TaxTMI 
TaxTMI 
2026 (6) TMI 400
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.... 3. The brief facts as narrated in the Complaint were that the Petitioner Company incorporated on 23.02.2001 under the Companies Act, 1956, is engaged in beneficiation of coal (washing) for the coal producing Companies and has set up coal washeries at Gauri, Nagpur (Maharashtra), Talcher (Odisha) and Ramakrishnapuram-1 (Telangana), for the mineral producing subsidiaries of Coal India Limited. The petitioner claimed that it is neither producing or extracting the mineral or coal from the mines nor is it manufacturing any coal product. 4. Subsequently, Respondent No. 1 issued Notice dated 04.05.2016 to the Petitioner Company, to explain the reasons for non-appointment of Cost Auditor. The Petitioner Company vide its Reply dated 06.05.2016, explained that since the Petitioner Company was merely engaged in the activity of washing coal and not in the production or manufacturing of any mineral or coal, the Cost Auditor was not required to be appointed, under the Companies Act, 2013. However, the aforesaid Reply of the Petitioner Company was disregarded by Respondent No. 1, whereafter, it issued a Show Cause Notice dated 05.12.2016 to the Petitioner Company under Section 148 of the Com....
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....shing of the aforesaid Complaint. It is stated that it only requires consideration qua application of law and there is no dispute regarding the facts of the present case. It is submitted that no law has been violated by the Petitioner Company, who was merely carrying out the activity of coal beneficiation (washing) and has not committed any offence under Section 148 of the Companies Act, 2013. It is, therefore, prayed that the Complaint Case bearing No.13222/2017 filed against the Petitioner Company be quashed. 10. The Respondents in their Reply to the present Petition have asserted that Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Rules, 2014 made thereunder, provides that the Central Government may, by Order, in respect of such class of Companies engaged in the production of such goods or providing such services, as may be prescribed, direct the audit of Cost Records of such Companies. Rule 3 and Rule 4 of the aforesaid Rules, prescribe the list of goods or services along with the turnover criterion. The provision of Cost Audit is applicable to class of Companies that satisfy the conditions, as prescribed under Rules 3 and 4. 11. T....
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....tioner Company, approval was taken by Respondent No.1 from Competent Authority through Letter dated 22.08.2017, and it was written to Respondent No.2, Registrar of Companies for filing prosecution Complaint under Section 148 of the Companies Act, 2013, whereafter, the Complaint was filed. It was claimed that the default of non-appointment of Cost Auditor under Section 148 of the Companies Act, 2013 continues till date. 16. The Respondents further asserted that the applicability of Cost Audit is based on production/processing of the product and the Rules nowhere provides any relaxation or exemption in the case of production/processing of raw material owned by the third party. The output of coal beneficiation process, is significantly different from the raw material and the activity of coal beneficiation, is an integral part of the entire value chain of coal. 17. The legislative intent is to mandate preparation of detailed Cost Records for each product separately, for which it is necessary that the Cost Records are prepared of all the activities, till the product is a finished product. Even if the contention of the Petitioner Company is accepted, then such exclusion of preparat....
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....coal". The description of product or service was given as "Coal Beneficiation and Allied activities". The most conspicuous thing, which emerges is that, it is not only the Coal Beneficiation but Allied Services, which were mentioned. The said term has not been explained by the Petitioner Company, in the present Petition. 24. The next relevant factor is the reference to Clause 3 of the Companies (Cost Records and Audit) Rules, 2014, which deals with Application of Cost Records. Clause 'C' reads as under:- (C) The Companies operating in areas involving public interest such as: (a) (i) Railway or tramway locomotives, rolling stock, railway or tramway fixtures and fittings, mechanical (including electro mechanical) traffic signalling equipment's of all kind; (ii) Mineral products inclining cement; (iii) Ores; (iv) Mineral fuels (other than Petroleum) mineral oils etc. 25. Rule 4 of the Companies (Cost Records and Audit) Rules, 2014 provides for Applicability for Cost Audit. The relevant part of the said Rule reads as under: Rule 4 Applicability for cost audit:- (i) ------ (ii) In the case of a multi-product o....
