MUHAMMAD JAWED ZAKARIA, (JUDICIAL MEMBER).-- This appeal arises out of the order of the Additional Collector passed by him vide Order dated 29.05.2002.
2. Brief facts of the case are that the appellant during the relevant period received burnt/used transformer oil from WAPDA under an agreement and after process of de-contamination and de- hydration return the same to WAPDA and charge processing charges for the cleaning of the oil. It is alleged that the ownership of the oil does not change and it remains the property of WAPDA. That the appellants obtained L-1 License from the Central Excise Department for "Reclamation of used Transformer Oil". The license was granted in 1992 and renewed every year. From 1992 to 1997 the appellant carried out the process of the removal of impurities from the used transformer oil and delivering the same to WAPDA. The appellants did not pay Central Excise duty or Sales Tax as the department did not demand it. On 19.05.1997, the staff of Central Excise, Shalimar Circle, visited the appellant's premises and informed the appellants that they were liable to pay Central Excise Duty (They did not mention anything about sales tax). In the statement, the Managing Director informed the staff that he was of the view that duty was not leviable on the goods, processed in his factory as he was not manufacturing any goods. He, however, agreed to pay duty under protest. A copy of his statement was also produced before this Tribunal. However, a Show-Cause Notice C. No. 22- Addl-Collr/2- (CE)-Cont/97/2247, dated 10.06.1997, was issued to the appellants. It was alleged in the Show-Cause Notice that reclaimed transformer oil was classified under heading 2710.0082 of the First Schedule to the Central Excise Act, 1944 and was liable to duty. Copy of the Show-Cause Notice was also produced before this Bench. It is significant that nothing was mentioned in this Show-Cause Notice also about sales tax. The appellants, however, got themselves registered under the Sales Tax Act, 1990. The appellants contested the Show-Cause Notice but the learned Additional Collector (Adjudication) decided the case against the appellants. The appellants filed an appeal against the Additional Collector's order but the appeal was rejected by the Collector (Appeals). The appellant's thereafter made a representation to the Central Board of Revenue. The Central Board of Revenue rejected the appellants representations as per copy of order dated 15.11.2000. The Collector of Customs, Sales Tax and Central Excise (Adjudication) issued three Show- Cause Notices to the appellants. The numbers and period covered by the Show-Cause Notices are given below:---
(i) Show-Cause Notice C. No. 5-Coll (Adj) Lhr/2000/1905, dated 23.09.2000. Period July 1997 to June 1998.
(ii) Show-Cause Notice C. No. 4-CE/Adj. (Collr)/260/2000.
(iii) Show-Cause Notice C. No. 24-Collr (Adj)/Ex/Lhr/2000/228, dated 26.04.2001, period June 2000 to February 2001.
In the first two Show-Cause Notices, there was no mention of Sales Tax, however, Sales Tax was mentioned in the third Show-Cause Notice, 26.04.2001. The learned Collector (Adjudication) decided the case relating to three Show-Cause Notices mentioned above against the appellants.
The appeals to the. Customs, Excise and Sales Tax Appellate Tribunal, against the orders of the learned Collector (Adjudication) were partially rejected and partially remanded to the Collector (Adjudication). The respondent in this appeal issued Show-Cause Notice C.No. 03-ST/Cont/Addl.
Collr 01 (Adj)/2002/823, dated 09.08.2001. In this Show-Cause Notice, it has been alleged that from August 1995 to May 2000, appellants were liable to pay sales tax on the transformer oil cleared by them. The appellant submitted reply to the Show-Cause Notice on 30.08.2001. In the reply to the Show-Cause Notice, it was submitted that the appellant was supplying services to WAPDA and were not supplying goods and that under the Sales Tax Act, 1990, supply of goods was liable to Sales Tax and supply of services was not liable to Sales Tax. At the time of hearing before the learned Additional Collector (Adjudication), she insisted that the processes carried out by the appellants fell within the definition of "manufacture" of goods. This position was contested with reference to the definition of "manufacture" given in section 2(16) of the Sales Tax Act, 1990, and the definition of "manufacturer" given in section 2(17) ibid. The learned Additional Collector (Adjudication) in the impugned orders decided the case against the appellant. On appeal the impugned orders passed by the learned Additional Collector (Adjudication) were confirmed by the Collector (Appeals). Being aggrieved and dissatisfied with the Order of the Collector (Appeals) the instant appeal has been filed before this Tribunal inter alia on the following grounds which are reproduced alongwith prayers made by the appellant:-- "A. That the fact that the appellants only carried out process of de-contamination and de- hydration on the goods entrusted to them for cleaning purposes clearly shows that they were only rendering services and were not supplying goods. The test as to whether they were supplying goods or services is given in the book by Willian Lovell. It is also clear from the book "Value Added Tax Act, 1983", Schedule 2.
