THE CENTRAL EXCISE ACT, 1944

Goods ​- The Central Excise Act, 1944 does not define

goods.

The GST Act under Section 2(52) defines goods

as:

2.(52) “goods” means every kind of movable property other than money and securities
but

includes actionable claim, growing crops, grass and things attached to or forming part of
the

land which are agreed to be severed before supply or under a contract of

supply;

Manufacture

Section 2 (f) Of the Central Excise Act, 1944 defines

manufacture as:

“​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
First

Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to

manufacture; or

iii. which, in relation to the goods specified in the Third Schedule, involves packing or

repacking of such goods in a unit container or labelling or re-labelling of

containers

including the declaration or alteration of retail sale price on it or adoption of any

other

treatment on the goods to render the product marketable to the consumer, and
 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;

Section 2(72) of the GST Act defines manufacture

as :

2.(72) “manufacture” means processing of raw material or inputs in any manner that
results

in emergence of a new product having a distinct name, character and use and the term

“manufacturer” shall be construed

accordingly;
Valuation of Goods - Statutory
Provisions

Valuation under the Central Excise

Act

SECTION 4 - Valuation of goods for purposes of charging of duty of

excise ​-

1. Where under this Act, the duty of excise is chargeable on any excisable goods
with

reference to their value, then, on each removal of the goods, such value
shall –

a. in a case where the goods are sold by the assessee, for delivery at the
time and

place of the removal, the assessee and the buyer of the goods are not
related
 and the price is the sole consideration for the sale, be the transaction
value;

b. in any other case, including the case where the goods are not sold, be the
value

determined in such manner as may be

prescribed.

Explanation ​- For the removal of doubts, it is hereby declared that the price-cum-duty
of the

excisable goods sold by the assessee shall be the price actually paid to him for the
goods sold

and the money value of the additional consideration, if any, flowing directly or indirectly

from the buyer to the assessee in connection with the sale of such goods, and such
price-cum-

duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to
include the

duty payable on such goods.

(3) For the purpose of this section,-

a. “assessee” means the person who is liable to pay the duty of excise under this Act
and

includes his agent;

b. persons shall be deemed to be “related” if

–

i. They are inter-connected undertakings;

ii. They are relatives;

iii. Amongst them the buyer is a relative and a distributor of the assessee, or a
sub

distributor of such distributor; or

 iv. They are so associated that they have interest, directly or indirectly, in the

business of each other.

Explanation ​— In this clause –

i. “inter-connected undertakings” shall have the same meaning assigned to it in

clause

(g) of section 2 of the Monopolies and Restrictive Trade Practices Act,

1969 ;
ii. “Relative” means the meaning assigned to it in clause (41) of section 2 of the

Companies Act, 1956 ;

c. “place of removal” –

i. Factory or any other place or premises of production or manufacture of the

Excisable goods;

ii. warehouse or any other place or premises wherein the excisable goods have

been permitted to be deposited without [payment of

duty;]

iii. depot, premises of a consignment agent or any other place or premises from

where the excisable goods are to be sold after their clearance from the
factory;

from where such goods are

removed;

(cc) “time of removal”, in respect of the excisable goods removed from the place of
removal

referred to in sub-clause (iii) of clause (c), shall be deemed to be the time at which such

goods are cleared from the

factory;
 d. “transaction value” means the price actually paid or payable for the goods, when
sold,

and includes in addition to the amount charged as price, any amount that the
buyer is

liable to pay to, or on behalf of, the assessee, by reason of, or in connection with
the

sale, whether payable at the time of the sale or at any other time, including, but
not

limited to, any amount charged for, or to make provision for, advertising or
publicity,

marketing and selling organization expenses, storage, outward handling,

servicing,

warranty, commission or any other matter; but does not include the amount of
duty of

excise, sales tax and other taxes, if any, actually paid or actually payable on such

goods.
Valuation under the GST Act- Section 15 of The GST
Act.

1) The value of a supply of goods or services or both shall be the transaction value,

which is the price actually paid or payable for the said supply of goods or
services or

both where the supplier and the recipient of the supply are not related and the
price is

the sole consideration for the

supply.

2) The value of supply shall include –

a. any taxes, duties, cesses, fees and charges levied under any law for the time
being in

force other than this Act, the State Goods and Services Tax Act, the Union
 Territory

Goods and Services Tax Act and the Goods and Services Tax (Compensation to

States) Act, if charged separately by the

supplier;

b. any amount that the supplier is liable to pay in relation to such supply but which
has

been incurred by the recipient of the supply and not included in the price actually
paid

or payable for the goods or services or

both;

c. incidental expenses, including commission and packing, charged by the supplier

to

the recipient of a supply and any amount charged for anything done by the
supplier in

respect of the supply of goods or services or both at the time of, or before
delivery of

goods or supply of services;

d. Interest or late fee or penalty for delayed payment of any consideration for any

supply; and

e. Subsidies directly linked to the price excluding subsidies provided by the Central

Government and State

Governments.

Explanation.––For the purposes of this sub-section, the amount of subsidy shall be

included

in the value of supply of the supplier who receives the

subsidy.

3) The value of the supply shall not include any discount which is given
–
 a. Before or at the time of the supply if such discount has been duly recorded
in

the invoice issued in respect of such supply;

and

b. after the supply has been effected, if –

i. such discount is established in terms of an agreement entered into at

or

before the time of such supply and specifically linked to relevant

invoices; and

ii. input tax credit as is attributable to the discount on the basis of

document issued by the supplier has been reversed by the recipient

of

the supply.

Value of taxable supply

4) Where the value of the supply of goods or services or both cannot be determined

under sub-section (1), the same shall be determined in such manner as may be

prescribed.

5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the

value of

such supplies as may be notified by the Government on the recommendations of

the

Council shall be determined in such manner as may be

prescribed.

Explanation.—For the purposes of this

Act,––

a) persons shall be deemed to be “related persons”

if––

i. Such persons are officers or directors of one another’s

 businesses;

ii. such persons are legally recognised partners in

business;

iii. such persons are employer and employee;

iv. any person directly or indirectly owns, controls or holds twenty-five per cent

or more of the outstanding voting stock or shares of both of

them;

v. one of them directly or indirectly controls the other;

vi. both of them are directly or indirectly controlled by a third person;

vii. together they directly or indirectly control a third person; or they are members

of the same family;

b) the term “person” also includes legal

persons;

c) persons who are associated in the business of one another in that one is the sole
agent

or sole distributor or sole concessionaire, howsoever described, of the other,

shall be

deemed to be related.
Time of Supply

Section 12 of the GST Act

1) The liability to pay tax on goods shall arise at the time of supply, as determined in

accordance with the provisions of this

section.

2) The time of supply of goods shall be the earlier of the following dates,
namely:—

a. the date of issue of invoice by the supplier or the last date on which he is

required, under sub-section (1) of section 31, to issue the invoice with
respect
 to the supply; or

b. the date on which the supplier receives the payment with respect to the
supply:

Provided that where the supplier of taxable goods receives an amount upto one
thousand

rupees in excess of the amount indicated in the tax invoice, the time of supply to the
extent of

such excess amount shall, at the option of the said supplier, be the date of issue of
invoice in

respect of such excess

amount.

Explanation 1.––For the purposes of clauses (a) and (b), “supply” shall be deemed to
have

been made to the extent it is covered by the invoice or, as the case may be, the
payment.

Explanation 2.––For the purposes of clause (b), “the date on which the supplier receives
the

payment” shall be the date on which the payment is entered in his books of account or
the

date on which the payment is credited to his bank account, whichever is

earlier.

3) In case of supplies in respect of which tax is paid or liable to be paid on reverse

charge basis, the time of supply shall be the earliest of the following dates,
namely -

a. the date of the receipt of goods; or

b. the date of payment as entered in the books of account of the recipient or

the

date on which the payment is debited in his bank account, whichever is

earlier;
 or

c. the date immediately following thirty days from the date of issue of invoice
or

any other document, by whatever name called, in lieu thereof by the

supplier:

Provided that where it is not possible to determine the time of supply under clause (a) or

clause (b) or clause (c), the time of supply shall be the date of entry in the books of
account

of the recipient of supply.

4) In case of supply of vouchers by a supplier, the time of supply shall

be –

a. The date of issue of voucher, if the supply is identifiable at that point;

or

b. the date of redemption of voucher, in all other

cases.

5) Where it is not possible to determine the time of supply under the provisions of
sub-

section (2) or sub-section (3) or sub-section (4), the time of supply

shall –

a. in a case where a periodical return has to be filed, be the date on which

such

return is to be filed; or

b. in any other case, be the date on which the tax is

paid.

6) The time of supply to the extent it relates to an addition in the value of supply by
way

of interest, late fee or penalty for delayed payment of any consideration shall be
 the

date on which the supplier receives such addition in

value.

Time of supply of
Services

Section 13 of the GST Act

1) The liability to pay tax on services shall arise at the time of supply, as determined
in

accordance with the provisions of this

section.

2) The time of supply of services shall be the earliest of the following dates,
namely –

a. the date of issue of invoice by the supplier, if the invoice is issued within
the

period prescribed under sub-section (2) of section 31 or the date of receipt

of

payment, whichever is earlier; or

b. the date of provision of service, if the invoice is not issued within the period

prescribed under sub-section (2) of section 31 or the date of receipt of

payment, whichever is earlier; or

c. the date on which the recipient shows the receipt of services in his books of

account, in a case where the provisions of clause (a) or clause (b) do not
apply:

Provided that where the supplier of taxable service receives an amount upto one
thousand

rupees in excess of the amount indicated in the tax invoice, the time of supply to the
extent of

such excess amount shall, at the option of the said supplier, be the date of issue of
invoice

relating to such excess

amount.

Explanation.––For the purposes of clauses (a) and

(b)––

i. The supply shall be deemed to have been made to the extent it is covered by the

invoice or, as the case may be, the

payment;

ii. “the date of receipt of payment” shall be the date on which the payment is entered in

the books of account of the supplier or the date on which the payment is credited
to

his bank account, whichever is

earlier.
3) In case of supplies in respect of which tax is paid or liable to be paid on reverse

charge basis, the time of supply shall be the earlier of the following dates,
namely –

a. the date of payment as entered in the books of account of the recipient or

the

date on which the payment is debited in his bank account, whichever is

earlier;

or

b. the date immediately following sixty days from the date of issue of invoice
or

any other document, by whatever name called, in lieu thereof by the

supplier:

Provided that where it is not possible to determine the time of supply under clause (a)
or

clause (b), the time of supply shall be the date of entry in the books of account of the

recipient of supply:

Provided further that in case of supply by associated enterprises, where the supplier of
service is located outside India, the time of supply shall be the date of entry in the books
of

account of the recipient of supply or the date of payment, whichever is

earlier.

4) In case of supply of vouchers by a supplier, the time of supply shall

be––

a. The date of issue of voucher, if the supply is identifiable at that point;

or

b. the date of redemption of voucher, in all other

cases.

5) Where it is not possible to determine the time of supply under the provisions of
sub-

section (2) or sub-section (3) or sub-section (4), the time of supply

shall––

a. in a case where a periodical return has to be filed, be the date on which

such

return is to be filed; or

b. in any other case, be the date on which the tax is

paid.

