Holding

Mere value addition by ED coating does not constitute manufacture; thus the inputs fall under the proviso to Rule 57F(ii) and only the MODVAT credit amount is payable as excise duty.

Summary

Maruti Suzuki India Ltd purchased spare parts such as bumpers and grills, availed MODVAT credit, and subjected them to electro‑deposition (ED) coating before removing them from the factory for home consumption. The Central Excise Department issued a show‑cause notice alleging that the value addition due to ED coating amounted to manufacture and demanded differential excise duty and a penalty. The key issue was whether the ED coating constituted "manufacture" under the Central Excise Act, 1944, and consequently whether the proviso to Rule 57F(ii) of the Central Excise Rules applied, limiting duty to the credit already taken. The Supreme Court held that the coating was merely a processing step that did not create a new article; therefore no manufacture occurred and the inputs remained the same. Accordingly, the proviso to Rule 57F(ii) applied and only the credit availed was payable as duty, and the penalty was set aside. The appeal was allowed, reducing the demand to the credit amount.

Issues considered

Whether electro‑deposition (ED) coating of spare parts amounts to "manufacture" under Section 3 of the Central Excise Act, 1944.
Whether the proviso to Rule 57F(ii) of the Central Excise Rules, 1944 applies to inputs removed after such processing.
Whether differential excise duty is payable on the value addition resulting from ED coating.
Whether the penalty imposed by the department is justified.

Legislation cited

Central Excise Act, 1944s. 2(f), s. 3, s. 4
Central Excise Rules, 1944s. 52A, s. 57A, s. 57F

Subjects

central excisemanufacturevalue additionRule 57FMODVAT creditelectro deposition coatingdifferential dutypenalty

Judgment

[2015]5S.C.R.180

A M/S. MARUTI SUZUKI INDIALTD.

v.

COMMNR. OF CENTRAL EXCISE, NEW DELHI
B (CivilAppeal No. 8190of2003)

MARCH 12, 2015

[A. K. SIKRI AND R. F. NARIMAN, JJ.]
c Central Excise Rules, 1944 - r. 57F - Levy of duty-
On the products (spare parts of motor vehicles i.e. bumpers
and grills)-Aftertheirprocessing i.e. Electro Deposition (ED)
Coating- On the ground that the process of ED Coating led
D to value addition - Held: In order to attract the charging
section i.e. s. 3 of Central Excise Act, there must be
'manufacture' - The 'input' that was removed from the factory
for home consumption i.e. 'bumpers' and 'grills' continue to
remain the same 'inputs' even after its processing i.e. ED
E Coating - Thus, the processing of the inputs would not
amount to 'manufacture' - Mere value addition would not
amount to 'manufacture' - In such cases proviso to r. 57F (ii)
would apply - Therefore demand of differential duty on the
products was not correct - Central Excise Act, 1944 - ss. 3
F and4.

Disposing of the appeal, the Court

HELD: 1.1 It is clear, as is apparent from the
G opening words of Section 4 of the Central Excise Act,
1944, that there must first be manufacture in order to
attract the charging section,. namely Section 3 of the
Central Excise Act, 1944 before one comes to valuation
of goods under Section 4 of the 1944 Act. [Para 19] [195-
H G-H]
180
MARUTI SI JZUKI INDIALTD. v. COMMNR. OF CENTRAL 181
EXCISE, NEW DELHI

1.2 On the facts of the present case, it is found A
that for the purposes of the proviso to Rule 57F(ii), the
inputs that were not ultimately used in the final product
but were removed from the factory for home
consumption remain the same despite ED coating and
consequent value addition. On account of mere value B
addition without more, it would be hazardous to say that
manufacture has taken place, when in fact, it has not. It
is clear, therefore, that the inputs procured by the
appellants in the present case, continue to be the same C
inputs even after ED coating and that Rule 57F(ii) proviso
would therefore apply when such inputs are removed
from the factory for home consumption, the duty of
excise payable being the amount of credit that has been
availed in respect of such inputs under Rule 57 A. [Para o
20) [196-A-E]

