M/S. GRASIM INDUSTRIES LTD.versusUNION OF INDIA

                     [2011] 12 S.C.R. 1013

               MIS. GRASIM INDUSTRIES LTD.                           A
                                v.
                       UNION OF INDIA
               (Civll Appeal No. 7453 of 2008)
                     OCTOBER 13, 2011
                                                                     B
 [H.L. DATTU AND CHANDRAMAULI KR. PRASAD, JJ.]

     Central Excise Act, 1944:

     s.2(f) - Repair and maintenance work of mact;iihery used        c
in manufacturing the end product - Metal scrap and waste
arising out-of such repair and mairltenanc.e work- Held: Such
repair and maintenance work would not amount to
manufactwing activity in relation to production of end product
- Therefore, scrap and waste cannot be said to be a by-              c
product of end product - No excise duty payable on
generation of such scrap and waste.

     ss. 2(f), 3 - Excisability of goods - Held: The goods have
to satisfy the test of being produced or manufactured in India
- Simply because a particular item is mentioned in the First         E
Schedule, it cannot become exigible to excise duty - The
charging section s.3 of the Act comes into play only when the
goods are excisable goods u/s.2(d) of the Act falling under
any of the tariff entry in tire Schedule to the Tariff Act and are
manufactured goods in terms of s.2(f) of the Act - Therefore,        F
the conditions contemplated u/s.2(d) and s.2(f) have to be
satisfied conjunctively in order to entail imposition of excise
duty uls.3 of the Act - Central Excise Tariff Act, 1985.

      s.2(f) - Manufacture - Held: Process of manufacture in         G
 terms of s. 2(f) includes any process incidental or ancillary to
 the completion of the manufactured product - The process
·in manufacture must have the effect of bringing change or
 transformation in the raw material and this should also lead
                              1013                                   H
   1014     SUPREME COURT REPORTS              [2011] 12 S.C.R.


A to creation of any new or distinct and excisable product.
        INTERPRETATION OF STATUTES: Excise tariff -
  Section Note - Held: Has very limited purpose of extending
  coverage to particular items to the relevant tariff entry in the
  Schedule for determining the applicable rate of duty and it
8
  cannot be readily construed to have any deeming effect in
  relation to the process of manufacture as contemplated by
  s. 2(f) of the Central Excise Act, 1944, unless expressly
  mentioned in the said Section Note - Central Excise Tariff
C Act, 1985.
        The assessee was the manufacturer of white cement.
   It undertook repair work on worn out machineries of the
   cement manufacturing plant at its workshop. During the
   process of repair work various types of metal scrap and
D waste were generated. The assessee cleared such metal
   scrap and waste without payment of excise duty for the
   period from 1.10.1995 to 16.07.1999. A show cause notice
   dated 05.10.2000 was issued to the assessee demanding
   a duty of Rs.10,81,7361· under Section 11A of the Central
E Excise Act, 1944 along with equal amount of penalty
   under Section 11 AC of the Act and further penalty under
   Rule 173 Q of the Central Excise Rules, 1944 for non·
   payment of excise duty on clearance of said metal scrap
  and waste. The adjudicating auttiority confirmed the duty
F .demanded and penalty imposed. The appellate authority
  set aside the demand of duty to the extent of Rs. 6,05,9551
   • and also set aside the demand of penalty under Rule
  173 Q(1 )(a) of the Central Excise Rules. The demand of
  duty and equal amount of penalty of Rs.4,75,781 under
G Section 11AC on metal scrap and waste generated
  during course of repair and maintenance of the
  machinery or parts of the plant was upheld on the ground
  that such metal scrap and waste was generated during
  mechanical working of metal in the workshop, as
H contemplated by the definition of the waste and scrap
    GRASIM JNDUSTRIES LTD. v. UNION OF INDIA           1015


 under Section Note 8(a) of Section XV of the Central          A
 Excise Tariff Act, 1985. The Tribunal allowed the appeal
of the assessee and set aside the demand of duty and
penalty confirmed by the said portion of the order of the
~ppellate authority on the ground that metal scrap and
waste cleared by the assessee did not arise out of any         B
manufacturing activity and, therefore, no excise duty was
payable. The High Court set aside the order of the
Tribunal and restored the order of the appellate authority
on the ground that the generation of scrap amounted to
manufacture as it was incidental or ancillary to the           c
manufacture of spare or replaceable part; the spare or
replaceable part came into existence as distinct product
during the repairing of the parts of the cement plant; also,
the generation of scrap need not be in the process of
manufacture of the excisable end product such as
                                                               0
cement. The instant appeal was filed challenging the
order of the High Court.

