http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 28  

PETITIONER: EMPIRE INDUSTRIES LIMITED & ORS. ETC.

       Vs.

RESPONDENT: UNION OF INDIA & ORS. ETC.

DATE OF JUDGMENT06/05/1985

BENCH: VARADARAJAN, A. (J) BENCH: VARADARAJAN, A. (J) FAZALALI, SYED MURTAZA MUKHARJI, SABYASACHI (J)

CITATION:  1986 AIR  662            1985 SCR  Supl. (1) 292  1985 SCC  (3) 314        1985 SCALE  (1)1269  CITATOR INFO :  RF         1987 SC 874  (1,3,5,6)  R          1988 SC 113  (4,5)  RF         1988 SC 871  (4)  R          1988 SC2237  (6)  F          1989 SC 516  (2,3,5,13,14,16,19,20,21,23,24  R          1989 SC1019  (6)  E          1990 SC1893  (5)  R          1991 SC 407  (6)  F          1991 SC1784  (7)

ACT:      Central Excise  and Salt  Act, 1944,  (Act I  of 1944), section 2 (f) (v) (vi) and (vii)-Definition of ‘Manufacture’ as amended  by the  Central Excise  and Salt  and Additional Duties  of   Excise  (Amendment)  Act,  (Act  vi  of  1980)- Legislative  competency   to  make   amendment-Whether   the Amendment Act  is violative  of Articles  14,19(1)  (g)  and Entry  84   of  List  I  of  the  Seventh  Schedule  of  the Constitution-Concept of  "Manufacture"-Whether  the  various processes of  bleaching, mercerising,  dyeing, printing etc. of cotton  fabrics and  woolen fabrics  man-made fabrics  as mentioned in  items 19 and 22 of the Schedule to the Central Excises and  Salt Act  amount to  "Manufacture", as  the Act stood prior  to the  Amendment Act, so as to attract levy of duty under section 4 of the Act-Whether the Amendment Act in any event  is valid  under Entry 97 of List I of the Seventh Schedule  of   the  Constitution-Retrospective   legislation whether permissible  - Evidence  not produced clear but that sought to  be produced  in the Supreme Court, acceptance of- Passing of  Interim orders, aviation/vaction by the Court in fiscal matters, causing of.

HEADNOTE:      In Vijay  Textile Mills  v. Union  of India reported in (1979) 4  E.L.T.J.  181,  the  Gujarat  High  Court  by  its decision dated  21-1.1979 held that cotton fabrics subjected to bleaching,  dyeing and printing could not be subjected to excise duty  under Item  19 (1) (b) of the First Schedule to the Central Excises and Salt Act, 1944 is at twenty per cent ad-valorem these  activities not  being taxable event in the light of  section 3  read with  2(d) of the Act. The Gujarat

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 28  

High Court  proceeded on  the footing  that the processes of bleaching, dyeing  and printing were manufacturing processes and held  that excise  duty would at least be leviable under residuary Item  No. 68  of the First Schedule and therefore, liable to  levy at eight per cent ad-valorem, the High Court directed the "Excise authorities to calculate the ad valorem excise duty  during the  period of  three years  immediately preceding the  institution of each petition before the Court and calculate  the excise  duty payable  by  each  of  these petitioners under Item 68 only in respect of the value added by each  of the  petitioners by the processing of the fabric concerned. The excise duty paid in excess of such ad valorem duty  under  Item  68  during  the  period  of  three  years immediately preceding  the  institution  of  the  respective Special  Application  is  ordered  to  be  refunded  to  the petitioners concerned in each of their petitions."      In Real Honest Textiles and Ors. v. Union of India (now in appeal)  the Gujarat High Court passed similar directions after declaring  that the levy and collection of excise duty and additional duty on processed man-made fabrics 293 under Tariff’  Item 22(1) of the Additional Duties of Excise (Goods of  Special Importance)  Act, 1957  was ultra  vires. Since the decisions of the Gujarat High A Court on 24.1.1979 in these  two cases,  the  petitioners  and  the  processing houses like the petitioners have been claiming refund.      The President  of India  promulgated an Ordinance being Central ordinance  No. 12 of 1979 called the Central Excises and  Salt   and  Additional  Duties  of  Excise  (Amendment) Ordinance 1979.  The said  Ordinance was replaced by the Act VI  of   1980  called  the  Central  Excises  and  Salt  and Additional Duties  of Excise  (Amendment) Act,  1980, giving retrospective effect  to the Act from 24th February 1979. By section 2  of the  Act, section  2(f) of the Excise Duty Act was amended  by adding  three sub  items in  the  definition "manufacture"  so   as  to   include  the   activities  like bleaching,  dyeing,   printing  etc.   covered  by  the  two decisions of the Gujarat High Court. Similar amendments were made in items 19(1), 21 (1) and 22 (1) of the First Schedule with retrospective  effect. Section 5(2) (b) of the Amending Act  provided   "no  suit  or  other  proceedings  shall  be maintained or continued in any other Court for the refund of the duty  collected and  no enforcement shall be made by any Court of  any decree  or order  directing the refund of such duties of  excise which  have been  collected and  which may have been  collected." as  if the provisions of section 5 of the Act  VI of  1980 had  been in  force  on  and  from  the appointed day as defined in the Act VI of 1980.      After the  Act VI  of 1980  was passed,  the  same  was challenged before  the Bombay  High Court  by  several  writ petitions. Dismissing  W.P. 623/1979  titled New  Shakti Dye Works Pvt.  and Mahalakshmi  Dyeing and  Printing  Works  v. Union of  India along  with 24 other writ petitions on 16117 June, 1983,  the Bombay High Court upheld the Constitutional validity of  the impugned Act as well as the levy of duty on certain goods.  Special Leave was granted in this case as in the two earlier Gujarat High Court’s cases.      Empire Industries  Limited also  filed a petition under Article 226  of the  cases though  Indian Textile  Processor Association withdrew  it from  the file  of the  Bombay High Court and  by the  writ petition  under Article  32  of  the Constitution has  challenged the  Constitutional validity of the Act  VI of  1980 and  the validity of the levy of excise duty under  section 4  of the  Act. Some  other  petitioners similarly situated  have also  filed their  petitions  under

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 28  

Article 32 of the Constitution.      In these  petitions  and  appeals  the  following  main points fell for consideration:      1. Whether  cotton fabrics  subjected to the process of bleaching,  mercerising,  dyeing,  printing,  water-proofing etc. specially  the processes  conducted and  carried out by the petitioner  company in  respect of  cotton  fabrics  and woolen fabrics/man-made  fabrics as mentioned under Items 19 or 22  of the  Schedule to  the Central Excises and Salt Act amount to  ’manufacture’ as  the  Act  stood  prior  to  the impugned Act  of 1980.  In other words whether these various processes carried out by the petitioners 294 company amount  to bringing  into  existence  different  and distinct goods,  A commercially  known as  such, to  attract levy of duty under section 4 of the Central Excises and Salt Act, 1944.      2. Whether and in any event after the impugned Act, the levy is valid. In connection with the said contention it has to be examined whether the impugned Act is intra vires entry 84 of List I of the Seventh Schedule to the Constitution and if not,  whether the  said impugned  Act can  be said  to be valid in  any event  under entry 97 of List I of the Seventh Schedule to the Constitution.      3. Whether  the impugned  Act violates  Article  14  or Article 19(1)(g) of the Constitution.      Allowing the Revenue appeals in C.A. Nos. 586 to 592 of 1979 and dismissing all the petitions and other appeals, the Court, ^      HELD: 1. In view of the amendments made in section 2(f) of the Central Excises and Salt Act, 1944 by Amending Act VI of 1980  as well  as the  substitution of new Item 19(1) and 22(1) in  Excise Tariff  in place of the original items, the activities  of   the  petitioner   company,  namely,  as  an independent processing  unit engaged  in job  activities  of dyeing, printing  and finishing  of man  made/cotton fabrics attract the exigibility to excise duties under section 3 and 4 of  the Act.  Excise duty  will be  charged  on  processed printed material.                                                    [328 D-E]      Section 3  of the  Central Excises and Salt Act clearly indicates that  the object  of  the  entries  in  the  First Schedule is  firstly excisable goods and secondly to specify rates at  which excise duty will be levied. Under sub-rule 2 of Rule 56A, a manufacturer will be given credit of the duty which  is   already  paid   on  the  articles  used  in  the manufacture, subject  to certain  conditions. Therefore, the processors will  be entitled  to credit for the duty already paid on  the grey  cloth by  the manufacturers  of the  grey cloth. [328 E-P]      New Shakti  Dye Works  (Pvt.) Ltd v. Mahalakshmi Dyeing and Printing  Works v.  Union of India & Anr. (W.P. Nos. 622 and 623 of 1979 dated 16 and 17 June 1983 Bombay) approved.      2.1 Excise  duty is  a duty on the manufacture of goods and not  on sale.  Manufacture is complete as soon as by the application  of  one  or  more  process,  the  raw  material undergoes some  change. If  a new  substance is brought into existence  or  if  a  new  or  different  article  having  a distinctive name,  character or  use result  from particular processes,  such   process  or  processes  would  amount  to manufacture. Therefore,  the taxable  event under the Excise Law is  ‘manufacture’. The  moment there  is  transformation into a  new commodity  commercially known  as a distinct and separate commodity  having its  own character, use and name,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 28  

