M/S. SERVO-MED INDUSTRIES PVT. LTD.versusCOMMISSIONER OF CENTRAL EXCISE, MUMBAI.

                         [2015] 6 S.C.R. 690


A           MIS. SERVO-MED INDUSTRIES PVT. LTD.
                                  v.
       -WMMISSIONER OF CENTRAL EXCISE, MUMBAI.

                    (Civil Appeal No.583 of 2005)
B
                            MAYO?, 2015

               [A.K. SIKRI AND R. F. NARIMAN, JJ.]

C        Central Excise Act, 1944 - s. 2(f) - Excise duty -
    Payment of - Assessee engaged in purchase of syringes
    and needles in bulk from open market and thereafter
    sterilizing them and putting one syringe and needle in an
    unassembled form in a pouch and selling them - Syringe
D   and needle capable of use once and thereafter were
    disposable - Pouches bore brand name belonged to
    assessee - Excise duty previously imposed on the
    manufacturer of syringes and needles - Levy of excise duty
    again on assessee as a result of sterilization - Held:
E   Disposable syringe and needle which are used for medical
    purposes is a finished product in itself - Sterilization does
    not lead to any value addition in the said product - All that
    the process of sterilization does is to remove bacteria which
    settles on the syringe's and needle's surface, which process
F   does not bring about a transformation of the said articles into
    something new and different - Neither the character nor the
    end use of the syringe and needle has changed post-
    sterilization - Syringe and needle retains its essential
    character as such tjven after sterilization - Thus, the order
G   passed by the tribunal that manufacturing has taken place
    and excise levy is attracted, set aside.

        Allowing the appeal, the Court

H                                690
  SERVO-MED INDUSTRIES PVT. LTD. v. COMMNR.OF                691
          CENTRAL EXCISE, MUMBAI.

    HELD: 1. The four categories as regards A
manufacture of goods, transformation of goods are
stated below:

    (i) Where the goods remain exactly the same even
after a particular process, there is obviously no B
manufacture involved. Processes which remove foreign
matter from goods complete in themselves and/or
processes which clean goods that are complete in
themselves fall within this category.
                                                              c
   (ii) Where the goods remain essentially the same after
the particular process, again there can be no
manufacture. This is for the reason that the original article
continues as such despite the said process and the
changes brought about by the said process.                    D

     (iii) Where the goods are transformed into something
different and/or new after a particular process, but the
said goods are not marketable.

    (iv) Where the goods are transformed into goods           E
which are different and/or new after a particular process,
such goods being marketable as such. It is in this
category that manufacture of goods can be said to take
place.
                                                              F
    The instant case falls Within the first category. This
is a case of manufacture of disposable syringes and
needles which are used for medical purposes. These
syringes and needles, like in the J.G. Glass case and
unlike the Brakes India case, are finished or complete in G
themselves. They can be used or sold for medical
purposes in the form in which they are. The fact that
medically speaking they are only used after sterilization
would not bring this case within the ratio of the Brakes H
692         SUPREME COURT REPORTS                 [2015] 6 S.C.R.


A     India case. All articles used medically, surgicai
      operations, must of necessity first be sterilized. [Para 27,
      28] (710-8-H; 711-A-C]
           2. The added process of sterilization does not mean
B     that such articles are not complete articles in themselves
      or that the process of sterilization produces a
      transformation in the original articles leading to new
      articles known to the market as such. A surgical
      equipment such as a knife continues to be a surgical
C     knife even after sterilization. If the Departmentw.ere right,
      every time such instruments are sterilized, the same
      surgical instrument is brought forth again and again by
      way of manufacture and excisable duty is chargeable
      on the same. This would lead to an absurd result and fly
D     in the face of common sense. If a surgical instrument is
      being used five times a day, it cannot be ,;aid that the
      same instrument has suffered a process which amounts
      to manufacture in which case excise duty would be liable
      to be paid on such instruments five times over on any
E     given day of use. Further, the disposable syringe and
      needle in question is a finished product in itself.
      Sterilization does not lead to any value addition in the
      said product. The process of sterilization removes
 F    bacteria which settles on the syringe's and needle's
      surface, and does not bring about a transformation of
      the said articles into something new and different. Such
      process of removal of foreign matters from a product
      complete in itself would notamountto manufacture but
G     would only be a process which is for the more
      convenient use of the said product. In fact, no
      transformation of the original articles into different
      articles at all takes place. Neither the character nor the
      end use of the syringe and needle has changed post-
H     sterilization. The syringe and needle retains its essential
  SERVO-MED INDUSTRIES PVT. LTD. v. COMMNR.OF                  693
          CENTRAL EXCISE, MUMBA1.

character as such even after sterilization. Thus, the A
cryptic judgment has not applied the law correctly and
is set aside. [Para 30, 34) [712-C-F; 713-A-D; 715-B]