1.3 Thus, on the true construction of Rule 57F(1)
of Central excise Rules, 1944, it would be clear that the
"input" that is removed from the factory for home E
consumption were bumpers, grills, etc., being spare
parts of motor vehicles procured by the appellant. ED
coating which would increase the shelf life of the spare
parts and provide anti-rust treatment to the same would
not convert these bumpers, etc., into a new commodity F
known to the market as such, merely on account of value
addition. [Para 9) [188-G-H]

Union of India v. Delhi Cloth and General Mills Co. Ltd.
1977(1) E.L.T. 199; Commissioner of Central G
Excise, New Delhi v. S.R. Tissues Pvt. Ltd. 2005 (186)
E.L.T. 385; Union of India v. J.G Glass Industries Ltd.
1998 (97) E.L.T. 5- relied on.

Siddhartha Tubes Ltd. v. Commissioner of Customs & H
182 SUPREME COURT REPORTS [2015) 5 S.C.R.

A Central Excise, Indore (M.P.) (2005) 13 SCC
559: 2005 (5) Suppl. SCR 851; Brakes India Limited
v. Superintendent of Central Excise and Ors. 1 9 9 7
(10) sec 717 - distinguished.

B Sidhartha Tubes Limited v. Collector of Central Excise
2000 (10) sec 194 - referred to.

2. It is not correct to say that the drift of the rules
57F(3) and (3A) shows that where inputs are removed to
c a place outside the factory when they are only partially
processed, then when they come back after the process,
the value addition made on account of such processing
would be chargeable to duty under sub-Rule 3A. Such
interpretation would be adding words to Rule 57F(1) to
D the effect that value additions made to inputs covered
by sub-rule (ii) would also suffer duty even if there is no
manufacture. Further, sub-rule (3) and (3A) apply to an
entirely different factual scenario, and it is only after all
the conditions under the said sub-rules are met, that duty
E attributable to inputs contained in partially processed
inputs, would then become dutiable. [Para 22 and 23)
[198-G; 199-A-B]

Case Law Reference
F
1977 (1) E.L.T.199 relied on. Para 10
2000 (10) sec 194 referred to. Para 11
2005 (186) E.L.T. 385 relied on. Para 13
G 1998 (97) E.L.T. 5 relied on. Para 14
1997 (10) sec 111 distinguished. Para 17
2005 (5) Suppl. SCR 851 distinguished. Para 18

H
MARUTI SUZUKI INDIALTD. v. COMMNR. OF CENTRAL 183
EXCISE, NEW DELHI

CIVILAPPELLATE JURISDICTION: Civil Appeal No. A
8190of2003

From the Judgment and Order dated 12.12.2002 of the
Custom Excise & Gold (Control) Appellate Tribunal, New Delhi
in Appeal No. E/1825/2002-A B

V. Lakshmikumaran, M. P. Devanath, R.
Ramachandran, Ms. L. Charanaya, Aditya Bhattacharya,
Prashanth S. Shivadass, Rajesh KumarfortheAppellant.

Guru Krishna Kumar, Sr. Adv., P. Mullick, Ms. Rashmi
c
Malhotra, B. Krishna Prasad for the Respondent.

The Judgment of the Court was delivered by

R. F. NARIMAN, J. 1. Vide a show cause notice dated D
30.08.2001 that was served upon the appellant Mis. Maruti
Suzuki India Limited (then known as M/s Maruti Udyog
Limited), the Department gathered, by way of intelligence,
that the appellant had cleared inputs/ spares after processing,
but duty was only paid equivalent to the MODVAT credit E
taken on these inputs before processing, and hence a
substantial increase in the value of these inputs has escaped
payment of duty on account of value addition in such inputs
after processing. More specifically, what was alleged was F
that various spare parts relatable to motor vehicles that
were manufactured by the appellant and were procured by it
in the form of bumpers, grills, etc., on which the process of
Electro Deposition Coating, namely, EDC took place (which
was in the nature of anti-rust so that the shelf life of the said G
bumpers, grills, etc., would be generally increased) have
escaped duty on account of the value addition of EDC.

2. The show cause demanded by way of differential
duty a sum ofRs.2,00,20,310.14/-. Sincetheperiodcovered H
184 SUPREME COURT REPORTS [2015) 5 S.C.R.

