COMMISSIONER OF CENTRAL EXCISE, JAIPUR versus M/S. MAHAVIR ALUMINIUM LTD.

A short question which arises for our consideration in the present appeal is whether the process of conversion of Aluminium Ingots into Aluminium Billets during the intermediate stage by the process of re-melting and adding other alloys amounts to 'manufacture' within the meaning of Section 2(t) of the Central Excise Act, I 944 (hereinafter referred to as 'the Act') and Central Excise Duty is chargeable thereon?

p. 424, margin D

The facts of the case are that Mis Mahavir Aluminium Ltd., Bhiwadi (hereinafter referred to as 'the Assessee') was engaged in the manufacture of Aluminium Products falling under Chapter 76 of the Central Excise Tariff Act, 1985. The assessee was manufacturing Aluminium Billets and was consuming it captively for the manufacture of Aluminium Irrigation Pipes exempted from payment of duty. The assessee was also selling the said commodity in the market by paying Excise Duty.

p. 424, margin E

It was the case of the Commissioner of Central Excise, Jaipur (hereinafter referred to as 'the Revenue') that the assessee did not mention the facts in classification lists/declarations filed under Rule 173 B of the Central Excise Rules, 1944 nor produced record relating to production of Aluminium Billets used for captive consumption and production of Aluminium Irrigation Pipes. A notice was, therefore, issued to the 2, I 996 to show cause why an amount of Rs. I, 16,56,476/of Aluminium Billets for captive consumption by suppressing such consumption was for manufacture of fully exempt be recovered as duty and why penalty should not be penalty.

pp. 424–425, margin G

By an order-in-original dated August 8, Rs. 44,35,637 /- was confirmed for the period between June, I 995. The demand beyond the period of six months was time. Penalty ofRs.10,00,000/- was also imposed.

p. 425, margin B

An appeal filed by the assessee against the allowed by the Custom, Excise and Gold (Control) Appellate for short) on February I6, 2000, setting aside the order-in-original the Commissioner and remanding the matter for fresh disposal with law,

p. 425, margin C

Hearing was afforded to the assessee thereafter and considering the rival submissions of the parties, the that Aluminium Billets had come into existence as a result of Aluminium Scraps, Ingots and other alloying materials Billets are thus a commodity distinct from Ingots. The recorded a finding that "Aluminium Billets, besides being also sold in the marked by the assessee on payment

p. 425, margin D

The Commissioner concluded: "Regarding whether aluminium billets produced stage by the assessee as per the process discussed amounts to manufacture. I find that a billet as different as a result of melting of ingots/scrap of aluminium metals and is having distinct name, character Section 3 of Central Excise Act, 1944 these ordinarily be bought and sold in the market. selling the same in the market apart from captive manufacture of irrigation aluminium pipes. Thus, different product than an ingot of aluminium know has different use and character. In the assessee's not have manufactured extruded pipes form Accordingly aluminium ingots and billets are altogether dijj'erent goods". (emphasis supplied)

pp. 425–426, margin E

He, therefore, held that the production of Aluminium Billets from Aluminium Ingots/Scraps and other alloying materials amounted to 'manufacture' within the meaning of Section 2(f) of the Act and was chargeable to Central Excise Duty under sub-heading 760 I. I 0 of Chapter 76 of the Central Excise Tariff Act, 1985.

p. 426, margin A

The assessee being aggrieved by the order-in-original passed by the Commissioner, preferred an appeal to CEGA T. CEGAT observed that there was substance in the contention raised by the assessee that the process carried out by the assessee of Melting Ingots into Round Ingots for the purpose of extrusion did not amount to 'manufacture' and the taxable commodity remained the same although in different form. CEGA T stated that "mere change in physical form of shape or substance does not amount to manufacture". It, therefore, allowed the appeal and set aside the order passed by the Commissioner. The said order is challenged by the Revenue in this Court.

p. 426, margin B

We have heard the learned counsel for the parties.

p. 426, margin D

It was submitted by the learned counsel for the Revenue that CEGA T has committed an error of law in holding that the commodity remained one and the same and merely the form was changed and as such there was no 'manufacture' and Excise Duty could not be imposed by the Department.

