http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

CASE NO.: Appeal (civil)  3536 of 2000

PETITIONER: M/s Impression Prints                                                    

RESPONDENT: Commissioner of Central Excise, Delhi-1                          

DATE OF JUDGMENT: 24/08/2005

BENCH: S. N. Variava & Tarun Chatterjee

JUDGMENT: J U D G M E N T S. N. VARIAVA, J.         This Appeal is against the Judgment dated 27th December, 1999  by the Customs, Excise and Gold (Control) Appellate Tribunal (for  short CEGAT), New Delhi.         Briefly stated the facts are as follows:         The Appellants are manufacturers, amongst others, of items like  bed sheets, bed covers and pillow cases.  In this Appeal, we are  concerned with the question as to whether the Appellants are entitled  to the benefit of Notification No. 65/87-CE dated 1st March, 1987 in  respect of bed sheets, bed covers and pillow cases.  These items fall  under Tariff Item 6301 which consists of "made up textile articles" .    Under the Notification, these articles have a "Nil" rate of duty "if made  without the aid of power".   The Appellants had not taken out any  license and were not paying duty.  They were issued a show-cause- notice as to why duty be not levied on these items and why penalty be  not imposed. The Appellants claimed that under the abovementioned  Notification these items bore a "Nil" rate of duty and that they were  therefore not liable to pay duty.  Their case was not accepted on the  ground that in the process of manufacturing  printed bed sheets, bed  covers and pillow cases they mixed colour with the help of colour  mixing machine which was operated with the aid of power.  The  Appellants were therefore called upon to pay duty. Penalty was also  imposed on them.  The Appeal of the Appellants has been dismissed  by the CEGAT by the impugned Judgment.         Mr. Bagaria points out that the expression "made up" has been  statutorily defined in Note 5 of Section XI as under:  "5. For the purposes of this Section, ‘made up’  means:-

(a)     Cut otherwise than into squares or  rectangles;

(b)     Produced in the finished state, ready for  use (or merely needing separation by cutting  dividing threads) without sewing or other  working (for example certain dusters, towels,  table cloths, scar squares, blankets);

(c)     Hemmed or with rolled edges, or with a  knotted fringe at any of the edges, but  excluding fabrics, the cut edges of which have  been prevented from unraveling by whipping  or by other simple means;

(d)     Cut to size and having undergone a  process of drawn thread work;

(e)     Assembled by sewing, gumming or

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

otherwise (other than piece goods consisting of  two or more lengths of identical material joined  end to end and piece goods composed of two  or more textiles assembled in layers, whether  or not padded);

(f)     Knitted or crocheted to shape, presented  in the form of a number of items in the  length."         

Relying upon the statutory definition as made in Note 5 of  Section XI noted above, Mr. Bagaria submitted that "made up textile  articles" are thus manufactured by the process of cutting, hemming,  sewing etc. He submitted that in this process admittedly no power is  used. He submitted that mixing of colours has been done for the  purposes of preparing cotton/printed fabrics which fall under Tariff  Items 52.06 and/or 52.07. He submitted that the use of power is only  for manufacturing those items. In support of this he relied upon  Chapter note 2 of Chapter 52 which reads as follows: "2. In relation to products of heading Nos.  52.06 to 52.12, bleaching mercerizing, dyeing,  printing, water-proofing, shrink-proofing,  organdie processing or any other process or  any one or more of these processes shall  amount to ‘manufacture’."

He submitted that the process of printing of fabrics was  statutorily defined as amounting to "manufacture". He submitted that  the fact that even those items have a "Nil" rate of duty (under other  Notifications) did not detract from fact that the process of printing was  for a different excisable commodity.  He submitted that after the  cotton/printed fabrics are manufactured the "made up textile articles"  are then manufactured without the aid of power from those  cotton/printed fabrics.  He submitted that the Notification exempts  "made up textile articles" from payment of duty "if made without the  aid of power".   He submits that the word "made" refers to the "made  up textiles articles".  He submits that for the purposes of this  Notification it is not open to go beyond the stage of inputs which go  into the manufacture of a "made up textile article", i.e., the  cotton/printed fabric.  He submitted that the benefit of this Notification  cannot be denied on the ground that in the process of manufacture of  cotton/printed fabrics power had been used.    Mr. Bagaria relied on a number of decisions, of CEGAT, involving  identical facts, wherein it has been held that the benefit of such a  Notification can not be denied.         In the case of Commissioner of Central Excise, Indore vs. Dhvani  Terefabs (Exports) Pvt. Ltd. reported in 2001 (132) E.L.T. 604 the  Assessee was manufacturing towels from knitted pile fabrics which fell  under Tariff Item 60.01.  The Assessee received duty paid processed  fabric in his factory, cut those fabrics to size and  hemmed the edges  with sewing machine.  The Department felt that the last activity  amounted to manufacture and demanded duty on that.  The Appellants  claimed benefit of Notification 65/87 which was denied to them on the  ground that the activity of knitting the fabrics was carried on on pile  knitting machine in which power was used.   CEGAT held that the  knitting activity was for manufacture of knitted fabrics on which duty  was paid and that the terry towels were manufactured by merely  hemming and stitching which was done without aid of power.  CEGAT  held that the benefit of the Notification was thus not lost.            In the case of Collector of Central Excise, Pune vs. Garware Wall  Ropes Ltd. reported in 1999 (111) E.L.T. 498 CEGAT, Delhi has held  that the use of power in making raw materials would not be reckoned  towards manufacture of articles of ropes, in which process, no power is  used.  CEGAT held that, under the circumstances, the benefit of such a  Notification would not be lost.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

