Processing Activities Deemed "Manufacture" under Excises Act; Amendment Valid; Additional Duties Levied; Assessable Value Computation Upheld

The court upheld that processes like bleaching, dyeing, etc., constitute "manufacture" under the Central Excises and Salt Act even before its amendment. The amendment to the Act was found valid and not ultra vires. The levy of additional duties under the Additional Duties of Excise Act was held valid without a corresponding amendment. The retrospective operation of the Amending Act was deemed reasonable. The method of computing the assessable value of processed fabric was affirmed. The court allowed the appeals by the Union of India, setting aside the Gujarat High Court's judgment and dismissing appeals and writ petitions by processors.

---

---

Issues Involved:
1. Whether the processes of bleaching, dyeing, printing, sizing, etc., amount to "manufacture" under section 2(f) of the Central Excises and Salt Act, 1944, prior to its amendment.
2. Whether the amendment to section 2(f) and tariff items Nos. 19 and 22 of the Central Excises Act is ultra vires entry 84, List I, and whether it can be supported by entry 97, List I.
3. Whether the levy of additional duties under the Additional Duties of Excise Act is valid without a corresponding amendment to the definition of "manufacture" in that Act.
4. Whether the retrospective operation of the Amending Act is an unreasonable restriction on the fundamental right under article 19(1)(g) of the Constitution.
5. Whether the computation of the assessable value of processed grey fabric based on the wholesale cash selling price declared under the classification list under rule 173B is justified.

Detailed Analysis:

Issue 1: Whether the processes of bleaching, dyeing, printing, sizing, etc., amount to "manufacture" under section 2(f) of the Central Excises and Salt Act, 1944, prior to its amendment.
The court upheld the view from *Empire Industries Ltd. v. Union of India* [1986] 162 ITR 846, that "grey fabric" after undergoing processes like bleaching, dyeing, etc., becomes a commercially different commodity with its own price structure and commercial incidents. This transformation constitutes "manufacture" within the meaning of section 2(f) even before its amendment. The court found that these processes result in a new article with a distinctive character and use, thus meeting the criteria for "manufacture."

Issue 2: Whether the amendment to section 2(f) and tariff items Nos. 19 and 22 of the Central Excises Act is ultra vires entry 84, List I, and whether it can be supported by entry 97, List I.
The court held that the processes specified in the amendment were not so alien to the concept of "manufacture" that they could not fall within entry 84, List I. Even if the concept of "manufacture" was expanded beyond entry 84, the levy could still be supported by entry 97, List I. The court emphasized that legislative entries should be construed liberally, and the term "levy" includes both the imposition of a tax and its quantification and assessment.

Issue 3: Whether the levy of additional duties under the Additional Duties of Excise Act is valid without a corresponding amendment to the definition of "manufacture" in that Act.
The court found that section 3(3) of the Additional Duties Act, which states that the provisions of the Central Excises Act shall apply to the levy and collection of additional duties, was sufficient to incorporate the definition of "manufacture" from the Central Excises Act. The court noted that the term "levy" includes the entire process of taxation, and thus the expanded definition of "manufacture" under the Central Excises Act applies to the Additional Duties Act as well.

Issue 4: Whether the retrospective operation of the Amending Act is an unreasonable restriction on the fundamental right under article 19(1)(g) of the Constitution.
The court held that the retrospective operation of the Amending Act was not an unreasonable restriction on the fundamental right under article 19(1)(g). The court stated that a competent Legislature can validate a law retrospectively to cure defects identified by courts, and such validation is particularly significant in taxing statutes. The court found no extraordinary circumstances to override the legislative judgment on the need for retrospective legislation.

Issue 5: Whether the computation of the assessable value of processed grey fabric based on the wholesale cash selling price declared under the classification list under rule 173B is justified.
The court upheld the method of determining the assessable value as laid down in *Empire Industries' case* [1986] 162 ITR 846, which includes the value of the grey fabric, the processing charges, and the manufacturing profit and expenses. The court rejected the contention that the assessable value should be limited to the processing charges alone, stating that such a method would create anomalies and inconsistencies. The court clarified that the assessable value must reflect the price at which the processed fabric leaves the factory gate, including all relevant costs and profits but excluding post-manufacturing profits.

Conclusion:
The court allowed the appeals by the Union of India, setting aside the judgment of the Gujarat High Court, and dismissed the appeals and writ petitions filed by the processors. The assessable value of processed fabric includes the value of the grey cloth, job work done, manufacturing profit, and manufacturing expenses, but excludes post-manufacturing profits.

---