Judgment sc-s-1985-2-537-542

537

. UNION OF INDIA & ORS. A

AllMEllABAD MANUFACTURING AND CALICO PRINTING CO. LTD. (CALICO MILLS), AHMEDABAD.

AUGUST 12, 1985· B l E. S. VENKATARAMµ\H AND R. a. MISRA, J J. J

Central Excise and Salt Act, 1944, Tariff Item No.19 and 22, First Schedule - Excise duty -· Whether leviable ·at intermediate stage of production or at final stage. c · · Processed fabric - "Galikut Special" - Excise duty - lev1- ability of.

The respondent was manufacturing processed fabrics known as "Galikut Special" since 1965. At the intermediate stage of the' production, the said fabrics contained 46 per cent · of syothetie fibres (Art Silk) and the cotton content was about 54 per cent. Due to further processing, when goods reached the final stage of production, the cotton contents of the said goods was .reduced to about 38;48 per cent and 61.52 per cent to the fabrics consisted of Artificial Silk. Having regard to the cotton content of the final product, which was less than 40 per cent the said goods were being treated all along as Artificial Silk Fabrics and excise duty was being levied under· item No. 22 of the First Sche- dule to· the Central Excise & Salt Act, 1944. · ·· ,.

In 1967· the Excise Department issued a Notice to· the respondent to show cause why the "Galikut Special" should not· be subjected to excise duty under Item No. 19 because in the f intermediate stage of production the cotton content was more t:ian 40 per cent while Artificial Silk content was less than 60 per cent. After considering the explanation of the respondent, the Assistant Collector, Central Excise held that the goods in ·ques- tion ~ere liable to payment pf -excise duty under Item No. 19 and not under Item No.22. The respondent questioned the validity of G the said order of Assistant Collector under Article 226 and the same was quashed by the High Court.

Dismissing the appeal of the Union of India,

538 SUPRtJME COURT REPORTS [1985] SUPP.2 s.c.R.

A Artificial Silk it wquld fall outside Item No.22 because Item No.22 excludes such prpduct from its scope and it would be cotton fabrics as stated in item No.19. [540 G-H] '

2. In the instant case,. having regard to the process involved in the manufatcui:e of "Calikut Special" by the B respondent it is not possible to hold that the character of the goods at the intermed:Lllte stage of production could be taken into consideration for det~rmining the liability under the Act. The processes involved ~fter the intermediate stage formed an integral part of the manufacture of the product in the question and the classificatio.I of the manufactured product for purposes of excise duty should depend upon its nature and character at its c final stage of production unless a contrary intention appears frOlll the statutue. [541 E-F] '

Clause (vii) of section 2(f) of the Central Excises and Salt Act, 1944 introduced 'subsequently, shows that bleaching, heat setting etc. are incidental and ancillary processes necessary for the completion of thJ manufactured product fall.lug under Item u No.22. This amendment ~s only clarificatory in nature. 'l'herefore, even though. the product in question might have fallen under Item No. 19 in the First Schedule lo the Act at the intermediate stage of production, at the final stage when the duty became exigible 1

it became taxable undef Item No.22 only. [541 G-H, 542 A]

~ Vijay Te:&tiles a Partnership l!'im at Plot 'o.4. Nerol A)>endaly v. Union of ~. 1979 E.L.T.(J 181) held O\.!r-ruled.

Empire Industries Ltd. & Ors. v. Union of l.nd1a & Ors. [1985] (20) E.L.T. 179 (S.C.) referred to.

F CIVIL APPELLATE J,URISDICTION : Civil Appeal No. 259 (N) of

1972. .

From the Judgment and Order dated. 30.4.1970 of the Gujarat High Court in s.c.A. No. 67 of 1968.

G Govind Das and R.N. Poddar for the Appellant.

Soli J. Sorabjee,. A.N. llaksar, Ravindra Nath, R.K.Ram and Miss Ratna Kapur for tl\e Respondent.

