[Indirect Taxation] 2016

NATIONAL LAW UNIVERSITY

JODHPUR

SUBJECT: INDIRECT TAXATION

MANUFACTURING IN EXCISE

SUBMITTED TO: SUBMITTED BY:

Mr. Manoj Kumar Singh Utkarsh Singh (1045) & Sudipt Parth (1041)

Department of Law U.G. – 9th Semester

National Law University, B.A.LLB (Hons)

Jodhpur

Submission Date : 24th, SEPTEMBER, 2016.

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TABLE OF CONTENTS
Pg (s)
TABLE OF CASES ....................................................................................................................... iii
TABLE OF ABBREVIATIONS ................................................................................................... iv
TABLE OF STATUTES................................................................................................................ iv
1. INTRODUCTION ...................................................................................................................... 1
1.1 Introduction ........................................................................................................................... 1
1.2 Research Plan: ....................................................................................................................... 1
1.2.1 Aim and Objective: ........................................................................................................ 1
1.2.2 Scope and Limitations: .................................................................................................. 1
2. MANUFACTURE IN EXCISE .................................................................................................. 3
2.1 Definition .............................................................................................................................. 3
2.1.1 Constitutional validity of the new definition ................................................................. 3
2.2 Meaning and Scope ............................................................................................................... 4
2.2.1 Manufacture at Intermediate Stage ................................................................................ 5
2.3 Manufacturing Process.......................................................................................................... 5
2.4 Manufacturer ......................................................................................................................... 6
3. INSTANCES OF MANUFACTURE ......................................................................................... 7
3.1 Assembly............................................................................................................................... 7
3.2 Intermediate Products ........................................................................................................... 7
3.3 Incidental or Ancillary Process ............................................................................................. 7
3.4 Repacking and Labelling ...................................................................................................... 8
4. CONCLUSION & RECENT CASE LAWS............................................................................... 9
4.1 Commissioner of Central Excise v. Tarpaulin International ................................................ 9
4.2 Grasim Industries Ltd. v. Union of India ............................................................................ 10
4.3 Commissioner of Income Tax, Mumbai v. Emptee Poly-Yarn Pvt. Ltd ............................ 12
4.4 The Commissioner of Central Excise v. GTC Industries Ltd ............................................. 12
BIBLIOGRAPHY .......................................................................................................................... iv

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TABLE OF CASES

Pg (s)
Adreena Industries v. Collector ...................................................................................................... 7
Aspinwall & Co. v. CIT .................................................................................................................. 7
Bapalal & Co. Ltd. v. Union of India ............................................................................................. 8
Bhor Industries v. CCE ................................................................................................................. 10
CCE v. Coats Viyella ...................................................................................................................... 4
CCE v. Rajasthan State Chemical Works ....................................................................................... 6
CCE v. United Phosphorous Ltd ..................................................................................................... 7
Cibatul Ltd. v. Union of India ......................................................................................................... 6
Collector v. General Cement Products............................................................................................ 8
Commissioner of Central Excise v. Tarpaulin International .......................................................... 9
Commissioner of Income Tax, Mumbai v. Emptee Poly-Yarn Pvt. Ltd ...................................... 12
Dharangadhara Chemicals Works Ltd. v. Union of India ............................................................ 10
Empire Industries Ltd. v. Union of India ........................................................................................ 5
Extrusion Processes P. Ltd. v. ACCE ............................................................................................. 4
Fenner India v. CCE ....................................................................................................................... 8
Grasim Industries Ltd. v. Union of India ...................................................................................... 10
Hindustan Lever v. Collector .......................................................................................................... 5
Hyderabad Industries v. Union of India .......................................................................................... 4
In re SS Jain & Co .......................................................................................................................... 4
Khandelwal Metal & Engineering Works v. Union of India .......................................................... 5
Metal Forging P. Ltd. v. Union of India ......................................................................................... 5
Mohan Breweries v. CTO ............................................................................................................... 1
Moti Laminates Pvt. Ltd. v. CCE ................................................................................................. 10
Ramnagar Cane & Sugar Co. Ltd. v. Union of India ...................................................................... 8
South Bihar Sugar Mills Ltd v. Union of India .............................................................................. 5
State of Madras v. Gannon Dunkerley Ltd ..................................................................................... 4
Tata Iron & Steel Co. Ltd. v. Union of India .................................................................................. 7
The Commissioner of Central Excise v. GTC Industries Ltd ....................................................... 12
Tungabhadra Industries v. CTO .................................................................................................... 10

