1. The appellants M/s Lal Woollen and Silk Mills (Private) Limited are engaged in dyeing of Worsted Woollen Yarn falling under Tariff Item No.18-B, C.E.T. They have been receiving duty paid grey yarn, under permission granted under Rule 51A, and have been giving intimation in Form D 3 as and when such receipts took place. They had been paying differential duty on the dyed yarn at the time of clearance, taking set off of duty already paid on the grey yarn. They had been purporting to do so under notifications 235/76 and 236/76-Central Excise in that connection.
2. Under notice dated 24-8-1977 the appellants were informed that no such set off was admissible as the same was not provided in the notifications abovesaid. It was pointed out that woollen yarn is notified in the Schedule to Rule 56A of the Central Excise Rules for grant of proforma credit and not for set off of duty. Pointing out that no permission had been obtained from the Assistant Collector under Rule 56A, the appellants were directed to show cause why Central Excise duty of Rs.4,08,787.96 should not be recovered from them under Rule 10 of the Central Excise Rules.
3. The appellants in reply traced the background, pointing out that initially there was no difference in duty between dyed yarn and grey yarn and permission under Rule 51A had been obtained in 1960 and that it was in 1966 that, for the first time, separate rates of duty were imposed for grey yarn and dyed yarn and thereafter differential duty was being paid in view of notifications issued also for that purpose.
It was further pointed out that even after different tariff values and separate rates of duty were notified in 1976 the appellants continued to pay differential duty in view of the earlier practice and notifications and that the same had not been ever objected to by the department. It was contended that dyeing of yarn was not covered by Rule 56A and that the demand raised by the department would amount to double taxation which was not permissible. It was also contended by a supplemental reply that a part of the demand was time barred.
4. On adjudication the Assistant Collector of Central Excise, Amritsar, under order dated 24-4-1983, overruled the above objections, as also the further argument raised that dyeing of yarn did not amount to manufacture of a new commodity. Under the said order the demand was confirmed. The said order was confirmed in appeal under order dated 30-9-1984 of the Collector of Customs and Central Excise (Appeals), New Delhi. It is against the said order that the present appeal has been preferred.
5. We have heard Sarvashri Harbans Singh, B.S. Ahuja and I.S. Ahuja, Advocates for the appellants and Shri N.V. Raghavan Iyer, Joint Chief Departmental Representative for the respondent Collector.
6. Shri Harbans Singh contended that the conversion of grey yarn into dyed yarn did not amount to manufacture as would invite imposition of excise duty and hence no duty at all was payable by the appellants. He further contended that to accept the contention of the department would amount to permitting double taxation of the same goods which was not permissible in law. He also contended that in any event credit under Rule 56A should be allowed and that part of the demand was in any event barred by time. Shri Raghavan Iyer on the other hand contested all these submissions and claimed that as the Tariff entry stood, dyed yarn was also liable for payment of excise duty apart from grey yarn and that even on general principles dyeing of woollen yarn amounted to manufacture as would attract imposition of excise duty and that this conclusion is fortified by the recent judgment of the Supreme Court dated 6-5-1985 in Empire Industries Limited and Ors. v. Union of India and Ors. 1985 (20) E.L.T. 179 (S.C.). He also contended that there is no question of double taxation involved on the facts of the present case and that while it had been open to the appellants to have claimed benefit under Rule 56A they had not done so and cannot claim any such relief at this stage.
