# EMPIRE INDUSTRIES LIMITED & ORS. ETC v. UNION OF INDIA & ORS. ETC

- **Citation:** [1985] Supp. 1 S.C.R. 292
- **Court:** Supreme Court of India
- **Decided:** 1985-05-06
- **Case number:** Writ Petitions Nos. 13556, 13788, 13792, 15438 and 15439 of 1984
- **Bench:** S. Murtaza Fazal Ali, A. Varadarajan, Sabyasachi Mukharh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/empire-industries-limited-ors-etc-v-union-of-india-ors-etc-9060
- **Pages:** 39

## Headnote

Central Excise and Salt Act, 1944, (Act I of 1944), section 2 (f) (v) (•i)
and (vil)-Definition of 'Manufacture' as amended by the Central Excise and Salt
and Additional Dutle> of Excise (Amendment) Act, (Act vi of 1980)-Legislative
competency to make amendment-Whether the Amendment Act is violative of
Articles 14, 19 (I) (g) and Entry 84 of List I of the Seventh Schedule of the
Constitution-Concept of "Manufacture" - Whelher the various processes of
bleaching, mercerising, dyeing, printing etc. of cotton fabrics and woolen fabircs
man.made fabrics as mentioned in items 19 and 22 of the Schedule to the Central
Excises and Salt Act amount to "Manufacture", as the Act stood prior to the
Amendment Act, so as to attract levy of duty under section 4 of the Act-Whether
the Amendment Act In any event is valid under Entry 97 of List I of the Seventh
Schedt1le of the Constitution-Retrospective legislation whether permissible--
Evidence not produced elear but that sought to be produced in the Supreme Court,
acceptance of-Passing of Interim orders, aviationjvaction by the Court in fiscal
matters, causing of.
In Vijay Textile Mill& v. Union of India reported in (1979) 4 E.L.T.J. 181,
the Gujarat High Court by its decision dated 21. l.1979 held that cotton fabrics
subjected to bleachiag, dyeing and printing could not be subjected to excise
duty under Item 19 (!) (b) of the First Schedule to the Central Excises and Salt
Act, 1944 is at twenty p~r cent ad-valorem these activities not being taxable
event in the light of section 3 read with 2(d) of the Act. The Gujarat High
Court proceeded on the footing that the processes of bleaching, dyeing and
printing were manufacturing processes and held that excise duty would at least
be leviable under residuary Item No. 6S of the First Schedule and therefore,
liable to levy at eight per cent ad·valorem, the High Court directed the "Excise
authorities to calculate the ad valorem excise duty during the period of three
years immediately preceding the institution of each petition before the Court
and calculate the excise duty payable by each of these petitioners under Item
68 only in respect of the value added by each of the petitioners by the
processing of the fabric concerned. The excise duty paid in excess of such ad
valorem duty under Item 68 during the period of three years immediately
preceding the institution of the respective Special Application is ordered to be
refunded to the petitioners concerned in each of their petitions."
Jn Real Honest Textiles and Ors. v. Union of India (now in appeal) the
Gujarat High Court passed similar directions after declaring that the levy and
l'pllel'tiop pf excise duty and •\lditipnal duty on processe\l 111an-made fabrics
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EMPIRE INDUSTRiES v. UNION
293
under Tariff Item 22(1) of the Additional Duties of Excise (Goods of Special
Importance) Act, !957 was ultra vires. Since the decisions of the Gujarat High
Court on 24.1.1979 in these two cases, the petitioners and the processing houses
like the petitioners have been claiming refund.
The President of India promulgated an Ordinance being Central
ordinance No. f2 of 1979 called the Central Excises and Salt and Additional
Duties of Fxcise (Amendment) Ordinance 1979. The said Ordinance was
replaced by the Act VI of 1980 called the Central Excises and Salt and
Additional Duties of Excise (Amendment) Act, 1980, giving retrospective effect
to the Act from 24th February 1979. By section 2 of the Act, section 2(f) of
the Excise Duty Act was amended by adding three sub items in the definition
"manufacture" so as to include the activities like bleaching, dyeing, printing
etc. covered by the two decisions of the Gujarat High Court. Similar '"amend ..
ments were made in items 19(1), 21 <I) and 22 (!) of the First Schedule with
retrospective effect. Section 5(2) (b) of the Amending Act provided "no suit
or other proceedings shall be maintained or continued in any other Court for
the refund of the duty collected and no enforceme

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EMPIRE INDUSTRIES LIMITED & ORS. ETC.
v.
UNION OF INDIA & ORS. ETC.
May 6, 1985
[S. MURTAZA FAZAL ALI, A. VARADARAJAN AND
SABYASACHI MUKHARH, JJ.]
