Case: Prestige Engineering Ltd. and Ors Vs. Collector of Central Excise, Meerut and Ors

1. This appeal preferred under Section 35-L of the Central Excises a Salt Act, 1944 raises a question as to the true meaning and purport Notification No. 199/75-C.E. dated 30-4-1975 issued by the Central Government under Rule 8(1) of the Central Excise Rules, 1944. The notification reads asto goods produced on the job work basis : In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), manufactured in a factory as a job work from so much of the duty of excise leviable thereon as is excess of the duty calculated on the basis of the amount charged for the job workExplanation. - For the purposes of this notification, the expression job work shall mean such items of work where an article intended to undergo manufacturing process is supplied to the job worker and that article is returned by the job worker to the supplier, after the article has undergone the intended manufacturing process, on charging only for the job work done by him."Since there is no dispute as to the facts found by the Tribunal, we shall state the relevant facts from the order under appeal. As a matter of fact a number of questions were raised before the Tribunal, of which we are concerned only with one, viz., the one pertaining to the Notification No. 119/75. We shall, therefore, state the facts insofar as they are relevant to the saidThe appellant had entered into an agreement with M/s. Modipon Limited Modi Nagar whereunder Modipon was to supply steel pipes from which the appellant was to manufacture cops (falling under Tariff Item No. 68 of the Central Excise Tariff Schedule in force at the relevant time). The process of manufacture of new cops is stated by the Tribunal - it is in fact drawn from the memorandum of appeal filed by the appellant before the Tribunal - in the followingof new cops is carried out by first fitting the guide rings and strengthening rings in the steel pipes which are obtained from the customer. The centre guide rings and the strengthening rings are purchased. This was being done without the aid of power, i.e., by hand. After the rings were fitted, the adopters were also fitted on the sides of a cop in the same manner as it is done for repairs. The plastic sleeves are then fitted on cylinders of the cop. All this process is carried out without the aid of power in the Factory."From the above process, it is clear that Modipon supplied steel pipes only. The appellant purchased centre guide rings and the strengthening rings which were fitted inside the steel pipes to lend them strength. After the rings were so fitted, adopters were fitted on the sides of the cops and thereafter plastic sleeves fitted on the cylinders of the cops. Though in the above extract it was asserted by the appellant that all the said process was carried out without the aid of power, it was admitted before the Tribunal (paragraph 11 of the order under appeal) that the process of fitting the inner rings strengthening rings and guide rings was got done by the appellant through another unit with the aid of power. Be that as it may the question is whether the benefit of Notification No. 119/75 can be claimed by the appellant ? If the appellant is notable to claim the benefit of the notification, the value of cops manufactured by it would be its full value including the value of steel pipes supplied by Modipon. But in case the notification ensures to his benefit, be would be liable to pay duty only on the value of the job work undertaken by him. In short, the question is whether the manufacturing process undertaken by him was in the nature of job work within the meaning of the notificationThe crucial words employed in the notification are "goods falling under Item No. 68 .... manufactured in a factory as a job work ...". The expression manufacture is defined by clause (f) of Section 2 whereas the expression factory is defined in clause (e). The definitions read as(f) manufacture includes any process;(i) Incidental or ancillary to the completion of a manufactured product;(ii) which is specified in relation to any goods in the Section or Chapter Notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufactureand the word manufacturer 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;(e) factory means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on;"So far as the expression "job work" is concerned, it is not defined in the Act but in the notification itself. The Explanation appended to the notification defines it for the purposes of the said notification. It says that job work shallitems of work where an article intended to undergo manufacturing process is supplied to the job worker and that article is returned by the job worker to the supplier, after the article has undergone the intended manufacturing process, on charging only for the job work done by

Reasoning:
