Full Judgment Text
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PETITIONER:
MAFATLAL FINE SPINNING & MFG. CO. LTD.
Vs.
RESPONDENT:
COLLECTOR OF CENTRAL EXCISE, BOMBAY
DATE OF JUDGMENT17/01/1989
BENCH:
VENKATACHALLIAH, M.N. (J)
BENCH:
VENKATACHALLIAH, M.N. (J)
PATHAK, R.S. (CJ)
CITATION:
1989 AIR 784 1989 SCR (1) 204
1989 SCC (2) 446 JT 1989 (1) 160
1989 SCALE (1)121
ACT:
Central Excises and Salt Act, 1944/Central Excise Rules,
1944: Section 39L/Rule 49A--Differential rates of interest
on deferred payment of yarn duty depending on whether fab-
rics are cleared ’grey’ or ’after processing’--’Grey’ fab-
rics subjected to ’calendering’ and ’shearing’ before clear-
ance--Whether cease to be ’grey fabric’ and
’unprocessed’--Whether higher rate payable--Calendering and
shearing-What are.
Words and Phrases: ’Calendering’and ’Shearing’--Meaning of.
HEADNOTE:
Rule 49A of the Central Excise Rules, 1944 provided for
payment of different rates of interest on the excise duty on
the yarn, payment of which was deferred at the option of the
manufacturer till the manufacture and clearance of the
fabrics made out of the dutiable yarn, depending on whether
cotton fabrics were cleared ’grey’ (unproceased) or ’after
processing’. When the fabrics were cleared grey the interest
payable was 1 1/2% of the yarn-duty. But where the cotton-
fabrics were cleared after ’processing’, it was 3% of yarn
duty.
Appellant-Company, engaged in the manufacture of cotton-
fabrics, in its composite mills, opted for such deferment of
payment of duty of excise. The cotton-fabrics cleared admit-
tedly underwent the process of ’calendering’ and ’shearing’.
The Appellate Tribunal held that ’calendering’ and ’shear-
ing’ were ’finishing processes’ which rendered the ’grey’
fabrics to cease to be ’unprocessed’ and thus attracted
interest at 3% of yarn duty.
In the appeal before this Court, it was contended on
behalf of the appellant company that whether the fabric,
after ’calendering’ and ’shearing’ ceased to be ’unproc-
essed’ fabric would require to be ’resolved on the language
of the Rule 49A itself and that the differentium for the
attraction of the different rates of interest was whether
the cotton-fabrics cleared were ’grey-fabrics’ as known and
understood in the textile industry, and that the condition
for levy of 1 1/2% was not whether some process or processes
were applied to the ’grey fabrics’
205
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but whether such process or processes to which the grey-
fabric was subjected had the effect of making such grey-
fabric ceased to be ’greyfabric’, and that actual processes
or ’calendering’ and ’shearing’ involved in the present case
were amongst the simplest of the processes and did not have
the effect of bringing about any change in the ’greyfabric’,
as to take it out of Rule 49A(1)(b).
On behalf of the Revenue it was contended that the
conditions for the choice of the different rates of interest
were not envisaged in the context whether the process or
processes amounted to ’manufacture’ within the meaning of s.
2(f)(v) of the Act, but only in the context of estimating
the extent of time consumed by the process or processes and
that the test appropriate in this context was not whether
the greyfabrics under-went any change in their nature or
quality as a result of the processes but was whether any
time consuming process, whatever be its nature, was resorted
to by the manufacturer which, in turn, occassioned delays in
the clearance of the cotton-fabrics and thereby delayed
payment of the yarn-duty.
