REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 7627 OF 2005

COMMISSIONER  OF  CENTRAL  EXCISE,  NAGPUR

— APPELLANT  

VERSUS

M/S GURUKRIPA RESINS PVT. LTD. — RESPONDENT

WITH

CIVIL APPEAL NO. 5809 OF 2007

AND

CIVIL APPEAL NOS. 4663-4665 OF 2008  

J U D G M E N T

D.K. JAIN, J.:

1. The Commissioner  of Central  Excise has preferred this  batch of Civil  

Appeals under Section 35-L(b) of the Central Excise Act, 1944 (for short  

“the  Act”),  questioning  the  correctness  of  the  orders  passed  by  the  

Customs,  Excise  and  Service  Tax  Appellate  Tribunal,  West  Regional  

Bench at Mumbai (for short “the Tribunal”) whereby the appeals filed by  

the respondent-assessee (for short “the assessee”) have been allowed and  

the applications filed by the Commissioner for rectification of mistakes in  

the main orders have been dismissed.

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2. As all the appeals involved a common question of law, pertaining to the  

same assessee, these were heard together and are being disposed of by  

this  common  judgment.  However,  in  order  to  appreciate  the  issue  

involved and the rival stands thereon, for the sake of convenience, we  

shall advert to the facts emerging from C.A. No. 7627 of 2005 arising out  

of Tribunal’s order in appeal No. E/1050/03-Mum and E/Rom-691/04-

Mum.

3. The  assessee,  a  body  Corporate,  is  engaged  in  the  manufacture  and  

clearance of “Rosin” and “Turpentine Oil”.  As per some literature placed  

on record, “Rosin” is the resinous constituent of the Oleo-resin exuded by  

various species of pine, known in commerce as crude turpentine.  The  

separation of the Oleo-resin into the essential oil-spirit of turpentine and  

common Rosin is effected by distillation in large copper stills.  “Rosin”  

and “Turpentine Oil” are classifiable under Chapter Heading Nos. 38.06  

and 38.05 respectively of the First Schedule to the Central Excise Tariff  

Act, 1985 (for short “the Tariff Act”).  The assessee filed the requisite  

classification  declarations  with  the  Deputy  Commissioner,  Central  

Excise,  classifying  their  finished  goods  i.e.  “Rosin”  under  the  Sub-

heading 3806.19 and “Turpentine Oil” under Sub-heading 3805.19, both  

bearing  ‘nil’ rate of duty, on the ground that the said goods were being  

manufactured  by  them  without  the  aid  of  power.  The  Deputy  

Commissioner accepted the classifications under the said Sub-headings  

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but  treated  the  said  goods as  “in  or  in  relation to  the  manufacture  of  

which  any  process  is  ordinarily  carried  on  with  the  aid  of  power”,  

attracting rate of duty @ 16%.  According to the Deputy Commissioner  

the assessee is using 5 Hp electric motor for lifting water from the well  

for storage tank at the ground level; the main raw material namely, Oleo-

pine Rosin is lifted to the manufacturing platform by manually operated  

chain  pulley  block;  the  raw material  is  heated  in  a  melting  tank  -  a  

“Bhatti” fired with coal; the molten raw material is then transferred to  

settling tanks where it is kept  in the liquid form and stirred by manually  

operated agitators so that the impurities may settle down; the impurities  

are separated and purified raw material  is transferred in the main tank  

(Distillery) where it is again heated upto 1800C; at this temperature, the  

vapours of turpentine oil are formed and finally the “Turpentine Oil” is  

collected  by  the  process  of  distillation  through  the  condensers  by  

sprinkling water on the condensers from the water storage tanks installed  

at a height of 30 ft.; water for the tanks is lifted from the storage tanks at  

the  ground level  by  using 2 Hp electric  motor.  “Rosin”  which  settles  

down in the Distillery, is collected separately. The Deputy Commissioner  

was  of  the  view  that  the  water  being  an  important  input  for  the  

manufacturing process of “Rosin” and “Turpentine Oil”, its further lifting  

upto the height of 30 ft. with the aid of an electric motor for the purpose  

of condensing the vapours of Turpentine Oil, it cannot be said that the  

said  goods  were  being  manufactured  without  the  aid  of  power.   He  

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accordingly held that the assessee was liable to pay Central Excise duty at  

the aforesaid rate.    

