1997 (12) TMI 110 - SC - Central Excise

Printing on glass bottles not 'manufacture' under Section 2(f); plain bottles retain commercial character avoiding double excise taxation

SC allowed the assesse's appeal, holding that printing on glass bottles does not amount to 'manufacture' under Section 2(f) of the Central Excise Act. ... Manufacture - assessable value - product of the printing industry - trade/common parlance test - double taxation - premises distinction - separate adjunct unit v. same factory premisesManufacture - premises distinction - separate adjunct unit v. same factory premises - assessable value - Whether printing/decorating of plain glass bottles carried out in a separate demarcated unit adjunct to the licensed factory amounts to manufacture and is includible in assessable value for excise duty - HELD THAT: - The Court accepted the factual finding that the printing/decoration was carried out in a demarcated shed enclosed by walls and adjunct to the licensed factory and treated as a separate unit. Applying the established tests - whether the process brings into existence a different commercial commodity or the original commodity ceases to have its identity, and whether the commodity would serve no commercial purpose but for the process - the Court held that printing names/logos on plain bottles does not change the basic character or commercial identity of the bottles. The bottles remain bottles and would serve commercial purposes even without printing; therefore the process of printing in a separate adjunct unit is not a 'manufacture' within the meaning of Section 2(f) and cannot be separately subjected to excise duty without leading to impermissible double taxation under the same tariff item. The Tribunal's contrary conclusion was held erroneous and the show-cause proceedings quashed. [Paras 5, 6, 16, 20, 21]Printing/decoration carried out in a separate demarcated adjunct unit is not manufacture; assessable value cannot include printing charges in that factual situation and the show-cause notice is quashed.Manufacture - assessable value - trade/common parlance test - Whether printing on bottles is includible in assessable value where the printing is completed within the same factory premises which produces the bottles - HELD THAT: - On the undisputed facts that the entire process - manufacture of bottles and printing thereon - was carried out within the same factory and the excisable goods leaving the factory gate were printed bottles sold at a price inclusive of printing charges, the Court held that the printed bottle is the excisable product at the factory gate. Applying the commercial-identity test and prior authorities, where the printing is part of the single manufacturing process within the same factory so that the printed bottle is the excisable article, the value of the printed bottle, inclusive of printing charges, constitutes the assessable value chargeable to excise duty. The High Court's contrary conclusion was set aside and the Collector's order restored. [Paras 7, 23]Where printing is completed within the same factory so that the excisable product at the factory gate is the printed bottle, printing charges form part of the assessable value and duty is chargeable thereon.Final Conclusion: The appeals are disposed of by distinguishing two factual situations: printing carried out in a separate demarcated adjunct unit is not 'manufacture' and printing charges are not includible in assessable value (appeal allowed and show-cause quashed); where printing is completed within the same factory so that the printed bottle is the excisable product at the factory gate, printing charges form part of assessable value and duty is leviable (appeal allowed in favour of Revenue). Issues Involved:1. Whether printing on glass bottles amounts to manufacture within the meaning of Section 2(f) of the Central Excise Act, 1944.2. Whether the assessable value of glass bottles should include the cost of decorating the same with ceramic colors.3. Whether the process of printing on bottles within the same factory premises affects the assessable value for excise duty purposes.4. Whether the Trade Notice No. 28/1980 issued by Pune Central Excise and Customs Collectorate is binding on the Revenue.Issue-wise Detailed Analysis:1. Whether printing on glass bottles amounts to manufacture within the meaning of Section 2(f) of the Central Excise Act, 1944:The primary issue in the appeals and the Special Leave Petition was whether the act of printing on glass bottles constitutes 'manufacture' under Section 2(f) of the Central Excise Act, 1944. The appellants argued that printing logos or names on plain bottles does not transform them into a new commercial product. The Supreme Court referenced previous judgments, including Union of India v. Delhi Cloth & General Mills and Deputy Commissioner of Sales Tax (Law) Board of Revenue (Taxes), Ernakulam v. M/s. Pio Food Packers, to emphasize that 'manufacture' implies the creation of a new and distinct product. The Court concluded that printing on bottles does not result in a new commercial commodity, and hence, does not amount to manufacture.2. Whether the assessable value of glass bottles should include the cost of decorating the same with ceramic colors:In Civil Appeal No. 767 of 1991, the appellants challenged the directive that required them to include the cost of decorating glass bottles in the assessable value for excise duty. The Tribunal had previously held that printing and decoration amounted to manufacture, thus justifying the inclusion of decoration costs in the assessable value. However, the Supreme Court overturned this, stating that the process of printing does not transform the bottles into a new product, and therefore, the decoration costs should not be included in the assessable value.3. Whether the process of printing on bottles within the same factory premises affects the assessable value for excise duty purposes:In Civil Appeal No. 2882 of 1993, the appellant (Union of India) contested the High Court's decision that printing on glass bottles should not be included in the assessable value for excise duty. The Supreme Court noted that in this case, the entire process, including printing, was carried out within the same factory. The Court held that since the final excisable product at the factory gate was the printed bottle, the assessable value must include printing charges. Thus, the appeal was allowed, and the High Court's judgment was set aside.4. Whether the Trade Notice No. 28/1980 issued by Pune Central Excise and Customs Collectorate is binding on the Revenue:The assessee argued that the Trade Notice No. 28/1980, which stated that decorated glassware in a different factory after receipt of duty-paid plain glassware would not be liable to additional duty, should bind the Revenue. The Supreme Court acknowledged that while the trade notice could reflect the Department's understanding, it was not necessary to rely on it for the present case. The Court reiterated that printing on bottles does not amount to manufacture, and thus, the trade notice's interpretation aligned with their judgment.Conclusion:The Supreme Court concluded that printing on glass bottles does not amount to manufacture under Section 2(f) of the Central Excise Act, 1944. Consequently, the process of printing should not be included in the assessable value for excise duty purposes unless the entire manufacturing process, including printing, is carried out within the same factory premises. The appeals were decided accordingly, with Civil Appeal No. 767 of 1991 allowed, Special Leave Petition No. 8316 of 1994 dismissed, and Civil Appeal No. 2882 of 1993 allowed, setting aside the High Court's judgment. Each party was ordered to bear its own costs.