COMMISSIONER OF CENTRAL EXCISE, CHENNAI-II COMMISSIONERATE & ORS. ETC.versusM/S. TARPAULIN INTERNATIONAL & ORS. ETC.

                       [2010] 9 S.C.R. 620


A    COMMISSIONER OF CENTRAL EXCISE, CHENNAl-11
           COMMISSIONERATE & ORS. ETC.
                                 v.
        M/S. TARPAULIN INTERNATIONAL & ORS. ETC.
            (Civil Appeal No. 5341 of 2005 etc. etc.)
B                       AUGUST 04, 2010

               [D.K. JAIN AND H.L. DATTU, JJ.)

        Central Excise Tariff Act, 1985:
c      First Schedule - Heading 63.01 - Tarpaulin made-ups
  - Levy of excise duty on - HELD: Merely because certain
  item falls within the Schedule, it would not be dutiable under
  the Excise Law, if the said article is not 'goods' known to the
  market - Marketability is an essential ingredient for goods to
D be dutiable under the Schedule - Therefore, there can be no
  levy of excise duty on tarpaulin made ups - Central Excise
  Act, 1944.

        Central Excise Act, 1944:
E
       s. 2(f) - 'Manufacture' - Tarpaulin made-ups - Prepared
  by cutting tarpaulin from tarpaulin, sheets, stitched and eye-
  lets fixed thereto - HELD: The original material used i.e. the
  tarpaulin, is still called tarpaulin, made-ups even after
F undergoing the said process - Tribunal rightly held that
  conversion of tarpaulin into tarpaulin made-ups would not
  amount to manufacture - Central Excise Tariff Act, 1985.

       In the instant appeals filed by the Revenue, the only
  question for consideration before the Court was:
G "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' ?"
H                             620
  COMMISSIONER OF CENTRAL EXCISE, CHENNAl-11 621
          v. TARPAULIN INTERNATIONAL
     Dismissing the appeals, the Court                         A

       HELD: 1.1 It is not in dispute nor can it be disputed
 that Tarpaulin made ups are covered under sub-heading
 63.01 of the Schedule to the Central Excise Tariff Act, 1985.
 It is now well settled that merely because certain article 8
 falls within the Schedule, it would not be dutiable under
 the Excise Law, if the said article is not 'goods' known to
 the market. Marketability, therefore, is an essential
 ingredient in order to be dutiable under the Schedule to
 Central Excise Tariff Act, 1985. [para 22] [630-H; 631-A-B] C

      1.2 The Tribunal has rightly held that conversion of
  Tarpaulin into Tarpaulin made-ups would not amount to
  manufacture. When Tarpaulin sheets are stitched and
  eyelets are fixed, it does not change the basic
  characteristic of the raw material and the end product. D
  The process of stitching and fixing t:yelets would not
  amount to manufacturing process. It 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 E
  made-ups even after undergoing the said process.
  Therefore, even if there is value addition, the same is
  minimum. To attract duty there should be a manufacture
1 to result in different goods and the goods sought to be
: ~ubject to duty should be known in the market as such. F
  Therefore, there can be no levy of Central Excise duty on
  the tarpaulin made-ups. [para 23-24] [631-G-H]

     Kores India Ltd. Vs. Commissioner of Central Excise,
 Chennai, 2004 (174) ELT 7 (S.C.); India Cine Agencies Vs.
 Commissioner of Income Tax, Madras, 2009 (233) ELT 8 G
 (S.C.); Tungabhadra Industries v. CTO, (1961) 2 SCR 14,
 Union of India v. Delhi Cloth & General Mills Co.Ltd.,(1997)
 5 SCC 767; South Bihar Sugar Mills v. Union of India (1968)

                                                               H
    622      SUPREME COURT REPORTS                (2010] 9 S.C.R.


A   3 SCR 21; India Cine Agencies v. Commissioner of Income
    Tax, Madras, 2008 (233) ELT 8(SC); Union of India v. Delhi
    Cloth and General Mills, 1977 (1) ELT (J199); Union of India
    v. Delhi Cloth and General Mills, 1977 (1) ELT (J199) Bhor
    Industries Ltd., Bombay v. Collector of Central Excise,
B   Bombay, 1989 (40) ELT 280(SC); Collector of Central Excise
    Vs. Ku lay Flush Door and Furniture Co. (P) Ltd., (1988) SupJ}.
    SCC 239; B.P.L. India Ltd. v. Commissioner of Central
    Excise, Cochin, 2002 (143) ELT 3(SC) ; Empire Industries
    Ltd. v. Union of India, (1986) 162 ITR 846(SC); C.C.E. v. S.R.
c   Tissues Pvt. Ltd., 2005(186) E.L.T.385(S.C.); Moti Laminates
    Pvt. Ltd. v. CCE, 1995 (76) ELT 241; and Dharangadhara
    Chemicals Works Ltd. v. Union of India, 1997 (91) ELT 253
    - relied on.

