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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.583 OF 2005

M/S. SERVO-MED INDUSTRIES  PVT. LTD.           …APPELLANT   

VERSUS

COMMISSIONER OF CENTRAL EXCISE, MUMBAI.                 ...RESPONDENT

J U D G M E N T

R.F. Nariman, J.

1. Between  June  1995  and  March  1997,  the  appellants

purchased syringes and needles in bulk from the open market.

They would then sterilize the syringes and the needles and put

one  syringe  and  one  needle  in  an  unassembled  form  in  a

printed  plastic  pouch.   The  syringe  and  the  needle  were

capable of use only once and, hence, were disposable.  The

plastic pouches so packed were sold to an industrial customer,

namely, M/s. Hoechst Marion Roussel Ltd.  The pouches bore

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the brand name ‘Behring’.  The brand name ‘Behring’  belonged

to the purchaser.   

2. By a show cause notice dated 25.1.1996, the Department

asked the assessee to show cause as to why the said syringes

and needles, (which had already borne the payment of excise

duty  in  the  hands  of  their  manufacturers),  be  made  to  pay

excise duty again as a result of sterilization.  The show cause

notice alleged that  sterilization brings about  a change in  the

character of the final product, which now becomes disposable

syringes and needles.  Therefore, a new commodity having a

different character has come into existence.  In their reply to the

show cause notice dated 1.10.1996, the petitioners claimed that

the activity  of  sterilization would not  amount  to  manufacture.

They said that no new product comes into existence by merely

sterilizing disposable syringes and needles which continue to

be disposable syringes and needles post-sterilization.  No new

product,  therefore,  came  into  existence  as  a  result  of

sterilization.  

3. By  an  order  dated  31.12.1997,  the  Assistant

Commissioner  Central  Excise  held  that  the  process  of

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sterilization was essential to complete manufacture before the

products are sold in the market.  This being so, the process of

sterilization was found to be an integral and inextricable part of

the manufacturing process to make the product marketable.  It

was further held that the process of sterilization brings about a

transformation of the product by making something non-sterile

sterile.   

4. By  his  order  dated  25.2.1999,  the  Commissioner  of

Central  Excise (Appeals)  set  aside the said order, reasoning

that  the  process  of  sterilization  does  not  bring  about  any

change in  the  basic  structure  of  syringes  and  needles  even

though  post-sterilization  the  value  of  the  product  gets

enhanced.   He  further  held  that  under  Section  2(f)  of  the

Central Excise Act, there is no mention of the test of integral or

inextricable process and found that  the wrong test had been

applied to arrive at the wrong result.  

5. The  CESTAT  in  turn  set  aside  the  order  of  the

Commissioner of Central Excise (Appeals) observing:

“An  Article  with  distinct  brand  name  and separate  end  use/quality  has  emerged  by  the

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activity undertaken.  The use/character of a ‘syringe’ which  was  brought  and  which  emerged  has changed.  While the goods brought were not fit for use on Humans Medical Needles as made were not usable till sterilized.  The commercial identity nature use and understanding has changed, manufacturing has taken place, excise levy is attracted.”

6. Shri  Lakshmikumaran,  learned  advocate  appearing  on

behalf of the appellant has argued before us that the judgment

of the Tribunal is wrong on first principles.  The Tribunal has

failed  to  appreciate  that  a  disposable  syringe  and  needle

continues to be a disposable syringe and needle even after the

process of sterilization and, therefore, the basic test of a new

article emerging as a result of a process, being a transformation

of an article into something new, which has a distinctive name,

character or use is clearly absent in the present case. He cited

a number of judgments to buttress his submissions.  

7. Ms.  Shirin  Khajuria,  learned counsel  who appeared for

the respondent, countered these submissions and said that it

was  clear  that  the  articles  in  question  could  not  be  used

commercially  until  a  process  of  sterilization  had  been

undergone.   This  being  so,  it  is  clear  that  the  process  of

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sterilization is an important integrated and/or ancillary process

without  which  the  end  product  had  no  commercial  use  and,

therefore, applying the said test, it is clear that the process of

sterilization  leads  to  manufacture.   She  cited  a  number  of

judgments which we will refer to presently.  

