Full Judgment Text
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PETITIONER:
CHEMICAL AND FIBRES OF INDIA LTD. COLLECTOR OF CENTRAL EXCIS
Vs.
RESPONDENT:
UNION OF INDIA & ORS. M/S. J.K. SYNTHETICS LTD., KOTA NIRLO
DATE OF JUDGMENT: 07/01/1997
BENCH:
A.M. AHMADI, SUJATA V. MANOHAR
ACT:
HEADNOTE:
JUDGMENT:
WITH
CIVIL APPEAL NO. 3507 OF 1982
WITH
TRANSFERRED CASE NO.........OF 1996
(Arising out of Transfer Petition (C) No. 188 of 1983)
J U D G M E N T
Mrs. Sujata V. Manohar, J.
These appeals and the transferred appeal rise a common
question: whether polymer chips manufactured by the assesses
and used by them in the manufacture of nylon yarn can be
classified, for the purpose of levy of excise duty, under
Item 15A in Schedule I to the Central Excises and Salt Act,
1944, as it stood during the period 1962 to 1972. For the
sake of convenience we are period 1962 to 1972. For the sake
of convenience we are setting out the facts in relation to
the transferred appeal pertaining to M/s. Nirlon Synthetic
Fibres and Chemicals Ltd.
At all material times the company manufactured nylon
yarn, a synthetic man-made fibre under an industrial licence
under an industrial licence granted by the Government of
India. For the manufacture of nylon yarn, the company
imported caprolactum monomer. The company paid customs duty
as well as countervailing duty on its import of caprolactum
monomer. This raw material was used by the company for
manufacture of nylon yarn. In the course of processing of
caprolactum monomer the company obtained at an intermediate
stage a product called ‘Polymer Chips’, also known as Nylon
6 Chips, which were consumed in the manufacture of the
finished product, namely, nylon yarn. The question relates
to the levy of excise duty on these polymer chips. The only
question which now survives for our determination is whether
these polymer chips can be classified under Item 15A of
Schedule I to the Central Excises and Salt Act, 1944 as it
stood during the period 1962-1972, since this period covers
all the appeals.
The assessee has described the process employed in its
factory for polymerisation of caprolactum monomer. Once
caprolactum is polymerised, it becomes nylon. In order to
change the form of this substance and give it the required
properties which enable textile yarn to be produced from it
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further processing is required in the course of which, at an
intermediate stage, polymer chips are produced. The chips
are obtained for the purpose of removing the remnant monomer
so that the subsequent processing becomes more convenient.
These chips which are otherwise called Nylon 6 Chips, are
then dried, melted and spun into continuous filament by the
process of extrusion. The spun filament undergoes further
processing in order to get yarn in a saleable form. Polymer
chips which are produced by the assessees companies have a
relative viscosity of 2.22 to 2.30. The average molecular
weight ranges from 10,000 to 18,000. These chips are suited
only for the manufacture of textile fibres and are used
exclusively for that purpose.
With this background, let us examine whether these
polymer chips fall under Entry 15A. Entry 15A was amended on
18th of February, 1974. We, therefore, are required to
consider Entry 15A as it existed prior to 28-2-1964 and the
Entry as it existed after 28.2.1964.
I
Entry 15A as it existed prior to 28-2-1964 was as
follows:
"Entry 15A: PLASTICS, ALL SORTS:
(i) Moulding powers, 25% ad
valorem granules and flakes
(thermosetting and
thermoplastic).
(ii) Polythelene fixer, Layflat
tubings and P.V.C. sheets
(that is to say, polyvinyl
chloride sheets),
(iii) Not otherwise specified."
The assessee contends that polymer chips or nylon 6
chips manufactured by the assessee are not known in the
trade as plastics and hence they cannot be classified under
Entry 15A which deals with plastics all sorts.
Encyclopaedia Britannica, Volume 18, while dealing with
"plastics" has this to say on the subject:
"The articles called "plastic"
generally require shaping by heat
during their fabrication by
moulding or extrusion. Since the
newer synthetic products can
frequently be used inter-changeably
as coatings or as mouldings, the
distinction between resins and
plastics become less pronounced.