    CCE, New Delhi v. S.R. Tissues 2005 (186) E.L.T. 385
(S.C.); MMTC v. Union of/ndia 1983 (13) E.L.T.1542 (S.C.); B
Mineral 011 Corporation v. CCE, Kanpur 1999 (114) E.L.T.
166; Dunlop India Ltd. v. Union of India 1995 (75) ELT 35
(S.C.); Dalmia Industries Limited v. CCE, Jaipur 1999 (112)
E.L.T. 305; Tungabhadra Industries Ltd. v. CTO (1961) 2
SCR 14; Mis. Maruti Suzuki India Ltd. v. CCE 2015 (318) C
E.L. T. 353 (S.C.); Mis. Satnam Overseas Ltd. v.
Commissioner of Central Excise, New Delhi (Civil Appeal
No.8958 of 2003); Deputy Commissioner of Sales Tax (Law),
Board of Revenue (Taxes), Ernakulam v. Pio Food Packers
(1980) 3 SCR 1271; Brakes India Ltd. v. Superintendent of D
Central Excise (1997) 10 SCC 717; Union of India v. J.G.
Glass 1998 (97) E.L.T. 5 (S.C.); Sterling Foods v. State of
Karnataka, (1986) 26 ELT 3 (S.C.); Crane Betel Nut Powder
Works v. Commissioner 2007 (210) E.L.T. 171 (S.C.);
Collector of Central Excise, Jaipur v. Rajasthan State · E
Chemical Works 1991 (1) Suppl. SCR 124: (1991) 4 SCC
473; Laminated Packings (P) Ltd. v. CCE 1990 (49) ELT
326; CCE, Meerut, v. Kapri International (P) Ltd. (2002) 4
sec 710 - referred to.
                                                                F
     Encyclopedia and Dictionary of Medicine, Nursing, af'ld
Allied Health, by Benjamin F. Miller and Claire Brackman
Keane Fourth Edn; Oxford Dictionary of Nursing - referred
to.
                                                                G
                    Case Law Reference

  2005 (186) E.L.T. 385 (S.C.)    Referred to.    Para 10

  1983 (13) E.L.T. 1542 (S.C.)    Referred to.    Para 12
                                                                H
694         SUPREME COURT REPORTS                 [2015) 6 S.C.R.


A       1999 (114) E.L.T. 166          Referred to.     Para 13

        1995 (75) ELT 35 (S.C.)        Referred to.     Para 14

        1999 (112) E.L.T. 305          Referred to.     Para 15
B       (1961) 2 SCR 14                Referred to.     Para 16

        2015 (318) E.L.T. 353 (S.C.)   Referred to.     Para 16

        (1980) 3 SCR 1271              Referred to.     Para 18
c       (1997) 10 sec 111              Referred to.     Para 20

        1998 (97) E.L.T. 5 (S.C.)      Referred to.     Para 21

        (1986) 26 ELT 3 (S.C.)         ~<;f.:rrod to.   Para 22
D
        2007 (210) E.L.T.171 (S.C.)    Referred to.     Para 23

        1991 (1) Suppl. SCR 124        Referred to.     Para 25

        1990 (49) ELT 326              Referred to.     Para 31
E
        (2002) 4 sec 110               Referred to.     Para 33

          CIVILAPPELLATE JURISDICTION: Civil Appeal No. 583
      of2005.

F         From the Judgment and Order dated 18.06.2004 of the
      Customs Excise &Service TaxAppellate Tribunal, West Zonal
      Bench, Mumbai in appeal no. E/2010/99-BOM.

       Kiran Suri, V. Lakshmikumaran, M. P. Devanath, Vivek
G Sharma, L. Charanaya, Aditya Bhattacharya, R.
  Ramachandran, Hemant Bajaj, Anandh K., Rajesh Kumar,
  Shirin Khajuria, Surender Kr. Gupta, Disha Singh, Ravinder
  Narain, Malika Joshi, Shravani Shekhar Rajan Narain for the
  Respondents.
H
  SERVO-MED INDUSTRIES PVT. LTD. v. COMMNR.OF                    695
          CENTRAL EXCISE, MUMBAI.

    The Judgment of the Court was delivered by                    A

     R.F. NARIMAN, J. 1. Between June 1995 and March
 1997, the appellants purchased syringes and needles in bulk
from the open market. They would then sterilize the syringes
and the needles and put one syringe and one needle in an B
unassembled form in a printed plastic pouch. The syringe and
the needle were capable of use only once and, hence, were
disposable. The plastic pouches so packed were sold to an
industrial customer, namely, M/s. Hoechst Marion Roussel Ltd.
The pouches bore the brand name 'Behring'. The brand name C
'Behring' belonged to the purchaser.

      2. By a show cause notice dated 25.1.1996, the
Department asked the assessee to show cause as to why the
said syringes and needles, (which had already borne the           D
payment of excise duty in the hands of their manufacturers),
be made to pay excise duty again as a result of sterilization.
The show cause notice alleged that sterilization brings about
a change in the character of the final product, which now
becomes disposable syringes and needles. Therefore, a new         E
commodity having a different character has come into
existence. In their r~ply to the show cause notice dated
1.10.1996, the petitioners claimed that the activity of
sterilization would not amount to manufacture. They said that
no new product comes into existence by merely sterilizing         F
disposable syringes and needles which continue to be
disposable syringes and needles post-sterilization. No new
product, therefore, came into existence as a result of
sterilization.
                                                                  G
     3. By an order dated 31. 12. 1997, the Assistant
Commissioner Central Excise held that the process of
sterilization was essential to complete manufacture before the
products are sold in the market. This being so, the process of
sterilization was found to be an integral and inextricable part H
696         SUPREME COURT REPORTS                     [2015] 6 S.C.R.


