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TMI Blog1985 (5) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... turer will be given credit of the duty which is already paid on the articles used in the manufacture subject to certain conditions. It is stated before us that excise duty will be charged on processed printed material. Processors will be given credit for the duty already paid on the grey cloth by the manufacturer of the grey cloth. In this view of the matter we are of the opinion that the views expressed by the Bombay High Court in the case of New Shakti Dye Works Pvt. Ltd. and Mahalakshmi Dyeing and Printing Works v. Union of India and Anr. (1983 (6) TMI 174 - BOMBAY HIGH COURT) are correct. The views expressed by the Gujarat High Court in Vijay Textiles v. Union of India [1979 (1) TMI 101 - HIGH COURT OF GUJRAT AT AHMEDABAD] in so far as it held that the processed fabrics could only be taxed under residuary entry and not under Item, 19 I or Item 22 of the First Schedule of the Central Excise Tariff cannot be sustained. Appeal dismissed. - Writ Petition (Civil No. 11728 of 1984 with (Civil) Appeal Nos. 3564/84 & 641 /4/83 and Writ Petition Nos. 13556, 13792, 13788, 15438-39/84 and Civil Appeal Nos. 586-92 of 1979 - - - Dated:- 6-5-1985 - S. Murtaza Fazal Ali, Sabyasachi Mukhar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ye Works Pvt. Ltd. [1983 E.L.T. 1736 (Bom.)] 5. In order to appreciate the contentions raised, it is necessary to state that the petitioner company is an independent processing unit carrying on its activities at Bombay and as an independent processing unit was engaged in job activities of dyeing, printing and finishing of man-made/cotton fabrics. The petitioner company further states that in respect of the said processing activities, the petitioner company holds licences required under the laws for the time being in force including a licence under the Excise Act and the Central Excise Rules which hereinafter will be referred to as the `said Rules . 6. The petitioners in writ petition No, 11728 of 1983 were two in number - one being the petitioner company and the other being the Taxation Executive of the petitioner company. 7. The petitioners state that the processing operations of the petitioner company in the said factory are job work operations of dyeing, bleaching and printing of the said fabrics which are cotton fabrics and man-made fabrics. When the said fabrics are received in the factory of the petitioner company, the same are fully manufactured and are in a saleable c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it. The petitioner company further states that it has no proprietary interest in the fabric either before or after the same is processed. The manufacture of the fabrics and sale in the market of the processed fabrics are effected by the petitioner company s customers and not by the petitioners. Further the processed as well as the unprocessed fabric, whether cotton or man-made, can be put to the same use. 8. The petitioner company is required to file classification list for approval of the concerned Excise Authorities as prescribed by Rule 173-B of the said Rules for approval of Tariff Items in the First Schedule to the Excise Act in respect of the processed fabrics. As per approval granted thereon in respect of man-made fabrics and cotton fabrics, the petitioner company classifies all the processed fabrics under Tariff Items 19 and 22, as the case may be. So far as man-made fabrics are concerned under Tariff Item 22, the petitioner company was required to pay certain duties as mentioned in the petition. The petitioners state that the petitioner company has paid such duties. 9. The petitioners further state that such classification list of cotton fabrics has been approved un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose, it is not necessary to set out these deals. 12. The petitioners challenge the impugned Act mentioned hereinbefore. Before the contentions are dealt with, it would be appropriate to deal with the relevant provisions of the impugned Act. Section 2 of the impugned Act amends Section 2(f) of the Excise Act by adding three sub-items in the definition of `Manufacture which were included by Act 6 of 1980 being the impugned Act which came into effect from 24th November, 1979 which are sub-clauses (v), (vi) and (Vii). These read as follows :- (v) in relation to goods comprised in Item No. 19 (I) of the First Schedule, includes bleaching, mercerising, dyeing, printing, water-proofing, rubberising, shrink-proofing, organdie processing or any other process or any one or more of these processes ; (vi) in relation to goods comprised in Item No. 21(1) of the First Schedule, includes milling, raising, blowing, tentering, dyeing or any other process or any one or more of these processes ; (vii) in relation to goods comprised in Item No. 22(1) of the First Schedule, includes bleaching, dyeing, printing, shrink-proofing, tentering, heat-setting, crease resistant processing or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that so long as the respondents had been collecting