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TMI Blog1983 (6) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... 1979 (New Shakti Dye Works Pvt. Ltd. v. Union of India and Anr.). According to the petitioner-company, cotton fabrics and man-made fabrics are received in the company as full manufactured fabrics commercially known as grey fabrics, which are cleared after payment of excise duty under Tariff Items Nos. 19 and 22, as the case may be. The process to which the grey fabrics are then subjected is called bleaching process in which grey fabrics are boiled in soap and soda solution and thereby by use of a bleaching agent the grey fabrics are made white. After the bleaching process is completed, the material is then taken for the dyeing process, which according to the petitioner, consists of imparting of required shades of colours. After the material is dyed, it is subjected to the printing process, that is, printing of required designs on the fabrics by a printing machine. The final stage is called finishing process which consists of giving final touches for better appearance. The petitioners say that at no stage is the spinning and weaving involved in the processes carried on by the petitioners. The petitioners claim that it is an independent process used and has no activity of spinning o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the material time, did not permit any other levy except that the goods which were received by the petitioners, remain the same, speaking in terms of excisable goods, namely, cotton fabrics or man-made fabrics, and processing did not involve any further manufacture of the woven stuff or woven substance and unlike embroidery and coated or laminated fabrics, there was no specific mention in the inclusive definition so far as processed cloth is concerned, either in Item No. 19 or Item No. 22. The amounts collected by way of excise duty from the processors were thus directed to be refunded on the ground that the recoveries were without the authority of law and were illegal levies. 5. The decision of the Gujarat High Court was rendered on 24th January, 1979. It is clearly with a view to overcome the decision of the Gujarat High Court that an Ordinance called the Central Excises and Salt and Additional Duties of Excise (Amendment) Ordinance, 1979, came to be promulgated by the President of India on 24th November, 1979. This Ordinance was later on replaced by the Central Excises and Salt and Additional Duties of Excise (Amendment) Act, 1980 (hereinafter called the Amendment Act ). By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m No. 19-I and for the original Item No. 22(1) new Item No. 22(1) was substituted. These Items, as substituted, now read as follows : 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) cotton fabrics, subjected to the process of bleaching, mercerising, dyeing, printing , water-proofing, rubberising, shrink-proofing, organdie processing or any other process or any two or more of these processes. Twenty per cent ad valorem . ** ** ** 22(1) Man-made fabrics other than (i) embroidery in the piece, in strips or in motifs, (ii) fabrics impregnated, coated or laminated with preparations of cellulose derivatives or of other artificial plastic materials - (a) man-made fabrics, not subjected to any process. Twenty per cent ad valorem plus rupees five per square metre. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 becomes operative from 1st March, 1955 and so far as man-made fabrics are concerned, it becomes 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 to clause (f) of Section 2 of the Excise Act should be treated as having been in force at all relevant times subject to the modifications that the reference in the Excise Act to the goods comprised in Item No. 19-I of the First Schedule shall be construed as reference to such cloth , cotton cloth or, as the case may be, cotton fabrics , and reference to the goods comprised in Item No. 22(1) of the First Schedule shall be construed as reference to such rayon or artificial silk fabrics , or, as the case may be, man-made fabrics . Section 5(2) of the Amendment Act also validates duties of excise already levied, assessed or collected on cloth, cotton cloth, cotton fabrics, woollen fabrics, rayon or artificial silk fabrics and man-ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creating two separate categories of cotton fabrics, that is, (1) not subjected to any process, and (2) subjected to the processes of bleaching, dyeing, printing and other processes and by making these amendments retrospectively, recoveries which have so far been made from the processors in question, were sought to be legalised. With this effect of the amendments there is no dispute between the parties. In other words, if these amendments can be sustained and if the amendments in Section 2(f) were within the legislative competence of the Parliament, and the processes of bleaching, dyeing and printing and other processes mentioned in the newly introduced clause (v) of Section 2(f) were manufacturing processes, then it is not in dispute that the processors would become liable to pay excise duty refund of which is now sought. The only way by which the petitioners could have got rid of the liability to pay the excise duty on the processed cloth, that is, cloth subjected to the processes of bleaching, dyeing, and printing, was to attack the Amendment Act, and that is what has been done by the learned counsel appearing for the petitioners in the course of the arguments in these petitions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on as to whether a particular process was a manufacturing process or not. According to the learned counsel appearing for the department, the processes of bleaching, dyeing and printing are essentially manufacturing processes inasmuch as a result of these processes a new substance