TaxTMI 
TaxTMI 
1988 (9) TMI 346
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....ses brought by the appellants, each of which is a company incorporated under the Companies Act, 1956 engageded in the business of manufacture and sale on a very large scale of textiles generally and also of rayon yarn and staple fibre, both of which form species of what is known as man-made fibre i.e. artificial silk, there is a common question as to the constitutional validity of a fee imposed under r. 21 of the Textiles Committee Rules, 1965 made by the Central Government under s. 22 of the Textiles Committee Act, 1963, by the Textiles Committee constituted under s. 3 of the Act, on the production of rayon yarn and staple fibre i.e. man- made fibres manufactured by them. These appeals are against the various judgments and orders of the High Courts of Allahabad, Andhra Pradesh, Gujarat and Madras upholding the validity of the levy. The remaining appeal i.e. Civil Appeal No. 1281 of 1973 is preferred by the Textiles Committee against the judgment and order of the Kerala High Court taking the view to the contrary. The facts in all these cases are more or less similar. It would suffice for our purposes to notice the salient features thereof. To illustrate, the appellant company in....
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....ociation to take up the matter with the Ministry of Commerce and the Textiles Commissioner and to lodge a strong protest against the illegal exaction of the fee by the Textiles Committee from its members when, in fact, no services of any kind were being rendered. Thereafter, the Accounts Officer, Textiles Committee by letter dated February 26, 1969 called upon the appellant to remit a sum of Rs. 33,343.62 p. towards the fee in respect of production of rayon or staple fibre for the period from March 1, 1966 to March 31, 1967. It was also advised to pay the fee upto April 1968. In response thereto, the appellant by its letter dated February 27, 1969 stated that the Association had on behalf of its members addressed a letter to the Secretary, Textiles Committee for certain clarifications and on receipt of the reply, the Association would advise its members as to the course of action. Eventually,.the Secretary, Textiles Committee by a letter dated March 11, 1970, called upon the appellant that it should remit an amount of Rs. 35,138.63 p. being the amount of fee outstanding within ten days failing which the said amount would be recovered as arrears of land revenue under s. 12(2) of ....
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.... Committee intimated the petitioner that it was proposed to initiate immediate action to recover the outstanding fees from the petitioner as arrears of land revenue as contemplated under s. 12(2) of the Act. It was further stated that in order to avoid coercive proceedings the petitioner should pay up the arrears at least upto March 31, 1967 amounting to Rs. 3,19,977.11 p.; in any case before March 1, 1969 failing which the Textiles Committee would be constrained to advise the concerned Collector to enforce recovery of the outstanding fees as arrears of land revenue. The petitioner accordingly moved a petition under Art. 226 of the Constitution before the High Court of Bombay for quashing the impugned notice of demand dated February 20,1969 complaining that they had at no time made any application for inspection and/or examination of the yarn they manufacture nor did they ever approach the said Committee to inspect and/or examine yarn manufactured by them. They averred that neither the said Committee nor any one on its behalf had rendered any service whatsoever to them either at their instance or otherwise. Similarly, the petitioner Century Enka Limited moved a petition under Art. ....
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....nstitution before the High Court of Gujarat. A Division Bench (S. Obul Reddy, CJ & N.H. Bhatt, J.) by its judgment dated November 18, 1976 upheld the validity of the fee and accordingly dismissed the writ petitions. The appellant in Civil Appeal No. 1460/80 Messrs Modipon Limited, Meerut are manufacturers of nylon yarn. The Accounts Officer, Textiles Committee by his letter dated June 11, 1960 required the company to pay the arrears of fees for the period from March 1965 to May 1968. The company brought a suit being Original Suit No. 86/70 in the Court of the II Civil Judge, Meerut for a declaration and perpetual injunction. In the suit it applied for grant of a temporary injunction under Order XXXIX, r. 1 of the Code of Civil Procedure, 1908 restraining the Textiles Committee from recovering the fees on the ground that the nylon yarn manufactured by them did not fall within the definition of 'textiles' under s. 2(g) of the Act. The learned Civil Judge by his order dated May 12, 1972 granted ad-interim temporary injunction but later vacated the same. The appellant accordingly went up in appeal to the High Court. A Division Bench (M.N. Shukla & N.N. Mithal, JJ) by its ord....