B. That the transformer oil was exempt from sales tax under SRO 492(1)/93, dated 14-06-1993, SRO 555(1)/94, dated 09.06.1994 and Schedule 6 annexed to Sales Tax Act, 1990.
C. That in respect of the definition of "manufacture" or "manufacturer", the learned Additional Collector (Adjudication) has not appreciated that in the definition of "manufacture" the emphasis is on use of goods differently or distinctly and in the , definition of "manufacturer" it is significant that reference is to raw material of which the goods are manufactured. In the case of the appellants, they do not obtain raw material but finished goods from WAPDA.
D. That three times during the period involved, the Department issued notices to the appellants for late submission of Monthly Return, which they had been continuously filing as "NIL". The appellants submitted their replies, it was mentioned that the processes carried out by them were not liable to sales tax. Therefore, no action was taken against the appellant for realization of the sales tax and obviously it was accepted that they were not liable.
E. Photo-copies of the two Returns like of which the appellants had been submitting.
F. That WAPDA and KESC are also themselves reclaiming used transformer oil but no Central Excise duty and Sales Tax is being charged from them.
G. That WAPDA and appellants are not associated persons within the meaning of section 2(3) of Sales Tax Act, 1990.
H. That the learned Additional Collector (Adjudication) has also not considered the question of limitation.
That on the basis of the above submissions, it is submitted that the impugned orders passed by the learned Additional Collector are illegal and without jurisdiction.
PRAYER It is therefore, respectfully prayed that the impugned orders passed by the learned Additional Collector may kindly be set aside and the liability created against the appellants be set aside.
It is also respectfully prayed that demand for additional duty under section 34 of the Sales Tax Act, 1990, may also kindly be remitted."
3. Mr. Sajid Ejaz Hotiana, Advocate the learned counsel for the appellant appeared while Mr.. M.
Aslam, the learned D.R. appeared on behalf of the Department.
4. At the very outset, Mr. Sajid Ejaz Hotiana, the learned counsel for the appellant raised the preliminary objection that the impugned order-in-original is time-barred by 248 days under proviso to sub-section (3) of section 36 of the Sales Tax Act, 1990 (the Act). The learned counsel argued that it is pertinent to mention that proviso to sub-section 3 of section 36 of the Sales tax Act, 1990 was added through Finance Ordinance, 2000 stipulating a period of 45 days for completion of assessm ent/adjudication proceedings. The learned counsel vehemently contended that now it is a well-settled proposition of law upto the apex Courts that time stipulated in this provision for completion of adjudication/assessment is a mandatory provision. In support of his contentions he placed reliance on the following judgments:--- i. 2008 PTD 60 ii. 2008 PTD 578 iii. 2009 PTD 762 iv. 2010 PTD 1469
5. The learned counsel vehemently contended that the impugned order is dated 29-05-2002 and the same has been signed by Ms. Adila Rehman whose designation is given as Addition Collector (Adjudication) whereas on the said date the position was held by Mr. Ali Salman Abbasi, Additional Collector (Adjudication). Before the impugned Order was passed a notice of hearing was issued by Mr. Abbasi and the counsel for the Appellant attended the proceedings. However, subsequently, the Appellant received the impugned order signed by Ms. Adila Rehman when she was not holding the post and had been replaced by Mr. Abbasi; therefore, the impugned Order is patently time-barred.
6. The learned counsel further argued that notwithstanding and without prejudice to the above submissions it is submitted that the learned Additional Collector failed to appreciate the fact that the Appellant was not a manufacturer whereas it was only a service provider. The used transformer oil always remained the property of WAPDA and the Appellant only provided services for cleaning against meager service charges. The definition of "manufacturer" or "producer" in clause (17) of Section 2 of the Sales Tax Act, 1990 has been unduly stretched by the learned Respondent. As per her definition used and cleaned transformer oils are two distinct things and the distinction cannot be made through rendering of services. As per this interpretation a dry cleaner is also a manufacturer as he cleans cloths and makes them again wearable. Similar is the case of a tailor.