7. We have carefully considered the submissions of both sides. Shri Harbans Singh contends that the tariff entry (as it stood) contained no indication regarding liability for levy of duty on processed yarn (dyed yarn in this case) and that the process of dyeing would not amount to manufacture as defined in Section 2(f) of the Central Excises and Salt Act. The tariff entry as it stood at the relevant time read as follows : "WOOLLEN YARN, ALL SORTS INCLUDING KNITTING WOOL, containing not less than ninety per cent by weight of wool calculated on the total fibre content in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power : Shri Raghavan Iyer contended, with reference to the above tariff entry, that as the entry read "woollen yarn, all sorts..." it included all varieties of woollen yarn such as grey yarn, dyed yarn etc. He therefore contended that the tariff entry itself would make the dyed yarn liable for duty as well as the grey yarn. In this connection he relied upon the following passage in 'The Law of Central Excise-Taraporevala and Parekh (Second Edition)'; "This expression which occurs in Item 21(2) was construed as not having the same wide amplitude as is conveyed by the expressions, 'all forms of or 'any form of. Therefore, 'all sorts of food' included all varieties or all kinds of food, that is, it included within its ambit all possible kinds of food but with the basic requirement that the article should be regarded in ordinary parlance as 'food'. (Cadbury Fry v. Union, Kania J.H. Ct. Bom.-Misc. Pet.
702/71, D/1-9-1977)." He further referred us to the notification in question (236/76 Central Excise dated 30-8-1976) and pointed out that it laid down separate rates of duty for grey yarn and dyed yarn and this would also indicate that dyeing constituted manufacture and that is why dyed yarn was being subjected to a different rate of duty than grey yarn. But it appears to us that placing reliance on the words of the notification to draw a conclusion on excisability would not be proper. The proper course would be to find out whether the goods are excisable and, on an affirmative conclusion on that question, thereafter look at the rate of duty and exemption notifications, if any, provided therefor.
8. Both sides relied upon various decisions to support their respective contentions. Shri Harbans Singh relied upon the decision of Government of India in In-re : Eastern Dyeing Company, Ludhiana (1982 E.L.T. 762) where it had been held that once duty had been levied and collected at its grey stage on woollen yarn under T.I. 18 B there was no scope for levying on the said yarn duty again under the same tariff item on processing by way of dyeing. He also relied on the judgment of the Kerala High Court in Deputy Commissioner of Sales Tax v. Sadasivan 1978 STC (42) 201. It was held therein, construing the words of Section 5 of the Kerala General Sales Tax Act, and also Entry 4 (ii) of the second schedule to the said Act, that, despite the process of dyeing and colouring, cotton yarn would remain cotton yarn. Cotton yarn under that entry was subjected to sales tax at the point of first sale in the State. It was held that tax having been paid at the grey stage tax could not be again collected when it was sold after dyeing. The finding was that cotton yarn dyed and coloured continued to be cotton yarn within the meaning of the said entry 4 (ii) and that no manufacturing process was involved in dyeing the yarn. The entry read "Cotton, that is to say, all kinds of cotton in its manufactured state... Another decision relied upon by Shri Harbans Singh was Capital Dyeing Company v. Collector of Central Excise, Chandigarh 1984 (17) E.L.T. 544. But that decision dealt with liability for payment of base stage duty, over and above the texturing surcharge, by the texturising processors when the plain yarn had been purchased from the market. The decision laid down that in such a case the duty liability on the plain yarn must be held to have been discharged as the same was purchased in the open market and the processor cannot be called upon to pay that duty.
Therefore, that decision is not relevant to the question as to whether dyeing would amount to manufacture. Shri Harbans Singh referred to the decision in the Vijay Textiles case (1979 E.L.T. 18) but when it was pointed out that the said decision had been specifically over ruled by the Supreme Court recently in Empire Industries Limited v. Union of India 1985 (20) E.L.T. 179 (S.C.), - he made no further reference to that decision.
9. Shri Raghavan Iyer on the other hand contended that this question, whether dyeing would or would not amount to a process of manufacture, is no longer open to doubt after the decision of the Supreme Court reported in cited supra. He pointed out that in the said decision the Supreme Court considered the question whether cotton fabrics subjected to the process of bleaching, mercerising, dyeing, printing, water proofing, etc., underwent manufacture as defined in the Act even prior to the amendment of Section 2(f) under Act 6 of 1980. He contended that the Supreme Court came to an affirmative conclusion on that question on a consideration of the etymological meaning of the word "manufacture".
