 2011 (273) ELT 104 Mumbai Tribunal held that on imported goods under retail sale provisions, if importer does relabeling, change of MRP stickers affixing of bar code and repackaging, amounts to manufacture under Section. 2f(iii) of the Central Excise Act.

In CCE, Jaipur-I, v. TELEMATS India Ltd. (Jaipur) 2011 (273) ELT 520 Delhi Tribunal held that Towers and Lattice Mast erection amounts to manufacture as inputs like M.S. round, bar, pipes, angles, shapes etc. acquired a distinct shape to suit the structural design through processes like drilling, welding, stamping, straightening and galvanization and amounts to manufacture under Section. 2f(i) of the Central Excise Act.

02. What manufacture is not

In CCE, Bombay v. Western India Tanneries Ltd. 1989 (44) ELT 113 Supreme Court held that cutting of tanned leather straps was not manufacture.

Cleaning, cutting, deep freezing and packing of green peas and shelled corn and addition of preservatives to mango pulp was held by Delhi Tribunal as not amounting to manufacture in Mafco Ltd. v. Collector of Central Excise 1994 (71) ELT 241 Tri Del.

Mere powdering of lumps into powder is not manufacture as held by Delhi tribunal in Wolkem India Limited v. Collector of Central Excise 1997 (92) ELT 219 Tri Del.

Purification of bought out chemicals by distillation is not manufacture as held by Delhi tribunal in S.D. Fine Chem (Pvt.) Limited v. Collector of Central Excise on 25 September, 1995.

Compounded rubber mix captively used in the manufacture of coir mattress with shelf life 48 hrs was held not marketable by Delhi tribunal in CCE v. Duraflex Coir Industries Pvt. Ltd 1999 (105) ELT 203 Tri Del.

In Tractor was supplied to Indian Airlines for handling of baggage trollies at Airport. Seven modifications were done on it. It was contended that it had changed to a work truck. Madras Tribunal viewed that the changes were only peripheral in nature since changed vehicle does not have any special design features that are inherent in a work truck, to make it unsuitable for transport of passengers/goods by road. No change in engine, transmission system or gear box or suspension or steering assembly was made and it is not a work truck and hence not manufacture. The above principle was upheld by Madras Tribunal in TAFE Ltd. v. CCE, Trichy 1998 (7) TMI 235 : 1999 (105) ELT 83 (Tri)

In Deepak Galvanising & Engg. Industries (P) Ltd. 2008 (228) ELT 40 (T-Bang.) – Bangalore Tribunal has upheld that cutting of duty paid angles, rods, channels, plates etc. as per specification and drilling holes to facilitate fastening with bolts and nuts while erecting towers is no manufacture.

In Philips Carbon Black Ltd., Bholpur 1999 (T-Cal) Calcutta Tribunal has upheld that lean gas/off gas emerged during the process of manufacture of carbon black is not an excisable product. Mere fact that due to environmental laws the appellants are compelled to burn carbon monoxide content of the off gas and use the heat so generated does not make it excisable. (Incineration of CO). They are also exempted under 177/87, dt. 30.06.87

In Dalmia Industries Ltd. v. CCE, Jaipur [1999 (112) E.L.T. 305 (Tribunal) Delhi Tribunal has upheld that buying various articles and selling them in a combined pack under a brand is not a manufacture. Collecting various parts like bottles, nipples and lids from diverse sources in the market and packing them as above and selling the product under a brand name "Milk care Designer Feeder." This judgment was confirmed by Supreme Court on 01.03.2005.

In Anglo French Textiles v. Commissioner of Central 1999 ECR 210 Tri Chennai: 1999 (113) ELT 82 Tri Chennai Chennai Tribunal has upheld that mineral khaki dye liquor for dyeing is not marketable and likely to get deteriorated in a week. A similar stand has been taken by Chennai Tribunal in Commissioner of Central Excise v. B & C Mills Ltd 2002 ECR 128 Tri Chennai: 2002 (145) ELT 704 Tri Chennai.

In Maxim Information Tech. Pvt. Ltd. v. Commissioner Of Central Excise 2005 (184) ELT 78 Tri Mumbai Mumbai Tribunal has upheld while considering CBEC Circular No. 454120/99-CX dt. 12.04.99 that upgradation of computers is not manufacture, because no new goods arise with a distinct name, character or use. Also the new components for upgradation are already duty paid.

In Prabhat Sound Studios v. Additional Collector of Central 1998 (1) CTC 312: 1996 (88) ELT 635 SC: JT 1997 (10) SC 392: (1997) 10 SCC 543: 1997 107 STC 70 SC Supreme Court held that  Re-recording of sound on blank video cassettes from already recorded VCs does not amount to manufacture.

In The Management of Tungabhadra Steel Products Limited, Hospet v. A.B. Patil and Anr. 2004 (3) KarLJ 380, (2004) IIILLJ 185 Kant Supreme Court confirming the Karnataka High Court decision held that E.O.T cranes fabricated by appellant for their own use at site for construction of dams and multipurpose River valley projects are not liable to excise duty.

