PETITIONER:
EMPIRE INDUSTRIES LIMITED & ORS. ETC.
Vs.
RESPONDENT:
UNION OF INDIA & ORS. ETC.
DATE OF JUDGMENT06/05/1985
BENCH:
VARADARAJAN, A. (J)
BENCH:
VARADARAJAN, A. (J)
FAZALALI, SYED MURTAZA
MUKHARJI, SABYASACHI (J)
CITATION:
1986 AIR 662 1985 SCR Supl. (1) 292
1985 SCC (3) 314 1985 SCALE (1)1269
CITATOR INFO :
RF 1987 SC 874 (1,3,5,6)
R 1988 SC 113 (4,5)
RF 1988 SC 871 (4)
R 1988 SC2237 (6)
F 1989 SC 516 (2,3,5,13,14,16,19,20,21,23,24
R 1989 SC1019 (6)
E 1990 SC1893 (5)
R 1991 SC 407 (6)
F 1991 SC1784 (7)
ACT:
Central Excise and Salt Act, 1944, (Act I of 1944),
section 2 (f) (v) (vi) and (vii)-Definition of `Manufacture'
as amended by the Central Excise and Salt and Additional
Duties of Excise (Amendment) Act, (Act vi of 1980)-
Legislative competency to make amendment-Whether the
Amendment Act is violative of Articles 14,19(1) (g) and
Entry 84 of List I of the Seventh Schedule of the
Constitution-Concept of "Manufacture"-Whether the various
processes of bleaching, mercerising, dyeing, printing etc.
of cotton fabrics and woolen fabrics man-made fabrics as
mentioned in items 19 and 22 of the Schedule to the Central
Excises and Salt Act amount to "Manufacture", as the Act
stood prior to the Amendment Act, so as to attract levy of
duty under section 4 of the Act-Whether the Amendment Act in
any event is valid under Entry 97 of List I of the Seventh
Schedule of the Constitution-Retrospective legislation
whether permissible - Evidence not produced clear but that
sought to be produced in the Supreme Court, acceptance of-
Passing of Interim orders, aviation/vaction by the Court in
fiscal matters, causing of.
HEADNOTE:
In Vijay Textile Mills v. Union of India reported in
(1979) 4 E.L.T.J. 181, the Gujarat High Court by its
decision dated 21-1.1979 held that cotton fabrics subjected
to bleaching, dyeing and printing could not be subjected to
excise duty under Item 19 (1) (b) of the First Schedule to
the Central Excises and Salt Act, 1944 is at twenty per cent
ad-valorem these activities not being taxable event in the
light of section 3 read with 2(d) of the Act. 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 at least be leviable under
residuary Item No. 68 of the First Schedule and therefore,
liable to levy at eight per cent ad-valorem, the High Court
directed the "Excise authorities to calculate the ad valorem
excise duty during the period of three years immediately
preceding the institution of each petition before the Court
and calculate the excise duty payable by each of these
petitioners under Item 68 only in respect of the value added
by each of the petitioners by the processing of the fabric
concerned. The excise duty paid in excess of such ad valorem
duty under Item 68 during the period of three years
immediately preceding the institution of the respective
Special Application is ordered to be refunded to the
petitioners concerned in each of their petitions."
In Real Honest Textiles and Ors. v. Union of India (now
in appeal) the Gujarat High Court passed similar directions
after declaring that the levy and collection of excise duty
and additional duty on processed man-made fabrics
293
under Tariff' Item 22(1) of the Additional Duties of Excise
(Goods of Special Importance) Act, 1957 was ultra vires.
Since the decisions of the Gujarat High A Court on 24.1.1979
in these two cases, the petitioners and the processing
houses like the petitioners have been claiming refund.
The President of India promulgated an Ordinance being
Central ordinance No. 12 of 1979 called the Central Excises
and Salt and Additional Duties of Excise (Amendment)
Ordinance 1979. The said Ordinance was replaced by the Act
VI of 1980 called the Central Excises and Salt and
Additional Duties of Excise (Amendment) Act, 1980, giving
retrospective effect to the Act from 24th February 1979. By
section 2 of the Act, section 2(f) of the Excise Duty Act
was amended by adding three sub items in the definition
"manufacture" so as to include the activities like
bleaching, dyeing, printing etc. covered by the two
decisions of the Gujarat High Court. Similar amendments were
made in items 19(1), 21 (1) and 22 (1) of the First Schedule
with retrospective effect. Section 5(2) (b) of the Amending
Act provided "no suit or other proceedings shall be
maintained or continued in any other Court for the refund of
the duty collected and no enforcement shall be made by any
Court of any decree or order directing the refund of such
duties of excise which have been collected and which may
have been collected." as if the provisions of section 5 of
the Act VI of 1980 had been in force on and from the
appointed day as defined in the Act VI of 1980.
After the Act VI of 1980 was passed, the same was
challenged before the Bombay High Court by several writ
petitions. Dismissing W.P. 623/1979 titled New Shakti Dye
Works Pvt. and Mahalakshmi Dyeing and Printing Works v.
Union of India along with 24 other writ petitions on 16117
June, 1983, the Bombay High Court upheld the Constitutional
validity of the impugned Act as well as the levy of duty on
certain goods. Special Leave was granted in this case as in
the two earlier Gujarat High Court's cases.
Empire Industries Limited also filed a petition under
Article 226 of the cases though Indian Textile Processor
Association withdrew it from the file of the Bombay High
Court and by the writ petition under Article 32 of the
Constitution has challenged the Constitutional validity of
the Act VI of 1980 and the validity of the levy of excise
duty under section 4 of the Act. Some other petitioners
similarly situated have also filed their petitions under
Article 32 of the Constitution.
In these petitions and appeals the following main
points fell for consideration:
1. Whether cotton fabrics subjected to the process of
bleaching, mercerising, dyeing, printing, water-proofing
etc. specially the processes conducted and carried out by
the petitioner company in respect of cotton fabrics and
woolen fabrics/man-made fabrics as mentioned under Items 19
or 22 of the Schedule to the Central Excises and Salt Act
amount to 'manufacture' as the Act stood prior to the
impugned Act of 1980. In other words whether these various
processes carried out by the petitioners
294
company amount to bringing into existence different and
distinct goods, A commercially known as such, to attract
levy of duty under section 4 of the Central Excises and Salt
Act, 1944.
2. Whether and in any event after the impugned Act, the
levy is valid. In connection with the said contention it has
to be examined whether the impugned Act is intra vires entry
84 of List I of the Seventh Schedule to the Constitution and
if not, whether the said impugned Act can be said to be
valid in any event under entry 97 of List I of the Seventh
Schedule to the Constitution.
3. Whether the impugned Act violates Article 14 or
Article 19(1)(g) of the Constitution.
Allowing the Revenue appeals in C.A. Nos. 586 to 592 of
1979 and dismissing all the petitions and other appeals, the
Court,
^
HELD: 1. In view of the amendments made in section 2(f)
of the Central Excises and Salt Act, 1944 by Amending Act VI
of 1980 as well as the substitution of new Item 19(1) and
22(1) in Excise Tariff in place of the original items, the
activities of the petitioner company, namely, as an
independent processing unit engaged in job activities of
dyeing, printing and finishing of man made/cotton fabrics
attract the exigibility to excise duties under section 3 and
4 of the Act. Excise duty will be charged on processed
printed material.
