[Judgment per : Dalveer Bhandari, J.]. - The central question which arises for consideration. In these writ petitions is whether cutting or slitting of steel sheets amounts to manufacture?
2. These petitions have been preferred by the job workers who are engaged in cutting and slitting of steel sheets from coils. The petitioners’ are aggrieved by a circular dated 7-9-2001. This circular has been sent by the Ministry of Finance, Department of Revenue, Central Board of Excise & Customs, New Delhi to all Chief Commissioners of Central Excise, all Director General of Central Excise, all Commissioners of Central Excise (Appeals) and all Commissioners of Central Excise. Since the entire focus in these writ petitions is on the circular, we deem it appropriate to reproduce the circular. The circular reads as under :
“CIRCULAR No. 584/21/2001-CX
F.No. 139/12/99-CX.4
Govt. of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs
New Delhi
To
All Chief Commissioners of Central Excise.
All Director General of Central Excise.
All Commissioners of Central Excise (Appeals)
All Commissioners of Central Excise
Circular No. 584/21/2001-CX, dated 7 September, 2001 issued by the Government of India, Ministry of Finance (Department of Revenue), Central Board of Excise & Customs, New Delhi vide F.No. 139/12/99-CX.4, dated 7-9-2001.
Whether slitting of HR/CR coils of Iron and steel sheets into strips would amount to manufacture - Regarding.
1. A question has arisen as to whether cutting of HR/CR coils of iron and steel into sheets and slitting of HR/CR coils/sheets of iron and steel into strips would amount to manufacture.
2. The matter relating to cutting of HR/CR coils of larger width and running length in the form of coil into sheets of the same width but specific sizes was considered in Tariff Conference of Chief Commissioner held at Mumbai at 29-8-2000 and the general view was that the activity would not amount to manufacture. The matter has been further examined in the Board.
3. As far as slitting of HR/CR coils of iron and steel into strips of smaller width is concerned, two view points have been expressed by the field formations and the trade. One view is that if as a result of slitting the classification of the product changes from heading 72.08/72.09 to 72.11/72.12 in respect of iron or non-alloy steel strips and from heading 72.19 to 72.20 in respect of stainless steel strips, a new product with commercially distinct name character and use has come into existence and hence the process would amount to manufacture.
4. Another view is that mere slitting is not a process or manufacture. The products before and after slitting remain flat-rolled products and do not have new and distinct identities. Thus the activity should not amount to manufacture.
5. Law Ministry was therefore consulted by the Board in the matter and they have opined as follows:
“A somewhat similar issue was examined by the Apex Court in the case of Lal Woollens and Silk Mills (P) Limited v. Collector of Central Excise, (S.C.). In this case the plea of the appellant that conversion of grey yarn into dyed yarn did not amount to manufacture was not accepted by the Apex Court. The Apex Court observed that since both “dyed yarn” and “grey yarn” are covered by two separate distinct heads of Tariff items with different duty, the same would amount to manufacture - the separate Tariff entries recognised them as two different goods with separate levy. Applying the said ratio of the Apex Court to the issue before us, since the classification of the product changes from sub-heading. 72.08/72.09 to 72.11/72.12 the same would amount to manufacture as the end product being covered under different Tariff entries.”
6. In the meantime, we have also received CEGAT Judgment in the case of CCE, Mumbai v. Bamcee Ltd., 2001 (126) E.L.T. 126 (Tribunal - Delhi). The Tribunal has held that slitting and shearing of duty paid flat rolled steel coils purchased from the market will not amount to manufacture if the resultant product remained classifiable under the same Tariff sub-heading and it would amount to manufacture where Tariff sub-heading changes.
7. In the circumstances, it is hereby clarified that cutting of HR/CR coils of iron of non-alloy steel into sheets or slitting into strips of lesser width; or slitting of sheets into strips will amount to manufacture if the resultant product is classifiable under different sub-heading of the Central Excise Tariff.
8. The trade and field formations may be suitably informed.
9. Receipt of this Circular may please be acknowledge.
| Sd/- |
| (S.C. Bhatia) |
| Under Secretary (CX. 4) |
3. The petitioners have assailed this circular on various grounds. There is no dispute amongst the parties regarding the basic facts of these petitions. Facts in brief are recapitulated in the following paragraphs.
4. The petitioners are job workers engaged in de-coiling the sheet coils and cutting these coils by using Cutter Machine into desired length, size and dimension needed by the respective buyers. By the aforementioned circular, respondent Nos. 1 & 2 have unilaterally chosen to decide that even mere cutting (without anything more), constitutes manufacture of new excisable goods and would, therefore, attract liability of duty of Excise. A bare reading of this circular, particularly Para 4 of the circular, clearly indicates that there are two possible points of view. According to the one point of view, cutting and slitting amounts to manufacture and consequently is liable for the duty of excise. The other view is that mere slitting is not a process or manufacture. The product before and after slitting remain flat-rolled products and does not have new and distinct identities. Thus the activity should not amount to manufacture. In view of the two opinions, the Ministry of Law was consulted. The Ministry of Law opined that a somewhat similar issue was examined by the Apex Court in the case of Lal Woollens and Silk Mills (P) Limited v. Collector of Central Excise, Chandigarh reported as, (S.C.). In this case the plea of the appellant that conversion of grey yarn into dyed yarn did not amount to manufacture was not accepted by the Apex Court. The Apex Court observed that since both “dyed yarn” and “grey yarn” are covered by two separate and distinct heads of tariff items with different duty, the same would amount to manufacture - the separate tariff entries recognised them as two different goods with separate levy. Applying the said ratio of the Apex Court to the issue before us, since the classification of the product changes from sub-headings 72.08/72.09 to 72.11/72.12 the same would amount to manufacture as the end product being covered under different tariff entries.
5. According to the opinion of the Ministry of Law, it was clarified that cutting of HR/CR coils of Iron or non-alloy steel into sheets or slitting into strips of lesser width or slitting of sheets into strips will amount to manufacture, if the resultant product is classifiable under different sub-heading of the Central Excise Tariff.
