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PETITIONER: MAFATLAL FINE SPINNING & MFG. CO. LTD.

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE, BOMBAY

DATE OF JUDGMENT17/01/1989

BENCH: VENKATACHALLIAH, M.N. (J) BENCH: VENKATACHALLIAH, M.N. (J) PATHAK, R.S. (CJ)

CITATION:  1989 AIR  784            1989 SCR  (1) 204  1989 SCC  (2) 446        JT 1989 (1)   160  1989 SCALE  (1)121

ACT: Central  Excises and Salt Act,  1944/Central  Excise  Rules, 1944:  Section 39L/Rule 49A--Differential rates of  interest on  deferred payment of yarn duty depending on whether  fab- rics  are cleared ’grey’ or ’after processing’--’Grey’  fab- rics subjected to ’calendering’ and ’shearing’ before clear- ance--Whether    cease    to   be    ’grey    fabric’    and ’unprocessed’--Whether higher rate payable--Calendering  and shearing-What are. Words and Phrases: ’Calendering’and ’Shearing’--Meaning of.

HEADNOTE:     Rule 49A of the Central Excise Rules, 1944 provided  for payment of different rates of interest on the excise duty on the yarn, payment of which was deferred at the option of the manufacturer  till  the  manufacture and  clearance  of  the fabrics made out of the dutiable yarn, depending on  whether cotton  fabrics were cleared ’grey’ (unproceased) or  ’after processing’. When the fabrics were cleared grey the interest payable  was 1 1/2% of the yarn-duty. But where the  cotton- fabrics  were cleared after ’processing’, it was 3% of  yarn duty.     Appellant-Company, engaged in the manufacture of cotton- fabrics, in its composite mills, opted for such deferment of payment of duty of excise. The cotton-fabrics cleared admit- tedly underwent the process of ’calendering’ and ’shearing’. The  Appellate Tribunal held that ’calendering’ and  ’shear- ing’  were ’finishing processes’ which rendered  the  ’grey’ fabrics  to  cease to be ’unprocessed’  and  thus  attracted interest at 3% of yarn duty.     In  the  appeal before this Court, it was  contended  on behalf  of  the appellant company that whether  the  fabric, after  ’calendering’  and ’shearing’ ceased to  be  ’unproc- essed’ fabric would require to be ’resolved on the  language of  the  Rule 49A itself and that the differentium  for  the attraction  of the different rates of interest  was  whether the cotton-fabrics cleared were ’grey-fabrics’ as known  and understood  in the textile industry, and that the  condition for levy of 1 1/2% was not whether some process or processes were applied to the ’grey fabrics’ 205