A relates to August, 1996, to March, 2001, we need to see the
provisions of Rule 57F of the Central Excise Rules, 1944
(hereinafter referred to as 'Rules') as it existed in three
different periods. For the purposes of this appeal, however,
there is no material change made post 20. 02. 1997 or post
B 31.03.2000 when this rule was twice amended. For the
period in question, the said rule together with its amendments
is set as hereinbelow: -

Rule for the period August 1996 to 28.2.1997
c
"57F(1) The inputs in respect of which a credit of
duty has been allowed under rule 57A-

(i) may be used in or in relation to the manufacture of
D final products for which such inputs have been brought
into the factory; or

(ii) shall be removed, after intimating the Assistant
Commissioner of Central Excise having jurisdiction
E over factory and obtaining a dated acknowledgment
of the same, from the factory for home consumption
or for export under bond.

Provided that where the inputs are removed from
the factory for home consumption on payment of duty
F
of excise, such duty of excise shall be the amount of
credit that has been availed in respect of such inputs
under rule 57A."

Rule for the period 1.3.97 to 31.3.2000
G
"57F(1) The inputs on which credit has been taken
may be used in or in relation to the manufacture of
final products.

H (2) The inputs may be removed, after intimating
MARUTI SUZUKI INDIA LTD. v. COMMNR. OF CENTRAL 185
EXCISE, NEW DELHI [R. F. NARI MAN, J.)

the Assistant Commissioner of Central Excise A
concerned, in writing, for home consumption or for
export under bond.

(3) All removals of inputs for home consumption shall
be made- B

(a) on payment of duty equal to the amount of credit
availed in respect of such inputs; and

(b) under the cover of invoice prescribed under rule
52A."
c
Rules for the period 1.4.2000 to 28.2.2001

"Explanation - When inputs or capital goods are
removed from the factory, the manufacturer of the D
final products shall pay the appropriate duty of excise
leviable thereon as if such inputs or capital goods
have been manufactured in the said factory, and such
removal shall be made under the cover of an invoice
prescribed under rule 52A." E

3. By their reply to the show caus.e notice, the appellant
stated that there was no manufacture as understood in law,
but only the process of ED coating which did not, in any manner,
bring into being a new marketable commodity as such. The F
bumpers, grills, etc., continued to be bumpers, grills, etc.,
even after the process of ED Coating.

4. The learned Commissioner of Central Excise by its
order dated 28.02.2002 set out the show cause notice and G
the reply in some detail and ultimately came to the conclusion
that on account of certain deductions, the duty that was
evaded by the appellants herein was Rs.1,68,07 ,499/-
instead of Rs.2,00,20,310/- as stated in the show cause H
186 SUPREME COURT REPORTS [2015] 5 S.C.R.

A notice. As a result, it proceeded to state in its order that
the duty evaded was Rs.1,68,07,499/- and proceeded also
to impose an equivalent penalty of the same amount with the
caveat that 25 per cent of the penalty amount would be payable
if it is paid within 30 days of the date of communication of
B theorder.

5. The appeal filed before Customs, Excise & Gold
(Control) Appellate Tribunal (hereinafter referred to as
'CEGAT') was unsuccessful. The CEGAT after referring to
C the arguments of both sides found as follows:-

5. 1 We have considered the submissions of both the
sides. The facts which are not in dispute are that the
Appellants purchase inputs, avail MODVAT Credit of
D duty paid thereon subject them to the process of E.D.
Coating and remove the same on payment of duty
equivalent to the amount of MODVAT Credit availed by
them initially at the time of receipt of the inputs. It is
thus apparent that the inputs are removed from the
E factory after undertaking the process of E.D. Coating. In
view of this the ratio of the decision of the Larger Bench
in the case of Commissioner of Central Excise, Vadodra
v.Aisa Brown Boveri Ltd., 2000 (120) ELT 228 is not
F applicable as the facts are different in as much as the
inputs were cleared as such in the said matter. It has
been emphasized by the learned counsel for the
appellants that words "as such" were not mentioned in
Rule 57-F at the relevant time. In our view the absence
G of these words does not make any difference as Rule
57-F of the Central Excise Rules deals with the "Manner
of Utilization of Inputs and the Credit". The said Rules
provides for the manner of use of inputs as under:

H (i) In or in relation to the manufacture of final products for
MARUTI SUZUKI INDIA LTD. v. COMMNR. OF CENTRAL 187
EXCISE, NEW DELHI [R. F. NARI MAN, J.]

which such inputs have been brought into the factory; or A

(ii) Removed from the factory for home consumption or
for export under bond.

