UJAGAR PRINTS ETC. v. UNION OF INDIA & ORS. ETC.

UJAGAR PRINTS ETC. A v. UNION OF INDIA & ORS. ETC.

NOVEMBER 4, 1988

B

Central Excises and Salt Act, 1944-Sections 2(f), 4 and Schedule Items 19 and 22-'Manufacture' meaning of-Processors carry out C operations on 'grey fabrics' on job work basis-Whether 'manufac- ture'-Central Excise and Salt Additional Duties Excise (Amendment) Act, 1980--Effect of.

Taxation-Under the Act is the rule-Benefit and exemption- The exception-Excise duty of goods-Levied upon manufacturer- D Imposed on production/manufacture/producer in accordance with the relevant rules.

Constitution of India, 1950, Article 245, 246 and Schedule VII Lists I Entries 84, 97, Lists II and III-"With respect to"-Inter- pretation of-'Manufacture'-Concept of Entries in legislative lists- £ Not sources of legislative power-Merely topics or fields of legislation- , Legislation co•ild be 'composite legislation'-'Rag-bag' legislation-- Familiar in taxation-Competent legislature can always validate law-- Retroactivity of legislation-Test of validity how applied.

Statutory Interpretation-Referential legislation-Types of- F Effect of-Legislation could be composite legislation-'Rag-bag' legislation-What is-Competent legislature can always validate a law.

Words and phrases-'Manufacture'-'In respect of-Meaning of. ' O Section 2(0 of the Central Excise Act defines 'manufacture', to include any process incidental or ancillary to the completion of a manufactured product.

The President of India promulgated an Ordinance called the Central Excises and Salt and Additional Duties of Excise (Amendment) H Ordinance 1979, which was later replaced by Central Act VI of 1980, ' 770

UJAGAR PRINTS v. U.0.1. 771

called the Central Excises and Salt and Additional Duties of Excise A (Amendment) Act, 1980. The Amending Act became effective from 24th February, 1979. By section 2 of the Amending Act, Section 2(0 of the Excise Act was amended by adding three sub-items in the definition of 'manufacture' so as to include activities like bleaching, dyeing, printing etc. which were held not covered by two decisions of the Gujarat High Court. Similar amendments were made in items 19 and 22 of the First B Schedule with retrospective effect. Section 5(2)(b) of the Amending Act provided that no suit or other proceedings shall be maintained or con- tinued 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 direct- ing 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 Act had been in force on and from the appointed day as defined in the c Act.

Prior to the Amending Act, !980, the levy on the processors was challenged before the Gujarat High Court in the case of Vijay Textiles Mills v. Union of India and Real Honest Textile v. Union of India, D [1979] 4 E.L.E.J. 181. The Gujarat High Court held that cotton fabric subjected to bleaching, dyeing and printing could not be subjected to excise duty under items 19 and 22 of the First Schednle to the Central Excises and Salt Act, 1944, and that processors were liable to pay duties under tariff-entry 68 only on the value added by the processor. Follow- ing this judgment a large number of similar claims of processing-houses E were allowed by the High Court by its judgment dated 13.3.1979. How- ever, the Bombay High Court, took a different view and held that even under the concept of 'manufacture' envisaged in section 2(0 even prior to its amendment, the operations carried on by the processors amounted to 'manufacture' and that, at all events, the matter was placed beyond any controversy by the Amending Act of 1980. F

The judgment of the Gujarat High Court in the case of Vijay Textiles and Real Honest Textiles was considered by a Bench consisting of three judges of this Court in Empire Industries v. Union of India, [1985] Supp. l SCR 292 and it was held not to have been decided · correctly. The view taken by the Bombay High Court in New Shakti G Dye Works Pvt. Ltd. v. Union of India & Anr., [I98J) ELT 1736, was approved.

The present appeals, by special leave, preferred against the judg- ments of. the High Court of Gujarat and the High Court of Bombay, and the batch of writ petitions under Article 32 of the Constitution of India, H

p. 772

A involve common questions of law concerning the validity of the levy of duties of excise under tariff-items 19 and 22 of the Schedule to the' Central Excises and Salt Act 1944 ("Central Excise-Act") as amended by the Central Excises and Salt Additional Duties Excise (Amendment) 1980 Act ("Amending Act") treating as 'manufacture' the process of bleaching, dyeing, printing, sizing, mercerising, water-proofing, rub- B berising, shrink-proofing, organdie processing etc. done by the proces- sors who carry out these operations in their factories on job-work basis in respect of 'cotton-fabric' and 'Man-made fabric' belonging to their customers. The facts in all the cases are identical.

The petitioners/appellants carry out the operations of bleaching dyeing, printing sizing, finishing etc. of grey fabric on job-work c against payment of processing charges to it by the customers who are the ownerii of the grey-fabric. The machinery and equipment installed in the petitioners' factories are suited for and appropriate to the proces- sing of grey-fabric and are not capable to manufacturing grey-fabric. The man-made grey-fabric, such as, Art Silk Grey-fabric is manufactured in mills and on power looms and that latter Is exempt from excise duty on its manufacture. The Art Silk Grey-fabrics which are processed in the . petitioners/appellants factories are those manufactured on power looms and not by the mills and that the Art Silk Grey:fabric received do not come from the manufacturers of the grey. fabric through the manufacturing-stream but from the various traden through the sales-stream.

The present writ petitions/appeals also include cases where the grey-fabric is also purchased by some of the processing houses and are sold by them, after processing. Io some cases, the manufacturers of the grey-fabric subject it to captive consumption and process them In their own composite establishments.

At the 11me of hearing, the correctness of the view taken In the Empire Industries case on certain aspects having been doubted by another Bench of this Court, these appeals/writ petitions were referred to a Bench of five judges on two questions namely (1) whether the processing of grey-fabric amounted to 'manufacture' within the mean- ing of Section 2(1) as it stood prior to Its amendment, and (2) whether, even If such processing did amount to 'manufacture' what should be the proper basis for determining the assessable value of the processed fabrics.

H In the petitions and appeals, the following points arise for determination.

1 UJAGAR PRINTS v. U.0.1. 773

A(i) Whether the process of bleaching, dyeing, printing, sizing, A shrink-proormg etc. carried on in respect or cotton or man-made 'grey- fabric' amount to 'manufacture' for purposes, and within the meaning of Section 2(f) of the Central Excises and Salt Act 1944 prior to the amendment of the said Section 2(f) by section 2 of the Amending Act VI of 1980. B A(ii) Whether the decision in Empire Industries Limited & Ors. v. Union of India, (198~] Supp. 1SCR292holding that these operations amount to 'manufacture' is wrongly decided and requires reconsi- deration.

(B) Whether the amendment brought about by the Amending Act of C 19110 of Section 2(1') and to tariff-items 19 and 22 of the Central Excise 4.ct is ultra-vires Entry 84 List I and, therefore, beyond the competence of the Union Parliament.

Whether, at all events, even if the expended concept of manufac- ;ure introduced by the Amendment is beyond the scope of Entry 84 List D I, whether the impost is, at all events, referable to and supportable by the residual Entry 97 of List I.

(C) Whether, at all events even if the amendments to ·Central Excise Act are valid, the levy under the Additional Duties Act is unsup- portable and without the authority of law as there is no corresponding E enlargement of the definition of 'manufacture' under the Additional Duties Act. ·

(D) Whether the retrospective operation of the Amending Act is an unreasonable restriction on the fundamental right of the 'processors' under Article 19(1)(g) of the Constitution. · · F

(E) Whether, even if the levy is justified, at all events, the compu- tation of the assessable-value of the processed grey-fabric on the basis of the whole-sale cash selling-price declared under classification list under Rule l 73(b) is unjustifie.d and illegal in respect oft.he assessable value ot the processed grey-fabric done on job-work-basi,, G

Allowing the appeals preferred by the Union of India,

The \appeals preferred by the Union of India are allowed and the H

p. 774

A Judgment of the Gujarat High Court under appeal is set-aside. The appeals preferred by the processors against the judgment of the Bombay High Court and the Writ Petition filed by the processors directly in this Court are dismissed. The Union of India and its authorities shall be entitled to take necessary steps to seek the enforce- ment of the bank guarantees, if any, for the rerovery of the arrears. [810C-D]

Per Sltbyasachi Mukharji, J. (Concurring with Venkatacbaliab, J.)

