Holding

The conversion of ingots into billets creates a new commercial commodity and thus constitutes manufacture, attracting excise duty.

Summary

Mis Mahavir Aluminium Ltd. melted aluminium ingots and added alloys to produce aluminium billets, which were used captively for irrigation pipe manufacture (exempt) and also sold in the open market. The Commissioner of Central Excise demanded excise duty on the billets, holding that the conversion constituted "manufacture" under Section 2(f) of the Central Excise Act, 1944. The CEGAT reversed this view, stating that only the physical form changed and no new commodity was created. On appeal, the Supreme Court held that billets are a distinct commercial commodity with separate marketability, satisfying the two‑fold test for manufacture, and therefore excise duty is payable. The Court set aside the CEGAT order and restored the Commissioner’s original demand.

Issues considered

Whether the conversion of aluminium ingots into aluminium billets by remelting and alloying amounts to "manufacture" within the meaning of Section 2(f) of the Central Excise Act, 1944.
Whether excise duty is chargeable on the billets used captively and sold in the market.

Legislation cited

Central Excise Act, 1944s. 2(f)
Central Excise Tariff Act, 1985s. Chapter 76, s. Sub‑heading 7601.10

Subjects

central excisemanufactureexcise dutyaluminium billetsingotsconversioncommercial commoditycaptive consumptiontariff classification

Judgment

,., COMMISSIONER OF CENTRAL EXCISE, JAIPUR A
~ v.
MIS. MAHA VJR ALUMINIUM LTD.

MAY 11, 2007

[ASHOK BHAN ANDC.K. THAKKER, JJ.) B

Central Excise and Salt Act, 1944:

""" ~ s.2(j)-Conversion of Aluminium Ingots into Aluminium billets during
c
the intermediate stage by the process of remelting and adding other alloys-
Held, amounts to manufacture-Billet is different commercial commodity from
Ingot, having separate and identifiable marketability, hence attracts excise
duty.

The assessee was carrying out conversion of Aluminium Ingots into
Aluminium Billets during the intermediate stage by the process of re-melting
D
and adding other alloys. Aluminium Billets were consumed captively for the
manufacture of Aluminium Irrigation Pipes. The assessee was also selling
"'..., the said commodity in the market by paying Excise Duty•

Commissioner issued demand notice towards clearance of Aluminium E
Billet for captive consumption. The demand was confirmed. On appea~ CEGAT
· held that the process carried out by the assessee of Melting Ingots into Round
Ingots for the purpose of extrusion did not amount to 'manufacture' and the
taxable commodity remained the same although in different form. Aggrieved
department filed the present appeal.
F
Allowing the appeal, the Court
-,..- HELD: I. The word 'manufacture' is a verb which is generally
understood to mean as "bringing into existence a new substance" and does
not mean merely "to produce some change in a substance, however minor in
consequence the change may be". [Para 14) [427-C) G
Union of India & Anr. v. Delhi Cloth & General Mills Co. Ltd. & Ors.,
(1963( Supp 1SCR586; Empire Industries Ltd. v. Union of India, [1985) 3
SCC 314; Union Carbide India Ltd. v. Union of India & Ors., [1986( 2 SCC
423 H
424 SUPREME COURT REPORTS (2007] 6 S.C.R.

A 547 and Union of India & Ors. v. J.G. Glass Industries Ltd. & Ors.. (1998] 2
sec 32, relied on.
2. Ingots and Billets are two different commercial commodities. They
have separate, distinct and identifiable marketability and saleability. The
assessee used Aluminium Billets captively but is also selling in open market.
B Therefore, the Commissioner was right in holding that the assessee was liable
to pay Excise Duty. (Para 21] (428-EJ

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6197 of2001.

From the Final Order No. 208/2001-B dated 25.04.2001 of the CEGAT,
C New Delhi in Appeal No. E-3172 of 2000-B.
V. Shekhar, Sr. Adv., Sudhir Kr. Sajwan, G. Prakash and P. Parmeswaran
for the Appellant.

A.R. Madhav Rao and Monish Panda (For M.P. Devanath) for the
D Respondent.

The Judgment of the Court was delivered by

C.K. THAKKER, J. 1. A short question which arises for our consideration
in the present appeal is whether the process of conversion of Aluminium
E Ingots into Aluminium Billets during the intermediate stage by the process
of re-melting and adding other alloys amounts to 'manufacture' within the
meaning of Section 2(t) of the Central Excise Act, I944 (hereinafter referred
to as 'the Act') and Central Excise Duty is chargeable thereon?

