1995 (3) TMI 95 - SC - Central Excise

Whether the distillation and recrystallisation carried out by the respondent amounts to manufacture ? Held that - Coming to the facts of the case it is clear from the perusal of the opinion of the third Member of the Tribunal that he has not dealt with the case in a full and proper manner and has disposed of the issue in a cryptic manner. It has, therefore, become necessary to remit the matter for the fresh opinion of the third Member of the Tribunal. The third Member shall now hear the parties and render his opinion afresh on the question referred to him. He shall do so within six months from this date. He shall transmit his opinion to this Court soon after rendering it.

Summary

Issues Involved:
1. Whether the distillation and recrystallisation carried out by the respondent amounts to 'manufacture' under the Central Excise Act, 1944.
2. Interpretation and application of the term 'manufacture' as defined in Section 2(f) of the Central Excise Act, 1944.
3. Evaluation of differing opinions within the Customs, Excise and Gold (Control) Appellate Tribunal regarding the processes undertaken by the respondent.
4. Legal precedents and principles concerning the definition and scope of 'manufacture' and 'process'.

Detailed Analysis:

Issue 1: Whether the distillation and recrystallisation carried out by the respondent amounts to 'manufacture' under the Central Excise Act, 1944.

The respondent, M/s. S.D. Fine Chemical Pvt. Ltd., engaged in manufacturing and repacking laboratory and fine chemicals, claimed that their purification and distillation processes do not constitute 'manufacture' and thus sought exemption from duty under Notification No. 77 of 1963. Initially, the Assistant Collector agreed with the respondent. However, the Collector (Appeals) revised this decision, holding that the processes did amount to manufacture since a new commodity known to the market emerged, making them liable to excise duty. The Customs, Excise and Gold (Control) Appellate Tribunal had differing opinions: the Member (Technical) sided with the respondent, stating the processes merely improved the quality or purity without changing the chemical name or formula, thus not constituting manufacture. Conversely, the Member (Judicial) believed the processes transformed the chemicals into different commodities with different commercial names and uses, thus constituting manufacture.

Issue 2: Interpretation and application of the term 'manufacture' as defined in Section 2(f) of the Central Excise Act, 1944.

The term 'manufacture' under Section 2(f) of the Act is broadly defined to include any process incidental or ancillary to the completion of a manufactured product, and processes specified in the Schedule to the Central Excise Tariff Act, 1985. This inclusive definition aims to cover processes and activities that may not traditionally be considered manufacture. The Court referred to several precedents to elucidate this definition, emphasizing that 'manufacture' implies bringing into existence a new substance with a distinctive name, character, or use, rather than merely producing a minor change in a substance.

Issue 3: Evaluation of differing opinions within the Customs, Excise and Gold (Control) Appellate Tribunal regarding the processes undertaken by the respondent.

The Tribunal initially had differing opinions: the Member (Technical) concluded that the distillation and recrystallisation processes did not amount to manufacture as they did not change the chemical identity of the products. The Member (Judicial) disagreed, asserting that the processes transformed the chemicals into different commercial commodities. The third Member sided with the respondent, reasoning that the chemicals retained their identity substantially through the processing stage, thus not constituting manufacture. However, the third Member's opinion was criticized for not addressing the several aspects dealt with by the other two Members, particularly the findings of the Member (Judicial).

Issue 4: Legal precedents and principles concerning the definition and scope of 'manufacture' and 'process'.

The Court referred to several key precedents, including:
- Union of India v. Delhi Cloth and General Mills: Emphasized that manufacture involves bringing into existence a new substance known to the market.
- South Bihar Sugar Mills Ltd. v. Union of India: Affirmed the interpretation that manufacture results in a new and different article.
- Empire Industries Ltd. v. Union of India and Ujagar Prints v. Union of India: Discussed whether processes like bleaching, dyeing, and printing constitute manufacture, concluding that a commodity can no longer be regarded as the original if it is recognized as a distinct and new article commercially.
- Collector of Central Excise, Jaipur v. Rajasthan State Chemical Works: Defined 'process' as a mode of treatment to produce a good result, which may or may not involve handling materials.

The Court concluded that the expansive definition of 'manufacture' under Section 2(f) includes processes that may not traditionally be considered manufacture, and the application of this definition must be determined based on the facts of each case. The third Member's opinion was found inadequate, necessitating a fresh opinion.

Conclusion:
The matter was remitted for a fresh opinion from the third Member of the Tribunal, who is required to hear the parties and render a detailed opinion on whether the processes undertaken by the respondent constitute manufacture. The third Member is to provide this opinion within six months, and if unavailable, the Chairman of the Tribunal will specify another Member to hear the matter. The appeal will be listed after the receipt of the finding/opinion from the Tribunal.