Full Text
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 8882 OF 2018
Maharashtra State Electricity Distribution
Co. Ltd. (MSEDCL)
Office of the Superintending Engineer
Plot No.5, Near Abhudaya Bank Building, Sector 17, Vashi, Navi Mumbai ...Petitioner
Aviat Healthcare Private Ltd.
Plot No.D-115, TTC/MIDC, Shirvane, Navi Mumbai – 400 708 ...Respondent
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Mr. Rahul Sinha i/by DSK Legal, for the Petitioner.
Mr. Navroz Seervai Senior Advocate a/w Mr. Rohan Kadam, Mr. Shriraj Dhruv, Ms. Swati Sutar i/by Dhru and Co. for the Respondent.
Mr. Ajay Chate Addl. G.P. a/w Mr. Hamid Mulla A.G.P. for the State.
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JUDGMENT
1. Heard Mr. Rahul Sinha, the learned counsel for the petitioner and Mr. Navroz Seervai the learned senior counsel for the respondent.
2. The petition questions the order dated 18.09.2017 passed by the Appellate Authority under Section 127 of the Electricity Act in which the final assessment under Section 126 of the Electricity Act categorizing the activity of the respondent as research and development and therefore liable for commercial tariff (Page-21) was in question and the Appellate Authority by the impugned order has held that the activity which was carried out by the respondent was in fact a manufacturing activity and therefore liable to be charged industrial tariff, as there was no unauthorized use of electricity.
3. Mr. Sinha, the learned counsel for the petitioner submits that the original consumer was Aviat Healthcare Pvt. Ltd., who had licensed the premises to the respondent, which was without permission of the petitioner on account of which the use of electricity by the respondent has to be termed as unauthorized thereby bringing into effect the provision under Section 126 of the Electricity Act and the consequences to follow. He further submits, that the activity which was being carried out by the respondent was a research and development (R & D) activity and therefore could not be categorized as a manufacturing activity, on account of which commercial tariff was applicable. The learned counsel relies upon the certificate dated 22.02.2011 (Page-206) to contend that the consent to operate, was granted for R & D activity and not for any manufacturing activity. Reliance is also placed upon the joint inspection report dated 02.05.2015 (Page-214) and the communication dated 29.08.2016 (Page-289) of the compilation to support his contention. He further contends, that an R & D activity which is carried out by an industry within the industrial premises would be liable to be categorized as industry and therefore levied industrial tariff, however if the R & D activity is outside the industrial premises it has to be categorized as such, and therefore levied commercial tariff. He therefore submits that since the activity of the respondent was of R & D, and not within the industrial premises, the appropriate commercial tariff was levied on account of which the finding rendered by the Appellate Authority in the impugned order was clearly not justified.
4. Mr. Seervai, the learned senior counsel for respondent submits that, the inspection report dated 02.09.2016 (Page-
59) indicates that the activity which was carried out in the premises was manufacturing activity. He also places reliance upon the joint inspection report dated 02.05.2015 (Page-214) in support of his contention. Reliance is also placed upon the license to manufacture issued by the Commissioner Food and Drugs Administration (FDA for short) dated 24.04.2006 (Page-183); the certificate of registration of the industry under the Factories Act, 1948 and so also the Central Excise Registration Certificate (Page-
193) to contend that the activity was of manufacture. The learned senior counsel in the context of the communication dated 22.02.2011 (Page-206) submits that the consent was granted for the purpose of manufacture and not otherwise and activity carried out by the respondent has to be viewed in its totality considering the nature of process which was being undertaken by the respondent.
5. The imposition of tariff by the petitioner, depends upon the category in which the activity of the petitioner falls. If the activity falls within the category ‘R & D’, the categorization would be different HT-II and the tariff which would be applicable commercial tariff. If the activity is a manufacturing activity, the categorization would be HT-I and the tariff levied would be industrial.
6. What is necessary to note is that the tariff which is levied, is on the basis of the activity and therefore would not depend on the place at which it is carried out. The argument therefore that if the R & D activity is carried out within the industrial premises, industrial tariff is leviable and if the R & D activity is carried out outside the industrial premises, commercial tariff is leviable, is clearly not only illogical, but also unreasonable and arbitrary. In fact an R & D activity, is an activity, which needs to be encouraged by the respondent, as it is the bullwork of any future developments in any industry and there does not appear to be any rhyme or reason why the same has to be categorized as a commercial activity and commercial tariff to be levied for such activity.