Shri Harbans Singh contended that the Supreme Court was mainly concerned with the question whether the amending Act No. 6 of 1980 was valid and as they came to the conclusion that the said Act was valid and intra vires, their judgement was based mainly on that finding. He contended that the Supreme Court was therefore concerned with the state of the law as it stood after the amendment and that insofar as these specific processes (including dyeing) had been declared under the amendment to be manufacture with reference to cotton fabrics under Tariff Item 19.1, their decision followed the said finding. But it may be seen that, as pointed out by Shri Raghavan Iyer, the Supreme Court did not concern itself only with the effect of the amendment to Section 2(f) but considered the question as to what would amount to manufacture, with reference to the etymological meaning of the word.
They had observed in para 33 "it appears in the light of the several decisions and on the construction of the expression that the processes of bleaching, dyeing and printing etymologically also means manufacturing processes". We take note that the Supreme Court later on observed that 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 decisions of the Supreme Court. The Supreme Court had further observed in para 31 "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 a part of manufacture. Any process or processes creating something else having a distinctive name, character and use would be manufacture". Shri Raghavan Iyer points out that dyed yarn is distinct from grey yarn as it is known separately " from grey yarn in the market, traded separately as such and has its distinctive 1 J uses. Nor are these facts controverted by the appellants. He therefore contends that in the light of the observations of the Supreme Court the dyed woollen yarn would be a manufactured commodity distinct from the grey woollen yarn, though both may be woollen yarn. Shri Harbans Singh contends that a distinction must be made between grey fabric and printed fabric as against grey yarn and dyed, yarn since grey fabric is not normally used as such but only printed fabric, while grey yarn as well as dyed yarn are used to make fabrics. The premise that grey fabric in not used as such in itself is not correct. Therefore, no distinction as suggested by Shri Harbans Singh appears to be called for.
10. Shri Harbans Singh contends that while under the Amendment Act 6/1980 the definition of manufacture in Section 2(f) with reference to particular tariff entries bad been amended, there was no such amendment with reference to tariff entry 18B and therefore the processes enumerated in the amended definition with reference to other entries (including process of dyeing) cannot be imported with reference to tariff item 18B as amounting to manufacture. But this argument is not acceptable in view of the fact that the Supreme Court had, as earlier mentioned, construed the several processes, including dyeing, with reference to their etymological meaning also and had concluded that the said processes (including dyeing) would amount to processes of manufacture. It may be noted that in specific terms the Supreme Court had observed in para 34 referring to 1983 E.L.T. 1736 "we are in respectful agreement with the conclusions reached by the learned Acting Chief Justice of the Bombay High Court in that decision" and again in para 49 "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 Private Limited and Mahalaxmi Dyeing and Printing Works v. Union of India (1983 E.L.T. 1736) are correct". It may be seen that in the said judgment the Bombay High Court had discussed the question of what would amount to manufacture with reference first principles as well as the statutory definitions. It had observed in paragraph 13 "on first principles we have already held the processes of bleaching, dyeing and printing did bring into existence a new marketable commodity different from the grey cloth which is handed over to the processors". Therefore, the Bombay High Court had, even without reference to the statutory definition, held, on first principles, that the process of dyeing would amount to manufacture. As already seen, the Supreme Court had confirmed this proposition earlier in its judgment and had, in a later portion, specifically approved of the observations of the Bombay High Court in the passage cited supra.
11. Shri Harbans Singh contended that the recent judgment of the Supreme Court cited supra dealt with fabrics and not yarn and hence the observations in the said judgment should not be applied to the present case where the commodity in question is yarn. We are not inclined to accept such a contention, since the observations of the Supreme Court were generally with reference to the processes of manufacture and dealt with general principles in that connection, not necessarily with reference to fabrics only. In view of the observations of the Supreme Court as above extracted we are satisfied that the decision in (cited supra), though it dealt with process of dyeing of yarn, would no longer be good law.
