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Judgment
S.K. Jha, C.J.
Petitioner No. 1, a partnership firm of Indore, carries on the business of packaging of duty paid tea and the tea for such packaging which is received by it, has already undergone the process of manufacture, e.g. withering, rolling, fermentation and firing etc. The duty paid tea, received from its customers, is packed in packages of 25 grams to 1 Kg. and then sold by it. Petitioner No. 2 is a partner of the firm, petitioner No. 1.
According to the petitioners, it was insisted that before the petitioners could carry on the business of such packaging of the duty paid tea, they must obtain Central Excise licence and so under duress and compulsion, in order to carry on the business, the petitioners had to take a licence under the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act).
The sole question for determination in this petition is as to whether the package or packet in which the duty paid tea is sold to the consumers, is liable to payment of excise duty under tariff item No. 3 of the schedule to the Act. There is a slight modification in this regard which is of no practical consequence. Under the Cental Excises and Salt Act, 1944, as it originally stood, the duty had to be levied and collected at the rates set forth in the first schedule, whereas the duty leviable after the Central Excise Tariff Act, 1985 came into force, had to be levied and collected at the rates set forth in the Schedule to the Central Excise Tariff Act, 1985. For all practical purposes, however, the first schedule mentioned before the Central Excise Tariff Act, 1985 came into force, is the same as the schedule to the Central Excise Tariff Act, 1985 in so far as tea is concerned. This difference, therefore, in the two statutes, has no bearing upon the question at hand.
Excise duty is a duty payable u/s 3 of the Act. Section 3(1) is the charging section. All other provisions in the Act deal with the assessment and collection of excise duty and are clearly in the nature of machinery provisions. A reference to the relevant part of Section 3, therefore, needs to be reproduced. The relevant part of Section 3(1) of the Act runs thus :
"Duties specified in the First Schedule to be levied :
(1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, and part of India as and at the rates, set forth in the First Schedule."
It will thus be seen that in order to be exigible to excise duty, an article must be an excisable good produced or manfuactured in India. (Italics is ours for the sake of emphasis). This brings us to the definition of the term ''excisable goods.'' Section 2(d) of the Act lays down that ''excisable goods'' means goods specified in the first schedule as being subject to a duty of excise and includes salt. Excisable goods are thus specified in the first schedule, but such excisable goods must be produced or manufactured in India. An excise duty is, therefore, a duty on production or manufacture of excisable goods. Goods are something which can ordinarily come to the market to be brought and sold and is known to the market as such. Manufacture'' has been defined in Section 2(f) as including any process incidental or ancillary to the completion of a manufactured product which is specified in relation to any goods in the section or chapter notes to the schedule to the Central Excise Tariff Act, 1985, as amounting to manufacture, the last part having been so included after the 1985 Act came into force with effect from 28-2-1986.
The word ''manufacture'' implies such a change that the raw material is transformed into a new and different article so emerged has to have a distinct name. The essence of manufacture is the transformation of the parts or basic components into another article of different character and the completion of a manufactured produce is reached after all the processes incidental or ancillary, have been completed. ''Manufacture'' implies a change, but every change is not manufacture. A part from treatment, labour and manipulation, there must be a transformation so that a different article having a distinct name, emerges. Reliance in this connection may be placed on the decisions of the Supreme Court in case of Collector of Central Excise, Bombay-II Vs. Kiran Spinning Mills, and Collector of Central Excise, Madras Vs. Kutty Flush Doors and Furniture Co. (P) Ltd.,
Incidental or ancillary process must be an integral and inextricable part of produce or manufacture resulting in presenting a ''finished'' or manufactured'' product bearing a distinct name. The cumulative effect of all such incidental or ancillary processes resulting in manufacture is that when a new substance is brought into existence or if it is a new or different article having a distinct name, character or use resulting from a particular process or processes, such an activity would then amount to manufacture, and duty of excise would be leviable on such a substance. Where, therefore, ''tea'' is the excisable goods produced or manufactured including all incidental or ancillary process or processes, the process of packing alone cannot, by any stretch of imagination, be either incidental or ancillary to, nor in any manner, integrally or inextricably bound with the production or manufacture of tea. The process of packing is neither incidental nor ancillary to the completion of the manufactured product called ''tea''. For that matter, the transfer of the end product into containers which can be handled conveniently and putting marks or labels on the containers is not a process either incidental or ancillary to the completion of the manufactured article called ''tea''. That is the rationale of the decision of a Division Bench of this Court in case of Malwa Vanaspati and Chemical Company Ltd., Indore v. Union of India and Ors. 1980 MPLJ 84 : 1979 JLJ 78 at page 84, wherein it has been held that putting the vegetable product in containers or tins is neither incidental, nor ancillary to the manufacture of the vegetable product. So also, the Madras High Court held in case of Southern Synthetics Ltd., Madras-14 1978 ELTJ 256, that filling the product (formaldehyde) in containers namely Carboys or mild steel special drums, could not be treated as ''finished'' or ''manufactured'' goods. Packing or packaging, as it has been called, can never be equated with the process, nor can it be treated as ancillary to the completion of the manufactured goods known by the distinct name of tea. Neither the language of Section 2(d), read with Section 2(f) nor the charging Section 3 of the Act lends support to the contention of the Revenue that the material called ''packaging'' or the ''packet'' in which tea is put, sealed and sold, is liable for the levy of excise duty on tea.