6. In view of the said interpretation of the impugned circular by the Ministry of Law, the petitioners have approached this court with the prayer that the impugned circular dated 7-9-2001 be quashed. It is also prayed that the notice issued by the Central Board of Excise & Customs be held illegal, without jurisdiction and ultra vires of the Central Excise Act, 1944. This court issued show cause notices in these petitions and thereafter these petitions were listed for final disposal. Counter-affidavits have been filed on behalf of Commissioner, Central Excise-II, New Delhi. It is incorporated in the counter-affidavits that the process of cutting ‘strip in coil form’ into ‘sheets’ is not a process of mere cutting but it also involves several steps such as decoiling, straightening strips in coil form on cutting machines specifically designed for cutting sheets with the aid of power to desired length and dimensions as per the requirements of respective buyers. It is further incorporated that the material is subjected to all above process including cutting, a new product ‘sheet’ different from ‘strip’ emerges. Therefore, the process of cutting of ‘strip in coil form’ or into ‘sheets’ would amount to manufacture.
7. In the counter-affidavit reliance has been placed on Indandas v. Phadke, AIR 1982 SC 127. In the said case, the court laid down three broad categories which amount to manufacturing activities. These categories are set out as under :-
1. It must be proved that a certain commodity was produced.
2. That the process of production must involve either labour or machinery.
3. That the end product which comes into existence after the manufacturing process is complete and should have a different name and should be put to a different use. In other words, the commodity should be so transformed so as to loose its original character.
8. It may be pertinent to mention that the Solicitor General of India, Mr. Harish Salve, appeared for the revenue/respondent in this case. It is incorporated in the order sheet of 28-5-2002 that the learned Counsel appearing for UOI, on the basis of opinion of the Solicitor General of India, are contemplating, to withdraw the impugned circular dated 7th September, 2001 and an adjournment was sought from the court because the process of withdrawing the circular may take sometime. The writ petition was adjourned on 28-5-2002 and the circular, trade notice and show cause notice issued in pursuance to the said circular were kept in abeyance. Thereafter these writ petitions were adjourned on a number of occasions on the request of the learned Counsel appearing for the Union of India for withdrawing the circular in view of the categoric opinion of the learned Solicitor General of India.
9. It seems that ultimately the clear and categoric opinion given by the Solicitor General of India was not accepted by the Union of India. It may be relevant to mention that thereafter Mr. Harish Salve, the Solicitor General of India, did not appear in these petitions and these petitions were argued on behalf of Union of India by Mr. Manmohan, Senior Advocate and Mr. Maninder Singh, Advocate.
10. It may be pertinent to mention that another affidavit was filed on 16-9-2002 during the course of hearing of these petitions by Commissioner, Central Excise-II, New Delhi. It is mentioned in the affidavit that the learned Solicitor General of India submitted before this Court that in his view some observations in the case of Lal Woollens & Silk Mills may not be sufficient to hold that cutting of strips into sheets would amount to manufacturing and he would advise the Government accordingly. It is also mentioned in the affidavit that the advice of the Solicitor General of India was considered in its correct perspective. However, the Government did not find itself in a position to agree with the views of the learned Solicitor General of India. Reliance has been placed on the Judgment of the Hon’ble Supreme Court in the case of CCE, Meerut v. Kapri International (P) Limited, (S.C.) = (2002) 4 SCC 710, in which the court held that cutting of cotton fabrics from running length into small pieces and giving them a definite required shape to form new articles like bed sheets, bed spreads, tablecloths etc. the respondent has produced a new commodity which has a definite commercial identity in the market. It is also observed in the judgment that the mere fact that the material from which the new goods are manufactured, has suffered a duty under a particular tariff item, does not exclude the finished product from being excisable to fresh duty if the Tariff Act provides for it. In the said case, though the cotton fabric had suffered duty under Tariff Item 19(1), the Tariff Act has made bedsheets, pillow covers etc. also dutiable under the same tariff item, therefore, the respondent is liable to pay excise duty on bedsheets, pillow covers, napkins, etc. manufactured by it.
11. Though in the counter-affidavit the preliminary objection regarding maintainability of the writ petitions is missing yet during the course of hearing the learned Counsel for the respondents did submit that the petitioners have alternative remedy of filing appeals. Therefore, the present writ petitions are not maintainable. It is also submitted that mere cutting and slitting into small pieces as desired by the customer would not amount to manufacture. The basic ingredients for manufacture is emergence of new product known to the commercial world.
12. On court’s request, Mr. V. Lakshmikumaran, Advocate very ably assisted the court as an Amicus Curiae. Mr. R. Santhanam, Advocate appeared as the lead counsel in these petitions. He submitted that mere cutting of duty paid steel coil, i.e., steel sheets in running length does not bring into existence a new excisable product known in the market differently. It is further submitted that neither the traders nor the cutters have the infrastructure to manufacture the steel sheets which requires huge investment and merely by having the straightening and sheering machine, they cannot be construed as manufacturers of the steel coils/steel sheets and accordingly the circular issued by the department that cutting of the duty paid steel coils (steel sheets in running length) amounts to manufacture is not sustainable in law.
13. It is further submitted by the learned Amicus Curiae that the coil is basically a sheet in running length, when it is produced by the manufactures at their end. It is folded for the case of transportation and is called a coil but when it is unfolded either at the manufacturer’s end or at any other end it remains a 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, i.e., steel sheets in running length, no wastage is being generated.
14. Learned Amicus Curiae submitted that cutting of wood in small pieces or making small pieces of a long steel bar would not amount to manufacture as no new product emerges in such cutting. Similarly, even after cutting, the steel sheets remains the steel sheet, hence any question of further levy of duty does not arise at all as a process of mere cutting does not amount to manufacture when the resultant product remains the same and does not change its identity.
15. Mr. Santhanam, learned Counsel for the petitioner, placed reliance on Dy. CST v. Pio Food Packers reported as (S.C.). The Supreme Court held that if original identity of the product is maintained, no manufacture can be said to have taken place.
16. In another case CCE v. Kutty Flush Doors & Furniture Co. Pvt. Limited reported as (S.C.) the Supreme Court held that conversion of timber logs into sawn timber is not “manufacture” as no new product emerges.
17. Reliance has also been placed on State of Orissa v. Titaghur Paper Mills Co. Limited reported as AIR 1985 SC 1293. In this case the Supreme Court held that mere change in form does not amount to manufacture. The court in para 127 (10) of the judgment observed that timber and sized or dressed logs are one and the same commercial commodity. Beams, rafters and planks would also be timber.
