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TMI Blog1987 (2) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and dyed worsted woollen yarn kept on bamboos, sticks was being dried. The blower was found fitted with an electric motor. The stock of processed and dyed woollen yarn was verified and it was found that the appellants had 2780.650 kgs. of woollen worsted yarn in their factory premises. The appellants did not have any Central Excise Licence for processing and dyeing woollen worsted yarn with the aid of power. On enquiry it was found that the appellants had sent a hydro-extractor for repair on 6.7.1971. The partner of the appellants admitted before the authorities that electric blower was used for drying the woollen yarn. 3.A show cause notice was issued on 16.2.1972 calling upon the appellants to show cause as to why penalty should not be imposed upon them under Rule 173Q read with Rules 9(2), 52-A and 210 of the Central Excises Rules, 1944, and, also, as to why the seized goods should not be confiscated. Central Excise duty was demanded on 12067.180 kgs. which had been processed, dyed and cleared without payment of duty. The appellant replied that they were not carrying on any process in or in relation to the manufacture of the yarn. The cleaning and colouration of the yarn we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the appeal would relate to (i) whether the use of the hydro-extractor and electrically operated blower could be regarded as manufacture of yarn with the aid of power; and (ii) dyeing of grey yarn to coloured yarn would amount to manufacture so as to invite imposition of duty afresh. 6.On the first question whether use of hydro-extractor would amount to a process incidental or ancillary to the completion of the manufactured product, the Tribunal in 1985 (6) ETR 495 (Moti Dye Works, Thane v. Collector of Central Excise, Thane) has held by a majority view that drying was part of the process of bleaching and dyeing. The use of power in the process of hydro-extraction would make the process of dyeing and bleaching carried out, one with the use of power. There was a dissenting view in the judgment and the Learned Member held that the hydro-extraction was not a process incidental or ancillary to the completion of the manufactured product. This judgment referred to an earlier judgment of the Kerala High Court in (Metro Readyware Co. v. Collector of Customs), 1978 (2) E.L.T. J 520. 7.On the second question the Tribunal in 1986 (24) E.L.T. 98 (Lal Woollen and Silk Mills Pvt. Ltd. Amr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng duty-paid yarn was not manufactured as it did not bring into existence a commercial commodity with distinct name, character and use. He endeavoured to distinguish the decision in Lal Woollen and Silk Mills Pvt. Ltd. (supra). He submitted that that decision was based on the decision of the Hon'ble Supreme Court which in itself was made after the amendment of the definition of manufacture in relation to fabrics. The learned counsel stated that the decision in Empire Industries would not be applicable as the Hon'ble Supreme Court gave the judgment in view of the amending Act. There was no finding in the judgment of the Hon'ble Supreme Court that dyeing would amount to manufacture in all cases. In the present case there was no legislative change and there was no warrant to justify, the finding that the process of dyeing would amount to manufacture. He placed reliance on the decisions reported in AIR 1973 S.C. 425 (Allenbury Engineers Pvt. Ltd. v. Shri Ram Krishna Dalmia and Others) where the expression "manufacturing process" in Section 106 of the Transfer of Property Act was examined. It was held therein that the expression meant processes for making fabricating articles or materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article, namely, ore, though with different specifications than the ore which was blended and hence it cannot be said that any process of manufacture was involved in blending of ore. 10.The learned counsel argued that by the process of dyeing no new product would come into existence and there was no evidence by the Department to show that coloured yarn was known in the trade as a distinct commodity. Even grey yarn which is the natural colour is also used for knitting. Grey yarn is used for manufacture of under-garments in the Army. There is no proof that grey yarn and dyed yarn are two distinct commercial commodities. 11.Shri Dushyant argued that as a result of dyeing no distinct taxable goods had come into existence. The Statute was amended to get over the difficulty in relation to processing of cotton fabrics and artificial silk fabrics only. The learned counsel relied on 1983 E.L.T. 1582 (S.C.) = 1976 S.C. 800, (State of Tamil Nadu v. M/s. Pyare Lal Malhotra etc.) and argued that unless a new commercial commodity had come into existence, knitting wool continued to be knitting wool even after dyeing. 