Brief Facts of the case:
The assessee purchased syringes and needles in bulk from the open market between June 1995 and March 1997.The assessee would sterilize the syringes and the needles and put on syringe and one needle in an unassembled form in a printed plastic pouch.The syringe and needle were capable of use only once and hence, were disposable. The plastic pouches so packed were sold to industrial consumers.
A show cause notice was issued by the department asking assessee to show cause as to why the said syringes and needles be made to pay excise duty again as a result of sterilization.
The SCN alleged that the process of sterilization brings about a change in the character of the final product, which makes syringes and needles disposable(i.e useable only once).
Therefore, a new product having a different character comes into existence.
Contention of the Assessee:
The activity of sterilization does not bring any new product into existence, disposable syringes and needles continue to be disposable post sterilization also.
Therefore, the basic test that a new article should emerge as a result of a process which has a distinctive name, character or use is clearly absent in the present case. Therefore ,the activity of sterilization would not amount to manufacture.
Contention of the Revenue:
The process of sterilization was essential to complete manufacture before the products are sold in the market, as such the process of sterilization is an integral part of manufacturing process to make the product marketable.
Further, it was argued that the process of sterilization transform the product by making the same sterile (germ free) from non-sterile.
The products in question could not be used commercially until the same are sterilized.
Thus, it is clear that the process of sterilization is an important integrated process without which the end product is not marketable and, therefore, applying the said test , it is clear that the process of sterilization amounts to manufacture.
Decision of the Hon’ble Supreme Court:
-The process of sterilization does not mean that such articles are not complete in themselves .
Surgical instruments continue to be the same even after sterilization and if the contention of department is accepted, every time such instruments are sterilized, the same surgical instruments are manufactured again & again when the same is sterilized again & again. This would lead to absurd results and fly in the face of common sense.
–Neither the character nor the end use of the syringe & needle has changed sterilization. The syringe & needle retains its essential character even after sterilization.
Therefore, the process of sterilization does not amount to manufacture
The appeal of assessee is allowed.