18. It has been canvassed that to constitute manufacture, a new and different article must emerge having a distinct name, character or use. Reliance has been placed on Collector of Central Excise, Chandigarh v. Steel Strips Ltd. reported as (S.C.). In this case the court observed that cold-rolled steel strips produced out of duty paid hot-rolled steel strips do not undergo a process of manufacture hence not liable to duty again.
19. Reliance has also been placed on Bharat Forge & Press Industries (P) Limited v. Collector of Central Excise reported as (S.C.). In this case the appellant were engaged in manufacture of pipe fitting such as elbow, bends and reducers. The appellants cut the pipes and tubes into different sizes, give them shape and convert them into pipe fittings in their factories by heating in a furnace, hammering and pressing. The court observed that there is no change in their basic physical properties as there is no change in their end use. In this case reliance has been placed on Indian Aluminium Cables Limited v. Union of India & Ors. reported as (S.C.) = 1985 (3) SCC 284, the court in this case observed :
“To sum up the true position, the process of manufacture of a product and the end use to which it is put, cannot necessarily be determinative of the classification of that product under a fiscal schedule like the Central Excise Tariff. What is more important is whether the broad description of the article fits in with the expression used in the Tariff. The aluminium wire rods, whether obtained by the extrusion process, the conventional process or by Properzi process, are still aluminium wire rods. The process of manufacture is bound to undergo transformation with the advancement in science and technology. The name or the end product may, by reason of new technological processes, change but, the basic nature and quality of the article may still answer the same description. On the basis of the material before us, it is not possible to record a positive finding that ‘Properzi Rods’ and ‘Wire Rods’ are treated as distinct items in commercial parlance. Properzi Rod is a Wire Rod subjected to the Properzi process and is used for transmission of high voltage electric Current.”
20. Learned Counsel for the petitioners placed reliance on Union of India v. J.G. Glass Industries Limited reported as (S.C.). In this case the court held that printing/decoration carried out on a glass bottle does not amount to manufacture.
21. Learned Counsel for the petitioners placed reliance on Union of India & Others v. Delhi Cloth and General Mills Co. Limited & Others reported as 1977 (1) E.L.T. (J 199). In this case the taxing authority imposed excise duty on the manufacture of refined oil from row oil. The court held that refined oil is one sort; raw oil is another sort. But as the duty is on the manufacture of goods, that is, on the bringing into existence a new substance known to the market, the raw oil or the refined oil must be some substance known to the market before it can be subjected to duty.
22. In the case of Prabhat Sound Studios v. Additional Collector of Central Excise reported as (S.C.) the Supreme Court held :
“The manufacturer of tapes may manufacture and sell blank tapes upon which the purchaser would be free to record such sound as he chose. The manufacturer may go one step forward and record sound itself and sell such tapes. It is to cover both eventualities that Tariff item 59 is categorised as it is. But it is altogether different to say that by reason thereof the recording of sound on blank tapes, as done by the appellant on job-work basis, is a manufacturing process. As the Tribunal in M. Basheer Ahamed’s case has rightly pointed out, even such a pre-recorded tape can have the sound erased from it and it can be used again for recording other sound.”
23. In Collector of Central Excise, Jaipur v. Banswara Syntex Limited reported as (S.C.) the Supreme Court held the liability to pay excise duty arises at the first stage itself, namely, at the time of manufacture of single ply yarn. This being so the demand raised by the Assistant Collector was not invalid.
24. Learned Amicus Curiae also placed reliance on Deputy Commissioner, Sales Tax Law Board of Revenue (Taxes), Ernakulam v. Pio Food Packers reported as (S.C.). In this case the Apex Court had gone into the question whether conversion of pine-apple fruit into pine-apple slices for sale in sealed cans amounts to manufacture? The court held that although a degree of processing is involved in preparing pine-apple slices from the original pine-apple yet the commodity continues to possess its original identity, notwithstanding the removal of inedible portions, the slicing and thereafter canning it or adding sugar to preserve it and cannot be said to be manufacture.
25. The Hon’ble Supreme Court in Civil Appeal No. 3518/90 [ (S.C.)] filed by Collector of Central Excise affirmed the findings of the Tribunal that cutting of the tanned leather to various sizes does not amount of manufacture. The Tribunal [ (Tribunal)] had taken the view that these straps cannot be considered to be a new and distinct product with any particular name and identity. Thus no manufacturing process is involved.
26. Mr. Manmohan, the learned Senior Counsel, along with Mr. Maninder Singh, argued the case on behalf of the respondent/UOI. In support of their submissions they placed reliance on Collector of Central Excise, Patna v. Usha Martin Industries reported as (S.C.). In this case the Supreme Court held that departmental circulars are equally binding on Revenue. The object is to achieve uniformity in classification. The court observed that an assessee can contest the validity or legality of a departmental instruction but that right cannot be conceded to the department, more so when others have acted according to such instructions. Of course the appellate authority is also bound by the Board’s Interpretation but the assessing officer cannot take a contrary view.
27. Reliance has been placed on Ranadey Micronutrients v. Collector of Central Excise reported as (S.C.). In this case similar view was taken by the Supreme Court that the department cannot be allowed to plead that such circular was not valid.
28. Reliance has also been placed on Purewal Associates Limited v. Collector of Central Excise reported as (S.C.). In this case the Supreme Court held that the trade notices issued by the Excise Collector not binding on Tribunal or Courts yet it cannot be ignored when authorities take a different stand because if such trade notice was erroneous, it would have been withdrawn.
29. In the case of Collector of Central Excise, Bombay v. Kores (India) Limited reported as (S.C.), the Supreme Court held that tariff advice or trade notice issued by the Board are not binding on Tribunal or Courts. The assessee can claim them to be erroneous but Revenue cannot advance arguments contrary to the Tariff Advice or Trade Notice.
30. In Collector of Central Excise, Vadodara v. Dhiren Chemical Industries reported as (S.C.) a Constitution Bench of the Supreme Court held that if there are circulars issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, then that interpretation will be binding upon the Revenue.
31. It may be pertinent to mention that though in the counter-affidavit no objection has been taken regarding the maintainability of the petitions but during the course of hearing learned Counsel for the respondents urged before the court that these petitions are liable to be dismissed because the petitioners have approached the court without resorting to the other available remedy.
