JUDGMENT
V.S. Kotwal, J.
1. A Small Scale Industry for processing grey yarn by bleaching and mercerising the same is being owned and run by the 1st Petitioner partnership firm known as Deccan Embroidery Manufacturing Company, operating from Pune, and the 2nd petitioner is the partner of the same. The said firm by itself does not deal in the manufacture of any yarn as such, but grey yarn of different types is imported within the limits of Municipal Corporation of the City of Pune from various places in India and after processing on the same yarn, the finished yarn is packed in shape of bales and bundles and then marketed to the customers outside the limits of the said Corporation which are impleaded as the 1st respondents. The export out side they city limits of Pune is either directly to the customers or to various branches of the petitioners firm located at different places like Bombay, Hyderabad, Delhi and Calcutta. The ownership of the yarns rests with the firm till delivery is taken by the customers. In effect, therefore, grey yarn is imported within the octroi limits of the respondents Corporation whereafter the process of bleaching and mercerising is effected on the said yarn and after that process the said yarn is exported in a short period outside the city limits. According to the petitioners, on the export of the yarn in this manner, the petitioners were getting refund of 90% of the octroi paid on the yarn on its importation under the provisions of Rule 16 of the Octroi Rules framed by the respondent Corporation and this practice was in vogue from 1955 to 1971. However, a different stance is adopted by the Corporation by 1972 onwards when they have refused to give such a refund in view of the prescription in Rule 16 as construed by the Corporation. Several reminders could make no impact and ultimately the petitioners are obliged to move this Court under Article 226 of the Constitution challenging the said action of the Corporation.
2. This is countered by the respondent Corporation on all counts and in substance it is stated that the said yarn has undergone a substantial change after its import and therefore the petitioners forfeit their right to claim refund of 90% of the octroi in view of specific provisions made in Rule 16, and for that purpose reliance is placed on sub-clause (e) of the said Rule. In effect, it is submitted that an absolutely new product comes out of the said process of bleaching and mercerising which is salable in the market with a label apparently distinct from coarse and grey yarn and thus it undergoes a process of manufacture, or even otherwise the process entails into the change of the commodity which is distinguishable in the market field.
3. The first of the rival contentions obviously culminates into posing a question upon the Constitution of the relevant Clause of Rule 16 of the Octroi Rules of the respondent Corporation and about the search to be made to find out whether the process of bleaching and mecerising the grey yarn changes its form, which change is accepted in the market either by process of manufactured or otherwise through the said stages of bleaching and mercerising. The entire controversy revolves around this aspect. According to Shri Apte, the learned Counsel for the petitioners, its processing does not amount to manufacture at all and secondly, the foundation viz. the yarn remains the same even after the process of bleaching and mercerising is complete and therefore, what is imported is yarn and what is exported is also the same yarn though its outward appearance to some extent is changed by the process, and therefore, according to learned Counsel, it does not amount to any process of manufacture and even otherwise there is no change in the commodity. While countering this contention Shri A.V. Sawant for the respondent. Corporation submitted that in the very nature of things, by imparting labour and skill and putting the coarse or grey yarn to undergo the process of bleaching and mercerising, the original form or the state or appearance is completely changed. This changed form is recognised in the market under a different label than the original form of grey yarn, and therefore it does amount to manufacture, and according to him, even de hors of manufacture the bringing about such a change by any other process the exception prescribed in Clause (e) of Rule 16 would apply.
4. Octroi has now been accepted as a tax which is defined in sub-clause (42) of section 2 of the Bombay Provincial Municipal Corporation Act, 1949 (‘the Act’) as a cess on the entry of goods into the limits of a city for consumption, use or sale therein. The respondent Corporation is empowered to levy tax under the label of octroi. Section 127 of the Act empowers the Corporation to impose the tax which includes octroi under Clause (2) sub-clause (a). This power is conceded on behalf of the petitioners. An elaborate mechanism and procedure for imposing such taxed and their recovery is incorporated under the different provisions of the Act as also in Octroi Rules (‘the Rules’) of the said Corporation the validity of which is also not denied by the petitioners. As an annexure, the respondent corporation has prescribed Octroi Schedule giving the description of the article and the amount of octroi leviable. All these composite provision of the Act, the Rules and the Schedule complete the circuit in that behalf. Rule 16 has relevance in the set up of this controversy which relates to the refund of octroi on export of goods imported for consumption, use or sale. The relevant sub-clause which is very much under controversy is sub-clause (e) which reads as follows :
"16. x x x x x x x x x
x x x x x x x x x
(a) x x x x x x x x x
x x x x x x x x x
(b) x x x x x x x x x
x x x x x x x x x
(c) x x x x x x x x x
x x x x x x x x x
x x x x x x x x x
(d) x x x x x x x x x
x x x x x x x x x
(e) The goods have not since their import changed in any manner whatsoever their original form, conditions, state or appearance by any process of manufacture or otherwise.
