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Commissioner of Income-tax Vs. Century Enka Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 364 of 1977
Judge
Reported in[1981]130ITR267(Cal)
ActsIncome Tax Act, 1961 - Section 33(1)
AppellantCommissioner of Income-tax
RespondentCentury Enka Ltd.
Appellant AdvocateB.L. Pal and ;A.N. Shome, Advs.
Respondent AdvocateDebi Pal, ;R.N. Bajoria, ;R.K. Murarka and ;A.K. De, Advs.
Cases ReferredState of Orissa v. Orissa Fisheries Development Corporation Ltd.
Excerpt:
- sabyasachi mukharji, j.1. in this reference, under section 256(1) of the i.t. act, 1961, for the assessment years 1971-72 and 1972-73, the following questions have been referred to this court:'1. whether, on the facts and in the circumstances of the case, the tribunal was right in law in directing the allowance of the provision of excise duty of rs. 15,96,000 and rs. 17,00,000 as deduction for the assessment years 1971-72 and 1972-73, respectively ? 2. whether, on the facts and in the circumstances of the case, the tribunal was justified in law in holding that nylon was petrochemical within the meaning of item (18) of the vth schedule to the income-tax act, 1961, and that the assessee was entitled to higher development rebate in respect of plant and machinery installed for the production.....
Judgment:

Sabyasachi Mukharji, J.

1. In this reference, under Section 256(1) of the I.T. Act, 1961, for the assessment years 1971-72 and 1972-73, the following questions have been referred to this court:

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the allowance of the provision of excise duty of Rs. 15,96,000 and Rs. 17,00,000 as deduction for the assessment years 1971-72 and 1972-73, respectively ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that nylon was petrochemical within the meaning of item (18) of the Vth Schedule to the Income-tax Act, 1961, and that the assessee was entitled to higher development rebate in respect of plant and machinery installed for the production of nylon for the assessment years 1971-72 and 1972-73 ?'

2. In order to deal with these questions, it is necessary to state that the assessee is a company which is engaged, inter alia, in the manufacture of nylon yarn. In 1969, the Inspector of Central Excise informed the assessee that it should apply for a licence for manufacture of polymer chips. Since the assessee, according to it, was engaged in the business of manufacturing nylon yarn, it explained to the Asst. Collector of Central Excise in November, 1969, that in the course of its manufacture of nylon-6 from caprolactum, production of polymer chips formed only an intermediate stage and could not be treated as independent products in the continuous and integrated process of manufacture of nylon yarn. The assessee, therefore, disputed its liability to pay excise duty on the production of polymer chips. In December, 1969, the Asst. Collector of Central Excise did not accept the assessee's plea and asserted that the production of polymer chips was liable to excise duty and the assessee's attention was invited to Section 3 of the Central Excises and Salt Act, 1944, and Rule 9 of the Rules made thereunder. On January 23, 1978, the Asst. Collector of Central Excise, Poona, issued a show-cause notice to the assessee on the ground that the assessee had contravened Rules 174, 173(B) and 173(C) of the Central Excise Rules, 1944. There, the Asst. Collector of Central Excise contended that the assessee was liable and required to pay central excise duty on the said product irrespective of the assessee's clearing the product for consumption outside the factory or using the same internally in the assessee's own factory for further manufacture of nylon yarn. The letter has been set out in the statement of case. For our present case, it is not necessary to set out the letter. In the light of the above facts, the assessee made a provision for liability of Rs. 14,96,000 by way of excise duty for the first year and Rs. 17,00,000 for the second year. Actually demand notice had not been issued by the central excise authorities and no coercive process had been started for recovering the same. It is also an admitted position that no penalty had actually been levied for non-payment of the duty.

3. In these circumstances, the ITO held that the liability had not accrued or become ascertained during the relevant accounting year. The AAC, on the other hand, accepted the contention of the assessee and allowed these two sums as deduction.

4. Being aggrieved by the decision of the AAC, the revenue went up in appeal before the Tribunal. Before the Tribunal elaborate arguments were advanced by both sides and reliance was placed on the decision of the Supreme Court in the case of Kedarnath Jute . : [1971]82ITR363(SC) , a decision which we shall presently note, as also other decisions of the Supreme Court including the decision in the case of Kesoram Industries and Cotton Mills Ltd. : [1966]59ITR767(SC) . After considering the rival contentions, the Tribunal was of the view that the liability accrued on the manufacture of the goods under the provisions of the Central Excises and Salt Act, 1944, read with the relevant Rules and, therefore, the AAC was justified in upholding the assessee's contention.

5. The other aspect which relates to the second question involved in this case is whether the assessee was entitled to a higher development rebate in respect of plant and machinery installed for the production of nylon yarn in this industrial unit. This plea had not been raised before the ITO. However, the AAC gave a chance to the ITO to present his view and after considering the views of the ITO, the AAC held that nylon-6 produced by the assessee was a petrochemical and the assessee was entitled to higher development rebate in respect of the plant and machinery installed for that purpose, in view of the fact that it was covered by item (18) of the Vth Schedule to the I.T. Act, 1961.

6. Being aggrieved by the aforesaid decision on this aspect also, the revenue went up in appeal before the Tribunal, Before the Tribunal, it was pointed out on behalf of the revenue that nylon-6 could not at all be called petrochemicals. In this connection, reliance was placed on the opinion of one Dr. B. S. Ramanathan, Chief Chemist, Central Revenues Control Laboratory, to which our attention was also drawn during the hearing of the reference and reliance was also placed on a book by G. A. Purdy 'Petrochemical Prehistoric to Petrochemicals'. In this connection, reliance was also placed on two decisions on this point--one given by the Tribunal of the Allahabad Bench and the other by the Bombay Bench, and these were elaborately discussed and evidence was adduced on this point and these decisions were also made part of the records of this case and have also been filed before us. The decisions of these two Tribunals have been printed in the supplementary paper book. After considering the legal submissions and the evidence on record, the Tribunal was of the view that even if one went by the popular sense in which 'nylon' was understood in the commercial or trading world, nylon-6 could still be called a petrochemical as was pointed out by the Tribunal at Bombay, and on this aspect, this Tribunal agreed with the view expressed by the Allahabad Bench that 'petrochemical', construed in the popular sense or in the sense which people conversant with the subject-matter would attribute to it, would include 'nylon', and the assessee, therefore, satisfied the requirements of item (18) of Sch. V to the I.T. Act, 1961. In the premises, the Tribunal upheld the order of the AAC.

7. We may also mention that though the decision of the Tribunal, Bombay, as also the decision of the Allahabad Bench were made part of the statement of case, in the instant case before us, inasmuch as the present Tribunal in disposing of the appeal before it relied on these two decisions, it was directed that these two decisions should be printed in the supplementary paper book of this case. These decisions have been so printed and reliance was placed on these decisions by both sides before us. The Tribunal, in these circumstances, as we have mentioned, upheld the order of the AAC in favour of the assessee on this aspect of the matter. Thereafter, the two questions mentioned hereinbefore have been referred to us.

