2003 (11) TMI 107 - HC - Central Excise

Court Rules Cutting Steel Sheets Isn't Manufacture; Tax Changes Need Legislation, Not Circulars. Parties Bear Own Costs.

The HC quashed the circular dated 7-9-2001, ruling that cutting or slitting steel sheets does not constitute manufacture since no new product emerges. It ... Manufacture - Departmental clarification - Whether cutting or slitting of steel sheets amounts to manufacture? - whether revenue legislations can be introduced by a mere administrative act of issuing circular? - HELD THAT:- The word 'manufacture' was first given comprehensive explanation in a Constitution Bench judgment in Delhi Cloth and General Mills [1962 (10) TMI 1 - SUPREME COURT]. It was held that word manufacture means as bring into existence a new substance and does not mean merely to produce some change in a substance, however, minor in a consequence. Steel coil is basically sheet in running length. When it is produced by the manufacturer's at their end and when it is folded for the case of transportation, it has been named as coil but when it is unfolded either at the manufacturers' end or at any other end it remains as sheet. The sheets in running length cannot be brought to the destination without folding it and when it is folded by the manufacturer, it is sheet in coil form and unfolded it is sheet as such and accordingly there is no difference in the steel sheets in coil form or cut straight to the specific sizes. The coils in running length are produced to save transportation cost and to minimize the wastage as during the cutting of the steel coils. A careful reading of the impugned circular indicates that the Ministry issuing the circular itself was of the opinion that mere slitting does not amount to process of manufacture but perhaps because of the judgment of the Apex Court in Lal Woollen [1999 (4) TMI 78 - SUPREME COURT] the impugned circular was issued. While examining justifiability of Excise Duty we must clearly comprehend that Excise Duty can be imposed on the manufacture of goods produced in India and that also on the bringing into existence a new substances known to the market. In view of the settled position of law crystallized by the aforesaid judgments, we have no difficulty in clearly arriving at the conclusion that mere cutting or slitting of steel sheets does not amount to manufacture because the identity of the product remains unchanged. The steel folded in coil remains steel even after cutting. No new, different and distinct article emerges having distinct name, character and use. Therefore, mere cutting and slitting would not amount to manufacture. We are also clearly of the view that merely because of change in tariff item, the good does not become excisable. On the application of aforesaid test, our conclusion is clear that the impugned circular dated 7-9-2001 is wholly unsustainable and has to be quashed and we order accordingly. It is the settled position of law that quasi judicial functions cannot be controlled by executive actions by issuing circulars. It is totally impermissible. According to the spirit of Section 37B circulars or directions can be issued in order to achieve the object of uniformity and to avoid discrimination. Such circulars bind the officers only when they act in their administrative capacity. It must be clearly understood that the Board's circulars instructions or directions cannot in any manner interfere with quasi judicial powers of the Assessing Officers. Officials exercising quasi judicial powers must ignore any circular or direction interfering with their quasi judicial functions. The power to impose tax is essentially a legislative function and according to our constitutional scheme it cannot be delegated. The Excise Duty which the legislature intends to impose must be imposed directly in accordance with law. By issuing the impugned circular the respondent cannot introduce revenue legislation indirectly. The impugned circular also deserves to be quashed on this ground also. Consequently, the impugned circular dated 7-9-2001 issued by the Ministry of Finance, Department of Revenue, Central Board of Excise & Customs is quashed and proceedings emanating from the said Circular also stand quashed. These writ petitions are accordingly allowed. In the facts and circumstances of the case, we direct the parties to bear their own costs. Issues Involved:1. Whether cutting or slitting of steel sheets amounts to manufacture.2. Whether revenue legislations can be introduced by a mere administrative act of issuing circulars.Summary:Issue 1: Whether cutting or slitting of steel sheets amounts to manufacture.The central question in these writ petitions is whether cutting or slitting of steel sheets amounts to manufacture. The petitioners, job workers engaged in cutting and slitting steel sheets, challenged a circular dated 7-9-2001 issued by the Ministry of Finance, Department of Revenue, Central Board of Excise & Customs. The circular stated that cutting or slitting of HR/CR coils of iron and steel into sheets or strips would amount to manufacture if the resultant product is classifiable under a different sub-heading of the Central Excise Tariff.The petitioners argued that mere cutting or slitting does not constitute manufacture as no new product with a distinct identity emerges. They relied on various judgments, including CCE v. Kutty Flush Doors & Furniture Co. Pvt. Limited and State of Orissa v. Titaghur Paper Mills Co. Limited, which held that mere change in form does not amount to manufacture. The respondents, however, contended that the process involves several steps and results in a new product, thus amounting to manufacture.The court examined the definition of 'manufacture' u/s 2(f) of the Central Excise Act, 1944, and various judicial pronouncements. It concluded that mere cutting or slitting of steel sheets does not amount to manufacture as the identity of the product remains unchanged. The steel folded in coil remains steel even after cutting, and no new, different, and distinct article emerges. Therefore, the impugned circular dated 7-9-2001 was held to be unsustainable and quashed.Issue 2: Whether revenue legislations can be introduced by a mere administrative act of issuing circulars.The court also addressed whether the respondents could introduce revenue legislation through an administrative act of issuing circulars. It was argued that the circular issued u/s 37B of the Central Excise Act, 1944, was an attempt to impose excise duty without proper legislative authority. The court held that the power to impose tax is a legislative function and cannot be delegated. Circulars issued by the executive cannot interfere with the quasi-judicial functions of assessing officers. The impugned circular was found to be an impermissible attempt to introduce revenue legislation indirectly and was quashed on this ground as well.Conclusion:The court quashed the impugned circular dated 7-9-2001 and the proceedings emanating from it, holding that mere cutting or slitting of steel sheets does not amount to manufacture and that revenue legislation cannot be introduced through administrative circulars. The writ petitions were allowed, and the parties were directed to bear their own costs.