Central Excise and Salt Act, 1944, (Act I of 1944), section 2 (f) (v) (•i)
and (vil)-Definition of 'Manufacture' as amended by the Central Excise and Salt
and Additional Dutle> of Excise (Amendment) Act, (Act vi of 1980)-Legislative
competency to make amendment-Whether the Amendment Act is violative of
Articles 14, 19 (I) (g) and Entry 84 of List I of the Seventh Schedule of the
Constitution-Concept of "Manufacture" - Whelher the various processes of
bleaching, mercerising, dyeing, printing etc. of cotton fabrics and woolen fabircs
man.made fabrics as mentioned in items 19 and 22 of the Schedule to the Central
Excises and Salt Act amount to "Manufacture", as the Act stood prior to the
Amendment Act, so as to attract levy of duty under section 4 of the Act-Whether
the Amendment Act In any event is valid under Entry 97 of List I of the Seventh
Schedt1le of the Constitution-Retrospective legislation whether permissible--
Evidence not produced elear but that sought to be produced in the Supreme Court,
acceptance of-Passing of Interim orders, aviationjvaction by the Court in fiscal
matters, causing of.
In Vijay Textile Mill& v. Union of India reported in (1979) 4 E.L.T.J. 181,
the Gujarat High Court by its decision dated 21. l.1979 held that cotton fabrics
subjected to bleachiag, dyeing and printing could not be subjected to excise
duty under Item 19 (!) (b) of the First Schedule to the Central Excises and Salt
Act, 1944 is at twenty p~r cent ad-valorem these activities not being taxable
event in the light of section 3 read with 2(d) of the Act. The Gujarat High
Court proceeded on the footing that the processes of bleaching, dyeing and
printing were manufacturing processes and held that excise duty would at least
be leviable under residuary Item No. 6S of the First Schedule and therefore,
liable to levy at eight per cent ad·valorem, the High Court directed the "Excise
authorities to calculate the ad valorem excise duty during the period of three
years immediately preceding the institution of each petition before the Court
and calculate the excise duty payable by each of these petitioners under Item
68 only in respect of the value added by each of the petitioners by the
processing of the fabric concerned. The excise duty paid in excess of such ad
valorem duty under Item 68 during the period of three years immediately
preceding the institution of the respective Special Application is ordered to be
refunded to the petitioners concerned in each of their petitions."
Jn Real Honest Textiles and Ors. v. Union of India (now in appeal) the
Gujarat High Court passed similar directions after declaring that the levy and
l'pllel'tiop pf excise duty and •\lditipnal duty on processe\l 111an-made fabrics
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EMPIRE INDUSTRiES v. UNION
293
under Tariff Item 22(1) of the Additional Duties of Excise (Goods of Special
Importance) Act, !957 was ultra vires. Since the decisions of the Gujarat High
Court on 24.1.1979 in these two cases, the petitioners and the processing houses
like the petitioners have been claiming refund.
The President of India promulgated an Ordinance being Central
ordinance No. f2 of 1979 called the Central Excises and Salt and Additional
Duties of Fxcise (Amendment) Ordinance 1979. The said Ordinance was
replaced by the Act VI of 1980 called the Central Excises and Salt and
Additional Duties of Excise (Amendment) Act, 1980, giving retrospective effect
to the Act from 24th February 1979. By section 2 of the Act, section 2(f) of
the Excise Duty Act was amended by adding three sub items in the definition
"manufacture" so as to include the activities like bleaching, dyeing, printing
etc. covered by the two decisions of the Gujarat High Court. Similar '"amend ..
ments were made in items 19(1), 21 <I) and 22 (!) of the First Schedule with
retrospective effect. Section 5(2) (b) of the Amending Act provided "no suit
or other proceedings shall be maintained or continued in any other Court for
the refund of the duty collected and no enforcement shall be made by any
Court of any decree or order directing the refund of such duties of excise which
have been collected and which may have been collected." as if the provisions
of section S of the Act VI of 1980 had been in force on and from the appointed
day as defined in the Act VI of 1980.
After the Act VI of 1980 was passed, the same was challenged before
the Bombay High Court by several writ petitions. Dismissing W.P. 623/1979
titled New Shakti Dye Works Pvt. and Mahalakshmi Dyeing and Printing Works
v. Union of India along with 24 other writ petitions on 16/17 June, 1983. the
Bombay High Court upheld the Constitutional validity of the impugned Act as
we11 as the levy of duty on certain goods. Special Leave was granted in this
case as in the two earlier Gujarat High Court's cases.
Empire Industrie• Limited also filed a petition under Article 226 of the
cases though Indian Textile Processor Association withdrew it from the file of
the Bombay High Court and by the writ petition under Article 32 of the
Constitution has challenged the Constitutional validity of tho Act VI of 1980
and the validity of the levy of excise duty under section 4 of the Act. Some
other petitioners similary situated have also filed their petitions under Article
32 of the Constitution.
In these petitions and appeals the following main points fell for
~nslderation :
1. Whether cotton fabrics subjected to the process of bleaching,
mercerising, dyeing, printing, water-proofing etc. specially the processes
conducted and carried out
by
the petitioner company in respect of
cotton fabrics and woolen fabrics/man-made fabrics as mentioned under
Items 19 or 22 of the Schedule to the Central Excises and Salt Act
amount to 'manufacture' as the Act stood prior to the impugned Act of 1980.