       In the case of Commissioner of Central Excise, Bangalore vs.  Mysore Spinning & Manufacturing Mills reported in 1998 (99) E.L.T.  241 CEGAT, Madras has held that the Assessee, who was  manufacturing terry towels, was not deprived of the benefit of the  Notification as no power was used for cutting the terry toweling cloth  and stitching the edges of the tower to convert them into made up  articles of textiles.   CEGAT has held that merely because at an early  stage the cloth has been subjected to bleaching, dyeing etc. and that  power had been used at that stage did not mean that the benefit of  the Notification would be lost.            In the case of Dassani Electra (P) Ltd. vs. Collector of Central  Excise, Calcutta-I reported in 2000 (125) E.L.T. 646 CEGAT, Calcutta  has held that the benefit of the exemption would not be lost on  generator sets which are manufactured without the aid of power  merely because power is used in the manufacture of its inputs i.e.  alternators.  It is held that the manufacture of inputs would be a  separate individual activity and duty was paid on the inputs.         Relying on the abovementioned authorities, Mr. Bagaria  submitted that in the present case also the colouring was done not for  the purposes of manufacture of "made up textile articles" but for  manufacture of cotton fabrics which was a separate excisable  commodity. He submitted that the mere fact that that commodity was  also exempted from duty made no difference and thus the benefit of  the Notification was not lost. He submitted that the purpose of the  Notification was to give benefit of exemption and this purpose must  not be defeated by interpreting the Notification in a manner not borne  out by a plain reading of the Notification. In support of this submission  he relied upon the case of Collector of Central Excise & Ors. vs.  Himalayan Cooperative Milk Product Union Ltd. & Ors.  reported in  (2000) 8 SCC 642. Mr. Bagaria submitted that  the impugned  Judgment requires to be set aside.         On the other hand, Mr. Parasaran submitted that the Appellants  carry on one continuous process of manufacture.  He submitted that  for the purposes of manufacture of "made up textile articles" the  Appellants purchase PVC sheets in rolls, cut them into small  rectangular shape and  print the same. He pointed out that in the  process of printing they mixed  colour with the aid of power. He  pointed out that  the Appellants  then stitched and folded the printed  sheets and manufactured the bed sheets, bed covers and pillow cases.   He submitted that the process being, one continuous process, it could  not be said that the bed sheets, bed covers and pillow cases were not  made with the aid of power.   He submitted that this Court has, in a  number of decisions, held that the term "manufacture" would include  all stages and all processes which are necessary for manufacturing the  final product.   In support of his submission, he relied upon the case of Union of  India vs. Delhi Cloth & General Mills reported in (1963) Supp. 1 SCR  586.  In this case, the Assessee was  manufacturing Vanaspati. At an  intermediate stage oil, which the Revenue claimed was refined oil, was  manufactured.  The question was whether they were liable to pay  excise duty on manufacture of refined oil which fell within Item 23 of  the First Schedule to the Central Excises and Salt Act, bearing  the  description of "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".   This Court negatived the contention that the  definition of the term "manufacture" in Section 2(f) of the Act included   mere processing.  This Court held that  processing was distinct from  manufacture and that for a commodity to be excisable  it must be a    new product known to the market as such. This Court however held as  follows: "The definition of "manufacture" as in s. 2(f) puts it  beyond any possibility of controversy that if power is used  for any of the numerous processes that are required to  turn the raw material into a finished article known to the  market the clause would be applicable; and an argument

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

that power is not used in the whole process of  manufacture using the word in its ordinary sense, will not  be available."

