2011 (7) TMI 26 - SC - Central Excise

Supreme Court: Power use in manufacturing process disqualifies goods from exemption

COMMISSIONER OF CENTRAL EXCISE, NAGPUR Versus M/s GURUKRIPA RESINS PVT. LTD.

The Supreme Court held that the use of power to lift water for condensation in the manufacturing process of 'Rosin' and 'Turpentine Oil' disqualified the ... Rectification of mistakes - Classification - Notification No. 179/77-CE dated 18th June, 1977 - whether or not the process of lifting of water with the use of power, to the extent and for the purpose mentioned above, constitutes a process in or in relation to manufacture of goods, viz. 'Rosin' and 'Turpentine Oil', with the aid of power - It is trite that in determining what constitutes manufacture no hard and fast rules of universal application can be devised and each case has to be decided on its own facts having regard to the context in which the term is used in the provision under consideration, but some broad parameters laid down in the earlier decisions dealing with the question could be applied to determine the question whether a particular process carried on in relation to the final product amounts to manufacture of that product - It is well settled proposition of law that Circulars and instructions issued by the Central Board of Excise and Customs are no doubt binding in law on the authorities under the respective Statutes but when this Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Courts or the Tribunal, as the case may be, to direct that the Board's Circular should be given effect to and not the view expressed in a decision of this Court or a High Court.Assessee is not eligible to claim exemption since the water being an important input for the manufacturing process of 'Rosin' and 'Turpentine Oil', its further lifting upto the height of 30 ft. with the aid of an electric motor for the purpose of condensing the vapours of Turpentine Oil, it cannot be said that the said goods were being manufactured without the aid of power. Issues Involved:1. Classification of 'Rosin' and 'Turpentine Oil' under the Central Excise Tariff Act, 1985.2. Determination of whether the use of power in the manufacturing process disqualifies the goods from exemption.3. Validity and applicability of the 1978 Circular issued by the Ministry of Finance.4. Relevance of the Rajasthan State Chemical Works case and other precedents.5. Binding nature of Circulars issued by the Central Board of Excise and Customs.Issue-wise Detailed Analysis:1. Classification of 'Rosin' and 'Turpentine Oil':The assessee, engaged in the manufacture of 'Rosin' and 'Turpentine Oil', classified these goods under Chapter Heading Nos. 38.06 and 38.05 respectively, claiming a 'nil' rate of duty on the ground that the goods were manufactured without the aid of power. The Deputy Commissioner, however, classified the goods under the same headings but imposed a 16% duty, arguing that the manufacturing process involved the use of power, specifically for lifting water necessary for condensation during distillation.2. Use of Power in the Manufacturing Process:The core issue was whether the use of power to lift water for condensation constituted the use of power in the manufacturing process. The Tribunal initially sided with the assessee, relying on a 1978 Circular which stated that using power for drawing water into a cooling tank did not constitute manufacturing with the aid of power. The Supreme Court, however, held that the process of lifting water with the aid of power was integral to the manufacture of 'Rosin' and 'Turpentine Oil' as it was essential for condensation, a crucial step in distillation.3. Validity and Applicability of the 1978 Circular:The Tribunal had relied on the 1978 Circular, which had been rescinded by Circular No. 38/38/94-CX dated 27th May, 1994. The Supreme Court emphasized that the Tribunal erred in relying on the rescinded Circular, especially when the law had been clarified by the Rajasthan State Chemical Works case. The Court reiterated that rescinded Circulars could not override judicial decisions.4. Relevance of Rajasthan State Chemical Works and Other Precedents:The Supreme Court referred to the Rajasthan State Chemical Works case, which established that any process integrally connected to the manufacture of a final product, even if it involves the use of power, disqualifies the product from exemption. The Court also cited the Impression Prints case, which reinforced that if power is used at any stage of the manufacturing process, the entire process is considered to be with the aid of power.5. Binding Nature of Circulars Issued by the Central Board of Excise and Customs:The Supreme Court clarified that while Circulars issued by the Central Board of Excise and Customs are binding on authorities, they cannot override judicial decisions. The Court emphasized that once the law is declared by the judiciary, it must take precedence over administrative Circulars.Conclusion:The Supreme Court concluded that the Tribunal's decisions were unsustainable. The lifting of water with the aid of power was integrally connected to the manufacture of 'Rosin' and 'Turpentine Oil', thereby disqualifying the goods from exemption. The reliance on the rescinded 1978 Circular was misplaced, and judicial precedents should have been followed. Consequently, the appeals by the Commissioner were allowed, and the Tribunal's orders were set aside.