1. Petitioner is a company incorporated under the Companies Act and engaged in the manufacture of plywood any hardboard falling under item 16B of Schedule I to the Central Excises and Salt Act, 1944 (for short ‘the Act’). Plywood and hardboard had been made excisable by introducing this item with effect from the mid-night of 23/24-4-1962. At the stroke of mid-night, the petitioner had stocks of hardboard, said to be untrimmed, already manufactured. Petitioner was asked to pay excise duty on this stock before clearing it. It was paid under protest. Petitioner subsequently applied for the refund of the excise duty so paid on the ground that the stock of hardboard had been manufactured before the crucial time, that is, the mid-night in question, though it was sold and cleared later on. The amount involved in the claim is Rs. 55,427.69 being the excise duty paid on stock amounting to 2,01,809.36 square metres. The third respondent, Asst. Collector of Central Excise, Kozhikode passed Ext. P1 order rejecting the claim of the petitioner. According to him the edges of hardboard in question were trimmed subsequent to the crucial time, that it was a process incidental to the completion of the manufacture of the product namely, hardboard, that this quantity of hardboard was not fully manufactured as contemplated under Sec. 2(f) of the Act before the crucial time and therefore it was excisable. The order also mentions that the R.G 1 register entries are made only after trimming is done and the product is not considered as hardboard the moment it comes out of the press. An appeal filed before the second respondent, Appellate Collector of Customs and Central Excise, Madras, was rejected under Ext. P2 order. In Ext. P2 order, the second respondent stated that it is well known that hardboard when it comes out of the mills is bound to have uneven edges from both sides, that it is considered as semi-manufactured; that the first process to make it marketable is to make the edges even by trimming, that the accounting of the goods is also done only after trimming as the same is expressed in terms of square metres which can be worked out only after making the edges even by trimming. According to him, the product could be treated as marketable only after trimming. The petitioner preferred the revision petition Ext. P3 before the Government of Kerala and this also was rejected under Ext. P4 order. In Ext. P4 order, it has been stated, inter alia, that as per the commercial trade practice, the products of paper and board are sold only after edges have been trimmed that no buyer would be willing to buy untrimmed hardboard, that the petitioner's case that they have sold untrimmed board has not been substantiated, that invoices under which sales were effected do not indicate that hard-board sold was untrimmed, that the process of trimming is ancillary to the process of manufacture of hardboard and would amount to a process of manufacture under Sec. 2(f) of the Act. The Government also took the view that untrimmed hardboard is a semi-manufactured product.

2. The petitioner has filed the present O.P under Article 226 of the Constitution of India to call for the records relating to Exts. P1, P2 and P4 and to quash the same and to give a direction to the respondent to refund the amount in question. The submissions made by learned counsel for the petitioner can be summarised thus: The products mentioned in the items in Schedule I must be understood in their popular sense i.e, as known to the trade or market. Item 16BB of Schedule I while mentioning plywood etc. does not mention that it should be of the trimmed variety. Untrimmed hardboard is certainly hard-board so called and so known and is a commercial commodity known to the trade. It is a fully manufactured product and not a semi-manufactured product. Trimming is required only for the purpose of easy transportation or is done at the request of any customer, as otherwise the edges may be uneven. By trimming, a different commodity is not created. Trimming is not a process much less is it ancillary or incidental to the completion of the product. Sec. 2(f) of the Act will not apply to the instant case. Even otherwise the statutory authorities were in error in holding that the petitioner did not adduce evidence to show that untrimmed hardboard is a marketable commodity. Ext. P5, though produced before them, was ignored.

3. Learned Central Government Standing Counsel submitted as follows: Trimming is a process required for the completion of the manufacture of hard-board. Hardboard known to the trade or market is only the trimmed hard-board and not the untrimmed variety. There is no evidence to show that untrimmed hardboard is known to the market. As hardboard is despatched only after trimming, the end product is trimmed hardboard. In R.G 1 as per Rule 53 the petitioner has accounted only for trimmed hardboard. The petitioner has no case that the particular stock in question was sold untrimmed. It was sold after trimming. At least in so far as that stock is concerned, manufacture was complete only when it was trimmed. Trimming is a process which is part of the manufacturing process. When goods reach the factory gate, then alone excise duty is payable. Thus the untrimmed hardboard which the petitioner had at the crucial time became excisable when it was trimmed subsequently.

