Case: Municipal Corpn. of Gr. Bombay Vs. Devidayal Electronics and Wires Limited

M.L. PENDSE, J. ( 1 ) THIS is an appeal preferred by Bombay Municipal Corporation to challenge legality of judgment dated October 11, 1990 delivered by learned Single Judge in Writ Petition No. 1515 of 1984. By the impugned judgment, the trial Judge held that the Corporation was not justified in refusing the benefit of exemption of Rule 7 of the Bombay Municipal Corporation Exemption from Octroi (Free Gift, etc.) Rules, 1966 (hereinafter referred to as the rules) to the respondent no. 1 Company. The learned Judge also issued an injunction restraining the Corporation from refusing exemption of Rule 7 to the Company in respect of imports of goods for the purpose of processing as set out in the petition. The learned Judge also directed the Corporation to refund octroi duty collected on such imports from April 29, 1983 onwards. To appreciate the grievance of the Corporation, it is necessary to set out some statutory provisions. ( 2 ) CHAPTER VIII of the Bombay Municipal Corporation Act enables the Corporation to levy various kinds of taxes including octroi. Section 192 provides that the Corporation can levy octroi duty in respect of entry of the articles into Greater Bombay for consumption, use or sale therein. Section 195 of the Act provides that when any articles upon which octroi has been paid is exported from Greater Bombay, then such amount of tax as specified in sub-section (1a) shall be refunded. Sub- section (1a) sets out the quantum of amount of refund. In pursuance of the powers conferred under the Act, the Municipal Corporation has framed rules known as Bombay municipal Corporation (Levy) of Octroi Rules, 1965. The Corporation has also framed rules known as Bombay Municipal Corporation Exemption from Octroi (Free Gift, etc.) Rules, 1966. Part II of these Rules sets out exemptions granted in respect of various articles imported or exported for temporary purpose. Rule 7 deals with "exemption of articles imported or exported temporarily for the purposes of inspection, demonstration, exhibition, repairs, processing or such other similar purposes. " Rule 7, inter alia, provides that articles liable to octroi which are temporarily imported into Greater Bombay for the purposes of processing or for such other similar purposes as may be exempted from octroi on certain conditions. The importer is required to apply in writing in Form f provided for that purpose. Sub-rule (4) of Rule 7 imposes a condition that no change of form, condition or appearance is involved except to the extent inherent in the processing or repairs allowed. Sub-rule (6) (b) of Rule 7 reads as follows:"(b) For the purposes of this rule, processing shall include - (1) Dyeing, bleaching, painting, printing, finishing, entering, embroidering, doubling, twisting, metallising and electroplating, (2) Building and mounting of bodies over chassis of vehicles of all kinds, and shall also include such other processes as may be approved by Commissioner from time to time. The decision of the Municipal Commissioner in this respect shall be final."( 3 ) THE respondent No. 1 is a Public Limited Company governed by the provisions of the companies Act and runs a factory situated at Pokharan Road No. 2, Thane, outside the municipal limits of Corporation of Greater Bombay. The Company manufactures super enameled copper wires, covered round and rectangular copper conductors, steel and allow steel wires and heat resistance wires. In respect of manufacture of these products at the Factory, the company uses electrolytic copper as one of the main raw materials. The electrolytic copper is either imported directly from abroad and cleared through customs or purchased from Mines and minerals Trading Corporation against their release orders. The electrolytic copper is obtained in the form of wire bards and wire rods and the same cannot be used directly in the manufacture of the articles at the factory as the Company needs wire rods in smaller sizes for manufacturing activities. The Company, therefore, forward the imported wire bars or wire rods released by mines and Minerals Trading Corporation to processing units in Bombay and situated within the municipal limits of the appellant No. 1 - Corporation. The Processing Units merely reduce the thickness of the wire bars in accordance with the requirement of the Company. The said wire bars then are collected by the Company from the processors on a weight to weight basis and transported to the factory at Thane. Apart from the change in the dimension, no other change takes place in the wire bars, nor the quantity is reduced. On April 29, 1983 the Company addressed letter to the Deputy Municipal Commissioner demanding r form facility in respect of wire bars which are temporarily imported into Greater Bombay for processing and then exported to Thane within the period prescribed by Bombay municipal Octroi Rules. The Company asserted that the process does not involve any change in form, condition or appearance except to the extent inherent in the processing. The Deputy assessor and Collector by letter dated September 13, 1983 informed the Company that the request for grant of r form facility for import in Bombay of copper wire bars for conversion into copper wire rods cannot be considered for want of suitable provision in the Bombay municipal Corporation Act and the Octroi Rules framed thereunder. The Company then addressed letter dated October 13, 1983 to the Municipal Commissioner setting out in detail the process carried out by the processors in Bombay and reiterating the request for grant of r form facility. The Company pointed out that the demands squarely fall within Rule 7 of the Rules framed user the provisions of Section 195-1a of the Bombay Municipal Corporation Act. In reply, on November 17, 1983, the Deputy Assessor and Collector informed the Company that nothing can be added further to what has been informed earlier by letter dated September 18, 1988. In other words, the prayer for grant of exemption was turned down.