8. Regard being had to the issue being a ticklish one, we

need first to delve into a few basic principles.  

Distinction between manufacture and marketability

9. A duty of excise is levied on the manufacture of excisable

goods. “Excisable goods” are those goods which are included

in  the  schedules  of  the  Central  Excise  Tariff  Act,  1985.

“Excisable  goods”  brings  in  the  concept  of  goods  that  are

marketable, that is goods capable of being sold in the market.

On  the  other  hand,  manufacture  is  distinct  from  sale-ability.

Manufacture  takes  place  on  the  application  of  one  or  more

processes.  Each process may lead to a change in the goods,

but every change does not amount to manufacture.  There must

be something more – there must be a transformation by which

something new and different  comes into being,  that  is,  there

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must  now  emerge  an  article  which  has  a  distinctive  name,

character or use.  

When transformation does not take place.  

10. When a finished product cannot conveniently be used in

the form in which it  happens to be,  and it  is  required to be

changed  into  various  shapes  and  sizes  so  that  it  can

conveniently  be  used,  no  transformation  takes  place  if  the

character and the end use of the first product continue to be the

same.   An  illustration  of  this  principle  is  brought  out  by  the

judgment  in  CCE,  New  Delhi  v.  S.R.  Tissues,  2005  (186)

E.L.T. 385 (S.C.).   On facts, in the said case, jumbo rolls of

tissue paper  were cut  into various shapes and sizes so that

they could be used as table napkins, facial tissues and toilet

rolls.   This Court held that there was no manufacture as the

character and the end use of the tissue paper in the jumbo roll

and the tissue paper in the table napkin, facial tissue and toilet

roll remains the same.  

11. Another example of  when transformation does not take

place  is  when  foreign  matter  is  removed  from an  article  or

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additions are made to the article to preserve it or increase its

shelf life.   

12. In MMTC v. Union of India, 1983 (13) E.L.T. 1542 (S.C.),

this Court dealt with the separating of wolfram ore from rock to

make it usable.  It was held that the process of separation and

sorting  out  pieces  of  wolfram  or  by  washing  or  magnetic

separation  would  not  amount  to  a  manufacturing  process.

Wolfram ore does not cease to be an ore even though by the

aforesaid processes it may become concentrated wolfram ore.  

13. In Mineral Oil Corporation v. CCE,  Kanpur, 1999 (114)

E.L.T.  166 (Tribunal), the facts were that used transformer oil,

which  by  applying  processes  for  removal  of  impurities

therefrom, is again made usable as transformer oil. Both before

and  after  the  said  processes,  transformer  oil  remained  as

transformer oil.   That being so,  it  was held that no new and

distinct commodity has come into existence consequent to the

process  undertaken.   The  test  for  determining  whether

manufacture can be said to have taken place is whether the

commodity which is subjected to the process of manufacture

can no longer  be regarded as the original  commodity  but  is

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recognized by the trade as a new and distinct commodity.  This

Court dismissed the civil appeal from the aforesaid judgment.

This case is instructive in that it is clear that transformer oil, in

its  used  stage,  could  not  be  used  owing  to  the  impurities

therein.  Any process of rendering such article usable would not

be  a  manufacturing  process,  as  there  is  no  change  in  the

essential character of the goods which remain as transformer

oil which now becomes usable.  

14. In Dunlop India Ltd. v. Union of India, 1995 (75) ELT 35

(S.C.), soap treatment of grey cotton duck/canvas was held not

to be a process which amounted to manufacture.  The judgment

states:

“3.  The  process  has  been  described  in  the impugned order in the following words - For  processing on soap treatment  the party  uses soaps/soap flakes which are diluted in plain water in a  tank.  This  solution  is  transferred  to  a  Soaping Machine operated by power where different colours are  added.  The  fabrics  are  then  dipped  in  the solution  which  is  heated  with  steam.  After  the colouring treatment and soap impregnation the wet fabrics are dried up with the aid of steam on passing the fabrics through rollers fitted with the aforesaid Soaping Machine. 4. In our opinion the said process cannot be said to be one which results in changing the identity of the

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cloth which is subject to the said treatment and the said process does not give rise to a new product which  is  marketable.  The  said  process  cannot, therefore, be regarded as a manufacturing process. We  find  that  the  Central  Government  itself,  in another matter  relating to M/s.  Premier Tyres Ltd. has  passed  an  Order  on  17-5-1977  (page  83  of Paper  Book)  wherein,  it  has  been  held  that  the transformation brought about the dipping of cotton fabrics in a soap solution is not a permanent one; it is not an operation which results in the production of a new article  which could be bought and sold as such in the market.”