Smt. Nair, learned counsel for the respondents, however, placed reliance upon the language of item No. 3 of the first schedule to the 1984 Act which may be reproduced hereunder. Item No. 3 of the first schedule reads them:
"3. Tea : ''Tea'' includes all varieties Not exceeding Rs. Two of the product known commercially per kg. as the Central as Tea and also includes ''Green Government may, by notification Tea'' and ''Instant Tea'' in the official gazette, fix. (1) Tea, all varieties except ''Package tea'' and ''Instant tea'' falling within sub-items (2) and (3) respectively, of this item. (2) Package tea, that is to say, One rupee and twenty five tea packed in any kind of container paise per kg. plus the duty containing not more than 27 Kg. for the time being leviable net of tea, but excluding under sub-item (1) of this ''Instant Tea''. item, if not already paid. (3) ''Instant Tea'' Ten per cent ad valorem plus the duty for the time being leviable on tea falling under sub-item (1) of this item, if not already paid and if such Decisions on the tea is used in the manufacture Item of such ''Instant tea''. In the context of the provisions of the Act, the phrase ''all varieties'' occurring in Item 3 was interpreted to mean all different types of tea which are commercially known to be of different types (30)."
Smt. Nair submitted that since package tea is mentioned in item No. 3 of the first schedule and such package tea having been described as ''tea packet'' in any kind of container containing not more than 27 Kg. net of tea, the substance of the package has also been subjected to the levy of duty u/s 3 of the Act. She further contended that in sub-item (1) of item No. 3, tea of all varieties is mentioned excepting ''package tea'' and ''instant tea'' signifying the fact that ''package tea'' was also a variety of tea. This argument is fallacious.
It will be seen from the caption of the first schedule u/s 3 that the first column gives the ''item number'', the second column gives ''the description of goods'' and the third column ''the rate of duty''. Under the column ''Description of Goods'' is mentioned ''Food'' in which item No. 1 is sugar produced in a factory ordinarily using power in the course of production of sugar. Item No. 1A mentions confectionary, cocoa powder and chocolates in or in relation to the manufacture of which any process is carried on with the aid of power. Item No. 1B is ''Prepared'' or ''Preserved Foods'' etc. Item No. 1C deals with Food Products in or in relation to the manufacture of which any process is carried on with the aid of power and includes ''biscuits, butter, pasteurised or processed cheese''. Item No. 1D is ''asrated waters of various types''. Item No. 1E covers ''glucose and dextrose and preparations'' thereof. Item No. 1F deals with ''maida''. Item No. 2 mentions ''coffee'' and Item No. 3 deals with ''tea''. Thereafter the changes in the ''description of goods'' is given as ''Beverages and Tobacco''.
It will thus be seen that sugar, confectionary, preserved foods, food products, aerated waters, glucose and dextrose, maida, coffee and tea all are covered by the description of goods, namely ''food''. The excisable goods are, therefore, the food-stuffs enumerated in items Nos. 1 to 3. Can it be said that the package in which tea is contained, is a food, thereby becoming an excisable goods? The answer must clearly be in the negative. Furthermore, it will be found from item No. 3 itself that tea has been mentioned as including all varieties of the product known commercially as tea including ''green tea'' and ''instant tea''. Package of any sort cannot be impressed within the term varieties of the product known commercially as tea including green tea and instant tea. To crown it all, in sub-item (2) of item No. 3 where package tea is dealt with, it is described as package tea, that is to say, tea packed in any kind of container containing not more than 27 Kg. Net of tea. (Italies is ours for the sake of emphasis). It is, therefore, the net weight of the tea over which excise duty is leviable and not the packet in which such tea is contained. Therefore, sufficient intrinsic evidence in the first schedule itself reinforces our conclusion that package of any sort or a container containing tea cannot be an excisable goods in the first schedule to the Act. As a matter of fact, in this context, it has been said in the Law of Central Excise by V. J. Taraporevala and S. N. Parikh, Second Edition, at page 346, dealing with the decisions on the item that in the context of the provisions of the Act, the phrase ''all varieties'' occurring in item No. 3 was interpreted to mean ''different types of tea which are commercially known to be of different types.'' A reference in this connection has been made to the case of Long View Tea Co. v. Coll. C. E. (77) TLR (NOC) 16.
Having considered the matter in all its ramifications, we, therefore, come to the conclusion that package or container of any sort containing tea of any variety is not commercially known as tea, nor can it be loosely so. It, therefore, does not fall within the charging Section 3, read with item No. 3 of the first schedule to the Act, nor for that matter is any package, the end of a product or manufactured good known as tea of any variety.
In the view that we have taken of the charging section, namely levy of excise duty on the packing material or the packet, the question of unconstitutionality of the schedule of the Act as being outside the purview of Entry 84 of List 1 of the Seventh Schedule or being in contravention of Articles 245 and 246 of the Constitution, does not arise and the impugned provisions cannot be held to be either unconstitutional or illegal.
For the reasons aforesaid, the petition succeeds and is allowed with costs. The respondents are restrained either by themselves or through their agents from levying or collecting any alleged duty under tariff item No. 3 of the First schedule to the Central Excises and Salt Act, 1944, or under Chapter 9, Heading No. 09.02, sub-headings Nos. 0902.11, 0902.12, 0902.13, 0902.10, 0902.21, 0902.20 and 0902.90. Hearing fee is assessed at Rs. 250.00. Security amount, if deposited, be refunded to the petitioners.