In other words whether these various processes carried out by the petitioners
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SUPREME COURT REPORTS
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company amount to bringing into existence different and distinct goods,
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commercially known as such, to attract levy of duty under section 4 of the
Contra! Excises and Salt Act, 1944.
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2. Whether and in any event after tho impugned Act, the levy is valid.
In connection with the said contention it has to be examined whether the
impugned Act is intra vires entry 84 of List I of the Seventh Schedule to the
Constitution and if not, whether the said impugned Act can be said to be valid
in any event under entry 97 of List I of the Seventh Schedule to the
Constitution.
3. Whether the impugned Act violates Article 14 or Article 19(1)(g) of
the Constitution.
Allowing the Revenue appeals in C.A. Nos. 586 to 592 of 1979 and
dismissing all the petitions and other appeals, the Court,
HELD : 1. In view of the amendments made in section 2(f) of the
Central Excises and Salt Act, 1944 by Amending Act VI of 1980 as well as the
substitution of new Item 19(1) and 22(1) in Excise Tariff in place of the original
items, the activities of the petitioner company, namely, as an indep~ndent processing unit engaged in job activities of dyeing, printing and finishing of manmade/cotton fabrics attract the exigibility to excise duties under section 3 and 4
of the Act. Excise duty will be charged on processed printed material.
[328 D-E]
Section 3 of the Central Excises and Salt Act clearly indicates that the
object of the entries in the First Schedule is firstly excisable goods and
iiecondly to specify rates at which excise duty will be levied. Under sub-rule 2
of Rule S6A, a manufacturer will be given credit of the duty which is aiready
paid on the articles used in the manufacture, subject to certain conditions.
Therefore, the processors will be entitled to credit for the duty already paid on
the grey cloth by the manufacturers of the grey cloth. [328 E-FJ
New Shakti Dye Works (Pvt.) Ltd. v. Maha/akshmi Dyeing and Printing
Works v. Union of India & Anr. (W.P. Nos. 622 and 623 of 1979 dated 16and17
June 1983 Bombay) approved.
2.1 Excise duty is a duty on the manufacture of goods and not on sale.
Manufacture is complete as soon as by the application of one or more process,
the raw material undergoes some change. If a new substance is brought into
existence or if a new or different article having a distinctive name, character or
use result from particular processes, such process or processes would amount
to manufacture. Tb.erefore, the taxable event under the Excise Law is
•manufacture•. The moment there is transformation into a new commodity
commercially known as a distinct and separate commodity having its own
character, use and name, whether be it the result of one process or several
processes •manufacture' takes place and liability to duty under section 4 is
attracted. (312 C-D; 316 B-C]
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EMPIRE iNDUSTRIES V. UNION
Union of India v. Delhi Cloth & General Mills, (1963) 1 Supp. S.C.R. '86;
Union of India v. H.U.F. BuJiness known as Ranilal Mansukhnai, Rewarl & A.nr.
[1971) I S.C.R. 937; Al/enburry Engineers v. Ramakrishna Dalmia & Ors.,
[1933] 2 S.C.R. 257; Dep11ty Commissioner, Sales Tax (Law) Board of Revenue
(Taxes) Ernakulam v. Pio Food Packm, [1980] 3 S.C.R. 1271 and Chowgule and
Co. P>t. Ud. and Anr. v. Union of India and Ors. [1981] 1 S.C.C. 653 referred
to.
Commissioner of Sales Tax, U.P. Lucknow v. Barbi/as Ral and Soru
[1968] S.T.C. Vol. 21p.17 (S.C.) followed.
Hiralal Jitmal v. Commissioner of Sales Tax, [1957] S.T.C. Vol. Vlll 325
(MP); East India Cotton Manufacturing Company Pvt. Lid. v. The Assessing
Authority- cum-Excise and Tatation Officer, Gurgaon and Anr., (1972) S.T.C. Vol.
30 p. 489 (Punjab and Haryana); Kores (India) Ltd. v. Union of India and Ors.,
[1982] E.L.T. Vol. 10, p. 253 and K. Venkatarama11 and Company and Ors. v.
Deputy Commercial Tax Officer, Coimbata,e IV a11d Ors., [1972] S.T.C. Vol. ~O
p. 57 (Mad) approved.
Extrusion Process Pvt. Ltd. v. N.R. Jadhav, S11perin1endent of Central
Excise, [197914 E.L.T. J. 380 (Gujarat); Swa~tik P,·oducts, Baroda v. Superint~n
dent of Central Excise, [1980] 6 E.L.T. 164 (Gujarat) and Kai/ash Nath and Anr.
y, The State of U.P. and Ors., [1957] S.T.C. Vol. VIII p. 358 (SC)
distinguished.
