1981 (9) TMI 127 - HC - Central Excise

Friction Cloth - Liability to duty - Intermediary process, if taxed - Effect - Interpretation - Statutes or provision

Summary

Issues:
Challenge to directions of Central Excise Department regarding licensing and duty payment for manufacture of rubberised cloth.

Analysis:
1. The writ petition was filed by multiple manufacturers of rubber products against the Union of India and Central Excise Department officials challenging the demand to obtain licenses for manufacturing rubberised cloth and pay immediate duty. Similar demands were made to other petitioners by respective Central Excise Divisions.

2. The petitioners are engaged in manufacturing Transmission Rubber Beltings/V. Shaped Belts and Conveyor Belts. The process involves compounding raw rubber with chemicals to create a master batch, impregnating cotton canvas with rubber paste to form layers, and vulcanizing the pile to produce the final product. The controversy arose regarding whether the intermediary product, known as Friction Cloth, attracts excise duty under Tariff Item No. 19(1)(b).

3. The respondents contended that Friction Cloth attracts excise duty under the Tariff, requiring the petitioners to obtain licenses and pay duty. However, the petitioners argued that excise duty should only be payable on the end-product and not at every intermediary stage of the manufacturing process.

4. The statutory provision under Item No. 19(1)(b) of the Tariff was examined, and it was observed that interpreting the provision to levy duty at every stage of the manufacturing process would lead to an absurd result, making production unfeasible. The intention behind the provision was considered to conclude that excise duty should be payable only on the end-product.

5. The respondents argued that duty would be leviable on the intermediary product if the manufacturing process was not composite, integrated, and uninterrupted. However, it was found that the process of manufacturing Transmission Rubber Beltings/V. Shaped Belts and Conveyor Belts was indeed a continuous process, and the Friction Cloth did not attract duty as it was not marketed by the petitioners.

6. The judgment favored the petitioners, quashing the impugned notices demanding duty payment on the intermediary product. The court held that the manufacturing process was composite, integrated, and uninterrupted, and excise duty should only be payable on the end-product. The respondents were directed to bear the costs of the writ petition.