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Verma Industrials Ltd. Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1984)(18)ELT403TriDel
AppellantVerma Industrials Ltd.
RespondentCollector of Central Excise
Excerpt:
.....fabrics from the market. before coating them, they first apply dye of the required colour to the grey fabrics. the dispute in this appeal is whether, during the period from 16-3-76 to 28-2-77, the appellants were liable to pay processing duty on account of their activity of dyeing the grey fabrics. the department has served on them a demand for the processing duty of rs. 54,802.62 and both the lower authorities have upheld this demand. (1) the show cause notice dated 15-3-77 issued by the superintendent states that the demand was raised on account of the exemption notification no. 78/76-c.e., dated 16-3-76. an exemption notification can only grant relief from payment of duty; it cannot impose duty reliance on 1978 [e.l.t. j 211 (patna)-m/s. bata india ltd. v. assistant collector of.....
Judgment:
1. The appellants manufacture coated cotton fabrics (upholstery cloth).

They purchase grey cotton fabrics from the market. Before coating them, they first apply dye of the required colour to the grey fabrics. The dispute in this appeal is whether, during the period from 16-3-76 to 28-2-77, the appellants were liable to pay processing duty on account of their activity of dyeing the grey fabrics. The Department has served on them a demand for the processing duty of Rs. 54,802.62 and both the lower authorities have upheld this demand.

(1) The show cause notice dated 15-3-77 issued by the Superintendent states that the demand was raised on account of the exemption notification No. 78/76-C.E., dated 16-3-76. An exemption notification can only grant relief from payment of duty; it cannot impose duty reliance on 1978 [E.L.T. J 211 (Patna)-M/s. Bata India Ltd. v. Assistant Collector of Central Excise, Patna.

(2) Duty can be collected only on the end product ; otherwise repeated taxation at. intermediate stages would lead to absurd results [1983 E.L.T. 54 (P. & H.) (Punjab & Haryana) Punjab Rubber & Allied Industries v. U.O.I. (3) The process of dyeing by the appellants did not amount to manufacture of a new commodity [reliance on 1975-CENCUS-90 {Bombay) -1977 E.L.T. (J 34)-The Empire Dyeing & Manufacturing Co. Ltd. v. V.P. Bhide and Ors. and 1979 E.L.T. J 181 (Gujarat) - Vijay Textiles v. U.O.I.].

(4) The process undertaken by the appellants was not even a process of dyeing as they applied a kutcha dye. The colour not being fast, the dyed fabrics were not saleable in the market and were, therefore, not "goods".

(5) There was total non-application of mind in issuing the show cause notice. The notice was issued under the then Rule 10A but the demand was confirmed under Rule 10.

(6) The appellants had pointed out certain calculation errors. The Appellate Collector remanded the matter to the Asstt. Collector to re-examine the calculations and to revise the demand, if necessary.

The Asstt. Collector had since written to the appellants that there were no calculation mistakes and that the demand already issued was in order, 3. The Department's Representative relied on the Bombay High Court judgment in the case of New Shakti Dye Works and Mahalaxmi Dyeing & Printing Works v. Union of India etc. [1982 E.L.T. 1736 (Bom.)] to say that because of the legislative changes of 1979 and 1980, which had been given retrospective effect from 1-3-55 in the case of cotton fabrics and the Constitutional validity of which had been upheld by the Bombay High Court, there could now be no controversy that grey fabrics and processed fabrics were two different products and that processing of grey fabrics amounted to manufacture. He further relied on the Delhi High Court judgment in the case of M/s. Hyderabad Asbestos Products [1980 E.L.T. 735 (Delhi)] to assert that once the Parliament had specifically provided that a certain activity involved manufacture, it was no longer open to the appellants to say that it did not. He referred to the definition of "dye" as given by the Textile Institute, Manchester, and stated that kutcha dyeing was also dyeing and that even the definition of "dyeing" in the Websters Third New International Dictionary relied on by the appellants did not say that the colour should always be permanent. The fact that the appellants used the dyed fabrics themselves for further manufacture of coated fabrics and did not sell the dyed fabrics was not material because central excise duty was on manufacture and not on sale [reliance on Supreme Court judgments in the case of Delhi Cloth Mills-1977 E.L.T. 199 and in the case of South Bihar Sugar Mills-1978 E.L.T. 336; also Allahabad High Court judgment in the case of M/s. Union Carbide-1918 E.L.T. 1]. So far as mention of Rule 10A in the show cause notice was concerned, he relied on the Supreme Court judgment in the case of M/s. J.K. Steel Ltd. reported at 1978 E.L.T. 355, to say that it did not vitiate the demand as the Superintendent had the power to issue the same show cause notice under Rule 10 also and the notice was well within the time-limit of one year as applicable at the relevant time under Rule 10.

