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TMI Blog2008 (3) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, 2005 was challenged primarily and principally on the ground that there is lack of legislative. competence on the part of the concerned Legislature to bring in such a legislation and further, assuming the legislation meets the test of legislative competence, it is violative of Article 14 of the Constitution of India. The aforesaid writ petitions were listed along with W.A. No.1524/07. 2. In the course of hearing of the writ appeal, on behalf of the appellant therein, it was contended that the decision rendered by the Division Bench in M/s. Vindhyachal Distilleries Private Ltd. v. State of M.P. and others, 2006 (3) S.T.R. 723 (M.P.) = (2007) 7 VST 197 (MP) has not appropriately considered the decision rendered in Som Distilleries and Breweries Pvt. Ltd. v. State of M.P. and another, 1997 (1) JLJ 319 and various other aspects which deserve consideration. The Division Bench hearing the writ appeal thought it apposite to refer the matter to a larger Bench. The question that has been referred reads as follows: Whether bottling of liquor amounts to manufacture of liquor or only packaging so as to attract the Service Tax ? 3. It is worth-noting that W.A. No.15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tender, a licensee is under obligation to supply liquor in the sealed bottles. 7. According to the writ petitioner, the process of manufacturing involves various stages, viz., manufacture of rectified spirit at distilleries; transportation of rectified spirit from distilleries to manufacturing warehouses; manufacturing activity (blending) to make rectified spirit fit for human consumption; bottling, sealing, packaging of country spirit. It is contended that after the rectified spirit is rendered fit for human consumption the same is filled in bottles or some other packing mode as specified by the Excise Commissioner under. the supervision of the Officer-in-Charge of the warehouses and sealing of the bottles is carried out as per specification and labels are affixed on each bottle and thereafter on demand of retail contractors and upon proof of payment into treasury of the issue price recoverable for it, the CS-1 license issues bottles of country spirit to the retail contractor. The 1915 Act contains provisions with regard to the manufacture, supply and sale of liquor. Chapter IV of the 1915 Act deals with the manufacture, possession and sale of liquor. Section 13 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther service tax on packaging, i.e., bottling and labelling of liquor can be collected from the distillers and whether they can pass on this liability to the contractors obtaining the supplies from them. The Bench referred to Section 65(76b) of the Act and the provisions under the 1995 Rules and Section 2(d) of the 1944 Act which defines excisable goods, the conditions of the tender, especially condition No. 6 and the transactions as per tender notice and relied upon the decision rendered in Tamil Nadu Kalyana Mandapam Assn. v. Union of India, 2006 (3) S.T.R. 260 (S.C.) = 2004 (167) E.L.T. 3 (S.C.)= (2004) 5 SCC 632 wherein imposition of service tax on mandap keepers was upheld on the foundation that it is was permissible to lift the service tax on the catering services provided by the mandap keepers and the contention that it did tantamount to tax on land was rejected, and further adverted to the concept 'in relation to' as has been dealt with in the case of Tamil Nadu Kalyana Mandapam Assn. (supra) and thereafter expressed the view as under:- It is clear from the transaction that only the service was to be provided for the purpose of packaging, which was controlle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as defined in section 2(f) is a question of fact, to be determined in the facts of each case. In Collector of Central Excise, Hyderabad v. Jayant Oil Mills Pvt. Ltd., (1989) 3 SCC 343, the Apex Court held that all processes do not constitute manufacture. In our opinion, it merely by providing service for bottling a new commodity, does not come into being new article, it is clearly a service provided. Manufacture is complete as soon as by the application of one or more process, the raw material undergoes some change. The moment there is a transformation into a new commodity commercially known as a separate and distinct commodity having its own character and use, manufacture takes place as held by the apex Court in Aditya Mills Limited v. Union of India, (1989) 73 STC 195: (1988) 4 SCC 315. In Collector of Central Excise, Madras v. Kutty Flusi Doors Furniture Co. (P) Ltd., (1988) 70 STC 314: AIR 1988 SC 1164, it is held that by conversion of timber logs into sawn timber, no new produce emerged by sawing of timber, therefore, higher excise duty on sawn timber was not leviable. After so holding, the Division Bench referred to the decision rendered in Som Distillerie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing activity that amounts to manufacture within the meaning of clause (f) of Section of the 1944 Act. Section 2(f) of the 1944 Act reads as follows: 2. Definitions - In this Act, unless there is anything repugnant in the subject or context - (a) xx xx x (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 labeling or relabeling 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 produce marketable to the consumer; and the work 'manufacture' 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. 