TMI Blog1985 (5) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... nder sub-rule (2) of the Rule 56A, it is expressly provided that a manufacturer will be given credit of 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 expressed by the Bombay High Court in the case of New Shakti Dye Works Pvt. Ltd. and Mahalakshmi Dyeing and Printing Works v. Union of India and Anr. (1983 (6) TMI 174 - BOMBAY HIGH COURT) are correct. The views expressed by the Gujarat High Court in Vijay Textiles v. Union of India [1979 (1) TMI 101 - HIGH COURT OF GUJRAT AT AHMEDABAD] in so far as it held that the processed fabrics could only be taxed under residuary entry and not under Item, 19 I or Item 22 of the First Schedule of the Central Excise Tariff cannot be sustained. Appeal dismissed. - Civil Appeal No. 586-592 of 1979, W.P. (Civil) No. 11728 of 1984, 13556, 13788, 13792, 15438, 15439 of 1984, Civil Appeal No. 6414 of 1983, 3564 of 1984, - - - Dated:- 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J.- This first petition herein under article 32 of the Constitution arises under the following circumstances. The President of India promulgated an ordinance being Central Ordinance No. 12 of 1979 called the Central Excises and Salt and Additional Duties of Excise (Amendment) Ordinance, 1979. The said ordinance was replaced by the Act called the Central Excises and Salt and Additional Duties of Excise (Amendment) Act, 1980 (hereinafter referred to as the " impugned Act "). The said impugned Act received the assent of the President on February 12, 1980, and under section 1(2) of the impugned Act, retrospective effect to the Act was given from February 24, 1979. It may be mentioned that the Gujarat High Court in the case of Vijay Textile v. Union of India [1979] 4 ELT (j) 181 rendered its decision on January 24, 1979, on this aspect of the matter. This decision will have to be examined in a 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overcome the said decision, the ordinance mentioned hereinbefore was promulgated on November 24, 1979, which has since been replaced by the said Central Excises and Salt and Additional Duties of Excise (Amendment) Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e excise duty under the Tariff Item No. 19 or 22, as the case may be. The petitioners further state that the said grey fabrics, i.e., unprocessed, undergo various processes in the factory of the petitioner company. The grey fabrics are boiled in water mixed with various chemicals and the grey fabric is washed and thereafter the material is taken for the dyeing process, that is imparting of required shades of colours. The next stage is printing process, i.e., putting the required designs on the said fabrics by way of screen printing on hot tables. The final stage is the finishing process, that 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner company has mentioned that it has paid. The petitioners further state that for the purpose of determination of value under section 4 of the Excise Act, the petitioner company was required to file a price list in the form prescribed under the said Rules for approval. The respondents-government authorities, according to the petitioners, although being aware of the fact that the petitioner company was carrying out and/or performing merely the processing work and collecting the processing charges only, had directed the petitioner company to file a price list on the basis of the sale price 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. According to the petitioners, the respondents approved the price list and as a consequence thereof, the petitioner company became liable to pay to the respondents additional excise duty calculated on ad valorem ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tariff and also similar amendments were effected in relation to Act of 1957. These amendments were effected retrospectively from different dates for different fabrics, as mentioned in the impugned Act. According to section 5(2)(b) of the impugned Act, no suit or other proceedings shall be maintained or continued in any other court for the refund of the same and no enforcement shall be made by any court of any decree or order directing the refund of such duties of excise which have been collected and which may have been collected as if the provisions of section 5 of 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 manufactured product. According to the petitioners, the impugned Act had been enacted and brought into force because of the judgment of the Gujarat High Court dated January 24, 1979, given in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocessing or any other process or any two or more of these processes. 22(1) Man-made 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-- (a) man-made fabrics, not subjected to any process. Twenty per cent. ad valorem plus rupees five per square metre (b) man-made fabrics, subjected to the process of bleaching, Twenty per cent. dyeing, printing, shrink-proofing, tentering, heat-setting, ad valorem plus rupees crease resistant processing or any other process or any two or more of these processes. five per square metre. -------------------------------------------- It may be pointed out that the original Item No. 19-I referred to it 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 artif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th ", " cotton cloth " or, as the case may be, " cotton fabrics ", and reference to " goods comprised in Item No. 22(1) of the First Schedule " shall be construed as a reference to such do rayon or artificial silk fabrics " or, as the case may be, to man-made fabrics ". Section 5(2) of the Amendment Act also validates duties of excise already levied, assessed, or collected on cloth, cotton cloth, cotton fabrics, woollen fabrics, rayon or artificial silk fabrics and man-made fabrics subjected to any process. It provides 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 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 eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion of refund. This is not disputed. The amending Act has, however, been challenged and various submissions on behalf of the respective parties were made and numerous decisions were referred to us. The following main points fall for consideration in these writ petitions and appeals: " 1. Whether cotton fabrics subjected to the process of bleaching, mercerising, dyeing, printing, water-proofing, etc., specially the processes conducted and carried out by the petitioner company as enumerated before in respect of cotton fabrics and woollen fabrics/man-made fabrics as mentioned under Item No. 19 or 22 of Schedule I 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 the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done was that fully manufactured cotton fabrics is subjected to further process of bleaching, dyeing and printing and, therefore, the article still continues to be cotton fabric and no different article having distinctive features, character or use comes into existence. It was submitted that gray cloth before it is processed is cotton fabric and after it is processed, continues to be cotton fabric. As such, it cannot be said that there was any manufacture involved. Numerous decisions on the question whether a particular process was a manufacturing process or not were referred to. On the other hand, on behalf of the Revenue, it was urged that the process 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. In Union of India v. Delhi Cloth General Mills Co. Ltd. [1963] Supp SCR 586 ; AIR 1963 SC 791, this court was concerned with the question as to whether manufacture of " refined oil " from raw materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , such process or processes would amount to manufacture. This viewpoint has been reiterated in numerous decisions. Reference, in this connection, may be made to the decision in the case of Union of India v. H.U.F. Business known as Ramlal Mansukhrai [1971] 1 SCR 936; AIR 1971 SC 2333. This court at pages 941-942 of the report (p. 2336 of AIR 1971 SC) observed as follows: " The word `manufacture' is defined in section 2(f) of the Act as including any process incidental or ancillary to the completion of a manufactured product. The rolling of a billet into a circle is certainly a process in the course of completion of the manufactured 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 comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. P. Ltd. v. Assessing Authority-cum-Excise and Taxation Officer, Gurgaon [1972] 30 STC 489. The Division Bench in that case positively took the view that sizing, bleaching or dyeing of raw cloth turns it into a different marketable commodity, and, as such, amounted to "manufacture" of a commercially new product. Reference may also be made to a decision of the Bombay High Court in Kores (India) Limited v. Union of India [1982] 10 ELT 253; [1982] Tax LR 2823 (Bom), where the Division Bench was considering the question whether the process of cutting large rolls of paper into specific 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 Excises Act. The Division Bench held that teleprinter rolls are different commodities or articles from the one used as the base material which is of large size or jumbo rolls writing or printing papers. Fabric itself means woven material. It was contended that processing the manufactured fabric does not bring into existence any new woven material but the question is: do new and different goods emerge having a distinctive name, use and character ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved, in its manufacture. Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture processed cloth, processed fabric, either cotton or man-made and that not being a taxable event in the light of section 3 read with section 2(d) of the Act and Items Nos. 19 and 22, levy of excise duty on this basis was ultra vires and contrary to law. Therefore, the petitioners are entitled to the refund of the excess of excise duty paid by them during the period of the three years immediately preceding the filing of the Special Civil Application over what they were bound to pay on the footing that processing Of cotton fabrics is an excisable activity covered by Item No. 68. Item No. 68 refers to 'All other goods not elsewhere specified 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 No. 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 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntendent of Central Excise [1980] 6 ELT(J) 164 are also distinguishable. The decision of this court in the case of Kailash Nath v. State of U. P. [1957] 8 STC 358 (SC) was on the question of interpretation of a notification issued by the U. P. Government exempting sale of manufactured cloth or yarn with a view to export such cloth or yarn. The notification provided that with effect from December 1, 1949, the provisions of the U. P. Sales Tax Act, 1948, did not apply to the sales of cotton cloth or yarn manufactured in Uttar Pradesh, made on or after December 1, 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 farther 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 reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 359-360 of the report as follows : " We have