Moreover modern technology shows
that the materials which are
designated as rubber, fibres,
resins and plastics are of a
similar molecular structure and by
appropriate chemical and physical
treatment, it is possible to
interconvert any of these
materials. It follows that certain
structural features are common to
all these products and being common
they relate to similarity in
physical properties between
materials which are not necessarily
chemically related. It might be
argued that rubber is a plastic,
since it can be fabricated by
procedure similar to those employed
in moulding plastics; but rubber is
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not generally considered to be a
part of the plastics industry......
Similarly the fibre industry is
considered to be independent of the
plastics industry and here again
the same raw-materials, polyamides
(nylon) cellulose and cellulose
acetate are used by both
industries. Plastics are also
divorced from the self-supporting
type of film production such as the
manufacture of photographic film
and celluphone. The term plastic,
therefore, is essentially a
commercial classification to which
no strictly scientific definition
can be applied."
[underlining ours]
The term ‘plastic’, therefore, is a commercial
classification which covers various kinds of natural or
synthetic materials which can be shaped by heat during their
fabrication either by moulding or by extrusion and which
will retain that shape during use. It is also made clear
that normally, rubber or synthetic material which is used
for the manufacture of fibres and yarn, or for the
manufacture of photographic film and celluphone, is not
commercially considered as plastic.
In the book "Polymers and Resins" by Brage Golding,
1959 Edition, "plastic" is defined as under:
"A plastic has been defined in a
limited sense as any of a large
group of organic substances,
whether natural or synthetic, which
can be moulded (Plastikos = fit for
moulding). The noun ‘Plastic’ is
usually applied to all polymers
which are not considered to be
elastomers or fibres; i.e. which
exhibit neither the long range
elasticity of elastomers nor the
very high crystallinity of most
fibres. In the engineering sense,
however, a plastic is a mixture
containing one or more resins
compounded with fillers,
plasticizers, lubricants, dyes etc.
which has been subsequently
fabricated.
Commercial nylon fibres are linear
and have molecular weight averages
of the order of 12,000 to 20,000.
If the average molecular weight is
below 6,000 little or no fibre
formation is possible; fibres
formed from polymers with an
average molecular weight of about
6,000 to 10,000 are weak and
brittle. As the average molecular
weight increases above this range,
the fibre becomes stronger.
However, if the molecular weight
runs much over 20,000 the polymer
becomes too difficult to melt or
dissolve. Therefore, the process of
polymerisation must be stopped in
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the desired average molecular
weight range."
[underlining ours]
Chamber’s Dictionary defines ‘plastics’ as "generic name for
certain natural and synthetic substances which under heat
and pressure become plastic and can then be shaped or cast".
In Webster’s Third New International Dictionary
‘plastic’ has been described as under:
"Plastic - (1) a substance that at
some stage in its manufacture or
processing can be shaped by flow
(as by application of heat or
pressure) with or without fillers,
plasticizers, rainforcing agents,
or other compounding ingredients
and that can retain the new solid,
often rigid, shape under conditions
of use;
(2) any of a large group of
materials of high molecular weight
that usually contain as the
essential ingredient a synthetic or
semi-synthetic organic substance
made by polymerization or
condensation (as polystyrene or a
phenol-formaldehyde resin) or
derived from a natural material by
chemical treatment (as nitro-
cellulose from cellulose), that are
molded, cast, extruded, drawn, or
laminated under various conditions
(as by heat in the case of
thermoplastic materials, by
chemical condensation in the case
of thermosetting materials or
polyesters, or by casting during
polymerization of monomers) into
objects of all sizes and shapes
including films and filaments."
Our attention is also drawn to the American Society for
Testing Material Standard which makes a distinction between
"nylon" and "nylon plastics" -- including the former under
the heading ‘Definition of Textile Terms’ and the latter
under the heading ‘Plastics Nomenclature’. The Indian
Standard Institute Glossary also makes a distinction between
"nylon" and "nylon plastics" and similarly classifies
"nylons" under the glossary of textile terms and "nylon
plastics" under the glossary of terms used in plastic
industry.
It is, however, urged on behalf of the Revenue that the
chemical composition of the polymer chips (Nylon 6 Chips)
which are produced by the assessee is similar to the
chemical composition of material used in plastic industry.
And hence, going by the chemical composition of this
material, it can be appropriately classified as a plastic.