Mc Nicol and Anr. v. Pinch, [1906] 2 K.B. 352 quoted with approval.
z.2 Etymologically the word "Manufacture" properly construed would
doubtless cover the transformation. Here, in the light of several decsion of the
Supreme Court and the High Courts and on the construction of the expression,
the process of bleaching, d)'eing and printing etymologically means manufacturing process. The processes of the type which have been incorporated by
the Act VI of 1980 were not so alien or foreign to the concept of 'manufacture'
that these could not come within that concept covered by entry 84, of List I of
the Seventh Schedule. After the Act VI of 1980 was passed these processes
indubitably fall within the expression •manufacture'.
[323A,E·H]
!.3 The question whether the impugned Act is covered by entry 84 can
be looked from another point of view namely the actual contents of enty 84.
The word 'produced' appearing in entry no. 84 of List I of the Seventh Schedule
i! used in juxtaposition with the word 'manufactured' and used in connection
with the duty of excise and consequently it contemplates same expenditure of
human skill in bringing the goods concerned into the condition which would
attract the duty. It was not required that the goods would be manufactured
in the sense that raw material should be used to turn out something altogether
different. It would still require that these should be produced in the sense
that some human activity and energy should be spent on them and these
should be subjected to some processes in order that these might be brought to
the state in which they mi11ht become fit for consumption. Here, expenditure
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of human skill and material have been used in the processing and it may not
be that the raw material was first transformed but over the transformed
material, further transformation was done by the human labour and skill
making this fit for human consumption. In any event under entry 97 of List I
of the Seventh Schedule this would apply if it is not under entry 84. [324 A, GJ
Aluminium Corporation of India Ltd. v. Coal Board AIR 1959 Cal. 222,
approved.
The King v. Caledonia• Collieries, ltd. [1928) A.C. 358 referred to.
2.4 To contend that if the legislation was sought to be defended on the
ground that it is a tax on activity Jike processing and would be covered by the
powers enume~ated under entry 97 of List I of the Seventh Schedule there was
no charging section for such an activity and as such the charge must fail and
there cannot be any levy is wrong and misconceived. The charging section
is the charging section 3 of the Central Excises and Salt Act, 1944. It stipula ..
tes the levy and charge of duty of excise on all excisable goods produced or
manufactured. 'Manufactured' under the Act after the amendment would be.
the 'manufacture' as amended in section 2(f) and Tariff Item 19(1) and 22 and
the charge would be on that basis. (324 5;325 A-BJ
3.1 I1nposition of tax by legislation n1akes the subjects pay taxes. It is
well recognised that (i) tax may be imposed retrospectively; and that by itself
would not be unreasonable restriction on the right to carry on business and (ii)
the Parliament has powers to make retrospective legislation including fiscal
legislation and such legislation per se is not unreasonable. [326 D-E]
3.2 Here there is no particular feature of this legislation which can be
said to create any unreasonable restriction upon the petitioners. The concept
of process being embodied in certain situation in the idea of manufacture, the
impugned legislation is only making 'small repairs' and that is permissible
mode of legislation. [326 E-FJ
3.3 Nor does the impugned legislation act harshly nor there is any
scope for arbitratriness or discrimination. It is clear from the objects and
reasons wherein it was stated that the Central Excise Duty was levied for the
first time on cotton fabrics in 1969, on man·madc fabrics-(rayon of artificial
silk fabrics) in 1954 and on woolen fabdcs in 1955. From the very early stages
of the textile tariff, with a view to achieving progression in the rate structure
and to aligning excise control with the demands of differt.nt producing sectors
duties has been levii:d not only on grey fabrics but also at the stage of proces·
sing such as bleaching, dyeing and printing. The Judgment of the Gujarat
High Court in Real Honest Textiles and Ors. v. Union of India (under appeal)
according to the statement of objectS' and reasons of the Act VI of 1980 had
upset the arrangements regarding levy of excise duties of textile f.:i.brics. The
judgment a1so had the effect of disturbing the balance evolved between diffe·
rent sectors of the textile industry. Furthermore, it was made clear that in so
far as paat assessments were concerned, refund of excise duties to manufactu·
I
EMPIRE INDUSTRIES V. UNION
~97
rers as ordered by the High Court would have-only meant a fortuitous wind~
fall so as to benefit such persons without any relief to the ultimate consumers
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who had purchased the fabrics and had borne the burden of the duties. In
order to avoid this, the Act was passed. [325 E-H; 326 B·C; 327 CJ
Krishnamurthi & Co. etc. v. State of Madras & Anr., [1913) 2 S.C.R. 55,
referred to.