and the petitioners had been paying excise duty and/or additional duty as the petitioner company was manufacturing cotton fabrics under Tariff Item Nos. 19 and 22, as the case may be. Since the decision of the Gujarat High Court in New Shakti Dye Works Pvt. Ltd. - 1983 E.L.T. 1736 (Bom.) and the petitioners and the processing houses like petitioners have been claiming refund. The material portions of the amendments of the Act have been set out herinbefore in the definition of Section 2(f). The second part of the impugned Act by which amendments were effected is found in Section 3 of the impugned Act by which original Item No. 19 in the First Schedule to the Excise Act was substituted by new Item No. 19 I and for the original Item No. 22, a new Item No. 22(1) was substituted. These are : I. Cotton fabrics, other than (i) embroidery in the piece, in strips or in motifs, and (ii) fabrics impregnated, coated or laminated with preparations of cellulose derivatives or of other artificial plastic materials. (a) cotton fabrics, not subjected to any process ...Twenty per cent ad valorem . (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the substitution of old Item No. 22(1) by new Item No. 22(1). 17. This item referred to man-made fabrics and by the amendment, man-made fabrics have again been divided into two categories, namely, (a) man-made fabrics, not subjected to any process, and (b) man-made fabrics subjected to different processes referred to in clause (b). 18. Cotton fabrics and man-made fabrics were also subjected to the additional duties of excise as a result of the amendments of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (hereinafter referred to as the Additional Duties Act ). By Section 4 of the amending Act, Item Nos. 19 I and 22(2) of the First Schedule to the Excise Act were also similarly amended by making an identical substitution of Item Nos. 19 I and 22(1) in the First Schedule to the Additional Duties Act. The Amendment Act has been made retrospective in operation, and so far as cotton fabrics are concerned, it became operative from 1st March, 1955 and so far as man-made fabrics are concerned, it became operative from 18th June, 1977. Now, it has been provided by clause (iv) of sub-section (1) of Section 5 of the Amendment Act that amendments of claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process or any two or more such processes and the rate or duty specified in such Act with respect to such cloth, cotton cloth, or `cotton fabrics had been specified separately with respect to each of the aforementioned sub-items thereof. Similar provision was also made in clause (iii) of sub-section (1) of Section 5 in respect of rayon or artificial silk fabrics" or man-made fabrics . It is common ground that the effect of various amendments inserted in the Excise Act by the Amendment Act was to include the processes of bleaching, dyeing and printing, in so far as the present petitions are concerned, within the definition of the word manufacture . It is also common ground that by making amendment to Tariff Item No. 19 I and by creating two separate categories of cotton fabrics, that is, (1) not subjected to any process, and (2) subjected to the processes and by making these amendments retrospective recoveries which have so for been made from the processors in question were sought to be legalised. If these amendments can stand the test of challenge of Articles 19(1)(g) and 14 and if the amendments in Section 2(f) are within the legislative competence of the Parliament, and the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or produced in India. It may be mentioned that the charging Section i.e. Section 3 of the Central Excises and Salt Act, 1944 empowers the levy and collection in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as they apply in respect of goods at rates set forth in the First Schedule to the said Act. Excisable goods under Section 2(d) means goods specified in the first Schedule as being subject to a duty of excise and includes salt. It was urged in support of this application that Parliament was incompetent under entry 84 to enact the impugned Act whereby an artificial meaning to the word `manufacture was given. The word `manufacture must be given its etymological meaning. It was urged that process of bleaching, dyeing and printing are not processes which could properly be described as manufacturing processes. Therefore it was submitted that by making the said amendment to the word `manufacture and by including such processes in the definition of manufacture and in effectuating the consequential amendments in Tariff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court that excise duty was a duty on the manufacture of goods and not on sale. After referring to the arguments of respective parties, this Court noted at page 596 of the report the contention on behalf of the revenue that manufacture was complete as soon as by the application of one or more processes, the raw material underwent some change. It further stated - To say this is to equate processing" to manufacture and for this we can find no warrant