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....cts. They were, however, for a variety of reasons, unable to with- stand the severe international competition they had to face in foreign markets with the return of normal conditions after the war. Alive to the various problems faced by the Textile Industry in general and the Cotton Textile Industry in particular, the Government of India took timely steps to arrest the crisis by adopting various measures to safeguard production and export of cotton textiles and to assure the efficiency of the Cotton Textile Industry. It was in this context that the Cotton Textiles Fund Ordinance, 1944' was promulgated, establishing a `Fund' for supervising the exports of cloth and yarn and for develop- ment of technical education, research and other matters in relation to the Cotton Textile Industry. The Cotton Textiles Fund Committee which was appointed as the body to perform the various functions imposed under the Ordinance did very useful work during the period from 1945 to 1964 for the improvement of the said industry and so as to enable it to meet the competition of foreign textiles in international market. The Ordinance, promulgated in 1944 establishing the Cotton Textiles Fund Commit....
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....(iv) artificial silk or other fibre, and includes fibre. S. 3 of the Act provides for establishment of the Textiles Committee by the Central Government. S. 4 deals with the functions of the Committee. The functions of the Committee as stated in s. 4 generally are to ensure by such measures as it thinks fit, standard qualities of textiles both for internal marketing and export purposes and the manufacture and use of standard type of textile machinery. It reads follows: "4. Functions of the Committee--(1). Subject to the provisions of this Act, the functions of the Committee shall generally be to ensure by such measures, as it thinks fit, standard qualities of textiles both for internal marketing and export purposes and the manufacture and use of standard type of textile machinery. (2) without prejudice to the generality of the provisions of sub-section (1), the Committee may-- (a) undertake, assist and encourage, scientific, technological and economic research in textile industry and textile machinery, (b) promote export of textiles and textile machinery and carry on propaganda for that purpose; (c) establish or adopt or recognise standard specifications for-- (....
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.... with the manufacture of textiles or textile machinery in relation to which construction particulars, marks or inspection standards have been specified, (b) the samples of any article or of any material or substance used in any article or process in relation to which construction particulars, marks or inspection standards have been specified; (c) exercise such other powers as may be prescribed. (3) On receipt of the report referred to in sub-section (1), the Committee may tender such advice, as it may deem fit to the manufacturer of textiles the manufacturer of textile machinery and the applicant." S. 12 provides for levy of fees for inspection and examination and reads as follows: "12. (1). The Committee may levy such fees as may be prescribed-- (a) for inspection and examination of textiles, (b) for inspection and examination of textile machinery. (c) for any other services which the Committee may render to the manufacturers of textile and textile machinery: Provided that the Central Government may by notification in the Official Gazette, exempt from the payment of fees, generally or in any particular case. (2). Any sum payable to the Committee under su....
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....sed in the cloth is less than 35. or finer 10 paise for every square metres manufactured 3 Woollen yarn (excluding shoddy and carpet yarn) 2 paise per kg. manufactured Shoody and carpet yarn 1 paise per kg. manufactured 4 Man-made Cellulosic or non- cellulosic filament yarn( other than nylon filament yarn) 2 paise per kg. manufactured Nylon filament yarn 6 paise per kg. manufactured 5 Man-made cellulosic fibre cut to staple length 1 paise per kg. manufactured Man-made nonCellulosic fibre 2 paise per kg. manufactured 6 Textile machinery ( Assembled) 8 paise per Rs. 100 ad valorem on the ex-factory price of the machinery manufactured 7 Cotton yarn for export 2 paise per kg. inspected 8 Natural silk yarn for fabric for export 50 paise per Rs. 100 f.o.b. price of the goods instected It must be stated here that Act No. 51/73 introduced a new provision S. 5A as a result of which a cess has been imposed in place of a fee. Sub-s. (1) provides that there shall be levied and collected as a cess for the purposes of this Act a duty of excise on all textiles and on all textile mac....
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....d in s. 2(g) of the Act accordingly are outside the purview of the Act and not liable to payment of any fee in accordance with r. 21 of the Rules as originally framed or as it existed after its amendment w.e.f. June 11, 1966. And (2) That the Textiles Committee rendered no service to the writ petitioners in respect of their production of rayon yarn and nylon yarn and hence it was not within its competence to levy any fee on them under r. 21 of the Rules. According to the writ petitioners, in fact they do not need the services of the Committee and the Committee is also not in a position to render any service to them, not having even laid down standard specifications for the manufacture of rayon yarn or nylon yarn. It was submitted that there was no correlation between the fee charged and the service rendered by the Committee and there is complete absence of the element of quid pro quo, legally essential for levying a fee. Shri G. Ramaswamy, learned Additional Solicitor General, on the other hand, during his lucid and forceful submissions repelled the arguments. He submitted that the levy under r. 21 of the Rules was not correlated to the power of inspection which the Textiles Com....