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judicial pronouncement of the Apex Court. But the question remains that irrespective of such laid down principles, the process of making IMFL would remain within the purview of section 2(f) of an Union Act which does not extend to the final product in question, namely, IMFL. On this subject the opinion of the Ministry of Law is that 'even though the definition under the Central Excise Act are for the purpose of that Act; yet by referential legislation, a few of them have been borrowed by reference to the first Act'. In other words when a definition from an Act is transposed unto another Act, it is the scope of that definition which is imported into the borrowing Act and not the scope of the first Act and the context in which such definition is used in the first Act. Admittedly the scope of the two Acts would be distinct and if the definition is borrowed from the first Act into the second Act having different scope, the same would get disturbed/distorted if the context and scope of the earlier Act is also imported. This is primarily a substitute to writing the entire defining terms in the second Act and not to change the scope of the borrowing Act. Thus just because Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verages. In trade, such licencees/manufacturers are called the Contract Bottling Units or CBUs. The cost of raw materials (and in some cases, even capital goods) and other expenses are either paid by the BO or reimbursed by the BO. Statutory levies (i.e. State excise duty) are also reimbursed to the CBU by the BO. The alcoholic beverages are sold by or as per the directions of the BO and profit or loss on account of manufacturing and sale of alcoholic beverages is entirely on account of BO, who thus holds the property, risk and reward of the products. The CBU receives consideration (i.e. Job charges) for undertaking the manufacturing activity on job work basis. There is no doubt that under such an arrangement, CBU is a service provider providing services to BO. A doubt has arisen, whether or not the CBU provides a taxable service namely, the Business Auxiliary Service (BAS) to BO. This taxable services includes any service provided or to be provided in relation to production or processing of goods for, or on behalf of the client. This taxable service however, by definition excludes any activity that amounts to manufacture within the meaning of clause (f) of section 2 of the Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case the exclusion provision under the definition of BAS (under the Finance Act, 1994) makes a reference to a definition of the word 'manufacture' figuring under another Act (i.e. The Central Excise Act, 1944). It is a settled law that when a definition from an Act is transposed into the borrowing Act without any reference to the context of such definition in the Act from which it is being borrowed. It is the words of that definition, which is imported into the borrowing Act and not the scope of the first Act and the context in which such definition is used in the first Act. Admittedly the scope of the two Acts would be distinct and if the definition is borrowed from the first Act into the second Act having different scope, the same would get disturbed/distorted if the context and scope of the earlier Act is also imported. Thus, just because Central Excise Act does not extend to the manufacture or production of alcoholic beverages meant for human consumption, it cannot be said that the term 'manufacture' used in BAS would also not cover the process of making the said product, namely, alcoholic beverages. [emphasis supplied] 15. If the basic asp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assage from the Principles of Statutory Interpretation by Justice G.P. Singh (11th Edition, Page 180) wherein the learned Author analyzing the various decisions has expressed the view as under :- A definition may be both inclusive and exclusive i.e. it may include certain things and exclude others. Limited exclusion of a thing may suggest that other categories of that thing which are not excluded fall within apparently wide or inclusive definition. But the exclusion clause may have to be given a liberal construction if the purpose behind it so requires. In view of the aforesaid principle and regard being had to the exclusionary facet in the Finance Act, though a limited one, it would exclude the manufacturing process as defined under section 2(f) of the 1944 Act. 18. Keeping in view the aforesaid dictionary clauses and circulars is sued by the C.B.E.C. it is quite luminescent that word manufacture has to be understood in a broader sense and not to be confined or restricted to the excisable product in the Act. It would include all processes which amount to manufacture whether or not the final product is an excisable product. 