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but  whether  such process or processes to which  the  grey- fabric  was  subjected had the effect of making  such  grey- fabric ceased to be ’greyfabric’, and that actual  processes or ’calendering’ and ’shearing’ involved in the present case were amongst the simplest of the processes and did not  have the effect of bringing about any change in the ’greyfabric’, as to take it out of Rule 49A(1)(b).     On  behalf  of  the Revenue it was  contended  that  the conditions for the choice of the different rates of interest were  not  envisaged in the context whether the  process  or processes amounted to ’manufacture’ within the meaning of s. 2(f)(v)  of the Act, but only in the context  of  estimating the extent of time consumed by the process or processes  and that  the test appropriate in this context was  not  whether the  greyfabrics  under-went any change in their  nature  or quality  as  a result of the processes but was  whether  any time consuming process, whatever be its nature, was resorted to by the manufacturer which, in turn, occassioned delays in the  clearance  of the cotton-fabrics  and  thereby  delayed payment of the yarn-duty. Allowing the appeals,     HELD:  1. Though the purpose of Rule 49A of the  Central Excise  Rules  1944, was to provide for  rates  of  interest depending on the time consumed by the processing, the  meas- ure  of the delay so as to attract one or the other  of  the rates  is not in terms of any period of time specified,  but is  prescribed  to be with reference to the  nature  of  the processes.  The measure of the delay in deferment  of  yarn- duty legislatively considered appropriate to attract  higher rate  of interest at 3%, is in terms of the  processes  that would be required to make the ’greycloth’ cease to be  grey- cloth.  Any  processing  that can take a case  out  of  Rule 49A(1)(b)  must  be a process which  renders  cotton  fabric cease  to be ’grey’ fabric as commercially known and  under- stood.  That is why in Rule 49A(1) of the expression  ’grey’ is used while in Rule 49A(2), that word is omitted. [209E-F]     The matter has to be examined by those standards,  which in  turn, depends on the fact, whether the process or  proc- esses  concerned  were such as to change the nature  of  the ’grey-fabric’. [209G-H]     2.1 There is no dispute that before clearance the cotton fabrics were subjected to ’calendering’ and ’shearing’ which in the jargon of the textile industry are finishing process- es. [207G] 206     2.2 Both ’calendering’ and ’shearing’ involve an assort- ment and variety of processes, some of which might and  some others  might not affect or alter the nature of the  fabric. Both  the  expressions,  ’calendering’  and  ’shearing’  are collective expressions representing number of sub-species of operations which, depending upon the nature of the  particu- lar  operation,  may  or may not alter  the  nature  of  the ’greyfabric’ as such. [212B-C]     2.3 These matters depend on particularities of the facts of each case and are to be decided on a case by case  basis. [212E]     In  the present case, the claim of the appellant  before the  authorities that the ’calendering’ process employed  by them  was such as to give temporary finish by  pressing  the fabric  is  not controverted. No lasting change  is  brought about.  There  is no finding to the contrary.  Likewise  the claim  as to the "shearing" which was only to trim  protrud- ing,  stray fibres from the fabric. If these are the  nature of the operations, the ’grey’ fabric, in the facts of  these cases,  does not become new and commercially different  com-

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modity and cease to be ’grey’ cloth. There is thus no justi- fication to take it out of Rule 49A(1)(b). [212G-H; 213A]

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 369596 of 1988.     From  the Judgment and Order dated 10.12.87  of  Customs Excise  and  Gold Control Appellate Tribunal  New  Delhi  in Appeal No. 1105/ 83-D (Order No. 961/87-B).     Soli,  J. Sorabjee, S. Ganesh, C.M. Mehta  P.G.  Gokhale and R.B. Hathikhanawala for the Appellants.     A.K.  Ganguli,  Mrs. Sushma Suri and K.  Swami  for  the Respondent. The Judgment of the Court was delivered by     VENKATACHALIAH  J. These two appeals under Section  35-L of  the Central Excises and Salt Act, 1944 (Act)  by  Messrs Mafatlal  Fine Spinning & Manufacturing Co. Ltd., arise  out of and are directed against the common appellate-order dated 10.2.1987  of the Customs Excise & Gold (Control)  Appellate Tribunal in Appeal Nos. 1105 of 1983 and 2540 of 1987  hold- ing  that in respect of the deferred duty on yarn  appellant is liable to pay interest at 3 per cent of the duty under 207 Rule  49A(2) of the Central Excises & Salt Rules,  1944,  as according to the Tribunal, the cotton-fabric cleared is  not ’Grey’ (unprocessed) cotton-fabric.     2.  Appellant is engaged in the manufacture  of  cotton- fabrics in its composite mills and opted under Rule 49A  for facility of payment of duty of excise payable on the yarn to be  deleted until the clearance of the cotton-fabrics  manu- factured therefrom.     The  said Rule 49A provides for payment of  interest  on the  excise duty payable on the yarn which is deferred  till the manufacture and clearance of the fabrics made out of the dutiable yarn. As such payment is deferred, at the  instance of the option of the manufacturer, till completion of  manu- facture  and clearance of fabrics out of the yarn  and  Rule 49A  envisages that when cotton-fabrics are  cleared  ’grey’ (unprocessed)  the  yarn duty shall be paid at the  time  of clearance of the fabrics along with 1 1/2% of the yarn-duty, by way of interest. But where the cotton-fabrics are cleared after ’processing’, the interest payable on, and along with, the yarn-duty would, however, be 3% of the yarn-duty.     3.  The question in these appeals is whether the  inter- est-rate  should  be one & half per cent or three  per  cent which  in  turn  depends  upon  whether  the  cotton-fabrics cleared  are ’grey’ (unprocessed) or they are cleared  after ’processing’.  The  cotton  fabrics cleared  in  this  case, admittedly,  underwent  the  process  of  ’calendering’  and ’shearing’.  The cognate and sequential question is  whether these  processes  render the ’grey’  fabric,  a  ’processed’ fabric  within  the meaning of Rule  49A(2).  The  Appellate Tribunal  has  held that ’calendering’  and  ’shearing’  are ’finishing-processes’ and render the ’Grey’ fabrics to cease to be ’unprocessed’ so as to attract interest at 3%.     4.  We have heard Sri Soli J. Sorabjee,  learned  Senior Counsel  for  the appellant and Sri  A.K.  Ganguly,  learned Senior Counsel for the revenue.     There  is no dispute that before clearance, the  cotton- fabrics  were  subjected  to  ’calendering’  and  ’shearing’ which,   in   the  jargon  of  the  textile   industry   are ’finishing-processes’. The Tribunal, accordingly, held  that the  cotton-fabrics cleared were not ’unprocessed’ for  pur-