12. As far as the decision of the Kerala High Court 1978 E.T.C. (42) 201 is concerned it may be noted that [as observed by the Supreme Court in 1985 (20) E.L.T. 179 (SC) in paragraph 25] the Supreme Court had in Commissioner of Sales Tax, U.P. v. Harbilas Rai and Sons 1968 STC (21) 70 observed "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".
Therefore, the meaning attached to the word "manufacture", in the context of sales tax legislation, would not ipso facto apply when the same word has to be construed in the context of excise legislation. We may also take note here of the observations of the Supreme Court in P.C. Cheriyan v. Mst. Barfi Devi "Before parting with this judgment, we may sound a note of caution, that definitions of "manufacture" given in other enactments, such as, in the Factories Act or the Excise Act should not be blindly applied while interpreting the expression "manufacturing purposes" in Section 106 of the Transfer of Property Act. In some enactments, for instance in the Excise Act, the term "manufacture" has been given an extended meaning by including in it "repairs" also." Further, in view of the recent decision of the Supreme Court in Empire Industries Limited case and the discussion as to whether the process of dyeing would amount to manufacture or not under the Central Excises and Salt Act, the judgment of the Kerala High Court would not be of any assistance to the appellants in the present case.
13. Therefore, on a careful consideration of the submissions on both sides we are satisfied that the process of dyeing of grey yarn undertaken by the appellants amounted to manufacture for the purposes of levy of Central Excise duty and duty was therefore chargeable thereon at the rates specified in the Notification No 236/76-C.E.14. As far as the contention of Shri Harbans Singh that such a conclusion should be avoided as that would amount to double taxation is concerned, we are not convinced by such an argument. The question of double taxation would arise only if duty is levied on the same goods repeatedly at more than one point. In the present instance, it has been that duty had been originally levied and collected when grey yarn was cleared and duty would be again demanded under the present order on the dyed yarn when the same is cleared. We have already seen that the dyed yarn is commercially different from the grey yarn and that they are distinct products each being traded separately and known separately in the market. The dyed yarn has emerged as an item of manufacture from the grey yarn. Thus the two being distinct goods, one being manufactured from the other there is no question of double taxation when each is taxed separately and duty is collected on each of them at different stages.
15. Shri Harbans Singh argued that if the contention of the department is accepted the total duty collected would amount to 21% which is higher than what he called the tariff rate. But this argument is not correct since the duty collected on the dyed yarn would be 11% only though at an earlier stage duty at 10% may have been collected on the grey yarn. Since, as earlier mentioned, grey yarn and dyed yarn distinct commercial commodities and dyed yarn had emerged by way of manufacture from the grey yarn, duty borne by the dyed yarn would only be 11% and not 21% as claimed by Shri Harbans Singh. Shri Harbans Singh contends that credit under Rule 56 A should be made available to the appellants by us, following our conclusions. In this connection it should be noted that the appellants had all along been denying that Rule 56 A procedure would be applicable to their product. We hays noted that this contention on the part of the appellants was not correct as woollen yarn is a specified item (item 9A) under Rule 56A. On the contention of Shri Harbans Singh that under our order we should make provision for we should make provision for credit under Rule 56A to the appellants, Shri Raghavan Iyer contends that such a benefit cannot be granted by us under our order. He argues that benefit arising under Rule 56A cannot be granted unless the procedure prescribed therefor had been followed. Admittedly in the present instance the said procedure had not been followed. Shri Harbans Singh refers to the observations of the Supreme Court in 1985(20) E.L.T. 179 in para 49 that in the said case proforma credit on the duty already paid was being allowed. The relevant passage reads- "Reference has already been made to Rule 56A. Under Sub-rule (2) of Rule 56A it is expressly provided that the manufacturer will be given credit of the duty he had 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.
The processors will be given proforma credit for the duty already paid on the grey cloth by the manufacturer of the gray cloth." Therefore, it was evidently as concession by the revenue before the Court that the observation had been made that credit would be given. We cannot take that as an authority for the proposition that in the circumstances of the present case also such a relief should be provided by us under this order even without a similar concession by the revenue.
