Manufacture and processing under Manufacture :
It is necessary to differentiate between manufacture and processing. Manufacture involves a series of processes, whereas a process is one of the activities undertaken for manufacture of a product from input materials. Manufacture is the cumulative effect of various processes to which raw materials are subjected and each such step towards the finished product would constitute processing in relation to the manufacture.
The definition of manufacture under section 2(f) states that it includes any process incidental or ancillary to the completion of the manufactured product. The definition clarifies that a process, which is incidental to the manufacture of the product, is also manufacture under law. Consequently, it would be incorrect to state that the manufacture of a product was complete merely by means of carrying out one or more processes on raw materials. It is only when a process or a series of processes has taken the input material to a point where it is recognised as a new and distinct article commercially, that manufacture of goods is said to have taken place. The inclusive nature of the definition would thus cover all intermediate processes, packing of final products etc.
If there is no essential difference in identity between the original article and the processed article, then no manufacture under excise law has taken place. Although the input material has undergone a degree of processing, it must be regarded as st ill retaining its original identity. Where the article retains its substantial identity through the stage of processing, it could be said to have been merely processed and not manufactured. If there are separate and distinct processes of manufacture and each such process results in such a transformation that a new and distinct article known in the market comes into being, then each process would be subject to duty. The question whether a process amounts to manufacture under excise law would hence depend on the facts of each case.
The distinction between the manufacture and process has been dealt by the Supreme Court in the case of Union of India vs J.G. Glass Industries Ltd. 1998 (097) ELT 0005 (S.C) wherein the apex court observed that the answer to the question whether the process is that of “manufacture” would be based on two-fold test – First, whether by the said process a different commercial commodity comes into existence or whether the identity of the original commodity ceases to exist – Secondly, whether the commodity which was already in existence will serve no purpose or will be of no commercial use but for the said process. In the above case with reference to the process of ‘Printing‘, whether a process amounting to “manufacture” – Test is whether the product would serve any purpose but for the printing – If the product could serve a purpose even without printing and there is no change in the commercial product after the printing is carried out, the process cannot be said to be one of “manufacture”.
The meaning of incidental or ancillary processes needs to be understood. Before a process can be regarded as incidental or ancillary to the completion of manufactured product, it must have some relation to the manufacture of finished product. However inessential the process may be, if it is found incidental or ancillary to the completion of the manufactured product, then that process falls within the compass of the expression manufacture. If the process is not integral to or connected with manufacture, it will not be incidental. Here again, the finding is one of fact as prevalent in each case.
In sum, the question whether a particular process is a process of manufacture or not, has to be determined having regard to the facts and circumstances of each case and having regard to the well known tests laid down by the Courts in the aforementioned decisions. The following are some representative cases, where the Courts have decided on what constitutes manufacture under law:-