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 further held that revenue legislation cannot be introduced via administrative circulars, as taxation is a legislative function. The writ petitions were allowed, with parties bearing 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.

---