Relying on these observations Mr. Parasaran submitted that it has  been held by a Constitution Bench of this Court that if power is used  for any of the numerous processes then it would be manufacture with  the aid of power and that it would not be open to argue that there is  no manufacture as understood in its ordinary sense.   Mr. Parasaran also relied upon a three Judge Bench decision  of  this Court in the case of J. K. Cotton Spinning & Weaving Mills vs.  Sales Tax Officer, Kanpur & Anr. reported in (1965) 1 SCR 900.   In  this case, the Assessee was carrying on the business of manufacturing  textile goods, tiles and other commodities.  It applied for registration  under Section 7 of the Central Sales Tax Act and requested that  certain goods be specified in the certificate of Registration for the  purposes of getting the benefit under Section 8(1) of the Act.  By  virtue of Section 8(3) (b) read with Rule 13 this benefit was only  available in respect of goods which were "intended for use in the  manufacture of or processing of goods for sale".   Initially, the  Assessee was granted the certificate in respect of goods claimed by  them.  However, subsequently, certain goods like drawing material,  photographic material, building materials including lime and cement  and steel, and coal were deleted.  The question before the Court was  whether these materials could be said to be intended for use in the  manufacture of or processing of goods for sale. The Court was thus  required to consider what was meant by "manufacture of or processing  of". While considering this question this Court held that the expression  "in the manufacture" would normally encompass the entire process  carried on for converting raw material into goods. It was held that if a  process or activity is so integrally connected to the ultimate production  of goods so that but for that process manufacture or processing of  goods is impossible or commercially inexpedient then the goods  required in that process would be covered by the expression "in the  manufacture of".  It was held that it was not necessary that the words  "in the manufacture of" would only refer to ingredients or commodities  used in the actual manufacture. It was held that the words "in the  manufacture" do not refer only to ingredients which are directly and  actually needed for making the goods.                                                                                                                                                                                                                                                                                                                                                       Mr. Parasaran also relied upon the case of Ujagar Prints & Ors.  vs. Union of India & Ors. reported in (1989) 3 SCC 488.  In this case,  one of the questions was whether the process of bleaching, dyeing,  printing, sizing, shrink-proofing etc. carried on in respect of cotton or  man-made grey fabrics amounts to manufacture for the purposes of  and within the meaning of Section 2(f) of the Central Excises and Salt  Act. Section 2(f) as it then stood read as under: "2(f) ’manufacture’ includes any process incidental or  ancillary to the completion of a manufactured product;  and\005.."

The Constitution Bench of this Court, after considering the law, held  that such activity amounts to manufacture within the meaning of  Section 2(f) of the said Act.            Reliance was also placed upon the case of Collector of Central  Excise, Jaipur vs. Rajasthan State Chemical Works, Deedwana,  Rajasthan, reported in (1991) 4 SCC 473.   In this case this Court was  considering  whether the two assessees therein were entitled to the  benefit of an exemption Notification.  In that Notification exemption  was not available to goods "in or in relation to the manufacture of  which no process is ordinarily carried on with the aid of power".   One  of the assessee therein manufactured common salt.  For

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

manufacturing common salt, brine was pumped into salt pans by using  diesel pump and  then lifted to a platform by the aid of power.  The  question was whether the pumping and lifting with the aid of power  constituted processes in or in relation to manufacture. The other  assessee was manufacturing lime from coke and limestone. The raw  materials were lifted to a platform at the head of kiln with the aid of  power. The question was whether the activity of lifting with the aid of  power constituted process in or in relation to manufacture. This Court  considered the earlier authorities of this Court, set out hereinabove,  and inter-alia held as follows: "20. A process is a manufacturing process  when it brings out a complete transformation  for the whole components so as to produce a  commercially different article or a commodity.   But, that process itself may consist of several  processes which may or may not bring about  any change at every intermediate stage.  But  the activities or the operations may be so  integrally connected that the final result is the  production of a commercially different article.   Therefore, any activity or operation which is  the essential requirement and is so related to  the further operations for the end result would  also be a process in or in relation to  manufacture to attract the relevant clause in  the exemption notification.  In our view, the  word ‘process’ in the context in which it  appears in the aforesaid notification includes  an operation or activity in relation to  manufacture."    \005\005\005\005\005\005\005\005\005\005\005\005\005....................................