32. Learned Counsel appearing for the petitioners submitted that alternative remedy is not absolute bar and placed reliance on number of judgments of the Supreme Court in support of its contentions. Reliance has also been placed on a Constitution Bench Judgment of the Supreme Court in Filterco & Another v. Commissioner of Sales Tax, Madhya Pradesh and Another reported as (S.C.). The court observed :
“We are of opinion that the High Court should have examined the merits of the case instead of dismissing the Writ Petition in limine in the manner it has done. The order passed by the Commissioner of Sales Tax was clearly binding on the assessing authority under Section 42B(2) and although technically it would have been open to the appellants to urge their contentions before the appellate authority namely, the Appellate Assistant Commissioner, that would be a mere exercise in futility when a superior officer, namely, the Commissioner, has already passed a well considered order in the exercise of his statutory jurisdiction under sub-section (1) of Section 42B of the Act holding that 21 varieties of the compressed woollen felt manufactured by the appellants are not eligible for exemption under Entry 6 of Schedule I of the Act. Further Section 38(3) of the Act requires that a substantial portion of the tax has to be deposited before an appeal or revision can be filed. In such circumstances we consider that the High Court ought to have considered and pronounced upon the merits of the contentions raised by the parties and the summary dismissal of the Writ Petition was not justified.”
33. The High Court of Andhra Pradesh in Etikoppaka Cooperative Agricultural Society Limited represented by K.L.N. Raju & Others v. Union of India & Others reported as 1979 (4) E.L.T. (J533) (A.P.) observed that the highest authority constituted under the Act, having already predetermined the question and having directed all the subordinate tribunals to interpret the notification in a particular manner, the statutory remedy of appeal and revision ceases to be a remedy.
34. The High Court of Andhra Pradesh in XI Telecom Limited v. Superintendent of Central Excise, Hyderabad reported as (A.P.) held that alternative remedy is no bar when impugned action of authorities is without authority of law and jurisdiction.
35. A Division Bench of Bombay High Court in Yashwant Sahakari Sakhar Karkhane Limited v. Union of India & Others reported as (Bom.) observed that if the highest authority constituted under the Act had already pre-determined the question, the statutory remedy has ceased to be a remedy and filing of an appeal/revision becomes an exercise in futility. There can, therefore, be no bar to the maintainability of writ petition under Article 226 of the Constitution. On the strength of these judgments, we can safely state that resorting to alternative remedy of filing appeal would have been an exercise in futility particularly when the impugned circular was sent to the Chief Commissioner and to Directors General of Central Excise.
36. A Division Bench of this Court in Hindustan Motors Limited v. Union of India reported as (Del.) observed :
“In view of the law laid down by the Supreme Court in the case of Orient Paper Mills Limited v. Union of India, 1978 (2) E.L.T. J345 and thereafter by the High Courts of Gujarat & Madras in Genset Engineers Pvt. Limited v. Union of India - and Lakshmi Machine Work Limited v. Union of India -, a circular issued by the Board under Section 37B of the Central Excise Act, 1944 cannot interfere with or take away qausi judicial function of the adjudicating authorities.”
37. Mr. V. Lakshmikumaran, learned Amicus Curiae has placed reliance on Indian Rayon & Industries Limited v. Union of India reported as (Del.). In this case, the court observed that it is difficult to imagine that a circular issued under Section 37B of the Act which is contrary to the provisions of the Act would be binding on the assessee.
38. The Division Bench of the Gujarat High Court in Lucky Star International v. Union of India reported as (Guj.) has taken the similar view that when the circular is not in accordance with law and by such Circular, direction cannot be given to the assessment in a particular fashion only.
39. In the case of Manisha Pharma Plasto Pvt. Limited v. Union of India reported as (Del.). Delhi High Court quashed a circular on the ground that it was not in consonance with the statute. In the later part of the judgment, we propose to examine the legality and propriety of issuing the said circular.
40. Section 3 of the Central Excise Act, 1944 is the charging section. It provides that the excise duty is to be levied on all excisable goods. Section 3 of the Central Excise Act, 1944 is reproduced as under :
“Section 3. Duties specified in the First Schedule to be levied. - (1) There shall be levied and collected in such manner as may be prescribed, duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the First Schedule.”
41. In a recent case delivered by Hon’ble Supreme Court in Union of India v. Ahmedabad Electricity Co. Ltd. & Ors. reported as (S.C.) = JT 2003 (8) SC 153 their lordships of the Supreme Court have dealt with exactly the same question. The court has dealt with the meaning of excisable goods and when excise duty is attracted. The court has also dealt with what is the meaning of manufacture in the context of excise law.
42. The Hon’ble Supreme Court in South Bihar Sugar Mills v. Union of India reported as 1978 (2) E.L.T. (J336) (S.C.) = AIR 1968 SC 922 observed :
‘The Act charges duty on manufacture of goods. The word “manufacture” implies a change, every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character and use.’
43. In M/s. Hindustan Polymers v. Collector of Central Excise reported as (S.C.) = JT 1989 (3) SC 674, their Lordships of the Supreme Court observed :
“Excise Duty is a duty on the act of manufacture. Manufacture under the excise law, is the process or activity which brings into being articles which are known in the market as goods and to be goods these must be different, identifiable and distinct articles known to the market as such. It is then and then only that manufacture takes place attracting duty. In order to be goods, it was essential that as a result of the activity, goods must come into existence. For articles to be goods, these must be known in the market as such and these must be capable of being sold or are being sold in the market as such. In order, therefore, to be manufacture, there must be activity which brings transformation to the article in such a manner that different and distinct article comes into being which is known as such in the market.”
44. In Collector of Central Excise, Jaipur v. Rajasthan State Chemical Works, Deedwana, Rajasthan and others reported as (S.C.) = 1991 (4) SCC 473 their Lordships of the Supreme Court observed :
“12. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But it is only when the change or a series of changes takes the commodity to the point where commercially it can be longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place.”
45. Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. M/s. Thomas Stephen & Co. Ltd., Quilon reported as (S.C.) = 1988 (2) SCC 264 is a case under the Kerala General Sales Tax Act, 1963. The assessee used to purchase cashew shells for use as fuel in the kiln in the factory. Under the Act levy of tax was on consumption of goods in the manufacture of other goods for sale or otherwise. The difference between use of goods in manufacture as raw material and use for other ancillary purposes was brought out. Goods used for ancillary purposes like fuel in the process of manufacture were held not to be exigible to tax. Since cashew shells were used only as fuel and they did not get transformed into the end product they were held to be not exigible to tax. Cashew shells were used in aid of manufacture of goods and as such they did not attract levy of tax.