5.2 Proviso to Rule 57-F(1) or subsequently Sub-rule
B
(3) of Rule 57- F provided that where the inputs are
removed for home consumption on payment of duty,
such duty of excise shall be the amount of credit that has
been availed in respect of such inputs. It is thus apparent
that the Rule 57-F is in respect of "such inputs" only. c
Further Rule 57 AB of the Central Excise Rule provides
for the removal of inputs as such. We, therefore, hold
that as the Appellants have removed the inputs after
subjecting them to the process of E.D. Coating, mere
reversal of the MODVAT Credit availed in respect of D
those inputs would not be payment of appropriate
amount of duty. The duty of excise has to be discharged
on the intrinsic value of the goods as held by the Supreme
Court in the case of Sidhartha Tubes Ltd., Supra.
Accordingly, the Appellants have to discharge the duty E
liability after including the cost of E.D. Coating in the value
of the goods. The Appellants, however, would be eligible
to take the MODVAT Credit of duty paid on coating
material subject to the satisfaction of the jurisdictional F
Excise Authority. In view of the facts and circumstances
ofthe present matter, no penalty is imposable on the
Appellants. We accordingly, set aside the penalty
imposed on the Appellants."
G
6. Shri V. Lakshmikumaran, learned counsel
appearing for the appellant, argued before us that CEGAT
has lost sight of the most fundamental aspect of the reply to
the show cause notice, namely, that ED coating did not
lead to "manufacture". It is only after there is "manufacture" H
188 SUPREME COURT REPORTS [2015) 5 S.C.R.

A that the input that is mentioned in Rule 57F(1) ceases to be
an input covered by the proviso to sub-rule (ii) thereof. It is his
short submission that the "inputs" being bumpers, grills, etc.,
continued to be the same inputs for the purpose of the proviso
despite the fact that there may be value addition on account
B of ED coating. He cited various judgments in support of his
submissions which will be adverted to a little later in this
judgment.

7. On the other hand, Shri Guru Krishna Kumar,
C learned senior counsel appearing for the Department, referred
us to the show cause notice and to various judgments in order
to show that the process of ED coating which led to value
addition, would, in fact, amount to "manufacture" and that
therefore, the "input" would not be the same input so as to
D qualify under sub-rule(ii) on a mere reversal of MODVAT duty.
The duty on the value addition would also therefore have to
be paid. In support of this proposition, he cited a number of
judgments which will also be adverted to a little later in this
E judgment.

8. In addition, he referred us to Rule 57F (3) and Rule
57F(3A) which, according to him, would show that whenever
there is a value addition to an input, the said value addition
F would also be liable to duty.

9. We have heard learned counsel for the parties. In
our view, on the true construction of Rule 57F(1 ), it would be
clear that the "input" that is removed from the factory for home
consumption is bumpers, grills, etc., being spare parts of
G motor vehicles procured by the app~llant before us. According
to us, ED coating which would increase the shelf life of the
spare parts and provide anti-rust treatment to the same would
not convert these bumpers, etc., into a new commodity known
H to the market as such merely on account of value addition.
MARUTI SUZUKI INDIALTD. v. COMMNR. OF CENTRAL 189
EXCISE, NEW DELHI [R. F. NARI MAN, J.]