4. In a brief rejoinder, the appellants stated that they were not liable to pay the processing duty in spite of the amended Section 2(f)of the Central Excises and Salt Act, 1944 as well as the amended description of Tariff Item 19-I, both with retrospective effect, because, unlike M/s New Shakti Dye Works and Mahalaxmi Dyeing & Printing Works, the appellants were not a processing house and the dyeing activity was not a finishing process in their case.

5. We have carefully considered the matter. The Bombay High Court judgment in the case of The Empire Dyeing & Manufacturing Co. Ltd. and the Gujarat High Court judgment in the case of M/s. Vijay Textiles relied on by the appellants are clearly distinguishable. Both these judgments were given in the context of the old Tariff Item 19 when the description of this Item had no separate sub-classifications for grey fabrics and processed fabrics. After the said judgments, the law itself was amended through the Central Excises and Salt and Additional Duties of Excise (Amendment) Ordinance, 1979 promulgated on 24-11-79, later replaced by the Central Excises and Salt and Additional Duties of Excise (Amendment) Act, 1980. The amending provisions inserted a specific clause in Section 2(f) of the Act as under :- "manufacture' includes any process incidental or ancillary to the completion of a manufactured product, and (v) in relation to goods comprised in Item No. 19-I of the First Schedule, includes bleaching, mercerising, dyeing, printing waterproofing, rubberising, shrink-proofing, organdie processing or any other process or any one or more of these processes;" Simultaneously, the tariff description of Item 19-I was changed as under:- "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-(a) cotton farbrics, not subjected to any Twenty per cent adprocess.

valorem.(b) cotton fabrics, subjected to the process Twenty per cent ad of bleaching, mercerising, dyeing, print- valorem."ing, water-proofing, rubberising, shrink- As already pointed out by the Department's Representative, both these amendments were given retrospective effect from 1-3-55. Section 2(f) now specifically provided that processing of grey fabrics amounted to manufacture. Revised description of Item 19-I further provided two separate sub-classification for grey fabrics and processed fabrics. In view of these legislative changes, the appellants can no longer rely on the ratio of the judgments in the cases of The Empire Dyeing & Manufacturing Co. Ltd. and Vijay Textiles.

6. The judgment of the Punjab & Haryana High Court relied on by the appellants is also distinguishable. This judgment laid down that duty was payable only on the end product in a continuous, integrated and uninterrupted process. This judgment was delivered on 2-9-81. The ratio of this judgment is not applicable to the appellants for three reasons.

First, after this judgment, Rules 9 and 49 of the Central Excise Rules, 1944 were amended in February, 1982. The amended rules stated that duty was payable even on goods removed for captive consumption in a continuous process in a factory. Through the Finance Act of 1982, these amendments were given retrospective effect from 1944. Secondly, in the case of the appellants it cannot even be said that their dyeing of grey fabrics was in the course of a continuous and uninterrupted process.

Thirdly, it is not a case where full duty was being charged once more from the appellants in addition to the duty already paid on grey cotton fabrics. The provisions of Rule 56A read with the terms of exemption notification No. 78/76-C.E., dated 16-3-76 ensured that only the net processing surcharge was collected and the appellants were on par with any other manufacturer of cotton fabrics who cleared such fabrics after dyeing. The Punjab & Haryana High Court judgment, therefore, does not help the appellants' case.

7. The appellants are not correct in stating that the Department had construed the exemption notification as if it imposed the dyeing duty.

A reading of the show catuse notice as a whole clearly brings out that upto 16-3-76, when the duty on coton fabrics was payable at specific rates, the processing duty on dyeing was nil but that from 16-3-76 due to Budgetary changes, these fabrics became liable for duty on ad valorem basis and not at specific rates and that in view of that the grey fabrics when subjected to dying or any other further process became liable to duty, in terms of the proviso to the notification. The authority for the demand was thus not only the exemption notification but the Budgetary changes of 1976 read with the exemption notification.

Reliance placed by the appellants on the Patna High Court judgment in M/s. Bata's case is, therefore, misplaced.