2. The facts of the case are that Mis Mahavir Aluminium Ltd., Bhiwadi
F (hereinafter referred to as 'the Assessee') was engaged in the manufacture
of Aluminium Products falling under Chapter 76 of the Central Excise Tariff
Act, 1985. The assessee was manufacturing Aluminium Billets and was
consuming it captively for the manufacture of Aluminium Irrigation Pipes
exempted from payment of duty. The assessee was also selling the said
G commodity in the market by paying Excise Duty.

3. It was the case of the Commissioner of Central Excise, Jaipur
(hereinafter referred to as 'the Revenue') that the assessee did not mention
the facts in classification lists/declarations filed under Rule 173 B of the
Central Excise Rules, 1944 nor produced record relating to production of
H Aluminium Billets used for captive consumption and production of Aluminium
COMMR OF CENTRAL EXCISE, JAIPUR"· MAHA VIRALUMINIUM LTD. [CK TIIAKKERJ.] 425

• y Irrigation Pipes. A notice was, therefore, issued to the assessee on January A
2, I996 to show cause why an amount of Rs. I, 16,56,476/- towards clearance
of Aluminium Billets for captive consumption by suppressing the fact that
such consumption was for manufacture of fully exempt products should not
be recovered as duty and why penalty should not be imposed along with
penalty.
B
4. By an order-in-original dated August 8, I 997, demand of
Rs. 44,35,637 /- was confirmed for the period between June, I995 and December,
I995. The demand beyond the period of six months was held to be barred by
'
--< time. Penalty ofRs.10,00,000/- was also imposed.

5. An appeal filed by the assessee against the order-in-original was c
allowed by the Custom, Excise and Gold (Control) Appellate Tribunal ('CEGAT'
for short) on February I6, 2000, setting aside the order-in-original passed by
the Commissioner and remanding the matter for fresh disposal in accordance
with law,
D
6. Hearing was afforded to the assessee thereafter by the Commissioner

-•
and considering the rival submissions of the parties, the Commissioner held
that Aluminium Billets had come into existence as a result of conversion of
')
Aluminium Scraps, Ingots and other alloying materials by process of melting.
Billets are thus a commodity distinct from Ingots. The Commissioner also
recorded a finding that "Aluminium Billets, besides being used captively, were E
also sold in the marked by the assessee on payment of duty @ 15% adv."

7. The Commissioner concluded:

"Regarding whether aluminium billets produced at the intermediate
stage by the assessee as per the process discussed in para A supra F
,, amounts to manufacture. I find that a billet as different article emerged
as a result of melting of ingots/scrap of aluminium and other alloying
metals and is having distinct name, character or use and as per
Section 3 of Central Excise Act, 1944 these are goods which can
ordinarily be bought and sold in the market. The assessee is also
selling the same in the market apart from captive consumption for
G
manufacture of irrigation aluminium pipes. Thus, billet is altogether a
different product than an ingot of aluminium know to the market and
~-
has different use and character. In the assessee's case also they could
not have manufactured extruded pipes form aluminium ingots.
H
426 SUPREME COURT REPORTS [2007] 6 S.C.R.

A Accordingly aluminium ingots and billets are altogether dijj'erent
goods".

(emphasis supplied)

8. He, therefore, held that the production of Aluminium Billets from
B Aluminium Ingots/Scraps and other alloying materials amounted to
'manufacture' within the meaning of Section 2(f) of the Act and was chargeable
to Central Excise Duty under sub-heading 760 I. I0 of Chapter 76 of the Central
Excise Tariff Act, 1985.

9. The assessee being aggrieved by the order-in-original passed by the
C Commissioner, preferred an appeal to CEGAT. CEGAT observed that there was
substance in the contention raised by the assessee that the process carried
out by the assessee of Melting Ingots into Round Ingots for the purpose of
extrusion did not amount to 'manufacture' and the taxable commodity remained
the same although in different form. CEGA T stated that "mere change in
D physical form of shape or substance does not amount to manufacture". It,
therefore, allowed the appeal and set aside the order passed by the
Commissioner. The said order is challenged by the Revenue in this Court.
•
10. We have heard the learned counsel for the parties.

E 11. It was submitted by the learned counsel for the Revenue that
CEGA T has committed an error of law in holding that the commodity remained
one and the same and merely the form was changed and as such there was
no 'manufacture' and Excise Duty could not be imposed by the Department.

