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Citation Codes
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Case Number
Attorney(S)
  • B.P.Banerji
  • Ranen Mitra
  • D.K.Sen Gupta
  • T.K.Pal
  • Arijit Chaudhary
  • P.P.Ginwalla
Judges
  • G.N Ray, J.
Acts
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Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • B.P.Banerji
  • Ranen Mitra
  • D.K.Sen Gupta
  • T.K.Pal
  • Arijit Chaudhary
  • P.P.Ginwalla
Judges
  • G.N Ray, J.
Acts
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Smart Summary

Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

The petitioner company filed a writ petition seeking (a) certiorari to have the records and certain orders (including those dated 24 March 1975 and 6 February 1976) transmitted and quashed or set aside, (b) prohibition against respondents treating the petitioner's nylon and rayon warp sheets as excisable items and collecting excise duty thereon, and (c) mandamus preventing the respondents from treating such warp sheets as excisable or from demanding excise duty in respect of them.

Factual summary (as stated in the opinion): the petitioner arranges nylon or rayon yarn (mostly supplied by customers) into parallel rows, loosely held together at intervals by cotton yarn supplied by the petitioner, producing what is described as "Tyre cord warp sheets." The process as described involves winding yarn into bobbins, twisting the yarn, and using cotton weft at widely spaced intervals to hold the nylon/rayon warp in position. A sample was annexed to the petition (Ext. "A"). The petitioner asserts that a given length of such warp sheet comprises 99.4% nylon and 0.6% cotton and that no manufacturing process producing a new commodity occurs when the yarns are so arranged.

Procedurally, the petitioner alleges that the Central Excise authorities in West Bengal, from March 1975, treated nylon/rayon warp sheets as a separate manufactured item taxable under Item 68 of the First Schedule of the Central Excises and Salt Act, 1944, whereas the petitioner contends the yarns are already excisable under Item 18 (and cotton yarn under Item 18A). The petitioner made a representation to the Secretary, Central Board of Excise and Customs (circa 18 April 1975), paid certain duties under protest for specified periods, and had a claim for refund of Rs. 95,648.16 rejected by respondent No. 2 (letter dated 6 February 1976). A notification dated 30 April 1975 issued by respondent No.4 (annexed as 'III') providing an exemption for job work was also invoked and disputed between the parties.

Legal Issues Presented

  1. Whether nylon and rayon warp sheets produced by the petitioner are excisable items as distinct manufactured goods (classified under Item 68 of the First Schedule) or whether they remain yarn (taxable under Item 18 / 18A) such that no separate excise under Item 68 should be levied.
  2. Whether the petitioner is entitled to the job-work exemption/exemption notification dated 30 April 1975 (i.e., whether the activity constitutes job work such that duty is limited to the amount calculated on conversion charges).
  3. Whether the orders of the excise authorities (including orders dated 24 March 1975 and 6 February 1976) and their demand for excise duty should be quashed or set aside and whether the petitioner's claim for refund should be allowed.

Arguments of the Parties

Petitioner's Arguments

  • The warp sheets are simply yarn arranged or assembled (with cotton weft at intervals) and not a new manufactured product; the nylon/rayon yarn retains its commercial identity.
  • The warp sheets mainly consist of nylon/rayon (99.4%) with only 0.6% cotton; apart from winding, twisting and arranging there is no manufacturing that produces a new commodity.
  • Under the Indian Standards Institution definition, yarn is an assemblage of fibre/filament twisted or laid together to form a continuous strand suitable for weaving or related uses; the warp sheet falls within that definition.
  • The nylon and rayon yarn fall under Item 18 of the First Schedule and cotton yarn under Item 18A of the Act; consequently, warp sheets being yarn should not be taxed again under Item 68.
  • The petitioner relied on prior High Court authority (Madura Mills Company Ltd v. Government of Madras) where cotton warp sheets were held to be yarn.
  • Counsel (Mr. Ginwala) relied on Supreme Court precedents (Central Provinces Manganese Ore Co. Ltd. v. State of Maharashtra; Allenbury Engineers Pvt. Ltd. v. Ram Krishna Dalmia; Lt. Governor, Delhi v. Ganesh Four Mills) to argue that mere assembly/arrangement/mixture without transformation into a distinct article does not amount to manufacture.
  • The petitioner contended entitlement to the relief provided in the notification/circular dated 30 April 1975 (job-work exemption), and that it had paid duties only under protest while dispute persisted.

