Full Judgment Text
IN THE HIGH COURT OF DELHI AT NEW DELHI
W.P.(C) No. 1449 of 2007
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Reserved on: 25 February 2010
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Decision on: 12 May 2010
ROLEX PROCESSORS (P) LTD. ..... Petitioner
Through: Dr. Manish Singhvi with
Mr. Abhinav Ramkrishna, Advocates.
versus
TEXTILE COMMITTEE ..... Respondent
Through: Mr. Chirag M. Shroff with
Mr. Dattatray Vyas, Advocates.
WITH
W.P.(C) No. 3436 of 2008
PUJA SPINTEX P. LTD. ..... Petitioner
Through: Dr. Manish Singhvi with
Mr. Abhinav Ramkrishna, Advocates.
versus
TEXTILE COMMITTEE ..... Respondent
Through: Mr. Chirag M. Shroff with
Mr. Dattatray Vyas, Advocates.
AND
W.P.(C) No. 3620 of 2008
GANESH TEXFAB LTD. ..... Petitioner
Through: Dr. Manish Singhvi with
Mr. Abhinav Ramkrishna, Advocates.
versus
TEXTILE COMMITTEE ..... Respondent
Through: Mr. Chirag M. Shroff with
Mr. Dattatray Vyas, Advocates.
CORAM: JUSTICE S. MURALIDHAR
1. Whether Reporters of local papers may be
allowed to see the judgment? No
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in Digest? Yes
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 1 of 23
JUDGMENT
12.05.2010
1. The three Petitioners are companies engaged in the processing of man-
made fabric and ploy vinyl fabric falling under Chapter 55 of the Schedule
to the Central Excise Tariff Act, 1985. By these petitions they challenge the
notices of demand of cess under the Textile Committee Act 1963 (TCA) and
the Textile Committee Cess Rules 1975 (TCCR) made by the Textiles
Committee, Ministry of Textiles, Government of India. Each of the
petitioners also challenges the orders passed by the Textile Committee Cess
Appellate Tribunal („Tribunal‟) dismissing each of their appeals and
confirming the demand of cess.
2. The Petitioners state that they receive grey cloth for processing on job
work basis from various traders considered to be „deemed manufacturers‟ in
terms of the Central Excises Act 1944 (CE Act). The grey cloth so received
is subjected to the processes of bleaching, printing or dyeing and are then
returned to the traders on payment of excise duty on the declared value of
the grey fabrics after adding the processing charges. The Petitioners
therefore contend that they do not „manufacture‟, `cloth‟ or „fabric‟ within
the meaning of „textiles‟ under Section 2(g) TCA.
3. It is further contended that in terms of the Proviso to Section 5-A TCA no
cess can be levied on textiles manufactured from out of handloom or power-
loom industry. It is claimed that the Petitioners are purchasing the grey cloth
from units having less than 50 looms. Therefore, the charging Section 5-A is
not attracted.
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 2 of 23
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4. The decision of the Tribunal dated 30 April 2004 in Chandok Textiles
Exporters Pvt. Ltd. v. Assessing Officer, Textile Committee is assailed on
the ground that it is inconsistent with the law explained by the Supreme
Court. It is submitted that even if it is assumed that the Petitioners are
manufacturing textile, then the cess must be confined to the extent of the job
work done and not be levied and collected on the entire value of the cloth.
Otherwise the demand would amount to double taxation. It is submitted that
the Tribunal in Chandok Textiles wrongly relied upon Rules 4 and 6 TCCR
which cannot override the substantive provisions of the TCA. Further, it is
submitted that the demand raised on Rolex Processors was barred by
limitation in terms of Rule 10 TCCR.
5. On behalf of the Respondents, it is submitted that the Petitioners are under
an obligation to pay cess in terms of Section 5-A (1) to 5-A (7) TCA. It is
pointed out that as regards the exemption claimed in terms of proviso to
Section 5-A of the TCA, the Petitioners are taking contradictory stands. On
the one hand, it is stated that without knowing the status or the capacity of
the weaving plant where the cloth is manufactured it is not possible for cess
or duty to be levied. On the other hand, it is asserted that a unit where the
grey cloth is manufactured has less than 50 looms which meant that the
Petitioner was presumed to know the capacity of the manufacturer. It is
pointed out that this Court had in Nath Bros. v. Union of India AIR 1997
Delhi 382 opined that for exemption from payment of Textile Committee
Cess the materials should come directly from the powerlooms (less than 50
looms) and handlooms and should not undergo any further processing.
Although the word `manufacture‟ has not been defined under the TCA, it
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was possible to incorporate the definition of that word in the CE Act as held
in Nath Bros. v. Union of India . In Ujagar Prints (II) v. Union of India
(1989) 3 SCC 488 , the Constitution Bench of the Supreme Court affirmed its
earlier three Judge Bench decision in Empire Industries Ltd. v. Union of
India (1985) 3 SCC 314 and held that processing activity by way of job
work, i.e., bleaching, dyeing, printing, finishing etc. amounted to
manufacturing. It is submitted that in CIT v. Benoy Roy AIR 1957 SC 768 ,
the Supreme Court permitted the adoption of a word from one statute into
another but has restricted such adoption to the facts and circumstances of a
given case. It is submitted that the Tribunal in Chandok Textiles case
borrowed the terminology in the Industries (Development Regulation) Act,
1951 [hereafter IDR Act] and CE Act to interpret the word `manufacture‟ in
the TCA. Reliance is also placed on the decision of the Supreme Court in
Sirsilk Ltd. v. Textiles Committee AIR 1989 SC 317 and Aditya Mills Ltd.
v. Union of India AIR 1988 SC 2237 where it was held that manufacture
was complete as soon as the raw material underwent some change and a new
substance or article was brought into existence. The new commodity must be
commercially separate and distinct having its own character and use. It is
submitted that the demand is not time barred and that Rule 10 TCCR has no
application in the instant cases.
6. This Court has heard the submissions of Dr. Manish Singhvi, the learned
counsel appearing for the Petitioners and Mr. Chirag M. Shroff, the learned
counsel appearing for the Respondents.
7. The first question that arises is whether the petitioners can be said to be
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manufacturers of textiles within the meaning of the TCA? The charging
section of the TCA is Section 5-A which reads as under:
“ 5A. Imposition of cess on textiles and textile machinery
manufactured in India. (1) There shall be levied and collected
as a cess for the purposes of this Act a duty of excise on all
textiles and on all textile machinery manufactured in India at
such rate, not exceeding one per cent, ad valorem as the Central
Government may, by notification in the Official Gazette, fix :
Provided that no such cess shall be levied on textiles
manufactured from out of handloom or powerloom industry.
(2) The duty of excise levied under sub-section (1) shall be in
addition to any cess or duty leviable on textiles or textile
machinery under any other law for the time being in force.
(3) The duty of excise levied under sub-section (1) shall be
collected by the Committee, in accordance with the rules made
in this behalf, from every manufacturer of textiles or textile
machinery (hereinafter in this section and in sections 5C and
5D referred to as the manufacturer).
(4) The manufacturer shall pay to the Committee the amount of
the duty of excise levied under subsection (1) within one
month from the date on which he receives a notice of demand
therefor from the Committee.
(5) For the purpose of enabling the Committee to assess the
amount of the duty of excise levied under sub-section (1),--
(a) the Committee shall, by notification in the Gazette of
India, fix the period in respect of which assessments shall be
made; and
(b) every manufacturer shall furnish to the Committee a
return, not later than fifteen days after the expiry of the
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period to which the return relates, specifying the total
quantity of textiles or textile machinery manufactured by
him during the said period and such other particulars as may
be prescribed.
