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TMI Blog2010 (5) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturers' in terms of the Central Excises Act 1944 (CE Act). The grey cloth so received is subjected to the processes of bleaching, printing or dyeing and are then returned to the traders on payment of excise duty on the declared value of the grey fabrics after adding the processing charges. The Petitioners therefore contend that they do not 'manufacture', cloth' or 'fabric' within the meaning of 'textiles' under Section 2(g) TCA. 3. It is further contended that in terms of the Proviso to Section 5-A TCA no cess can be levied on textiles manufactured from out of handloom or power-loom industry. It is claimed that the Petitioners are purchasing the grey cloth from units having less than 50 looms. Therefore, the charging Section 5-A is not attracted. 4. The decision of the Tribunal dated 30th April 2004 in Chandok Textiles Exporters Pvt. Ltd. v. Assessing Officer, Textile Committee is assailed on the ground that it is inconsistent with the law explained by the Supreme Court. It is submitted that even if it is assumed that the Petitioners are manufacturing textile, then the cess must be confined to the extent of the job work done and not be levied and collected on the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ills Ltd. v. Union of India AIR 1988 SC 2237 where it was held that manufacture was complete as soon as the raw material underwent some change and a new substance or article was brought into existence. The new commodity must be commercially separate and distinct having its own character and use. It is submitted that the demand is not time barred and that Rule 10 TCCR has no application in the instant cases. 6. This Court has heard the submissions of Dr. Manish Singhvi, the learned counsel appearing for the Petitioners and Mr. Chirag M. Shroff, the learned counsel appearing for the Respondents. 7. The first question that arises is whether the petitioners can be said to be manufacturers of textiles within the meaning of the TCA' The charging section of the TCA is Section 5-A which reads as under: "5A. Imposition of cess on textiles and textile machinery manufactured in India. (1) There shall be levied and collected as a cess for the purposes of this Act a duty of excise on all textiles and on all textile machinery manufactured in India at such rate, not exceeding one per cent, ad valorem as the Central Government may, by notification in the Official Gazette, fix: Provided tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inghvi, since no new cloth, fabric or yarn comes into existence as a result of the bleaching of the grey cloth the Petitioners cannot be said to be manufacturing textiles'. If the Petitioners did not manufacture any textile then the TCA would not apply at all. 10. The above submission of the learned counsel for the Petitioners is unacceptable. The grey cloth which undergoes change continues to be cloth made wholly or in part of whichever material does mean whether it is cotton or silk or artificial silk or other fibre. The words "or any other article made wholly or in part of" occurring in Section 2(g) TCA would, in the considered view of this Court, include the dye and bleached fabric. It cannot be said that what emerges as the end product from the petitioners' units is not 'textiles'. Do the processes of bleaching, printing and dyeing amount to manufacture for the purposes of the TCA' 11. The principal submission of the petitioners is that the activity carried on by each of them is only the processing of grey cloth in the form of bleaching, dyeing or printing and therefore does not amount to 'manufacture'. Section 5-A (1) TCA states that there shall be levied and collected as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinctive name, character and use. In CCE v. Rajasthan State Chemical Works 1991 (4) SCC 473, it was held in para 12 as under (SCC at p.478-79): "12. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But it is only when the change or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place." 14. In Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Pio Food Packers (1980) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the construction of the expression that the process of bleaching, dyeing and printing etymologically also means manufacturing processes." It was also observed that (SCC, p.338): "processes of the type which have been incorporated by the impugned Act were not so alien or foreign to the concept of "manufacture" that these could not come within that concept." Later the correctness of the decision in Empire Industries, essentially on the question of valuation, was referred to a larger bench of five judges. Although the referring bench (Union of India v. Narendra Processing Industries 1986 Supp SCC 652) acknowledged that the three-Judge Bench in Empire Industries had categorically held that "the processes of bleaching, mercerising, dyeing, printing, water-proofing, etc. carried out by the processors on job work basis amount to manufacture both under the Act as it stood prior to the amendment as also under the Act subsequent to the amendment and the processed fabrics are liable to be assessed to excise duty in the hands of what may be called 'jobbers'", the referring bench nevertheless referred that question also to the larger bench. This led the larger bench in Ujagar Prints (II) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 'manufacture in its well accepted legal sense - nomen juris - the said word included within its ambit the processes of bleaching, dyeing, printing etc. 19. Turning to Section 5-A of the TCA, the taxable event is 'manufacture' of textiles and the cess is levied as 'a duty of excise' on such manufacture. Even if the petitioners' submission is accepted and the meaning of the word 