Provided that goods shall not be deemed to have changed their form within the meaning of this rule merely by reasons that they are wood, which since its import has been cut and made into beams, planks and rafters; or grain or tur ground and converted into pulses; or tobacco converted into snuff or bidis; or rice parched and made into murmuras; or wheat or other grain made into flour."
5. Shri Apte, learned Counsel, as indicated earlier, submitted that there is no process of manufacture and there is no change in the commodity as such. He also submitted that the proviso to this sub-clause carves out certain items which are illustrative and which would indicate that even in respect of yarn which is bleached and mercerised the same cannot be deemed to have undergone any change in the form, just as no change is contemplated if grain or tur is ground and converted into pluses or tobacco converted into snuff or bidis or wheat or other grain into flour. As stated earlier, the power to levy octroi is conceded. It clearly falls within the definition of the said term because the goods are imported certainly for use because the yarn is being used to undergo the process and thereafter it is exported. A plain reading of sub-clause (e) would harmoniously flow into certain deductions viz., that the yarn, after its import, has obviously undergone a change in the form, condition, state or appearance because of the process of bleaching or mercerising. This aspect is not very much under debate. Such a change obviously is by the process of bleaching and mercerising , and therefore a question is posed whether this process amounts to manufacture. However, it is worth noting that the process of manufacture is not the only vehicle prescribed to bring about the change because de hors of any process of manufacture such a change can be brought about by any other mode or process when it is covered by the specious term “otherwise”. Consequently therefore it is restricted to the question whether such process amounts to manufacture or not, if the change is brought about by the said process, then the said provisions would apply. No doubt, Shri Apte, the learned Counsel, endeavoured to submit that this also cannot be said to amount a change either in the form, condition, state or even appearance of yarn after bleaching and mercerising because, according to him, the foundation viz., the yarn remains the same, either before or after the process and therefore there is no change in the commodity as such. In so far as this aspect is concerned, its validity can hardly be accepted for obvious reason. It is mainly because what is imported is known as grey yarn which is coarse and it is subjected to the process of bleaching and mercerising. The process of bleaching results in whitening the yarn either by exposure to sun, light or by chemical process, as described in ‘Concise Oxford Dictionary’ Seventh Edition. Thus, the coarse form or appearance is very much changed There is thereafter processing or mercerising which, as per the dictionary meaning indicates that it is subject to a treatment under tension with caustic alkali to give greater strength and impart lustre. Thus, by the second process a further distinguishable change is projected on the article and the yarn gets greater strength and obviously result in the change as prescribed in sub-clause (e) which hardly can be denied. Therefore, on this premises itself, there would be no question of refund of 90% of the octroi paid on goods which are imported for use.
6. Even otherwise on the other plank also the same result would ensure, because subjecting the yarn to these two processes would amount to manufacture as contemplated by sub-clause (e). The submission of Shri Apte that basically the yarn remains the same before and after the processing and that the process of manufacture connotes importing of some new articles out of that commodity is difficult to be endorsed.
