2015 (5) TMI 292 - SC - Central Excise

Manufacture - process of sterilization of medical equipments - change in the character of the final product - Revenue assumed that the activity is in the nature of manufacturing activity since new marketable commodity emerged and three is enhancement in value - held that - This is a case of manufacture of disposable syringes and needles which are used for medical purposes. These syringes and needles, like in the J.G. Glass case and unlike the Brakes India case, are finished or complete in themselves. They can be used or sold for medical purposes in the form in which they are. The fact that medically speaking they are only used after sterilization would not bring this case within the ratio of the Brakes India case. All articles used medically in, let us say, surgical operations, must of necessity first be sterilized. If a surgical instrument is being used five times a day, it cannot be said that the same instrument has suffered a process which amounts to manufacture in which case excise duty would be liable to be paid on such instruments five times over on any given day of use. Further, what is to be remembered here is that the disposable syringe and needle in question is a finished product in itself. Sterilization does not lead to any value addition in the said product. All that the process of sterilization does is to remove bacteria which settles on the syringe s and needle s surface, which process does not bring about a transformation of the said articles into something new and different. Such process of removal of foreign matters from a product complete in itself would not amount to manufacture but would only be a process which is for the more convenient use of the said product. In fact, no transformation of the original articles into different articles at all takes place. Neither the character nor the end use of the syringe and needle has changed post-sterilization. The syringe and needle retains its essential character as such even after sterilization. - Decided in favour of assessee.

Issues Involved:
1. Whether the process of sterilization of syringes and needles amounts to "manufacture" under the Central Excise Act.
2. Whether excise duty is payable on the sterilized syringes and needles.

Detailed Analysis:

Issue 1: Whether the process of sterilization of syringes and needles amounts to "manufacture" under the Central Excise Act.

Background:
Between June 1995 and March 1997, the appellants purchased syringes and needles in bulk, sterilized them, and sold them in printed plastic pouches under the brand name 'Behring'. The Department issued a show cause notice arguing that sterilization changes the character of the product, making it a new commodity subject to excise duty.

Department's Argument:
The Department contended that sterilization transforms the syringes and needles into a new product, thus constituting "manufacture" under the Central Excise Act.

Petitioner's Argument:
The petitioners argued that sterilization does not amount to manufacture since no new product comes into existence; the syringes and needles remain the same pre- and post-sterilization.

Tribunal's View:
The CESTAT held that a new article with a distinct brand name and separate end use emerged post-sterilization, thus attracting excise duty.

Supreme Court's Analysis:
The Supreme Court delved into the distinction between manufacture and marketability, emphasizing that manufacture involves a transformation resulting in a new article with a distinctive name, character, or use. The Court examined various precedents where transformation did not amount to manufacture, such as:
- CCE, New Delhi v. S.R. Tissues: Cutting tissue paper into various sizes did not change its essential character.
- MMTC v. Union of India: Separation of wolfram ore did not constitute manufacture.
- Mineral Oil Corporation v. CCE, Kanpur: Removal of impurities from transformer oil did not result in a new product.
- Dunlop India Ltd. v. Union of India: Soap treatment of grey cotton duck/canvas was not manufacture.

The Court also considered cases where the essential character test was applied, such as:
- Tungabhadra Industries Ltd. v. CTO: Hydrogenated oil remained groundnut oil.
- Maruti Suzuki India Ltd. v. CCE: ED coating on bumpers did not create a new commodity.
- Satnam Overseas Ltd. v. Commissioner of Central Excise: Combination of raw rice with vegetables and spices did not change its essential character.

The Court concluded that sterilization does not transform syringes and needles into a new product. They remain the same articles, merely rendered sterile for medical use.

Issue 2: Whether excise duty is payable on the sterilized syringes and needles.

Supreme Court's Conclusion:
The Court categorized the case within the first category where goods remain exactly the same post-process. It emphasized that sterilization does not produce a transformation leading to new articles known to the market. The process of sterilization merely removes bacteria without changing the essential character or end use of the syringes and needles.

The Court highlighted that if sterilization were considered manufacture, it would lead to absurd results, such as excise duty being payable each time a medical instrument is sterilized. This would be contrary to common sense and practical application.

Final Judgment:
The appeal was allowed, and the impugned judgment was set aside. The process of sterilization of syringes and needles does not amount to manufacture, and thus, no excise duty is payable on the sterilized products.

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