Allowing the appeals,
HELD: 1. Though the purpose of Rule 49A of the Central
Excise Rules 1944, was to provide for rates of interest
depending on the time consumed by the processing, the meas-
ure of the delay so as to attract one or the other of the
rates is not in terms of any period of time specified, but
is prescribed to be with reference to the nature of the
processes. The measure of the delay in deferment of yarn-
duty legislatively considered appropriate to attract higher
rate of interest at 3%, is in terms of the processes that
would be required to make the ’greycloth’ cease to be grey-
cloth. Any processing that can take a case out of Rule
49A(1)(b) must be a process which renders cotton fabric
cease to be ’grey’ fabric as commercially known and under-
stood. That is why in Rule 49A(1) of the expression ’grey’
is used while in Rule 49A(2), that word is omitted. [209E-F]
The matter has to be examined by those standards, which
in turn, depends on the fact, whether the process or proc-
esses concerned were such as to change the nature of the
’grey-fabric’. [209G-H]
2.1 There is no dispute that before clearance the cotton
fabrics were subjected to ’calendering’ and ’shearing’ which
in the jargon of the textile industry are finishing process-
es. [207G]
206
2.2 Both ’calendering’ and ’shearing’ involve an assort-
ment and variety of processes, some of which might and some
others might not affect or alter the nature of the fabric.
Both the expressions, ’calendering’ and ’shearing’ are
collective expressions representing number of sub-species of
operations which, depending upon the nature of the particu-
lar operation, may or may not alter the nature of the
’greyfabric’ as such. [212B-C]
2.3 These matters depend on particularities of the facts
of each case and are to be decided on a case by case basis.
[212E]
In the present case, the claim of the appellant before
the authorities that the ’calendering’ process employed by
them was such as to give temporary finish by pressing the
fabric is not controverted. No lasting change is brought
about. There is no finding to the contrary. Likewise the
claim as to the "shearing" which was only to trim protrud-
ing, stray fibres from the fabric. If these are the nature
of the operations, the ’grey’ fabric, in the facts of these
cases, does not become new and commercially different com-
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modity and cease to be ’grey’ cloth. There is thus no justi-
fication to take it out of Rule 49A(1)(b). [212G-H; 213A]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 369596 of
1988.
From the Judgment and Order dated 10.12.87 of Customs
Excise and Gold Control Appellate Tribunal New Delhi in
Appeal No. 1105/ 83-D (Order No. 961/87-B).
Soli, J. Sorabjee, S. Ganesh, C.M. Mehta P.G. Gokhale
and R.B. Hathikhanawala for the Appellants.
A.K. Ganguli, Mrs. Sushma Suri and K. Swami for the
Respondent.
The Judgment of the Court was delivered by
VENKATACHALIAH J. These two appeals under Section 35-L
of the Central Excises and Salt Act, 1944 (Act) by Messrs
Mafatlal Fine Spinning & Manufacturing Co. Ltd., arise out
of and are directed against the common appellate-order dated
10.2.1987 of the Customs Excise & Gold (Control) Appellate
Tribunal in Appeal Nos. 1105 of 1983 and 2540 of 1987 hold-
ing that in respect of the deferred duty on yarn appellant
is liable to pay interest at 3 per cent of the duty under
207
Rule 49A(2) of the Central Excises & Salt Rules, 1944, as
according to the Tribunal, the cotton-fabric cleared is not
’Grey’ (unprocessed) cotton-fabric.
2. Appellant is engaged in the manufacture of cotton-
fabrics in its composite mills and opted under Rule 49A for
facility of payment of duty of excise payable on the yarn to
be deleted until the clearance of the cotton-fabrics manu-
factured therefrom.
The said Rule 49A provides for payment of interest on
the excise duty payable on the yarn which is deferred till
the manufacture and clearance of the fabrics made out of the
dutiable yarn. As such payment is deferred, at the instance
of the option of the manufacturer, till completion of manu-
facture and clearance of fabrics out of the yarn and Rule
49A envisages that when cotton-fabrics are cleared ’grey’
(unprocessed) the yarn duty shall be paid at the time of
clearance of the fabrics along with 1 1/2% of the yarn-duty,
by way of interest. But where the cotton-fabrics are cleared
after ’processing’, the interest payable on, and along with,
the yarn-duty would, however, be 3% of the yarn-duty.