4. Before dealing with the contentions, it is necessary to refer to some of the provisions of the Act and Central Excise Rules (for short ‘the Rules’). Sec. 3 is the levying section. The relevant portion of the section states that excise duty shall be levied on all excisable goods manufactured in India in the prescribed manner and at the rates set forth in the first schedule. Sub-clause (2) empowers the Central Government to notify tariff values of articles enumerated and to alter any tariff value for the time being in force. Manufacture is defined in Sec. 2(f) by way of an inclusive definition as including any process incidental or ancillary to the completion of a manufactured product. There are specific definitions with reference to certain specific goods with which we are not concerned in this case. Sec. 4 lays down in what manner valuation of excisable goods for pur poses of charging excise duty is to be made. Sec. 37 confers on the Central Government rule making powers to carry into effect the purposes of the Act. Item 16B(b) refers to plywood, blackboard, lamine board, patent board etc. Plywood for tea chest when cut to size in panels or shooks and packed in sets is excisable at 10% ad valorem and all others are excisable at 25% ad valorem.

5. Rule 7 of the Rules states that every person who produces or manufactures any excisable goods or who stores such goods in a warehouse shall pay excise duty at such time and place and to such person as may be designated. Rule 9 prescribes the time and manner of payment of duty. It states, inter alia, that no excisable goods shall be removed from any place where they have been produced or manufactured until excise duty leviable thereon had been paid at such place as the Collector may require and except on the presentation of an application in the proper form and in obtaining the permission of the officer in the proper manner. There are certain provisos to the rule which are not relevant for the purpose of this case. Rule 9(a) prescribes the dtae for the determination of duty and tariff valuation. It is the date of the actual removal of goods from the factory or warehouse in the case of such goods. Rule 11 deals with claims for refund of duty fixing a time limit also. Rule 47 states that the manufacturer shall provide a store-room and his premises for depositing goods made on the same premises without paying the duty unless he undertakes to pay duty on such goods and clear them immediately on completion of manufacture, in which case an exemption may be granted to him. Sub-clause (4) requires him to maintain an entry book. Rule 49 states that payment of duty shall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified in Rule 9 or about to be removed from a store-room approved by the Collector under rule 47. The provisos are not relevant for our purpose. Rule 53 requires the manufacturer to maintain stock account in the prescribed form. The form prescribed is R.G 1. Rule 54 requires maintenance of monthly returns and Rule 55 deals with quarterly returns. The columns in form R.G 1 relate to date, description of goods, opening balance, quantity manufactured, total, quantity deposited in the store-room, quantity cleared from the factory on payment of duty or without payment of duty, the rate and amount of duty and the closing balance.

6. Under the Act the levy is on goods produced or manufactured, of course, in India. The taxable event in the case of excise duty is the manufacture or production of goods and the duty is not directly on the goods but on the manufacture thereof. This is unlike in the case of sales tax where also tax is imposed with reference to goods but the taxable event is the sale and not the act of manufacture. The taxable event in regard to excise duty is the manufacture, even though for administrative purposes and convenience, collection may be postponed to a point of time after manufacture such as the removal from the place of storage or removal from the place of manufacture. If the duty be on goods manufactured, it is necessary to know what is the meaning to be ascribed to goods. The expression “goods” is not defined in the Act. The Act defines excisable goods as meaning goods specified in the first schedule as being subject to a duty of excise and including salt. The ordinary meaning of goods is ware, merchandise or commodity bought and sold by merchants and traders. Therefore goods must be something which can ordinarily come to the market to be bought and sold and known to the market. The Supreme Court had occasion to observe as follows in Union of India v. Delhi Cloth and General Mills, (A.I.R 1963 S.C 791) : 1977 E.L.T (J 199):

“These definitions make it clear that to become “goods” an article must be something whice can ordinarily come to the market to be bought and sold.

7. In South Bihar Sugar Mills Limited v. Union of India, (A.I.R 1968 S.C 922) : 1978 E.L.T (J 336), the Supreme Court observed as follows:

“As the Act does not define goods the legislature must be taken to have used that word in its ordinary, dictionary meaning. The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market.”

8. If goods are something which ordinarily come to the market to be bought and sold, it must necessarily follow that,. “manufacture of goods must also be manufacture of goods known to the market”. Manufacture involves bringing into existence a new substance and not merely producing some change in a substance. It implies a change though every change is not manufacture. Change could occur only as a result of treatment or labour or process. Every treatment or process may not be manufacture. It is only when there is transformation in the commodity that one can say manufacture has taken place, i.e, when a new and different article emerges having a distinctive name, character or use. The end product must be commercially different from the raw materials or commodities used for the process of manufacture. (See A.I.R 1963 S.C 791, A.I.R 1968 S.C 922 and Chowgule & Co. Pvt. Ltd. v. Union of India, ((1981) 1 SCC 653 : A.I.R 1981 S.C 1014).