A     of the manufacturing process to make the product marketable.
      It was further held that the process of sterilization brings about
      a transformation of the product by making something non-sterile
      sterile.

 B       4. By his order dated 25.2.1999, the Commissioner of
   Central Excise (Appeals) set aside the said order, reasoning
   that the process of sterilization does not bring about any change
   in the basic structure of syringes and needles even though post-
   sterilization the value of the product gets enhanced. He further
C held that under Section 2(f) of the Central Excise Act, there is
  ·no mention of the test of integral or inextricable process and
   found that the wrong test had been applied to arrive at the
   wrong result.

o        5. The CESTAT in turn set aside the order of the
      Commissioner of Central Excise (Appeals) observing:

             "An Article with distinct brand name and separate end
           use/quality has emerged by the activity undertaken. The
E          use/character of a 'syringe' which was brought and which
           emerged has changed. While the goods brought were
           not fit for use on Humans Medical Needles as made were
           not usable till sterilized. The commercial identity nature
           use and understanding has changed, manufacturing has
F          taken place, excise levy is attracted."

       6. Shri Lakshmikumaran, learned advocate appearing on
  behalf of the appellant has argued before us that the judgment
  of the Tribunal is wrong on first principles. The Tribunal has
G failed to appreciate that a disposable syringe and needle
  continues to be a disposable syringe and needle even after
  the process of sterilization and, therefore, the basic test of a
  new article emerging as a result of a process, being a
  transformation of an article into something new, which has a
H distinctive name, character or use is clearly absent in the
  SERVO-MED INDUSTRIES PVT. LTD. v. COMMNR.OF                     697
    CENTRAL EXCISE, MUMBAI. [R.F. NARIMAN, J.]

present case. He cited a number of judgments to buttress his       A
submissions.

   · 7. Ms. Shirin Khajuria, learned counsel who appeared for
the respondent, countered these submissions and said that it
was clear that the articles in question could not be used B
commercially until a process of sterilization had been
undergone. This being so, it is clear that the process of
sterilization is an important integrated and/or ancillary process
without which the end product had no commercial use and,
therefore, applying the said test, it is clear that the process of C
sterilization leads to manufacture. She cited a number of
judgments which we will refer to presently.

   8. Regard being had to the issue being a ticklish one, we
need first to delve into a few basic principles.                   D

    Distinction between manufacture and marketability

     9. A duty of excise is levied on the manufacture of excisable
goods. "Excisable goods" are those goods which are included
in the schedules of the Central Excise Tariff Act, 1985.. E
"Excisable goods" brings in the concept of goods that are .
marketable, that is goods capable of being sold in the market
On the other hand, manufacture _is distinct from sale-ability.
Manufacture takes place on the application of one or more
processes. Each process may lead to a change in the goods, F
but every change does not amount to manufacture. There must
be something more-there must be a transformation by which
something new and different comes into being, that is, there
must now emerge an article which has a distinctive name, G
character or use.

    When transformation does not take place.

     10. When a finished product cannot conveniently be used
in the form in which it happens to be, and it is required to be    H
698         SUPREME COURT REPORTS                   (2015] 6 S.C.R.


A changed into various shapes and sizes so that it can
  conveniently be used, no transformation takes place if the
  character and the end use of the first product continu~ to be
  the same. An illustration of this principle is brought out by the
  judgment in CCE, New Delhi v. S.R. Tissues, 2005 (186)
B E.L.T. 385 (S.C.). On facts, in the said case, jumbo rolls of
  tissue paper were cut into various shapes and sizes so that
  they could be used as table napkins. facial tissues and toilet
  rolls. This Court held that there was no manufacture as the
  character and the end use of the tissue paper in the jumbo roll
C and the tissue paper in the table napkin, facial tissue and toilet
  roll remains the same.

          11. Another example of when transformation does not take
      place is when foreign matter is removed from an article or
D     additions are made to the article to pr~serve it or increase its
      shelf life.

       12. In MMTC v. Union of India, 1983 (13) E.L.T. 1542
  (S.C.). this Court dealt with the separating of wolfram ore from
E rock to make it usable. It was held that the process of
  separation and sorting out pieces of wolfram or by washing or
  magnetic separation would not amount to a manufacturing
  process. Wolfram ore does not cease to be an ore even though
  by the aforesaid processes it may become concentrated
F wolfram ore.

       13. In Mineral Oil Corporation v. CCE, Kanpur, 1999
  (114) E.L.T. 166 (Tribunal), the facts were that used transformer
  oil, which by applying processes for removal of impurities
G therefrom, is again made usable as transformer oil. Both before
  and after the said processes, transformer oil remained as
  transformer oil. That being so, it was held that no new and
  distinct commodity has come into existence consequent to the
  process undertaken. The test for determining whether
H manufacture can be said to have taken place is whether the
  SERVO-MED INDUSTRIES PVT. LTD. v. COMMNR.OF                    699
   . CENTRAL EXCISE, MUMBAI. [R.F. NARI MAN, J.]

commodity which is subjected to the process of manufacture A
can no longer be regarded as the original commodity but is
recognized by the trade as a new and distinct commodity. This
Court dismissed the civil appeal from the aforesaid judgment.
This case is instructive in that it is clear that transformer oil, in
its used stage, could not be used owing to the impurities therein. B
Any process of rendering such article usable would not be a
manufacturing procesi?, as there is no change in the essential
character of the goods which remain as transformer oil which
now becomes usable.
                                                                   c
     14. In Dunlop India Ltd. v. Union of India, 1995 (75)
ELT 35 (S.C.), soap treatment of grey cotton duck/canvas was
held not to be a process which amounted to manufacture. The
judgment states:
                                                                   D
     "3. The process has been described in the impugned
     order in the following words -
     For processing on soap treatment the party uses soaps/
     soap flakes which are diluted in plain water in a tank. E
     This solution is transferred to a Soaping Machine
     operated by power where different colours are added.
     The fabrics are then dipped in the solution which is heated
     with steam. After the colouring treatment and soap
     impregnation the wet fabrics are dried up with the aid of F
     steam on passing the fabrics through rollers fitted with
     the aforesaid Soaping Machine.