6) The time of supply to the extent it relates to an addition in the value of supply by
way

of interest, late fee or penalty for delayed payment of any consideration shall be
the

date on which the supplier receives such addition in

value.
Time of Supply in case of rate of change of
Tax.
Section 14 of the GST Act

14. Notwithstanding anything contained in section 12 or section 13, the time of supply,
where

there is a change in the rate of tax in respect of goods or services or both, shall be
determined

in the following manner, namely:––

a. In case the goods or services or both have been supplied before the change in
rate of

tax,–

i. where the invoice for the same has been issued and the payment is also

received after the change in rate of tax, the time of supply shall be the
date of

receipt of payment or the date of issue of invoice, whichever is

earlier; or

ii. where the invoice has been issued prior to the change in rate of tax but

payment is received after the change in rate of tax, the time of supply shall
be

the date of issue of invoice; or

iii. where the payment has been received before the change in rate of tax, but
the

invoice for the same is issued after the change in rate of tax, the time of
supply

shall be the date of receipt of

payment;

b. In case the goods or services or both have been supplied after the change in rate
of

tax,–

i. where the payment is received after the change in rate of tax but the invoice
 has been issued prior to the change in rate of tax, the time of supply shall
be

the date of receipt of payment; or

ii. where the invoice has been issued and payment is received before the
change

in rate of tax, the time of supply shall be the date of receipt of payment or
date

of issue of invoice, whichever is earlier;

or

iii. where the invoice has been issued after the change in rate of tax but the

payment is received before the change in rate of tax, the time of supply
shall

be the date of issue of invoice:

Provided that the date of receipt of payment shall be the date of credit in the bank
account if

such credit in the bank account is after four working days from the date of change in the
rate

of tax.

Explanation.––For the purposes of this section, “the date of receipt of payment” shall be
the

date on which the payment is entered in the books of account of the supplier or the date
on

which the payment is credited to his bank account, whichever is

earlier.
In Re: The Bill To Amend The Sea Customs Act.1964 3 SCR
787

The main question, on this reference by the President of India under Art 143 (1) of the

Constitution depends upon the true scope and interpretation of Art. 289. of the
Constitution
relating to the immunity of States from Union
taxation.

The reference is in these terms

:

" It is proposed to amend Customs Act so as to levy customs duties on import or export
,

in respect of all goods belonging to the Government of a State and used for the
purposes of a

trade or business of any kind carried on by, or on behalf of, that Government, or of any

operations connected with such trade or business as they apply in respect of goods not

belonging to any Government;

It is also proposed to amend Section 3 of the Central Excises and Salt Act, 1944 so as
to levy

of duties of excise on all excisable goods which are produced or manufactured in India ,
on

behalf of, the Government of a State and used for the purposes of a trade or business
of any

kind carried on by, or on behalf of, that Government, or of any operations connected
with

such trade or business as they apply in respect of goods which are not produced or

manufactured by any
Government;

Governments of certain States have expressed the view that the amendments as
proposed in

the said draft of the Bill may not be constitutionally valid as the provisions of article 289.

read with the definitions of 'taxation' and 'tax' in clause (28) of article 366 of the
Constitution
of India preclude the Union from imposing or authorising the imposition of any tax,
including

customs duties and excise duties; or in relation to any property of a

State ;

Government of India is on the other hand is of the view that

-

(i) that the exemption from Union taxation granted by clause (1) of article 289 is

restricted to Union taxes on the property of a State and does not extend to
Union

taxes in relation to the property of a

State.

(ii) that customs duties are taxes on the import or export of property and not taxes on

property as such and further that excise duties are taxes on the production or
manufacture

of property and not taxes on property as such;

and
(iii) that the union is not precluded by the provisions of article 289 of the Constitution of

India from imposing or authorising the imposition of customs duties on the import or
export

of the property of a State and other Union taxes on the property of a State which are not
taxes

on property as such;

In exercise of the powers conferred by clause (1) of article 143 of the Constitution of
India,

President of India, hereby refer the following question to the Supreme Court of India for

consideration and report of its opinion

thereon;
"(1) Do the provisions of article 289. of the Constitution preclude the Union from
imposing,

or authorising the imposition of, customs duties on the import or export of the property
of a

State ?

(2) Do the provisions of article 289 of the Constitution of India preclude the Union from

imposing, or authorising the imposition of, excise duties on the production or

manufacture in

India of the property of a State ?

(3) Will the proposed amendments in the Customs Act and Central Excise Act be

inconsistent with the provisions of article 289. of the Constitution of India

?"

Contentions of the Union

That clause (1) of Art 289 properly interpreted would mean that the immunity from
taxation

granted by the Constitution to the States is only in respect of tax on property and on
income,

and that the immunity does not extend to all taxes; the clause should not be interpreted
so as

to include taxation in relation to property; a tax by way of import or export duty is not a
tax

on property but is on the fact of importing or exporting goods into or out of the country;

similarly, an excise duty is not a tax on property but is a tax on production or

manufacture of

goods;
In essence import or export duties or excise duty re not taxes on property, including
goods,

as such, but on the happening of a certain event in relation to goods, namely, import or
export

of goods or production or manufacture of goods; the true meaning of Art. 289. is to be

derived not only from its language but also from the scheme of the Indian Constitution

distributing powers of taxation between the Union and the States in and the context of
those

provisions;
Parliament has exclusive power to make laws with respect to trade and commerce with

foreign countries and with respect to duties of customs, including export duties and
duties of

excise on certain goods manufactured or produced in India, the Union is competent to

impose

or to authorise the imposition of custom duties on the import or export of goods by a

State

which may be its property or excise duty on the production or manufacture of goods by
a

State; if clause (1) of Art. 289. were to be interpreted as including the exemption of a
State in

respect of customs duties or excise duty, it will amount to a restriction on the exclusive

competence of Parliament to make laws with respect to trade and commerce - a

restriction

which is not warranted in view of the scheme of the

Constitution;

Contention of the States

While interpreting Art 289 of the Constitution, it has to be borne in mind that our

Constitution does not make a distinction between direct and indirect

taxation;

that trade and commerce and industry have been distributed between the Union and the

States;

that the power of taxation is different from the power to regulate trade and
commerce;

that the narrower construction of the Article, contended for and on behalf of the Union,
will

seriously and adversely affect the activities of the States and their powers under the

Constitution;

that customs duties and duties of excise affect property and are, therefore, within the

immunity granted by Art. 289(1) ; properly construed Art. 289(1). grants complete
immunity

from all taxation on any kind of property; and any kind of tax on property or in relation to

property is within the immunity; therefore, the distinction sought to be made on behalf of
the

Union between tax on property and tax in relation to property is wholly

irrelevant;
Reasoning of the Court

Whereas the Union is for interpreting clause (1) of Art 289 in the restricted sense of the

immunity being limited to a direct tax on property and on the income of a State, the
States

contend for an all-embracing exemption from Union taxes which have any relation to or

impact on State property and

income.
When dealing with the general considerations which should govern the interpretation of
Art.

289(1) that the power of the Union would be crippled if Art. 289 is interpreted as
exempting

the property of a State from all Union

taxes.

Even though the taxes may be collected and levied by the Union, there are provisions in
Part

XII of the Constitution for the assignment or distribution of many Union taxes to the
States.

There are also provisions for grants-in-aid by the Union from the Consolidated Fund of
India

to a State.

In these circumstances it would be in consonance with the scheme of the Constitution

relating to taxation to read Art. 289(1) as laying down that the property and income of a
State

shall be exempt from Union taxation on property and

income.

The effect of reading the word "all" before the words "Union taxation" would be so
serious,

and so crippling to the resources, which the Constitution intended the Union to have, as
to

make it impossible to give that intention to the words of clause (1) of Article
289.

On the other hand, the States would not be so seriously affected if we read the words
"on

property and income" after the words "Union taxation" in Art. 289(1), for unlike other
Constitutions there is provision in Part XII of our Constitution for assignment or
distribution

of taxes levied and collected by the Union to the States and also for grants-in-aid from
the

Union to the States, so that the burden which may fall on the States by giving a
restrictive

meaning to the words used in clause (1) of Art. 289 would be alleviated to a large extent
in

view of the provisions in Part XII of the Constitution for assignment and distribution of
taxes

levied by the Union to the States and also for grants-in-aid from the Union to the
States.

Art. 289 only exempts taxes directly either on income or on property of a state and is not

concerned with taxes which may indirectly affect income or

property.
The contention therefore on behalf of the Union that Article 289 should be read in the

restricted sense of exempting the property or income of a State from taxes directly
either on

property or on income as the case may be, is

correct.

Referred cases

Attorney-General of The Province of British Columbia v. The Attorney-General of

the

Dominion of Canada (64 Can. S.C.R.

377).

In this case , the question arose whether the Province of British Columbia could import
liquors into Canada for the purposes of sale, pursuant to the provisions of the
Government

Liquor Act without payment of customs duties imposed by the Dominion of

Canada.

It was argued, that the word "tax" was wide enough to include the imposition of customs

duties, and that the word "property" included property of all

kinds.

The answer given by the Dominion was that customs duties did not constitute taxes but
were

merely in the nature of regulation of trade and commerce, and secondly, assuming that

customs duties were included in the expression "taxation", they did not constitute
taxation on

property. The word "taxation" was not intended to comprehend customs duties
inasmuch as

the prohibition on taxation of property of state did not extend as regards the Dominion to

indirect taxation.

The Supreme Court of Canada,held that the import by the Province was liable to pay
import

duty to the Dominion. Thus the contention raised on behalf of the Dominion was
accepted

that customs duties were not taxes imposed on property as such but were levied on the

importation of certain goods into Canada as a condition of their

importation.

This decision of the Supreme Court was challenged before the Privy Council, in
Attorney-

General of British Columbia v. Attorney-General of Canada (1924 A.C.

222).
The Privy Council upheld the decision appealed from and held that import duties
imposed by

the Dominion upon alcoholic liquors imported into Canada by the Government of British

Columbia for the purposes of trade was valid. The Privy Council based its decision on a

consideration of the whole scheme of the Canadian Constitution under which Dominion
had

the power to regulate trade and commerce throughout the Dominion and observed that
the he
true solution is to be found in the adaptation of exemption clause to the whole scheme
of the

Constitution

Attorney-General of New South Wales v. The Collector of Customs for New South

Wales (1907-8) 5 C.L.R. 818.

In this case an action was brought by the State of New South Wales to recover the
amount of

customs duties realised by the Collector of Customs in respect of certain steel rails
imported

by the plaintiff from England for use in the construction of the railways of the State. The

State claimed that those rails were not liable to customs duties on the ground that they
were

the property of the Government and as such exempt from customs duties by virtue of s.
114

of the Constitution. The majority of the Court decided that the imposition of customs
duties

being a mode of regulating trade and commerce with other countries as well as of
exercising
the taxing power, the goods imported by a State Government were subject to the
customs

laws of the Commonwealth. They also laid it down that the levying of the duties of
customs

is not an imposition of a tax on property within the meaning of s. 114 aforesaid. The
Court

added that even if the words of the section were capable of bearing that comprehensive

meaning, that was not the only or necessary meaning and should be rejected as
inconsistent

with the provisions of the Constitution conferring upon the Commonwealth exclusive
power

to impose duties of customs and to regulate trade and commerce. The levying of
customs

duties was not within the comprehension of the expression "imposition of a tax on
property"

as customs duties were imposed in respect of goods and in a sense "upon" goods. The
Court

recognised the legal position that customs duties are not really taxation upon property
but

upon operations or movements of

property.

These authorities based on the interpretation of analogous provisions in the Canadian

and

Australian Constitutions fully support the contention raised on behalf of the Union that

customs duties are not taxes on property but are imposts by way of conditions or
restrictions

on the import and export of goods, in exercise of the Union's exclusive power of
regulation of

trade and commerce read along with the power of taxation and that the general words
of the

exemption have to be limited in their scope so as not to come into conflict with the
power of

the Union to regulate trade and commerce and to impose duties of

customs.
The next argument of the States is that , even if Art. 289(1) only exempts the property
of the

States from tax directly on property, the levy of excise on goods under item 84 of List I
is a

tax on property and therefore no excise can be levied on goods belonging to States and

manufactured by them.

It is further urged that duties of customs including export duties under item 83 of List I
are

equally duties on the goods imported or exported and therefore the property of the State
must

be exempt under Art 289(1) both from excise duties and from duties of customs
including

export duties.

This raises the question of the nature of duties of excise and

customs.