In Nicholas Piramal lndia Ltd. v. CCE 2010 (260) EL T388 (SC) Supreme Court while  considering a case where Vitamin A, acetate crude etc. were not marketed, held that a decision not to sell does not mean "not marketable". They are used in animal feeds having shelf life of 2 to 3 days and the same sufficient to be commercially marketed.

In Buns and Cones Pvt. Ltd. v. Commissioner of Central Excise 2005 (187) ELT 462 Tri Del Delhi tribunal held that Ice creams procured and blended in more than one flavour in a mixer is a process undertaken to enhance marketability. It cannot be claimed by revenue that the ice cream which was procured from manufacturers was not marketable without the process undertaken by them. In this case, Lakme Lever Ltd. v. CCE, Bombay-III 2001 (127) E.L.T. 790 (T) was relied.

In Sri Ramakrishna Soap Nut Works v. CCE, Bangalore 2007 (210-3) EL T 332 (SC) – Supreme Court held that pulverization of Shikakai Pods into powder does not constitute manufacture. Earlier judgment of High Court were also set aside.

In Commissioner of Central Excise v. Laljee Godhoo & Co. (2007 (216) ELT 514 (S.C) Supreme Court while considering the product compounded asafetida held that subjecting raw asafoetida (hing) resulting in formation of compounded asafoetida makes no chemical change and the product remains the same at starting and terminal points of process and therefore there is no manufacture.

In Mega Pro (India), 2007 (216-4) ELT 637 (T-Del.) Delhi Tribunal held that in case of product imported in a marketable stage at the time of import itself in retail packs with M.R.P., further affixing a label for marketing is not a requirement and hence there is no manufacture. Marketability does not include making goods ready for every stage of sale.

In CCE v. BOC (I) Ltd. 2008 (226-3) EL T 323 (S.C) Supreme Court held that Helium gas purchased from other manufacturers, labels affixed and sold under own brand name and labelling and branding without repacking from bulk to retail is not manufacture

In CCE, Ahamedabad v. Macro Tech (P) Ltd., 2008 (231) EL T 59 (T-Ahmd.) Ahamedabad Tribunal held that buying various computer parts and installing the same is not manufacture. Issue is no more res integra and settled by Tribunals & S.C. Revenue's appeal rejected. In this case CCE, Mumbai v. CMS Computers (P) Ltd., 2005 (182) ELT 20 (S.C) and CCE, Bangalore v. Wipro Ltd. (Infotech Group) 2002 (80) ECC 609: 2002 (141) ELT 527 Tri Bang were followed.

In Trident Interwood (P) Ltd v. CCE, Bangalore 2010 (250) ELT 269 (T-Bang.) Bangalore Tribunal held that kitchen cabinets and wardrobes custom designed and erected at site are not movable and as such are not excisable. It cannot be dismantled as such and moved to another place. That which was designed for one flat may not be suitable for another. Hence not excisable.

In Resistance Alloys v. CCE 1996 (84) ELT 507 (T) Tribunal has held that pickling and oiling of metals as preparatory steps do not amount to manufacture. Referring to CBEC Cir. 811/08/2005 CX dt. 2.3.2005. 2005 (181) ELT T. 7 it was clarified that processes of decoiling, cutting and slitting do not amount to manufacture. Similarly, in  Swastik Engineering v. CCE, Bangalore 2010 (255) ELT 261 (T-Bang.) Bangalore Tribunal held that decoiling, cutting/slitting of bronze, brass and copper plates coils into narrower strips produced no new product and hence not manufacture.

In CCE, Chennai-II v. M/s Tarpaulin International Civil Appeal No. 5341 of 2005 dated 04.08.2010  Supreme Court held that a Company engaged in the manufacture of "tarpaulin made ups" of Grey Cotton Canvas Cloth dipped in a solution of wax, Aluminium stearate and pigments passing through two rollers and air dried in sun light and from this tarpaulin, tarpaulin made ups were prepared by cutting the cloth to size, stitching and fitting eyelets does not produce new product and its original character is retained and that there is no manufacture.

In TELA Equipments (P) Ltd. v. CCE 2011 (273) ELT 545 (T-M) Mumbai Tribunal held on dutiability of old articles that repairing, reconditioning, remaking and branding of old and defective industrial valves were no new article and hence no manufacture.

05 .DEEMED MANUFACTURE UNDER CENTRAL EXCISE ACT, 1944

1 Deemed manufacture based on notes of the Tariff schedule

This is what is specified as amounting to "Manufacture" in the section/chapter notes of the Tariff schedule. Whether such processes are identified in trade parlance as manufacture or not, legally, they are deemed "manufacture". The Bombay High Court in the case of Extrusion Processes Pvt. Ltd. v. Union Of India and Another 1988 ECR 218 Bom: 1987 (31) ELT 866 Bom held that the legislature is not competent to treat a non manufacture as manufacture, but the Supreme Court overruled the above view. Some illustrations are detailed below.

(1) Refined Vegetable edible oil Chapter 1502 and Chapter 1503 : Note (6) The process of refining that is to say anyone or more of the processes, namely treatment of crude oil with an alkali, bleaching and deodourisation shall amount to manufacture.