8. The first question brings us to the controversy whether provision for payment of duties under the Central Excises and Salt Act, 1944, was deductible in computing the income of the assessee for the year under question. It is indisputable in this case that the assessee maintained its accounts on the mercantile basis. Therefore, in order to be entitled to a deduction from the income, there must be an accrued liability. For a liability which has not accrued, the assessee is not entitled to deduction. The question is, as the liability, in the facts and circumstances that we have indicated before, has not quantified and no demand notice has been made, in these circumstances, can it be said that there was an accrued liability for the payment of the central excise duties. This will naturally depend on the consequences of the provision for which the liability has been provided. Now, in all fiscal statutes, normally, a charge is created which may also be described as a declaration of liability, namely, indicating what will be liable to taxation. The second stage is the quantification of that liability in the form of an assessment. The third stage is the recovery. This is normally the well-settled pattern. In fiscal statutes the mischief of taxation is on the happening or occurrence of the taxable event. Different taxes provide for the different kinds of taxable events. The sales tax is a tax on sale. Sale of goods attracts the duty, provided the sale is dutiable and the assessee comes within the purview of the Act. Similarly, under the Central Excises and Salt Act, 1944, the duty is attracted on the production or the manufacture of the goods unlike the sale of goods. In income-tax, similarly, it is attracted on the income of the year, not on the receipt of money on a particular occasion as such.

9. In order to appreciate the liability under central excise, it is necessary to refer to certain provisions of the Central Excises and Salt Act, 1944. Under the said Act, Section 3 provides that there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which arc produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the First Schedule. We are not concerned with the other part of the said provision.

10. Under the relevant provisions, Rules have been framed for the levy and collection of the said duty. Rule 7, which is in Chap. III dealing with levy and refund of and exemption from duty, provides for the recovery of duty. The said Rule 7 of the Central Excise Rules, 1944, provides that every person who produces, cures or manufactures any excisable goods, or who stores such goods in a warehouse, shall pay the duty or duties leviable on such goods, at such time and place and to such persons as may be designated in, or under the authority of the Rules, whether the payment of such duty or duties is secured by bond or otherwise. Normally, under the scheme of the central excise the goods are removed in the central excise jargon under the self-removal scheme where an account is maintained and all goods are entered on manufacture and removal. If there is any deficit the payment is made thereafter so that the clearance of the goods is not held up.

11. Rule 9 of the said Rules deals with the time and manner of payment of duty. It is stipulated that no excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf, whether for consumption, export or manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in the Rules or as the Collector may require and except on presentation of an application in the proper form and on obtaining the permission of the proper officer in the prescribed form. It makes certain other detailed provisions with which we are not concerned.

12. Rule 9A deals with the provision of data for determination of duty and tariff valuation. Sub-rule (4) of r. 9A provides, under Sub-clause (iii) of the said sub-rule, that where loss occurs in storage, whether in a factory or in a warehouse, the rate and valuation, if any, in force on the date on which such loss is discovered by the proper officer or made known to him. We may also incidentally refer to the proviso to Rule 49 which deals with the duty chargeable only on removal of the goods from the factory premises or from an approved place of storage. Sub-rule (1) of the said Rule 49 stipulates that payment of duty shall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified under Rule 9 or are about to be removed from a storeroom or other place of storage approved by the Collector under Rule 47. The proviso to the said Sub-rule (1) stipulates that the manufacturer shall on demand pay the duty leviable on any goods which are not accounted for in the manner specifically provided in these rules, or which are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during handling or storage in such store-room or other approved premises. The purpose of reference to this provision of the Central Excises and Salt Act, 1944, and the Rules thereunder is to emphasise that the taxable event under the Central Excises and Salt Act, 1944, is on the manufacture or production irrespective of or independent of future user either in the manufacture of further goods or in the sale of the said goods. This aspect is clearly brought out in the decision of the Federal Court in the case of Madras Province v. Boddu Paidanna & Sons [1938] 1 STC 104 ; AIR 1942 FC 33, where Chief Justice Gwyer observed, inter alia, as follows:

'The duties of excise which the Constitution Act assigns exclusively to the Central Legislature are, according to [1939] FCR 18 (Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, In re), duties levied upon the manufacturer or producer in respect of the manufacture or production of the commodity taxed. The tax on the sale of goods, which the Act assigns exclusively to the Provincial Legislatures, is a tax levied on the occasion of the sale of the goods. Plainly a tax levied on the first sale must in the nature of things be a tax on the sale by the manufacturer or producer ; but it is levied upon him qua seller and not qua manufacturer or producer. It may well be that a manufacturer or producer is sometimes doubly hit ; but so is the taxpayer in Canada who has to pay income-tax levied by the Province for Provincial purposes and also income-tax levied by the Dominion for Dominion purposes.'

13. The Chief Justice went on to say that if the taxpayer who pays sales tax is also a manufacturer or producer of commodities subject to a central duty of excise, there may no doubt be an overlapping in law. The two taxes which he is called on to pay are economically two separate and distinct imposts.

14. Reliance was placed on behalf of the revenue on the decision in the case of Union of India v. Delhi Cloth and General Mills Co. Ltd. : 1973ECR56(SC) . There also the Supreme Court emphasized that excise duty was on the manufacture of goods and not on the sale. The fact, therefore, according to the Supreme Court, that the substance produced by the manufacturer at an intermediate stage was not put in the market would not make any difference to the chargeability of the substance to excise duty if it is covered by an item in Sch. I of the Act. This observation, in our opinion, is in favour of the view taken by the Tribunal that excise duty is attracted the moment the manufacture takes place. In this case, the item was manufactured. Therefore, there was a liability accrued for the payment of the duty.

15. In the case of Shinde Brothers v. Deputy Commisioner, Raichur : [1967]1SCR548b , the Supreme Court referred to the decision of the Full Bench of the Supreme Court in the case of In re Bill to amend Section 20 of the Sea Customes Act, 1878, AIR 1963 SC 1760, where Chief Justice Sinha observed for the Full Bench of the Supreme Court as follows :

' This will show that the taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. We may in this connection contrast sales tax which is also imposed with reference to goods sold, where the taxable event is the act of sale. Therefore, though both excise duty and sales tax are levied with reference to goods, the two are very different imposts ; in one case the imposition is on the act of manufacture or production while in the other it is on the act of sale. In neither case, therefore, can it be said that the excise duty or sales tax is a tax directly on the goods, for, in that event, they will really become the same tax. It would thus appear that duties of excise partake of the nature of indirect taxes as known to standard works on economics and are to be distinguished from direct taxes like taxes on property and income.'

16. Referring to the above passage, the Supreme Court observed that these cases established that, in order to be an excise duty, the levy must be upon 'goods' and the taxable event must be the manufacture or production of goods. The Supreme Court further noted that the levy need not be imposed at the stage of production or manufacture but might be imposed later.