In ​Amalgamated Coalfields Ltd. v. Union of India ​the Supreme Court observed as

follows :

“Excise duty is primarily a duty on the production or manufacture of goods produced or

manufactured within the country. It is an indirect duty which the manufacturer or

producer

passes on to the ultimate consumer, that is, ultimate incidence will always be on the

consumer. Therefore, subject always to the legislative competence of the taxing

authority, the
said tax can be levied at a convenient stage so long as the character of the impost, that
is it is

a duty on the manufacture or production, is not lost. The method of collection does not
affect

the essence of the duty, but only relates to the machinery of collection for administrative

convenience."

This will show that the taxable event in the case of duties of excise is the manufacture
of

goods and the duty is not directly on the goods but on the manufacture thereof. We may
in

this connection contrast sales tax which is also imposed with reference to goods sold,
where

the taxable event is the act of sale. Therefore, though both excise duty and sales-tax
are levied

with reference to goods, the two are very different imposts; in one case the imposition is
on

the act of manufacture or production while in the other it is on the act of sale. In neither
case

therefore can it be said that the excise duty or sales tax is a tax directly on the goods for
in

that event they will really become the same tax. It would thus appear that duties of
excise

partake of the nature of indirect taxes as known to standard works on - economics and
are to

be distinguished from direct taxes like taxes on property and

income.

Similarly in the case of duties of customs including export duties though they are levied
with

reference to goods, the taxable event is either the import of goods within the customs
barriers
or their export outside the customs barriers. They are also indirect taxes like excise and

cannot be equated with direct taxes on goods

themselves.

Imposition of an import duty, by and large, results in a condition which must be fulfilled

before the goods can be brought inside the customs barriers, i.e., before they form part
of the

mass of goods within the country. Such a condition is imposed by way of the exercise of
the

power of the Union to regulate the manner and terms on which goods may be brought
into the

country from a foreign land. Similarly an export duty is a condition precedent to sending

goods out of the country to other lands. It is not a duty on property in the sense of Art.

289(1). Though the expression "taxation", as defined in Art. 366(28), "includes the

imposition of any tax or impost, whether general or local or special", the amplitude of
that

definition has to be cut down if the context otherwise so

requires.

The position is that whereas the Union Parliament has been vested with exclusive
power to

regulate trade and commerce, both foreign and inter-State (Entries 41 and 42) and with
the

sole responsibility of imposing export and import duties and duties of excise, with a view
to

regulating trade and commerce and raising revenue, an exception has been engrafted
in Art

289(1) in favour of the States granting them immunity from certain kinds of Union
taxation.

It, therefore, becomes necessary so to construe the provisions of the Constitution as to

give

full effect to both, as far as may

be.

If it is held that the States are exempt from all taxation in respect of their export or
imports, it

is not difficult to imagine a situation where a State might import or export all varieties of

things and thus nullify to a large extent the exclusive power of Parliament to legislate in

respect of those matters. The provisions of Art 289(1) being in the nature of an
exception to

the exclusive field of legislation reserved to Parliament, the exception has to be strictly

construed, and therefore, limited to taxes on property and on income of a State. In other

words, the immunity granted in favour of States has to be restricted to taxes levied
directly on

property and income. Therefore, even though import and export duty or duties of excise
have

reference to goods and commodities, they are not taxes on property directly and are not

within the exemption in Art. 289(1).

Though in the scheme of our Constitution no distinction has been made between direct
and

indirect tax. It is true that no such express distinction has been made under our
Constitution;

even so taxes in the shape of duties of customs (including export duties) and excise,

particularly with a view to regulating trade and commerce in so far as such matters are
within
the competence of Parliament and are covered by various entries in List I , cannot be
called

taxes on property; they are imposts with reference to the movement of property by way
or
import or export or with reference to production or manufacture of goods. Therefore
even

though our Constitution does not make a clear distinction between direct and indirect
taxes,

there is no doubt that the exemption provided in Art. 289(1) from Union taxation to
property

must refer to what are known to economists as direct taxes on property and not to
indirect

taxes like duties of customs and excise which are in their essence trading taxes and not
taxes

on property.

The contention of the States that a narrower construction of Article 289 would very

seriously and adversely affect activities of the States is not valid . This argument does
not

take into account the more serious consequences that would follow if the wider
interpretation

suggested on behalf of the States were to be

adopted.

For example, a State may decide to embark upon trade and commerce with foreign
countries

on a large scale in respect of different commodities. On the interpretation put forward by

the

States, the Union Parliament would be powerless to regulate such trade and commerce
by the

use of the power of taxation conferred on it by entry 83 of List I, thus largely nullifying
the

exclusive power of Parliament to legislate in respect of international trade and

commerce,

including the power to tax such trade. Trade and commerce with foreign countries,
export and

import across the customs frontriers and inter-State trade and commerce are all within
the

exclusive jurisdiction of the Union Parliament.

Article 289 cannot be interpreted in a manner which will lead to such a startling result as
to

nullify the exclusive power of Parliament in these

matters.

For these reasons given above, it must be held that the immunity granted to the States
in

respect of Union taxation does not extend to duties of customs including export duties
or

duties of excise
South Bihar Sugar Mills Ltd. Etc vs. Union Of India AIR 1968 SC 922

The appellant companies manufacture sugar by carbonation process as against

sulphitation

process employed by some other manufacturers of sugar and pay excise duty on the
sugar

manufactured by them.

These manufacturers bum limestone with coke in a lime kiln with a regulated amount of
air

and generate a mixture of gases consisting of carbon dioxide, nitrogen, oxygen and a
small

quantity of carbon monoxide. Most of the oxygen from the air is used up by the coke in
the

process of burning itself.

The coke so burnt supplies the heat which decomposes the limestone so as to generate
carbon

dioxide. The gas thus produced is sucked, by a pump through a pipe which connects
the kiln

with the inlet side of the pump. The gas enters the chamber of the pump and is then

immediately compressed by means of the compression stroke of the pump. At this

stage the

gas is forced into a narrower space and as a result of the compression stroke it acquires

pressure exceeding the atmospheric

pressure.

The gas so compressed is let into the delivery pipe, which connects the outlet side of
the

pump with the tank containing the sugarcane juice and enters. the sugarcane juice with
the

acquired pressure behind it.

But for the compression resulting in pressure the gas would not bubble in the
sugarcane

juice. In the tank there, is besides the sugarcane juice milk of lime which is mixed so as
to

remove the impurity in and refine the

juice.

Thus, it is carbon dioxide which reacts on the lime and what is produced is an insoluble

content known as calcium carbonate. The other gases viz., nitrogen, 'oxygen, carbon

monoxide do not contribute in the process of clarification of the sugarcane

juice.

These are innocuous so far as the process of clarification of sugarcane juice is

concerned and
escape into the atmosphere by a vent provided in' the sugarcane juice tank. Along with
these

gases a certain amount of carbon dioxide which remains unabsorbed also

escapes.

The carbon dioxide content in the mixture of gases ranges from 27 to 36.5%. Thus, the

process involves the forcing of impure carbon dioxide into a narrower space within the
chamber of the pump where it is compressed and pushed first into the delivery pipe and
then

into the, tank containing the juice.

The respondents' case therefore was that the process employed by the appellant
companies

involves compressing carbon dioxide with the pressure achieved pushing it through

sugarcane juice.

The 'appellant companies therefore produced carbon dioxide through the lime kiln which
was

taken first to the Co2 pump and there compressed and then pushed into the
tank.

According to the Revenue the processes employed by the appellant companies thus
involve

production of compressed carbon dioxide which is amenable to excise

duty.

Contentions of the appellant

companies

1. That the lime kiln is maintained to generate a mixture of gases and not carbon

dioxide.
2. that at no stage in the process of generating this mixture and sucking it into the

sugarcane juice for refining, carbon dioxide which forms one of the contents of
the

said mixture is either compressed, liquidified or

solidified;

3. that the mixture of gases so generated is not carbon dioxide as known to the
market;

4. that according to the specifications laid down by the Indian Standards Institution

carbon dioxide content has to be at least

99%;

5. that the mixture of gases so generated has no other use except for processing

sugarcane juice;

6. that the said mixture is neither sold nor is marketable nor known to the
trade;

7. that these concerns are not manufacturers of carbon dioxide as carbon dioxide is
not

separated from the said mixture of gases by any process nor is the carbon
dioxide

content in the said mixture compressed, liquefied or

solidified;

8. that the mere fact that the said mixture of gases is passed through a conduit pipe
by a

process of suction cannot mean that carbon dioxide becomes compressed

carbon

dioxide at that or any other

stage;

9. that the term "compressed" under relevant provisions of the Excise Act
contemplates

the form in which the article sought to be levied is manufactured. There is no

separation of carbon dioxide from the said mixture at any stage nor is it
 compressed

or stored as carbon dioxide in

cylinders.

10. that the duty being, on goods it can be charged only on goods known as carbon

dioxide in the trade and marketable as

such.

Contentions of the
Revenue

1. that the mixture of gases generated as aforesaid is nothing but impure carbon
dioxide

in the sense that during the process of burning limestone with coke a small
quantity

of carbon monoxide is released by the burning of coke, the other gases in the
mixture

being nitrogen and oxygen derived from the' air which is let into the kiln to aid

combustion;

2. that these concerns require carbon dioxide for refining sugarcane juice and

manufacture it out of limestone and coke. The other gases which get mixed up
are

unavoidable on account of the process employed by

them;

3. that these extraneous gases can be separated and the manufacturers would
separate

them if what they require is pure carbon dioxide. They do not do so because
carbon

dioxide mixed with other gases produces the same effect in the process of
refining as
 without them;

4. that the fact that in the process Of its manufacture carbon dioxide gets mixed up
with

other gases does not mean that carbon dioxide which is intended to be and is in
fact

produced loses its characteristics as such. The gas thus produced contains 30 to
35%

carbon dioxide.

5. that the specifications laid down by the Indian Standards Institution are not
relevant

as they are for cylindered carbon dioxide bought and sold in the market as pure

carbon dioxide;

6. that carbon dioxide produced by these concerns can be sold in the condition in
which

it is produced and used by other sugar mills

.

In support of their contentions the appellant companies relied on the specifications laid
down

by the Indian Standards Institution and the several affidavits made by concerns using
carbon

dioxide for the manufacture of their respective goods. Carbon dioxide used in

manufacturing aerated waters contains 99.5% of pure carbon

dioxide,.
The compressed liquidified or solidified carbon dioxide as known to the trade or sold in
the

market contains a minimum of 99% carbon dioxide conforming to the specifications of

the

Indian Standards Institution, that such carbon dioxide is contained in steel cylinders and
that
kiln or calciner gas is not known to the trade as carbon dioxide nor is it marketed as
such.

To obtain marketable carbon dioxide from kiln gas an elaborate plant would be required
for

separation and purification and it is such carbon dioxide which becomes marketable
after it is

compressed.

Question for consideration

It is clear and that is that in the case of both sugar and soda ash, the manufacturer
does

require carbon dioxide for the purpose of producing the two articles and sets up lime kiln
for

that purpose.

The question is whether what he actually produces by combusting limestone with coke
is

compressed carbon dioxide amenable to excise

duty.

Reasoning of the Court

The commercial carbon dioxide is divided into two grades, both of them having at least
99%

carbon dioxide. Such carbon dioxide when solidified is packed in insulated

boxes .

When liquified it is packed in steel cylinders. The uses of solidified or liquefied carbon
dioxide are refrigeration of foods, carbonated beverages, industrial refrigeration, fire

extinguishers, welding etc.

Therefore commercial carbon dioxide as brought to the market for being bought or sold
and

used for the purposes enumerated above has content of at least 99% of carbon dioxide
and is

either compressed and packed in steel cylinders or liquefied or

solidified.