Such an interpretation is against the Constitution as the Sales Tax on goods and services is divided between the Federation and the Provinces and no provision in the definition clause can be interpreted in a manner which falls foul of the Constitution. In view of the above submissions it was prayed that the instant appeal may graciously be allowed and the impugned Order-In-Original and the Show-Cause Notice may graciously be vacated.
7. On the other hand, the learned D.R. vehemently opposed contentions of the learned counsel on the following grounds:--
(i) The appellants were duly licensed 'for the manufacture of and dealing in, reclamation of used transformer oil" under central excise laws since 1992 and they have been paying central excise duty accordingly. They have even paid sales tax for sometime during 1997.
(ii) In terms of the definition of "manufacturer" or "producer", as given in section 2 of Sales Tax Act, 1990, the appellant was manufacturer irrespective of the fact as to whether the transformer oil in question belonged to the appellant or not. The appellant had already been held as manufacturer by the learned Tribunal vide its judgment dated 29.11.2001 in Appeal Nos. 646, 647 & 1702/2001.
(iii) Transformer oil in question was never exempt from sales tax and hence the appellants were making taxable supplies and thus they were liable to pay sales tax.
(iv) The appellants were liable to pay sales tax even for the period prior to their registration in 1997 because they were required to be registered u/s. 14 of Sales Tax Act, 1990 and the definition of registered person included a person liable to be registered. Therefore the demand for the period from 1995 onwards legally correct.
(v) Proof of supply of transformer oil to WAPDA was available and the appellant knew that those were taxable supplies. The fact of payment of central excise duty since beginning and that of sales tax for some period of 1997 proved that that they knew that the taxable supplies being made them were liable to sales tax. Non payments of sales tax was deliberate act and therefore the limitation period of five years was applicable in terms of section 36(1) of Sales Tax Act, 1990.
8. We have heard the learned representatives of both the parties and have also gone through the records of the case as well as case-laws cited at bar. It would be advantageous to reproduce first the show-cause notice issued to the applicant:-- "SHOW-CAUSE NOTICE "Whereas it has been reported to the undersigned that the staff or Central Excise Shalimar Circle Lahore received an information that M/s. Goldmine Technology Ltd. Nabi Pura, Mughalpura, Lahore reclaimed/regenerated transfer oil supplied to Wapda. In pursuance of this information the staff of Central Excise Shalimar Circle, Lahore visited the office of the Executive Engineer Transformer Reolumabion (Power) Wapda Shalimar Lahore who provided date of the reclaimed transformer oil supplied by the Ms. Goldmine Technology Ltd, to Wapda w.ef. 25.03.1995 to 25.03.1997 i.e. 230000 Ltrs. The staff visited the premises of the said unit on 19.05.1997. At the time of visit Mr. Ashraf Ghazali owner of the factory was present there he was asked to produce the central excise record of such reclaimed transformer oil supplied to Wapda but he failed to produce the same. And he gave a written statement in which he confessed and confirmed the figures and date supplied by the Wapda authorities and further stated that as per his information and opinion reclaimed/regenerated transformer oil is not dutiable after pointing out by the Central Excise Department he is ready to pay the central excise duty leviable on the goods.
2. It is stated in this regard that the item falling under heading No. 2710.0002 Sub-head IV.
Reclaimed/regenerated transformer oil is clearly dutiable while the goods have been cleared by the party without payment of central excise duty and no record and accounts were maintained in this regard and had supplied a quantity of 230000/Ltrs. reclaimed transformer oil valuing to Rs.
1,828,500/- on which central excise duty amounting to Rs. 161,000/- and additional duty works out to be Rs. 28,420/,
3. From the above-stated facts it is quite evident that M/s. Goldmine Technology Ltd., are reported to have cleared 230000 Ltrs. reclaimed transformer oil valued at Rs. 1,828,500/- without payment of central excise duly amounting to Rs. 161000/- alongwith additional duty amounting to Rs.