(2) Miscellaneous edible preparations like pan masala, supari, sharbat, etc. Chapter 21: Note (4) In relation to products of heading Nos.21 06, 21 07 and 21 08 labelling or re-labeling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer shall amount to "manufacture".

(3) Supari Ch. 21 The process of adding or mixing certain ingredients to Betal nut in any form is deemed manufacture. (Cardamom, Copra, Menthol spices etc. other than katha & lime from 7.3.09).

(4) Beverages, Vinegar and Spirits Chapter 22: Note (5) In relation to waters including natural or artificial mineral waters of heading NO. 22 01 and 22 02, processes such as filtration, purification or any other process or anyone or more of these processes, labelling or relabeling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer shall amount to "manufacture". This is manufacture as held by the Bangalore Tribunal in Silver Springs Pvt. Ltd. v. Commissioner of Central Excise 2003 (86) ECC 71: 2003 (151) ELT 578 Tri Bang

(5) Organic Chemicals - Labelling and relabeling or repacking from bulk packs to retail packs Chapter 29 This shall amount to manufacture.

Note:- CBEC in Circular No. 910/30/2009 CX dt. 16.12.2009 has clarified based on M/S. Ammonia Supply Company v. Commissioner of Central Excise 2001 (77) ECC 61: 2001 (131) ELT 626 Tri Del that container/Lorry tankers cannot be termed as bulk packs and hence the activity of transferring goods from tankers into smaller drums cannot amount to "manufacture" w.e.f. 1.3.2008.

(6) Pharmaceutical products Chapter 30 : Note (6) In relation to products of heading No. 30 03 (Medicaments including veterinary medicaments), conversion of powder into tablets or capsules labelling or relabeling of containers intended for consumers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to "manufacture".

(7) Dyes, Colours, paints and tanning extracts Chapter 32: Note (8) In relation to synthetic organic dyes (including pigment dyes) of heading Nos. 32 04 conversion of unformulated, unstandardized or unprepared forms (Eg. Wet cakes) of such dyes by

a) reduction in particle size,

b) addition of dispersing agents or diluents or

c) adoption of any other treatment into their formulated, standardized or prepared forms ready for use in the process of dyeing

shall amount to "manufacture".

(8) Cosmetics and Toilet preparations Chapter 3303 to 3305: Note (5) as in 6 above shall amount to "manufacture".

(9) Cotton Yarn Chapter 52 : Note (2) In relation to products of heading Nos. 52 04,52 05 and 52 06, the process of dyeing, printing, bleaching, mercerizing, twisting, texturing, doubling, multiple folding, cabling or any other process or anyone or more of these processes or the conversion of any form of the said products into another form of such products shall amount to "manufacture".

(10) Cotton Fabrics Chapter 52 : Note (4) In relation to fabrics of heading Nos. 52 06 to 52 12, bleaching, mercerizing, dyeing, printing, water proofing, shrink proofing, organdie processing etc., shall amount to "manufacture".

(11) Ceramics and glass wares Chapter 69 Note (3) and Chapter 70 Note (6) Process of printing, decorating or ornamenting of specified items shall amount to "manufacture".

(12) Machinery and mechanical appliances Section: XVI, Note (6) Conversion of an article which is incomplete or unfinished but having the essential character of the complete or finished article (including blank) into complete or finished article, shall amount to "manufacture" .

Eg: Blank forging of Bolt & nut to bolt and nut.

(13) Motor Vehicles all types Chapter 87 01 to 87 05: Note (5) For purposes of heading Nos. 87 01 to 87 05, building a body or fabrication or mounting or fitting of structures or equipment on the chassis shall amount to "manufacture" of a motor vehicle.

(14) Vehicles, Aircraft, Vessels etc: Section: XVII, Note (5) as in 7 above shall amount to "manufacture".

(15) Deemed manufacture in respect of goods falling under S. 4A assessment and defined under Section. 2(f)(iii) was brought on par with deemed manufacture under Sec. 2(f)(ii) by introduction of Chapter notes in various Chapters specifying "labelling or relabeling of containers and repacking" as amounting to manufacture. [Ch. 4, 11, 15, 16 to 22, 24, 27 to 30, 32, 34, 35, 38, 59, 61, 62, 84, 92] 11/2008 CE (N.T.) dt. 1.3.2008.

2. Processing Vis-a-vis manufacture

Manufacture is the cumulative effect of various processes to which the raw materials are subjected to. Each process is incidental to manufacture. If the identity of the article is lost, and a new product emerges with a distinctive name, character or use, the process constitutes manufacture, otherwise it will only be a process.