This contention will have to be examined in the light of the
wording of Entry 15A. Entry 15A does not use any scientific
or technical term. It deals with "plastics, all sorts". As
Encyclopaedia Britinnica has described, the term ‘plastic’
is a commercial classification. When this kind of a term in
commercial use is used in an excise entry which deals with
marketable commodities which are manufacture and which are
subject to the levy of excise, we will have to examine that
term in the light of how it is understood in the trade. If,
however, strictly technical or scientific words are used,
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the approach for their interpretation may be different.
We will refer to only some of the authorities which
have been cited before us in this connection. As far back as
in 1891, in the case of Unwin v. Hanson ([1891] 2 Q.B. 115
at 119), the court observed, "If the Act is directed to
dealing with matters affecting everybody generally, the
words used have the meaning attached to them in the common
and ordinary use of language: if the Act is one passed with
reference to a particular trade, business, or transaction,
and words are used which everybody conversant with that
trade, business, or transaction, knows and understands to
have a particular meaning in it then the words are to be
construed as having that particular meaning, though it may
differ from the common or ordinary meaning of the words."
In the case of Ramavatar Budhaiprasad etc. v. Assistant
Sales Tax Officer, Akola ([1962] 1 SCR 279), the Court was
concerned with the scope of the word ‘vegetables’ occurring
in C.P. and Berar Sales Tax Act, 1947. The Court said that
betel leaves cannot be classified as vegetables although
botanically they may fall in that category, because betel
leaves are not commonly understood as vegetables.
Again in the case of The Commissioner of Sales Tax,
Madhya Pradesh, Indore v. M/s. Jaswant Singh Charan Singh
(AIR 1967 SC 1454) the Court held that the Entry "Coal"
under the Madhya Pradesh General Sales Tax Act would cover
charcoal also. The Court said that while "Coal" is
technically understood as a mineral product while charcoal
is manufactured by human agency from products like wood and
other things, it is now well-settled that while interpreting
items in statutes like the Sales Tax Acts, resort should be
had, not to the scientific or the technical meaning of such
terms, but to the meaning attached to them by those dealing
in them. (See in this connection South Bihar Sugar Mills
Ltd. etc. v. Union of India & Ors. [(1968) 3 SCR 21] and
Dunlop India Ltd. v. Union of India & Ors. [(1976) 2 SCR
98]).
In the case of Asian Paints India Ltd. v. Collector of
Central Excise (1988 (35) ELT 3), Sabyasachi Mukharji J. (as
he then was) has summed up the rule of interpretation in the
following words:
"It is well-settled that the
commercial meaning has to be given
to the expressions in Tariff Items.
Where definition of a word has not
been given it must be construed in
its popular sense. Popular sense
means that sense which people
conversant with the subject-matter
with which the Statute is dealing,
would attribute to it..........
that in interpreting items in
statutes like the Excise Act or
Sales Tax Acts, whose primary
object was to raise revenue and for
which purpose to classify diverse
products, articles and substances,
resort should be had not to the
scientific and technical meaning of
the terms or expressions used but
to their popular meaning, that is
to say, the meaning attached to
them by those dealing in them.
In the present case, since Entry 15A as it then stood,
uses a commercial term "plastics" which is well-known in the
trade and is used in the trade, we should not go into the
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technical analysis of the composition and character of a
plastic product. We should go by the meaning which is
attached to the term ‘plastics’ in the trade parlance.
Plastics as understood in the trade cover all kinds of
synthetic materials. As the Encylopaedia Britannica. Sets
out very clearly, there is a distinction made in commercial
parlance between materials used in the production of
plastics and materials used in the production of fibres,
films or rubber although they may share certain structural
features. The assessee has also filed affidavits from people
in the trade to say that polymer chips of the kind
manufactured by the assessee are not considered as plastics
by those dealing in plastics.