28,420/-. As such they have contravened the provisions of rules 7, 9, 52, 52-A, 52B, 53, 53-8, 53-D, 54, 55, 226, 227, 236, 238, 241, 243, 244 and 246 of Central Excise Rules, 1944 read with Section 3-B of Central Excises Act, 1944 punishable under rule 210 ibid.
4. On the basis of facts as reported above, M/s. Goldmine Technology Ltd, Nabi-Pura Mughalpura, Lahore are charged with the contravention of the aforesaid Law and Rules and are called upon to show cause as to why the central excise duty amounting to Rs. 161,000/- alongwith additional duty amounting to Rs. 28,420/- should not be recovered from them under rules 7 & 10 of Central Excise Rules' 1944 read with Section 3-B of Central Excises Act, 1944 and as to why penal action should not be taken against them under Rule 210 of Central Excise Rules, 1944.
5. Their written reply should reach the undersigned within 10 days of the issuance of this notice.
They should also state in their explanation whether they would like to be heard in person or through their legal representative or counsel. If they so desire, they or their legal representative should appear before the undersigned on 19.06.1997 at 10:00 a.m. failing which the case will be decided ex-parte on the basis of evidence available on record."
9. The second show-cause notice is also reproduced hereunder:--- "Show-Cause Notice "Whereas it has been reported to the undersigned that in pursuance of an information by Director Intelligence & Investigation (Custom & Excise) Regional Office Lahore that. certain Lubricating Oil manufacturing units in addition to lubricating oil are producing other oils which are chargeable to central excise duty @ 30% ad valorum. In pursuance of the above information, the date pertaining to the month-wise quantity of lubricating/other oils so cleared during the period July. 1997 to May, 2000 was called for from one of the lubricating/other oils manufacturing units namely M/s. Goldmine Technologies (Pvt) Limited, Lalpul, Nabipura, Mughalpura, Lahore for verification. In response to this office query, the aforesaid unit provided the same accordingly. Examination of the documents so provided by the aforesaid unit revealed that during the period between July, 1997 to May 2000 they had cleared a quantity of 578500 liters transformer oil after payment of central excise duty @ Rs. 0.70 per litre, whereas central excise duty on transformer/other oils was leviable @ 30% ad valorum prior to 12.06.1999 and afterwards it becomes @ 10% of the retail price of seven rupees and fifteen paisa per litre whichever is higher while other oils are still liable to the payment of central excise duty @ 30% ad valorum.
2. During the course of the above exercise it has been observed that M/s. Goldmine Technologies
(Pvt) Ltd, Lalpul, Nabipura, Mughalpura, Lahore between the period August, 1995 to May 2000 supplied a quantity of 903500 liters reclaimed transformer oil, but they paid sales tax amounting to Rs. 81813/-only (during the period May, 1997) instead of payable tax amounting to Rs. 5980190/- Mr. Ashraf Ghazali, the proprietor of M/s. Goldmine Technologies (Pvt) Ltd., Lalpul, Nabipura, Mughalpura, Lahore was asked to explain the reasons for nonpayment of sales tax on the taxable supplies so made by him during the period August 1995 to April 1997 and August 1997 to May 2000. He stated that he inadvertently paid sales tax during May 97 to July 97 as he is only engaged in reclamation of burnt/used transformer oil and not producing any new product hence not liable for the payment of sales tax. In support of his conversation he referred Court orders quoted in PTCL 1987 CL. 522, PTCL 1996 CL. 358. However the contention of the offending unit has not been considered in an order Appeal No. 56/2000, dated 31.01.2000 passed by the Collector of Central Excise and Sales Tax (Appeal-II) Centre Zone, Lahore in central excise matter.
3. The unit under reference has been obtaining burnt/used transformer oil containing 27.75% water and slugged from, the Wapda for reclamation. The process of the unit is to separate water and sludge from the burnt/used transformer oil and reclaim it through a chemical process. In this regard the provisions of section 2(16)(a) and (c) of the Sales Tax Act, 1990 are very much clear which are reproduced as under:--
(a) Any process in which an article singly or in combination with other articles, materials; components, is either converted into another distinct article or product or is so changed, transformed or reshaped that it becomes capable to being put to sue differently or distinctly and includes any process incidental or ancillary to the completion of a manufactured product;
(b) Process and operations of assembling mixing, cutting diluting, bottling packaging repacking or preparation of goods, in any other manner.