26. We are, therefore, of the view that if any  operation in the course of manufacture is so  integrally connected with the further  operations which result in the emergence of  manufactured goods and such operation is  carried on with the aid of power, the process in  or in relation to the manufacture must be  deemed to be one carried on with the aid of  power.  In this view of the matter, we are  unable to accept the contention that since the  pumping of the brine into the salt pans or the  lifting of coke and limestone with the aid of  power does not bring about any change in the  raw material, the case is not taken out of the  notification.  The exemption under the  notification is not available in these cases."                     Reliance was further placed upon the case of Collector of Central  Excise vs. Kamal Chemical Industries reported in (1992) 61 E.L.T. 692.   In this case also, power has been used for handling raw material i.e.  for transferring the acid from tankers to overhead tanks.  It was held  that this activity was part of the process in or in relation to  manufacture and thus the benefit of the Notification would be lost.         Based on the above authorities, it was submitted by Mr.  Parasaran that in considering whether the "made-up of textile fabrics"  are made/manufactured with the aid of power one cannot dissect or  bisect the process of manufacture of the final product. He submitted  that, in cases like this where the process is a continuous and  integrated one it is irrelevant that at an intermediate stage another  excisable product had come into existence.           Faced with these authorities Mr. Bagaria submitted that these  authorities are on the facts of those cases and on the basis of the very  wide wording being considered viz. "in or in relation to the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

manufacture of which no process is ordinarily carried on with the aid of  power". He submitted that the word "made" does not include the  entire process but only refers to the manufacture of printed bedsheets,  bed covers and pillow cases from cotton fabrics.  We have considered the rival submissions. It must be mentioned  that in the beginning we were impressed by Mr. Bagaria’s submissions.  However we find that the authorities of this Court, relied upon by Mr.  Parasaran, hold that "manufacture"  in  Sec. 2(f) of the Central Excise  Act includes any process incidental or ancillary to the completion of a  manufactured product. It has been held that this  puts it beyond any  possibility of controversy that if power is used for any of the numerous  processes that are required to turn the raw material into the  finished  article then the manufacture will be with the use of power. It has been  held that if power is used at any stage then an argument that power is  not used in the whole process of manufacture, using the word in its  ordinary sense, will not be available. It has been held that the  expression "in the manufacture" would normally encompass the entire  process carried on for converting raw material into goods. It has been   held that if a process or activity is so integrally connected to the  ultimate production of goods so that but for that process, manufacture  or processing of goods is impossible or commercially inexpedient then  the goods required in that process would be covered by the expression  "in the manufacture of".  It has been  held that it was not necessary  that the words "manufacture"  would only refer to the stage at which  ingredients or commodities are used in the actual manufacture of the  final product. It has been  held that the word "manufacture" does not  refer only to the using of ingredients which are directly and actually  needed for making the goods.   These authorities are binding on us. It  is also settled law that to avail of an exemption the party has to  strictly comply with the exemption Notification. Therefore the wording  of the Notification becomes relevant. The Notification grants exemption  to "made up textile articles"  only "if made without the aid of power".  These words mean the same thing as "in the manufacture of which no  power is used". We are unable to accept submission that the word  "made" only refers to stage of manufacture from cotton fabrics to  printed bedsheets, bed covers and pillow cases. The Chapter Notes  relied upon by Mr. Bagaria only specify that the activities mentioned  therein amount to manufacture (made up). The Chapter notes have  been put in to eliminate arguments that those activities do not amount  to manufacture. They do not detract or make a difference to the legal  position as laid down by this Court. In all such cases one would have  to see what are the products  which are being manufactured. Where  the activity/business is of manufacture of the final good and where  there is one continuous and/or integrated process it makes no  difference that  at some intermediate stage an excisable commodity  has come into existence. What one has to see is whether the activity is  so integrally connected to the  production of ultimate goods  that but  for that process the manufacture  of the ultimate goods is impossible  or commercially inexpedient. If it is so integrally connected then that  process would be covered by the expression "made with the aid of  power".  It is  not necessary that the words "made with the aid of  power" only refer to ingredients or commodities used in the final  manufacture.    Now let us look at the manufacturing process used by the  Appellants for manufacture of the final product i.e. "made up textile  articles". The Tribunal has set out this activity as follows: "3) Bed Sheets, Bed Covers and Pillow Cases:  Manufacturing processes of these items has been  explained by Shri Pradip Thapar in his statement recorded  on 4.6.93:         "Sheeting: The sheets are put on the table, after  which the screen printing is done manually as per the  colour and design being printed.  A separate screen is used  for every colour.  These screens are designed and made in  our premises.  After the design is printed, the sheeting is

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

removed from the table into a bin.  On accumulation of a  certain quantity (of sheets) the same is put up for  steaming.  This steaming is done by heating the water  either by coal or gas.