According to Revenue, sugar mills and soda ash plants require carbon dioxide in the

processes employed by them while manufacturing sugar and soda ash and to meet,
their

requirement they have set up lime kilns by which they produce kiln gas which includes
carbon dioxide to the extent of about 30 to 35%, which they in fact use after
compressing it

through a pump or otherwise, at one stage or the other in their manufacturing

processes.

But is it possible to say that the lime kilns set up for the aforesaid purpose produce
carbon

dioxide and even if it be so, that at one stage or the other, through the pump or
otherwise, the

carbon dioxide so produced becomes compressed carbon dioxide as envisaged by the

legislature when it decided to impose excise duty on

it.

It is true that by burning limestone with coke in the kiln the manufacturer actually
produces

kiln gas of which one of the constituents undoubtedly is carbon dioxide and which he
utilises

while producing his ultimate excisable

goods.

But if it is possible to say that what he produces is carbon dioxide as an integrated and

continuous manufacturing process or separately as the Revenue insisted, it is equally

possible

to say that the combustion of limestone with coke results in the manufacture of nitrogen,

whose content in the kiln gas is about

53%.

The correct picture is that what is produced is kiln gas which consists of several gases,
viz.,

carbon dioxide, carbon monoxide, oxygen and nitrogen, the last one being in a larger
quantity

than carbon dioxide.

The mixture of gases so generated is known as kiln gas in the trade, i.e. to those who

manufacture sugar and soda

ash.

The concerns which use carbon dioxide definitely assert that kiln gas is never known in
the

market as carbon dioxide nor is it a marketable article in the sense that it is loose and is
not

transportable nor is it brought to the market for being bought and sold unless carbon
dioxide

is extracted out of it. Such extraction requires an elaborate

plant.

After extraction it would have to be compressed in cylinders of certain specifications or

liquefied or solidified before it can become a marketable

article.

It is true as the Revenue contended, that the gas produce through the kiln can be made
marketable in the sense that it can be sold in the very same condition in which it is
produced

to concerns interested in the carbonation process through" for example,

pipes.
But, apart from such a method of disposal being uneconomic and hardly likely to be

employed by the trade, what would be transported is that which is produced through the
kiln,

viz., the kiln gas containing among other things a certain quantity of carbon
dioxide.

The fact is that in employing carbonation process the manufacturer who requires carbon

dioxide produces kiln gas and as that mixture of gases contains carbon dioxide he
pumps

through a pipe that mixture of gases and not carbon dioxide alone extracted
from it.

Therefore, in truth and in fact what he uses is the kiln gas produced by him in the lime
kiln.

Even assuming that this gas is compressed either through a narrow pipe what is
compressed

is the kiln gas and it is that kiln gas containing no doubt a certain percentage of carbon

dioxide which is inducted in the sugarcane juice for

refining.

The Act charges duty on manufacture of

goods.

The word "manufacture" implies a change but every change in the raw material is not

manufacture.

There must be such a transformation that a new and different article must emerge
having a
distinctive name, character or use. The duty is levied on
goods.

As the Act does not define goods, the legislature must be taken ,to have used that word
in its

ordinary, dictionary meaning.

The dictionary meaning is that to become goods it must be something which can
ordinarily

come to the market to be bought and sold and is known to the

market.

That it would be such an article which would attract duty under the Excise
Act.

The evidence produced by the appellant company’s cases and the scientific works show
that

the mixture of gases produced from the kiln is known both in trade and in science as kiln
gas

and not as carbon dioxide.

The Revenue on the other hand has not produced any affidavit of persons dealing in
carbon

dioxide to show that kiln gas is known to the market as carbon

dioxide.

The carbon dioxide known to and brought in the market for being bought and sold for its

diverse uses is carbon dioxide compressed, liquefied or

solidified.
The analogy given by the Revenue of a manufacturer of cotton cloth also producing at
an

intermediate stage cotton yarn and such cotton yarn being liable to excise duty would
not
help the Revenue as cotton yarn obtained by such a manufacturer is known as such in
the

commercial community and brought to the market for being bought and
sold.

That cannot be said of kiln gas.

If kiln gas were to be offered in discharge of a contract to supply carbon dioxide it would

certainly be rejected on the ground that it is not carbon dioxide but is kiln
gas.

It is also not correct to say that because the sugar manufacturer wants carbon dioxide
for

carbonation purpose and sets up a kiln for it that he produces carbon dioxide and not
kiln gas.

In fact what he produces is a mixture known both to trade and,, science as kiln gas, one
of the

constituents of which is, no doubt, carbon

dioxide.

The kiln gas which is generated in these cases is admittedly never liquefied nor
solidified and

is therefore neither liquefied nor solidified carbon dioxide, assuming that it can be
termed

carbon dioxide.

It cannot be called compressed carbon dioxide as understood in the market among

those who

deal in compressed carbon

dioxide.

Compressed carbon dioxide is understood generally as carbon dioxide compressed in

cylinders with high pressure.

The mere fact that at one stage or the other kiln gas is subjected to some pressure by a
pump

or otherwise cannot mean that it is compressed carbon

dioxide.

At the same time the duty being on manufacture and not on sale the mere fact that kiln
gas

generated by these concerns is not actually sold would not make any difference if what
they

generate and use in their manufacturing processes is carbon

dioxide.

The fact that the gas so generated has carbon dioxide below 99% and does not
conform to the

specifications of the Indian Standards Institution also would not matter for the gas may
be

sub-standard, provided what is produced is carbon dioxide.The gas generated by these

concerns is kiln gas and not carbon dioxide as known to the trade i.e., to those who deal
in 'it

or who use it.

The kiln gas in question therefore is neither carbon dioxide nor compressed carbon
dioxide

known as such to the commercial community and therefore cannot attract duty under
the

provisions of the Excise Act.

In the result the appeal is allowed.

Union Of India vs Delhi Cloth & General Mills 1963 SCR Supl. (1)
586

Facts
Petitions have been filed by three different companies manufacturing vegetable
products

known as Vanaspati and they challenge the legality of the imposition of Excise duty on,
what

was called by the taxing authorities as the manufacture of "refined" from raw
oil.

The question of law raised is the liability to excise

duty.

The facts alleged in the petitions filed by the manufacturers of Vanaspati states that for
the

purpose of manufacturing Vanaspati the petitioners purchased groundnut and til oil from
the

open market or directly from the manufacturers of such oil. The oils thus purchased are

subjected to different processes in order to turn them into

Vanaspati.

The respondents (oil companies) claimed that the only finished product they
manufacture

from the raw materials thus purchased is Vanaspati which is liable to excise duty as a

vegetable product.

They contend that at no stage do they produce any new product which can come within
the

item described in the Schedule as vegetable non essential oils. Accordingly, it is, said,
the

demand for excise duty on the ground that they produce from the raw oils purchased a

product which is liable to duty is illegal.

Contention of Union of India

The Union of India contended that in the course of the manufacture of Vanaspati, the

vegetable product form raw groundnut and til oil, the petitioners bring into to existence
at one

stage, after carrying out some 'process’ with the aid of power, what is known to market
as

"'refined oil".

This "refined oil" falls within the description of "vegetable non-essential oils, and so is
liable

to excise duty.

The Union of India in support of this contention relied on report of Chief Chemist of
Central

Revenue Laboratory.

The report describes the process by which raw oil is manufactured into
Vanaspati :-
The manufacture of vegetable product consists in hydrogenating oils using a catalyst.
The

catalyst is a sensitive material and is liable to be poisoned and made ineffective if

certain

impurities are present.

In order therefore, to successfully manufacture vegetable product the hydrogenation

has to be

done on refined vegetable non-essential oil. 'The refined vegetable non-essential oil (an
oil

free from major impurities) is the penultimate raw material for the manufacture of
vegetable

product.

The vegetable non-essential oils as obtained by crushing containing the impurities are
raw

vegetable nonessential oils.

The process of refining them consists in 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 matter; after settling the clear layer is drawn off and treated with 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 refined oil and is suitable for hydrogenation into vegetable
product.

This process of refining generally involves the use of power and

machinery.

Depending upon the quality of the seed used for crushing and that of the original raw oil
this

refined oil will now generally be suitable for edible purposes of discriminating users and
for

the manufacture of toilet goods like hair oils and high class
soaps.

For certain users who are even more discriminating this oil may be subjected 'to a
further

process of deodorisation.

The difference between raw vegetable non- essential oils and refined vegetable oils will
clearly be seen on examination of the two
'products.

The refined oil will generally be colourless or only slightly coloured. It will be perfectly
clear

and in many cases it may have no

odour.

The raw oil, on the other hand, will have a certain amount of turbidity or sediment at the

bottom and will also be somewhat deep in

colour.
Sometimes refined oil obtained above is subjected to a process of further deodorization.
Such

oil can be correctly described as refined and deodorised

oil.

The two grades of oils are separately marketed in the country; as for' example,
groundnut' oil'

and 'refined groundnut oil' the latter generally with a distinctive

label.

The experts generally agree with the Report that common oils, like groundnut, sesame,

mustard cottonseed, etc. in their raw stage always contain varying amounts of impurities
and

these impurities have to be removed by different processes before hydrogenation for

the

purpose of producing Vanaspati can be

applied.

On the other hand, the respondent oil mills state though the raw oil which has been
freed

from impurities but not deodorised is sold in the market as refined oil but refined oil for

edible purposes, as understood by the manufacturers as well as by the trade, is oil to

which all

the three processes, viz., neutralization, bleaching and deodorisation have been
applied.

Any oil cannot be regarded as refined oil unless it was also deodorised, since the
failure to

deodorise oil leaves behind in the oil certain impurities in the shape of
compounds .

The High Court accepted the oil mills contention that the oil in their hands after some

amount of refinement in the course of being converted into Vanaspati was not liable to
excise

duty and allowed the petitions.

The Union of India states that the oil mills after they buy the raw oil with all its impurities,

manufacture a refined oil by the application of certain processes of refinement, which is

the

same as the refined oil available in the

market.

The refined oil thus produced becomes after further processes "vegetable
product".

When the vegetable product comes into existence it becomes liable to excise duty as

vegetable product. The fact that they do not put this "refined Oil" on the market but use
it to

produce a finished product known as vanaspati product cannot affect this

liability.

Excise duty is on the manufacture of goods and not on the

sale.

The fact that the substance produced by them at an intermediate stage is not put in the
market

would not make any differences

If from the raw material, a new substance has been brought into existence by the
application

of processes and that substance is the same as "refined oil" as known to the market an
excise

duty may be leviable.

Reasoning of the Court

To levy excise, it has to be shown that the substance produced is at any intermediate
stage

before final product ( vanaspati) comes into existence, is refined oil" as known to the
market.

It does not appear to be disputed that the process of deodorisation is applied in the
factory

after hydrogenation is complete.

The appellant's case is that before hydrogenation has started the substance in the
hands of

these oil mills is "refined oil" as known to the

market.

That raises the important question “whether any oil is known as "refined oil' in the
market

before deodorization has taken

place.”

The appellant's case is that deodorization is not necessary for "refined oil" to come into

existence; the respondents' case on the other hand is that without deodorisation the
substance
is not "refined oil".

The specification of "refined oil" by the Indian Standards-Institution states

that:

"Refined groundnut oil:-Groundnut oil which has been refined by neutralisation with
alkali

and deodorised with steam."

This specification by the Indian Standards Institution furnishes very strong support for

respondents' contention that without deodorisation the Oil is not "'refined oil" as is
known to

the consumers and the commercial

community.

Further support is found in the several affidavits of several concerns who market refined

groundnut oil under different brand names asserting that the oil is always deodorised
before it

is marketed as refined oil.

On the contrary the appellant could not produce evidence of one single case of
marketing of

refined oil without deodorisation.

Therefore the respondent’s contention that the raw oil purchased by the respondents for
the

purpose of manufacture of Vanaspati does not become at any stage "refined oil" as is
known

to the consumers and the commercial community , must be

accepted.