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.... Ltd. (supra). It was explained that when Beneficiation is done through wet process, it increases the moisture percentage of Beneficiated coal by around 8% to 15%. After Beneficiation, apart from the clean coal (required in Blast furnace for Steel making coal), the by-products named as Middling (ash 40-45%), Tailings (ash 40-45%) and Rejects (ash 60-65%), are also obtained. Thus, 100 tonnes of raw coal would produce approximately 115 tonnes of washed product. 32. It was thus, concluded in Tata Steel Ltd. (supra), that the Beneficiation process is a physical separation process to separate higher ash coal and lower ash coal, so no chemical changes are made in the coal mineral, as there are no chemical reactions involved during the said Beneficiation process. 33. Furthermore, due to addition of water during wet Beneficiation, summation of Beneficiated coal product quantity is higher than raw coal quantity. There are two significant consequences of Beneficiation process:- (i) the grade of coal improves (from Washery Grade IV it could improve to Steel Grade I) and (ii) the weight of coal increases from 100 tons of raw coal to 105 tons [excluding rejects] of Benef....
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....certain produce from natural elements, for example, by growing plants on soil, or by operating mines, for example, by milking the cow, the milkman produces milk, though he had not applied any process on any raw material for the purpose of bringing into existence the thing known as milk. 40. It was further held the word 'production' or 'produce', when used in juxtaposition with the word 'manufacture,' takes in bringing into existence new goods by the process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products, which emerge in the course of manufacturing such goods. 41. The third terminology which needs understanding is "process". According to Oxford Dictionary, one of the meanings of the word 'process' is "a continuous and regular action or succession of actions taking place or carried on in a definite manner and leading to the accomplishment of some result." 42. In Chambers 21st Century Dictionary, the term 'process' has been defined as under: "Process: 1. a series of operations performed during manufacture, etc. 2. a series of stages which a product, etc. passes through, resulting in the de....
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.... decided on its own facts. 49. The term 'manufacture' has been defined in Black's Law Dictionary (5th Edition), as under: "Manufacture: The process or operation of making goods or any material produced by hand, by machinery or by other agency; anything made from raw materials by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labor or machine." 50. The word 'manufacture' has been defined in Halsbury's Laws of England, 3rd Ed. Vol. 29 p.23 as under:- "Manufacture has been defined as a manner of adapting natural materials by the hands of man or by man-made devices or machinery and as the making of an article or material by physical labour or applied power; but the practice is to accept as manufacture a wider range of industrial activities than such a definition would suggest. It includes articles made in situ as well as articles made in a factory." 51. The Supreme Court of the United States of America defined the term 'manufacture' in Anheuser-Busch Brewing Assn. vs. United States, (1907) 52 L Ed. 336, which was fol....
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.... would amount to manufacture. 57. A Constitution Bench of the Supreme Court in M/s Ujagar Prints & Others (II) vs. Union of India & Others, (1989) 3 SCC 488 and M/s Saraswati Sugar Mills & Others vs. Haryana State Board & Others, (1992) 1 SCC 418 took the same view. 58. In Gramophone Co. of India Ltd. vs. Collector of Customs, Calcutta (2000) 1 SCC 549, the Supreme Court examined earlier cases and held that 'manufacture' implies a change, but every change is not manufacture and yet, every change of an article is the result of treatment, labour and manipulation, but something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character and use. In this case, the word 'manufacture' has various shades of meanings, but unless defined under the Act, it is to be interpreted in the context of the object and the language used in the section. It would not be applicable in cases where only processing activity is carried out. Further, such production activity, must be met by an industrial undertaking. 59. In Collector of Central Excise, Jaipur etc. vs. Rajasthan State Chemical Works, Deedwana, Rajasthan etc., (1991) ....