[328 D-E]
Section 3 of the Central Excises and Salt Act clearly
indicates that the object of the entries in the First
Schedule is firstly excisable goods and secondly to specify
rates at which excise duty will be levied. Under sub-rule 2
of Rule 56A, a manufacturer will be given credit of the duty
which is already paid on the articles used in the
manufacture, subject to certain conditions. Therefore, the
processors will be entitled to credit for the duty already
paid on the grey cloth by the manufacturers of the grey
cloth. [328 E-P]
New Shakti Dye Works (Pvt.) Ltd v. Mahalakshmi Dyeing
and Printing Works v. Union of India & Anr. (W.P. Nos. 622
and 623 of 1979 dated 16 and 17 June 1983 Bombay) approved.
2.1 Excise duty is a duty on the manufacture of goods
and not on sale. Manufacture is complete as soon as by the
application of one or more process, the raw material
undergoes some change. If a new substance is brought into
existence or if a new or different article having a
distinctive name, character or use result from particular
processes, such process or processes would amount to
manufacture. Therefore, the taxable event under the Excise
Law is `manufacture'. The moment there is transformation
into a new commodity commercially known 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 under
section 4 is attracted. [312 C-D; 316 B-C]
295
Union of India v. Delhi Cloth & General Mills, [1963] 1
Supp. S.C.R. 586; Union of India v. H.U.F. Business known as
Ramlal Mansukhnai, Rewari &; Anr. A [1971] 1 S.C.R. 937;
Allenburry Engineers v. Ramakrishna Dalmia & Ors., 11933] 2
S.C.R. 257; Deputy Commissioner, Sales Tax (Law) Board of
Revenue (Taxes) Ernakulam v. Pio Food Packets, [1980] 3
S.C.R. 1271 and Chowgule and Co. Pvt. Ltd. and Anr. v. Union
of India and Ors. 11981] I S.C.C. 653 referred lo.
Commissioner of Sales Tax, U.P. Lucknow v. Harbilas Rai
and Sons [1968] S.T.C. Vol. 21 p. 17 (S.C.) followed.
Hiralal Jitmal v. Commissioner of Sales Tax, [1957]
S.T.C. Vol. VIII 325 (MP); East India Cotton Manufacturing
Company Pvt. Ltd. v. The Assessing Authority- cum-Excise and
Taxation Officer, Gurgaon and Anr., [1972] S.T.C. Vol. 30 p.
489 (Punjab and Haryana); Kores (India) Ltd v. Union of
India and Ors., [19821 E.L.T. Vol. 10, p. 253 and K.
Venkataraman and Company and Ors. v. Deputy Commercial Tax
Officer, Coimbatore IV and Ors., [1972] S.T.C. Vol. 10 p. 57
(Mad) approved.
Extrusion Process Pvt. Ltd. v. N.R. Jadhav,
Superintendent of Central Excise, 119791 4 F.. L.T. J. 380
(Gujarat); Swastik Products, Baroda v. Superintendent of
Central Excise, [1930] 6 E.L T. 164 (Gujarat) and Kailash
Nath and Anr. v. The State of U.P. and Ors., [1957] S.T.C.
Vol. VIII p. 358 (SC) distinguished.
Mc Nicol and Anr. v. Pinch, [1906] 2 K.B. 352 quoted
with approval.
2.2 Etymologically the word "Manufacture" properly
construed would doubtless cover the transformation. Here, in
the light of several decision of the Supreme Court and the
High Courts and on the construction of the expression, the
process of bleaching, dyeing and printing etymologically
means manufacturing process. The processes of the type which
have been incorporated by the Act VI of 1980 were not so
alien or foreign to the concept of `manufacture' that these
could not come within that concept covered by entry 84, of
List I of the Seventh Schedule. After the Act VI of 1980 was
passed these processes indubitably fall within the
expression `manufacture'. [323A,E-H]
2.3 The question whether the impugned Act is covered by
entry 84 can be looked from another point of view namely the
actual contents of entry 84. The word `produced' appearing
in entry no. 84 of List I of the Seventh Schedule is used in
juxtaposition with the word `manufactured' and used in
connection with the duty of excise and consequently it
contemplates same expenditure of human skill 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. Here, expenditure
296
of human skill and material have been used in the processing
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 and skill making
this fit for human consumption. In any event under entry 97
of List I of the Seventh Schedule this would apply if it is
not under entry 84. [324 A, G]
Aluminium Corporation of India Ltd. v. Coal Board AIR
1959 Cal. 222, approved.
The King v. Caledonian Collieries, Ltd. [1928] A,C. 358
referred to.
2.4 To contend that if the legislation was sought to be
defended on the ground that it is a tax on activity like
processing and would be covered by the a powers enumerated
under entry 97 of List I of the Seventh Schedule there was
no charging section for such an activity and as such the
charge must fail and there cannot be any levy is wrong and
misconceived. The charging section is the charging section 3
of the Central Excises and Salt Act, 1944. It stipulates the
levy and charge of duty of excise on all excisable goods
produced or manufactured. `Manufactured' under the Act after
the amendment would be the 'manufacture' as amended in
section 2(f) and Tariff Item 19(1) and 22 and the charge
would be on that basis. [324 ;325 A-B]
3.1 Imposition of tax by legislation makes the subjects
pay taxes. It is well recognised that (i) tax may be imposed
retrospectively; and that by itself would not be
unreasonable restriction on the right to carry on business
and (ii) the Parliament has powers to make retrospective
legislation including fiscal legislation and such
legislation per se is not unreasonable. [326 D-F]
3.2 Here there is no particular feature of this
legislation which can be said to create any unreasonable
restriction upon the petitioners. The concept of process
being embodied in certain situation in the idea of
manufacture, the impugned legislation is only making 'small
repairs' and that is permissible mode of legislation. [326
E-F]
3.3 Nor does the impugned legislation act harshly nor
there is any scope for arbitrariness or discrimination. It
is clear from the objects and reasons wherein it was stated
that the Central Excise Duty was levied for the first time
on cotton fabrics in 1969, on man-made fabrics (rayon of
artificial silk fabrics) in 1954 and on woolen 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 has been levied not only on grey
fabrics but also at the stage of processing such as
bleaching, dyeing and printing. The Judgment of the Gujarat
High Court in Real Honest Textiles and Ors. v. Union of
India (under appeal) according to the statement of objects
and reasons of the Act VI of 1980 had upset the arrangements
regarding levy of excise duties of textile fabrics. The
judgment also had the effect of disturbing the balance
evolved between different sectors of the textile industry.
Furthermore, it was made clear that in so far as past
assessments were concerned, refund of excise duties to
manufactu-
297
rers as ordered by the High Court would have only meant a
fortuitous windfall so as to benefit such persons without
any relief to the ultimate consumers A who had purchased the
fabrics and had borne the burden of the duties. In order to
avoid this, the Act was passed. [325 E-H; 326 B-C; 327 C]
Krishnamurthi & Co. etc. v. State of Madras & Anr.,
[1973] 2 S.C.R. 55, referred to.
3.4 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
permissible for the courts to engraft into it any other
deduction or allowance or addition or read it down on the
score that the said deduction or allowance or addition was
authorised elsewhere in the Act or in the Rules. A
conventional charge should be measured by its own
computation and not by facts relating to other method of
computation. The circumstances that thereby the benefit of
any exemption granted by the legislation may be lost and
that in some cases hardship might result are not matters
which would influence courts on the construction of the
statute. A tax payer subject is entitled only to such
benefit as is granted by the legislature. Taxation under the
Act is the rule and benefit and exemption, the exception.