The other contention of the appellant that even if it be held that the respondents do not

manufacture "refined oil" as is known to the market they must be held to manufacture
some
kind of "non,essential vegetable oil" by applying to the raw material purchased by them,

certain processes of neutralisation and bleaching

.

The "manufacture" is complete as soon as by the application of one or more processes,

the

raw material undergoes some change. To accept this contention would amount to
equating

"'processing" to "manufacture".

The word "manufacture" used as a verb is generally understood to mean as "bringing

into

existence a new substance" and does not mean merely "to produce some change in a

substance", however minor in consequence the change

may be.

This distinction is well stated in Permanent Edition of Words and

Phrases .

It states that:-

“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."

The excise duty is leviable on "'goods“ but the Excise Act itself does not define "goods"
but

defines "excisable goods" as meaning "goods specified in 'the First Schedule as being,
subject
to a duty of excise ."

Therefore the ordinary meaning of “goods” must be considered to determine whether

excise

can be levied.

The Permanent Edition, Words and Phrases, on meaning of the word "goods"
states that:

The word 'goods' in Bailey's Large Dictionary is defined as 'Merchandise'-, and in

Johnson’s

it is defined to be movables in a house; personal or immovable estates; freight;

merchandise,"
Webster defines the word "'goods" as
–

1. movables; household, furniture;

2. Personal or movable estate, as horses, cattle, utensils,

etc.,

3. Wares; merchandise; commodities bought and sold by merchants and

traders.

These definitions make it clear that to become "goods" an article must be something
which

can ordinarily come to the market to be bought and

Sold.

This consideration of the meaning of the word "goods" an provides strong support for
the

view that "manufacture" which is liable to excise duty under the Central, Excises Act
must

be the "bringing into existence of a new substance known, to the

market."
The appellants also cited Section 2(f) of the Excise Act which defines 'manufacture' as :

'Manufacture' includes any process incidental or ancillary to the completion of a

manufactured product ".

However this contention of the appellant must also be

rejected.

Merely by inserting this definition of the word ',manufacture,, in s. 2 (f) the legislature did

not intend to equate "processing" to "manufacture" and intended 'to make mere
"Processing"

as distinct from "manufacture" in the same, sense of bringing into existence of a new

substance known to the market, liable to

duty.

The sole purpose of inserting this definition is to make it clear that at certain places in
the Act

the word 'manufacture' has been used to mean a process incidental to the manufacture
of the

article.

It is only with this limited purpose that the legislature inserted this definition of the word

'manufacture' in the definition section and not with a view to make the 'mere
"processing" of

goods as liable to excise duty.

The duty is on the manufacture of goods, that is, on the bringing into existence a new

substance known to the market, the raw oil or the refined oil must be some substance
known

to the, market before it can be subjected to duty.Therefore there can be no legal basis
for the

demands of excise duty which were made from the oil mills . The excise authorities are
directed to withdraw these
demands.

The appeals are accordingly

dismissed.
Ujagar Prints Etcvs Union Of India &Ors. 1989 AIR
516

Through an amendment called the Central Excises and Salt and Additional Duties of
Excise

(Amendment) Act, 1980. , Section 2 (f) of the Excise Act was amended by adding three
sub-

items in the definition of ‘manufacture' so as to include activities like bleaching, dyeing,

printing etc. The amendment was applied

retrospectively.

Against this, a batch of writ petitions under Article 32 of the Constitution of India were
filed,

involving common questions of law concerning the validity of the levy of duties of excise
by

treating as `manufacture' the process of bleaching, dyeing, printing, sizing, mercerising,

water-proofing, rubberizing, shrink-proofing, etc. done by the processors who carry out
these

operations in their factories on job-work basis in respect of `cotton-fabric' and

`Man-made

fabric' belonging to their customers. The correctness of the judgement in Empire

Industries

case which held that printing, dyeing , etc. amounts to manufacture also came up for

consideration.

Facts
The petitioners carry out the operations of bleaching dyeing, printing sizing, finishing
etc. of

grey fabric on job-work against payment of processing charges to it by the customers

who are

the owners of the grey-fabric. The man-made grey-fabrics manufactured in mills and on

power looms and that latter is exempt from excise duty on its
manufacture.

Contention of the
Petitioners

That the processing of the grey-fabric is not a part, a continuation, of the process of

manufacture in the manufacturing-stream, but is an independent and distinct operation

carried

out in respect of the Grey-fabric, after it has left manufacturing-stage and has become
part of

the common-stock of goods in the

market.

That processing operations do not amount to "manufacture" as the petitioners do not

carry out

any spinning or weaving operations; that what they receive from their customers for

processing is otherwise fully manufactured man-made fabric and that what is returned
to the

customers after processing continues to remain man-made

fabric.

The imposition of excise duty on the processor on the basis of the full-value of the
processed

material, which reflects the value of grey-fabrics, the processing-charges, as well as the
selling profits of the customers is, at once unfair and anamolous, for, in conceivable
cases the
duty itself might far exceed the processing-charges that the processors stipulate
and get.

Questions for consideration

A. Whether the process of bleaching, dyeing, printing, sizing, shrink-proofing etc.

carried on in respect of cotton or man-made `grey-fabric' amount to

`manufacture' for

purposes, and within the meaning of Section 2(f) of the Central Excises and Salt
Act

1944 prior to the amendment of the said Section 2(f) by the Amending Act of
1980.

B. Whether the amendment brought about by the Act of 1980 of Section 2(f) and of
the

Central Excise Act is ultra-vires Entry 84 List 1 and, therefore, beyond the

competence of the Union

Parliament.

C. Whether the retrospective operation of the Amending Act is an unreasonable

restriction on the fundamental right of the `processors' under Article 19(1)(g) of

the

Constitution.

Question A. Whether "processing" of the kind concerned in these cases amounts to

manufacture",

Contention of the
Petitioners

When the said fabrics are received in the factory of the petitioner company the same
are fully

manufactured and are in a saleable condition and are commercially known as grey
fabrics i.e.

unprocessed fabrics which are cleared after payment of the excise duty
under.

The grey fabrics i.e. unprocessed, undergo various processes in the factory. The grey
fabrics

are boiled in water mixed with various chemicals and the grey fabric is washed and
thereafter

the material is taken for the dyeing process that is imparting of required shades of
colours.

The next stage is printing process, i.e. putting the required designs on the said fabrics
by way

of screen printing on hot tables. The final stages the finishing process that is to give a
final

touch for better

appearance.

The petitioner’s mills do not carry out any spinning or weaving of the said fabrics. The

petitioner’s case is that the petitioner company begins with man-made or cotton fabrics
before it starts the said processes and also ends with man-made or cotton fabrics after

subjecting the fabrics to the various

processes.

The petitioner’s company receives fully manufactured man-made fabrics and cotton
fabrics

from its customers only for the purpose of carrying out one or more of the aforesaid
processes

thereon as per the requirement and instructions of the customers and after the
necessary

processes are carried out, the same are returned to the

customers.
The petitioner’s company states that it has no discretion or choice of shades or colours
or

designs and the same are nominated or prescribed by the customers. The finally
processed

fabric is not and cannot be sold by the petitioners in the market as the petitioner
company's

product. The petitioner company merely collects from its customers charges only for job

work of processing done by it.

The petitioner company further states that it has no proprietary interest in the fabrics
either

before or after the same is processed. The manufacture of the fabrics and sale in the
market of

the processed fabrics are affected by the petitioner company's customers and not by the

petitioners. Further the processed as well as the unprocessed fabric, whether cotton or
man-

made, can be put to the same

use.

Reasoning of the Court

Before its amendment, Section 2(f) of the Central Excise Act, defined 'manufacture' in
its

well accepted legal sense.

Section 2(f) defines manufacture as including any process, incidental or ancillary to the

completion of a manufactured
product;

The essential condition to be satisfied to justify the levies, is that there should be
'manufacture' of goods and in order that the concept of 'manufacture' in Entry 84 List I is

satisfied there should come into existence a new article with a distinctive character and
use,

as a result of the
processing.

It is contended that nothing of the kind happens when 'Grey fabric' is processed; it
remains

'grey fabric'; no new article with any distinctive character

emerges
The prevalent and generally accepted test to ascertain that there is 'manufacture' is
whether

the change or the series of changes brought about by the application of processes take
the

commodity to the point where, commercially, it can no longer be regarded as the

original

commodity but is, instead, recognised as a distinct and new article that has emerged as
a

result of the processes.

The principles are clear. But difficulties arise in their application in individual cases.
There

might be border-line case where either conclusion with equal justification be reached.

Insistence on any sharp or intrinsic distinction between processing' and 'manufacture,

results

in an over simplification of both and tends to blur their interdependence in cases such
as the

present one.

The correctness of decision in ​Empire Industries Limited &Ors. ... vs Union Of India

1986 AIR 662.

The Empire Industries case was correctly decided for following reasons and the
decision will

apply in the present case

also.

Reasoning of the Court

In the case of ​Hiralal Jitmal v. Commissioner of Sales Tax​, the Madhya Pradesh
High

Court, in considering the meaning of the expression `manufacture' for the purpose of the

Madhya Bharat Sales Tax Act, 1950, was of the view that it was not necessary that
there must

be a transformation in the materials and that the transformation must have progressed
so far

that the manufactured article became commercially known as a different article from the
raw

materials and all that was required was that the material should have been changed or

modified by man's art or industry so as to make it capable of being sold in an acceptable

form

to satisfy some want, or desire, or fancy or taste of

man.

In Deputy Commissioner, Sales Tax v. Pio Food Packers ​the principles enunciated
by the

Supreme Court are in the following

terms:

"There are several criteria for determining whether a commodity is consumed in the

manufacture of another the generally prevalent test is whether the article produced is

regarded in the trade, by those who deal in it, as distinct in identity from the commodity
involved in its manufacture. Commonly, manufacture is the end result of one or more
processes, through which the original commodity is made to pass. The nature and
extent of

processing may vary from one case to another, and indeed there may be several stages
of

processing and perhaps a different kind of processing at each stage. With each process

suffered, the original commodity experiences a change. But it is only when the change
or a

series of changes, take the commodity to the point where commercially it can no longer
be

regarded as the original commodity but instead is recognised as a new and distinct
article that

a manufacture can be said to take place. Where there is no essential difference in

identity

between the original commodity and the processed article it is not possible to say that
one

commodity has beenconsumed in the manufacture of another. Although it has

undergone a

degree of processing, it must be regarded as still retaining its original

identity."

The taxable event under the Excise Law is 'manufacture'. 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 be it the result of one process or several
processes

'manufacture' takes place and liability to duty is

attracted.

In ​McNicol and Another v. Pinch, [1906] 2 K.B 352​, it was laid down
that:

“It is well-settled that one cannot absolutely make a thing by hand in the sense that
nobody

can create matter by hand, it is the transformation of a matter into something else and
that

something else is a question of degree, whether that something else is a different

commercial

commodity having its distinct character, use and name and commercially known as
such from

that point of view is a question depending upon the facts and circumstances of the case.
Plain

wood is certainly different from 'box' made of

wood.

Take the case of the manufacture of steel; and let it be steel before it goes into works:
apply

some process to it and it becomes a particular sort of steel. But it is steel both before
and

after, although steel of different qualities. Is not that the manufacture of steel? Take the

manufacture of wool, it is wool when it is on the sheep's back; it is wool when it has
passed

through the process of sorting and picking which it has to go through in the mill. Is not
that

the manufacture of wool? I should have thought it most certainly was, although the
name

"wool" is applied to it both before the process begins and after it has
ended"

Therefore the processes applied to grey fabric by mills in the present case indubitably
fill
within the expression "manufacture" .
Question (B). Whether the amendment brought about by the Act of 1980 of Section 2(f)
and

of the Central Excise Act is ultra-vires Entry 84 List 1 and, therefore, beyond the
competence

of the Union Parliament.

