TaxTMI 
TaxTMI 
1985 (5) TMI 215
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....ry, 1979. 3. 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 [1979 (4) E.L.T. (J 181)] 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overcome the said decision, the Ordinance mentioned hereinbefore was promulgated on 24th November, 1979 which has since been replaced by the said Central Excises and Salt and Additional Duties of Excise (Amendment) Act, 1980. 4. 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 16/17th June, 1983 in the case of New Shakti Dye Works Pvt. Ltd. & Mahalakshmi Dyeing and Printing Works v. Union of India & Anr. [1983 E.L.T. 1736 (Bom.)]. 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 c....
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....at 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 the petitioner company is merely a processing house. The petitioner company's case is that the petitioner company 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....
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.... 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. 10. 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 pet....
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.... 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. 14. 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 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 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(1) 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, 1957, was ultra vires and the processing houses were liable to pay du....
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....g, dyeing, printing, shrink-proofing, tentering, heat-setting, crease resistant processing or any other process or any two or more of these processes. ...Tweny per cent ad valorem plus rupees five per square metre. 16. 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.................................." 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 ....
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....es 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 ....
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....abrics/man-made fabrics as mentioned under Item 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 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. 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. 21. It is, therefore, necessary to examine the amendment of the definition of `manufacture' in Section 2(f) of the Central Excises and Salt ....
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....nd, 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. 23. In Union of India v. Delhi Cloth & General Mills, 1977 E.L.T. (J 199) = (1963) 1 Supp. S.C.R. 586 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 purchases groundnut 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 ....
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....ured 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 was described by the legislature itself as manufacture of circles." 24. The question of `manufacture' was also considered by this Court in the case of Allenburry Engineers v. Ramakrishna Dalmia and Others - (1973) 2 S.C.R. 257. 25. It may be noted that in the case of Hiralal Jitmal v. Commissioner of Sales Tax - (1957) S.T.C. Vol. VIII 325 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....
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....ecific sizes and dimensions and to roll these into teleprinter rolls with the aid of power driven machines amounted to 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. 28. 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 - (1972) S.T.C. Vol. 30 p. 57 had to consider that cinders do not fall within the expression "coal, including coke in all its forms" 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 ....
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....hange. 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 consumed in the manufacture of another. Although it 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 ....
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.... 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 t....
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.... 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 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 hereinbefore, 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 de....
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....oluene 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 saccharin. 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." 36. Darling J. at pages 361-362 of the report made on the follow....
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....They did not "make" saccharin, and in my opinion, from the way in which the word is used by the statute, they did not manufacture saccharin, and therefore did not require a licence." 37. 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 said 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....
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....uced at a very late stage and all the materials are not on the record. 39. After the impugned Act was passed these processes in the present case indubitably fall 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 1 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. 40. 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. 41. The question whether the impugned Act is covered by entry 84 can be looked from another point of view namely the actua....
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....rated under entry 97 of List 1 of the Seventh Schedule then it was submitted that there was no charging section for such an 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 Items 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. 43. ....
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....lready paid excise duty demanded of them from time to time and the present petitioners have gathered the duties from the consumers. 45. 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 and Anr.) = (1973) 2 SCR 55. 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. 46. 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 ....
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....yeing and printing etc. by independent processors, 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 Rule 56A or 96D of the Central Excise Rules, as the case may be. 48. 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 event is manufacture - not ownership. See In re The Bill to amend S....
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....ion or vacation of the interim orders passed in these cases. Different courts sometimes pass different interim orders as the courts think fit. It is a matter of common knowledge that the interim orders passed by particular courts on certain considerations 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. 54. If we may venture to suggest, in fiscal matters specially in cases involving indirect t....