    Allowing the appeal, the Court

     HELD: 1. In the instant case, the assessee undertook E
repair and maintenance work of his worn out old
machinery or parts of the cement manufacturing plant for
the period between 1995 to 1999. The assessee repaired
machinery or capital goods such ·as damaged roller, .
shafts and coupling by using welding electrodes, mild F
steel, cutting tools, M.S. Angles, M.S. Channels, M.S.
Beams etc. In this process of repair and maintenance,
M.S. 5_c;rap and Iron Scrap were generated in the
workshop. It was not in dispute that these M.S. Scrap and
Iron Scrap were excisable goods under Section 2(d) of G
the Central Excise Act falling under the Chapter heading
72.04 in the Schedule to the Tariff Act read with Note 8
(a) to Section XV of the Tariff Act as 'metal scrap and
waste'. Section Note has very limited purpose of
extending coverage to the particular items to the relevant H
    1016    SUPREME COURT REPORTS           [2011] 12 S.C.R.


A tariff entry in the Schedule for determining the applicable
  rate of duty and it cannot be readily construed to have
  any deeming effect in relation to the process of
  manufacture as contemplated by Section 2(f) of the Act,
  unless expressly mentioned in the said Section Note.
B [Para 7] (1023-H; 1024-A-D]

        Shyam Oil Cake Ltd. v. CCE (2005) 1 SCC 264: 2004
    (6) Suppl. SCR 346 - relied on.

       2.1. The goods have to satisfy the test of being
C produced or manufactured in India. It is settled law that
  excise duty is a duty levied on manufacture of goods.
  Unless goods are manufactured in India, they cannot be
  subjected to payment of excise duty. Simply because a
  particular item is mentioned in the First Schedule, it
D cannot become exigible to excise duty. Therefore, both
  on authority and on principle, for being excisable to
  excise duty, goods must satisfy the test of being
  produced or manufactured in India. The charging Section
  3 of the Act comes into play only when the goods are
E excisable goods under Section 2(d) of the Act falling
  under any of the tariff entry in the Schedule to the Tariff
  Act and are manufactured goods in the terms of Section
  2(f) of the Act. Therefore, the conditions contemplated
  under Section 2(d) and Section 2(f) has to be satisfied
F conjunctively in order to entail imposition of excise duty
  under Section 3 of the Act. The manufacture in terms of
  Section 2(f) includes any process incidental or ancillary
  to the completion of the manufactured product. This 'any
  process' can be a process in manufacture or process in
G relation to manufacture of the end product, which
  involves bringing some kind of change to the raw
  material at various stages by different operations. The
  process in manufacture must have the effect of bringing
  change or transformation in the raw material and this
H
   GRASIM INDUSTRIES LTD. v. UNION OF INDIA              1017


should also lead to creation of any new or distinc;t and A
excisable product. The process in relation to manufacture
means a process which is so integrally connected to the
manufacturing of the end product without which, the
manufacture of the end product would be impossible or
commercially inexpedient. [Para 8] [1025-G-H; 1026-A-E] B

     Hyderabad Industries Ltd. v. Union of India (1995) 5 SC
338; MotiLaminates (P) Ltd. v. CCE (1995) 3 SCC 23: 1995
( 2 ) SCR 81; CCE v. Wimco Ltd. (2007) 8 SCC 412: 2007 ·
(10 ) SCR 560; Tungabhadralndustries v. CTO AIR 1961 SC
412: 1961 SCR 14; Union of India v. Delhi Cloth and General C
Mills Co. Ltd. AIR 1963 SC 791: 1963 Suppl. SCR 586;
South Bihar Sugar Mills Ltd. v. Union of India AIR 1968 SC
922:1968 SCR 2"'1; Ujagar Prints (II) v. Union of. India (1989)
3 SCC 488: 1988 (3) Suppl. SCR 770; Hindustan Polymers
v. CCE (1989) 4 sec 323: 1989 (3) SC'R 974; CCE v. D
Rajasthan State Chemical Works (1991) 4 SCC 473: 1991
(1) Suppl. SCR 124; Union of India v. Ahmedabad Electricity
co. Ltd. (2003) 11 sec 129 :2003 (4) Suppl. SCR 1111;
Commissi01~er     of Central Excise,            Chennai II
Commissionerate v. Tarpaulin International (2010) 9 SCC E
103: 2010 (9) SCR 620 - Relied on.

     2.2. In the instant case, it is clear that the process of
repair and maintenance of the machinery of the cement
manufacturing plant, in which M.S. scrap and Iron scrap          F
arise, has no contribution or effect on the process of
manufacturing of the cement, which is the excisable end
product, since welding electrodes, mild steel, cutting
tools, M.S. Angles, M.S. Channels, M.S. Beams etc. which
are used in the process of repair and maintenance are not        G
raw material used in the process of manufacturing of the
cement, which is the end product. The repairing activity
in any possible manner cannot be called as a part of
manufacturing activity in relation to production of end
product. Therefore, the M.S. scrap and Iron scrap cannot         H
    1018    SUPREME COURT REPORTS             [2011) 12 S.C.R.


