Case: The Gramophone Co. of India Ltd Vs. The Collector of Customs, Calcutta

music recorded on audio cassettes which was a service activity akin to photo-processing industry and could not be called a manufacturing activity and therefore the appellant was not entitled to have the contract registered under Project Import Regulation, 1986. 7. The sole question arising for decision is whether the activity in which the appellant is engaged amounts to a process necessary for manufacture or production of a commodity or its activity is designed merely to offer services of any description. 8. Paras 3, 4 and 5 of Project Imports Regulations, 1986 which are relevant for the decision of this appeal are extracted and reproduced hereunder :- 3. Definitions - For the purposes of these regulations : (1) "industrial plants" means an industrial system designed to be employed directly in the performance of any process necessary for manufacture, production or extraction of a commodity, but does not include - (i) establishment designed to offer services of any description such as hotels, hospitals, photographic studios, photographic film processing laboratories, photocopying studios, laundries, garages and workshops; or (ii) a single machine or a composite machine, within the machine assigned to it, in Notes 3 and 4 to Section XVI of the said First Schedule : 4. Eligibility - The assessment under the said heading No. 98.01 shall be available only to those goods which are imported (whether in one or more than one consignment) against one or more specific contracts, which have been registered with the appropriate Customs House in the manner specified in regulation 5 and such contract or contracts has or have been or registered. 5. Registration of contracts. (1) Every importer claiming assessment of the goods falling under the said heading No. 98.01 on or before their importation shall apply in writing to the proper officer at the port where the goods are to be imported or where the duty is to be paid for registeration of the contract or contracts as the case may be." 9. It is not disputed that the machine forming subject matter of the contract in question enables duplicating of audio cassettes from the mother cassette. The mother cassette is loaded in the machine and on being operated the machine multiples the audio recording on several audio cassettes of a specified number at a high speed. The blank audio cassettes are converted into pre-recorded audio cassettes. This activity is systematically carried on large scale and such pre-recorded audio cassettes are offered in bulk sale to the traders who in turn offer the same for sale to consumers. 10. According to the appellant the various activities involved in the manufacture of a pre-recorded audio-cassette are as under : (i) Preparation of a master tape in the studio; (ii) Manufacture of plastic cassettes parts, like cassette body, leather case, etc. from plastic raw material with the help of injection moulding facility; (iii) Assembly of cassette parts to make a C-O tape; (iv) High Speed transfer of music signals from 1/2" master tape to 1/8" pancakes; (v) Assembly of recorded pancakes into cassettes; (vi) Polymeric plate making for printing machines; (vii) Printing of information on cassette body; (viii) Printing of inlay cards; (ix) testing and cellowrapping of the finished cassettes. The machines which were the subject of the Contract dated 6.11.1989 were required for the 4th mentioned item, namely, high speed transfer of music signals from 1/2" Master Tape to 1/8" pancakes. 11. The term `manufacture is not defined in the Customs Act. In the allowed Act, namely the Central Excise Act, 1944 also, the term `manufacture is not to be found defined though vide clause (f) of Section 2 an inclusive definition is given of the term `manufacture so as to include certain processes also therein. 12. `Manufacture came up for the consideration of Constitution Bench in M/s Ujagar Prints v. Union of India, 1988(38) ELT 353 SC. It was held that if there should come into existence a new Article with a distinctive character and use, as a result of the processing, the essential condition justifying manufacture of goods is satisfied. The following passage in the Permanent Edition of "Words and Phrases" was referred to with approval in Delhi Cloth and General Mills AIR 1963 SC 791 , 795 :- "Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use." 13. In a series of decisions [to wit, Decorative Laminates (India) Pvt. Ltd. - 1996(88) ELT 186, Union of India v. Parle Products Pvt. Ltd - 1994(74) ELT 492, Laminate Packing (P) Ltd. - 1990(49) ELT 326, Empire Industries Limited - 1985(20) ELT 179] the view taken consistently by this Court is that the moment there is transformation into a new commodity commercially known as a distinct and separate 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. Pre-recorded audio cassettes are certainly goods known in the market as distinct and different from blank audio cassettes. The two have different uses. A pre-recorded audio cassette is generally sold by reference to its name or title which is suggestive of the contents of the audio recording on the cassette. The appellant is indulging in a mass production of such pre-recorded audio cassettes. It is a manufacturing activity. The appellants activity cannot be compared with a person sitting in the market extending facility of recording any demanded music or sounds on a blank audio cassette brought by or made available to the customer, which activity may be called a service. The Tribunal was not right in equating the appellants activity with photo-processing and holding the appellant a service industry.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]11. The term `manufacture is not defined in the Customs Act. In the allowed Act, namely the Central Excise Act, 1944 also, the term `manufacture is not to be found defined though vide clause (f) of Section 2 an inclusive definition is given of the term `manufacture so as to include certain processes also therein.`Manufacture came up for the consideration of Constitution Bench in M/s Ujagar Prints v. Union of India, 1988(38) ELT 353 SC. It was held that if there should come into existence a new Article with a distinctive character and use, as a result of the processing, the essential condition justifying manufacture of goods is satisfied. The following passage in the Permanent Edition of "Words and Phrases" was referred to with approval in Delhi Cloth and General Mills AIR 1963 SC 791 , 795implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use.In a series of decisions [to wit, Decorative Laminates (India) Pvt. Ltd.1996(88) ELT 186, Union of India v. Parle Products Pvt. Ltd1994(74) ELT 492, Laminate Packing (P) Ltd.1990(49) ELT 326, Empire Industries Limited1985(20) ELT 179] the view taken consistently by this Court is that the moment there is transformation into a new commodity commercially known as a distinct and separate 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.audio cassettes are certainly goods known in the market as distinct and different from blank audio cassettes. The two have different uses. Aprerecorded audio cassetteis generally sold by reference to its name or title which is suggestive of the contents of the audio recording on the cassette. The appellant is indulging in a mass production of suchaudio cassettes. It is a manufacturing activity. The appellants activity cannot be compared with a person sitting in the market extending facility of recording any demanded music or sounds on a blank audio cassette brought by or made available to the customer, which activity may be called a service. The Tribunal was not right in equating the appellants activity withand holding the appellant a service industry.