7. A perusal of the communication dated 29.08.2016 by Aviat Healthcare Pvt. Ltd. to the petitioner (page-290 of the compilation) would indicate that the activity carried out by respondent is clearly described therein which is as under: “i. USV is developing/manufacturing the following products: a. USV on the said premises manufactures Drug Substances (API) such as Teriparatide, Somatropin, Peg Filagrastim. b. USV has been in the process of manufacturing validation batches. Further, USV has been carrying out manufacturing of Drug Substance batches on such scale as needed as part of the Protocol for submission to various authorities to obtain product approval. These batches come under the category of Engineering batches. Scale-up, Process Characterization batches, Process validation batches, consistency batches as well as batches for carrying out various clinical trials and stability studies. All the aforesaid activities by their very nature undoubtedly involve the process of manufacture. The activity presently being carried out by USV are with the same machinery, equipment, material, facilities, etc. as would be used for commercial exploitation of the product once such batches are validated. Manufacturing of validation batches entails conversion of certain raw materials into a product which is to further use for the purpose of ascertaining consistency of such manufacture, the under lying principle being that raw material utilized undergoes a change and a new product comes into being. A brief flow chart of the manufacturing process is given in Annexure 7 hereto which clearly demonstrates that USV carries out manufacturing activities in the course of R & D on the Premises. c. The Drug Substances to manufactured are then transferred to USV’s Daman facility to manufacture the final product to enable submission for approval. The activities undertaken by USV are to comply with the regulatory requirement and subsequent commercial launch in India, European Union, USA and other countries.”
8. The Electricity Act, 2003, does not define what is meant by ‘manufacture’, and ‘industry’, and thus the meaning will have to be understood as to what they connote in normal parlance.
8.1. In Y. Aswathanarayana v. Deputy Commercial Tax Officer, 1963 SCC OnLine AP 236, ‘manufacture’, is explained as under:
21. According to Black's Law Dictionary the word “manufacture” is derived from Latin words “manu” and “facere”, literally, put together by hand. Now it means the process of making products by hand or machinery. It makes a mention that the primary meaning of the word is “making with the hands”, but this definition is too narrow for its present use, It also mentions as follows:— “Meaning of word ‘manufacture’, which is defined as the making of goods or wares by manual labour or by machinery, especially on a large scale, has expanded as workmanship and art have advanced, so that now nearly all artificial products of human industry, nearly all such materials as have acquired changed conditions or new and specific combinations, whether from the direct action of the human hand, from chemical processes devised and directed by human skill, or by the employment of machinery, are now, commonly designated as ‘manufactured’.”
22. When it is used as now it means according to that dictionary “the process or operation of making wares or any material produced by hand., by machinery or by other agency; anything made from raw materials by hand, by machinery, or by art.”
23. Bouvier's Law Dictionary defines the word “manufacture” as “to make or fabricate raw materials by hand, art, or machinery, and work into forms convenient for use; and, when used as a noun, anything made from raw materials by hand, or by machinery, or by art.”
24. Words and Phrases Judicially defined considers the word “manufacture” and states: “The word ‘manufactures’ has been generally understood to denote either a thing made, which is useful for its own sake, and vendible as such, as a medicine, a stove, a telescope, and many others, etc., etc.”
25. Chambers' Twentieth Century Dictionary defines “manufacture”, “to make, originally by hand, now used by machinery, and on a large scale; n.— the practice, act, or process of manufacturing.”
26. The Concise Oxford Dictionary gave the following meaning to the word “manufacture”: “Making of articles by physical labour or machinery, esp., on large scale.”
27. Webster's New International Dictionary attributes the following meaning to the word “manufacture”: “To make (wares or other products) by hand, by machinery, or by other agency; as, to manufacture cloth, nails, glass, etc., to produce by labour, esp., now, according to an organised plan and with division of labour, and usually with machinery.”
28. The Oxford English Dictionary lends a meaning to that word as; “the action or process or making articles or material (in modern use, on a large scale) by the application of a physical labour or mechanical power.”
29. It will thus be manifest that there is no warrant for the construction of the word “manufacture” only to mean a process by which the raw material is converted into an altogether new article. It has been given a very wide and extended meaning, and as stated above, the meaning of the word “manufacture” would naturally take in the present day context any process carried on by machinery which ultimately makes raw material usable or marketable, or ready for further mechanical operation. We have therefore no hesitation in rejecting the contention that inasmuch as the groundnuts after they are decorticated produce kernel which is not altogether a new article, therefore the decorticating process is not a “manufacture” and further that when it is not a process of manufacture, it is not a “mill”. We have already pointed out that the fallacy in the argument is that it starts from a wrong end. Both the words “mill” as well as “manufacture” are not capable of a restricted or narrower meaning. Even the dictionary meanings copiously cited above lend considerable support to the conclusion that they have to be given the modern and extended meaning.
