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PETITIONER: UNION OF INDIA & ORS.

       Vs.

RESPONDENT: AHMEDABAD MANUFACTURING AND CALICO PRINTINGCO. LTD. (CALICO

DATE OF JUDGMENT12/08/1985

BENCH: VENKATARAMIAH, E.S. (J) BENCH: VENKATARAMIAH, E.S. (J) MISRA, R.B. (J)

CITATION:  1986 AIR  121            1985 SCR  Supl. (2) 537  1985 SCC  (3) 693        1985 SCALE  (2)233

ACT:      Central Excise  and Salt  Act, 1944,  Tariff Item No.19 and 22,  First Schedule  - Excise duty - Whether leviable at intermediate stage of production or at final stage.      Processed fabric  - "Calikut  Special"  - Excise duty - leviability of.

HEADNOTE:      The  respondent  was  manufacturing  processed  fabrics known as  "Calikut Special"  since 1965. At the intermediate stage of  the production,  the said fabrics contained 46 per cent of  synthetic fibres  (Art Silk) and the cotton content was about 54 per cent. Due to further processing, when goods reached the  final stage  of production, the cotton contents of the  said goods  was reduced  to about 38.48 per cent and 61.52 per  cent to the fabrics consisted of Artificial Silk. having regard  to the  cotton content  of the final product, which was  less than  40 per  cent the said goods were being treated all along as Artificial Silk Fabrics and excise duty was being  levied under item No. 22 of the First Schedule to the Central Excise & Salt Act, 1944.      In 1967  the Excise  Department issued  a Notice to the respondent to  show cause  why the  "Calikut Special’ should not be subjected to excise duty under Item No. 19 because in the intermediate  stage of production the cotton content was more than 40 per cent while Artificial Silk content was less than 60  per cent.  After considering the explanation of the respondent, the  Assistant Collector,  Central  Excise  held that the  goods in question were liable to payment of excise duty under  Item No.  19  and  not  under  Item  No.22.  The respondent questioned  the validity  of the  said  order  of Assistant Collector  under Article  226  and  the  same  was quashed by the High Court.      Dismissing the appeal of the Union of India, ^      HELD:- 1. If the product manufactured by the respondent contained cotton  and less  than 60  per cent  by weight  of Rayon or 538 Artificial Silk  it would  fall outside  Item No.22  because Item No.22 excludes such product from its scope and it would be cotton fabrics as stated in Item No.19. [540 G-H]

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    2. In  the instant  case, having  regard to the process involved in the manufacture of "Calikut Special by the  respondent it is not possible to hold that the character of the goods  at the  intermediate stage of production could be taken into consideration for determining the liability under the Act. The processes involved after the intermediate stage formed an integral part of the manufacture of the product in the question  and the  classification  of  the  manufactured product for  purposes of  excise duty should depend upon its nature and character at its final stage of production unless a contrary intention appears from the statute. [541 E-F]      Clause (vii) of section 2(f) of the Central Excises and Salt  Act,   1944  introduced   subsequently,   shows   that bleaching, heat  setting etc.  are incidental  and ancillary processes necessary  for the  completion of the manufactured product falling  under Item  No.22. This  amendment is  only clarificatory in  nature. Therefore, even though the product in question might have fallen under Item No. 19 in the First Schedule to the Act at the intermediate stage of production, at the  final stage  when the duty became exigible it became taxable under Item No.22 only. [541 G-H, 542 A]      Vijay Textiles  a Partnership  Firm at Plot No.4. Nerol Abendaly v.  Union of  India, 1979  E.L.T.(J 181) held over- ruled.      Empire Industries  Ltd. & Ors. v. Union of India & Ors. [1985] (20) E.L.T. 179 (S.C.) referred to.

JUDGMENT:      CIVIL APPELLATE JURISDICTION : Civil Appeal No. 259 (N) of 1972.      From the  Judgment and  Order dated  30.4.1970  of  the Gujarat High Court in S.C.A. No. 67 of 1968.      Govind Das and R.N. Poddar for the Appellant.      Soli J.  Sorabjee, A.N.  Haksar, Ravindra Nath, R.K.Ram and Miss Ratna Kapur for the Respondent.      The Judgment of the Court was delivered by 539      VENKATARAMIAH, J. This appeal by special leave is filed against the  judgment dated April 30, 1970 of the High Court of Gujarat  at Ahmedabad in special Civil Application No. 67 of 1968. The only question which arises for consideration in this appeal  is whether  the goods  called  Calikut  Special manufactured by  the respondent, the Ahmedabad Manufacturing and Calico  Printing Co. Ltd. (Calico Mills) Ahmedabad, were liable to  excise duty  under the  Tariff Item No. 19 in the First Schedule  to the  Central Excises  and Salt  Act, 1944 (Act No.1 of 1944) (hereinafter referred to as ’the Act’) or under Tariff  Item No.  22 thereof  as they stood during the relevant time.  The material part of Item No.19 in the First Schedule to the Act read as follows:-           "19. COTTON FABRICS -           "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-clothes           but do not include any- such fabrics.............           (c) if  it contains  60 per cent or more by weight           of          rayon           or          Artificial           Silk:.......................... "      The material  part of  Item No.22 in the First Schedule to the Act read as follows:-           "22. RAYON OR ARTIFICIAL SILK FABRICS -           "Rayon  or   artificial  silk   fabrics"  includes