whether be it the result of one process or several processes ‘manufacture’  takes  place  and  liability  to  duty  under section 4 is attracted. [312 C-D; 316 B-C] 295      Union of India v. Delhi Cloth & General Mills, [1963] 1 Supp. S.C.R. 586; Union of India v. H.U.F. Business known as Ramlal Mansukhnai,  Rewari &;  Anr. A  [1971] 1  S.C.R. 937; Allenburry Engineers  v. Ramakrishna Dalmia & Ors., 11933] 2 S.C.R. 257;  Deputy Commissioner,  Sales Tax  (Law) Board of Revenue (Taxes)  Ernakulam v.  Pio Food  Packets,  [1980]  3 S.C.R. 1271 and Chowgule and Co. Pvt. Ltd. and Anr. v. Union of India and Ors. 11981] I S.C.C. 653 referred lo.      Commissioner of Sales Tax, U.P. Lucknow v. Harbilas Rai and Sons [1968] S.T.C. Vol. 21 p. 17 (S.C.) followed.      Hiralal Jitmal  v. Commissioner  of Sales  Tax,  [1957] S.T.C. Vol.  VIII 325  (MP); East India Cotton Manufacturing Company Pvt. Ltd. v. The Assessing Authority- cum-Excise and Taxation Officer, Gurgaon and Anr., [1972] S.T.C. Vol. 30 p. 489 (Punjab  and Haryana);  Kores (India)  Ltd v.  Union  of India and  Ors., [19821  E.L.T.  Vol.  10,  p.  253  and  K. Venkataraman and  Company and  Ors. v. Deputy Commercial Tax Officer, Coimbatore IV and Ors., [1972] S.T.C. Vol. 10 p. 57 (Mad) approved.      Extrusion   Process   Pvt.   Ltd.   v.   N.R.   Jadhav, Superintendent of  Central Excise,  119791 4 F.. L.T. J. 380 (Gujarat); Swastik  Products, Baroda  v.  Superintendent  of Central Excise,  [1930] 6  E.L T.  164 (Gujarat) and Kailash Nath and  Anr. v.  The State of U.P. and Ors., [1957] S.T.C. Vol. VIII p. 358 (SC) distinguished.      Mc Nicol  and Anr.  v. Pinch,  [1906] 2 K.B. 352 quoted with approval.      2.2  Etymologically  the  word  "Manufacture"  properly construed would doubtless cover the transformation. Here, in the light  of several  decision of the Supreme Court and the High Courts  and on  the construction of the expression, the process of  bleaching, dyeing  and  printing  etymologically means manufacturing process. The processes of the type which have been  incorporated by  the Act  VI of  1980 were not so alien or  foreign to the concept of ‘manufacture’ that these could not  come within  that concept covered by entry 84, of List I of the Seventh Schedule. After the Act VI of 1980 was passed  these   processes  indubitably   fall   within   the expression ‘manufacture’. [323A,E-H]      2.3 The question whether the impugned Act is covered by entry 84 can be looked from another point of view namely the actual contents  of entry  84. The word ‘produced’ appearing in entry no. 84 of List I of the Seventh Schedule is used in juxtaposition with  the  word  ‘manufactured’  and  used  in connection with  the duty  of  excise  and  consequently  it contemplates same expenditure of human skill in bringing the goods concerned  into the  condition which would attract the duty.  It   was  not   required  that  the  goods  would  be manufactured in  the sense  that raw material should be used to turn  out something  altogether different. It would still require that these should be produced in the sense that some human activity  and energy should be spent on them and these should be  subjected to  some processes  in order that these might be brought to the state in which they might become fit for consumption. Here, expenditure 296 of human skill and material have been used in the processing and  it   may  not  be  that  the  raw  material  was  first transformed  but  over  the  transformed  material,  further transformation was done by the human labour and skill making this fit  for human consumption. In any event under entry 97

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 28  

of List  I of the Seventh Schedule this would apply if it is not under entry 84. [324 A, G]      Aluminium Corporation  of India  Ltd. v. Coal Board AIR 1959 Cal. 222, approved.      The King v. Caledonian Collieries, Ltd. [1928] A,C. 358 referred to.      2.4 To contend that if the legislation was sought to be defended on  the ground  that it  is a  tax on activity like processing and  would be  covered by the a powers enumerated under entry  97 of  List I of the Seventh Schedule there was no charging  section for  such an  activity and  as such the charge must  fail and  there cannot be any levy is wrong and misconceived. The charging section is the charging section 3 of the Central Excises and Salt Act, 1944. It stipulates the levy and  charge of  duty of  excise on  all excisable goods produced or manufactured. ‘Manufactured’ under the Act after the amendment  would be  the  ’manufacture’  as  amended  in section 2(f)  and Tariff  Item 19(1)  and 22  and the charge would be on that basis. [324 ;325 A-B]      3.1 Imposition of tax by legislation makes the subjects pay taxes. It is well recognised that (i) tax may be imposed retrospectively;  and   that  by   itself   would   not   be unreasonable restriction  on the  right to carry on business and (ii)  the Parliament  has powers  to make  retrospective legislation   including    fiscal   legislation   and   such legislation per se is not unreasonable. [326 D-F]      3.2  Here  there  is  no  particular  feature  of  this legislation which  can be  said to  create any  unreasonable restriction upon  the petitioners.  The concept  of  process being  embodied   in  certain   situation  in  the  idea  of manufacture, the  impugned legislation is only making ’small repairs’ and  that is  permissible mode of legislation. [326 E-F]      3.3 Nor  does the  impugned legislation act harshly nor there is  any scope  for arbitrariness or discrimination. It is clear  from the objects and reasons wherein it was stated that the  Central Excise  Duty was levied for the first time on cotton  fabrics in  1969, on  man-made fabrics  (rayon of artificial silk  fabrics) in  1954 and  on woolen fabrics in 1955. From the very early stages of the textile tariff, with a view to achieving progression in the rate structure and to aligning  excise  control  with  the  demands  of  different producing sectors  duties has  been levied  not only on grey fabrics  but  also  at  the  stage  of  processing  such  as bleaching, dyeing  and printing. The Judgment of the Gujarat High Court  in Real  Honest Textiles  and Ors.  v. Union  of India (under  appeal) according  to the statement of objects and reasons of the Act VI of 1980 had upset the arrangements regarding levy  of excise  duties of  textile  fabrics.  The judgment also  had the  effect  of  disturbing  the  balance evolved between  different sectors  of the textile industry. Furthermore, it  was made  clear that  in  so  far  as  past assessments were  concerned,  refund  of  excise  duties  to manufactu- 297 rers as  ordered by  the High  Court would have only meant a fortuitous windfall  so as  to benefit  such persons without any relief to the ultimate consumers A who had purchased the fabrics and  had borne the burden of the duties. In order to avoid this, the Act was passed. [325 E-H; 326 B-C; 327 C]      Krishnamurthi &  Co. etc.  v. State  of Madras  & Anr., [1973] 2 S.C.R. 55, referred to.      3.4 Where  for the  purpose of  calculating  assessable profits, a notional and conventional sum is laid down by the legislature to  be arrived  at on a certain basis, it is not

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 28  

permissible for  the courts  to engraft  into it  any  other deduction or  allowance or  addition or  read it down on the score that  the said  deduction or allowance or addition was authorised  elsewhere   in  the  Act  or  in  the  Rules.  A conventional  charge   should  be   measured  by   its   own computation and  not by  facts relating  to other  method of computation. The  circumstances that  thereby the benefit of any exemption  granted by  the legislation  may be  lost and that in  some cases  hardship might  result are  not matters which would  influence courts  on the  construction  of  the statute. A  tax payer  subject  is  entitled  only  to  such benefit as is granted by the legislature. Taxation under the Act is  the rule  and benefit  and exemption, the exception. And in this case there is no hardship. [327 E-G] D      3.5 When  the textile  fabrics  are  subjected  to  the processes  like  bleaching,  dyeing  and  printing  etc.  by independent processes,  whether on  their own  account or on job charges  basis, the  value of the purposes of assessment under section  4 of  the Central  Excise Act will not be the processing charges  alone but  the intrinsic  value  of  the processed fabrics  which is  the price at which such fabrics are sold for the first time in the wholesale market. That is the effect  of  section  4  of  the  Act.  The  value  would naturally include  the value of grey fabrics supplied to the independent processors  for the  processing. However  excise duty, if  any, paid  on  the  grey  fabrics  will  be  given proforma credit to the independent processors to be utilised for the  payment on the processed fabrics in accordance with the Rules  56 A  or 96  of the  Central Excise Rules, as the case may be. [327 G-H; 328 A-B] F      3.6 Read  in that  context and  in the  context of  the prevalent practice  followed so  long until  the decision of the Gujarat  High Court  in Real  Honest case,  there is  no hardship  and   no  injustice  to  the  petitioners  or  the manufacturers of grey fabrics. The fact that the petitioners are not the owners of the end product is irrelevant. Taxable events is manufacture-not ownership. [328 B-D] G      4. Documentary  evidence not produced earlier cannot be admitted at  the late  stage of final hearing of the case by the Supreme Court [308 E]      (Per majority Varadarajan J. dissenting).      1. Different  Courts sometimes  pass different  interim orders as the courts think fit. The interim orders passed by particular  courts   on  certain   considerations  arc   not precedents for  other cases  may be  on  similar  facts.  To contend 298 that once  an interim  order has  been passed by the Supreme Court on  certain A  factors specially in fiscal matters, in subsequent matters  on more  or less  similar  facts,  there should not  be a  different order passed nor should there by any variation  with that kind of interim order passed. In as much as  that such  variance creates  discrimination  is  an unfortunate approach. [329C-E ]      2. Every  bench hearing  a  matter  on  the  facts  and circumstances of  each case  should have  the right to grant interim orders  on such terms as it considers fit and proper and if  it had granted interim order at one stage, it should have right  to vary  or alter such interim orders. The court made the  following suggestions  (i) A  consensus,  however, should be  developed in  matters of interim orders in fiscal matters specially  in cases  involving indirect  taxes where normally taxes  have been  realised from  the consumers  but have not  been paid over to the exchequer or where taxes are to be  realised from  consumers by the dealers or others who

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 28  

are parties  before the  court, interim  orders staying  the payment of  such taxes  until final  disposal of the matters should not  be passed.  It is  a matter of balance of public convenience Large  amounts of  taxes are  involved in  these types of litigations Final disposal of matters unfortunately in  the  present  state  of  affairs  in  our  courts  takes enormously long  time and  non-realisation of taxes for long time creates  an upsetting  effect on  industry and economic life  ceasing   great  inconvenience   to  ordinary  people. Governments are run on public funds and if large amounts all over  the  country  are  held  up  during  the  pendency  of litigations, it becomes difficult for the governments to run and  become   oppressive   to   the   people.   Government’s expenditures  cannot   be  made   on  bank   guarantees   or securities. In  that view  of the  matter the  Supreme Court shall refrain  from passing  any interim  orders staying the realisations of  indirect taxes or passing such orders which have the  effect of  non-realisation of indirect taxes. This will be  healthy for the country and for the courts. [329 E- H; 330 A-C]

JUDGMENT:      ORIGINAL JURISDICTION:  Writ Petition (Civil) No. 11728 y) of 1984.      Under Article 32 of the Constitution of India.                             WITH      Writ Petitions  Nos. 13556,  13788,  13792,  15438  and 15439 Of  1984 and  Civil Appeals Nos. 6414 of 1983 and 3564 of 1984.                             AND      Civil Appeals Nos. 586 to 592 of 1979.      From the  Judgment and  Order dated  24.1.1979  of  the Gujarat High  Court  in  Special  Civil  Appln.  Nos.  1552, 1553/77 with Nos. 249,1292,1293,1294 and 1295 of 1978. 299      S. J. Sorabjee, A. J. Rana, S. Parekh, Mrs. J. Wad, and Miss Aruna  Mathur for  the Petitioners  in W.P. Nos. 11728, 15438 and A 15439 of 1984.      S.J. Sorabjee,  A.N. Haskar  and S.A.  Shroff  for  the Petitioner in W.P. No. 13788 of 1984.      S.S. Shroff  and S.A.  Shroff for the Appellant in C.A. No. 3564/84  and Petitioner  in W.P.  Nos. 13556,  13792 and 13788 of 1984.      S.J. Sorabjee  and A.  Grover for the Appellant in C.A. No. 6414 of 1983.      K.G.  Bhagat  Additional  Solicitor  General  and  R.N. Poddar for the Appellants in C.A. Nos. 586-92 of 1979.      K.G.  Bhagat,   Additional  Solicitor  General,  Girish Chandra, Miss  Halida Khatun, Uma Nath Singh and R.N. Poddar for the Respondents. (Union of India)      S.K. Dholakia,  R.C. Bhatia  and  P.C.  Kapur  for  the Respondents, in C.A. Nos. 589-92 of 1979.      Y.S. Chitale,  Anand Haskar,  P.H. Parekh and Miss Indu Malhotra for the Respondents in C.A. No. 586 of 1979.      A.K Sen,  P.H. Parekh  and Miss  Indu Malhotra  for the Respondents in C.A. No. 587 of 1979- F      F.S. Nariman,  P.H. Parekh  and Miss  Indu Malhotra for the Respondent in C.A. No. 588 of 1979.      The following Judgments were delivered      VARADARAJAN  J.   I  agree   with  my  learned  brother Sabyasachi Mukharji,  J. that  Writ Petitions  Nos. 11728 of 1984 and  13556, 13788  13792, 15438  and 15439  of 1984 and Civil Appeals  Nos. 6414 of 1983 and 3564 of 1984 have to be