Examples

Manufacture/D.M.                                        Process not amounting to manufacture

1. Spinning & Weaving - M                            1. Scouring (removing grease with soap &

                                                                        water) Notification No. 40/95, dt. 16-03-95

2. Mercerising                                     2. Blowing cotton

3. Bleaching                                                    3. Carding & combing & slivering

4. Printing DM                                                4. Singeing (burning loose ends and knots on

                                                                        fabrics)

5. Dyeing                                                        5. Cropping or butta cutting

6. Water proofing                                            6. Uring or Heat setting

7. Shrink proofing etc.                                    7. Adding (applying starch)

8. Expanding etc.

9. Calendering (ironing)

3 Deemed Manufacture based on Site Activity

(1) If the various parts/components are taken to a site and erected piece-meal through civil construction to finally bring about an immovable property, it will not amount to manufacture & hence not dutiable. Thus project works do not attract duty, as they are immovable and not marketable. This has been upheld by Supreme Court in Tulaman Manufacturers (P) Ltd. v. CCE 1988 (38) ELT 566 and Notification No. 118n5 dated 30.04.75 issued by Government on this perception.

(2) However items fabricated and assembled at site which are movable and marketable amount to manufacture.

Fabrication of an acid/water tank, scrubber, Hopper, Tower, Chimney etc are examples. Similarly assembly of manufactured items and bought out items at site to a goods which are movable and marketable will constitute manufacture.

4. Case Laws on Deemed Manufacture

1. Tetrapods of cement manufactured at site, lifted by cranes and placed on the break water are goods capable of being marketed and hence excisable & liable to duty as held by Tribunal in Gujarat Ambuja Cements v. GCE Rajkot 1996 (85) ELT 154 (T).

2. The facts of ELPRO I.G.E. (India) Ltd. v. Collector of Central Excise 1991 ECR 124 Tri Delhi: 1991 (53) ELT 461 Tri Del are the following. Elpro manufacture certain items for X-ray machine and assemble it at site along with bought out items as "X-ray machine" known so in the commercial world. This assembly is held by Delhi Tribunal to be amounting to manufacture and the new product is dutiable. Similarly Generating Set assembled at site is goods, marketable and excisable. Cheran Spinners Ltd., 2008 (231) ELT 315 (T-Ch.).Fedders Lloyd Corporation Ltd., 2008 (221) EL T 3 (SC) – Condensing unit of A.G. Machine was manufactured in Jaipur unit and transferred to Delhi unit where cooling units are produced. After conducting quality test and affixing brand name, the Delhi unit clears the assembled (completed) unit along with pipe kits electrical cord and remote control. Here assembly of air conditioner, a new and different marketable commodity arises. Here assembly constitutes manufacture.

3. In Sirpur Paper Mills Ltd v. CCE 1998 (97) ELT 3 (SC) Supreme Court held that fabrication of paper making machine and erection at site, mainly from bought out items (components) and fabricating the rest of the parts is marketable commodity and is goods. Embedding it in a concrete base to ensure its wobble free operation does not make it immovable property in the sense a building or a tree is. It can be sold after being dismantled from its base. It would be treated as marketable even though it may have to be removed from its base and dismantled, before being sold.

5. Exemptions for Intermediate Products

Rule 9 and 49 of the Central Excise Rules, 1944 were amended in 1982 Finance Act with retrospective effect from 28-02-1944 to the effect that goods shall pay duty at the time of actual removal from factory as against the word "clearance" used earlier.

Hence, intermediate products removed within the factory for captive consumption are liable to duty, unless otherwise exempted. Entry No.84 to the VII schedule to the constitution covers all products, which are distinct and identifiable in trade. The final product of one industry is the intermediate product of another. Therefore, the intermediate products are all subject to levy unless otherwise exempted by a notification or they are obtained in the course of an integrated, continuous and uninterrupted process of manufacture, they being not marketable.

Government of India issued a notification No.67/95 dt.16-03-95 granting exemption to Intermediate Products as below:

Intermediate Products manufactured within the factory are exempt from duty, if consumed captively for manufacture of:

(i) Capital goods which are eligible for Cenvat Credit or

(il) Final products eligible for Cenvat made from inputs that are eligible for CENVAT.

This exemption is not available if, final product is exempt from duty or Charged to 'nil' rate of duty.

As per excise provisions, no duty is payable if final product is cleared to a unit in FTZ, to a 100% EOU or a unit in an E.H.T.P/S.T.P. In such cases, duty on intermediate product is not payable, even if final product is cleared without payment of duty. Though the notification does not mention actual exports, it has been, held that no duty is payable on intermediate product if final product is cleared for export under bond without payment of duty.

It should be noted that the above provisions are not applicable to products that are excluded from Cenvat provisions and in the above two cases the final product is dutiable, but only sale to 100% EOU etc., and export is exempted.

01. Case Laws

In Union Carbide India Limited v. Union of India and Ors 1986 AIR 1097: 1986 SCR (2) 162 and Bhor Industries Ltd. v. CCE 1989(40) ELT 280 (SC) Supreme Court held that if Intermediate Products are obtained in an integrated process of manufacture and not marketable, then no duty can be levied.

In D.C.W. Limited v. Commissioner (Appeals) 1998 (97) ELT 424 Guj: (1997) 2 GLR 913 Gujarat High Court held that acetylene gas, an intermediate product in the manufacture of Trichlor ethylene is not marketable, even though specified in the tariff and hence is not dutiable.

