Allowed

Titan Company Limited, v. Commissioner of Central

Madras HC21 Oct 2021WP/37765/2016

Case brief

AI extract

What is this about?

The Madras High Court quashed show cause notices levying central excise duty on the assembly of prescription lenses into spectacle frames. Relying on Supreme Court and High Court precedents, the Court held that mere assembly or mounting of lenses on frames for retail sale does not amount to 'manufacture' under the Central Excise Act, 1944.

What did the court decide?

Show cause notices equating the process of assembly to manufacture are quashed; writ petitions allowed.

Titan Company Limited, Vs Commissioner of… — Civil Procedure and Limitation | Madras HC (2021)

¶1

IN THE HIGH COURT OF JUDICATURE AT MADRAS

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Dated: 21.10.2021

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CORAM

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THE HONOURABLE DR. JUSTICE ANITA SUMANTH

¶5

W.P.Nos.37765 of 2016 and

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1038 & 1039 of 2017 and
WMP. Nos.1008 & 1009 of 2017 and 32365 of 2016

¶7

Titan Company Limited,
Rep. by its Group Manager – Taxation,
P.Manivannan No.3,
SIPCOT Phase I, Hosur-635 126. ... Petitioner in

¶8

W.P. No.37765 of 2016

¶9

M/s.Premier Optical Pvt. Ltd.
rep. by its Director, No.80,
GN Chetty Road,T.Nagar,
Chennai-17. ... Petitioner in W.P. No.1038 of 2017

¶10

Mrs.Geetanjali D Souza Prabhu,
102, DonataEctasy, 35 Davis Road,
St. Thomas Town, Bangalore 560 084.... Petitioner in
 W.P. No.1039 of 2017

¶11

Vs.

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1 Commissioner of Central Excise LTU,
1775 Jawaharlal Nehru Inner Ring Road,
Anna Nagar Western Extn,
Chennai-600 101.

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2 Additional Director General
Directorate General of Central Excise,
Intelligence Delhi Zonal Unit, West Block-8,
Wing No.3, First Floor, Section 1,
R.K.Puram, New Delhi-110 066.

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3 Chairman Central Board of

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Excise & Customs Department of Revenue,

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https://hcservices.ecourts.gov.in/hcservices/

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Ministry of Finance, North Block,
Secretariat, New Delhi. .... Respondents in
 W.P. No.37765 of 2016

¶18

1 Commissioner of Central Excise Chennai II,
Central Excise, Commissionerate,
New No.692 MHU Complex
Anna Salai Chennai-2.

¶19

2 The Joint Commissioner of

¶20

Central Excise, Chennai II, Commissionerate,
3rd Floor, MHU Complex,
Nandanam, Chennai-35. .... Respondents in
 W.P. Nos 1038 & 1039 of 2017

¶21

Prayer in W.P. No.37765 of 2016: Writ Petition filed under
Article 226 of the Constitution of India praying to Writ of
Prohibition prohibiting the 1st respondent from proceeding in any
manner pursuant to the show cause notice series
F.No.DZU/INV/F/CE/351/2015 dt.23.03.2016 issued to any Titan Eye
+ Store.

¶22

Prayer in W.P. No.1038 of 2017: Writ Petition filed under
Article 226 of the Constitution of India praying to Writ of
Prohibition prohibiting the 2nd respondent from proceeding with
the adjudication of the Show Cause Notice No.33/2016 dated
06.04.2016 issued by the 1st respondent and Statement of Demand
issued pursuant thereto.

¶23

Prayer in W.P. No.1039 of 2017: Writ Petition filed under
Article 226 of the Constitution of India praying to Writ of
Prohibition prohibiting the 2nd respondent from proceeding with
the adjudication of the Show Cause Notice No.43/2016 dated
5.5.2016 issued by the 1st respondent and Statement of Demand
issued pursuant thereto.