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 28  

dismissed with costs, and that Civil Appeals Nos. 586 to 592 of 1979  have to  be allowed with costs, and interim orders, if any,  passed should  stand vacated, and arrears of excise duties should be paid forthwith and future excise 300 duty should  be paid  as and  when the  goods are cleared or otherwise as per law and rules. But I regret my inability to subscribe to  the views  expressed by  him in  the last  two paras of his judgment regarding interim orders.      SABYASACHI MUKHARJI,  J.  This  first  petition  herein under Article  32  of  the  Constitution  arises  under  the following circumstances.      The President  of India  promulgated an Ordinance being Central Ordinance  No. 12 of 1979 called the Central Excises and  Salt   and  Additional  Duties  of  Excise  (Amendment) Ordinance, 1979.  The said Ordinance was replaced by the Act called the Central Excises and Salt and Additional Duties of Excise (Amendment) Act, 1980 (hereinafter referred to as the ’impugned Act’).  The said  impugned Act received the assent of the  President on  12th February,  1980 and under section 1(2) of  the impugned  Act, retrospective  effect to the Act was given from 24th February, 1979.      It may  be mentioned that the Gujarat High Court in the case of  Vijay Textile  Mills v. Union of India rendered its decision on 24th January, 1979 on this aspect of the matter. This decision  will have  to- be  examined in  little detail later. As  a result  of the said decision and with a view to overcome  the   said  decision,   the  Ordinance   mentioned hereinbefore was  promulgated on  24th November,  1979 which has since been replaced by the said Central Excises and Salt and Additional Duties of Excise (Amendment) Act. 1980.      After this  impugned  Act  was  passed,  the  same  was challenged before  the Bombay  High Court  by  several  writ petitions, Writ  Petition No.  623 of 1979 along with others were disposed  of by  the  Bombay  High  Court  by  judgment delivered by  the Division  Bench on  167/17th June, 1983 in the case  of New  Shakti Dye  Works Pvt.  Ltd. & Mahalakshmi Dyeing and Printing Works v. Union of India Anr. By the said judgment,  the   Bombay  High  Court  disposed  of  24  writ petitions as  the question  involved in  all those petitions was identical.  In that  case the constitutional validity of the impugned  Act as  well as  the levy  of duty  on certain goods identical  to  the  present  goods  involved  in  this application  under   Article  32  of  the  Constitution  was involved. The  Bombay High  Court dismissed  the  said  writ petitions. We will refer to the said decision later. We may, however, state  that we are in respectful agreement with the conclusions as  well as the reasoning of the decision of the Bombay 301 High Court in the said petitions. Special leave to appeal to this Court  has been  granted from  the said decision in the case of New Shakti Dye Works Pvt. Ltd.      In order  to appreciate  the contentions  raised, it is necessary  to  state  that  the  petitioner  company  is  an independent processing  unit carrying  on its  activities at Bombay and  as an independent processing unit was engaged in job activities  of dyeing,  printing and  finishing of  man- made/cotton fabrics.  The petitioner  company further states that in  respect of  the  said  processing  activities,  the petitioner company  holds licences  required under  the laws for the  time being  in force  including a licence under the Excise Act  and the  Central Excise  Rules which hereinafter will be referred to as the ’said Rules’.      The petitioners in writ petition No. 11728 of 1984 were

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 28  

two in number-one being the petitioner company and the other being the Taxation Executive of the petitioner company.      The petitioners state that the processing operations of the petitioner  company in  the said  factory are  job  work operations of  dyeing, bleaching  and printing  of the  said fabrics which  are cotton fabrics and man-made fabrics. When the  said  fabrics  are  received  in  the  factory  of  the petitioner, company  the same are fully manufactured and are in a  saleable condition  and are commercially known as grey fabrics i.e.  unprocessed fabrics  which are  cleared  after payment of the excise duty under Tariff Item Nos. 19 and 22, as the  case may  be. The petitioners further state that the said  grey   fabrics  i.e.   unprocessed,  undergo   various processes in the factory of the petitioner company. The grey fabrics are boiled in water mixed with various chemicals and the grey  fabric is  washed and  thereafter the  material is taken for  the dyeing process, that is imparting of required shades of  colours. The next stage is printing process, i.e. putting the  required designs  on the said fabrics by way of screen  printing   on  hot  tables.  The  final  stages  the finishing process,  that is to give a final touch for better appearance According  to the  petitioners, they do not carry out any  spinning  or  weaving  of  the  said  fabrics.  The machinery installed by the petitioner company in its factory is only  for the  purpose of carrying out one or more of the aforesaid four  processes and cannot be used for the purpose of either  spinning or  weaving of  yarn for  manufacture of ’fabric’ i.e.  ’woven material’.  For spinning or weaving of yarn, one  requires, according to the petitioners, looms and petitioner company is merely a processing 302 house. The  petitioner company’s case is that the petitioner company A  begins with  man-made or cotton fabrics before it starts the  said processes  and also  ends with  man-made or cotton fabrics  after subjecting  the fabrics to the various processes.   The    petitioner   company    receives   fully manufactured man-made  fabrics and  cotton fabrics  from its customers only  for the  purpose of carrying out one or more of the  aforesaid processes  thereon as  per the requirement and instructions  of the  customers and  after the necessary processes are  carried out,  the same  are returned  to  the customers. According to the petitioners, what is received by the petitioner  company is  known as cotton/man-made fabrics and what  is returned  is  again  known  as  cotton/man-made fabrics. The  petitioner  company  states  that  it  has  no discretion or choice of shades or colours or designs and the same are  nominated or  prescribed  by  the  customers.  The finally processed  fabric is  not and  cannot be sold by the petitioners  in  the  market  as  the  petitioner  company’s product. The  petitioner company  merely collects  from  its customers charges  only for  job work  of processing done by it. The  petitioner company  further states  that it  has no proprietary interest  in the  fabrics either before or after the same  is processed.  The manufacture  of the fabrics and sale in  the market of the processed fabrics are effected by the  petitioner   company’s  customers   and  not   by   the petitioners.  Further   the  processed   as  well   as   the unprocessed fabric,  whether cotton  or man-made, can be put to the same use.      The   petitioner   company,   is   required   to   file classification list  for approval  of the  concerned  Excise Authorities as  prescribed by  Rule 173-B  of the said Rules for approval  of Tariff  items in  the First Schedule to the excise Act  in respect  of the  processed  fabrics.  As  per approval granted there-on in respect of man-made fabrics and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 28  

cotton fabrics,  the petitioner  company classifies  all the processed fabrics  under Tariff Items 19 and 22, as the case may be.  So far  as man-made  fabrics  are  concerned  under Tariff Item  22, the  petitioner company was required to pay certain duties as mentioned in the petition. The petitioners state that the petitioner company has paid such duties.      The petitioners  further state that such classification list of  cotton fabrics  has been approved under Tariff Item No. 19  and the  petitioner  company  was  required  to  pay certain duties  which the  petitioner company  has mentioned that it  has paid  the same.  The petitioners  further state that for the purpose of determination of 303 value under  section 4  of the  Excise Act,  the  petitioner company was  required to  file a  price  list  in  the  form prescribed  under   the  said   Rules  for   approval.   The respondents-government   authorities,   according   to   the petitioners, although  being aware  of  the  fact  that  the petitioner company was carrying out and or performing merely the processing  work and  collecting the  processing charges only, had  directed the  petitioner company  to file a price list on the basis of the sale price of its customers and for this purpose  had required  the petitioner  company to  file along with  the said  price list  letters of  its  customers certifying the  price at  which the  said customers sell the goods in  the markets. The petitioners state that price list includes the  selling expenses  and selling  profits of  the said customers  in  which  the  petitioner  company  has  no interest or share.      According to  the petitioners,  the respondents approve the price  list and  as a consequence thereof the petitioner company becomes  liable to pay to the respondents additional Excise duty  calculated on  ad-valorem  basis  on  the  said approved sale price that is the sale price of its customers. The petitioners have annexed a copy of the delivery note and a copy  of the  invoice issued by the petitioner company. It is further  the case of the petitioners that both in respect of cotton  fabrics and  man-made fabrics  which  are  merely processed by  the petitioner  company, the  respondents were levying and  collecting  excise  duty  and  additional  duty respectively under  Tariff Items  19 and 22, as the case may be, at  rates stipulated against the respective entries read with relevant  exemption notification,  as if the petitioner company was  the  manufacturer  of  cotton  fabrics/man-made fabrics, as the case may be.      The petitioner company further states that it bad filed a writ petition in the Bombay High Court which was admitted. The said  writ petition  was filed  through  Indian  Textile Processors Association.  The petitioners  stated  thereafter the  circumstances   under  which   the  said  petition  was withdrawn and  why the  present petition under Article 32 of the Constitution is being filed. For our present purpose, it is not necessary to set out these details.      The petitioners  challenge the  impugned Act  mentioned hereinbefore. Before  the contentions  are  dealt  with,  it would be appropriate to deal with the relevant provisions of the impugned  Act. Section  2 of  the  impugned  Act  amends section 2(f)  of the Excise Act by adding three sub-items in the definition of ’Manufacture’ which 304 were included  by Act 6 of 1980 being the impugned Act which came   into effect  from 24th  November, 1979 which are sub- clauses (v), (vi) and (vii). These read as follows:-         "(v) in relation to goods comprised in Item No. 19 I      of the First Schedule, includes bleaching, mercerising,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 28  