7. The concept of manufacture and bringing about the change in the commodity has been the subject matter of debate in several decisions. The Supreme Court, in Empire Industries Ltd. v. Union of India, , has taken a resume of several decisions in that field and ultimately enunciated the meaning of the said concept. It is not necessary to reiterate all the decisions referred to therein though a reference to a few of the observations would not burden the record. In Hiralal Jitmal v. Commissioner of Sales Tax, it was indicated that it is not necessary for the expression ‘manufacture’ that there must be a transformation in the materials and that the transformation must have progressed so far that the manufactured article became commercially known as different article from the raw materials and all that was required was that the materials should have been changed or modified or being sold in an acceptable form to satisfy some want, or desire, or fancy or teste of man. The Supreme Court, while dealing with that decision indicated, may be with some reservation, that the same may perhaps be justified on the ground that a printed or dyed cloth is commercially different article from the original cloth purchased. A similar view was taken by the Punjab and Haryana High Court in the case of East India Cotton Manufacturing Co. v. The Assessing Authority, 1973 Tax L.R.1906, indicating that sizing, bleaching or dyeing of raw cloth turns it into a different marketable commodity, and as such amounted to “manufacture” of a commercially new product. In Deputy Commissioner Sales Tax v. Pio Food Packers, , it was indicated by the Supreme Court that there are several criteria for determining whether a commodity is consumed in the manufacture of another, and generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. It was further indicated that the original commodity is made to pass through different stages of processing, and it was further indicated that the end product could be such which is commercially regarded as different from the original product. In Chowgule & Co. Pvt. Ltd. v. Union of India, , the Supreme Court indicated that any process or processes creating something else having a distinctive name character and use would be manufactured. The Supreme Court, on the analysis of various ratios, enunciated that the process of bleaching, dyeing and printing etymologically also means manufacturing processes. It was further indicated that the word ‘manufacture’ properly construed would doubtless cover the transformation and as regards fabrics, bleached fabric is treated by the Indian Standard Institution as something different from fabric which has not undergone the bleaching operations, and this was with reference to bleached fabrics, when to some extent, reference was made to Indian Standard Institution. It was also observed that ‘manufacture’ would contemplate some expenditure of human skill and labour in bringing the goods concerned into the condition which would attract the duty and 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, and therefore, expenditure of human skill and material have been used in the processing of fabrics and it may not be that the raw material was first transformed but over the transformed material, further transformation was done by the human labour skill. The Supreme Court, no doubt, was dealing with the question of duty being liable to be paid under the Excise Law under different Tariff Entries, and it is in that context that the concept of manufacture was under discussion that the petitioner company therein also, as an independent processing unit, was engaged in the job activities of dyeing, printing and finishing the man made and cotton fabrics. Tariff Entries Nos. 19 to 22 were under controversy, Three questions were posed in the context of the amending Act and the first was whether cotton fabrics subjected to the process of bleaching, mercerising, dyeing, printing water-proofing etc. in respect of cotton fabrics world amount to manufacture so that by such process it would bring into existence different and distinct goods commercially known as such. In that behalf, a very pertinent observation by way of conclusions is recorded as follows :-
“It appears in the light of the several decisions and on the construction of the expression that the process of bleaching, dyeing and printing etymologically also means manufacturing processes.”
The ratio in these observations indicate that to express the term ‘manufacture,’ it is not as if that all these processes must be combined together and it is then only that there is the process of manufacture, but either of these processes which includes bleaching, would amount to manufacture, because it would answer the test laid down that it can go in the market in that distinguishable changed form. This is apparent because there is obvious difference between a coarse or a grey yarn and a bleached one, and any consumer going to the market would by even a naked look would distinguished between the two commodities. However, in the instant case, something more has happened, because, after bleaching the yarn has also undergone the process of mercerising, and as stated, this process imparts not only more strength to the yarn but very valuable lustre which obviously would enhance its utility as also appearance in the view of the customer who can easily distinguish it from grey yarn which would also be capable of being sold in an acceptable form to satisfy the desire or fancy or taste of the customer in preference to the grey or coarse yarn. Obviously the process involve human skill and industry and that requirement is satisfied. Further that it can be soled in a distinguishable term from the grey yarn in the marker by bringing about this change by these two important processes it also fully satisfied. The Supreme Court has negatived a similar contention raised on behalf of the petitioner that the original commodity remains the same as in that case cotton fabric remains the same before and after the processing, and thus further that this state of remaining the commodity to be the same wipes out the concept of manufacture has also been negatived by the Supreme Court. This answers Shri Apte’s contention that the yarn remains basically the same yarn before and after process and therefore there is no manufacture. It is also well accepted that it is not the requirement in every case that an entirely new article must emerge out of the processing so as to constitute manufacture but, even some process which may not alter the foundation of the commodity would still constitute the process of manufacture.