Contention of the
petitoners

The concept of manufacture' embodied in Entry 84 of List I, it is urged, should be

construed

not in an artificial sense, but in its recognised legal sense and so construed artificial

dimensions sought to be imparted to it by the amendment would be

impermissible.

In support of the contention, observations of the Supreme Court in ​Diamond Sugar

Mills v.

State of UP, [1961] 3 SCR 242 ​, was cited. "we have, on the one hand, to bear in mind
the

salutary rule that words conferring the right of legislation should be interpreted liberally
and

the powers conferred should be given the widest amplitude; on the other hand we have
to

guard ourselves against extending the meaning of the words beyond their reasonable

connotation, in an anxiety to preserve the power of the

legislature.

It was further contended that though entries in the legislative lists are to be construed
liberally

and the widest possible amplitude given to them, however, no artificial or arbitrary

extensions of the meaning of the words in the entry are

permissible.

That the concept manufacture in Entry 84 List I has a well accepted legal connotation
and in

construing the entry the precise connotation which it possesses and conveys in law
must be

kept in mind. There is in law no 'manufacture' unless as a result of the process a new
and

commercially distinct product with distinct use emerges. The idea of manufacture might

imply change, but every change is not necessarily manufacture. It is. accordingly,
contended

that the amendment which seeks to equate "processing "with "manufacture" is beyond
the

scope of Entry 84 List I.

Reasoning of the Court

Entries to the legislative lists are not sources of the legislative power but are merely
topics or

fields of legislation and must receive a liberal construction inspired by a broad and
generous

spirit and not in a narrow pedantic

sense.

The expression "with respect to" in Article 246 brings-in the doctrine of "Pith and

Substance" in the understanding of the exertion of the legislative power and wherever
the

question of legislative- competence is raised the test is whether the legislation, looked
at as a
whole, is substantially 'with respect to' the particular topic of legislation. If the legislation
has

a substantial and not merely a remote connection with the entry, the matter may well be
taken

to be legislation on the topic.

In Empire Industries case, it was held

that:

"Processes of the type which have been incorporated by the amendment were not so
alien or

foreign to the concept of "manufacture ' that these could not come within that
concept."

At all events, even if the levy on process is not one under Entry 84, list l, but is an
impost on

'processing' distinct from "manufacture" the levy could yet be supported by Entry '97.
List l.

It was, however, contended that the levy of tax on an activity which cannot reasonably
be

regarded as an activity of 'manufacture' cannot be described as a levy of duties of

excise

under Entry 84, List I. If it is a non- descript tax under Entry 97, the Parliament has not

chosen to enact any such law in this case. The charging section does not, bring such a

taxable-event to charge.

This argument proceeds on an entire misconception and must be rejected. The

charging

section is the charging section 3 of the Central Excise Act. It stipulates the levy and
charge of

duty of excise on all excisable goods produced or manufactured. "Manufactured" under

the

Act after the amendment would be the 'manufacture' as amended in section 2(f) and the

charge would be on that basis. Therefore it is difficult to appreciate the argument that
the levy

would fail as there will be no appropriate charging section or machinery for effectuating
the

levy on the activity like the method of processing even if such an activity can be justified

under Entry 97 of List l of Seventh

Schedule.

If a legislation purporting to be under a particular legislative entry is assailed for lack of

legislative- competence, the State can seek to support it on the basis of any other entry
within

the legislative competence of the legislature. It is not necessary for the State to show
that the

legislature, in enacting the law, consciously applied its mind to the source of its own

competence.

Competence to legislate flows from Article 245, 246, and the other Articles following, in
Part

XI of the Constitution. In defending the validity of a law questioned on ground of

legislative-

incompetence, the State can always show that the law was supportable under any othe
entry

within the competence of the legislature. Indeed in supporting a legislation sustenance

could
be drawn and had from a number of entries. The legislation could be a composite
legislation

drawing upon several entries. Such rag-bag legislation is particularly familiar in

taxation.

Bennion in his "Statutory Interpretation” refers such a composite

legislation,

Ragbag Acts: Some Acts are 'rag bag' Acts, covering many areas. The annual Finance
Act is

an extreme example. It is divided into Parts, dealing respectively with customs and
excise

duty, value added tax, income tax, capital gains tax, stamp duty, capital transfer tax and
so

on"

In ​Hari Krishna Bhargav v. Union of India and Anr., [1966] 2 SCR 22​, it was laid
down

that : "There is no prohibition against the Parliament enacting in a single statute, matters

which call for the exercise of power under two or more entries in List I of the Seventh

Schedule. Illustrations of such legislation are not wanting in our statute book, and the
fact

that one of such entries is the residuary entry does not also attract any
disability."

So far as, the exclusive competence of the Union Parliament to legislate is concerned
all that

is necessary is to find out whether the particular topic of legislation is in List II or List III.
If

it is not, it is not necessary to go any further or search for the field in List I. Union
Parliament

has exclusive power to legislate upon that topic or

field.

Therefore there is no substance in this contention and is

rejected.

Question C​. Whether the retrospective operation of the Amending Act is an

unreasonable

restriction on the fundamental right of the `processors' under Article 19(1)(g) of the

Constitution.
Reasoning of the Court

There is really no substance in the grievance that the retroactivity imparted to the

amendments is violative of Article 19 [l] (g).

A Competent legislature can always validate a law which has been declared by courts
to be

invalid, provided the infirmities and vitiating factors noticed in the declaratory-judgment
are

removed or cured.

Such a validating law can also be made retrospective. If in the light of such validating
and

curative exercise made by the Legislature-granting legislative competence--the earlier

judgment becomes irrelevant and unenforceable, that cannot be called an impermissible

legislative overruling of the judicial decision. All that the legislature does is to usher in a

valid law with retrospective effect in the light of which earlier judgment becomes
irrelevant.

Such legislative expedience of validation of laws is of particular significance and utility

and

is quite often applied, in taxing statutes. It is necessary that the legislature should be
able to

cure defects in statutes. No individual can acquire a vested right from a defect in a
statute and

seek a windfall from the legislature's mistakes. Validity of legislations retroactively

curing

defects in taxing statutes is well recognised and courts, except under extraordinary

circumstances, would be reluctant to override the legislative judgment as to the need for
and

wisdom of the retrospective legislation.

In ​Empire Industries Limited & Ors. Etc. v.Union of India ​it was laid down that :" not

only because of the paramount governmental interest in obtaining adequate revenues,

but also

because taxes are not in the nature of a penalty or a contractual obligation but rather a
means

of apportioning the costs of government amongst those who benefit

from it".

In testing whether a retrospective imposition of a tax operates so harshly as to violate

fundamental rights under Article l9 (1) (g), the factors considered relevant include the
context

in which retroactivity was contemplated such as whether the law is one of validation of

taxing statute struck-down by courts for certain defects; the period of such retroactivity,
and

the degree and extent of any unforeseen or unforeseeable financial burden imposed for
the

past period etc.

Having regard to all the circumstances of the present case, the retroactivity of the
Amending

provisions was not such as to incur any infirmity under Article 19(
l)(g).

There is no merit in this contention and is

rejected.
T.T.G. Industries Ltd. Vs CCE AIR 2004 SC 3422

Facts ​The appellant company entered into an agreement with Bhilai Steel Plant for

design, supply,
supervision of erection and commissioning of four sets of Hydraulic Mudguns and Tap
Hole

Drilling Machines required for blast furnace.

For this purpose, it imported several components and also manufactured some of the

components at their factory.

These components were transported to the site at Bhilai where the manufacture and

commissioning of the aforesaid machines took

place

Duty was paid in respect of the components manufactured at its workshop in Chennai,
but no

duty was paid on manufacture of the aforesaid Mudguns and Drilling Machines which
were

erected and commissioned on

site.

A show cause notice was issued to the appellant demanding Central and Special Excise
Duty

on the total assessable value of the aforesaid machines erected by the company at
Bhilai Steel

Plant.

The appellant filed a detailed reply explaining the processes undertaken by it for the

manufacture/ erection and commissioning of the equipments, the purpose of the

equipments

so erected, their size etc.

However the Revenue concluded that the processes undertaken by the appellant
resulted in

the manufacture of two distinct equipments having their own name, character and use
and
which were specifically included in the Central Excise Tariff, and were therefore
excisable

goods and had to discharge duty liability.

It rejected the plea of the appellant that the Mud guns and Drilling Machines were
immovable

property and hence not

excisable.

Against the order of the Tribunal, the company appealed to the Supreme
Court
Contention of the appellant

The drilling machine as well as the mudgun is erected on a concrete platform which is at
a

height of 25 feet above the ground

level.

The various components of the mudgun and drilling machine are mounted piece by
piece on

a metal frame, and are brought to site and physically lifted by a crane and landed on the

concrete platform.

The weight of the mudgun is approximately 19 tons and the weight of the drilling
machine is

approximately 11 tons.

Having regard to the volume and weight of these machines there is nothing like
assembling

them at ground level and then lifting them to a height of 25 feet to the platform over
which

it is mounted and erected.

These machines cannot be lifted in an assembled
condition.

So explaining the nature of the processes involved, the appellant contended that the
mudgun

and the drilling machine came into existence as identifiable units only after assembly on
the

metal frame, and once assembled they were no longer “goods” within the meaning of
the

Central Excise Act.

If the machines are to be removed from the blast furnace, they have to be first
dismantled into

parts and brought down to the ground only by using cranes and trolley ways considering
the

size, and also considering the fact that there is no space available for moving the
machines in

assembled condition due to their volume and

weight.

Question for consideration

Whether the processes undertaken by the appellant at Bhilai for the erection of
mudguns and

drilling machines resulted in the emergence of goods leviable to excise duty or whether
it

resulted in erection of immovable property and not

"goods".

Reasoning of the Court

The appellant has placed considerable reliance on the principles enunciated and the
test laid

down by the Supreme Court in Municipal Corporation of Greater Bombay to determine

what is immovable property.

In that case the facts were that the respondent had taken on lease land over which it
had put

up, apart from other structures and buildings, six oil tanks for storage of petrol and
petroleum

products.

Each tank rested on a foundation of sand having a height of 2 feet 6 inches with four
inches

thick asphalt layers to retain the

sand.

The steel plates were spread on the asphalt layer and the tank was put on the steel
plates

which acted as bottom of the tanks which rested freely on the asphalt
layer.

There were no bolts and nuts for holding the tanks on to the foundation. The tanks
remained

in position by its own weight, each tank being about 30 feet in height 50 feet in diameter

weighing about 40 tons.

The question arose in the context of ascertaining the rateable value of the structures
under the

Bombay Municipal Corporation Act.

The High Court held that the tanks are neither structure nor a building nor land under
the Act.

On appeal, the Supreme Court held

that:
"The tanks, though, are resting on earth on their own weight without being fixed with
nuts

and bolts; they have permanently been erected without being shifted from place to
place.

Permanency is the test.

The chattel whether is movable to another place of use in the same position or liable to
be

dismantled and re-erected at the later

place?

If the answer is yes to the former it must be a movable property and thereby it must be
held

that it is not attached to the

earth.

If the answer is yes to the latter it is attached to the

earth.

Applying the permanency test laid down in the aforesaid decision, the appellant
contended

that having regard to the facts of this case, it must be held that what emerged as a
result of

the processes undertaken by the appellant was an immovable

property.

It cannot be moved from the place where it is erected as it is, and if it becomes
necessary to

move it, it has first to be dismantled and then re-erected at another

place.
The evidence brought on record as to the nature of processes employed in the erection
of the
machine, the manner in which it is installed and rendered functional, and other relevant
facts

leads to the Conclusion that what emerged as a result was not merely a machine but

something which is in the nature of being immovable, and if required to be moved,

cannot be

moved without first dismantling it, and then re-erecting it at some other
place.