     4. In our opinion the said process cannot be said to be
     one which results in changing the identity of the cloth G
     which is subject to the said treatment and the said process
     does not give rise to a new product which is marketable.
     The said process cannot, therefore, be regarded as a
     manufacturing process. We find that the Central
     Government itself, in another matter relating to M/s. H
700        SUPREME COURT REPORTS                    [2015] 6 S.C.R.


A         Premier Tyres Ltd. has passed an Order on 17-5-1977
          (page 83 of Paper Book) wherein, it has been held that
          the transformation brought about the dipping of cotton
          fabrics in a soap solution is not a permanent one: it is
          not an operation which results in the production of a new
B         article which could be bought and sold as such in the
          market."

       15. In Dalmia Industries Limited v. CCE, Jaipur, 1999
  (112) E.L.T. 305 (Tribunal), different articles offeeding bottles
C were put together in a single pack. Thus, bottles, feeder
  nipples, bottle lids and plastic parts were R,_Ut together in a
  combined pack and the product was sold in the brand name
  of "Milk care Designer Feeder". All these parts were put
  together only after sterilization by ultra violet rays. The Tribunal
D held that the various parts that had been put together were
  already finished products and packing after sterilization would
  not bring into existence any new product as each of the items
  had already come into existence as individual items. It was
  further held that sterilization was only to improve the hygiene
E of the product and that since no change occurs in the name,
  character or use of the product, a new product does not come
  into existence. This Court dismissed the civil appeal filed
  against the aforesaid judgment on 1.3.2005.

 F      16. Examples of additions made to the article to preserve
  it or increase its shelf life are to be found in Tungabhadra
  Industries Ltd. v. CTO, (1961) 2 SCR 14 and M/s. Maruti
  Suzuki India Ltd. v. CCE, 2015 (318) E.L.T. 353 (S.C.). In
  the Tungabhadra case, it was held that hydrogenated oil
G continued to be groundnut oil despite there being an
  intermolecular change in the content of the substance of the
  oil due to hydrogenation. It was held that oil made from
  groundnut continued as such despite the hardening process
H of hydrogenation. In its essential character, it was held that
  SERVO-MED INDUSTRIES PVT. LTD. v. COMMNR.OF                        701
    CENTRAL EXCISE, MUMBAI. [R.F. NARIMAN, J.)

such hydrogenated oil continued to be groundnut oil. The              A
process of hydrogenation only increased the shelf life of the
said, oil.

     17. Similarly in the Maruti Suzuki case, it was held that
bumpers and grills of motor vehicles continue to be the same B
commodity after ED coating which would increase the shelf
life of the said bumpers and grills and provide anti rust
treatment to the same. No new commodity known to the market
as such had come into being merely on account of the value
addition of the ED coating.                                    C

     Retaining of essential character test.

      18. In Mis. Satnam Overseas Ltd. v. Commissioner of
Central Excise, New Delhi (Civil Appeal No.8958 of 2003),
                                                                      0
 it was held that as the essential character of the product had
 not changed, there would be no manufacture. In that case, the
 product was a combination of raw rice, dehydrated vegetables
and spices in the name of rice and spice. It was held that the
said product in its primary and essential character was sold in       E
the market as rice only, despite the addition of dehydrated
vegetables and certain spices. Further, the rice remained in
 raw form and in order to make it edible it had to be cooked
like any other cereal. As we have already seen, the·same test
was applied in Tungabhadra case (supra) and in Deputy                 F
Commissioner of Sales Tax (Law), Board of Revenue
(Taxes), Ernakulam v. Pio Food Packers, (1980) 3 SCR
1271. In that case, the process undertaken was to remove the
inedible portions of Pineapple together with its outer cover
and then slice such Pineapple arid can the same after adding          G
sugar as a preservative. It is important to note that the cans
were sealed under high temperature and then put into boiling
water for sterilization. It was held that there was no manufacture
inasmuch as the essential. character of the Pineapple had not
changed. The Court said:                                              H
702         SUPREME COURT REPORTS                       [2015) 6 S.C.R.


A          "Commonly, manufacture is the end result of one or more
           processes through which the original commodity is made
           to pass. The nature and extent of processing may vary
           from one case to another, and indeed there may be
           several stages of processing and perhaps a different
B          kind of processing at each stage. With each process
           suffered, the original commodity experiences a change.
           But it is only when the change, or a series of changes,
           take the commodity to the point where commercially it
           can no longer be regarded as the original commodity
c          but instead is recognised as a new and distinct Article
           that a manufacture can be said to take place. Where there
           is no essential difference in identity between the original
           commodity and the processed Article it is not possible
           to say that one commodity has been consumed in the
D
           manufacture of another. Although it has undergone a
           degree of processing, it must be regarded as still
           retaining its original identity."

