Computer Graphics Pvt. Ltd. vs Union of India

Petitioner imports from abroad Jumbo rolls of Graphic art films after payment of customs duty and auxiliary duty. Thereafter, the jumbo rolls are

slit into various widths such as 20"", 30"" and 40"" and cut into various lengths of 10 feets 200 feet etc., and packed in separate cartons and

marketed in India.

In Section 11 under the Heading 37 of the Central Excise Tariff, photographic and Cinematographic rules are specified.

On 28-7-1987, the third respondent called upon the petitioner to take out a Central Excise Licence stating that the process of slitting and cutting

of Jumbo roll films into smaller sizes would amount of to ""manufacture"". While the petitioner was agitating the validity of this direction by the third

respondent, the Central Board of Excise and Customs (second respondent) issued a clarification in their letter F. No. 11/1/88 CX. 3, dated 5-9-

1988. The second respondent clarified that the process of cutting into smaller sizes and repacking of jumbo rolls of sensitised photographic paper

on which the customs duty including C.V. duty was paid would not amount to ""manufacture"" for the purpose of levying Central Excise duty. In

view of this clarification, the direction given by the third respondent to the petitioner to take out a Central Excise Licence was not pursued.

However, the third respondent by his communication dated 16-6-1989 insisted that the petitioner should take out a Central Excise licence. This

order apparently was because of a subsequent clarification given by the second respondent in their letter F.No. 119/1/89 CX. 3, dated 12-5-

1989. The second respondent has stated that in view of the decision of the Supreme Court in Empire Industries Limited and Others Vs. Union of

India and Others, , the petitioner should take out a licence because whatever may be the operation, it is the effect of the operation on the

commodity that is material for the purpose of determining whether the operation constitutes such a process which will be part of manufacture. The

Second Respondent-Board held that though cutting and slitting into smaller rolls may not amount to a process of ''manufacture'' because no distinct

product emerged as a result of cutting and slitting when the said Graphic Art films in jumbo rolls are converted into plates and film in flat form, then

the said product has to be held to be the resultant product of a manufacturing process in view of the changed Entry in the Tariff. In Chapter 37,

Tariff Entry 37.01 reads as follows :-

Photographic plates and film in the flat, sensitised, unexposed, of any material other than paper, paper board of textiles; instant print film in the flat,

sensitised, unexposed, whether or not in packs.

Tariff Entry 37.02 reads as follows :

Photographic film in rolls, sensitised, unexposed, or of any material other than paper, paper board or textiles; instant print film in rolls, sensitised,

unexposed.

It was the case of the second Respondent-Board that since manufacture of photographic films in rolls (jumbo rolls) fall under Tariff Entry 37.02

and is attracted to Central Excise duty at the rate prescribed for that Entry, yet, for photographic films of the description mentioned in Tariff Entry

37.01, separate rate of duty prescribed and hence, when jumbo rolls films are converted into photographic plates and films in flat form, the

petitioner who so converts the jumbo films can be held to be engaged in a process of ''manufacture'' and in that event, the petitioner has to take out

a Central Excise licence.

Mr. Habibullah Badsha, learned Senior Counsel appearing for the petitioner would contend that the test for the liability to take out a Central

Excise licence is not whether there is any Entry in the Central Excise Tariff Act regarding a commodity, but whether the concerned person carries

on an activity which can be prescribed as ''manufacture''. He relies on the clarification given by the second Respondent-Board on 5-9-1988,

wherein it is stated as follows :

The Ministry has, in consultation with the office of the Controller and Auditor General of India, taken a view earlier that the process of cutting into

similar sizes and repacking of jumbo rolls of sensitised photographic paper on which the duty of customs including C.V. duty has been paid, would

not amount to ''manufacture'' for the purpose of levying Central Excise duty. On the same lines, this Ministry is also of the view that the process of

slitting, into required width and cutting into required length of duty-paid imported jumbo rolls of cinematographic films, graphic art film, industrial

X-ray films and medical X-ray films cannot be treated as process of ''manufacture'' for the purpose of levying Central Excise duty. It has been

reported by you that, in the case of duty paid imported jumbo rolls of cinematographic film, the process of perforation is also carried out in

addition to the process of cutting and slitting. The Board is of the view that the process of perforation also cannot be treated as a process of

manufacture since the cinematographic films in question will remain cinematographic film only both before and after perforation. You are advised to

take suitable action in accordance with the above guidelines with regard to assessment of the goods in question.

He would contend that the second respondent-Board as well as the Ministry were of the confirmed view that not only the process of slitting into

required width, but also cutting into required length would not amount to a process of ''manufacture'' for the purpose of levy of Central Excise duty.