17. Shri Harbans Singh finally contends that in any event a portion of the claim is barred by time. The period covered by the present proceedings is from 30-8-1976 to 18-7-1977. The show cause notice had been issued under Rule 10 of the Central Excise Rules. The same is dated 24-8-1977. There is no dispute that on that date the period of limitation under Rule 10 was six months. The lower authorities had proceeded on the basis that as the period of limitation under Rule 10 during the period for which the short levy relates was one year, it is the said period that would apply to the demand. But this Tribunal had in the case of Atma Steels Private Limited 1984 (17) E.L.T. 331 held that it is the period of limitation as on the date of the show cause notice that would govern the demand under the notice and not the period of limitation that was enforceable during the period for which the demand related. In the circumstances we hold that in the present instance the demand could be enforced only for the period of six months prior to 24-8-1977 and not any earlier period.
18. Therefore, on a careful consideration of the submissions on both sides and in the light of the discussion above, we hold that the appellants are entitled to relief only with reference to the restriction of the period of the demand and not otherwise. The appeal is accordingly allowed only to the extent of limiting the demand for the period of six months prior to 24-8-1977 and is otherwise dismissed.
19. I beg to differ with my brothers. The Supreme Court held in the case of Empire Industries Ltd. 1985 (20) E.L.T. (SC) that dyeing was etymologically a process of manufacture in relation to cotton fabrics.
I do not find any general observation by the Supreme Court that dyeing or colouring of everything else would also be a process of manufacture.
On the contrary, in the same judgment in paragraph 33, the Supreme Court has cited two judgments of the Gujarat High Court in which it had been held that- (i) printing and lacquering of plain aluminium tubes was not a process of manufacture of aluminium tubes [1979 E.L.T. (J 380)-Extrusion Process Pvt. M. v. N.K., Jadhav, Superintend of Central excise]; (ii) colouring of duty paid paper was not a process of manufacture [1980 E.L.T. 164 (Guj.)-Swastik Products, Baroda v. Superintendent of Central Excise}.
The Supreme Court observed that the facts of these two cases were distinguishable. "The question whether a particular process is a process of manufacture or not", observed the court, "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." This was the general principle laid down by the court. The court further reiterated the well-known test saying "Any process or processes creating something else having distinctive name, character and use would be manufacture." It is on the basis of this test that the question whether dyed woollen yarn is a different product from undyed or grey woollen yarn should be determined. It would not be correct to conclude that since the Supreme Court held dyeing or cotton fabrics as amounting to manufacture, dyeing of woollen yarn should also be considered as a process of manufacture.
20. I do not find any evidence in the proceedings to the effect that in trade parlance or in the popular sense dyed woollen yarn is considered a different commodity from undyed or grey woollen yarn. The onus to prove any such fact under tariff entry 18B is on the department. This onus has not been discharged. The lower authorities presumed the two as different commodities just because the tariff value notification and the exemption notification indicated separate values and separate concessional rates of duty for the two. It is obvious that the scope of the tariff entry cannot be determined, much less expanded, by such notifications. During the hearing before us, the learned representative of the department contended that dyed yarn was known separately from grey yarn in the market, traded separately as such and had its distinctive uses. From the Bench, I asked for the evidence on which this contention was based. I particularly pointed out to him that in the case of Empire Industries Ltd. (paragraph 38 of that judgment), the Supreme Court had cited the Indian Standard Glossary of Terms and had observed that the I.S.I. treated bleached fabrics as something different from unbleached fabrics. I asked him whether there was any I.S.I. authority for his contention. Neither any evidence nor any I.S.I. authority was shown to us.
21. On the other hand, I find from the everyday life that popular understanding of the matter is quite contrary to what the learned representative of the department contended. A housewife wants to knit a woollen pullover or cardigan. She goes to a store selling woollen yarn.