4. Being aggrieved, the assessee preferred appeal to the Commissioner of  

Customs and Central Excise (Appeals).   The Commissioner (Appeals),  

affirmed the view taken by the Deputy Commissioner, observing that the  

water stored in the overhead tank being pumped in the first instance by  

using electricity  to  operate  pump before it  falls  on the  condensers  by  

gravity, it was clear that certain processes are undertaken in or in relation  

to the manufacture of the said products with the aid of power.

5. Being dissatisfied with the order passed by the Commissioner (Appeals),  

the assessee carried the matter  in further  appeal  to the Tribunal.   The  

Tribunal, placing reliance on the clarification issued by the Ministry of  

Finance vide letter No. B-36/11/77-TRU dated 10th/16th January,  1978,  

wherein  it was clarified that so long as the use of power is limited to  

drawing water into a cooling tank through which condensation coils pass,  

manufacture of Rosin cannot be said to be with the aid of power, for the  

purpose of Notification No. 179/77-CE dated 18th June, 1977,  came to  

the conclusion  that  the said clarification was binding on the revenue,  

including  the  Commissioner  (Appeals),  the  same  being  a  Circular  

beneficial  to the assessee.  Drawing support from the decision of this  

Court in  Collector of Central Excise, Vadodara  Vs.  Dhiren Chemical   

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Industries1, the Tribunal came to the conclusion that in light of the said  

clarification the decision of this Court in  Collector of Central Excise,   

Jaipur Vs.  Rajasthan  State  Chemical  Works,  Deedwana,  Rajasthan2  

cannot be relied upon by the revenue.  Accordingly, the appeal preferred  

by the assessee was allowed by the Tribunal.

6. Thereafter,  the  revenue  filed  an  application  before  the  Tribunal  for  

rectification of the said order.  In the said application it was pointed out  

that apart from the fact that the decision of this Court in Rajasthan State   

Chemical  Works  (supra)  was  applicable  on the  facts  of  this  case,  the  

aforenoted Circular  relied upon by it  had already been rescinded vide  

Circular No. 38/38/94-CX dated 27th May, 1994. However, distinguishing  

the decision in Rajasthan State Chemical Works (supra), and affirming  

its earlier view that the 1978 Circular still  held the field,  the Tribunal  

dismissed  the  application.  Hence  the  present  appeals  by  the  

Commissioner.  

7. We have heard learned counsel for the parties.

8. Mr. Devadatt Kamat, learned counsel appearing on behalf of the revenue,  

strenuously urged that the decisions of the Tribunal are clearly erroneous  

in  as  much  as  it  failed  to  appreciate  that:  (i)  without  the  process  of  

condensation  of  vapours,   the  final  products  i.e.  “Turpentine  Oil”  &  

1  (2002) 10 SCC 64 2  (1991) 4 SCC 473

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“Rosin” cannot be manufactured; (ii) condensation is not possible without  

sprinkling  of  water  on the copper stills/coils containing  vapours of  

Turpentine and (iii) for sprinkling of water lifting of water to a particular  

height with the aid of  an electric motor is  essential,  otherwise  water  

would not fall on the coils by the force of gravity.  It was thus, argued  

that  water  being  an  integral  part  of  the  manufacturing  process,  which  

would include all  stages and all processes which are necessary for the  

final product, its lifting to the overhead tank is a process in relation to the  

manufacture of the final product and since that process requiring the aid  

of power is integrally connected with the manufacture, the assessee is not  

entitled to exemption from duty.   It  was asserted that  the clarification  

issued in the year 1978, having been rescinded vide Circular dated 27th  

May, 1994, the Tribunal was not justified in relying on the same, more  

so, when the issue before the Tribunal stood concluded by the decisions  

of  this  Court  in  Rajasthan  State  Chemical  Works  (supra)  as  also  

Impression  Prints  Vs.  Commissioner  of  Central  Excise,  Delhi-13.  

Placing reliance on the decision of the Constitution Bench of this Court in  

Commissioner  of  Central  Excise,  Bolpur  Vs.  Ratan Melting & Wire  

Industries4,  learned counsel contended that the Circulars issued by the  

revenue department cannot be given primacy over the decisions of the  

Courts.   In order  to substantiate  his point  that  it  is  not  necessary that  

power should be used in all the processes involved in the manufacture of  3  (2005) 7 SCC 497 4  (2008) 13 SCC 1

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finished goods, learned counsel placed reliance on the decision rendered  

by the Constitution Bench of this Court in  Union of India & Anr.  Vs.   

Delhi Cloth & General Mills Co. Ltd.5.  It was thus, stressed that in light  

of  the  settled  legal  position on the  issue by this  Court,  the  impugned  

decisions deserve to be set aside.   