Prior to the assessee’s manufacturing these chips in
its own plant, the assessee used to import similar chips for
the purpose of manufacture of nylon yarn from BASE. The
product imported was caprolactum Ultramid BS. Our attention
is drawn to the catalogue of BASF products of July 1961, in
which captrolactum Ultramid BS is shown under "Raw materials
for synthetic fibres", while there is a separate head for
"Plastics and auxiliaries for plastics" under which other
material such as Ultramid A, Ultramid AK, Ultramid B and
Ultramid BM are shown. This also indicates that material
which is used for the production of nylon yarn is not
considered in the trade as a plastic material. The assessee,
therefore, is right when it contends that Item 15A as it
stood prior to 28.2.1964 does not cover polymer chips
manufactured by it.
Item 15A, however, as amended after 28.2.1964 was as
follows:
15A. ARTIFICIAL OR SYNTHETIC RESINS
AND PLASTIC MATERIALS, AND ARTICLES
THEREOF. Twenty percent ad valorem.
(1) Artificial or synthetic resins
and plastic materials in any form,
whether solid, liquid or pasty, or
as powder, granules or flakes, or
in the form of moulding powders,
the following, namely:-
(i) Condensation, Poly-condensation
and Poly-addition products, whether
or not modified or polymerised;
including Phenoplasts, Aminoplasts
Alkyds, Polyurethane, Polyallyl
Esters ad other Unsaturated
Polyesters;
(ii) Polymerisation and
Copolymerisation products including
Polyethylene and
Polytetrahaloethylene,
Polyisobutylene, Polystyrene,
Polyvinyl chloride, Polyvinyl
acetate, Polyvinyl Chloroacetate
and other Polyvinyl derivatives,
Polyamides, Polyacrylic and
Polymethacrylic derivatives and
Coumarone-Indene resins; and
(iii) Cellulose acetate (including
di-or tri-acetate), Cellulose
acetate butyrate and Cellulose
propionate, Cellulose acetate-
propionate, Ethyl cellulose, and
Benzyl cellulose whether
plasticised or not, and plasticised
Cellulose nitrate.
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(2) Articles made of plastics, all
sorts, including tubes, robs,
sheets, foils, sticks, other
rectangular or profile shapes,
whether laminated or not, and
whether rigid or flexbile,
including layflat tubings and
Polyvinyl chloride sheets.
Explanation:- For the purpose of
sub-item(2), ‘plastic’ means the
various artificial or synthetic
resins or plastic material included
in sub-tem (1)."
The main heading of this item is now changed to read
"Artificial or synethic resins and plastic materials and
articles thereof". Clause (1) refers to artificial or
synethic resins and plastic material in any form, "among
them the following" which are described in sub-clauses (i),
(ii) and (iii). These sub-clauses describe the technical
process by which the end product is derived. Thus in sub-
clause (i) for example, the processes which are referred to,
inter alia, are condensation, poly-condensation and poly-
addition and products resulting therefrom. Sub-clause (ii)
refers, inter alia, to polyamides. All these are technical
and scientific terms and processes. The Revenue contends
that in the strict sense of the term, polymer chips or Nylon
6 Chips which are manufactured by the assessee are
artificial or synthetic resins as they fall in the category
of polyamides in sub-clause (ii) of Clause (I) of Item 15A.
The assessee, however, contends that artificial or synthetic
resins which are covered by Item 15A refer only to plastics
and they do not refer to those artificial or synthetic
materials which may be processed in the manner described in
sub-clauses (i) to (iii), but which give rise to products
used for the textile industry such as the polymer chips
manufactured by the assessee.
The assessees have pointed out that the words "the
following" in Clause (1) of Item 15A which precede sub-
clauses (i) to (iii) clearly indicate enumeration or
description of the kinds of artificial or synthetic resins
and plastic materials in different forms in sub-clauses (i)
to (iii). Therefore, all products covered by sub-clauses (i)
to (iii) must answer the basic description of "Artificial or
synthetic resins and plastic materials". These sub-clause
cannot cover materials not known as artificial or synthetic
resins or plastic material. The assessees further contend
that "synthetic resins" is a term used to describe basic
material in plastic industry. It does not refer to basic raw
material used in other industries.
The question, therefore, which we have to decide is
whether artificial or synthetical resins should be confined
only to those resins which ultimately produce material
having plastic qualities or whether they would include
within their scope other kinds of material derived by
similar processes which are described in sub-clauses (i),
(ii) and (iii), but which are suitable for use in other
kinds of industries such as rubber industry, textiles or
films.