The Judgment of tl/e Court was delivered by Ii

u.o.r. v. AHMEOAllAD MFG. co. [VENKATARAMlAll, J.] 539

VENKATARAMIAI!, J, This a~peal by special leave is filed A against the judgment dated April 30, 1970 of the High Court of Gujarat at Ahmedabad in opecial Civil Application No. 67 of 1968. The only question which l'lrises for consideration in this appeal ·is whether the goods called "Calikut. Special" manufactured by the respondent, the Ahemedabad Manufacturing and Calico Printing Co. Ltd. (Calico Mills) Ahmedabad, were liable to excise duty under the Tariff Item No. 19 in the First Schedule to the Central 11 1'.xcises a<ld Salt Act, 1944 (Act No.l of 1944) (hereinafter referred to as 'the Act') or under Tarriff Item No. 22 thereof as they stood during the relevant time. The material part of Item No.19 in the First Schedule to the Act read· as follows:-

"19. COTTON FAJlRICS - c "Cotton Fabrics" means all varieties of fabrks manu- factured either wholly or pactly from cotton and includes dhoties, sarees, .chadders, bed-sheets, bed-spreads, counter-panes, table-clothes but do not lnc lude any such fabric ••••.••..••••••••••••••••.•••

(c) if it contains 60 per cent or more by weight of rayon or Artificial Silk: ........................... ..

The material part of Item No.22 in the First Schedule to the Act read as follows:- E

"22. RAYON OR ARTIFICIAL SILK FABRICS -

"Rayon or artificial silk fabrics" includes varieties of fabrics manufactured either wholly or partly from Rayon or Artificial Silk but do no include any such fabrics - •••••••••• • • • • ••••• • ~ •••••••• • • • • • • • • • • • • • • • F

(iii) if it contains cotton and less than 60 per cent by weight of Rayon or Artificial Silk; or ........... "

The respondent was the manufacturer of the processed fabrics known as "Calikut Special" from the year 1965. At the inter- I G mediate stage of their production, the said fabrics contained•46 per cent of synthetic fibres (Art Silk) and their cotton content was about 54 per cent. The said goods were subject to further processing such as bleaching, heat. setting etc. and at the time when goods reached the final stage of production the cotton II content of the aaid goods WilS reduced to about 38.48 per cent and

540 SUPREME COURT REPORTS. [1985] SUPP;2 S.C.R.

A 61.52 per cent of the fabrics consisted of Artificial Silk. Having regard to the cotton content of the final product which was less than 40 per cent, the said goods were being treated all along as. falling under item No. 22 of the First Schedule to the Act as Artificial Silk Fabrics and excise duty was being levied on that l·.:basis. Howe:ver, the Superintendent, Central Excise, B Ahemdabad by his letter dated November 25, 1967 proposed to treat the .above goods as falling under Item No. ·19 thereof as cotton fabrics on the ground that at the intermediate stage of produc- tion the cotton content was more than 40 per cent while the Arti- ficial. Silk content was less than 60 per cent. The respondent repudiated the claim i"'de by the Superintendent, Central Excise, Ahemdabad by its reply dated November 25, 1967. On December 11, c 1967 the Superintendent, Central Excise, Ahemda- bad, formally issued a Show Cause 'Notice to the respondent to show cause why ,the "Calikut Special" variety of goods referred to above should not be subjected to·etcise duty under Item No.19. The respondent sent its ·reply on December 12, 1967 reiterating its stand that since at the final stage the product consisted of less than 40 per cent of cotton and of more than 60 per cent of Artificial u Silk, the goods in question were liable to be taxed only under Item No. '·22. After taking· into· consideration the explanation given by the respondeµt the Assi~tant Collector, Central Excise, Ahemdabad Division - I, Ahemdabad by his order dated D~cember 29, 1967 held that the goods in question were liable to payment of excise duty under I~em No. 19 and not under Item No. ·22. !:. Aggrieved by the above decision the respondent filed a writ petition under Article.226 of the Constitution on the file of the High Court of Gujarat 1questioning the validity of the said order. The· High· Court after hearing the parties · agreed with the ·contention of the respondent and allowed the writ petition quashing :·the order dated December 29, 1967 ·passed by the F Assistant··Collector, Central· Excise; Ahmedabad Division - I, Ahmedabad, and restraining the Central Excise Department from levying excise duty under lt:em No. '19 in the Fir'st Schedule to the Act. The High Cour,t directed the Central Excise Department to levy excise duty under Item No. 22. This appeal by special leave is fil~d by the Union of India' against the judgment 'of th"· High G ~ Court. ·

