Irrelevant row over manufacturing

EXPERT EYE

The concept of "continuous and integrated process" of manufacture of goods in the context of excisability of such goods is irrelevant.

Unfortunately, confusion is being created repeatedly by referring to it in judgments regarding excisability of intermediate goods. The latest one is the Delhi High Court order in the Deccan Fibre Glass Ltd vs Union of India case, 2006 (193) ELT 261 (Del).

A continuous and integrated process of manufacture means that a raw material goes through several processes in machines, one after the other and finally it comes out as a manufactured product fit for marketing.

But while in the process of manufacture they undergo certain identities, which chemically or physically can be given some names, which tally with the tariff descriptions, they are not marketable and, therefore, are not excisable goods.

The issue is about intermediate products, which go through these so-called "continuous and integrated process".

In this Deccan Fibre Glass Ltd case, raw materials comprising clay, limestone, boric acid and some other ingredients are melted in an electrical furnace to form glass.

The molten glass is refined and drawn through platinum bushings when continuous filaments are obtained. After some continuous process, these strands are wound on to the drum as a package or "cake" and are the basic material from which all forms of fibreglass reinforcements are produced.

This process was a "continuous and integrated process" and the intermediate goods namely the glass fibre filament were not marketable and were not goods, held the Delhi High Court.

The Delhi High Court judgment that the goods are not excisable are based on two premises, one, that the goods have been manufactured in the "continuous and integrated process" and second that they are not marketable goods.

The conceptual mistake in this judgment (which is a common misconception) is that to prove that certain goods are not excisable only the second premise that the goods are not marketable is enough.

The first premise that the goods have been manufactured in a "continuous and integrated process" is superfluous. The fact is that even when certain goods are manufactured through a continuous and integrated process, they can be marketable.

Technologically, it is not a must that whenever goods are produced in a continuous and integrated process they must be necessarily unmarketable goods.

The high court has relied upon three judgments here, where the goods are not marketable. But there are other judgments where the subject goods were manufactured in a continuous process, but in between the products were marketable and, therefore, they were excisable.

In the Hindustan Petroleum Corporation vs Commissioner of Central Excise case, 1994 (16) ELT 339 (T), the product called emulsifier T (processed out of fatty acids and polyglycols) was claimed by the company as an intermediate product coming into existence in the course of a continuous and integral process of manufacture. The tribunal accepted that it was through such a process of production but held that since it was marketable, it was excisable.

In a landmark judgment in the JK Spinning and Weaving Mills Ltd vs Union of India case, 1987 (32) ELT 234 (SC), the Supreme Court held that after the amendment of Rules 9 and 49 of Central Excise Rules, 1944, by notification No 20/82/CE, the concept of manufacturing through continuous and integrated process was no longer relevant.

"We have held that the commodity, which is obtained at an intermediate stage of an integrated process of manufacture of another commodity, is liable to the payment of excise duty," the apex court said.

This judgment precludes all discussions about manufacture by the "continuous and integrated process". What is relevant is whether the product, intermediate or final is marketable. That is the only consideration and not whether the process of production is continuous. In the interest of clear thinking, this should be understood.

The author is a former member of the Central Board of Excise & Customs smukher2000@yahoo.com