'manufacture' is not imported from the CE Act, then even in its ordinary legal sense it would in terms of the dictum in Empire Industries as re-affirmed in Ujagar Prints (II) include the processes of dyeing, printing and bleaching since they bring about a change, perhaps an irreversible change, to the grey cloth so processed and that amounts to manufacture. Therefore, there is no merit in the submission that for the purposes of Section 5-A TCA the processes of bleaching, dyeing and printing do not amount to manufacture. Referential legislation 20. There is another way of looking at the issue. Section 5-A TCA does not refer to the CE Act when it talks of 'duties of excise.' Can it then be said that they carry the same meaning as those words carry for the purposes of the CE Act' The judgment in Ujagar Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... broad nature as to the law on a subject generally, or contained a general reference to the terms of an earlier statute which are to be made applicable. It was held that the ADE Act fell in the latter category. 23. Under Section 5-A TCA unless the words "duties of excise" are understood as carrying the same meaning as in the CE Act, the TCA which is supplemental to the CE Act, would be unworkable. The taxable event whether for the purposes of the CE Act or the TCA is the same i.e. manufacture of textiles. The impost is also as a percentage of the same value. Therefore even if the TCA is seen not to incorporate the CE Act it can certainly be construed as making a broad general reference to the CE Act when it uses the words 'duties of excise' in its charging section. This position is further strengthened by the fact that Rules 3, 4 and 8 TCCR make a reference to the CE Act. Therefore by applying the principle of legislation by reference, the words 'duties of excise' and 'manufacture' occurring in Section 5-A TCA should be construed as taking colour from the meaning of those words in the CE Act. This Court's decision in Nath Bros. v. Union of India 24. In Nath Bros. v. Union of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e completion of the manufactured product and the word manufacturer includes not only a person who employs hired labour in the production or manufacture of goods hut also am one, who engages in their production or manufacture on his own account, if those goods are intended for sale. It is thus clear that the word manufacturer does not merely include those persons who in common parlance are themselves engaged in the manufacturing of textiles but also includes those persons who engage themselves in getting the textiles, intended for export, produced or manufactured on their own account. In other words a person who brings into existence an article or a product even through the instrumentality of an agent or a servant has to be regarded as a manufacturer. An actual physical act of manufacturing cannot be said to be the essence of the definition of the word manufacturer. For instance, a person who supplies yarn to a handloom or power loom owner for weaving cloth according to his specifications/design/pattern on payment of labour charges is a "manufacturer". (emphasis supplied) 25. The above decision therefore categorically holds that the physical act of manufacturing alone cannot be sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; the manufacturer chargeable with the cess so short levied or to whom refund has been erroneously made on a notice of demand from the Committee made within one year from the date on which the cess has been paid, shall pay the deficiency or, as the case may be refund the amount paid to him in excess within a month from the date of receipt of such notice." 30. Learned counsel for the Petitioner referred to the decision in N.B. Sanjana, Assistant Collector of Central Excise, Bombay v. Elphinstone Spinning and Weaving Mills Co. Ltd. 1978 E.L.T. (J 399) where it was explained that the word levy' will have to be construed as meaning actual collection. According to the petitioners, the words "short levy" would include "non levy" as well. It is accordingly submitted, the demand for the years 2002-03 and 2003-04 had to be made within a period of one year thereafter else it would be time-barred. It is submitted that the demand notice dated 27th July 2006 issued to Rolex Processors (P) Ltd. was time barred. 31. On behalf of the Respondents, it is contended that in the present case Rule 10 has no application since for the first time a levy was made by issuance of the impugned demand notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nmade fabric to the processor for processing on job-work basis, would give a declaration to the processor as to what would be the price at which he would be selling the processed goods in the market, that would be taken by the Excise authorities as the assessable value of the processed fabric and excise duty would be charged to the processor on that basis provided that the declaration as to the price at which he would be selling the processed goods in the market, would include only the price or deemed price at which the processed fabric would leave the processor's factory plus his profit. Rule 174 of the Central Excise Rules, 1944 enjoins that when goods owned by one person are manufactured by another the information is required relating to the price at which the said manufacturer is selling the said goods and the person so authorised agrees to discharge all the liabilities under the said Act and the rules made thereunder. The price at which he is selling the goods must be the value of the grey-cloth or fabric plus the value of the job work done plus the manufacturing profit and the manufacturing expenses but not any other subsequent profit or expenses. It is necessary to include t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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