8.2. In Commissioner of Income-Tax v. Tata Locomotive & Engineering Co. Ltd., 1967 SCC OnLine Bom 143 relying upon Y. Aswathanarayana v. Deputy Commercial Tax Officer (supra) the word ‘manufacture’, has been explained as under:
10. In its roots the word “manufacture” comes from the Latin word “manus” which means “hand” (and “manu” is the ablative of the word “manus”) and the word “facere” which means “to make”. In origin, therefore, the word implied the making of anything by hand, but with the passing of time and in the context of industrial development the word has acquired a number of shades of meaning. In connection with industry or an industrial undertaking, two shades of meaning are important. In the Oxford Dictionary, vol. 6, the two shades of meaning are given as follows: (1) The first is “the action or process of making articles or material (in modern use, on a large scale) by the application of physical labour or mechanical power”. This is the most generic meaning in its application to industry or industrial undertakings or establishments. (2) There is also another more limited meaning which is found referred to in the authorities as meaning the transforming of raw materials into a commercial commodity or a finished product which has a separate identity (Commissioner of Income-tax v. Ajay Printery Pvt. Ltd. [[1965] 58 I.T.R. 811, 816.]. This shade of meaning is more appropriately used in the past participle “manufactured”. See Oxford Dictionary, Vol. 6, at page 143, sense No. 1, where the meaning is “fabricated from raw material”. In Aswathanarayana v. Dy. Commercial Tax Officer [[1965] 58 I.T.R. 811, 816.], at page 801 one finds a useful compilation of meanings attached to the word “manufacture” from various dictionaries and other sources.
8.3. InUnion of India v. Ahmedabad Electricity Co. Ltd., (2003) 11 SCC 129 the word ‘manufacture’, has been explained to mean as under:
19. What is the meaning of “manufacture” in the context of excise law? We have already quoted the definition of the word “manufacture” as contained in Section 2(f) of the Act. According to this definition, manufacture includes any process incidental or ancillary to the completion of a manufactured product. The word “manufacture” used as a verb is generally understood to mean as bringing into existence a new substance. It does not mean merely to produce some change in a substance. To quote from a passage in the Permanent Edition of Words and Phrases, Vol. XXVI “manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation: a new and different article must emerge having a distinctive name, character or use”. “Manufacture” may involve various processes. The aim of any manufacturing activity is to achieve an end product. Depending on the nature of manufacturing activity involved, processes may be several or one. The natural meaning of the word “process” is a mode of treatment of some material in order to produce a good result. Every process which is incidental or ancillary to the completion of manufactured product is included within the meaning of manufacture. The word “process” has not been defined in the Act. In its ordinary meaning “process” is a mode of treatment of certain material in order to give a desired shape to the material. It is an activity performed on a given material in order to transform it into something.
8.4. In Grasim Industries v. Union of India, (2011) 10 SCC 653 ‘manufacture’, as defined in sec.2(f) of the Central Excise Act, has been considered to mean as under:
15. “Manufacture” in terms of Section 2(f) includes any process incidental or ancillary to the completion of the manufactured product. This “any process” can be a process in manufacture or process in relation to manufacture of the end product, which involves bringing some kind of change to the raw material at various stages by different operations. The process in manufacture must have the effect of bringing change or transformation in the raw material and this should also lead to creation of any new or distinct and excisable product. The process in relation to manufacture means a process which is so integrally connected to the manufacturing of the end product without which, the manufacture of the end product would be impossible or commercially inexpedient.
8.5. It would therefore be apparent that the word ‘manufacture’, has several hues and connotations, which may vary depending upon the nature and purpose of manufacture of a particular item and the process involved in such ‘manufacture’. With the advent of machines, the development in technology, the sizes of the machines, which was earlier gargantuan, has been reduced by a considerable extent, so that the activity which was earlier capable of being carried out by use of such gargantuan machines, requiring huge spaces, is now being capable of being carried out from comparatively, much smaller spaces, the nature of the activity and the effect/output reaming the same. Miniaturization has now become the norm. Technological advances have also brought in new methods and processes of production and manufacture of materials and substances, and therefore the meaning of the word ‘manufacture’, has to adopt itself to these new technologies, so as to make it relevant and meaningful.
