Exemptions for not using power in manufacturing operations always creates problems of interpretation. Judging by the number if judgments and even Supreme Court judgments on the subject, it must be regarded as one of the most complicated subjects. The idea of charging lower duty for hand made goods is to encourage labour intensive activities where generation of employment is an important consideration. Examples are manufacture of biri, cheap shoes, chappals, soap, fireworks etc. However somewhere or other such activities use power such as for lighting the working place or pump water for mixing in the raw material etc. Sometimes in packing biri power is used for sealing the plastic bag. So controversies are galore on an apparently simple issue. And even the latest Supreme Court judgment on the issue in the case of CCE v Gurukripa Resins P Ltd, 2011 (270) ELT 3 (SC), has not settled the issue. Basically the decision is that if it is a fundamental operation, then it should be taken as a part of manufacturing process. It has left to decision to be left in each case.
In this case water was pumped on the overhead tank with power. Then it was allowed to fall by gravity on the product, namely coils containing turpentine vapours for cooling. The manufacturer argued that pumping water was not the essential operation but sprinkling the water on the coils . That part was done just be gravitation as the water was allowed to fall on its own. His point was that pumping water is not an integral part of manufacture. But the Supreme Court held that it was. It relied on the judgment of the same court in another case where colour mixing was done by colour mixing machine. But using machine for colour mixing is quite different from just pumping of water to the tank. In any case the Supreme Court has held that the use of water being integral part of manufacture, even pumping of water to the tank is to be taken as use of power in the manufacture. The Supreme Court has however said that it must be decided in each case. It comes to this that in each case which process is incidental or fundamental will continue to be debated before the judicial for a till it reaches finality at the doors of the Supreme Court.
The case laws are not unanimous because it is very difficult to distinguish between fundamental and incidental processes. In the case of Metroes Corporation Ltd vs CCE 1987 (31) ELT 1004 (T), after the manufacturing process of mica was completed, the factory used table lamp to sort out mica grade wise. The Tribunal held that since the manufacture was over, the use of light to sort and grade was not to be taken as use of power for manufacture. In Jain Soap Mills vs UOI 1979 (4) ELT J 14777, Delhi High Court has held that the exemption could be allowed if power was used in making the soap stock, as it was an anterior process. The Court observed that if the opposite view was taken then nobody can get the exemption as even water could be got only by pumping.
The idea that emerges from all the judgments is that processes directly related to manufacture only need to be done without using power and not the anterior or posterior or ancillary or incidental operations, far less if they are related to sales. such as packing. But packing in some cases is a part of manufacture.
Controversies relate to sundry issues such as the following,
a. Power used in any of the basic processes of manufacture
b. Use of power is ancillary or incidental processes
c. What if some processes are done outside
d. Raw material handling with power
e. Use of power in bought out items
Such controversies will never be over. Poor small-scale manufacturers will run from adjudication to appeal to tribunal to courts, in spite of all the clarifications by the Board. This issue is a lawyers' paradise and will continue to be so until the exemptions based on the use of power or machine are abolished. With coming GST, they should be immediately abolished, latest by the next Budget.
