1991 (9) TMI 73 - SC - Central Excise

Power-aided preliminary steps like pumping brine or mixing coke and limestone constitute 'process' under Section 2(f); Notification 179/77-C.E. exemption denied

SC held that preliminary operations like pumping brine into pans or lifting and mixing coke and limestone are integrally part of the continuous ... Process in or in relation to manufacture - manufacture - use of power in a process - exemption under Notification No. 179/77-C.E.Process in or in relation to manufacture - use of power in a process - exemption under Notification No. 179/77-C.E. - Whether preliminary operations such as pumping brine into pans or lifting raw materials by power constitute a process in or in relation to manufacture so as to deprive the claimants of exemption under the notification - HELD THAT: - The Court examined the scope of the words 'manufacture' and 'process in or in relation to manufacture' as used in the exemption notification and Section 2(f) of the Central Excises and Salt Act, 1944 (paras. 8-13). The definition of 'manufacture' is inclusive and contemplates processes incidental or ancillary to completion of a manufactured product; manufacture normally implies a series of processes whose cumulative effect produces a commercially different article (paras. 9-12). The natural meaning of 'process' is broad and may include handling or operations that do not by themselves produce a physical change but are integrally connected to subsequent operations leading to the finished product (para. 13). Prior precedents were considered and distinguished: the Court accepted that while 'processing' requires a change in the commodity, the absence of immediate change does not exclude an operation from being 'in relation to' manufacture where it is an essential and integrally connected step (paras. 14-21). Applying these principles, the Court found that preliminary operations such as pumping brine into salt pans and lifting and placing coke and limestone on the kiln platform form part of a continuous, integrated manufacturing sequence; they are essential to the production process and, when carried on with the aid of power, remove the goods from the scope of the exemption (paras. 16-17, 22). The Court rejected the narrower view that only operations producing an immediate change in raw material could be 'processes' for purposes of the notification (paras. 18-21). [Paras 12, 13, 16, 17, 22]Preliminary operations performed with the aid of power that are integrally connected to subsequent manufacturing stages are processes 'in or in relation to manufacture', and where such a process is carried on with the aid of power the exemption under Notification No. 179/77-C.E. is not availableFinal Conclusion: The appeals by the Revenue are allowed: pumping brine into salt pans and lifting raw materials by power are processes in or in relation to manufacture, so the exemption under Notification No. 179/77-C.E. does not apply; no order as to costs. Issues Involved:1. Interpretation of Notification No. 179/77-C.E., dated 18-6-1977.2. Definition and scope of the term 'manufacture' under Section 2(f) of the Central Excises and Salt Act, 1944.3. Determination of whether the use of power in preliminary operations disqualifies a product from excise duty exemption.Issue-wise Detailed Analysis:1. Interpretation of Notification No. 179/77-C.E., dated 18-6-1977:The key issue is the interpretation of Notification No. 179/77-C.E., which exempts goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944, provided that no process in relation to their manufacture is ordinarily carried out with the aid of power. The Tribunal had previously ruled that the manufacturing process starts from the stage of feeding raw materials into the salt pan or kiln, and that the use of power for transferring raw materials does not disqualify the goods from the exemption.2. Definition and scope of the term 'manufacture' under Section 2(f) of the Central Excises and Salt Act, 1944:Section 2(f) defines 'manufacture' to include any process incidental or ancillary to the completion of a manufactured product. The Court emphasized that 'manufacture' involves a series of processes that result in a commercially new article. It was noted that the term 'process' includes any operation or activity in relation to manufacture, and should not be limited to those that bring about a change in the raw material.3. Determination of whether the use of power in preliminary operations disqualifies a product from excise duty exemption:The Court examined whether the use of power in preliminary operations, such as pumping brine into salt pans or lifting raw materials to the kiln head, disqualifies the goods from the exemption. The Court concluded that these preliminary operations are integral parts of the manufacturing process. It was held that if power is used in any operation that is essential and integrally connected to the manufacturing process, the exemption under the notification does not apply.Conclusion:The Court ruled that the use of power in any stage of the manufacturing process, even in preliminary operations, disqualifies the goods from the excise duty exemption under Notification No. 179/77-C.E. Consequently, the appeals by the Revenue were allowed, and the orders of the Tribunal were set aside. The Court emphasized that the exemption is not available when power is used in any operation that is part of or related to the manufacturing process. No order as to costs was made.