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TMI Blog2003 (11) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... ut folding it and when it is folded by the manufacturer, it is sheet in coil form and unfolded it is sheet as such and accordingly there is no difference in the steel sheets in coil form or cut straight to the specific sizes. The coils in running length are produced to save transportation cost and to minimize the wastage as during the cutting of the steel coils. A careful reading of the impugned circular indicates that the Ministry issuing the circular itself was of the opinion that mere slitting does not amount to process of manufacture but perhaps because of the judgment of the Apex Court in Lal Woollen [ 1999 (4) TMI 78 - SUPREME COURT] the impugned circular was issued. While examining justifiability of Excise Duty we must clearly comprehend that Excise Duty can be imposed on the manufacture of goods produced in India and that also on the bringing into existence a new substances known to the market. In view of the settled position of law crystallized by the aforesaid judgments, we have no difficulty in clearly arriving at the conclusion that mere cutting or slitting of steel sheets does not amount to manufacture because the identity of the product remains unchanged. The steel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitions have been preferred by the job workers who are engaged in cutting and slitting of steel sheets from coils. The petitioners are aggrieved by a circular dated 7-9-2001. This circular has been sent by the Ministry of Finance, Department of Revenue, Central Board of Excise Customs, New Delhi to all Chief Commissioners of Central Excise, all Director General of Central Excise, all Commissioners of Central Excise (Appeals) and all Commissioners of Central Excise. Since the entire focus in these writ petitions is on the circular, we deem it appropriate to reproduce the circular. The circular reads as under : CIRCULAR No. 584/21/2001-CX F.No. 139/12/99-CX.4 Govt. of India Ministry of Finance Department of Revenue Central Board of Excise Customs New Delhi To All Chief Commissioners of Central Excise. All Director General of Central Excise. All Commissioners of Central Excise (Appeals) All Commissioners of Central Excise Circular No. 584/21/2001-CX, dated 7 September, 2001 issued by the Government of India, Ministry of Finance (Department of Revenue), Central Board of Excise Customs, New Delhi vide F.No. 139/12/99-CX.4, dated 7-9-2001. Whether slitting of HR/CR coils of Iron and ste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Judgment in the case of CCE, Mumbai v. Bamcee Ltd., 2001 (126) E.L.T. 126 (Tribunal - Delhi). The Tribunal has held that slitting and shearing of duty paid flat rolled steel coils purchased from the market will not amount to manufacture if the resultant product remained classifiable under the same Tariff sub-heading and it would amount to manufacture where Tariff sub-heading changes. 7. In the circumstances, it is hereby clarified that cutting of HR/CR coils of iron of non-alloy steel into sheets or slitting into strips of lesser width; or slitting of sheets into strips will amount to manufacture if the resultant product is classifiable under different sub-heading of the Central Excise Tariff. 8. The trade and field formations may be suitably informed. 9. Receipt of this Circular may please be acknowledge. Sd/- (S.C. Bhatia) Under Secretary (CX. 4) 3. The petitioners have assailed this circular on various grounds. There is no dispute amongst the parties regarding the basic facts of these petitions. Facts in brief are recapitulated in the following paragraphs. 4. The petitioners are job workers engaged in de-coiling the sheet coils and cutting these coils by using Cutter Machine i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms be held illegal, without jurisdiction and ultra vires of the Central Excise Act, 1944. This court issued show cause notices in these petitions and thereafter these petitions were listed for final disposal. Counter-affidavits have been filed on behalf of Commissioner, Central Excise-II, New Delhi. It is incorporated in the counter-affidavits that the process of cutting strip in coil form into sheets is not a process of mere cutting but it also involves several steps such as decoiling, straightening strips in coil form on cutting machines specifically designed for cutting sheets with the aid of power to desired length and dimensions as per the requirements of respective buyers. It is further incorporated that the material is subjected to all above process including cutting, a new product sheet different from strip emerges. Therefore, the process of cutting of strip in coil form or into sheets would amount to manufacture. 