(1) A statutory charge should be measured by the method of its own computation as laid down in the statute and not by any other method of computation. The circumstances that thereby the benefit of c any exemption granted by the legislation may be lost and that in some cases hardship might result are not matters which would influence courts on the construction of the statute. A tax payer is entitled only to such benefit as is granted by the legislature. l811C-Df

D (2)(i) Where a manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at the arms length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the goods for the purpose of assessment of excise. But the price received by the wholesale dealer who purchases the goods from the manufacturer E and in his turn sells the same in wholesale to other dealer, would be irrelevant for determination of the value of the goods and the goods would be charged on that basis. [812E-F]

(2)(ii) The valuation must be on the basis of wholesale cash price at the time when the manufactured goods enter into the open market. F The value of the trade-marks is not to be taken into account in comput- ing the assessable value as the affixation of the trade-marks of a particu- lar brand was extraneous to manufacture. The values of such extrane- ous or additional factors do not enter into the computation of assessable value and as such the wholesale cash price at which the goods enter into thJ.> wholesale market would be independent of the value of the trade- G marks. [812G-H; 813A-B]

(2)(iii) The assessable value would, therefore, include the value of the grey cloth in the hands of the processors plus the value of the job-work done plus manufacturing profits and manufacturing expenses whatever would be included in the price at the factory gate. The· correct assessable ' value must. be the value . of the fabric at the factory gate, that

UJAGAR PRINTS v. U.0.1. 775

is to say, the value at which the manufactured goods leave the factory and enter the main stream. [813E] ·

3. Computation of the assessable-value is one question and as to who should be liable for the same is another. Duties of excise are imposed on production or on manufacture of goods and.are levied upon · the manufacturer or the producer in accordance with the relevant rules. This is quite independent of the ownership of goo,!Js. it is, there- fore, necessary to reiterate that the value for, the assessment under Section 4 of the Act will not be the processing charge along but the intrinsic value of the processed fabric which is the price at which the fabrics are sold for the first time in the wholesale market. The rules are clear on the computation of that value. [813F-H) c Atic Industries Ltd. v. H.H. Dave, Asstt. Collector of Central Excise and Ors., [1975) 3 S.C.R. 563; U;;ion of India & Ors. etc. etc. v. . Bombay Tyre International Ltd. etc. etc., [1984) I S.C.R. 347 at 375; Union of India & Ors. v. Cibatul Ltd., [1985) Suppl. 3 S.C.R. 95 and Joint Secy. to the Govt. of India & Ors. v. Food Specialities Ltd., D [1985) Suppl. 3 S.C.R. 165, followed.

Per Venkatachaliah, J. (for himself and on behalf of R.S. Pathak, CJ and S. Natarajan, J.)

I (i) The prevalent abd generally accepted test to ascertain that E there is 'manufacture' is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially; it can no longer be regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged as a result of the processes. [797E-F)

l(li) The view taken in the Empire Industries case that 'grey- fabrics' after they undergo the various processes of bleaching, dyeing, sizing, printing, finishing etc. emerges as·'ll commercially different com- modity with its own price:-structure, Custom and other conimerCial inci· dents and that there.was in that sense a 'manufacture' within the mean- ing of Section 2(1), even as unamended, is an eminently plausible view G and is not shown to suffer from any fallacy. [798A-B]

Union of India v. Delhi Cloth & General Mills, [1963) Supp. I S.C.R. 536 at 597; TUngabhadra Industries Ltd. v. Commercial Officer Kurnool, [1961) 2 S.C.R. 14; Deputy Commissioner of Sales Tax v. Pio .l-i Food Packers, [1980) 3 S.C.R. 1271at1275; Steriing Foods v. State of

p. 776

A Karnataka, (1986] 3 S.C.C 469 at 475 & 476; Kai/ash Nath v. State of U.P., 8 S.T.C. 358; Deputy Commissioner sales Tax v. Sadasivan, 42 S.T.C. 2 fKerala); Swastic Products Baroda v. Superintendent of Cent- ral Excise, (1980] E.L.T .. 164 (Gujarat); Swan Bangle Stores v. As~ sistant Sales Tax Officer, 25 S.T.C. 122 (Allahabad); State of Andhra B Pradesh v. Sri Durga Hardware Stores, 32 S.T.C. 322 (Andhra Pradesh); Extrusion Process Pvt. Ltd. v. N.R. ladnav, Superintendent of Cen:ral Excise, (1979] E.L. T. 380 (Gujarat); In Health & Milligan Man.ufacturing Company, The Sherwin-Williams Company, etc. v. J.H. Worst Director ·of the North Dakota Government Agricultural Experiment Station; Kai/ash Nath v. State of U.P., 8 S.T.C. 358; q Commissioner of Sales Tax, U.P. (Lucknow) v. Harbilas Rai, 21 S.T.C. 17; Hiralal Jitmal v. Commissioner of Income-Tax, 8 S.T.C. 325 at 326 and Kores (India) Ltd. v. Union of India and Ors., (1982] 10 E.L.T. 253, referred to.

2(i) Entries in the legislative lists, are not sources ofJhelegislative 0 power but are·merely topics ·Or tields of legislation and must receive a liberal costruction inspired by a broad and generous spirit and not in a narrow pedantic sense. The expression "with respect to" in Article 246 brings in the doctrine of "Pith and Substance" in the understanding of the exertion of the legislative power and wherever the qnestion of E legislative-competence is raised, the test is whether the legislation, looked at as a whole, is substantially 'with respect to' the particular topic. of legislation. If the legislation has a substantial and not merely a remote connection with the entry, the matter may well be taken to be legfslatfonon the topic. (799B,D]

F 2(ii) Competence to legislate flows from Articles 245, 246 and the other Articles following in Part XI of the Constitution. In defending the validity of a law questioned on ground of legislative-Incompetence, the State can always show that the law was supportable under any other entry within the competence of the legislature. Indeed in supporting a legislation snstenance could be drawn and had from a number of entries. The legislation could be a composite legislation drawing upon G several entries. Such a "rag-bag" legislation is particularly familiar in taxation. [800F-G] ·

Diamond Sugar Mills v. State of U.P., [1961] 3 S.C.R. 242 at 248; Statutory Interpretation, at page 644 and Hari Krishna Bhargav v. l;I Union of India & Anr., [1966] 2 S.C.R. 22, referred to.

UJAGAR PRINTS v. U.0.1. 777

2(iii) So far as, 'the exclusive competence of the Union Parliament A to legislate is concerned, all that is necessary is to find out whether th• particular topic of legislation is in List II or List III. If it is not, it ·is not necessary to go any further or search for the fie.Id in List 1. Union Parliament has· exclusive power to legislate upon that topic or field. Of course, it itas eoiicurrent power also in respect of the sub- jects in List III • .[801E-F] B

2(iv) Even if the impost on prqcess is not one under Entry 84, List I, but is an impost on 'processing' distinct from 'manufacture' the levy could yet be supported by Entry 97, List I, even without the aid of the wider principle recognised a11d· adopted in Dhillon's case AIR 1972 SC

1061. [799FJ . .

3. Section 4 of the Amending Act VI of 1980 has amended the relevant items in the schedule to the Additional Duties Act, the expres- sions' 'produce' or 'manufacture' in Section 3(1) of the Additional Duties Act must be read alongwith the entries in the Schedules. What appears; tl!erefore, dear is th>1t what applies to the main levy, applies to D the additional duties as well. [803FJ

Pandit Ram Narain v. The State of Uttar Pradesh and Ors., [1956] S.C.R. 664 at 673; Macbath & Com. v. Chislett, [1910] AC 220 at 224; Commissioner of Sales Tax, Madhya Pradesh v. Jaswant Singh Charan Singh, [1967] 2 S.C.R. 720 at 725-26; Assistant Collector of Central B Excise, Calcutta Division v. National Tobacco Co. of India Ltd., [1973] l S.C.R. 822 at 835; Att.-Gen. v. Lamplough, '[1878] 3 Ex. D. 214, 299; Interpretation of Statutes, 11th ed. p. 156 and Bennion"s Statutory Interpretation, p. 568-569, referred to.