15. In Dalmia Industries Limited v. CCE, Jaipur, 1999 (112)

E.L.T. 305 (Tribunal), different articles of feeding bottles were

put together in  a single pack.   Thus, bottles,  feeder nipples,

bottle lids and plastic parts were put together in a combined

pack and the product was sold in the brand name of “Milk care

Designer Feeder”. All these parts were put together only after

sterilization  by  ultra  violet  rays.  The  Tribunal  held  that  the

various parts that had been put together were already finished

products  and  packing  after  sterilization  would  not  bring  into

existence any new product as each of the items had already

come into existence as individual items.  It was further held that

sterilization was only to improve the hygiene of the product and

that since no change occurs in the name, character or use of

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the product, a new product does not come into existence.  This

Court  dismissed  the  civil  appeal  filed  against  the  aforesaid

judgment on 1.3.2005.

16. Examples of additions made to the article to preserve it or

increase  its  shelf  life  are  to  be  found  in  Tungabhadra

Industries Ltd.  v. CTO, (1961) 2 SCR 14  and  M/s. Maruti

Suzuki India Ltd. v. CCE, 2015 (318) E.L.T. 353 (S.C.). In the

Tungabhadra case, it was held that hydrogenated oil continued

to  be  groundnut  oil  despite  there  being  an  intermolecular

change  in  the  content  of  the  substance  of  the  oil  due  to

hydrogenation.   It  was  held  that  oil  made  from  groundnut

continued  as  such  despite  the  hardening  process  of

hydrogenation.  In its essential character, it was held that such

hydrogenated oil continued to be groundnut oil.  The process of

hydrogenation only increased the shelf life of the said oil.  

17. Similarly  in  the  Maruti  Suzuki  case,  it  was  held  that

bumpers and grills of motor vehicles continue to be the same

commodity after ED coating which would increase the shelf life

of the said bumpers and grills and provide anti rust treatment to

the same.  No new commodity known to the market as such

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had come into being merely on account of the value addition of

the ED coating.

Retaining of essential character test.

18. In  M/s.  Satnam  Overseas  Ltd.  v.  Commissioner  of

Central Excise, New Delhi (Civil Appeal No.8958 of 2003), it

was held that as the essential character of the product had not

changed,  there would be no manufacture.   In  that  case,  the

product was a combination of raw rice, dehydrated vegetables

and spices in the name of rice and spice.  It was held that the

said product in its primary and essential character was sold in

the  market  as  rice  only,  despite  the  addition  of  dehydrated

vegetables and certain spices.  Further, the rice remained in

raw form and in order to make it edible it had to be cooked like

any other cereal.  As we have already seen, the same test was

applied  in  Tungabhadra  case  (supra)  and  in  Deputy

Commissioner  of  Sales  Tax  (Law),  Board  of  Revenue

(Taxes), Ernakulam v. Pio Food Packers, (1980) 3 SCR 1271.

In  that  case,  the  process  undertaken  was  to  remove  the

inedible portions of Pineapple together with its outer cover and

then slice such Pineapple and can the same after adding sugar

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as a preservative.  It  is important to note that the cans were

sealed under high temperature and then put into boiling water

for  sterilization.   It  was  held  that  there  was no  manufacture

inasmuch as the essential character of the Pineapple had not

changed. The Court said:

“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 case to another, and  indeed  there  may  be  several  stages  of processing  and  perhaps  a  different  kind  of processing  at  each  stage.  With  each  process suffered,  the  original  commodity  experiences  a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it  can no longer be regarded as the original commodity but instead is recognised as a new and distinct Article that a manufacture can be said  to  take  place.  Where  there  is  no  essential difference  in  identity  between  the  original commodity  and  the  processed  Article  it  is  not possible  to  say  that  one  commodity  has  been consumed in the manufacture of another. Although it has undergone a degree of processing, it must be regarded as still retaining its original identity.”   