( 4 ) THE Company thereunder preferred Writ Petition under Article 226 of the Constitution of India before the learned Single Judge. The Company claimed that exemption from payment of octroi duty user Rule 7 is required to be granted as the Company satisfied all the ingredients of rule 7. The Municipal Corporation, in spite of the pendency of the petition for over six years, did not care to file any return and did not dispute the process which was undertaken by the processors in Bombay and which has been exhaustively set out by the Company in the petition. The Corporation resisted the reliefs sought on the ground that the process claimed by the company is really manufacturing activity as it brings complete transformation of the identity of the material imported. The Corporation also claimed that the list of processing activities is exhaustively set out under sub-rule (6) (b) of Rule 7 and the activity of processing claimed by the Company does not fall within any of the activities set out in the sub-rule. It was further claimed that the decision of the Municipal Commissioner as to whether exemption should be granted or not is made final and, therefore, it is not permissible to compel the Corporation to grant exemption. The trial Judge by impugned judgment held that the activity undertaken by the processors within the limits of Bombay Municipal Corporation at the behest of the Company is purely processing activity and cannot be treated as manufacturing activity. The trial Judge further held that as the activity of the Company within Greater Bombay is merely processing, the benefit of exemption under Rule 7 cannot be declined. The decision of the trial Judge is under challenge. ( 5 ) SHRI Dalal, learned counsel appearing on behalf of the Corporation, reiterated the contentions raised before the trial Court. The first question which requires determination is whether the activity referred to by the respondents in the original petition amounts to processing or manufacturing activity. The expression "process" connotes several meanings and means different things in different context. The word "process" in relation to the Octroi Rules means to subject a particular product or a commodity with the object of making it fine or improving its quality. By the activity of processing, the commodity cannot be transformed into a new commodity. Rule 7 prescribes that articles liable to octroi which are temporarily imported into Greater Bombay for the purpose of inspection, demonstration, exhibition, repairs, processing or any such other similar purposes as may be exempted from octroi. The rule then provides for certain conditions and sub-rule (4) reads as follows. ""no change of form, condition or appearance is involved except to the extent inherent in the processing or repairs allowed."Sub-rule (6) (b) sets out that for the purposes of this rule, processing shall include certain activities and sub-rule (6) (b) (2) confers power upon the Commissioner to include in the list such other processes. The plain reading of sub-rule (4) and sub-rule (6) makes it clear that the process has to be one which does not bring about transformation of one commodity into a totally different commodity.( 6 ) THE first question which requires answer is whether the process employed in the case of bars and rods is a process which can be treated as a manufacturing activity as claimed by the corporation. It is now well-settled by catena of decisions that the expression manufacture implies change, but every change is not manufacture. Before an activity can be considered as manufacture, what is necessary is not merely a change as a result of treatment, labour or manipulation but a transformation and a new and different article must emerge having a distinct name, character, or use. The trail Judge found that wire bars and wire rods are sent by the company to processing units located in Greater Bombay with the object to reduce the thickness of wire bars. The wire bars of which thickness is reduced are ultimately used by the Company in the factory for manufacture of various articles. The process undertaken within the limits of municipal Corporation of Greater Bombay is only to reduce the thickness of the wire bards or wire rods. It is not in dispute that by reduction of thickness, wire bars and wire rods do not lose its weight except for a fractional loss of 1%. It is also not in dispute that there is no change in the chemical composition of the product by the process undertaken. The trial Judge, therefore, held and, in our judgment, very rightly that the process can by no stretch of imagination be treated as manufacturing activity. Shri Dalal submitted that wire bards imported by the Company admeasure 16 sq. inch rectangular pieces, each weighing about 100 Kgs. and wire