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poses  of  Rule 49A(1)(b). In regard to  ’calendering’,  the Tribunal  relied upon the views expressed by it in the  case of  Siddeshwari Cotton Mills Ltd. and Anr. v.  Collector  of Central Excise, Calcutta [1984] 18 208 ELT 297. The relevant part of Rule 49A provides:                         "(1)  When  the cotton  fabrics  are               cleared  grey  (unprocessed),  the  yarn  duty               payable shall be--               (a)  the  appropriate  duty  payable  on  such               cellulosic spun yarn or cotton yarn, or  both,               as the case may be; plus               (b)  one and a half per cent of the duty  pay-               able  on such cellulosic spun yarn  or  cotton               yarn,  or both, as the case may be, by way  of               interest on the amount of yarn duty;               (2) When the cotton fabrics are cleared  after               processing, the yarn duty payable shall be--               (a)  the  appropriate  duty  payable  on  such               cellulosic  spun  yarn,  or  cotton  yarn,  or               both,. as the case may be; plus               (b) three per cent of the duty payable on such               cellulosic spun yarn, or cotton yarn, or both,               as the case may be, by way of interest on  the               amount of yarn duty:               Explanation--Omitted as unnecessary."     5.  Sri Sorabjee contended that such controversy, as  is raised,  as to whether the fabric, after  ’calendering’  and ’sheafing’  ceases to be ’unprocessed’ fabric would  require to  be resolved on the language of the Rule 49A  itself  and that  the differentium for the attraction of  the  different rates  of  interest was whether the  cotton-fabrics  cleared were  ’grey-fabrics’ as known and understood in the  textile industry.  The  learned counsel emphasised  the  distinction between  the expressions in Rule 49A(1) which refer  to  the expression  "cotton fabrics are cleared grey  (unprocessed)" on  the  one  hand and the expression  "cotton  fabrics  are cleared  after processing" in Rule 49A(2) on the  other,  to demonstrate  that the condition for levy of 1 1/2 %  is  not whether some process or processes were applied to the  ’grey fabrics’ but whether such process or processes to which  the grey-fabric  was  subjected had the effect  of  making  such ’grey-fabric’ cease to be ’grey-fabric’. 209     6.  Sri Ganguly, for the revenue, urged that the  condi- tions for the choice of the different rates of interest  are not envisaged in the context whether the process or process- es  amounted  to ’manufacture’ within the  meaning  of  Sec. 2(f)(v)  of the Act, but only in the context  of  estimating the  extent of time consumed by the process or processes  as that  is the criterion for the choice of the rate of  inter- est.  The purpose and intendment of the rule, says Sri  Gan- guly,  is  to provide for the rates of interest on  the  de- ferred  yarn-duty  depending  on the time  consumed  by  the processing.  If  ’grey-cloth’  directly  obtained  from  the loom--and that is what ’grey fabric’ or ’greige’ in  textile parlance means--is cleared then a lesser rate of interest is attracted.  But, where, as here, the ’grey fabric’  is  sub- jected  to  time-consuming processes the rate  of  interest, says  Sri Ganguly, would be the higher rate of 3  per  cent, taking note of the delays consequential upon such processing occasioned  in the recovery of yarn-duty. Sri  Ganguly,  ac- cordingly,  submitted  that  the test  appropriate  in  this context  is not whether the grey-fabrics undergo any  change in their nature or quality as a result of the processes  but

