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Collector Of Central Excise, Bombay-Ii v. M/S Kiran Spinning Mills .
Factual and Procedural Background
This statutory appeal was filed under Section 35-L(b) of the Central Excises and Salt Act, 1944 against an order dated 22-2-1944 of the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT).
During investigations involving Swastik Investment Company, Bombay, Central Excise Officers found that consignments described in documents as “crimpled uncut waste” had been cleared from M/s Swadeshi Polytex Ltd., Ghaziabad between January 1974 and December 1977, purchased by the respondents, and used to manufacture polyester staple fibre.
The Collector concluded that the material described as “crimpled uncut waste” was actually polyester fibre tow; that tow and staple fibre were commercially distinct; and that the respondents had manufactured polyester staple fibre from tow, rendering the activity exigible to excise duty. The respondents appealed to the Central Board of Excise and Customs, and the appeal was transferred to CEGAT under Section 35-P of the Act. The present appeal challenged CEGAT’s order.
Legal Issues Presented
- Whether the respondents’ activity of cutting man-made fibre in running length (tow) into short-length fibre (staple fibre), after manual sorting and straightening, constituted “manufacture” under the Central Excises and Salt Act, 1944 so as to attract excise duty.
- Whether such cutting resulted in a “new and different article of commerce” (with distinctive name, character, or use) within the meaning of excise law.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Union of India v. Delhi Cloth & General Mills, AIR 1963 SC 791, 1963 Supp (1) SCR 586 | “Manufacture” means bringing into existence a new substance; it is not merely producing some change in a substance. The test is whether a new and different article with a distinctive name, character, or use results. | Used to assess whether cutting tow into staple fibre created a new substance/article; the Court held it produced only a change (length) and not a new substance. |
| Empire Industries Ltd. v. Union of India, (1985) 3 SCC 314, 1985 Supp (1) SCR 292 | The taxable event under excise law is “manufacture.” | Cited to reinforce that duty liability depends on whether the process amounts to “manufacture.” |
| M/S Ujagar Prints v. Union Of India, 1986 Supp SCC 652 | The taxable event under excise law is “manufacture.” | Referred to alongside Empire Industries to support the analytical focus on “manufacture” as the trigger for excise duty. |
Court's Reasoning and Analysis
The Court noted the distinction between tow and staple fibre, including the Ministry of Finance circular describing tow as many parallel continuous filaments grouped in rope-like form, and that tow is mainly converted into staple fibre. The Court described tow as fibre in running length and staple fibre as the product obtained by cutting tow into short lengths.
On the Tribunal’s findings, the material purchased by the respondents was already “man-made fibre” in running length. The respondents’ operations consisted of manual sorting and straightening, followed by cutting into staple length.
The Court framed the decisive inquiry as whether converting long fibres into short fibres resulted in a new and different article of commerce. Applying the settled test of “manufacture” (i.e., whether a new substance/article with a distinctive name, character, or use emerges), the Court held:
- The process “indubitably” brought a change in the substance (length), but did not bring into existence a new substance.
- The character and use of the substance—man-made fibre—remained the same.
- Although the product acquired a different name due to the change in length, the relevant tariff entry recognized a single description (“man-made fibre”) without sub-division based on length and without distinct enumeration of forms by cutting.
Accordingly, the Court concluded that cutting tow into staple fibre did not amount to “manufacture,” and therefore could not attract duty liability under the same tariff entry.
Holding and Implications
DISMISSED: The Court held that CEGAT was correct; cutting man-made fibre in running length (tow) into short lengths (staple fibre) did not constitute manufacture and therefore did not attract excise duty, and the appealed decision required no interference.
Implications: The direct effect is that no duty liability could be imposed on the respondents for the described cutting process on the facts found by the Tribunal. The opinion applies existing principles on “manufacture” and does not indicate that any new precedent was set.
Sabyasachi Mukharji, J.— This is a statutory appeal under Section 35-L(b) of the Central Excises and Salt Act, 1944, hereinafter called the “Act”, against the order dated 22-2-1944 passed by the Customs, Excise and Gold (Control) Appellate Tribunal, hereinafter called the “CEGAT”.
2. In this appeal we are concerned with the question whether there was exigibility to taxation on the item concerned under the Act. It appears that during the course of investigations made against Swastik Investment Company, Bombay, the Central Excise Officers found that some of the consignments of the material described in the documents as “crimpled uncut waste” were cleared from M/s Swadeshi Polytex Ltd., Ghaziabad, during the period from January 1974 to December 1977 and were purchased by the respondents herein and utilised in the manufacture of polyester staple fibre. The Collector held that the so-called “crimpled uncut waste” purchased by the respondents was, in fact, polyester fibre tow and the staple fibre which were commercially two distinct products and the respondents had carried on manufacture of polyester staple fibre from tow and, as such, exigible to duty. The respondents filed an appeal before the Central Board of Excise and Customs against the Collector's order. The appeal was thereafter transferred to CEGAT in pursuance of Section 35-P of the Act.
3. It appears that there is distinction between a tow and staple fibre. The Ministry of Finance (Department of Revenue's) circular indicates as follows:
“Tow is a collection of many parallel continuous filaments without twist which are grouped together in rope like form.
Tow is used for the same purpose for which staple fibre is used. Tow is mainly converted into staple fibre and only a negligible quantity is converted directly into yarn. It has been therefore decided that duty should be levied on Tow at the rate applicable to staple fibre [MF (DR & I) F. No. 50/7/71-CX 2 dated 22-12-1972].”
4. In other words, tow is fibre in running length and staple fibre is obtained by cutting it into required short length. On an examination of the material and the contention, the Tribunal came to the conclusion that the material which the respondents had purchased was already man-made fibre but in running length. All that the respondents did in relation to it, was to cut it into staple length after some manual sorting and straightening. The question, therefore, is whether cutting the long fibre into short fibre resulted into a new and different article of commerce. Now it is well settled how to determine whether there was manufacture or not. This Court held in the case of Union of India v. Delhi Cloth & General Mills AIR 1963 SC 791, 1963 Supp (1) SCR 586 that “manufacture” means to bring into existence a new substance and does not mean merely to produce some change in a substance (emphasis supplied). It is true that etymological word “manufacture” properly construed would doubtless cover the transformation but the question is whether that transformation brings about fundamental change, a new substance is brought into existence or a new different article having distinctive name, character or use results from a particular process or a particular activity. The taxable event under the excise law is “manufacture”. See in this connection Empire Industries Ltd. v. Union of India (1985) 3 SCC 314, 1985 Supp (1) SCR 292 and Ujagar Prints v. Union of India 1986 Supp SCC 652. In the instant case it is not disputed that what the respondent did, was to cut the running length fibre (tow) into short length fibre (staple fibre). It indubitably brought a change in the substance but did not bring into existence a new substance. The character and use of the substance (man-made fibre) remained the same. It is true that by the change in the length of the fibre, it acquired a new name. But since in this case the tariff entry recognised the single description “man-made fibre” with no further sub-division based on length of the fibre and even without any distinct enumeration of the various forms of fibre by cutting long fibres into short ones, the respondents did not bring into existence any new product so as to attract any levy under the same tariff entry. Even by cutting, the respondents obtained man-made fibre. Such cutting, therefore, involved no manufacture and, hence, no duty liability can be imposed upon them.
5. In that view of the matter and on the facts found by the Tribunal, we are of the opinion that the Tribunal was right in the view it took and that decision needs no interference. This appeal, therefore, cannot be entertained and is accordingly dismissed.
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