M/S. SHYAM OIL CAKE LTD.versusCOLLECTOR OF CENTRAL EXCISE, JAIPUR

A                    MIS. SHYAM OIL CAKE LTD.
                                v.
                COLLECTOR OF CENTRAL EXCISE, JAIPUR

                             NOVEMBER 23, 2004
B
                  [S.N. VARIA VA, DR. AR. LAKSHMANAN
                          AND S.H. KAPADIA, JJ.]

         Central Excises and Salt Act, 1944 :

C        S. l(j)-Schedule-Tariff Item 1503.10-Process "amounting to
    manufacture "-Process of refining edible vegetable oil-Held, neither in
    the Section nor in the Chapter Note nor in the Tariff Item has it been
    mentioned that the process indicated is to amount to manufacture-
    Therefore, the deeming provision cannot be brought into play-There is
D   no manufacture and the refined oil is not excisable.

         Appellant-assessee was selling refined edible oil. The assessee
    purchased edible vegetable oil from the market, excise duty whereon
    was paid by the manufacturer, and subjected it to certain refining
    processes. In the classification list, the assessee mentioned that since no
E   manufacturing activity was involved, no duty was payable on clearance
    of the goods. The Revenue did not accept the plea and asked the assessee
    to pay excise duty in respect of the goods cleared prior to March 1986
    and also issued show cause notice for the period after March 1986. The
    appeals filed by the assessee were dismissed by the Collector (Appeals)
F   holding that the product was classifiable under sub-heading 1503.10 and
    duty was payable on the same. The Customs, Excise and Gold (Control)
    Appellate Tribunal upheld the order. Aggrieved, the assessee filed the
    present appeals.

        On the question : whether processing of the edible vegetable oil
G   purchased by the assessee results in manufacture.

         Allowing the appeals, the Court

        HELD : 1. Prior to the 1986 amendment, under the definition of
H   'manufacture' as provided in section 2(t) of the Central Excises and Salt
                                       346
              SHY AM OIL CAKE LTD. v. C.C.E., JAIPUR                     347

Act, 1944, apart from actual manufacture, certain processes were                 A
considered to be manufacture. This did not include the process of refining
edible oil. Therefore, this process could not be taken to amount to
manufacture. Thus, for the period prior to 1986 the demand could not
have been sustained in any event. 1351-B-C; 352-E-F; 355-G-HJ

     2.1. With effect from 28.2.1986, Section 2(f) has been amended
                                                                                 B
enlarging the scope of 'manufacture' by roping in processes which may or
may not strictly amount to manufacture provided those processes are
specified in the Section or Chapter notes of the Tariff Schedule or even in
the Tariff Item, as amounting to manufacture. The language of the
amended Section 2(t) indicates that what is required is not just specification   c
of the goods but a specification of the process in relation to the said goods
and a declaration that the same amounts to manufacture. (353-B-C-D]

      2.2. Merely setting out a process in the Tariff Entry would not be
sufficient. For a deeming provision to come into play it must be specifically
stated that a particular process amounts to manufacture. In the absence          D
of it being so specified the commodity would not become excisable
merely because a separate Tariffltem exists in respect of that commodity.
                                                               (355-D-E-F]

     Mis. Tungabhadra Industries Ltd. v. The Commercial Tax Officer,
Kurnool, [1961) 2 SCR 14; Commissioner of Central Excise, Chandigarh-
                                                                                 E
] v. Markfed Vanaspati & Allied Industries, (2003) 153 ELT 491 SC;
Collector of Central Excise v. Technoweld Industries, (2003) 155 ELT 209
SC and Aman Marble Industries Pvt. Ltd. v. Collector of Central Exicse,
Jaipur, (2003) 157 EL T 393 SC, relied on.
                                                                                 F
     Met/ex (I) Pvt. Ltd. v. Commissioner of Central Excise, New Delhi,
(2004) 165 EL T 129 SC, referred to.