17. If the taxable event takes place and a liability accrues, then can such a liability be considered to be an accrued liability For considering this aspect, we may refer to the observations of the Supreme Court in the case of Kesoram Industries and Cotton Mitts Ltd. v. CWT : [1966]59ITR767(SC) , where the Supreme Court was dealing with the question of what is the meaning of 'debt owed' under Section 2(m) of the W.T. Act, 1957. The Supreme Court referred to the decision of the Supreme Court in the case of Kalwa Devadattam v. Union of India : [1963]49ITR165(SC) , and referred to the observations of Justice Shah. In the said decision, at p. 784 of the report, Mr. Justice Shah had observed thus :

'Under the Indian Income-tax Act liability to pay income-tax arises on the accrual of the income, and not from the computation made by the taxing authorities in the course of assessment proceedings; it arises at a point of time not later than the close of the year of account.'

18. The Supreme Court there referred to the decision in the case of Wallace Brothers and Co. Ltd. v. CIT [1948] 16 ITR 240. The Supreme Court then summarised the position by saying that a debt was a present obligation to pay an ascertainable sum of money, whether the amount was payable in praesenti or in future : debitum in praesenti, solvendum in futuro. But a sum payable upon a contingency did not become a debt until such a contingency had happened. The Supreme Court noted that the liability to pay income-tax was a present liability though it became payable after it was quantified in accordance with the ascertainable data. There was a perfected debt at any rate on the last day of the accounting year and not a contingent liability. The income-tax is levied at the end of the year on the income and the order is communicated after the end of the accounting year after consideration of the receipts minus the deduction and expenses the assessee was entitled. Similarly, in the case of sales tax, those assessees who were liable to pay sales tax, that is to say, the assessees whose turnover exceed the minimum limit indicated in the Act, were liable to pay sales tax on the sales effected and the taxable event took place on the sale. Similarly, in the case of the Central Excises and Salt Act, the tax liability accrues on the manufacture and production of the goods. This aspect was also highlighted in the case of CIT v. Royal Boot House : [1970]75ITR507(Cal) . About the liability under the Sales Tax Act, it was held by this court there that where the assessee followed the mercantile system of accounting and had made a provision for its payment in its account, even though the assessee had not actually paid the tax over to the authorities, but had only made a provision for the same, the assessee was entitled to deduction in respect of the provision for sales tax from his income under Section 10(2)(xv) of the Indian I.T. Act, 1922. It was pointed out that under the provisions of the sales tax statute the liability was not dependent upon assessment or payment but was an obligation to pay the tax either annually, quarterly or monthly, as the case may be. The Supreme Court observed in the case of Kedarnath Jute . v. CIT : [1971]82ITR363(SC) , referring to the aforesaid decision, that the moment a dealer might either purchase or sell goods which were subject to taxation, the obligation to pay the tax would arise and the liability was attracted and although that liability could not be enforced till the quantification was effected by the assessment proceedings, the liability for payment of tax was independent of the assessment. The Supreme Court accordingly held in that case that the assessee was entitled to deduction of the sales tax liability in computing its total income under the I.T. Act,

19. In a slightly different context the question was viewed by the Allahabad High Court in the case of J.K. Synthetics Ltd. v. ITO : [1976]105ITR864(All) . There, the excise department had been claiming excise duties from the petitioner for one of its products called polymer chips with which we are concerned and the company had been making provision for payment of such a debt every year since 1964-65. The claim for deduction of this amount by the assessee was consistently disallowed by the ITO, but was allowed by the AAC, and as a result the total sum of Rs. 2,87,60,109 had been allowed to the company as deduction on account of excise duty for the assessment years 1964-65 to 1971-72. On a similar basis, the company made a provision for Rs. 2,08,29,436, in respect of its liability to pay excise duty for the previous year in question with which the Allahabad High Court was concerned. The company had filed a writ petition in the Delhi High Court challenging the claim for excise duty and this petition was allowed by a learned single judge of the Delhi High Court on the 28th August, 1970. On the basis of this judgment, the ITO disallowed the deduction claimed in respect of the current liability and also treated the sum of Rs, 2,87,60,109 on account of the past liability as income under Section 41 of the Act. For Section 41 to apply, the liability of the assessee to excise duty must be said to have ceased. The Allahabad High Court was of the view that there must be no possibility of the liability of having revived in the future. If there was such a possibility, its cessation was not complete and Section 41 was not attracted, as an appeal against the decision of the learned single judge had been preferred which was pending and there was the possibility of an appeal to the Supreme Court later. Once an appeal had been filed, the appeal destroyed the finality of the decision. Further, the excise dept. was still raising demands against the company for the excise duty in spite of that decision of the Delhi High Court. In these circumstances, the Allahabad High Court was of the view that Section 41 was not attracted at all and the ITO could not be permitted to take recourse to Section 41(1) on the ground that he would be able to undo the mischief later on by giving relief to the petitioner-company under Section 154 of the Act. The ITO had no jurisdiction to invoke Section 41(1) of the Act and will have to tax after allowing deduction of Rs. 2,87,60,109. The Allahabad High Court was of the same view with regard to current liability. The company was following the mercantile system of accounting which could legitimately claim a deduction in respect of the business liability even if such a liability had not been quantified or paid or even when such liability had been disputed. The assessee was, therefore, entitled, according to the Allahabad High Court, to claim deduction in respect of the liability to pay excise duty for which it had made a provision in its account books. In the said decision, reference was made to the decision of the Supreme Court in the case of Kedarnath Jute . v. CIT : [1971]82ITR363(SC) . The Allahabad High Court dealt with this aspect of the matter at p. 883 of the report : [1976]105ITR864(All) . It is not necessary for our present purpose to deal with the decision any further in detail.

20. On behalf of the revenue, reliance was placed on the decision in the case of CIT v. A. Gajapathy Naidu : [1964]53ITR114(SC) . There, the Supreme Court observed at p. 118 of the report that income-tax accrued or arose when the assessee acquired a right to receive the sum. It was common place that there were two methods of accounting for the income, profits and gains of a business : one was the cash basis and the other mercantile basis. The latter system of accounting would bring into credit what was due immediately it became legally due and before it was actually received and it would bring into debit expenditure the amount for which legal liability had been incurred before it was actually disbursed. Therefore, applying that principle, if the legal liability had accrued under the provisions of the Central Excises and Salt Act, 1944, the assessee was entitled to deduction in computing its income which maintained its accounts on mercantile system of accounting. Reference was also made on behalf of the revenue to another decision of the Supreme Court in the case of CIT v. Swadeshi Cotton and Flour Mills P. Ltd. : [1964]53ITR134(SC) . That was a case entirely in a different context. There, a claim for bonus had been made by the workers when the Payment of Bonus Act was not on the statute book. There was no statutory liability. The claim was being disputed. There was no award. There was no adjudication. In these circumstances, it was held that there was no accrued liability for the payment of bonus which could entitle them to a deduction from the income of the year in question.

21. In view of the aforesaid position in law, in our opinion, therefore, having regard to the facts and circumstances of the case and having regard to the provisions of the Act, we are of the opinion that the Tribunal was right in allowing the provision for excise duty of Rs. 15,26,000 and Rs. 17,00,000 as deduction for the assessment years 1971-72 and 1972-73, respectively. In the premises, question No. 1 is answered in the affirmative and in favour of the assessee.