And in this case there is no hardship. [327 E-G] D
3.5 When the textile fabrics are subjected to the
processes like bleaching, dyeing and printing etc. by
independent processes, whether on their own account or on
job charges basis, the value of the purposes of assessment
under section 4 of the Central Excise Act will not be the
processing charges alone but the intrinsic value of the
processed fabrics which is the price at which such fabrics
are sold for the first time in the wholesale market. That is
the effect of section 4 of the Act. The value would
naturally include the value of grey fabrics supplied to the
independent processors for the processing. However excise
duty, if any, paid on the grey fabrics will be given
proforma credit to the independent processors to be utilised
for the payment on the processed fabrics in accordance with
the Rules 56 A or 96 of the Central Excise Rules, as the
case may be. [327 G-H; 328 A-B] F
3.6 Read in that context and in the context of the
prevalent practice followed so long until the decision of
the Gujarat High Court in Real Honest case, there is no
hardship and no injustice to the petitioners or the
manufacturers of grey fabrics. The fact that the petitioners
are not the owners of the end product is irrelevant. Taxable
events is manufacture-not ownership. [328 B-D] G
4. Documentary evidence not produced earlier cannot be
admitted at the late stage of final hearing of the case by
the Supreme Court [308 E]
(Per majority Varadarajan J. dissenting).
1. Different Courts sometimes pass different interim
orders as the courts think fit. The interim orders passed by
particular courts on certain considerations arc not
precedents for other cases may be on similar facts. To
contend
298
that once an interim order has been passed by the Supreme
Court on certain A factors specially in fiscal matters, in
subsequent matters on more or less similar facts, there
should not be a different order passed nor should there by
any variation with that kind of interim order passed. In as
much as that such variance creates discrimination is an
unfortunate approach. [329C-E ]
2. Every bench hearing a matter on the facts and
circumstances of each case should have the right to grant
interim orders on such terms as it considers fit and proper
and if it had granted interim order at one stage, it should
have right to vary or alter such interim orders. The court
made the following suggestions (i) A consensus, however,
should be developed in matters of interim orders in fiscal
matters specially in cases involving indirect taxes where
normally taxes have been realised from the consumers but
have not been paid over to the exchequer or where taxes are
to be realised from consumers by the dealers or others who
are parties before the court, interim orders staying the
payment of such taxes until final disposal of the matters
should not be passed. It is a matter of balance of public
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 ceasing 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. Government's
expenditures cannot be made on bank guarantees or
securities. In that view of the matter the Supreme Court
shall 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. [329 E-
H; 330 A-C]
JUDGMENT:
ORIGINAL JURISDICTION: Writ Petition (Civil) No. 11728
y) of 1984.
Under Article 32 of the Constitution of India.
WITH
Writ Petitions Nos. 13556, 13788, 13792, 15438 and
15439 Of 1984 and Civil Appeals Nos. 6414 of 1983 and 3564
of 1984.
AND
Civil Appeals Nos. 586 to 592 of 1979.
From the Judgment and Order dated 24.1.1979 of the
Gujarat High Court in Special Civil Appln. Nos. 1552,
1553/77 with Nos. 249,1292,1293,1294 and 1295 of 1978.
299
S. J. Sorabjee, A. J. Rana, S. Parekh, Mrs. J. Wad, and
Miss Aruna Mathur for the Petitioners in W.P. Nos. 11728,
15438 and A 15439 of 1984.
S.J. Sorabjee, A.N. Haskar and S.A. Shroff for the
Petitioner in W.P. No. 13788 of 1984.
S.S. Shroff and S.A. Shroff for the Appellant in C.A.
No. 3564/84 and Petitioner in W.P. Nos. 13556, 13792 and
13788 of 1984.
S.J. Sorabjee and A. Grover for the Appellant in C.A.
No. 6414 of 1983.
K.G. Bhagat Additional Solicitor General and R.N.
Poddar for the Appellants in C.A. Nos. 586-92 of 1979.
K.G. Bhagat, Additional Solicitor General, Girish
Chandra, Miss Halida Khatun, Uma Nath Singh and R.N. Poddar
for the Respondents. (Union of India)
S.K. Dholakia, R.C. Bhatia and P.C. Kapur for the
Respondents, in C.A. Nos. 589-92 of 1979.
Y.S. Chitale, Anand Haskar, P.H. Parekh and Miss Indu
Malhotra for the Respondents in C.A. No. 586 of 1979.
A.K Sen, P.H. Parekh and Miss Indu Malhotra for the
Respondents in C.A. No. 587 of 1979- F
F.S. Nariman, P.H. Parekh and Miss Indu Malhotra for
the Respondent in C.A. No. 588 of 1979.
The following Judgments were delivered
VARADARAJAN J. I agree with my learned brother
Sabyasachi Mukharji, J. that Writ Petitions Nos. 11728 of
1984 and 13556, 13788 13792, 15438 and 15439 of 1984 and
Civil Appeals Nos. 6414 of 1983 and 3564 of 1984 have to be
dismissed with costs, and that Civil Appeals Nos. 586 to 592
of 1979 have to be allowed with costs, and interim orders,
if any, passed should stand vacated, and arrears of excise
duties should be paid forthwith and future excise
300
duty should be paid as and when the goods are cleared or
otherwise as per law and rules. But I regret my inability to
subscribe to the views expressed by him in the last two
paras of his judgment regarding interim orders.
SABYASACHI MUKHARJI, J. This first petition herein
under Article 32 of the Constitution arises under the
following circumstances.
The President of India promulgated an Ordinance being
Central Ordinance No. 12 of 1979 called the Central Excises
and Salt and Additional Duties of Excise (Amendment)
Ordinance, 1979. The said Ordinance was replaced by the Act
called the Central Excises and Salt and Additional Duties of
Excise (Amendment) Act, 1980 (hereinafter referred to as the
‘impugned Act’). The said impugned Act received the assent
of the President on 12th February, 1980 and under section
1(2) of the impugned Act, retrospective effect to the Act
was given from 24th February, 1979.
It may be mentioned that the Gujarat High Court in the
case of Vijay Textile Mills v. Union of India rendered its
decision on 24th January, 1979 on this aspect of the matter.
This decision will have to- be examined in little detail
later. As a result of the said decision and with a view to
overcome the said decision, the Ordinance mentioned
hereinbefore was promulgated on 24th November, 1979 which
has since been replaced by the said Central Excises and Salt
and Additional Duties of Excise (Amendment) Act. 1980.
After this impugned Act was passed, the same was
challenged before the Bombay High Court by several writ
petitions, Writ Petition No. 623 of 1979 along with others
were disposed of by the Bombay High Court by judgment
delivered by the Division Bench on 167/17th June, 1983 in
the case of New Shakti Dye Works Pvt. Ltd. & Mahalakshmi
Dyeing and Printing Works v. Union of India Anr. By the said
judgment, the Bombay High Court disposed of 24 writ
petitions as the question involved in all those petitions
was identical. In that case the constitutional validity of
the impugned Act as well as the levy of duty on certain
goods identical to the present goods involved in this
application under Article 32 of the Constitution was
involved. The Bombay High Court dismissed the said writ
petitions. We will refer to the said decision later. We may,
however, state that we are in respectful agreement with the
conclusions as well as the reasoning of the decision of the
Bombay
301
High Court in the said petitions. Special leave to appeal to
this Court has been granted from the said decision in the
case of New Shakti Dye Works Pvt. Ltd.
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’.
The petitioners in writ petition No. 11728 of 1984 were
two in number-one being the petitioner company and the other
being the Taxation Executive of the petitioner company.