           19'. Interestingly, a line was drawn between cases in which
E     the essential character had changed and those in which no
      such change had taken place in the following terms:

           "5. A large number of cases has been placed before us
           by the parties, and in each of them the same principle
F          has been applied: Does the processing of the original
           commodity bring into existence a commercially different
           and distinct article? Some of the cases where it was held
           by this Court that a different commercial articl,. !-u:td ;:;ome
           into existence includeAnwarkhan Mehboob Co. v. The
G          State of Bombay and Ors. (where raw tobacco was
           manufactured into bidi patti), A. Hajee Abdul Shukoor
           and Co. v. The State of Madras (raw hides and skins
           constituted a different commodity from dressed hides
           and skins with different physical properties), The State
H
   SERVO-MED INDUSTRIES PVT. LTD. v. COMMNR.OF                       703
     CENTRAL EXCISE, MUMBAI. [R.F. NARI MAN, J.)

      of Madras v. Swasthik Tobacco Factory (raw tobacco 'A
      manufactured into chewing tobacco) and Ganesh Trading
      Co. Kamal v. State of Harvana and Anr., (paddy dehusked
      into rice). On the other side, cases where this Court has
      held that although the original commodity has undergone
      a degree of processing it has not lost its original identity B
      include Tunqabhadra Industries Ltd .. Kurnool v.
      Commercial Tax Officer. Kurnool (where hydrogenated
      groundnut oil was regarded as groundnut oil) and
      Commissioner of Sales Tax, U. P., Lucknow v. Harbiles
      Rai and sons (where bristles plucked from pigs, boiled,         c
      washed with soap and other chemicals and sorted out in
      bundles according to their size and colour were regarded
      as remaining the same commercial commodity, pigs
      bristles)."
                                                                      D
     Test of no commercial user without further process

     20. In Brakes India Ltd. v. Superintendent of Central
Excise, (1997) 10 SCC 717, the commodity in question was
brake lining blanks. It was held on facts that such blanks could      E
not be used as brake linings by themselves without the
processes of drilling, trimming and chamfering. It was in this
situation that the test laid down was that if by adopting a
particular process a transformation takes place which makes
the product have a character and use of its own which it did          F
not bear earlier, then such process would amount to
manufacture irrespective of whether there was a single
process or several processes.

     21. Similarly in Union of India v. J.G. Glass, 1998 (97)         G
E.L.T. 5 (S.C.), this Court held that plain bottles are themselves
commercial commodities which can be sold and used as such.
By the process of printing names or logos on the said bottles,
the basic character of the commodity does not change, they
continue to be bottles. The Court said:                               H
704         SUPREME COURT REPORTS                   (2015] 6 S.C.R.


A          "16. On an analysis of the aforesaid rulings, a two-fold
           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
B          to exist; secondly, whether, the commodity which was
           already in existence will serve no purpose but for the said
           process. In other words, whether the commodity already
           in existence will be of no commercial use but for the said
           process. In the present case, the plain bottles are
c          themselves commercial commodities and can be sold
           and used as such. By the process of printing names or
           logos on the bottles, the basic character of the commodity
           does not change. They continue to be bottles. It cannot
           be said that but for the process of printing, the bottles
D
           will serve no purpose or are of no commercial use."

           22. Similarly in Sterling Foods v. State of Karnataka,
      (1986) 26 ELT 3 (S.C.), raw shrimps/prawns/lobsters after
      various processes became fit for human consumption. Prior
E     to such processing, they could not be used as articles of food.
      However, the aforesaid processes did not lead to a finding
      that there was manufacture inasmuch as shrimps/prawns/
      lobsters identity continued as such even after the aforesaid
F     processes.

       23. In Crane Betel Nut Powder Works v.
   Commissioner, 2007 (210) E.L.T. 171 (S.C.), whole betel nuts
   could not be consumed by human beings. It is only after a
   process of cutting them into smaller pieces and sweetening
G them with oil that they become fit for human consumption. It
   was held that the aforesaid process would not amount to
   manufacture as betel nuts continued to be the same even after
   the aforesaid process resulting in no transformation of the
H -commodity in question.
  SERVO-MED INDUSTRIES PVT. LTD. v. COMMNR.OF                   705
    CENTRAL EXCISE, MUMBAI. [R.F. NARIMAN, J.]

      24. It is important to understand the correct ratio of the A
judgment in the J.G.Glass case. This judgment does not hold
that merely by application of the second test without more
manufacture comes into being. The Court was at pains to
point out that a twofold test had emerged for deciding whether
the process is that of manufacture. The first test is extremely B
important - that by a process, a different commercial
commodity must come into existence as a result of the identity
of the original commodity ceasing to exist. The second test,
namely that the commodity which was already in existence will
serve no purpose but for a certain process must be understood C
in its true perspective. It is only when a different and/or finished
product comes into existence as a result of a process which
makes the said product commercially usable that the second
test laid down in the judgment leads to manufacture. Thus D
understood, this judgment does not lead to the result that merely
because the unsterilized syringe and needle is of no
commercial use without sterilization, the process of sterilization
which would make it commercially usable would result in the
sterilization process being a process which would amount to · E
manufacture. If the original commodity i.e. syringes and
needles continue as such post-sterilization, the second test
would not lead to the conclusion that the process of sterilization
is a process which leads to manufacture. This is because, in
all cases, there has first to be a transformation in the original F
article which transformation brings about a distinctive or
different use in the article.