19. Interestingly, a line was drawn between cases in which

the  essential  character  had  changed and those  in  which  no

such change had taken place in the following terms:

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“5. A large number of cases has been placed before us by the parties,  and in each of  them the same principle has been applied: Does the processing of the  original  commodity  bring  into  existence  a commercially different and distinct article? Some of the cases where it  was held by this  Court  that  a different commercial article had come into existence include Anwarkhan  Mehboob  Co.  v.  The  State  of Bombay  and  Ors. (where  raw  tobacco  was manufactured  into  bidi  patti), A.  Hajee  Abdul Shukoor and Co. v. The State of Madras (raw hides and  skins  constituted  a  different  commodity  from dressed  hides  and  skins  with  different  physical properties), The  State  of  Madras  v.  Swasthik Tobacco  Factory (raw  tobacco  manufactured  into chewing tobacco) and Ganesh Trading Co. Karnal v. State  of  Haryana and Anr.,  (paddy dehusked into rice). On the other side, cases where this Court has held that although the original commodity has under gone  a  degree  of  processing  it  has  not  lost  its original identity include Tungabhadra Industries Ltd., Kurnool v. Commercial Tax Officer, Kurnool (where hydrogenated  groundnut  oil  was  regarded  as groundnut oil) and Commissioner of Sales Tax, U.P., Lucknow v. Harbiles  Rai  and sons (where bristles plucked from pigs,  boiled,  washed with  soap and other chemicals and sorted out in bundles according to their size and colour were regarded as remaining the same commercial commodity, pigs bristles).”  

Test of no commercial user without further process

20. In  Brakes  India  Ltd.  v.  Superintendent  of  Central

Excise, (1997) 10 SCC 717, the commodity in question was

brake lining blanks. It was held on facts that such blanks could

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not  be  used  as  brake  linings  by  themselves  without  the

processes of  drilling,  trimming and chamfering.  It  was in this

situation  that  the  test  laid  down  was  that  if  by  adopting  a

particular  process a transformation takes place which makes

the product have a character and use of its own which it did not

bear earlier, then such process would amount to manufacture

irrespective of whether there was a single process or several

processes.  

21. Similarly in Union of India v. J.G. Glass, 1998 (97) E.L.T.

5  (S.C.),  this  Court  held  that  plain  bottles  are  themselves

commercial commodities which can be sold and used as such.

By the process of printing names or logos on the said bottles,

the basic character  of  the commodity does not change, they

continue to be bottles. The Court said:

“16.  On  an  analysis  of  the  aforesaid  rulings,  a two-fold  test  emerges  for  deciding  whether  the process is that of "manufacture". First, whether by the said process a different commercial commodity comes into existence or whether the identity of the original  commodity  ceases  to  exist;  secondly, whether,  the  commodity  which  was  already  in existence  will  serve  no  purpose  but  for  the  said process.  In  other  words,  whether  the  commodity already in existence will  be of no commercial use but for  the said process.  In the present case, the

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plain  bottles  are  themselves  commercial commodities and can be sold and used as such. By the  process  of  printing  names  or  logos  on  the bottles, the basic character of the commodity does not change. They continue to be bottles. It cannot be  said  that  but  for  the  process  of  printing,  the bottles  will  serve  no  purpose  or  are  of  no commercial use.”

22. Similarly in Sterling Foods v. State of Karnataka, (1986)

26  ELT 3  (S.C.),  raw  shrimps/prawns/lobsters  after  various

processes became fit  for human consumption.  Prior to such

processing,  they  could  not  be  used  as  articles  of  food.

However, the aforesaid processes did not lead to a finding that

there was manufacture  inasmuch as shrimps/prawns/lobsters

identity continued as such even after the aforesaid processes.  

23. In  Crane Betel Nut Powder Works v. Commissioner,

2007 (210)  E.L.T. 171 (S.C.),  whole betel  nuts could not  be

consumed by human beings.  It is only after a process of cutting

them into smaller pieces and sweetening them with oil that they

become  fit  for  human  consumption.   It  was  held  that  the

aforesaid process would not amount to manufacture as betel

nuts continued to be the same even after the aforesaid process

resulting in no transformation of the commodity in question.  