7. In the counter-affidavit reliance has been placed on Indandas v. Phadke, AIR 1982 SC 127. In the said case, the court laid down three broad categories which amount to manufacturing activities. These categories are set out as under :- 1. It must be proved that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of India. Reliance has been placed on the Judgment of the Hon ble Supreme Court in the case of CCE, Meerut v. Kapri International (P) Limited, 2002 (142) E.L.T. 10 (S.C.) = (2002) 4 SCC 710, in which the court held that cutting of cotton fabrics from running length into small pieces and giving them a definite required shape to form new articles like bed sheets, bed spreads, tablecloths etc. the respondent has produced a new commodity which has a definite commercial identity in the market. It is also observed in the judgment that the mere fact that the material from which the new goods are manufactured, has suffered a duty under a particular tariff item, does not exclude the finished product from being excisable to fresh duty if the Tariff Act provides for it. In the said case, though the cotton fabric had suffered duty under Tariff Item 19(1), the Tariff Act has made bedsheets, pillow covers etc. also dutiable under the same tariff item, therefore, the respondent is liable to pay excise duty on bedsheets, pillow covers, napkins, etc. manufactured by it. 11. Though in the counter-affidavit the preliminary objection regarding maintainability of the writ petitions is missing yet du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not arise at all as a process of mere cutting does not amount to manufacture when the resultant product remains the same and does not change its identity. 15. Mr. Santhanam, learned Counsel for the petitioner, placed reliance on Dy. CST v. Pio Food Packers reported as 1980 (6) E.L.T. 343 (S.C.). The Supreme Court held that if original identity of the product is maintained, no manufacture can be said to have taken place. 16. In another case CCE v. Kutty Flush Doors Furniture Co. Pvt. Limited reported as 1988 (35) E.L.T. 6 (S.C.) the Supreme Court held that conversion of timber logs into sawn timber is not manufacture as no new product emerges. 17. Reliance has also been placed on State of Orissa v. Titaghur Paper Mills Co. Limited reported as AIR 1985 SC 1293. In this case the Supreme Court held that mere change in form does not amount to manufacture. The court in para 127 (10) of the judgment observed that timber and sized or dressed logs are one and the same commercial commodity. Beams, rafters and planks would also be timber. 18. It has been canvassed that to constitute manufacture, a new and different article must emerge having a distinct name, character or use. Reliance has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the petitioners placed reliance on Union of India Others v. Delhi Cloth and General Mills Co. Limited Others reported as 1977 (1) E.L.T. (J 199). In this case the taxing authority imposed excise duty on the manufacture of refined oil from row oil. The court held that refined oil is one sort; raw oil is another sort. But as the duty is on the manufacture of goods, that is, on the bringing into existence a new substance known to the market, the raw oil or the refined oil must be some substance known to the market before it can be subjected to duty. 22. In the case of Prabhat Sound Studios v. Additional Collector of Central Excise reported as 1996 (88) E.L.T. 635 (S.C.) the Supreme Court held : The manufacturer of tapes may manufacture and sell blank tapes upon which the purchaser would be free to record such sound as he chose. The manufacturer may go one step forward and record sound itself and sell such tapes. It is to cover both eventualities that Tariff item 59 is categorised as it is. But it is altogether different to say that by reason thereof the recording of sound on blank tapes, as done by the appellant on job-work basis, is a manufacturing process. As the Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing officer cannot take a contrary view. 27. Reliance has been placed on Ranadey Micronutrients v. Collector of Central Excise reported as 1996 (87) E.L.T. 19 (S.C.). In this case similar view was taken by the Supreme Court that the department cannot be allowed to plead that such circular was not valid. 28. Reliance has also been placed on Purewal Associates Limited v. Collector of Central Excise reported as 1996 (87) E.L.T. 321 (S.C.). In this case the Supreme Court held that the trade notices issued by the Excise Collector not binding on Tribunal or Courts yet it cannot be ignored when authorities take a different stand because if such trade notice was erroneous, it would have been withdrawn. 29. In the case of Collector of Central Excise, Bombay v. Kores (India) Limited reported as 1997 (89) E.L.T. 441 (S.C.), the Supreme Court held that tariff advice or trade notice issued by the Board are not binding on Tribunal or Courts. The assessee can claim them to be erroneous but Revenue cannot advance arguments contrary to the Tariff Advice or Trade Notice. 30. In Collector of Central Excise, Vadodara v. Dhiren Chemical Industries reported as 2002 (139) E.L.T. 3 (S.C.) a Constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 979 (4) E.L.T. (J533) (A.P.) observed that the highest authority constituted under the Act, having already predetermined the question and having directed all the subordinate tribunals to interpret the notification in a particular manner, the statutory remedy of appeal and revision ceases to be a remedy. 