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 condition and are commercially known as grey
fabrics i.e. unprocessed fabrics which are cleared after
payment of the excise duty under Tariff Item Nos. 19 and 22,
as the case may be. The petitioners further state that the
said grey fabrics i.e. unprocessed, undergo various
processes in the factory of the petitioner company. The grey
fabrics are boiled in water mixed with various chemicals and
the grey fabric is washed and thereafter the material is
taken for the dyeing process, that is imparting of required
shades of colours. The next stage is printing process, i.e.
putting the required designs on the said fabrics by way of
screen printing on hot tables. The final stages the
finishing process, that is to give a final touch for better
appearance According to the petitioners, they do not carry
out any spinning or weaving of the said fabrics. The
machinery installed by the petitioner company in its factory
is only for the purpose of carrying out one or more of the
aforesaid four processes and cannot be used for the purpose
of either spinning or weaving of yarn for manufacture of
‘fabric’ i.e. ‘woven material’. For spinning or weaving of
yarn, one requires, according to the petitioners, looms and
petitioner company is merely a processing
302
house. The petitioner company’s case is that the petitioner
company A begins with man-made or cotton fabrics before it
starts the said processes and also ends with man-made or
cotton fabrics after subjecting the fabrics to the various
processes. The petitioner company receives fully
manufactured man-made fabrics and cotton fabrics from its
customers only for the purpose of carrying out one or more
of the aforesaid processes thereon as per the requirement
and instructions of the customers and after the necessary
processes are carried out, the same are returned to the
customers. According to the petitioners, what is received by
the petitioner company is known as cotton/man-made fabrics
and what is returned is again known as cotton/man-made
fabrics. The petitioner company states that it has no
discretion or choice of shades or colours or designs and the
same are nominated or prescribed by the customers. The
finally processed fabric is not and cannot be sold by the
petitioners in the market as the petitioner company’s
product. The petitioner company merely collects from its
customers charges only for job work of processing done by
it. The petitioner company further states that it has no
proprietary interest in the fabrics 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.
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 there-on 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.
The petitioners further state that such classification
list of cotton fabrics has been approved under Tariff Item
No. 19 and the petitioner company was required to pay
certain duties which the petitioner company has mentioned
that it has paid the same. The petitioners further state
that for the purpose of determination of
303
value under section 4 of the Excise Act, the petitioner
company was required to file a price list in the form
prescribed under the said Rules for approval. The
respondents-government authorities, according to the
petitioners, although being aware of the fact that the
petitioner company was carrying out and or performing merely
the processing work and collecting the processing charges
only, had directed the petitioner company to file a price
list on the basis of the sale price of its customers and for
this purpose had required the petitioner company to file
along with the said price list letters of its customers
certifying the price at which the said customers sell the
goods in the markets. The petitioners state that price list
includes the selling expenses and selling profits of the
said customers in which the petitioner company has no
interest or share.
According to the petitioners, the respondents approve
the price list and as a consequence thereof the petitioner
company becomes liable to pay to the respondents additional
Excise duty calculated on ad-valorem basis on the said
approved sale price that is the sale price of its customers.
The petitioners have annexed a copy of the delivery note and
a copy of the invoice issued by the petitioner company. It
is further the case of the petitioners that both in respect
of cotton fabrics and man-made fabrics which are merely
processed by the petitioner company, the respondents were
levying and collecting excise duty and additional duty
respectively under Tariff Items 19 and 22, as the case may
be, at rates stipulated against the respective entries read
with relevant exemption notification, as if the petitioner
company was the manufacturer of cotton fabrics/man-made
fabrics, as the case may be.
The petitioner company further states that it bad filed
a writ petition in the Bombay High Court which was admitted.
The said writ petition was filed through Indian Textile
Processors Association. The petitioners stated thereafter
the circumstances under which the said petition was
withdrawn and why the present petition under Article 32 of
the Constitution is being filed. For our present purpose, it
is not necessary to set out these details.
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
304
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 other
process or any one or more of these processes;”
Similar amendments we made in Items 19(1), 21(1) and
22(1) of the Central Excise Tariff, and also similar
amendments were effected in relation to Act of 1957. These
amendments were effected retrospectively from different
dates for different fabrics, as mentioned in the impugned
Act. According to section 5(2) (b) of the impugned Act, no
suit or other proceedings shall be maintained or continued
in any other court for the refund of the same and no
enforcement shall be made by any court of any decree or
order directing the refund of such duties of excise which
have been collected and which may have been collected as if
the provisions of section S of the impugned Act had been in
force on and from the appointed day as defined in the
impugned Act. It may, however, be mentioned that the
original unamended definition of the word “manufacture” in
section 2(f) contained a general definition of the word
“manufacture” which was and still continues to be an
inclusive definition to say that the manufacture includes
any process incidental or ancillary to the completion of a
manufactured product.
According to the petitioners, the impugned Act had been
enacted and brought into force because of the judgment of
the Gujarat High Court dated 24th January, 1979 given in the
case of
305
Real Honest Textiles and others v. Union of India-a decision
which is also subject matter of appeal before this Court and
has been heard A along with this petition. The Gujarat High
Court had declared that the levy and collection of excise
duty and additional duty on processed cotton fabrics under
Tariff Item No. 19 I of the Schedule to the Excise Act and
additional duty on processed man-made fabrics under Tariff
Item 22(1) of the Additional Duties of Excise (Goods of
Special Importance) Act, 195, was ultra vires and the
processing houses were liable to pay duty of excise on
processed fabrics ad-valorem under Tariff Item 68 of the
Schedule to the Excise Act only on value added by way of
process charges on cotton or manmade fabrics, as the case
may be, and not on the full value of such fabrics. As
mentioned hereinbefore, an application for special leave to
appeal to this Court had been filed from the said decision
of the Gujarat High Court, these appeals are pending and
would be disposed of by this judgment.
It may be mentioned 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., 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 hereinbefore 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:
” 1. 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,
306
water-proofing, rubberising, shrink- proofing,
organdie processing or any other process or any
two or more of these processes.
Twenty per cent
ad-valorem
XXX XXX XXX
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.
(b) man-made fabrics, subjected to the process of
bleaching, dyeing, printing, shrink proofing,
tentering, heat-setting, crease resistant processing or
any other process or any two or more of these
processes.
Twenty per cent
ad-valorem plus
rupees five per
square metre.
It may be pointed out that the original Item No. 19
I referred to “cotton fabrics”. It provided that
“cotton fabrics means all varieties of fabrics
manufactured either wholly or partly from cotton and
includes dhoties, sarees, chadders, bed-sheets, bed-
spreads, counter-panes, table cloths, embroidery in the
piece, in strips or in motifs and fabrics impregnated,
coated or laminated with preparations of cellulose
derivatives or of other artificial plastic materials.”
307
The proviso is not relevant for the issue now. The original
Item 19 I 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”.
Thus, Item No. 19 I is now substituted by the new item
referred to above and the effect of this substitution is
that for the purposes of excise duty cotton fabrics have
been categorised into two classes, namely (a) cotton fabrics
not subjected to any process and (b) cotton fabrics
subjected to any 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. The duty on each one of them is twenty
per cent ad-valorem. Substantially the same is the nature of
the substitution of old Item No. 22(1) by new Item No.
22(1).
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).