9. Per  contra,  Mr.  Ajay  Majithia,  learned  counsel  appearing  for  the  

assessee, supporting the decisions of the Tribunal, argued that the water  

lifted with the aid of power and used for cooling the coils  containing  

Turpentine  vapours  cannot  be  said  to  be  an  integral  part  of  the  

manufacture  of  the  final  product  because  it  does  not  bring  about  any  

change in the raw material i.e. Olio-pine-Rosin. According to the learned  

counsel what is relevant for deciding the issue is the stage at which the  

aid of power is required and therefore, in the present case once the water  

is  lifted  and  stored  in  the  storage  tanks,  no  further  use  of  power  is  

required as the water falls on the coils by the force of gravity.  

10. The short question in issue is whether or not the process of lifting of  

water with the use of power, to the extent and for the purpose mentioned  

above, constitutes a process in or in relation to manufacture of goods, viz.  

“Rosin” and “Turpentine Oil”, with the aid of power?

11.In order to answer the question, it would be necessary to determine as to  

what activity amounts to a process in or in relation to manufacture  of  

5  1963 Supp (1) S.C.R. 586 : AIR 1963 SC 791

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goods? Clause (f) of Section 2 of the Act, as it existed at the relevant  

time, defines the word “manufacture” as follows:-   

“2(f)  “manufacture” includes any process--  

(i) incidental or ancillary to the completion of a manufactured  product;

(ii) which is specified in relation to any goods in the section or  Chapter notes of the First Schedule to the Central Excise Tariff  Act, 1985 (5 of 1986) as amounting to manufacture;”

12.It  is  manifest  that  clause  (f)  gives  an inclusive  definition  of  the  term  

“manufacture”.  According  to  the  Dictionary  meaning  the  term  

“manufacture” means a process which results in an alteration or change in  

the goods which are subjected to the process of manufacturing leading to  

the production of a commercially new article.  Therefore, manufacture is  

an  end  result  of  one  or  more  processes  through  which  the  original  

commodities are made to pass. The nature and extent of processing may  

vary  from  one  case  to  another.   There  may  be  several  stages  of  

processing,  different  kinds  of  processing  at  each  stage  and  with  each  

process suffered, original commodity experiences a change but it is only  

when a change or series of changes that takes the commodity to the point  

where  commercially  it  can  no  longer  be  regarded  as  an  original  

commodity but instead is recognized as a new and distinct article that  

“manufacture”  can  be  said  to  have  taken  place.   It  is  trite  that  in  

determining  what  constitutes  manufacture  no  hard  and  fast  rules  of  

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universal application can be devised and each case has to be decided on  

its own facts having regard to the context in which the term is used in the  

provision under consideration, but some broad parameters laid down in  

the  earlier  decisions  dealing  with  the  question  could  be  applied  to  

determine the question whether a particular process carried on in relation  

to the final product amounts to manufacture of that product.  

13. In  Delhi  Cloth  &  General  Mills  Co.  Ltd.  (supra),  a  question  arose  

whether the assessee was liable to pay Excise duty on the manufacture of  

refined oil which fell within item 23 of the First Schedule to the Central  

Excises and Salt Act, 1944, bearing the description of “vegetable non-

essential oils, all sorts, in or in relation to the manufacture of which any  

process is ordinarily carried on with the aid of power”?  Negativing the  

contention that the definition of the term “manufacture” in Section 2(f) of  

the Act included mere processing, a Constitution Bench of this Court held  

that processing was distinct from manufacture and that for a commodity  

to be excisable it must be new product known to the market as such.  It  

was held that the definition of “manufacture” as in Section 2(f) puts it  

beyond any possibility of controversy that if power is used for any of the  

numerous processes that are required to turn the raw material in a finished  

article  known  to  the  market,  the  clause  will  be  applicable;  and  an  

argument  that  power is  not  used in the whole process of  manufacture  

using the word in its ordinary sense, will not be available.  

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14. In  M/s J.K. Cotton Spinning & Weaving Mills Co. Ltd.  Vs.  Sales Tax  

Officer, Kanpur & Anr.6, it was held that 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,  the  goods  required  in  that  process  would  fall  within  the  

expression “in the manufacture of”.