A be said to be a by-product of the final product. At the best,
  it is the by-product of the repairing process which uses
  welding electrodes, mild steel, cutting tools, M.S. Angles,
  M.S. Channels, M.S. Beams etc. The metal scrap and
  waste arising out of the repair and maintenance work of
B the machinery used in manufacturing of cement, by no
  stretch of imagination, can be treated as a subsidiary
  product to the cement which is the main product. The
  metal scrap and waste arise only when the assessee
  undertakes repairing and maintenance work of the capital
c goods and, therefore, do not arise regularly and
  continuously in the course of a manufacturing business
  of cement. In view of that the order of the High Court is
  not sustained. The order of the Tribunal is restored. [Paras
  14-16) (1031-F-H; 1032-A-E-H]
D       CST v. Bharat Petroleum Corpn. Ltd. (1992) 2 SCC 579:
    1992 (1) SCR 807 - Distinguished.

      Budhewala Co-op. Sugai Mills Ltd. vs. CCE,
  Chandigarh-/ 2002 (141) ELT 490 (Tri. Delhi); CCE v. Bir/a
E Corpn. Ltd. 2005 (181) ELT 263; Union of India v. Delhi Cloth
  and General Mills Co. Ltd. AIR 1963 SC 791: 1963 Suppl.
  SCR 586 - Referred to.
                        Case Law Reference:

F       (141) ELT 490 (Tri. Delhi)   Referred to      Para 3
        2005 (181) ELT 263           Referred to      Para 3
        1963 Suppl. SCR 586          Referred to      Para 3
        1992 (1) SCR 807             Distinguished    Para 6
G
        2004 (6) Suppl. SCR 346      Relied on        Para 7
        (1995) 5 SC 338              Relied on        Para 8
        1995 (2) SCR 81              Relied on        Para 8
H
   GRASIM INDUSTRIES LTD. v. UNION OF INDIA             1019


    2007 (10) SCR 560             Relied on         Para 8       A
    1961 SCR 14                   Relied on         Para 8
    1963 Suppl. SCR 586           Relied on         Para 8
    1968 SCR 21                   Relied on         Para 8
                                                                 B
    1988 (3) Suppl. SCR 770       Relied on         Para 9
    1989 (3) SCR 974              Relied on         Para 10
    991 (1) Suppl. SCR 124        Relied on         Para 11
    2003 (4) Suppl. SCR 1117 Relied on              Para 12
                                                                 c
    2010 (9) SCR 620              Relied on         Para 13

    CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7453 of 2008.                                                    D
    From the Judgment and Order dated 31.07.2008 of the
High Court of Rajasthan, Jodhpur in Central Excise Appeal No.
60 of 2006.

    B. Bhattacharya, ASG, Ajay Singh, Judy James, Nimisha        E
Swarup, Rashmi Malhotra, B.K. Prasad and Anil Katiyar for the
Appellant.

   Alok Yadav, Krishna Menon and M.P. Devanath for the
Respondent.
                                                                 F
    The Judgment of the Court was delivered by

     H.L. DATIU, J. 1. This appeal is directed against the
Judgment and Order dated 31.07.2008 of the High Court of
Judicature of Rajasthan in Central Excise Appeal No. 60/2006.    G
By the impugned Order, the High Court has set aside the Order
dated 09.08.2005 of the Customs, Excise and Service Tax
Appellate Tribunal [hereinafter referred to as "the Tribunal"]
whereby the Tribunal had dropped the entire duty demand and
penalty imposed on the assessee.                                 H
    1020     SUPREME COURT REPORTS               [2011] 12 S.C.R.


A        2. The issue before us is: Whether the metal scrap or
    waste generated whilst repairing of worn out machineries or
    parts of cement manufacturing plant amounts to manufacture,
    and thereby, is excisable to excise duty.

