2016 (11) TMI 543 - SC - Indian Laws

Supreme Court: Manufacturing processes for new products not subject to higher electricity duty rates

The Supreme Court held that processing activities resulting in copper concentrate and ferromanganese alloy are manufacturing processes creating new ... Interpretation of the terms “mineral” and “processing” under the definition of “mine” as defined under Explanation (b) of Part-B of Madhya Pradesh Electricity Duty Act, 1949 - It is urged that Ferromanganese is an alloy and is not a mineral - Held that:- To bring to the Ferro Manganese Plant of the appellant within the meaning of ‘mine’, the State has argued before this Court that the Ferro Manganese Plant is being “used for crushing, processing, treating or transporting” the mineral, that is, manganese ore. This is clearly unsustainable as the appellant is neither crushing or processing or treating or transporting manganese ore but rather using it as one of the raw materials and consuming the same while manufacturing ferromanganese alloy. The state of crushing, treating, processing, etc. of the manganese ore (mineral) was in the IMB Plant (second stage), where the appellant is paying electricity duty at 40%. The same rate cannot be applied in the Ferro Manganese Plant (the third stage) as it cannot be taken to be within the meaning of ‘mine’ for the aforesaid reason. Thus, the Ferro Manganese Plant, being a unit involved in manufacturing of ferromanganese alloy as opposed to a unit involved in crushing, treating, processing, etc. of manganese ore, cannot be treated within the extended definition of ‘mine’ within the Explanation (b) of Part B of Table of Rates of Duty to Section 3(1) of the Act. The Ferromanganese Alloy so manufactured by the appellant using the mineral Manganese at its Ferromanganese plant is an entirely different product from its mineral raw material both physically and even chemically. Moreover, unlike Manganese ore a ferromanganese alloy can never be found in the natural state and it has to be manufactured from the manganese ore and other minerals only. The same logic applies to copper concentrate as a different and distinct product comes into existence. Thus analyzed, we find that in both the cases, the different products in commercial parlance have emerged. Hence, we are inclined to think that the principle of noscitur a sociis has to be applied. As a logical corollary, tariff has to be levied as meant for manufacturing unit. Therefore, the analysis made by the High Court is not correct and, accordingly, the judgments rendered by it deserve to be set aside and we so direct. However, during this period if any amount has been paid by the appellants to the revenue, the same shall be adjusted towards future demands. Issues Involved:1. Interpretation of the terms 'mineral' and 'processing' under the definition of 'mine' in the Madhya Pradesh Electricity Duty Act, 1949.2. Whether copper concentrate and ferromanganese alloy are considered 'minerals' or manufactured products.3. The applicability of higher electricity duty rates to processing plants and machinery adjacent to mines.4. Allegations of discriminatory treatment in the imposition of electricity duty.Detailed Analysis:1. Interpretation of 'mineral' and 'processing':The controversy centers around the definition of 'mine' as per Explanation (b) of Part-B of Section 3 of the Madhya Pradesh Electricity Duty Act, 1949. The term 'mine' includes premises or machinery situated in or adjacent to a mine and used for crushing, processing, treating, or transporting the mineral. The appellants argued that their activities, which include converting copper ore into copper concentrate and manganese ore into ferromanganese alloy, should not fall under this definition as these processes result in new products distinct from the original minerals.2. Copper Concentrate and Ferromanganese Alloy as 'Minerals':The appellants contended that copper concentrate and ferromanganese alloy are not minerals but manufactured products. They emphasized that these products undergo significant processing that changes their chemical composition, thus creating new and distinct commodities. The High Court had previously held that copper concentrate remains a mineral despite processing, as the processing only enriches the content of copper without changing its fundamental identity.3. Applicability of Higher Electricity Duty Rates:The appellants argued that the higher electricity duty rates applicable to mines should not apply to their processing plants, which are registered as factories under the Factories Act, 1948, and are located at varying distances from the mines. They contended that the term 'adjacent' should not include plants situated kilometers away from the mines. The High Court, however, interpreted 'adjacent' to include premises in close proximity to the mine, thus subjecting these processing plants to higher electricity duty rates.4. Allegations of Discriminatory Treatment:The appellants alleged that the imposition of higher electricity duty rates on their processing plants, while other similar industries were charged lower rates, was discriminatory and arbitrary. They argued that the classification of factories into those adjacent to mines and others was not justified and led to unequal treatment.Judgment Analysis:Interpretation of 'Processing':The Supreme Court applied the rule of noscitur a sociis, interpreting 'processing' in the context of the words 'crushing' and 'treating' used in the Explanation. The Court held that 'processing' should be understood in a narrower sense, limited to activities that make the mineral marketable without substantially changing its identity. The Court emphasized that manufacturing, which involves creating a new or distinct product, should not be included under 'processing' for the purposes of the Act.Copper Concentrate and Ferromanganese Alloy:The Court concluded that both copper concentrate and ferromanganese alloy are new and distinct products resulting from manufacturing processes. These products do not retain the identity of the original minerals and thus should not be considered 'minerals' under the Act. Consequently, the higher electricity duty rates applicable to mines should not apply to these manufacturing activities.Discriminatory Treatment:The Court acknowledged the appellants' argument regarding discriminatory treatment. It held that applying higher electricity duty rates to manufacturing units adjacent to mines, while similar units located farther away are charged lower rates, would lead to absurd and irrational consequences. The Court emphasized that the legislative intent was not to compel manufacturing units to be set up adjacent to mines and pay higher tariffs.Conclusion:The Supreme Court set aside the High Court's judgments, holding that the processing activities resulting in copper concentrate and ferromanganese alloy are manufacturing processes that create new products. Therefore, these activities should be subject to lower electricity duty rates applicable to manufacturing units, not the higher rates for mines. The Court directed that any excess amounts paid by the appellants towards higher duty rates should be adjusted against future demands.Appeals Allowed:The appeals were allowed, and the judgments of the High Court were set aside. The Court ordered that the amounts paid by the appellants towards higher electricity duty rates be adjusted against future demands, with no order as to costs.