Union Of India vs Hindu Undivided Family Business Known ... on 21 August, 1970 Equivalent citations: 1971 AIR 2333, 1971 SCR (1) 936, AIR 1971 SUPREME COURT 2333, 1971 TAX. L. R. 1543 Author: Vishishtha Bhargava Bench: Vishishtha Bhargava, K.S. Hegde PETITIONER: UNION OF INDIA Vs. RESPONDENT: HINDU UNDIVIDED FAMILY BUSINESS KNOWN AS RAMLAL MANSUKHRAI, DATE OF JUDGMENT: 21/08/1970 BENCH: BHARGAVA, VISHISHTHA BENCH: BHARGAVA, VISHISHTHA HEGDE, K.S. CITATION: 1971 AIR 2333 1971 SCR (1) 936 ACT: Central Excise & Salt Act 1 of 1944, s. 3 read with Item 26A(2) First Schedule--Duty leviable on circles in any form or size--Uncut circles whether dutiable--Manufacture Production of uncut circles whether manufacture. HEADNOTE: The respondents were manufacturers of utensils. They first prepared the alloys known as kansi & brass. These were then turned into, billets which were rolled into uncut circles by the agents of the respondents. The uncut circles were trimmed by the respondents and after further work on them were converted into utensils. Under item Z6A(2) of the First Schedule to the Central Excises and Salt Act 1 of 1944 excise duty was leviable inter alia on circles in, any form or size. The Union of India imposed excise duty at the Union Of India vs Hindu Undivided Family Business Known ... on 21 August, 1970  1 stage when the uncut circles were prepared on the view that these were manufactured circles in any form or size within the meaning of the aforesaid item 26A. The respondents filed a suit to challenge the levy. They contended that (i) only trimmed circles and not uncut circles were circles within the meaning of the item and (ii) that the uncut circles had not undergone any such changes as could be held to amount to manufacture. The suit was decreed by the trial court and the decree was upheld by the first appellate court and the High Court. With special leave the Union of India appealed to this Court. Al owing the appeal HELD : (i) Item 26A clearly mentions the manufactures amongst others of circles in any from or size. The argument that only trimmed circles can be treated as circles and as finished product for purposes of' item 26A could not be accepted because that item itself envisages excise duty being levied on circles in any form or size. Uncut circles are certainly circles in any form or size. There is nothing in item 26A from which an inference can be drawn that the intention of the legislature was to tax trimmed circles and not uncut circles. Further no evidence had been led to show that in the commercial community these uncut circles are not known as circles. [939 B-G] (ii) In item 26A 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. The 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 all 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 s.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. circle-. [941 F-H] 937 So far as the respondents were concerned they started the process of manufacture of utensils by initially taking metals in crude form as raw materials. Two different kinds of materials in each case were mixed together to prepare alloys of kansi & brass. These alloys were then brought into the form of billets and later on the billets were rolled into circles. It could not be contended that the whole of this process could not be described as manufacture of circles. [942 C-D] Union of India. v. Delhi Cloth & General Mills, [1963] Supp. 1 S.C.R. 586 and South Bihar Sugar Mills Ltd. v. Union of India & Ors. [1968] 3 S.C.R. 21, distinguished. Union Of India vs Hindu Undivided Family Business Known ... on 21 August, 1970  2 JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 887 of 1968. Appeal from the judgment and decree dated July 25, 1967 of the Punjab and Haryana High Court in Regular Second Appeal No. 910 of 1965. Niren De, Attorney-General and S. P. Nayar, for the appel- lant. W. S. Barlingay, V. C. Mahajan and Hira Lal Jain, for res- pondent No. 1. B. Datta, for respondent No. 2. The Judgment of the Court was delivered by Bhargava J. This appeal by special leave-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 in 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 mills in Rewari, and the rolling mills roll the billets into uncut circles. Subsequently, these uncut circles are trimmed 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 26A 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 Section 3 ( 1) reads as follows " There shall 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 First Schedule." Item 26A of the First Schedule is as follows "Descript on of goods Rate of Duty COPPER AND COPPER ALLOYS CONTAINING NOT LESS THAN FIFTY PER CENT, BY WEIGHT OF COPPER,- (1) in any crude form including ingots, bars, blocks, stabs, billets, shots and poliets. There hundred rupees per matric tonne. (2) Manufactures, the following namely, plates, sheets, circles, strips and foils in any form or size. Five hundred rupees per metric tonne. Union Of India vs Hindu Undivided Family Business Known ... on 21 August, 1970  3 (3) pipes and tubes Ten per cent ad valorem. it may 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. The excise duty was levied by the appellant on the basis that, at the stage when the billet$ were rolled into circles, the process of Manufacture of circles was complete and, consequently, these circles became liable to excise duty at the rate mentioned against item 26A(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 26A(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 special leave. It appears to us that, on a plain reading of the provisions of the Act and Item 26A of the First Schedule, the contention raised on behalf of the appellant must be accepted. Under section 3, all excisable goods set forth in the First Schedule, which are produced or manufactured in India, are made liable to excise duty at the rates mentioned in the Schedule. Item 26A(2) clearly mentions the manufactures, amongst others, of circles in any form or size. There can be no dispute that what the rolling mills prepared by rolling the billets are circles in some form or the other and in different sizes. The contention that the uncut circles cannot be held to be circles mentioned in this item has, on the face of it, no force at all. Brij Mohan, the karta of the respondent Hindu undivided family business, in his statement himself admitted that the billets are sent to the rolling mills and the same are converted into P-6 and P-7, i.e., circles or penas. P-6 and P-7, according to him, are a kansi circle and a brass circle respectively. He added that the rolling mills never become the owners of either the billets or the circles. It is true that, at some stages, he described these circles are uncut circles; but he did not dispute that, P-6 and P-7 are, in fact, circle of kansi and brass. The mere fact that they ate uncut at the stage when they