      2.3. In the instant case, neither in the Section nor in the Chapter Note
nor in the Tariff Item is there any indication that the process indicated is
to amount to manufacture. To start with, the product was edible vegetable        G
oil. Even after the refining, it remains edible vegetable oil. As actual
manufacture has not taken place, the deeming provision cannot be brought
into play in the absence of it being specifically stated that the process
amounts to manufacture. It is accordingly held that there is no manufacture
and the refined oil is not excisable. [355-F-G; 356-A-BJ                         H
    348                   SUPREME COURT REPORTS (2004] SUPP. 6 S.C.R.

A        CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1287-1289
    of 1999.

            From the Judgment and Order dated 16.11.98 of the Central Excise
    C't:i"stoms and Gold (Control) Appellate Tribunal, New Delhi in A. No. El
B   4367/91-C, E/1966 and 2942/92-C in F.O. Nos. 1141-1143 of 1998-C.

                                        WITH

          C.A. No. 3923 of 1999 ..

C         Ravindra Narain and Rajan Narain for the Appellant.

        R. Mohan, Additional Solicitor General, Rupesh Kumar and
    B. Krishna Prasad for the Respondent.

D         The Judgment of the Court was delivered by

         S.N. V ARIA VA, J. : These Appeals are against the Judgment dated
    16th November, 1998 of the Customs, Excise and Gold (Control) Appellate
    Tribunal (CEGA T).

E         Briefly stated the facts are as follows :

           The Appellants purchase edible vegetable oil from the open market.
    On the oil purchased by them excise duty has been paid by the mariufacturer.
    The Appellants subject this oil to certain processes for the purposes of
F   refining the oil. After refining the oil, the Appellants sell the refined edible
    oil in the market. The Appellants filed, on !st September, 1984, a clarification
    list in respect of the refined oil sought t<' be cleared the factory. It was
    mentioned therein that since no manufacturing activity was involved, no
    duty was payable on their clearances. On 17th September, 1984, the
    Superintendent of Central Excise returend the Classification List and called
G   upon the Appellants to clear the goods on payment of excise duty at the rate
    of Rs. 100 per metric ton and special excise duty at 5% of the basic excise
    duty. The Appellants filed Civil Writ Petition No. 3215 of 1984 in the
    Rajasthan High Court contending that since there was no manufacture, ·
    excise duty was not payable. On 23rd October, 1984, the Rajasthan High
h   Court passed an interim order permitting the Appellants to clear the refined
     SHY AM OIL CAKE LTD. v. C.C.E., JAIPUR [VARIA VA, J.]                349

oil from its factory subject to the Appellants furnishing a solvent security      A
at the rate of Rs. 105 per metric on. This interim order was confirmed on
5th February, 1987.

      Pursuant to the interim order, for the period prior to March 1986, the
Appellants cleared their goods on furnishing security. For the period after       B
March 1986, the Appellants were issued show-cause notices. The Appellants
filed reply to the show-cause notices. By an order I st January, 1988 the
Assistant Collector held that the refined oil cleared by the Appellants was
classifiable under Tariff Item 1503.10 and duty of Rs. 40,47,586.25 was
payable by the Appellants. The Appellants filed an Appeal against the Order
of the Assistant Collector.                                                       c
     On 25th January, 1991, Writ Petition No. 3215/84 was finally disposed
of by the Rajasthan High Court. A direction was issued to the Assistant
Collector to decide the issue of classification of the said oils. Pursuant to
the directions of the High Court, the Assistant Collector gave a personal         D
hearing to the Appellants and then passed Orders dated 18/19th February,
1991 holding that a new and distinct product had been manufactured. It was
held that the said product was classifiable under sub-heading 1503.10 and
duty was payable on the same. Against this Order also, an Appeal was filed
by the Appellants on .2nd March, 1991.
                                                                                  E
     The Appeal filed by the Appellants against the Order dated l st January,
1988 was dismissed by the Collector (Appeals) on 30th July, 1991. The
Appellants then filed a further Appeal to CEGA T against the order dated
30th July, 1991.
                                                                                  F
      On 22nd January, 1992, the Collector (Appeals) dismissed the Appeal
filed against the Order dated 18/19th February, 1991. Against this Order,
~he Appellants filed Appeals before CEGA T.