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Ujagar Prints v. Union of India ....................................................................................................... 5

Union Carbide v. Union of India .................................................................................................... 7
Union of India v. Darshan Singh Pavitar Singh .............................................................................. 4
Union of India v. Delhi Cloth & General Mills Co. Ltd ................................................................. 4
Union of India v. Harbhajan Singh Dhillon .................................................................................... 4
Union of India v. JG Glass .............................................................................................................. 5

TABLE OF ABBREVIATIONS

Co. Company
ed. Edition
Editor
et al. Et alia
Ltd. Limited.
Ibid Ibidem
Id. Ibidem
p. page number
Pvt. Private
¶ paragraph

TABLE OF STATUTES
The Central Excise Act, 1944
The Central Excise Tariff Act, 1985
Madras General Sales Tax Act, 1939

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1. INTRODUCTION
1.1 Introduction:
Excise duties are taxes imposed on “articles of home product for home consumption or
on their manufacture or sale”1. In India, the power to levy such duty is given to the Central
Government vide Entry No. 842 of List I of Seventh Schedule to the Constitution read with
Articles 245 and 246. Based on this, the Central Excise Act, 1944 was enacted, wherein the
charging section, i.e., section 33, levies excise duty on goods that satisfy the following
conditions:
i. The commodity is a “good”;
ii. Such good is excisable;
iii. The good is “manufactured” or “produced”; and
iv. Such manufacture or production is in India
Therefore, the taxable event in case of excise duty is ‘manufacture’ of the excisable good,
though actual levy and collection of the duty may be postponed to a later time for administrative
convenience4. Further, the duty is leviable only on the manufacturer or producer of the excisable
good5, who is also defined in terms of ‘manufacture’ under section 2(f) of the Central Excise
Act. In this scenario, the definition and understanding of “manufacture” gains importance, since
its scope determines the scope of levy of Excise under the Central Excise Act, 1944.
1.2 Research Plan:
1.2.1 Aim and Objective:
The aim of the project is to analyse the concept of ‘Manufacture in Excise’ and thereby
better understand the law relating to levy of Excise duty in taxation.
1.2.2 Scope and Limitations:
The project has been divided into four parts, beginning with the introduction to the topic
at hand. The second part discusses the definition, meaning and scope of ‘manufacture’,
‘manufacturing process’ and ‘manufacturer’ under the Central Excise Act, 1944. The third part

1
Ramanathan Aiyer, THE LAW LEXICON, 2nd ed. (rep. 2004), p.671.
2
“Duties of excise on tobacco and other goods manufactured or produced in India, except alcoholic liquors for
human consumption, opium, narcotics, but including medical and toilet preparations containing alcohol, opium or
narcotics.”
3
“There shall be levied and collected in such manner as may be prescribed [a duty of excise] on all excisable goods
which are produced or manufactured in India…”
4
See Mohan Breweries v. CTO AIR 1997 SC 3497.
5
Rule 4(1), Central Excise Rules, 2002.

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enumerates particular instances of ‘manufacture’. The final part includes the observations of the
researcher as concluding remarks exemplified by recent case laws on the subject.
The research resources are available at the National Law University, Jodhpur Library.
Books related to the topic were available at the library. Also, the sources available on the internet
helped a considerable deal. Suggestions from the teacher and fellow students have been
incorporated wherever necessary.