8. Shri. Apte, learned Counsel, endeavoured to contend that the said decision of the Supreme Court and various decisions referred to therein relate to fabric and any change being brought about by the processing or bleaching dyeing etc. on a fabric would not provide any comparative premise in respect of a yarn because any change in the yarn in any manner would hardly make any difference as in contrast with the fabric or textile. The distinction sought to be made is obviously too artificial and one hardly be acceptable. Even in respect of the yarn a change can be effectively brought about in the state or appearance and such a change would be distinguishable to the customer easily in that commodity in the market from the original grey yarn. Therefore, it really does not depend on the nature of the commodity but is more dependent on the processing and the change that is being brought about. There are some allied shades annexed to this field which are quite relevant. If the grey yarn in its original form is used for weaving a fabric and in contrast if a fabric is prepared out of bleached and mercerised yarn, then obviously the two fabrics would be clearly distinguishable in every respect and would be sold in the market as distinct commodity though the basic yarn in both is the same. Consequently therefore, if the distinction would become apparent in such a fabric then the said distinction must continue to exist even in respect of a yarn by itself when converting into a fabric. This thus further answers the distinction sought to be made in yarn and fabric. Furthermore, prescription in Clause (e) of Rule 16 contains two features one about the mode of processing which may be either manufacture or can be otherwise and two which processing entails in creating a change in form condition, state or appearance of the original commodity, and therefore, even the mode of manufacture is capable of bringing about a change in the state or even in appearance of the original commodity and it is not necessary that it must bring about the change in the form. In other words the change in appearance or state or even the condition can be co-related with the process of manufacture which, in turn, would indicate that the process of manufacture need not necessarily convert the original commodity into an entirely different one or any other article need be manufactured out of that process. The concept of manufacture, therefore will have to be read in that restricted field so as to have a harmonious reading of both these items prescribed in that provision. It is also evident that the concept of consumption and use cannot be restricted only to the final act, and therefore, even intermediate consumption or use in a continuing process of manufacture of the final product can also be treated as-consumption or use for the purpose of octroi. As stated, the grey yarn would be itself the ingredient of the bleached and mercerised yarn but that by itself does not mean that it has retained its original identity. Even if such yarn is treated as semi-finished product, still it can be used in the manufacture of the further finished product, though, really speaking, such bleached and mercerised yarn by itself can be treated as finished product. Even in the decision of the Supreme Court cited supra the ratio in other case accepting the process of cutting large rolls of paper into specific sizes and dimensions and rolling those in to teleprinter rolls with the aid or power driven machine amounted to manufacture, holding that the teleprinter rolls are different commodities or articles from the one used as the base material as enunciated by the Division Bench of this Court in Kores (India) Limited v. Union of India, 1982 Tax L.R. 2823 was held acceptable. The Supreme Court also further observed, on the basis of various decisions, that the word ‘manufacture’ would include any process incidental or ancillary to the completion of a manufactured product. This would, therefore, reinforce the conclusion that is being reached in that behalf.
9. In that event, the opinion of Dr. Miss Rashida A. Harnesswala, who claims to have expertised knowledge in that field since she is M.Sc.Ph.D. is relied upon on behalf of the Respondent Corporation wherein three samples of yarn one being Original, one Bleached, and the third Mercerised were sent to her and she stated that original yarn was processed chemically and out of that the second and third viz., Bleached and Mercerised yarn was obtained, and therefore she ultimately opined that due to this processing of bleaching and mercerising those differ in appearance from the original one. This reference is however only incidental and the conclusion is not founded exclusively on that basis so as to cause any prejudice to the petitioners who had no occasion to cross-examine the witness. However, that item cane be taken into consideration to a limited extent in association with those other formidable features which are already discussed.
