1962 (10) TMI 1 - SC - Central Excise

Court rejects excise duty on intermediate product, affirms High Court decision.

The court upheld the High Court's decision, concluding that the respondents do not manufacture 'refined oil' as known to the market at any intermediate ... Refined oil as known to the market - manufacture as bringing into existence a new substance known to the market - excisable goods - processes incidental or ancillary to manufacture - use of power in manufactureRefined oil as known to the market - vegetable non-essential oils - Whether the intermediate substance produced in the course of manufacture of vanaspati (after neutralisation and bleaching but before deodorisation and hydrogenation) is 'refined oil' as known to the market and therefore liable to excise duty under Item 23 of the First Schedule. - HELD THAT: - The Court examined the adversarial expert affidavits and the Indian Standards specification, which defines 'refined' groundnut and cottonseed oils as those neutralised, bleached and deodorised. Market affidavits from packers showed that refined oils are invariably deodorised before marketing; the appellant produced foreign treatises but failed to prove market practice in India of marketing non-deodorised refined oil. The Court held that the tested commercial and trade understanding in India, reinforced by the Indian Standard Institution's specification and the respondents' categorical evidence, established that oil not deodorised is not 'refined oil' as known to consumers and the commercial community. Consequently the intermediate substance in the respondents' factories did not become 'refined oil' liable under Item 23. [Paras 5, 9, 11, 12, 13]The intermediate oil does not qualify as 'refined oil' as known to the market and therefore is not chargeable to excise under Item 23 on that ground.Manufacture as bringing into existence a new substance known to the market - processes incidental or ancillary to manufacture - use of power in manufacture - Whether the application of one or more processes (neutralisation, bleaching, etc.) that cause some change in the raw oil, but do not bring into existence a new substance known to the market, constitute 'manufacture' liable to excise duty; and the legal effect of the definition of 'manufacture' in S.2(f). - HELD THAT: - The Court held that 'manufacture' in the excise context ordinarily means bringing into existence a new and different article known to the market, not every change or processing of a substance. The statutory definition in S.2(f) - that 'manufacture includes any process incidental or ancillary to the completion of a manufactured product' - was interpreted as clarificatory and limited: it ensures that processes using power which are incidental to completing a marketable manufactured product fall within the scope of the Item (via the phrase 'in or in relation to the manufacture ... any process is ordinarily carried on with the aid of power'), but it does not expand the concept of 'manufacture' to cover mere processing that does not create a new marketable substance. Accordingly, mere application of some processes is not sufficient to attract excise unless a new substance known to the market has been brought into existence. [Paras 14, 15, 18, 19, 20]Mere processing that effects only a change in the raw material, without bringing into existence a new substance known to the market, is not 'manufacture' chargeable to excise; the definition in S.2(f) does not alter that principle but clarifies that incidental power-driven processes relevant to completing a manufactured product are covered.Final Conclusion: The High Court's orders quashing the excise demands were upheld: the intermediate product in the respondents' vanaspati manufacture was not 'refined oil' as known to the market, and mere processing short of bringing into existence a new marketable substance does not attract excise; the appeals are dismissed with costs. Issues Involved:1. Legality of the imposition of excise duty on the manufacture of 'refined oil' from raw oil.2. Definition and interpretation of 'refined oil' and 'manufacture' under the Central Excises and Salt Act, 1944.3. Whether the intermediate product in the manufacturing process qualifies as 'refined oil' as known to the market.Detailed Analysis:1. Legality of the Imposition of Excise Duty on the Manufacture of 'Refined Oil' from Raw Oil:The core issue in these appeals is the legality of the imposition of excise duty on the manufacture of 'refined oil' from raw oil by companies producing Vanaspati. The companies contend that they only produce Vanaspati, which is liable to excise duty as a vegetable product, and at no stage do they manufacture any new product that falls under the category of 'vegetable non-essential oils' as described in Item 23 of the Schedule to the Central Excises and Salt Act, 1944. The Punjab High Court had accepted this contention, leading to the withdrawal of the excise duty demands.2. Definition and Interpretation of 'Refined Oil' and 'Manufacture' under the Central Excises and Salt Act, 1944:The Union of India argued that during the manufacture of Vanaspati, the companies produce 'refined oil' at an intermediate stage, which falls under the description of 'vegetable non-essential oil' and is thus liable to excise duty. The process described involves refining raw oil by removing impurities through neutralisation, bleaching, and sometimes deodorisation. The key question was whether the oil, after undergoing these processes but before deodorisation, qualifies as 'refined oil' as known in the market.The court examined affidavits from experts on both sides. Mr. Krishnan, representing the appellant, asserted that the oil becomes 'refined oil' after neutralisation and bleaching, even without deodorisation. Dr. Nanji, supporting the respondents, contended that 'refined oil' must also undergo deodorisation to be considered as such in the market. The court found strong support for Dr. Nanji's view in the specifications by the Indian Standard Institution, which defined 'refined oil' as oil that has been neutralised, bleached, and deodorised.3. Whether the Intermediate Product in the Manufacturing Process Qualifies as 'Refined Oil' as Known to the Market:The court concluded that the raw oil purchased by the respondents does not become 'refined oil' at any stage before the completion of the deodorisation process. The court emphasized that excise duty is on the manufacture of goods, meaning the bringing into existence of a new substance known to the market. The court rejected the appellant's argument that the intermediate product, without deodorisation, qualifies as 'refined oil.'The court also addressed the broader definition of 'manufacture' under the Act, clarifying that it implies the creation of a new substance and not merely a change in the substance. The court rejected the argument that mere processing constitutes manufacture liable to excise duty, emphasizing that the term 'manufacture' involves the transformation of raw materials into a new and different article with a distinctive name, character, or use.Conclusion:The court upheld the High Court's decision, concluding that the respondents do not manufacture 'refined oil' as known to the market at any intermediate stage before the production of Vanaspati. The demands for excise duty on the intermediate product were found to have no legal basis. The appeals were dismissed with costs, affirming the withdrawal of the impugned excise duty demands.