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....the Textiles Committee under s. 3 of the Act meaningful with a view to maintain quality control on all textiles including man-made fibres or artificial silk which have a world market. Finally, the learned Additional Solicitor General strongly relied upon the decision of this Court in Sreeniwasa General Traders & Ors. v. State of Andhra Pradesh & Ors., [1983] 3 SCR 843 for the submission that the validity of the levy has to be sustained as there is broad co-relationship between the imposition of the fee and the nature of the services rendered to the entire textile industry. We shall deal with the contentions advanced by learned counsel for the appellants and the petitioners in seriatim. As to the first contention that the rayon yarn and nylon yarn manufactured by the appellants and the petitioners were filaments and not fibres and therefore did not fall within the ambit of the definition of textiles in s. 2(g) of the Act prior to its amendment, Shri khaitan who,first argued the case of Sirsilk Limited and more particularly Shri Tarkunde appearing on behalf of J.K. Cotton Spg. & Wvg. Mills Co. Ltd., followed by Shri Krishna Kumar appearing for Modipon Limited placed strong reliance o....
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....n The Gwalior Rayon Silk Manufacturing (Wvg.) Co. Ltd., Birlagram, Ujjain v. The Textile Committee, Bombay (supra). In the decision, the Madhya Pradesh High Court assumes that a fibre in order to answer the description of yarn, in the ordinary commercial sense must be a spun strand meant for use in weaving, knitting or rope-making. It proceeds upon the basis that although viscose staple fibre was manufactured out of fibre but it had to be subjected to various other operations such as blending, carding, combing or hackling and spinning before fibre could be converted into yarn. Upon that basis, the Madhya Pradesh High Court held that viscose staple fibre manufactured by the Gwalior Rayon Silk Manufacturing (Wvg.) Co. Ltd. was made wholly of filaments and therefore was not fibre and hence was not yarn and accordingly did not fall within the meaning of the expression textiles as defined in s. 2(g) of the Act. We are afraid, we cannot accept this line of reasoning. The Madhya Pradesh High Court was clearly wrong in giving to the expression 'textiles' in s. 2(g) of the Act a narrow and restricted meaning. The reasoning of the Madhya Pradesh High Court is best stated in the wo....
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....ad to be understood according to the common commercial understanding of the terms used, and not in their scientific or technical sense. The High Court failed to bear in mind that the Act is not a scientific treatise on organic or inorganic chemistry but is an enactment by the Parliament for the benefit of the indigenous textile industry, so that it may be able to hold its own in a fiercely competitive international market. In these circumstances, the Act and the words used therein have to be interpreted not on a technological or specialised scientific plane but in the popular sense as understood by experts in the sphere of the textile industry and the commercial world dealing with it. We find no discernible reason for Parliament to have left out man-made fibres like viscose staple fit re. rayon yarn and nylon yarn from the purview of the definition of textiles in s. 2(g) of the Act prior to its amendment particularly when synthetic fibres have a world market and India has entered into competitive international trade in all textiles in a large way. We were referred to several Encyclopaedias, authoritative treatises, text-books and hand books viz., Encyclopaedia Britannica, both Micr....
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....dustry" sub-heading production of yarn', at p. 172, we notice the following passage: "Yarn is a strand composed of fibres, filaments (individual fibres of extreme length), or other materials, either natural or man-made, suitable for use in the construction of interlaced fabrics. such as woven or knitted types." This passage again indicates that in the textile industry `filaments' are treated as individual fibres of extreme length. Similarly, in Chamber's Encyclopaedia, Vol. 5 at p. 613, the term `fibre' is explained thus: "Fibre, a term used for a thread-like element of animal or vegetable tissue .......and any thread or filament used in the manufacture of textile materials. The range of fibres used for making fabrics was restricted to naturally occurring substances until the introduction of man-made fibres. These include regenerated fibres, such as those made from cellulose, and truly synthetic fibres, such as nylon, Terylene, and Courtelle." At p. 616 of the same volume under the heading "Artificial Fibres", it is stated: "Artificial fibres can be divided into two main groups; regenerated and synthetic. In the first class a further sub- division ....
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....correct law. Other considerations lead us to the same conclusion. The Industries (Development and Regulation) Act, 1951 enacted by Parliament received the assent of the President on October 31, 1951. In the Statement of Objects and Reasons appended to the Bill which became the Act. it is stated: "The Bill brings under Central control the development and regulation of a number of important industries, the activities of which affect the country as a whole and the development of which must be governed by economic factors of all India import .. The Bill confers on Government power to make rules for the registration of existing undertakings, for regulating the production and development of the industries in the Schedule and for consultation with Provincial Governments on these matters." The First Schedule of this Act sets out the various industries which it declared that it was expedient in the public interest that the Union should take under its control. Cl. (7) of Item No. 19 which bears the heading "Chemicals (other than Fertilisers)" is "man-made fibres including regenerated cellulose-rayon, nylon and the like." Cl. (5) of Item No. 23 which bears the heading "Textiles (incl....
