V.R. Industries vs Superintendent of Central Excise, Vijayawada and Others

Rama Rao, J.—This is a petition for issue of a writ of Mandamus for directing the refund of excise duty for an amount of Rs. 7,79,584.96 collected by the Central Excise authorities from April, 1981 to 29-1-1983 declaring that the collection of duty under Tariff Item 3(2) mentioned in the first Schedule of the Central Excises and Salt Act, 1944 as illegal, unconstitutional and ultra vires.

The essential averments in the affidavit in support of the writ petition may be stated : The petitioner gets tea from M/s. Duncans Tea Sales Limited, Calcutta and puts the same into printed card board boxes/soft paper packs/printed envelopes and the boxes/packs/envelopes contain tea varying from 3 grams to 500 grams. After packing the tea as stated above they are delivered to M/s. Duncans Tea Sales Limited or their agents for subsequent disposal by them. The petitioner is a packer of tea supplied by M/s. Duncans Tea Sales Limited and for the discharge of this function the petitioner is paid amount as service charges. It is stated that the package tea falling under Central Excise Tariff Item 3(2) and duty is being realised at 0.40 per kg + 10% special excise duty on each packet weighing 25 grams and upto 500 grams the charge is Rs. 1/- per kg + 10% special excise duty. Though package tea has been specified as Tariff Item 3(2) in the First Schedule of the Central Excise Act, 1944, packing of tea specified in Item 3(1) of Central Excises Tariff does not bring into existence of a new product other than the product mentioned in Central Excise Tariff Item 3(1). In other words, packing cannot be considered as manufacture.

In the counter affidavit filed by the Collector of Central Excise it is stated that the petitioner applied for and was issued licence to manufacture package tea and duty is being paid at the rates applicable thereto. The allegation that the manufacture is not involved in packing loose tea into packets and no new product emerges from loose tea classifiable under Tariff Item 3(1) is not correct. Loose tea after package becomes package tea which is quite different from loose tea and it has distinctive in character and used in the market and is recognised as package tea in the commercial circles. Loose tea when packed into containers becomes package tea and is distinct and recognised as such in the market.

In the additional affidavit the petitioner stated that they do not manufacture any tea and the petitioner is paid service charges for package and the process of blending is not done by the petitioner and they receive tea powder in big boxes and chests and repacks the tea in small packets of 3 grams to 500 grams and such repacking does not amount to manufacture.

In the additional counter affidavit filed on behalf of the respondent it is stated that the petitioner packs the tea in various sizes of packing according to the weight to be assigned to each pack having received blended tea. It is stated that when once blended tea is received by the petitioner and put into boxes it becomes package tea and as package tea it has distinctive name, character and use in commercial circles. It is further stated that the activity of the petitioner of receiving blended tea, putting them into packs of various sizes after weighing and putting the label M/s. Duncan''s No. 1 Dust Tea amounts to manufacture of a new product of package tea known to commercial circles. The package tea is liable to a separate tariff entry carrying higher rate of duty than loose tea.

The learned counsel for the petitioner contended that the petitioner is entrusted with the job of packing the tea manufactured by Duncan company and the manufacturing process is not involved and as such not leviable to levy of excise duty. The learned standing counsel for the Central Government contended that the package process is an integral part of manufacture and therefore the petitioner being the packer is liable to levy of excise duty on package tea.

Section 3 of the Central Excise and Salt Act is the charging provision which postulates the levy of excise duty on all excisable goods other than salt which are manufactured at the rates set out in the First Schedule. To get at the amplitude of the charging provision it is necessary to have a close-up of definitions of excisable goods and manufacture and the tariff rates. Clauses (d) and (f) of Section 2 define excisable goods and manufacture as follows :-

"(d) "excisable goods" means goods specified in the First Schedule as being subject to a duty of excise and includes salt;" ....

"(f) "manufacture" includes any process incidental or ancillary to the completion of a manufactured product; and"....

