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Judgment
J.U. Mehta, J.—The Petitioner has challenged the legality and validity of the orders, Annexures ''G'' and ''H'' passed by the third and fourth
respondents respectively and prayed for quashing and setting aside the same. The third and fourth respondents, by their orders, held that
galvanising of strips done by the petitioners is a manufacturing activity u/s 2(f) of the Central Excises & Salt Act, 1944 (hereinafter referred to as
''the Act'') and, therefore, liable to excise duty under Tariff Item 26AA(ii).
According to the petitioner, the petitioner is a Company who is manufacturer of metallic flexible tubes. The petitioner-Company held a licence in
Form L-4 to manufacture the said tubes and has been carrying on the activity of manufacturing metallic flexible tubes and hoses for the last couple
of years and has been paying duty regularly on the same. The petitioner requires cold rolled strips of various breadths as raw material, for the
manufacture of metallic flexible tubes and hoses and, therefore, they obtain the same either from the open market or directly from the manufactures
of such cold rolled strips. According to the petitioner, the cold rolled strips so obtained by the petitioner are duty paid after assessment under sub-
item (iii) of Item 26AA of the First Schedule to the Act. According to the petitioner, the cold rolled strips and ''patties'' being iron and steel
products are susceptible to oxidation when exposed to the atmosphere. Therefore, before such strips or ""patties"" [are] used in the manufacture of
flexible tubes, the petitioner employs on such strips or ""patties"" a process of zinc galvanisation to prevent the flexible tubes from oxidation as the
zinc galvanisation improves the utility of the material. According to the petitioner, the Superintendent of Central Excise, after visiting the factory,
opined that the process of galvanisation undertaken by the petitioner-Company was a process of manufacture and, therefore, advised by his letter
dated 10-06-1977 to take out a licence in Form L-4 for manufacturing iron and steel products, viz. galvanised strips, falling under Item 26AA of
the First Schedule to the Act. The letter is marked Annexure ''C'' to the petition. The Company, by its letter dated 29-06-1977 addressed to the
Assistant Collector explained that the Company was purchasing duty paid strips from open market and after subjecting such strips to galvanisation,
it manufactured its products, viz, metallic flexible tubes, which has been cleared on payment of duty at appropriate rate under Tariff Item 68 of the
First Schedule to the Act. The letter written by it Company is marked Annexure ''D'' to the petition. According to the Petitioner, thereafter the third
respondent visited the factory of the petitioner and opined vide letter dated 18-07-1977 that the petitioner-Company manufactured galvanised
strips and that the product was classifiable under Tariff Item 26AA and that, therefore, the petitioner-Company should take out a licence.
According to the petitioner, the Company in pursuance of the directions issued by the third respondent applied for and obtained a licence in Form
L-4 under protest and reserved their right to appeal. The Company thereafter preferred an appeal to the fourth respondent on 16-09-1977, but
the same was dismissed on 26-11-1977 on the ground that no order was passed by the third respondent which was an appealable order and no
demand for duty was served on the petitioner to approach the third respondent to obtain an appealable order. The said letter is annexed as
Annexure ''F'' to the petition. The petitioner-Company thereafter made the provisional assessment from 23-11-1977 in view of the letter of the
third respondent dated 13-10-1977 and the petitioner-Company started giving Bank guarantee of the amount equal to the value of the duty
demanded from the petitioner on galvanisation of the steel strips. The petitioner since then is giving Bank guarantee at regular intervals. Thereafter,
the third respondent fixed personal hearing on 15-03-1978 in pursuance of the directions given by the Appellate Collector and after appearance of
the Company before the third respondent, the third respondent passed an order on 30-03-1978 holding that the activity of galvanising of steel
strips in the factory of the Company brought into existence a new substance which was entirely a different article having a distinct name, character
and use and held that the same fell under in Tariff Item 26AA and, therefore, the petitioner-Company should take out a licence and should pay
duty at the appropriate rate. The order of the third respondent is annexed at Annexure ''G'' to the petition. The petitioner-Company thereafter filed
an appeal before the second (sic) respondent on 23-05-1978 reiterating its stand that the process of steel strips galvanisation was not a process of
manufacture u/s 2(f) of the Act and that this process of galvanisation of steel strips cannot be construed to be manufacturing of galvanised strips.
However, the fourth respondent upheld the order passed by the third respondent and rejected the appeal of the petitioner by his order dated 29-
12-1980. The order passed in appeal is annexed at Annexure ''H'' to the petition.
Being aggrieved by the impugned orders Annex.''G'' and ''H'' passed by the third and fourth respondents, the petitioner-Company has
approached this Court for quashing and setting aside the same.