known to the market is brought into being. He also relied on certain decisions in support of his argument that dyeing and printing processes are manufacturing processes. We would first prefer to decide as to whether bleaching, dyeing or printing processes are manufacturing processes on first principle. What is the test which has to be applied before deciding whether a particular process is a manufacturing process or not and what is the essential requirement, which must be satisfied before a particular process is described as a manufacturing process or not to be a manufacturing process, has been subject-matter of some of the decisions of the Supreme Court. In Union of India v. Delhi Cloth and General Mills (A.I.R. 1963 S.C. 791) = 1977 E.L.T. (J 199), the Supreme Court was concerned with the question as to whether the manufacture of refined oil from the raw materials undertaken by the manufacturers of veget ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neers v. S.R.. Dalmia (A.I.R. 1973 S.C. 425), the scope of the word manufacture was again considered. In paragraph 8 (page 427) the Supreme Court observed as follows : The word `manufacture , according to its dictionary meaning, is the making of articles or material (now on a large scale) by physical labour or mechanical power. Reference to the extract from the Permanent Edition of Words and Phrases reproduced above was made. The Supreme Court then further observed as follows (page 427) : The word `manufacture said Abbott, C.J., in R. v. Wheeler, (1819) 2B Ald. 345 (349), cited in Stroud s Judicial Dictionary (3rd ed.) Vol. 3, p. 1734. `has been generally understood to denote, either a thing made which is useful for its own sake and vendible as such, as a medicine, a stove, a telescope, and many others; or to mean an engine or instrument, or some part of an engine or instrument, to be employed either in the making of some previously known article, or in some other useful purpose, as a stocking frame, or a steam engine for raising water from mines; or, it may perhaps extend also to a new process to be carried on by known implements..... No more philosophical or abstr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l cotton fabrics are identical or are the same as the base material which was originally given to the processors. On first principles, therefore, we are not inclined to accept the contention of the learned counsel for the petitioners that bleaching, dyeing, printing and finishing processes are not manufacturing processes. 10. We may, at this stage, refer to the decision of the Gujarat High Court in Vijay Textile s case. Even though the Gujarat High Court held that cotton fabrics subjected to bleaching, dyeing and printing could not be subject to the excise duty under Item No. 19-I, it is important to note that the High Court proceeded on the footing that the processes of bleaching, dyeing and printing are manufacturing processes and held that excise duty would be leviable under residuary Item No. 68 of First Schedule. In paragraph 22 of the judgment, the Gujarat High Court observed as follows (page J 193) : .......... Item 68 refers to `All other goods not specified elsewhere manufactured in a factory . Therefore, processed cotton fabrics and processed man-made fabrics were manufactured in the factories of the petitioners and since they are not covered by Item 19 or 22 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or ancillary to the manufacture of paper. This decision is in Swastic Products, Baroda v. Superintendent of Central Excise (1980 E.L.T. 164). The petitioner in that case purchased paper manufactured by manufacturers and coloured or printed one side. The Gujarat High Court held that colouring of a paper which was already manufactured was not a process in the manufacture of paper and that if colouring was in the process of the manufacture of the paper, then it will come within the expression paper, all sorts . It was also held that no manufacturing process was involved by printing on white paper or by colouring manufactured product, namely, the paper. This product was held not to fall under Tariff Item No. 17(4). It is obvious that the activity of printing and colouring was considered in the light of the expression all other kinds of paper . 11. We would also refer to a decision of the Supreme Court in Deputy Commissioner, Sales Tax, Ernakulum v. Pio Food Packers [A.I.R. 1980 S.C. 1227 = 1980 E.L.T. 343 (S.C.)]. The question before the Supreme Court was whether processing of pineapple fruit into slices for selling in sealed cans did not involve consumption of a commodity in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The main question involved in that decision was the interpretation of a notification issued by the U.P. Government exempting sale of manufactured cloth or yarn with a view to export such cloth or yarn. The notification provided that with effect from 1st December 1949 the provisions of the U.P. Sales Tax Act, 1948, did not apply to the sales of cotton cloth or yarn manufactured in Uttar Pradesh, made on or after 1st December, 1949, with a view to export such cloth or yarn outside the territories of India on the condition that the cloth or yarn was actually exported and proof of such actual export was furnished. Undoubtedly, the Supreme Court in that case held that although the colour of the cloth had changed by printing and processing, the cloth exported was the same as the cloth sold by the petitioners and they were therefore entitled to the exemption under the notification. The facts of that case will show that what fell for consideration before the Supreme Court was the identity of the cloth purchased and exported having regard to the use of the words such cloth in the notification. These words were construed by the Supreme Court to mean that the Legislature did not intend that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial is a manufacturer within the definition given in Section 2(k) of the Madhya Bharat Sales Tax Act. We may also in passing refer to the argument raised by Mr. Joshi that this view has, in fact, been approved by the Supreme Court in Commissioner of Sales Tax v. Harilas Rai [(1968) 21 S.T.C. 17]. In that decision, the Supreme Court pointed out that the word manufacture has various shades of meaning, and in the context of sales legislation, if the goods 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. Referring to the decision in Hiralal Jithmal s case [(1968) 8 S.T.C. 325] the Supreme Court observed as follows (page 20) : ...... 