    dyeing, printing,  water-proofing, rubberising,  shrink      proofing, organdie  processing or  any other process or      any one or more of these processes;          (vi)  in relation  to goods  comprised in  Item No.      21(1) of the First Schedule, includes milling, raising,      blowing, tentering,  dyeing or any other process or any      one or more of these processes;          (vii)  in relation  to goods  comprised in Item No.      22(1)  of   the  First  Schedule,  includes  bleaching,      dyeing,  printing,  shrink-proofing.  tentering,  heat-      setting,  crease  resistant  processing  or  any  other      process or any one or more of these processes;"      Similar amendments  we made  in Items  19(1), 21(1) and 22(1)  of  the  Central  Excise  Tariff,  and  also  similar amendments were  effected in  relation to Act of 1957. These amendments  were  effected  retrospectively  from  different dates for  different fabrics,  as mentioned  in the impugned Act. According  to section  5(2) (b) of the impugned Act, no suit or  other proceedings  shall be maintained or continued in any  other court  for the  refund  of  the  same  and  no enforcement shall  be made  by any  court of  any decree  or order directing  the refund  of such  duties of excise which have been  collected and which may have been collected as if the provisions  of section S of the impugned Act had been in force on  and from  the appointed  day  as  defined  in  the impugned  Act.  It  may,  however,  be  mentioned  that  the original unamended  definition of  the word "manufacture" in section 2(f)  contained a  general definition  of  the  word "manufacture"  which  was  and  still  continues  to  be  an inclusive definition  to say  that the  manufacture includes any process  incidental or  ancillary to the completion of a manufactured product.      According to the petitioners, the impugned Act had been enacted and  brought into  force because  of the judgment of the Gujarat High Court dated 24th January, 1979 given in the case of 305 Real Honest Textiles and others v. Union of India-a decision which is also subject matter of appeal before this Court and has been  heard A along with this petition. The Gujarat High Court had  declared that  the levy  and collection of excise duty and  additional duty  on processed cotton fabrics under Tariff Item  No. 19  I of the Schedule to the Excise Act and additional duty  on processed  man-made fabrics under Tariff Item 22(1)  of the  Additional Duties  of Excise  (Goods  of Special Importance)  Act,  195,  was  ultra  vires  and  the processing houses  were liable  to pay  duty  of  excise  on processed fabrics  ad-valorem under  Tariff Item  68 of  the Schedule to  the Excise  Act only  on value  added by way of process charges  on cotton  or manmade  fabrics, as the case may be,  and not  on the  full value  of  such  fabrics.  As mentioned hereinbefore,  an application for special leave to appeal to  this Court  had been filed from the said decision of the  Gujarat High  Court, these  appeals are  pending and would be disposed of by this judgment.      It may be mentioned that so long as the respondents had been collecting  and the  petitioners had been paying excise duty and/or  additional duty  as the  petitioner company was manufacturing cotton  fabrics under  Tariff Item Nos. 19 and 22, as  the case  may be.  Since the decision of the Gujarat High Court  in New  Shakti Dye  Works  Pvt.  Ltd.,  and  the petitioners and  the processing houses like petitioners have been  claiming   refund-  The   material  portions   of  the amendments of  the Act have been set out hereinbefore in the definition of  section 2(f). The second part of the impugned

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 28  

Act by  which amendments were effected is found in section 3 of the  impugned Act  by which  original item  No. 19 in the First Schedule to the Excise Act was substituted by new Item No. 19  I and  for the  original item No. 22, a new item No. 22(1) was substituted. These are:          "  1. Cotton  fabrics, other than (i) embroidery in      the piece,  in strips  or in  motifs, and  (ii) fabrics      impregnated, coated  or laminated  with preparations of      cellulose derivatives  or of  other artificial  plastic      materials      (a)  cotton fabrics, not subjected to any process                                              Twenty per cent                                                   ad-valorem      (b)  cotton  fabrics,   subjected  to  the  process  of           bleaching, mercerising, dyeing, printing, 306           water-proofing,  rubberising,   shrink-  proofing,           organdie processing  or any  other process  or any           two or more of these processes.                                              Twenty per cent                                                   ad-valorem      XXX                      XXX                      XXX          22(1) Man-made fabrics other than (i) embroidery in      the  piece,  in  strips  or  in  motifs,  (ii)  fabrics      impregnated, coated  or laminated  with preparations of      cellulose derivatives  or of  other artificial  plastic      materials-      (a)  man-made fabrics, not subjected to any process.                                              Twenty per cent                                              ad-valorem plus                                              rupees five per                                                square metre.      (b)  man-made fabrics,  subjected  to  the  process  of      bleaching,   dyeing,    printing,   shrink    proofing,      tentering, heat-setting, crease resistant processing or      any  other   process  or  any  two  or  more  of  these      processes.                                              Twenty per cent                                              ad-valorem plus                                              rupees five per                                                square metre.          It may be pointed out that the original Item No. 19      I  referred  to  "cotton  fabrics".  It  provided  that      "cotton  fabrics   means  all   varieties  of   fabrics      manufactured either  wholly or  partly from  cotton and      includes dhoties,  sarees, chadders,  bed-sheets,  bed-      spreads, counter-panes, table cloths, embroidery in the      piece, in  strips or in motifs and fabrics impregnated,      coated or  laminated  with  preparations  of  cellulose      derivatives or of other artificial plastic materials." 307 The proviso  is not relevant for the issue now. The original Item 19 I read as follows:          "I. Cotton fabrics other than (i) embroidery in the      piece,  in  strips  or  in  motifs,  and  (ii)  fabrics      impregnated, coated  or laminated  with preparations of      cellulose derivatives  or of  other artificial  plastic      materials".      Thus, Item  No. 19 I is now substituted by the new item referred to  above and  the effect  of this  substitution is that for  the purposes  of excise  duty cotton  fabrics have been categorised into two classes, namely (a) cotton fabrics not  subjected   to  any  process  and  (b)  cotton  fabrics subjected to  any process of bleaching, mercerising, dyeing, printing,  water-proofing,   rubberising,   shrink-proofing,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 28  

organdie processing  or any other process or any two or more of these  processes. The  duty on each one of them is twenty per cent ad-valorem. Substantially the same is the nature of the substitution  of old  Item No.  22(1) by  new  Item  No. 22(1).      This item  referred to  man-made  fabrics  and  by  the amendment, man-made fabrics have again been divided into two categories, namely,  (a) man-made  fabrics, not subjected to any process, and (b) man-made fabrics subjected to different processes referred to in clause (b).      Cotton fabrics and man-made fabrics were also subjected to the  additional duties  of excise  as  a  result  of  the amendments of  the Additional  Duties of  Excise  (Goods  of Special Importance)  Act, 1957  (hereinafter referred  to as "the Additional  Duties Act").  By section 4 of the amending act, Item  Nos. 19  I and 22(2) of the First Schedule to the Excise  Act   were  also  similarly  amended  by  making  an identical substitution  of Item  No. 191  and 22(1)  in  the First Schedule  to the  Additional Duties Act. The Amendment Act has  been made retrospective in operation, and so far as cotton fabrics  are concerned,  it became operative from 1st March, 1955 and so far as man-made fabrics are concerned, it became operative  from 18th  June, 1977.  Now, it  has  been provided by  clause (iv)  of sub-section (1) of section 5 of the Amendment Act that amendments of clause (f) of section 2 of the  Excise Act should be treated as having been in force at all  relevant times subject to the modifications that the reference in  the Excise Act to the "goods comprised in Item No. 19  I of  the First  Schedule" shall  be construed  as a reference to such "cloth", "cotton 308 cloth",or, as  the case  may  be,  ’  cotton  fabrics",  and reference to the A "goods comprised in Item No. 22(1) of the First Schedule"  shall be  construed as  a reference to such "rayon or  artificial silk  fabrics" or, as the case may be, "man-made fabrics".  Section 5(2)  of the Amendment Act also validates duties  of excise  already  levied,  assessed,  or collected on  cloth, cotton  cloth, cotton  fabrics, woollen fabrics, rayon  or  artificial  silk  fabrics  and  man-made fabrics subjected  to any  process.  It  provides  that  all duties of  excise levied, assessed or collected or purported to have  been levied, assessed or collected, before the date of commencement  of  the  Amendment  Act,  on  (i)  "cloth", "cotton  cloth"   and  "cotton  fabrics"  subjected  to  any process, (ii)  "woollen fabrics",  subjected to any process, (iii) "rayon  or   artificial silk  fabrics"  and  "man-made fabrics" subjected  to any  process, under  any Central  Act shall be  deemed to  be, and  shall be deemed always to have been as  validly levied,  assessed or  collected as  if  the provisions of  section 5  had been  in force on and from the appointed day.  It is also expressly enacted in section 5 of the Amendment  Act that every Central Act as in force at any time during the period commencing with the appointed day and ending  with   day  immediately   preceding  the   date   of commencement of  the Amendment  Act  and  providing  for  or relating to  the levy  of duties  of excise on "(a) ’cloth’, ’cotton cloth’ or, as the case may be, ’cotton fabrics’, (b) ’woollen fabrics’,  (c) ’rayon  or artificial silk fabrics’, or as  the case  may be,  ’man-made fabrics’, shall have and shall be  deemed to  have always  had effect during the said period as if (i) such ’cloth’ or as the case may be, ’cotton fabrics’ comprised  for the  purpose of  the  duty  leviable under the  Excise Act- (A) a sub-item covering such ’cloth’, ’cotton cloth’  or ’cotton  fabrics’ not  subjected  to  any process mentioned in sub-clause (v) of clause (f) of section

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 28  

2 of the Central Excise Act, as amended by this Act; and (B) a sub-item  covering such  ’cloth’ ’cotton cloth’ or ’cotton fabrics’ subjected  to any  such process  or any two or more such processes  and the  rate or  duty specified in such Act with  respect  to  such  cloth,  cotton  cloth,  or  ’cotton fabrics’ had  been specified separately with respect to each of the  aforementioned sub-items thereof". Similar provision was also  made in clause (iii) of sub-section (1) of section 5 in  respect of "rayon or artificial silk fabrics" or "man- made fabrics".  It is  common  ground  that  the  effect  of various  amendments  inserted  in  the  Excise  Act  by  the Amendment Act  was to  include the  processes of  bleaching, dyeing and  printing, in so far as the present petitions are concerned, within  the definition of the word "manufacture". It is  also common ground that by making amendment to Tariff Item 309 No. 19  I and  by creating two separate categories of cotton fabrics, that  is, (1) not subjected to any process, and (2) subjected to  the A processes and by making these amendments retrospective recoveries  which have  so far  been made from the processors  in question  were sought to be legalised. If these amendments  can stand the test of challenge of Article 19(1)(g) and  14 and  if the  amendments in section 2(f) are within the legislative competence of the Parliament, and the process  of   bleaching,  dyeing   and  printing  and  other processes mentioned  in the  newly introduced  clause (v) o section  2(f)   were  manufacturing   processes,  then   the processors would become liable to pay excise duty, and there cannot be any question of refund. This is not disputed.      The amending  Act has,  however,  been  challenged  and various submissions on behalf of the respective parties were made and numerous decisions were referred to us.      The following  main points  fall for  consideration  in these applications and appeals:      1.   Whether cotton fabrics subjected to the process of           bleaching, mercerising,  dyeing,  printing,  water           proofing etc.  specially the  processes  conducted           and carried  out  by  the  petitioner  company  as           enumerated before in respect of cotton fabrics and           woollen  fabrics/man-made   fabrics  as  mentioned           under Items  19 or  22  of  the  Schedule  to  the           Central   Excises   and   Salt   Act   amount   to           ’manufacture’  as  the  Act  stood  prior  to  the           impugned Act of 1980. In other words whether these           various processes  carried out  by the  petitioner           company  amount   to   bringing   into   existence           different and  distinct goods,  commercially known           as such,  to attract  levy of duty under section 4           of the Central Excises and Salt Act, 1944.      2.   Whether and  in any  event after the impugned Act,           the levy  is valid.  In connection  with the  said           contention it  has  to  be  examined  whether  the           impugned Act  is intra vires entry 84 of List I of           the Seventh  Schedule to  the Constitution  and if           not, whether  the said impugned Act can be said to           be valid  in any event under entry 97 of List I of           the Seventh Schedule to the Constitution, 310      3.   Whether the  impugned Act  violates Article  14 or           Article 19(1)(g) of the Constitution.      If the  impugned Act  is valid,  then no other question need be  examined except  the question  as to what should be the actual levy of the duties.        It is therefore necessary to examine the amendment of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 28  