         Adams v Rau, 46 CLR 572 High Court of Australia -
D   referred to.

                         Case Law Reference: ·
          2004 (174) ELT 7 (S.C.) relied on             para 8
E         2009 (233) ELT 8 (S.C.) relied on             para 8

          (1961) 2 SCR 14         relied on             para 13

          (1997) 5 sec 767        relied on             para 13

          (1968) 3 SCR 21         relied on             para 13
F
          2008 (233) ELT 8(SC)    relied on             para 15
          1977 (1) ELT (J199)     relied on             para 15
          1977 (1) ELT (J199)     relied on             para 16
G
          1989 (40) ELT 280(SC) relied on               para 16
           (1988) Supp. sec 239 relied on               para 17
          2002 (143) ELT 3(SC)     relied on            para 18
H         (1986) 162 ITR 846 (SC) relied on             para 19
COMMISSIONER OF CENTRAL EXCISE, CHENNAl-11 623
        v. TARPAULIN INTERNATIONAL
    46 CLR 572 (High Court of Australia)                             A
    referred to                para 20
    Z005(186) E.L.T.385 (S.C.) relied on              para 21
    1995 (76) ELT 241           relied on             para 22
                                                                     B
   . 1997 (91) ELT 253          relied on             para 22

    CIVIL AP PELLATE JURIDICTION : Civil Appeal No. 5341
of 2005.

    From the Judgment & Order dated 06.01.2005 of the                C
Customs, Excise and Service Appellate Tribunal, South Zonal
Bench at Chennai, in Appeal No. E/PD/36/2001.

                             WITH
                                                                     D
    C.A. Nos. 1453-1455 of 2008, 309-311 of 2006, 6624-
6626, 7563-7564, 7628, 7629 of 2005.

     R.P. Bhatt, Arijit Prasad, Asha G. Nair, B. Krishna Prasad,
Anil Katiyar, Jaimon Andrews, Achin Goel, Anjali Chauhan, V.N.
Raghupathy, Ashok Kumar Singh for the appearing parties.             E

    The Judgment of the Court was delivered by

     H.L. DATIU, J.

     ISSUE:                                                          F

     1. These appeals, which are at the instance of the
Commissioner of Central Excise, raise a common issue, viz.,
whether the tarpaulin made-ups which are prepared after
cutting and stitching the tarpaulin fabric and fixing the eye-lets   G
would involve the process of manufacture and, hence, would fall
within the definition of 'manufacture' ?



                                                                     H
    624     SUPREME COURT REPORTS                 [2010] 9 S.C.R.


A         FACTS:

       2. The issue above mentioned has come up in the light of
  the following facts which can be briefly stated as follows: we
  take M/s Tarpaulin International Civil Appeal No. 5341 of 2005
  as the lead case. The noticee is carrying on the business of
8
  producing and selling 'tarpaulin made-ups'. The 'tarpaulin
  made-ups' are nothing but the tarpaulin cloth which is prepared
  by making solution of wax, aluminum stearate and pigments
  which are mixed and the solution is heated in a vessel and
C transferred to a tank. Grey cotton canvas fabric is then dipped
  into this solution and passed through two rollers, where after
  the canvas is dried by exposure to atmosphere. Thereafter, the
  tarpaulin made-ups are prepared by cutting the cloth into
  various sizes and stitched and eye-lets are fitted. The noticee
  states that the process of mere cutting, stitching and putting
D eyelets does not amount to manufacture and hence, the
  department cannot levy Excise Duty on tarpaulin made-ups.
   However, the view of the department is that, the "made-ups"
   prepared by means of cutting, stitching and fixing of eye-lets
  amounts to manufacture and, hence, they are exigible to duty
E under the Central Excise Tariff Act, 1985 (for short ·the Act').

         3. A show cause notice was issued by a competent
    authority dated 31.8.1995, inter alia directing the noticee to
    show cause as to why tarpaulin made-ups be not classified
F   under chapter sub-heading 63.01 and the corresponding duty
    of Rs.57,33,262/- be demanded. The assessees had filed their
    replies inter alia contending that no manufacturing process was
    involved in the conversion tarpaulin fabric into tarpaulin made-
    ups.