    The test of integrated process without which
manufacture would be impossible or commercially G
inexpedient.

    25. It is at this point that the decision contained in
Collector of Central Excise, Jaipur v. Rajasthan State
Chemical Works, (1991) 4 SCC 4 73 needs explanation. This H
706         SUPREME COURT REPORTS                   (2015] 6 S.C.R.


A     Court was concerned with the language of a certain notification
      which read as follows:

           "In exercise of the powers conferred by sub-rule (1) of
           Rule 8 of the Central Excise Rules, 1944, the Central
s          Government hereby exempts all goods falling under Item
           68 of the First Schedule to the Central Excises and Salt
           Act, 1944 (1 of 1944) in or in relation to the manufacture
           of which no process is ordinarily carried on with the aid
           of power, from whole of the duty of excise leviable
C          thereon."

           It was held:

           "13. Manufacture thus involves series of processes.
           Process in manufacture or in relation to manufacture
D
           implies not only the production but the various stages
           through which the raw material is subjected to change
           by different operations. It is the cumulative effect of the
           various processes to which the raw material is subjected
           to (sic that the) manufactured product emerges.
E
           Therefore, each step towards such production would be
           a process in relation to the manufacture. Where any
           particular process is so integrally connected with the
           ultimate production of goods that but for that process
F          manufacture or processing of goods would be impossible
           or commercially inexpedient, that process is one in
           relation to the manufacture.

           15. In J.K. Cotton Spg. & Wvg. Mills Co. Ltd. v. STO
           ((1965) 1SCR900 :AIR 1965 SC 1310: (1965) 16 STC
G
           563] , this Court in construing the expression 'in the
           manufacture of goods' held thus: (SCR pp. 906-07)

           "But there is no warrant for limiting the meaning of the
           expression 'in the manufacture of goods' to the process
H
SERVO-MED INDUSTRIES PVT. LTD. v. COMMNR.OF                     707
  CENTRAL EXCISE, MUMBAI. [R.F. NARIMAN, J.]

  of production of goods only. The expression 'in the            A
  manufacture' takes in within its compass, all processes
  which are directly related to the actual production."

  16. The Court further held thus: (SCR p. 905)
                                                                 B
  "The expression 'in the manufacture of goods' would
  normally encompass the entire process carried on by
  the dealer of converting raw materials into finished goods.
  Where any particular process is so integrally connected
  with the ultimate production of goods that but for that        c
  process, manufacture or processing of goods would be
  commercially inexpedient, goods required in that process
  would, in our judgment, fall within the expression 'in the
  manufacture of goods'."
                                                                 D
   21. The transfer of raw material to the reacting vessel is
   a preliminary operation but it is part of a continuous
   process but for which the manufacture would be
   impossible. The handling of the raw materials for the
   purpose of such transfer is then integrally connected with E
  the process of manufacture. The handling for the purpose
   of transfer may be manual or mechanical but if power is
   used for such operation, it cannot be denied that an
  activity has been carried on with the aid of power in the
  manufacturing process. The use of diesel pump sets to F
  fill the pans with brine is an activity with the aid of power
  and that activity is in relation to the manufacture. It is not
  correct to say that the process of manufacture starts only
  when evaporation starts. The preliminary steps like·
  pumping brine and filling the salt pans form integral part G
  of the manufacturing process even though the change in
  the raw material commences only when evaporation
  takes place. The preliminary activity cannot be
  disintegrated from the rest of the operations in the whole
  process of manufacture. Similarly, when coke and lime H
708     SUPREME COURT REPORTS                     [2015] 6 S.C.R.


A      are taken to the platform in definite proportions for the
       purpose of mixing, such operation is a step in the
       manufacturing process. It precedes the feeding of the
       mixture into the kiln where the burning takes place. The
       whole process is an integrated one consisting of the lifting
B      of the raw materials to the platform mixing coke and lime
       and then feeding into the kiln and burning. These
       operations are so interrelated that without any one of
       these operations manufacturing process is impossible
       to be completed. Therefore, if power is used in any one
c      of these operations or any one of the operations is carried
       on with the aid of power, it is a case where in or in relation
       to the manufacture the process is carried on with the aid
       of power.
D      25. Thus "processing" may be an intermediate stage in
       manufacture and until some change has taken place and
       the commodity retains a continuing substantial identity
       through the processing stage. we cannot say that it has
       been manufactured. That does not, however. mean that
E      any operation in the course of such process is not in
       relation to the manufacture. While interpreting the same
       exemption notification in Standard Fireworks Industries
       v. CollectorofCentral Excise [(1987) 1SCC600: 1987
       SCC (Tax) 138: (1987) 28 ELT 56), it was held that
F
       manufacture of fireworks requires cutting of steel wires
       and the treatment of papers and, therefore, it is a process
       for manufacture of goods in question. The notification
       purports to allow exemption from duty only when in
G      relation to the manufacture of goods no process is
       ordinarily carried on with the aid of power. It was observed
       that cutting of steel wires or the treatment of the papers
       is a process for the manufacture of goods in question.