(6) If any manufacturer fails to furnish the return referred to in
sub-section (5) within the time specified therein, or furnishes a
return which the Committee has reason to believe is incorrect or
defective, the Committee may assess the amount of the duty of
excise in such manner as may be prescribed.
(7) Any manufacturer aggrieved by an assessment made under
this section may appeal to the Tribunal, constituted under
section 5B for cancellation or modification of the assessment.”
8. The long title to the TCA states that it has been enacted “for the
establishment of a Committee for ensuring the quality of textiles and textile
machinery and for matters connected therewith”. The word “textiles” has
been defined in Section 2(g) TCA to mean:
“(g) “textiles” means any fabric or cloth or yarn or garment or
any other article made wholly or in part of ---
(i) cotton; or
(ii) wool; or
(iii) silk; or
(iv) artificial silk or other fibre,
and includes fibre”
Are the goods emerging from the petitioners’ units, ‘textiles’?
9. According to Dr. Singhvi, since no new cloth, fabric or yarn comes into
existence as a result of the bleaching of the grey cloth the Petitioners cannot
be said to be manufacturing `textiles‟. If the Petitioners did not manufacture
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any textile then the TCA would not apply at all.
10. The above submission of the learned counsel for the Petitioners is
unacceptable. The grey cloth which undergoes change continues to be cloth
made wholly or in part of whichever material does mean whether it is cotton
or silk or artificial silk or other fibre. The words “or any other article made
wholly or in part of” occurring in Section 2(g) TCA would, in the considered
view of this Court, include the dye and bleached fabric. It cannot be said
that what emerges as the end product from the petitioners‟ units is not
„textiles‟.
Do the processes of bleaching, printing and dyeing amount to
manufacture for the purposes of the TCA?
11. The principal submission of the petitioners is that the activity carried on
by each of them is only the processing of grey cloth in the form of
bleaching, dyeing or printing and therefore does not amount to
„manufacture‟. Section 5-A (1) TCA states that there shall be levied and
collected as cess for the purposes of this Act “a duty of excise” on all textiles
“manufactured” at such rate, not exceeding one per cent ad valorem as the
Central Government may fix. It is plain, therefore, that the taxable event is
the „manufacture‟ of „textiles‟. What amounts to manufacture is not defined
in the TCA. According to the Petitioners, without there being a specific
provision which incorporates the provisions of the CE Act into the TCA, the
definition of `manufacture‟ under the CE Act cannot straightway be
borrowed for interpreting the corresponding word in the TCA. In other
words, there is no incorporation of the CE Act into the TCA. There is also
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no reference made to the CE Act in the TCA.
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12. The Tribunal in its order dated 30 April 2004 in Chandok Textile
Exporters considered the above question. It applied the decision in CIT v.
Benoy Roy and held that to interpret a word in a statute it was permissible to
adopt the definition of the same word in another statute. The Tribunal
referred to the TCCR which talks of maintenance of registers. Rule 3 TCCR
requires every manufacturer to maintain a register of production indicating
therein the total quantity of textiles or textile machinery manufactured by
him during a month, the quantity, if any used by him for the manufacturer of
another commodity, the quantity removed on payment of duty under CE Act,
the quantity removed for export without payment of such duty, the total
value ad-valorem and the cess payable thereon. Consequently, the Tribunal
concluded the reference to the CE Act in the TCCR, left no manner of doubt
that the legislature intended to give the word “manufacture” in the TCA the
same meaning as in the CE Act.
13. Before embarking on an analysis of the relevant provisions and the
above submissions, this Court would first like to observe that the TCA is for
all purposes a fiscal statute levying a cess and the provisions of which
therefore require to be strictly interpreted. If the common parlance test is to
be applied for the purposes of construing whether a particular activity
constitutes manufacture or not, a reference will have to be made to one of
the earliest decisions in Delhi Cloth Mills Ltd. v. Union of India (1963)
Supp 1 SCR 586 . It was emphasized in the said case that not every process
would amount to manufacture unless it is accompanied by totally new and
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different article having distinctive name, character and use. In CCE v.
Rajasthan State Chemical Works 1991 (4) SCC 473 , it was held in para 12
as under (SCC at p.478-79):
“12. Manufacture implies a change but every change is not
manufacture, yet every change of an article is the result of
treatment, labour and manipulation. Naturally, manufacture is
the end result of one or more processes through which the
original commodities are made to pass. The nature and extent of
processing may vary from one class to another. There may be
several stages of processing, a different kind of processing at
each stage. With each process suffered the original commodity
experiences a change. Whenever a commodity undergoes a
change as a result of some operation performed on it or in
regard to it, such operation would amount to processing of the
commodity. 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.”
14. In Deputy Commissioner of Sales Tax (Law), Board of Revenue
(Taxes), Ernakulam v. Pio Food Packers (1980) Supp SCC 174 , in the
context of the Kerala General Sales Tax Act, 1963, it was held in para 5 as
under:
“5. Section 5-A(1)(a) of the Kerala General Sales Tax Act
envisages the consumption of a commodity in the manufacture
of another commodity. The goods purchased should be
consumed, the consumption should be in the process of
manufacture, and the result must be the manufacture of other
goods. There are several criteria for determining whether a
commodity is consumed in the manufacture of another. The
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generally prevalent test is whether the 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.”
(emphasis supplied)
15. Whether bleached or printed or dyed grey cloth can be construed as an
entirely new commodity is the question. In the context of the CE Act, this
question directly arose for consideration first in Empire Industries and later
in Ujagar Prints (II) v. Union of India . The challenge in the Empire
Industries case was to the constitutional validity of the amendments made in
1980 to the CE Act and the Additional Duties of Excise (Goods of Special
Importance) Act 1957 (ADE Act) whereby the processes of bleaching,
dyeing and printing were included in the definition of the word
„manufacture‟. Negativing the challenge a three-Judge Bench of the
Supreme Court held that (SCC, p.332): “It appears in the light of the several
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decisions and on the construction of the expression that the process of
bleaching, dyeing and printing etymologically also means manufacturing
processes.” It was also observed that (SCC, p.338): “processes of the type
which have been incorporated by the impugned Act were not so alien or
foreign to the concept of “manufacture” that these could not come within
that concept.” Later the correctness of the decision in Empire Industries ,
essentially on the question of valuation, was referred to a larger bench of
five judges. Although the referring bench ( Union of India v. Narendra
Processing Industries 1986 Supp SCC 652 ) acknowledged that the three-
Judge Bench in Empire Industries had categorically held that “the processes
of bleaching, mercerising, dyeing, printing, water-proofing, etc. carried out
by the processors on job work basis amount to manufacture both under the
Act as it stood prior to the amendment as also under the Act subsequent
to the amendment and the processed fabrics are liable to be assessed to
excise duty in the hands of what may be called „jobbers‟”, the referring
bench nevertheless referred that question also to the larger bench. This led
the larger bench in Ujagar Prints (II) to re-visit the question. It affirmed
Empire Industries on this question.
16. In para 42 in Ujagar Prints (II) , the Constitution Bench held as under
(SCC at p. 511):
“42. The prevalent and generally accepted test to ascertain that
there is `manufacture‟ is whether the change or the series of
changes brought about by the application of processes take the
commodity to the point where, commercially, it can no longer
be regarded as the original commodity but is, instead,
recognised as a distinct and new article that has emerged as a
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result of the processes. The principles are clear. But difficulties
arise in their application in individual cases. There might be
border-line case where either conclusion with equal justification
be reached. Insistence on any sharp or intrinsic distinction
between `processing‟ and `manufacture‟, we are afraid, results
in an over simplification of both and tends to blur their
interdependence in cases such as the present one. The
correctness of the view in the Empire Industries case cannot be
tested in the light of material--in the form of affidavit
expressing the opinion of persons said to be engaged in or
connected with the textile-trade as to the commercial identity of
the commodities before and after the processing-placed before
the court in a sub-sequent case. These opinions are, of course,
relevant and would be amongst the various factors to be taken
into account in deciding the question.”