8. The appellants have sought to make a distinction between kutcha dyeing and fast colour dyeing. We reproduce below the definitions on page 710 of the Websters Third New International Dictionary on which they relied :- "dye, vb dyed, dyeing dyes [ME dyes, fr. (OE) deagian, degian, fr.

deag, dean] vt. 1 : to color throughout: impart a new and often permanent color to esp. by impregnating with a dye-compare DYEING 1 ; STAN, TINT Dyeing. s. 1 : the process or art of applying (as to textile fibres or leather) a coloring matter usu. in a solution or fine dispersion in a liquid (as water) so that the coloring matter is taken up from the dye bath and the color imparted is not readily removed by washing" The Department's Representative instead relied on the following definition of "dye" as given on page 59 of the book "Textile Terms and Definitions" published by the Textile Institute, Manchester :- A substance which is applied to any body to bring about a persistent modification of the original colour, and which, in some forms of its application, can be dissolved or dispersed in a fluid, diffusing thereby into the body to be coloured." We find that the Department's Representative is right in saying that even the Websters Dictionary relied on by the appellants does not say that dyeing should always be in permanent or fast colour. We find from the publication of the Textile Institute, Manchester, that they have given their definition on "dye" after discussion with the Terms and Definitions Committee of the Society of Dyers and Colourists. In other words, the definition of the Textile Institute, Manchester, has the stamp of approval from the persons in the relevant trade and is based on their understanding. This definition is, therefore, to be preferred over the definition given in ordinary dictionaries, and we find that it makes no distinction between kutcha dyeing and pucca dyeing. But even apart from these definitions, we find in everyday life that all dyed fabrics do not necessarily have fast colour. This matter was discussed in quite some detail during the hearing before us. The Bench pointed out to the appellants the case of "Bleeding Madras" which was a rage in the international market some years ago. This variety of cloth was deliberately dyed in kutcha colours. The appellants stated that Bleeding Madras was no longer in fashion but they themselves mentioned the case of modern day fading jeans. The cloth of these jeans was deliberately so dyed that the colour faded in patches in due course of wear. It cannot, therefore, be said that kutcha dyeing is not dyeing.

Section 2(f) of the Act and Item 19-I of the Tariff, as amended and reproduced above, make no distinction between kutcha dyeing and pucca dyeing. These provisions do not also say that dyeing or processing must be undertaken by a processing house and should be the finishing process in order to be taxable. We, therefore hold that once the appellants applied a dye to the grey fabrics, it amounted to dyeing as the fabrics ceased to be grey thereafter. Even if, for argument's sake, the appellants' contention that kutcha dyeing was not dyeing were to be accepted, the fact remains that even kutcha dyeing was a process applied on grey fabrics and it amounted to manufacture under Section 2 (f) of the Act as this section as well as the Tariff description of Item 19-I covered not only dyeing but also "any other process". If the Parliament has laid down that a certain process will be treated as manufacture and the fabrics which have undergone that process will be liable to a further duty, it is futile for the appellants to contend otherwise or to say that the processed fabrics are not 'goods'. [1980 E.L.T. 735 (Delhi)].

9. We agree with the Department's Representative that in view of the judgments of the Supreme Court in the case of D.C.M. and South Bihar Sugar Mills and the judgment of the Allahabad High Court in the case of M/s. Union Carbide, the fact of the goods not being sold is not relevant since the taxingactivity in the case of central excise is manufacture. Further, in view of the amended Rules 9 and 49, the intermediate goods removed for captive use within the same factory were also liable to duty.

10. Reading the show cause notice as a whole, we find no non-application of mind on the part of the issuing Superintendent. He gave the grounds for the demand as well as the details of the amount demanded and calculations in the show cause notice. If he made a mistake in mentioning Rule 10A as the authority for the demand instead of Rule 10, the demand is not vitiated as rightly pointed out by the Department's Representative on the authority of the Supreme Court judgment in the case of M/s. J.K. Steel Ltd. The question whether Rule 10 applied in this case or Rule 10A applied is only of academic interest because even under Rule 10 the demand was within time.

11. The question of calculations of the demand was briefly mentioned before us. The appellants stated that after reconsidering the matter, as ordered by the Appellate Collector, the Asstt. Collector had found the original calculations as correct. The appellants did not deal with the matter any further nor pointed out the mistake, if any, in this second order of the Assistant Collector. The order itself was also not placed before us. We are, therefore, not in a position to go into this matter any further.

12. In the light of our above discussion, we hold that there is no substance in any of the arguments of the appellants and, accordingly, we reject their appeal.


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