rods are received in the sizes of 6 mm to 10 mm. The learned counsel urged that the process undertaken is of rolling them to smaller sizes or flattening to rectangular shapes and the process of rolling comprises of heating the wire bars in furnace and passing the same between two rolls repeatedly reducing the size at every pass till the desired size is obtained. Shri Dalal submits that this process of heating the bards in furnace must be treated as a manufacturing activity. It is impossible to accede to the submission. Every activity which demands heating of the object cannot be treated as a manufacturing activity. Take for instance, gold or silver bars which undergo heating process at hands of goldsmith for reducing the size of the bars. Can it by any stretch of imagination be suggested that a different article with distinct character and identity as known in the market has come into existence The process is only for the purpose of reducing the size of the bars into smaller bars and, in our judgment, such process cannot be treated as manufacturing activity and squarely falls within the processing activity. Shri Dalal referred to the decision of the Supreme Court reported in 1978 (2) Excise Law Times 389 (Union of India v. Hindu Undivided Family Business known as Ramlal Mansukhrai, Rewari and Another) and A. I. R. 1977 Supreme Court 90 (The South Gujarat Roofing Tiles Manufacturers Association and another v. The State of Gujarat and Another) but the reliance on these authorities is not appropriate. The question which came up before the Supreme Court for consideration has no bearing to the question falling for determination in this appeal. The issue as to whether the particular activity amounts to processing or manufacturing has to be determined with reference to the facts of each case. In our judgment the trial Judge was perfectly right in concluding on the facts and circumstances of the case that the activities of reducing size of wire bars and wire rods amount to processing and not manufacturing. It is also required to be stated that as the Corporation had not cared to file affidavit before the learned Single Judge and while denying reliefs sought by the Company, the letters written by deputy Assessor and Collector (Octroi) assign no reasons, we called upon the counsel for the company to produce for our perusal the wire bars ad wire rods which are imported for the purpose of processing and which are subsequently transported to the factory after reducing the size. The learned counsel produced the wire bars and wire rods which were reduced in size and also the photographs of the original wire bars and wire rods. The original wires and bars could not be produced because of its huge size. Shri Dalal for the Corporation did not dispute that the articles produced by the respondents are those which were imported within the limits of the corporation and subsequently exported. On perusal of the articles, we have no hesitation in concluding that the activities undertaken within the limits of the Corporation are purely of processing and not manufacturing. It hardly requires to be stated that the right to recover octroi duty arises when the article is imported for the purposes of use, sale or consumption and processing activity cannot be considered as use of the article.( 7 ) SHRI Dalal then submitted that even assuming that the activities undertaken by the Company within the local limits of the Corporation are merely one of processing, still the advantage of rule 7 is not available. The learned counsel referred to sub-rule 6 (b) (1) and claimed that the activities set out under this sub-rule are the only activities which fall within expression "processing" while considering grant of exemption under Rule 7. The learned counsel while advancing this submission overlooks the provisions of sub-rule (4) of Rule 7 and sub-rule 6 (b) (2) which entitle the Commissioner to include any other process in the list of process set out under sub-rule (b) (1) of Rule 7. Shri Dalal submitted that as the Commissioner has rejected the claim of the Company, the decision is final in accordance with sub- rule (6) (b) (2 ). The submission overlooks that the decision is final as far as the Corporation is concerned and cannot bind the Court exercising powers under Article 226 of the Constitution of India. There is one more aspect of the matter which cannot be overlooked. The decision was communicated to the company by Deputy Assessor and Collector (Octroi) and who is not the Commissioner. Even assuming that the decision was communicated by Deputy Assessor and Collector in pursuance of the orders issued by the Commissioner, still two letters do not set out any reasons for denying the relief to the appellants. Shri Dalal also referred to the list of process which was approved by the commissioner for granting exemption and urged that the process undertaken by the Company does not fall within any of the 29 categories. The submission is not correct because Item 6 refers to heat treatment and even assuming that the list prepared by the Commissioner does not include the process referred to by the Company, still taking into consideration the provisions of sub-rule (4) of Rule 7, we are unable to appreciate why the advantage of Rule 7 should be denied to the company. In these circumstances we do not find any infirmity in the reasons and conclusions recorded by the trial Judge and the appeal must fail.

