22 May 2015

Manufacture & excise – Supreme Court lays down guidelines

Supreme Court of India has recently delivered three important judgments relating to the question as to whether the process followed by the assessee amounts to ‘manufacture’ for the purpose of imposition of Central Excise duty, which is levied in India on manufactured goods.


No ‘manufacture’ in sterilization of syringes and needles

In the most recent judgement delivered on 7-5-2015, the Indian Apex Court has held that sterilization of syringes and needles does not amount to manufacture. The Court in this regard also laid down guidelines and held that where the goods remain exactly or essentially same even after a particular process, the process would not fall under the category of ‘manufacture’. According to the Court, only when the goods are transformed into goods which are different and/or new after a particular process and such new product is marketable as such, then the process would be covered under ‘manufacture’.

The Court in this case is of the view that process of sterilisation does not mean that such articles are not complete articles in themselves or that the process of sterilisation produces a transformation in the original articles leading to new articles known in the market as such. The judgment notes that disposable syringes and needles are finished products themselves and that sterilization does not lead to any value addition in the said product.


Mixing of raw rice with dehydrated vegetables for retail sale is not manufacture

Mere addition of dehydrated vegetables and certain spices to the raw rice, would not make it a different product. The Supreme Court of India in this dispute decided on 18-3-2015, observed that primary and essential character of rice remained the same as it continued to be known in the market as rice and sold as rice only. It was also noted that the product was to be cooked in the same form as any other rice, and hence there was no manufacture.

Further, the product was found to be classifiable under Heading 11.01 of the Central Excise Tariff, as product of the milling industry, attracting nil rate of duty. The assessee had procured raw rice, dehydrated vegetables and spices and mixed them to arrive at different flavours.


No ‘manufacture’ when only washing, dyeing, bleaching, drying, etc., done

The Supreme Court has also held that processes of washing, dyeing, bleaching, hydro-extraction, tumble dyeing and drying of grey fabric in running length would not be covered under Section Note 5(f) [now 7(g)] or 5(b) [now 7(b)] of Section XI of Central Excise Tariff.

The Court in its order dated 13-4-2015 noted that no new item came into existence after the said processes by the job worker and that it was only after these goods were sent to another job worker for cutting, sewing and hamming that a new product came into existence.


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