8.6. Since the word ‘manufacture’, has to be understood in the context of ‘drugs’, as the respondent, claims to be a manufacturer of ‘drugs’, what is meant by ‘drugs’, must be understood. ‘drug’, is defined in sec.3(b) of the Drugs & Cosmetics Act 1940, as under:
3. (b) "drug" includes—
(i) all medicines for internal or external use of human beings or animals and all substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings or animals, including preparations applied on human body for the purpose of repelling insects like mosquitoes;
(ii) such substances (other than food) intended to affect the structure or any function of the human body or intended to be used for the destruction of vermin or insects which cause disease in human beings or animals, as may be specified from time to time by the Central Government by notification in the Official Gazette;
(iii) all substances intended for use as components of a drug including empty gelatin capsules; and
(iv) such devices* intended for internal or external use in the diagnosis, treatment, mitigation or prevention of disease or disorder in human beings or animals, as may be specified from time to time by the Central Government by notification in the Official Gazette, after consultation with the Board; The definition of ‘drug’, as occurring in Sec.3(b) of the Drugs and Cosmetics Act, is an inclusive definition and encompasses within its meaning not only drugs as the word as understood in the normal parlance is understood, but also all medicines for internal or external use of human beings; all substances intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings or animals; such substances (other than food) intended to affect the structure or any function of the human body or intended to be used for the destruction of vermin or insects which cause disease in human beings or animals; all substances intended for use as components of a drug including empty gelatin capsules; such devices intended for internal or external use in the diagnosis, treatment, mitigation or prevention of disease or disorder in human beings or animals as may be specified.
8.7. The Drugs & Cosmetics Act 1940, also defines ‘manufacture’, in sec.[3] (f) as under: (f) "manufacture" in relation to any drug or cosmetic includes any process or part of a process for making, altering, ornamenting, finishing, packing, labelling, breaking up or otherwise treating or adopting any drug or cosmetic with a view to its sale or distribution but does not include the compounding or dispensing of any drug, or the packing of any drug or cosmetic, in the ordinary course of retail business; and "to manufacture" shall be construed accordingly; Thus ‘manufacture’, in relation to a drug, would include the process or part of a process for making, altering, ornamenting, finishing, packing, labeling, breaking up or otherwise treating or adopting any drug or cosmetic which has to be with a view of its sale or distribution. The activity carried out by the respondent, thus has to be viewed and understood in light of the above position.
9. As the joint inspection report dated 02.05.2015 was not found to be clear and precise, another joint inspection was directed, which was carried out on 02.09.2016. The joint inspection report dated 02.09.2016 (Page – 59) details the nature of the activity carried out by the respondent. The joint inspection report dated 02.09.2016 (Page – 59) has not been questioned or challenged by the petitioner, at any point of time and thus would be binding on all. This joint inspection report indicates that the raw material which is received by the respondent, undergoes processing and thus there is a change in the nature of the material on account of the processing. The processed product is used in supporting chemotherapy in cancer treatment to improve neutrophil in blood. The report also indicates that the other raw materials received are also processed. The process of manufacturing, indicates, that the raw material which is received, on account of the process, through which it goes, changes its form and is converted into another substance or another form. The activity as described in joint inspection report dated 02.09.2016 would clearly indicate, that the raw material received by the respondent under goes such a change in form, on account of the process to which it is subjected to in the premises of the respondent. The word ‘manufacture’, as understood in the context of the activity being carried out by the respondent, as indicated from the joint inspection report, dated 02.09.2016, would clearly demonstrate that the activity which is being carried out by the respondent has to be held a manufacturing activity.
10. This is further substantiated by the fact that the respondent has been granted a license to manufacture for the sale or for distribution of drugs, specified in Schedule C & C(1), of the D & C Act, by the Appropriate Authority of the Food and Drug Administration, Thane on 24.04.2006 (page 183); a Central Excise Registration Certificate under Rule 9 of the Central Excise Rules 2002 for manufacturing of excisable goods has also being granted to the respondent on 03.08.2006 by the Assistant Commissioner of Central Excise (Page-193) which can only be granted, in terms of Section 3 of the Central Excise Act, 1984 in respect of goods produced or manufactured in India. The Maharashtra Pollution Control Board has also by the communicated dated 22.02.2011 granted consent to operate. (page 206). Though the product name therein states R & D activity/Pilot plant/Biotech, however Clause-2 of the same indicates that the consent is valid for manufacture. This would also indicate that various Statutorily authorities, have considered the activity claimed to be carried out by the respondent and have accepted that the same means ‘manufacture’.