the definition  of ’manufacture’  in  section  2(f)  of  the Central Excise and Salt Act, 1944 and Tariff Items 19(1) and 22(1) of the First Schedule to the Central Excise Tariff.        The  main contention  of the  petitioner is  that the impugned Act  is ultra  vires of  entry 84  of List I of the Seventh Schedule.  It is not necessary to set out in extenso entry  84   of  List  I  of  the  Seventh  Schedule  to  the Constitution. It  deals with duties of excise on tobacco and other goods  manufactured or  produced in  India. It  may be mentioned that  the charging  section i  e. section 3 of the Central Excises  and Salt  Act, 1944  empowers the  levy and collection in  such manner  as may  be prescribed  duties of excise on  all excisable  goods other  than salt  which  are produced or  manufactured  in  India  and  a  duty  on  salt manufactured in, or imported by land into, any part of India as they  apply in respect of goods at rates set forth in the First Schedule  to the  said Act.  "Excisable  goods"  under section 2(d)  means goods specified in the First Schedule as being subject  to a duty of excise and includes salt. It was urged in  support of  this application  that Parliament  was incompetent under entry 84 to enact the impugned Act whereby an artificial  meaning to  the word ’manufacture’ was given. The  word  ’manufacture’  must  be  given  its  etymological meaning. It  was urged that process of bleaching, dyeing and printing are not processes which could properly be described as manufacturing  processes. Therefore it was submitted that by making  the said  amendment to the word ’manufacture’ and by including such processes in the definition of manufacture and in  effectuating the  consequential amendments in Tariff Item Nos.  19 I  and 22(1),  Parliament has  gone beyond the scope of  entry 84  of List I of the Seventh Schedule to the Constitution and  as such  is ultra  vires. It was submitted that all  that was  being done  was that  fully manufactured cotton fabrics is subjected to further process of bleaching, dyeing  and   printing  and   therefore  the  article  still continues to  be cotton  fabric  and  no  different  article having distinctive  features, character  and use  comes into existence. It was submitted that grey 311 cloth before  it is  processed is cotton fabric and after it is processed,  continues to  be cotton  fabrics. As  such it cannot be  said that  there A  was any manufacture involved. Numerous decisions  on the  question  whether  a  particular process was a manufacturing process or not were referred to. On the other hand on behalf of the revenue it was urged that the  processes   of  bleaching,  dyeing  and  printing  were essentially manufacturing  processes inasmuch as a result of these processes,  a new  substance known  to the  market  is brought into  being. In  support of this contention, several decisions were  also referred to. Though it is not necessary to refer to all these decisions, some of these may be noted.      In Union  of India  v. Delhi  Cloth & General Mills,(l) this Court  was concerned  with the  question as  to whether manufacture of  ’refined oil’  from raw materials undertaken by  the   manufacturers  of   Vegetable  products  known  as Vanaspati was  liable  to  excise  duty.  The  manufacturers purchased ground-nut  and til  oil from open markets and the oils thus  purchased by  them were  subjected  to  different processes in  order to  turn  these  into  Vanaspati.  Their contention was  that at  no  stage  they  produced  any  new products which  could come within the items described in the Schedule as  "vegetable non-essential oils, all sorts, in or in relation  to the  manufacture of  which  any  process  is ordinarily carried on with the aid of power". The contention of the  revenue was  that the manufacturers in the course of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 28  

manufacture of  Vanaspati which was a vegetable product from the raw  ground-nut and til oil, brought into existence what is known  in the  market as ’refined oil, after carrying out some process  with the  aid of  power and it fell within the description of  "vegetable non-essential  oils" and  as such was p liable to duty. And in that context it was pointed out by this Court that excise duty was a duty on the manufacture of goods  and not  on sale. After referring to the arguments of respective  parties, this  Court noted at page 596 of the report  the   contention  on  behalf  of  the  revenue  that manufacture was  complete as  soon as  by the application of one or more process, the raw material underwent some change. It further stated-             "To  say  this  is  to  equate  "processing"  to      "manufacture" and  for this  we can  find no warrant in      law. The word "manufacture" used as a verb is generally (1) 11963]1 SUPP, S.C.R. 586. 312      under stood to mean as "bringing into existence a new A      substance" and  does not  mean merely  "to produce some      change in  a substance",  however, minor in consequence      the change  may be.  The distinction  is  well  brought      about in  a passage thus quoted in Permanent Edition of      Words and  Phrases, Vol. 26, from an American Judgment.      The passage runs thus:          "Manufacture" implies a change, but every change is      not manufacture  and yet  every change of an article is      the result  of treatment,  labour and manipulation. But      something  more   is  necessary   and  there   must  be      transformation; a new and different article must emerge      having a distinctive name, character or use."      Hence according to this decision, if a new substance is brought into  existence or  if a  new or  different  article having a  distinctive name,  character or  use results  from particular processes, such process or processes would amount to manufacture.  This view  point  has  been  reiterated  in numerous decisions. Reference in this connection may be made to the  decision in  the case  of Union  of India v. II.U.F. Business known  as Ramlal  Mansukhrai, Rewari & Anr.(’) This Court at pages 941-942 of the report observed as follows:-          "The  word "manufacture" is defined in Section 2(f)      of the  Act as  including  any  process  incidental  or      ancillary to  the completion of a manufactured product.      The rolling  of a  billet into  a circle is certainly a      process in the course of completion of the manufactured      product, viz., circles. In the present case, as we have      already indicated  earlier, the product, that is sought      to be subjected to duty, is a circle within the meaning      of that  word used  in Item  26A(2). In  the other  two      cases  which  came  before  this  Court,  the  articles      mentioned in  the relevant  items of the First Schedule      were never  held to  have come  into existence, so that      the completed  product, which was liable to excise duty      under the  First Schedule,  was never  produced by  any      process. In the case before us, circles in any form are      envisaged  as   the  completed   product  produced   by      manufacture which  are subjected  to excise  duty.  The      process of conversion of billets into circles (1) [l971] I S.C.R. 937. 313      was described  by the legislature itself as manufacture      of circles."        The  question of ’manufacture’ was also considered by this  Court   in  the   case  of   Allenburry  Engineers  v. Ramakrishna Dalmia Ors.(1)

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 28  

    It may  be noted  in the  case  of  Hiralal  Jitmal  v. Commissioner of  Sales Tax(2),  a Division  Bench of  Madhya Pradesh  High  Court  in  considering  the  meaning  of  the expression ‘manufacture’  for  the  purpose  of  the  Madhya Bharat Sales  Tax Act, 1950, was of the view that it was not necessary  that  there  must  be  a  transformation  in  the materials and  that the  transformation must have progressed so far  that the  manufactured article  became  commercially known as  a different article from the raw materials and all that was  required was  that the  material should  have been changed or  modified by  man’s art or industry so as to make it capable  of being  sold in  an acceptable form to satisfy some want,  or desire,  or fancy  or taste  of  man.  It  is apparent that  the concept of ’manufacture’ in that decision has been  given a  wide meaning.  It is  not necessary to go into this  aspect any further. It may be mentioned that this Court in the case of Commissioner of Sales Tax, U.P. Lucknow v. Harbilas  Rai and  Sons(3)  pointed  out  that  the  word ’manufacture’ has  various shades  of meaning,  and  in  the context of sales tax legislation, if the goods to which some labour was  applied remained essentially the same commercial article, it could not be said that the final product was the result of  manufacture. Referring to the Madhya Pradesh High Court decision  in the  case of Hiralal Jitmal (supra), this Court observed at page 20 as follows:          "....The  decision of the Madhya Pradesh High Court      might perhaps be justified on the ground that a printed      or dyed  cloth is commercially a different article from      the cloth which is purchased and printed or dyed.        This is precisely the position here. On behalf of the revenue, great  emphasis was  laid on  the  view  that  even according to  this  Court,  printed  or  dyed  cloth  was  a commercially different  article  from  the  cloth  which  is purchased and printed or dyed. (l) [1973] 2 S.C.R. 257. (2) [1957l S.T.C. Vol. VIII, 325 (M.P.). (3) [1968] S.T.C. Vol. 21 p. 17 (S.C.), 314      A similar view was taken by the Punjab and Haryana High Court in the case of East India Cotton Manufacturing Company Private Limited  v. The  Assessing Authority-cum-Excise  and Taxation Officer, Gurgaon and Another.(l) The Division Bench in that case positively took the view that sizing, bleaching or dyeing  of raw cloth turns it into a different marketable commodity, and,  as such,  amounted to  "manufacture"  of  a commercially new  product. Reference  may also  be made to a decision of  the Bombay  High Court in Kores (India) Limited v. Union  of India  and Others(2),  where the Division Bench was considering  the question whether the process of cutting large rolls  of paper into specific sizes can dimensions and to roll  these into  teleprinter rolls with the aid of power driven machines  amounted manufacture  under section 2(f) of the  Central  Excise  Act.  The  Division  Bench  held  that teleprinter rolls are different commodities or articles from the one  used as  the base  material which  is large size or jumbo rolls writing or printing papers.      Fabric itself  means woven  materials. It was contended that processing  the manufactured fabric does not bring into existence any  new woven  material but the question is: does new and  different goods emerge having distinctive name, use and character  ? The  Madras High  Court in  the case  of  K Venkataraman and Company and others v. Deputy Commercial Tax Officer, Coimbatore  IV and  others(8) had  to consider that cinders do  not fall  within the expression "coal, including coke in  all its  form" in  item I of the Second Schedule of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 28  

