1987 (2) TMI 85 - AT - Central Excise

Tribunal Rules Fertilizer Packing Not Part of Manufacturing Process, Dismisses Appeal on Retroactive Excise Application.

COLLECTOR OF C. EX. Versus DHARAMASI MORARJI CHEMICAL COMPANY

COLLECTOR OF C. EX. Versus DHARAMASI MORARJI CHEMICAL COMPANY - 1989 (43) E.L.T. 389 (Tribunal) Issues Involved:1. Whether packing of manufactured goods can be considered a process incidental or ancillary to manufacture.2. The applicability of Section 4(4)(d)(i) of the Central Excises and Salt Act to the case.3. The relevance of marketability as a criterion for determining the completion of manufacture.4. The applicability of the Madras High Court judgment versus the Supreme Court judgment in the context of the case.Detailed Analysis:1. Whether Packing of Manufactured Goods Can Be Considered a Process Incidental or Ancillary to ManufactureThe core issue referred to the larger bench was whether the packing of manufactured goods is a process incidental or ancillary to the manufacture itself, making the manufacture incomplete without such packing. The Appellant argued that fertilisers are available in the market only in packed condition, and thus, packing should be considered part of the manufacturing process as per Section 2(f) of the Central Excises and Salt Act. The Tribunal noted conflicting judgments on this issue from various High Courts and the Tribunal itself.The Tribunal referenced several cases where it was held that packing is incidental or ancillary to manufacture, such as:- Collector of Central Excise, Calcutta v. Kanoria Jute Mills (1984 (17) E.L.T. 455)- Collector of Central Excise, Indore v. M/s. Orient Paper & Industries (1984 (18) E.L.T. 88)- M/s. Hindustan Lever Ltd. v. Collector of Central Excise (1984 ECR 1662)- Ahmedabad Manufacturing and Calico Printing Ltd. v. Union of India (1982 E.L.T. 821)Conversely, other judgments held that packing is not part of the manufacturing process:- M/s. E.I.D. Parry Ltd. v. Union of India (1978 E.L.T. 18)- Orissa Industries v. U.O.I. (1979 E.L.T. 457)- Alembic Glass Industries v. U.O.I. (1979 E.L.T. 461)- Seshasayee Paper & Boards v. Appellate Collector (1984 (15) E.L.T. 3)- Bhadrachalam Paper Boards v. Collector of Central Excise (1984 (18) E.L.T. 229)The Tribunal concluded that packing does not enter into the character of the fertiliser and, therefore, cannot be considered a process incidental or ancillary to manufacture. The statutory requirement for packing under the Fertiliser Control Order is for preventing adulteration and contamination, not for defining the manufacturing process under the Central Excise Law.2. The Applicability of Section 4(4)(d)(i) of the Central Excises and Salt Act to the CaseThe Appellant argued that under Section 4(4)(d)(i) of the Act, the value of the goods is deemed to be the value of the goods delivered at the time of removal from the factory in a packed condition. However, the Tribunal noted that this provision came into existence in 1975 and could not be applied retroactively to the facts of the present case, where the duty was paid in 1969.3. The Relevance of Marketability as a Criterion for Determining the Completion of ManufactureThe Assistant Collector had rejected the refund application by referring to the Supreme Court judgment in the matter of Delhi Cloth Mills, which held that marketability is a criterion for the definition of goods under the Central Excise Act. However, the Tribunal noted that the goods in question were marketable in their loose condition as of 28-2-1969, and no trade opinion was provided to prove otherwise. The statutory requirement for packing under the Fertiliser Control Order did not limit or define the manufacture under the Central Excise Law.4. The Applicability of the Madras High Court Judgment Versus the Supreme Court Judgment in the Context of the CaseThe Tribunal observed that the Madras High Court's judgment in E.I.D. Parry Limited and Another v. Union of India (1978 E.L.T. J 19) squarely covered the facts of this case and should be followed in the absence of any contrary judgment. The judgment considered similar circumstances and was delivered after the Supreme Court judgment in DCM.Conclusion:The Tribunal concluded that the manufacture of fertilisers was complete even before packing, and the statutory requirement for packing under the Fertiliser Control Order did not make packing a part of the manufacturing process under the Central Excise Law. The appeal was dismissed, and the judgment of the Madras High Court was followed.