There is no dispute that if the product manufactured by 'the respondent contained cotton and less than 60 per cent by weight ·of Rayon or Artifici~l Silk it would fall outside Item No. 22 .because Item· No; 22 excludes Such product from its scope · aii.d it H · would' be cotton fabr;ic as stated in Item No. 19. · It is not

u.o.r. v. AHMEl.lABAD MFG. co. [VENKATARAMIAH, J.] . 541

disputed in this case by the Central Excise Department that. the A final product called "Calikut Special" which was manufactured· by the respondent contained cotton· and more· than 60 per cent by weight of · Rayon or Artificial· Silk and that only at the intermediate stage of its· production it contained less than 60 per cent of l<ayon or Artificial Silk. The question for considera- tion in this case is whether merely because the goods in question contained less than 60 per cent of l<ayon or Artificial Silk at the intermediate stage they· wer'e liable to be taxed under Item No. 19 which imposed a heavier duty than the duty payable under Item No. 22.

Shri Govind.Dass, learned couns£1 for the Union ot India, in c suport of its contention relied upon the decision of High tourt of Gujarat in Vijay Textiles a Partnership Firm at Plot No.4, Nerol Af>endaly v. Unioo of India [l979j E.L.T. (J 181). The petitioner in that case claimed before the High Court that the goods involved therein were liable to excise duty at the inter- mediate stage itself and excise duty was leviable under Item No. u 68 and not under Item No. 19 or. Item No.22 perhaps because the total liability under Item No. 68 when compared with the excise duty either under Item No. 19 or under Item No. 22 was less at that stage. The High Court accepted the contention of the peti- tioner in that case. But in Empire Industries Ltd. & Ors. v. Union of India & Ors. [1985j 20 E.L.T. 179 (S.C.), this court has disapproved the deci~ion in Vijay Textiles -case (supra). t.

Having regard to the process invOlved in the manufacture of "Calikut Special" by the respondent we are of the view that it is not possible to hold that the chracter of the goods at the inter- mediate stage of production could be take"n into consideration for determining the liability under the Act. The processes involved in the instant case after the intermed.iate stage referred to above formed an- integral part of the manufacture' of the prod1.ict in question and the classification of the -manufactured product for purpose of excise duty should aepend upon its nature and character as its final stage of -production unless a contrary intention appears from the statute. It is seen from clause (vii) Of section 2(£) of the Act which is no doubt introduced subsequently that bleaching, h~t setting etc. are incidental and ancillary 'processes necessary foe the completion of the manufac- tured product falling under Item No. 22. ThiS amendment has only attempted ·to explain the obvious and to put the queStion beyond dispute. Therefore, even though the product in question .. might

542 SUPHEM<: COURT l\EPORTS [1985] SUPP.2 S.C.R. >

have fallen under Item No. 19 in the First Schedule to the Act at the intermediate state of production, at the final stage when the duty became exigible it became taxable under Item No. 22 only. We are, therefore, in agreement with the decision of the High Court that the goods in question fell under Item No. 22 and not under B Item No. 19 in the First Schedule to the Act for purposes of payment of excise duty under the Act.

The appeal, therefore, lails and it is dismissed with costs. c '

A.P.J. Appeal dismissed.

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