      26. We are, therefo~e. of the view that if any operatic:-: in
H
  SERVO-MED INDUSTRIES PVT. LTD. v. COMMNR.OF                          709
    CENTRAL EXCISE, MUMBAI. [RF. NARIMAN, J.]

the course of manufacture is so integrally connected with the A
further operations which result in the emergence of
manufactured goods and such operation is carried on with the
aid of power, the process in or in relation to the manufacture
must be deemed to be one carried on with the aid of power. In
this view of the matter, we are unable to accept the contention B
that since the pumping of the brine into the S'alt pans or the
lifting of coke and limestone with the aid of power does not
bring about any change in the raw material, the case is not
taken out of the notification. The exemption under the
notification is not available in these cases. Accordingly, we C
allow these appeals. In the facts and circumstances of the case,
we make no order as to costs."

      26. It is clear that the said judgment does not deal with
manufacture alone. It deals with various processes carried on           D
without the aid of power in relation to manufacture. The Court's
ultimate holding was that the use of diesel pump sets to fill
pans with brine is an activity which occurred with the aid of
power and is in relation to manufacture. That is why it held that
the process of manufacture of common salt from brine in salt            E
pans is an integrated one whose operations are so inter-
related that without any one of these operations the
manufacturing process could not be completed. If, therefore,
any one of several processes in relation to manufacture is              F
carried on with the aid of power, the exemption under the
notification would not apply. It was in that context that this Gcurt
held that where any particular process is so integrally connected
with the ultimate production of goods that but for that process,
the manufacture of such goods would be impossible or                    G
commercial inexpedient. Two things need to be noticed here.
One is that what is spoken about is raw material which is
subjected to several processes after which a final
manufactured product emerges and two that the test of integral
connection of a particular process with the ultimate production         H
710         SUPREME COURT REPORTS                    (2015] 6 S.C.R.


A     of goods that but for such process manufacture of goods would
      become impossible or commercially inexpedient was applied
      in the context of a process being in relation to manufacture.

          Conclusion:
 B
          27. The case law discussed above falls into four neat
      categories.

           ( 1) Where the goods remain exactly the same even after
           a particular process, there is obviously no manufacture
c          involved. Processes which remove foreign matter from
           goods complete in themselves and/or processes which
           clean goods that are complete in themselves fall within
           this category.

D          (2) Where the goods remain essentially the same after
           the particular process, again the;e can be no
           manufacture. This is for the reason that the original article
           continues as such despite the said process and the
           changes brought about by the said process.
 E
           (3)      Where the goods are transformed into
           something different and/or new after a particular process,
           but the said goods are not marketable. Examples within
           this group are the Brakes India case and cases where
 F         the transformation of goods having a shelf life which is of
           extremely small duration. In these cases also no
           manufacture of goods takes place.

           (4)     Where the goods are transformed into goods
G          which are different and/or new after a particular process,
           such goods being marketable as such. It is in this
           category that manufacture of goods can be said to take
           place.

 H         28. The insts:it case falls within the first category


                                                       •
  SERVO-MED INDUSTRIES PVT. LTD. v. COMMNR.OF                    711
    CENTRAL EXCISE, MUMBAI. [R.F. NARI MAN, J.]

     aforementioned. This is a case of manufacture of A
     disposable syringes and needles which are used for
     medical purposes. These syringes and needles, like in
     the J.G. Glass case and unlike the Brakes India case,
     are finished or complete in themselves. They can be
     used or sold for medical purposes in the form in which B
     they are. The fact that medically speaking they are only
     used after sterilization would not bring this case within
     the ratio of the Brakes India case. All articles used
     medically in, let us say, surgical operations, must of
     necessity first be sterilized.                            C

     29. The Encyclopedia and Dictionary of Medicine, Nursing,
and Allied Health, Fourth Edition by Benjamin F. Miller and
Claire Brackman Keane defines 'sterilization' as follows:
                                                                 D
      "In sterilizing objects or substances, the high resistance
     of bacterial spore cells must be taken into account. Most
     dangerous bacteria are destroyed at a temperature of
     50° to 6Q°C (122° to 140°F). Therefore, pasteurization
     of a fluid, which is the application of heat at about 60°C, E
     destroys disease-causing bacteria. However,
     temperatures almost twice as high are usually required
     to destroy the spore cells.

     The discovery that heat, in the form of flame, steam, or F
     hot water, kills bacteria made possible the advances of
     modern surgery, which is based on freedom from
     microorganisms, or asepsis, and prevention of
     contamination. Sterilization of all equipment used during
     an operation, and of anything that in any way may touch G
     the operative area, is carried out scrupulously in
     hospitals. Physicians and nurses wear sterile clothing.
     Instruments are sterilized by boiling, by chemical
     antiseptics, or by autoclaving.
                                                                  H
712           SUPREME COURT REPORTS                              [2015] 6 S.C.R.


A            In a physician's office needles for injections and any
             instruments used for treatment of wounds or other surgical
             procedures are also carefully sterilized, and other aseptic
             techniques are observed."

B           In the Oxford Dictionary of Nursing, 'sterilization' is defined
      as:

             "the process by which all types of micro-organisms
             (including spores) are destroyed. This is achieved by
c            the use of heat, radiation, chemicals, or filtration."