17. Thereafter in para 43 it was held (SCC at p. 511-512):
“43. On a consideration of the matter, we are persuaded to think
that the view taken in the Empire Industries case that `Grey
fabric’ after they undergo the various processes of
bleaching, dyeing, sizing printing, finishing etc. emerges as
a commercially different commodity with its own price-
structure, custom and other commercial incidents and that
there was in that sense a `manufacture’ within the meaning
of Section 2(f), even as unamended, is an eminently
plausible view and is not shown to suffer from any fallacy .
Indeed, on this point the Referring bench did not disagree or
have any reservations either. It is to be noticed that if the
amending law is valid, this aspect becomes academic.”
(emphasis supplied)
18. What is important to note is that the Supreme Court in Ujagar Prints (II)
reaffirmed that even de hors the amendment made in 1980 to Section 2 (f) of
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the CE Act which defined „manufacture in its well accepted legal sense –
nomen juris – the said word included within its ambit the processes of
bleaching, dyeing, printing etc.
19. Turning to Section 5-A of the TCA, the taxable event is „manufacture‟ of
textiles and the cess is levied as „a duty of excise‟ on such manufacture.
Even if the petitioners‟ submission is accepted and the meaning of the word
„manufacture‟ is not imported from the CE Act, then even in its ordinary
legal sense it would in terms of the dictum in Empire Industries as re-
affirmed in Ujagar Prints (II) include the processes of dyeing, printing and
bleaching since they bring about a change, perhaps an irreversible change, to
the grey cloth so processed and that amounts to manufacture. Therefore,
there is no merit in the submission that for the purposes of Section 5-A TCA
the processes of bleaching, dyeing and printing do not amount to
manufacture.
Referential legislation
20. There is another way of looking at the issue. Section 5-A TCA does not
refer to the CE Act when it talks of „duties of excise.‟ Can it then be said
that they carry the same meaning as those words carry for the purposes of
the CE Act? The judgment in Ujagar Prints (II) provides an answer to this
question as well. One question that arose in the said case was whether the
definition of term `manufacture‟ in the CE Act as enlarged by the 1980
amendment applied equally to the ADE Act. Even while the definition of the
word „manufacture‟ in Section 2 (f) CE Act was amended to include the
processes of dyeing, bleaching etc., the word „manufacture‟ in Section 3 of
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the ADE Act, i.e., the charging section, was left undefined. While Section 2
ADE Act adopted the definition of „specified goods‟ as occurring in the CE
Act it did not adopt the definition of „manufacture‟ as occurring in the CE
Act. The specific contention was that “even if the language of Section 3 (3)
[ADE Act] is construed more liberally, it will be effective only to
incorporate the definitions contained in the 1944 Act as on the date of
commencement of the 1957 Act [ADE Act] but not its subsequent legislative
expansions.”
21. In answering the above question the Supreme Court in Ujagar Prints
(II) discussed the law pertaining to legislation by incorporation and
legislation by reference. It explained the concept thus (SCC, p.528):
“Legislatures sometimes take a short cut and try to reduce the length
of statutes by omitting elaborate provisions where such provisions
have already been enacted earlier and can be adopted for the purpose
on hand. While, on the one hand, the prolixity of modern statutes and
the necessity to have more legislations than one on the same or allied
topics render such a course useful and desirable, the attempt to
legislate by reference is sometimes overdone and brevity is achieved
at the expense of lucidity. However, this legislative device is quite
well known and the principles applicable to it fairly well settled.”
22. It was held that the ADE Act was intended to supplement the levy under
the CE Act by an additional duty “of the same nature on certain goods”. It
was pointed out that by itself ADE Act was incomplete as to the basis of the
charge and its provisions would become totally unworkable unless the
concept of “manufacture” and “assessable value” as determined under the
CE Act are carried into it. Thereafter the Supreme Court discussed the two
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types of „referential legislation‟: one where an earlier Act or some of its
provisions are incorporated into the later Act and the second where the later
Act made only a reference of a broad nature as to the law on a subject
generally, or contained a general reference to the terms of an earlier statute
which are to be made applicable. It was held that the ADE Act fell in the
latter category.
23. Under Section 5-A TCA unless the words “duties of excise” are
understood as carrying the same meaning as in the CE Act, the TCA which
is supplemental to the CE Act, would be unworkable. The taxable event
whether for the purposes of the CE Act or the TCA is the same i.e.
manufacture of textiles. The impost is also as a percentage of the same
value. Therefore even if the TCA is seen not to incorporate the CE Act it
can certainly be construed as making a broad general reference to the CE
Act when it uses the words „duties of excise‟ in its charging section. This
position is further strengthened by the fact that Rules 3, 4 and 8 TCCR make
a reference to the CE Act. Therefore by applying the principle of legislation
by reference, the words „duties of excise‟ and „manufacture‟ occurring in
Section 5-A TCA should be construed as taking colour from the meaning of
those words in the CE Act.
This Court’s decision in Nath Bros. v. Union of India
24. In Nath Bros. v. Union of India a Division Bench of this Court was
considering whether the export of textile garments would also come within
the ambit of the TCA. In that case, it was held that the export textile units
were also manufacturing units. However, there was a lengthy discussion on
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whether the activities carried on in the export units amounted to
manufacture. It was held (DLT at pp. 464-66):
“Now turning to the third and the last ground that exporters
cannot be brought within the purview of the Act, it would be
necessary to again have a look at the charging Section 5A of the
Act. From a hare reading of the said Section it is evident that
the incidence of levy of cess is on the "manufacture" of textiles
and textile machinery. Who "manufactures" the textiles or
textile machinery is immaterial. therefore, the question which
arises for consideration is whether the petitioner, who claims
himself to be a mere exporter can he said to be "manufacturer"
of textiles/garments which he is exporting? Assuming that he is
not manufacturing any textiles himself. though the plea in the
counter-affidavit that the petitioner is registered with the Textile
Committee as a manufacturer-cum-exporter of readymade
garments is not countered. The expression, "manufacture" or
"manufacturer" are not defined in the Act. We may, therefore,
look for then definition in some other statute. Under the Central
Excise and Salt Act. 1944, the word "manufacture" has been
defined as follows :
2(f) "manufacture" includes any process :--
(i) incidental or ancillary to the completion of a
manufactured product :
(ii) which specified in relation to any goods in the
Section or Chapter Notes of the Schedule to the Central
Excise Tariff Act, 1985 as amounting to manufacture,
and the word "manufacture" shall be construed
accordingly and shall includes not only a person who
employs hired labour in the production or manufacture of
excisable goods. but also any person who engages in
their production or manufacture on his own account:
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(ia) to (ix) .....
and the word "manufacture" shall be construed
accordingly and shall include not any a person who
employs hired labour in the production of manufacture of
excisable goods, but also any person who engages in
their production or manufacture on his own account;"
“From the above definition it is clear that the expression
manufacture includes, any process incidental or ancillary to the
completion of the manufactured product and the word
manufacturer includes not only a person who employs hired
labour in the production or manufacture of goods hut also am
one, who engages in their production or manufacture on his
own account, if those goods are intended for sale. It is thus
clear that the word manufacturer does not merely include
those persons who in common parlance are themselves
engaged in the manufacturing of textiles but also includes
those persons who engage themselves in getting the textiles,
intended for export, produced or manufactured on their
own account. In other words a person who brings into
existence an article or a product even through the
instrumentality of an agent or a servant has to be regarded
as a manufacturer. An actual physical act of manufacturing
cannot be said to be the essence of the definition of the word
manufacturer. For instance, a person who supplies yarn to a
handloom or power loom owner for weaving cloth
according to his specifications/design/pattern on payment of
labour charges is a "manufacturer" . (emphasis supplied)
25. The above decision therefore categorically holds that the physical act of
manufacturing alone cannot be said to be the essence of the definition of the
word `manufacturer‟ and that a person who supplies the yarn to a handloom
or powerloom owner for weaving cloth according to his
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specifications/design/pattern on payment of labour charges is a manufacturer
as well. The above decision is consistent with the law as explained by the
Supreme Court in both Empire Industries and Ujagar Prints (II) although it
does not expressly refer to those decisions.
