Madras High Court
Titan Company Limited vs 3 Chairman Central Board Of on 21 October, 2021
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated: 21.10.2021
CORAM
THE HONOURABLE DR. JUSTICE ANITA SUMANTH
W.P.Nos.37765 of 2016 and
1038 & 1039 of 2017 and
WMP. Nos.1008 & 1009 of 2017 and 32365 of 2016
Titan Company Limited,
Rep. by its Group Manager – Taxation,
P.Manivannan No.3,
SIPCOT Phase I, Hosur-635 126. ... Petitioner in W.P. No.37765 of
2016
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
Mrs.Geetanjali D Souza Prabhu,
102, DonataEctasy, 35 Davis Road,
St. Thomas Town, Bangalore 560 084. ... Petitioner in W.P. No.1039
of 2017
Vs.
1 Commissioner of Central Excise LTU,
1775 Jawaharlal Nehru Inner Ring Road,
1
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
Anna Nagar Western Extn,
Chennai-600 101.
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.
3 Chairman Central Board of
Excise & Customs Department of Revenue,
Ministry of Finance, North Block,
Secretariat, New Delhi. .... Respondents in W.P. No.37765 of 2016
1 Commissioner of Central Excise Chennai II,
Central Excise, Commissionerate,
New No.692 MHU Complex
Anna Salai Chennai-2.
2 The Joint Commissioner of
Central Excise, Chennai II, Commissionerate,
3rd Floor, MHU Complex,
Nandanam, Chennai-35. .... Respondents in W.P. Nos1038& 1039 of 2017
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.
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
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
dated 06.04.2016 issued by the 1st respondent and Statement of Demand issued
pursuant thereto.
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.
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 & 1039 of 2017
For Respondents : Mr.A.P.Srinivas,
Senior Standing Counsel in all WPs
COMMONORDER
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
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
is whether the fixing of a lens in a spectacle frame is an activity that amounts to
manufacture.
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
petitioner for centralization of all the cases in one Commissionerate for ease of ad-
judication, since the 457 noticees were spread all over the country and to avoid
multiplicity of proceedings.
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.
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
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
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.
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):
“(a) Whether the High Court is justified in holding as under:-
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.
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%.”
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.
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.
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
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.
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 de-
cision of the Rajasthan High Court in the case of Mehta Opticians and if 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 Opticians, 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 re-
ply to the SCN has been placed before the Court.
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
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:
'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'.
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.
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:
‘The petitioner states that in the course of his business, a
customer comes to him with a prescription from a doctor, selects a
particular 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
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
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 7 th April, 1970,
held that the petitioner manufactures spectacles from parts of spectacles
purchased by him and sells such spectacles to customers.’
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.
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
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
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.
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),
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.
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
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.
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)
Sr.Nos. Name of the Instrument Function of the Instrument
1 Autorefracto-meter To find out the refractive error of the
+Keratometer eye
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
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 It is used for blocking the eye
– Medium Size
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 To check eye disease
2 steps
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
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
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
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.
Sr. Description Function/Usage
No.
1 Hand Edger Used for manual edging of the pattern.
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
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
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.
18. The petitioner explained the manufacturing process at the time of the
Inspection in the following terms:
1. The customer visits their premises.
2. The customer selects a frame of his choice depending on brand, price, look,
quality, etc.
3. The customer selects lenses of his choice depending on brand, price, look,
quality, etc.
4. The customer either already has a prescription (details of power of lenses
required) or he gets his eyes tested at the showroom.
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.
6. After getting the power of lenses/glass required for the customer, either they
get the same from their store in the premises or if not available in the store,
they place order to get the same from their warehouse at Bangalore.
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 –
i. Remove dummy lens from the frame, which comes fitted with the
frame from the factory.
ii. Verify the power of the lens (Pre Quality Check)
iii. Makes pattern of lens with the help of dummy lens, by cutting the
“un-cut plastic pattern” into the requisite shape,
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
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.
v. Keeps lens in the Edging Machine for cutting and grinding to
required size.
vi. Keep the lens in the grooving machine, if grooving is required.
vii. Fit the lens so made, in the frame selected by the customer, to get
a complete spectacle.
He also informed that the spectacles were 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).
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 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.
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
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
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.
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.
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
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
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.
23. The judgments in the cases of Mehta Opticians, Bholanath Sreemany
and Amazon decide and reiterate the issue of whether the activity of assembly sim-
pliciter including fitting and minor adjustments that are part and parcel of the pro-
cess of assembly, constitute ‘manufacture’ for the purposes of the Act, in favour
of the assessee. The show cause notices, to this extent, and insofar as they purport
to equate the process of assembly to manufacture, are quashed.
24. These Writ Petitions are allowed. Connected Miscellaneous Petitions
are closed. No costs.
21.10.2021
Index: Yes
Speaking order
rkp/kbs
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
To
1. Commissioner of Central Excise LTU,
1775 Jawaharlal Nehru Inner Ring Road,
Anna Nagar Western Extn,
Chennai-600 101.
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.’
3. Chairman Central Board of
Excise & Customs Department of Revenue,
Ministry of Finance, North Block,
Secretariat, New Delhi.
4. Commissioner of Central Excise Chennai II,
Central Excise, Commissionerate,
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
New No.692 MHU Complex
Anna Salai Chennai-2.
5. The Joint Commissioner of
Central Excise, Chennai II, Commissionerate,
3rd Floor, MHU Complex, Nandanam, Chennai-35.
https://www.mhc.tn.gov.in/judis/
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
DR. ANITA SUMANTH, J.
rkp/kbs
W.P.Nos.37765 of 2016 and
1038 & 1039 of 2017 and
WMP. Nos.1008 & 1009 of 2017 and 32365 of 2016
21.10.2021
https://www.mhc.tn.gov.in/judis/