G COMMISSIONER OF CENTRAL EXCISE:

        4. After adjudication, the matter was decided by the
    Commissioner of Central Excise, vi de Order no. 10/1997.
    Being aggrieved, the assessee went up in appeal before
H
COMMISSIONER OF CENTRAL EXCISE, CHENNAl-11 625
  v. TARPAULIN INTERNATIONAL [H.L. DATTU, J.]
Customs, Excise and Gold (Control) Appellate Tribunal, South A
Zonal Bench at Chennai. The Tribunal vide its order dated
24.04.1998 remitted the matter to the Commissioner of Central
Excise for de novo adjudication after due consideration of all
material evidence. The Commissioner, vide order in Original
no. 24/2000 dated 28.11.2000 decided the issue in favour of B
the Department. The Commissioner concluded by holding that
the tarpaulin made-ups were specifically covered under Tariff
heading 63.01. The Commissioner in terms of Rule 3(a) of the
Interpretative Rules, stated that the heading which provides
more specific description is to be preferred to the heading that  c
provides a general description.

Customs, Excise and Service Tax Appellate Tribunal:

     5. Aggrieved by the Commissioner's order dated
28.11.2000, the noticee/assessee filed appeal before the          D
Tribunal. It was contended on behalf of the assessee that
conversion of Tarpaulin fabric into "Tarpaulin made ups" does
not amount to manufacture for the purpose of levy of central
excise duty. However, Revenue contended that tarpaulin made-
ups are a distinct marketable commodity known to Trade and        E
therefore, it should be held to be excisable. It was also
contended that, on account of the specific coverage of the item
in the Central Excise Tariff, it would be exigible to duty.

     6. The Tribunal after giving due considera.tion to the
submission of both sides, has come to the conclusion that no F
'manufacture' was involved in the conversion of Tarpaulin made-
ups. While so deciding, the Tribunal has relied on the decision
of Andhra Pradesh High Court in TRC No. 215/90 [State of
Andhra Pradesh v. Binny Ltd.], wherein it is held, that, stitching
of the edges of cotton canvas and fitment of eyelets thereto did G
not bring about any material change in the essential character
of cotton canvas and it remained cotton fabric. The Tribunal
found parity between the decision of the Andhra Pradesh High
Court and the case at hand. Accordingly, the Tribunal vide order
dated 10.01.2005 allowed the appeal filed by the assessee.         H
    626       SUPREME COURT REPORTS                  [2010] 9 S.C.R.


A Civil Appeal:
        7. Being aggrieved by the decision of the Tribunal the
    Revenue has filed Civil Appeals and has raised the following
    question of law for consideration and decision. They are :-
B                a)     Whether the process of converting 'Tarpaulin
                        Fabrics' into 'Tarpaulin made-ups' would
                        amount to manufacture when the said
                        process results in an entirely different
                        commodity with different marketable value?
c
                 b)     Whether the said process would amount to
                        manufacture as defined under Section 2(f) of
                        the Central Excise Act, 1944?

          8. Sri R.P. Bhatt, learned senior counsel for the revenue
0   contended, that, the Tarpaulin made ups are made out of
    Tarpaulin fabric by cutting Tarpaulin fabric to a required size,
    margins are stitched, and eye lets are punched depending on
    the requirement of the consumers. Tarpaulin made ups are a
    distinct marketable commodity and, hence, it should be held
E   exigible to central excise duty. In aid of his submission, the
    learned senior counsel has placed reliance on the observations
    made by this court in the case of Kores India Ltd. Vs.
    Commissioner of Central Excise, Chennai, [2004 (174) ELT 7
    (S.C.)] and India Cine Agencies Vs. Commissioner of Income
F   Tax, Madras, [2009 (233) ELT 8 (S.C.)]. The learned counsel
    for the respondents were absent and, therefore, we did not have
    the benefit of hearing their version.

          9. Let us first notice the relevant entries. They are:
G         Chapter 63 of Central Excise Tariff Act, 1985, is expressly
          made applicable to made-up articles :

          Chapter No. 1 reads as :

H         "This Chapter applies only to made up articles of any textile
 COMMISSIONER OF CENTRAL EXCISE, CHENNAl-11 627
  .v. TARPAULIN INTERNATIONAL [H.L. DATIU, J.]
      fabrics other than wadding, excluding knitted or crocheted        A
      articles other than brassieres, girdles, corsets, braces and
      the like."