26. An earnest attempt was made by Dr. Singhvi to persuade this Court to
refer the correctness of the decision of this Court in Nath Bros. , to a
Division Bench of this Court. In the first place, this Court finds that there is
nothing to doubt the correctness of the decision in Nath Bros. Secondly, and
in any event, there is no question of a Single Judge of this Court referring
the correctness of a decision of a Division Bench to a larger Bench. Such a
decision of the Division Bench is binding on the Single Judge. At best the
Single Judge could doubt the correctness of the decision of a coordinate
Bench, i.e., of another learned Single Judge in which case a reference could
be made to a larger Bench. However, where there are two decisions of
Division Benches which are contradictory, a reference could be made to the
Chief Justice to consider constituting a larger Bench.
27. The Supreme Court in Sirsilk Ltd. v. Textiles Committee was
considering whether rayon and nylon fell within the definition of „fibre‟ and
„yarn‟ as defined in the TCA. Although there was an extensive discussion on
Section 2(g) of the TCA, the occasion to discuss the word `manufacture‟ as
occurring in Section 5-A of the TCA did not arise on the facts of that case.
Therefore, the said judgment in Sirsilk Ltd. v. Textiles Committee is not of
much assistance in deciding the issues in the present case.
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28. In view of the above discussion, it is held that that the processes of
dyeing, bleaching and printing undertaken by the Petitioners amount to
„manufacture‟ for the purposes of Section 5-A TCA.
Are the demands time barred?
29. The next issue is whether under Rule 10 TCCR the Respondents can
recover at any time cess that has been short levied or erroneously levied.
Rule 10 TCCR reads as under:
“10. Recovery of cess short levied erroneously levied . When
the cess has been short levied through inadvertence or
otherwise, or when it is erroneously refunded; the manufacturer
chargeable with the cess so short levied or to whom refund has
been erroneously made on a notice of demand from the
Committee made within one year from the date on which the
cess has been paid, shall pay the deficiency or, as the case may
be refund the amount paid to him in excess within a month
from the date of receipt of such notice.”
30. Learned counsel for the Petitioner referred to the decision in N.B.
Sanjana, Assistant Collector of Central Excise, Bombay v. Elphinstone
Spinning & Weaving Mills Co. Ltd. 1978 E.L.T. (J 399) where it was
explained that the word `levy‟ will have to be construed as meaning actual
collection. According to the petitioners, the words “short levy” would
include “non levy” as well. It is accordingly submitted, the demand for the
years 2002-03 and 2003-04 had to be made within a period of one year
thereafter else it would be time-barred. It is submitted that the demand notice
th
dated 27 July 2006 issued to Rolex Processors (P) Ltd. was time barred.
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 19 of 23
31. On behalf of the Respondents, it is contended that in the present case
Rule 10 has no application since for the first time a levy was made by
issuance of the impugned demand notice referred to hereinbefore. This was
not a case of short levy or erroneous levy. It is only in such cases that the
limitation in Rule 10 would be attracted. On the other hand, there is no
provision in the TCA or TCCR which restricts the right of the Textile
Committee to initiate proceedings for recovery of cess.
32. It appears to this Court that the submission of the learned counsel for the
Respondents is consistent with the wording of Rule 10. The limitation under
Rule 10 will begin to run only if there was a levy in the first place. It is only
with reference to a levy that there can be either short levy or an erroneous
levy. If the thumb rule of limitation for recovery of money is to be applied
then the demands were made within a period of three years from the date on
which such liability arose. Consequently there is no merit in the contention
that the demand raised on Rolex Processors is time barred.
Assessable value for purposes of Cess
33. It is finally contended that the cess had to be only to the extent of the
value of the job work done by the Petitioners. Reference was made to an
order passed by the Constitutional Bench of the Supreme Court in Ujagar
Prints (III) v. Union of India (1989) 3 SCC 531 . The said order reads as
under (SCC at p.531-32):
“1. In respect of the civil miscellaneous petition for clarification
of this Court's judgment dated 4th November, 1988, it is made
clear that the assessable value of the processed fabric would be
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 20 of 23
the value of the grey-cloth in the hands of the processor plus
the value of the job-work done plus manufacturing profit and
manufacturing expenses whatever these may be, which will
either be included in the price at the factory gate or deemed to
be the price at the factory gate for the processed fabric. The
factory gate here means the "deemed" factory gate as if the
processed fabric was sold by the processor. In order to explain
the position it is made clear by the following illustration: if the
value of the grey-cloth in the hands of the processor is Rs.20
and the value of the job-work done is Rs.5 and the
manufacturing profit and expenses for the processing be Rs.5,
then in such a case the value would be Rs.30, being the value of
the grey-cloth plus the value of the job-work done plus
manufacturing profit and expenses. That would be the
correct assessable value.
2. If the trader, who entrusts cotton or manmade fabric to the
processor for processing on job-work basis, would give a
declaration to the processor as to what would be the price at
which he would be selling the processed goods in the market,
that would be taken by the Excise authorities as the assessable
value of the processed fabric and excise duty would be charged
to the processor on that basis provided that the declaration as
to the price at which he would be selling the processed goods in
the market, would include only the price or deemed price at
which the processed fabric would leave the processor's factory
plus his profit. Rule 174 of the Central Excise Rules, 1944
enjoins that when goods owned by one person are manufactured
by another the information is required relating to the price at
which the said manufacturer is selling the said goods and the
person so authorised agrees to discharge all the liabilities under
the said Act and the rules made thereunder. The price at which
he is selling the goods must be the value of the grey-cloth or
fabric plus the value of the job work done plus the
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 21 of 23
manufacturing profit and the manufacturing expenses but not
any other subsequent profit or expenses. It is necessary to
include the processor's expenses, costs and charges plus profit,
but it is not necessary to include the trader's profits who gets the
fabrics processed, because those would be post-manufacturing
profits.”
34. Therefore, the computation of the assessable value would be a question
of fact. It appears that at no stage of the proceedings before the Appellate
Tribunal such a plea was raised. No such contention having been raised and
no factual foundation having been laid for determining such question, it is
not possible to entertain it at the stage of the present writ petitions. It is also
not possible to determine whether in fact the Petitioners were supplied grey
cloth manufactured in a power-loom or handloom industry. That too would
be a question of fact. No material has been placed on record to determine
this question. In the absence of the Petitioners submitting monthly returns,
the Respondents had no option but to go by Rule 8 TCCR. Therefore, this
Court finds no illegality having been committed by the Respondents on this
score.
Conclusion
35. Consequently this court finds no ground having been made for
interference with the orders passed by the Tribunal dismissing the appeals of
each of the petitioners and affirming the demands raised on them for
payment of cess in terms of the TCA.
36. For all of the above reasons, there is no merit in any of these writ
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 22 of 23
petitions. They are each dismissed with costs of Rs. 10,000/- which will be
paid by each of the Petitioners to the Respondents within a period of four
weeks.