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24. It  is  important  to  understand  the  correct  ratio  of  the

judgment in the J.G.Glass case.  This judgment does not hold

that  merely  by  application  of  the  second  test  without  more

manufacture comes into being.  The Court was at pains to point

out that a twofold test had emerged for deciding whether the

process  is  that  of  manufacture.   The  first  test  is  extremely

important  –  that  by  a  process,  a  different  commercial

commodity must come into existence as a result of the identity

of the original commodity ceasing to exist.  The second test,

namely that the commodity which was already in existence will

serve no purpose but for a certain process must be understood

in its true perspective. It is only when a different and/or finished

product comes into existence as a result  of a process which

makes the said product commercially usable that the second

test  laid  down in  the judgment  leads to  manufacture.   Thus

understood,  this  judgment  does  not  lead  to  the  result  that

merely  because the unsterilized syringe and needle  is  of  no

commercial use without sterilization, the process of sterilization

which would make it  commercially usable would result  in the

sterilization process being a process which would amount  to

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manufacture.   If  the  original  commodity  i.e.  syringes  and

needles  continue  as  such  post-sterilization,  the  second  test

would not lead to the conclusion that the process of sterilization

is a process which leads to manufacture. This is because, in all

cases,  there  has  first  to  be  a  transformation  in  the  original

article  which  transformation  brings  about  a  distinctive  or

different use in the article.  

The test of integrated process without which manufacture would be impossible or commercially inexpedient.  

25. It is at this point that the decision contained in Collector

of  Central  Excise,  Jaipur  v.  Rajasthan  State  Chemical

Works, (1991) 4 SCC 473 needs explanation.  This Court was

concerned with the language of a certain notification which read

as follows:  

“In exercise of the powers conferred by sub-rule (1) of  Rule  8  of  the Central  Excise Rules,  1944,  the Central  Government  hereby  exempts  all  goods falling under Item 68 of  the First  Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) in or in relation to the manufacture of which no process is ordinarily  carried  on  with  the  aid  of  power,  from whole of the duty of excise leviable thereon.”  

It was held:

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“13. Manufacture thus involves series of processes. Process  in  manufacture  or  in  relation  to manufacture implies not only the production but the various  stages  through  which  the  raw material  is subjected to change by different operations. It is the cumulative effect of the various processes to which the  raw  material  is  subjected  to  (sic that  the) manufactured  product  emerges.  Therefore,  each step towards such production would be a process in relation  to  the  manufacture.  Where  any  particular process is so integrally connected with the ultimate production  of  goods  that  but  for  that  process manufacture  or  processing  of  goods  would  be impossible  or  commercially  inexpedient,  that process is one in relation to the manufacture.

15. In J.K.  Cotton  Spg.  &  Wvg.  Mills  Co. Ltd. v. STO [(1965)  1  SCR  900  :  AIR  1965  SC 1310 : (1965) 16 STC 563] , this Court in construing the expression ‘in the manufacture of  goods’ held thus: (SCR pp. 906-07)

“But there is no warrant for limiting the meaning of the expression ‘in the manufacture of goods’ to the process of production of goods only. The expression ‘in the manufacture’ takes in within its compass, all processes which are directly  related to the actual production.”

16. The Court further held thus: (SCR p. 905)

“The expression ‘in the manufacture of goods’ would normally encompass the entire process carried on by  the  dealer  of  converting  raw  materials  into finished goods. Where any particular process is so integrally connected with the ultimate production of goods  that  but  for  that  process,  manufacture  or processing  of  goods  would  be  commercially inexpedient, goods required in that process would, in  our  judgment,  fall  within  the expression ‘in  the manufacture of goods’.”