the Tamil  Nadu General Sales Tax Act, 1959. Where the words used in an entry are comprehensive or wide enough to include all kinds  or types  of particular  goods falling within the description, the  question was whether their scope should be restricted and  in that context it was held that mere change in form  or colour  of the goods by reason of any processing cannot be  held to be sufficient ground for removing it from its original classification.      In the  case of Commissioner of Sales Tax, U.P. Lucknow v. Harbilas  Rai and Sons (supra), it was held that the word ’manufacture’ has  various shades  of meaning,  and  in  the contest of sales tax legislation, if the goods to which some labour is  applied remain  essentially the  same  commercial article, it cannot be said that the (l) [1972] S.T.C. Vol. 30 p. 489 (Pb. & Har.). (2) [1982] E.L.T. Vol. 10, p. 253. (3) [1972] S.T.C. Vol. 30 p. 57 (Mad.). 315 final product  is  the  result  of  manufacture.  There  the assesses,dealers in pig bristles, bought bristles plucked by Kanjars from  pigs, A boiled them, and washed them with soap and other  chemicals, sorted  them out  according  to  their sizes  and   colours,  tied  them  in  separate  bundles  of different sizes and despatched them to foreign countries for sales. It  was held that the sales made to foreign countries were not taxable as the bristles were not manufactured goods within Explanation  II(ii) to section 2(h) of the U.P. Sales tax Act, 1948.      In Deputy  Commissioner, Sales  Tax (Law)  Board  of  . Revenue (Taxes) Ernakulam v. Pio Food Packers(’) arising out of Kerala  General Sales  Tax Act  1963 where the expression used under section 5-A(l)(a) was "consumes such goods in the manufacture of  other goods  for  sale  or  otherwise",  and meaning of  the expression under section 5-A(1) (a) fell for consideration for exigibility to tax of pineapple fruit when processed into  slices for  the purpose  of  being  sold  in sealed cans. Though in the facts of that case in the context of Sales Tax Law, it was held that there was no manufacture, the principles enunciated by this Court are in the following terms:          "There are several criteria for determining whether      a commodity  is consumed  in the manufacture of another      The 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 (1) [1980] 3 S.C.R. 1271. 316      consumed in  the manufacture  of another. Although it A      has undergone  a  degree  of  processing,  it  must  be

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 28  

    regarded as still retaining its original identity."      It may  be noted  that the taxable event in the context of Sales  Tax Law  is ’sale’.  The taxable  event under  the Excise  Law   is  ’manufacture’.   The   moment   there   is transformation into  a new commodity commercially known as a distinct and  separate commodity  having its  own character, use and  name, whether  be it  the result  of one process or several processes ’manufacture’ takes place and liability to duty is  attracted. Though in the facts of that case perhaps it was not necessary and as such the attention of the   Court  was  not  drawn  to  the  definition  of  the  term ’manufacture’ under  section 2(f)  of the Central Excise Act nor was the Tariff Item IB placed before the Court.      This decision  was referred to and followed in the case of Chowgule  & Co. Pvt. Ltd. and Another v. Union of India & Others.(l) Whatever  may be  the operation, it is the effect of the  operation on  the commodity that is material for the purpose of  determining whether  the  operation  constitutes such a  process which  will  be  part  of  ’manufacture  Any process  or  processes  creating  something  else  having  a distinctive name, character and use would be manufacture.      It is  appropriate now  to refer to Gujrat High Court’s decision in the case of Vijay Textile, y. Union of India.(2) Gujarat High  Court held  that cotton  fabrics subjected  to bleaching, dyeing  and printing  could not  be subjected  to excise duty  under Item  19  (1).  The  Gujarat  High  Court proceeded on  the footing  that the  processes of bleaching, dyeing and  printing were  manufacturing processes  and held that excise  duty would be leviable under residuary Item No. 68 of  the First Schedule. This decision has two aspects one which was  emphasised on  behalf of  the revenue  i.e.  that Gujarat High  Court accepted  the position that processes of bleaching, dyeing  and printing were manufacturing processes and such  on the  strength of that decision, it could not be said that  these processes  do not amount to manufacture and on  the   other,  which   was  stressed  on  behalf  of  the petitioners, was that such processes could not transform the cloth (1) [1981] I S.CC.. 653. (2) [1979] 4 E.L.T. J. 181. 317 into item  19(1). The Gujarat High Court’s decision which is reported at page 193 of the report is as follows:-         "In the instant case, the excise duty claimed on the      basis of  the market  value  of  the  processed  cotton      fabrics or  man-made fabrics  cannot be levied because,      assuming that  process amounts to manufacture, all that      they have  done  is  to  manufacture  processed  cloth,      processed fabric,  either cotton  or man-made  and that      not being  a taxable  event in  the light  of Section 3      read with  section 2 (d) of the Act and Items 19 and 22      levy of  excise duty  on this basis was ultra vires and      contrary  to   law.  Therefore,   the  petitioners  are      entitled to  the refund  of the  excess of  excise duty      paid by  them during  the period  of last  three  years      immediately preceding  the filing  of the Special Civil      Application over  what they  were bound  to pay  on the      footing  that   processing  of  cotton  fabrics  is  an      excisable activity  covered by  Item 68. Item 68 refers      to   "All   other   goods   not   specified   elsewhere      manufactured in a factory." Therefore, processed cotton      fabrics   and   processed   man   made   fabrics   were      manufactured in  the factories  of the  petitioners and      since they  are not  covered by  Item 19  or 22  of the      Schedule, they  are liable  to pay ad valorem duty only

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 20 of 28  

    in respect  of the  value added  by them at the time of      processing  because  the  only  manufacturing  activity      which they  have done is the manufacturing of processed      fabrics from fabric which was already in existence. The      Excise authorities  are therefore directed to calculate      the ad  valorem excise  duty during the period of three      years immediately  preceding the  institution  of  each      petition  before  us  and  calculate  the  excise  duty      payable by each of these petitioners under Item 68 only      in  respect   of  the   value  added  by  each  of  the      petitioners by  the processing of the fabric concerned.      The excise  duty paid in excess of such ad valorem duty      under  Item   68  during  the  period  of  three  years      immediately preceding the institution of the respective      Special Application  is ordered  to be  refunded to the      petitioners concerned in each of their petitions."      The main  question that  fell for  consideration before the Gujarat  High Court was whether the articles fell within Tariff Entry  19 or  22 as contended by the revenue or under residuary Entry 68. 318      It appears in the light of the several decisions and on the construction  of the  expression  that  the  process  of bleaching, dyeing  and printing  etymologically  also  means manufacturing  processes.  In  support  of  this  contention reliance on behalf of the petitioners was also placed on the case  of   Extrusion  Process  Pvt.  Ltd.  v.  N.R.  Jadhav, Superintendent of  Central Excise (1) where the Gujarat High Court had  held that  printed and  lacquered aluminium tubes did not  have, in  relation to  a plain  extruded tubes  any distinctive name, character or use as both could be used for the same  purpose, both  enjoy the same name, and therefore, these could  not be said to be new substance distinguishable from plain extruded tubes. This decision, however, cannot be of assistance  in the  instant case. The petitioners in that case had  been printing  and lacquering  only plain extruded tubes  and   the  question   was  whether  by  printing  and lacquering  the   plain  extruded  tubes  of  aluminium  the petitioners firstly applied any further process of extrusion to these  and there  by manufactured tubes. It was held that printing and  lacquering were  not even  remotedly connected with the  manufacture of  aluminium tubes.  It was a process independent of  the  manufacture  of  aluminium  tubes.  The question whether  a  particular  process  is  a  process  of manufacture or  not has  to be  determined naturally  having regard to  the facts  and circumstances  of  each  case  and having regard  to the  well-known tests  laid down  by  this Court. Similarly  the facts  of the  decision in the case of Swastic  Products,   Baroda  v.  Superintendent  of  Central Excise(2) are also distinguishable.      The decision  of this Court in the case of Kailash Nath and Another  v. The  State of  U.P. and Others(3) was on the question of  interpretation of  a notification issued by the U.P. Government exempting sale of manufactured cloth or yarn with a  view to  export such cloth or yarn. The notification provided that  with effect  from  1st  December,  1949,  the provisions of  the U.P. Sales Tax Act, 1948 did not apply to the sales  of cotton  cloth or  yarn manufactured  in  Uttar Pradesh, made on or after 1st December, 1949, with a view to export such  cloth or  yarn outside the territories of India on the  condition  that  the  cloth  or  yarn  was  actually exported  and  proof  of  such  actual  export  was  further furnished. This  Court in  that case  held that although the colour of the cloth had changed by printing and (1) [1979] 4 E.L.T. J. 380 (Gujarat).

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 28  

(2) [1980] 6 E.L.T. 164 (Gujarat). (3) [1957] S.T.C. Vol. VIII p. 358 (S.C.). 319 processing, the  cloth exported  was the  same as  the cloth sold by the petitioners in that case and they were therefore not entitled  to exemption  under the notification. As would be apparent  from the  facts  mentioned  herein-before,  the question  for   consideration  before  this  Court  was  the identity of  cloth purchased  and exported  having regard to the use  of the  words "cloth"  in the  notification.  These words  were  construed  by  this  Court  to  mean  that  the Legislature did  not intend  that the identical thing should be  exported   in  bulk  quantity  or  that  any  change  in appearance would be crucial to alter it. It was also pointed out that  the expression  "such cloth  or yarn"  would  mean cloth or  yarn manufactured  in Uttar  Pradesh and  sold and those words  had nothing  to do  with the  transformation by printing and  designs on  the cloth.  It is  implicit in the decision of  this Court  that by  printing or designing, the cloth was in fact transformed. But since the decision turned on the  construction of the notification in which any change in appearance  or transformation  of an article into another did not  become relevant,  the  decision  would  not  be  of assistance in  disposing of  the present case. This question has been  elaborately considered by the Bombay High Court in the case of x New Shakti Dye Works Private Ltd. and 24 other petitions heard along with the same and are under appeals to this Court  by special leave. We are in respectful agreement with the  conclusions reached  by the  learned Acting  Chief Justice of the Bombay High Court in that decision.      In England,  in the  case of  Mc Nicol  and Another  v. Pinch,(l) the "manufacture of saccharin" in the Finance Act, 1901 and  the  Revenue  Act,  1903  was  held  to  mean  the "bringing into being as saccharin". There the appellants had subjected certain "330 saccharin" (i.e., saccharin 330 times as sweet  as sugar)  to a  chemical process,  the result  of which  was   that  in  some  cases  "550  saccharin"  (i.e., saccharin 550  times as  sweet as  sugar) was  produced,  in others a  mixture sweeter  than 330, but not so sweet as 550 saccharin, and  in few  cases a  mixture less sweet than 330 saccharin was  there. It  was held by the Court of Appeal by Bray  and  Darling  JJ.,  Ridley,  J.  dissenting  that  the appellants  were  not  manufacturing  saccharin  within  the meaning of  the Finance  Act, 1901, so as to be compelled to take out the excise licence required by s. 9 of that Act and s. 2 of the Revenue Act, 1903, and to obtain from an officer of Inland  Revenue a  book such  as was  prescribed  by  the Regulation No. 633 of (1) [1906] 2 K.B 3s2. 320 the Statutory  Rules, 1904,  inasmuch as  the substance with which the  appellants dealt was always saccharin both before and after  their treatment  of it. Bray J. Observed at pages 359-360 of the report as follows-          "We have to determine whether upon the facts stated      in the  case the  appellants did manufacture saccharin.      Let us  see what  those facts  are. One of the admitted      facts is  that saccharin  is a  substance produced from      toluene  sulphonamide.   That  is   the  definition  of      saccharin. This  saccharin  was  not  produced  by  the      appellants from  toluene sulphonamide;  it was produced      (if  it  can  be  said  to  have  been  produced)  from      saccharin itself.  The appellants have not manufactured      saccharin from  toluene sulphonamide.  The case  states      that 330  saccharin  is  produced  without  eliminating