¶24

For Petitioner : Mr.Arvind Datar, Senior Counsel
 for Mr.P.R.Ranganath in
 W.P. No.37765 of 2016
 Ms.L.Maithili in W.P. Nos.1038 &

¶25

1039 of 2017

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For Respondents : Mr.A.P.Srinivas,

¶27

 Senior Standing Counsel in all WPs

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https://hcservices.ecourts.gov.in/hcservices/

¶29

COMMON ORDER

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The question that arises for resolution in this writ
petition is as to whether the petitioners are liable to remit
excise duty on the activity of fixing of prescription lenses in
spectacle frames. The provisions of the Central Excise Act, 1944
(Act) provide for the levy of excise duty on ‘manufacture’ and
what is moot is whether the fixing of a lens in a spectacle
frame is an activity that amounts to manufacture.

¶31

2. Show Cause Notices (SCN) have been issued to 457 Titan
Eye+ Stores as well as the showrooms of Premier Optical Pvt.
Ltd. that sells spectacles under the brand name ‘Lawrence and
Mayo’. In the case of Titan, a request was made by the petition-
er for centralization of all the cases in one Commissionerate
for ease of adjudication, since the 457 noticees were spread all
over the country and to avoid multiplicity of proceedings.

¶32

3. The petitioner in W.P. No.1039 of 2017 is a Director of
Premier Optical Pvt. Ltd. and has approached this Court, since
the show cause notice mulcts liability on her as the person
responsible for the operations of the Company. Pursuant to the
SCNs, the petitioners are now in receipt of personal hearing
intimation notices calling for their appearance, at which stage,
they have approached this Court by way of the present writ
petitions.

¶33

4. Essentially, the process leading to manufacture of a
product/commodity would involve appreciation of facts that are
best left to the officers of the concerned Department. Thus, and
to get over the question of alternate remedy, the petitioners
would immediately draw my attention to a judgment of the Hon’ble
Supreme Court in the case of Assistant Commercial Tax Officer
Vs. Mehta Opticians (Civil Appeal No.773 of 1995) confirming the
decision of the Rajasthan High Court on the very issue that
falls for consideration in this batch.

¶34

5. The short judgment of a three Judge Bench is on point,
and reads as under:
‘This is how Ground A (a) of the Special Leave
Petition (reads):

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“(a) Whether the High Court is justified in holding as under:-

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https://hcservices.ecourts.gov.in/hcservices/

¶37

It is not in dispute that frames and
glasses are exempted from payment of tax.
The spectacles being not a different
commodity would not attract tax on their
sales.

¶38

Particularly, when there is no exemption
notification exempting frames and glasses
from payment of tax and both the frames
and glasses are exigible to tax @ 8%.”

¶39

When Mr.S.K.Jain, Learned counsel for the
appellant, proceeded to argue, we drew his
attention to paragraph 5 of the judgment of Court
under appeal, which is quoted in the ground above
[…] Mr.Jain persisted in arguing that frames and
glasses were not exempted from payment of tax. We
pointed out to him that it was impermissible for
him to so argue when the High Court had
specifically recorded that “it is not in dispute”
that frames and glasses were exempted from payment
of tax and no application had been made by the
appellant to the High Court to correct this
statement, it was only when we commenced the
dictation of an order to so record that Mr.Jain
said that he would not urge this contention.

¶40

All that an optician does, as the record suggest
is to fit lenses into a spectacle frame: he
carries out no process of manufacture and no
separate or distinct commodity emerges. The
judgment under appeal is, therefore, uphold.
The appeal is dismissed with costs.

¶41

6. The above judgment, according to the petitioner, is
binding upon the parties in terms of Article 141 of the
Constitution of India. The issuance of the impugned show cause
notices and the continuation of the proceedings thus constitute
a fundamental and jurisdictional flaw, rendering the proceedings
bad in law, and the present Writ Petitions, maintainable.