9. The question next arises whether for goods to be excisable as falling in a particular item in Schedule I of the Act, it is necessary that the goods must be actually put in the market. This question is of importance in deciding whether an intermediate product which comes into existence in the course of manufacture of another product is also excisable. As already pointed out the taxable event is the manufacture of goods and not the sale, despatch or disposal of goods. Therefore whenever goods which satisfy the description in any one of the items in Schedule I of the Act, come into existence in the course of manufacture, such goods would become excisable. However, care must be taken to verify whether the intermediate product so coming into existence is known to the market, the consumers or the commercial community. If the intermediate product is not known to the market or the commercial community, it cannot be regarded as goods. The various items in Schedule I of the Act describe various products. In interpreting the items in the Schedule one cannot go by the scientific or technical meaning of the expressions involved; one must necessarily go by the popular meaning or the meaning in common parlance, i.e, the meaning attached to those expressions by those who deal with them in the commercial sense. (See Ramavatar v. Asst. Sales Tax Officer, (A.I.R 1961 S.C 1325) and Union of India v. G.W.F Mills, ((1977) 2 SCC 870 : A.I.R 1977 S.C 1548). Therefore an intermediate product in order to be excisable as a product mentioned it any item in Schedule I of the Act must be a product known to the market or commercial community; of course, the manufacturing process of that product must be complete. In other words, if the intermediate product which comes into existence is as such a complete product known to the market it is excisable. But if something more is to be done on the product or with reference to the product to bring it into a form known to the commercial community, it cannot be treated as excisable. These principles have been well established by the Supreme Court in a number of decided cases.

10. I will however refer only to two of those cases. Delhi Cloth and General Mills case dealt with the coming into existence of what was alleged to be refined oil in course of conversion of raw oil into vanaspathi. The department took the view that the alleged refined oil is excisable by itself. It was found that that oil in the form in which it came into existence was not known as refined oil to the commercial market and it required some processes including odoursation in order to be regarded as refined oil in the commercial sense. It was therefore held that it was not excisable. In the South Bihar Sugar Mills Limited's case, the Supreme Court had to consider whether kiln gas which came into existence in the process of manufacturing sugar is excisable as carbon dioxide. The Supreme Court held that kiln gas, though it contains carbon dioxide, is not known to the commercial market as carbon dioxide and therefore is not excisable as such. Thus it is seen that an intermediate product is excisable if it satisfies the description in any of the items in Schedule I as understood in the commercial market. Once excisable goods come into existence, it will not be a defence for the assessee to contend that he has not put such goods into the market or that he has consumed it in other ways such as manufacture of some other goods. That is because the taxable event is the manufacture and not the sale. The moment excisable goods are manufactured they become leviable for excise duty, though the actual collection may be postponed to a future event such as storage or removal. The Supreme Court had to consider this aspect also in the two decisions referred to above. In the Delhi Cloth and General Mills' case it has been observed as follows:

“Excise duty is on the manufacture of goods and not on the sale. Mr. Pathak is therefore right in his contention that the substance produced by them at an intermediate stage is not put in the market would not make any difference.”

11. In the South Bihar Sugar Mills Limited's case, it has been observed as follows:

“At the same time the duty being on manufacture and not on sale the mere fact that kiln gas generated by these concerns is not actually sold would not make any difference, if what they generate and use in their manufacturing processes is carbon dioxide.”

12. This discussion has become necessary in view of the stand taken by the department that the petitioner has to establish that the goods in question were actually sold in untrimmed condition. That is wholly unnecessary. The question is not whether the particular stock of goods, was sold in an untrimmed condition or after trrimming; the question is whether the untrimmed stock of hardboard which had come into existence by the mid-night of the crucial date satisfies the description of goods in item 16B(b) of Schedule I of the Act as known to the commercial market. If the answer to the question is in the affirmative, the stock of goods would not by trimming become excisable as hardboard manufactured after the mid-night in question. Therefore the question whether the particular stock of goods was sold in an untrimmed condition or not is wholly irrelevant.