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 22 of 28  

    certain para  products, or  only eliminating  them to a      very small  extent.  Then,  in  order  to  convert  330      saccharin into  550, certain of the para compounds have      to be  eliminated. Then  it states  that "this mixture"      (that is,  the  330)  "is  known  commercially  as  330      saccharin "  The other mixture is known commercially as      550 saccharine. In both cases it is saccharin, and as a      dutiable article  330 saccharin  does not differ in the      smallest degree  from 550  saccharin. The  same duty is      payable on  550 saccharin as on 330 saccharin. What the      appellants do is stated thus: "The appellants subjected      certain 330  saccharin to  a chemical  process  .  This      amount of  330 saccharin  was not  treated in one bulk,      but  in   separate  quantities.   The  result  of  this      treatment was  that in  some cases  550  saccharin  was      produced, and  in some cases a mixture sweeter than 330      saccharin  but  not  so  sweet  as  550  saccharin  was      produced," and  in some  cases less  sweet. But  it was      always  saccharin;  it  was  saccharin  before  it  was      treated, and it was saccharin after it was treated."      Darling J.  at pages  361-362 of  the report  made  the following interesting observations:-          "I do not say that to use the word "manufacture" as      exactly synonymous with the word "make," or to use 321      the words  "to manufacture"  as exactly synonymous with      the words  "to make"  is strictly  grammatical,  but  I      think A  that is  what the statute has done. I think it      possible that  in a  literary sense  "to make"  and "to      manufacture" may  not have  precisely the same meaning.      One can put cases where the word "manufacture" might be      used in  a somewhat  strained way, but perhaps a little      more scientifically.  Take the  case of  a carpenter. A      carpenter uses  wood; he begins with wood; he makes the      wood into  boxes. What  would you  say if you wanted to      talk of  his manufacturing  ? Ordinary people would not      say that  he  manufactured  wood;  they  would  say  he      manufactured boxes.  But I  am not  quite sure it might      not be  strictly said that he manufactures the wood. He      applies a  process to  it. I suppose etymologically "to      manufacture" is "to make by hand." Everybody knows that      you cannot absolutely make a thing by band in the sense      that you  can create  matter by  hand, because  in that      sense you  can make nothing: "Ex nihilo nihil fit." You      can only  make one  thing out  of another.  I think the      essence of  making or  of manufacturing is that what is      made shall  be a different thing from that out of which      it is  made. Even if it could be strictly said that the      carpenter "manufactures" wood it could not be said that      he "makes"  wood. The  same with a man who makes boots;      he takes  leather, and  he makes  it into  boots. If he      simply made  leather into leather nobody could possibly      say that he was a leather manufacturer, hut it would be      possible to  say that  a man  took leather  and make it      into boots manufactured leather but made boots. I think      it would  be possible to say that, and I am not sure it      would not  be strictly  accurate but I cannot read this      statute in  that way.  (emphasis supplied).  Whether it      would be  possible to read "manufacture" etymologically      as something  very different  from "make,"  I think the      Act of  1901 uses  "manufacture" and  "make"  as  being      convertible terms,  and that  a  man  who  manufactures      saccharin under  s. 9  is doing  the same  thing as  is      called the  making of  saccharin  under  s.  S  or  the      manufacturing of glucose or saccharin under sub-s. 2 of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 23 of 28  

    s. 5,  and that  the appellants did not make saccharin,      because they  began and  ended with saccharin. They did      not "make"  saccharin, and  in my opinion, from the way      in which the 322      word is used by the statute, they did not manufacture A      saccharin, and therefore did not require a licence."      It may,  however, be  pointed out  that when Darling J. dealt with  the example  of a  carpenter, the  learned judge thought it  was right  that it  could not  be slid that when ’box’ is  prepared  that  the  carpenter  was  manufacturing ’wood’ but transforming ’wood’ into ’box’ would certainly be manufacturing ’boxes’  It is  well-settled that  one  cannot absolutely make a thing by hand in the sense that nobody can create matter  by hand, it is the transformation of a matter into something else and that something else is a question of degree,  whether   that  something   else  is   a  different commercial commodity  having its distinct character, use and name and  commercially known as such from that point of view is a  question depending upon the facts and circumstances of the case.  Plain wood is certainly different from ’box’ made of wood.  Rindley J.  it may  be pointed out, disagreed with the view  and observed  at page 362 of the report that where any process  of art  is used  upon  some  substance,  it  is "manufactured." He observed as follows:-           "To say  that a  person does  not "manufacture." a      thing because  it has  the same  name after the process      has been  passed upon  it as it had before seems to me-      but T  suppose I  am wrong-to  be simply  a question of      words. If  there had  happened to  be another  word for      saccharin  of  the  strength  of  550,  different  from      saccharin of  the strength  of 330,  it would  almost-I      will not  say quite  follow from  the reasoning  of  my      learned  brothers   that  this   would  have   been   a      manufacture. I  cannot think  that is so. Take the case      of the manufacture of steel; and let it be steel before      it goes  into works:  apply some  process to  it and it      become a  particular short  of steel.  But it  is steel      both before  and after,  although  steel  of  different      qualities. Is  not that  the manufacture  of  steel?  I      should have  thought so.  Take the manufacture of wool,      it is  wool when  it is on the sheep’s back; it is wool      when it  has passed  through the process of sorting and      picking which  it has to go through in the mill. Is not      that the manufacture of wool ? I should have thought it      most certainly was, although the name "wool" is applied      to it  both before  the process begins and after it has      ended" 323      The learned  judge further  observed that  in that case saccharin was  "manufactured" and  manufacture of  saccharin does cover a  process that was done in that case.      In that  view of  the matter  etymologically  the  word "manufacture" properly  construed would  doubtless cover the transformation. In  support of the question whether actually there is manufacture or not various documents were attempted to be  utilised at the hearing of the application before us. Most of  these pieces of evidence cannot be admitted at this stage but  indisputably in  the Indian  Standard Glossary of terms  which   deals  with  various  expressions,  ’Bleached Fabric’ has  been defined  as a  fabric which  has undergone bleaching treatment  and is  treated by  the India  Standard Institution as something different from fabric which has not undergone the  bleaching operations. Different standards are set out  by the  same and  the views  of the Indian Standard

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 24 of 28  

Institution can  be looked  into by  the Court  with certain amount of  creditability. See  in this  connection Union  of India v.  Delhi Cloth  & General  Mills (supra).  So far  as other evidence  is concerned, as mentioned, hereinbefore, it may not be safe to deal with the same as these were produced at a  very late  stage and  all the materials are not on the record.      After the  impugned Act  was passed  these processes in the present  case indubitably  fill  within  the  expression "manufacture" if  the impugned  Act is valid, and within the competence  of  the  Parliament.  Arguments,  however,  were advanced on  behalf of  the petitioners  that in entry 84 of List I  of Seventh  Schedule, the  expression  "manufacture" cannot be  extended to  include  processes  which  were  not "manufacture". Large  number of  decisions were cited at the Bar on  this aspect  of the  matter. It is true that entries though should  be widely  construed, these  should not be so construed as  to bring  in something which has nothing to do with the  "manufacture". It was submitted that legal concept and  connotation   of  "manufacture.’   were   well-settled. Reliance was placed on several decisions for this purpose.      As has  been noted,  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. 324      The question  whether the  impugned Act  is covered  by entry   84 can  be looked  from another point of view namely the actual  contents of  entry 84.  In the case of Aluminium Corporation of India Ltd. v. Coal Board(1). a Division Bench of Calcutta  High Court had to consider this question in the context of  Coal Mines  (Conservation and Safety) Act, 1952. The objection  of the  petitioner  in  that  case  was  that although coal might be a material or a commodity, it was not something which  was produced  and therefore the entry which applied to  the goods  produced in  India could not apply to coal. No  question of  manufacture obviously  arose. It  was submitted that  the coal produced itself. This was rejected. The   word ’produced’ appearing in entry No. 84 of List I of the Seventh  Schedule is  used in  just a  position with the word ’manufactured’ according to the Division Bench and used in connection  with duty of excise and consequently it would appear to  contemplate some  expenditure of  human skill and labour in  bringing the  goods concerned  into the condition which would  attract the  duty. It was not required that the goods would  be manufactured  in the sense that raw material should be  used to  turn out something altogether different. It would  still require that these should be produced in the sense that some human activity and energy should be spent on them and  these should  be subjected  to some  processes  in order that these might be brought to the state in which they might become  fit for  consumption. To  speak of  coal,  the Division Bench  was of the opinion, as produced in the sense to its  being made  a material of Consumption by human skill and labour was entirely correct and had sanction of approved usage. Reference was made to the observations of the King v. Caledonian  Collieries,  Limited.(2)    Where  the  Judicial Committee  held   that  the  respondents  before  them  were ’producers of coal’. If that aspect of the matter is kept in mind then  expenditure of human skill and material have been used in  the processing  and it  may not  be  that  the  raw material was  first transformed  but  over  the  transformed material, further  transformation  was  done  by  the  human labour and skill making this fit for human consumption.      In any  event under  entry 97  of List I of the Seventh