22. In order to appreciate the second question, we have to bear in mind that the question involves interpretation of item (18) in Sch. V to the I.T. Act, 1961. Under Section 33(1)(b)(B)(i) of the said Act certain development rebate stipulated in the said section is granted in respect of certain plant, machinery and articles and item (18) of Sch. V, as it stands today, reads as follows ;

'(18). Petrochemicals including corresponding products manufactured from other basic raw materials like calcium carbide, ethyl alcohol or hydrocarbons from other sources.'

23. In order to appreciate this question, it may not be inappropriate to refer to the legislative past. In Part A of Sch. V of the I.T. Act, 1961, as it applied to the assessment years 1962-63 and 1963-64, man-made fibre other than viscose rayon were included, in the general chemicals. At that time, Pt, A of Sch. V, included several items and item 4 was 'chemicals', which read as follows :

'4. Chemicals (other than fertilisers) of the following types :

(a) Inorganic heavy chemicals ;

(b) Organic heavy chemicals ;

(c) Fine chemicals (including photographic chemicals) ;

(d) Synthetic rubber;

(e) Man-made fibres, other than viscose rayon ;

(f) Coke oven by-products ;

(g) Coal-tar distillation products like napthalene, anthracene and the like;

(h) Explosives, including gun-powder and safety fuses. ' This expression establised that the Legislature did not restrict the meaning of the term 'chemical' to 'chemical simpliciter' but extended them to make synthetic chemical and man-made fibres which might, according to some, be considered to be end-products. In Sch. I to the Industries (Development & Regulation) Act, 1951, where under the general heading of 'Chemicals' man-made fibres including cellulose-rayon, nylon and the like are also included. Item 19 of Sch. I to the said Act reads as follows : '19, Chemicals (other than fertilisers) :

(1) Inorganic heavy chemicals.

(2) Organic heavy chemicals.

(3) Fine chemicals including photographic chemicals.

(4) Synthetic resins and plastics.

(5) Paints, varnishes and enamels.

(6) Synthetic rubbers.

(7) Man-made fibres including regenerated cellulose rayon, nylon and the like.

(8) Coke oven by-products.

(9) Coal-tar distillation products like napthalene, anthracene and the like.

(10) Explosives including gun-powder and safety fuses.

(11) Insecticides, fungicides, weedicides and the like.

(12) Textile auxiliaries.

(13) Sizing materials including starch.

(14) Miscellaneous chemicals. '

24. It was only after the Finance Acts of 1964 and 1965 that the Legislature had used the term 'Petrochemical'. It appears that the legislative history indicates that the intention was to include all the products that come within the general term. One has to bear in mind this historical background to consider whether this expression should be confined only to preliminary or intermediary products and not to what is called so-called end products. It is again important to emphasise that the expression 'end products in matters like this' is a little misleading. A product may be the result of certain process, which attracts the duty under the Central Excises and Salt Act, 1944. But it may also be used as materials for something else. In that view of the matter, there are few products which do not come to the transformation to produce other finished products. Keeping in the background this legislative history, we have to consider, firstly, the question as to how this expression in item (18) of Sch. V should be construed.

25. Strong reliance was placed on behalf of the revenue on the decision of the Supreme Court in the case of Porritts & Spencer (Asia) Ltd. v. State of Haryana : 1983(13)ELT1607(SC) . There the Supreme Court had to construe whether dryer felts made out of cotton or woollen yarn by the process of weaving according to the warp and woof pattern and commonly used as absorbent of moisture in the process of manufacture in paper manufacturing units fell within the ordinary and common parlance meaning of the word 'textiles' in item 30 of Sch. B to the Punjab General Sales Tax Act, 1948, and as such were exempt from tax. It will be instructive, to appreciate this decision, to refer to item 30 of Sch. B to that Act, which reads as follows:

'All varieties of cotton, woollen or silken textiles, including rayon, artificial silk or nylon, whether manufactured by handloom or powerloom or otherwise but not including pure silk fabrics, carpets, druggets, woollen durees and cotton floor durees.'

26. The Supreme Court, after discussing several relevant authorities on this point, observed that textiles in item 30 in Sch. B to that Act must be interpreted according to its popular sense, meaning 'that sense which people conversant with the subject-matter with which the statute is dealing would attribute to it'. Having regard to that context, the Supreme Court noted that the expression 'textile' had undergone tremendous change. The expression 'textile', the Supreme Court noted, was derived from Latin 'texere', which meant 'to weave' and it, therefore, meant any woven fabric. When yarn, whether of cotton, silk, wool, rayon, nylon or of any other description or made out of any other material is woven into a fabric of any other description, what comes into being is 'textile' and it is known as such. Then the Supreme Court considered what were 'dryer felts' and the Supreme Court found that there were two kinds, cotton dryer felts and woollen dryer felts. Both were made of yarn, cotton in one case and woollen in the other. Some synthetic yarn was also used. The process employed, according to the Supreme Court, was that of weaving according to warp and woof pattern. This was how the manufacturing process was described by the assessing authority in its order, which the Supreme Court had to consider. The Supreme Court noted that the connotations of words get transformed with the progress of time and observed that it was said by Justice Holmes that the word was not crystal, transparent and unchanged ; it was the skin of a living thought and might vary greatly in colour and content according to the circumstances and the time in which it is used. Therefore, bearing the well-settled principle, which the Supreme Court approved, that is to say, that this expression should be understood in the popular sense in the manner in which people who deal with the subject-matter of the goods in the statute understand them, the Supreme Court was of the opinion that dryer felts came within the meaning of the expression in item 30 of Sch. B and as such was textile and was entitled to exemption from duty of sales tax. Now, this decision was strongly relied on behalf of the revenue for reasons more than one. It was relied on in aid of the proposition that whether a particular goods fall within a particular item of a particular Schedule of the statute, is a question of law. On this aspect, we shall express our views later. Secondly, reliance was placed, however, mainly on the ground that dryer felts were considered to be textiles and, on this basis, it was sought to be urged that nylon being a textile could not be considered to be petrochemical within item (18) of Sch. V to the I.T. Act, 1961. As we have noted, the expression 'textile', at item 30 of Sch. B of the Act, with which the Supreme Court was dealing, had an extended meaning. In that context, the expression 'dryer felts' was considered to be textile. That decision, in our opinion, does not in any way support the contention of the revenue that nylon-6, with which we are concerned, if it otherwise comes within the expression 'petrochemical' as understood by the people who deal with the subject 'petrochemicals', then the same could not be considered to be petrochemical.