4. The above definition clearly shows that the nature of work of M/s. Goldmine Technologies (Pvt)
Limited, Lalpur, Nabipura, Mughalpura, Lahore falls under the manufacturing process and liable to the payment of sales tax under section 3 of the Sales Tax Act, 1990.
5. A quantity of 903500 liters reclaimed transformer oil has been supplied to Wapda by M's. Goldmine Technologies (Pvt) Limited, Lalpul, Nabipura, Mughalpura, Lahore during the period August 1995 to May 2000, but they paid sales tax amounting to Rs. 81813/- only (during the May 1997 to July 1997) instead of payable sales tax amounting to Rs. 5980190/- whereas during the period August 1995 to April 1997 to May 2000 leviable sales tax has wilfully not been paid on the taxable supplies so made by them during the said period which were liable to payment of sales tax @ 12.50 % of the value prior to 01.12.1989 and afterwards it becomes liable @ 15 of the value.
6. The management of M/s. Goldmine Technologies (Pvt) Limited, Lalpul, Nabipura, Mughalpura, Lahore has received Rs. 9.65".
10. From perusal of the said show-cause notices it is crystal clear that it was alleged by the department in the first show-cause notice that central excise duty was not paid by the appellant.
However, subsequently the department has alleged in the second show-cause notice reproduced supra, that the Sales Tax was not paid by the appellant meaning thereby that the department was confused regarding what type of tax is to be levied whether under the Central Excise regime or Sales Tax regime.
11. Reverting back to the core issue whether the action of the Additional Collector was within the time period or not. The provision of section 36 sub-section (3) of the Sales Tax Act, 1990, first proviso is very clear on the issue. For ready reference it is re produced as under:--- "Provided that order under this section shall he made within (ninety) days of issuance of show- cause notice or within such extended period as the Collector may, for reasons to be recorded in writing, fix, provided that such extended period shall in no case exceed ninety days."
12. From perusal of the supra sub-section it is manifest that the order under this section should be made within 90 days of issuance of show-cause notice. In the instant case neither the order was passed within stipulated period viz within 90 days nor the same was got extended, hence the action of the Additional Collector is ab initio void, illegal and not maintainable. In arriving at this conclusion we derive strength from the following judgments of higher appellate fora: "2008 PTD 60"
In the case mentioned supra, it has been held that'the prescribed limit is 45 days for completion of adjudication proceedings after passing the same is time-barred. The relevant extract from the above judgment is reproduced as under:-- "The claim of the revenue that the prescribed limitation of 45 days for completion of adjudication proceedings as provided through Finance Ordinance, 2000 and enhanced to 90 days by Finance Act, 2003 is merely directory cannot be accepted. It is settled law that where inaction on the part of a public functionary within the prescribed time is likely to affect the rights of a citizen the prescription of time is deemed directory. However, whereas public functionary is empowered to create liability against a citizen only within the prescribed time, it is mandatory. The acceptance of contention of the revenue in that regard will make a provision of law redundant and nugatory.
Redundancy or superfluity of an Act of Parliament and a provision of law cannot be readily accepted. All the moreso when the prescribed limit is beneficial for the citizen and restricts the executive power to touch the pocket of a taxpayer thereby creating certainty that after its expiry even if there was a good case for creation of liability he will not be dragged in."
In the supra case reported as M/s. Super Asia Muhammad Din Sons (Pvt) Ltd. vs. Collector of Sales Tax Gujranwala 2008 PTD 60 LHC (at page 64/65) section 36(3) Provision of law prescribed time limit for revenue to create liability is mandatory.
2008 PTD 578 In this case reported as M/s. Hanif Straw Board vs. Addl. Collector 2008 FM 578 (at page 581)
Section 36(3): order passed beyond prescribed limit is time-barred and order set aside.
In the above judgment it has been held that:-- "As is clear from the language of the above proviso, it has limited the scope of exercising of the jurisdiction after issuance of notice to basically 90 days or such extended period as the Collector after duly recording proper reasons in writing has fixed. However, it is again subject to the limitation in the manner that the said extension also cannot be for more than 90 days. The period for deciding the order-in-original after issuance of a notice under section 36(1) and (3) thus is maximum 180 days including earlier 90 and extended 90 days. Obviously if the extension has been given by the Collector before the expiry of the earlier 90 days."