Respondents' Arguments

  • The excise authorities in West Bengal proceeded on the view that nylon/rayon warp sheets constitute a separate item of manufacture liable to duty under Item 68 (with effect from March 1975).
  • Respondents initially took the position that the work might amount to job work, but later (circa November 1975) contended the petitioner was not entitled to treat the activity as job work because 0.6% of the warp sheet consisted of cotton yarn supplied by the petitioner, meaning not all raw materials/components were supplied by the customers.
  • Respondent No. 2 rejected the petitioner's contentions and refused the refund claim (letter dated 6 February 1976), thereby maintaining demands for excise duty under Item 68.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court (as appears in the opinion)
Madura Mills Company Limited v. Government of Madras (25 S.T.C. 407) High Court held cotton warp sheets to be yarn (supporting classification of warp sheets as yarn rather than a new manufactured item). The petitioner relied on this decision to show that similar warp sheets (where cotton yarn formed the material) were treated as yarn; the opinion records this as supporting the petitioner's position.
Central Provinces Manganese Ore Company Ltd. v. State of Maharashtra ((1977) 1 SCC 643) Formation of a mixture by mere process of unloading (or simple combination) does not involve manufacture; no new product emerges by such simple processes. Relied on by petitioner's counsel; the opinion uses the principle by analogy to argue that arranging yarn into warp sheets is a like process and does not amount to manufacture.
Allenbury Engineers Pvt. Ltd. v. Ram Krishna Dalmia ((1973) 1 SCC 7 : A.I.R. 1973 S.C. 425) Manufacture implies a transformation producing a new and different article having a distinctive name, character or use; a mere change in the material is not manufacture. Relied upon by petitioner's counsel; the opinion cites this principle to support the view that the warp sheets do not undergo transformation sufficient to be treated as a manufactured product distinct from yarn.
Lt. Governor, Delhi v. Ganesh Four Mills ((1973) 3 SCC 487 : A.I.R. 1973 S.C. 705) Processes such as cutting or moulding that facilitate use do not necessarily change the original product into a different taxable commodity. Relied on by petitioner's counsel; the opinion cites this authority to illustrate that facilitative processes do not remove an item from its original classification.

Court's Reasoning and Analysis

The opinion (as excerpted) proceeds by examining the admitted factual steps required to produce the warp sheets and the legal character of those steps. The court notes the following points as part of its analysis:

  1. Factual admission: The parties describe the process of winding, twisting and arranging nylon/rayon yarn and the insertion of cotton weft at widely spaced intervals; the material composition is largely nylon/rayon with only 0.6% cotton.
  2. Legal framework: The petitioner's primary classification argument is that the yarns are already taxable under Item 18 (and cotton under Item 18A) and that the warp sheets do not amount to a new manufactured commodity to attract Item 68.
  3. Analogy to precedents: The court records counsel's reliance on Supreme Court authorities establishing that (a) mere mixture or assemblage without transformative manufacture does not create a new taxable product (Central Provinces Manganese Ore Co.); (b) manufacture requires a change producing a new article with distinctive name, character or use (Allenbury Engineers v. Dalmia); and (c) simple facilitating processes (such as cutting or shaping) do not change the essential character of the product (Ganesh Four Mills).
  4. Application to the facts: On the "admitted position by the parties" the court finds it "quite apparent" that the warp sheets are not a new material but are rayon or nylon yarns arranged in a particular way and thereby remain yarn in character. Given that conclusion, the court considers there was no occasion for the excise authorities to proceed on the footing that a new commodity had been manufactured so as to group the warp sheets under Item 68.
  5. Reservation on other matters: The opinion notes there is controversy about the import and effect of the notification dated 30 April 1975 (the job-work exemption), which the parties dispute and which the court indicates it will consider; the notification itself is to be referred to at length to appreciate its precise import and implication.

Holding and Implications

Core ruling (as stated in the provided excerpts): On the admitted facts, the warp sheets are not a new manufactured commodity and there was no occasion for the excise authorities to proceed on the footing that nylon/rayon warp sheets were distinct manufactured products liable under Item 68 of the First Schedule.

Implications (limited to the material in the opinion):

  • Direct effect: The court's reasoning rejects, on the admitted facts and by reference to authorities, the proposition that mere arranging/assembling of yarn into warp sheets converts the yarn into a new excisable manufacture under Item 68. This supports the petitioner's classification argument that the warp sheets remain yarn (Item 18 / 18A).
  • Further issues reserved: The opinion indicates controversy over the notification/circular dated 30 April 1975 (relating to job-work exemption) and signals that the court will examine the notification's import; the provided excerpt does not record the court's final determination on that point, nor does it record a final dispositive order or the disposition of the refund claim in this excerpt.
  • Precedential effect: The provided portion of the opinion explains legal reasoning by reference to established precedents but does not in this excerpt announce a novel legal principle beyond applying those precedents to the admitted facts; no broader new precedent or a final, fully articulated disposition is recorded in the supplied text.

Note: The provided excerpt ends as the court indicates it will refer to the 30 April 1975 notification "at length" to appreciate its import. The final dispositive orders, if any, and any formal relief granted or refused are not contained within the supplied text.