Are the words "artificial or synthetic resins"
interchangeable with or linked with the words "plastic
material"? Brage Golding in his treatise on "Polymers and
Resins", in Chapter I which deals with introductory concepts
and definitions, after stating that it is unfortunate that
there are no explicit definitions of the words resins and
plastics, the meanings being understood by those who use
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them, has attempted to define these expressions as follows:
"Probably the closest one can come
to a definition of resins is that
it is a solid or semi-solid,
natural or synthetic organic
substance of relatively high
molecular weight (not necessarily a
polymer) which exhibits no sharp
melting point, breaks with a
conchoidal fracture, and usually
(but not always) is predominantly
amorphous in structure. A plastic
has been defined in a limited sense
as any of a large group of organic
substances, whether natural or
synthetic, which can be molded
(plastikos - fit for molding)."
He goes on to observe:
"The term ‘resin’ originally
referred to natural products
(particularly of vegetable origin)
but now includes the man-made
substances. As will be seen from
the physical descriptions of the
polymers given in later chapters,
the above definitions of both resin
and plastic include many of these
polymers, and the terms are now
often used interchangeably."
[underlining ours]
Webster’s Dictionary defines "Resins (synthetic)" as:
"any of a large class of synthetic products (as alkyd resins
or phenolic resins) usually of high molecular weight that
have some of the physical properties of natural resins but
typically are very different chemically, that may be
thermoplastic or thermosetting, that are made by
polymerization or condensation, and that are used chiefly as
plastics or the essential ingredients of plastics, in
varnishes and other coatings, in adhesives, and in ion
exchanges (when the resin itself is capable of being shaped
into a finished article without a plasticizer, as
polystyrene), the terms resin and plastic are
interchangeable for that material - in industrial
terminology the unfabricated material is sometimes called a
resin and the fabricated article a plastic." (underlining
ours). Apart from the portion underlined, the reference to
thermoplastic and thermosetting qualities of such resins is
also a reference to their plastic qualities.
The British Plastics Year Book of 1967 describes
synthetic resins as "resins produced by chemical reactions,
they are of different chemical composition and behaviour
from natural resins. The term is now generally applied to
all polymeric plastics materials with the possible exception
of cellulosic and casein materials. Synthetic resins are
classified by the initial reacting materials, e.g., as
phenolic amino, acrylic or vinyl resins, or on chemical
composition, e.g., polyester ad epoxy resins."
Sorenson and Campbell in their book "Preparation
Methods of Polymer Chemistry" in Chapter 7 ‘Cross-linked
synthetic Resins’ have said: "Today, ‘resin’ covers a
multitude of polymer types, including the classical phenol-
formaldehyde condensation and the relatively recent epoxy
resins, vinyl polymers such a polystyrene and poly methyl
methacrylate and condensation polymers of the polyamide or
polyester class. Most of the application of the term ‘resin’
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is to those linear or cross-linked (or cross-linkable)
polymers that are used in molding, casting, or extruding
operations and in surface coatings; and, to most cross-
linked (or cross-linkable) polymers, no matter what the end
use (as in adhesives, textile finishes, etc.). Thus poly
methyl methacrylate and various polyamides, both essentially
linear polymers, are termed molding resins when directed to
a molding end use. However, polyamides would not be termed
resins by the synthetic fibre industry in their usage of the
material.
In other words, "synthetic resin" is a term used in
plastic industry and possibly in other industries, but not
in the textile industry to refer usually to unfabricated
material out of which the end product is made.
While the first three descriptions/definitions of
synthetic resins emphasise the plastic quality of synthetic
resins, the last description clearly brings out the fact
that in the synthetic fibre industry, polyamides which are
used as raw material would not be termed as resins. The term
‘synthetic resins’, therefore, appears to be used in
connection with plastic materials. The British Plastics Year
Book of 1967 quoted earlier also emphasises that the term
‘synthetic resins’ is now generally applied to all polymeric
plastic materials with the possible exception of cellulosic
and casein materials. Webseter’s Dictionary (supra) has also
described synthetic resins as those which may be
thermoplastic or thermosetting -- these being typical
characteristics of plastic material and has clearly said
that synthetic resins are used chiefly as plastics or
essential ingredients of plastics as also in varnishes and
other coatings and in adhesives and ion exchanges. There is
no reference here to their being used in the manufacture of
yarn. Webseter’s Dictionary also states that the terms
‘resin’ and ‘plastic’ are interchangeable and some times the
unfabricated material is called resins and the fabricated
material is called a plastic. This perhaps explains why the
words "artificial or synthetic resins" were added in Entry
15A to "plastics" in order to refer to and cover the raw
material which goes into the manufacture of plastic
materials. Encyclopaedia Britannica also which was quoted
earlier by us, states that while the designation "plastic"
is broader generally than the term "resin", both terms are
used indiscriminately with respect to synthetic products.