In ​Quality Steel Tubes (P) Ltd. Vs. CCE 1995 (75) ELT 17 (SC) ​the facts were that a
tube

mill and welding head were erected and installed by the appellant, a manufacturer of
steel

pipes and tubes by purchasing certain items of plant and machinery in market and

embedding them to earth and installing them to form a part of the tube
mill .

“The twin tests of legibility of an article to duty under the Excise Act are that it must be

goods and must be marketable. The word "goods" applied to those which can be
brought to

market for being bought and sold and therefore, it implied that it applied to such goods
as are

movable.

The basic test, therefore, of levying duty under the Act is

twofold.

One, that any article, must be a good and second, that it should be marketable or
capable of

being brought to market.

Goods which are attached to the earth and thus become immoveable do not satisfy the
test of
being goods within the meaning of the Act nor it can be said to be capable of being
brought

to the market for being bought and sold.

Therefore, both the tests were not satisfied in the case of appellant as the tube mill or

welding head having been erected and installed in the premises and embedded to earth
they

ceased to be goods within meaning of Section 3 of the

Act".

In ​Mittal Engineering Works Pvt. Ltd. Vs. CCE 1996 (88) ELT 622 (SC) ​the Supreme

Court was concerned with the exigibility to duty of mono vertical crystallisers which are

used in sugar factories to exhaust molasses of

sugar.

The mono vertical crystalliser is a tall structure, rather like a tower with a platform at its

summit.

A mono verticalcrystaliser is fixed on a solid RCC slab

.
It is assembled at site in different
sections.

The parts were cleared from the premises of the appellants and the mono vertical
crystalliser

was assembled and erected at

site.

The process involved welding and gas

cutting.

This Court held that marketability was a decisive test for

dutiability.

It meant that the goods were saleable or suitable for sale, that is to say, they should be

capable of being sold to consumers in the market, as it is, without anything

more.

After considering the material placed on the record it was held that the mono vertical

crystalliser has to be assembled, erected and attached to the earth by a foundation at

the site

of the sugar factory.

It is not capable of being sold as it is, without anything

more.

Therefore it was held that mono vertical crystallisers are not "goods" within the meaning
of

the Act and, therefore, not exigible to excise

duty.

In ​Triveni Engineering & Indus Ltd. Vs. CCE 2000 (120) ELT 273 ​a question arose

regarding excisability of turbo alternator.

In the facts of that case, it was held that installation or erection of turbo alternator on a

concrete base specially constructed on the land cannot be treated as a

common base.

Therefore, it follows that installation or erection of turbo alternator on the platform

constructed on the land would be immovable property, as such it cannot be an

excisable

goods falling within the meaning of “goods” under the Central Excise
Act.

The Court observed that:

"There can be no doubt that if an article is an immovable property, it cannot be termed
as

"excisable goods" for purposes of the Act. From a combined reading of the definition of

'immovable property' in Section 3 of the Transfer of Property Act, Section 3 (25) of the

General Clauses Act, it is evident that in an immovable property there is neither mobility
nor

marketability as understood in the Excise Law. Whether an article is permanently

fastened to

anything attached to the earth require determination of both the intentions as well as the
factum of fastening to anything attached to the earth. And this has to be ascertained
from the

facts and circumstances of each

case".

Therefore the Court held that -

“Keeping in view the principles laid down in the judgments and having regard to the
facts of

this case, we have no doubt in our mind that the mudguns and the drilling machines
erected

at site by the appellant on a specially made concrete platform at a level of 25 feet above
the

ground on a base plate secured to the concrete platform, brought into existence not
excisable

goods but immovable property which could not be shifted without first dismantling it and

then re-erecting it at another site.

Taking all facts into consideration like the processes involved and the manner in which
the

equipments were required to be assembled for erecting the machines in questions , the
volume of the machines concerned and their weight and nature of structure erected for

basing these machines, we can rightly reach the conclusion that what ultimately
emerged as

a result of processes undertaken and erections done cannot be described as "goods"

within

the meaning of the Excise Act and exigible to excise

duty.”

The facts in Mittal Engineering and Quality Steel Tubes cases and the principles
underlying

those decisions must apply to the facts of the case in hand. It cannot be disputed that
such

drilling machines and mudguns are not equipments which are usually shifted from one
place

to another, nor it is practicable to shift them

frequently.

Once they are erected and assembled they continue to operate from where they are
positioned

till such time as they are worn out or

discarded.

They really become a component of the plant and machinery because without their aid
a blast

furnace cannot operate.

As such they do not answer the description of "goods" within the meaning of the term in
the

Excise Act.

In the result the appeal is allowed.

The appellant is not liable to pay excise duty on the manufacture and removal of the
mudgun

and drilling machines in question which have been installed in the Bhilai Steel
Plant.
The Tata Iron & Steel Co. vs CCE. AIR 2003 SC 144

Facts

Under the Essential Commodities Act the Government of India set up a Joint Plant

Committee (JPA) and a Steel Priority Committee (SPC) for determining, prices (base
prices

as well as extras) from time to time of all categories of iron or steel as ex-works
prices.

The Committee added an element to the ex- works prices for constituting a fund for

modernisation, research and development with the object of ensuring the production of
iron

and steel in the desired categories and grades by the main steel
plants.

Pursuant to the orders of the committee, the steel companies started adding element to
their

ex-works price for the fund.

However while declaring value of their goods; the steel companies did not add these ex-

works elements for the purpose of asessment of excise

duty.

The revenue claimed that excise is payable even on this component as total value of
goods

is relevant for assessment of excise duty an whatever is added to ex- works prices will
the

value for calculation of excise duties.

The questions for
consideration

i. Whether the elements required to be added by the members steel plants, as per the

decision of the Committee , are admissible deductions under Section 4(4)(d)(ii) of

the

Central Excise Act i.e. whether they fall within the definition of the term "other

taxes" and

ii. whether such addition, which is a compulsory impost, can be considered and be
price

on which excise duty is payable by the

parties.

iii.

Contention of TISCO

Iron or Steel Companies have to compulsory add this element to the ex-works price and
as

such it is a compulsory exaction. Such compulsory exaction is in the nature of "tax" and
is

covered by the words "other taxes" in Section 4(4)(d)(ii) of the Central Excise
Act
Reasoning of the Court

In order to understand the submission made by the Tisco and other steel companies,
the

provisions of Section 4 of the said Act need to be look

at.

Section 4 of the Central Excise Act states that where the duty of excise is chargeable on
any

excisable goods with reference to value, such value shall, subject to the other
provisions of

this section, be deemed to

be

(a) The normal price thereof, that is to say, the price at which such goods are ordinarily
sold

by the assessee to a buyer in the course of trade for delivery at the time and place of
removal,

where the buyer is not a related person and the price is the sole consideration for
the sale:

(d) "Value" in relation to any excisable

goods,-

(ii) Does not include the amount of the duty of excise, sales tax and other taxes, if any,
paid

or payable on such goods

Thus excise duty is chargeable on the value of the goods. The value is the normal price
i.e.

the price at which such goods are ordinarily sold by the assessee to a buyer, where the
buyer

is not a related person and the price is the sole consideration for
sale.

From the price at which the assessee sells to the buyer the only deductions permissible
are

those under sub-clause 4(d)(ii) i.e. excise, sales tax and other
taxes .

It is clear that extra elements added to ex- works price of steel is not an excise duty or a
sales

tax.
The only question is whether it would fall within the meaning of the term "other
taxes".

Case laws

In ​D. G. Guose and Co. v. State of Kerala (1980) 2 SCC 410 ​the question was
regarding

the validity of tax imposed by the Kerala State on buildings by virtue of the Kerala
Building

Tax Act. The validity of this Act was challenged, inter alia, on the ground that this was
the

tax on the capital value and assessee of an individual or a Company and therefore fell
within

the scope of Entry 86 of the Union List and not under Entry 49 of the State
List.

Therefore the State did not have the statutory authority to impose such
a tax.
The Court held as follows:

"The word 'tax' in its widest sense includes all money raised by taxation. It therefore
includes

taxes levied by the Central and the State legislatures, and also those known as 'rates",
or other

charges, levied by local authorities under statutory

powers.

“Taxation" has therefore been defined in clause (28) of Article 366 of the Constitution to

include "the imposition of any tax or impost, whether general or local or special", and it
has

been directed that "tax" shall be "construed

accordingly"."
Thus it is to be seen that even though the term "tax" has been given a wide
interpretation to

include all monies raised, the levy still has to be by the Central or State legislatures or
by

some statutory authority.

In ​CCE v. Kisan Sahkari Chinni Mills Ltd. 2001 (132) ELT 523
(S.C.)

State of Uttar Pradesh enacted a legislation called Uttar Pradesh Sheera Niyantaran

Adhiniyam .

This Act regulated storage, gradation, price, supply and distribution, in Uttar Pradesh, of

molasses produced by the sugar

factories.

The Act provided that sugar factories would be liable to pay to the State Government

administrative charges. These administrative charges were based on the quantity of

molasses

sold and supplied by the sugar

factories.

The Act enabled the factories to recover these charges from the person to whom the
molasses

were sold.

The question before the Court was whether this compulsory exaction fell within the term

"other taxes" in Section 4(4)(d)(ii) of the Central Excise

Act.
It was held as follows:

"Under Section 4(4)(d)(ii) of the Central Excise Act what is to be excluded from the

assessable value is the amount of duty of excise, sales tax and "other taxes". Taxes, as
such,

are not defined in the Central Excise Act. If the expression "tax" is to be understood in
the

absence of any definition, it would certainly cover any

levy.”
Since the imposition was under a statute enacted by the State of Uttar Pradesh the levy
was

by the State.

It was thus held that that levy fell within the definition of the term "other
taxes".

In the present case there is no backing of any statutory provision for the creation of
these

funds.

Further the levy was only on main steel plants and the fund was created for the
utilization by

these member steel plants

only.

Also to be noted that even though the Essential Commodities Act empowers regulation
of

price, it does not empower imposition of any taxes. The addition of an element to the
ex-

works price has no statutory backing or

force.
It is not by the Central Government or the State Government or any local authority. It is
a

levy by a Committee majority of whose members are representatives of the steel plants.
The

purpose of creating funds is for the benefit of these member steel plants. Such a levy,
even

though, it may be compulsory can never be

"tax".

In ​C.I.T. v. Tollygunge Club Ltd. (1977) 2 SCC 790 ​the question was whether a
surcharge

collected by the assessee Club from all race goers but which had been earmarked for
charity

could be deemed to be an income of the assessee and therefore includible in the

taxable

income of the
assessee.

It was held that income tax was a tax on income. It was held that "income" is what
reaches

the assessee and that it is that income which is intended to be charged to tax under the
Income

Tax Act.

Every receipt by the assessee is not necessarily income in his

hands.

The surcharge collected by the assessee was for the purposes of being paid over to
local

charities.
This surcharge was clearly impressed with an obligation in the nature of trust for being

applied for the benefit of charities.

Therefore it was held that this surcharge was diverted before it reached the hands of the

assessee and did not become part of the income of the assessee and such a surcharge
would

therefore not be regarded as income assessable to

tax.

In ​C.I.T. v. Bijli Cotton Mills (1979) 1 SCC 496

The question was whether certain amounts realized by the assessee on account of
Charity in

addition to the price from his customers could be stated to be income in the hands of
the

assessee which were assessable to income

tax.

It was held that the amount was being collected for purposes of giving to charities and
was

held by the assessee under an obligation to spend them for charitable purposes.
Therefore it

did not form income of the

assessee.

These amounts were not part of the price of the goods but were payments for specific
purpose

of being spent on charitable

purposes.

It was submitted by TISCO that all the above mentioned cases clearly show that when
there
is a compulsory impost or exaction, the assessee has to collect but the assessee
cannot retain

for himself and he has to pass on the same, then such a compulsory exaction cannot be

included in the value for purposes of assessing excise duty. Such imposts cannot be
deemed

to be price.

What was being levied was an element to the ex-works price and the price for purpose
of

assessment of duty remained the ex-works price. The Companies sold to the customers
at the

ex-works price.