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2. MANUFACTURE IN EXCISE
2.1 Definition:
With the introduction of the Central Excise Tariff Act, the definition of ‘manufacture’ has
also been substituted. Unlike the old definition, the new definition contains two new clauses and
instead of setting out the activities in respect of different Tariff items, it simply states6,
“manufacture includes any process –
(i) incidental or ancillary to the completion of a manufactured product;
(ii) which is specified in relation to any goods in the Section or Chapter notes of the First
Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or
(iii) which, in relation to the goods specified in Third Schedule [to the Central Excise Act]
involves packing or re-packing of such goods in a unit container or labeling or re-labeling of
containers including the declaration or alteration of retail sale price on it or adoption of any
other treatment on the goods to render the product marketable to the consumer,
and the word “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 manufacture on his own account”
Clause (i) of the definition is identical to the expression used in the earlier definition and
presents no problem. It is clauses (ii) and (iii) that presents some difficulty because they have the
effect of levying excise duty on activities that do not result in a new commodity or where the raw
material does not undergo such a transformation as to lose its original identity. 7 These two
clauses together constitute “deemed manufacture” as any process may be deemed manufacture
by notifying under the Central Excise Tariff Act or under the Third Schedule to the Central
Excise Act.
2.1.1 Constitutional validity of the new definition:
The power of the Parliament to levy excise duty is under Entry 84, List I of Schedule VII
of the Constitution, wherein excise duty can be levied on “goods produced or manufactured in
India.” In other words, the condition precedent for levy of excise duty is the manufacture or
production of goods and the question that arises is whether the Parliament can levy excise duty
on activities which do not amount to manufacture at all by giving an artificial meaning to this

6
S. 2(f), The Central Excise Act, 1944.
7
Arvind P Datar et al., GUIDE TO CENTRAL EXCISE LAW AND PRACTICE, 5th ed. 2002, pp. 57-58.

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term. In the decision of the Supreme Court in State of Madras v. Gannon Dunkerley Ltd8, it was
made amply clear that the legislature cannot expand its taxing powers by giving artificial
definitions to words in legislative entries.9 In the stated case, the Madras legislature by amending
the definition of ‘sale’ under the Madras General Sales Tax Act, 1939 sought to levy tax on
works contracts, which could not be termed as a ‘sale’ because there was no sale or purchase of
goods. The amendment was held to be ultra vires.
With regards the new extended definition in S. 2(f), it has been observed that even if the
new definition of manufacture transgresses Entry No 84 of List I, it is liable to be saved by Entry
No. 97 of the same list read with Article 248 of the Constitution.10 Though, it must be noted that
there have been several instances where deeming a non-manufacturing activity as manufacture
has been held to be ultra vires.11 Further, in Hyderabad Industries v. Union of India12 it was held
that even if the Central Excise Tariff Act mentions an item, there is no duty liability unless the
process is “manufacture”, i.e., a new and commercially identifiable emerges after the process.
Similarly, it was held in CCE v. Coats Viyella13 that even if the process is deemed manufacture,
the test of marketability must be satisfied and unless the goods are marketable after the process,
duty couldn’t be levied.
2.2 Meaning and Scope:
The word ‘manufacture’ was first given a proper explanation in Union of India v. Delhi
Cloth & General Mills Co. Ltd.14 The case was heard by a Constitution Bench and it was held
that the word ‘manufacture’ used as a verb is generally understood to mean “as bringing into
existence a new substance” and does not mean merely “to produce some change in a substance”,
however minor in consequence the change may be.15 The Supreme Court once again considered