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21. The  transfer  of  raw  material  to  the  reacting vessel is a preliminary operation but it is part of a continuous process but for which the manufacture would  be  impossible.  The  handling  of  the  raw materials  for  the purpose of  such transfer  is then integrally  connected  with  the  process  of manufacture.  The  handling  for  the  purpose  of transfer may be manual or mechanical but if power is used for such operation, it cannot be denied that an activity has been carried on with the aid of power in  the  manufacturing  process.  The  use  of  diesel pump sets to fill  the pans with brine is an activity with the aid of power and that activity is in relation to the  manufacture.  It  is  not  correct  to  say  that  the process  of  manufacture  starts  only  when evaporation  starts.  The  preliminary  steps  like pumping brine and filling the salt pans form integral part of the manufacturing process even though the change in the raw material commences only when evaporation  takes  place.  The  preliminary  activity cannot  be  disintegrated  from  the  rest  of  the operations  in  the  whole  process  of  manufacture. Similarly,  when  coke  and  lime  are  taken  to  the platform in  definite  proportions for  the purpose of mixing,  such  operation  is  a  step  in  the manufacturing process. It  precedes the feeding of the mixture  into  the  kiln  where  the  burning  takes place.  The  whole  process  is  an  integrated  one consisting of the lifting of the raw materials to the platform mixing coke and lime and then feeding into the  kiln  and  burning.  These  operations  are  so interrelated that without any one of these operations manufacturing  process  is  impossible  to  be completed. Therefore, if power is used in any one of these  operations  or  any  one  of  the  operations  is carried on with the aid of power, it is a case where in or in relation to the manufacture the process is carried on with the aid of power.

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25. Thus “processing” may be an intermediate stage in  manufacture and until  some change has taken place  and  the  commodity  retains  a  continuing substantial  identity  through  the  processing  stage, we cannot say that it has been manufactured. That does not, however, mean that any operation in the course  of  such  process  is  not  in  relation  to  the manufacture. While  interpreting  the  same exemption  notification  in  Standard  Fireworks Industries v. Collector  of  Central  Excise [(1987)  1 SCC 600 :  1987 SCC (Tax) 138 :  (1987) 28 ELT 56]  ,  it  was  held  that  manufacture  of  fireworks requires cutting of steel wires and the treatment of papers  and,  therefore,  it  is  a  process  for manufacture of goods in question. The notification purports to allow exemption from duty only when in relation to the manufacture of goods no process is ordinarily carried on with the aid of  power. It  was observed that cutting of steel wires or the treatment of the papers is a process for the manufacture of goods in question.

26. We  are,  therefore,  of  the  view  that  if  any operation  in  the  course  of  manufacture  is  so integrally  connected  with  the  further  operations which  result  in  the  emergence  of  manufactured goods and such operation is carried on with the aid of  power,  the  process  in  or  in  relation  to  the manufacture must be deemed to be one carried on with the aid of power. In this view of the matter, we are unable to accept the contention that since the pumping of the brine into the salt pans or the lifting of coke and limestone with the aid of power does not bring about any change in the raw material, the case  is  not  taken  out  of  the  notification.  The exemption under the notification is not available in these cases. Accordingly, we allow these appeals. In  the  facts  and  circumstances  of  the  case,  we make no order as to costs.”

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26. It  is  clear  that  the  said  judgment  does  not  deal  with

manufacture alone.  It deals with various processes carried on

without the aid of power in relation to manufacture.  The Court’s

ultimate holding was that the use of diesel pump sets to fill pans

with brine is an activity which occurred with the aid of power

and is in relation to manufacture. That is why it held that the

process of manufacture of common salt from brine in salt pans

is an integrated one whose operations are so inter-related that

without any one of these operations the manufacturing process

could  not  be  completed.   If,  therefore,  any  one  of  several

processes in relation to manufacture is carried on with the aid

of power, the exemption under the notification would not apply.

It  was  in  that  context  that  this  Court  held  that  where  any

particular process is so integrally connected with the ultimate

production of goods that but for that process, the manufacture

of such goods would be impossible or commercial inexpedient.

Two things need to be noticed here.  One is that what is spoken

about is raw material which is subjected to several processes

after which a final manufactured product emerges and two that

the test of integral connection of a particular process with the

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ultimate  production  of  goods  that  but  for  such  process

manufacture  of  goods  would  become  impossible  or

commercially  inexpedient  was  applied  in  the  context  of  a

process being in relation to manufacture.

Conclusion:  

27. The  case  law  discussed  above  falls  into  four  neat

categories.  