27. Reliance was also placed on the decision of the Allahabad High Court in the case of Juggilal Kamalapat Cotton Spinning and Weaving Mills Co. Ltd. v. Textiles Committee, Bombay [1972] 2 Tax LR 2104. There, the learned single judge of the Allahabad High Court was dealing with a writ petition under art. 226 of the Constitution and the question was whether nylon and rayon yarn fell within the definition of 'textiles', because these were made of fibres and also because these were made of artificial silk. Under the Textile Committee Act, 1963, Section 12, there was a levy of fee on the companies manufacturing rayon and nylon yarn. For the purpose of the Act, the expression 'textiles' is defined in Section 2(g) as meaning 'any fabric or cloth or yarn made wholly or in part of cotton or wool or silk or artificial silk or other fibre'. Learned advocate for the revenue drew our attention to the observations of the learned judge where he had noted that the petitioner-company in that case, viz., J. K. Cotton Spinning & Weaving Mills Co. Ltd. [1972] 2 Tax LR 2104 (All) manufactured generally and also carried on business of manufacturing rayon yarn. He drew our attention to para. 13 of the judgment, where a concept of yarn, as understood in the textile world, was referred to by the learned judge. At para. 18 of the said decision, reference was made to an affidavit of the Government officer dealing with caprolactum monomer and how nylon was produced. Learned advocate also drew our attention to the observations appearing in para. 27 of the judgment. It has, however, to be borne in mind, as we have noticed, that the definition with which the court was dealing was of textile meaning fabric or cloth or yarn made wholly or in part of the cotton or wool or silk or artificial silk or any other fibre and the grounds on which the petitioner-company had attacked the validity of the levy on the rayon yarn and nylon yarn under Section 12 of the Act was that rayon yarn and nylon yarn were not made of fibres, but were made of filaments and hence generally fell within the definition of 'textile' under Section 2(g) of the Act and the Act, therefore, did not apply to the context. It was, secondly, contended that as no service was required to the petitioner-company, no tax was leviable. As would be apparent from what we have stated hereinbefore, the contentions were entirely different from what is being made here. The question involved was in a different context and the observations made in the said decision by the learned judge, therefore, cannot be of any assistance in disposing of the present controversy that we have to adjudicate.

28. Reliance was also placed on the Division Bench decision of the Orissa High Court in the case of State of Orissa v. Orissa Fisheries Development Corporation Ltd. [1976] 37 STC 25; [1976] Tax LR 1643, where the Division Bench held that both plastics and nylons were synthetic products. According to the scientists engaged in experiments in the laboratory, plastic and nylon had definite connotations and on account of the fact that they were alike products or were drawn from essentially the same class of articles, there was no overlapping in understanding the words. Undoubtedly, the imaginative manufacturer with the assistance of the scientific knowledge available to him made a hundred and one uses of nylon, but essentially in the commercial field, nylon belonged to the textile group while plastics belong to a non-textile section. In the commercial sense, nylon (both twine and fabric) was different from 'plastic goods'. Therefore, nylonware or twine would not be covered by the terms 'plastic' in entry No. 7C of the said notification dated 30th December, 1976, dealing with taxable goods and accordingly it was held that nylon goods would be exigible to tax at the rate under Section 5(1) of the Act and not at the higher rate at 7 per cent. Entry 7C of the notification provides as follows:

'Plastic celluloid, bakelite goods and goods made of similar substance, plastic sheets and fabrics and articles made of such sheets and fabrics.'

29. The contention was that nylon was within the entry. It was contended on behalf of the departmental authorities that nylon was a plastic goods or goods made of similar substance. In this context, court had to decide the question and examine in the light of what we have mentioned, that is to say, how these expressions should be understood. Relying on these observations, it was stressed on behalf of the revenue that nylon was an end-product. The petrochemical was also an end-product. But these assumptions of the revenue seem to be erroneous because it is not the nylon what the assessee produces but it produces the yarn and that yarn is woven into fabrics. Therefore, in this context, the observations of this decision will not be of much assistance to us in disposing of the issue in question. Furthermore, we are of the opinion, that whether nylon is an end-product or not is quite irrelevant to the question which fall for our consideration because if it was the intention of the legislature that anything manufactured from other basic raw materials would not come within the expression of petrochemical then the expression 'including the corresponding products manufactured from other basic raw materials like calcium carbide, ethyl alcohol, etc.', from other sources would have been in any way redundant in item No. (18) of Sch. V.

30. Reliance was also placed on the decision of the Supreme Court in the case of CST v. Jaswant Singh : [1967]2SCR720 , where the Supreme Court was dealing with the expression 'charcoal' which was included in the word 'coal' specified in entry No. 1 of Part-III of Sch. II to the Madhya Pradesh General Sales Tax Act, 1958. The Supreme Court reiterated that while incorporating the items in the statute like Sales Tax Act, resort should be had not to scientific or technical meaning of such terms but to their popular meaning attached to them by those dealing with it, that is to say, in their commercial sense.

31. Reliance was also placed on the decision of the Supreme Court in the case of Avadh Sugar Mills Ltd. v. STO : [1973]3SCR546 . where the Supreme Court observed that in finding out the true meaning of 'oil seeds' found in the sales tax law, the court had not to refer to dictionaries but to ascertain the meaning ascribed to it in commercial parlance. There could hardly be any doubt that in commercial circles groundnut was dealt with as oil seed and groundnut was mostly used for manufacture of groundnut oil. Groundnut was, therefore, oil seed for the purpose of purchase tax under the U.P. Sales Tax Act, 1948. Learned advocate for the revenue drew our attention to the observations appearing at para. 3 of the said judgment, where Hegde J. noted that there could hardly be any doubt that in commercial circles groundnut was dealt with as oil seed. His Lordship further observed that commercial journals and newspapers while collecting the market price of oil seeds list the groundnuts as one of the species of oil seed. Learned judge went on to observe that it was clear from the conclusion that in commercial circles groundnut was treated as oil seeds. Reliance was placed on the aforesaid observations for the proposition upon which the revenue had relied, in the instant case, before the Allahabad Tribunal indicated, in the words of the Tribunal, 'on the other hand, the revenue had filed certain papers at pages 159 to 196 of the paper book to show that nylon-6 is not petrochemical'. At pp. 159 to 171, the revenue has filed various papers showing the nature of (the business of) M/s. J. K. Synthetic (the assessee-company before the Tribunal) under the head 'Textile in the stock exchange quotation'. This, as was observed by Hegde J., was a quotation of the stock exchange and this was not conclusive. But it may be a piece of evidence, an evidence as to show how the commercial people deal with this item. Furthermore, Hegde J. was dealing with the market quotations of groundnut in the category of oil seeds and his Lordship was not dealing with the market quotation of shares dealing with oil seeds or the list of the groundnut. Their share quotations are not indicative or decisive as such in the matter as to how a particular item produced by the company, whose shares are quoted or lumped together are dealt with in the commercial world and understood in the commercial parlance. In any event, as we have mentioned hereinbefore, this may and perhaps will be, in some cases, a piece of evidence which will be relevant and appropriate, which the fact-finding Tribunal must take into consideration. Reliance was also placed on the decision of this court in the case of Indian Steel and Wire Products Ltd. v. CIT : [1977]108ITR802(Cal) , where the Division Bench of this court was construing the expression in item No. 1 of Sch. V, which reads as follows :