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 No. 191 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 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 a
reference to such “cloth”, “cotton
308
cloth”,or, as the case may be, ‘ cotton fabrics”, and
reference to the A “goods comprised in Item No. 22(1) of the
First Schedule” shall be construed as a 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-made
fabrics subjected to any process. It provides that all
duties of excise levied, assessed or collected or purported
to have been levied, assessed or collected, before the date
of commencement of the Amendment Act, on (i) “cloth”,
“cotton cloth” and “cotton fabrics” subjected to any
process, (ii) “woollen fabrics”, subjected to any process,
(iii) “rayon or artificial silk fabrics” and “man-made
fabrics” subjected to any process, under any Central Act
shall be deemed to be, and shall be deemed always to have
been as validly levied, assessed or collected as if the
provisions of section 5 had been in force on and from the
appointed day. It is also expressly enacted in section 5 of
the Amendment Act that every Central Act as in force at any
time during the period commencing with the appointed day and
ending with day immediately preceding the date of
commencement of the Amendment Act and providing for or
relating to the levy of duties of excise on “(a) ‘cloth’,
‘cotton cloth’ or, as the case may be, ‘cotton fabrics’, (b)
‘woollen fabrics’, (c) ‘rayon or artificial silk fabrics’,
or as the case may be, ‘man-made fabrics’, shall have and
shall be deemed to have always had effect during the said
period as if (i) such ‘cloth’ or as the case may be, ‘cotton
fabrics’ comprised for the purpose of the duty leviable
under the Excise Act- (A) a sub-item covering such ‘cloth’,
‘cotton cloth’ or ‘cotton fabrics’ not subjected to any
process mentioned in sub-clause (v) of clause (f) of section
2 of the Central Excise Act, as amended by this Act; and (B)
a sub-item covering such ‘cloth’ ‘cotton cloth’ or ‘cotton
fabrics’ subjected to any such 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
309
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 A processes and by making these amendments
retrospective recoveries which have so far been made from
the processors in question were sought to be legalised. If
these amendments can stand the test of challenge of Article
19(1)(g) and 14 and if the amendments in section 2(f) are
within the legislative competence of the Parliament, and the
process of bleaching, dyeing and printing and other
processes mentioned in the newly introduced clause (v) o
section 2(f) were manufacturing processes, then the
processors would become liable to pay excise duty, and there
cannot be any question of refund. This is not disputed.
The amending Act has, however, been challenged and
various submissions on behalf of the respective parties were
made and numerous decisions were referred to us.
The following main points fall for consideration in
these applications and appeals:
1. Whether cotton fabrics subjected to the process of
bleaching, mercerising, dyeing, printing, water
proofing etc. specially the processes conducted
and carried out by the petitioner company as
enumerated before in respect of cotton fabrics and
woollen fabrics/man-made fabrics as mentioned
under Items 19 or 22 of the Schedule to the
Central Excises and Salt Act amount to
‘manufacture’ as the Act stood prior to the
impugned Act of 1980. In other words whether these
various processes carried out by the petitioner
company amount to bringing into existence
different and distinct goods, commercially known
as such, to attract levy of duty under section 4
of the Central Excises and Salt Act, 1944.
2. Whether and in any event after the impugned Act,
the levy is valid. In connection with the said
contention it has to be examined whether the
impugned Act is intra vires entry 84 of List I of
the Seventh Schedule to the Constitution and if
not, whether the said impugned Act can be said to
be valid in any event under entry 97 of List I of
the Seventh Schedule to the Constitution,
310
3. Whether the impugned Act violates Article 14 or
Article 19(1)(g) of the Constitution.
If the impugned Act is valid, then no other question
need be examined except the question as to what should be
the actual levy of the duties.
It is therefore necessary to examine the amendment of
the definition of ‘manufacture’ in section 2(f) of the
Central Excise and Salt Act, 1944 and Tariff Items 19(1) and
22(1) of the First Schedule to the Central Excise Tariff.
The main contention of the petitioner is that the
impugned Act is ultra vires of entry 84 of List I of the
Seventh Schedule. It is not necessary to set out in extenso
entry 84 of List I of the Seventh Schedule to the
Constitution. It deals with duties of excise on tobacco and
other goods manufactured 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
Item Nos. 19 I and 22(1), Parliament has gone beyond the
scope of entry 84 of List I of the Seventh Schedule to the
Constitution and as such is ultra vires. It was submitted
that all that was being done was that fully manufactured
cotton fabrics is subjected to further process of bleaching,
dyeing and printing and therefore the article still
continues to be cotton fabric and no different article
having distinctive features, character and use comes into
existence. It was submitted that grey
311
cloth before it is processed is cotton fabric and after it
is processed, continues to be cotton fabrics. As such it
cannot be said that there A was any manufacture involved.
Numerous decisions on the question whether a particular
process was a manufacturing process or not were referred to.
On the other hand on behalf of the revenue it was urged that
the processes of bleaching, dyeing and printing were
essentially manufacturing processes inasmuch as a result of
these processes, a new substance known to the market is
brought into being. In support of this contention, several
decisions were also referred to. Though it is not necessary
to refer to all these decisions, some of these may be noted.
In Union of India v. Delhi Cloth & General Mills,(l)
this Court was concerned with the question as to whether
manufacture of ‘refined oil’ from raw materials undertaken
by the manufacturers of Vegetable products known as
Vanaspati was liable to excise duty. The manufacturers
purchased ground-nut and til oil from open markets and the
oils thus purchased by them were subjected to different
processes in order to turn these into Vanaspati. Their
contention was that at no stage they produced any new
products which could come within the items described in the
Schedule as “vegetable non-essential oils, all sorts, in or
in relation to the manufacture of which any process is
ordinarily carried on with the aid of power”. The contention
of the revenue was that the manufacturers in the course of
manufacture of Vanaspati which was a vegetable product from
the raw ground-nut and til oil, brought into existence what
is known in the market as ‘refined oil, after carrying out
some process with the aid of power and it fell within the
description of “vegetable non-essential oils” and as such
was p liable to duty. And in that context it was pointed out
by this 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 process, 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
(1) 11963]1 SUPP, S.C.R. 586.
312
under stood to mean as “bringing into existence a new A
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 decision, if a new substance is
brought into existence or if a new or different article
having a distinctive name, character or use results from
particular processes, such process or processes would amount
to manufacture. This view point has been reiterated in
numerous decisions. Reference in this connection may be made
to the decision in the case of Union of India v. II.U.F.
Business known as Ramlal Mansukhrai, Rewari & Anr.(‘) This
Court at pages 941-942 of the report observed as follows:-
“The word “manufacture” is defined in Section 2(f)
of the Act as including any process incidental or
ancillary to the completion of a manufactured product.
The rolling of a billet into a circle is certainly a
process in the course of completion of the manufactured
product, viz., circles. In the present case, as we have
already indicated earlier, the product, that is sought
to be subjected to duty, is a circle within the meaning
of that word used in Item 26A(2). In the other two
cases which came before this Court, the articles
mentioned in the relevant items of the First Schedule
were never held to have come into existence, so that
the completed product, which was liable to excise duty
under the First Schedule, was never produced by any
process. In the case before us, circles in any form are
envisaged as the completed product produced by
manufacture which are subjected to excise duty. The
process of conversion of billets into circles
(1) [l971] I S.C.R. 937.
313
was described by the legislature itself as manufacture
of circles.”
The question of ‘manufacture’ was also considered by
this Court in the case of Allenburry Engineers v.
Ramakrishna Dalmia Ors.(1)
It may be noted in the case of Hiralal Jitmal v.
Commissioner of Sales Tax(2), a Division Bench of Madhya
Pradesh High Court in considering the meaning of the
expression `manufacture’ for the purpose of the Madhya
Bharat Sales Tax Act, 1950, was of the view that it was not
necessary 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 a different article from the raw materials and all
that was required was that the material should have been
changed or modified by man’s art or industry so as to make
it capable of being sold 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(3) 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 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.
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
commercially different article from the cloth which is
purchased and printed or dyed.
(l) [1973] 2 S.C.R. 257.
(2) [1957l S.T.C. Vol. VIII, 325 (M.P.).