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is  whether  any  time consuming process,  whatever  be  its nature,  is resorted to by the manufacturer which  will,  in turn, occasion delays in the clearance of the  cotton-fabric and thereby delay payment of the yarn-duty.     7.  Sri  Ganguly is right in his submission  as  to  the objects  of  Rule 49A in prescribing differential  rates  of interest  on deferred yarn-duty. But the standards  for  as- sessment  of  the  relative delays depending  on  which  the different  rates of interest are charged are themselves  set by the rule making authority. The measure of the delay so as to attract one or the other of the rates is not in terms  of any  period of time specified but is prescribed to  be  with reference to the nature of the processes. The measure of the delay  in  deferment of yarn-duty  legislatively  considered appropriate to attract higher rate of interest at 3%, is  in terms  of the processes that would be required to  make  the ’greycloth’  cease  to be grey-cloth. That is  why  in  Rule 49A(1)  the expression ’grey’ is used while in  Rule  49A(2) that  word is omitted. So the period of deferment  of  yarn- duty  to attract higher interest 3% would, according to  the wisdom  of the rule-makers, be the delay incidental to  con- verting  ’grey fabric’ into ’processed’ fabric which  ceases to  be ’grey-fabric’. With this legislative estimate of  the period of deferment appropriate to a situation attracting 3% interest, the matter has necessarily to be examined by those standards,  which  in turn, bring in the  idea  whether  the process  or  processes concerned are such as to  change  the nature  of  the ’grey fabric’. This leads  to  the  question whether  ’calendering’ and ’shearing’, though by  themselves are  finishing processes, render the ’grey’ fabric cease  to be so. 210     8. Sri Sorabjee submitted that the process of  calender- ing is nothing more than mere pressing of the ’grey  fabric’ by  running  it  through plain rollers to  impart  a  better finish,  which  is  a mere temporary  finish.  Sri  Sorabjee referred  to some of the notifications issued under  Section 8(1)  of  the Act which say that calendering  would  not  be treated  as  "processing". Learned  Counsel  contended  that having  regard to the very nature, the calendering does  not bring about any change in the quality of the goods.     In  Siddeshwari  Cotton Mills’ case,  the  Tribunal  has referred  to certain technical and scientific literature  on the process of ’calendering’. Sri Sorabjee referred to  some of them. In Modern Textiles (by Dorothy S. Lyle John Welay & Sons,  N.  York) under the caption  "Finishes  that  provide Asthethic  Values",  referring to "CALENDER  FINISH"  it  is stated:               "This is the simplest of all finishes used  to               give a good appearance to the finished fabric.               It consists of passing the fabric between  the               heated cylinders of a calendering machine.  It               is  simply ironing a fabric to make it  smooth               and  give  it a lustrous  surface.  The  round               yarns are flattened, hence reflect more light.               It  is  a temporary finish,  since  the  yarns               revert  to  their round shape  with  steaming,               laundering,  and  dry  cleaning.  Examples  of               calendered  fabrics the sheeting, poplin,  and               broadcloth, both cotton and wool". Encyclopaedia Britannica has the following to say:               "Calendering--is a final process in which heat               and pressure are applied to a fabric by  pass-               ing  it  between heated rollers,  imparting  a               flat,  glossy,  smooth  surface,  Lustre,  in-