(1) Where  the  goods  remain  exactly  the  same

even after a particular process, there is obviously no

manufacture  involved.   Processes  which  remove

foreign matter from goods complete in themselves

and/or  processes  which  clean  goods  that  are

complete in themselves fall within this category.  

(2) Where the goods remain essentially the same

after the particular process, again there can be no

manufacture.  This is for the reason that the original

article continues as such despite the said process

and the changes brought about by the said process.

(3) Where  the  goods  are  transformed  into

something  different  and/or  new  after  a  particular

process,  but  the  said  goods  are  not  marketable.

Examples  within  this  group  are  the  Brakes  India

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case and cases where the transformation of goods

having  a  shelf  life  which  is  of  extremely  small

duration.   In  these cases also no manufacture  of

goods takes place.  

(4) Where the goods are transformed into goods

which  are  different  and/or  new  after  a  particular

process, such goods being marketable as such.  It

is in this category that manufacture of goods can be

said to take place.

28. The  instant  case  falls  within  the  first  category

aforementioned. This is a case of  manufacture of disposable

syringes  and  needles  which  are  used  for  medical  purposes.

These syringes and needles, like in the J.G. Glass case and

unlike  the  Brakes  India  case,  are  finished  or  complete  in

themselves.  They can be used or sold for medical purposes in

the form in which they are.  The fact that medically speaking

they are only used after sterilization would not bring this case

within  the  ratio  of  the  Brakes  India  case.   All  articles  used

medically in, let us say, surgical operations, must of necessity

first be sterilized.

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29. The Encyclopedia  and  Dictionary  of  Medicine,  Nursing,

and  Allied  Health,  Fourth  Edition  by  Benjamin  F. Miller  and

Claire Brackman Keane defines ‘sterilization’ as follows:

“In  sterilizing  objects  or  substances,  the  high resistance  of  bacterial  spore  cells  must  be  taken into  account.   Most  dangerous  bacteria  are destroyed at a temperature of 50° to 60°C (122° to 140°F).  Therefore, pasteurization of a fluid, which is the  application  of  heat  at  about  60°C,  destroys disease-causing bacteria.   However, temperatures almost twice as high are usually required to destroy the spore cells.

The  discovery  that  heat,  in  the  form of  flame, steam, or hot water, kills bacteria made possible the advances  of  modern  surgery,  which  is  based  on freedom  from  microorganisms,  or  asepsis,  and prevention  of  contamination.   Sterilization  of  all equipment  used  during  an  operation,  and  of anything that in any way may touch the operative area,  is  carried  out  scrupulously  in  hospitals. Physicians  and  nurses  wear  sterile  clothing. Instruments  are  sterilized  by  boiling,  by  chemical antiseptics, or by autoclaving.  

In a physician’s office needles for injections and any instruments  used for  treatment  of  wounds or other  surgical  procedures  are  also  carefully sterilized,  and  other  aseptic  techniques  are observed.”

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In  the  Oxford  Dictionary  of  Nursing,  ‘sterilization’  is

defined as:

“the process by which all types of micro-organisms (including spores) are destroyed.  This is achieved by  the  use  of  heat,  radiation,  chemicals,  or filtration.”

30.  The added process of sterilization does not mean that

such articles are not complete articles in themselves or that the

process of sterilization produces a transformation in the original

articles leading to new articles known to the market as such.  A

surgical equipment such as a knife continues to be a surgical

knife  even  after  sterilization.   If  the  Department  were  right,

every time such instruments are sterilized, the same surgical

instrument  is  brought  forth  again  and  again  by  way  of

manufacture  and excisable  duty  is  chargeable  on the  same.

This  would  lead  to  an  absurd  result  and  fly  in  the  face  of

common sense1.   If  a  surgical  instrument  is  being used five

times a day, it  cannot be said that  the same instrument has 1 The expression “Flies in the face of common sense” is taken from an interesting judgment of the

House of Lords reported in R v. Secretary of State for the Home Department, (1995) 2 All ER 244. Lord Browne Wilkinson was faced with an argument that Section 171 of the Criminal Justice Act of 1988 vests in the Secretary of State a discretion for bringing into force certain sections of the said Act.  It was argued that the Secretary of State had an absolute and unfettered discretion to bring in or not  to bring in the said Sections.  This argument was rejected stating that it was not only constitutionally dangerous but also flies in the face of common sense (at page 253).   