46. In Collector of Central Excise, New Delhi v. M/s. Ballarpur Industries Ltd. reported as (S.C.) = JT 1989 (4) SC 396 the raw material is the course of chemical reactions got burnt up and lost its apparent identity. To be more precise, the input of sodium sulphate in the manufacture of paper would not cease to be of raw material by reason alone of the fact that in the course of the chemical reactions, this ingredient is consumed and burnt up. All the same it remained a raw material. It was held that the relevant test is not the absence of the raw material in the end product, but the dependence of end product for its essential presence at the delivery end of process. What follows from this is that the raw material which we are concerned about is the raw material which is linked with emergence of the end product. It has to be present in the end product whether visibly or invisibly.
47. In Commissioner of Central Excise, Chandigarh v. Markfed Vanaspati and Allied Industries reported as , excise duty was being paid on “earth”. “Spent earth” is a residue resulting from treatment of fatty substances. The ‘spent earth’ remained ‘earth’ even after processing though its capacity to absorb was reduced, it was held that no excise duty was leviable on ‘spent earth’. The facts in this case are quite similar to the facts of the case in hand. In Markfed case ‘earth’ was reduced to ‘spent earth’ with a reduced potency to absorb. In the case in hand coal was reduced to inferior quality coal which was no longer of use in the furnaces in the factories, therefore, it could reasonably be said that ‘cinder’ i.e. coal of reduced quality still was coal and not exigible to excise duty.
48. In Modi Rubber Ltd., Modi Nagar., U.P. and Anr. v. Union of India and Others reported as (Delhi) it was held that waste/scrap obtained not by any process of manufacture but in the course of manufacturing the end product was not exigible to excise duty. This was a case of manufacture of tyres, tubes etc. In the course of manufacturing process to produce the end product i.e. tyres, tubes, flaps etc. waste was obtained in the shape of cuttings. It was held that this was not exigible to tax even though the waste may have some saleable value. The essential reason for this was that there was no transformation in the case of waste/scrap to a new and different article. No new substance having a distinct name, character and use was brought about. Manufacturing process involved treatment, labour or manipulation by the manufacturer resulting in a new and different article. It requires a deliberate skilful manipulation of the inputs or the raw materials. This was not so in case of scrap.
49. It is worth mentioning that in Union of India and Ors. v. Indian Aluminium Co. Ltd. and Anr. reported as (S.C.) = 1995 Suppl. (2) SCC 465, it was held that waste or rubbish which is thrown up in the course of manufacture could not be said to be a produce of manufacture exigible to excise duty. In this case the assessees manufactured aluminium products out of aluminium ingots. In the process of manufacture dross and skimmings arise and accumulate in the furnace in the shape of ashes as a result of oxidization of metal. Aluminium dross contain an amount of metal from which they come but they lack not only metal body but also metal strength, formability and character. Such dross and skimmings are distinct from scrap which is a metal of good quality. Dross and skimmings though obtained during process of manufacture were held to be not exigible to excise duty at the relevant time. Since the dross and skimmings were sold in the market it was argued that they were a marketable commodity and should be subject to levy of excise duty. The court observed that these were nothing but waste or rubbish which is thrown up in the course of manufacture.
50. Mr. V. Lakshmikumaran placed reliance on Moti Laminates Pvt. Limited v. Collector of Central Excise, Ahmedabad reported as (S.C.). In this case the Supreme Court observed :
“The duty of excise being on production and manufacture which means bringing out a new commodity, it is implicit that such goods must be useable, moveable, saleable and marketable. The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling.”
51. Learned Amicus Curiae has placed reliance on Hyderabad Industries Limited v. Union of India reported as (S.C.). The court observed that goods are liable to duty only if they arise as a result of a process of manufacture or production, that is, if they are a new and distinct commercially identifiable article. The court also observed that the goods attract excise duty provided they are new identifiable goods that are the result of manufacture or process and they are marketable.
52. Mr. V. Lakshmikumaran, the learned Amicus Curiae, also placed reliance on the unreported judgment of the Supreme Court in Civil Appeal No. 510/89 titled Collector of Central Excise, Indore, M.P. v. M/s. Anand Behari Steel Wires & Other Products Limited, Raipur decided on 9th January, 1989. The Supreme Court observed :
‘Simply because a wire is stranded, in our opinion, the wire does not cease to be wire and becomes a “good not elsewhere specified”. It is wire but standard. It still remain wire under Tariff Item 26AA(1-A) of the Central Excise Tariff. In view of the amplitude of the expression “wire” “strended wire” or otherwise remains wire in essence. It still continues to be wire and the expression “wire” in T.I. 26AA (1-A) is not in any way circumscribed by any limitation. There was no evidence that stranded wires were known in the market as anything else than wires. It is essentially a thing that the wire is known in the market as wire stranded and it remains as wire until there is evidence to show that it is absolutely a new product in shape, size, use or in the market parlance meaning thereby, the market parlance of those will deal with these goods and treat them otherwise. In that view of the matter, we are of the opinion that the Tribunal was right in the view it took.”
53. Reliance has been placed on Gujarat Steel Tubes Limited v. State of Kerala reported as (S.C.). The Hon’ble Supreme Court observed that the limited purpose of galvanisation does not seem to bring a new commodity into existence. The steel pipe continues to be the same even after galvanisation. By galvanisation neither the structure and nor function is altered.
54. Reliance has also been placed on Mafatlal Fine Spinning & Mfg. Co. Limited v. Collector of Central Excise reported as (S.C.). In this case the Supreme Court held that the grey fabric because of these operations, does not become new and commercially different commodity and nor ceases to be grey cloth. There is thus no justification to take it out of Rule 49A(1)(b) because any processing that can take a case out of this rule must be a process which renders cotton fabric cease to be grey fabric as commercially known und understood.
55. In Computer Graphics Pvt. Limited v. Union of India reported as (Mad.) learned Single Judge of Madras High Court held that since the main question involved for decision, viz., whether by cutting Jumbo rolls into smaller flats, the petitioner is manufacturing a new and different product has been answered in the negative.