12. The learned counsel for the assessee, on the other hand, submitted
F that CEGAT was right in holding that there was no change of commodity and
hence there was no 'manufacture'. Extrusion Ingots which are also known as
Round Ingots or Billets are only a different form of the same taxable commodity,
namely, Wrought Aluminium under Chapter 760 I. The process or conversion
of Melting Ingots into Extrusion Ingots was not a 'process of manufacture'
and there is a change in shape or form of the product. The order of CEGA T,
G hence, calls for no interference.
13. Having heard the learned counsel for the parties, in our opinion, the
appeal deserves to be allowed. The expression 'manufacture' is defined in
Clause (f) of Section 2 of the Act which reads thus:

H (f) "Manufacture" includes any process:
COMMROFCENTRALEXCISE,JAIPUR v. MAHAVIRALUMIN!UMLTD. [C.K. TilAKKER,J.] 427

y (i) incidental or ancillary to the completion of a manufactured product; A
(ii) which is specified in relation to any goods in the Section or
Chapter notes of the Schedule to the Central Excise Tariff Act,
1985 as amounting to manufacture, (5 of 1986), and the word
"manufacturer" shall be construed accordingly and shall include
not only a person who employs hired labour in the production B
or manufacture of excisable, goods, but also any person who
engages in their production or manufacture on his own account.

14. It is thus clear that 'manufacture' includes any process under Section
=- -{ 2(f). As observed by this Court before more than four decades in Union of
India & Anr. v. Delhi Cloth & General Mills Co. Ltd. & Ors., (1963] Supp c
I SCR 586: AIR (1963) SC 791, the word 'manufacture' is a verb which is
generally understood to mean as "bringing into existence a new substance"
and does not mean merely "to produce some change in a.substance, however
minor in consequence the change may be".

15. In Empire Industries Ltd. v. Union ofIndia, (1985]3 SCC 314, it was D
held that taxable event under Excise Law is 'manufacture'. The moment there
.,,_ is transformation into a new commodity commercially distinct and separate
---,

... commodity having its own character and name whether be it the result of one
process or several processes, 'manufacture' takes place and liability to excise
duty under Section 4 is attracted.
E
16. In Union Carbide India Ltd. v. Union ofIndia & Ors., (1986] 2 SCC
547, this Court held that in order to attract Excise Duty, the article manufactured
must be capable of sale to a consumer. To become goods, an article must be
something which can ordinarily come to the market to be bought and be sold.
F
17. In Union ofIndia & Ors. v. J.G. Glass Industries Ltd & Ors., (1998]
,. 2 SCC 32, leading decisions came to be considered by this Court and it was
held that a two fold test emerged for deciding whether the process is that of
'manufacture'.

18. The Court after considering earlier decisions, stated: G
"On an analysis of the aforesaid rulings, a two-old test emerges
for deciding whether the process is that of "manufacture". First,

•• whether by the said process a different commercial commodity comes
into existence or whether the identity of the original commodity ceases
to exist; secondly, whether the commodity which was already in H
428 SUPREME COURT REPORTS [2007] 6 S.C.R.

A existence will serve no purpose but for the said process. In other '(
words whether the commodity is already in existence will be of no
commercial use but for the said process".

19. In the present case, the assessee is not only captively consuming
Aluminium Billets for the production of Irrigation Pipes but is also selling
B such commodity in open market. It is, therefore, clear that the process of
'manufacture' results in emergence of new commercial commodity, namely,
'Billets'. The said commodity has an independent marketability and the
assessee itself has sold Billets in open market by paying Excise Duty. I)-- -....

20. The entry also makes it clear which is under Chapter 76. The relevant
c part reads thus:
CHAPTER76

Heading Sub-Heading Description Rate of Duty No.
No. of Goods
D
76.01 7601.10 ingots, billets 16%

21. Ingots and Billets are thus two different commercial commodities.
,, -
"f
They have separate, distinct and identifiable marketability and saleability. The
assessee, no doubt, used Aluminium Billets captively but is also selling in
E open market. We are, therefore, of the view that the Commissioner was right
in holding that the assessee was liable to pay Excise Duty and CEGAT was
wrong in interfering with the order-in-original. The order of the CEGA T,
therefore, is liable to be set aside.

22. For the foregoing reasons, the appeal deserves to be allowed and
F
is accordingly allowed. The order passed by CEG AT is set aside and the
order-in-original passed by the Commissioner is restored.

23. The learned counsel for the assessee, however, submitted that in
'T
--
that case the assessee would be entitled to MODYAT benefits. If it is so, the
G assessee can claim the said benefit. We may make it clear that our setting
aside the order passed by CEGAT in this appeal would not come in the way
of the assessee in claiming and getting such benefit, if it is otherwise entitled.

24. The appeal is allowed accordingly with no order as to costs. ~

H D.G. Appeal allowed.