3. The question in these appeals is whether the inter-
est-rate should be one & half per cent or three per cent
which in turn depends upon whether the cotton-fabrics
cleared are ’grey’ (unprocessed) or they are cleared after
’processing’. The cotton fabrics cleared in this case,
admittedly, underwent the process of ’calendering’ and
’shearing’. The cognate and sequential question is whether
these processes render the ’grey’ fabric, a ’processed’
fabric within the meaning of Rule 49A(2). The Appellate
Tribunal has held that ’calendering’ and ’shearing’ are
’finishing-processes’ and render the ’Grey’ fabrics to cease
to be ’unprocessed’ so as to attract interest at 3%.
4. We have heard Sri Soli J. Sorabjee, learned Senior
Counsel for the appellant and Sri A.K. Ganguly, learned
Senior Counsel for the revenue.
There is no dispute that before clearance, the cotton-
fabrics were subjected to ’calendering’ and ’shearing’
which, in the jargon of the textile industry are
’finishing-processes’. The Tribunal, accordingly, held that
the cotton-fabrics cleared were not ’unprocessed’ for pur-
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poses of Rule 49A(1)(b). In regard to ’calendering’, the
Tribunal relied upon the views expressed by it in the case
of Siddeshwari Cotton Mills Ltd. and Anr. v. Collector of
Central Excise, Calcutta [1984] 18
208
ELT 297. The relevant part of Rule 49A provides:
"(1) When the cotton fabrics are
cleared grey (unprocessed), the yarn duty
payable shall be--
(a) the appropriate duty payable on such
cellulosic spun yarn or cotton yarn, or both,
as the case may be; plus
(b) one and a half per cent of the duty pay-
able on such cellulosic spun yarn or cotton
yarn, or both, as the case may be, by way of
interest on the amount of yarn duty;
(2) When the cotton fabrics are cleared after
processing, the yarn duty payable shall be--
(a) the appropriate duty payable on such
cellulosic spun yarn, or cotton yarn, or
both,. as the case may be; plus
(b) three per cent of the duty payable on such
cellulosic spun yarn, or cotton yarn, or both,
as the case may be, by way of interest on the
amount of yarn duty:
Explanation--Omitted as unnecessary."
5. Sri Sorabjee contended that such controversy, as is
raised, as to whether the fabric, after ’calendering’ and
’sheafing’ ceases to be ’unprocessed’ fabric would require
to be resolved on the language of the Rule 49A itself and
that the differentium for the attraction of the different
rates of interest was whether the cotton-fabrics cleared
were ’grey-fabrics’ as known and understood in the textile
industry. The learned counsel emphasised the distinction
between the expressions in Rule 49A(1) which refer to the
expression "cotton fabrics are cleared grey (unprocessed)"
on the one hand and the expression "cotton fabrics are
cleared after processing" in Rule 49A(2) on the other, to
demonstrate that the condition for levy of 1 1/2 % is not
whether some process or processes were applied to the ’grey
fabrics’ but whether such process or processes to which the
grey-fabric was subjected had the effect of making such
’grey-fabric’ cease to be ’grey-fabric’.
209
6. Sri Ganguly, for the revenue, urged that the condi-
tions for the choice of the different rates of interest are
not envisaged in the context whether the process or process-
es amounted to ’manufacture’ within the meaning of Sec.
2(f)(v) of the Act, but only in the context of estimating
the extent of time consumed by the process or processes as
that is the criterion for the choice of the rate of inter-
est. The purpose and intendment of the rule, says Sri Gan-
guly, is to provide for the rates of interest on the de-
ferred yarn-duty depending on the time consumed by the
processing. If ’grey-cloth’ directly obtained from the
loom--and that is what ’grey fabric’ or ’greige’ in textile
parlance means--is cleared then a lesser rate of interest is
attracted. But, where, as here, the ’grey fabric’ is sub-
jected to time-consuming processes the rate of interest,
says Sri Ganguly, would be the higher rate of 3 per cent,
taking note of the delays consequential upon such processing
occasioned in the recovery of yarn-duty. Sri Ganguly, ac-
cordingly, submitted that the test appropriate in this
context is not whether the grey-fabrics undergo any change
in their nature or quality as a result of the processes but
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is whether any time consuming process, whatever be its
nature, is resorted to by the manufacturer which will, in
turn, occasion delays in the clearance of the cotton-fabric
and thereby delay payment of the yarn-duty.