4(i) A Competent legislature can always validate a law which has been declared by courts to be invalid, provided the infirmities and vitiating factors noticed in the declaratory-judgment are removed or cured. Such a validating law can also be made retrospective. If in the light of such validating and curative exercise made by the Legislature-- granting legislative--competence--the earlier judgment becomes irrelevant and unenforceable, that cannot be called an impermissible legislative overruling of the judicial decision. All that the legislature does is to usher in a valid law with retrospective effect in the light of which earlier judgment becomes irrelevant. Such legislative expedience of validation of laws is of particular significance and utility and is quite often applied, in taxing statutes. It is necessary that the legislature should be able to cure defects in statutes. No individual can acquire a H

p. 778

vested right from a defect in a statute and seek a wind-fall from the legislature's mistakes. [804G-H; SOSA-CJ

Sri Prithvi. Cotton Mills Ltd. & Anr. v. Broach Borough Munici- pality & Ors., [1970] l S.C.R. 388, referred to.

B 4(ii) Validity of legislations retroactively curing defects in tax- ing statutes is well recognised and courts, except under extraordinary circumstances, would be reluctant to override the legislative judgment as to the need for and wisdom of the retrospective legislation. [805C]

4(iii) In testing whether a retrospective imposition of a tax operates so harshly as to violate fundamental rights under article ( I9(J)(g), the factors considered relevant include the context in which retroactivity was contemplated such as whether the law is one of valida· tion of taxing statute struck-down by courts for certain defects; the period of such retroactivity, and the decree and extent of any unfore- seen or unforeseenable financial burden imposed for the j>ast jleriod etc. 0 Having regard to all the circumstances of the present case, this Court in Empire Industries' case rightly held that the retroactivity of the Amend- ing provisions was not such as to incure any infirmity under Article 19(l)(g). [SOSE-GJ

S(i) Section 4 of the 'Central Excise Act' envisages that the value of au article for the purposes of duty shall he deemed to be; (a) the wholesale cash price fgr which an article of the like kind and quality was sold or was capable of being sold at the time of removal of the article froin the factory or premises of manufacture for delivery at the place of manufacture,.or (b) where such price was not ascertainable, the price at which an article of the like kind and quality was sold or capable of being sold at the time of removal of the article chargeable with duty. [808F-G]

S(ii) Consistent with the provisions of Section 4 and the Central Excise (Valuation) Rules, 1975, framed under sec. 37 of the Act, it cannot be said that the assessable-value of the processed fabric should comprise only of the processing-charges. This extreme contention, if accepted, would lead to and create more problems than it is supposed to solve,· and produce situations. which could only be characterised as anomalous. The incidence of the levy should be uniform, uninfluenced by fortuitous considerations. The view taken in the matter in Empire 'Industries case does not call for reconsideration. [809C-D]

UJAGAR PRINTS v. U.0.1. 779

S(iii) The question whether the producer or the manufacturer is or is not the owner of the goods is not determinative of the liability. The essential and conceptional nature of the tax is to be kept clearly distinguished from both the extent of the power to impose and the stage at which the tax is imposed. Though the levy is on the production or manufacture of the goods, the imposition of the duty could be at the stage which the law considers-most convenient to Impose as long as a rational relationship with the nature of the tax is maintained. [806B-D]

S(iv) The nature of the excise duty is not to be confused with, or tested with reference to, the measure by which the tax is assessed. The standard adopted as the measure of assessment may throw light on the c nature of the levy but is not determinative of it. When a statutory measure for assess~ent of the tax is contemplated, it "need not contour along the lines which spell out the levy itself", and "a broader based standard of reference may be adopted for the purposes of lletermining the measure of the levy". Any statutory standard which maintains a nexus with the essential character of the levy can be regarded as a valid D basis for assessing the measure of the tax. [808G-H; 809A-B]

Atic Industries Ltd. v. H.H. Dave, Asstt. Collector of Central Excise and Ors., [1975] 3 S.C.R. p. 563 and Union of India & Ors. etc. etc. v. Bombay Tyre International Ltd. etc., [1984] l S.C.~. p. 347 at 375, referred to. E

Per Ranganathan, J. (Concurring with Venkatachaliah, J.)

l(i) Hindustan Milkfood Manufacturers Ltd. v. Union, (The HMM case) [1980] ELT 480, was based not on the scope of legislative entry 97 in List I but on the language and scope of the amendment F actually effected. It was considered not ne.cessary or possible to stretch the language of the definition in S. 4 beyond the ambit ofthe provision as delineated in the earlier decisions. The question decided was not that the legislature could not, but that i.t did not make any redical change in the nature of the levy. [815F-G] G l(ii) There is nothing in the decision HMM case thafimpports the contention of the petitioners here that the amendment of the definition of 'manufacture' cannot be sustained by reference to entry 97 of List I in the Seventh Schedule to the Constitution of India, if it cannot be upheld as falling under the purview of Entry 84. lliiiiH; 817AJ H

p. 780

2(i) The words 'levied' is a wide and generic expression. One can say with as much appropriateness that the Income Tax Act levies a tax on income as that the Income Tax Officer levies the tax in accordance with the provisions of the Act. It is an expression of wide import and takes in all the stages of charge, quantification and recovery of duty, though in certain contexts it may have " restdded meaning. ·in the context of sub-section (l) the word 'levied' admittedly means 'charged' as well as 'assessed'. The words 'levy and collection' in sub-section (3) cannot be construed differently from the words 'levied and collected' used in sub-section (I). Section 3(3), therefore, also covers the entire gomut of s. 3(1) and cannot be construed as becoming operative at somewhat later stage. ~ts operation cannot be excluded in determining the scope of the charge. [818F -Hl c 2(ii) Having regard to the nature and content of the levy indicated in s. 3(1), -it is obvious that s. 3(3) has to have the effect of attracting not only the purely procedural and machinery provisions of the 1944 Act •but also some of its charging provisions. It is, therefore, difficult to -0 -consider section 3(1) of.the 1957 Act-in contrasno the Finance Act of 1965-as covering the entire ambit of the charge linposed. In short, the language of s. 3(3) has to be given a wider meaning than under the 'Finance Act, 1965. A provision similar to that in s. 80 of ihe Finance Act, 1965_ is also found in other Finance Acts. On perusal of these provi- sions, it will be found that a like position exists there also. These provi- -E sions are all self-contained and completely specify ihe scope of the charge either as a percentage of the excise duty normally chargeable under the Central Excises & Salt Act, 1944 or as a percentage of the 'assessable value determined under s. 4 of the 1944 Act.' This is a very -important reason why the observations in the Associated Cement Co. 's, case [1985]_ 2 S.C.C. _719 cannot be of application in the context of the F 1957 Act.1821E-HJ

Mis Mahendra Pratap Rama Chandra v. Commercial Tax Officer & Othet:s, A.I.R. 1965 Cal. 203, referred to.