In White Machines v. Commissioner of Central Excise Appeal (civil) 2155 of 2002 Supreme Court observed that White Machines manufactured a product which was captively consumed to produce a final product, which was exempt from payment of excise duty. Intermediate product C.I. castings captively consumed for manufacture of C.I. chilled rolls was held exempted having a market of its own and therefore dutiable.

6. Waste and Scrap

Till 1985, waste and scrap were taken as generated during manufacture of final product and not as manufactured goods. From the inception of CETA 1985, some wastes, scraps etc., have been introduced in the tariff as specific excisable goods.

Eg: Ch.40 Hard Rubber, Ch.72.04 Iron waste and scrap, steel & alloy waste and scrap, Ch.39 15 Plastic Waste. Note to Section XV defines scrap/waste as being generated in the course of manufacture of the final products.

Therefore, waste and scrap though generated during the manufacture of final products and not manufactured are to pay duty only if they are (i) marketable and (ii) specified as goods in the tariff. (excisable)

01. Position consequent to Finance Act, 2008 (10.05.2008)

In view of the "Explanation" incorporated under Section 2(d), excisable goods, waste and scrap like Bagasse, Aluminium and Zinc dross etc., would pay duty on the basis of deemed marketability, i.e. if they are articles, material or substances which are capable of being bought and sold for a consideration such goods, waste, scrap shall be deemed to be marketable.

Thus the whole edifice of marketability has now been shifted to "deemed marketability" thus making movability and marketability criteria redundant but not interfering with the concept of manufacture.

Thus, dutiability of waste and scrap crystallises to the following:

(i) They should have been generated in the course of manufacture.

(ii) They are specified in the C.E.T.A.

(iii) They should be marketable or deemed to be marketable.

02. Case Laws

In CCE v. Mehta Vegetables Products 1997 (93) ELT 229 Tri Del Delhi Tribunal held that spent earth emerging as residue after use of bleach earth does not arise out of manufacture and is not excisable and hence not liable to duty.

In Moti Laminates Pvt. Ltd. Etc v. The Collector of Central Excise 1995 SCC (3) 23: JT 1995 (2) 324 Supreme Court observed that Section 2(d) defines excisable goods as goods specified in the Tariff Schedule. All goods are excisable under a specific entry/residuary entry.

However, duty is attracted not because an article is covered as above in the tariff but it must have been produced or manufactured and is capable of being bought and sold. Sec 3 refers to charge of duty only thus. Similar decision was given by the Tribunal in Syndet & Chemical Industries Ltd. v. CCE, New Delhi 1999 (108) ELT 85 (T) and CCE, Lucknow v. WIMCO Ltd. 2007 (217) ELT 3 (SC).

An interesting case law: (Manufacture & CENVAT involved) Resin is purchased as input by a factory. The resin (or any such input) is received packed in drums and CENVAT credit is availed for the same. After emptying them, they are stored and sold as waste/scrap without payment of duty. The department demanded duty on the above waste, interpreting the process as manufacture.

In CCE v. West Coast Industrial Gases Ltd., Cochin, 2003 (155) ELT 11 (SC) the Tribunal's decision that such waste is not dutiable (1998) was upheld by the Supreme Court, mainly because it is not generated in the course of manufacture of final product as defined in Section note under Section XV of Central excise Tariff Act, 1985 and are not marketable.

Larson & Toubro Ltd. v. CCE 2004 (173) ELT 515 (T-M) dated 11.08.04 Mumbai Tribulal held that,

(1) waste and scrap of iron and steel generated during civil construction using duty paid iron or steel (No CEN credit availed) not liable to duty.

(2) waste scrap of copper/aluminium arising from copper/aluminium cables (ch 85 CEN cr availed on Cap goods) not liable to duty.

(3) Refractory bricks cleared as scrap - not covered under any Tariff Heading - not liable to duty.

(4) Sludge (Thick soft wet mud/similar viscose mixture dirty oil or industrial waste - not emerging during process of manufacture) can’t be held excisable merely because it was sold, as saleability is different from marketability as was held by the Supreme Court in Union of India v. Indian Aluminium Co.Ltd. 1995 (77) ELT 268 (SC) However, now it is deemed marketable.

In Ansun System Consulting Pvt. Ltd v. Commissioner of Customs 2005 (179) E.L.T. 511 (Tribunal): 2005 (66) RLT 677 (CESTAT-Del) Delhi Tribunal held that scrap vis-à-vis defective goods-materials obtained from dismantling of old and used transformers not obtained from manufacture is not 'scrap' and no manufacture and duty.

In Hindustan Petroleum Corporation Ltd. v. CCE, Vizag 2006 (204-3) ELT 475 (T-Bang.) Bangalore Tribunal considered crushed cylinders’ dutiability. Hammering and crushing of defective cylinders and removing the same as scrap does not come within the definition of "waste and scrap". No mechanical working of metal carried out on the cylinders. Thus no generation of scrap in terms of section note 8(a) of Section XV of CETA, 1985 and therefore not dutiable. In this case CCE v. West Coast Industrial Gases Ltd., Cochin, 2003 (155) ELT 11 (SC) is relied on.