Show full summary ...

    Madura Coats Limited v. Collector Of Central Excise, West Bengal

    2. In the instant writ petition the petitioner prays for issue of a writ in the nature of certiorari requiring respondents Nos. 1, 2 and 3 to transmit and certify the records of the proceedings before them to this Court in the matter of determining as to whether nylon and rayon wrap sheets produced by the petitioner company are excisable items and their orders made in such proceedings including the orders dated 24th March, 1975 and 6th February, 1976 so that they are quashed or set aside. The petitioner company also prayed for a writ in the nature of prohibition prohibiting respondents from treating nylon or rayon warp sheets produced by the petitioner company as excisable items and also prohibiting the respondents from demanding, levying or collecting any excise duty in respect of such nylon or rayon warp sheets. The petitioner also prayed for a writ in the nature of mandamus prohibiting the respondents from treating nylon or rayon warpsheets arranged or assembled by the petitioner company as excisable items and/or demanding, levying or collecting any excise duty in respect of such nylon or rayon warp sheets. The petitioner's case, in short, is that the petitioner is required by some of its customers to arrange nylon or rayon yarn supplied by such customers in parallel rows loosely held together by cotton yarn supplied by the petitioner company. Such arrangement of rayon or nylon is called a Tyre cord warp sheets. The petitioner states that to make a warp sheet, the petitioner first winds the nylon or rayon yarn supplied by its customers into bobbins. The yarn is then twisted in a twisting machine and thereafter used as a warp on a loom, cotton yarn being used at widely spaced intervals as a weft to hold the nylon or rayon yarn in position. According to the petitioner, a given length of warp sheets consists of 99.4% nylon and 0.6% cotton and excepting the process as stated hereinbefore, no manufacturing process is involved in making warp sheets and no new commodity known to commerce or industry comes into being when yarn is arranged or assembled to form a warp sheet. The petitioner also contends that under the definition given by the Indian Standards Institution, yarn is a generic term for an assemblage of fibre or filament, either natural or artificial twisted or laid together, to form a continuous strand suitable for use in weaving, knitting or otherwise inter-twisting to form textile fabrics. In the writ petition a sample length of such warp sheet was also annexed being Ext. “A”. The petitioner contended that the nylon and rayon yarn are liable to a duty of Central Excise under the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act) and such yarn falls under Item 18 of the First Schedule of the Act. The cotton yarn is also liable to such duty and falls under Item 18A of the said First Schedule. According to the petitioner, the warp sheets being yarn and not any other commodity are not excisable once more. The petitioner also contended that as a matter of fact, the excise authorities also proceeded on such basis in connection with the warp sheets produced by the Madura Mills Company Limited at Madurai and the said view of the excise authorities will appear from a letter dated 15th of March, 1957 from the Inspector of Central Excise to Madura Mills Company Limited, a copy whereof is also annexed to the writ petition being marked as annexure T.

    3. The petitioner company also contended in the writ application that Madura Mills Company Limited also made cotton warp sheets, which is cotton yarn instead of nylon or rayon yarn arranged or assembled in the same way, and such warp sheets were held to be yarn by the High Court at Madras in the case of Madura Mills Company Limited v. Government of Madras, reported in 25 Sales Tax Cases, page 407. The petitioner contended that despite the aforesaid position, the Excise Authorities in West Bengal wrongly proceeded on the footing with effect from March, 1975 that a nylon or rayon warpsheet was a separate item of manufacture and is liable to Central Excied under Item No. 68 of the First Schedule. The petitioner made a representation on or about 18 of April, 1975 to the Secretary, Central Board of Excise and Customs New Delhi, but no action was taken on such representation. Much controversy was raised by the respective parties in the Rule as to whether such representation constituted an appeal or not and I shall refer to such contention later on. As the Central Excise Authorities had been demanding pay ment of excise duty in respect of nylon and rayon warp sheets which fell within Item 68 of the First Schedule and as such, was liable to 1% ad valorem excise duty, the petitioner had to pay under protest unjust demand of excise duty for the period between 24th March, 1975 and 7th May, 1957. The petitioner also contended that on or about 30th April, 1975, the respondent No. 4 issued a notification exempting goods falling under Item 68 of the First Schedule manufactured in a factory as a job work from so much of the duty of excise leviable thereon as is in excess of the duty calculated on the basis of the amount charged for the job work. The said circular was annexed to the writ application being annexure ‘III’. The petitioner stated that from 7th of May, 1975 up to the time of moving the instant writ application before this court, the petitioner company under protest had been paying the duty at the said rate of 1% of the conversion charges, that is, the amount it charges to its customers for arranging the nylon or rayon yarn in the manner stated hereinbefore. It appears from the writ petition that the respondents contended in or about November, 1975 that the petitioner was not entitled to pay duty on the aforesaid warp sheets on the basis that what was done by the petitioner company amounted to job work. But according to the respondents, in as much as 0.6% of the warp sheets consisted of cotton yarn, which was supplied by the petitioner, the said warp sheet could not be held as job work because all the raw materials or components of the finished product were not supplied by the customers of the petitioner and therefore, the petitioner was not entitled to the exemption on the basis of the said circular dated 30th April, 1975. It further appears that by the letter dated 6th of February, 1976 the respondent No. 2 rejected the contention of the petitioner that the petitioner was entitled to contend that warp sheet was not excisable and/or to pay duty on the basis of the job work. The petitioner's claim of refund of a sum of Rs. 95,648.16 was also rejected by the respondent No. 2.