He would state that the above view has stood the test of time for a consideration period. However, by the subsequent clarification dated 12-5-

1989, the second respondent-Board though would admit that cutting and slitting into smaller rolls would not amount to a process of ''manufacture''

in respect of graphic art films (it would even go to the extent of stating that cutting into flats would not amount to ''manufacturing'' process and in

respect of sensitised photographic paper) would nevertheless held that cutting into flats of jumbo rolls of graphic art film would amount to

manufacturing process. The petitioner would state that no manufacturing process is involved by mere cutting of a longer length of film into shorter

length or cutting it into smaller sizes of flats. The petitioner would plead that no distinct or different commodity used for a different purpose emerges

by reason of mere cutting of longer roll film into shorter flats. He would further contend that merely because there is a separate Entry for flats, the

second respondent-Board cannot come to the conclusion that cutting rolls into flats would amount to a process of ''manufacture''.

Mr. Jayachandran appearing for the respondents would contend that the clarification given by the second respondent-Board u/s 37B of the

Central Excises and Salt Act is binding on the Central Excise Officer, who is making an order of assessment and it is not even binding on the

Collector of Central Excise (Appeals) and in any event, the petitioner can agitate these questions either before the Appellate Collector or before

the Tribunal and the alternative remedy being efficacious should not be allowed to be by-passed. He would further contend that the petitioner

engages itself in a process of manufacture because it is converting jumbo rolls which are identifiable as a separate commodity into a distinct and

different commodity known in the market as flats and therefore, the clarification given by the second respondent-Board is correct.

Since the writ petition has already been admitted and has been kept pending for nearly a year, it would not be fair to dismiss the writ petition on

the ground that the petitioner should exhaust the alternative remedy by appealing before the Appellate Collector of Tribunal. The matter for

decision does not involve any complicated question of fact.

The main question for consideration is, whether the petitioner carries on any manufacturing process ? It has already been seen that what the

petitioner does in to import jumbo rolls of graphic art film and it cuts these films into sheets of various sizes which are thereafter packed and sold in

market. The alleged manufacture is the cutting of jumbo rolls into shorter lengths called flats.

In deciding whether there is any manufacture, the following decision of the Supreme Court on this aspect has to be referred to in Union of India

(UOI) Vs. Delhi Cloth and General Mills, it was held thus :

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 :

In Brakes India Ltd., Madras Vs. Superintendent of Central Excise, Madras and Others, a Division Bench of this Court has held as follows :

''Manufacture'' implies a change though every change is not manufacture. If by a process a change is effected in a product which was not there

previously and which change facilitates the utility of the product for which it is meant, then the process not a simple one but a process incidental or

ancillary to the completion of a manufactured product. 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 product to another and there could be several stages

of processing and different kinds of processing depending upon the utility for which the end product is meant. Any process if it is incidental and

ancillary to the completion of manufactured product, it will certainly amount to ''manufacture'' within the meaning of Section 2(f) of the Central

Excise Act.

It is, therefore, obvious that as commonly understood the word ''manufacture'' would mean a process, the end result of one or more process

through which the original commodity is made to pass, resulting in a distinct and different commodity.

Deciding in the light of the law so laid down, is would be inconceivable to conclude that mere cutting of jumbo roll films into similar lengths

called flats would amount to a manufacturing process. In fact, the second respondent-Central Board itself has in unequivocal terms held that cutting

and slitting into smaller rolls would not amount to a process of manufacture. If that were so, cutting jumbo roll films into smaller sizes not in the form

of rolls, but in the form of flats could ever not be held an amounting to manufacturing process.

The contention of the respondents that merely because there is a separate Tariff Entry for the flats as distinct from jumbo rolls, the flats cut

from jumbo rolls can be classified as a manufactured product, cannot be sustained. Tariff Entry 37.01 and 37.02 deal with two different resultant

products of manufacture. If a person manufactures photographic film rolls, such manufacturing process would attract the levy of duty under Entry

37.01. If another person manufactures photographic flats and films, then that manufacturing process would attract Tariff Entry 37.01. But, if

photographic flats or films are not manufactured at all, but only made out of jumbo rolls by cutting into smaller pieces, then there being no

manufacturing process involved, Tariff Entry 37.01 cannot be made use of to hold that the petitioner should take out a licence.

Since the main question involved for decision, viz., whether by cutting jumbo rolls into smaller flats, the petitioner is manufacturing a new and

different product has been answered in the negative, it follows that the direction given by the second respondent-Board stating that persons like the

petitioner should take out a Central Excise licence cannot be sustained so long as what the petitioner does, is confined to cutting jumbo rolls into

flats and plates of smaller sizes. This writ petition accordingly ordered in the above terms. No costs.