16. In our opinion, while the Calcutta and Gujarat High Courts have by and large understood the notification correctly, their reasoning is vitiated by their omission to understand the expression manufacture in the sense it is defined in the Act. Both the High Courts have understood the expression manufacture in its ordinary/normal sense (as pointed out by this Court in Delhi Cloth and General Mills Ltd. Indeed, they have not even referred to the definition in Section 2(f) of the Act. Once an expression is defined in the Act, that expression wherever it occurs in the Act, rules or notifications issued thereunder, should be understood in the same sense. Indubitably, the definition of manufacture in Section 2(f) endows a wider content to the expression; several processes which would not ordinarily be understood as amounting to manufacturing are specifically included within its ambit. Clauses (i) and (ii) of the definition make this aspect clear beyond any doubt. In this connection, it must be remembered that even the unamended definition of manufacture included within the ambit of the definition several processes and activities which would not otherwise have amounted to manufacture. The unamended definition contained as many as eight sub-clauses. Sub-clause (iv), for example, stated that in relation to goods comprised in Item No. 18-A of the First Schedule, the expression manufacture includes sizing, beaming, warping, wrapping, winding and reeling or any one or more or these processes or the conversion of any form of the said goods into another form of such goods. (Item 18-A of the First Schedule pertained to "cotton yarn - all sorts".)15. In view of the conflict of opinion on the question, a Special Bench of five members of CEGAT was constituted to consider the issue. The decision of the Special Bench is reported in National Organic Chemical Industries Ltd. v. Collector of Central Excise. The facts considered by the Special Bench are : The appellants were manufacturing ethylene. They bought chlorine for that purpose. M/s. Calico Chemicals, who may be called a customer, also used to make available chlorine to the appellants. The appellants got chlorine reacted with ethylene for conversion into vinyl chloride. A part of vinyl chloride so manufactured by the appellants was delivered to Calico Chemicals, calculated with reference to an agreed formula. The balance vinyl chloride was utilised by the appellants for further conversion into polyvinyl chloride.The question was whether the vinyl chloride that was delivered to Calico Chemicals by the appellants attracted excise duty on the value of the said vinyl chloride or whether the appellants were liable to pay duty only on the amount charged by them as conversion charges.From the facts afore stated, it is clear that only a part of the material required for manufacturing vinyl chloride was supplied by Calico Chemicals and part of the material, namely, ethylene utilised for the said manufacture belonged to the appellants itself. Upon those facts and after considering the several decisions of the High Courts and also the earlier decisions of the various Benches of CEGAT, the Special Bench took the view that the benefit of the said notification is confined only to those processes which are incidental or ancillary to the completion of the manufactured productreference is to the definition of the expression manufacture in Section 2(f) of the Actand not to the usual activities that are normally understood as comprised in the activity of manufacture. The Special Bench held that to enable a person to claim the benefit of the said notification, he will have to receive an article from the customer, subject the same to the manufacturing process in the nature of a process incidental or ancillary to the completion of the manufactured product and then return the said article to the customer recovering from the customer charges for such activity only. The Special Bench laid emphasis on the Explanation which says that the article which is supplied by the customer to the job worker, that very article must come back to the supplier, after undertaking the manufacturing process. The manufacturing process contemplated by the said notification, the Special Bench held, is only that process which is incidental or ancillary to the completion of the manufacturing product. The Special Bench disagreed with the Calcutta and Gujarat High Courts insofar as they held that since manufacture necessarily involves emergence of new goods, such emergence of new goods cannot be a ground for denying the benefit of the notification. The Special Bench laid emphasis on the definition of the expression manufacture in Section 2(f) of the Act and pointed out that the said expression is not confined to its ordinary connotation pointed out by this Court in Union of India v. Delhi Cloth and General Mills Ltd.In our opinion, while the Calcutta and Gujarat High Courts have by and large understood the notification correctly, their reasoning is vitiated by their omission to understand the expression manufacture in the sense it is defined in the Act. Both the High Courts have understood the expression manufacture in its ordinary/normal sense (as pointed out by this Court in Delhi Cloth and General Mills Ltd. Indeed, they have not even referred to the definition in Section 2(f) of the Act. Once an expression is defined in the Act, that expression wherever it occurs in the Act, rules or notifications issued thereunder, should be understood in the same sense. Indubitably, the definition of manufacture in Section 2(f) endows a wider content to the expression; several processes which would not ordinarily be understood as amounting to manufacturing are specifically included within its ambit. Clauses (i) and (ii) of the definition make this aspect clear beyond any doubt. In this connection, it must be remembered that even the unamended definition of manufacture included within the ambit of the definition several processes and activities which would not otherwise have amounted to manufacture. The unamended definition contained as many as eighte (iv), for example, stated that in relation to goods comprised in Item No.of the First Schedule, the expression manufacture