      Sub heading 63.01 deals with Tarpaulin made-ups. The
      entry is as under:                                                B

      "Made up textile articles not elsewhere specified including
      blankets (other than wool) Tarpaulin Tents, Sails or boats."

      Term 'Made up' is defined in Section 5(e) to Section XI of
      CET reads as: - 'assembled by serving, gumming or                 c
      otherwise.'

         10. For deciding the above mentioned issue, it is important
   to understand the condition which needs to be satisfied for levy
   of Excise Duty. The power to levy the excise duty is provided~­
   under Chapter 11 titled 'Levy and Collection of Duty' of the Central D
   Excise Tariff Act, 1985 (hereinafter referred to as 'the Act'). The
   excise duty is levied under Section 3 of the Act. The basis for
   the levy of Central Excise duty is on the production or
   manufacture of goods within the country.
                                                                        E
         11. Section 2(d) of the Act defines the meaning of the
   expression 'excisable goods' means goods specified in the
   First Schedule and the Second Schedule to the Central Excise
,, Tariff Act, 1985 as being subject to a duty of excise and includes
~sa~                                                                    F

      12. At the relevant time the expression "Manufacture" was
 defined in Section 2(f) of the Act, as under:-

      'Manufacture'1 includes any process -
                                                                        G
               i.    incidental or ancillary to the completion of   a
                     manufactured product; and

               ii.   which is specified in relation to any goods in
                     the Schedule or Chapter Notes of the               H
    628      SUPREME COURT REPORTS                   [2010] 9 S.C.R.


A                      Schedule to the Central Excise Tariff Act,
                       1985 as amounting to manufacture.

          13. The result of the definition contained in Section 2(f) of
    the Act is that the word manufacture means production of an
8   article for use from raw or prepared materials, by giving these
    materials new form, quality, properties or combinations whether
    by hand labour or machinery. The word includes any process
    incidental or ancillary to the process of manufactured product.
    This Court has in several judgments starting from Tungabhadra
C   Industries v. CTO, [(1961) 2 SCR 14], Union of India v. Delhi
    Cloth & General Mills Co.Ltd., [(1997) 5 SCC 767], South
    Bihar Sugar Mills v. Union of India, [(1968) 3 SCR 21] and
    line of other judgments have explained the meaning of the
    expression 'Manufacture'. In all these judgments, this court has
    observed that "manufacture implies a change, but every change
D   is not a manufacture and yet every change in an article is the
    result of treatment, labour and manipulation. But something
    more is necessary ....... There must be transformation, a new
    and different article must emerge, having a distinctive name
    character or use".
E
         14. The definition was amended and Section 2(f)(ii) was
    introduced vide Central Excise Tariff Act with effect from
    28.2.1986 by Act 5 of 1986. It is worded thus: "Manufacture
    includes any process which is specified in relation to any goods
F   in the Section or Chapter Notes of the Central Excise Tariff Act,
    1985 as amounting to manufacture".

         15. Whenever a commodity undergoes a change as a
    result of some operation performed on it or in regard to it, such
    operation would amount to processing of the commodity.
G   However, this court in the case of India Cine Agencies v.
    Commissioner of Income Tax, Madras, [2008 (233) ELT
    8(SC)] observed, that, it is only when the change or a series of
    changes takes the commodity to the point where commercially
    it can no longer be regarded as the original commodity but
H   instead is recognized as a new and distinct article that a
COMMISSIONER OF CENTRAL EXCISE, CHENNAl-11 629
  v. TARPAULIN INTERNATIONAL [H.L. DATTU, J.]
manufacture can be said to take place. This court in the case       A
of Union of India v. Delhi Cloth and General Mi/ls, [1977 (1)
ELT (J199)] referring to the meaning of expression manufacture
explained in the case of Anheuser-Busch Brewing Association
Vs. United States, stated :

    "Manufacture implies a change but every change is not
                                                                    a
    manufacture and yet every change of an article is the result
    of treatment, labour and manipulation. But something more
    is necessary and there must be transformation, a new and
    different article must emerge having a distinctive name,        C
    character or use."