     The Appeal against Order dated 30th July, 1991, was taken up for             G
hearing by CEGA T. A difference of opinion arose between the Judicial
Member and the Technical Member. Therefore, the matter was referred to
a Third Member of the Tribunal. The Third Member of the Tribunal agreed
with the Technical Member and held that there was manufacture and the
Appellants goods were classifiable under Tariff Item 1503. l 0. It is held that   H
    350                    SUPREME COURT REPORTS [2004] SUPP. 6 S.C.R.

A   duty is leviable on the same. Against this Order, the present Civil Appeals
    have been filed.

         On 26th February, 1999 the CEGA T also disposed of the Appeal filed
    by the Appellants against the Order dated 22nd January, 1992. Against that
B   Order Civil Appeal No. 3923 of 1999 has been filed.

         The question for consideration is whether processing of the edible
    vegetable oil, purchased by the Appellants, results in manufacture. It is not
    denied that the refined oil, which is derived after the process, is a marketable
    commodity.
c
         As set out hereinabove, all the authorities below have held that there
    is manufacture and that the refined edible oil falls under Tariff Item 1503.10.

          It is necessary, at this stage, to note the concerned Tariff Item.
D
          It reads as follows :

                 "15.03        Fixed vegetable oils, other than
                               those of heading No. 15. 02

E                1503.10       - Which have undergone,             Rs. 5,000
                               subsequent to their extraction,     per tonne
                               any one or more of the
                               following processes, namely :


F                              (I) Treatment with an
                                   alkali or acid

                               (2) Bleaching

                               (3) Deodorisation
G
                 1503.90       -   Other                           Nil"

         Thus it is to be seen that Tariff Item 15 .03 is in respect of "Fixed
    vegetable oils other than those under the heading No. 15.02". Tariff Item.
H   15.03 is sub-divided into two categories. Tariffs Item 1503.10 covers fixed
      SHY AM OIL CAKE LTD. v. C.C.E., JAIPUR [VARIAVA, J.]                351

vegetable oils, which have undergone, subsequent to the extraction, any one       A
or more of the following processes, namely, (l) Treatment with an alkali
or acid; (2) Bleaching; and (3) Deodorisation. All other fixed vegetable oils
fall under Tariff Item 1503.90. It is fairly not disputed that the Appellants
undertake process mentioned in Tariff Item 1503.10. The question still
remains whether by undergoing such a process there is manufacture.                B
     Prior to 1986, Section 2(t) of the Central Excises and Salt Act, 1944
defined "manufacture" as follows :

         "Manufacture" includes any process incidental or ancillary to the
         completion of a manufactured product; and                                C

         (i) in relation to tobacco, includes the preparation of cigarettes,
         cigars, cheroots, biris, cigarette or pipe or hookah tobacco, chewing
         tobacco or snuff;
                                                                                  D
         (ia) in relation to manufactured tobacco, includes the labelling or
         re-labelling of containers and repacking from bulk packs to retain
         packs or the adoption of any other treatment to render the product
         marketable to the consumer;

         (ii) in relation to salt, includes collection, removal, preparation,     E
         steeping, evaporation, boiling, or any one or more of these processes,
         the separation or purification of salt obtained in the manufacture
         of saltpetre, the separation of salt from earth or other substance so
         as to produce elementary salt, and the excavation or removal of
         natural saline deposits or efflorescence;                                F
         (iii) in relation to patent or proprietary medicines as defined in
         Item No. 14E of the First Schedule and in relation to cosmetics and
         toilet preparations as defined in Item No. 14F of that Schedule,
         includes the conversion of powder into tables or capsules, the
         labelling or re-labelling of containers intended for consumers and       G·
         re-packing from bulk packs to retail packs or the adoption of any
         other treatment to render the product marketable to the consumer;

         (iv) in relation to goods comprised in Item No. 18A of the First
         Schedule, includes sizing, beaming, warping, wrapping, winding or        H
    352                   SUPREME COURT REPORTS [2004) SUPP. 6 S.C.R.

