TMI Blog1973 (2) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... orting, exporting, processing, twisting or otherwise handling or dealing in rayon yarn which includes artificial silk yarn and all synthetic fibres whatsoever for textile use, cellulose staple fibre and yarn also known as spun rayon synthetic fibres and yarns and other staple fibre or fibrous materials or allied products, etc. The company also used to purchase rayon fabric and other fabrics and other fibrous materials for the purpose of export in order to obtain import entitlement. The appellant-company commenced its business on November 3, 1958, and has been carrying on business from that date. The first respondent, the Textiles Committee, Bombay, is a body corporate established by the Central Government under section 3 of the Textiles Committee Act, 1963 (Central Act 41 of 1963), (hereinafter referred to as " the Act "), having perpetual succession and a common seal with power to acquire, hold and dispose of property. The second respondent is the Association of Man-Made Industry, Bombay. The third respondent is the Tahsildar, Avanashi, Coimbatore, seeking to recover the alleged dues and the fourth respondent is the Union of India. In order to provide the establishment of a Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of yarn used 6 paise for every 100 square in the cloth is less than 35s. metres manufactured. 2. Cotton cloth where the average court of yarn used 10 paise for every 100 square in the cloth is 30s or finer. metres manufactured. 3. Woollen yarn. 2 paise per kg. manufactured. 4. Man-made cellulosic or non-cellulosic filament 2 paise per kg. manufactured yarn. 5. Man-made cellulosic fibre cut to staple length 2 paise per kg. manufactured. 6. Textile machinery. 8 paise per Rs. 100 advalorem on the ex-factory price of the machinery manufactured. -------------------------------------------------------------------------------------------------------------------------------------------------- For the year 1965-66 (from March 1, 1965, to February 28, 1966) the first respondent-committee demanded from the petitioner-company payment of fees payable under the Act and the rules in respect of services alleged to have been rendered and the petitioner-company paid that amount. For the year 1966-67, viz., March 1, 1966, to February 28, 1967, the Committee sisimilarly made a demand for payment of Rs. 78,4 33 as fees. The company declined to pay the amount on the ground that fees are p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India took steps with a view to safeguard the production and export of cotton textiles and, to ensure the efficiency of the cotton textile industry, promulgated "The Cotton Textiles Fund Ordinance, 1944" establishing a "fund" for supervising the exports of cloth and yarn and for development of technical education, research and other matters in relation to the cotton textile industry. The Cotton Textiles Fund Committee was appointed to perform the various functions imposed under the Ordinance to improve the industry and meet the competition of foreign textiles in international market. The Ordinance promulgated in 1944 related to exports of cotton textiles only. And textiles such as wool, silk, art silk and other man-made fibre, fabrics and yarn and composite fibres and textiles were also entering the foreign market. It was under these circumstances that Parliament decided to re-enact the provisions of the said Ordinance and make the same applicable to all kinds of textiles, and, accordingly, the Textiles Committee Act, 1963 (41 of 1963), was enacted seeking to establish a Committee for ensuring quality of textiles and textile machinery and for matters connected therewith. The Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------- (Actuals) Total 124.92 1-4-70 to 31-3-1971 50.88 32.56 Revenue 40.25 Capital 34.33 --------- Total 75.18 -------------------------------------------------------------------------------------------------------------------------------------------------- Grand Total 290.87 196.02 200.10 -------------------------------------------------------------------------------------------------------------------------------------------------- The first respondent further stated that although a number of parties covered by rule 21 of the Textiles Committee Rules, 1965, have paid the fees, some are in arrears from March 1, 1965, some paid the fees for some months and thereafter discontinued and that it has become necessary to take coercive steps to realise the arrears. The petitioner's contention that no service whatsoever has been rendered by the first respondent to the petitioner was denied and it was stated that the first respondent rendered services to the textile industry as a whole, that the petitioner and some of the persons similarly situate like the petitioner had applied from time to time for pre-shipment inspection of art silk and man-made fibre fabrics mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (a) for inspection and examination of textiles, (b) for inspection and examination of textile machinery, and (c) for any other service which the Committee may render to the manufacturers of textiles and textile machinery. Rule 21 has been framed without any reference to the cost of inspection which alone would be subject of the fees. By fixing fees in such a way as to exceed the expenditure of the Committee and without dealing with each item separately which alone is the scheme of the Act and the rules framed thereunder, the levy is illegal. Further the textiles meant for internal consumption, textiles meant for export purposes and textile machinery have to be dealt with distinctly and separately and the levy of fees for inspection has to be