       30. The added process of sterilization does not mean that
  such articles are not complete articles in themselves or that
  the process of sterilization produces a transformation in the
D original articles leading to new articles known to the market
  as such. A surgical equipment such as a knife continues to be
  a surgical knife even after sterilization. If the Department were
  right, every time such instruments are sterilized, the same
  surgical instrument is brought forth again and again by way of
E manufacture and excisable duty is chargeable on the same.
  This would lead to an absurd result and fly in the face of common
  sense 1• If a surgical instrument is being used five times a day,
  it cannot be said that the same instrument has suffered a
  process which amounts to manufacture in which case excise
F           ' The expression "Flies in the face of common sense" is taken from an
      interesting judgment of the House of Lords reported in R v. Secretary of
      State for the Home Department. (1995) 2 All ER 244. Lord Browne Wilkinson
      was faced with an argument that Section 171 of the Criminal Justice Act of
G     1988 vests in the Secretary of State a discretion for bringing into force certain
      sections of the said Act. It was argued that the Secretary· of State had an
      absolute and unfettered discretion to bring in or not to bring in the said
      Sections.    This argument was rejected stating that it was not only
      constitutionally dangerous but also flies in the face of common sense (at
H     page 253)
  SERVO-MED INDUSTRIES PVT. LTD. v. COMMNR.OF                         713
    CENTRAL EXCISE, MUMBAI. [R.F. NARIMAN, J.]

duty would be liable to be paid on such instruments five times         A
over on any given day of use. Further, what is to be
remembered here is that the disposable syringe and needle
in question is a finished product in itself. Sterilization does not
lead to any value addition in the said product. All that the
process of sterilization does is to remove bacteria which              B
settles on the syringe's and needle's surface, which process
does not bring about a transformation of the said articles into
something new and· different. Such process of removal of
foreign matters from a product complete in itself would not
amount to manufacture but would only be a process which is             C
for the more convenient use of the said product. In fc.ct, no
transformation of the original articles into different articles at
all takes place. Neither the character nor the end use of the
syringe and needle has changed post-sterilization. The syringe         D
and needle retains its essential character as such even after
sterilization.

     31. Ms. Shirin Khajuria then cited a few other judgm~nts.
The judgment in Laminated Packings (P) Ltd. v. CCE, 1990
(49) ELT 326 held:                                                     E

     "4. Lamination, indisputably by the well settled principles
     of excise law, amounts to 'manufacture'. This question,
     in our opinion, is settled by the decisions of this Court.
     Reference may be made to the decision of this Court in F
     Empire Industries Ltd. v. Union of India [(1985) 3 SCC
     314: 1985 SCC (Tax) 416]. Reference may also be made
     to the decision of this Court in CCE v. Krishna Carbon
     Paper Co. [(1989) 1 SCC 150: 1989 SCC (Tax) 42:
     (1988) 37 ELT 480] We are, therefore, of the opinion G
     that by process of lamination of kraft paper with
     polyethylene different goods come into being. Laminated
     kraft paper is distinct, separate and different goods
     known in the market as such from the kraft paper.
                                                                       H
714         SUPREME COURT REPORTS                     (2015] 6 S.C.R.


A            5. Counsel for the appellant sought to contend that the
             kraft paper was duty paid goods and there was no change
             in the essential characteristic or the user of the paper
             after lamination. The fact thatthe duty has been paid on
             the kraft paper is irrelevant for consideration of the issue
8            before us. If duty has been paid, then benefit or credit for
           . the duty paid would be available to the appellant under
             Rule 56-A of the Central Excise Rules, 1944.

           6. The further contention urged on behalf of the appellant
c          that the goods belong to the same entry is also not
           relevant because even if the goods belong to the same
           entry, the goods are different identifiable goods, known
           as such in the market. If that is so, the manufacture occurs
           and if manufacture takes place, it is dutiable.
D          'Manufacture' is bringing into being goods as known in
           the excise laws, that is to say, known in the market having
           distinct, separate and identifiable function. On this score,
           in our opinion, there is sufficient evidence. If that is the
           position, then the appellant was liable to pay duty. We
E          are, therefore, clearly of the opinion that the order of the
           CEGAT impugned in this appeal does not contain any
           error. The appeal, therefore, fails and is accordingly
           dismissed."

F         32. This judgment again does not take us any further. It
      was found on the evidence led in that case that laminated kraft
      paper is a distinct and separate product known in the market
      as such and is apart from kraft paper.

G         33. CCE, Meerut, v. Kapri International (P) Ltd., (2002)
      4 sec 710, is a judgment in which cotton fabrics from a running
      length were cut into pieces which formed new articles like bed
      sheets, bed spreads and table clothes. On facts there, it was
      held that new commodities had emerged which had a definite
H
  SERVO-MED INDUSTRIES PVT. LTD. v. COMMNR.OF                       715
    CENTRAL EXCISE, MUMBAI. [R.F. NARIMAN, J.]

commercial identity in the market and that the raw material          A
(that is cotton fabrics) having suffered payment of excise duty
would make no difference to the finished products also being
liable for payment of excise duty.

      34. Judged therefore from the view point of the law            B
discussed in ~his judgment, it is clear that the cryptic judgment
dated 18.6.2004 has not applied the law correctly. The appeal
is allowed and the impugned judgment is hereby set aside.

Nidhi Jain                                        Appeal allowed.