S. MURALIDHAR, J.
MAY 12, 2010
ak
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 23 of 23
W.P.(C) No. 1449 of 2007
th
Reserved on: 25 February 2010
th
Decision on: 12 May 2010
ROLEX PROCESSORS (P) LTD. ..... Petitioner
Through: Dr. Manish Singhvi with
Mr. Abhinav Ramkrishna, Advocates.
versus
TEXTILE COMMITTEE ..... Respondent
Through: Mr. Chirag M. Shroff with
Mr. Dattatray Vyas, Advocates.
WITH
W.P.(C) No. 3436 of 2008
PUJA SPINTEX P. LTD. ..... Petitioner
Through: Dr. Manish Singhvi with
Mr. Abhinav Ramkrishna, Advocates.
versus
TEXTILE COMMITTEE ..... Respondent
Through: Mr. Chirag M. Shroff with
Mr. Dattatray Vyas, Advocates.
AND
W.P.(C) No. 3620 of 2008
GANESH TEXFAB LTD. ..... Petitioner
Through: Dr. Manish Singhvi with
Mr. Abhinav Ramkrishna, Advocates.
versus
TEXTILE COMMITTEE ..... Respondent
Through: Mr. Chirag M. Shroff with
Mr. Dattatray Vyas, Advocates.
CORAM: JUSTICE S. MURALIDHAR
1. Whether Reporters of local papers may be
allowed to see the judgment? No
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in Digest? Yes
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 1 of 23
JUDGMENT
12.05.2010
1. The three Petitioners are companies engaged in the processing of man-
made fabric and ploy vinyl fabric falling under Chapter 55 of the Schedule
to the Central Excise Tariff Act, 1985. By these petitions they challenge the
notices of demand of cess under the Textile Committee Act 1963 (TCA) and
the Textile Committee Cess Rules 1975 (TCCR) made by the Textiles
Committee, Ministry of Textiles, Government of India. Each of the
petitioners also challenges the orders passed by the Textile Committee Cess
Appellate Tribunal („Tribunal‟) dismissing each of their appeals and
confirming the demand of cess.
2. The Petitioners state that they receive grey cloth for processing on job
work basis from various traders considered to be „deemed manufacturers‟ in
terms of the Central Excises Act 1944 (CE Act). The grey cloth so received
is subjected to the processes of bleaching, printing or dyeing and are then
returned to the traders on payment of excise duty on the declared value of
the grey fabrics after adding the processing charges. The Petitioners
therefore contend that they do not „manufacture‟, `cloth‟ or „fabric‟ within
the meaning of „textiles‟ under Section 2(g) TCA.
3. It is further contended that in terms of the Proviso to Section 5-A TCA no
cess can be levied on textiles manufactured from out of handloom or power-
loom industry. It is claimed that the Petitioners are purchasing the grey cloth
from units having less than 50 looms. Therefore, the charging Section 5-A is
not attracted.
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 2 of 23
th
4. The decision of the Tribunal dated 30 April 2004 in Chandok Textiles
Exporters Pvt. Ltd. v. Assessing Officer, Textile Committee is assailed on
the ground that it is inconsistent with the law explained by the Supreme
Court. It is submitted that even if it is assumed that the Petitioners are
manufacturing textile, then the cess must be confined to the extent of the job
work done and not be levied and collected on the entire value of the cloth.
Otherwise the demand would amount to double taxation. It is submitted that
the Tribunal in Chandok Textiles wrongly relied upon Rules 4 and 6 TCCR
which cannot override the substantive provisions of the TCA. Further, it is
submitted that the demand raised on Rolex Processors was barred by
limitation in terms of Rule 10 TCCR.
5. On behalf of the Respondents, it is submitted that the Petitioners are under
an obligation to pay cess in terms of Section 5-A (1) to 5-A (7) TCA. It is
pointed out that as regards the exemption claimed in terms of proviso to
Section 5-A of the TCA, the Petitioners are taking contradictory stands. On
the one hand, it is stated that without knowing the status or the capacity of
the weaving plant where the cloth is manufactured it is not possible for cess
or duty to be levied. On the other hand, it is asserted that a unit where the
grey cloth is manufactured has less than 50 looms which meant that the
Petitioner was presumed to know the capacity of the manufacturer. It is
pointed out that this Court had in Nath Bros. v. Union of India AIR 1997
Delhi 382 opined that for exemption from payment of Textile Committee
Cess the materials should come directly from the powerlooms (less than 50
looms) and handlooms and should not undergo any further processing.
Although the word `manufacture‟ has not been defined under the TCA, it
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 3 of 23
was possible to incorporate the definition of that word in the CE Act as held
in Nath Bros. v. Union of India . In Ujagar Prints (II) v. Union of India
(1989) 3 SCC 488 , the Constitution Bench of the Supreme Court affirmed its
earlier three Judge Bench decision in Empire Industries Ltd. v. Union of
India (1985) 3 SCC 314 and held that processing activity by way of job
work, i.e., bleaching, dyeing, printing, finishing etc. amounted to
manufacturing. It is submitted that in CIT v. Benoy Roy AIR 1957 SC 768 ,
the Supreme Court permitted the adoption of a word from one statute into
another but has restricted such adoption to the facts and circumstances of a
given case. It is submitted that the Tribunal in Chandok Textiles case
borrowed the terminology in the Industries (Development Regulation) Act,
1951 [hereafter IDR Act] and CE Act to interpret the word `manufacture‟ in
the TCA. Reliance is also placed on the decision of the Supreme Court in
Sirsilk Ltd. v. Textiles Committee AIR 1989 SC 317 and Aditya Mills Ltd.
v. Union of India AIR 1988 SC 2237 where it was held that manufacture
was complete as soon as the raw material underwent some change and a new
substance or article was brought into existence. The new commodity must be
commercially separate and distinct having its own character and use. It is
submitted that the demand is not time barred and that Rule 10 TCCR has no
application in the instant cases.
6. This Court has heard the submissions of Dr. Manish Singhvi, the learned
counsel appearing for the Petitioners and Mr. Chirag M. Shroff, the learned
counsel appearing for the Respondents.
7. The first question that arises is whether the petitioners can be said to be
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 4 of 23
manufacturers of textiles within the meaning of the TCA? The charging
section of the TCA is Section 5-A which reads as under:
“ 5A. Imposition of cess on textiles and textile machinery
manufactured in India. (1) There shall be levied and collected
as a cess for the purposes of this Act a duty of excise on all
textiles and on all textile machinery manufactured in India at
such rate, not exceeding one per cent, ad valorem as the Central
Government may, by notification in the Official Gazette, fix :
Provided that no such cess shall be levied on textiles
manufactured from out of handloom or powerloom industry.
(2) The duty of excise levied under sub-section (1) shall be in
addition to any cess or duty leviable on textiles or textile
machinery under any other law for the time being in force.
(3) The duty of excise levied under sub-section (1) shall be
collected by the Committee, in accordance with the rules made
in this behalf, from every manufacturer of textiles or textile
machinery (hereinafter in this section and in sections 5C and
5D referred to as the manufacturer).
(4) The manufacturer shall pay to the Committee the amount of
the duty of excise levied under subsection (1) within one
month from the date on which he receives a notice of demand
therefor from the Committee.
(5) For the purpose of enabling the Committee to assess the
amount of the duty of excise levied under sub-section (1),--
(a) the Committee shall, by notification in the Gazette of
India, fix the period in respect of which assessments shall be
made; and
(b) every manufacturer shall furnish to the Committee a
return, not later than fifteen days after the expiry of the
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 5 of 23
period to which the return relates, specifying the total
quantity of textiles or textile machinery manufactured by
him during the said period and such other particulars as may
be prescribed.
(6) If any manufacturer fails to furnish the return referred to in
sub-section (5) within the time specified therein, or furnishes a
return which the Committee has reason to believe is incorrect or
defective, the Committee may assess the amount of the duty of
excise in such manner as may be prescribed.