      16. Line of cases has settled the law as regards the
definition of 'manufacture'. Keeping in view the detailed
observations made in the case of Union of India v. Delhi Cloth
and General Mills, (1977 (1) ELT (J199)], this court in the case D
of Bhor Industries Ltd., Bombay v. Collector of Central Excise,
Bombay, [1989 (40) ELT 280(SC)], has stated that "it is
necessary, to find out whether there are goods, that is to say,
articles as known in the market as separate distinct identifiable ·
commodities ...... Marketability, therefore, is an essential E
ingredient in order to be dutiable under the Schedule to Central
Tariff Act, 1985."

      17. In Collector of Central Excise Vs. Kulay Flush Door
and Furniture Co. (P) Ltd., [(1988) Supp. SCC 239], it is stated,
that, manufacture implies a change, but every change is not a
                                                                    F
manufacture and yet every change of an article is the result of
treatment, labour and manipulation. But something more was
necessary and there must be transformation, a new and different
article must emerge having a distinct name, character or use.
                                                                    G
      18. In B.P.L. India Ltd. v. Commissioner of Central
Excise, Cochin, (2002 (143) ELT 3(SC)], throws considerable
light on the point. This court stated that "a question as to when
a manufacture of product takes place within the meaning of
Section 2(f) of the Act is mixed question of law and fact." The     H
    630      SUPREME COURT REPORTS                    [2010] 9 S.C.R.


A   process may vary, but it is only the change that will bring into
    existence a new and distinct article known to the consumers
    and the commercial community as a commercial product, which
    can be no longer regarded as the original commodity, can be
    deemed to be 'manufacture'.
B
       19. In Empire Industries Ltd. v. Union of/ndia, [(1986) 162
  ITR 846(SC}], this Court has stated that the transformation into
  something else "is a question of degree, whether that something
  else is a different commercial commodity having its distinct
  character, use and name and commercially known as such from
C that point of view, is a question depending upon the facts and
  circumstances of the case."

       20. In an Australian decision in the case of Adams v Rau,
  [46 CLR 572 High Court of Australia] shorthand writers were
D involved in process of taking notes and later transcribed the
  notes by using papers. Evatt J. observed that "The medical
  practitioner who provides the service of taking X-rays and
  furnishes copies of the skiagraph to the patient, although he
  causes a new thing or entity to come into existence, is not a
E producer of goods. Nor is the artist who makes an etching for
  a client and provides him with a dozen copies, a manufacturer
  of commodities." Hence, the process was not held to be
  manufacture.

       21. In the case of C.C.E. v. S.R. Tissues Pvt.Ltd., [2005
F (186) E.L.T.385(S.C.)], it was held that just because raw
  material and finished product come under two different
  headings, it cannot be presumed that process of obtaining
  finished product from such raw material automatically
  constitutes manufacture. Slitting/cutting of jumbo rolls of toilet
G tissue paper/aluminium foil into smaller size does not amount
  to manufacture of the principle that character and end-use did
  not undergo any change on account of winding, cutting/slitting
  and packing.

H         22. It is not in dispute nor it can be disputed that Tarpaulin
COMMISSIONER OF CENTRAL EXCISE, CHENNAl-11 631
  v. TARPAULIN INTERNATIONAL [H.L. DATTU, J.]
made ups are covered under sub-heading 63.01 CETA A
Schedule. The question is whether the commodity in question
resulted from manufacture as envisaged under Section 2(f) of
Central Excise Act. 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 B
to the market. Marketability, therefore, is an essential ingredient
in order to be dutiable under Schedule to Central Excise Tariff
Act, 1985. [See Bhor Industries v. CCE, (1989 (4) ELT 280],
Moti Laminates Pvt. Ltd. v. CCE, (1995 (76) ELT 241 ],
Dharangadhara Chemicals Works Ltd. v. Union of India, (1997        c
(91) ELT 253].

     23. Is there any manufacture when Tarpaulin sheets are
stitched and eyelets are made? In our view, it does not change
basic characteristic of the raw material and end product. The
process does not bring into existence a new and distinct D
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 E
tarpaulin made-ups. The process of stitching and fixing eyelets
would not amount to manufactur' · g process, since tarpaulin after
stitching and eyeleting continues to be only cotton fabrics. The
purpose of fixing eyelets is not to change the fabrics. Therefore,
even if there is value addition the same is minimum. To attract F
duty there should be a manufacture to result in different Goods
and the Goods sought to be subject to duty should be known
in the market as such.

    24. To sum up, the Tribunal has rightly held that conversion   G
of Tarpaulin into Tarpaulin made-ups would not amount to
manufacture. We find no merit in these appeals. Accordingly,
these are dismissed. No order as to costs.

R.P.                                       Appeals dismissed.
                                                                   H