7. Sri Ganguly is right in his submission as to the
objects of Rule 49A in prescribing differential rates of
interest on deferred yarn-duty. But the standards for as-
sessment of the relative delays depending on which the
different rates of interest are charged are themselves set
by the rule making authority. The measure of the delay so as
to attract one or the other of the rates is not in terms of
any period of time specified but is prescribed to be with
reference to the nature of the processes. The measure of the
delay in deferment of yarn-duty legislatively considered
appropriate to attract higher rate of interest at 3%, is in
terms of the processes that would be required to make the
’greycloth’ cease to be grey-cloth. That is why in Rule
49A(1) the expression ’grey’ is used while in Rule 49A(2)
that word is omitted. So the period of deferment of yarn-
duty to attract higher interest 3% would, according to the
wisdom of the rule-makers, be the delay incidental to con-
verting ’grey fabric’ into ’processed’ fabric which ceases
to be ’grey-fabric’. With this legislative estimate of the
period of deferment appropriate to a situation attracting 3%
interest, the matter has necessarily to be examined by those
standards, which in turn, bring in the idea whether the
process or processes concerned are such as to change the
nature of the ’grey fabric’. This leads to the question
whether ’calendering’ and ’shearing’, though by themselves
are finishing processes, render the ’grey’ fabric cease to
be so.
210
8. Sri Sorabjee submitted that the process of calender-
ing is nothing more than mere pressing of the ’grey fabric’
by running it through plain rollers to impart a better
finish, which is a mere temporary finish. Sri Sorabjee
referred to some of the notifications issued under Section
8(1) of the Act which say that calendering would not be
treated as "processing". Learned Counsel contended that
having regard to the very nature, the calendering does not
bring about any change in the quality of the goods.
In Siddeshwari Cotton Mills’ case, the Tribunal has
referred to certain technical and scientific literature on
the process of ’calendering’. Sri Sorabjee referred to some
of them. In Modern Textiles (by Dorothy S. Lyle John Welay &
Sons, N. York) under the caption "Finishes that provide
Asthethic Values", referring to "CALENDER FINISH" it is
stated:
"This is the simplest of all finishes used to
give a good appearance to the finished fabric.
It consists of passing the fabric between the
heated cylinders of a calendering machine. It
is simply ironing a fabric to make it smooth
and give it a lustrous surface. The round
yarns are flattened, hence reflect more light.
It is a temporary finish, since the yarns
revert to their round shape with steaming,
laundering, and dry cleaning. Examples of
calendered fabrics the sheeting, poplin, and
broadcloth, both cotton and wool".
Encyclopaedia Britannica has the following to say:
"Calendering--is a final process in which heat
and pressure are applied to a fabric by pass-
ing it between heated rollers, imparting a
flat, glossy, smooth surface, Lustre, in-
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creases when the degree of heat and pressure
is increased. Calendering is applied to fab-
rics in which a smooth, flat surface is de-
sirable, such as most cottons, many linen and
silks, and various man-made
fabrics ..................
......... Calendering is not usually a
permanent process."
In "Glossary of Terms relating to treated fabrics I.S.
2244-- 1972 published by the Indian Standards Institution it
is stated:
"Calender--A machine comprised of at least
three heated rollers, used to produce film and
sheet material".
211
"Calendering--A mechanical method done by
rollers to provide glaze, glossiness, hard-
ness, lustre, shine and even embossed designs
to fabrics. Calendering is usually done to
impart a special finish to fabrics."
