9911796707
TMI Blog1993 (1) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... the certain intermediary processes before final incorporation in the footwear. Some cotton fabrics are treated in the stiffner solution of urea formaldyhide resin compounded with various other non-plastic ingredients like filter, oil and resin and dissolved in water. The said solution is spread on the cotton fabrics. Some cotton fabrics are treated with a solution of polystyrene compounded with plasticises and other unsaturated elastomer dissolved in a blend of solvent like solvent naptha, acetate and spirit. Thereafter, the compound and/or solution is spread on the cotton fabric and dried. The cotton fabrics treated as aforesaid are referred to by the respondent as 'herefit sheets', 'thermoplastic sheets' and 'celluloid sheets' respectively. These descriptions have been coined by the respondent for purpose of their own identification. Artificial silk fabrics are not treated in the aforesaid manner but are coated with a suitable rubber compound dissolved in petrol. Thereafter, the said fabrics are cut into small pieces which are then reactivated with a catalyst solution. Then these pieces are put on to the shoe and the same are then vulcanised. The whole purpose and object of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the First Schedule to the Central Excises and Salt Act, 1944 or any other Acts. Those articles do not come to the market to be bought and sold. The respondent's case is that the said fabrics, after processing are merely unfinished intermediary components which are not marketable and cannot be bought and sold. They must be used immediately in the stage of manufacture of footwear, else processed fabrics lose all efficacy and become totally useless. In fact, those processed fabrics cannot be and are not stored, stocked or transported from the Batanagar factory to any other place, neither the cotton fabrics after processing nor the artificial silk fabrics after processing become finished products. So, no duty is leviable on the said processed fabrics under Items 22(B) or 19 of the Schedule as amended by the Finance Act of 1969. In any event, the said two items could not be lawfully levied for the period prior to 11th May, 1968 as amendment to the said Act was not retrospective only. The respondent made payments under the mistaken belief that the duty was legally due, when, in fact, such duty could not be levied and realised by the appellants-defendants and according to the respondent, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e slowly and from one to the other roller and the respective coating is applied on the surface of the sheets. While passing through the roller grips, the coating becomes of uniform thickness. Then it is passed through a hearing chamber where the material is stored for a good adherence and then the whole sheet becomes covered on one side with uniform layer of coating composition and after leaving the storing chamber, the direction or the face of the basic fabrics is reversed and again coated in the similar manner. After the same process, the material is fit for storing, stacking, handling and transportation. The respondent also manufactured processed fabrics by putting two sheets of fabrics with a layer of rubber compound in between and then the material is passed through a set of steam heated rollers to cure or vulcanize the rubber layer. After the said curing or vulcanisation the two sheets of fabrics are well bonded together. The appellant's case is that these processes are not integrated or continuous manufacturing process. Moreover, the place of manufacture of the said processed cotton fabrics and the place of manufacture of the said processed artificial silk fabrics are quite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said fabrics result in the manufacture, by the respondent of new substance or article with a distinctive name, character or use? (c) Does the plaintiff company manufacture cotton fabrics and artificial silk fabrics? (2) Are the said fabrics liable to duty as falling under Item Nos. 19 and 22 of the First Schedule to the Central Excises and Salt Act, 1944? (3) Is the notice under Section 80 of the Code of Civil Procedure legal, valid and sufficient? (4) Are the levies, collections and recoveries of the duties by the defendant illegal, without jurisdiction and ultra vires as alleged in paragraph 7 of the plaint? (5) Is the suit barred by limitation? (6) Is the suit barred by the principles of waiver, estoppel and acquiescence? (7) Has this Hon'ble Court jurisdiction to entertain this suit in view of the provisions of the Central Excises and Salt Act, 1944? 7. The grounds of appeal also go by the issues as were framed by the Trial Court. The learned Counsels of the parties also addressed us on the basis of the said issues. Thus the grounds raise, besides the issues on merits, the preliminary issues which are more or less the same as raised before the Trial Court. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification in the process of manufacture of footwear. They are not, however, end-products though they emerge through operation at some stage of the manufacturing operations meant for shoes. These products are not brought into existence as a new substance as 'independent commodity emerging with a distinctive name, character or use in the commercial sense. These sheets are manufactured only for utilisation in the manufacture of shoes and are part of ingenious process devised by the respondent plaintiff. The process of affixing these sheets to the heels and toes of the shoes is so highly specialised operation that its efficacy is only known to the respondent. The Trial Court has noted and also accepted the arguments made on behalf of the respondent-plaintiff that these sheets have at no stage any commercial name. The names whereby they are identified are mere descriptions coined by the respondent for their convenience. These names have no currency in the market or in common acceptance as names conveying identify of any distinctive commercial goods. The Trial Judge also held that the processes through which the sheets emerge are part of the continuous integrated manufacturing processes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been manufacturing the said items after taking separate manufacturing licence for the same purpose. The licence is being renewed from year to year. The separate identity of the manufacturing for the manufacture of these particular sheets is according to him a clear indication that the manufacture of the sheets is manufacture of suitable items on the basis of classification as provided for by the Act. He further pointed out that the manufacturing operation is carried on in a separate factory and that separate accounts are regularly maintained for the said three types of sheets emerging on being impregnated with materials and coated with chemicals of characteristic composition. Therefore, it is urged that its manufacture should be viewed to be manufacture of suitable items irrespective of the fact that they are used in manufacturing of further products. It was further urged that the materials having been processed and coated with chemical formula acquire a new character, use and name. It was, therefore, canvassed that such a product has got independent marketability as a distinct product. 