12.The learned counsel further argued that in the absence of the applicabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facture." (vii) 1983 E.L.T. 239 (J.K. Cotton Spg. and Wvg. Mills and Another v. Union of India and others) which held - "Sizing is only a process in manufacturing fabrics and does not amount to manufacture of new products."; (viii) 1978 (2) E.L.T. (J 661A) = 1983 (1) E.T.R. 444 (New Era Hindustan Woollen Mills, Ludhiana v. Collector of Central Excise, Chandigarh), where the Tribunal held that - "Blended yarn became excisable for the first time on 17th March, 1972 when the legislature introduced item No. 18E. The impugned goods were not liable to excise duty during the material time."; (ix) 1983 (2) ETR 692 = 1983 E.L.T. 1947 (CEGAT (Kohlapur Steel Ltd. v. Collector of Central Excise, Pune) where the Tribunal's West Regional Bench held - "There cannot be a level, of duty on scrap unless there is production of a new article satisfying the definition of ''manufacture' as per Section 2(f) of the Central Excises Act."; and (x) 1983 E.L.T. 1123 [Golden Paper Udyog (P) Ltd., Faridabad v. Collector of Central Excise, Delhi] where the Tribunal held - "It is not legislative intent to levy duty twice over once on paper and paper boards and again when 'paper and paper Boards' a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d yarn in grey condition as knitting wool. They undertake certain processes and dye the yarn in different shades and colours. After application of the dye, there should be squeezing and drying. The appellants are using hydro-extractor to squeeze out the excess water from the soaked yarn. The electrical blower is also used by them by which hot air is passed on the dyed yarn for the purpose of drying the yarn. Thereafter, the yarn is packed in different packets. Description of Item 18B reads as follows :- "Woollen yarn, all sorts, including knitting wool in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power." The contention of the department is that since the hydro-extraction and the drying of wet yarn are carried on with the aid of power, they would be manufacturing activities and that the product would be liable to duty again. Per contra, if the process of hydro-extraction of the woollen yarn and drying it with the aid of power are not manufacturing activities, then the fresh imposition of duty under Tariff Item 18B would not be attracted. The process of manufacture has already been set out above. It is clear therefrom that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the manufacture of the products would not be complete. Can we say that the Dyed Knitting Wool has not been manufactured merely because the yarn has not been dried or the water had not been extracted? The answer would be in the negative, because the manufacture of the yarn is complete before it is dried. The other activities cannot be called incidental or ancillary processes to the completion of the manufacture product. There is no proof that the manufacture of dyed yarn would not be complete without these processes. On the other hand, the appellants have used this extraction blowers during the particular season to accelerate the drying of the yarn which had already been manufactured. 17.Can we say that the packing of the yarn in the packets alone would be the stage at which the duty liability should be determined? The liability of duty arises once the manufacture is complete. The Excise duty is payable immediately on the manufacture of the goods which are per se marketable. It must be mentioned that Section 2(f) has prescribed in the case of certain items (which do not include woollen yarn) activities like labelling, packing, wrapping and such other processes would be manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation arose under Section 131 of the Transfer of Property Act and the issue was whether the lease was for a manufacturing process. The Allahabad High Court has held :- "In order to prove that there was a manufacturing process, it is also essential to prove that the article must change its nature and it becomes an altogether a different commercial article. In that case, it was held that by spreading wheat partly husked and allowing it to dry on the land one neither changes husk into something different or a commodity other than what it originally was. Therefore, in the eye of law, the drying of the husk on the land in dispute cannot be said to be a manufacturing process." This decision supports our view that drying would not constitute process of manufacture. Hence we hold that the use of hydro-extraction and electrically operated blower cannot be regarded as amounting to manufacture of yarn with the aid of power. 21.Our decision on the first point would sufficef to dispose of the appeal. Nevertheless, the question would arise whether dyeing of grey yarn to coloured yarn would amount to manufacture inviting imposition of fresh duty on the duty paid grey yarn. The learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e essence of manufacture is the change of the one subject into another for the purpose of making it marketable. If the substance remains the same despite the process, then it would not amount to manufacture. Something must be brought into existence which is different from the originally existing material. It is not necessary that the subsequent article must lose its character, or identity or that it should become transformed even in its basic or essential properties. One of the important factors that govern the issue would be whether on the application of labour, the article suffers the transformation and a new and different article emerges. This basic concept of manufacture has been the test laid down in all the judgments relating to manufacture or processing. To repeat, the well known criteria laid down in the Delhi Cloth Mills case, "every manufacture implies change but every change is not manufacture and yet that change in an article is a result of treatment, labour and manipulation. But something is necessary and there must be transformation and a new and different article must emerge having a distinctive name, character and use. 25.On the facts of the present case, it is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nown as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes 'manufacture' takes place and liability to duty is attracted." We do not agree with the contention of the learned counsel for the appellants that this view of the Supreme Court was circumscribed by the amendment of the Tariff Item. The entire concept of manufacture has been decided from basic principles. This decision indicates that the dyed knitting wool would be a different commercial article from the grey yarn and the liability to excise duty at the later stage cannot be avoided. 