34. The High Court of Andhra Pradesh in XI Telecom Limited v. Superintendent of Central Excise, Hyderabad reported as 1999 (105) E.L.T. 263 (A.P.) held that alternative remedy is no bar when impugned action of authorities is without authority of law and jurisdiction. 35. A Division Bench of Bombay High Court in Yashwant Sahakari Sakhar Karkhane Limited v. Union of India Others reported as 1986 (26) E.L.T. 904 (Bom.) observed that if the highest authority constituted under the Act had already pre-determined the question, the statutory remedy has ceased to be a remedy and filing of an appeal/revision becomes an exercise in futility. There can, therefore, be no bar to the maintainability of writ petition under Article 226 of the Constitution. On the strength of these judgments, we can safely state that resorting to alternative remedy of filing appeal would have been an exercise in futi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Union of India v. Ahmedabad Electricity Co. Ltd. Ors. reported as 2003 (158) E.L.T. 3 (S.C.) = JT 2003 (8) SC 153 their lordships of the Supreme Court have dealt with exactly the same question. The court has dealt with the meaning of excisable goods and when excise duty is attracted. The court has also dealt with what is the meaning of manufacture in the context of excise law. 42. The Hon ble Supreme Court in South Bihar Sugar Mills v. Union of India reported as 1978 (2) E.L.T. (J336) (S.C.) = AIR 1968 SC 922 observed : The Act charges duty on manufacture of goods. The word manufacture implies a change, every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character and use. 43. In M/s. Hindustan Polymers v. Collector of Central Excise reported as 1989 (43) E.L.T. 165 (S.C.) = JT 1989 (3) SC 674, their Lordships of the Supreme Court observed : Excise Duty is a duty on the act of manufacture. Manufacture under the excise law, is the process or activity which brings into being articles which are known in the market as goods and to be goods these must be different, identifiab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible to tax. Since cashew shells were used only as fuel and they did not get transformed into the end product they were held to be not exigible to tax. Cashew shells were used in aid of manufacture of goods and as such they did not attract levy of tax. 46. In Collector of Central Excise, New Delhi v. M/s. Ballarpur Industries Ltd. reported as 1989 (43) E.L.T. 804 (S.C.) = JT 1989 (4) SC 396 the raw material is the course of chemical reactions got burnt up and lost its apparent identity. To be more precise, the input of sodium sulphate in the manufacture of paper would not cease to be of raw material by reason alone of the fact that in the course of the chemical reactions, this ingredient is consumed and burnt up. All the same it remained a raw material. It was held that the relevant test is not the absence of the raw material in the end product, but the dependence of end product for its essential presence at the delivery end of process. What follows from this is that the raw material which we are concerned about is the raw material which is linked with emergence of the end product. It has to be present in the end product whether visibly or invisibly. 47. In Commissioner of Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me but they lack not only metal body but also metal strength, formability and character. Such dross and skimmings are distinct from scrap which is a metal of good quality. Dross and skimmings though obtained during process of manufacture were held to be not exigible to excise duty at the relevant time. Since the dross and skimmings were sold in the market it was argued that they were a marketable commodity and should be subject to levy of excise duty. The court observed that these were nothing but waste or rubbish which is thrown up in the course of manufacture. 50. Mr. V. Lakshmikumaran placed reliance on Moti Laminates Pvt. Limited v. Collector of Central Excise, Ahmedabad reported as 1995 (76) E.L.T. 241 (S.C.). In this case the Supreme Court observed : The duty of excise being on production and manufacture which means bringing out a new commodity, it is implicit that such goods must be useable, moveable, saleable and marketable. The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or of Central Excise reported as 1989 (40) E.L.T. 218 (S.C.). In this case the Supreme Court held that the grey fabric because of these operations, does not become new and commercially different commodity and nor ceases to be grey cloth. There is thus no justification to take it out of Rule 49A(1)(b) because any processing that can take a case out of this rule must be a process which renders cotton fabric cease to be grey fabric as commercially known und understood. 