1986 (12) TMI 36 - SC - Central Excise

Whether the processes of bleaching, dying, printing, mercerising etc. carried on by a processor on job work basis in respect of grey cotton fabrics and man-made fabrics belonging to the customer and entrusted by him for processing amount to 'manufacture' within the meaning of the Central Excises and Salt Act as it stood prior to its amendment by the Central Excise and Salt and Additional Duty of Excise (Amendment) Act, 1980? Held that - Correct mode of determination of the assessable value of the processed fabric in the hands of the processor who does job work in respect of grey cloth supplied by the manufacturer or trader. Refer these writ petitions and appeals to a larger Bench of five Judges. Of course, when these writ petitions and appeals are referred to the larger Bench it will be open to the larger Bench to consider not only the question of determination of the assessable value but also the other question, namely, whether processing of grey fabric by a processor on job work basis constitutes manufacture, because the judgment in Empire Industries case (1985 (5) TMI 215 - SUPREME COURT OF INDIA) which has decided this question in favour of the Revenue and against the processor is a Judgment of a Bench of only three Judges and now the present writ petitions and appeals will be heard by a Bench of five Judges.

Summary

Issues:
1. Whether processing of fabrics on job work basis amounts to 'manufacture' under the Central Excises and Salt Act.
2. How should the assessable value of processed fabrics be determined for the purpose of levying excise duty.

Analysis:

Issue 1:
The primary issue raised in this judgment is whether the processes of bleaching, dyeing, printing, etc., carried out by a processor on job work basis amount to 'manufacture' under the Central Excises and Salt Act. The Supreme Court, citing a previous case, held that these processes do constitute manufacture, both before and after the Act's amendment. However, a controversy arose regarding the assessable value of the processed fabrics. The Court noted that the value for assessment under the Act includes the intrinsic value of the processed fabrics, not just the processing charges. The processors contended that this observation needed reconsideration as it significantly impacted their operations.

Issue 2:
The second issue pertains to the determination of the assessable value of processed fabrics for excise duty purposes. The Court clarified that the assessable value should be based on the wholesale cash price of the processed fabric at the factory gate when it leaves the processor's premises. It emphasized that this value should not include the selling profit of the trader who sells the processed fabric later. The Court rejected the argument that the value of the raw material (grey cloth) should not be included in the assessable value, stating that it is an essential component in computing the value of the processed fabric. The correct approach, as per the Court, is to consider the value of the grey cloth and the job work charges in determining the assessable value, excluding any subsequent selling profit.

In conclusion, the Court referred the case to a larger Bench of five Judges to address the issues of determining the assessable value and whether processing of grey fabric by a processor on job work basis constitutes 'manufacture.' The judgment highlighted the importance of judicial discipline and the need to respect previous decisions, even if there is a difference in opinion, emphasizing the legal process of referring conflicting judgments to a larger Bench for resolution.