In Zuari Cement Ltd. (ZCL) v. Commissioner of Customs and Central Excise 2007 (210-2) ELT 219 (T-Bang.) Bangalore Tribunal considered the waste and scrap generated during plant expansion and held that if scrap not generated from any mechanical working of metals or as a result of manufacturing process, demand is not sustainable.

In Panasonic Carbon India Co. Ltd. v. CCC, Guntur 2007 (213-3) ELT 391 (T-Bang.) Bangalore Tribunal observed that the waste and scrap generated out of used empty barrels, used barrel sheets, burnt fire bricks, broken grinding wheels, coal black powder, used HDPE bags and iron scrap are result of wear and tear and held that it is well settled that such wastes and scraps are not dutiable and hence demand is not sustainable as per Sec. 3 of Central Excise Act. In this case CCE v. West Coast Industrial Gases Ltd., Cochin, 2003 (155) ELT 11 (SC) is followed

In Carborundum Universal Ltd. case 2008 (226-3) ELT 381 (T-Ch.) Chennai Tribunal held that Cenvat Credit availed kiln tiles removed in broken form are not excisable under Ch. 69 read with CBEC Circular 816/13/2005 CX dated 16.6.2005.

In Madras Steel Re-rollers Association v. Union of India 2007 (217) ELT 167 (Mad) dealing with used steel rails for re-rolling and its classification, Madras High Court interpreting CBEC Circular 8/2006 Cus. dt. 17.1.06 which classified it under Ch. 72 as waste attracting duty instead of Ch. 73 02. Court held that CBEC has no locus standi on classification. It is only to adjudicating authority or appellate authority as held by Supreme Court. Circular is ultra vires of the Constitution.

In Tempo Instruments Equipments (I) Pvt. Ltd. v. 2008 (127) ECC 170, 2008 (153) ECR 170 Tri Ahmedabad, Ahmedabad Tribunal held that waste generated by way of sweeping the floor could not be considered as having been manufactured.

In Commissioner of Central Excise and Customs v. Dhakad Metals (P) Ltd. 2010 (257) ELT 535 (Guj.) decided on 23.11.2009 it was held by Gujarat High Court that after insertion of "explanation" to S. 2(d) sale of waste in market is not sufficient to conclude marketability. Copper sludge arising as waste in manufacture of Zinc Sulphate was held not excisable. Marketability of product as a result of process is one aspect and disposal of waste another. Copper sludge is not excisable. Mere fact that even waste could be sold in market or could be dealt within market itself is not sufficient to conclude that it is different product having marketability. The Apex Court confirmed this decision on 07.07.2010.

In Grasim Industries Ltd. v. Union of India 2011 (273) ELT 10 (SC) Supreme Court held that waste or scrap arising from repair and maintenance of plant and machinery is not dutiable. They are neither by-products nor subsidiary products.

7. Packing

Packing is a necessary adjunct to manufacture and incidental to the completion of the manufactured product and renders the goods marketable. So packing amounts to manufacture. This view gets strengthened on the following grounds:

(i) Accounting of excisable goods is done for packed goods only in Central Excise records.

(ii) Under Sec 4, assessable value includes packing charges, except cost of durable and returnable containers, where amortised value of containers is added.

(iii) Tariff itself gives description of goods packed in unit containers.

Eg:       Milk powder               Ch.S.H.0401 13

Snacks, ketchup etc.   Ch.S.H.2103 11

Baby food                   Ch.S.H.1901 19

However, packing of a bought out item with a manufactured item will not amount to manufacture. Eg:-            (i) Dropper packed with Eye drop/Ear drop.

(ii) In Bajaj Auto Ltd. v. Commissioner of Central Excise 2000 (120) ELT 668 Tri Mumbai Mumbai Tribunal observed that bought out items like pistons, piston rings, gudgean pins, circlip etc. packed with cylinder blocks were manufactured by the assessee. Anyhow, packing is different from assembly. If two or more goods are assembled to bring about a new product, then it amounts to manufacture.

8. Labeling

If by labelling, a product is obtained distinctly identified from the unlabeled one, then it amounts to manufacture. Definition of manufacture viz. S.2(f)(iii) lends support to this concept.

01. Case Laws

J.G. Glass Industries Ltd. v. Union of India 1993 ECR 76 Bom: 1992 (62) ELT 291 Bom of Bombay High Court was confirmed by S.C on 19.08.1996. Apex Court held that printing of bottles done in the same premises amounts to manufacture and liable to duty. If printing is done in another premises, (Job worker) no new product comes into existence and hence, it is no manufacture. So, no levy is attracted.

In Ranbaxy Laboratories Ltd. v. Commissioner of Central Excise 2004 (92) ECC 750: 2004 (168) ELT 321 Tri Del Delhi Tribunal held that affixation of stickers on imported medicines is not manufacture. This was confirmed by Supreme Court on 15.09.2003.

