Exemption for co-operative cotton fabrics did not cover outside merchant production; manufacturer liability and recovery under excise law were upheld.

An exemption for cotton fabrics produced by co-operative societies was construed as covering only fabrics woven by the society through its members on eligible power-looms, not production arranged by outside merchants. Where the petitioners supplied yarn, controlled production, and paid weaving charges, they were treated as manufacturers because the statutory definition extends to persons who get goods made on their own account for sale through another agency. The challenge to levy and recovery provisions also failed: Rule 9(2) was treated as a penal recovery mechanism for clandestine removal, not an assessment rule, and the demand was upheld because notice, reply, and hearing satisfied natural justice. Rule 10 did not apply.

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Issues: (i) Whether cotton fabrics woven by co-operative societies from yarn supplied by the petitioners fell within the exemption notification and whether the petitioners were manufacturers liable to duty under the Central Excise and Salt Act, 1944 and the rules made thereunder; (ii) whether the levy and recovery provisions and the demand under Rule 9(2) were unconstitutional or otherwise invalid, and whether the demand was barred by limitation under Rule 10.

Issue (i): Whether cotton fabrics woven by co-operative societies from yarn supplied by the petitioners fell within the exemption notification and whether the petitioners were manufacturers liable to duty under the Central Excise and Salt Act, 1944 and the rules made thereunder.

Analysis: The exemption notifications were construed as a whole. The relevant notification, though using the words "produced on power-looms owned by any co-operative society or owned by or allotted to the members of the society", was held to extend only to fabrics produced by the society through its members on looms owned by the society, owned by members, or allotted to members. The language change was treated as widening the class of eligible co-operative societies, not as authorising production by outside merchants. On the facts, the petitioners supplied the yarn, arranged the production, paid only weaving charges, and the societies functioned as independent contractors in a commercial arrangement. The statutory definition of "manufacturer" was held to be wide enough to include a person who, though not employing servants in the ordinary master-servant sense, engages in production on his own account through another agency for sale.

Conclusion: The fabrics were not exempt on the footing advanced by the petitioners, and the petitioners were manufacturers liable to duty.

Issue (ii): Whether the levy and recovery provisions and the demand under Rule 9(2) were unconstitutional or otherwise invalid, and whether the demand was barred by limitation under Rule 10.

Analysis: The charging section and recovery rules were distinguished from the machinery challenged in the constitutional attack. The rules provided a workable scheme for assessment, objection, provisional assessment, appeal, and revision, while Rule 9(2) was treated as a penal recovery provision for clandestine removal and not as an assessment rule. The function under Rule 9(2) was held to be judicial or quasi-judicial and subject to natural justice, which in the case before the Court had been observed through notice, written reply, and hearing. The appeal remedy was not illusory merely because deposit was ordinarily required. Rule 10 was held inapplicable because the demand was not one for short levy after prior assessment but one arising from removal without payment of duty under Rule 9(2).

Conclusion: The constitutional challenge failed and the demand was not barred by limitation.

Final Conclusion: The petitions failed in substance because the petitioners were held liable as manufacturers, the claimed exemption was unavailable, and the impugned levy and recovery provisions were upheld as valid and applicable to the facts.

Ratio Decidendi: An exemption notification for cotton fabrics manufactured by co-operative societies does not extend to goods produced through outside merchants, and a person who gets goods manufactured on his own account for sale is a manufacturer within the wide statutory definition even where the actual weaving is done by an independent contractor.

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