'Iron and steel (metal), ferro-alloys and special steels.' The Division Bench observed that the Legislature had used the word 'metal' in conjunction with 'iron and steel' in item No. (1) of Sch. V of the I.T. Act, 1961, with a specific intention. Iron and steel could be treated up to a certain stage as raw material which could take many shapes and forms like billets, slabs, ingots, etc. But there would come a stage when by further processing or manufacturing it ceased to be the raw material and would enter into a category of finished products. The heading of the Schedule was 'List of articles and things'. Therefore, in item No. (1) 'iron and steel (metal)' had to be considered separately as a thing or an article but an article produced from such a 'thing' or an article could not come within the same item. The Division Bench was influenced by the fact that the expression 'metal' had to be given a meaning and the Legislature should not be attributed redundancy. Therefore, in that context, the Division Bench came to that conclusion. We are, however, not concerned with the question of item No. (1). But while we are on this, we may incidentally mention that the Full Bench of the Kerala High Court in the case of CIT v. West India Steel Co. Ltd. : [1977]108ITR601(Ker) , after referring to several decisions, had come to a contrary conclusion. But we have already mentioned that we are not concerned with the expression 'iron and steel (metal)'. While we are on this it may also be instructive to refer to the fact that Sch. V includes certain items which give an indication as to how these should be construed whether by extended meaning or by circumscribed meaning. For example, 'iron and steel' is indicative that it should be construed with the expression 'metal'. Similarly, zinc is circumscribed by the expression 'metal' in item No. (2). The expressions 'coal, lignite and iron ore' are also so indicative. Then, fertilisers are defined to mean certain kind of fertilizers. Item No. (17) is also indicative, viz., electronic equipment, is described as certain types of equipments. But the expression 'petrochemical' in item No. (18) is an inclusive definition because it provides petrochemical including the well-known expression in the statute and extends the meaning of the expression. Bearing the aforesaid principles, which we have noted, in this case, the Tribunal has examined the evidence adduced before it. Strong reliance was placed by the revenue on certain evidence which indicated that in commercial parlance nylon is included in the expression of petrochemical. Reliance was also placed on an opinion of one Dr. Ramanathan, Chief Chemist, Central Revenue Control Laboratory. There, after referring to the extracts from the Book of Petroleum by one G. A. Purdy, to which we shall presently refer, Dr. Ramanathan, in his opinion, observed as follows ;

'The scope of the term 'petrochemical' is rather very wide and has many definitions. 'Petrochemical' is a chemical compound or element recovered from petroleum or natural gas or derived in whole or in part from petroleum or natural gas, hydrocarbons and intended for chemical markets. This definition is a source definition, i.e., it refers to chemicals for which petroleum or natural gas has served as the raw material. The chemicals that originate wholly or in part from petroleum are converted into so many different intermediate materials and appear as finished products in so many formerly unrelated fields (fertilizers and fabrics, for instance) that a clear cut definition is not easily formulated. In a broad sense 'petrochemical' means a chemical from petroleum. For statistical purposes and the like, a petrochemical is more specifically defined as a compound (or element) derived completely or mainly from petroleum or natural gas or derived from hydrocarbons produced from petroleum or natural gas and having application for chemical processing. By this definition, 'petrochemicals' include inorganic materials such as sulphur, ammonia and carbon black and organic compounds intended for chemical markets and made from petroleum or natural hydrocarbons. The term is intended to include the basic hydrocarbons themselves (ethylene, propylene, butylene and other hydrocarbons of elefinic series) but not the finished products made from them such as nylon, synthetic rubber and the like. In general, petrochemicals are the primary and intermediate compounds between petroleum or natural gas and finished products. Confusion results, however, from the fact that a chemical derived from a basic hydrocarbon may be both an intermediate and a finished product, e.g., ethylene glycol is a finished product in the form of permanent type antifreeze ; it is also an intermediate in the manufacture of synthetic fibres such as terylene (Petroleum--Prehistoric to Petrochemicals by G. A. Purdy, pp. 434-435). The term, however, has not been defined in IS : 4639-1968, entitled ' Glossary of Petroleum Terms'. From the above, it is seen that nylon-6 manufactured from caprolactum may not, in my opinion, be covered by the term 'petrochemical'. As regards caprolactum, it is an intermediate which constitutes the raw material for the production of nylon-6. It may be produced from cuclo-hexane, benzene or toluene as primary raw materials. Caprolactum is a monomer which can be polymerised to nylon-6. As already stated above, petrochemicals in general are primary and intermediate compounds between petroleum or natural gas and finished products. Thus, since the scope of the term 'petrochemicals' is rather wide, caprolactum, in my opinion, may be considered as a petrochemical.'

32. The Tribunal has noted the said opinion. But it has to be borne in mind that the Tribunal also referred to the decision of the Bombay Tribunal as also to the decision of the Allahabad Tribunal where Dr. Ramanathan's view had been analysed and it had been observed by the Allahabad Bench of the Income-tax Appellate Tribunal dealing with the said opinion of Dr. Ramanathan as follows :

'The assessment order for the assessment year .1970-71, was passed on 24-1-73, and the report of Dr. Ramanathan was obtained after the completion of the assessment for assessment year 1970-71. But even subsequent to that date, the C.B.D.T. vide its letter dated 3-8-73, wrote to the Commissioner of Income-tax with reference to his letter dated 11-7-73, that the assessee was entitled to a higher development rebate at 35% as the manufacture of nylon-6 fell under priority as per item No. (18) of 5th and 6th Sch-ules. Accordingly, the Commissioner was directed to concede against the appeal filed before the Appellate Asst. Commissioner by the assessee (assessee's first paper book, page 86). Thus, even after the report of Dr. Ramanathan, the C.B.D.T. was of the opinion that nylon-6 was petrochemical and, therefore, even as late as 3-8-1973 it was not possible to hold that the assessment order passed for the year under consideration was erroneous and prejudicial to the interest of the revenue. Further, the C.B.D.T. by another letter dated 3-10-1973, wrote to the Commissioner of Income-tax that he should not concede before the Appellate Assistant Commissioner. However, by the above letter the view taken by the C.B.D.T. in its letter dated 3-8-73, was not changed but, however, it is not known under what circumstances the C. B. D. T. directed the Commissioner not to concede before the Appellate Assistant Commissioner. Whatever may be the reason, the opinion given by the C.B.D.T. that nylon-6 was petrochemical was not changed even through their second letter. Thus, even after the second letter of the C.B.D.T., on which much reliance has been placed on behalf of the department, it is difficult to hold that the order passed by the Income-tax Officer was erroneous and prejudicial to the interest of the revenue. However, when the assessee came to know of the second letter of the C.B.D.T. the matter was taken up through the association and the C.B.D.T. asked for the opinion from the Chemical and Petroleum Ministry. The assessee has made a statement at the bar that the opinion given by the Ministry of Petroleum was in agreement with the Income-tax Officer's view or the view taken by the C.B.D.T. in its letter dated 3-8-1973. But the opinion was never disclosed to the assessee or the association. Thus, the Ministry agreed with the view of the assessee and the Income-tax Officer. In this connection, the assessee has referred to the various letters addressed to the C.B.D.T. which are appearing at pages 154 to 156 of the assessee's paper book. Statement made at bar by the assessee was neither contradicted nor supported at the time of the hearing and, therefore, the result is that the statement made by the assessee stands. As such, even the opinion of the Ministry of Petroleum was that nylone-6 is petrochemical and the assessee was entitled for higher development rebate and exemption under Section 80E(1) of the Act.'

