TaxTMI 
TaxTMI 
1985 (5) TMI 53
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....r-General (Girish Chandra, Miss Halida Khatum, Uma Nath Singh and R.N. Poddar, Advocates, with him), for the respondent-Union of India in the writ petitions. S.K. Dholakia, Senior Advocate (R.C. Bhatia and P.C. Kapur, Advocates, with him), for the respondent in C.A. Nos. 589 to 592 of 1979. S.J. Sorabjee, Senior Advocate (A.N. Haksar and S.A. Shroff, Advocates, with him), for the petitioner in W.P. No. 13788 of 1984. F.S. Nariman, Senior Advocate (P.H. Parekh and Miss Indu Malhotra, Advocates, with him), for the respondent in C.A. No. 588 of 1979. A.K. Sen, Senior Advocate (P.H. Parekh, and Miss Indu Malhotra, Advocates, with him), for the respondents in C.A. No. 587 of 1979. S.J. Sorabjee, Senior Advocate (A.J. Rama, S. Parekh, Mrs. J. Wad and Miss Aruna Mathur, Advocates, with him), for the petitioners in W.P. Nos. 11728, 15438 and 15439 of 1984. JUDGMENT [The judgment of Fazal Ali and Sabyasachi Mukharji JJ. was delivered by Sabyasachi Mukharji J. Varadarajan J. delivered a separate opinion.] VARADARAJAN J.-I agree with my learned brother Sabyasachi Mukharji J. that Writ Petitions Nos. 11728 of 1984 and 13556, 13788, 1379....
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....al 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 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, it 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 t....
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....n/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 the job work of processing done by it. The petitioner company further states that it has no proprietary interest in the fabric 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 a classification list for approval of the concerned Excise Authorities as prescribed by rule 173B 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 the approval granted thereon in respect....
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....anufacturer of cotton fabrics/man-made fabrics, as the case may be. The petitioner company further states that it had filed a writ petition in the Bombay High Court which was admitted. The said writ petition was filed through the 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 were included by the Act which came into effect from November, 24, 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 p....
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....ff Item No. 68 of the Schedule to the Excise Act only on value added by way of process charges on cotton or man-made 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, and these appeals are pending and would be disposed of by this judgment. It may be mentioned that so long 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 No. 19 or 22, as the case may be. Since the decision of the Bombay High Court in New Shakti Dye Works P. Ltd., the petitioners and other 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, ....
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....ted to any process, and (b) cotton fabrics subjected to any process of bleaching, mercerising, dyeing, printing, waterproofing, 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, manmade 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, Items Nos. 19-I and 22(2) of the First Schedule to the Excise Act were also similarly amended by making an identical substitution of Items Nos. 19-I and 22(1) in the First Schedule to the Additional Duties Act. The Amendment Act....
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....d 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 of 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-item 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 the 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 amendments to Tariff Item No. 19-I and by creating two separate categories of cotton fabrics, that is, (1) not subjected t....
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....44, and Tariff Items Nos. 19-I 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 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 "....
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....tention of the Revenue was that the manufacturers, in the course of manufacture of vanaspati which was a vegetable product from raw groundnut 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 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 the respective parties, this court noted at page 596 of the report (p. 794 of AIR 1963 SC), the contention on behalf of the Revenue that manufacture was complete as soon as by the application of one or more processes, 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 understood to mean as `bringing into existence' a new 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 ....
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....ture 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 v. Harbilas Rai and Sons [1968] 21 STC 17 (SC), 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's decision in the case of Hiralal Jitmal [....
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.... 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 v. Harbilas Rai and Sons [1968] 21 STC 17 (SC), it was held that the word " manufacture " has various shades of meaning, and in the context 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 final product is the result of manufacture. There the assessees, dealers in pig bristles, bought bristles plucked by kanjars from pigs, 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 sale. It was held that the sales made in 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, Saks Tax (Law) v. Pio Food Packers [1980] 3 SCR 1271 ; 46 STC 63 (SC), arising out of the Kerala General Sales Tax Act, 196 3, where the expression used under sec....
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....ed before the court. This decision was referred to and followed in the case of Chowgule & Co. Pvt. Ltd. v. Union of India [1981] 1 SCC 653; 47 STC 124 (SC). 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 the Gujarat High Court's decision in the case of Vijay Textile v. Union of India [1979] 4 ELT(J) 181. The Gujarat High Court held that cotton fabrics subjected to bleaching, dyeing and printing could not be subjected to excise duty under Item No. 19-I. 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 the 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 the Gujarat High Court accepted the position that processes of bleaching, dyeing and printing w....
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....h 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. It appears in the light of the several decisions and on the construction of the expression that the process of bleaching, dyeing and printing, etynologically also means manufacturing processes. In support of this contention, reliance on behalf of the petitioners was also placed on the case of Extrusion Processes P. Ltd. v. N. R. Jadhav, Superintendent of Central Excise [1979] 4 ELT(J) 380, where the Gujarat High Court had held that printed and lacquered aluminium tubes did not have, in relation to plain extruded tubes, any distinctive name, character or use as both could be used for the same purpose, both enjoy the same character and enjoy the same name, and, therefore, these could not be said to be a new substance distinguishable from plain extruded tubes. This decision, however, cannot be of any 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 lacq....
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....ing 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 cases of New Shakti Dye Works P. Ltd. and 24 other petitions heard along with the same and are under appeal 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 McNicol v. Pinch [1906] 2 KB 352, 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 a fe....
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.... "I do not say that to use the word 'manufacture' as exactly synonymous with the word 'make', or to use the words 'to manufacture' as exactly synonymous with the words 'to make', is strictly grammatical, but I think 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 hand 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....
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....s : "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 I 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 that is so. Take the case of the manufacture of steel ; and let it be steel before it goes into the works: apply some process to it and it becomes particular sort 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. " The learned judge fu....
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....iew, namely, the actual contents of entry 84. In the case of Aluminium Corporation of India Ltd. v. Coal Board, AIR 1959 Cal 222, a Division Bench of the Calcutta High Court had to consider this question in the context of the 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 coal produced itself. This was rejected. The word "produced " appearing in entry 84 of List I of the Seventh Schedule is used in juxtaposition 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....
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....se 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 or artificial silk fabrics) in 1954 and on woollen fabrics in 1955. From the very early stages of the textile tariff, with 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 v. Union of India (C.A. Nos. 586 to 592 of 1979), 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 ....
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....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 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 outweighs the individual's interest in benefiting from the defect ...... The court has been extremely reluctant to override 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 among those who benefit from it. " The impugned legislation does not act harshly nor is there any scope for arbitrariness or discrimination. It was contended on behalf of the petitioners that they are carrying on ....
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....ship. See In re The Bill to amend section 20 of the Sea Customs Act, 1878, and section 3 of the Central Excises and Salt Act, 1944 [1964] 3 SCR 787; AIR 1963 SC 1760. The conclusion that inevitably follows is that in view of the amendment made in section 2(f) of the Central Excises and Salt Act as well as the substitution of new Item 19-I and Item 22(1) in 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 for 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....