in law. The word manufacture used as a verb is generally understood to mean as bringing into existence a new substance and does not mean merely to produce some change in a substance , however, minor in consequence the change may be. The distinction is well brought about in a passage thus quoted in Permanent Edition of Words and Phrases, Vol. 26, from an American Judgment. The passage runs thus : 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." Hence according to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in an acceptable form to satisfy some want, or desire, or fancy or taste of man. It is apparent that the concept of `manufacture in that decision has been given a wide meaning. It is not necessary to go into this aspect any further. It may be mentioned that this Court in the case of Commissioner of Sales Tax, U.P. Lucknow v. Harbilas Rai and Sons - (1968) S.T.C. Vol. 21 p. 17, pointed out that the word `manufacture has various shades of meaning, and in the context of sales tax legislation, if the goods to which some labour was applied remained essentially the same commercial article, it could not be said that the final product was the result of manufacture. Referring to the Madhya Pradesh High Court s decision in the case of Hiralal Jitmal (supra), this Court observed at Page 20 as follows :- .....The decision of the Madhya Pradesh High Court might perhaps be justified on the ground that a printed or dyed cloth is commercially a different article from the cloth which is purchased and printed or dyed. 26. This is precisely the position here. On behalf of the revenue, great emphasis was laid on the view that even according to this Court, printed or dyed cloth was a commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to which some labour is applied remain essentially the same commercial article, it cannot be said that the final product is the result of manufacture. There the assessees, dealers in pig bristles, bought bristles plucked by Kanjars from pigs, boiled them, and washed them with soap and other chemicals, sorted them out according to their sizes and colours, tied them in separate bundles of different sizes and despatched them to foreign countries for sale. It was held that the sales made to foreign countries were not taxable as the bristles were not manufactured goods within Explanation II(ii) to Section 2(h) of the U.P. Sales Tax Act, 1948. 30. In Deputy Commissioner, Sales Tax (Law) Board of Revenue (Taxes), Ernakulam v. Pio Food Packers - 1980 E.L.T. 343 (S.C.) = (1980) 3 SCR/271 arising out of Kerala General Sales Tax Act, 1963 where the expression used under Section 5-A(1)(a) was consumes such goods in the manufacture of other goods for sale or otherwise , and the meaning of the expression under Section 5-A(1)(a) fell for consideration for exigibility to tax of pineapple fruit when processed into slices for the purpose of being sold in sealed cans. Though in the facts of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h will be part of `manufacture . Any process or processes creating something else having distinctive name, character and use would be manufacture. 32. It is appropriate now to refer to Gujarat High Court s decision in the case of Vijay Textile v. Union of India - 1979 (4) E.L.T. (J 181). Gujarat High Court held that cotton fabrics subjected to bleaching, dyeing and printing could not be subjected to excise duty under Item 19(I). The Gujarat High Court proceeded on the footing that the processes of bleaching, dyeing and printing were manufacturing processes and held that excise duty would be leviable under residuary Item No. 68 of the First Schedule. This decision has two aspects one which was emphasised on behalf of the revenue i.e. that Gujarat High Court accepted the position that processes of bleaching, dyeing and printing were manufacturing processes and as such on the strength of that decision, it could not be said that these processes do not amount to manufacture and on the other, which was stressed on behalf of the petitioners, was that such processes could not transform the cloth into Item 19(1). The Gujarat High Court s decision which is reported at Page 193 of the repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this contention reliance on behalf of the petitioners was also placed on the case of Extrusion Process Pvt. Ltd. v. N.R. Jadhav, Superintendent of Central Excise - 1979 (4) E.L.T. (J 380) where the Gujarat High Court had held that printed and lacquered aluminium tubes did not have, in relation to a plain extruded tubes, and distinctive name, character or use as both could be used for the same purpose, both enjoy the same character and enjoy the same name, and therefore, these could not be said to be new substance distinguishable from plain extruded tubes. This decision, however, cannot be of assistance in the instant case. The petitioners in that case had been printing and lacquering only plain extruded tubes and the question was whether by printing and lacquering the plain extruded tubes of aluminium the petitioners firstly applied any further process of extrusion to these and thereby manufactured tubes. It was held that printing and lacquering were not even remotely connected with the manufacture of aluminium tubes. It was a process independent of the manufacture of aluminium tubes. The question whether a particular process is a process of manufacture or not has to be determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w Shakti Dye Works Private Ltd. - 1983 E.L.T. 1736 (Bom.) and 24 other petitions heard along with the same and are under appeals to this Court by special leave. We are in respectful agreement with the conclusions reached by the learned Acting Chief Justice of the Bombay High Court in that decision. 