    4. In view of the said stand taken by the respondents and demands being made by the said respondents to pay excise duty on the said warp sheets under Item 68 of the First Schedule the instant writ application was made by the petitioner company on the prayers indicated hereinbefore. Mr. Ginwala the learned Counsel appearing for the petitioner company contended that the warp sheets was not any new product but the same was yarn, as the yarn had already been taxed under Item 18; there was no question of making any further payment of excise duty and in any event, the said warp sheets being nylon or rayon yarns squarely falling within Item No. 18 of the First Schedule, it could not be brought under Item No. 68 of the First Schedule for the purpose of levying excise,. In this connection, Mr. Ginwala referred to the decision of the Supreme Court made in the case of Central Provinces Manganese Ore Company Ltd. v. State of Maharashtra reported in (1977) 1 SCC 643. In the said case manganese ores collected from different sources were mixed to get a standard percentage of manganese but the taxing authorities contended that by such mixture a new product was manufactured and as such tax could be imposed on such new product. It was held by the Supreme Court that formation of mixture by the mere process of unloading did not involve any process of manufacture and there was no new process of manufacture by the assessee. Accordingly, the contention of the taxing authority was not accepted by the Supreme Court. Relying on the aforesaid decision Mr. Ginwala contended that the steps taken for getting the said warp sheets were fully described by the petitioner company in the writ petition and such operation for getting the said warps heets was also accepted by the respondents in their affidavit-in-opposition. It is thus quite apparent from the said facts that warp sheets were no new material but the warp sheets were really rayon or nylon yarns arranged in a particular way by holding them loosely at a distance by cotton wefts. Accordingly, on the admitted position by the parties, there was no occasion for the excise authorities to proceed on the footing that a new commodity was really manufactured or processed by the petitioner company so that such new commodity can be grouped under Item 68 of the First Schedule. Mr. Ginwala also referred to another decision of the Supreme Court in this connection, namely, the decision made in the case of Allenbury Engineers Pvt. Limited v. Ram Krishna Dalmia, reported in (1973) 1 SCC 7 : A.I.R 1973 S.C 425. In the said decision, the manufacturing purpose within the meaning of Transfer of Property Act was considered by the Supreme Court and it was held by the Supreme Court that manufacture really implies a change but a mere change in the material is not manufacture. So to become a manufacture there must be such transformation that a new different article must emerge having a distinctive name, character or use. Relying on the said decision, Mr. Ginwala contended that in the instant case the nylon or rayon yarn remains as nylon or rayon yarn but the said yarn is arranged in a particular way with the help of cotton weft and in the commercial world the said item of goods is also not known to be a new item. Even with the aforesaid processes, the nylon or rayon yarns remain as nylon or rayon yarns and the distinctive character of the said yarns was not changed. Hence, the same cannot be considered to be a manufacture so that it can be reasonably contended by the excise authorities that the nylon or. rayon warp sheets were distinct manufactured products and as such could be grouped under Item 68 of the First Schedule. Mr. Ginwala also referred to another decision of the Supreme Court in this connection, namely, the decision made in the case of Lt. Governor, Delhi v. Ganesh Four Mills, reported in (1973) 3 SCC 487 : A.I.R 1973 S.C 705. It was held by the Supreme Court that the fact that tin sheets or tin plates have to be subjected to the process of cutting and moulding into tin containers will not by itself take them out of the aforesaid category. The cutting and moulding of the tin sheets only facilitates the actual user in packing. But there was no change in the original product.

    5. Mr. Ginwala next contended that even assuming that the warp sheets produced by the petitioner company really constituted different quality of goods manufactured by the petitioner company, the petitioner company was still entitled to the exemption under a circular and/or notification dated 30th of April, 1975, issued by the repondent No. 4. As to the import of this notification the parties raised serious controversies. It is thus desirable to refer to this notification at length for appreciating its true import and implication. The notification is set out hereunder:

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    Madura Coats Limited v. Collector Of Central Excise, West Bengal
    (Sep 1, 1978)