Case: Union Of India Vs. Hindu Undivided Family Business Known As Ramlal Mansukhra

1. This appeal by certificate arises out of proceedings started by institution of a suit by the respondents, challenging the imposition of excise duty on circles of kansi and brass prepared hi the process of manufacturing utensils. The facts, which have been found by the High Court of Punjab and Haryana and the lower courts and which are not disputed, are that the respondents carry on business, at Rewari, of manufacturing kansi and brass utensils. For that purpose, they procure copper, tin and zinc. Kansi is prepared as an alloy of copper and tin, and brass as an alloy of copper and zinc. These alloys are prepared by melting the metals and mixing them together. These alloys are then converted into billets. These billets are thus of two kinds, viz., of kansi and of brass. These billets are then sent by the respondents to their agent who runs a rolling mill in Rewari, and the rolling mills roll the bulets into uncut circles. Subsequently, these uncut circles are trimmed and, after further work on them, they are converted into utensils and sold as such in the market by the respondents. The appellant imposed excise duty at the stage when the rolling mills prepared circles from the billets under Item 26-A of the First Schedule read with Section 3 of the Central Excises and Salt Act. No. 1 of 1944 (hereinafter referred to as "the Act"). The relevant provisions of the Act are, for convenience reproduced below:-Item 26-A of the First Schedule is as follows:Description of goodsRate of dutyCopper and copper alloys containing not less than fifty per cent, by weight ofany crude form including ingots, bars, blocks, slabs, billets, shots and pellets.Three hundred rupees per metric tonne.(2)Manufactures, the following, namely, plates, sheets, circles, strips and foils in any form or size.Five hundred rupees per metric tonne.(3)Pipes and tubes . . .Ten per cent, ad valorem.Section 3 (1) reads asshall 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 Firstmay be added that we have quoted this item as it stood at the relevant time and have ignored the subsequent amendment under which the rates have been increased.3. The excise duty was levied by the appellant on the basis that, at the stage when the billets were rolled into circles, the process of manufacture of circles was complete and, consequently, these circles because liable to excise duty at the rate mentioned against Item 26-A (2) quoted above. The respondents claimed that the product, as it appeared in the form of uncut circles after rolling of billets by the rolling mills, could not be called circles in the sense in which this word is used in Item 26-A (2); and, further, that the circles were prepared without undergoing any such changes as could be held to amount to manufacture, so that the circles at that stage were not liable to excise duty under this item. The trial Court decreed the suit, holding that these circles were not liable to excise duty; and that decree was upheld by the appellate Court and, in second appeal, by the High Court. It is this decision that has been challenged in this appeal by the Union of India, after obtaining certificate under Article 133 (1) (c) of the Constitution from the High Court.

Reasoning:
7. Dr. Barlingay, relying on these two decisions of this Court, urged a further point that, when the billets were rolled into circles, no process of manufacture was carded out and, consequently, excise duty could not be charged under Item 26-A which imposes the liability only when goods like circles are manufactured. Reliance was placed on the interpretation of the word "manufacture" given in both the cases where it was indicated that manufacture implies the bringing into existence of a new substance known to the market. According to the respondents, the conversion of billets into circles did not bring any new substance into existence, nor did it bring into existence any completed product, so that there was no process of manufacture which alone could render the circles liable to excise duty. This argument again appears to be based on a misunderstanding of the law. There is, first, the circumstance that, in Item 26-A itself, the legislature has laid down that excise duty shall be leviable on billets at a lower rate and on manufactures of circles at a higher rate. This provision itself makes it clear that the legislature was aware that billets are converted into circles, and it was decided that excise duty should be leviable at both stages. When the legislature used the word "manufacture" in connection with circles, after having taken account of the fact that billets were already subjected to excise duty, it is obvious that the process, by which the billets were converted into circles, was held by the legislature to amount to manufacture. The word "manufacture" is defined in Sec. 2 (f) of the Act as including any process incidental or ancillary to the completion of a manufactured product. The rolling of a billet into a circle is certainly a process in the course of completion of the manufactured product, viz., circles. In the present case, as we have already indicated earlier, the product, that is sought to be subjected to duty, is a circle within the meaning of that word used in Item 26-A(2). In the other two cases which came before this Court, the articles mentioned in the relevant items of the First Schedule were never held to have come into existence, so that the completed product, which was liable to excise duty under the First Schedule, was never produced by any process. In the case before us, circles in any form are envisaged as the completed product produced by manufacture which are subjected to excise duty. The process of conversion of billets into circles was described by the legislature itself as manufacture of circles.8. A second aspect is that, so far as the respondents are concerned, they start the process of manufacture of utensils by initially taking metals in crude form as raw materials. Two different kinds of metals in each case are mixed together to prepare alloys of kansi and brass. These alloys are then brought into the form of billets and, later on, the billets are rolled into circles. It cannot be contended that the whole of this process cannot be described as manufacture of circles. In this process of manufacture of circles, there are two stages. At the first stage, billets are produced and, at the second stage, circles. In any case, it has to be held that the circles thus prepared are the result of the process of manufacture. The end-result of this process of manufacture is the production of circles in some form which is envisaged as the goods to be subjected to excise duty. The excise duty was, therefore, correctly levied by the appellant.