She finds yarn of various shades, including the natural cream (or "grey"), stocked there, may be on the same shelf. She buys the particular shade or shades she wants. She could even make a pull-over of two mixed colours-say of natural cream and red. The thought that the two are separate and distinct commodities would not enter her mind. She is only buying woollen yarn of two different shades. Their name and character remain the same. Their use is also common- knitting of the pull-over or cardigan etc. I arrive at the same conclusion when I extend the example to handlooms or mills. They use woollen yarn, both grey and dyed, for weaving fabrics. One can see shawls, lois, mufflers, blankets and coating cloth woven from grey woollen yarn as commonly as those woven from dyed woollen yarn. The colour or shade just a matter of choice of the consumer. The name, character and use of the woollen yarn, whether grey or dyed, remain the same. I am, therefore, unable to accept the unsubstantiated contention of the learned representative of the department to the contrary. The well-known test laid down by the Supreme Court has not been satisfied.
22. Of relevance is also the fact that the law and tariff relating to woollen yarn are differently structured as compared to those relating to cotton fabrics. Unlike cotton fabrics, man-made fabrics and cotton yarn, Section 2(f) of the Central Excises and Salt Act, 1944 does not equate dyeing, bleaching etc. of woollen yarn to manufacture, nor does the tariff entry for woollen yarn make any distinction between grey yarn and processed yarn. There are 14 entries relating to yarns and fabrics in the central excise tariff. Of these, only 3 (18A, 19 and 22 relating to cotton yarn, cotton fabrics and man-made fabrics) were amended by the Parliament in 1979-80 to re-tax processing. The rest, including woollen yarn, were left out. Therefore, while it could be said that in the case of cotton fabrics, man-made fabrics and cotton yarn the legislative intent to re-tax the processed goods is self-evident, the same is not true of woollen yarn or, for that matter, most of the commodities coming in the excise tariff. Otherwise, the position would be that a slight change in the look or quality of a product would invite fresh taxation under the same entry. A refiner upgrading duty paid 'D' grade sugar to 'B' grade sugar would be required to pay duty again on his sugar under the same tariff entry which just reads 'Sugar'. So would a refiner who upgrades the octane number of duty paid petrol when the tariff entry is just 'Motor Spirit'. And so would a person painting or etching designs on duty paid glass tumblers when the tariff entry 'Glass and glass-ware-tableware' makes no distinction between plain glass tumblers and painted/etched glass tumblers. I feel that if we do sc, we would be violating the time-tested rule laid down by the Supreme Court that all processing is not manufacture [1977 E.L.T. (J. 199) (SC) Union of India v. Delhi Cloth and General Mills, reiterated in the recent case of Empire Industries Ltd. supra]. Processing no doubt, enhances the value of the article but excise duty is still a tax on manufacture; it is not yet a value added tax.
23. I do not agree with the learned representative of the department that the words "all sorts" in the entry 18B "woollen yarn, all sorts including knitting wool---" provide an authority for taxing dyed woollen yarn all over again under the same entry. These words only mean that all kinds of woollen yarn, such as worsted yarn, non-worsted yarn (called woollen yarn), knitting yarn, are to be taxed under this entry.
To quote the authorities : "20. Mr. Pathak wanted to derive some assistance for his argument from the words "all sorts" as used in the clause. According to him, the words "all sorts" will be superfluous unless interpreted to mean "whether bringing into existence a new substance or not." The reasoning is clearly fallacious. The words "all sorts" have been used to make it clear that "vegetable non-essential oils" whether raw or refined and from whatever raw material produced will be liable to excise duty." "What Mr. Vakharia appearing for the respondents contends is that the colouring process of the paper purchased by the petitioner would come within the sweep of 'all other kinds of paper and paper board, not otherwise specified'. The words 'all other kinds of paper' occurring in Tariff Item 17(3) refers to 'all other kinds of paper manufactured' Colouring a paper which is already manufactured is not a process in the manufacture of paper nor can that process be said to be one incidental or ancillary to the manufacture of paper. If the colouring was in the process of the 'manufacture' of the paper, then it would come within the expression paper all sorts. No manufacturing process is involved by printing on white paper or by colouring manufactured product, namely the paper. We are, therefore, unable to agree with Mr. Vakharia that 'all other kinds of paper' would take in paper which has already been manufactured and on which either printing is done or colouring is done. We, therefore, hold that the respondents erred in invoking sub-item (4) of the Tariff Item 17 in demanding the payment of excise duty. It is brought to our notice by the learned counsel for the petitioner that the goods in question had already suffered excise duty and the manufacturer had paid the excise duty payable on the goods sold to the petitioner. This statement made by the learned counsel for the petitioner is not denied by Mr. Vakharia, learned counsel for the respondents." What the Gujarat High Court said for colouring of duty-paid paper applies with equal force to dyeing of duty-paid woollen yarn. In the absence of separate sub-items relating to unprocessed and processed woollen yarn or separate enumeration of unprocessed and processed varieties of woollen yarn as distinct goods in the tariff entry, the same entry cannot be invoked a second time.