In CCE v. Sony Music Entertainment (I) Pvt. Ltd., 2010 (249) ELT 341 (Bom) Bombay High Court held that packing of imported compact disc in jewel box of 50 and packed in plastic cases (jewel boxes) an inlay card containing details of content is placed and the whole thing is shrink wrapped and sold in wholesale is held as no manufacture.

9. Branding

Branding is a process by which the products of others by assembling, packing or labeling etc are given a status of an individual product with a specific shape, look, identity or use. Some judgments in this regard are mentioned hereunder.

01. Case Laws

In S.N. Mohideen v. Union of India and Ors. 1989 (22) ECC 226: 1989 (39) ELT 376 Mad Madras High Court held that “affixing of brand label on the container has been held to be included within the definition of manufacturing process. If that be so, an exemption granted depending on a part of manufacturing process, viz., a germane fact would be valid. In this view of the matter, it cannot be held that grant of exemption under the impugned notification restricting to unbranded biris is either unreasonable or arbitrary. The exemption has rightly been restricted by exercise of the power under Rule 8 of the Central Excise Rules, which enables the Government to grant exemption subject to such conditions as may be specified.”

The department's view was that the brand name owner was a manufacturer-in-law. The Supreme Court negatived it, in the case of Joint Secretary to the Govt. of India and Ors v. Food Specialties Ltd 1986 AIR 685: 1985 SCR Supl. (3) 165 (Manufacturer on behalf of Nestle). In this judgment, only the brand owner was not considered as a manufacturer, but as regards branding no decision was given whether it amounted to manufacture or not.

However, in Banner And Co. v. Union of India 1994 (70) ELT 181 Cal Calcutta High Court decided that branding did not amount to manufacture.

Other case laws where similar decisions were given.

(i)                 Union of India & Ors v. Cibatul Limited 1986 AIR 281: 1985 SCR Supl. (3) 95

(ii)               Jay Engineering Works (1995) S.C.

(iii)             Union of India & Ors. Etc v. Metal Box Co. of India Ltd. Etc Civil Appeal No.12657 of 1996 on 1 October, 1996

10 Link with Tariff

Manufacture attracts duty provided the goods are specified in the tariff. Thus, manufacture has a link with tariff. A question arises as to whether a change in the subheading could bring the product to duty as manufactured goods. When inputs and outputs appear in the same heading but different subheadings and they are differently identified in trade, the production of output would amount to manufacture. The safe test is to know how it is identified in trade parlance and the fact that the same heading/subheading would govern both input and output material was not germane to the issue. (viz Trade Parlance Test).

The Apex court in Laminated Packaging (P) Ltd. v. CCE 1990 (49) E.L.T. 326 (SC) held that coating of kraft paper with plastics resulting in laminated kraft paper falling under two subheadings would amount to manufacture. Some examples are given below.

1.         4408 10                       Marine plywood or aircraft plywood

4408 20                       Tea chests

4408 30                       Decorative plywood

2.         4406 10                       Plain particle boards

4406 20                       Insulation Board and hard board

4406                Veneered Particle board.

01. Case Laws

Thus, to identify the concept of manufacture, a change in the classification is not a necessity. In Commissioner of Central Excise, Bangalore-I v. Pushpadeep Enterprises 2010 (4) TMI 842: 2011 (273) E.L.T. 377 (Kar) Karnataka High Court held that where input and finished product are falling under the same classification, new product is excisable.

Supreme Court in Shyam Oil Cake Ltd. v. Collector of Central Excise, Jaipur 2004 (174) ELT 145 held when deemed manufacture is applicable and that merely setting out a process in tariff entry is not sufficient unless and until it is specified as amounting to manufacture. Refined edible oil or efining and processing edible oil not indicated as amounting to manufacture in the section /chapter notes. Hence there is no deemed manufacture. In 2005 Finance Act a suitable Chapter note to Ch. 15 was incorporated. Now it is deemed manufacture under Section. 2(f)(ii).

In a decision dated 07.02.2008 reported in 2008 ELT (222-3) 136 Supreme Court held that packaging of processed cashew nuts, peanuts, almonds etc. in the form of dry roasting, oil roasting and salting would attract excise duty. Madras Tribunal's decision was overruled. Now, It is deemed manufacture under Ch. 20 under Section 2(f)(ii) of Central Excise Act. Non registering of such units would attract penalty.

11. Instances where there is no Deemed Manufacture

Similar to the above said manufactures, there are provisions in the nature of exceptions or principles laid down by judicial interpretations. Some precedents upholding the absence of manufacture are detailed below.

01. Case Laws

Burden to prove that there is manufacture and that what is manufactured is on the revenue. Merely because an item falls under a tariff entry, manufacture must not be deemed. 'Spent earth' remained 'earth' (used for decolourising oil) even after processing. Duty having been paid on 'earth', no duty can be levied on 'spent earth' as it would amount to levying double duty on the same product. In Markfed Vanaspathi and Allied Industries v. CCE Chandigarh 2003 (153) ELT 491 (SC) Supreme Court held that in such a case there is no manufacture.