11. Since the respondent admittedly claims to manufacture drugs, the definition of ‘manufacture’, as contained in the Drugs and Cosmetics Act, would be the one, in light of which the activity of the respondent, has to be scrutinised. The definition of ‘manufacture’, in the D & C Act, as quoted in para 8.[6] above would manifest that activity of manufacture, has to be with a view to the sale or distribution of such drug. The communication dated 29.08.2016 by Aviat Healthcare Pvt. Ltd. to the petitioner (page-290 of the compilation) which has to be held to be on behalf of the respondent, in which the nature of activity performed by the respondent is explained in much detail, indicates that the respondent, claims to manufacture what is termed as validation batches, Engineering batches, Scale-up, Process Characterization batches, Process validation batches, consistency batches as well as batches for carrying out various clinical trials and stability studies, which are then used for the purposes of further manufacture of these drugs.
12. It is also material to note that Rule 76 of the D & C Rules 1945 which provides a license to manufacture for sale or for distribution of Drugs specified in Schedules C and C (1) as well as large volume parenterals, sera and vaccines and recombinant DNA (r-DNA) derived drugs had to be issued forms as indicated therein. Sub Rule 2 indicates that applicant proposing to manufacture pharmaceutical products as indicated Rule 76(1) shall comply with the provisions referred in Schedule-M in turn which prescribes good manufacturing practices and requirements of premises, plant and equipment for pharmaceutical products also indicates that manufacturing activities is contemplated by the same and process validation is a part of the manufacturing process. The license granted to the Respondent on 24.04.2006 is for manufacture for sale in respect of drugs specified in Schedule C & C(1) (page 183-
184) and is in form 24 under Rule 76 of the D & C Rules. Thus merely because the respondent is manufacturing ‘validation batches’, of various drugs, which also uses recombinant DNA technology, apart from others, it cannot be said that there is no activity of manufacture, more so, when there validation batches after their validation, are to be used for large scale manufacture, which as per Schedule M, of the D & C Rules, is a part of the good manufacturing practices, as prescribed therein and form a part and parcel of the manufacturing process.
13. The above discussion thus leads me to a conclusion that the activity being carried out by the respondent, would squarely fall within the definition of ‘manufacturing activity’.
14. The contention of Mr. Sinha, learned Counsel for the petitioner, that there was unauthorised use of electricity, in terms of Explanation (b) (v) of sec126 of the Electricity Act, 2003, needs consideration. The above provisions reads as under: Section 126: (Assessment): --- (1) If on an inspection of any place or premises or after inspection of the equipments, gadgets, machines, devices found connected or used, or after inspection of records maintained by any person, the assessing officer comes to the conclusion that such person is indulging in unauthorized use of electricity, he shall provisionally assess to the best of his judgement the electricity charges payable by such person or by any other person benefited by such use. (2) ------. (3) ------ (4) ------ (5) ----- (6) ------ Explanation.- For the purposes of this section,- (a) “assessing officer” means an officer of a State Government or Board or licensee, as the case may be, designated as such by the State Government; (b) “unauthorised use of electricity” means the usage of electricity –
(i) by any artificial means; or
(ii) by a means not authorised by the concerned person or authority or licensee; or
(iii) through a tampered meter; or
(iv) for the purpose other than for which the usage of electricity was authorised; or
(v) for the premises or areas other than those for which the supply of electricity was authorized. Explanation (v) of Sec.126 of the Electricity Act,2003, uses the word ‘premises’, and not ‘consumer’. It is not in dispute that the electric supply is being used in the same premises for which it was authorised. Merely because the respondent has been inducted in the said premises on leave and license, by M/s. Aviat Healthcare Pvt. Ltd. and such induction has not been intimated to the petitioner, that by itself, cannot be held to mean, that there was any unauthorised use of electricity within the meaning of Explanation (v) of sec.126 of the Electricity Act, as the premises remains the same. Explanation (iv) of sec.126 of the Electricity Act, 2003, lays down that is electricity was used for any other purpose, that for which it was authorised, the same would amount to unauthorised use and therefore liable for an action under sec.126 of the Electricity Act, 2003. It is not in dispute that electricity was supplied to Aviat Healthcare Pvt. Ltd. for industrial use. The activity of the respondent has been held to be a manufacturing activity, considering which it cannot be held that there was any change in use, so as to hold that there was any unauthorised use, on account of use by the respondent.
15. In view of the above discussion, I, do not find any reason to interfere in the impugned order. The petition is dismissed. Considering the circumstances, there shall be no order as to costs. (AVINASH G. GHAROTE, J.)