35. In England, in the case of Mcnicol and Another v. Pinch - (1906) 2 K.B. 352, the manufacture of saccharin in the Finance Act, 1901 and the Revenue Act, 1903 was held to mean the bringing into being as saccharin . There the appellants had subjected certain 330 saccharin (i.e., Saccharin 330 times as sweet as sugar) to a chemical process, the result of which was that in some cases 550 saccharin (i.e., saccharin 550 times as sweet as sugar) was produced, in others a mixture sweeter than 330, but not so sweet as 550 saccharin, and in few cases a mixture less sweet than 330 saccharin was there. It was held by the Court of Appeal by Bray and Darling JJ., Ridley, J. dissenting that the appellants were not manufacturing saccharin within the meaning of the Finance Act, 1901, so as to be compelled to take out the excise licence required by Section 9 of that Act and Section 2 of the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely the same meaning. One can put cases where the word manufacture might be used in somewhat strained way, but perhaps a little more scientifically. Take the case of a carpenter. A carpenter uses wood; he begins with wood; he makes the wood into boxes. What would you say if you wanted to talk of his manufacturing? Ordinary people would not say that he manufactured wood; they would say he manufactured boxes. But I am not quite sure it might not be strictly said that he manufactures the wood. He applies a process to it. I suppose etymologically to manufacture is to make by hand . Everybody knows that you cannot absolutely make a thing by hand in the sense that you can create matter by hand, because in that sense you can make nothing: Ex nihilo nihil fit. You can only make one thing out of another. I think the essence of making or of manufacturing is that what is made shall be a different thing from that out of which it is made. Even if it could be strictly said that the carpenter manufactures wood it could not be said that he makes wood. The same with a man who makes boots; he takes leather, and he makes it into boots. If he simply made leather into leather nobody could po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - I will not say quite - follow from the reasoning of my learned brothers that this would have been a manufacture. I cannot think that that is so. Take the case of the manufacture of steel; and lead it be steel before it goes into works : apply some process to it and it becomes a particular sort of steel. But it is steel both before and after, although steel of different qualities. Is not that the manufacture of steel? I should have thought so. Take the manufacture of wool, it is wool when it is on the sheep s back; it is wool when it had passed through the process of sorting and picking which it has to go through in the mill. Is not that the manufacture of wool? I should have thought it most certainly was, although the name wool is applied to it both before the process begins and after it has ended." The learned judge further observed that in that case saccharin was manufactured and manufacture of saccharin does cover a process that was done in that case. 38. In that view of the matter etymologically the word manufacture properly construed would doubtless cover the transformation. In support of the question whether actually there is manufacture or not various documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was produced and therefore the entry which applied to the goods produced in India could not apply to coal. No question of manufacture obviously arose. It was submitted that the coal produced itself. This was rejected. The word `produced appearing in entry No. 84 of List I of the Seventh Schedule is used in juxtaposition with the word `manufactured according to the Division Bench and used in connection with duty of excise and consequently it would appear to contemplate some expenditure of human skill and labour in bringing the goods concerned into the condition which would attract the duty. It was not required that the goods would be manufactured in the sense that raw material should be used to turn out something altogether different. It would still require that these should be produced in the sense that some human activity and energy should be spent on them and these should be subjected to some processes in order that these might be brought to the state in which they might become fit for consumption. To speak of coal, the Division Bench was of the opinion, as