10. In one of the very first important judgments on the A
Central Excises and SaltAct, 1944, namely Union of India v.
Delhi Cloth and General Mills Co. Ltd. [1977 (1) E.L.T. 199],
an important distinction was made between manufacture and
processing. It was held that processing and manufacture
are distinct concepts in law and only such processing as B
results in a transformation, namely, that a new and different
article emerges having a distinct name, character or use, that
excise duty, which is only on lllilnufacture, can be levied. The
relevant portion of the judgmtfnt is as hereunder: -
r ,- c
"14. The other branch of Mr. Pathak's argument is that
even if it be held that the respondents do not
manufacture "refined oil", as is known to the market
they must be held to manufacture some kind of "non-
D
essential vegetable oil" by applying to the raw material
purchased by them, the processes of neutralization by
alkali and bleaching by activated earth and/or carbon.
According to the learned Counsel "manufacture" is
complete as soon as by the application of one or more E
processes, the raw material undergoes some change.
To say this is to equate "processing to manufacture"
and for this we can find no warrant in law. The word
"manufacture" used as a verb is generally understood to
mean as "bringing into existence a new substance" and F
does not mean merely "to produce some change in a
substance," however minor in consequence the change
may be. This distinction is well brought about in a
passage thus quoted in Permanent Edition of Words
and Phrases, Vol. 26, from an American judgment. The G
passage runs thus:-

"Manufacture implies a change, but every change
is not manufacture and yet every change of an
H
.-190 , ,, ~··· SUPREME COURT . ..... REPORTS
. . [~q15] 5 S.C.R.
.,.. . ,, ,,,--'
~ i -

·, :
A ... :· I. 'article
· ·
is the result- . •of treatment,
I·'•·
'~I· __ ,_ ··
labour
·.•
and·
·' .~~

manipulation. Butsomething more is necessary
and there-
must be transformation; new and 'a
., .. ' different article must' emerge having 'a distinctive
.'> name,' character or use: ;; •::. . . . - ~ . ' ..
8
· /18. These considerations of the meaning of the word
• "goods" cprovides strong support fo"r the view that
. "mariufacture"which"is:liable to exercise duty under
j • ',., " ••• -, / ~ -4 •
- ._, ' ' ' • -·

the Central Excises and Salt Act, 1944 • must ·be ·the
c . ' .• - ! -· •
"bringing into existence of a new substance known _to
' ' ' . ' ' _, . .-

the market". "But", says the learned Counsel, look at
the definition of "manufacture" in the definition clause
of the Act and you wili find that "nian.ufacture" is defined
-~-U~:· -~1 L:."1: t,, · .. _,,"_-:•.'.:;.;.-_,·-.-- -~;;, ·-·., ,, . ::~·; . . ,~~ _,
D
- Manufacture
••• ,,_ '• • .
includes •.'any process
.- ' I! - .
iriCidental
,-, ' .
or
· · ancillary to · the completion. of a manufactured
· product: s.2(f). , :: · .. 1 1.
. ' .. ::._: . . I - • . ' ' - "' ''.

E -19: We are unable to agree with the learned Counsel
that by. inserting this definition of the word "manufacture"
in S.2 (f) the legislature intended to equate "processing"
to "manufacture", and intended to make mere
"processing~ as distinct from "manufacture" in the sense
F of bringing into existence of. a new substance known to
the market liable to duty:.. The sole purpose of inserting
this
. definition is to .make it clear that at certain places in
the Act
.
the word 'manufacture' has been used to meanI
a• process incidental to the manufacture of the article.
G
•Thus in the very Item under which the excise duty is
claimed in these cases, we find the words "in or in
relation to the manufacture of which any process is
ordinarily carried on :with the aid of power". The
definition of 'manufacture' 'as' in s.2(f) puts is beyond
MARUTI SUZUKI INDIALTD. v. COMMNR. OF CENTRAL 191
EXCISE, NEW DELHI [R. F. NARI MAN, J.]

any possibility of controversy that if power is used for A
any of the numerous processes that are required to
turn the raw material into a finished article known to
the market the clause will be applicable; and an
argument that power is not used in the whole process
of manufacture using the word in its ordinary sense, will B
not be available. It is only with this limited purpose
that the legislature, in our opinion, inserted this
definition of the word 'manufacture' in the definition
section and not with a view to make the mere
"processing" of goods as liable to exci_se duty."
c
11. However, to buttress his submission Shri Guru
Krishna Kumar, learned senior counsel, referred us to various
judgments laid down by this Court. First, he referred us to
0
'Sidhartha Tubes Limited v. Collector of Central Excise' [2000
(10) SCC 194]. Since this judgment was also the only judgment
relied upon by CEGAT in the impugned order, it is a littl~
important to understand what exactly was held therein. In this
case, the appellant manufactured mild steel pipes and tubes. E
At this stage, the product was known as "black pipe". Part of
the production of the black pipe was then taken to a separate
shed in the appellant's factory premises and galvanised. On
facts in that case, the appellants had themselves in their
classification list separately declared black pipes and F
galvanized pipes as their products. In such a situation, this
Court held that while the process of galvanisation by itself
may not amount to manufacture, yet since it added to the
intrinsic value of the product declared by the appellants
themselves separately as galvanised pipes, the value of G
galvanised pipes would include the element of the cost of
galvanisation.