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         varieties of fabrics manufactured either wholly or           partly from  Rayon or  Artificial Silk  but do  no           include any such fabrics ....           (iii) If  lt contains  cotton and less than 60 per           cent  by  weight  of  Rayon  or  Artificial  Silk;           or.........."      The respondent  was the  manufacturer of  the processed fabrics known  as "Calikut  Special" from  the year 1965. At the intermediate stage of their production, the said fabrics contained 46  per cent  of synthetic  fibres (Art  Silk) and their cotton  content was  about 54 per cent. The said goods were subject  to further  processing such as bleaching, heat setting etc.  and at  the time  when goods reached the final stage of production the cotton content of the said goods was reduced to about 38.48 per cent and 540 61.52 per  cent of the fabrics consisted of Artificial Silk. Having regard  to the  cotton content  of the  final product which was  less than  40 per cent, the said goods were being treated all  along as falling under item No. 22 of the First Schedule to  the Act  as Artificial  Silk Fabrics and excise duty  was   being  levied   on  that   basis.  However,  the Superintendent, Central  Excise,  Ahmedabad  by  his  letter dated November 25, 1967 proposed to treat the above goods as falling under  Item No.  19 thereof as cotton fabrics on the ground that  at the  intermediate stage  of  production  the cotton  content   was  more  than  40  per  cent  while  the Artificial Silk  content was  less than  60  per  cent.  The respondent repudiated  the claim made by the Superintendent, Central Excise,  Ahmedabad by  its reply  dated November 25, 1967. On  December  11,  1967  the  Superintendent,  Central Excise, Ahmedabad,  formally issued  a Show  Cause Notice to the respondent  to show  cause  why  the  "Calikut  Special" variety of  goods referred  to above should not be subjected to excise  duty under  Item No.19.  The respondent  sent its reply on  December 12, 1967 reiterating its stand that since at the final stage the product consisted of less than 40 per cent, of  cotton and  of more than 60 per cent of Artificial Silk, the  goods in  question were  liable to  be taxed only under Item  No. 22.  After  taking  into  consideration  the explanation given by the respondent the Assistant Collector, Central Excise,  Ahmedabad Division  - I,  Ahmedabad by  his order dated  December  29,  1967  held  that  the  goods  in question were  liable to  payment of  excise duty under Item No. 19  and not  under Item  No. 22.  Aggrieved by the above decision the  respondent filed a writ petition under Article 226 of  the Constitution  on the  file of  the High Court of Gujarat questioning the validity of the said order. The High Court after  hearing the  parties agreed with the contention of the respondent and allowed the writ petition quashing the order dated  December  29,  1967  passed  by  the  Assistant Collector, Central Excise, Ahmedabad Division - I, Ahmedabad and restraining  the Central  Excise Department from levying excise duty  under Item  No. 19 in the First Schedule to the Act. The  High Court  directed the Central Excise Department to levy  excise duty  under Item  No.  22.  This  appeal  by special leave  is filed  by the  Union of  India against the judgment of the High Court.      There is no dispute that if the product manufactured by the respondent contained cotton and less than 60 per cent by weight of  Rayon or  Artificial Silk  it would  fall outside Item No.  22 because  Item No. 22 excludes such product from its scope  and it  would be  cotton fabric as stated in Item No. 19. It is not 541

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disputed in  this case by the Central Excise Department that the  final   product  called  "Calikut  special"  which  was manufactured by  the respondent  contained cotton  and  more than 60  per cent  by weight of Rayon or Artificial Silk and that only  at the  intermediate state  of its  production it contained less than 60 per cent of Rayon or Artificial Silk. The question  for consideration  in  this  case  is  whether merely because  the goods in question contained less than 60 per cent  of Rayon  or Artificial  Silk at  the intermediate state they  were liable  to be taxed under Item No. 19 which imposed a heavier duty than the duty payable under Item No. 22.      Shri Govind  Dass, learned  counsel for  the  Union  of India, in support of its contention relied upon the decision of High  Court of  Gujarat in  Vijay Textiles  a Partnership Firm at  Plot No.4,  Nerol Abendaly v. Union of India [1979] E.L.T. (J  181). ’the petitioner in that case claimed before the High  Court that  the goods involved therein were liable to excise  duty at  the intermediate stage itself and excise duty was  leviable under  Item No. and not under Item No. 19 or Item No.22 perhaps because the total liability under Item No. 68  when compared with the excise duty either under Item No. 19 or under Item No. 22 was less at that stage. The High Court accepted  the contention  of the  petitioner  in  that case. But in Empire Industries Ltd. & Ors. v. Union of India &  Ors.   [1985]  20  E.L.T.  179  (S.C.),  this  court  has disapproved the decision in Vijay Textiles case (supra). L      Having  regard   to  the   process  involved   in   the manufacture of "Calikut special" by the respondent we are of the view  that it is not possible to hold that the character of the  goods at  the intermediate state of production could be taken  into consideration  for determining  the liability under the  Act. The  processes involved  in the instant case after the  intermediate stage  referred to  above formed  an integral part  of the manufacture of the product in question and the  classification  OF  the  manufactured  product  for purpose of  excise duty  should depend  upon its  nature and character as its final stage of production unless a contrary intention appears  from the  statute. It is seen from clause (vii)  of  section  2(f)  of  the  Act  which  is  no  doubt introduced subsequently  that bleaching,  heat setting  etc. are incidental  and ancillary  processes necessary  for  the completion of  the manufactured  product falling  under Item No. 22.  This amendment  has only  attempted to  explain the obvious and  to put  the question beyond dispute. Therefore, even though the product in question might 542 have fallen  under Item  No. 19 in the First Schedule to the Act at  the intermediate  state of  production, at the final stage when  the duty became exigible it became taxable under Item No.22  only. We  are, therefore,  in agreement with the decision of  the High  Court that the goods in question fell under Item  No.22 and  not under  Item No.  19 in  the First Schedule to  the Act  for purposes of payment of excise duty under the Act.      The appeal,  therefore, fails  and it is dismissed with costs. A.P.J.                                     Appeal dismissed. 543