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Friday, May 8, 2015

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. = the cryptic judgment dated 18.6.2004 has not applied the law correctly


                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                         CIVIL APPEAL NO.583 OF 2005

      PVT. LTD.                                         …APPELLANT


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

      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  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  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

      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 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 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

      11.   Another example of when transformation does not  take  place  is
      when foreign matter is removed from an article or 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 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  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 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 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  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:

           “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 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

           “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 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

      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
      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:

           “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’.”

           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.

           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.”

      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  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.


      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
           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.

      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.”

           In the Oxford Dictionary of Nursing, ‘sterilization’ is  defined

           “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 sense[1].  If a  surgical  instrument  is  being
      used five times a day, it cannot be said that the same instrument  has
      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

           “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.  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  18.6.2004
      has not applied the law correctly.  The  appeal  is  allowed  and  the
      impugned judgment is hereby set aside.

                                        (A.K. Sikri)

                                        (R.F. Nariman)
      New Delhi;
      May 7, 2015

           [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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