26.Among the decision cited by the learned counsel the one which is directly on the issue of dyeing is 1978 (42) STC 201. But that decision will have no application to the present facts because that was a ruling on the provisions of the Sales Tax and the decision was rendered in view of the particular terminology used in the Sales Tax provisions. We also notice that that ruling was based on an earlier ruling of the Supreme Court in Kailash Nath v. State of U.P. [1957 (8) STC 358]. We observe that in the recent decision of the Supreme Court this decision has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the dyed yarn is a distinct excisable commodity. 28.In the result, in view of our finding on the first issue, the appeal is allowed. 29.[Order per : K. L. Rekhi, Member (T)]. - Concurring with brother Santhanam on the first point, I hold that since no power had been used by the appellants upto the stage of dyeing and since the process of hydro-extraction and blowing of hot air on the dyed yarn for quickening its drying, did not bring into existence a different commercial commodity or transform the dyed yarn into another product, they did not amount to manufacture so as to invite a fresh imposition of excise duty. A process, to be called a process of manufacture, must bring at least some change in the nature, form or shape of the article. No such change occurred just by accelerating the drying of wet dyed yarn. Dyed yarn remained dyed yarn only. In normal fair weather, it would have dried by itself in an open yard or on the terrace. I allow the appeal on the first point. I do not go into the second point. 30.[Order per : I.J. ao, Member (T)]. - After careful consideration of the arguments advanced during the course of hearing and after respect perusal of the order drafted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh a blower, would themselves amount to a complete manufacturing process. The manufacturing process of the appellants is that of conversion of grey yarn into dyed yarn. It has been accepted in the order of Shri Santhanam (and I agree with him) that this would amount to manufacture as would call for imposition of excise duty. Therefore the manufacturing process is that of conversion of grey yarn into dyed yarn. It was not the mere process of hydro extraction or drying that constituted the manufacturing process of conversion of grey yarn into dyed yarn. Therefore, the observation that the process of hydro extraction and drying would not bring into existence a different commercial commodity appears to be beside the point. Equally so the observation that the said two processes do not transform the dyed yarn into another product. 34.Reference had been made in para 20 of the order to a judgment of the Allahabad High Court in AIR 1973 Allahabad 165. The question in that case was whether drying of paddy in an open yard would be a manufacturing process for purposes of attracting the provisions of Section 131 of the Transfer of Property Act. The High Court observed that merely by drying th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e. dyed yarn. 36.It can admit of no dispute that the wet dyed yarn would not be accepted by the customer as a marketable, product. The customer who requires dyed yarn would insist on dry dyed yarn being delivered to him. Equally so any person who had delivered grey yarn to the processor for being converted into dyed yarn would reject wet dyed yarn. It would, therefore, be clear that it is only after drying that the dyed yarn becomes a separate marketable commodity and therefore the process of manufacture of dyed yarn is complete only after the wet yarn is dried. It is therefore clear that the processes of removal of moisture, firstly by hydro extraction and then by drying, are parts of the manufacturing process leading to the manufacture of dyed yarn. While colour may be imparted by the application of the dye to the bleached yarn the manufacture of dyed yarn would be complete only after the yarn is thereafter dried. 37.Reference is made in paragraph 17 to certain activities like labelling, packing, warping etc. as process of manufacture under Section 2(f) with reference to certain other commodities, the inference being that the absence of any such reference in Section 2(f) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess water is not an independent process, but is a part of process for dyeing the yarn in different shades and colours. In other words, it is not purely a case where an article has merely been dried, but is a case where an article with the aid of power is dried for the purpose of completing the entire process of dyeing the yarn. This view of mine is further supported from the Tariff Item No. 18-B which inter alia provides that - 'Moreover, for the purpose of levy of Central Excise Duty, 'manufacture' includes any process incidental or ancillary to the completion of a manufactured product. Drying of wet yarn with the aid of power is a process ancillary to the completion of processed woollen yarn conforming to the definition of Central Excise Tariff Item No. 18-B.' (emphasis supplied) 41.Regarding the second issue : I am also in complete agreement with the view expressed by my Learned Brothers (Judicial) S/Shri M. Santhanam and V.T. Raghavachari and would like to add that this view finds support from the recent judgment rendered by a Division Bench of the Andhra Pradesh High Court in the case of U Foam Ltd. v. Union of India and Others reported in 1987 (27) E.L.T. 262 (A.P.). In t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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