3(i) Legislatures sometimes take a short cut and try to reduce the G · length of statutes by omitting elaborate provisions where such provi· sions have already been enacted earlier and can be adopted for the purpose on hand. While, on the one hand, the prolixity of modern statutes and the necessity to have more legislations than one on the same or allied topics render such a course useful and desirable, the attempt to legislate by reference is sometimes overdone and brevity is achieved at H_ the expense of lucidity. However this legislative device is quite well

UJAGAR PRINTS v. U.0.1. 781

known and the principies applicable to it fairly well settled. [823C-D] A 3(ii) Referential legis.lation is of two types. One is where an earlier Act or some of its provisions are incorporated by reference into a later Act. In this event, the provisions of the earlier Act or those so incorporated, as they stand in the earlier Act at the time of incorpora- tion, will be read into the later Act. Subsequent changes in the earlier B Act or the incorporated provisions will have·to be ignored because, for all practical purposes the existing provisions of the earlier Act have been re-enacted by such reference into the later one, rendering irrele- vant what happens to the earlier statute thereafter. On the other hand, the later statute may not incorporate the earlier provisions. It may only make a reference· of a broad nature as to the ·law on the subject gener- C ally or contain a general reference to the terms of an earlier statute which are to be made applicable. In this case any modification, repeal or re-enactment of tbe eadier statute will also be carried into in the later, for here, the idea is that certain provisions of an earlier statute which become applicable in certain circumstances are to be made use of for the purpose of the later Act also .. [823E-H] D

3(iii) Whether a particular statute falls into the first or second. category is always a question of construction. [824B I

In the present case, the legislation falls into the second category. S. 3(3) of the 1957 Act does not incorporate into the 1957 Act any E specific provisions of the 1944 Act. It only declares generally that the provisions of the 1944 Act shall apply "so far as may be"; that is, to the extent necessary and practical, for the purposes of the 1957 Act as well. [824B"C)

Secretary of State v. Hindustan Cooperative Insurance Society, A.I.R. 1941 P.C. 149; Solani Ores Ltd. v. State, A.I.R. 1975 S.C. 17; F Mahindra and Mahindra Ltd. v. Union, A.I.R. 1979 S.C. 798; Bhajiva v. Gopikabai, (1978] 3 S.C.R. 561; Collector of Custom' v. Nathe/la Sampathu Chetty, (1962] 3 S.C.R. 786; New Central Jute Mills Ltd. v. Assistant Collector, (1971] 2 S.C.R. 92; Special Land Acquisition Officer v. City Improvement Trust, [1977] 1 S.C.R. 569 and Madhya Pradesh v. Narasimhan, (1976] I S.C.R. 6, referred to. G

3(ivJ The legislation presently in question is clearly in pari materia with the 1944 Act. It is also merely supplemental. While the 1944 Act imposes a general levy of excise duty on all goods manufactured and produced, and aim of the present Act is to supple- ment the levy by an additional duty of the same nature on certain goods. H

. ,;· .. 782 SUPREME COURT REPORTS [19881 Supp. 3 s:c.R.

A The duration of the applicability is undefined but the ·statute is clearly enforce- able as long as it is in the statute book side by side with. the normal excise duties. The clear intention is that the sanie provisions shall govern both the levies except that the duty under the later Act is con- fined to certain goods only and its distribntability among the States may perhaps follow a different pattern from the principal duty. [8258-C] B 3(v) The Finance Acts which levied special or regular or addi- tional excise dnties contained in themselves all the elements of charge or duty. The goods were mentioned and the duty has to be levied either at a percentage of the normal excise duty payable under the 1944 Act or at ·a percentage of the value of the assessable goods as determined under t~e c 1944 Act. All that was further needed was the applicability of the pro; cedural provisions oftbe 1944 Act. However, the 1957 Act'ls Incomplete as to the basis of the charge and its provisions would become totally unworkable unless the concepts of 'manufacture' and 'assessable value' as determined under the 1944 Act are carried into it.· [8250-J?] D ORIGINAL JURISDICTION: Writ Petition No. 12183 of 1985 etc. eic.

(Under Article 3~ of the Constitution of India).

E K. Parasaran, Attorney General, Soli J. Sorabjee, A.J. Rana, · A.K. Sen, S.K. Dholakia, Hari Swarup, V.C. Mahajan, A.K. Ganguli, Mrs. Shashi Rana, Mrs. J. Wad, Ms. Aruna Mathur, Subash Parekh, Dushyant Dave, P.H. Parekh, E.K. Jose, Ms1 Rashmi Chandrachud, Sanjay Bharthri, Sarve Mitter, C.L. Beri, S.K. Beri, R.C. Bhatia, Ravi P. Wadhwani, P.C. Kapur, Sukumaran, D.N. Mishra, .B.V. Desai, M.B. Lal, Mukul Mudgal, B. Kanta Rao, Mrs. F H. Wahi, Mrs. V.D. Khanna, Aruneshwar Gupta, Mrs. AnilKatiyar, R.K. 'Kapur, B.R. Kapur, Anis Ahmed Khan, Ms. Abha Jain, R. Karanjawala, Mrs. M. Karanjawala, Ms. Meenakshi, Vishnu Mat)ll!r, Kail,ish V:asudev,, P.O. Shah, Shri Narain, Sandeep Narain, M.N. Shroff, Mrs. P.S. Shroff, R. Sasprabbu, S.A. Shroff, S.S. Shroff, Praveen Kumar, M.N. Chowdhary, M.D. Chowdhary, G N. Das Oupta, Rajesh Chibber, K.K. Bhaduri, Rajiv Dutta, E.C. Agaiwala, Harjinder Singh, R.K. Nambiar, P. Paremeswaran, Ms. Bina Gupta, K. Swami and V.N. Ganpule for the appearing parties.

H The following Judgments of the Court were delivered:

UJAGAR PRINTS v. U.O.I. [VENKATACHALIAH, J.I 783

VENKATACHALIAH J, These appeals, by Special Leave, pre- ferred against the Judgments of the High Court of Gujarat and the High Co.urt of Bombay and. the batch of writ-petitions under Article 32 of the Constitution of India are heard together and disposed of by this common judgment as they all involve questions-common to them- conceming the validity of the levy of duties of excise under tariff-items 19 and 22 of the Schedule to the Central Excises and Sali Act 1944 B ("Central-Excise-Act") as amended by the Central Excise and Salt Additional Duties Excise (Amendment) 1980 Act ("Amending Act") treating as ''Manufacture" the process of Bleaching, Dyeing, Printing, Sizing, Mercerising, water-proofing, rubberising, Shrink-Proofing. Organdie, Processing, etc. done by the processor who carry out these operations in. their factories on Job-work basis in respect of 'Cotton- fabric' and 'Man-made fabric' belooging to their customers. c the Amending Act which became effective from 24.2. 1979 i' sought to render the processes of Bleaching, Dyeing, Printing, Sizing, Mercerising etc. "Manufacture" within the meaning of the Section 2(f) of the Central Excise Act. The amendment was necessitated by the D Judgment of the High Court of Gujarat which had declared the levy on such 'processing' as illegal as, according to the.High Court, the proces- sing did not bring into-being a new and commercially different article with a distinctive character and use and did not, therefore, constitute ·'manufacture' for purposes, and within the meaning, of the charging section. E

The processors who carry-out these operations on cotton fabrics 01 "man-made" fabrics which are popularly go by the name 'Grey- fabric' in the particular trade also challenged the levy of the additional duties of excise under the provisions of the Additional Duties of Excise goods (of special importance) Act 1957 (Additional Duties Art) F on the ground, first, that.if the processes carried on by. them do not. amount to "manufacture" under Section 2(f) as it originally stood, then, consistent with the impermissibility of the main impost, the levy of additional duties also fails and, that at all events, even after the amendment the concept of 'manufacture' under the said Additional Duties Act had not been correspondingly widened by an appropriate G amendment.

2Copy pinpoint2. The present batch of appeals and writ-petitions comprises of a large number of cases. It is not, having regard to the questions requir- ing to be decided in these matters, necessary to go into, in any parti- cular detail, the fact-situation of each individual case. The processors H

p. 784

·in th~se cases, who may convenie~tly be referred .to as the "proces- A sors" or "jobbers", mainly carry out these operations of Bleaching, . Dyeing, Printing, Sizing, Finishing etc. of 'Grey-fabric' on 'job-work' against payment of processing charges to them by the customers who are the owners of the Grey-fabric. The ownership of the cloth rests with the customers who get these processes' done to their specifications -8, from these processing-houses on payment of processing charges. The Grey:fabric, after processing, is returned by the processing-house to the customers.