(3) [1968] S.T.C. Vol. 21 p. 17 (S.C.),
314
A similar view was taken by the Punjab and Haryana High
Court in the case of East India Cotton Manufacturing Company
Private Limited v. The Assessing Authority-cum-Excise and
Taxation Officer, Gurgaon and Another.(l) The Division Bench
in that case positively took the view 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. Reference may also be made to a
decision of the Bombay High Court in Kores (India) Limited
v. Union of India and Others(2), where the Division Bench
was considering the question whether the process of cutting
large rolls of paper into specific sizes can dimensions and
to roll these into teleprinter rolls with the aid of power
driven machines amounted manufacture under section 2(f) of
the Central Excise Act. The Division Bench held that
teleprinter rolls are different commodities or articles from
the one used as the base material which is large size or
jumbo rolls writing or printing papers.
Fabric itself means woven materials. It was contended
that processing the manufactured fabric does not bring into
existence any new woven material but the question is: does
new and different goods emerge having distinctive name, use
and character ? The Madras High Court in the case of K
Venkataraman and Company and others v. Deputy Commercial Tax
Officer, Coimbatore IV and others(8) had to consider that
cinders do not fall within the expression “coal, including
coke in all its form” in item I of the Second Schedule of
the Tamil Nadu General Sales Tax Act, 1959. Where the words
used in an entry are comprehensive or wide enough to include
all kinds or types of particular goods falling within the
description, the question was whether their scope should be
restricted and in that context it was held that mere change
in form or colour of the goods by reason of any processing
cannot be held to be sufficient ground for removing it from
its original classification.
In the case of Commissioner of Sales Tax, U.P. Lucknow
v. Harbilas Rai and Sons (supra), it was held that the word
‘manufacture’ has various shades of meaning, and in the
contest of sales tax legislation, if the goods to which some
labour is applied remain essentially the same commercial
article, it cannot be said that the
(l) [1972] S.T.C. Vol. 30 p. 489 (Pb. & Har.).
(2) [1982] E.L.T. Vol. 10, p. 253.
(3) [1972] S.T.C. Vol. 30 p. 57 (Mad.).
315
final product is the result of manufacture. There the
assesses,dealers in pig bristles, bought bristles plucked by
Kanjars from pigs, A 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
sales. 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.
In Deputy Commissioner, Sales Tax (Law) Board of .
Revenue (Taxes) Ernakulam v. Pio Food Packers(‘) arising out
of Kerala General Sales Tax Act 1963 where the expression
used under section 5-A(l)(a) was “consumes such goods in the
manufacture of other goods for sale or otherwise”, and
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 case in the context
of Sales Tax Law, it was held that there was no manufacture,
the principles enunciated by this Court are in the following
terms:
“There are several criteria for determining whether
a commodity is consumed in the manufacture of another
The 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. Commonly, manufacture is the end
result of one or more processes, through which the
original commodity is made to pass. The nature and
extent of processing may vary from one case to another,
and indeed there may be several stages of processing
and perhaps a different kind of processing at each
stage. With each process suffered, the original
commodity experiences a change. But it is only when the
change or a series of changes, take the commodity to
the point where commercially it can no longer be
regarded as the original commodity but instead is
recognised as a new and distinct article that a
manufacture can be said to take place. Where there is
no essential difference in identity between the
original commodity and the processed article it is not
possible to say that one commodity has been
(1) [1980] 3 S.C.R. 1271.
316
consumed in the manufacture of another. Although it A
has undergone a degree of processing, it must be
regarded as still retaining its original identity.”
It may be noted that the taxable event in the context
of Sales Tax Law is ‘sale’. The taxable event under the
Excise Law is ‘manufacture’. The moment there is
transformation into a new commodity commercially known 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. Though in the facts of that case perhaps
it was not necessary and as such the attention of the
Court was not drawn to the definition of the term
‘manufacture’ under section 2(f) of the Central Excise Act
nor was the Tariff Item IB placed before the Court.
This decision was referred to and followed in the case
of Chowgule & Co. Pvt. Ltd. and Another v. Union of India &
Others.(l) Whatever may be the operation, it is the effect
of the operation on the commodity that is material for the
purpose of determining whether the operation constitutes
such a process which will be part of ‘manufacture Any
process or processes creating something else having a
distinctive name, character and use would be manufacture.
It is appropriate now to refer to Gujrat High Court’s
decision in the case of Vijay Textile, y. Union of India.(2)
Gujarat High Court held that cotton fabrics subjected to
bleaching, dyeing and printing could not be subjected to
excise duty under Item 19 (1). 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 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
(1) [1981] I S.CC.. 653.
(2) [1979] 4 E.L.T. J. 181.
317
into item 19(1). The Gujarat High Court’s decision which is
reported at page 193 of the report is as follows:-
“In the instant case, the excise duty claimed on the
basis of the market value of the processed cotton
fabrics or man-made fabrics cannot be levied because,
assuming that process amounts to manufacture, all that
they have done is to manufacture processed cloth,
processed fabric, either cotton or man-made and that
not being a taxable event in the light of Section 3
read with section 2 (d) of the Act and Items 19 and 22
levy of excise duty on this basis was ultra vires and
contrary to law. Therefore, the petitioners are
entitled to the refund of the excess of excise duty
paid by them during the period of last three years
immediately preceding the filing of the Special Civil
Application over what they were bound to pay on the
footing that processing of cotton fabrics is an
excisable activity covered by Item 68. 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
Schedule, they are liable to pay ad valorem duty only
in respect of the value added by them at the time of
processing because the only manufacturing activity
which they have done is the manufacturing of processed
fabrics from fabric which was already in existence. The
Excise authorities are therefore directed to calculate
the ad valorem excise duty during the period of three
years immediately preceding the institution of each
petition before us and calculate the excise duty
payable by each of these petitioners under Item 68 only
in respect of the value added by each of the
petitioners by the processing of the fabric concerned.
The excise duty paid in excess of such ad valorem duty
under Item 68 during the period of three years
immediately preceding the institution of the respective
Special Application is ordered to be refunded to the
petitioners concerned in each of their petitions.”
The main question that fell for consideration before
the Gujarat High Court was whether the articles fell within
Tariff Entry 19 or 22 as contended by the revenue or under
residuary Entry 68.
318
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. In support 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 (1) where the Gujarat High
Court had held that printed and lacquered aluminium tubes
did not have, in relation to a plain extruded tubes any
distinctive name, character or use as both could be used for
the same purpose, both 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 there by manufactured tubes. It was held that
printing and lacquering were not even remotedly 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 determined naturally having
regard to the facts and circumstances of each case and
having regard to the well-known tests laid down by this
Court. Similarly the facts of the decision in the case of
Swastic Products, Baroda v. Superintendent of Central
Excise(2) are also distinguishable.
The decision of this Court in the case of Kailash Nath
and Another v. The State of U.P. and Others(3) was on the
question of 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 further
furnished. This Court in that case held that although the
colour of the cloth had changed by printing and
(1) [1979] 4 E.L.T. J. 380 (Gujarat).
(2) [1980] 6 E.L.T. 164 (Gujarat).
(3) [1957] S.T.C. Vol. VIII p. 358 (S.C.).
319
processing, the cloth exported was the same as the cloth
sold by the petitioners in that case and they were therefore
not entitled to exemption under the notification. As would
be apparent from the facts mentioned herein-before, the
question for consideration before this Court was the
identity of cloth purchased and exported having regard to
the use of the words “cloth” in the notification. These
words were construed by this Court to mean that the
Legislature did not intend that the identical thing should
be exported in bulk quantity or that any change in
appearance would be crucial to alter it. It was also pointed
out that the expression “such cloth or yarn” would mean
cloth or yarn manufactured in Uttar Pradesh and sold and
those words had nothing to do with the transformation by
printing and designs on the cloth. It is implicit in the
decision of this Court that by printing or designing, the
cloth was in fact transformed. But since the decision turned
on the construction of the notification in which any change
in appearance or transformation of an article into another
did not become relevant, the decision would not be of
assistance in disposing of the present case. This question
has been elaborately considered by the Bombay High Court in
the case of x New Shakti Dye Works Private Ltd. 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.