¶42

7. The specific argument on maintainability is that the
show cause notices have been issued, and are being pursued
without taking note of, and contrary to the ratio of the binding
Judgment of the Hon’ble Supreme Court affirming the decision of
the Rajasthan High Court in the case of Mehta Opticians and if

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https://hcservices.ecourts.gov.in/hcservices/

¶44

the same had been taken note of in proper perspective than the
question of issuing present show cause notices would not have
arisen at all. I note that in reply to the show cause notices,
though Premier Opticals appears to have filed detailed replies,
there is no reference therein to the judgments in Mehta Opti-
cians, Bholanath Sreemany vs. Additional Commissioner of
Commercial Taxes (Cal.HC) (1978 42 STC 248) or Amazon Seller
Services Private Limited vs. Commissioner of Central Excise,
Thane-I (2016 (3) TMI 69) (cited before me). As far as Titan is
concerned, no reply to the SCN has been placed before the Court.

¶45

8. Reliance in this context, is placed upon the judgement
of the Hon’ble Court in the case of Hindustan Poles Corporation
V. CCE (2006 (256) ELT 481(SC)), to the following effect:

¶46

'40. Before we part with this case we would like to
impress upon the respondent authorities that before
issuance of show cause notices the Revenue must
carefully take into consideration the settled law
which has been crystallized by a series of judgments
of this Court. The Revenue must make serious
endeavour to ensure that all those who ought to pay
excise duty must pay but in the process the Revenue
must refrain from sending of indiscriminate show
cause notices without proper application of mind.
This is absolutely imperative to curb unnecessary
and avoidable litigation in Courts leading to
unnecessary harassment and waste of time of all
concerns including Tribunals and Courts'.

¶47

9. Additionally and in order to aid better understanding of
the issue, the petitioners also take me through a series of
decisions also involving the same issue on merits, that is,
whether the fitting of prescription lenses upon spectacle frames
would constitute ‘manufacture’ for the purposes of levy of
central excise duty.

¶48

10. In the case of Bholanath Sreemany, a Division Bench of
the Calcutta High Court dealt with the identical issue and the
description of the activity undertaken by that assessee is set
out as follows:

¶49

‘The petitioner states that in the course of
his business, a customer comes to him with a
prescription from a doctor, selects a particular

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https://hcservices.ecourts.gov.in/hcservices/

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frame, settles the price thereof and the frame is
then appropriated to the contract of sale within
the meaning of explanation 2(a) to Section 2(g)
of the Bengal Finance (Sales Tax) Act, 1941. The
petitioner then fixes the glasses, according to
prescription, to the frame which has already
become the chattel of the customer. There are
thus two distinct sales-one of frame and the
other of the glasses and it is the case of the
petitioner that he does not charge anything for
fitting. It is alleged that the Commercial Tax
Officer, Alipore, who examined the petitioner’s
books of account, records and documents under
Section 14(1) of the Act, completely
misunderstood the nature of the transaction and
the legal implication thereof and by an order
dated 7th April, 1970, held that the petitioner
manufactures spectacles from parts of spectacles
purchased by him and sells such spectacles to
customers.’

¶52

11. Upon consideration of the above factual matrix, the
Bench held that while manufacture implies a change, every change
would not be manufacture. There must be a transformation of the
raw materials into a new and distinct article having a
distinctive name, character or use. The Bench was of the view
that a manufacturer of spectacle, by assembling the lenses and
the frames, does not create anything new so as to bring such
activity within the purview of manufacture.

¶53

12. In the case of Amazon, the Authority for Advance
Rulings constituted under the Act considered the plea for
advance ruling on whether 15 different types of activities
engaged in by it would amount to 'manufacture' under the Central
Excise Act. One of those activities related to ‘spectacles and
frames’. The description of the activity under the head ‘placing
spectacles/sunglasses frames inside cases’ was that cases were
generally received separately from the spectacles and the
sunglasses, from the manufacturers. The case and the
glass/spectacle were first identified, then matched. In some
cases, the screws at the temples and the hinges on eyewear could
have become loose during storage and this was repaired with the
help of a screw driver.