12. From this judgment, Shri Guru Krishna Kumar,
learned senior counsel, wanted us to accept as the ratio of H
192 SUPREME COURT REPORTS [2015] 5 S.C.R.

A the judgment that duty must be paid on value addition despite
the fact that the process of galvanization would not amount to
manufacture. Not only is this not the ratio of the judgment as
we see it but it would, in fact, conflict with other judgments
directly on the point.
B
13. In CommissionerofCentra/Excise, New Delhi v.
S.R. Tissues Pvt. Ltd. [2005 (186) E.L. T. 385], the question
before this Court was whether on cutting and slitting of
jumbo rolls, several new products emerged, namely, table
C napkins, toilet rolls, etc., and there being a value addition of
180 per cent of the new products over the jumbo roll would by
itself lead to the irresistible conclusion that there is
"manufacture" and not mere "processing". This was turned
down by this Court stating that jumbo rolls cannot conveniently
0
be used as such for household or sanitary purposes. If
therefore, for the sake of convenience, they are required to
be cut into various shapes and sizes so that they can
conveniently be used as table napkins, etc., this would not
E mean that the table napkins, etc., would be a new product
distinct from the jumbo roll. The end use of both jumbo rolls
and toilet rolls, etc., would remain the same, namely, for
household or sanitary use.

14. ltwasthen held following Union of India v. J.G.
F
Glass Industries Ltd.[ 1998 (97) E.L.T. 5] that there is a
fundamental distinction between manufacture and processing.
On an aspect not adverted to in the Delhi Cloth and General
Mills Co. Ltd. case supra, this court held that where the
G commodity already in existence is of no commercial use but
for a super added process, then on facts, there may be
manufacture.

15. In the present case, it is clear that bumpers and
H grills are most certainly of commercial use in themselves
MARUTI SUZUKI INDIALTD. v. COMMNR. OF CENTRAL 193
EXCISE, NEW DELHI [R. F. NARIMAN, J.]

whether the process of ED coating is applied or not. A

16. Importantly, this Court laid down that value addition
without any change in name, character or end use of
goods cannot possibly constitute criteria to decide as to what
is manufacture. B

This court said in this behalf: -

"21. Lastly, in the instant case, the Commissioner
as an adjudicating authority has held that there was
c
a value addition of 180%. He found that jumbo rolls
of tissue papers were purchased by the assessee @
Rs.30/- to Rs.70/- per kg. and the final product i:e.
the toilet tissue paper was sold by the assessee
@Rs.85/- to Rs.1001- per kg. And, therefore, there D
was a value addition of around 180% i.e. between the
range of Rs.30/- to Rs.85/- per kg. This finding of the
Commissioner is erroneous. Under the Excise law,
Value addition based on a process is certainly a
relevant criteria to decide as to what constitutes E
"manufacture". Such value addition should be on
account of change in the nature or characteristics of
the product. In the present case, as stated above,
there is no change in the nature or characteristics of
the tissue paper .in the jumbo roll and the nature and F
characteristics of the tissue paper in the table napkin,
facial tissues etc. Therefore, without such change in
the nature or characteristics of the tissue paper, value
/
addition on account of transport charges, sales tax,
G
distribution and selling expenses and trading margin
cannot be an indicia to decide what is manufacture.
Thus, value addition without any change in the name,
character or end-use by mere cutting or slitting of
jumbo rolls cannot constitute criteria to decide H
194 SUPREME COURT REPORTS [2015) 5 S.C.R.

A what is "manufacture".