24. There is an authority for this conclusion in a recent judgment of the Supreme Court relating to plywood [1985(20) E.L.T. 202 (Sty-Collector of Customs and Central Excise and Anr. v. Oriental Timber Industries]. Entries 16B relating to plywood and 18B relating to woollen yarn had one thing in common-neither listed different shapes and forms of plywood/ woollen yarn as distinct items ; that is, both were unlike the cotton fabrics entry in this respect. I quote below paragraph 1 and the relevant portion of paragraph 16 of this judgment dated 26-3-1985 : "The question for consideration in this appeal by Special Leave is whether the plywood manufactured by the Respondent and utilised by the respondent in manufacturing plywood circles to be used as component parts of packing material for wires and cables is exigible to excise duty under the Central Excises and Salt Act, 1944." "16...Whether cutting of plywood blocks or panels into circles constitutes a manufacturing process and whether circles made out of the plywood blocks or panels constitute a different product from the plywood may be debatable. There can, however, be no doubt that plywood is manufactured as soon as the product comes out of the press and plywood in sheets, blocks, boards or the like come within Item 16B, even if they are not trimmed and their edges are not sanded, as the item does not speak of trimmed or sanded plywood.
Even if plywood blocks or panels manufactured by the firm can be said to constitute the raw materials of the firm for producing plywood circles and not as the finished product of the firm, the position, in view of the definition of 'manufacture' as given in Section 2(f) of the Act, the provisions of Rule 9 and the provisions contained in Item 16B in the First Schedule, remains unaltered and unaffected, and plywood manufactured for producing circles becomes liable to duty at the block stage or panel stage. No question of double taxation arises as duty is leviable only once on the plywood as it comes out of the press in the panel or block stage and no further duty is to be levied on the circles which are made out of the plywood blocks or panels.
It is evident that the Supreme Court went to the extent of saying that whether cutting of plywood panels into circles amounted to manufacture or not, duty under Item 16B could be charged only once. I see no reason why the same rule is not applicable to woollen yarn.
25. I, therefore, hold that there is no evidence laid before us to conclude that dyed woollen yarn is a new substance different from grey woollen yarn in name, chapter and use an since duty had already been paid on grey woollen yarn brought into the appellant's factory, under Item 18B, there could be no question of taxing dyed woollen yarn again under the same entry in view of the wording of this entry. In view of this, there was no need, in my opinion, for the appellants to pay the differential duty which they had been paying in terms of the exemption notification. However, the appellants stated before us that they were not asking for any refund of the differential duty already paid, their only prayer was for the quashing of the demand made on them for full duty (that is, without giving any consideration for the duty already paid on grey woollen yarn purchased by them). This demand cannot stand the scrutiny of law and has, therefore, to be quashed.
26. In the view I have taken of the matter, it is not necessary for me to go into the question of applicability of Rule 56A to the appellants.