In the aforesaid case reported as M/s. Tanveer Weaving Mills vs. Deputy Collector Sales Tax and 4 others 2009 PTD 762 (at pages 764 & 765) Proviso. to see. 36(3) of Sales Tax Act is mandatory and any order passed beyond the time limit is illegal, void ab-initio and without jurisdiction.
"2010 PTD (Trib) 1469"
In the above-referred judgment it has been held as under:--- "Learned counsel for the appellant Registered Person has pointed out, at the very outset of hearing, that Order-in-Original was passed beyond the period as prescribed under proviso to sub-section (3) of section 36 of the Sales Tax Act, 1990. He further pointed out from the record that show-cause notice was issued on 11.06.2002 which was beyond the period of 45 days, as provided at the relevant time in proviso to the section 36(3). He submitted that the period of 45 days, at the relevant time, was extendable by 90 days but no extension was sought by the Adjudication Officer.
He, therefore, contended that Order-in-Original was barred by time, as held in case reported as 2009 PTD 1978 when DR was confronted with these facts, he requested for time to verb from the record as to whether any extension was applied by the Adjudication Officer or not. The case was adjourned on his request. On final date of hearing he appeared alongwith record but could not indicate that any such extension was sought by the Adjudication Officer. When confronted with the judgments of superior Courts on the issue of limitation he was unable to controvert the legal as well as factual position."
Judgment of Hon'ble H.C. CP D-1876/1994, dated 30.01.2001 In this case of M/s. Abdul Khaliq Allah Wala vs. CIR the Hon'ble H.C. has held that order made/passed beyond period of limitation is void and of no legal effect.
2005 PTD 14 In this case of M/s. Pace International, Rawalpindi vs. Secretary, Revenue Division, Islamabad 2005 PTD) 340 (at pages 342 & 343) order passed beyond period prescribed in section 36(3) is illegal.
2005 PTD 14 In this case of M's. Fawad Textile Mills Ltd. vs. Pakistan through Secretary, Ministry of Finance and 3 others 2005 PTD 14 limitation once expired subsequent amendment cannot extend time.
1992 SCMR 1989 In this case reported as the Federation of Pakistan vs. Ibrahim Textile Mills Ltd 1992 SCMR 1989 (at page 1901) where law prescribes period of time for recovery of money after lapse of such prescribed period recovery is not enforceable.
13. Keeping in view of above-referred judgments and facts and settled legal position on the issue of limitation we have no option but to accept the appeal of the Registered Person. The Order-in- Original is held to be barred by time therefore, nullity in the eye of law.
14. However, reverting back to the merit of the case whether the registered person is indulged in "Manufacturing" or Service Provider. We may observe that the appellant was supplying services and not goods and that the processes carried out by the appellant do not fall within the purview of manufacturing of goods, the word "Manufacturing" has been defined in the landmark book "Understanding VAT" by William Lovell whereby the term has been defined as under: "Anything done for a consideration which is not a supply of goods is a supply of services. Apart from obvious services like those of an accountant or solicitor, these include the hire of goods in most cases, repairs of all kinds, making up another person's goods, hire of staff, assignment of rights (copyrights, patents rights, use of a trade name, etc.) Even not doing something for a consideration is a service. The test is, "has ownership of goods changed? If not, it is services"
15. We may further rely upon Corpus Juris Secundum-55 at page 669 wherein it is stated that word "MANUFACTURE" has been defined as production of articles for use from raw or prepared materials by giving these materials new forms, qualities, properties, or combinations, whether by hand labor or by machinery, also anything made for use from raw or prepared materials.
16. On the touchstone of merit we have also observed that during the relevant period received burn/used transformer oil from WAPDA under an agreement and after process of de- contamination and dehydration return the same to WAPDA and charged processing charges for the cleaning of the oil, The Ownership of the oil does not change and 'it remains the property of WAPDA. The ingredients of "Manufacturing" as reproduced above, it is crystal clear that the change of ownership is sina qua non if the same is not changed it would remain service. In this regard we rely upon the treatise and judgments reported as under:--- Civil and Military Press Ltd. v. Pakistan 1985 CLC 1021 The word "manufacture" is generally understood to mean bringing into existence a vendible product known in the market.