8
State of Madras v. Gannon Dunkerley Ltd AIR 1958 SC 560.
9
“A legislature on which legislative power is conferred in specific terms cannot enlarge it by enacting an ordinary
law”; H.M.Seervai, CONSTITUTIONAL LAW OF INDIA, vol.1 , 3rd ed., 1984, p.1921.
10
As per the wider principle adopted in Union of India v. Harbhajan Singh Dhillon AIR 1972 SC 1061. See also
Empire Industries v. Union of India AIR 1986 SC 662.
11
See In re SS Jain & Co. 1986 (25) ELT 14, 24 (Cal.); Extrusion Processes P. Ltd. v. ACCE 1988 (36) ELT 531
(Bom.); Union of India v. Darshan Singh Pavitar Singh 1990 (47) ELT 532 (P&H).
12
Hyderabad Industries v. Union of India (1995) 5 SCC 338.
13
CCE v. Coats Viyella (2004) 167 ELT 525 (CESTAT).
14
Union of India v. Delhi Cloth & General Mills Co. Ltd AIR 1963 SC 791.
15
“Manufacture implies a change but every change is not manufacture and yet every change of an article is the result
of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new
and different article must emerge having a distinctive name, character or use”; Ibid.

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‘manufacture’ in South Bihar Sugar Mills Ltd v. Union of India16 wherein it held that the word
‘manufacture’ implied a change, but every change in the raw material was not ‘manufacture’.
There must be such a transformation that a new and different article must emerge having a
distinctive name, character or use, and capable of being bought and sold.17 The moment there is a
transformation into a new commodity, commercially known as a distinct and separate
commodity having its own character, use, and name, whether be it the result of one process or
several processes ‘manufacture’ takes place and liability to duty is attracted.18
Thus from these judicial decisions we can conclude that in order to constitute
‘manufacture’, there must be-
i. Transformation of matter into a new distinct commodity (we can call it the
transformation/distinct product test);
ii. The new commodity in commercial parlance must be regarded as distinct in character,
use and identity from the original commodity (commercial usage test);
iii. The new commodity must be capable of being bought and sold in the market (test of
marketability)
Any other consideration such as ‘whether the commodity in existence prior to the
processing will serve no purpose or be of no commercial use but for the process’ 19 or ‘whether
there exists a transformation of matter into a superior product20’ cannot be used as stand alone
tests as they are mere instances of the one of abovementioned three tests.
2.2.1 Manufacture at Intermediate Stage:
It is not correct to say that until a final or last product is made, there will be no
manufacture. If in the intermediate stage a distinct product is known to the commercial world
comes into existence, manufacture does take place.21
2.3 Manufacturing Process:
A process is a manufacturing process when it brings out a complete transformation for
the whole components so as to produce a commercially different article or a commodity. But,

16
South Bihar Sugar Mills Ltd v. Union of India AIR 1968 SC 922.
17
View affirmed in Metal Forging P. Ltd. v. Union of India 1985 (20) ELT 280 (Del).
18
Empire Industries Ltd. v. Union of India 1985 (20) ELT 179 (SC); confirmed by a Constitution bench in Ujagar
Prints v. Union of India 1988 (38) ELT 535 (SC).
19
Used as a consideration in Union of India v. JG Glass (1998) 2 SCC 32 wherein it was held that it was held that
printing on bottles is not “manufacture” since the glass bottle was a commodity even without the printing.
20
Used in Hindustan Lever v. Collector (1985) 22 ELT 232 (T).
21
Khandelwal Metal & Engineering Works v. Union of India 1983 ELT 292 (Del).

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that process itself may consist of several processes which may or may not bring about any
change at every intermediate stage. But the activities of the operations may be so integrally
connected that the final result is the production of a commercially different article. Therefore,
any activity or operation which is the essential requirement and is so related to the further
operations for the end result would also be a process in or in relation to manufacture.22
2.4 Manufacturer:
Section 2(f) defines “manufacturer” to be understood in accordance with “manufacture”,
and including “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 manufacture on his own
account”. Thus, a manufacturer may be a person who actually manufactures the excisable goods
or may be a deemed manufacturer, i.e. a person who gets the goods manufactured through hired
labour; or persons who engage in manufacture of goods on their own account.
Thus, in case of a manufacture through an independent contractor, if the relationship
between the parties is on a principal-to-principal basis, the independent contractor will be the
manufacturer and not the supplier of the raw material23 or the brand owner24.