p. 426, margin E

The learned counsel for the assessee, on the other hand, submitted that CEGAT was right in holding that there was no change of commodity and hence there was no 'manufacture'. Extrusion Ingots which are also known as Round Ingots or Billets are only a different form of the same taxable commodity, namely, Wrought Aluminium under Chapter 760 I. The process or conversion of Melting Ingots into Extrusion Ingots was not a 'process of manufacture' and there is a change in shape or form of the product. The order of CEGA T, hence, calls for no interference.

p. 426, margin E

Having heard the learned counsel for the parties, in our opinion, the appeal deserves to be allowed. The expression 'manufacture' is defined in Clause (f) of Section 2 of the Act which reads thus: (f) "Manufacture" includes any process: (i) incidental or ancillary to the completion of a manufactured product; y A (ii) which is specified in relation to any goods in the Section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture, (5 of 1986), 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.

pp. 426–427, margin G

It is thus clear that 'manufacture' includes any process under Section =- -{ 2(f). As observed by this Court before more than four decades in Union of India & Anr. v. Delhi Cloth & General Mills Co. Ltd. & Ors., (1963] Supp I SCR 586: AIR (1963) SC 791, the word 'manufacture' is a verb which is generally understood to mean as "bringing into existence a new substance" and does not mean merely "to produce some change in a.substance, however minor in consequence the change may be".

p. 427

In Empire Industries Ltd. v. Union of India, (1985]3 SCC 314, it was D held that taxable event under Excise Law is 'manufacture'. The moment there is transformation into a new commodity commercially distinct and separate commodity having its own character and name whether be it the result of one ... process or several processes, 'manufacture' takes place and liability to excise duty under Section 4 is attracted.

p. 427

In Union Carbide India Ltd. v. Union of India & Ors., (1986] 2 SCC 547, this Court held that in order to attract Excise Duty, the article manufactured must be capable of sale to a consumer. To become goods, an article must be something which can ordinarily come to the market to be bought and be sold.

p. 427

In Union of India & Ors. v. J.G. Glass Industries Ltd & Ors., (1998] 2 SCC 32, leading decisions came to be considered by this Court and it was ,. held that a two fold test emerged for deciding whether the process is that of 'manufacture'.

p. 427

The Court after considering earlier decisions, stated: "On an analysis of the aforesaid rulings, a two-old test emerges for deciding whether the process is that of "manufacture". First, whether by the said process a different commercial commodity comes •• into existence or whether the identity of the original commodity ceases to exist; secondly, whether the commodity which was already in H A existence will serve no purpose but for the said process. In other '( words whether the commodity is already in existence will be of no commercial use but for the said process".

pp. 427–428

In the present case, the assessee is not only captively consuming Aluminium Billets for the production of Irrigation Pipes but is also selling such commodity in open market. It is, therefore, clear that the process of 'manufacture' results in emergence of new commercial commodity, namely, 'Billets'. The said commodity has an independent marketability and the assessee itself has sold Billets in open market by paying Excise Duty. I -....

p. 428

The entry also makes it clear which is under Chapter 76. The relevant part reads thus: CHAPTER76 Heading Sub-Heading Description Rate of Duty No. No. of Goods 76.01 7601.10 ingots, billets 16% ,,

p. 428, margin B

Ingots and Billets are thus two different commercial commodities. They have separate, distinct and identifiable marketability and saleability. The assessee, no doubt, used Aluminium Billets captively but is also selling in open market. We are, therefore, of the view that the Commissioner was right in holding that the assessee was liable to pay Excise Duty and CEGAT was wrong in interfering with the order-in-original. The order of the CEGA T, therefore, is liable to be set aside.

p. 428, margin C

For the foregoing reasons, the appeal deserves to be allowed and is accordingly allowed. The order passed by CEG AT is set aside and the order-in-original passed by the Commissioner is restored. 'T --

p. 428, margin C

The learned counsel for the assessee, however, submitted that in that case the assessee would be entitled to MODY AT benefits. If it is so, the assessee can claim the said benefit. We may make it clear that our setting aside the order passed by CEGAT in this appeal would not come in the way of the assessee in claiming and getting such benefit, if it is otherwise entitled.

p. 428, margin C

The appeal is allowed accordingly with no order as to costs. D.G. Appeal allowed.

p. 428, margin C