55. In Computer Graphics Pvt. Limited v. Union of India reported as 1991 (52) E.L.T. 491 (Mad.) learned Single Judge of Madras High Court held that since the main question involved for decision, viz., whether by cutting Jumbo rolls into smaller flats, the petitioner is manufacturing a new and different product has been answered in the negative. 56. A Division Bench of the Madhya Pradesh High Court in Keshaodeo Shivprasad v. Union of India reported as 1992 (61) E.L.T. 404 (M.P.) observed : The word manufacture implies such a change that the raw material is transformed into a new and different article so emerged has to have a distinct name. The essence of manufacture is the transformation of the parts or basic components ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be subordinate but one in relation to the further process of manufacture. 58. Learned Amicus Curiae has placed reliance on Collector of Central Excise, Bombay v. Kiran Spinnjng Mills reported as 1988 (34) E.L.T. 5 (S.C.). The Supreme Court observed : The word manufacture means to bring into existence a new substance and does not mean merely to produce some change in a substance. It is true that etymological word manufacture properly construed would doubtless cover the transformation but the question is whether that transformation brings about fundamental change, a new substance is brought into existence or a new different article having a distinctive name, character or use results from a particular process or a particular activity. In the instant case, it is not disputed that what the appellant did was to cut the running length fibre (tow) into short length fibre (staple fibre). It undoubtedly brought a change in the substance but did not bring into existence a new substance. The character and use of the substance - man-made fibre remained the same. It is true that by the change in the length of the fibre, it acquired a new name. But, since in this case, the tariff entry recogn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is manufacture. The law still remains that the burden to prove that there is manufacture and that what is manufactured is on the revenue. In this case no new evidence is placed to show that there is manufacture. Spent Earth was earth on which duty has been paid. It remains earth even after the processing. Thus, if duty was to be paid on it again, it would amount to levying double duty on the same product. 61. Mr. R.C. Gupta submitted that the law declared by the Supreme Court in Kapri International (Supra) is in consonance with the judgments delivered by the Supreme Court in a large number of cases and it correctly laid down that wherein the processes applied on the cotton fabrics was not simply cutting the fabrics but in addition to cutting, the processes of hemming and stitching are must to produce bed sheets, bed spreads, table cloths, napkins, etc., which brings into existence a new marketable commodity having distinct market identity and the Supreme Court rightly held that when new marketable commodity other than the raw material comes into existence, it satisfies the definition of manufacture and the duty is leviable thereon irrespective of the fact whether the tariff head ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed even where the classification changes, it could not be said that the activity causing such a change amounted to manufacture. Mr. Gupta further submitted that the goods alter cutting/slitting continued to be known by the same nomenclature in the market. The Revenue has failed to establish the test of manufacture as laid down by the Hon ble Supreme Court in its various judgments, hence the conditions of the levy of duty on the duty paid product again are not fulfilled and accordingly the Revenue is not empowered to misuse the powers in the guise of the Circular to declare the cutting/slitting of the steel sheets as manufacture, which the petitioner feels is without the authority of law and deserves to be declared as ultra vires. 68. Mr. R.C. Gupta also placed reliance on Mahalaxmi Stores (Supra), particularly on para 5, which reads as under: From a perusal of the definition, extracted above, it is clear that the processes of producing, making, extracting, altering, ornamenting, finishing or otherwise, processing, treating or adapting of any goods fall within the meaning of the term manufacture . But it may be pointed out that every type of variation of the goods or finishing of go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tless cover the transformation. In support of the question whether actually there is manufacture or not various documents were attempted to be utilised at the hearing of the application before us. Most of these pieces of evidence cannot be admitted at this stage but indisputably in the Indian Standard Glossary of terms which deals with various expressions, Bleached Fabric has been defined as a fabric which has undergone bleaching treatment and is treated by the Indian Standard Institution as something different from fabric which has not undergone the bleaching operations. Different standards are set out by the same and the views of the Indian Standard Institution can be looked into by the Court with certain amount of creditability. 