The facts of W.P. No . 1218,3 of 1985 '.Mis. Ujagar Prints v. Union of !ndia·and Ors.), in which the petitioner has challenged the levy by a petition' under Article 32 of the Consiitution are typical and rep- resentative of all oiher similar cases. The petitioner is a firm of partners with its Head bffice at 51, Sheikh Memon Street, Bombay. It has a factory at Sunder Baug, Deonar, Bombay, which is equipped 'with machinery and plants for processing of man-made grey: fabric.· The machinery and equipment installed in the petitioners' factory, it is D averred-and that is not disputed either-are suited for and appropriate to the processing of Grey-fabric and are ~ot capable of manufacturing Grey-fabric. The man-made grey-fabric such as Art Silk Greifabric, it is stated, is manufactured in mills and on power looms and that latter is exempt from excise d\Jty on iis manufacture. Petitioners further aver that the Art Silk Grey-fabrics which are pro- E cessed in the petitioner' faetory are those manufactured on power looms and not by the mills and that the Art Silk Grey-fabric received do not come from the manufacturers of the grey-fabric through the manufacturing-stream but from the various traders through the sales- stream. The point that the petitioners seek to make is that the proces- sing of the grey-fabric is not a part, or continuation, of the process of F manufacture in the manufacturing-stream, but is an independent and distinct operation carried out in respect of the Grey-fabric, after it has left manufacturing-stage and has become part of the common-stock of goods in the market. lt-is also averred that the firm Mis. Ujagar Prints does not purchase the Grey-fabric but is only engaged in processing it for charges 'and that in many cases the Grey-fabric would have passed a on from trader to trader with the attendant increase in the prices with each successive change of hands and is entrusted to the petitioner by the last purchaser for processing against stipulated processing-charges ·on job work basis. It is contended that these job work processing operations do· not H amount to "manufacture" as the petitioners do not carry out any spin- ning or weaving operations; that what they receive from their custo-

UJAGAR PRINTS v. U.0.1. [VENKATACHALIAH, J.] 785

mers for processing is othel'Wise fully manufactured man-made fabr;c A and that what is returned to the customers after processing continues to remain man-made fabric. The imposition of excise duty on the processor on· the basis of the full-value of the processed material, which reflects the value of grey-fabrics, the processing-charges, as well as the selling profits of the customers is, at once unfair and anamolous, fpr, in conceivable cases the duty itself might far exceed the pro- B cessing-charges that the processors stipulate and geL ·

3Copy pinpoint3. The batch of cases also includes cases where the grey-fabric is also purchased by these processing-houses and are sold by them, after processing. ln some cases the manufacturers of the grey-fabric subject it to captive consumption and. process them in their own composite- C establishments.

The essential question is whether these situational-differences have a bearing on the principles -of determination .of the ·assessable- value of processed grey-fabric and whether the assessable value could 'be different in the different fact-situations which would be the 'logical corollary -if the contention of the processing~houses which do not pro- cessing work fot charges on the goods not their .own, is accepted and the assessable value determined on the basis of mere processing- charges. ·

But the main questions that arise are whether "processing" of the kind concerned in these cases ambunts to "manufacture", whether the provisions of section 2 of the Amending Act which impart an artificial-dimension to the concept of "manufacture" is ultra-vires

- Entry 84 List I; whether, at all events, the imposition ·of a tax on such 'processing' is referable to Entry 97'List I; and if the impost ·on .the processors is justified under tariff-items 19 and 22,· according as whether the Grey-fabric is cotton ·or 'man-made', what shmild be.the assessable-value for purposes of levy of ·duty so far as processors are concerned.

4Copy pinpoint4. Prior to the Amending Act of 1980, the levy on the processors was challenged ·before the •Gujarat High Court. The Gujarat High (} Court by its judgment dated 24. 1.1979 in the cases of Vijaya Textiles Mills v. Union of India and Real Honest Textiles v. Union of India held that the processes that the processing-houses imparted to the Grey- faoric did not amount to 'manufacture' and did not attract ad-valo'"m duty under tariff-items 19 and 22, and that processors were liable to 'Pay duty under tariff-entry 68 only on the value .added 'by •the H processing.

p. 786

Following this judgment a large number of similar claims of processing-houses were allowed by the High Court by its judgment dated 13.3.1979. Civil Appeals 1685 to 1766 of 1979 are preferred by the Union of India challenging this view of the High Court.

5Copy pinpoint5. The Bombay High Court on the contrary by its judgment, dated 16th June, 1983 in writ petition 1623 of 1979 New Shakti Dye Works Pvt. Ltd. v. Union of India and Anr. too.k a view different from the one that commended· itself to the Gujarat High Court. Bombay High Court held that even under the concept of "manufacture" envisaged in Section 2(f) even prior to its amendment, the operations carried on by the processors amounted to "manufacture" and that, at all events, the matter was placed beyond any controversy by the C: Amending Act i.e. ACt of 1980. The aggrieved processors have come up in appeal by Special Leave in Civil Appeal No. 6396 of 1983.

6Copy pinpoint6. Some of the processors have, as stated earlier, filed writ- petitions under Article 32 directly in this court challenging the impost .. I} on grounds that commended themselves for acceptance to the Gujarat High Court.

7Copy pinpoint7. Before its amendment by the Amending Act (Central Act VI of 1980) Section 2(f) of the Central Excise Act, defined 'manufacture' in its well accepted legal-sense-nomen-juris-and not with refe- R rence to an artificial and statutorily expanded import.

"2(f) "manufacture" includes any process incidental or ancillary to the completion of a manufactured product;

F and

(i) J - (ii) ] Omitted as unnecessary"

The reasoning of the Gujarat High Court was on these lines .

G . "In the instant case, the excise duty cl.aimed on the basis of the market value of the processed cotton fabrics ·or man- . made fabrics cannot be levied because, assuming that pro- ,, cess amounts to manufacture, all that they have done is to manufacture processed cloth, processed fabric, either cot- ton or man-made a,nd that not being a taxable event in the .H light of Secti~n 3 read with s~ction,2( d) of tl!_e_ A~t and

UJAGAR PRINTS v. U.0.1. (VENKA'rACHALIAH, J.] 787

Items 19 and 22 levy of excise duty on this basis was ultra A vires and contrary to law ..... "

This view, acc<'>rding to the Revenue, was incorrect and caused serious prejudice to the legitimate financial interests of the State. Accordingly the President of India promulgated an Ordinance called the 'Central Excise and Salt and Additional Duties of Excise (Amend- B ment) Ordinance', 1979 (Central Ordinance No. 12 of 1979)-sub- sequently replaced by Central Act VI of 1980 of the same name with retrospective effect from -24.2.1979-amending Section 2(f). of the Central Excise Act and tariff-items 19(1) and 22(1). Tlie relevant entries in the Schedule to the 'Additional Duties Act' were also amended.· So far as amendment to Section 2(f) was concerned, Section C 2 of the Amending Act introduced three sub-items in the definition of 'manufacture'. Two of them are material for the present purpose:

-· "(v) fa relation to_goods comprised in Item No. 19(I) of the Firsi Schedule, includes bleaching, mercerising, dyeing, printing, water-proofing, rubberising, shrink-proofing, , D organdie processing 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, tentering,. heat-settin_g, crea_se resistant E processing or any other process or any one or more of these processes."

Similarly, amendments were affected by Section 3 of the Amend- ment Act which amended the original tariff-items 19 and 22 by sub- stituting the following provisions in their respective places: F

"1. 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 G (a) cotton fabrics, not subjected to any process: Twepty per cent ad-valorem

(b) cotton fabrics, subjected to the process of bleaching, mercerising, dyeing, printing, water-proofing, rubberising, shrink-proofing, organdie processing or any other process H

p. 788

or any two· or more of these processes. Twenty per cent ad-valorem

xxx xxx XXX" "' · "l2(1) Man-made fabrics other than (i) embroidery in the piece, ,in strips or in motifs, (ii) fabrics impregnated, coated or 'laminated with preparations of cellulose deriva- tives or of other artificial plastic materials-

(a) man-made fabrics, not· subjected to any process.: Twenty per cent ad-valorem plus rupees five per square . metre. c (b) man-made fabrics, subjected to the process of bleach- itig, dyeing, printing, shrink-proofing, teritering, heat-set- ting, creaseTesistant processing or any otlier process or any two or more of .these processes. Twenty per cent ad- .. valorem plus rupees five per square metre."'