Learned Counsel for the petitioner, Mr. Gupta submitted that the galvanisation of steel strips is not a process of manufacture as envisaged by
Section 2(f) of the Act and that by the said process, no new substance or a different article is brought into existence. The learned Counsel
submitted that the process of galvanisation merely changed the article which has already come into existence to a minor consequential change and
that the steel strips even after galvanisation and that they do not lose their character (sic). The learned Counsel urged that the steel strips may be
known as galvanised steel strips, but they continue to be steel strips so as to fall under Item 26AA. The learned Counsel submitted that the
Company purchased steel strips which are duty paid under Item 26AA from open market and galvanises them, but they still continue to be steel
strips. The learned Counsel, therefore, submitted that galvanisation of steel strips is not a manufacturing process on which excise duty can be levied
u/s 3 of the Act. It is further submitted by the learned Counsel for the petitioner that galvanising is nothing but coating the iron and steel strips with
zinc by electric process or some other process to prevent it from oxidation. No doubt, galvanisation improves the utility or raw material of iron and
steel but by the process of galvanisation, iron and steel do not lose their essential character as iron and steel. The learned Counsel for the
petitioner, therefore, submitted that the orders passed by the third and fourth respondents holding that the galvanisation of steel strips done by the
petitioner-Company is a manufacturing process which brings into existence a new product requiring to be manufactured under a licence, may be
quashed and set aside.
Mr. J. D. Ajmera, learned Counsel for the respondent submitted that galvanisation will be a manufacturing process and that by such process,
new article is brought into existence by the petitioner-Company and, therefore, it will be ""manufacture"" within the meaning of Section 2(f) of the
Act.
Entry 26AA of the First Schedule to the Act as it existed at the relevant time reads as follows :
26AA. Iron or Steel Products, the following namely :
(i) Semi-finished steel including Three hundred and fifty rupees
blooms, billets, slabs, sheet bars per metric tonne.
and hoe bars.
(i-a) Bars, rods, coils, wires, Three hundred and fifty rupees
joists girders, angles, other than per metric tonne.
slotted angles, channels, other
than slotted channels, tees,
beams, zeds, trough, piling, and
all other rolled, forged or extruded
shapes and sections, not otherwise
specified.
(ii) Plates and sheets (including One thousand three hundred and
uncoated plates and sheets intended fifty rupees per metric tonne.
for tinning and forms such as
ridges, channels other than slotted
channels, rain water pipes and their
fittings made from plates or sheets
but not including plates and sheets
after tinning), and hoops, all sorts,
other than skelp and strips.
(iii) Flats, skelp and strips One thousand three hundred and
fifty rupees per metric
tonne.
(iv) Pipes and tubes (including One thousand rupees per metric
blank therefor), all sorts tonne plus the excise duty
whether rolled, forged, spun, cast, for the time being leviable on
drawn, annealed, webbed or extruded pig iron or steel ingots, as
the case may be.
(v) All other steel castings, not Seven hundred and fifty rupees
otherwise specified. per metric tonne.
The learned Counsel for the petitioner has invited our attention to the judgment of the Supreme Court in the Case of Gujarat Steel Tubes Ltd.
etc. Vs. State of Kerela and others, wherein the Supreme Court had occasion to consider the question under the Central Sales Tax Act, whether
galvanisation and corrugation of steel tubes can be termed as ''manufacture'' and whether it brings new commodity into existence. Therein, the
petitioner Gujarat Steel Tubes Ltd. contended that the galvanised iron pipes manufactured by it are ""declared goods"" and are not liable to
additional sales-tax as well as surcharge. The Supreme Court, in para 5 of the decision has observed as under :
The purpose of galvanising a pipe is merely to make it weather-proof. It remains a steel tube. By being put through the process of galvanising, it is
made rust-proof. Neither its structure nor function is altered. As a commercial item it is not different from a steel tube. The galvanisation is done on
steel tubes or pipes as a protective measure only. Merely because of the steel tube has been galvanised does not mean that it ceases to be a steel
tube.
In para 7 of the said decision, it is observed as under :
We are of the view that galvanised pipes are steel tubes within the meaning of Section 14(iv)(ix) of the Central Sales Tax Act.
The Supreme Court has further held that the view taken by the High Court that the category of goods called galvanised iron pipes had acquired
a different commercial identity as a result of the process of galvanisation and could not be identified with steel tubes was not proper and is
erroneous. In the aforesaid case the Supreme Court upheld the contention raised by the petitioner and allowed the appeals.
In the present case, the petitioner-Company purchased duty paid steel strips from the open market and the process of galvanisation was made.
By this process the steel strips continue to be steel strips even after galvanisation and they do not lose their character. It may be known as
galvanated steel strips, but they continue to be steel strips so as to fall under Item 26AA. In these circumstances, it cannot be said that the activity
carried out by the petitioner was of manufacturing a different item or that it was a process of manufacture u/s 2(f) which brings into existence a new
substance or a different article so as to attract Tariff Item 25AA. In our opinion, therefore, the orders passed by the third and fourth respondents at
Annexures ''G'' and ''H'' are liable to be quashed and set aside. The petition is, therefore, allowed. By way of interim relief dated April 2, 1981 the
petitioner has furnished Bank guarantee for the amount of duty payable by it. The petitioner will be at liberty to discharge the Bank guarantee. If the
petitioner has paid any amount of duty to the Department the petitioner will submit an application for the refund of the amount of duty so paid with
necessary details on or before January 31, 1990. On submission of the application the Department shall decide the application for refund within a
period of two months from the date of submission of the application. The application for refund shall be decided in light of the principles laid down
and the observations made in this judgment.
Rule is made absolute accordingly with no order as to costs.