72. Reliance was placed on Ujagar Prints, etc. etc. v. Union of India Others reported as 1988 (38) E.L.T. 535 (S.C.). In this case the court observed : The prevalent and generally accepted test to ascertain that there is manufacture is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recogni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cooters, held classifiable under Heading 72.10. This case has no relevance on the facts and circumstance of the present case. 77. We have heard the learned Counsel for the parties at length and perused the number of judgments delivered by the Apex Court and other Courts on the controversy involved in the case. 78. In these petitions, we are called upon to adjudicate whether cutting or slitting of steel sheets amount to manufacture? The other question which also calls for determination is whether revenue legislations can be introduced by a mere administrative act of issuing circular? We propose to answer both these issues in the succeeding paragraphs. 79. The expression manufacture has been defined in The Central Excise Act, 1944 as under : manufacture includes any process,- (i) incidental or ancillary to the completion of a manufactured product; and (ii) which is specified in relation to any goods in the section or Chapter notes of Schedule I to the Central Excise Tariff Act, 1985 as amounting to manufacture, and the word 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced by the manufacturer s at their end and when it is folded for the case of transportation, it has been named as coil but when it is unfolded either at the manufacturers end or at any other end it remains as sheet. The sheets in running length cannot be brought to the destination without folding it and when it is folded by the manufacturer, it is sheet in coil form and unfolded it is sheet as such and accordingly there is no difference in the steel sheets in coil form or cut straight to the specific sizes. The coils in running length are produced to save transportation cost and to minimize the wastage as during the cutting of the steel coils. 87. We would now examine the impugned circular in the light of the Judgments delivered by the various courts. The impugned circular itself had also noted the conflict of views whether, the mere slitting is a process or Manufacture? A careful reading of the impugned circular indicates that the Ministry issuing the circular itself was of the opinion that mere slitting does not amount to process of manufacture but perhaps because of the judgment of the Apex Court in Lal Woollen (Supra) the impugned circular was issued. 88. In Civil Appeal No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not amount to manufacture. We are also clearly of the view that merely because of change in tariff item, the good does not become excisable. On the application of aforesaid test, our conclusion is clear that the impugned circular dated 7-9-2001 is wholly unsustainable and has to be quashed and we order accordingly. 91. Now we propose to examine the other main issue involved in the case, whether in the guise of the Circular the respondents have in fact brought out a revenue legislation for imposing excise duty. The other obvious question which arises for adjudication is whether according to the ambit and scope of Section 37B Excise Duty can be imposed? In order to properly comprehend Section 37B of the Act it is necessary to reproduce Section 37-B, which reads as under : Instructions to Central Excise Officers . - The Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963), may, if it considers it necessary or expedient so to do for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods, issue such orders, instructions and directions to the Central Excise Officers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring with their quasi judicial functions. 95. Whenever any authority is conferred with the power to determine certain questions in judicial and/or quasi judicial manner, the authority is required to exercise the power conferred upon him as per his own discretion. This is the essence of judicial and quasi judicial function. The authority exercising such powers cannot be influenced by any directions, instructions or the Circulars that may be issued by any other agency. Consequently, the Circular issued by the respondents cannot be permitted to interfere with the discretion of the judicial and quasi judicial authorities. 96. The power to impose tax is essentially a legislative function and according to our constitutional scheme it cannot be delegated. The Excise Duty which the legislature intends to impose must be imposed directly in accordance with law. By issuing the impugned circular the respondent cannot introduce revenue legislation indirectly. The impugned circular also deserves to be quashed on this ground also. 97. Consequently, the impugned circular dated 7-9-2001 issued by the Ministry of Finance, Department of Revenue, Central Board of Excise Customs is quashed and proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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