to determine whether upon the facts stated in the case the appellants did manufacture saccharin. Let us see what those facts are. One of the admitted facts is that saccharin is a substance produced from toluene sulphonamide. That is the definition of saccharin. This saccharin was not produced by the appellants from toluene sulphonamide; it was produced (if it can be said to have been produced) from saccharin itself. The appellants have not manufactured saccharin from toluene 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 ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay. (emphasis supplied). Whether it would be possible to read 'manufacture' etymologically as something very different from 'make', I think the Act of 1901 uses 'manufacture' and 'make' as being convertible terms, and that a man who manufactures saccharin under section 9 is doing the same thing as is called the making of saccharin under section 5, or the manufacturing Of glucose or saccharin under sub-section (2) of section 5, and that the appellants did not make saccharin, because they began and ended with saccharin. 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." 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undergone bleaching treatment and is treated by the Indian Standards Institution as something different from fabric which has not undergone the bleaching operations. Different standards are set out by the same and the views of the Indian Standards Institution can be looked into by the court with certain amount of credibility. See in this connection Union of India v. Delhi Cloth General Mills Co. Ltd. [1963] Supp. SCR 586; AIR 1963 SC 791. So far as other evidence is concerned, as mentioned hereinbefore, it may not be safe to deal with the same as these were produced at a very late stage and all the materials are not on the record. 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 Parliament. Arguments, however, were advanced on behalf of the petitioners that in entry 84 of List I, 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, should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n mind, then expenditure of human skill and material have been used in the processing and it may not be that the raw material was first transformed but over the transformed material, further transformation was done by human labour and skill making it fit for human consumption. In any event, under entry 97 of List I of the Seventh Schedule, this would apply if it is not under entry 84. It was then argued that if the legislation was sought to be defended on the ground that it is a tax on an activity like processing and would be covered by the powers enumerated under entry 97 of List I 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 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 " manufacture " as amended in section 2(f) and Tariff Items Nos. 19-I and 22 and the charge would be on that basis. Therefore, it is difficult to appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le fabrics. The judgment also had the effect of disturbing the balance evolved between different sectors of the textile industry. Furthermore, it was made clear that in so far as past assessments were concerned, refund of excise duties to manufacturers as ordered by the High Court would have only meant a fortuitous windfall so as to benefit such persons without any relief to the ultimate consumers who had purchased the fabrics and had borne the burden of the duties. In order to avoid this, the Act was passed. It has, therefore, to be borne in mind that the petitioners have already paid excise duty demanded of them, from time to time, and the present petitioners have gathered the duties from the consumers. 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 that by itself would not be an 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 Parliament to make retrospective legislation including fiscal legislation is well-settled. (See Krishnamurthi Co. v. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asured by its own computation and not by facts relating to other methods of computation. The circumstances that thereby the benefit of any exemption granted by the Legislature may be lost and that in some cases hardship might result are not matters which would influence courts on the construction of the statute. A taxpayer subject is entitled only to such benefit as is granted by the Legislature. Taxation under the Act is the rule and benefit or exemption, is the exception. And in this case there is no hardship. When textile fabrics are subjected to processes like bleaching, dyeing and printing, etc., by independent processes, whether on their own account or on job charges basis, the value for 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 independent processors for the processing. However, excise duty, if any, paid on the grey fabrics will be given Pro forma credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (Civil) No. 11728 of 1984, therefore, fails and is dismissed with costs. The connected applications, viz., Civil Appeal No. 3564 of 1984 and 6414 of 1983 and Writ Petitions Nos. 13556, 13792, 13788, 15438-39 of 1984 also fail and are dismissed with costs. Interim orders, if any, are vacated. Arrears of duties should forthwith be paid and future duties should also be paid as and when goods are cleared. Civil Appeals Nos. 586 to 592 of 1979 are allowed with costs. Good deal of arguments were canvassed before us for variation 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 which 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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