The tariff description for tea is as follows :

------------------------------------------------------------------------ Item No. Tariff description Rate of duty ------------------------------------------------------------------------ 3. Tea - ''Tea'' includes all varieties of the product known commercially as Tea, and also includes "Green Tea" and "Instant Tea". (1) Tea, all varieties except Not exceeding Rs. two per kg. "package Tea" and "Instant as the Central Government may, Tea" falling within by notification in the Official sub-item (2) and (3) Gazette fix. respectively of this item. (2) Package tea, that is to say, One rupee and twenty-five tea packed in any kind of paise per kg. plus the duty for container containing not more the time being leviable under than 28 kg. net of tea but sub-item (1) of this Item, excluding "Instant Tea". if not already paid. Ten per cent ad valorem plus the duty (3) "Instant Tea". for the time being leviable on tea falling under sub-item (1) of this item, if not already paid and if such tea is used in the manufacture of such "instant tea". ------------------------------------------------------------------------

The excise duty is leviable with reference to the manufacture of excisable goods and tax is classified as manufactured product and varying rates of tariff are specified depending upon the nature of tea and the mode of marketability of tea. The issue for determination is whether the process of preparing package tea exigible to excise duty under Item 2 of Clause 3 of First Schedule more than loose tea under Item 1 can be considered as manufacture by the petitioner. It is not in dispute that the petitioner is entrusted with the job of packing loose tea manufactured and blended by Duncan Co. The definition of manufacture couched in inclusive texture takes in its fold the incidental or ancillary processes in the nature of fishing touch to the manufactured product. The allied process should be integral and inextricable part of manufacturing for the presentability of the manufactured product. The process not integrated or connected with the element or any fact of manufacture cannot be considered as manufacture. The petitioner is entrusted with the job of packing only and the manufacturer obviously handed over this work to the petitioner for facilitating the marketability of the manufactured product. The connected operations with a view to project presentability of the product can be considered as intertwined with manufacturing process particularly in view of the definition of manufacture enveloping such process but the jobs undertaken with a view to easy or better marketability of the product are far removed from the process of manufacture envisaged in the definition. The petitioner is merely a conduit pipe employed by the manufacturer for the process of packing the tea already manufactured and there is no semblance of change in the hands of the petitioner and which he cannot be pushed to the status of manufacturer. The petitioner is called upon to pack the tea in card-board containers for facilitating the sales. The blended tea or finished product is supplied by the manufacturer to the petitioner and after neatly packing the same it is returned to the manufacturer again or sales agents. The petitioner does not himself put the goods in the stream of trade and he is not at all a seller of the goods and his job is to return the tea in packets to the manufacturer. Therefore, the packing process cannot be stretched to manufacturing process and it will be unduly straining the definition of manufacture. This aspect can be considered from another perspective. The retail dealer of tea finding that the tea is not properly packed wraps it up neatly in a polythene paper or bag or otherwise and can it be said that such retail dealer also is involved in manufacturing process. Therefore the process of packing alone cannot be brought within the purview of manufacture and the petitioner is not exigible to levy of excise duty.

In E.I.D. Parry Ltd. v. Union of India - 1978 E.L.T. 18 MAD the Madras High Court held that the packing of fertilisers into gunny bags is not a manufacturing process. The learned standing counsel for the Central Government invited us to the decision in Empire Industries Ltd. v. Union of India - 1985 E.L.T. 179 (S.C.) wherein the Supreme Court held that the taxable event is manufacture and not sale and the moment there was 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 and the sale or the ownership of the end-product is irrelevant for the purpose of taxable event. The Supreme Court in the context of considering the extended meaning of manufacture including the process of bleaching, dyeing, mercerising etc. held that such processes are not alien or foreign to the concept of manufacture. In Hyderabad Asbestos Cement Products Ltd. v. Union of India - 1980 E.L.T. 735 the Delhi High Court held that when Asbestos fibre is obtained which is different and distinct from asbestos rock on which the Legislature imposed the duty of excise it can be said that imposition of duty on asbestos fibre is not ultra vires and invalid. It is further held if the Parliament has specifically included a particular product in the first Schedule of Central Excise Act, its validity cannot be questioned on the ground that it did not involve any process amounting to manufacture. In U.O.I. v. Hindu Undivided Family - 1978 E.L.T. 389 the Supreme Court held that the rolling of billet into a circle is a process in the course of completion of manufactured product namely circles.

The decisions cited by the learned standing counsel are far removed from the situation in the instant case and the manufacturing process has been considered in the circumstances of the case and the extended concept of manufacture.

In the result, it is hereby declared that the petitioner is not liable to levy of excise duty for package tea.

Writ petition allowed as indicated above. No costs.