Section 4 .of the Amending Act amended the relevant entries ir · the :Schedule to the Additional Duties Act. Section-5(2) of the Amend- ing Act provided:

!E "5. Special provisions as to duties of excise on eotton fabrics, woollen fabrics, man-made fabrics, etc., during a certain past period and validation:-

(1) : : ................. : ........ :

· (2) Any rule or notification or any action or thing made, issued, taken or done or purporting to have been made, issued; taken or done under a Central Act referred to in silb'section ( 1) before the date of co.mmencement of this Act, with respect to or in relation to the levy of duties of . excise on- :G (a) "cloth",: "cotton cloth" or; as the case may be, ''.cotton fabrics'',

(b) "woollen fabrics",

{c) "rayon or artificial silk fabrics" or, as the case ' 1may ,be, "man-made _fabrics",

UJAGAR PRINTS v. U.O.L [VENKATACHALIAH, J.] 789

shall for all purposes be deemed to be and to have always A been, as validly and effectively made, issued taken or done . as if the provisions of this section had been in force at all material times and,.accordingly, notwithstanding any judg- ment, decree or _order of any court, tribunal or other authority- B . (a) all duties of excise levied, assessed or collected or purported to'have been levied assessed or collected before the date of commencement of this Act, on-

(i) "cloth", "cotton cloth" and "cotton fabrics" sub- jected to any process, c (ii} "woollenfabrics" subjected to any process,

- (iii) "rayon or artificial silk fabrics" and "man,made fabrics" subjected to any process,

under any such Central Act shall be deemed to be, and D

_shall be deemed always to have been, as validly levied, a_ssessed or collected as if the provisions of this section had been in force on and from the appointed day;

(b) no suit or other proceeding shall be maintained E or continued in any court for the refund of, and no enforce- . ment shall be made by any court of any decree or order directing the refund of, any such duties of excise which have been collected and which would have been validly collected if the provisions of this section had been in force on and from the appointed day; · F

(c) • .. • • ........... ,'" ..... .. ,, (d) ••••••••••••• i •••••••••••

8Copy pinpoint8. Indeed, the correctness of the judgment of the Gujarat High G Court in the cases of Vijaya Textiles and Real Honest Textiles were considered by a Bench consisting of three judges of this court in Empire Industries v. Union of India, [1985] Supp. 1 SCR 292 by the judgment dated 6.5.1985, one of Us (Sabyasachi Mukharji J.) speaking for the Court upheld the validity of the impost. Vi jay a Textiles Mills v. _Union of India, I 1979 I 4 ELTJ 181, was held not to have been decided H

'790 SUPREME COURT REPORTS [1988] Supp. 3 S.C.R.

correctly. The view taken by the Bombay High Court in New Shakti A Dye Works Pvt. v. Union of India & Anr. was approved.

The pronouncement of this court in Empire Industries case otherwise covers, and is a full answer to, the contentions raised in this batch of cases. However, the correctness of the view taken in the a Empire Industries' case on certain aspects was doubted by another Bench of this court and the matter was, accordingly, referred to a Bench of five judges.

9Copy pinpoint9. It is, perhaps, necessary to refer to the order dated 9.12.1986 made by the Division Bench referring the cases to a larger bench. What came before the Division Bench were WP 12183/1985 (Mis. c Ujagar Prints v. Union of India & Ors.) and CA Nos. 1685-1766/1979 (Union of India & Ors. v, Narendra Processing Industries & Ors.). Two questions arose before and were examined by the Referring Bench. The first was whether the processing of Grey-fabric amounted to 'manufacture' within the meaning of Section 2(f) as it stood prior to 11> its amendment. The second question was whether, even if such proces- sing did amount to 'manufacture' what should be the proper basis for determining the assessable-value of.the processed fabrics. Both these questions had earlier been examined and answered in the Empire Industries case. It is necessary to ascertain as to the precise points on which the- Empire Industries' decision was required to be reconsi' 1£ dered. The Referring Bench did not disagree with the decision in Empire Industries' case on the question whether 'processing' did amount to 'manufacture'. Indeed, the Referring Bench appears to have proceeded on the premise that the view taken in Empire Industries' case on the point was the correct one. Referring Bench said this on the point: F " .. : .. So far as the first question is concerned it was agitated before this Court in Empire Industries Ltd. v. Union of India and this Court held that the processes of bleaching, mercerising, dyeing, printing, water-proofing, etc. carried out by the processors on job-work basis amount to manufacture both under the Act as it stood prior to the amendment as also under the Act subsequent to the amendment and the processed fabrics are liable to be asses- sed to excise duty in the hands of what may be called 'job- bers'. Since this was a decision given by a Bench of three Judges, the petitioners and appellants who are carrying on I{ busfoess of processing on job:work basis could not conte'!d

UJAGAR PRINTS v. U.0.1. [VENKATACHALIAH, J.] 791

that these processes do not amount to manufacture and that the processed fabrics are not liable to be assessed to excise duty in the hands of the jobbers. But, it was the second question which provoked serious controversy before us ..... "

It is only on the second question touching valuation that it expressed some doubts. Nevertheless, in para 6 of -the order, the Referring Bench made a further observation to this effect:

" .... Of course, wher. ;ii .se writ petitions and appeals are referred to the larger Bench it will be open to the larger Bench to consider not only the question of determination of the assessable value but also the other question, namely, c whether processing of grey fabric by a processor on job- work basis constitutes manufacture, because the judgment in Empire Industries case which has decided this question in favour of the revenue and against the processor is a judgment of a Bench of only three Judges and now the present writ petitions and appeals will be·beard by a Be9eh of five Judges."

10Copy pinpoint10. This is how the first question which is, otherwise, concluded by the pronouncement in Empire Industries case is sought to be reagitated before us. Out of deference to the learned counsel who vigorously argued this aspect at great length and we thought we should examine the submission on this.point also, though, the matter could by ·no means be considered to have been referred to a larger bench.

On the second question also the matter is within a short compass. The Referring Bench clearly excluded any possibility of the assessable- F value being limited to the mere processing-charges. It contemplated the alternative possibilities of valuation thus:

"It was common ground between the parties that the pro- cedure followed by the Excise authorities was that the trader, who entrusted cotton or marl made fabrics to the 0 processor for processing on job-work basis, would give a declaration to the processor as to what would be the price at which he would be selling the processed goods in the market and that would be taken by the Excise authorities as ·the assessable value of the processed fabrics and excise duty would be charged to the processor on that basis. This H

792 SUPREME COURT REPORTS . (1988J Supp. 3 S..C.R.

may be illustrated by giving the following example: A " ' .. ~

(1) Value of grey cloth in the hands. of. the processor: Rs.20.00

(2) Value of job-work done: Rs.5.00 B Value of finished cloth returned to the..trader (1+2): Rs.25.00

(~) Trader's selling price inclusive of his selling profits, etc.: Rs.30.00 · ·

The assessable value in the case given in this example c would. be taken by the Excise authorities at Rs.30 which was the sale price of the trader .... "

The view of. the. Referring ,.-. . I . Bench . on the point was this:. .

D "We cannot accept the contention of the learned couns.eI . on behalf.of the petitioners and the appellants that the .value of the grey cloth which. is processed by the processor . • should not be included in the assess~ble value of the pro- cessedfabric since the grey cloth is \)~e of the raw materials . which goes into the manufacture· of the processed fabric E . and the value of the processed fabric cannot be computed . w.ithout including the ~al\le of the raw material that goe~ into its manufacture. The assessable value of the processed fabric cannot therefore be ,limited merely to the value of the job-work done but. it must be determined by reference to the wholesale cash price of the processed fabric at the gate of the factory of the processor ... , "

The Referring Bench was of the view that the correct assessable- value should be:

Thus in the example given above. the. assessable value of the processed fabric must be taken to be Rs.20 + 5 that is Rs.25 and the profit of RS.S which the trader may make by selling the processed fabric cann<;>t .be. included,in the assessable value. The element of selling profit of the trader would be entirely an extraneous element . and.it ' . can·- not be taken into account for the purpose of determining the assessable value of the processee fabric which would

UJAGAR PRINTS v. U.0.1. (VENKATACHALIAH, l.] 793

comprise the value of the grey cloth and the job-work charges but exclude the profit at which the trader may sub- sequently sell the processed fabric."