produced in the sense to its being made a material of consumption by human skill and labour was entirely correct an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se duty was levied for the first time on cotton fabrics in 1949, on man-made fabrics (rayon or artificial silk fabrics) in 1954 and on woollen fabrics in 1955. From the very early stages of the textile tariff, with a view to achieving progression in the rate structure and to aligning excise control with the demands of different producing sectors, duties had been levied not only on grey fabrics but also at the stage of processing such as bleaching, dyeing and printing. In the judgment of the Gujarat High Court in the case of Real Honest Textiles and Others v. Union of India, it was held that `fabric as used in the tariff description cotton fabric would refer to something that was woven; hence it could relate only to cloth in the grey stage; processing of the grey cloth either by bleaching, dyeing or printing did not amount to manufacturing as both before and after processing it remained a fabric falling within the same item of Central Excise Tariff (Item 19 - cotton fabrics, of the First Schedule to the Central Excises and Salt Act). The Court had arrived at a similar conclusion with regard to man-made fabrics falling under Item No. 22 of the same Schedule. After the pronouncemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, no such right would have arisen. Thus, the interest in the retroactive curing of such a defect in the administration of Government outweighs the individual s interest in benefiting from the defect... The Court has been extremely reluctant to override the legislative judgment as to the necessity for retrospective taxation, not only because of the paramount Governmental interest in obtaining adequate revenues, but also because taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of Government amount those who benefit from it. The impugned legislation does not act harshly nor there is any scope for arbitrariness or discrimination. 47. It was contended on behalf of the petitioners that they are carrying on only the processing activity and the wholesale cash price is not theirs on the entire product. Section 4 of the Act is the section which deals with the valuation of excise goods for the purpose of charging duty of the same would be applicable. Where for the purpose of calculating assessable profits, a notional and conventional sum is laid down by the legislature to be arrived at on a certain basis, it is not permiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the contentions of the petitioners cannot be accepted. Section 3 of the Central Excises and Salt Act clearly indicates that the object of the entries in the First Schedule is firstly to specify exciable goods and secondly to specify rates at which excise duty will be levied. Reference has already been made to Rule 56A. Under sub-rule (2) of the Rule 56A, it is expressly provided that a manufacturer will be given credit of the duty which is already paid on the articles used in the manufacture subject to certain conditions. It is stated before us that excise duty will be charged on processed printed material. Processors will be given credit for the duty already paid on the grey cloth by the manufacturer of the grey cloth. In this view of the matter we are of the opinion that the views expressed by the Bombay High Court in the case of New Shakti Dye Works Pvt. Ltd. and Mahalakshmi Dyeing and Printing Works v. Union of India and Anr. (Writ Petition Nos. 622 and 623 of 1979) = 1983 E.L.T. 1736 (Bom.) are correct. The views expressed by the Gujarat High Court in Vijay Textiles v. Union of India in so far as it held that the processed fabrics could only be taxed under residuary entry an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic convenience. Large amounts of taxes are involved in these types of litigations. Final disposal of matters unfortunately in the present state of affairs in our courts takes enormously long time and non-realisation of taxes for long time creates an upsetting effect on industry and economic life causing great inconvenience to ordinary people. Governments are run on public funds and if large amounts all over the country are held up during the pendency of litigations, it becomes difficult for the Governments to run and become oppressive to the people. Governments expenditures cannot be made on bank guarantees or securities. In that view of the matter as we said before, if we may venture to suggest for consideration by our learned brethren that this Court should refrain from passing any interim orders staying the realisations of indirect taxes or passing such orders which have the effect of non-realisation of indirect taxes. This will be healthy for the country and for the courts. [per : Varadarajan, J.] [partial dissent]. - I agree with my learned brother Sabyasachi Mukharji, J. that Writ Petitions No. 11728 of 1984 and 13556, 13788, 13792, 15438 and 15439 of 1984 and Civil Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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