Decision reasoning: 0[ds]( 6 ) THE first question which requires answer is whether the process employed in the case of bars and rods is a process which can be treated as a manufacturing activity as claimed by the corporation. It is nowby catena of decisions that the expression manufacture implies change, but every change is not manufacture. Before an activity can be considered as manufacture, what is necessary is not merely a change as a result of treatment, labour or manipulation but a transformation and a new and different article must emerge having a distinct name, character, or use. The trail Judge found that wire bars and wire rods are sent by the company to processing units located in Greater Bombay with the object to reduce the thickness of wire bars. The wire bars of which thickness is reduced are ultimately used by the Company in the factory for manufacture of various articles. The process undertaken within the limits of municipal Corporation of Greater Bombay is only to reduce the thickness of the wire bards or wire rods. It is not in dispute that by reduction of thickness, wire bars and wire rods do not lose its weight except for a fractional loss of 1%. It is also not in dispute that there is no change in the chemical composition of the product by the process undertaken. The trial Judge, therefore, held and, in our judgment, very rightly that the process can by no stretch of imagination be treated as manufacturing activity. Shri Dalal submitted that wire bards imported by the Company admeasure 16 sq. inch rectangular pieces, each weighing about 100 Kgs. and wire rods are received in the sizes of 6 mm to 10 mm.The learned counsel urged that the process undertaken is of rolling them to smaller sizes or flattening to rectangular shapes and the process of rolling comprises of heating the wire bars in furnace and passing the same between two rolls repeatedly reducing the size at every pass till the desired size is obtained. Shri Dalal submits that this process of heating the bards in furnace must be treated as a manufacturingactivity. It is impossible to accede to the submission. Every activity which demands heating of the object cannot be treated as a manufacturing activity. Take for instance, gold or silver bars which undergo heating process at hands of goldsmith for reducing the size of the bars. Can it by any stretch of imagination be suggested that a different article with distinct character and identity as known in the market has come into existence The process is only for the purpose of reducing the size of the bars into smaller bars and, in our judgment, such process cannot be treated as manufacturing activity and squarely falls within the processing activity. Shri Dalal referred to the decision of the Supreme Court reported in 1978 (2) Excise Law Times 389  (Union of India v. Hindu Undivided Family Business known as Ramlal Mansukhrai, Rewari and Another) and A. I. R. 1977 Supreme Court 90 (The South Gujarat Roofing Tiles Manufacturers Association and another v. The State of Gujarat and Another) but the reliance on these authorities is not appropriate. The question which came up before the Supreme Court for consideration has no bearing to the question falling for determination in this appeal. The issue as to whether the particular activity amounts to processing or manufacturing has to be determined with reference to the facts of each case. In our judgment the trial Judge was perfectly right in concluding on the facts and circumstances of the case that the activities of reducing size of wire bars and wire rods amount to processing and not manufacturing. It is also required to be stated that as the Corporation had not cared to file affidavit before the learned Single Judge and while denying reliefs sought by the Company, the letters written by deputy Assessor and Collector (Octroi) assign no reasons, we called upon the counsel for the company to produce for our perusal the wire bars ad wire rods which are imported for the purpose of processing and which are subsequently transported to the factory after reducing the size. The learned counsel produced the wire bars and wire rods which were reduced in size and also the photographs of the original wire bars and wire rods. The original wires and bars could not be produced because of its huge size. Shri Dalal for the Corporation did not dispute that the articles produced by the respondents are those which were imported within the limits of the corporation and subsequently exported. On perusal of the articles, we have no hesitation in concluding that the activities undertaken within the limits of the Corporation are purely of processing and not manufacturing. It hardly requires to be stated that the right to recover octroi duty arises when the article is imported for the purposes of use, sale or consumption and processing activity cannot be considered as use of thelearned counsel while advancing this submission overlooks the provisions of(4) of Rule 7 and6 (b) (2) which entitle the Commissioner to include any other process in the list of process set out under(b) (1) of Rulesubmission overlooks that the decision is final as far as the Corporation is concerned and cannot bind the Court exercising powers under Article 226 of the Constitution of India. There is one more aspect of the matter which cannot be overlooked. The decision was communicated to the company by Deputy Assessor and Collector (Octroi) and who is not the Commissioner. Even assuming that the decision was communicated by Deputy Assessor and Collector in pursuance of the orders issued by the Commissioner, still two letters do not set out any reasons for denying the relief to the appellants. Shri Dalal also referred to the list of process which was approved by the commissioner for granting exemption and urged that the process undertaken by the Company does not fall within any of the 29 categories. The submission is not correct because Item 6 refers to heat treatment and even assuming that the list prepared by the Commissioner does not include the process referred to by the Company, still taking into consideration the provisions of(4) of Rule 7, we are unable to appreciate why the advantage of Rule 7 should be denied to the company. In these circumstances we do not find any infirmity in the reasons and conclusions recorded by the trial Judge and the appeal must fail.