(7) Any manufacturer aggrieved by an assessment made under
this section may appeal to the Tribunal, constituted under
section 5B for cancellation or modification of the assessment.”
8. The long title to the TCA states that it has been enacted “for the
establishment of a Committee for ensuring the quality of textiles and textile
machinery and for matters connected therewith”. The word “textiles” has
been defined in Section 2(g) TCA to mean:
“(g) “textiles” means any fabric or cloth or yarn or garment or
any other article made wholly or in part of ---
(i) cotton; or
(ii) wool; or
(iii) silk; or
(iv) artificial silk or other fibre,
and includes fibre”
Are the goods emerging from the petitioners’ units, ‘textiles’?
9. According to Dr. Singhvi, since no new cloth, fabric or yarn comes into
existence as a result of the bleaching of the grey cloth the Petitioners cannot
be said to be manufacturing `textiles‟. If the Petitioners did not manufacture
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 6 of 23
any textile then the TCA would not apply at all.
10. The above submission of the learned counsel for the Petitioners is
unacceptable. The grey cloth which undergoes change continues to be cloth
made wholly or in part of whichever material does mean whether it is cotton
or silk or artificial silk or other fibre. The words “or any other article made
wholly or in part of” occurring in Section 2(g) TCA would, in the considered
view of this Court, include the dye and bleached fabric. It cannot be said
that what emerges as the end product from the petitioners‟ units is not
„textiles‟.
Do the processes of bleaching, printing and dyeing amount to
manufacture for the purposes of the TCA?
11. The principal submission of the petitioners is that the activity carried on
by each of them is only the processing of grey cloth in the form of
bleaching, dyeing or printing and therefore does not amount to
„manufacture‟. Section 5-A (1) TCA states that there shall be levied and
collected as cess for the purposes of this Act “a duty of excise” on all textiles
“manufactured” at such rate, not exceeding one per cent ad valorem as the
Central Government may fix. It is plain, therefore, that the taxable event is
the „manufacture‟ of „textiles‟. What amounts to manufacture is not defined
in the TCA. According to the Petitioners, without there being a specific
provision which incorporates the provisions of the CE Act into the TCA, the
definition of `manufacture‟ under the CE Act cannot straightway be
borrowed for interpreting the corresponding word in the TCA. In other
words, there is no incorporation of the CE Act into the TCA. There is also
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 7 of 23
no reference made to the CE Act in the TCA.
th
12. The Tribunal in its order dated 30 April 2004 in Chandok Textile
Exporters considered the above question. It applied the decision in CIT v.
Benoy Roy and held that to interpret a word in a statute it was permissible to
adopt the definition of the same word in another statute. The Tribunal
referred to the TCCR which talks of maintenance of registers. Rule 3 TCCR
requires every manufacturer to maintain a register of production indicating
therein the total quantity of textiles or textile machinery manufactured by
him during a month, the quantity, if any used by him for the manufacturer of
another commodity, the quantity removed on payment of duty under CE Act,
the quantity removed for export without payment of such duty, the total
value ad-valorem and the cess payable thereon. Consequently, the Tribunal
concluded the reference to the CE Act in the TCCR, left no manner of doubt
that the legislature intended to give the word “manufacture” in the TCA the
same meaning as in the CE Act.
13. Before embarking on an analysis of the relevant provisions and the
above submissions, this Court would first like to observe that the TCA is for
all purposes a fiscal statute levying a cess and the provisions of which
therefore require to be strictly interpreted. If the common parlance test is to
be applied for the purposes of construing whether a particular activity
constitutes manufacture or not, a reference will have to be made to one of
the earliest decisions in Delhi Cloth Mills Ltd. v. Union of India (1963)
Supp 1 SCR 586 . It was emphasized in the said case that not every process
would amount to manufacture unless it is accompanied by totally new and
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 8 of 23
different article having distinctive name, character and use. In CCE v.
Rajasthan State Chemical Works 1991 (4) SCC 473 , it was held in para 12
as under (SCC at p.478-79):
“12. Manufacture implies a change but every change is not
manufacture, yet every change of an article is the result of
treatment, labour and manipulation. Naturally, manufacture is
the end result of one or more processes through which the
original commodities are made to pass. The nature and extent of
processing may vary from one class to another. There may be
several stages of processing, a different kind of processing at
each stage. With each process suffered the original commodity
experiences a change. Whenever a commodity undergoes a
change as a result of some operation performed on it or in
regard to it, such operation would amount to processing of the
commodity. 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.”
14. In Deputy Commissioner of Sales Tax (Law), Board of Revenue
(Taxes), Ernakulam v. Pio Food Packers (1980) Supp SCC 174 , in the
context of the Kerala General Sales Tax Act, 1963, it was held in para 5 as
under:
“5. Section 5-A(1)(a) of the Kerala General Sales Tax Act
envisages the consumption of a commodity in the manufacture
of another commodity. The goods purchased should be
consumed, the consumption should be in the process of
manufacture, and the result must be the manufacture of other
goods. There are several criteria for determining whether a
commodity is consumed in the manufacture of another. The
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 9 of 23
generally prevalent test is whether the 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.”
(emphasis supplied)
15. Whether bleached or printed or dyed grey cloth can be construed as an
entirely new commodity is the question. In the context of the CE Act, this
question directly arose for consideration first in Empire Industries and later
in Ujagar Prints (II) v. Union of India . The challenge in the Empire
Industries case was to the constitutional validity of the amendments made in
1980 to the CE Act and the Additional Duties of Excise (Goods of Special
Importance) Act 1957 (ADE Act) whereby the processes of bleaching,
dyeing and printing were included in the definition of the word
„manufacture‟. Negativing the challenge a three-Judge Bench of the
Supreme Court held that (SCC, p.332): “It appears in the light of the several
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 10 of 23
decisions and on the construction of the expression that the process of
bleaching, dyeing and printing etymologically also means manufacturing
processes.” It was also observed that (SCC, p.338): “processes of the type
which have been incorporated by the impugned Act were not so alien or
foreign to the concept of “manufacture” that these could not come within
that concept.” Later the correctness of the decision in Empire Industries ,
essentially on the question of valuation, was referred to a larger bench of
five judges. Although the referring bench ( Union of India v. Narendra
Processing Industries 1986 Supp SCC 652 ) acknowledged that the three-
Judge Bench in Empire Industries had categorically held that “the processes
of bleaching, mercerising, dyeing, printing, water-proofing, etc. carried out
by the processors on job work basis amount to manufacture both under the
Act as it stood prior to the amendment as also under the Act subsequent
to the amendment and the processed fabrics are liable to be assessed to
excise duty in the hands of what may be called „jobbers‟”, the referring
bench nevertheless referred that question also to the larger bench. This led
the larger bench in Ujagar Prints (II) to re-visit the question. It affirmed
Empire Industries on this question.
16. In para 42 in Ujagar Prints (II) , the Constitution Bench held as under
(SCC at p. 511):
“42. The prevalent and generally accepted test to ascertain that
there is `manufacture‟ is whether the change or the series of
changes brought about by the application of processes take the
commodity to the point where, commercially, it can no longer
be regarded as the original commodity but is, instead,
recognised as a distinct and new article that has emerged as a
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 11 of 23
result of the processes. The principles are clear. But difficulties
arise in their application in individual cases. There might be
border-line case where either conclusion with equal justification
be reached. Insistence on any sharp or intrinsic distinction
between `processing‟ and `manufacture‟, we are afraid, results
in an over simplification of both and tends to blur their
interdependence in cases such as the present one. The
correctness of the view in the Empire Industries case cannot be
tested in the light of material--in the form of affidavit
expressing the opinion of persons said to be engaged in or
connected with the textile-trade as to the commercial identity of
the commodities before and after the processing-placed before
the court in a sub-sequent case. These opinions are, of course,
relevant and would be amongst the various factors to be taken
into account in deciding the question.”