includes sizing, beaming, warping, wrapping, winding and reeling or any one or more or these processes or the conversion of any form of the said goods into another form of such goods. (Itemof the First Schedule pertained to "cotton yarne Concise Oxford Dictionary assigns several meanings to the expression job but the relevant meaning having regard to the present context is "a piece of work especially one done for hire or profit". The expression "job work" is assigned the following meaning : "Work done and paid for the job." The notification, it is evident, was conceived in the interest of small manufacturers undertaking job works. The idea behind the notification was to help the job workerspersons who contributed mainly their labour and skill, though done with the help of tools, gadgets or machinery, as the case may be. The notification was not intended to benefit those who contributed their own material to the articles supplied by the customer and manufactured different goods. We must hasten to add that addition or application of minor items by the job worker would not detract from the nature and character of his work. For example, a tailor entrusted with a cloth piece and asked to stitch a shirt, a pant or a suit piece may add his own thread, buttons and lining cloth. Similarly, a factory may be supplied the shoe uppers, soles etc. by the customer and the factory applies its own thread or bonding material and manufactures shoes therefrom and supplies them back to the customer, charging only for its work; the nature of its work does not cease to be job work. Indeed, this aspect has been stressed in all the decisions of High Courts referred toThe interpretation placed by us does not render the explanation in the notification redundant in any manner, while at the same time it advances the object of the notification, viz., helping factories undertaking manufacturing processes in the nature of job work. The restricted interpretation contended for by the Revenue unduly curtails the operating field of the notification. True it is that processes incidental or ancillary to the completion of the manufactured product are within the purview of the notification, but it may not be correct to say that the notification refers only to those processes and to nothing else. In the two illustrations given in Anup Engineering viz., where the brass sheet is moulded into a brass pot and where the cloth piece is stitched into a suit, or in the illustration given by us., viz., where shoe uppersand soles etc. are supplied by the customer and the factory prepares shoes out of them, it cannot be said that the article that is entrusted to the factory (undertaking job work) and the article that is supplied back to the customer are totally different. They are the same articles though in a different form. Insisting upon the same article being returned to the customer after undergoing the manufacturing process at the hands of the job worker may rob the notification of any substance whatsoever. The Special Bench evidently laid more emphasis upon the Explanation which led it to confine the operation of the notification only to those processes which are incidental or ancillary to the completion of the manufactured product. That in our view amounts to undue curtailment of the ambit of the notification. If that were the intention of the Central Government in issuing the notification, it would have said so clearly. It must be remembered that the notification was issued simultaneously with the introduction of Tariff Item 68 in Schedule 1 to the Act and was intended to help those factories job works, who were charging their customers only for the work done by them. In their hands, the value of the article would be the value of the job work done by themand not the total value of the article which would have been the case but for the notification. According to the restricted view contended for by the Revenue. a tailoring factory stitching clothes out of the cloth supplied or a factory preparing shoes out of material supplied by the customer, in the illustrations given hereinabove, would not qualify for the benefit of the notification. (We are not concerned herein how such articles would be valued in the hands of the supplier.)19. Now, let us look at the process involved in this appeal. All that Modipon does is to supply steel pipes. The appellant purchases guide rings and strengthening rings from the market. It fits these rings into those steel pipes by itself or gets them fitted in another unit. Thereafter, adopters are fitted on the sides of the cops and then the plastic sleeves are fitted on the cylinders of the cops. This is not a case where the rings and the adopters and sleeves are supplied by Modipon. It is not suggested that the value of rings, adopters and sleeves is very smallthe value of steel pipes. The additions made by the appellant are not minor additions; they are of a substantial name and of considerable value. Except the pipes, all other items which go into the manufacture of cops are either purchased or procured by the appellant itself and it manufactures the cops out of them. The work done by him cannot be characterised as a job work. If all the requisite rings adopters and sleeves had also been supplied by Modipon, it could probable have been said that the appellants work is in the nature of job work. But that is not the case here. The Tribunal was, therefore, right in holding that the appellant cannot avail of the benefit of the notification. The appeal accordingly fails and is dismissed. No costs