33. For this, the Tribunal also found it unsafe to rely on the said opinion of Dr. Ramanathan, when the revenue itself had not relied and proceeded upon the same. Reliance was also placed, as we have mentioned before, on certain observations in the book published under the heading Petroleum--Pre-historic to Petrochemical by G. A. Purdy, at p. 458, where at p. 448 of the book it was observed as follows :

' Production of Basic Hydrocarbons :

The term petrochemical has many definitions, all of which have supporters. Chemicals that originate wholly or in part from petroleum are converted into so many different intermediate materials and appear as finished products in so many formerly unrelated fields (fertilizers and fabrics, for instance) that a clear cut definition is not easily formulated. In a broad sense, petrochemical means a chemical from petroleum. For statistical purposes and the like, a petrochemical is more specifically defined as a compound (or element) derived completely or mainly from petroleum or natural gas or derived from hydrocarbons produced from petroleum or natural gas and having application in chemical processing. By this definition, petrochemicals include inorganic materials such as sulphur, ammonia and carbon black and organic compounds intended for chemical market and made from petroleum or natural gas hydrocarbons. The term is intended to include the basic hydrocarbons themselves (ethylene, propylene, butadiene, etc.) but not the finished products made from them such as nylon, synthetic rubber and the like. In general, petrochemicals are the primary and intermediate compounds between petroleum or natural gas and finished products. Confusion results, however, from the fact that a chemical derived from a basic hydrocarbon may be both an intermediate and a finished product. For example, ethylene glycol is a finished product in the form of permanent type anti-freeze; it is also an intermediate in the manufacture of synthetic fibres such as terylene. Theoretically, almost any organic chemical can be made from any portion of crude petroleum or natural gas. In many instances, however, the route from raw material to finished product is too costly or technically too complex for commercial consideration. Therefore, petrochemicals are made only from component parts of natural gas or crude petroleum where such parts are abundantly available at low cost and subject to economically feasible processes.'

34. It may, however, be mentioned that in the same book from p. 460 onwards, the author has dealt with petrochemical in a way which indicates that nylon is a part of petrochemical. The Tribunal at the Bombay Bench found referring to different authorities as follows :

'It also shows that the professors and other experts who have to deal with the subject and who are authorities on the point are also clearly of the opinion that nylon is a petrochemical. We find no support for the suggestion of the revenue that the term 'petrochemical' does not include the end product. The wide range of materials placed by the assessee before us leaves no room for doubt that nylon is included in the term ' petrochemicals'. It may be mentioned that it is not an end product. It has no use or utility as such. It is only a raw material for the textile industry ; moreover it can be converted back into caprolactum. There is equally no warrant for the suggestion of the revenue that a petrochemicals industry is one which itself starts with petroleum oil as a raw material. If that were so, only the refineries which deal with petroleum oil as recovered from the wells would be eligible for the reliefs. If that were the intention of the legislature it would have expressly referred to refinery instead of referring to petrochemicals, etc., in item No. (18). If the construction advocated by Mr. Hajarnavis is accepted, the entire purpose of the provision in offering incentives to persons to start petrochemicals industry would be defeated as the relief would be available only to refineries which are beyond the reach of the public. In the assessment years 1962-63 and 1963-64, 'man made fibres other than viscose rayon' were included under the general heading 'Chemicals'. This establishes two points. The first is that the legislature did not restrict the meaning of the term 'chemicals' to chemicals pure and simple, but included synthetic chemicals, explosives, qua powder, safety fuses and man made fibres therein which, in the opinion of the revenue, are end products. It secondly shows that so far as man made fibres is concerned, the legislature definitely treated it as a chemcial. The argument advanced by Mr. Hajarnavis, that if a man puts on a nylon apparel, we do not normally say that he has put on petrochemical and the term 'petrochemical', therefore, does not include nylon-6, is not tenable when the legislature itself included man made fibres in the general term 'chemicals'. The illustration of nylon apparel by Mr. Hajarnavis is not apt and to the point as what we are considering is not nylon textiles but a nylon fibre. We, similarly find that in the First Schedule to the Industries (Development and Regulation) Act, 1951, the legislature has included man made fibre including nylon and the like under the general heading 'Chemicals'. In the Finance Acts, 1964 and 1965, the legislature used the term 'petrochemicals.' It was used as a compendious expression to dispense with separately meaning of all the products covered by that general term. The term 'chemicals' was replaced by the term ' petrochemicals ' in order to restrict the relief to the products which have petrochemical basis. When earlier the term 'chemicals' included man made fibres and nylon, there is no warrant for the view that the term ' petrochemicals ' does not include nylon or man made fibres which trace their ultimate origin to petroleum oil. In the assessment years, under appeal the Fifth Schedule used the same language in item No. (18) which was used in item No. (19) of the two Finance Acts*. The legislative history of the provisions granting this relief in one or the other form year after year show that nylon-6 is covered by the term ' petrochemicals '.'

35. Referring to the various documents produced on behalf of the assessee, the Allahabad Bench of the Tribunal dealt with the question and observed as follows :

'The assessee has given the various documents in its paper book from pages 52 to 85 consisting of :

(i) Assessee's letter dated 20-3-1974 to the Additional Commissioner of Income-tax giving details, reasons and information with following enclosures :

(a) Extract from Hack's Chemical Dictionary,

(b) Extract from Webster's Third International Dictionary, 1961 Edition,

(c) Extract from International Petroleum Encyclopaedia,

(d) Extract from the Book 'Petrochemicals the New World of Synthetics' by Ray. T. Wendland, 1969 Edition,

(e) Article on 'Petrochemical Dawn of a New Era by Balbir Singh, Dy. Minister, under Ministry of Petroleum and Chemicals which appeared in Polymen India, pages 9 to 10-Aug. 27,

(f) Certificate from Mr. V. K. Mathur, Head of the Deptt. of Chemical Engg. & Technology, Banaras Hindu University,

(g) Certificate from Prof. T, R. Seshadri F. R. S. Emeritus Professor, Deptt. of Chemistry, University of Delhi,

(h) Letter from Dr. M. S. Mathana, Director, Indian Institute of Technology, Kanpur, and

(i) Certificate from Shri B. Garudadwaja of Indian Institute of Petroleum, Dehradun.

(ii) Certificate from Mr. D. S. Varman, Prof. of Fibra Science and Head of Textile Technology Department, Indian Institute of Technology, Delhi (submitted with the company's letter dated 2-3-74 to the Addl. Commissioner of Income-tax).