          3. The assessee is the manufacturer of the white cement.
8   The assessee repairs worn out machineries or parts of the
   cement manufacturing plant at its workshop such as damaged
    roller, shafts and coupling with the help of welding electrodes,
    mild steel, cutting tools, M.S. Angles, M.S. Channels, M.S.
    Beams, etc. In this process of repair certain metal scrap or
C waste is generated. In a surprise inspection conducted by the
   officials of the Central Range-II, Jodhpur, it was found that the
   assessee has cleared various types of metal scrap and waste
   without the payment of the excise duty for the period from
    1.10.1995 to 16.07.1999. A show cause notice dated
D 05.10.2000 was issued to the assessee demanding a duty of
   Rs. 10,81,736/- under Section 11A of the Cen!ral Excise Act,
   1944 [hereinafter referred to as "the Act"] along with equal
   amount of penalty under Section 11AC of the Act and further
   penalty under Rule 173 Q of the Central Excise Rules, 1944
E [hereinafter referred to as "the Rules"] for non-payment of
   excise duty on clearance of said metal scrap and waste. On
   the request of the assessee on two occasions, the revenue has
   granted extension of time, first up to 31.12.2000 which was
   further extended till 22.01.2001, in order to reply to the said
F show cause notice. Thereafter, the assessee further made a
   request for some more time to file reply vide letter dated
  20.01.2001, the same was rejected whilst confirming the duty
  demanded and penalty proposed in the show cause notice vide
  Order dated 08.02.2001 of the Additional Commissioner. The
G assessee filed appeal before the Commissioner (Appeals),
  Jaipur. The Commissioner (Appeals) vide its Order dated
  30.04.2004, set aside the demand of duty along with equal
  amount of penalty pertaining to scrap and waste arising out of
  the dismantling of used capital goods and the packing materials
H to the extent of Rs. 6,05,955/-. The Commissioner (Appeals)
   GRASIM INDUSTRIES LTD. v. UNION OF INDIA                 1021
               [H.L. DATIU, J.]

also set aside the demand of penalty under Rule 173Q(1)(a)           A
of the Rules, whilst, upholding the demand of duty and equal
amount of penalty of Rs. 4,75,78f under Section 11AC of the
Act on metal scrap and waste generated during course of repair
and maintenance of the machinery or pcirts of the plant on the
ground that such metal scrap and waste has been generated            B
during mechanical working of metal in the workshop, as
contemplated by the definition of the waste and scrap under
Section Note 8(a) of Section XV of the Central Excise Tariff Act,
1985 [hereinafter referred to as "the Tariff Act"] and, in view of
the decision of the Tribunal in Budhewala Co-op. Sugar Mills         c
Ltd. vs. CC~, Chandigarh-I, 2002 (141) ELT 490 (Tri. Delhi).
Being aggrieved by the portion of the Order of the
Commissioner (Appeals), pertaining to confirmation of demand
of duty along with equal amount of penalty of Rs. 4,75,781 on
the metal scrap and waste generated during repair of                 D
machinery, the assessee preferred an appeal before the
Tribunal. The Tribunal, vide its Order dated 09.08.2005, allowed
the appeal and set aside the demand of duty and penalty
confirmed by the said portion of the Order of the Commissioner
(Appeals) on the ground that metal scrap and waste cleared
                                                                     E
by the assessee does not arise out of any manufacturing
activity and, thereby, not excisable to any excise duty in view
of the decision of the Tribunal in CCE v. Bir/a Corpn. Ltd., 2005
(181) ELT 263. The Revenue, aggrieved by this Order, filed an
appeal under Section 35G of the Act before the High Court of
Rajasthan. The High Court, vide its Judgment and Order dated         F
31.07.2008, allowed the appeal, set aside the Order of the
Tribunal and restored the Order of the Commissioner (Appeals)
on the ground that the generation of scrap amounts to
manufacture as it is incidental or ancillary to the manufacture
of spare or replaceable part. The spare or replaceable part          G
comes into existence as distinct product during the repairing
of the parts of the cement plant. Also, the generation of scrap
need not be in the process of manufacture of the excisable end
product such as cement. Being aggrieved, the assessee has
filed this appeal under Section 35L of the Act against the           H
     1022     SUPREME COURT REPORTS                [2011] 12 S.C.R.

A judgment and order of the High Court.

       4. Shri. Alok Yadav, learned counsel has appeared for the
  assessee and the Revenue is represented by Shri. B.
  Bhattacharyya, learne9 Additional Solicitor of India. We will refer
8 to their submissions while dealing with the issue canvassed
  before us.