Nevertheless, while on the subject, I wish to put it on record that I do not share the view of my brothers that there was a concession on the part of the Union of India which led to extension of the proforma credit benefit under Rule 56A in the case of Empire Industries Ltd. supra. Let the record speak for itself:- "18...The main grievance appears to be that while the processors get the grey cloth on which duty is already paid, they are required to pay duty on the basis of the value of the manufactured article which also includes the value of grey cloth on which excise duty has already been paid and the basic contention is that there is double levy of excise duty. Mr. Joshi has referred us to Rule 56A of the Rules which provides for special procedure for movement of duty-paid materials or component parts for use in the manufacture of finished excisable goods. Under Sub-rule (2) of Rule 56A it is expressly provided that a manufacturer will be given credit for the duty which is already paid on the articles already used in the manufacture subject to certain conditions and it is not now in dispute before us, irrespective of the question whether such claim for grant of credit was made or not, that in view of the provisions of this Rule, when excise duty will be charged on a processed printed material the processors will be given credit for the duty already paid on the grey cloth by the manufacturer of the grey cloth." [1983 E.L.T. 1736 (Bombay)-New Shakti Dye Works Pvt. Ltd. and Anr.
v. U.O.I. and Anr.] "47-----When the textile fabrics are subjected to the processes like bleaching, dyeing and printing etc. by independent processors, whether on their own account or on job charges basis, the value for 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 Rule 56A or 96D of the Central Excise Rules, as the case may be.
* * * * "49. The conclusion that inevitably follows that in view of the amendment made in Section 2 (f) of the Central Excises and Salt Act as well as the substitution of new Item 19 and Item 22(1) in 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. and Mahalakshmi Dyeing and Printing Works v. Union of India and Anr. (Writ Petition Nos. 622 and 623 of 1979)-1983 E.L.T. 1736 (Bom.) are correct." As I see it, the above pronouncements made the extension of proforma credit benefit a rule of assessment in order to mitigate the effect of double taxation on processed fabrics. There was no concession made on the part of any one.
27. Assuming that dyed woollen yarn attracted duty again under the same tariff entry 18B, refusal to grant proforma credit for the duty already paid on grey woollen yarn would result in stark discrimination. An integrated mill clearing dyed woollen yarn would be paying duty only once at the rate of 11% ad valorem, while processors like the appellants would have to pay 21% duty (10% already paid on grey yarn plus 11% on dyed yarn). I do not think that the law sanctions such discrimination.
28. The learned representative of the department admitted before us that in equity the appellants deserved relief by way of grant of the proforma credit benefit. But he said that such relief could not be granted at this stage for the past period since the appellants had not applied for it in advance nor had they followed the procedure prescribed in this behalf in rule 56A. I pointed out to him that Rule 56A had been amended on 21-2-1981 and a new Sub-rule (2B) inserted therein under which, subject to certain conditions, the Collector could condone both the deficiencies pointed out by him and extend the benefit for the past period. The appellants fulfilled the conditions laid down in this behalf in Sub-rule (2B). If the appellants had not applied for Rule 56A procedure in the past, it was because of the fact that neither they nor the department considered it necessary for them to do so. The department itself had granted them a different procedure by way of set off. It is in such situations that rules of interpretation require us to construe "may" as "shall" in Sub-rule (2B) and the power of relaxation provided for in the law ought to be exercised to ensure equity and justice.
29. Finally, the learned representative of the department came out with the argument that the aforesaid relaxation was the prerogative of the executive and that it was not open to this Tribunal to direct that it be exercised. I must repel this argument. Assessees take recourse to appellate remedies because they felt that they have suffered at the hands of the executive. If the redressal machinery is convinced that relief is merited under the law but cannot grant it, it would defeat the very purpose of setting up that machinery. I find nothing in Rule 56A which forbids this Tribunal from directing the executive to grant a benefit which is fully merited under the law.
30. If Rule 56A benefit is given to the appellants, the net duty payable would not be much different than what has already been paid by them in the past and of which they are not asking for refund. In this view of the matter also, the impugned demand for extra duty would no longer survive.
31. In the result, I allow this appeal and set aside the impugned demand.