3.4 Where for the purpose of calculating assessable profits, a notional
and conventional sum is laid down by the legislature to be arrived at on a
certain basis, it is not permissible for the courts to engraft into it any other
deduction or allowance or addition or read it down on the score that the said
deduction or allowance or addition was authorised elsewhere in the Act or in
the Rules. A conventional charge shou'd be measured by its own computation
and not by facts relating to other method of computation. The circumst-'nces
trat thereby the benefit of any exemption granted by the legislation may be
lost and that in son1e cases hardship might result are not matters which would
influence courts on the construction of the statute. A tax payer subject is
entitled only to such benefit as is granted by the legislaf.ure. Taxation under
the Act is the rule and benefit and exemption, the exception. And in this case
there is no hardship. [327 E·GJ
3.5 When the textile fabrics are subjected to the processes like bleaching, dyeing and printing etc. by indt"pendent processes, \\'hether on their own
account or on job charges basis, the value of the purposes of assessment under
section 4 of the Central Excise Act will not be the processing charges alone
but the intrinsic value or 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 proce~sors for the processing. However,
t"XCise duty, if any, paid on the grey fabries will be given proforma credit to the
independent processors to be utilised for the payment on the processed fabrics
in accordance with the Rules 56 A or 96 D of the Central Excise Rules, as the
case may be. [327 G-H; 328 A-BJ
3.6 Read in that context and in the eon.text of the prevalent practice
followed so long until the d(!cision of the Gujarat High Court in Real Honest
case, there is no hardship and no injustice to the petitioners or the manufacturers of grey fabrics. The fact that the petitioners are not the owners of the
end product is irrelevant. Taxable events is manufacture-not ownership.
[328 B·D]
4. Documentary evidence not produced earlier cannot be admitted at
the late stage of final hearing of the case by the Supreme Court. [308 E]
(Per majority Varadarajan J. dissentinc).
t. Different Courts sometimes pass different interim orders as the courts
think fit. The interim orders passed by particular courts on certain considerations arc not precedents for other cases may be on similar facts. To contend
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that once an interim order has been passed by the Supreme Court on certain
factors specially in fiscal matters, in subsequent matters on more or less similar
facts, there should not be a different order passed nor should there by any
variation with that kind of interim order passed. In as much as that such
variance creates discrimination is an unfortunate approach. [329C-E]
2. Every bench hearing a matter on the facts and circumstances of cac:h
case should have the right to grant interim orders on such terms as it considers
fit and proper and if it had granted interim order at one stage, it should have
right to vary or alter such interim orders. The court made the followina
auggestions (i) A consenses. however, should be developed in matters of
interim orders in fiscal matters specially in cases involving indirect taxes where
normally taxes have been realised from the consumers but have not been paid
over to the exchequer or where taxes are to be realised from consumers by th1
dealers or others who are parties before the court, interim orders staying th1
payment of such taxes until final disposal of the matters should not be passed.
1 t is a matter of balance of public convenience. Large amounts of taxes are
involved in these types of litigations
Final disposal of matters unfortunately
in the present state of affairs in our courts takes enormously long time and
non-realisation of taxes for long time creates an upsetting effect on industry
and economic life causing great inconvenience to ordinary people. Governments
are run on public funds and if large amounts all over the country are held up
during the pendency of litigations, it becomes difficult for the governments to
run and become oppressive to the people. Government's expenditures cannot
be made on bank guarantees or i;ecurities. Jn that view of the matter th1
Supreme Court shall refrein from passing any interim orders ataying th1
realisations of indirect taxes or passing such orders which have the effect of
non·realisation of indirect taxes. This will be healthy for the country and for
the courts. [329 E-H; 330 A-CJ
ORIGINAL JURISDICTION: Wrii Petition (Civil) No. 11728 of
1984.
Under Article 32 of the Constitution of India.
WITH
Writ Petitions Nos. 13556, 13788, 13792, 15438 and 15439 of
1984 and Civil Appeals Nos. 6414 of 1983 and 3564 of 1984.
AND
Civil Appeals Nos. 586 to 592 of 1979.
From the Judgment and Order dated 24.1.1979 of the Gujarat
High Court in Special Civil Appln. Nos. 1552, 1553/77 with No1•
249, 1292, 1293, 1294 and 1295 of 1978.
EMPIRE INDUSTRIES v. UNION (Varadarajan, J.)
299
S.J. Sorabjee, A.J. Rana, S. Parekh, Mrs.
J.
Wad, and
Miss Aruna Mathur for the Petitioners in W.P. Nos. 11728, 15438 and
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15439 of 1984.
S.J. Sorabjee, A.N. Haskar and S.A. Shroff for the Petitioner
in W.P. No. 13788 of 1984.
S.S. Shroff and S.A. Shroff for the Appellant in C.A. No.
3564/84 and Petitioner in W.P. Nos. 13556, 13792 and 13788 of
1984.
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S.J. Sorabjee and A. Grover for the Appellant in C.A. No. 6414
of 1983.
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K.G. Bhagat Additional Solicitor General and R.N. Poddar for
the Appellants 'in C.A. Nos. 586-92 of 1979.
K.G. Bhagat, Additional Solicitor General, Girish Chandra,
Miss Ha/ida Khatun, Um2 Nath Singh and R.N. Poddar for the
Respondents. (Union of India)
S.K. Dholakia, R.C. Bhatia and P.C.
Kapur for
the
Respondents, in C.A. Nos. 589·92 of 1979.
Y.S. Chitale, Anand Haskar, P.H. Parekh and Miss
lndu
Malhotra for the Respondents in C.A. No. 586 of 1979.
A.K. Sen, P.H. Parekh and Miss Indu Malhotra
for the
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Respondents in C.A. No. 587 of 1979.