The additional amount was merely collected by the Companies for and on behalf of JPC
and

the companies did not retain this amount. Therefore this element could not be
considered to

be price.

Therefore the price which the buyer pays is the price on which excise duty is leviable.
From

the price that the buyer pays, the only deductions allowed are taxes paid or payable on
such

goods. The levy in the present case is not a "tax" and does not fall within the meaning of
the

term "other taxes". This element cannot be deducted from the assessable value of the
goods.
Countering this revenue submitted that the principles under the Income Tax Act cannot
be

made applicable to the Central Excise Act. Under the Income Tax Act what is taxable is
the
actual income received by the assessee for his own benefit. Under the Central Excise
Act

excise duty is chargeable on the value of the

goods.

This value is the price at which the goods are ordinarily sold by the assessee to the
buyer.

The element which has been added is an "element of

price".

This element could only have been added as price because the JPC is established by
virtue of

the order based on the Essential Commodities Act and under that Act there was no
power to

make any levy or impose any tax on a

purchaser.

The addition being an element of price it has to be included in the assessable value for

purposes of excise duty.

Reasoning of the Court

Principles on which "income" is to be determined under the Income Tax Act cannot
apply

when determining "value" for purposes of Excise

Duty.

Under the Income Tax Act, tax is payable on income which reaches the assessee. On
the

other hand, Section 4 of the Excise Act shows that excise is payable on the price at
which

goods are ordinarily sold to the

buyer.

Thus the principles on which Bijli Cottons Mills' case and Tollygunge Club's case were

decided would not be appropriate and would not apply for deciding "value" for the
purposes

of the Excise Act.

In ​Hindustan Sugar Mills v. State of Rajasthan. (1978) 4 SCC

271

The question was whether the assessee was liable to pay Sales Tax on the amount of
railway

freight collected by them from the

purchaser.

It was held that the assessee was bound to pay Sales Tax on such
amounts.
In ​E.I.D. Parry (I) Ltd. v. Asst. Commissioner of Commercial Taxes (2000) 2 SCC
321 ​it

was held that the purchase price is the total amount of consideration for the purchase of

goods. This would include price and also other amounts payable by the
purchaser.

These cases have been decided under the Sales Tax Act, but the principles for
computing

value for purposes of Sales Tax are similar to those of computing value for purposes of

Excise Duty. It is these principles which would apply. What has been added is an
"element of

price".

The JPC could not have made any compulsory exaction from the purchaser. They could
only
regulate prices by adding elements to the ex-works price. In other words the ex-works
price

could be increased by adding an element to it. Thus what was being added was to
the price.

Another aspect to be kept in mind is ultimate beneficiaries of these amounts are the
steel

plants themselves. Therefore while assessing excise duty, such levy cannot be
exempted as

taxes.

In this view of the matter the appeal of TISCO is

dismissed.
Acer India ltd. Vs. Cce 2004 (8) SCC
173

Summary

Levy of Excise duty-On operational Software loaded in hardware- Software exempted

from

duty.

Held: Duty is not leviable on such software while it is not provided under Tariff Act-

Computer and Software both are distinct and separate both as a matter of commercial

parlance as also under the

statute-

Despite being loaded in the hardware the software does not lose its character as is still

marketable as a separate
commodity.

Facts
Appellant Acer India Ltd. is a Company manufacturing computers, and accessories
falling

under different headings of Chapter 84 of Central Excise Tariff Act, 1985. Upon a
licence, it

also used to load operational

softwares.

It used to deduct the value of the operational software from the total value of the
Computer,

while calculating the amount of central excise payable

thereupon.

Revenue issued show cause notices to it demanding a differential duty on the premise
that

duty is payable on the entire value of the computer including the value of operational

softwares.

Revenue thereafter directed payment of differential

duty.

In an appeal before the Supreme Court following contentions were

raise.

Contentions of the
Revenue

Operational software implanted in hardware becomes a part thereof and as such central
excise

duty is leviable on the total value of the

computer.

"Transaction Value" as contained in Section 4 (3) (d) of the Excise Act would include the

value of all manufactured goods charged as price including any amount that the buyer
is

liable to pay by reason of or in connection with the sale together therewith any other
amount

which adds to the value thereof.

As a software implanted is a part of the computer, excise duty would be payable on the
total

value thereof.

Furthermore, the Company was also being under an obligation to preload a software on
the

computer before clearing the same from the factory, the central excise duty would be
payable

on the entire value thereof.

Contentions of Acer India Ltd

The operational softwares which are implanted on specific orders would retain the

characteristics of software and would not lose its identity only because information
contained

therein together with the right to use the same is implanted in the computer
itself.

That hardwares and softwares are classified separately under different headings of the
Tariff

Act. ​That in respect of computers rate of duty is 16% and for softwares it is nil and thus

assessee
was entitled to claim deduction of the value thereof from the total value of the
computer.

That as both the hardware and software are assessed separately, in view of relevant
chapter

note of the Tariff Act, the valuation of a computer and software cannot be clubbed
together

for the purpose of

assessment.

A computer which is a hardware is marketable as such containing a firm or etched

software

being implanted therein, the valuation thereof also is taken into consideration for the

purpose of excise duty but the operational softwares which are implanted on specific
orders

placed by the customers would retain the characteristics of software and would not lose
its

identity only because the informations contained therein together with the right to use
the

same is implanted in the computer itself.

RELEVANT STATUTORY PROVISIONS

Central Excise Act

Section 2(d) "excisable goods" means goods specified in the First Schedule and the
Second

Schedule to the Central Excise Tariff Act as being subject to a duty of

excise ;

Section 3- Duties specified in the Schedule to the Central Excise Tariff Act, 1985 to be

levied.

(1) There shall be levied and collected in such manner as may be

prescribed,-

(a) a duty of excise, to be called the Central Value Added Tax (CENVAT) on all
excisable
goods which are produced or manufactured in
India.

Section 4 - Valuation of excisable goods for purposes of charging of duty of

excise.

(1) Where under this Act, the duty of excise is chargeable on any excisable goods with

reference to their value, then, on each removal of the goods, such value
shall-

(a) in a case where the goods are sold by the assessee, for delivery at the time and
place of

the removal, the assessee and the buyer of goods are not related and the price is the
sole

consideration for the sale, be the transaction

value;

(3) for the purposes of this section,

-

(d) "transaction value" means the price actually paid or payable for the goods, when
sold,

and includes in addition to the amount charged as price, any amount that the buyer is
liable

to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale,
whether

payable at the time of the sale or at any other time, including, but not limited to, any
amount

charged for, or to make provision for, advertising or publicity, marketing and selling

organization expenses, storage, outward handling, servicing, warranty, commission or

any
other matter; but does not include the amount of duty of excise, sales tax and other
taxes, if

any, actually paid or actually payable on such

goods."
Reasoning of the Court

Interpreting Taxing/Fiscal Statute

In ​Cape Brandy Syndicate Vs. Inland Revenue Commissioners, [(1921) 1 KB 64 ], ​it

is

stated that :

"In a taxing Act one has to look merely at what is clearly said. There is no room for any

intendment. There is no equity about a tax. There is no presumption as to tax. Nothing

is to

be read in, nothing is to be implied. One can only look fairly at the language
used."

In ​W.M. Cory & Sons Ltd. Vs. Inland Revenue Commissioners, (1965) 1 All ER 917​,
it

was held that:

“Imposition of tax is a constitutional function. A taxing or a fiscal statute demands strict

construction. It must never be stretched against a tax payer. So long natural meaning
for the

charging section is adhered to and when the law is certain, then a strange meaning
thereto

should not be given.”

In Union ​of India Vs. Play Win Electronics Pvt. Ltd , (1989) 3 SCC 181] ​it was held
that:

It is also well-settled rule of construction of a charging section that before taxing a

person it

must be shown that he falls within the ambit thereof by clear words used as no one can
be

taxed by implication.

It is further well-settled that a transaction in a fiscal legislation cannot be taxed only on

any

doctrine of "the substance of the matter" as distinguished from its legal signification, for
a

subject is not liable to tax on supposed "spirit of the law" or "by inference or by analogy".

The taxing authorities cannot ignore the legal character of the transaction and tax it on
the

basis of what may be called 'substance of the matter'. One must find the true nature of
the

transaction.”

In ​Mathuram Agrawal Vs. State of Madhya Pradesh [(1999) 8 SCC 667 ​the law
regarding

interpretation of taxing statute is stated in the following

terms:

"The intention of the legislature in a taxation statute is to be gathered from the language
of

the provisions particularly where the language is plain and unambiguous. In a taxing Act
it is

not possible to assume any intention or governing purpose of the statute more than
what is

stated in the plain language. It is not the economic results sought to be obtained by
making
the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an

interpretation which does not follow from the plain, unambiguous language of the
statute.
Words cannot be added to or substituted so as to give a meaning to the statute which
will

serve the spirit and intention of the legislature. The statute should clearly and

unambiguously convey the three components of the tax law i.e. the subject of the tax,
the

person who is liable to pay the tax and the rate at which the tax is to be paid. If there is
any

ambiguity regarding any of these ingredients in a taxation statute then there is no tax in
law.

Then it is for the legislature to do the needful in the

matter."

Interpretation Of The Relevant

Provisions:

Section 2(d) of Central Excise Act, 1944 defines the "excisable goods" to mean the
goods

specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act
as

being subject to a duty of excise.

It must, therefore, be 'goods' which would be subject to a duty of excise and not the
'goods'

which would not be.

Section 3 is the charging provision.

It not only lays down the mode and manner for levy and collection of central excise duty
but

in no uncertain terms states that a duty of excise shall be levied on all excisable goods
which

are produced or manufactured in India, as, and at the rates, set forth in the Tariff
Act.

Section 4 provides for the manner in which an enquiry is required to be made for
valuation

of goods for the purpose of levy of excise duty on

"goods".

In terms of Section 4 (1) (a) , when the duty of excise is chargeable on the concerned

excisable goods with reference to their value, the same shall be calculated in the
manner laid

down therein.

It may be true that the definition of "Transaction Value" which is incorporated in Section

4(3) (d) for the purpose of said Section states that the price actually paid or payable for
the

goods, when sold, would include in addition to the amount charged as price, any
amount

that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in
connection

with the sale.

Only because the expressions "by reason of, or in connection with the sale" have been
used in

the definition of "Transaction Value", the same by itself would not take away the rigours
of

Sub-section (1) of Section 4 as also the requirement of charging section as contained in

Section 3.

It must be borne in mind that central excise duty cannot be equated with sales tax. They
have

different connotations and apply in different

situations.

Central excise duty is chargeable on the excisable goods and not on the goods which
are not

excisable. Thus, a 'goods' which is not excisable if transplanted into a goods which is

excisable would not together make the same excisable goods so as to make the
assessee liable

to pay excise duty on the combined value of

both.

Excise duty, in other words, would be leviable only on the goods which answer the
definition

of "excisable goods" and satisfy the requirement of Section

3.

A machinery provision contained in Section 4 and that too the explanation contained
therein

by way of definition of 'transaction value' can neither override the charging provision nor
by

reason thereof a 'good' which is not excisable would become an excisable one only
because

one is fitted into the other, unless the context otherwise

requires.

It is not a case where the software is being supplied to the customer along with the
computer

by way of incentive or gift. The Company is charging the price

therefore.

Software along with a computer is being sold both in the form of the information loaded
in

the computer as also in the form of a

CD-ROM.
In the invoice, the composite price of the computer and software is being shown, and

therefrom, the price of the software is only being

deducted.

The invoice price, thus, also shows the actual price of the computer as also the price of
the

software together with the licence to use the

same.

But invoice value is not always excisable value in respect of the goods. In the instant
case,

the excisable value of the computer has been disclosed. The cost of loading the
softwares

which would enhance the value of the goods had also been
added.