17. Thereafter in para 43 it was held (SCC at p. 511-512):
“43. On a consideration of the matter, we are persuaded to think
that the view taken in the Empire Industries case that `Grey
fabric’ after they undergo the various processes of
bleaching, dyeing, sizing printing, finishing etc. emerges as
a commercially different commodity with its own price-
structure, custom and other commercial incidents and that
there was in that sense a `manufacture’ within the meaning
of Section 2(f), even as unamended, is an eminently
plausible view and is not shown to suffer from any fallacy .
Indeed, on this point the Referring bench did not disagree or
have any reservations either. It is to be noticed that if the
amending law is valid, this aspect becomes academic.”
(emphasis supplied)
18. What is important to note is that the Supreme Court in Ujagar Prints (II)
reaffirmed that even de hors the amendment made in 1980 to Section 2 (f) of
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 12 of 23
the CE Act which defined „manufacture in its well accepted legal sense –
nomen juris – the said word included within its ambit the processes of
bleaching, dyeing, printing etc.
19. Turning to Section 5-A of the TCA, the taxable event is „manufacture‟ of
textiles and the cess is levied as „a duty of excise‟ on such manufacture.
Even if the petitioners‟ submission is accepted and the meaning of the word
„manufacture‟ is not imported from the CE Act, then even in its ordinary
legal sense it would in terms of the dictum in Empire Industries as re-
affirmed in Ujagar Prints (II) include the processes of dyeing, printing and
bleaching since they bring about a change, perhaps an irreversible change, to
the grey cloth so processed and that amounts to manufacture. Therefore,
there is no merit in the submission that for the purposes of Section 5-A TCA
the processes of bleaching, dyeing and printing do not amount to
manufacture.
Referential legislation
20. There is another way of looking at the issue. Section 5-A TCA does not
refer to the CE Act when it talks of „duties of excise.‟ Can it then be said
that they carry the same meaning as those words carry for the purposes of
the CE Act? The judgment in Ujagar Prints (II) provides an answer to this
question as well. One question that arose in the said case was whether the
definition of term `manufacture‟ in the CE Act as enlarged by the 1980
amendment applied equally to the ADE Act. Even while the definition of the
word „manufacture‟ in Section 2 (f) CE Act was amended to include the
processes of dyeing, bleaching etc., the word „manufacture‟ in Section 3 of
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 13 of 23
the ADE Act, i.e., the charging section, was left undefined. While Section 2
ADE Act adopted the definition of „specified goods‟ as occurring in the CE
Act it did not adopt the definition of „manufacture‟ as occurring in the CE
Act. The specific contention was that “even if the language of Section 3 (3)
[ADE Act] is construed more liberally, it will be effective only to
incorporate the definitions contained in the 1944 Act as on the date of
commencement of the 1957 Act [ADE Act] but not its subsequent legislative
expansions.”
21. In answering the above question the Supreme Court in Ujagar Prints
(II) discussed the law pertaining to legislation by incorporation and
legislation by reference. It explained the concept thus (SCC, p.528):
“Legislatures sometimes take a short cut and try to reduce the length
of statutes by omitting elaborate provisions where such provisions
have already been enacted earlier and can be adopted for the purpose
on hand. While, on the one hand, the prolixity of modern statutes and
the necessity to have more legislations than one on the same or allied
topics render such a course useful and desirable, the attempt to
legislate by reference is sometimes overdone and brevity is achieved
at the expense of lucidity. However, this legislative device is quite
well known and the principles applicable to it fairly well settled.”
22. It was held that the ADE Act was intended to supplement the levy under
the CE Act by an additional duty “of the same nature on certain goods”. It
was pointed out that by itself ADE Act was incomplete as to the basis of the
charge and its provisions would become totally unworkable unless the
concept of “manufacture” and “assessable value” as determined under the
CE Act are carried into it. Thereafter the Supreme Court discussed the two
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 14 of 23
types of „referential legislation‟: one where an earlier Act or some of its
provisions are incorporated into the later Act and the second where the later
Act made only a reference of a broad nature as to the law on a subject
generally, or contained a general reference to the terms of an earlier statute
which are to be made applicable. It was held that the ADE Act fell in the
latter category.
23. Under Section 5-A TCA unless the words “duties of excise” are
understood as carrying the same meaning as in the CE Act, the TCA which
is supplemental to the CE Act, would be unworkable. The taxable event
whether for the purposes of the CE Act or the TCA is the same i.e.
manufacture of textiles. The impost is also as a percentage of the same
value. Therefore even if the TCA is seen not to incorporate the CE Act it
can certainly be construed as making a broad general reference to the CE
Act when it uses the words „duties of excise‟ in its charging section. This
position is further strengthened by the fact that Rules 3, 4 and 8 TCCR make
a reference to the CE Act. Therefore by applying the principle of legislation
by reference, the words „duties of excise‟ and „manufacture‟ occurring in
Section 5-A TCA should be construed as taking colour from the meaning of
those words in the CE Act.
This Court’s decision in Nath Bros. v. Union of India
24. In Nath Bros. v. Union of India a Division Bench of this Court was
considering whether the export of textile garments would also come within
the ambit of the TCA. In that case, it was held that the export textile units
were also manufacturing units. However, there was a lengthy discussion on
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 15 of 23
whether the activities carried on in the export units amounted to
manufacture. It was held (DLT at pp. 464-66):
“Now turning to the third and the last ground that exporters
cannot be brought within the purview of the Act, it would be
necessary to again have a look at the charging Section 5A of the
Act. From a hare reading of the said Section it is evident that
the incidence of levy of cess is on the "manufacture" of textiles
and textile machinery. Who "manufactures" the textiles or
textile machinery is immaterial. therefore, the question which
arises for consideration is whether the petitioner, who claims
himself to be a mere exporter can he said to be "manufacturer"
of textiles/garments which he is exporting? Assuming that he is
not manufacturing any textiles himself. though the plea in the
counter-affidavit that the petitioner is registered with the Textile
Committee as a manufacturer-cum-exporter of readymade
garments is not countered. The expression, "manufacture" or
"manufacturer" are not defined in the Act. We may, therefore,
look for then definition in some other statute. Under the Central
Excise and Salt Act. 1944, the word "manufacture" has been
defined as follows :
2(f) "manufacture" includes any process :--
(i) incidental or ancillary to the completion of a
manufactured product :
(ii) which specified in relation to any goods in the
Section or Chapter Notes of the Schedule to the Central
Excise Tariff Act, 1985 as amounting to manufacture,
and the word "manufacture" shall be construed
accordingly and shall includes not only a person who
employs hired labour in the production or manufacture of
excisable goods. but also any person who engages in
their production or manufacture on his own account:
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 16 of 23
(ia) to (ix) .....
and the word "manufacture" shall be construed
accordingly and shall include not any a person who
employs hired labour in the production of manufacture of
excisable goods, but also any person who engages in
their production or manufacture on his own account;"
“From the above definition it is clear that the expression
manufacture includes, any process incidental or ancillary to the
completion of the manufactured product and the word
manufacturer includes not only a person who employs hired
labour in the production or manufacture of goods hut also am
one, who engages in their production or manufacture on his
own account, if those goods are intended for sale. It is thus
clear that the word manufacturer does not merely include
those persons who in common parlance are themselves
engaged in the manufacturing of textiles but also includes
those persons who engage themselves in getting the textiles,
intended for export, produced or manufactured on their
own account. In other words a person who brings into
existence an article or a product even through the
instrumentality of an agent or a servant has to be regarded
as a manufacturer. An actual physical act of manufacturing
cannot be said to be the essence of the definition of the word
manufacturer. For instance, a person who supplies yarn to a
handloom or power loom owner for weaving cloth
according to his specifications/design/pattern on payment of
labour charges is a "manufacturer" . (emphasis supplied)
25. The above decision therefore categorically holds that the physical act of
manufacturing alone cannot be said to be the essence of the definition of the
word `manufacturer‟ and that a person who supplies the yarn to a handloom
or powerloom owner for weaving cloth according to his
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 17 of 23
specifications/design/pattern on payment of labour charges is a manufacturer
as well. The above decision is consistent with the law as explained by the
Supreme Court in both Empire Industries and Ujagar Prints (II) although it
does not expressly refer to those decisions.