A           reeling, or any one or more of these processes, or the conversion
            of any form of the said goods into another form of such goods;

            (v) in relation to goods comprised in Item No. 19-I of the First
            Schedule, includes bleaching, mercerizing, dying, printing,
            waterproofing, rubberizing, shrink-proofing, organdie processing
B
            or any other process or any one or more of these processes;

            (vi) in relation to 3oods com prised in Item No. 21 (I) of the First
            Schedule, includes milling, raising, blowing, tentering, dyeing or
            any other process or any one or more of these processes;
c
            (vii) in relation to goods comprised in Item No. 22(1) of the First
            Schedule, includes bleaching, dyeing printing, shrink-proofing,
            tentering, heat-setting, crease resistant processing or any other
            process or any one or more of these processes.
D
            (viii)       In relation to aluminium, includes lacquering or printing
            or both of plain containers, and the words, "manufacturer" shall be
            construed accordingly and shall include not only a person who
            employs hired labour in the production or manufacture of excisable
            goods but also any person who engages in their production or
E           manufacture on his own account."

         Thus, under this definition, apart from actual manufacture certain
    processes were considered to be manufacture. This did not include the
    process of refining edible oil.
F
         With effect from 28th February, 1986 the definition of the term
    "manufacture" has been changed. Now under Section 2(f) "Manufacture"
    has been defined as follows :

            "2(f) "manufacture" 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 Section or
H                  Chapter notes of the Schedule to the Central Excise Tariff Act,
      SHY AM OIL CAKE LTD. v. C.C.E., JAIPUR [V ARIA VA, J.]                353

              1985 as amounting to manufacture;                                     A

         and the word "manufacturer" shall be construed accordingly and
         shall include not only a person who employs hired labour in
         production or manufacture of excisable goods, but also any person
         who engages in their production or manufacture on his own account."        B

      Thus, the amended definition enlarges the scope of manufacture by
roping in processes which may or may not strictly amount to manufacture
provided those processes are specified in the Section or Chapter notes of
the Tariff Schedule as amounting to manufacture. It is clear that the Legislature
realised that it was not possible to put in an exhaustive list of various           c
processes but that some methodology was required for declaring that a
particular process amounted to manufacture. The language of the amended
Section 2(t) indicates that what is required is not just specification of the
goods but a specification of the process and a declaration that the same
amounts to manufacture. Of course, the specification must be in relation to         D
any goods.

     The question whether any manufacture takes place when
edible vegetable oil is processed and refined was considered by a Constitution
Bench of this Court in Mis. Tungabhadra Industries Ltd. v. The Commercial
Tax Officer, Kurnool, reported in [1961] 2 SCR 14. This Court inter alia            E
considered whether the refined oil could be said to be in the same form in
which it was when extracted and held as follows :

         "Whether raw groundnut oil is converted into refined oil, there is
         no doubt processing, but this consists merely in removing from raw         F
         groundnut that constituent part of the raw oil which is not really
         oil. The elements removed in the refining process consist of free
         fatty acids, phosphotides and unsaponifiable matter. After the
         removal of this non-oleic matter therefore, the oil continues. to be
         groundnut oil and nothing more. The matter removed from the raw
         groundnut oil not being oil cannot be used, after separation, as oil       G
         or for any purpose for which oil could be used. In other words, the
         processing consists in the non-oily content of the raw oil being
         separate and removed, rendering the oily content of the oil 100 per
         cent. For this reason refined oil continues to be groundnut oil within
         the meaning of rules 5(1 )(k) and 18(2) notwithstanding that such          H
    354                   SUPREME COURT REPORTS [2004] SUPP. 6 S.C.R.

A            oil does not possess the characteristic colour, or taste, odour, etc.
             of the raw groundnut oil."

          Thus, this Court has held that prior to refining, it was raw groundnut
    oil and after refining even though the characteristic colour, taste and odour
B   may have changed it remained ground oil. In other words, this Court held
    that there was no manufacture of a new and distinct commodity.