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suffered  a  process  which  amounts  to  manufacture  in  which

case excise duty would be liable to be paid on such instruments

five times over on any given day of use.  Further, what is to be

remembered here is that the disposable syringe and needle in

question is a finished product in itself.   Sterilization does not

lead  to  any  value  addition  in  the  said  product.   All  that  the

process of sterilization does is to remove bacteria which settles

on the syringe’s and needle’s surface, which process does not

bring about a transformation of the said articles into something

new and different. Such process of removal of foreign matters

from  a  product  complete  in  itself  would  not  amount  to

manufacture but would only be a process which is for the more

convenient use of the said product. In fact, no transformation of

the  original  articles  into  different  articles  at  all  takes  place.

Neither the character nor the end use of the syringe and needle

has changed post-sterilization. The syringe and needle retains

its essential character as such even after sterilization.   

31. Ms. Shirin Khajuria then cited a few other judgments.  The

judgment in  Laminated Packings (P) Ltd. v. CCE,  1990 (49)

ELT 326 held:

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“4. Lamination,  indisputably  by  the  well  settled principles of excise law, amounts to ‘manufacture’. This  question,  in  our  opinion,  is  settled  by  the decisions of this Court. Reference may be made to the decision of this Court in Empire Industries Ltd. v. Union of India [(1985) 3 SCC 314: 1985 SCC (Tax) 416] . Reference may also be made to the decision of  this  Court  in CCE v. Krishna  Carbon  Paper Co. [(1989) 1 SCC 150: 1989 SCC (Tax) 42: (1988) 37 ELT 480] We are, therefore, of the opinion that by  process  of  lamination  of  kraft  paper  with polyethylene  different  goods  come  into  being. Laminated  kraft  paper  is  distinct,  separate  and different goods known in the market as such from the kraft paper.

5. Counsel for the appellant sought to contend that the kraft paper was duty paid goods and there was no change in the essential characteristic or the user of the paper after lamination. The fact that the duty has been paid on the kraft  paper is  irrelevant  for consideration  of  the  issue  before  us.  If  duty  has been paid, then benefit or credit  for the duty paid would be available to the appellant under Rule 56-A of the Central Excise Rules, 1944.

6. The  further  contention  urged  on  behalf  of  the appellant that the goods belong to the same entry is also not relevant because even if the goods belong to  the  same  entry,  the  goods  are  different identifiable goods, known as such in the market. If that  is  so,  the  manufacture  occurs  and  if manufacture  takes  place,  it  is  dutiable. ‘Manufacture’ is bringing into being goods as known in  the  excise  laws,  that  is  to  say,  known  in  the market  having  distinct,  separate  and  identifiable function.  On  this  score,  in  our  opinion,  there  is sufficient evidence. If  that is the position, then the appellant was liable to pay duty. We are, therefore, clearly of the opinion that the order of the CEGAT impugned in this appeal does not contain any error.

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The  appeal,  therefore,  fails  and  is  accordingly dismissed.”

32. This judgment again does not take us any further.  It was

found  on  the  evidence  led  in  that  case  that  laminated  kraft

paper is a distinct and separate product known in the market as

such and is apart from kraft paper.  

33. CCE, Meerut, v. Kapri International (P) Ltd., (2002) 4

SCC 710, is a judgment in which cotton fabrics from a running

length were cut into pieces which formed new articles like bed

sheets, bed spreads and table clothes.  On facts there, it was

held that new commodities had emerged which had a definite

commercial identity in the market and that the raw material (that

is cotton fabrics) having suffered payment of excise duty would

make no difference to the finished products also being liable for

payment of excise duty.   

34. Judged therefore from the view point of the law discussed

in  this  judgment,  it  is  clear  that  the  cryptic  judgment  dated

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18.6.2004 has  not  applied  the  law correctly.  The  appeal  is

allowed and the impugned judgment is hereby set aside.   

……………………….J. (A.K. Sikri)

……………………….J. (R.F. Nariman)

New Delhi; May 7, 2015

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