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F.S. Nariman, P.H. Parekh and Miss Indu Malhotra for the
Respondent in C.A. No. S88 of 1979.
The following Judgments were delivered
VARADARAJAN J. I agree with my learned brother Sabyasachi
Mukharji, J. that Writ Petitions Nos. 11728 of 1984 and 13556, 13788
13792, 15438 and 15439 of 1984 and Civil Appeals Nos. 6414
of 1983 and 3564 of 1984 have to be dismissed with costs, and
that Civil Appeals Nos. 586 to 592 of 1979 have to be allowed with
costs, and interim orders, if any, passed should stand vacated, and
arrears of excise duties should be paid forthwith and future excise
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duty should be paid as and when the goods are cleared or otherwise
as per law and rules. But I regret my inability to subscribe to the
views expressed by him in the last two paras of his judgment
regarding interim orders.
SABYASACHI MUKHARJI, J. This first petition herein under Article
32 of the Constitution arises under the following circumstances.
The President of India promulgated an Ordinance being
Central Ordinance No. 12 of 1979 called the Central Excises and
Salt and Additional Duties of Excise (Amendment) Ordinance, 1979.
The said Ordinance was replaced by the Act called the Central
Excises and Salt and Additional Duties of Excise (Amendment) Act,
1980 (hereinafter referred to as the 'impugned Act'). The said
impugned Act received the assent of the President on 12th February,
1980 and under section 1(2) of the impugned Act, retrospective effect
to the Act was given from 24th February, 1979.
It may be mentioned that the Gujarat High Court in the case
of Vijay Textile Mills v. Union of India rendered its decision on 24th
January, 1979 on this aspect of the matter. This decision will have
to be examined in little detail later. As a result of the said decision
and with a view to overcome the said decision, the Ordinance mentioned hereinbefore was promulgated on 24th November, 1979 which
has since been replaced by the said Central Excises and Salt and
Additional Duties of Excise (Amendment) Act, 1980.
After this impugned Act was passed, the same was challenged
before the Bombay High Court by several writ petitions, Writ
Petition No. 623 of 1979 along with others were disposed of by the
Bombay High Court by judgment delivered by the Division Bench
on 167/17th June, 1983 in the case of New Shakti Dye Works Pvt.
Ltd. & Maha/akshmi Dyeing and Printing Works v. Union of India &
Anr. By the said judgment, the Bombay High Court disposed of 24
writ petitions as the question involved in all those petitions was
identical. In that case the constitutional validity of the impugned
Art as well as the levy of duty on certain goods idential to the
present goods involved in this application under Article 32 of the
Constitution was involved. The Bombay High Court dismissed
the said writ petitions. We will refer to the said decision later. We
may, however, state that we are in respectful agreement with the
conclusions as well as the reasoning of the decison of the Bombay
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EMPIRE INDUSTRIES p, UNION (S. Mukharji, J.)
301
High Court in the said petitions. Special leave to appeal to this
Court has been granted from the said decision in the case of New
Shakti Dya Works Pvt. Ltd.
In order to appreciate the contentions raised, it is necessary to
state that the petitioner company is an independent processing unit
carrying on its activities at Bombay and as an independent processing
unit was engaged in job activities of dyeing, printing and finishing of,
man-made/cot.ton fabrics. The petitioner company further states that
in respect of the said processing activities, the petitioner company
holds licences required under the laws for the time being in force
including a licence under the Excise Act and the Central Excise Rules
which hereinafter will be referred to as the 'said Rules'.
The petitioners in writ petition No. 11728of1984 were two in
number-one being the petitioner company and the other being the
Taxation Executive of the petitioner company.
The petitioners state that the processing operations of the
petitioner company in the said factory are job work operations of
dyeing, bleaching and printing of the said fabrics which are cotton
fabrics and man-made fabrics.
When the said fabrics are received
in the factory of the petitioner, company the same are fully manu·
factured and are in a saleable condition and are commercially known
as grey fabrics i.e. unprocessed fabrics which are cleared after pay·
ment of the excise duty under Tariff Item Nos. 19 and 22, as the
case may be. The pet<tioners further state that the said grey fabrics
i.e. unprocessed, undergo various processes in the factory of the
petitioner company. The grey fabrics are boiled in water mixed with
various chemicals and the grey fabric is washed and thereafter the
material is taken for the dyeing process, that is imparting of required
shades of colours. The next stage is printing process, i.e. putting the
required designs on the said fabrics by way of screen printing on hot
tables. The final stage is the finishing process, that is to give a
final touch for better appearance
According to the petitioners, they
do not carry out any spinning or weaving of the said fabrics. The
machinery installed by the petitioner company in its factory is only
for the purpose of carrying out one or more of the aforesaid four
processes and cannot be used for the purpose of either spinning or
weaving of yarn for manufacture of 'fabric' i.e. 'woven material'.