In Triveni Engineering and Industries Ltd. v. Commissioner of Central Excise 2000 (120) ELT 273 Supreme Court held as follows. Manufacture of "Steam turbine" in the factory and purchase of "alternators" are combined at site and fixed to the ground on a concrete base ca1led Turbo alternator. Making reference to their decisions in M/S. Quality Steel Tubes (P) Ltd v. Collector of Central Excise, U.P 1995 SCC (2) 372: JT 1995 (1) 99 and Mittal Engineering Works (P) Ltd. V. CCE, Meerut 1996 (88) ELT 622 (SC) Supreme Court held that it could be easily inferred that installation or erection of "turbo alternator" on the concrete base especia1ly constructed on the land cannot be treated as a "common base" and its construction would be only an immovable product. Similar decision (same product) was given in Wintech Taparia Ltd. v. CCE 2001 (132) ELT 403 Tri Del. Also CCE, Indore v. Virdi Brothers, 2007 (207-3) EL T 321 (SC) based on CBEC Circular No. 581112002-CX, dt. 15-1-2002. In Larsen & Toubro Limited v. Union of India 2009 (243) ELT 662 (Bom)Bombay High Court held that bought out item constructed and erected by assembly as an immovable pollution control plant is not manufacture.

In Quality Steel Tubes (P) Ltd v. Collector of Central Excise, U.P 1995 SCC (2) 372: JT 1995 (1) 99 Supreme Court held that machinery embedded to earth and structures, erections and installation are not excisable goods as they are not capable of being marketed.

In Orient paper mills Indore, 2002 (T-D) Delhi Tribunal held that electro static precipitator (ESP) and conveyor belt system erected in such a way and fixed in ground to an extent that these cannot be moved in the same position without being dismantled, to the market "as such" and sold, are not goods and hence not exigible to duty.

In U.T. Ltd. v. Commissioner of Central Excise 2002 (141) ELT 652 Tri Kolkata, Kolkata Tribunal held that hydraulic lift installed and erected at site from various parts does not amount to manufacture as lift becomes functional and operates as part and parcel of immovable property.

In A.C.C. Ltd. v. CCE 2002 (81) ECC 428, 2002 (141) ELT 497 Tri Del Delhi Tribunal held that marketability or capability of being marketed is to be established before goods are held liable to excise duty. In respect of excisability of conveyor system fabricated at site piece by piece with civil foundation, concrete pillars, RCC walls etc, no evidence to either show that it could be taken to market "as such" or concrete base was only to make wobble free operations. On dismantling only waste, scrap and salvageable parts could emerge and conveyor system could not be obtained. If marketability test not established, not excisable.

A.C plant not movable to market, incapable of moving as such and requiring dismantling into components causing damage beyond repairs to parts. Indication of right to remove the plant does not mean the plant is movable. Marketability test as required in CBEC circular dt. 15-1-2002, if not satisfied, onus is on the department by putting cogent evidence and not relying in clauses of the contract.

In Otto India Pvt. Ltd. v. Commissioner of Central Excise 2002 (145) ELT 367 Tri Del Delhi Tribunal held that Vacuum Arc Degassing (VAD) plant, not capable of being removed as such and marketed, is not an excisable goods liable to Central Excise duty. If the plant (23 M high) is dismantled it would result in recovery of parts and components only, hence no manufacture.

In Otis Elevator Company (India) v. Superintendent of Central 2003 (1) Bom Cr 672: (2003) 1 BomLR 130: 2003 (151) ELT 499 Bom: 2003 (1) MhLj 57 Bombay High Court held that in case of erection and installation of elevators and escalators and maintenance thereof by the Company and lump sum contract, erection done only inside building structure as an integral part of building site and thus becomes an integral part of immovable property and therefore duty is not leviable.

In Petron Engineering and Construction Ltd., 2009 (243) EL T 272 (T-Bang.) Bangalore Tribunal held that ducts, hand operated dampers, expansion joints, chimneys, heaters and platforms and ladders arise in the course of fabrication and erection of primary reformer which is an immovable property and hence not excisable.

06. CONCLUSION

The limitations of this paper is better understood by the author himself, on the light of the instability and complexity and multitude of taxation laws, as pointed out by a Supreme Court judge a few years ago that the most difficult laws for him was laws of taxation. Tax laws’ jargons are not well defined and are often subjected to periodical interpretation by Notifications by executive authorities and many of them are found often as ultra vires or anti-constitutional. Wherever a judicial review finds fault with such executive interpretations, the tendency is to bring out another amendment, which are mostly successful as the Courts capable of Constitutional interpretation resort to a principle that tax laws need not be challenged on their constitutionality, on the ground that if every aggrieved person comes to court challenging the constitutionality of the tax laws, it will bring hardship not only to the executives, but also to the judiciary. It is high time that such a tendency should change and there should be principle, protection of rights of tax payers against arbitrary and unreasonable taxation, clarity and stability of laws, transparency and user friendly and simple procedure as well as simplification of laws. At any rate the number of tax laws should drastically come down at least to its one third for the present.

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[i] vide F.D. (C.R.) Notification No. III-D.C. Exc. dated 26th February, 1944

[ii] by Notification No. 20/2017-C.E. (N.T.), dated 30.06.2017