Full Judgment Text
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PETITIONER:
UNION OF INDIA & ORS.
Vs.
RESPONDENT:
AHMEDABAD MANUFACTURING AND CALICO PRINTINGCO. LTD. (CALICO
DATE OF JUDGMENT12/08/1985
BENCH:
VENKATARAMIAH, E.S. (J)
BENCH:
VENKATARAMIAH, E.S. (J)
MISRA, R.B. (J)
CITATION:
1986 AIR 121 1985 SCR Supl. (2) 537
1985 SCC (3) 693 1985 SCALE (2)233
ACT:
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.
Processed fabric - "Calikut Special" - Excise duty -
leviability of.
HEADNOTE:
The respondent was manufacturing processed fabrics
known as "Calikut Special" since 1965. At the intermediate
stage of the production, the said fabrics contained 46 per
cent of synthetic 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 Schedule to
the Central Excise & Salt Act, 1944.
In 1967 the Excise Department issued a Notice to the
respondent to show cause why the "Calikut Special’ should
not be subjected to excise duty under Item No. 19 because in
the intermediate stage of production the cotton content was
more than 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 question were liable to payment of excise
duty under Item No. 19 and not under Item No.22. The
respondent questioned the validity of 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,
^
HELD:- 1. If the product manufactured by the respondent
contained cotton and less than 60 per cent by weight of
Rayon or
538
Artificial Silk it would fall outside Item No.22 because
Item No.22 excludes such product from its scope and it would
be cotton fabrics as stated in Item No.19. [540 G-H]
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2. In the instant case, having regard to the process
involved in the manufacture of "Calikut Special by the
respondent it is not possible to hold that the character of
the goods at the intermediate stage of production could be
taken into consideration for determining the liability under
the Act. The processes involved after the intermediate stage
formed an integral part of the manufacture of the product in
the question and the classification of the manufactured
product for purposes of excise duty should depend upon its
nature and character at its final stage of production unless
a contrary intention appears from the statute. [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 the manufactured
product falling under Item No.22. This amendment is only
clarificatory in nature. Therefore, even though the product
in question might have fallen under Item No. 19 in the First
Schedule to the Act at the intermediate stage of production,
at the final stage when the duty became exigible it became
taxable under Item No.22 only. [541 G-H, 542 A]
Vijay Textiles a Partnership Firm at Plot No.4. Nerol
Abendaly v. Union of India, 1979 E.L.T.(J 181) held over-
ruled.
Empire Industries Ltd. & Ors. v. Union of India & Ors.
[1985] (20) E.L.T. 179 (S.C.) referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : 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.
Govind Das and R.N. Poddar for the Appellant.
Soli J. Sorabjee, A.N. Haksar, Ravindra Nath, R.K.Ram
and Miss Ratna Kapur for the Respondent.
The Judgment of the Court was delivered by
539
VENKATARAMIAH, J. This appeal by special leave is filed
against the judgment dated April 30, 1970 of the High Court
of Gujarat at Ahmedabad in special Civil Application No. 67
of 1968. The only question which arises for consideration in
this appeal is whether the goods called Calikut Special
manufactured by the respondent, the Ahmedabad 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 Excises and Salt Act, 1944
(Act No.1 of 1944) (hereinafter referred to as ’the Act’) or
under Tariff 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 FABRICS -
"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-clothes
but do not include any- such fabrics.............
(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:-
"22. RAYON OR ARTIFICIAL SILK FABRICS -
"Rayon or artificial silk fabrics" includes
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varieties of fabrics manufactured either wholly or
partly from Rayon or Artificial Silk but do no
include any such fabrics ....
(iii) If lt 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 intermediate 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 content of the said goods was
reduced to about 38.48 per cent and
540
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 basis. However, the
Superintendent, Central Excise, Ahmedabad 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 production the
cotton content was more than 40 per cent while the
Artificial Silk content was less than 60 per cent. The
respondent repudiated the claim made by the Superintendent,
Central Excise, Ahmedabad by its reply dated November 25,
1967. On December 11, 1967 the Superintendent, Central
Excise, Ahmedabad, 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 excise 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
Silk, the goods in question were liable to be taxed only
under Item No. 22. After taking into consideration the
explanation given by the respondent the Assistant Collector,
Central Excise, Ahmedabad Division - I, Ahmedabad by his
order dated December 29, 1967 held that the goods in
question were liable to payment of excise duty under Item
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 questioning 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 Assistant
Collector, Central Excise, Ahmedabad Division - I, Ahmedabad
and restraining the Central Excise Department from levying
excise duty under Item No. 19 in the First Schedule to the
Act. The High Court directed the Central Excise Department
to levy excise duty under Item No. 22. This appeal by
special leave is filed by the Union of India against the
judgment of the High 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 Artificial Silk it would fall outside
Item No. 22 because Item No. 22 excludes such product from
its scope and it would be cotton fabric as stated in Item
No. 19. It is not
541
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disputed in this case by the Central Excise Department that
the 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 state of its production it
contained less than 60 per cent of Rayon or Artificial Silk.
The question for consideration in this case is whether
merely because the goods in question contained less than 60
per cent of Rayon or Artificial Silk at the intermediate
state they were 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 counsel for the Union of
India, in support of its contention relied upon the decision
of High Court of Gujarat in Vijay Textiles a Partnership
Firm at Plot No.4, Nerol Abendaly v. Union of India [1979]
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 intermediate stage itself and excise
duty was leviable under Item No. 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 petitioner in that
case. But in Empire Industries Ltd. & Ors. v. Union of India
& Ors. [1985] 20 E.L.T. 179 (S.C.), this court has
disapproved the decision in Vijay Textiles case (supra). L
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 character
of the goods at the intermediate state of production could
be taken into consideration for determining the liability
under the Act. The processes involved in the instant case
after the intermediate stage referred to above formed an
integral part of the manufacture of the product in question
and the classification OF the manufactured product for
purpose of excise duty should depend 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(f) of the Act which is no doubt
introduced subsequently that bleaching, heat setting etc.
are incidental and ancillary processes necessary for the
completion of the manufactured 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
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 Item No. 19 in the First
Schedule to the Act for purposes of payment of excise duty
under the Act.
The appeal, therefore, fails and it is dismissed with
costs.
A.P.J. Appeal dismissed.
543