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....wholly or partly of cotton wool, silk, artificial fibre or silk, particularly when Indian Textiles by and large and artificial silk or man-made fibres like rayon yarn, viscose staple fibres and nylon yarn as well as fabrics made of artificial silk, are facing ever increasing competition in the international market from other exporting countries like Japan, China etc. and the production and export of textiles having substantially increased, the legislature thought it necessary to make adequate provision and accordingly created a Textiles Fund under s. 7 of the Act to meet the expenditure of the Textiles Committee which necessarily has to be on a larger scale. At the time when the Textiles Committee was established under s. 3, the legislature accordingly provided for the establishment of a Textiles Fund constituted under s. 7 of the Act from out of which the expenditure of the Committee has to be defrayed. Sub-s. ( 1) of s. 7 provides that the Committee shall have a Fund to be called the Textiles Fund and there shall be credited thereto various items specified in cls. (a) to (d), apart from all the moneys standing to the credit of the Cotton Textiles Fund established under the repeal....
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....ay, whether- there is sufficient quid pro quo between the levy of the fee and the services rendered. It has not been suggested that any part of the fees levied under r. 21 can be diverted to any other purpose. When the entire proceeds of the fee are utilised in financing the various projects undertaken by the Textiles Committee, as also the inspection of all textiles including man-made fibres and textile machinery, the appellants cannot be heard to say that there is no reasonable and sufficient correlation between the levy of the fee and the services rendered. The learned Additional Solicitor General drew our attention to the various averments made in the counter-affidavit filed on behalf of the Textiles Committee as well as the Government of India showing the extent of income from the fee levied under r. 21 and the expenditure of Textiles Committee in each financial year. From the material on record it is amply clear that the levy of the fee under r. 21 is not commensurate with the expenditure incurred by the Textile Committee. It is not in dispute that the Textiles Committee has over the years built up a huge infrastructure and the Central Government has spent crores of rupees to....
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....A statement showing the income and expenditure of the Textiles Committee for the period commencing from March l, 1965 and ending with March 31, 1971 as well as the estimated budget for the years 1971-72 to 1973-74 are set out to verify the ratio between the fee collected and the expenditure incurred for achieving the object and purpose of the Act. The statements are as detailed below: EXPENDITURE AND FEES REALISED DURING THE PERIOD FROM 1.3.1965 T O 31.3.71 Accounting Year Revenue Expenditure on Inspectorate Capital Expenditure on Inspectorate Market Research Fees Realised Mar-65 0.89 lakhs 0.08 lakhs-lakhs 1965-66 17.71 0.64 2 21.9 1966-67 23.05 1.28 2.32 44 1967-68 24.29 0.91 2.05 30.38 1968-69 24.73 0.6 2.66 34.79 1969-70 28.95 1.87 3.82 32.39 1970-71 34.62 3.14 4.55 29.79 Total :- 154.24 8.44 17.48 193.25 STATEMENT SHOWING THE ESTIMATED REVENUE AND CAPITAL EXPENDITURE AND REVENUE FOR THE YEARS 1971 72 TO 1973-74 Year Realisable Estimated Revenue Expenditure on Inspectorate Capital Expenditure on Inspectorate Est....
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....e fact that there is pre-shipment inspection of the fabrics manufactured from such fibres for export. The provision for the levy of fees for inspection and examination of textiles under s. 12(1)(a) of the Act or the levy of the fee under r. 21 of the Rules cannot be challenged on the ground that there is no reasonable relationship between the levy of the fee and the services rendered by the Committee to the entire textile industry to which the appellants and the petitioners before us owning large textile mills belong. When the levy of the fee is for the benefit of the entire textile industry, there is sufficient quid pro quo between the levy recovered from the appellants and the petitioners and the services rendered to the industry as a whole. In the premises, the principles laid down by this Court in Sreeniwasa General Traders are clearly attracted. One of us (Sen, J.) speaking for the Court had observed: "The traditional view that there must be actual quid pro quo for a fee has undergone a sea change in the subsequent decisions. The distinction between a tax and a fee lies primarily in the fact that a tax is levied as part of a common burden, while a fee is for payment of a sp....