In England, in the case of Mc Nicol and Another v.
Pinch,(l) 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 s. 9 of that Act and
s. 2 of the Revenue Act, 1903, and to obtain from an officer
of Inland Revenue a book such as was prescribed by the
Regulation No. 633 of
(1) [1906] 2 K.B 3s2.
320
the Statutory Rules, 1904, inasmuch as the substance with
which the appellants dealt was always saccharin both before
and after their treatment of it. Bray J. Observed at pages
359-360 of the report as follows-
“We have to determine whether upon the facts stated
in the case the appellants did manufacture saccharin.
Let us see what those facts are. One of the admitted
facts is that saccharin is a substance produced from
toluene sulphonamide. That is the definition of
saccharin. This saccharin was not produced by the
appellants from toluene sulphonamide; it was produced
(if it can be said to have been produced) from
saccharin itself. The appellants have not manufactured
saccharin from toluene sulphonamide. The case states
that 330 saccharin is produced without eliminating
certain para products, or only eliminating them to a
very small extent. Then, in order to convert 330
saccharin into 550, certain of the para compounds have
to be eliminated. Then it states that “this mixture”
(that is, the 330) “is known commercially as 330
saccharin ” The other mixture is known commercially as
550 saccharine. In both cases it is saccharin, and as a
dutiable article 330 saccharin does not differ in the
smallest degree from 550 saccharin. The same duty is
payable on 550 saccharin as on 330 saccharin. What the
appellants do is stated thus: “The appellants subjected
certain 330 saccharin to a chemical process . This
amount of 330 saccharin was not treated in one bulk,
but in separate quantities. The result of this
treatment was that in some cases 550 saccharin was
produced, and in some cases a mixture sweeter than 330
saccharin but not so sweet as 550 saccharin was
produced,” and in some cases less sweet. But it was
always saccharin; it was saccharin before it was
treated, and it was saccharin after it was treated.”
Darling J. at pages 361-362 of the report made the
following interesting observations:-
“I do not say that to use the word “manufacture” as
exactly synonymous with the word “make,” or to use
321
the words “to manufacture” as exactly synonymous with
the words “to make” is strictly grammatical, but I
think A that is what the statute has done. I think it
possible that in a literary sense “to make” and “to
manufacture” may not have precisely the same meaning.
One can put cases where the word “manufacture” might be
used in a 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 band 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 possibly
say that he was a leather manufacturer, hut it would be
possible to say that a man took leather and make it
into boots manufactured leather but made boots. I think
it would be possible to say that, and I am not sure it
would not be strictly accurate but I cannot read this
statute in that way. (emphasis supplied). Whether it
would be possible to read “manufacture” etymologically
as something very different from “make,” I think the
Act of 1901 uses “manufacture” and “make” as being
convertible terms, and that a man who manufactures
saccharin under s. 9 is doing the same thing as is
called the making of saccharin under s. S or the
manufacturing of glucose or saccharin under sub-s. 2 of
s. 5, and that the appellants did not make saccharin,
because they began and ended with saccharin. They did
not “make” saccharin, and in my opinion, from the way
in which the
322
word is used by the statute, they did not manufacture A
saccharin, and therefore did not require a licence.”
It may, however, be pointed out that when Darling J.
dealt with the example of a carpenter, the learned judge
thought it was right that it could not be slid that when
‘box’ is prepared that the carpenter was manufacturing
‘wood’ but transforming ‘wood’ into ‘box’ would certainly be
manufacturing ‘boxes’ It is well-settled that one cannot
absolutely make a thing by hand in the sense that nobody can
create matter by hand, it is the transformation of a matter
into something else and that something else is a question of
degree, whether that something else is a different
commercial commodity having its distinct character, use and
name and commercially known as such from that point of view
is a question depending upon the facts and circumstances of
the case. Plain wood is certainly different from ‘box’ made
of wood. Rindley J. it may be pointed out, disagreed with
the view and observed at page 362 of the report that where
any process of art is used upon some substance, it is
“manufactured.” He observed as follows:-
“To say that a person does not “manufacture.” a
thing because it has the same name after the process
has been passed upon it as it had before seems to me-
but T suppose I am wrong-to be simply a question of
words. If there had happened to be another word for
saccharin of the strength of 550, different from
saccharin of the strength of 330, it would almost-I
will not say quite follow from the reasoning of my
learned brothers that this would have been a
manufacture. I cannot think that is so. Take the case
of the manufacture of steel; and let it be steel before
it goes into works: apply some process to it and it
become a particular short 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 has 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”
323
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.
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 were attempted
to be utilised at the hearing of the application before us.
Most of these pieces of evidence cannot be admitted at this
stage but indisputably in the Indian Standard Glossary of
terms which deals with various expressions, ‘Bleached
Fabric’ has been defined as a fabric which has undergone
bleaching treatment and is treated by the India Standard
Institution as something different from fabric which has not
undergone the bleaching operations. Different standards are
set out by the same and the views of the Indian Standard
Institution can be looked into by the Court with certain
amount of creditability. See in this connection Union of
India v. Delhi Cloth & General Mills (supra). So far as
other evidence is concerned, as mentioned, hereinbefore, it
may not be safe to deal with the same as these were produced
at a very late stage and all the materials are not on the
record.
After the impugned Act was passed these processes in
the present case indubitably fill within the expression
“manufacture” if the impugned Act is valid, and within the
competence of the Parliament. Arguments, however, were
advanced on behalf of the petitioners that in entry 84 of
List I of Seventh Schedule, the expression “manufacture”
cannot be extended to include processes which were not
“manufacture”. Large number of decisions were cited at the
Bar on this aspect of the matter. It is true that entries
though should be widely construed, these should not be so
construed as to bring in something which has nothing to do
with the “manufacture”. It was submitted that legal concept
and connotation of “manufacture.’ were well-settled.
Reliance was placed on several decisions for this purpose.
As has been noted, processes of the type which have
been incorporated by the impugned Act were not so alien or
foreign to the concept of “manufacture” that these could not
come within that Concept.
324
The question whether the impugned Act is covered by
entry 84 can be looked from another point of view namely
the actual contents of entry 84. In the case of Aluminium
Corporation of India Ltd. v. Coal Board(1). a Division Bench
of Calcutta High Court had to consider this question in the
context of Coal Mines (Conservation and Safety) Act, 1952.
The objection of the petitioner in that case was that
although coal might be a material or a commodity, it was not
something 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 just a position 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 and had sanction of approved
usage. Reference was made to the observations of the King v.
Caledonian Collieries, Limited.(2) Where the Judicial
Committee held that the respondents before them were
‘producers of coal’. If that aspect of the matter is kept in
mind then expenditure of human skill and material have been
used in the processing 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 and skill making this fit for human consumption.
In any event under entry 97 of List I of the Seventh
Schedule this would apply if it is not under entry 84. It
was then argued that if the legislation was sought to be
defended on the ground that it is a tax on activity like
processing and would be covered by the
(1) A.I.R. 1959 Cal. 222.
(2) [1928] A.C. 358.
