M/S. Servo-Med Industries Pvt. Ltd vs Commnr. Of Central Excise, Mumbai

1. Between June 1995 and March 1997, the appellants purchased syringes and needles in bulk from the open market. They would then sterilize the syringes and the needles and put one syringe and one needle in an unassembled form in a printed plastic pouch. The syringe and the needle were capable of use only once and, hence, were disposable. The plastic pouches so packed were sold to an industrial customer, namely, M/s. Hoechst Marion Roussel Ltd. The pouches bore the brand name ‘Behring’. The brand name ‘Behring’ belonged to the purchaser.

2. By a show cause notice dated 25.1.1996, the Department asked the assessee to show cause as to why the said syringes and needles, (which had already borne the payment of excise duty in the hands of their manufacturers), be made to pay excise duty again as a result of sterilization. The show cause notice alleged that sterilization brings about a change in the character of the final product, which now becomes disposable syringes and needles. Therefore, a new commodity having a different character has come into existence. In their reply to the show cause notice dated 1.10.1996, the petitioners claimed that the activity of sterilization would not amount to manufacture. They said that no new product comes into existence by merely sterilizing disposable syringes and needles which continue to be disposable syringes and needles post-sterilization. No new product, therefore, came into existence as a result of sterilization.

3. By an order dated 31.12.1997, the Assistant Commissioner Central Excise held that the process of sterilization was essential to complete manufacture before the products are sold in the market. This being so, the process of sterilization was found to be an integral and inextricable part of the manufacturing process to make the product marketable. It was further held that the process of sterilization brings about a transformation of the product by making something non- sterile sterile.

13. In Mineral Oil Corporation v. CCE, Kanpur, 1999 (114) E.L.T. 166 (Tribunal), the facts were that used transformer oil, which by applying processes for removal of impurities therefrom, is again made usable as transformer oil. Both before and after the said processes, transformer oil remained as transformer oil. That being so, it was held that no new and distinct commodity has come into existence consequent to the process undertaken. The test for determining whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognized by the trade as a new and distinct commodity. This Court dismissed the civil appeal from the aforesaid judgment. This case is instructive in that it is clear that transformer oil, in its used stage, could not be used owing to the impurities therein. Any process of rendering such article usable would not be a manufacturing process, as there is no change in the essential character of the goods which remain as transformer oil which now becomes usable.

26. We are, therefore, of the view that if any operation in the course of manufacture is so integrally connected with the further operations which result in the emergence of manufactured goods and such operation is carried on with the aid of power, the process in or in relation to the manufacture must be deemed to be one carried on with the aid of power. In this view of the matter, we are unable to accept the contention that since the pumping of the brine into the salt pans or the lifting of coke and limestone with the aid of power does not bring about any change in the raw material, the case is not taken out of the notification. The exemption under the notification is not available in these cases. Accordingly, we allow these appeals. In the facts and circumstances of the case, we make no order as to costs.”

Conclusion:

27. The case law discussed above falls into four neat categories.

6. The further contention urged on behalf of the appellant that the goods belong to the same entry is also not relevant because even if the goods belong to the same entry, the goods are different identifiable goods, known as such in the market. If that is so, the manufacture occurs and if manufacture takes place, it is dutiable. ‘Manufacture’ is bringing into being goods as known in the excise laws, that is to say, known in the market having distinct, separate and identifiable function. On this score, in our opinion, there is sufficient evidence. If that is the position, then the appellant was liable to pay duty. We are, therefore, clearly of the opinion that the order of the CEGAT impugned in this appeal does not contain any error. The appeal, therefore, fails and is accordingly dismissed.”

34. Judged therefore from the view point of the law discussed in this judgment, it is clear that the cryptic judgment dated 18.6.2004 has not applied the law correctly. The appeal is allowed and the impugned judgment is hereby set aside.

May 7, 2015