15. To our mind, the niceties of the technicalities for the manufacture of the sheets are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vy of the duty. It is further stressed that it is the actual market condition which should determine the character of any product as a dutiable product. Any contingent prospect of marketability in the absence of existing marketability is no test. The learned Counsel for the respondent-plaintiff then rules out the prospect of marketability of the sheets altogether. The sheets come out of the factory after being coated with chemical solution and they are directly carried in a special trolley to the shed where they are cut into various sizes according to the requirement without loss of time and fitted to the heels and toes of the footwear instantly to avoide the risk of loss in the efficacy of the sheets as raw material. The transition time from the manufacture of the sheets and their use in the manufacture of footwear is so brief that such sheets can never be marketable. Arrangements for instant use of the sheets in manufacture of shoes are made so that the reaction after the chemical coating given to the footwear is not destroyed. Therefore, marketing the sheets as independent commodity is not operationally viable, even if viable, it will also entail prohibitory costs. 18. The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the market. We are told by the respondent that in the present case the sheets that are brought into existence by the operation are not marketable. That aspect has, however, been seriously contested. Anyway, if they are not marketable according to this ratio of the Supreme Court, they cannot be treated as goods. Unless the manufacture is of goods the dutiability is not attracted. We are not, however, placed with evidence as to the fact that the products in question are not marketable. To this aspect, we shall address ourselves later on. 21. The third case, i.e. Ramlal Mansukhrai (supra), also emphasises that whatever comes out of any processing or operations can attract duty if they are bought and sold in the market. In that case, billets of copper alloys were rolled into circles and the circles as such are known to the market as finished products and were marketed. In the commercial community the ingot circles were also known as ingot circles although those ingot circles could not be used for preparing utensils. They have to be prepared into utensils. But the product at that stage fully satisfied the description as contained in Item No. 26(a)(2) of the Excise Schedule. The provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicates immunity from or protection against claims or damages against the Government dues or any of its officer for acts done in good faith under the Act or the Rules. However, the Section does not say that the liability of the Government or its officers in respect of act done illegally and contrary to the provisions of the Act or the Rules is also saved. This has been the view of the Supreme Court in Ramswarup v. Shikar Chand - AIR 1966 SC 893. That apart, the element of good faith having been introduced as a condition to the availability of the immunity under Section 40(1) suits cannot be said to be totally prohibited. This has been held by the High Court of Andhra Pradesh in Bommidale Poornaiah v. Union of India - AIR 1967 AP 338. This position is correct under Section 40, both before and after its amendment by the Amending Act, 1973 effective from 19-5-1973. In the present case, the suit was filed in 1971. Therefore, the question of jurisdiction of the Court has to be decided with reference to the provisions as were in force before 19-5-1973. The un-amended provision as applicable to the instant case was in the following terms: - "40. Bar of suits and limitation of suits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely consumed by its manufacturer for its ultimate product, footwear, could have a market. Apparently they should, because according to the respondent's own assertion respondent have special expertise to the manufacture of these sheets which are essential component of the shoes as the strengthening materials for the toes and heels. That being so, the other manufacturers of shoes specially the small manufacturers who cannot afford to have a large plant exclusively engaged in the production of these sheets shall be induced to buy such sheets. 28. Again, no case has been made out by the respondent that they are holding monopoly in the manufacture of these particular sheets or such sheets are only used in their shoes to the exclusion of all other manufacturers. If these sheets are a common component for manufacture of the type of shoes the respondent manufactures the sheets would definitely be vendible. It is just this one circumstance which in our opinion is crucial to the determination of the matter. It may be, in this connection, mentioned that the respondent in their contentions before the Trial Court did not altogether rule out the possibility of marketing the sheets. The responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that actual sale is not necessary. It is sufficient if the manufacture is that of goods that are excisable. Where the goods find place as items in the Schedule of the Act the presumption shall be that the goods are excisable goods. They can cease to be excisable no doubt if they have no market but as we have observed, the assertion of the respondent as regards non-marketability lacks corroboration. No evidence has been adduced that the sheets are not marketable. On the other hand, as contended on behalf of Union of India the respondent has submitted to the levy by taking licence on 1st October, 1960 for processed cotton fabrics and on 23rd April, 1963 for processed Art Silk Fabrics and got the licences renewed upto 1971. Prima facie, this circumstance amounts to admission to the leviability. The possibility of the sheets being used in manufacture of other final products than shoes cannot be ruled out, either. There is nothing before us as rules out such possibility. At any rate, it is not necessary to attract duty that the goods should be sold. Suffice it, if there is manufacture or production of the goods. Manufacture or production of the goods is the taxable event. Whether the go ..... X X X X Extracts X X X X X X X X Extracts X X X X
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