22
CCE v. Rajasthan State Chemical Works 1991 (55) ELT 444 (SC).
23
Mohan Breweries v. CCE (1999) 111 ELT 72 (CEGAT).
24
Cibatul Ltd. v. Union of India (1978) 22 ELT 302 (SC).

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3. INSTANCES OF MANUFACTURE
In most cases, it is relatively easy to determine whether an entirely distinct, commercially
different product results from the process such as say, manufacture of coffee beans from raw
coffee berries25 or processing gray fabrics by bleaching, dyeing, and printing26; but there can be
several other processes which cannot be easily categorized. Some of these are given below.
3.1 Assembly:
Assembly can be “manufacture” if a new movable and marketable product emerges from
original products. Thus, in Triveni Engineering v. CCE27, combining steam engine turbine and
alternator by fixing them on a platform and aligning them was held to be “manufacture” since a
new product known as turbo alternator resulted. Similarly, fabrication and assembly of cranes
would amount to manufacture.28 However, assembly of components of air-conditioner in car is
not manufacture since it does not come into existence as a separate, distinct commodity.29.
3.2 Intermediate Products:
These are products produced during the course of manufacture of a finished good. The
definition of “manufacture” under section 2(f) is wide enough to cover intermediate goods and
captive consumption, especially post-amendment to Rules 9 and 49 in 1982 with retrospective
effect. It must however be noted that only if the intermediate product which comes into existence
is as such a complete product known to the market it is excisable.30 Without the proof of
marketability, the intermediate products would not be “goods” at all, much less excisable
goods.31
3.3 Incidental or Ancillary Process:
Incidental process means an occasional or casual process while ancillary process denotes
an auxillary process which unless pursued shall not result in manufacture of the product. 32 Thus,
manufacturing is incomplete till all incidental and ancillary processes are completed.33 However,
much is dependent on the facts of the case at hand. For instance, though usually quality control is

25
Aspinwall & Co. v. CIT (2001) 7 SCC 525.
26
Empire Industries v. Union of India AIR 1986 SC 662.
27
Triveni Engineering v. CCE AIR 2000 SC 2896.
28
Tata Iron & Steel Co. Ltd. v. Union of India, 1988 (33) ELT 297 (Pat).
29
CBE&C circular No. 479/45/79-CX dated 17.08.1999.
30
Union Carbide v. Union of India (1986) 24 ELT 169 (SC).
31
CCE v. United Phosphorous Ltd. 2000 (117) ELT 529 (SC).
32
Arvind P Datar et al., GUIDE TO CENTRAL EXCISE LAW AND PRACTICE, 5th ed. 2002, p. 66.
33
Adreena Industries v. Collector (1987) 28 ELT 364 (T).

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not manufacture34 but if such quality control is mandatory35 then it becomes incidental or
ancillary to manufacture and hence becomes “manufacture” itself. On this principle it was held
that canning of vegetable oil in hardened form is incidental or ancillary to completion of
manufacture of vegetable product to make it fit to reach the retailer or consumer in a simple
condition.36
3.4 Repacking and Labelling:
It was held in CCE v. Prabhat Packaging Ltd.37 that repacking an already manufactured
product was not “manufacture” since no new commercially distinct product resulted. Thus,
repacking and labeling are not manufacture usually unless they are a part of incidental or
ancillary process or mentioned in Third Schedule of the Central Excise Act. Since statute
requires MRP stickers on imported medicines, this particular process became ancillary and hence
amounted to manufacture38. Similarly, repacking or labeling of goods in Third Schedule of
Central Excise Act is also tantamount to “manufacture”. However, mere affixing of brand name
on already manufactured article purchased from others or mere inscription of additional trade
mark does not amount to manufacture.39
Further, though initially it seemed that for section 2(f)(iii) to apply both repacking and
labeling were required since the section read “labeling or re-labelling of containers and
repacking from bulk packs to retail packs or the adoption of any other treatment to render the
products marketable to the consumer”. Notification no. 11/2008-CE(NT) dated 01.03.2008
replaced “and” with “or” with effect from 01.03.2008 and hence, now both individually may
amount to manufacture.