19. It will not be out of place to men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ountry spirit from rectified spirit by cleansing, colouring, flavouring, reducing, blending, etc. at the manufacturing warehouse. In the process of manufacturing of country spirit, the over proof spirit which is not potable is reduced to issuable strength, which is potable. Colouring and flavouring agents are added at the time of maturation. Thereafter the liquor is supplied in sealed bottles to the retail contractors. This is the process of treatment given to over proof spirit in order to render it fit for human consumption in the form of country liquor. If the process is analysed there cannot be any scintilla of doubt that the process involves the manufacturing one under the provisions of Section 2(f) of the Central Excise Act, 1944. As per the M.P. Country Spirits Rules as well as Cl.6 of the Tender Conditions it is mandatory for a distiller to supply country liquor hi sealed bottles and not otherwise. 21. It is urged by the learned counsel for the petitioners that the bottling and sealing done is an integral part of the manufacturing process of country liquor and no exclusive packaging service is provided to the retail contractors. The sealing charges which is being recov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay v. Commission of Sales Tax, (1966) 17 STC 576 wherein it has been held as follows: the question whether in respect of a transaction (sales) Tax is exigible must determined only on the terms of the contract and not from the invoice issued by the person entitled to receipt money under the contract. 25. In Bharat Sanchar Nigam Ltd. And another v. Union of India and others, 2006 (2) S.T.R. 161 (S.C.) = (2006) 3 SCC 1, their Lordships have expressed thus: 42. All the sub-clauses of Article 366(29-A) serve to bring transactions where one or more of the essential ingredients of a sale as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purchase and sales for the purposes of levy of sales tax. To this extent only is the principle enunciated in Gannon Dunkerley Ltd. (sic modified). The amendment especially allows specific composite contracts viz, works contracts [sub-clause (b)]; hire purchase contracts [sub-clause (c)], catering contracts [sub-clause (e)] by legal fiction to be divisible contracts where the sale elethent could be isolated and be subjected to sales tax. Thereafter, their Lordships proceeded to state as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s circulars, we may refer with profit to the decision rendered in R. B. Falcon (A) Pty Limited v. Commissioner of Income Tax, (2008) 12 SCC 466, wherein it has been held as follows:- 33. The CBDT has the requisite jurisdiction to interpret the provisions of the Income Tax Act. The interpretation of the CBDT being in the realm of executive construction, should ordinarily be held to be binding, save and except where it violates any provisions of law or is contrary to any judgment rendered by the Courts. 'The reason for giving effect to such executive construction is not only same as contemporaneous which would come within the purview of the maxim temporania caste pesto, even in certain situation a representation made by an authority like Minister presenting the Bill before Parliament may also be found bound thereby 29. In Commissioner of Central Excise, Bolpur v. Ratan Melting Wire Industries, 2008 (12) S.T.R. 416 (S.C.) = 2008 (231) E.L.T. 22 (S.C.) = (2008) 13 SCC 1, the Constitution Bench has held as under: 7. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries Breweries Pvt. Ltd. (supra) on the basis of scrutiny of anatomy of the various provisions of the 1915 Act that bottling is a part of the manufacturing process could not have been distinguished on the ground that the decision was not with respect to the activity of packaging as enshrined under Section 65(76b) of the Finance Act and the definition under Section 2(f) of the Central Excise Act inasmuch as the said definition by its import excludes the manufacturing process under the Central Excise Act from the net of service tax. (vi) The Circular F. No. 249/1/2006 - CX, dtd. 27th Oct., 2008 issued by the Central Board of Excise and Customs clarifies the position that the term 'manufacturing process' as far as bottling is concerned, has to be understood in the context of the decision of the Apex Court and keeping that in view, has taken it out of net of service tax and the said circular is in consonance with the decision rendered by the Apex Court in Sir Shadilal Distillery Chemical Works, Mansurpur (supra). (vii) The process of manufacture as defined under Section 2(14) of the 1915 Act falls within the ambit and sweep of Section 2(0(1) of the Central Excise Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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