56. A Division Bench of the Madhya Pradesh High Court in Keshaodeo Shivprasad v. Union of India reported as (M.P.) observed :
“The word ‘manufacture’ implies such a change that the raw material is transformed into a new and different article so emerged has to have a distinct name. The essence of manufacture is the transformation of the parts or basic components into another article of different character and the completion of a manufactured produce is reached after all the processes incidental or ancillary, have been completed. ‘Manufacture’ implies a change, but every change is not manufacture. Apart from treatment, labour and manipulation, there must be a transformation so that a different article having a distinct name, emerges.”
57. Their Lordships of the Supreme Court in Collector of Central Excise, Jaipur v. Rajasthan State Chemical Works, Deedwana, Rajasthan & Others (Supra) observed as under :
“13. Manufacture thus involves series of processes. Process of manufacture or in relation to manufacture implies not only the production but the various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected (sic that the) manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process manufacture of processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture.
14. That natural meaning of the word ‘process’ is a mode of treatment of certain materials in order to produce a good result, a species of activity performed on the subject matter in order to transform or reduce it in a certain stage. 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’. The activity contemplated by the definition is perfectly general requiring only the continuous or quick succession. It is not one of the requisites that the activity should involve some operation on some material in order to (sic effect) its conversion to some particular stage. There is nothing in the natural meaning of the word ‘process’ to exclude its application to handling. There may be a process which consists only in handling and there may be a process which involves no handling or not merely handling but use or also use. It may be a process involving the handling of the material and it need not be a process involving the use of material. The activity may be subordinate but one in relation to the further process of manufacture.”
58. Learned Amicus Curiae has placed reliance on Collector of Central Excise, Bombay v. Kiran Spinnjng Mills reported as (S.C.). The Supreme Court observed :
“The word ‘manufacture’ means to bring into existence a new substance and does not mean merely to produce some change in a substance. It is true that etymological word ‘manufacture’ properly construed would doubtless cover the transformation but the question is whether that transformation brings about fundamental change, a new substance is brought into existence or a new different article having a distinctive name, character or use results from a particular process or a particular activity. In the instant case, it is not disputed that what the appellant did was to cut the running length fibre (tow) into short length fibre (staple fibre). It undoubtedly brought a change in the substance but did not bring into existence a new substance. The character and use of the substance - man-made fibre remained the same. It is true that by the change in the length of the fibre, it acquired a new name. But, since in this case, the tariff entry recognised the single description man-made fibre with no further sub-division based on length of the fibre and even without distinct enumeration of the various forms of fibre by cutting long fibre into short ones, the respondent did not bring into existence any new product so as to attract any levy under the same tariff entry. Even by cutting the respondent obtained man-made fibre. Such cutting, therefore, involved no manufacture as envisaged by Section 2(f) of the Central Excises & Salt Act, 1944 and hence not liable to duty.”
59. Learned Counsel appearing for the petitioners submitted that the judgment of the Supreme Court in Lal Woollen & Silk Mills (Supra) is not a good law. Their Lordships in the said judgment observed :
‘Admittedly both “dyed yarn” and “grey yarn” are covered by two separate distinct heads of tariff items with different duty. So this itself recognises them to be two different goods with separate levy. In view of this it cannot be urged that there is no manufacture of “dyed yarn” from the “grey yarn”.’
60. Mr. R.C. Gupta, the learned Counsel for the petitioner, submitted that undoubtedly this authority appears to support the contention which is raised, by the respondent, however, it appears that the observation made in Lal Woollens case are “per incuriam”. In so observing, the decision of a Larger Bench of the Apex Court in the case of Collector of Central Excise, Indore v. Universal Cable Limited (sic) reported as (S.C.) = 1995 Suppl. (2) SCC 465 has not been noted or considered. In this case an argument that a good become excisable because it is covered by Tariff Entry, has been negativated. In the case of BPL Pharmaceuticals Limited v. Collector of Central Excise reported as (S.C.) = 1995 Suppl. (3) SCC 1. It has also been held that merely because there is a change in tariff item the goods does not become excisable. Subsequently in a judgment dated 13th February, 2003 [ (S.C.)] in Civil Appeal No. 6745 of 1999 it has been held that merely because an item falls in a Tariff Entry, it does not become excisable unless there is manufacture and the good is marketable. In Lal Woollen (Supra) it has been held that the twin test of manufacture and marketability is not to apply. It is not possible to accept the contention that merely because an Item falls in a Tariff Entry it must be deemed that there is manufacture. The law still remains that the burden to prove that there is manufacture and that what is manufactured is on the revenue. In this case no new evidence is placed to show that there is manufacture. “Spent Earth” was “earth” on which duty has been paid. It remains earth even after the processing. Thus, if duty was to be paid on it again, it would amount to levying double duty on the same product.
61. Mr. R.C. Gupta submitted that the law declared by the Supreme Court in Kapri International (Supra) is in consonance with the judgments delivered by the Supreme Court in a large number of cases and it correctly laid down that wherein the processes applied on the cotton fabrics was not simply cutting the fabrics but in addition to cutting, the processes of hemming and stitching are must to produce “bed sheets, bed spreads, table cloths, napkins, etc., which brings into existence a new marketable commodity having distinct market identity and the Supreme Court rightly held that when new marketable commodity other than the raw material comes into existence, it satisfies the definition of manufacture and the duty is leviable thereon irrespective of the fact whether the tariff head changes or not.
62. Mr. Gupta also placed reliance on State of Maharashtra v. Mahalaxmi Stores reported as (S.C.) = (2003) 129 STC 79 (S.C.) in which their Lordships of the Supreme Court observed that the activity of crushing big sized stones (boulders) into small sizes does not result in manufacture because no new commercial commodity comes into existence.
63. Mr. Gupta also placed reliance on CCE v. Bakelite Hylam Limited reported as in which three Member Bench of the Supreme Court observed that mere cutting or punching holes in the laminated sheets does not amount to manufacture.
64. Mr. Gupta also placed reliance on Mafatlal Industries Limited v. Nadilad Nagar Palika reported as . In this case the Supreme Court observed :
“11. In this appeal, cloth pieces of 100 meters length were brought with the octroi limits and those cloth pieces were cut into smaller pieces of different sizes. By Court doing so, no different commercial commodity is shown to have been produced, so it cannot be said that there was use or consumption of the cloth within the octroi limits of Nadiad town.”