15. In  Rajasthan State Chemical  Works  (supra),  on which heavy reliance  

was placed on behalf of the revenue, a bench of three learned Judges of  

this Court was considering the question whether the two assessees therein  

were  entitled  to  the  benefit  of  an  exemption  notification,  which  was  

available only to the goods “in or in relation to the manufacture of which  

no process is ordinarily carried on with the aid of power”.  In that case  

one  of  the  assessees  was  manufacturing  common  salt  and  for  its  

manufacture, brine was pumped into salt pans by using a diesel pump and  

then lifted to a platform by the aid of power.  In the second case for  

manufacturing  lime  from coke  and  limestone,  the  raw materials  were  

lifted to a platform at the head of the kiln with the aid of power.  The  

question was as to whether  lifting of salt pans to a platform by the aid of  

power and the lifting of raw material to a platform at the head of the kiln  

with the aid of power constituted process in or in relation to manufacture?  

Referring  to  earlier  decisions  of  this  Court,  including  Delhi  Cloth  &  

6 (1965) 1 S.C.R. 900 : AIR 1965 SC 1310

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General Mills Co. Ltd (supra) and M/s J.K. Cotton Spinning & Weaving  

Mills Co. Ltd. (supra) the Court observed thus:

“20. A process is a manufacturing process when it brings out a  complete  transformation  for  the  whole  components  so  as  to  produce a commercially different article or a commodity.  But,  that process itself may consist of several processes which may or  may not bring about any change at every intermediate stage.  But  the activities  or the operations may be so integrally  connected  that the final result is the production of a commercially different  article.  Therefore, any activity or operation which is the essential  requirement and is so related to the further operations for the end  result would also be a process in or in relation to manufacture to  attract the relevant clause in the exemption notification.   In our  view, the word ‘process’ in the context in which it appears in the  aforesaid notification includes an operation or activity in relation  to manufacture”.

XXXX       XXXX               XXXX                 XXXX  

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.”

16. A similar question came up for consideration of this Court in Impression  

Prints  (supra),  again  strongly  relied  upon  by  learned  counsel  for  the  

revenue.  In that case the assessee was manufacturing printed bed sheets,  

bed covers and pillow covers, and for that purpose  the colour was mixed  

with the help of colour mixing machine, which was operated with the aid  

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of power.  The question arose whether the said goods were manufactured  

with the aid of power.  While holding that the activity of printing and  

colouring being integrally connected to the manufacture of printed bed  

sheets, bed covers etc., the manufacture of these goods was with the aid  

of power, the Court culled out the following parameters from the earlier  

pronouncements,  which could be  applied for  determining the  question  

whether  a particular  process carried on in respect  of the final  product  

amounts to manufacture of that product: (i) the term “manufacture” in  

Section 2(f) of the Act includes any process incidental or ancillary to the  

completion of a manufactured product; (ii) if power is used for any of the  

numerous processes  that are required to turn the raw material into the  

finished articles then the “manufacture” will be with the use of power;  

(iii) if power is used at any stage then the argument that power is not used  

in the whole process of manufacture, using the word in its ordinary sense,  

will  not  be  available;  (iv)  the  expression  “in  the  manufacture”  would  

normally  encompass  the  entire  process  carried  on  for  converting  raw  

material into goods; (v) if a process  or activity is so integrally connected  

to the ultimate production of goods that but for that process, manufacture  

or processing  of goods  is impossible or commercially inexpedient  then  

the goods required in that process would be covered by the expression  

“in  the  manufacture  of”;  (vi)  it  was  not  necessary  that  the  word  

“manufacture”  would  only  refer  to  the  stage  at  which  ingredients   or  

commodities are used in the actual manufacture of the final product and  

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(vii)  the  word  “manufacture”  does  not  refer  only  to  the  using  of  

ingredients  which are directly and actually needed for making the goods.  

17.Having considered the present case on the touchstone  of the aforenoted  

parameters, we are of the opinion that the activity of the assessee in first  

lifting the water for filling up of the storage tank at the ground level and  

then lifting it further to the overhead water storage tanks with the aid of  

electric motors are so integrally connected to the ultimate manufacture of  

“Turpentine Oil” and “Rosin” that but for the said activity the processing  

of Oleo-pine Rosin for manufacture of Turpentine Oil and Rosin would  

not be possible.  It is common ground that without sprinkling of water on  

the coils carrying the vapours of Turpentine Oil, condensation - a crucial  

component of distillation which brings about the change of the physical  

state of matter from gaseous phase into liquid phase, is not possible. In  

other words without the process of condensation, Turpentine Oil, the final  

product,  cannot  be  obtained.  Similarly,  without  lifting  water  from the  

storage tanks at the ground level with the aid of electric motor to a higher  

level,  the  water  cannot  fall  on  the  cooling  coils  with  its  gravitational  

force.  In this fact situation, we hold that the operation of lifting of the  

water from the well to the higher levels, is so integrally connected with  

the  manufacture  of  “Turpentine  Oil”  and  “Rosin”,  that  without  this  

activity it is impossible to manufacture the said goods and therefore, the  

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processing of the said raw material in or in relation to manufacture of the  

said final goods is carried on with the aid of power.   

