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TMI Blog1986 (5) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... y equal to excise duty had been levied and imposed upon the imported old ships and vessels under section 3 of the Customs tariff Act, 1975. 3. The petitioners' grievance is that the Central Excise authorities without having regard to the levy of customs duty and countervailing duty on the ships imported by the petitioner have taken a decision to levy Central Excise Duty on goods and materials obtained by breaking up of the imported ships. It has been contended that the petitioners have been required to take out a licence and pay Central Excise Duty on goods of foreign manufacture. 4. It has been contended on behalf of the petitioners that section 3 is the charging section of the Central Excise Act, by which a duty can be levied on all excisable goods first sold which are "produced or manufactured in India". The phrase "produced or manufactured in India" has received judicial interpretation in a number of cases. Dismantling of an imported ship will not come within the phrase "produced or manufactured in India". My attention was drawn to the definition of "manufacture" and it was argued that even the extended definition will not take in its ambit dismantling of a ship. The defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners, it has been argued that 'manufacture' includes any process "incidental or ancillary to completion of a manufactured product." Dismantling of a ship cannot be regarded as an activity incidental or ancillary to completion of a manufactured product. The scraps that are produced are not incidental to production of any goods. My attention was drawn to the judgment of the Supreme Court in the case of Empire Industries Limited v. Union of India - 1985 (20) E.L.T. 179 (S.C.).) = (1985) 3 S.C.C. 314. It was argued on the strength of this judgment that if as a necessary corollary to manufacturing any finished product, scraps are obtained, such scraps can be regarded as goods manufactured by the producer. But in a case like this, where no finished product is being broken up, the activity will not amount to 'manufacture' in common parlance. There is also nothing in the definition of the term in section 2(f) which will justify the interpretation that has been sought to be placed by the Department. 10. This problem has several aspects which will have to be examined. A new marketable commodity may be brought into existence by the act of fitting together a number of manufactured parts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners, that breaking up of ships, boats or other floating structures can never come within the definition of the word 'manufacture'. Moreover, it has been urged that it is of significance that the duty has been levied at the flat rate of Rs.1800 per ton on all goods obtained by breaking up of imported ships whereas waste and scrap obtained otherwise are dutiable at the rate of Rs. 80 per ton or Rs. 365 per ton under Tariff Item No. 72.03. This differential duty is accounted for by the fact that the goods are of foreign make. It has been urged that what in effect is being sought to be done is to impose a higher rate of tax for the imported goods. What has really been done is to impose an excise duty on goods manufactured outside India. 14. I am unable to uphold this argument. The description of goods in Tariff Item Nos. 72.15 and 73.09 is of goods and materials obtained by breaking up of ships, boats or other floating structures. The intention is not to differentiate between ships, boats or other floating structures made in India and ships, boats or other floating structures of foreign origin. The duty is leviable equally upon all ships, all boats and all other floating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained by breaking up of ships. The writ petitioners are ship breakers and the writ petitions are in respect of ships which are being actually broken in Calcutta Port. This gives an indication of the range of the activity of this industry. The main object of this ship breaking industry is to obtain waste and scrap for sale in the market. The things that are obtained by breaking up of ships have a ready market. The ships are being broken up for the purpose of catering to the demands of mainly Mini Steel Plants and Rerolling Mills. 17. Ships are being imported regularly from foreign countries for the purpose of breaking in India. When there is an organised activity on such a large scale for obtaining waste and scrap, it is difficult to hold that the end product of the activity 'waste and scrap' cannot be regarded as products of the industry. The entire organised activity is designed to produce scrap. 18. It is true that when the composite whole is broken up into components, it cannot be said that the components have been manufactured and produced by the process of breaking up. But in a case where the object is not to obtain the components as such and sell them as components but t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ship into scrap. The ship could well be regarded as the raw material and the scrap iron and steel obtained from the ship by dismantling and breaking up could be regarded as finished goods. 22. It is, however, to be noted that this judgment was rendered, in the context of the definition of "manufacture" provided by section 2(17) of the Bombay Sales-tax Act. It was observed in that case by Kania J. at pages 173-174 as follows : "Now, in the present case, it is not disputed by Mr. Sheth, the learned Advocate for the respondents, that the process of dismantling the ship so as to obtain from it iron and steel or steel plates which had been formerly welded together is an elaborate process requiring the use of appliances such as acetylene torches. This process of dismantling would undoubtedly prima facie, be covered by the definition of the term 'manufacture' in clause (17) of section 2 of the said Act. A new commercial commodity, viz., iron and steel scrap, was obtained by applying the process of dismantling on the ship and hence it appears to us that the provisions of section 13(a) of the said Act would be attracted and the respondents would be liable to the payment of purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king up of the ships. 25. In the case of Commissioner of Sales Tax v. India Metal Traders, 41 Sales Tax Cases 169 Kania J. noted at page 172 as follows : "From the statement of the case it appears that what was obtained from the breaking up and dismantling of the said ship was iron or steel scrap, iron or steel plates, wooden planks and rivets, bolts, boilers, fans and some other articles, a list of which has been annexed to the statement of the case as Annexure 'A'." It was further observed at page 173 of the said report : "We have already referred to the goods described in the statement of the case as having been obtained by the breaking up and dismantling of the ship. The goods set out in Annexure 'A' to the said statement of the case are like propeller, anchors, lifeboats, navigation signals and so on. Mr. Sanghvi has conceded that the only goods with regard to which it was being urged that the same were obtained by the respondents by the activity of manufacture with the use of the ship were iron and steel scrap, iron and steel plates, wooden planks excluding loose planks, rivets and bolts. As far as the other goods obtained as aforesaid are concerned, it is conceded by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p or dismantling a ship comes within the phraseology "produced or manufactured in India". 31. The decision in the case of M/s. Chotabhai Jetabhai Patel and others V. Union of India and others A.I.R. 1962 S.C. 1006 wherein it was held that levy of duty with retrospective effect was not unconstitutional or violative of Article 19 is also quite irrelevant for the purpose of the present case. 32. Reliance was also placed on the case of Deputy Commissioner of Sales-tax v. Pio Food Packers -[1980 E.L.T. 343 (SC) = A.I.R. 1980 S.C. 1227] where the Supreme Court applied the test "does the processing of the original commodity bring into existence a commercially different and distinct article)?" But that was a case where the question was whether any manufacturing process was involved in the activity of turning pineapple fruit into again pineapple slices. The Supreme Court held that sliced pineapple was a presentation of fruit in a more convenient form. 33. In that case, the Supreme Court also referred to the test laid down in the case of Anheuser-Busch Brewing Association v. United States (1907) 52 ED 336 where the Court said : "Manufacture implies a change, but every change is not m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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