26. An earnest attempt was made by Dr. Singhvi to persuade this Court to
refer the correctness of the decision of this Court in Nath Bros. , to a
Division Bench of this Court. In the first place, this Court finds that there is
nothing to doubt the correctness of the decision in Nath Bros. Secondly, and
in any event, there is no question of a Single Judge of this Court referring
the correctness of a decision of a Division Bench to a larger Bench. Such a
decision of the Division Bench is binding on the Single Judge. At best the
Single Judge could doubt the correctness of the decision of a coordinate
Bench, i.e., of another learned Single Judge in which case a reference could
be made to a larger Bench. However, where there are two decisions of
Division Benches which are contradictory, a reference could be made to the
Chief Justice to consider constituting a larger Bench.
27. The Supreme Court in Sirsilk Ltd. v. Textiles Committee was
considering whether rayon and nylon fell within the definition of „fibre‟ and
„yarn‟ as defined in the TCA. Although there was an extensive discussion on
Section 2(g) of the TCA, the occasion to discuss the word `manufacture‟ as
occurring in Section 5-A of the TCA did not arise on the facts of that case.
Therefore, the said judgment in Sirsilk Ltd. v. Textiles Committee is not of
much assistance in deciding the issues in the present case.
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 18 of 23
28. In view of the above discussion, it is held that that the processes of
dyeing, bleaching and printing undertaken by the Petitioners amount to
„manufacture‟ for the purposes of Section 5-A TCA.
Are the demands time barred?
29. The next issue is whether under Rule 10 TCCR the Respondents can
recover at any time cess that has been short levied or erroneously levied.
Rule 10 TCCR reads as under:
“10. Recovery of cess short levied erroneously levied . When
the cess has been short levied through inadvertence or
otherwise, or when it is erroneously refunded; the manufacturer
chargeable with the cess so short levied or to whom refund has
been erroneously made on a notice of demand from the
Committee made within one year from the date on which the
cess has been paid, shall pay the deficiency or, as the case may
be refund the amount paid to him in excess within a month
from the date of receipt of such notice.”
30. Learned counsel for the Petitioner referred to the decision in N.B.
Sanjana, Assistant Collector of Central Excise, Bombay v. Elphinstone
Spinning & Weaving Mills Co. Ltd. 1978 E.L.T. (J 399) where it was
explained that the word `levy‟ will have to be construed as meaning actual
collection. According to the petitioners, the words “short levy” would
include “non levy” as well. It is accordingly submitted, the demand for the
years 2002-03 and 2003-04 had to be made within a period of one year
thereafter else it would be time-barred. It is submitted that the demand notice
th
dated 27 July 2006 issued to Rolex Processors (P) Ltd. was time barred.
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 19 of 23
31. On behalf of the Respondents, it is contended that in the present case
Rule 10 has no application since for the first time a levy was made by
issuance of the impugned demand notice referred to hereinbefore. This was
not a case of short levy or erroneous levy. It is only in such cases that the
limitation in Rule 10 would be attracted. On the other hand, there is no
provision in the TCA or TCCR which restricts the right of the Textile
Committee to initiate proceedings for recovery of cess.
32. It appears to this Court that the submission of the learned counsel for the
Respondents is consistent with the wording of Rule 10. The limitation under
Rule 10 will begin to run only if there was a levy in the first place. It is only
with reference to a levy that there can be either short levy or an erroneous
levy. If the thumb rule of limitation for recovery of money is to be applied
then the demands were made within a period of three years from the date on
which such liability arose. Consequently there is no merit in the contention
that the demand raised on Rolex Processors is time barred.
Assessable value for purposes of Cess
33. It is finally contended that the cess had to be only to the extent of the
value of the job work done by the Petitioners. Reference was made to an
order passed by the Constitutional Bench of the Supreme Court in Ujagar
Prints (III) v. Union of India (1989) 3 SCC 531 . The said order reads as
under (SCC at p.531-32):
“1. In respect of the civil miscellaneous petition for clarification
of this Court's judgment dated 4th November, 1988, it is made
clear that the assessable value of the processed fabric would be
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 20 of 23
the value of the grey-cloth in the hands of the processor plus
the value of the job-work done plus manufacturing profit and
manufacturing expenses whatever these may be, which will
either be included in the price at the factory gate or deemed to
be the price at the factory gate for the processed fabric. The
factory gate here means the "deemed" factory gate as if the
processed fabric was sold by the processor. In order to explain
the position it is made clear by the following illustration: if the
value of the grey-cloth in the hands of the processor is Rs.20
and the value of the job-work done is Rs.5 and the
manufacturing profit and expenses for the processing be Rs.5,
then in such a case the value would be Rs.30, being the value of
the grey-cloth plus the value of the job-work done plus
manufacturing profit and expenses. That would be the
correct assessable value.
2. If the trader, who entrusts cotton or manmade fabric to the
processor for processing on job-work basis, would give a
declaration to the processor as to what would be the price at
which he would be selling the processed goods in the market,
that would be taken by the Excise authorities as the assessable
value of the processed fabric and excise duty would be charged
to the processor on that basis provided that the declaration as
to the price at which he would be selling the processed goods in
the market, would include only the price or deemed price at
which the processed fabric would leave the processor's factory
plus his profit. Rule 174 of the Central Excise Rules, 1944
enjoins that when goods owned by one person are manufactured
by another the information is required relating to the price at
which the said manufacturer is selling the said goods and the
person so authorised agrees to discharge all the liabilities under
the said Act and the rules made thereunder. The price at which
he is selling the goods must be the value of the grey-cloth or
fabric plus the value of the job work done plus the
WP(C) Nos. 1449/07, 3436 & 3620 of 2008 Page 21 of 23
manufacturing profit and the manufacturing expenses but not
any other subsequent profit or expenses. It is necessary to
include the processor's expenses, costs and charges plus profit,
but it is not necessary to include the trader's profits who gets the
fabrics processed, because those would be post-manufacturing
profits.”
34. Therefore, the computation of the assessable value would be a question
of fact. It appears that at no stage of the proceedings before the Appellate
Tribunal such a plea was raised. No such contention having been raised and
no factual foundation having been laid for determining such question, it is
not possible to entertain it at the stage of the present writ petitions. It is also
not possible to determine whether in fact the Petitioners were supplied grey
cloth manufactured in a power-loom or handloom industry. That too would
be a question of fact. No material has been placed on record to determine
this question. In the absence of the Petitioners submitting monthly returns,
the Respondents had no option but to go by Rule 8 TCCR. Therefore, this
Court finds no illegality having been committed by the Respondents on this
score.
Conclusion
35. Consequently this court finds no ground having been made for
interference with the orders passed by the Tribunal dismissing the appeals of
each of the petitioners and affirming the demands raised on them for
payment of cess in terms of the TCA.
36. For all of the above reasons, there is no merit in any of these writ
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petitions. They are each dismissed with costs of Rs. 10,000/- which will be
paid by each of the Petitioners to the Respondents within a period of four
weeks.
S. MURALIDHAR, J.
MAY 12, 2010
ak
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