For spinning or weaving of yarn, one requires, according to the
petitioners, looms and petitioner company is merely a processin~
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house. The petitioner company's case is that the petitioner company
begins with man-made or cotton fabrics before it starts the said
processes and also ends with man-made or cotton fabrics after
subjecting the fabrics to the various processes. The petitioner com·
pany receives fully manufactured man·made fabrics and cotton
fabrics from its customers only for the purpose of carrying out one
or more of the aforesaid processes thereon as per the requirement
and instructions of the customers and .after the necessary processes
are carrried out, the same are returned to the customers. According
to the petitioners, what is received by the petitioner company is
known as cotton/man-made fabrics and what is returned is again
known as cotton/man·made fabrics. The petitioner company states
that it has no discretion or choice of shades or colours or designs
and the same are nominated or prescribed by the customers. The
finally processed fabric is not and cannot be sold by the petitioners
in the market as the petitioner company's product. The petitioner
company merely collects from its customers charges only for job
work of processing done by it. The petitioner company further states
that it has no proprietary interest in the· fabrics either before or
after the same is processed. The manufacture of the fabrics and sale
in the market of the processed fabrics are effected by the petitioner
company's customers and not by the petitioners.
Further the
processed as well as the unprocessed fabric, whether cotton or
man-made, can be put to the same use.
The petitioner company is required to file classification list for
approval of the concerned Excise Authorities as prescribed by Rule
173-B of the said Rules for approval of Tariff items in the First
Schedule to the Excise Act in respect of the processed fabrics.
As per approval granted there-on in respect of man-made fabrics and
cotton fabrics, the petitioner company classifies all the processed
fabrics under Tariff Items 19 and 22, as the case may be. So far as
man-made fabrics are concerned under Tariff Item 22, the petitioner
company was required to pay certain duties as mentioned in the
petition. The petitioners state that the petitioner company has paid
such duties.
The petitioners further state that such classification list of
cotton fabrics has been approved under Tariff Item No. 19 and the
petitioner company was required to pay certain duties which the
petitioner company has mentioned that it has paid the same. The
petitioners further state that for the purpose of determination of
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IMPIRB INDUSTRlllS v. UNION (S. Mukharjl, J.)
303
value under section 4 of the Excise Act, the petitioner company was
required to file a price list In the form prescribed under the said
Rules for approval.
The respondents-government authorities,
according to the petitioners, although being aware of the fact that
the petitioner company was carrying out and ·or performing merely
the processing work and collecting the processing charges only, had
directed the petitioner company to file a price list on the basis of the
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sale price of its customers and for this purpose had required the
petitioner company to file along with the said price list letters of its
customers certifying the price at w Wch the said customers sell the
coods in the markets. The petitioners state that price list includes
the selling expenses and selling profits of the said cu>tomers in which
the petitioner company has no interest or share.
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According to the petitioners, the respondents approve the price
list and as a consequence thereof the petitioner company becomes
liable to pay to the respondents additional Excise duty calculated on
ad·valorem basis on the said approved sale price that is the sale
price of its customen. The petitioners have annexed a copy of the
delivery note and a copy or the invoice issued by the petitioner
company. It is further the case of the petitioners that both in respect
of cotton fabrics and man· made fabrics which are merely processed by
the petitioner company, the respondents were levying and collecting
excise duty and additional duty respectively under Tariff Items 19
and 22, as the case may be, at rates stipulated against the respective
entries read with relevant exemption notification, as if the petitioner
company was the manufacturer of cottou fabrics/man-made fabrics,
u the case may be.
The petitioner company further states that it bad ftled a writ
petition in the Bombay High Court which was a.dmitted. The said
writ petition was filed through Indian Textile Processors Association.
The petitioners stated thereafter the circumstances under which the
aaid petition was withdrawn and why the present petition under
Article 32 of the Constitution is being filed. For our present purpose,
it is not necessary to set out these details.
The petitioners challenge the impugned Act mentioned
hereinbefore. Before the contentions are dealt with, it would be
appropriate to deal with the relevant provisions of the impugned Act.
Section 2 of the impugned Act amends section 2(f) of the Excise Act
by adding three sub-items in the definition of 'Manufacture' which
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were included by Act 6 of 1980 being the impugned Act which came
into effect from 24th November, 1979 which are sub-clauses (v), (vi)
and (vii). These read as follows :-
"(v) in relation to goods comprised in Item No. 19 I
of the First Schedule, includes bleaching, mercerising,
dyeing, printing, water-proofing,
rubberising, shrinkproofing, organdie processing or any other process or
any one or more of these processes;
(vi) in relation to goods comprised in Item No. 21(1)
of the First Schedule, includes milling, raising, blowing,
!entering, dyeing or any other process or any one or more
of these processes;
(vii) in relation to goods comprised in Item No. 22(1)
of the First Schedule, includes bleaching, dyeing, printing,
shrink-proofing. !entering, heat-setting, crease resistant
processing or any other process or any one or more of
these processes;"
Similar amendments wer made in Items 19(1), 21(1) and 22(1)
of the Central Excise Tariff, and also similar amendments were
effected in relation fo Act of 1957.
These amendments were effected
retrospectively from different dates for different fabrics, as mentioned in the impugned Act.