65. Mr. Gupta submitted that the aforesaid well settled proposition of law clearly spells out that if the cloth is cut from the running length for suit length, trouser length, etc. then mere cutting does not amount to manufacture till it is stitched to desired shape, i.e., suit, trouser, etc. and accordingly mere cutting of cloth, steel sheet does not amount to manufacture and no liability under the Central Excise Law is to be fastened on the petitioners by assuming the powers of the Parliament by the issue of illegal circular by the CBEC, which is clearly the misuse of the powers by the administrative machinery granted by the provisions of Section 37-B of the Central Excise Act, 1944.
66. A Division Bench of Patna High Court in Steel India v. State of Bihar & Ors. reported as 2000 (117) STC 91 (Pat. HC-DB) held that cutting iron coil into smaller pieces is not manufacture of finished goods.
67. Mr. R.C. Gupta submitted that mere cutting/slitting of steel coils (sheets in running length) does not amount to manufacture as the description of the product as flat rolled products continues throughout the tariff even when the tariff sub-heading changes following the width of the product. Since the identity of the product remains unchanged even where the classification changes, it could not be said that the activity causing such a change amounted to manufacture. Mr. Gupta further submitted that the goods alter cutting/slitting continued to be known by the same nomenclature in the market. The Revenue has failed to establish the test of manufacture as laid down by the Hon’ble Supreme Court in its various judgments, hence the conditions of the levy of duty on the duty paid product again are not fulfilled and accordingly the Revenue is not empowered to misuse the powers in the guise of the Circular to declare the cutting/slitting of the steel sheets as manufacture, which the petitioner feels is without the authority of law and deserves to be declared as ultra vires.
68. Mr. R.C. Gupta also placed reliance on Mahalaxmi Stores (Supra), particularly on para 5, which reads as under:
“From a perusal of the definition, extracted above, it is clear that the processes of producing, making, extracting, altering, ornamenting, finishing or otherwise, processing, treating or adapting of any goods fall within the meaning of the term “manufacture”. But it may be pointed out that every type of variation of the goods or finishing of goods would not amount to manufacture unless it results in emergence of new commercial commodity. In the instant case, the very nature of the activity does not result in manufacture because no new commercial commodity comes into existence.”
69. Mr. M.L. Qazi, learned Counsel appearing for the petitioner in CW No. 94/2002, basically adopted the arguments of learned Amicus Curiae and other counsel, who appeared on behalf of the petitioners. He submitted that in his petition the petitioner is engaged in the activity of job work of slitting hot rolled/cold rolled coils of iron and steel into slits of lesser width, without bringing into existence any new or distinct article or good. He further submitted that under the guise of the circular, the respondents have in fact brought out a revenue legislation which Section 37B does not empower. The power to impose a tax is essentially a legislative function which cannot be delegated and the circular is ultra vires because it is without jurisdiction. The respondents have sought to bring a revenue legislation through an administrative action which is totally impermissible. The scope of the function in terms of Section 37B is not to be used to impede quasi judicial powers or exercise. The circular is not to enlarge or restrict the scope of law or whittle down the judgment of the Apex Court, which through semantic quibbling the respondent are trying to do.
70. Mr. Manmohan, learned Senior Counsel appearing for the respondents, placed reliance on Union of India & Others v. Delhi Cloth and General Mills Co. Limited & Others reported as 1977 (1) E.L.T. (J 199). The Supreme Court observed :
“The word “manufacture” is generally understood to mean as “bringing into existence a new substance” and does not mean merely “to produce some change in a substance”, therefore “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 distinct name, character or use.”
71. Reliance has also been placed by Mr. Manmohan on Empire Industries Limited & Others v. Union of India & Others reported as (S.C.). In this case the Supreme Court observed :
“In that view of the matter etymologically the word “manufacture” properly construed would doubtless cover the transformation. In support of the question whether actually there is manufacture or not various documents were attempted to be utilised at the hearing of the application before us. Most of these pieces of evidence cannot be admitted at this stage but indisputably in the Indian Standard Glossary of terms which deals with various expressions, “Bleached Fabric” has been defined as a fabric which has undergone bleaching treatment and is treated by the Indian Standard Institution as something different from fabric which has not undergone the bleaching operations. Different standards are set out by the same and the views of the Indian Standard Institution can be looked into by the Court with certain amount of creditability.”
72. Reliance was placed on Ujagar Prints, etc. etc. v. Union of India & Others reported as (S.C.). In this case the court observed :
“The prevalent and generally accepted test to ascertain that there is ‘manufacture’ is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged as a result of the processes.”
73. Reliance has also been placed on Gramophone Co. of India Limited v. Collector of Customs, Calcutta reported as (S.C.) = (2000) 1 SCC 549. The Court observed :
“the view taken consistently by this court is that the moment there is transformation into a new commodity commercially known as a distinct and specific commodity having its own character, use and name whether it be the result of one process or several processes, manufacture takes place; the transformation of the goods into a new and different article should be such that in the commercial world it is known as another and different article.”
74. Learned Counsel for the respondents has also placed reliance on Collector of Central Excise, Shilong v. Wood Craft Products Limited reported as (S.C.) = (1995) 3 SCC 454. The Supreme Court observed in para 18 :
“the structure of the Central Excise Tariff is based on the internationally accepted nomenclature found in the Harmonised System of Nomenclature (HSN) and, therefore, any dispute relating to tariff classification must, as far as possible, be resolved with reference to the nomenclature indicated by the HSN unless there be an express different intention indicated by the Central Excise Tariff Act, 1985 itself.”
75. A Division Bench of Bombay High Court in Kores (India) Limited v. Union of India and Others reported as (Bom.) held that the process of cutting large rolls of paper into specific sizes and dimensions and to roll them into teleprinter rolls with the aid of power driven machines amounts to manufacture under Section 2(f) of the Central Excises Act.
76. Reliance has also been placed by Mr. Manmohan on LML Limited v. Collector of Central Excise, Kanpur reported as (S.C.) = (1997) 7 SCC 588. In this case steel sheets purchased for manufacturing scooters and parts and accessories thereof, after paying duty under Sub-heading 7212.50 - Manufacturer, under Modvat Credit Scheme, entitled to set-off the duty so paid against the duty payable on scooters and parts and accessories thereof - Some portion of the sheets (known as off-cuts), still remaining, after using the sheets in the said manufacturing process. Such off-cuts, although a portion thereof was used for the manufacture of small parts of scooters, held classifiable under Heading 72.10. This case has no relevance on the facts and circumstance of the present case.