         5. Learned counsel Shri. Alok Yadav submits that the
   Revenue has wrongly relied on the definition of the metal waste
   and scrap under Note 8 (a) to Section XV of the Tariff Act which
C states- 'Metal waste and scrap from the manufacture or metal
   waste and scrap from mechanical working of me1af in order
   to establish that metal scrap and waste arising out of the
   repairing and maintenance of the various machinery or parts
   of the cement manufacturing plant amounts to manufacture of
D such scrap and waste. He submits that nowhere the definition
   of waste and scrap in the said Note deems it to be
   manufacturing process. In other words, the definition of 'waste
   and scrap' only gives coverage of the entry 'waste and scrap'
   under Chapter 72.04 of the Schedule to the Tariff Act and does
E not ipso facto lead to a conclusion that waste and scrap arising
   by the mechanical working of metal amounts to a process of
   manufacture in terms of Section 2(f) of the Act in order to attract
  the charging Section. He further submits that unless the
   particular excisable product falling under the particular tariff
F entry is manufactured in the sense of Section 2 (f) of the Act, it
  does not entail or attract the operation of the charging Section
  under Section 3 of the Act. Learned counsel refers to the
  wordings of the definition of the .manufacture under Section 2(f)
  of the Act and relies on the decision of this Court in Union of
G India v. Delhi Cloth and General Mills Co. Ltd., AIR 1963 SC
  791 in support of his submission that the High Court, vide its
  impugned judgment, has grossly erred in observing that any
  incidental or ancillary process to the completion of any
  manufactured product, which itself need not be end product or
H excisable goods, would amount to manufacture and is
   GRASIM INDUSTRIES LTD. v. UNION OF INDIA                  1023
               [H.L. DATTU, J.]

excisable. In other words, $Uch observation of the High Court         A
creates very anomalous situation by conferring the status of
manufacture on every process incidental and ancillary to any
manufactured product which itself need not be excisable
manufactured erid product. Learned counsel submits, by placing
reliance on several decisions of this Court in order to buttress      B
his contention, that the excise duty mentioned under the tariff
entry for the excisable goods cannot be levied in terms of
charging Section 3 unless such excisable goods or items are
produced and manufactured. In other words, the event of levying
of excise duty under the charging Section 3 is the manufacture        C
of the excisable goods. Learned counsel concludes that the
manufacture of the excisable goods in terms of Section 2 (f) is
the prerequisite to levy excise duty.

     6. Per Contra, Shri. B. Bhattacharyya, learned ASG,
submits that the metal scrap and waste are indisputably               D
excisable goods under Section 2(d) of the Act falling under the
Chapter heading 72.04 read with Note 8 (a) to the Section XV
of the Tariff Act. He further submits that metal scrap and waste
as excisable goods are generated during the repair and
replacement of the old machinery or parts of the cement               E
manufacturing plant, which is incidental and ancillary to the
manufactured product, that is, cement. In other words the
process of generation of scrap and waste amount to the
manufacture in terms of Section 2(f) of the Act. In support of
his contention, learned ASG has relied on the decision of this        F
Court in CST v. Bharat Petroleum Corpn. Ltd., (1992) 2 SCC
579. He further submits that once the conditions or requirements
of excisable goods and manufacture as envisaged by Section
2(d) and Section 2(f), respectively, of the Act are satisfied, then
only, such metal scrap and waste would attract the levy of excise     G
duty under the charging Section 3 of the Act. Shri. B.
Bhattacharyya has cited several decisions of this Court in
support of his submission.

     7. We have heard the learned counsel for the parties. In
                                                                      H
    1024    SUPREME COURT REPORTS                [2011] 12 S.C.R.


A the present case, the assessee had undertook repair and
  maintenance work of his worn out old machinery or parts of the
  cement manufacturing plant for the period between 1995 to
  1999. The assessee repaired machinery or capital goods such
  as damaged roller, shafts and coupling by using welding
8 electrodes, mild steel, cutting tools, M.S. Angles, M.S. Channels,
  M.S. Beams etc. In this process of repair and maintenance,
  M.S .. Scrap and Iron Scrap were generated in the workshop. It
  is notin dispute that these M.S. Scrap and Iron Scrap are
  excisable goods under Section 2(d) of the Act falling under the
C Chapter heading 72.04 in the Schedule to the Tariff Act read
  with Note 8 (a) to Section XV of the Tariff Act as 'metal scrap .
  and waste'. We are of the opinion that Section Note has very
  limited purpose of extending coverage to the particular items
  to the relevant tariff entry in the Schedule for determining the
  applicable rate of duty and it cannot be readily construed to
0 have any deeming effect in relation to the process of
  manufacture as contemplated by Section 2(f) of the Act, unless
  expressly mentioned in the said Section Note. In Shyam Oil
  Cake Ltd. v. CCE, (2005) 1 SCC 264, this Court has held:

E             "16. Thus, the amended definition enlarges the
        scope of manufacture by roping in processes which may
        or may not strictly amount to manufacture provided those
        processes are specified in the section or chapter notes
        of the tariff schedule as amounting to manufacture. It is
F       clear that the legislature realised that it was not possible
        to put in an exhaustive list of various processes but that
        some methodology was required for declaring that a
        particular process amounted to manufacture. The language
        of the amended Section 2(f) indicates that what is
G       required is not just specification of the goods but a
        specification of the process and a declaration that the
        same amounts to manufacture. Of course, the specification
        must be in relation to any goods.