34
Fenner India v. CCE (1999) 35 RLT 861 (CEGAT).
35
Collector v. General Cement Products (1989) 39 ELT 689 (T).
36
Ramnagar Cane & Sugar Co. Ltd. v. Union of India 1983 ELT 6 (Raj).
37
CCE v. Prabhat Packaging Ltd (1990) 47 ELT 112.
38
CBE&C Circular No. 576/13/2001-CX dated 16.05.2001.
39
Bapalal & Co. Ltd. v. Union of India, 1981 ELT 587 (Mad.).

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4. CONCLUSION & RECENT CASE LAWS

It is seen that the law relating to ‘manufacture’ under the Central Excise Act, 1944 is
fairly settled with the Courts opting to rely on trio of transformation/distinct product, commercial
usage and marketability tests. However, the ‘distinct product test’ remains not only the most
frequently deployed but also the most convincing and reliable test, especially if coupled with the
trade parlance/commercial usage test. Thus, manufacture may be understood to take place if a
new commercially distinct end-product results from the process.
Secondly as regards, ‘deemed manufacture’ under S.2(f)(ii) & (iii), we notice that the
powers of the Government in notifying any good/process in the Schedules mentioned in
aforementioned Section is not absolute. This is because, the judiciary in application has watered
down the ‘deeming provision’ as these goods and processes even if notified must necessarily
meet the test of marketability and distinct commercial product.
The above conclusion is exemplified in some of the recent cases cited below.
4.1 Commissioner of Central Excise v. Tarpaulin International, (2010) 9 SCC 103
In the present case, the assessee was engaged in the business of producing and selling
‘tarpaulin made-ups’ and the question to be answered before the Court was whether the tarpaulin
made-ups which are prepared after cutting and stitching the tarpaulin fabric and fixing the eye-
lets would involve the process of manufacture and, hence, would fall within the definition of
‘manufacture’ ?
The ‘tarpaulin made-ups’ are nothing but the tarpaulin cloth which is prepared by making
solution of wax, aluminum stearate and pigments which are mixed and the solution is heated in a
vessel and transferred to a tank. Grey cotton canvas fabric is then dipped into this solution and
passed through two rollers, where after the canvas is dried by exposure to atmosphere.
Thereafter, the tarpaulin made-ups are prepared by cutting the cloth into various sizes and
stitched and eye- lets are fitted.
The assessee argued that the process of mere cutting, stitching and putting eyelets did not
amount to manufacture and hence, the department could not levy Excise Duty on tarpaulin made-
ups. However, the view of the department was that, the “made-ups” prepared by means of
cutting, stitching and fixing of eye-lets amounted to manufacture and, hence, they were eligible
to duty under the Central Excise Tariff Act, 1985 (“the Act”).