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. Though this observation cannot be read as an express approval of the broad proposition propounded by the Madhya Pradesh High court in Hiralal Jithmal s case, the fact remains that even according to the Supreme Court a printed or dyed cloth is com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und. The inevitable result of any taxing legislation is that subjects become liable to pay tax. In a given case a tax may also be imposed retrospectively. That by itself would not amount to unreasonable restriction on the right to carry on business. What is canvassed before us is that the unreasonable restriction consists of levy of tax retrospectively. As already pointed out, if there is power in the Parliament to enact retrospective legislation, it would also include a fiscal legislation and imposition of tax liability. Merely on the ground that such a legislation has been enacted, the legislation cannot become open to challenge on the basis of unreasonableness. We have not been shown any further pleadings as to how and on what ground such a legislation would be called as unreasonable restriction. Mr. Joshi has referred us to a decision of the Supreme Court in Krishnamurthi Co. v. State of Madras (A.I.R. 1972 S.C. 2455). That was a case in which originally as a result of the amendment made by Madras Act 7 of 1964 in entry 47 of the First Schedule to the Madras General Sales Tax Act, 1959, sales tax was intended to be levied on all kinds of mineral oils, including non-lubricants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rthi s case). 16. At one stage, it was argued by Mr. Rana that the petitioners are apprehensive that the Department would now take advantage of retrospective effect of the legislation and there is a clear possibility of demand which would otherwise be barred by limitation, and the course of reading down of such a provision which was adopted by the Delhi High Court in J.K. Cotton Spinning and Weaving Mills v. Union of India (1983 E.L.T. 239) was suggested. It is strictly not necessary for us to go into the hypothetical submission that the Department might raise demands which were barred by limitation taking advantage of retrospective legislation. If and when such demands are raised, the question as to whether such demands could legally be raised or whether retrospective provisions are themselves subject to the other relevant provisions of the Excise Act would have to be considered. This disposes of the contention raised with regard to the constitutional validity of the Amendment Act. 17. The next contention which has been raised, and mainly on the basis of the decision of the Gujarat High Court in Vijay Textile s case, is that notwithstanding the amendment in Item Nos. 19-I and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (b) of sub-item I refer to cotton fabrics , they are undoubtedly cotton fabrics which are covered by Item No. 19, and when it comes to specifying the duty, the entries independently refer to cotton fabrics not subjected to any process and cotton fabrics subjected to different processes. Duty payable on these cotton fabrics have been separately specified in the new entries by amendment. If cotton fabrics in clauses (a) and (b) of sub-Item I are the cotton fabrics which are defined in Item No. 19, we fail to see how it could be argued that even though grey fabrics are subjected to manufacturing processes of bleaching, dyeing and printing, excise duty as provided by the amendment Act is not attracted. The contention of all the learned counsel for the petitioners appears to be based on a misapprehension of the nature of the decision of the Gujarat High Court in Vijay Textile s case. The main ground on which the processed cotton fabrics are held fabrics were not specified as a separate item subjected to levy in Item No. 19-I and that was why it was taken to fall under residuary Item No. 68. Once that omission is now removed by the Parliament by specifically mentioning processed cott ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale. We have already pointed out that these are all cases where there has never been any dispute with regard to the price with reference to which excise duty is determined. We have tried to ascertain from the learned counsel as to whether there is any allegation in any of these petitions to show that they have disputed the normal price on the basis of which recoveries have been made. The main grievance appears to be that while the processors get the grey cloth on which duty is already paid, they are required to pay duty on the basis of the value of the manufactured article which also includes the value of grey cloth on which excise duty has already been paid and the basic contention is that there is double levy of excise duty, Mr. Joshi has referred us to Rule 56A of the Rules which provides for special procedure for movement of duty-paid materials or component parts for use in the manufacture of finished excisable goods. Under sub-rule (2) of Rule 56A it is expressly provided that a manufacturer will be given credit for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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