¶54

https://hcservices.ecourts.gov.in/hcservices/

¶55

13. The argument of the Revenue was that when lenses were
fitted in frames, a distinct marketable product emerged, since a
frame and lens separately, and without integration did not have
any marketability. However, the case of the petitioner was
accepted by the Authority, placing reliance upon the decision of
the Calcutta High Court in the case of Bholanath Sreemany
(supra),

¶56

14. Yet another argument advanced was that though the
petitioner has been engaged in the same activity for several
years, the impugned show cause notices had come to be issued in
2016 without there being any justification in that regard or any
change in circumstances. Having accepted the stand of the
petitioner for many years to the effect that the activity of
assembly of frames and spectacles did not constitute
manufacture, there was no justification in the Revenue taking a
different stand now. The judgment of the Hon’ble Supreme Court
in the case of Radhasoami Satsang V. Commissioner of Income Tax
((1992) 1 SCC 659) is relied on for this proposition.

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15. A perusal of the show cause notice reveals that the
activity carried out in the show rooms was the manufacture and
clearance of spectacles carrying 'Titan Eye+’ Brand. Though
adverse inferences are sought to be drawn by the respondents on
other grounds as well, such as violation of conditions contained
in Notification 8/2003-CE dated 01.03.2003, this point has not
been argued and both the parties before me have confined the
scope of the arguments to (i) whether the respondents were right
in law in having issued the impugned show cause notices inspite
of binding judicial precedents to the opposite effect and (ii)
whether the assembly of prescription lenses on to a spectacle
frames is an activity that amounts to ‘manufacture’ attracting
levy of duty under the Act.

¶58

16. The trigger for the impugned proceedings was a search
conducted in the showrooms of the petitioners when the
Investigating teams found that the show room had the facility
for eye testing and watch fitment, as well as a lens lab. The
following machines/equipments were found in the premises (as per
SCN dated 23.03.2016 in the case of Titan Company Limited)

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https://hcservices.ecourts.gov.in/hcservices/

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s.
1

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`Sr.No`	`Name` `of` `the`	`Function` `of` `the`
`s.`	`Instrument`	`Instrument`
`1`	`Autorefracto-meter` `+Keratometer`	`To` `find` `out` `the` `refractive error of the` `eye`
`2`	`Chart Projector`	`For checking the vision`
`3`	`Chair unit without` `vision drum`	`To seat the customer`
`4`	`Auto-lensometer`	`To check the spectacle` `lens power`
`5`	`Manual Lensometer`	`To check the spectacle` `lens power manually.`
`6`	`Retinoscope`	`To` `find` `out` `the` `refractive error of the` `eye.`
`7`	`Trial set without` `case`	`Keep the powered lenses`
`8`	`Trial frame`	`For keeping the lens` `while checking vision`
`9`	`Ishihara’s book`	`To check the colour` `blindness`
`10`	`Rubber Occluder –` `Black color – Medium` `Size`	`It is used for blocking` `the eye`
`11`	`JCC (+-0.50)`	`For` `refining` `the` `cylindrical power`
`12`	`JCC (+-0.25)`	`For redefining the axis` `of the cylindrical power`
`13`	`Slit Lamp – AIA 11` `model with 2 steps`	`To check eye disease`

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https://hcservices.ecourts.gov.in/hcservices/

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14
15

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`14`	`Pupillometer`	`To check the IPD`
`15`	`Ultra Sonic Cleaner`	`To clean the spectacle` `frame`
`16`	`UV tester`	`To check the UV efficacy`
`17`	`Geneva lens measure`	`To check the base curve` `of the lens`
`18`	`Thickness gauge with` `dial`	`To check the spectacle` `lens thickness`
`19`	`Near vision chart-` `qty 3`	`To check the near vision`
`20`	`Semi auto edger`	`To give the desired` `shape to the lens`
`21`	`Supra` `Grooving` `machine`	`To make the o for supra` `frame lenses`
`22`	`Rimless` `drilling` `machine`	`To make the holes in the` `lens`
`23`	`Hand edger`	`To polish the edges of` `the lens`
`24`	`Screw dispenser –` `Tip adjuster`	`To keep all the of` `screws and nose pad`

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17. That apart, the show room has also had the facilities
for eye testing, the grinding of spectacle lenses and fixing of
lenses in the spectacle frame to make a spectacle. The
technicians were trained to do the work of cutting, edging,
grinding of the lenses and fit the same in the frame to make a
complete spectacle. For the aforesaid purposes, the following
machines were used.