18. We may now examine the ancillary question as to whether the Tribunal  

was correct in law in accepting the plea of the assessee that they could  

not be denied the benefit  of the clarification issued by the Board vide  

their letter dated 10th/16th January, 1978, despite the decision of this Court  

in Rajasthan State Chemical Works (supra).  We are of the view that the  

decisions  of the Tribunal on this aspect are clearly fallacious for more  

than one reason.  Firstly, the Tribunal has failed to notice and consider  

the effect and implication of Circular No. 38/38/94-CX dated 27th May,  

1994, issued by the Central Board of Excise and Customs, withdrawing  

all instructions/guidelines/tariff advices issued in respect of the erstwhile  

First  Schedule  to  the  Central  Excises  and  Salt  Act,  1944,  which,  

obviously  included  the  1978  clarification.   Secondly,  and  more  

importantly, it has also erred in not appreciating the ratio decidendi of the  

decision in  Rajasthan State Chemical Works  (supra).  It is well settled  

proposition of law that a decision is an authority for what it actually and  

explicitly  decides and not for what logically flows from it, the precise  

exercise  the Tribunal undertook in the instant case for distinguishing  the  

said decision, by observing  thus :

“We observe that the Supreme Court in that case deals with the  use  of  power  while  handling  the  raw  material  prior  to  the  commencement of process of production.  It is nobody’s case in  

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the  present  application  that  the  water  that  is  pumped to  the  overhead  tank  is  a  raw material  used  in  the  manufacture  of  “Rosin”.”

In  Rajasthan  State  Chemical  Works  (supra),  the  question  of  law  for  

determination was  as  to  what  kind of  “process”  carried  on  in  respect  of  

particular goods constituted “process” in or in relation to “manufacture” for  

the purposes of and within the meaning of Section 2(f) of the Act.  It was  

held that any activity or operation, which is an essential requirement and is  

so integrally connected with further operations for production of ultimate  

goods that  but   for that  process  the  manufacture  of  the  final  product   is  

impossible, would be a process in or in relation to manufacture.  In fact, it is  

manifest  from  the  afore-extracted  paragraph  of  the  judgment  that  the  

contention of the assessee that since the stage at which the power is used  

does not bring about any change in the raw material, it cannot be said that  

such process is carried on with the aid of power, was specifically rejected.  

Therefore,  the observations of the Tribunal,  extracted above, to the effect  

that since it is nobody’s case that water that is pumped upto the overhead  

tank is  a  raw material  used in  the  manufacture  of  “Rosin”,  are  not  only  

misplaced, in our opinion, these are irrelevant for deciding  the issue at hand.

19. In that view of the matter, when the law on the question at issue before  

the Tribunal had already been declared by this Court, the Tribunal should  

not  have  based its  decisions  on  the  clarification  issued  by the  Board,  

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which otherwise stood rescinded, on the specious ground that the said  

clarification  issued  by  the  Board  was  binding  on  the  Deputy  

Commissioner as also on the Commissioner (Appeals).  It is well settled  

proposition of law that Circulars and instructions issued by the Central  

Board  of  Excise  and  Customs  are   no  doubt  binding  in  law  on  the  

authorities under the respective Statutes but when this Court or the High  

Court declares  the law on the question arising for consideration, it would  

not be appropriate for the Courts or the Tribunal, as the case may be, to  

direct that the Board’s Circular should be given effect to and not the view  

expressed  in  a  decision  of  this  Court  or  a  High  Court.  [(See:  Ratan  

Melting & Wire Industries (supra)].  

20.In the final analysis, in light of the foregoing discussion, the decisions of  

the  Tribunal,  impugned  in  these  appeals,  cannot  be  sustained.  

Resultantly,  all  the  appeals  are  allowed  and  the  orders  passed  by  the  

Tribunal are set aside, leaving the parties to bear their own costs.

……………………………..          (D.K. JAIN, J.)

                              ……………………………..           (H.L. DATTU, J.)

NEW DELHI; JULY 11, 2011.

ARS

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