MANUFACTURE & MANUFACTURER

PRESENTED BY,

MOOKAMBIGAI.GNITYA PRAKASHNILESH JADHAV

Sec 2 (f) Manufacture

“Manufacture” includes any process, -(i) incidental or ancillary to the completion of a

manufactured product.(ii) which is specified in relation to any goods in

the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture or

(iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer,

Clause (ii) and (iii) are called deemed manufacture. Thus, definition of ‘manufacture’ is inclusive and not exhaustive.

The word Manufacture as specified in various

Court decisions shall be called only when a new and identifiable goods emerge having a different name, character, or use; e.g., manufacture has taken place when table is made from wood or of pulp is converted into base paper, or sugar is made from sugarcane.

Determinants of Manufacture..New substance having distinct

name, character or use must emerge – commodity must be fit for commercial use, mere value addition is not enough

Identity of original article must be lost

Test of irreversibility is importantBurden of proof of manufacture is

on the departmentManufacture must be in india

Assembly can be manufacture : ( if new product emerges, which is movable and marketable )

Assembly of plant at site is not manufacture

Excise duty can be only on goods i.e. movable property

What is not a manufacture???? Testing / Quality Control Blending and packing of tea Packing Cutting , Sizing Cutting and polishing of diamond Welding pipes Crushing / grinding of ore Printing on glass bottle Labelling Making a new model Upgradation of computer systems Affixing brand name Reconditioning , Repairs, Rectification

DEEMED MANUFACTURE

Deemed manufacture is of two types:

CETA specifies some processes as ‘amounting to manufacture’. If anyof these processes are carried out, goods will be said to be manufactured, even if as per Court decisions, the process may notamount to ‘manufacture’ [Section 2(f) (ii)]

Test of marketability is still required…

In respect of goods specified in third schedule of Central Excise Act, repacking, re-labelling, putting or altering retail sale price etc. will be ‘manufacture’. The goods included in Third Schedule of CentralExcise Act are same as those on which excise duty is payable u/s 4A on basis of MRP printed on the package. [Section 2(f) (iii)].

PRODUCTION – Production has also not been defined in CEA but production is used to cover items like coffee, tea, tobacco, etc. which are called to have been manufactured nut produced.

ASSEMBLY – Assembly of various parts and components amount to manufacture provided it result in movable goods which have distinctive identity, use, character, name etc. e.g., assembly of computer is manufacture.

“MANUFACTURER”Manufacturer is a person who actually

manufactures or produces the excisablegoods. A person who gets the production of other and sell it after putting its own brand then he will not be called manufacturer, e.g., if Khaitan company gets the fans made from some person and sell it after putting their brand name, the Khaitan company will not be manufacturer. The person actually makingthe fans will be called manufacturer.

“Manufacturer” shall be construed accordingly and shall include:

Not only a person who employs hired labour in the production or manufacture of excisable goods,

But also any person who engages in their production or manufacture on his own account.

Who is not a manufacturer???If contractor supplies labour and

goods are manufactured in the premises of manufacturer with his machinery, the contractor cannot be treated as the manufacturer.

A brand name ownerRaw material supplier

CASE LAWS……

Extracting granite from hills.. Does it lead to manufacture???Granite hills is a natural bounty.Removing a portion of it is not

manufacture or production even though it involves skill, labour, effort and machinery.

Union of India v/s Glass industries ltd.,In this case it was held that a process will

amount to manufacture, if the commodity which was already in existence will serve no purpose or will be of no commercial use but for the process. In this case, printing of color and logo was done on glass bottle. It was found that even before printing, the glass bottle was a commercial commodity and could be sold in the market even without printing. Hence, it was held that printing of bottles with ceramic color and decoration is not manufacture.

In this case a two fold test was applied……1. Whether by the said process a different

commercial commodity comes into existence or whether the identity of the original commodity ceases to exist.

2. Whether the commodity which was already in existence will be of no commercial use but for the said process.

Therefore, a commodity must be fit for commercial use to be called as ‘Manufacture’.

Does the activity of packing imported compact discs in a jewel box along with inlay card amount to manufacture under section 2(f) of the Central Excise Act, 1944 ?

CCE v. Sony Music Entertainment (I) Pvt. Ltd. 2010 (249) E.L.T. 341 (Bom.)

The appellant imported recorded audio and video discs in boxes of 50 and packed each individual disc in transparent plastic cases known as jewel boxes. An inlay card containing the details of the content of the compact disc was also placed in the jewel box. The whole thing was then shrink wrapped and sold in wholesale. The Department contended that the said process amounted to manufacture.

The High Court observed that none of the activity that the assessee undertook involved any process on the compact discs that were imported. It held that the Tribunal rightly concluded that the activities carried out by the respondent did not amount to manufacture since the compact disc had been complete and finished when imported by the assessee. They had been imported in finished and completed form.

When repacking and labelling will amount to manufacture???In Johnson&Johnson Ltd v/s CCE, impoter

imported some medicines. He put sticker indicating MRP etc., as required under the Standards of weights and measures.

It was held as follows: It is labelling Such labelling was to make the goods

marketable Such relabelling is not accompanied by

repacking from bulk Repacking from wholesale pack to retail

pack is different from bulk pack to retail pack

The decision was supported by the following points:

Mere packing for being marketed is not manufacture

Repacking has to be from bulk packs to retail packs so as to render product marketable directly to consumer

If product is imported as ready to market retail packs, mere affixing the sticker containing information like names and addresses of importer, MRP etc., will not be deemed manufacture.

There is a company which has recently started importing bicycle parts. The imported parts are assembled into complete bicycles at their facility in Maharashtra, after which they are sold. The imported parts are assessed to customs duty as ‘complete bicycles’. They have recently been informed that the assembling operations undertaken within India may amount to ‘manufacture’ of bicycles under central excise laws.

Advise whether they are required to pay excise duty, even though they are already importing complete bicycles for customs purposes.

Under customs laws, it is possible that parts of a product may be assessed to customs duty together as the complete product. Such assessment may take place in cases where the imported parts can be assembled into the complete product, or an article that contains its essential characteristics. However, for excise purposes, such an assessment is not relevant. Under the Central Excise Act, 1944 (Excise Act), duty is payable on the ‘manufacture’ of goods. For this purpose, manufacture is understood to have taken place when a new product having a distinct name, character and use is created. In this regard, whether assembly amounts to manufacture would depend upon the facts of each individual case. Therefore, the exact scope, nature and technology used in the assembly process would have to be examined to conclusively determine whether excise duty would be payable in your case.

In CCE v/s MM Khambhatwala, the appellant was supplying raw material and the household ladies were manufacturing ‘dhoop, agharbhatti etc., in their houses. The final product was directly sold from premises of the ladies and was not brought to the factory . There was no supervision over their work by the appellant. Payment to the ladies was on the basis of number of pieces manufactured. It was held that the household ladies were the manufacturers and raw material supplier is not the manufacturer. , more over the ladies cannot be termed as ‘ hired labour’.

In Gramaphone Company Ltd., v/s CCE, it has been held that recording of sound on duty paid magnetic cassette tapes amounts to manufacture as pre recorded audio cassettes are known in market as distinct and different from blank audio cassettes. However, receiving cassettes from customer and recording as per customers choice on realization of charges is mere service activity and not a manufacturing activity.

THANK YOU……