Municipal Council Domoh v. Vralal Manilal & Co. AIR 1982 SC 844 "Manufacture", means such transformation that brings, about a new and different Article with a distinctive name and character for use.
Union of India v. Delhi Cloth and General Mills; AIR 1963 SC 79 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.
Mewa Lal v. Tara Ram, AIR 1973 All 165 In order to prove that there was a manufacturing process, it is also essential to prove that the article must change its nature and it becomes an altogether different commercial article.
In the book "Words and Phrases," Vol. 26 In the book- "Words and Phrases," Vol. 26, the said word has been given the following meaning:--- " Manufacture implies a change but every change of an article is the result of the treatment, labour and manipulation, a new and different article must emerge having a distinctive name, character or use...."
2006 PTD (Trib.) 1056 The argument of the Revenue that rule 5(b) of the aforesaid rules of interpretation of the Harmonized System is not attracted in the case in hand is also not tenable. The 1st Schedule to the Customs Act, 1969 containing General Rules for interpretation is to be read as part of the First Schedule under Central Excise Act. Therefore, rule 5(b) becomes applicable to interpret various entries of the headings given in the First Schedule to the Central Excise Act.
In the light of above observations, we are of the opinion that respondent's action to treat tea bag/paper bag as an act of "manufacture" was wrong as in fact no independent product ever came into existence from the process of inserting the paper with the blended tea which in fact is a necessary act to use the paper pouches. in our view the contravening act never assumed the status of manufacture, therefore demand of duty on paper bags used in the packing of tea as a result of a continuous process was not justified. The appeal is accordingly allowed and the impugned order is set aside.
1999 (114) ELT 166 "Manufacture. Reclamation of transformer oil from used transformer oil does not amount to manufacture so as to attract levy of Central Excise duty afresh. No new product comes into existence as transformer oil remains transformer oil only after the process undertaken by the assessee. Commissioner's finding also is that the process undertaken by the assessee improves the quality of the oil and not that a new or distinct commodity emerges. Appeal allowed. Section 2(1) of Central Excise Act, 1944."
And definition of "manufacture" was ultimately defined vide para 7 of the judgment as under: "We have considered the submissions of both the sides. It is well-settled law that to amount to manufacture, a new commodity having distinct name, character or use should emerge as a result of process of manufacture. Manufacture implies a change, but every change is not manufacture.
The apex Court in the landmark decision in the case of U.O.I. v. Delhi Cloth and General Mills Co.
Ltd. 1977 (1) E.I.T.(1199), held that "The word manufacture" used as a verb is generally understood to mean as bringing into existence a new substance.
17. From the above treatise and citations, it emerges that in order to bring an article within the framework of word "manufacture" an article must:
(a) change shape;
(b) emerge as a new product;
(c) be identifiable and commercially marketable;
(d) be an altogether different product.
(e) The manufacture which is liable to tax/duty must be the bringing into existence of a new substance known to the market and does not mean merely to produce some change in a substance however minor in consequence, the change may be.
(f) 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.
(g) In order to bring an article within the framework of word "manufacture" an article must change shape; emerge as a newer product; be identifiable and commercially marketable and is an altogether different product.
18. From perusal of the above quoted extract it is evident that the nature of the goods i.e. "Transformer Oil", used by the Appellant for cleaning the same for use of WAPDA, has not been changed into another identifiable oil, therefore, no processing is involved.
19. Therefore, we are of the considered opinion that "Manufacture" means any activity which result in transformation into a new commodity which is commercially distinct and separate commodity.
'The test to determine whether a particular activity constitutes "manufacture" or not is whether by that activity a new or different goods emerge having distinctive name, use and character. The moment there is transformation into new commodity commercially known as distinct and separate commodity having its own character, use and name, whether it be result of one process or several processes, manufacture takes place. The 'essence of manufacture' is that there must be transformation, a new and different article must emerge having a distinctive name, character and use. The 'essence of manufacture' is the change of one object to another for the purpose of making it marketable. Saraswa ti Sugar Mills v. Haryana State Board, (1992) 1 SCC 418(SC).
20. In this back drop of the case, we hold that the appellant is not indulged in manufacturing rather it has been providing service to WAPDA, therefore, considering the case on merit we allow the appeal.
21. Appeal is disposed of in above terms.