11Copy pinpoint11. We have heard Sri A.K Sen, Sri Soli J. Sorabjee, Dr. Chitale and Sri Dholakia, learned Senior Advocates in the appeals and writ- B petitions preferred by the processors; and Sri K. Parasaran, learned Attorney-General and Sri A.K. Ganguli, learned Senior Advocate for the Union of India and its authorities. On the contentions urged, the points that fall for determination are:

(a) (i) Whether the processes of Bleaching, Dyeing, Printing, Sizing, Shrink-proofing etc. c~rried on in respect of cotton or C man-made 'Grey-fabric' amount to 'manufacture' for purposes, and within the meaning of Section 2(f) of the Central Excises and Salt Act 1944 prior to the amendment of the said Section 2(f) by Section 2 of the Amending Act VI of 1980. D (a) (ii) Whether the decision in Empire Industries Limited & Ors. v. Union of India, [1985) Suppl. 1 SCR 282 holding that these operations amount to a manufacture is wrongly decided and requires reconsideration.

(b) Whether the amendment brought about by the Amending Act of 1980 of Section 2(f) and to tariff-items 19 and 22 of the E Central Excise Act is ultra-vires Entry 84 List I and, therefore, beyond the competence of the Union Parliament.

Whether, at all events, even if the expanded concept of manufacture introduced by the Amendment is beyond the scope of Entry 84 List I, whether the impost is, at all events, referable F to and supportable by the residual Entry 97 of List I.

(c) Whether, at all events, even if the amendments to Central Excise Act are valid, the levy under the Additional Duties Act is unsupportable and without the authority of law as there is no corresponding enlargement of the definition of 'manufacture~ G under the Additional Duties Act.

(d) Whether the retrospective operation of the Amending Act is an unreasonable restriction on the fundamental right of the 'pro- cessors' under Article 19(1)(g) of the Constitution. H

p. 794

(e) Whether, even if the levy is justified, at all events, the com- A putation of the assessable-value of the processed Grey-fabric on the basis of the whole-sale cash selling-price declared under clas- sification list under Rule l73(b) is unjustified and illegal ifl ·respect of the assessable-value of the processed Grey-fabric done ·• on job-work-basis. B

12Copy pinpoint12. Re: Conterition (a)

The essential condition to be satisfied to justify the levies, con- tend counsel, is that there should be 'manufacture' of goods and in order that the concept of 'manufacture' in Entry 84 List I is satisfied there should come into existence a new article with a distinctive charac- c ter and use, as a result of the processing. It is contended that nothing of the kind happens when 'Grey fabric' is processed; it remains 'grey fabric'; no new article with any distinctive character emerges.

A number of authorities of this Court and of the High Courts were D cited. Particular reference was made to Union of India v. Delhi Cloth & General Mills, [1963] Supp. (1) SCR 586 at 597; Tungabhadra Industries Ltd. v. Commercial Officer Kurnool, [1961] 2 SCR 14; Deputy ,Commissioner of Sales Tax v. Pio Food Packers, [1980] 3 SCR 1271at1275; Sterling Foods v. State of Karnataka, [1986] 3 SCC 469 at 475 & 476; Kai/ash Nath v. State of U.P., 8 STC 358; Deputy Commis- E sioner Sales Tax v. Sadasivan, .42. STC 201 (Kerala);'Swastic Products Baroda v. Superintendent of Central Excise, [1980] ELT 164 (Gujarat); Swan Bangle Stores v. Assistant Sales Tax Officer, 25 STC 122 (Allahabad); State of Andhra Pradesh v. Sri Durga Hardware Stores, 32 STC 322 (Andhra Pradesh) and Extrusion Process Pvt. Ltd. v. N:R. Jadhav, Superintendent of Central Excise, [1979] ELT 380 (Gujarat). F

13Copy pinpoint13. The following observations of this Court in Union of India v. Delhi Cloth and General Mills, AIR 1963 SC p. 791 at 794 were emphasised: !,

"According to the learned counsel "manufacture" is comp- a lete as soon as by the application of one or more processes, the raw material undergoes some change. To say this is to equate "processing" to "manufacture" and for this we can find no warrant in law. The word "manufacture" used as a 1 verb is generally understood to mean as "bringing into existence a new substance" and does not mean merely "to •produce some change in a substance," however minor in consequence the change may be."

UJAGAR PRINTS v. U.0.I. [VENKATACHALIAH, J.] 795

These observations in Health & Milligan Manufacturing Company, the A Sherwin-Williams Company, etc. v. J.H. Worst, Director of the North Dakota Government Agricultural Experiment Station which were

- referred to with approval by this Court in the case of Pio Food Packers' supra, was relied upon:

"At some point processing and manufacturing will merge. B But where the commodity retains a continuing substantial identity through the processing stage we cannot say that it has been "manufactured". (Emphasis Supplied)

The following observations of Bhagwati J. in Pio Food Packers C case were cited:

" ..... manufacture is the end result of one or more pro-

- cesses through which the original commodity is made to pass ..... Where there is no essential difference in identity between the original commodity and the processed article D it is not possible to say that in one commodity has been consumed in the manufacture of another. Although it has undergone a degree of processing, it must be regarded hs still retaining its original identity." (Emphasis Supplied) E The observations of this Court in Kailash Nath v. State of U. P., 3 STC 358 made while repelling the contention of the revenue urged in that case that when cloth is printed and coloured it gets transformed to some other material and that therefore when such printed and coloured cloth is exported what was exported was not the same cloth and that by such printing and dyeing the original cloth got transformed into different material were relied on:

"The cloth exported is the same as the cloth sold with this variation or difference that the colour has changed by · printing and processing. In· view which we take the cloth exported is the same as the cloth sold by the petitioners, there can be no question above the exemption clause not applying to it ..... " (Emphasis Supplied)

The following passage in the permanent Edition of 'Words and Phrases' referred to with approval in Delhi Cloth and General Mills' H

p. 796

AIR 1963 SC p. 791 at 795 case was referre.d to: A "Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result

B of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and ,different article must emerge having a distinctive - name, character or use."

Further, learned counsel placed reliance upon Tungabhadra Industries' case where it was held that ground-nut oil after the process of hydrogenation which improved its keeping-qualities and shelf life yet remained basically ground-nut oil and that the quality of the oil c had been improved by the processes it was subjected to, did not detract from its continuing identity as ground-nut oil. The change brought about in the oil, it was observed by this Court, rendered it

D more acceptable to the customers by improving its quality, but did not render the oil a commodity other than ground-oil which still continued to be "groundnut oil" notwithstanding the processing which was merely for the purpose of rendering the oil more stable thus improving - its keeping qualities for those who desire to consume ground-nut oil. Likewise the processing such as bleaching, dyeing, printing, finishing etc., it was urged, merely improved the quality of Grey-fabric and rendered it more acceptable to the custc:ner while not shedding its E basic character as 'cotton fabric' or 'man-made fabric'. It was also urged that the affidavits filed by person engaged in and familiar with the textile-trade indicated that the finished fabric was not a comer- cially different commodity.

14Copy pinpoint14. We have carefully considered these submissions. In the F Empire Industries case, this court considered similar submissions in an almost identical context and situation. Learned judges referred to the observations of this Court in Commissioner of Sales Tax UP (Lucknow) v. Harbilas Rai, 21STC17 in which the view expressed by the Division Bench of the Madhya Pradesh High Court in Hiralal Jitmalv. Commis- sioner of Income-tax, 8 STC 325 at 326 was held supportable on the G reasoning that:

" ... The decsion of the Madhya Pradesh High Court might perhaps be justified on the ground that a printed or dyed cloth is commercially different article from the cloth which is purchased and printed or dyed."

UJAGAR PRINTS v. U.0.1. [VENKATACHALIAH, J.] 797

The Division Bench also referred to, with approval, the decision of the Bombay High Court in Kores (India) Limited v. Union of India and Ors., [1982] 10 ELT 253. The Division Bench noticed the question arising for decision: 'r "Fabric itself means woven materials. It was contended that processing the manufactured fabric does not bring into existence any new woven material but the question is: does new and different goods emerge having distinctive name, use and character?"

Answering, the Bench said: c "It appears in the light of the several decisions and on the construction of the expression that the process of bleach- ing, dyeing and printing etymologically also means manufacturing processes ..... "

15Copy pinpoint15. It is strenuously urged for the processors that the view taken by the Division Bench in the Empire Industries case suffers from fallacies both of reasoning and conclusion and requires to be reconsidered.