22. In the case of Decorative Laminates (India) Pvt.
Ltd. v. Collector of Central Excise, Bangalore reported
in 1996 (86) E. L. T. 186, this Court held that the
B process of application of phenol resin on duty paid
plywood under 100% heat amounts to manufacture
and in that connection observed that value addition
and separate use are also relevant factors which the
Courts should consider in deciding the applicability
c of Section 2(f) of the Act. Therefore, value addition
based on price difference only without any change in
the name, character or end-use is a dangerous criteria
to be applied in judging what constitutes
"manufacture". Lastly, the end-use in both the entries
D
4803 & 4818.90 is the same, namely, for sanitary
or household purposes. In the circumstances, value
addition criteria as applied by the Commissioner is
erroneous."
E 17. Shri Guru Krishna Kumar, learned senior counsel,
also cited two other decisions in support of the proposition
that, in fact, manufacture had taken place on the facts of the
present case. One such decision, namely, Brakes India
F Limited v. Superintendent of Central Excise and others [1997
(10) sec 717] dealt with brake lining blanks. It was found on
facts that these brake lining blanks purchased by the appellant
could not be used as brake linings by themselves without the
process of drilling, trimming and chamfering. This judgment
G has been distinguished in para 13 of the judgment which
has been cited above, namely, Commissioner of Central
Excise, New Delhi v. S.R. Tissues Pvt. Ltd. [2005 (186)
E.L.T. 385]. Unlike the facts in the Brakes India Limited
judgment, on the facts here, bumpers, grills, etc., are of
H
MARUTI SUZUKI INDIALTD. v. COMMNR. OF CENTRAL 195
EXCISE, NEW DELHI [R. F. NARIMAN, J.]

commercial use and liable to duty as such, even without any A
ED coating.

18. Shri Guru Krishna Kumar, learned senior counsel,
then cited Siddhartha Tubes Ltd. v. Commissioner of Customs
& Central Excise, Indore (M.P.)[(2005) 13 SCC 559]. This B
case again concerned manufacture of galvanised pipes.
This court, in a very significant passage, stated:

"At the outset, we may state that value is the function of
price under section 4(4)(d)(i) of the Act. The concept c
of "valuation" is different from the concept of
"manufacture". Under section 3 of the Act, the levy is on
the manufacture of the goods. However, the measure
of the levy is the normal price, as defined under section
4(1 )(a) of the Act. It is not disputed that galvanization D
as a process does not amount to manufacture.
However, on facts, it has been found by the commissioner
that the process of galvanization has taken place before
the product is cleared from the place of removal, as
defined under section 4(4)(b). Further, on facts, the E
commissioner has found that galvanization has added
to the quality of the product. It has increased the value of
the pipes. Hence, the costs incurred by the assessee
for galvanization had to be loaded on to the sale price of F
the pipes. Therefore, the cost had to be included in
the assessable value of MS galvanized pipes. We do
not find any error in the reasoning of the adjudicating
authority."
G
19. It is clear, as is apparent from the opening words of
Section 4 of the Central Excise Act, 1944, that there must first
be manufacture in order to attract the charging section, namely
Section 3 of the Central Excise Act, 1944 before one comes
to valuation of goods under Section 4. H
196 SUPREME COURT REPORTS [2015] 5 S.C.R.

A 20. On the facts of the present case, we have first,
therefore, to arrive at whether there is "manufacture" at all and
only subsequently does the question arise as to if this is so,
what is the valuation of the processed goods and whether
duty is payable upon them. We have found on facts that for
B the purposes of the proviso to Rule 57F(ii), the inputs that
were not ultimately used in the final product but were removed
from the factory for home consumption remain the same
despite ED coating and consequent value addition. We
C follow the law laid down in S. R. Tissues Pvt. Ltd .'s case and
state that on account of mere value addition without more it
would be hazardous to say that manufacture has taken place,
when in fact, it has not. It is clear, therefore, that the inputs
procured by the appellants in the present case, continue to
D be the same inputs even after ED coating and that Rule
57F(ii) proviso would therefore apply when such inputs are
removed from the factory for home consumption, the duty
of excise payable being the amount of credit that has been
availed in respect of such inputs under Rule 57A.
E
21. We now, come to the second argument made by
Shri Guru Krishna Kumar, learned senior counsel, namely,
that from a reading of Rule 57F (3) and 57F(3A), that Rule
57F(1) should be construed in such a way that the moment
F an input which falls under the said Rule has a value addition
on account of processing it will cease to be an input covered
by the Rule. To appreciate this argument, we set out rule 57F(3)
and Rule 57F(3A) which are as follows: -