provided under separate heads. The reference to the pre-shipment inspection of art silk and man-made fibre fabrics is for export of the fabrics offered for export. The inspection fees for such fabrics have been paid separately to the Silk and Rayon Textile Export Promotion Council through the Textiles Committee, Coimbatore, and the rate of fees paid was 1/2 per cent. on 70% of the f.o.b. value. These fabrics which are exported are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies and distributed among the manufacturers of that class. The fees levied and charged under the Act can only be for the specific services rendered. The petitioner not having exported any of its yarn or fibre is not liable to be charged on the basis of export of its yarn or fibre. Further, the reasonableness of the fees is not to be tested by its percentage to the cost of manufacture, but has to be correlated to the expenditure actually incurred on the particular services rendered. The Union of India represented by its Secretary to the Ministry of Commerce, New Delhi, was sought to be impleaded as a party to the writ petition and they were impleaded as a party. In the application for impleading the Union of India as a party to the writ petition the petitioner sought to raise an additional ground questioning the validity of the levy on the ground that the said levy being identical in nature with excise duty and that excise duty having already been levied and collected under the Central Excises and Salt Act, 1944, the legislature had no jurisdiction to levy any other amount in the garb of a fee. The fourth respondent, the Union of India, filed a counter seeking to uphold the levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the said judgment. Sri V. K. T. Chari, who appeared for the appellant, raised the following contentions : (1) The Textiles Committee should first under section 4 establish, adopt or recognise standard specifications and that an inspection can be made only thereafter making the person whose goods are inspected to pay a reasonable fee for such inspection. No such standard specification having been made, the levy of fee is illegal. (2) The levy of fee should be correlated to the services rendered and in the absence of the element of quid pro quo, the levy will not be a fee but an impost in the nature of an excise duty. (3) Each of the three classes must be treated separately and the expenditure for inspection for each of the classes should be shown separately and fees for such inspection carried out and collected from each class separately. Before dealing with the first contention, it is necessary to trace the prior history of the Government's control over the textile industry. The second world war gave a completely sheltered market for Indian textiles and created an unprecedented boom for the products and the industry was unable to withstand the severe international comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 of 1963), with a view to replace the Cotton Textiles Fund Ordinance, 1944. In section 3 of the Act a committee known as the Textile Committee, a body corporate having perpetual succession and a common seal, was constituted. Section 4 dealt with the functions of the Committee. Section 4(1) provides that 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 types of textile machinery. Section 4(2) particularises the functions of the Committee without prejudice to the generality of the provisions of section 4(1). Section 5 authorises the Committee to exercise all such powers as may be necessary or expedient for the purpose of carrying out its functions under this Act. Section 6 provided that for the purpose of enabling the Committee to discharge its functions under the Act, the Central Government may, after the appropriation, pay to the Committee in each financial year such sums of money as the Government considers necessary by way of grant, loan or otherwise. Under section 7 a fund was constituted called the textiles fund, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and filament yarn on the quantity produced. (3) Cotton yarn-on the quality actually inspected. (4) Manufacturers of textile machinery-on the value of the machinery manufactured. In this connection our attention was drawn to the Indian Standards Institution (Certification Marks) Act, 1952. As a pre-requisite to the establishment of a healthy trade, both internal and external, standardisation of products in respect of quality which would compare very favourably with the established makes of foreign products was considered essential. It was with that object that the Government of India set up the Indian Standards Institution in September, 1946, whose functions were : (1) to prepare and promote the general adoption of standards on national and international basis, (2) to promote standardisation, quality, control and simplification in industry, (3) to provide for registration of standardisation marks applicable to products, commodities, etc., (4) to provide or arrange facilities for the examination and testing of commodities, etc. The Indian Standards Institution have accordingly finalised the Indian standard specifications for most of the commodities and manufactured a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of manufactured goods depending upon the facility with which the exporter or the manufacturer can procure basic raw materials required in the manufacture, a scheme has been devised for the grant of special import licences to replace the imported raw material content of the exported product or to provide an inducement for larger exports. That scheme is known as Export Promotion Scheme. The details of the scheme are set out in Appendix 23 of the Import Trade Control Policy by the