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`Sr.`	`Description`	`Function/Usage`
`No.`
`1`	`Hand Edger`	`Used for manual edging of the`
		`pattern.`

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https://hcservices.ecourts.gov.in/hcservices/

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2
3

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`2`	`Auto Edger`	`Used for auto edging (cutting` `and edging) of the lenses.`
`3`	`Blocker Machine`	`Used for measurement of Intra` `Papillary Distance, i.e. the` `location of the axis and` `height of centre of eye.`
`4`	`Rimless` `Drilling` `Machine`	`Used for drilling in the` `lenses for fitting in the` `rimless frame.`
`5`	`Grooving Machine`	`Used for grooving in the` `lenses to be fitted in semi` `rimmed frames.`
`6`	`Dummy` `Driller` `Machine`	`Used for drilling hole in the` `dummy lenses, which come` `fitted with the frames to use` `the same as pattern.`
`7`	`Warmer`	`Used for warming the sheet` `frame.`
`8`	`Ultra Sonic`	`Used for cleaning of the` `spectacles, as servicing.`

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18. The petitioner explained the manufacturing process at the
time of the Inspection in the following terms:

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1. The customer visits their premises.

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2. The customer selects a frame of his choice depending on brand, price, look, quality, etc.

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3. The customer selects lenses of his choice depending on brand, price, look, quality, etc.

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4. The customer either already has a prescription (details of power of lenses required) or he gets his eyes tested at the showroom.

¶75

5. If the customer wants to get his eyes checked, the optometrist of the showroom checks eyes of the customer, to get (ascertain) the power of lenses required for correcting his vision.

¶76

6. After getting the power of lenses/glass required for the customer, either they get the same from their

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https://hcservices.ecourts.gov.in/hcservices/

¶78

store in the premises or if not available in the
store, they place order to get the same from their
warehouse at Bangalore.

¶79

7. Their technician, after getting the lenses of requisite power of standard shape and size, resizes the same so as to make it fit in the frame chosen by the customer. For this purpose he undertakes the following processes –

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i. Remove dummy lens from the frame, which comes fitted with the frame from the factory.

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ii. Verify the power of the lens (Pre Quality Check)

¶82

iii.Makes pattern of lens with the help of
dummy lens, by cutting the “un-cut plastic
pattern” into the requisite shape,

¶83

iv.Keep the pattern in the blocker machine to
get the optical centre of eye and for
putting the optical centre of the lens at
the centre of eye and affixes blocking tape
at the optic centre of eye in the lens so
determined, fixes the lens in the Auto
Edging Machine to cut to the requisite
size/shape.

¶84

v.Keeps lens in the Edging Machine for
cutting and grinding to required size.

¶85

vi.Keep the lens in the grooving machine, if
grooving is required.

¶86

vii.Fit the lens so made, in the frame selected
by the customer, to get a complete
spectacle.

¶87

He also informed that the spectacles were

¶88

delivered to the customer with a spectacle case, lens
cleaning cloth, invoice, “Titan Eye +” warranty card
in a paper bag; that all these goods were provided by
M/s.Titan. The officers also resumed certain
documents, sample spectacle case, lens cleaning cloth,
paper bag, etc. under Panchnama dated 27.08.2015,
drawn on the spot (RUD-3).

¶89

19. In addition a warranty was also extended to the customers.
All in all, the Revenue is of the view that the processes
involved in the activity were complex and complicated enough to

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https://hcservices.ecourts.gov.in/hcservices/

¶91

constitute ‘manufacture’. Moreover, the activities led to the
conversion of raw materials, being prescription lenses and
spectacle frames, into a marketable commodity, being a
spectacle, a commercially distinct product.