According to section 5(2) (b) of
the impugned Act, no suit or other proceedings shall be maintained or continued in any other court for the refund of the same
and no enforcement shall be made by any court of any decree
or order directing the refund of such duties of excise which have been
collected and which may have been collected as if the provisions of
section 5 of the impugned Act bad been in force on and from the
appointed day as defined in the impugned Act. It may, however, be
mentioned that the original unamended definition of the word
"manufacture" in section 2(f) contained a general definition of the
word "manufacture" which was and still continues to be an inclusive
definition to say that the manufacture includes any process incidental
or ancillary to the completion of a manufactured product.
According to the petitioners, the impugned Act had been
enacted and brought into force because of the judgment of the
Gujarat High Court dated 24th January, 1979 given in the case of
EMPIRE iNDUSTRIES v. UNION (S. Mukhatji, J.)
305
Real Honest Textiles and others v. Union of India-a decision which
is also subject matter of appeal before this Court and bas been beard
along with this petition. The Gujarat High Court bad declared that
the levy and collection of excise duty and additional duty on processed cotton fabrics under Tariff Item No. 19 I of the Schedule to the
Excise Act and additional duty on processed man-made fabrics under
Tariff Item 22(1) of the Additional Duties of Excise (Goods of
Special Importance) Act, 195 , was ultra vires and the processing
houses were liable to pay duty of excise on processed
fabrics
ad-valorem under Tariff Item 68 of the Schedule to the Excise Act
only on value added bY way of process charges on cotton or manmade fabrics, as the case may be, and not on the full value of such
fabrics.
As mentioned bereinbefore, an application for special leave
to appeal to this Court had been filed from the said decision of the
Gujarat High Court, these appeals are pending and would be
disposed of by this judgment.
It may be mentioned that so long as the respondents had been
collecting and the petitioners had been paying excise duty and/or
additional duty as the petitioner company was manufacturing cotton
fabrics under Tariff Item Nos. 19 and 22, as the case may be. Since
the decision of the Gujarat High Court in New Shakti Dye Works Pvt.
Ltd., and the petitioners and .the processing houses like petitioners
have been claiming refund. The material portions of the amendments
of the Act have been set out herein before in the definition of section
2(f). The second part of the impugned Act by which amendments
were effected is found in section 3 of the impugned Act by which
original item No. 19 in the First Schedule to the Excise Act was
substituted by new Item No. 19 I and for the original item No. 22, a
new item No. 22(1) was substituted. These are:
"\. Cotton fabrics, other than (i) embroidery in the
piece, in strips or in motifs, and (ii) fabrics impregnated,
coated or laminated with preparations of cellulose
derivatives or of other artificial plastic materials
(a) cotton fabrics, not subjected to any process
Twenty per cent
ad-valorem
(b) cotton fabrics, subjected to the process of
bleaching, mercerising, dyeing, printing,
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water-proofing,
rubberising,
shrinkproofing, organdie processing or any other
process or any two or more of these
processes.
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xxx
Twenty per cent
ad-valorem
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22(1) Man-made fabrics other than (i} embroidery
in the piece, in strips or in motifs, (ii} fabrics impregnated,
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coated or laminated with preparations of cellulose derivatives or of other artificial plastic materials -
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(a) man-made fabrics, not subjected to any
process.
Twenty per cent
ad•valorem plus
rupees five per
square metre.
(b) man-made fabrics, sabjected to the process
of bleaching, dyeing, printing, shrink·
proofing, !entering, heat-setting, crease
resistant processing or any other process
or any two or more of these processes.
Twenty per cent
ad-valorem plus
rupees five per
square metre.
It may be pointed out that the original Item No. 19 I
referred to "cotton fabri<1s''. It provided that "cotton
fabrics means all varieties of fabrics manufactured either
wholly or partly from cotton and includes dhoties, sarees,
chadders, bed-sheets, bed-spreads, counter-panes, table
cloths, embroidery in the piece, in strips or in motifs and
fabrics impregnated, coated or laminated with preparations of cellulose derivatives or of other artificial plastic
111aterials,"
EMPIRE INDUSTRIES v. UNION (S. Mukharji, J.)
307
The proviso is not relevant for the issue now. The original Item 19 I
read as follows :
"I. Cotton fabrics other than (i) embroidery in the
piece, in strips or in motifs, and (ii) fabrics impregnated,
coated or laminated with preparations of cellulose
derivatives or of other artificial plastic materials".
Thus, Item No. 19 I is now substituted by the new item referred to
above and the effect of this substitution is that for the purposes
of excise duty cotton fabrics have been categorised into two classes,
namely (a) cotton fabrics not subjected to any process and (b) cotton
fabrics subjected to any process of bleaching, mercerising, dyeing,
printing,
water-proofing,
rubberising, shrink-proofing, organdie
processing or any other process or any two or more of these
processes. The duty on each one of them is twenty per
cent
ad-valorem. Substantially the same is the nature of the substitution of
old Item No. 22(1) by new Item No.