          This Court has held in a number of decisions that merely because some
    process has been carried on it is not necessary that a new commodity has
    come into existence. In the case of Commissioner of
C   C. Ex., Chandigarh-I v. Markfed Vanaspati & Allied Indus, reported in
    (2003) 153 E.L.T. 491 S.C., the question was whether there was any
    manufacture when earth was processed and spent earth derived therefrom.
    This Court held that the burden to prove of manufacture is always on
    Revenue. It was held t.hat merely because an Item falls in a Tariff Entry,
D   it could not be presumed or deemed that there was manufacture. It was held
    that to begin with the product was earth and that even after processing it
    remained earth. It was held that the duty having been paid on earth, no duty
    was leviable on spent earth.

          In the case of Collector of Central Excise v. Technoweld Industries,
E   reported in (2003) 155 E.L.T. 209 S.C., the question was whether the
    drawing of wires from wire rods amounted to manufacture. It was held that
    both the products were wires and merely because they were covered by two
    separate Entries did not mean that the product was excisable. It was held
    that in the absence of any manufacture the product did not become excisable
F   merely because there were two separate Entries.

          In the case of Met/ex (I) Pvt. Ltd. v. Commissioner ofC. Ex., New Delhi,
    reported in (2004) 165 E.L.T. 129 S.C., it was again held that the burden
    of proving of manufacture laid on the Revenue. It was held that laminated/
    metalised film remained a film and no new or distinct product has come into
G   existence.

          In the case of Aman Marble Industries Pvt. Ltd. v. Collector of C. Ex.,
    Jaipur, reported in (2003) 157 E.L.T. 393 S.C., the question was whether
    cutting of marble blocks into marble slabs amounted to manufacture. It was
H   submitted that such an activity had been specifically brought into the Tariff
      SHY AM OIL CAKE LTD. v. C.C.E., JAIPUR [V ARIAVA, J.]               355

Ite:m by indicating the process. It was submitted that once the process had       A
been indicated in the Tariff Item, it would amount to manufacture. These
arguments were negatived. It was held that to start with the commodity was
a marble and even after cutting it remained marble. It was held that there
was no manufacture.
                                                                                  B
      It was submitted that the decision in Aman Marble Industries case is
not laying down the correct law inasmuch as it has not taken not of the
amended definition of the term "manufacture" in Section 2(t). It was submitted
that for a process to amount to manufacture it need not be so mentioned only
in the Section or Chapter Note and that it could also be so mentioned in the
Tariff Item. It was true that the amendment definition has not been taken
                                                                                  c
note of. We are in agreement with the submission that under the amended
definition, which is an inclusive definition, it is not necessary that oniydn
the Section or Chapter Note it must be specified that a particular process
amounts to manufacture. It may be open to so specify even in the Tariff Item.
However, either in the Section or Chapter Note or in the Tariff Entry it must     D
be specified that the process amounts to manufacture. Merely setting out a
process in the TariffEntry would not be sufficient. If the process is indicated
in the TariffEntry, without specifying that the same amounts to manufacture,
then the indication of the process is merely for the purposes of identifying
the product and the rate which is applicable fa that product. In order words,     E
for a deeming provision to come into play it must be specifically stated that
a particular process amounts to manufacture. In the absence of it being so
specified the commodity would not become excisable merely because a
separate Tariff Item exists is respect of that commodity.

      In this case, neither in the Section nor in the Chapter Note nor in the     F
Tariff Item do we find any indication that the process indicated is to amount
to manufacture. To start with the product was edible vegetable oil. Even
after the refining, it remains edible vegetable oil. As actual manufacture has
not taken place, the deeming provision cannot be brought into play in the
absence ofit being specifically stated that the process amounts to manufacture.   G
      In any even, for the period prior to 1986 i.e. before the definition of
the term "Manufacture" was amended, this process could not be taken to
amount to manufacture. Thus for the period prior to 1986 the demand could
not have been sustained in any event.
                                                                                  H
    356                   SUPREME COURT REPORTS [2004] SUPP. 6 S.C.R.

A         In this view of the matter, we are unable to sustain the Orders of the
    authorities below. It is accordingly held that there is no manufacture and
    the refined oil is not excisable. The Orders of the authorities below holding
    that there is manufacture and refined oil is excisable are hereby set aside.
    The demand notices issued are quashed.
B
         Accordingly, the Appeals are allowed. There will, however, be no
    order as to costs.

    R.P.                                                       Appeals allowed.