13. What then is the criterion to decide whether a particular commodity is already manufactured or whether the process of manufacture is incomplete at a particular time. We have already seen that items in Schedule I of the Act have to be understood in the commercial sense, i.e, as known to the commercial market, the sellers and the buyers. A commodity has to be treated as goods if it is something which ordinarily comes to the market to be bought and sold, whether or not a particular consignment has been brought to market. The manufacturing process is complete when goods which ordinarily come to the market and which are known as such to the consumers and the commercial commodity have come into existence. The Supreme Court has taken this view in the decision referred to already;

14. The question therefore is whether the untrimmed stock of hardboard is a manufactured product as known to the commercial community or market. If it is so, the manufacture being of Hardboard as known to the market already complete it could not have been said to have been subjected to any process of manufacture after item 16B(b) incorporated in Schedule I of the Act. If, on the other hand, untrimmed hardboard is not hardboard as known to the commercial community and something more remained to be done in order to complete the process, then it can be said that the manufacturing process was complete after the crucial time by trimming and the goods may have to be treated as excisable.

15. Learned Central Government Standing Counsel would rely on Sec. 2(f) of the Act in support of his contention that if some incidental or ancillary process remained to be done, the manufacturing process cannot be regarded as complete. What is relied on is the first part of Sec. 2(f) which states that manufacture includes any process incidental or ancillary to the completion of any manufactured product. It appears to me, the argument involves a fallacy. The question is what is the manufactured product? Is it i.e, a manufactured product of the description contained in item 16BB of Schedule I of the Act is known to the commercial community. There can be no doubt that hardboard is hard board whether it is trimmed or untrimmed. In either form, it can be used for various purposes for which hardboard is generally used. But if there be evidence to show that it is only trimmed hardboard which is accepted by the commercial community as hardboard, then this submission on behalf of the department has to succeed. If, on the other hand, there is material to show that untrimmed hardboard is regarded and accepted in the market as hardbord, then the trimming which involves cutting the edges of the hardboard pieces cannot be regarded as any process incidental or ancillary to the completion off the manufactured product. That is because a manufactured product is known to the market is already complete without trimming. It is therefore unnecessary for me to go into the elaborate arguments advanced on both sides on the question whether trimming is process, at all.

16. In Ext. P4 order of the Government, it has been stated:

“As per common trade practice products of paper are sold only after the edges have been trimmed. No buyer would be willing to buy untrimmed hardboard. The petitioner's contention that they have sold un-trimmed hardboard has not been substantiated. The invoices under which sales were affected do not indicate that the hardboard sold was un-trimmed. From the above, it is evident that the process of trimming of the hardboard is “ancillary” to the process of manufacture of hard board and would amount to a process of manufacture within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944.”

17. It is not known and the learned Central Government Standing Counsel also was unable to enlighten the court on this aspect, how the Government concluded about at the alleged common trade practice referred to in the above passage. It has been the consistent case of the petitioner that untrimmed hardboard is also known to the market as hardboard and is also sold as such. The assertion in Ext. P4 that no buyer would be willing to buy untrimmed hardboard also appears to be an assertion without any basis or material. My attention is invited by the learned counsel for the petitioner to Ext. P5. It is a certificate issued by MAC-WOOD AGENCIES of Calcutta to the effect that they have been receiving untrimmed hardboard from the petitioner and they are regular buyers of the same from the petitioner for several years. Ext. P4 makes no reference to this certificate. If the certificate is to be accepted, then it may follow that the petitioner's contention regarding untrimmed hardboard being known to the commercial market as hardboard is true. Ext. P4 totally ignores Ext. P5. This amounts to relevant material and evidence being ignored. It is not as if the Government declined to act on Ext. P5 for any valid reason. The order does not make any reference to Ext. P5. It is also not as if the Government thought that Ext. P5 by itself is not sufficient to establish the proposition canvassed by the petitioner. The Government not only did not deal with Ext. P5, but it also acted on certain assumptions regarding trade practice etc., for which there was no warrant. I have already pointed out that it is not necessary for the petitioner to show that the particular stock of goods was sold in untrimmed condition. Learned counsel for the petitioner also attacks the statement Ext. P4 to the effect that the invoices do not indicate that the hardboard sold was untrimmed. According to him, the invoices do not also indicate that hardboard sold was trimmed., Ext. P4 is not based on any relevant material or evidence; it ignores relevant material; it also proceeds on a misconception of law. For these reasons, the order is vitiated.

18. Under these circumstances, Ext. P4 order deserves to be and is hereby set aside. The matter will go back for fresh consideration at the hands of the first respondent who will dispose of the revision in accordance with law after giving an opportunity to the petitioner and the department to produce such further materials as they may think fit. The O.P is accordingly allowed but under the circumstances without costs.