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The Court observed that the result of the definition contained in Section 2(f) of the Act is
that the word manufacture means production of an article for use from raw or prepared materials,
by giving these materials new form, quality, properties or combinations whether by hand labour
or machinery. “manufacture implies a change, but every change is not a manufacture and yet
every change in an article is the result of treatment, labour and manipulation. But something
more is necessary... There must be transformation, a new and different article must emerge,
having a distinctive name character or use”.40
Held:
“It is not in dispute nor it can be disputed that Tarpaulin made ups are covered under sub-
heading 63.01 CETA Schedule. The question is whether the commodity in question resulted
from manufacture as envisaged under Section 2(f) of Central Excise Act. It is now well settled
that merely because certain article falls within the Schedule, it would not be dutiable under the
Excise Law, if the said article is not ‘Goods’ known to the market. Marketability, therefore, is an
essential ingredient in order to be dutiable under Schedule to Central Excise Tariff Act, 1985.41”
Thus, the Court held that when Tarpaulin sheets are stitched and eyelets are made, it does
not change basic characteristic of the raw material and end product. The process does not bring
into existence a new and distinct product with total transformation in the original commodity.
The original material used i.e., the tarpaulin, is still called tarpaulin made-ups even after
undergoing the said process. The process of stitching and fixing eyelets would not amount to
manufacturing process, since tarpaulin after stitching and eyeleting continues to be only cotton
fabrics. The purpose of fixing eyelets is not to change the fabrics. Hence, it cannot be said that
the process is a manufacturing process. Therefore, there can be no levy of Central Excise duty on
the tarpaulin made-ups.
4.2 Grasim Industries Ltd. v. Union of India42,
Here, the issue before the Hon’ble Supreme Court was whether metal scrap or waste
generated whilst repairing of worn out machineries or parts of cement manufacturing plant
amounted to manufacture, and thereby, excisable to excise duty.

40
Citing Tungabhadra Industries v. CTO (1961) 2 SCR 14; Union of India v. Delhi Cloth & General Mills Co. Ltd.
(1997) 5 SCC 767; South Bihar Sugar Mills v. Union of India (1968) 3 SCR 21.
41
Citing Bhor Industries v. CCE 1989 (4) ELT 280, Moti Laminates Pvt. Ltd. v. CCE 1995 (76) ELT 241,
Dharangadhara Chemicals Works Ltd. v. Union of India 1997 (91) ELT 253.
42
Grasim Industries Ltd. v. Union of India 2011 (273) E.L.T. 10 (SC)

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The Assessee was the manufacturer of the white cement. The Assessee repaired worn out
machineries or parts of the cement manufacturing plant at its workshop such as damaged roller,
shafts and coupling with the help of welding electrodes, mild steel, cutting tools, M.S. Angles,
M.S. Channels, M.S. Beams, etc. In this process of repair certain metal scrap or waste was
generated.
Held:
“It is not in dispute that these M.S. Scrap and Iron Scrap are excisable goods under
Section 2(d) of the Act falling under the Chapter heading 72.04 in the Schedule to the Tariff Act
read with Note 8 (a) to Section XV of the Tariff Act as ‘metal scrap and waste’.”
“…for a deeming provision43 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 in respect of that
commodity.”
The Hon’ble Court held that in the present case, it was clear that the process of repair and
maintenance of the machinery of the cement manufacturing plant, in which M.S. scrap and Iron
scrap arose, had no contribution or effect on the process of manufacturing of the cement, which
was the excisable end product, since welding electrodes, mild steel, cutting tools, M.S. Angles,
M.S. Channels, M.S. Beams etc. which were used in the process of repair and maintenance were
not raw material used in the process of manufacturing of the cement, which was the end product.
“The repairing activity in any possible manner cannot be called as a part of
manufacturing activity in relation to production of end product. Therefore, the M.S. scrap and
Iron scrap cannot be said to be a by-product of the final product. At the best, it is the by-product
of the repairing process which uses welding electrodes, mild steel, cutting tools, M.S. Angles,
M.S. Channels, M.S. Beams etc.”
“The metal scrap and waste arising out of the repair and maintenance work of the
machinery used in manufacturing of cement, by no stretch of imagination, can be treated as a
subsidiary product to the cement which is the main product. The metal scrap and waste arise only
when the Assessee undertakes repairing and maintenance work of the capital goods and,
therefore, do not arise regularly and continuously in the course of a manufacturing business of
cement.”