G (3) [Subject to sub-rule (3A) and notwithstanding]
anything contained in sub-rule(1 ), manufacturer may after
intimating the [Assistant Commissioner of Central
Excise] having jurisdiction over the factory and obtaining
dated acknowledgment of the same, remove the inputs
H
MARUTI SUZUKI INDIA LTD. v. COMMNR. OF CENTRAL 197
EXCISE, NEW DELHI [R. F. NARIMAN, J.]

as such, or after the inputs have been partially processed A
during the course of manufacture of final products, to
a place outside the factory,-

(a) For the purposes of test, repairs, refining, re-
conditioning or carrying out any other operation B
necessary for the manufacture of the final products
and return the same to his factory, for,-

(i) further use in the manufacture of the final product;
or c
(ii) removing the same without payment of duty under
bond for export; or

(iii) removing the same after payment of duty for home
D
consumption.

Provided that the waste, if any, arising in the course
of such operation is also returned to the said factory;

(b) for the purposes of manufacture of intermediate E
products necessary for the manufacture of the final
products and return the said intermediate products
to his factory, for,-

(i) further use in the manufacture of the final product; F
or

(ii) removing the same without payment of duty under
bond for export; or
G
(iii) removing the same after payment of duty for home
consumption.

Provided that the waste, if any, arising in the course
of such operation is also returned to the said factory:
H
198 SUPREME COURT REPORTS [2015) 5 S.C.R.

A Provided further that the said waste need not be returned
to the said factory after the appropriate duty of excise
leviable thereon has been paid.

(3A) Where a manufacturer intends to remove the inputs
B as such, or after the inputs have been partially
processed during the course of manufacture of final
products to a place outside the factory for the
purposes specified in sub-rule{3), the manufacturer
shall do so after debiting an amount equivalent to the
C amount of credit of duty attributable to such inputs or the
inputs contained in such partially processed inputs;

Provided that, notwithstanding anything contained in rule
57A, the manufacturer shall be eligible to avail of the
D credit of an equivalent amount after the inputs or the
processed goods, as the case may be, have been
received back in the factory of the manufacturer;

Provided further that the manufacturer shall not take
E credit under this sub-rule unless the inputs or the
processed goods, as the case may be, are received in
the factory under the cover of the document on which
such inputs or partially processed goods were
removed from the factory.
F
22. It was conceded by Shri Guru Krishna Kumar,
learned senior counsel, that for several reasons, the said Rules
would not apply to the facts here but that the drift of these
rules shows that where inputs are removed to a place
G outside the factory when they are only partially processed,
then when they come back after the process, the value addition
made on account of such processing would be chargeable to
duty under sub- Rule 3A.

H 23. This argument cannot be accepted for two basic
MARUTI SUZUKI INDIA LTD. v. COMMNR. OF CENTRAL 199
EXCISE, NEW DELHI [R. F. NARIMAN, J.]

reasons. First, we would be adding words to Rule 57F(1) to A
the effect that value additions made to inputs covered by
sub-rule (ii) would also suffer duty even if there is no
manufacture. Second, sub-rule (3) and (3A) apply to an
entirely different factual scenario, as has been conceded
by learned counsel for Revenue, and it is only after all the B
conditions under the said sub-rules are met that duty
attributable to inputs contained in partially processed inputs
would then become dutiable.

24. In view there of, we allow this appeal, set aside the C
judgment of CEGAT and resultantly, the demand made in the
show cause notice as reduced by the Commissioner. We
hasten to add that the penalty imposed on the appellant has
already been set aside by CEGAT's order which part of D
CEGAT's order will stand.

25. The appeal stands disposed of in the aforesaid
terms.

Kalpana K. Tripathy Appeal disposed of. E