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 25 of 28  

Schedule this  would apply  if it  is not under entry 84. It was then  argued that  if the  legislation was  sought to be defended on  the ground  that it  is a  tax on activity like processing and would be covered by the (1) A.I.R. 1959 Cal. 222. (2) [1928] A.C. 358. 325 powers enumerated  under entry  97 of  List I of the Seventh Schedule then  it was  submitted that  there was no charging section for  such an  A activity and as such the charge must fail, and  there cannot  be any levy. This argument proceeds on an  entire misconception.  The charging  section  is  the charging section  3 of  the Central  Excises and  Salt  Act, 1944. It stipulates the levy and charge of duty of excise on all excisable goods produced or manufactured. "Manufactured" under the  Act after the amendment would be the manufacture’ as amended  in section 2 (f) and Tariff item 19 I and 22 and the charge would be on that basis. Therefore it is difficult to appreciate the argument that the levy would fail as there will be  no appropriate  charging section  or machinery  for effectuating the  levy on  the activity  like the  method of processing even  if such  an activity can be justified under entry 97  of List  I of Seventh Schedule. We are, therefore, of the opinion that there is no substance in this contention As mentioned hereinbefore under each of these points several authorities were  cited but  in the  view we  have taken  on principles which  are well-settled,  it is  not necessary to multiply these authorities.      The validity  of the impugned Act was challenged on the ground that  by giving  retrospective  effect,  unreasonable restrictions  have   been  imposed   on   the   petitioners’ fundamental rights  under Articles  14 and 19 (1) (g) of the Constitution. In  this connection,  it may be appropriate to refer to the statement of objects and reasons wherein it was stated that the Central Excise duty was levied for the first time on  cotton fabrics  in 1949, on man-made fabrics (rayon of artificial  silk fabrics)  in 1954 and on woollen fabrics in 1955.  From the  very early stages of the textile tariff, with a  view to  achieving progression in the rate structure and to aligning excise control with the demands of different producing sectors,  duties had  been levied not only on grey fabrics  but  also  at  the  stage  of  processing  such  as bleaching, dyeing  and printing.  In  the  judgment  of  the Gujarat High  Court in  the case of Real Honest Textiles and others v.  Union of India, it was held that ’fabric’ as used in the  tariff description  "cotton fabric"  would refer  to something that  was woven;  hence it  could relate  only  to cloth in the grey stage; processing of the grey cloth either by  bleaching,   dyeing  or   printing  did  not  amount  to manufacturing  as   both  before  and  after  processing  it remained a  fabric falling  within the  same item of Central Excise Tariff (Item 19-cotton fabrics, of the First Schedule to the  Central Excises and Salt Act). The Court had arrived at a similar conclusion with regard to man-made fabrics 326 falling under  item No.  22 of  the same Schedule. After the pronouncement of  the above judgment, several writ petitions were filed  in various  courts. This decision of the Gujarat High Court,  according  to  the  statement  of  objects  and reasons of  the Act,  had upset  the arrangements  regarding levy of  excise duties on textile fabrics. The judgment also had the  effect of  disturbing the  balance evolved  between different sectors  of the  textile industry. Furthermore, it was made  clear that  in so  far as  past  assessments  were concerned,  refund  of  excise  duties  to  manufactures  as

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 26 of 28  

ordered by the High Court would have only meant a fortuitous windfall so as to benefit such persons without any relief to the ultimate consumers who had purchased the fabrics and had borne the  burden of the duties. In order to avoid this, the Act was passed.      It  has   therefore  to  be  borne  in  mind  that  the petitioners have  already paid  excise duty demanded of them from time  to time and the present petitioners have gathered the duties from the consumers.      Imposition of tax by legislation makes the subjects pay taxes.  It  is  well-recognised  that  tax  may  be  imposed retrospectively. It  is also  well-settled  that  by  itself would not  be unreasonable restriction on the right to carry on  business.  It  was  urged,  however,  that  unreasonable restrictions would  be there because of the retrospectivity. The  power   of  the   Parliament  to   make   retrospective legislation including  fiscal legislation  are well-settled. (See M/S.  Krishnamurthi &  Co. etc.  v. State  of Madras  & Anr.(’) Such  legislation per  se is not unreasonable. There is no  particular feature  of this  legislation which can be said  to   create  any  unreasonable  restriction  upon  the petitioners.      In  the   view  we   have  taken   of  the   expression ’manufacture’, the  concept of  process  being  embodied  in certain situation  in the  idea of manufacture, the impugned legislation is  only making  ’small  repairs’  and  that  is permissible mode  of legislation.  In 73rd volume of Harward Law Review p. 692 at p. 795, it has been stated as follows:-         "It is necessary that the legislature should be able      to  cure  inadvertent  defects  in  statutes  or  their      administration by  making what  has been  aptly  called      ’small repairs’.  Moreover, the  individual who  claims      that a vested right (1) [1973l 2 S.C.R. 55. 327      has arisen  from the defect is seeking a windfall since      had the legislature’s or administrator’s action had the      effect it   was intended to and could have had, no such      right would  have arisen.  Thus, the  interest  in  the      retroactive  curing   of   such   a   defect   in   the      administration   of    government   out    weighs   the      individual’s interest  in benefiting from the defect ..      The Court  has been  extremely reluctant  to over- ride      the  legislative  judgment  as  to  the  necessity  for      retrospective  taxation,   not  only   because  of  the      paramount governmental  interest in  obtaining adequate      revenues, but  also because taxes are not in the nature      of a  penalty or  a contractual obligation but rather a      means of  apportioning the  costs of  government amount      those who benefit from it".      The impugned legislation does not act harshly nor there is any scope for arbitrariness or discrimination.      It was contended on behalf of the petitioners that they are  carrying  on  only  the  processing  activity  and  the wholesale cash  price is  not theirs  on the entire product. Section 4  of the  Act is  the section  which deals with the valuation of  excise goods  for the purpose of charging duty of the  same would  be applicable.  Where for the purpose of calculating assessable  profits, a notional and conventional sum is  laid down  by the  legislature to be arrived at on a certain basis,  it is  not permissible  for  the  courts  to engraft into it any other deduction or allowance or addition or read  it down  on the  score that  the said  deduction or allowance or addition was authorised elsewhere in the Act or in the  Rules. A  conventional charge  should be measured by

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 27 of 28  

its own  computation and  not by  facts  relating  to  other method of  computation. The  circumstances that  thereby the benefit of  any exemption  granted by the legislature may be lost and  that in  some cases  hardship might result are not matters which  would influence courts on the construction of the statute.  A tax  payer subject  is entitled only to such benefit as is granted by the legislature. Taxation under the Act is  the rule  and benefit  and exemption, the exception. And in  this case  there is  no hardship.  When the  textile fabrics are  subjected  to  the  processes  like  bleaching, dyeing and  printing etc.  by independent processes, whether on their  own account  or on job charges basis, the value of the purposes  of assessment  under section  4 of the Central Excise Act  will not be the processing charges alone but the intrinsic value of the processed fabrics 328 which is  the price  at which  such fabrics are sold for the first time  A in the wholesale market. That is the effect of section 4  of the Act. The value would naturally include the value of grey fabrics supplied to the independent processors for the  processing. However,  excise duty,  if any, paid on the grey  fabrics will  be  given  proforma  credit  to  the independent processors to be utilised for the payment on the processed fabrics in accordance with the Rules 56A or 96D of the Central Excise Rules, as the case may be.      Read  in  that  context  and  in  the  context  of  the prevalent practice  followed so  long until  the decision of the Gujrat  High Court  in Real  Honest case,  there  is  no hardship  and   no  injustice  to  the  petitioners  or  the manufacturers of grey fabrics. The fact that the petitioners are not the owners of the end product is irrelevant. Taxable event is  manufacture-not ownership.  See In re 711e Bill to amend section  20 of the Sea Customs Act, 1878 and Section 3 of the Central Excise & Salt Act 1944.(1)      The conclusion  that inevitably follows that in view of the amendment  made in section 2(f) of the Central Excises & Salt Act  as well  as the  substitution of new Item 19 I and Item 22(1) m Excise / Tariff in place of the original items, the contentions  of  the  petitioners  cannot  be  accepted. Section 3  of the  Central  Excises  and  Salt  Act  clearly indicates that  the object  of  the  entries  in  the  First schedule is  firstly to specify excisable goods and secondly to specify  rates at  which  excise  duty  will  be  levied. Reference has  already been made to Rule 56A. Under sub-rule (2)  of   Rule  56A,   it  is   expressly  provided  that  a manufacturer will  be given  credit of  the  duty  which  is already paid on the articles used in the manufacture subject to certain  conditions. It  is stated  before us that excise duty  will   be  charged   on  processed  printed  material. Processors will be given credit for the duty already paid on the grey  cloth by  the manufacturer  of the  grey cloth. In this view of the matter we are of the opinion that the views expressed by the Bombay High Court in the case of New Shakti Dye Works  Pvt. Ltd. & Mahalakshmi Dyeing and Printing Works v. Union  of India  and Anr. (Writ Petition Nos. 622 and 623 of 1979)  are correct.  The views  expressed by  the Gujarat High Court  in Vijay Textiles v. Union of India in so far as it held that the processed fabrics could only be taxed under residuary entry  and not  Item 19  I or Item 22 of the First Schedule of the (Central Excise Tariff cannot be sustained. (1) [1964] 3 S.C.C. 787 at 822. 329      We are  also unable  to accept  the view of the Gujarat High Court  in the case of Union of India & Ors. v. M/s Real Honest Textiles  & Ors.  (Civil Appeal  Nos. 586  to 562  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 28 of 28  

1979).      Writ Petition (Civil) No. 11728 of 1984 therefore fails and is dismissed with costs. The connected applications viz. Civil Appeal  No. 3564  of 1984  and 6414  of 1983  and Writ Petition Nos.  13556, 13792,  13788, 15438-39  of 1984  also fail and  are dismissed  with costs. Interim orders, if any, are vacated.  Arrears of duties should forthwith be paid and future duties  should also  be paid  as and  when goods  are cleared.      Civil Appeal  Nos. 586  to 592 of 1979 are allowed with costs.      Good deal  of arguments  were canvassed  before us  for variation or  vacation of the interim orders passed in these cases. Different  courts sometimes  pass different orders as the courts  think fit.  It is  a matter  of common knowledge that the  interim orders  passed  by  particular  courts  on certain consideration are not precedents for other cases may be on  similar facts.  An argument  is being built up now-a- days that  once an  interim order  has been  passed by  this court on  certain factors  specially in  fiscal matters,  in subsequent matters  on more  or less  similar  facts,  there should not  be a  different order passed nor should there be any variation  with that kind of interim order passed. It is submitted  at   the   Bar   that   such   variance   creates discrimination. This is an unfortunate approach. Every Bench hearing a matter on the facts and circumstances of each case should have  the right to grant interim orders on such terms as it considers fit and proper and if it had granted interim order at  one stage,  it should  have right to vary or alter such interim  orders. We venture to suggest, however, that a consensus should be developed in matter of interim orders.      If  we  may  venture  to  suggest,  in  fiscal  matters specially in  cases involving  indirect taxes where normally taxes have  been realised  from the  consumers but  have not been paid  over to  the exchequer  or where  taxes are to be realised from  consumers by  the dealers  or others  who are parties before the court, interim orders staying the payment of such taxes until final disposal of the matters should not be passed.  It is a matter of balance of public convenience. Large amounts  of taxes  are  involved  in  these  types  of litigations. Final  disposal of matters unfortunately in the present state of affairs in our 330 courts takes  enormously long  time and  non-realisation  of taxes for  long time creates an upsetting effect on industry and economic  life causing  great inconvenience  to ordinary people. Governments  are run  on public  funds and  if large amounts all over the country are held up during the pendency of litigations,  it becomes difficult for the governments to run  and  become  oppressive  to  the  people.  Governments’ expenditures  cannot   be  made   on  bank   guarantees   or securities. In that view of the matter as we said before, if we may  venture to  suggest for consideration by our learned brothren that  this Court  should refrain  from passing  any interim orders staying the realisations of indirect taxes or passing such orders which have the effect of non-realisation of indirect  taxes. This will be healthy for the country and for the courts. S.R.                    Civil Appeal Nos. 586 to 592 of 1979                             allowed and Petitions dismissed. 331