43
S. 2(f)(ii), (iii), Central Excise Act, 1944.

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4.3 Commissioner of Income Tax, Mumbai v. Emptee Poly-Yarn Pvt. Ltd., (2010) 2 SCC
720
The short question for determination before the Hon’ble Court was whether twisting and
texturising of partially oriented yarn (‘POY’ for short) amounted to ‘manufacture’.
The Court sought reliance on expert opinion which concluded that POY is a semi-
finished yarn not capable of being put in warp or weft, it can only be used for making a
texturized yarn, which, in turn, can be used in the manufacture of fabric. In other words, POY
cannot be used directly to manufacture fabric.
Held:
The Court held that ‘manufacture’ means a change in bringing into existence of a new
and distinct object or article or thing with a different chemical composition or integral structure.
POY is a raw material not fit for being used in the manufacture of a fabric and it becomes usable
only after it undergoes the thermo mechanical process which converts POY into texturised yarn.
“Texturising or twisting per se in every matter would not amount to manufacture, however since
POY is a raw material and it is the thermo mechanical process embedded in twisting and
texturising when applied to a partially oriented yarn which makes the process a manufacture.”
4.4 The Commissioner of Central Excise v. GTC Industries Ltd. 2011 (266) ELT 160
(Bom.)
In the present case, the assessee was a manufacturer of cigarettes and used duty paid
paper back Aluminium foil in the roll form for the purpose of packing cigarettes. The Revenue
contended that the Aluminium foil is subjected to the process of cutting it into small pieces
which changes the form and nature of the foil and hence the said process amounts to
manufacturing. Thus, the question to be answered by the Court was whether the process of
cutting Aluminium foil for the purpose of packing cigarettes amounts to manufacture
Held:
“Manufacturing as defined in Section 2(f) of the Central Excise Act, 1944 includes any
process enumerated therein. However, all the processes would not amount to manufacturing
under the Act. Process is not defined under the Act . So it is understood in a common parlance.
The process may be a flow, progress, movement, transformation, change continuation, a link , an
action, happening, etc. Any process which produces distinct and identifiable commodity and
renders marketable value the can be called manufacture.

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In the present case a roll of Aluminium foil backed with white thin paper is purchased by
the Respondent for the purpose of packing their product i.e. cigarettes . In the roll there is a
continuous foil, therefore, it is cut to the size as per requirement of the capacity of the packet in
which the cigarettes are to be packed. Thus, the cuts are given horizontally and separate pieces of
the foil are made. As soon as the separate piece of the foil is made, a word ‘PULL’ is embossed
on it. Thereafter fixed number of 10 or 20 cigarettes are wrapped in the foil and the said wrapped
cigarettes are inserted in the cigarettes packet. An Aluminium foil being a resistant to moisture is
used as a protector for the cigarettes and to keep them dry. The word ‘PULL’ is embossed with a
view to make it convenient for the user and to know from which side a cigarette can be taken out.
Thus, it shows that cutting and embossing do not transform Aluminium foil into a distinct and
identifiable commodity. That does not change the nature and substance of the Aluminium foil. It
does not render any marketable value to that piece of paper. Cutting to the size and embossing is
only for making it usable for the purpose of packing.
Aluminium foil is cut to size in a continuous process and it does emerge as a new
commodity and hence it is not excisable.”

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BIBLIOGRAPHY

Books Referred:
 Ramanathan Aiyer, THE LAW LEXICON, 2nd ed. (rep. 2004), Wadhwa, Nagpur.
 Arvind P Datar et al., GUIDE TO CENTRAL EXCISE LAW AND PRACTICE, 5th ed. 2002,
Wadhwa, Nagpur
 H.M.Seervai, CONSTITUTIONAL LAW OF INDIA, vol.1 , 3rd ed., 1984, Universal Book
Traders, New Delhi

Websites Used:
 www.manupatra.com

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