It is accordingly urged by Sri Sorabjee that calendering
does not alter the nature of the ’grey fabric’ and would not
take cotton-fabric out of Rule 49(1)(b).
9. In regard to the process of "Shearing" Sri Sorabjee
relied upon Fairchild’s Dictionary of Textiles which says:
"SHEARING: 1. A process of cutting fleece from
sheep generally by power-driven clippers or
sometimes by hand shears. Properly sheared
fleece will be removed in one solid sheet,
which is rolled into a compact bundle with the
wool on the inside. 2. A finishing operation
in which uneven threads are mechanically cut
or trimmed from the face of the fabric. Almost
always employed for woollen and worsted and
extensively employed on other fabrics. The
amount of shearing on napped and pile fabrics
varies according to the desired height of the
nap or pile; on clearfinish fabrics like
gabardine, a very close shearing is given. 3.
A finishing operation in which floating por-
tions of yarn are cut, e.g., in extra warp or
extra filling figured fabrics. The method is
similar to that employed in para 2, above."
In "Textile Terms and Definitions" 8th Edn. by the
Textile Institute:
"SHEAR:
(1) To Cut the fleece from a sheep.
(2) ..............................
(3) To cut loose fibres or yarn from the surface of a fabric
after weaving (also called crop)."
In Handbook on Glossary of Textile Terms (Bureau of
Indian Standards):
"SHEARING Shearing indicates:
212
(a) Cutting fleece from live sheep,
(b)Trimming nap or pile to the required uniform height, and
(c) Removing all protruding fibres from the surface of the
fabric i.e. cropping."
10. Both ’calendering’ and ’shearing’ involve an assort-
ment and variety of processes, some of which might and some
others might not affect or alter the nature of the fabric.
Both the expressions, ’calendering’ and ’shearing’ are
collective expressions representing a number of sub-species
of operations which, depending upon the nature of the par-
ticular operation, may or may not alter the nature of the
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’grey fabric’ as such.
Sri Sorabjee submitted that in the present case "calend-
ering" was not done by ’grooved’ rollers or cylinders but
only by plain rollers and the "Shearing" operation was only
to cut-off protruding stray fibres from the ’grey fabric’,
and that actual processes of ’calendering’ and ’shearing’
involved in the present case were amongst the simplest of
the processes and did not have the effect of bringing about
any change in the ’grey-fabric’.
11. These matters depend on particularities of the facts
of each case and are to be decided on a case by case basis,
The Tribunal proceeded on the basis that "Calendering" and
"Shearing" amounted to process of finishing and that by
itself, without more, satisfied the conditions that would
take the case out of Rule 49 A(1). The test applied by the
Appellate Tribunal, as well as by the authorities below, is
not the appropriate one on the language of Rule 49A. Any
processing that can take a case out of Rule 49A(1)(b) must
be a process which renders cotton-fabric cease to be ’grey
fabric’ as commercially known and understood. The question
whether ’calendering’ and ’shearing’, as actually carried
out by the appellant has had the effect of taking the cotton
fabric out of Rule 49A(1) should be decided in the light of
this test.
12. In the present cases, the claim of the appellant
before the authorities that the calendering process employed
by them was such as to give temporary finish by pressing the
fabric is not controverted. No lasting change is brought
about. There is no finding to the contrary. Likewise the
claim as to the "Shearing" which was only to trim
213
protruding, stray fibres from the fabric. If these are the
nature of the operations, the ’grey’ fabric, in the facts of
these cases, does not become new and commercially different
commodity and cease to be ’Grey cloth’. There is thus no
justification to take it out of Rule 49A(1)(b).
Accordingly, these appeals are allowed, the appellate
order, of the Tribunal and the decisions of the authorities
below set-aside and the liability for payment interest is
directed to be computed under Rule 49A(1)(b). No Costs.
N.P.V. Appeals allowed.
214