1989 (1) TMI 122 - SC - Central Excise

Whether processing of the kind concerned in these cases amounts to manufacture ? Whether the provisions of section 2 of the Amending Act which impart an artificial dimension to the concept of manufacture is ultra vires entry 84, List I? Whether, at all events, the imposition of a tax on such processing is referable to entry 97, List I ; and if the impost on the processors is justified under tariff items Nos. 19 and 22, according as whether the grey fabric is cotton or man-made , what should be the assessable value for purposes of levy of duty so far as the processors are concerned ? Held that - On a consideration of the matter, we are persuaded to think that the view taken in Empire Industries case 1985 (5) TMI 53 - SUPREME Court that grey fabric after it undergoes the various processes of bleaching, dyeing, sizing, printing, finishing, etc., emerges as a commercially different commodity with its own price structure, custom and other commercial incidents and that there was in that sense a manufacture within the meaning of section 2(f), even as unamended, is an eminently plausible view and is not shown to suffer from any fallacy. Indeed, on this point, the referring Bench did not disagree or have any reservations either. It is to be noticed that if the amending law is valid, this aspect becomes academic. So far as the exclusive competence of the Union Parliament to legislate is concerned, all that is necessary is to find out whether the particular topic of legislation is in List 11 or List 111. If it is not, it is not necessary to go any further or search for the field in List I ; Parliament has exclusive power to legislate upon that topic or field. Of course, it has concurrent power also in respect of the subjects in List 111. What appears, therefore, clear is that what applies to the main levy, applies to the additional duties as well. In testing whether a retrospective imposition of a tax operates so harshly as to violate fundamental right under article 19(1)(g), the factors considered relevant include the context in which retroactivity was contemplated such as whether the law is one of validation of a taxing statute struck down by courts for certain defects the period of such retroactivity, and the defects and extent of any unforeseen or unforeseeable financial burden imposed for the past period, etc. Having regard to all the circumstances of the present case, this court in Empire Industries case 1985 (5) TMI 53 - SUPREME Court held that the retroactivity of the amending provisions was not such as to incur any infirmity under article 19(1)(g). We are in respectful agreement with that view. On a consideration of the matter, the view taken in the matter in Empire Industries case 1985 (5) TMI 53 - SUPREME Court does not call for reconsideration.

Issues Involved:
1. Whether the processes of bleaching, dyeing, printing, sizing, etc., amount to "manufacture" under section 2(f) of the Central Excises and Salt Act, 1944, prior to its amendment.
2. Whether the amendment to section 2(f) and tariff items Nos. 19 and 22 of the Central Excises Act is ultra vires entry 84, List I, and whether it can be supported by entry 97, List I.
3. Whether the levy of additional duties under the Additional Duties of Excise Act is valid without a corresponding amendment to the definition of "manufacture" in that Act.
4. Whether the retrospective operation of the Amending Act is an unreasonable restriction on the fundamental right under article 19(1)(g) of the Constitution.
5. Whether the computation of the assessable value of processed grey fabric based on the wholesale cash selling price declared under the classification list under rule 173B is justified.

Detailed Analysis:

Issue 1: Whether the processes of bleaching, dyeing, printing, sizing, etc., amount to "manufacture" under section 2(f) of the Central Excises and Salt Act, 1944, prior to its amendment.
The court upheld the view from *Empire Industries Ltd. v. Union of India* [1986] 162 ITR 846, that "grey fabric" after undergoing processes like bleaching, dyeing, etc., becomes a commercially different commodity with its own price structure and commercial incidents. This transformation constitutes "manufacture" within the meaning of section 2(f) even before its amendment. The court found that these processes result in a new article with a distinctive character and use, thus meeting the criteria for "manufacture."

Issue 2: Whether the amendment to section 2(f) and tariff items Nos. 19 and 22 of the Central Excises Act is ultra vires entry 84, List I, and whether it can be supported by entry 97, List I.
The court held that the processes specified in the amendment were not so alien to the concept of "manufacture" that they could not fall within entry 84, List I. Even if the concept of "manufacture" was expanded beyond entry 84, the levy could still be supported by entry 97, List I. The court emphasized that legislative entries should be construed liberally, and the term "levy" includes both the imposition of a tax and its quantification and assessment.

Issue 3: Whether the levy of additional duties under the Additional Duties of Excise Act is valid without a corresponding amendment to the definition of "manufacture" in that Act.
The court found that section 3(3) of the Additional Duties Act, which states that the provisions of the Central Excises Act shall apply to the levy and collection of additional duties, was sufficient to incorporate the definition of "manufacture" from the Central Excises Act. The court noted that the term "levy" includes the entire process of taxation, and thus the expanded definition of "manufacture" under the Central Excises Act applies to the Additional Duties Act as well.

Issue 4: Whether the retrospective operation of the Amending Act is an unreasonable restriction on the fundamental right under article 19(1)(g) of the Constitution.
The court held that the retrospective operation of the Amending Act was not an unreasonable restriction on the fundamental right under article 19(1)(g). The court stated that a competent Legislature can validate a law retrospectively to cure defects identified by courts, and such validation is particularly significant in taxing statutes. The court found no extraordinary circumstances to override the legislative judgment on the need for retrospective legislation.

Issue 5: Whether the computation of the assessable value of processed grey fabric based on the wholesale cash selling price declared under the classification list under rule 173B is justified.
The court upheld the method of determining the assessable value as laid down in *Empire Industries' case* [1986] 162 ITR 846, which includes the value of the grey fabric, the processing charges, and the manufacturing profit and expenses. The court rejected the contention that the assessable value should be limited to the processing charges alone, stating that such a method would create anomalies and inconsistencies. The court clarified that the assessable value must reflect the price at which the processed fabric leaves the factory gate, including all relevant costs and profits but excluding post-manufacturing profits.

Conclusion:
The court allowed the appeals by the Union of India, setting aside the judgment of the Gujarat High Court, and dismissed the appeals and writ petitions filed by the processors. The assessable value of processed fabric includes the value of the grey cloth, job work done, manufacturing profit, and manufacturing expenses, but excludes post-manufacturing profits.

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