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             creases  when the degree of heat and  pressure               is  increased. Calendering is applied to  fab-               rics  in which a smooth, flat surface  is  de-               sirable, such as most cottons, many linen  and               silks,       and       various        man-made               fabrics  ..................                .........   Calendering  is  not  usually   a               permanent process."     In  "Glossary of Terms relating to treated fabrics  I.S. 2244-- 1972 published by the Indian Standards Institution it is stated:               "Calender--A  machine  comprised of  at  least               three heated rollers, used to produce film and               sheet material".               211               "Calendering--A  mechanical  method  done   by               rollers  to provide glaze,  glossiness,  hard-               ness, lustre, shine and even embossed  designs               to  fabrics.  Calendering is usually  done  to               impart a special finish to fabrics." It  is  accordingly urged by Sri Sorabjee  that  calendering does not alter the nature of the ’grey fabric’ and would not take cotton-fabric out of Rule 49(1)(b).     9.  In regard to the process of "Shearing" Sri  Sorabjee relied upon Fairchild’s Dictionary of Textiles which says:               "SHEARING: 1. A process of cutting fleece from               sheep  generally by power-driven  clippers  or               sometimes  by  hand shears.  Properly  sheared               fleece  will  be removed in one  solid  sheet,               which is rolled into a compact bundle with the               wool  on the inside. 2. A finishing  operation               in  which uneven threads are mechanically  cut               or trimmed from the face of the fabric. Almost               always  employed for woollen and  worsted  and               extensively  employed  on other  fabrics.  The               amount of shearing on napped and pile  fabrics               varies according to the desired height of  the               nap  or  pile;  on  clearfinish  fabrics  like               gabardine, a very close shearing is given.  3.               A  finishing operation in which floating  por-               tions of yarn are cut, e.g., in extra warp  or               extra  filling figured fabrics. The method  is               similar to that employed in para 2, above."     In  "Textile  Terms  and Definitions" 8th  Edn.  by  the Textile Institute: "SHEAR: (1) To Cut the fleece from a sheep. (2) .............................. (3) To cut loose fibres or yarn from the surface of a fabric after weaving (also called crop)."     In  Handbook  on Glossary of Textile  Terms  (Bureau  of Indian Standards): "SHEARING Shearing indicates: 212 (a) Cutting fleece from live sheep, (b)Trimming nap or pile to the required uniform height, and (c)  Removing all protruding fibres from the surface of  the fabric i.e. cropping."     10. Both ’calendering’ and ’shearing’ involve an assort- ment and variety of processes, some of which might and  some others  might not affect or alter the nature of the  fabric. Both  the  expressions,  ’calendering’  and  ’shearing’  are collective expressions representing a number of  sub-species of  operations which, depending upon the nature of the  par- ticular  operation, may or may not alter the nature  of  the

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’grey fabric’ as such.     Sri Sorabjee submitted that in the present case "calend- ering"  was not done by ’grooved’ rollers or  cylinders  but only by plain rollers and the "Shearing" operation was  only to  cut-off protruding stray fibres from the ’grey  fabric’, and  that actual processes of ’calendering’  and  ’shearing’ involved  in the present case were amongst the  simplest  of the processes and did not have the effect of bringing  about any change in the ’grey-fabric’.     11. These matters depend on particularities of the facts of each case and are to be decided on a case by case  basis, The  Tribunal proceeded on the basis that "Calendering"  and "Shearing"  amounted  to process of finishing  and  that  by itself,  without more, satisfied the conditions  that  would take  the case out of Rule 49 A(1). The test applied by  the Appellate Tribunal, as well as by the authorities below,  is not  the  appropriate one on the language of Rule  49A.  Any processing  that can take a case out of Rule 49A(1)(b)  must be  a process which renders cotton-fabric cease to be  ’grey fabric’  as commercially known and understood. The  question whether  ’calendering’ and ’shearing’, as  actually  carried out by the appellant has had the effect of taking the cotton fabric out of Rule 49A(1) should be decided in the light  of this test.     12.  In  the present cases, the claim of  the  appellant before the authorities that the calendering process employed by them was such as to give temporary finish by pressing the fabric  is  not controverted. No lasting change  is  brought about.  There  is no finding to the contrary.  Likewise  the claim as to the "Shearing" which was only to trim 213 protruding,  stray fibres from the fabric. If these are  the nature of the operations, the ’grey’ fabric, in the facts of these cases, does not become new and commercially  different commodity  and  cease to be ’Grey cloth’. There is  thus  no justification to take it out of Rule 49A(1)(b).     Accordingly,  these appeals are allowed,  the  appellate order, of the Tribunal and the decisions of the  authorities below  set-aside and the liability for payment  interest  is directed to be computed under Rule 49A(1)(b). No Costs. N.P.V.                                    Appeals allowed. 214