10. Observations by the Division Bench of this Court in New Shakti Dye. Works Pvt. Ltd. and Mahalakshmi Dying & Printing Works & others v. Union of India & another, 1983(14) E.L.T. 1786 would tend to support this view. Thus it was observed that cotton fabrics is merely a general description but there may be various types of cotton fabrics and that even if both printed material and gray cloth could generally be described as cotton fabric yet, the unbleached grey cloth is not the same cotton fabric as printed cotton fabric, and therefore, it cannot be said that dyed and printed cotton fabric must be treated on the same footing as grey cloth as the use to which the bleached, dyed, printed and finished product could be put to is entirely different or in addition to the use to which the grey cloth could be put to. In the context of the process of manufacture, it was suggested that the test to be applied must therefore be whether the processes in question have resulted in bringing into existence distinctively a new article which is known as such to the market that what is given to the processors is grey cloth which is unbleached, but when this grey cloth is made available to the processors it is first bleached and then dyed, printed and finished, and therefore, it cannot be said that the finished cotton fabric had substantially the same identity as grey cloth and continues to be cotton fabric even after it was subjected to other processes and there was no manufacture. This decisions has been approved of by the Supreme Court in the ratio cited supra. As stated, even the processes of bleaching and mercerising without undergoing further process would by themselves would be enough to hold that it has undergone a change and therefore amounts to a manufacture and obviously the process of printing etc., is not expected in respect of the yarns like the one in respect of fabric. That would hardly make any difference because these two processes on the yarn would obviously change the original grey yarn which would be saleable in the market as bleached and mercerised yarn in contrast to grey yarn.
11. In view of this analysis, in our opinion, the second challenge on the concept of ‘manufacture’ as canvassed by Shri. Apte also therefore fails.
12. Shri Apte endeavoured to submit that the proviso to sub-clause (e) of Rule 16 is a strong pointer to take the view that such a transformation would be in consequential and it cannot be deemed to have changed the form of the yarn within the meaning of this Rule after undergoing these two processes. According to him, the items in that proviso only serve as illustrations and are not exhaustive and those illustrations high-light the impact on the main sub-clause(e). In effect, argument is that when tobacco is converted into snuff or bidis, or wood which is cut and made into beams planks and rafters, or wheat or other grain made into flour, it would mean that if such a process entailing to this result does not amount to change, then on the same analogy the process of bleaching and mercerising of the grey yarn should also not be deemed to be a change in the form. The fallcy in this argument is apparent. The proviso does not create illustrations to explain the main provision in Rule (e) but it carves out only those items and certain contingencies wherein, inspite of the result, the end product will not amount to the goods having undergone the change in the form. The scope and extent of the field cannot be obviously expanded beyond these items, and the same will have to be read as being exhaustive. This is reinforced by the very significant feature that this is a deeming fiction and it artificially carves out those items under such fiction which cannot serve as general proposition to all items so as to wipe out the general effect of the main prescription in Clause (e). Consequently, therefore, the proviso, really speaking, furnishes as an exception to the main clause and thus the concession will have to be restricted only to those items mentioned in that proviso but for which even those items would have been covered by the main clause, and therefore, it is not as if that even those items which are not expressly included included in the proviso would also be deemed or presumed to be included as suggested on behalf of the petitioners. In our opinion, no further comments are necessary to discard this contention.
13. Shri Apte then endeavoured to submit that non-refund of this octroi would amount to double payment which argument was obviously based on some observations of the Supreme Court in the ratio cited supra. However, it overlooks the most fundamental distinction that in that instant case there is no question of double payment because octroi duty is paid only once at the time of import of the grey yarn within the city limits from outside and what is done is the since it falls in Rule 16, the concession of refund of 90% of duty is denied because of the processing on the yarn and therefore it is not as if, after the processing further duty is made payable. The octroi is already paid on the grey yarn but only refund on that duty to the tune of 90% is denied because of the processing. Consequently, that submission also does become futile.
14. Having regard to all these features in proper perspective, we are of the opinion that the petitioners firm has been rightly denied the concession of refund of 90% octroi duty which is paid on the grey yarn imported within the city limits since prescription under Rule 16 to gain that concession is non-existent in the instant case on account of the clear mandate in sub-Clause (e) of Rule 16 and consequently therefore the challenge to the respondent Corporation’s action of denying refund to that tune of the Octroi Duty to the petitioner’s firm must fail and this would be notwithstanding the fact that the Corporation is alleged to have been making such refund for several years upto 1971, because, the erroneous practice of making such refund does not go to correctly interpret a particular Rule. In this view of the matter, the petition fails.
15. Rule discharged. However, under the facts and circumstances of this case, there will be no order as to costs.