Government of India, Ministry of Commerce and Industry, for the licensing period October, 1961--March, 1962. Our attention was drawn to trade notices, one of them dated October 5, 1964, dealing with the incentive scheme for ready-made garments or other made-up articles manufactured from art silk and synthetic fibre and yarn. The said public notice provides that all registered exporters will be eligible for the grant of incentives against the exports of ready-made garments and other made-up articles manufactured entirely from art silk and/or synthetic fibre and yarn and that the import licences for the following items will be granted to the extent indicated against each : (i) Art silk and/or other synthetic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brics and referring to the inspection charges on fabrics exported. On June 29, 1966, the Assistant Inspecting Officer, Coimbatore, addressed a letter to the Secretary, Silk Rayon Textiles Export Promotion Council, Bombay, with a copy to the appellant enclosing a cheque received from the appellant on behalf of the State Trading Corporation towards the inspection charges for grey spun rayon fabric exported to Italy. The learned Advocate-General next referred to similar correspondence between the parties relating to this scheme and contended that the carrying out of the inspection thereunder is sufficient to attract the levy under the provisions of section 12 of the Act and rule 21 of the Textiles Committee Rules so as to authorise levy on the textile yarn manufactured by the appellant. The further contention of the learned Advocate-General is that the entire quantity manufactured by the appellant is thereby liable to pay a fee under section 12 read with rule 21 of the Rules. In this connection our attention was drawn to the entire correspondence between the appellant and the first respondent between May 19, 1965, and February 20, 1969. Therein, the first respondent claimed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Even in the counter-affidavit of the first respondent it is not asserted that any standards have been fixed in regard to this product. On the other hand, the Committee has in exercise of the powers conferred by section 23 read with clauses (c), (d) and (e) of sub-section (2) of section 4 of the Act framed regulations dated November 30, 1972, called the Man-Made Fibre Fabrics (Inspection) Regulations, 1972, laying down details of inspection criteria, random inspection for quality, rejection criteria, etc., in respect of filament viscose yarn produced by the textile manufacturers. We are, therefore, of opinion that for the period in question, the first respondent did not lay down standards or prescribe the details regarding methods of inspection and, consequently, we are of opinion that the levy of fees on the entire production of the appellant is illegal and without jurisdiction. The second contention put forward by the learned counsel is that there is no element of quid pro quo and, therefore, the levy in question is not a fee, but is in the nature of an excise duty. It is unnecessary to refer to the series of decisions of the Supreme Court formulating the distinction between a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 7 of the Act and the various components of the textiles fund. Fees and other charges levied under the Act is one of the components and the main source for it is inspection and examination under sections 11 and 12 of the Act. Section 12 consists of,-- (a) for inspection and examination of textiles, (b) for inspection and examination of textile machinery, and (c) for any other service which the Committee may render to the manufacturers of textiles and textile machinery. Section 7(b) of the Act states that the moneys in the fund shall be applied to carrying out the purposes of the Act apart from meeting the pay and allowances of officials and staff under section 7(a). The reasonableness of the fee charged under section 12 of the Act has, therefore, to be considered taking into account all the services rendered by the Committee. In fact several functions of the Committee are enumerated under section 4 of the Act, namely, the establishment of testing houses for the same purpose, the levy of fees for inspection and examination of textiles and the textile machinery or for any other service which the Committee could render to the manufacturers of textiles and textile machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f each class must be treated separately and must be commensurate with the expenditure for inspection in relation to that class. That contention in the abstract is acceptable, but taking into account the varieties of services rendered by the Committee, viz., the common testing house being used for testing all varieties of textiles and textile machinery and the same officers being employed for inspection of all kinds of textiles and textile machinery, we consider that it would be impracticable to treat each class separately and collect fees for services rendered to each of the classes separately and spend the moneys collected from each class on the same class. It is not clear from the figures of collections and expenditure from the inspection and examination set out above that any capital expenditure, such as construction of a laboratory, establishment of an office, etc., have been included under the head "expenditure". The collection of fees, in our opinion, must be correlated to the services rendered. We are of opinion that the department's treatment of the three classes together and not dealing with each of them separately cannot be said to, be illegal in the circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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