H
   GRASIM INDUSTRIES LTD. v. UNION OF INDIA                  1025
               [H.L. DATTU, J.]

    23. We are in agreement with the submission that under            A
    the amended definition, which is an inclusive definition, it
    is not necessary that only in the section or chapter note it
    must be specified that a particular process amounts to
    manufacture. It may be open to so specify even in the tariff
    item. However, either in the section or chapter note or in        B
    the tariff entry it must be specified that the process
    amounts to manufacture. Merely setting out a process in
    the tariff entry would not be sufficient. If the process is
    indicated in the tariff entry, without specifying that the same
    amounts to manufacture, then the indication of the process        c
    is merely for the purposes of identifying the product and
    the rate which is applicable to that product. In other words,
    for a deeming provision to come into play it must be
    specifically stated that a particular process amounts to
    manufacture. In the absence of it being so specified the
                                                                      0
    commodity would not become excisable merely because
    a separate tariff item exists in respect of that commodity.

    24. In this case, neither in the section note nor in the
    chapter note nor in the tariff item do we find any indication
    that the process indicated is to amount to manufacture. To        E
    start with, the product was edible vegetable oil. Even after
    refining, it remains edible vegetable oil. As actual
    manufacture has not taken place, the deeming provision
    cannot be brought into play in the absence of it being
    specifically stated that the process amounts to                   F
    manufacture."

     8. The goods have to satisfy the test of being produced
or manufactured in India. It is settled law that excise duty is a
duty levied on manufacture of goods. Unless goods are                 G
manufactured in India, they cannot be subjected to payment of
excise duty. Simply because a particular item is mentioned in
the First Schedule, it cannot become exigible to excise duty.
(See Hyderabad Industries Ltd. v. Union of India, (1995) 5 SC
338, Moti Laminates (P) Ltd. v. CCE, (1995) 3 SCC 23, CCE             H
    1026    -SUPREME COURT REPORTS                 [2011] 12 S.C.R.


A v. Wimco Ltd., (2007) 8 SCC 412] Therefore, both on authority
    and on principle, for being excisable to excise duty, goods must
    satisfy the test of being produced or manufactured in India. In
    our opinion, the charging Section 3 of the Act comes into play
    only when the goods are excisable goods under Section 2(d)
s of the Act falling under any of the tariff entry in the Schedule to
   the Tariff Act and are manufactured goods in the terms of
    Section 2(f) of the Act. Therefore, the conditions contemplated
   under Section 2(d) and Section 2(f) has to be satisfied
   conjunctively in order to entail imposition of excise duty under
c Section 3 of the Act. The manufacture in terms of Section 2(f)
   includes any process incidental or ancillary to the completion
   of the manufactured product. This 'any process' can be a
   process in manufacture or process in relation to manufacture
   of the end product, which involves bringing some kind of change
   to the raw material at various stages by different operations.
0
   The process in manufacture must have the effect of bringing
   change or transformation in the raw material and this should
   also lead to creation of any new or distinct and excisable
   product. The process in relation to manufacture means a
E process which is so integrally connected to the manufacturing
  of the end product without which, the manufacture of the end
  product would be impossible or commerdally inexpedient. This
  Court has in several decisions starting from Tungabhadra
  Industries v. CTO, AIR 1961 SC 412, Union of India v. Delhi
  Cloth & General Mills Co. Ltd., AIR 1963 SC 791, South Bihar
F Sugar Mills Ltd. v. Union of India, AIR 1968 SC 922 and in
  line of other decisions has explained the meaning of the word
  'manufacture' thus:

        "14. The Act charges duty on manufacture of goods. The
G       word 'manufacture' implies a change but every change in
        the raw material is not manufacture. There must be such
        a transformation that a new and different article must
        emerge having a distinctive name, character or use."

        9. In Ujagar Prints (II) v. Union of India, (1989) 3 SCC 488,
H
   GRASIM INDUSTRIES LTD. v. UNION OF INDIA                1027
               [H.L. DATTU, J.]

this Court has laid down the test to ascertain whether particular   A
process amounts to manufacture:                 ·

    "whether the change or the series of changes brought
    about by the application of processes take the commodity
    to the point where, commercially, it can no longer be
                                                                    8
    regarded as the original commodity but is, instead,
    recognised as a distinct and new article that has emerged
    as a result of the processes"

     10. In Hindustan Polymers v. CCE, (1989) 4 SCC 323,
this Court has observed:                                            C

    "11. Excise duty is a duty on the act of manufacture.
    Manufacture under the excise law, is the process or activity
    which brings into being articles which are known in the
    market as goods and to be goods these must be different,        D
    identifiable and distinct articles known to the market as
    such. It is then and then only that manufacture takes place
    attracting duty. In order to be goods, it was essential that
    as a result of the activity, goods must come into existence.
    For articles to be goods, these must be known in the
                                                                    E
    market as such and these must be capable of being sold
    or are being sold in the market as such. In order, therefore,
    to be manufacture, there must be activity which brings
    transformation to the article in such a manner that different
    and distinct article comes into being which is known as
                                                                    F
    such in the market."

