2010 (8) TMI 2 - SC - Central Excise

Manufacture - after cutting and stitching the tarpaulin fabric - fixing the eye lets - section 2(f) - whether the tarpaulin made-ups which are prepared after cutting and stitching the tarpaulin fabric and fixing the eye-lets would involve the process of manufacture and, hence, would fall within the definition of manufacture - Held that - It is not in dispute nor it can be disputed that Tarpaulin made ups are covered under sub-heading 63.01 CETA Schedule. - It is now well settled that merely because certain article falls within the Schedule, it would not be dutiable under the Excise Law, if the said article is not Goods known to the market. - The process does not bring into existence a new and distinct product with total transformation in the original commodity. The original material used i.e., the tarpaulin, is still called tarpaulin made-ups even after undergoing the said process. Hence, it cannot be said that the process is a manufacturing process. Therefore, there can be no levy of Central Excise duty on the tarpaulin made-ups. The process of stitching and fixing eyelets would not amount to manufacturing process, since tarpaulin after stitching and eyeleting continues to be only cotton fabrics. The purpose of fixing eyelets is not to change the fabrics.

Summary

Issues Involved:
1. Whether the process of converting 'Tarpaulin Fabrics' into 'Tarpaulin made-ups' amounts to manufacture.
2. Whether the said process would amount to manufacture as defined under Section 2(f) of the Central Excise Act, 1944.

Detailed Analysis:

1. Whether the process of converting 'Tarpaulin Fabrics' into 'Tarpaulin made-ups' amounts to manufacture:

The core issue in these appeals is whether the process of cutting, stitching, and fixing eyelets to tarpaulin fabric to create 'tarpaulin made-ups' constitutes a manufacturing process under the Central Excise Act, 1944. The Commissioner of Central Excise initially held that this process does amount to manufacture, classifying the tarpaulin made-ups under Tariff heading 63.01, making them subject to excise duty. The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) disagreed, finding that the conversion process did not result in a new product with a distinct name, character, or use, thus not constituting manufacture. The Tribunal relied on the Andhra Pradesh High Court decision in TRC No. 215/90, which held that stitching and adding eyelets did not materially alter the essential character of the fabric.

2. Whether the said process would amount to manufacture as defined under Section 2(f) of the Central Excise Act, 1944:

The definition of 'manufacture' under Section 2(f) of the Central Excise Act includes any process incidental or ancillary to the completion of a manufactured product and any process specified in relation to any goods in the Schedule or Chapter Notes of the Central Excise Tariff Act, 1985. The Supreme Court has consistently held that for a process to be considered manufacture, it must result in a transformation where a new and distinct article emerges, having a distinctive name, character, or use. This principle was reiterated in several judgments, including Tungabhadra Industries v. CTO, Union of India v. Delhi Cloth & General Mills Co. Ltd., and South Bihar Sugar Mills v. Union of India. The Court emphasized that mere processing or change is insufficient; there must be a substantial transformation.

In this case, the Supreme Court found that the process of stitching and fixing eyelets to tarpaulin did not change the basic characteristic of the raw material. The end product remained essentially the same - tarpaulin fabric. The process did not bring into existence a new and distinct product with a total transformation in the original commodity. Consequently, the tarpaulin made-ups could not be considered as manufactured goods subject to excise duty.

Conclusion:

The Supreme Court upheld the Tribunal's decision, concluding that the conversion of tarpaulin fabric into tarpaulin made-ups does not amount to manufacture under Section 2(f) of the Central Excise Act, 1944. The process of cutting, stitching, and adding eyelets does not result in a new and distinct article with a different name, character, or use. Therefore, the tarpaulin made-ups are not subject to central excise duty. The appeals filed by the Revenue were dismissed with no order as to costs.