3.      The colours are mixed in paste and thinned down by  water so that each colour can be printed through the each  of the screen.  If the quantity is small, we mix the colour  by hand, otherwise with larger quantities of 25 kgs. is  mixed with a mixer to get the proper mixing.  The mixer is  operated with the aid of power.  Since there is no  electricity in our premises, we operate two generators off  and on to facilitate our functioning.  The capacity of our  generators is 6.5 HP and 25 KVA.  In a single shift of 8  hours, it is operated for maximum of 4 hours per day.  The  average consumption of diesel is approximately 1.5 to 2.5  litres per hour.  We have four tables for printing purposes,  the sizes of which are 17 metres in length (2 tables) and  13 metres (other two tables).   The length and breadth of  our sheet is the same as that of a Bombay Dyeing sheet, is  approximately 89 x 100 cm.  The pillows covers are made  after cutting the same from the already printed sheets,  which are naturally dried by just hanging in the open air.   The cutting of the sheets is done manually.  The screens  are made in the following manner:

4.      The screen which is coated with a photo emulsion  and is exposed to tube light, with the aid of power i.e.  generator.  At times when there is no power, the screens  are exposed to sun light.

5.      Shri Ganga Ram Colour Master of the appellants has  stated that the unit was receiving plain cloth in thans and  thereafter the same was cut and placed on tables for  printing; the number of screens was equal to the number  of colours; that towels were being received in sets in  different sizes i.e. Medium, large etc. and thereafter the  same was printed just like sheets; that then the same was  dried up in the open air; that after the cloth got dried the  same was steamed with the aid of steam generated out of  water with the help of coal or gas; that thereafter  stitching, pressing/ironing and packing is done; that PVC  sheeting received in thans was first cut and thereafter  printed on tables and packed.  Shri Ganga Ram also stated  that colour mixing was done with the aid of power as well  as manually.  He further informed that the frame was  exposed to the tube light for about 2-1/2 minutes."     

6.      The appellants’ submission is that they do not  manufacture bed sheets or bed covers or pillow cases since  they do not carry out the process of stitching of the edges  and that sheets got converted into bed sheets and pillow  cases only after stitching of the edges.  Further in the light  of the statement of Shri Ganga Ram who has categorically  stated that stitching was done in the appellants’ factory  and in the light of the factual position that sheets were cut  to definite sizes of  approximately 89 x 100 cms which has  been admitted by Shri Pradip Thapar to be same as that of  sheets manufactured by M/s Bombay Dyeing, we hold that  the appellants manufacture these items and that their  subsequent submission that they were getting fabric cut  into sheets and other made up articles on job work, is only  an after thought which cannot be accepted."

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

It is fairly not disputed that this is the manufacturing process. It must  be noted that initially it had  been contended that stitching had been  done on job work basis. This was found to be factually incorrect and  before us this plea has not even been urged. From the above set out  process it is clear that the activity of manufacturing printed bedsheets,  bed covers and pillow cases starts with the screen printing and  colouring. Without this activity it would not be possible to make  printed bedsheets, bed covers and pillow cases. The activity of printing  and colouring is much more integrally connected to the manufacture of  printed bedsheets, bed covers and pillow cases than say the activity of  pumping brine into salt pans for manufacture of salt or the activity of  lifting raw material to the platform at the head of the kiln for  manufacture of lime. Without the printing and colouring it is impossible  to manufacture  printed bedsheets, bed covers and pillow cases. In  such cases it is irrelevant that at an intermediate stage some other  excisable commodity comes into existence. The cotton fabrics are  manufactured in the process of manufacture of printed bedsheets, bed  covers and pillow cases. We thus see no infirmity in the impugned  Judgment when it holds that the benefit of the Notification is not  available.      

       Mr. Bagaria next submitted that penalty has been levied under  Section 11AC of the Central Excise Act. He submitted that this Section  was introduced only with effect from 28th September 1996. He relied  upon the case of Commissioner of Central Excise, Coimbatore vs. Elgi  Equipments Ltd. reported in (2001) 9 SCC 601 and submitted that it  has been held that this Section only operates prospectively and not  retrospectively.   He submitted that thus penalty could not have been  imposed. We find that no such point had been raised before the  Tribunal and no such point is raised even in the Memorandum of  Appeal before this Court. In any event the adjudication had taken  place in 1998 at which time Section 11AC was on the statute book.         We thus see no substance in the Appeal. The same stands  dismissed with no order as to costs.