Therefore, the reference material which is produced before
us indicates that synthetic resins are used in connection
with plastic material and that often the unfabricated
material is referred to as resin while the fabricated
article is referred to as a plastic. Polyamides which are
used for the purpose of manufacture of yarn are not referred
to as synthetic resin in the textile industry.
The term ‘synthetic resin or artificial resin’,
therefore, far from being scientifically precise, seems to
be as elusive to define as the term "plastic". The
preponderance of view appears to be, however, that the term
‘synthetic resin’ is used in connection with material which
is used for producing articles of plastic and is not used to
refer at least to material used in the textile industry.
Our attention has been drawn to "Concise Guide to
Plastics" by Simmonds and Church in which a passage under
the heading Polyester Resin is as follows:
"In the broad sense of the term
polyester resins include many types
of resinuous condensation products
and collectively represent a broad
and expanding field in the plastics
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industry... As indicated in other
section, alkyd resin are basically
polestar. Saturated liner polyester
resins can be film or fibre forming
material, for example,
polyethelene, terephathalate".
This passage, however, does not assist us in the sense that
it does not tell us what the terms "synthetic resins" or
"artificial resins" generally refer to. It does, however,
indicate that the term "polyester resin" represents the
broad and expanding field in the plastic industry and
satured liner polyester resins can be fibre forming. From
the passage it is not clear whether the latter are commonly
referred to as synthetic resins or not. By and large,
therefore, one can come to the conclusion that the term
‘artificial and synthetic resin’ in used in the plastic
industry to refer to various materials derived by the
processes which are referred to sub-clauses (i), (ii) and
(iii) of Entry 15A for the purpose of producing material or
products which are suitable in the manufacture of plastics.
The processes which are described in sub-clauses (i), (ii)
and (iii) are undoubtedly technical, scientific or chemical
processes and the products which are derived as a result of
these processes are also described in technical terms in the
said sub-clauses. Polyamides, for example, which are
relevant in the present case, would cover, by themselves a
wide range of products. However, these sub-clauses come
under the main heading of artificial or synthetic resins or
plastic materials. Polyamides of textile grade are not
plastic materials nor are they referred to as synthetic
resins in the textile trade. Hence polyamides of textile
grade would not fall under either "Artificial or synthetic
resins" or under "plastic material". They would be outside
the ambit of Entry 15A. The polymer chips which are
manufactured by the assessee would not, therefore, come
under the category of artificial or synthetic resins also.
Polyamides, however, which are capable of producing plastic
materials are known in the plastic trade as synthetic resins
and would be covered by Item 15A.
Since the technical literature and dictionaries which
have been cited by us have emphasised the conjunction of
artificial or synthetic resins with plastics, it is not
possible for us to ignore this association. Therefore, even
if the term "Artificial or synthetic resin" is construed as
covering products derived by processes technically described
in sub-clauses (i), (ii) and (iii) of Clause (1) of Entry
15A, that product must answer the basic description as
"artificial or synthetic resin". Polyamides in the form of
polymer chips of textile grade are not known as synthetic
resins. They are also not plastics. Hence Entry 15A does not
cover them. The assessee is, therefore, entitled to succeed.
The appeal of the assessee in C.A. No. 3495/82 is
allowed and the appeals of the revenue in Transferred Case
No........../96 (arising out of T.P.(C) No. 188/83 being
O.A. No. 84 (arising out of T.P. (C) No. 188/83 being O.A.
No. 84 of 1970 of the Bombay High Court) and Civil Appeal
No. 3507 of 1982 are dismissed. In the circumstances of the
case, there will be no order as to costs.