(iii) Affidavit of Dr. V. B. Chipalkatti.

(iv) Affidavit of Shri S. R. Aggarwal, Chief Chemist.

(v) Affidavit of Shri P. K. Thakur.

(vi) Letter dated 21-12-1974 from the Silk & Art Silk Mills Research Association, Bombay (submitted to Addl. Commissioner of Income-tax, vide Company's letter dated 11-3-1974).

(vii) Extract from the article on 'Trends in Petrochemical Development in India' by Dr. G. R. Kulkarni.

(viii) Article by Mr. K. D. Malaviya, Minister for Petroleum & Chemicals.

(ix) Relevant extract from question and answer by Hon'ble Shri K. R. Ganesh, Minister of State in the Ministry of Petroleum & Chemicals --Question No. 1009.

(x) Letter from Marubeni Corporation, Tokyo, Japan, regarding source of caprolactum, and

(xi) Certificate from BASF India Ltd. regarding source of caprolactum.

All these papers filed by the assessee suggest that the persons who are dealing in or who are conversant with, say that nylon-6 is petrochemical. On the other hand, the revenue has filed certain papers on pages 159 to 196 of its paper book to show that nylon-6 is not petrochemical. From pages 159 to 171, the revenue has filed cuttings from various papers showing the name of M/s. J. K. Synthetics, the assessee-company, under the head 'Textiles' in the stock exchange quotation. We do not think that those cuttings itself would help in determining whether the assessee's industry was a petrochemical industry or a textile industry. The grouping is done by the commercial editor for the purpose of showing the quotation of the shares of the company. It is not done in the sense we require the meaning in the present case. Under the circumstances, those papers do not throw any light on the subject. Similar is the position with the paper of the revenue appearing on pages 172 to 196. On the other hand, the assessee has drawn our attention to G. A. Purdy's Petroleum at page 460 onwards and on the book on Petroleum Products Handbook and Gutheie (Section 12, page 15). They also contribute much to show that nylon-6 is nothing else but petrochemical. In this connection, it is relevant to mention that there was no dispute to the stage of production of caprolactum from which nylon-6 is produced. It was only disputed that after caprolactum no chemical process is required to produce nylon.'

36. The Tribunal thereafter referred to the contentions of the Advocate-General of U.P. on behalf of the revenue and dealt with the same in the manner following :

'We further advert to the arguments of the Advocate-General that in Section 33(1)(b)(B)(i)(a) and Section 80K(1), the exemption and/or deduction is allowed to the assessee for certain articles and goods but the exemption or deduction are not allowed to any industry. The Advocate-General has also urged during the course of arguments that if the assessee comes within the exemption clause it should be allowed the benefit; otherwise not. We agree with the principle stated by the Advocate-General and we think that even the assessee cannot have any grievance over it. If the section along with Schedules 5 & 6 are taken into consideration, this is clear that the deduction or exemption is available to the industry which are producing articles or goods indicated in these Schedules. In this connection, we also appreciate the arguments advanced on behalf of the assessee that an industry is not known by the raw material which it uses but it is known by the finished product which it produces. For example, a glass industry is not known as a. sand industry which is the basic raw material for the purpose of production of glass water nor a textile industry is known as cotton industry, because textile is manufactured from cotton. Similarly, though the company may be manufacturing nylon-6 from caprolactum, yet it could only be considered in its broad sense as petrochemical industry. In this connection, the assessee has referred to the appearance of its name in the International Petroleum Encyclopaedia, 1971, printed in U.S.A., wherein the assessee's name is included in petrochemical plants of the world. The assessee as well as the department have relied on various dictionaries for the definition of petrochemical and chemical which have been considered while coming to the above conclusion. We have also considered the report of the First United National Interregional Conference on the Development of Petrochemical Industries in Developing, a United National Publication and Vol. XX of Chemical Weekly, 1975, Further we have considered all the papers filed by the parties while we have come to the conclusion that nylon-6 is a petrochemical. In the end, we would like to add that we are supported by the orders of the Bombay Benches of the Appellate Tribunal in the case of Nirlon Synthetic Fibres & Chemicals Ltd. for the assessment years 1968-69 to 1970-71 in ITA Nos. 4469 to 4471 (Bom)/73-74 and in ITA No. 16772 of 1967-68 for the assessment year 1964-65, in the case of ITO v. Hoechst Dyes & Chemicals Ltd. We also follow the reasonings adopted by them. Our view is further supported by the order of the Commissioner of Income-tax, Bombay City-Ill, u/s. 264 of the Income-tax Act, 1961, in the ease of M/s. Dai Ichi Karkaria (P.) Ltd., Bombay, who allowed the review application of the assessee under Section 26 for relief under Section 80-I of the Act. Accordingly, we hold that even on merits, the assessee was entitled for higher rate of development rebate under Section 33(1)(b)(B)(i)(a) of the Act and deduction under Section 80E(1).'

37. It appears to us, therefore, that there were sufficient materials for the Tribunal including the materials which were used before the Bombay Bench Tribunal and the Allahabad Bench of the Income-tax Appellate Tribunal and were considered by consent of both parties in this case to come to a conclusion that nylon-6 comes within the expression 'petrochemical' under item (18) of Sch. V bearing in mind the principles upon which these cases should be considered.

38. Before we part with this aspect of the matter, we advert to one aspect upon which some arguments were advanced and it is better to express our views. The question is, whether a particular item comes within a particular entry or not is a question of fact or a question of law. It may be that where an interpretation of that item involves the principle which will be required to be followed in a particular case then it may become a question of law. But where there is no dispute as to the principle which is to be followed in interpreting the expression, as in this case, there is no dispute that the expression must be understood in the sense in which the commercial people dealing with the subject-matter of the statute understand it and there is also no dispute as to the other principle required to be followed in construing this expression. Whether in a particular case an item would fall within the expression included in the Schedule, would be a question of fact unless it is contended that there was no evidence on which it was possible to come to the conclusion or the evidence which were there were not relevant evidence that were considered, which is also not the case here. In some cases it may involve a mixed question of law and fact, that is to say, where a particular question of law applied is whether there has been a correct application of the principle on the facts that may raise a question of law, but where there is no such point as in this case which is solely dependent on the consideration whether there was any material or not, in such a case, it would be a question of fact and, as such, no question is referable to the court. But the learned advocate for the revenue drew our attention to the observations of the Supreme Court, which we have noted, where the Supreme Court proceeded to answer the question as a question of law. There, of course, this contention was not raised that this was not a question of law. Furthermore, the Supreme Court had to lay down the principle as to what principle should be followed in considering this kind of expression. Here, there is no dispute on that principle. Therefore, had it been necessary for us to decide this question, we would have said, as we have seen, that this is a question of fact; In the view we have taken, it is not necessary for us to rest our decision on this.

39. In that view of the matter, we answer the second question in the affirmative and in favour of the assessee. In the facts and circumstances of the case, each party will pay and bear its own costs.

Sudhindra Mohan Guha, J.

I agree.


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