¶92

20. To a pointed query put by the Court, the petitioners
would specifically confirm that manufacture of the power lens
i.e., the conversion of lens blanks into prescription lens is a
taxable activity and that such activity takes place in the
workplace/factory. They also confirm that the frames used are
either imported or manufactured indigenously in a factory,
subject to central excise duty. These two activities i.e.
manufacture of the spectacle frames and prescription lenses are,
admittedly excisable events and the petitioners are liable to
remit duty in regard to the aforesaid two events, where
applicable. The petitioners also engage in sale of ready-made
eye-wear that is purchased by customers, off-the-shelf. I am
not, in these writ petitions, concerned with either of the
aforesaid activities.

¶93

21. Post manufacture of the spectacle frames and lenses,
the goods are sent separately to the petitioners’ show rooms and
what is undertaken in the show room is only an assembly of the
prescription lenses and the spectacle frames wherein the lenses
are merely mounted upon the frames, to result in a spectacle.

¶94

22. No doubt, the minute break-down of the machinery and
the processes as described in the SCN indicate a chain of events
requiring skill and sophistication, that appear very significant
in magnitude and impact. However, the end result of all the
processes only results in assembly of the lens with the frame.
This, in my view, does not amount to manufacture. The process of
assembly is bound to involve some amount of refining and fine-
tuning of the individual components and this, by itself, will
not tantamount to manufacture. In fact, most establishments
engaged in selling eye-wear provide a gamut of services in this
area including, having an optician in their employ or on call,
and infrastructure for the testing of vision. Thus,
notwithstanding that a distinct commercial product is obtained
upon assembly of a lens with a spectacle frame, this would not
result in such assembly being equated to manufacture.

¶95

https://hcservices.ecourts.gov.in/hcservices/

¶96

23. The judgments in the cases of Mehta Opticians,
Bholanath Sreemany and Amazon decide and reiterate the issue of
whether the activity of assembly simpliciter including fitting
and minor adjustments that are part and parcel of the process of
assembly, constitute ‘manufacture’ for the purposes of the Act,
in favour of the assessee. The show cause notices, to this ex-
tent, and insofar as they purport to equate the process of
assembly to manufacture, are quashed.

¶97

24. These Writ Petitions are allowed. Connected
Miscellaneous Petitions are closed. No costs.

¶98

 Sd/-

¶99

 Assistant Registrar

¶100

//True Copy//

¶101

 Sub Assistant Registrar

¶102

rkp/kbs

¶103

To

¶104

1. Commissioner of Central Excise LTU,

¶105

1775 Jawaharlal Nehru Inner Ring Road,

¶106

Anna Nagar Western Extn,

¶107

Chennai-600 101.

¶108

2. Additional Director General

¶109

Directorate General of Central Excise,

¶110

Intelligence Delhi Zonal Unit, West Block-8, Wing No.3, First Floor, Section 1, R.K.Puram, New Delhi-110 066.’

¶111

3. Chairman Central Board of

¶112

Excise & Customs Department of Revenue, Ministry of Finance, North Block,

¶113

Secretariat, New Delhi.

¶114

4. Commissioner of Central Excise Chennai II, Central Excise, Commissionerate, New No.692 MHU Complex

¶115

Anna Salai Chennai-2.

¶116

https://hcservices.ecourts.gov.in/hcservices/

¶117

5. The Joint Commissioner of

¶118

 Central Excise, Chennai II, Commissionerate,
 3rd Floor, MHU Complex, Nandanam, Chennai-35.

¶119

+2cc to M/s.A.P.Srinivas, Advocate, S.R.No.54364,54365

¶120

+1cc to M/s.R.Raghavan, Advocate, S.R.No.53840

¶121

W.P.Nos.37765 of 2016 and
1038 & 1039 of 2017 and

¶122

WMP. Nos.1008 & 1009 of 2017 and 32365 of 2016

¶123

BP(CO)

¶124

SB(10/11/2021)

¶125

https://hcservices.ecourts.gov.in/hcservices/

Titan Company Limited, v. Commissioner of Central

Case brief

What is this about?

What did the court decide?

Titan Company Limited, v. Commissioner of Central

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

Case details

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