325
powers enumerated under entry 97 of List I of the Seventh
Schedule then it was submitted that there was no charging
section for such an A activity and as such the charge must
fail, and there cannot be any levy. This argument proceeds
on an entire misconception. The charging section is the
charging section 3 of the Central Excises and Salt Act,
1944. It stipulates the levy and charge of duty of excise on
all excisable goods produced or manufactured. “Manufactured”
under the Act after the amendment would be the manufacture’
as amended in section 2 (f) and Tariff item 19 I and 22 and
the charge would be on that basis. Therefore it is difficult
to appreciate the argument that the levy would fail as there
will be no appropriate charging section or machinery for
effectuating the levy on the activity like the method of
processing even if such an activity can be justified under
entry 97 of List I of Seventh Schedule. We are, therefore,
of the opinion that there is no substance in this contention
As mentioned hereinbefore under each of these points several
authorities were cited but in the view we have taken on
principles which are well-settled, it is not necessary to
multiply these authorities.
The validity of the impugned Act was challenged on the
ground that by giving retrospective effect, unreasonable
restrictions have been imposed on the petitioners’
fundamental rights under Articles 14 and 19 (1) (g) of the
Constitution. In this connection, it may be appropriate to
refer to the statement of objects and reasons wherein it was
stated that the Central Excise duty was levied for the first
time on cotton fabrics in 1949, on man-made fabrics (rayon
of 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
326
falling under item No. 22 of the same Schedule. After the
pronouncement of the above judgment, several writ petitions
were filed in various courts. This decision of the Gujarat
High Court, according to the statement of objects and
reasons of the Act, had upset the arrangements regarding
levy of excise duties on textile fabrics. The judgment also
had the effect of disturbing the balance evolved between
different sectors of the textile industry. Furthermore, it
was made clear that in so far as past assessments were
concerned, refund of excise duties to manufactures as
ordered by the High Court would have only meant a fortuitous
windfall so as to benefit such persons without any relief to
the ultimate consumers who had purchased the fabrics and had
borne the burden of the duties. In order to avoid this, the
Act was passed.
It has therefore to be borne in mind that the
petitioners have already paid excise duty demanded of them
from time to time and the present petitioners have gathered
the duties from the consumers.
Imposition of tax by legislation makes the subjects pay
taxes. It is well-recognised that tax may be imposed
retrospectively. It is also well-settled that by itself
would not be unreasonable restriction on the right to carry
on business. It was urged, however, that unreasonable
restrictions would be there because of the retrospectivity.
The power of the Parliament to make retrospective
legislation including fiscal legislation are well-settled.
(See M/S. Krishnamurthi & Co. etc. v. State of Madras &
Anr.(‘) Such legislation per se is not unreasonable. There
is no particular feature of this legislation which can be
said to create any unreasonable restriction upon the
petitioners.
In the view we have taken of the expression
‘manufacture’, the concept of process being embodied in
certain situation in the idea of manufacture, the impugned
legislation is only making ‘small repairs’ and that is
permissible mode of legislation. In 73rd volume of Harward
Law Review p. 692 at p. 795, it has been stated as follows:-
“It is necessary that the legislature should be able
to cure inadvertent defects in statutes or their
administration by making what has been aptly called
‘small repairs’. Moreover, the individual who claims
that a vested right
(1) [1973l 2 S.C.R. 55.
327
has arisen from the defect is seeking a windfall since
had the legislature’s or administrator’s action had the
effect it was intended to and could have had, no such
right would have arisen. Thus, the interest in the
retroactive curing of such a defect in the
administration of government out weighs the
individual’s interest in benefiting from the defect ..
The Court has been extremely reluctant to over- ride
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.
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 permissible for the courts to
engraft into it any other deduction or allowance or addition
or read it down on the score that the said deduction or
allowance or addition was authorised elsewhere in the Act or
in the Rules. A conventional charge should be measured by
its own computation and not by facts relating to other
method of computation. The circumstances that thereby the
benefit of any exemption granted by the legislature may be
lost and that in some cases hardship might result are not
matters which would influence courts on the construction of
the statute. A tax payer subject is entitled only to such
benefit as is granted by the legislature. Taxation under the
Act is the rule and benefit and exemption, the exception.
And in this case there is no hardship. When the textile
fabrics are subjected to the processes like bleaching,
dyeing and printing etc. by independent processes, whether
on their own account or on job charges basis, the value of
the purposes of assessment under section 4 of the Central
Excise Act will not be the processing charges alone but the
intrinsic value of the processed fabrics
328
which is the price at which such fabrics are sold for the
first time A in the wholesale market. That is the effect of
section 4 of the Act. The value would naturally include the
value of grey fabrics supplied to the independent processors
for the processing. However, excise duty, if any, paid on
the grey fabrics will be given proforma credit to the
independent processors to be utilised for the payment on the
processed fabrics in accordance with the Rules 56A or 96D of
the Central Excise Rules, as the case may be.
Read in that context and in the context of the
prevalent practice followed so long until the decision of
the Gujrat High Court in Real Honest case, there is no
hardship and no injustice to the petitioners or the
manufacturers of grey fabrics. The fact that the petitioners
are not the owners of the end product is irrelevant. Taxable
event is manufacture-not ownership. See In re 711e Bill to
amend section 20 of the Sea Customs Act, 1878 and Section 3
of the Central Excise & Salt Act 1944.(1)
The conclusion that inevitably follows that in view of
the amendment made in section 2(f) of the Central Excises &
Salt Act as well as the substitution of new Item 19 I and
Item 22(1) m Excise / Tariff in place of the original items,
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 excisable 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 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. & Mahalakshmi Dyeing and Printing Works
v. Union of India and Anr. (Writ Petition Nos. 622 and 623
of 1979) 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 and not Item 19 I or Item 22 of the First
Schedule of the (Central Excise Tariff cannot be sustained.
(1) [1964] 3 S.C.C. 787 at 822.
329
We are also unable to accept the view of the Gujarat
High Court in the case of Union of India & Ors. v. M/s Real
Honest Textiles & Ors. (Civil Appeal Nos. 586 to 562 of
1979).
Writ Petition (Civil) No. 11728 of 1984 therefore fails
and is dismissed with costs. The connected applications viz.
Civil Appeal No. 3564 of 1984 and 6414 of 1983 and Writ
Petition Nos. 13556, 13792, 13788, 15438-39 of 1984 also
fail and are dismissed with costs. Interim orders, if any,
are vacated. Arrears of duties should forthwith be paid and
future duties should also be paid as and when goods are
cleared.
Civil Appeal Nos. 586 to 592 of 1979 are allowed with
costs.
Good deal of arguments were canvassed before us for
variation or vacation of the interim orders passed in these
cases. Different courts sometimes pass different orders as
the courts think fit. It is a matter of common knowledge
that the interim orders passed by particular courts on
certain consideration are not precedents for other cases may
be on similar facts. An argument is being built up now-a-
days that once an interim order has been passed by this
court on certain factors specially in fiscal matters, in
subsequent matters on more or less similar facts, there
should not be a different order passed nor should there be
any variation with that kind of interim order passed. It is
submitted at the Bar that such variance creates
discrimination. This is an unfortunate approach. Every Bench
hearing a matter on the facts and circumstances of each case
should have the right to grant interim orders on such terms
as it considers fit and proper and if it had granted interim
order at one stage, it should have right to vary or alter
such interim orders. We venture to suggest, however, that a
consensus should be developed in matter of interim orders.
If we may venture to suggest, in fiscal matters
specially in cases involving indirect taxes where normally
taxes have been realised from the consumers but have not
been paid over to the exchequer or where taxes are to be
realised from consumers by the dealers or others who are
parties before the court, interim orders staying the payment
of such taxes until final disposal of the matters should not
be passed. It is a matter of balance of public 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
330
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
brothren 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.
S.R. Civil Appeal Nos. 586 to 592 of 1979
allowed and Petitions dismissed.
331