      11. In CCE v. Rajasthan State Chemical Works, (1991)
4 sec 473, this Court has considered the meaning of process
in relation to manufacture as thus:
                                                                 G
    "12. Manufacture implies a change but every change is not
    manufacture, yet every change of an article is the result of
    treatment, labour and manipulation. Naturally, manufacture
    is the end result of one or more processes through which
    the original commodities are made to pass. The nature and . H
    1028   SUPREME COORT REPORTS                 [2011] 12 S.C.R.


A      extent of processing may vary from one class to another.
       There may be several stages of processing, a different
       kind of processing at each stage. With each process
       suffered the original commodity experiences a change.
       Whenever a comn;iodity undergoes a change as a result
B      of some operation performed on it or in regard to it, such
       operation would amount to processing of the commodity.
       But it is only when the change or a series of changes takes
       the commodity to the point where commercially it can no
       longer be regarded as the original commodity but instead
c      is recognised as a new and distinct article that a
       manufacture ~an be said to take place.

       13. Manufacture thus involves a series of processes.
       Process in manufacture or in relation to manufacture
       implies not only the production but the various stages
D      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
       (sic that the) manufactured product emerges. Therefore,
       each step towards such production would be a process
E      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
F      to the manufacture.

       14. The natural meaning of the word 'process' is a mode
       of treatment of certain materials in order to produce a good
       result, a species of activity performed on the subject-
       matter in order to transform or reduce it to a certain stage.
G
       According to Oxford Dictionary one of the meanings of the
       word 'process' is a 'continuous and regular action or
       succession of actions taking place or carried on in a
       definite manner and leading to the accomplishment of
       some result'. The activity contemplated by the definition is
H
    GRASIM INDUSTRIES LTD. v. UNION OF INDIA                1029
                [H.L. DATTU, J.]

     perfectly general requiring only the continuous or quick        A
     succession. It is not one of the requisites that the activity
     should involve some operation on some material in order
     to (sic effect) its conversion to some particular stage.
     There is nothing in the natural meaning of the word
     'process' to exclude its application to handling. There may     B
     be a process which consists only in handling and there
     may be a process which involves no handling or not merely
     handling but use or also use. It may be a process involving
     the handling of the material and it need not be a process
     involving the use of material. The activity may be              c
     subordinate but one in relation to the further process of
     manufacture."

       12. In Union of India v. Ahmedabad Electricity Co. Ltd.,
  (2003) 11 SCC 129, the issue before this Court was that
  whether the process in which cinder is produced by burning of      D
  coal as a fuel for producing steam to run machines used in the
  factory to manufacture end product amounts to manufacture.
· This Court has held:

     "19. What is the meaning of "manufacture" in the context        E
     of excise law? VVe have already quoted the definition of
     the word "manufacture" as contained in Section 2(f) ottne
     Act. According to this definition, manufacture includes any
     process incidental or ancillary to the completion of a
     manufactured product. The word "manufacture" used as a          F
     verb is generally understood to mean as bringing into
     existence a new substance. It does not mean merely to
     produce some change in a substance. To quote from a
     passage in the Permanent Edition of Words and Phrases,
     Vol. XX.VI                                                      G
     "manufacture implies a change, but every change is not
     manufacture and yet every change of an article is the result
     of treatment, labour and manipulation. But something more
     is necessary and there must be transformation: a new and
     different article must emerge having a distinctive name,        H
    1030   SUPREME COURT REPORTS                 [2011] 12 S.C.R.


A      character or use".

       "Manufacture" may involve various processes. The aim of
       any manufacturing activity is to achieve an end product.
       Depending on the nature of manufacturing activity involved,
       processes may be several or one. The natural meaning of
B
       the word "process" is a mode of treatment of some material
       in order to produce a good result. Every process which is
       incidental or ancillary to the completion of manufactured
       product is included within the meaning of manufacture. The
       word "process" has not been defined in the Act. In its
c      ordinary meaning "process" is a mode of treatment of
       certain material in order to give a desired shape to the
       material. It is an activity performed on a given material in
       order to transform it into something."