are prepared after rolling by the rolling mills cannot, therefore, mean that they are not circles and are not covered by that word as used in item 26A. No doubt, evidence has been given that, subsequently, these, uncut circles are trimmed and then converted into utensils. The argument of learned counsel that only trimmed circles can be treated as circles and as finished product for purposes of item 26A cannot be accepted, because that item itself envisages excise duty being levied on "circles in any form or size." We, cannot understand how it can possibl y be contended that uncut circles are not circles in any form or size. There is nothing in the item from which an inference can be drawn that the intention of the Legislature was to tax trimmed circles and not uncut circles. If there had been any such intention, the legislature would not have used the expression "circles in any form". Uncut circles are certainly one from of circles. The contention further fails, because no evidence has been led to show that, in the commercial community, these uncut circles are not known as circles. In fact, as we have indicated above, the evidence of Brij Mohan himself makes it clear that these are described as circles. The only other witness examined by the respondents was Mahabir Prasad who runs one of the rolling mills which do the work of converting billets into circles on behalf of the res- pondents. According to him, billets are converted into uncut circles which are known as penas. These uncut circles cannot be directly used for preparing the utensils. He added that they have to be converted into circles, implying that the uncut Union Of India vs Hindu Undivided Family Business Known ... on 21 August, 1970  4 circle,,; have to undergo a further change before they can be described as circles. In cross- examination, however, he admitted that it is correct that the shape of the billets is changed into circles. On further cross-examination,, he asserted that he is not the owner of the billets or the circles while they are in the rolling mills. Thus, he himself used the word "circles" without any qualification when describing the articles prepared in his mills as a result of rolling of billets. Taking this evidence together with the fact that the legislature in item 26A, of the First Schedule laid it down that excise duty is to be levied on circles in any form, it has to be held that the circles as prepared in the rolling mills were liable to excise duty. In support of the decision given by the High Court to the contrary, learned counsel for the respondents relied on two decisions on this Court in Union of India v. Delhi Cloth & General Mills,(1) and South Bihar Sugar Mills Ltd., etc. v. Union of India and Others (2). In our opinion, neither of these, cases supports the contention raised on behalf of the respondents, and it appears that the ratio of the first decision has been misunderstood by the High Court and the lower courts. In the case of Union of India v. Delhi Cloth & General Mills(2) the contention on behalf of the Union of India was that, in the course of manufacturer of Vanaspati, the vegetable product from raw groundnut and til' oil, the respondents used to bring into existence at one stage, after carrying out some processes with the aid of power, what is known to the market as "refined oil", and this "refined oil" falls within the description of "vegetable non-essential oils, all sorts, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power," and so is liable to excise duty under Item 12 of the First Schedule. The Court examined the process of manufacture of Vanaspati and found that vegetable nonessential oils as obtained by crushing containing the impurities were first produced as raw vegetable non- essential oils. They had then to undergo the process of refining which consisted of adding an aqueous solution of an alkali which will combine with the free fatty acids to form a soap and settle down with it a large amount of suspended and mucilaginous matter; after settling the clear supernatural layer is drawn off and treated with an appropriate quantity of bleaching earth and carbon is then filtered. In this process,.the colouring matter is removed and the moisture that was originally present in the neutralised oil will also be removed. At this stage, the oil is a refined oil and is suitable for hydrogenation into vegetable product. what was sought to be taxed was the refined oil at this stage; but that contention was rejected, because the Court held that the oil produced at that stage is not known as refined oil to the consumers in the commercial community and car,. be described as refined. oil only after deodrization. Since the process of deodorization is not carried out before that stage, no refined (1) [1963] Supp. 1. S. C. R. 586. (2) [1968] 3 S. C. R. 21. oil had come into existence and, consequently, the oil could not: be taxed as such. That case has no applicability to the case before us where the tax is to be imposed on circles in any form. When the rolling mills have rolled the billets, what comes into existence are circles known as such, even Union Of India vs Hindu Undivided Family Business Known ... on 21 August, 1970  5 though they are in uncut form. The product at that St age fully satisfies the description contained in Item 26A(2). Similarly, the decision in South Bihar Sugar Mills Ltd. v. Union of India & Ors. (1) is of no help on this point, because,. again, the gas, which was subjected to excise duty, was held by the Court not to be carbon dioxide, while only carbon dioxide was liable to duty. It was held that the product that came into existence was a mixture of gases containing only a percentage of carbon dioxide and could not, therefore, be held to be carbon dioxide alone which could be subjected to excise duty under Item 14-H of the First Schedule. 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 carried out and, consequently, excise duty could not be charged under item 26A 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 26A 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 section 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 (1) [1968] 3 S.C.R. 21. 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 26A(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. A second aspect is that, so far as the respondents are concerned, they start. the process of manufacture of utensils by mitially 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 Union Of India vs Hindu Undivided Family Business Known ... on 21 August, 1970  6 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. As a result, the appeal succeeds and is allowed. The suit of the respondent shall stand dismissed. The costs of the appeal of respondent I shall be borne by the appellant. G.C. Appeal allowed. Union Of India vs Hindu Undivided Family Business Known ... on 21 August, 1970  7