77. We have heard the learned Counsel for the parties at length and perused the number of judgments delivered by the Apex Court and other Courts on the controversy involved in the case.
78. In these petitions, we are called upon to adjudicate whether cutting or slitting of steel sheets amount to manufacture? The other question which also calls for determination is whether revenue legislations can be introduced by a mere administrative act of issuing circular? We propose to answer both these issues in the succeeding paragraphs.
79. The expression ‘manufacture’ has been defined in The Central Excise Act, 1944 as under :
‘”manufacture” includes any process,-
(i) incidental or ancillary to the completion of a manufactured product; and (ii) which is specified in relation to any goods in the section or Chapter notes of Schedule I to the Central Excise Tariff Act, 1985 as amounting to manufacture, and the word “manufacture” shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account;”
80. The word ‘manufacture’ was first given comprehensive explanation in a Constitution Bench judgment in Delhi Cloth and General Mills (Supra). 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.
81. In the Permanent Edition of Words and Phrases, the expression manufacture is defined as under :
“Vol. 26 - “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 merge having a distinctive name, character or use.”
82. We deem it appropriate to reproduce the relevant definition dealing with the levy of excise duty.
The following keywords occurring in this provision have been defined in the Act as under :
“Section 2
(a)......
(b)......
(c)…..
(d) “excisable goods” means goods specified in the First Schedule as being subject to a duty of excise and includes salt;
(e)........
(f) “manufacture” includes any process incidental or ancillary to the completion of a manufactured product;......”
83. In the light of definition of ‘manufacture’ and ‘excisable goods’ given in Central Excise Act, 1944 and the court’s interpretation in various judicial pronouncements now we proceed to adjudicate the issues involved in the case.
84. The word manufacture has been subject matter of a large number of decisions of the Apex Court, High Courts and Tribunals. In all the judgments of the Apex Court and other Courts the accepted definition of manufacture is emergence of a new commercial commodity.
85. In the light of ratio of various judgments the generally accepted test for imposing excise duty is to ascertain whether the manufacturing in fact had taken place or not? It is imperative to apply this test to ascertain whether the change or series of changes brought about by the application of processes take the commodity to the point where, commercially it can no longer be regarded as the original commodity but is instead recognised as a distinct and new article that has emerged as a result of processes.
86. Reverting to the facts of this case, 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.
87. We would now examine the impugned circular in the light of the Judgments delivered by the various courts. The impugned circular itself had also noted the conflict of views whether, the mere slitting is a process or Manufacture? 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 (Supra) the impugned circular was issued.
88. In Civil Appeal No. 74/2001 titled Collector of Central Excise v. Technoweld Industries, reported as , their Lordships of the Supreme Court observed that Lal Woollen (Supra) undoubtedly appears to support the contention of the revenue. The Court further held that observations in this authority are per incuriam because this authority had not taken into consideration the decision of the Larger Bench of the Apex Court in Collector of Central Excise v. Universal Cable (Supra) (sic). The court specifically observed that merely because an item falls in a tariff entry, it must not be deemed that there is manufacture. The court concluded if the ratio of Lal Woollen (Supra) is to be applied then it would amount to levying double duty on the same product. In view of these observations of the Apex Court, the entire substratum of the impugned circular has now been removed. In these circumstances, the respondents in all fairness ought to have withdrawn the impugned circular on their own. The respondents have neither withdrawn on their own nor even adhered to the legally sound and correct advice given by the Solicitor General of India to withdraw the said circular.
89. In Ahmedabad Electricity (Supra) the Supreme Court observed that “it is clear that to be subjected to levy of excise duty ‘excisable goods’ must be produced or manufactured in India. For being produced and manufactured in India the raw material should have gone through the process of transformation into a new product by skillful manipulation. Excise duty is an incidence of manufacture and, therefore, it is essential that the product sought to be subjected to excise duty should have gone through the process of manufacture.
90. 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.
91. Now we propose to examine the other main issue involved in the case, whether in the guise of the Circular the respondents have in fact brought out a revenue legislation for imposing excise duty. The other obvious question which arises for adjudication is whether according to the ambit and scope of Section 37B Excise Duty can be imposed? In order to properly comprehend Section 37B of the Act it is necessary to reproduce Section 37-B, which reads as under :
“Instructions to Central Excise Officers. - The Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963), may, if it considers it necessary or expedient so to do for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods, issue such orders, instructions and directions to the Central Excise Officers as it may deem fit, and such officers and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the said Board :
Provided that no such orders, inst ructions or directions shall be issued -
(a) so as to require any Central Excise Officer to make a particular assessment or to dispose off a particular case in a particular manner; or
(b) so as to interfere with the discretion of the Commissioner of Central Excise (Appeals) in the exercise of his appellate functions.”
92. Division Bench of Gujarat High Court in Genset Engineers Pvt. Limited v. Union of India reported as (Guj.) held that “It is clear from Section 37B that the Administrative orders instructions and directions have to be observed by the excise authorities who are bound by such orders. Nevertheless, the section has taken particular care to see that the authorities who will be acting as quasi judicial authorities are protected from such type of directions or instructions.
93. In Orient Paper Mills v. Union of India reported as 1978 (2) E.L.T. (J345) (S.C.) = AIR 1969 SC 48 their Lordships of the Supreme Court has laid down that quasi judicial authorities should not allow their judgment to be influenced by administrative considerations or by the instructions or directions given by their superior. Therefore, instructions issued by the Board are not binding upon the adjudicating authority.
94. The impugned Circular was issued by the executive and sent to all Chief Commissioners of Central Excise, all Director General of Central Excise, all Commissioners of Central Excise (Appeals) and all Commissioners of Central Excise. Some of these bodies discharge quasi judicial functions. 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.
95. Whenever any authority is conferred with the power to determine certain questions in judicial and/or quasi judicial manner, the authority is required to exercise the power conferred upon him as per his own discretion. This is the essence of judicial and quasi judicial function. The authority exercising such powers cannot be influenced by any directions, instructions or the Circulars that may be issued by any other agency. Consequently, the Circular issued by the respondents cannot be permitted to interfere with the discretion of the judicial and quasi judicial authorities.
96. 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.
97. 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.
98. Before, we part with this case, we would like to place on record our deep sense of appreciation to Mr. V. Lakshmikumaran, who had very ably assisted the court as an Amicus Curiae.