D      This Court further observed thus:

      "27. In the case in hand also, coal which leads to
      production of cinder is not used as a raw material for the
      end product. It is being used only for ancillary purpose, that
      is, as a fuel. Therefore, irrespective of the fact whether any
E
      manufacture is involved in the production of cinder it should
      be held to be out of the tax net for the reason that it is not
      a raw material for the end product.

      28. In producing "cinder", there is no manufacturing process
F     involved. Coal is simply burnt as fuel to produce steam.
      Coal is not tampered with, manipulated or transformed into
      the end product. For purposes of manufacture the raw
      material should ultimately get a new identity by virtue of the
      manufacturing process either on its own or in conjunction
G     or combination with other raw materials. Since coal is not
      a raw material for the end product in all the cases before
      us, the question of getting a new identity as an end product
      due to manufacturing process does not arise."
      13. In Commissioner of Central Excise, Chennai II
H
    GRASIM INDUSTRIES LTD. v. UNION OF INDIA                    1031
                [H.L. DATTU, J.]

Commissionerate v. Tarpaulin International, (2010) 9 SCC                A
 103, whilst addressing the issue whether the process of
preparing tarpaulin made-ups by cutting and stitching the
tarpaulin fabric and fixing the eyelets would amount to
manufacture, this Court has held:
     "25. Is there any manufacture when tarpaulin sheets are B
     stitched and eyelets are made? In our view, it does not
     change the basic characteristic of the raw material and
     end product. The process does not bring into existence
     a new and distinct product with total transformation in the
     original commodity. The original material used i.e. the C
     tarpaulin is still called tarpaulin made-ups even after
     undergoing the said process. Hence, it cannot be said
     that the process is a manufacturing process. Therefore,
     there can be no levy of Central excise duty on the tarpaulin
     made-ups. The process of stitching and fixing eyelets would D
     not amount to manufacturing process, since tarpaulin after
     stitching and eyeleting continues to be only cotton fabric.
     The purpose of fixing eyelets is not to change the fabric.
     Therefore, even if there is value addition the same is
     minimum. To attract duty there should be a manufacture to E
     result in different goods and the goods sought to be subject
     to duty should be known in the market as such."
      14. In the present case, it is clear that the process of repair
and maintenance of the machinery of the cement manufacturing
plant, in which M.S. scrap and Iron scrap arise, has no                 F
contribution or effect on the process of manufacturing of the
cement, which is the excisable end product, as since welding
electrodes, mild steel, cutting tools, M.S. Angles, M.S. Channels,
M.S. Beams etc. which are used in the process of repair and
maintenance are not raw material used in the process of                 G
manufacturing of the cement, which. is the end product. The
issue of getting a new identity as M.S. Scrap and Iron Scrap
as an end product due to manufacturing process does not arise
for our consideration. The repairing activity in any possible
manner cannot be called as a part of manufacturing activity in          H
    1032     SUPREME COURT REPORTS                 [2011] 12 S.C.R.


A   relation to production of end product. Therefore, the M.S. scrap
    and Iron scrap cannot be said to be a by-product of the final
    product. At the best, it is the by-product of the repairing process
    which uses welding electrodes, mild steel, cutting tools, M.S.
    Angles, M.S. Channels, M.S. Beams etc.
B         15. Learned ASG has placed reliance on the decision of
     this Court in CST v. Bharat Petroleum Corpn. Ltd., (Supra). In
     that case, the assessee purchased sulphuric acid and cotton
     for the manufacturing of kerosene and yarn/cloth. In the
     manufacturing process, the acid sludge and cotton waste
C    emerged as a distinct product having commercial identity. The
     issue before this Court was that whether the assessee can be
     said to manufacture acid sludge and cotton waste. This Court
     observed that where a subsidiary product is turned out regularly
     and continuously in the course of a manufacturing business and
D    is also sold regularly from time to time, an intention can be
    attributed to the manufacturer to manufacture and sell not merely
    the main item manufactured but also the subsidiary products.
    We are afraid, the decision does not help the Revenue
    because the metal scrap and waste arising out of the repair
E   and maintenance work of the machinery used in manufacturing
    of cement, by no stretch of imagination, can be treated as a
    subsidiary product to the cement which is the main product. The
    metal scrap and waste arise only when the assessee
    undertakes repairing and maintenance work of the capital
F   goods and, therefore, do not arise regularly and continuously
    in the course of a manufacturing business of cement.

        16. In view of the above, we cannot sustain the Judgment
    and Order of the High Court dated 31.07.2008.
G       17. In the result, the appeal is allowed and the impugned
    Judgment and the Order of the High Court is set aside and the
    Order dated 09.08.2005 of the Tribunal is restored. Costs are
    made easy.

H D.G.                                              Appeal allowed.