The prevalent and generally accepted test to ascertain that there is 'manufacture' is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognised as a distinct.and new article that has emerged as a result of the processes. The principles are clear. But difficulties arise in their application in individual cases. There might be border-line case where either conclusion with equal justification be reached. Insistence on any sharp or intrinsic distinction between 'pro- cessing' and 'manufacture', we are afraid, results in an over simplifica- tion of both and tends to blur their interdependence in cases such as the present one. The correctness of the view in the Empire Industries case cannot be tested in the light of material-in the form of affidavit expressing the opinion of persons said to be engaged in or connected with the textile-trade as to the commercial identity of the commodities before and after the processing-placed before the court in a sub- sequent case. These opinions are, of course, relevant and would be amongst the various factors to be taken into account in deciding the question. H

p. 798

,

16Copy pinpoint16. On a consideration of the matter, we are persuaded to think A ·that the view taken in the Empire Industries case that 'Grey fabric' after they undergo the various processes of bleaching, dyeing, sizing, printing, finishing etc. emerges as a commercially different commodity with its own price-structure, custom and other commercial incidents and that there was in that sense a 'manufacture' within the meaning of B Section 2(f), even as unamended, is an eminently plausible view and is not shown to suffer from any fallacy. Indeed, on this point the Re- ferring bench did not disagree or have any reservations either. It is to be noticed that if the amending law is valid, this aspect becomes academic. , I

We think, we should reject Contention (a). c

17Copy pinpoint17. Re: Contention (b)

The concept of 'manufacture' embodied in Entry 84 of List I, it is urged,' should be construed not in an artificial sense, but in its recog- D nised legal sense and so construed artificial dimensions sought to be imparted to it by the amendment would be impermissible. Learned counsel drew attention to the following observations of this Court in Diamond Sugar Mills v. State of UP, [1961] 3 SCR 242 at 248.

" ..... we have, on the one hand, to bear in mind the E salutary rule that words conferring the right of legislation should be interpreted liberally and the powers conferred should be given the widest ampHtude; on the other hand we have to guard ourselves against extending the meaning of the words beyond their reasonable connotation, in an anxiety to preserve the power of the legislature." f (Emphasis supplied)

Though entries in the legislative lists are to be construed liberally and the widest possible amplitude given to them, however, no artificial or arbitrary extensions of the meaning of the words in the entry, it is urged, are permissible. It is submitted the concept 'manufacture' in G Entry 84 List I has a well accepted legal connotation and in construing the entry the precise connotation which it possesses and conveys in law must be kept in mind. There is in law no 'manufacture' unless as a result of the process a new and commercially distinct product with distinct use emerges. The idea of manufacture might imply change, but every change is not necessarily manufacture. It is, accordingly, con- H tended that the amendment which seeks to equate "processing" with .,_

UJAGAR PRINTS v. U.0.1. [VENKATACHALIAH, J.] 799

"manufacture" is beyond the scope of Entry 84 List I. A

18Copy pinpoint18. In the Empire Industries' case a similar argument was urged but without success. Learned Judges were persuaded to the view that such processes which were referred to by the amendment were not so alien or foreign to the concept of 'manufacture' that they could not i come within that concept. B

Entries to the legislative lists, it must be recalled, are not sources of the legislative power but are merely topics or fields of legislation and must receive a liberal construction inspired by a broad and gene- rous spirit and not in a narrow pedantic sense. The expression "with respect to" in Article 246 brings-in the doctrine of "Pith and Sub- stance" in the unerstanding of the exertion of the legislative power and c wherever the question of legislative-competence is raised the test is whether the legislation, looked at as a whole, is substantially 'with respect to' the particular topic of legislation. If the legislation has a substantial and not merely a remote connection with the entry, the matter may well be taken to be legislation on the topic. D

"As has been noted, processes of the type which have been incorporated by the impugned Act were not so alien or foreign to the concept of "manufacture" that these could E not come within that concept."

19Copy pinpoint19. At all events, even if the impost on process is not one under Entry 84, List I, but is an impost on "processing" distinct from "man- ufacture" the levy could yet be supported by Entry 97, List I, even without the aid of the wider principle recognised and adopted in Dhil- F Ion's case AIR 1972 SC 1061. It was, however, contended that the levy of tax on an activity which cannot reasonably be regarded as an activity of 'manufacture' cannot be described as a levy of duties of excise under Entry 84, List I. If it is a non-descript tax under Entry 97, the Parlia- ment, it is urged, has not chosen to enact any such law in this case. The charging section does not, it is urged, bring such a taxable-event to G charge. This argument was noticed in Empire Industries case thus:

" ..... It was then argued that if the legislation was sought to be defended on the ground that it is a tax on &ctivity like processing and would be covered by the powers enumera- ted under Entry 97 of List I of the Seventh Schedule then it H

p. 800

was submitted that there was no charging section for such A an activity and as such the charge must fail, and there can- not be any levy ..... "

The contention was rejected holding:

B " ..... This argument proceeds on an entire misconcep- tion. The charging section is the charging section 3 of the Central Excises and Salt Act, 1944. It stipulates the levy and charge of duty of excise on all excisable goods pro- duced or manufactured. "Manufactured" under the A· after the amendment would be the 'manufacture'. as amended in section 2(f) and Tariff item 19-I and 22 and the c charge would be on that basis. Therefore it is difficult to appreciate the argument that the levy would fail as there will be no appropriate charging section or machinery for effectuating the levy on the activity like the method of processing even if such an activity can be justified under D Entry 97 of List l of Seventh Schedule. We are, therefore, of the opinion that there is no substance in this contention " 'We respectfully agree.

E 20. If a legislation purporting to be under a particular legislative entry is assailed for lack of legislative-competence, the State can seek to support it· on the basis of any other entry within the legislative competence of the legislature. It is not necessary for the State to show that the legislature, in enacting the liiw, consciously applied its mind to the source ·Of its own competence. Competence to legislate flows from F Article 245, 246, and the other Articles following, in Part XI of the Constitution. In defending the validity of a law questioned on ground· of legislative-incompetence, the State can always show that the law was supportable under any othe entry within the .competence of the legislature. Indeed in supporting a legislation sustenance could be drawn and had from a number of entries. The legislation could be a G composite legislation drawing upon several entries. Such a "rag-bag" legis- lation is particularly familiar in taxation.

Bennion in his "Statutory Interp~etation" (at page 644) .r_efers such a composite legislation, though the observations must be under- s.tood in the context of the supremacy of the British Parliament and fl!: . one of unlimited powers and which is, under no inhibitions unlike a

1

< UJAGAR PRINTS v. U.O.I. [VENKATACHALIAH, J.] 801

federal polity, of distribution of legislative powers. Learned author A refers to:

" 'Ragbag' Acts: Some Acts are 'rag bag' Acts, co- vering many areas. The annual Finance Act is an extreme example. It is divided into Parts, dealing respectively with customs and excise duty, value added tax, income tax, capi- B tal gains tax, stamp duty, capital transfer tax and so on. Even within a Part of a Finance Act the various provisions hav~·nuite different aims ...... "

In Hari Krishna Hhargav v. Union of India and Anr., [1966] 2 SCR 22, this Court said: · c " There is no prohibition against the Parliament enacting in a single statute, matters which call for the exer- cise of power under two or more entries in List I of _the Seventh Schedule. Illustrations of such legislation are not wanting in our statute book, and the fact that one of such entries is the residuary entry does not also attract any disa- bility ..... "

21. So fat as, the exclusive competence of the' Union Parliament to legislate is concerned all that is necessary is to find out whether the particular topic of legislation is in List II or List III. If it is not, it is not necessary to go any further or search for the field in List I. Union Parliament has exclusive power to legislate upon that topic or field. Of · course, it has concurrent power also in respect of the subjects ·in List III.

Contention (b) is, th10refore, insubstantial. F

22. Re: Contention (c)

This pertains to the validity of levy of additional duties. The contention proceeds on the pre-supposition that processing does not amount to 'manufacture' under' Section3(1) of the Additional Duties G Aet. If it does, as has been held on point (a), this argument does riot survive at all.

rhe point, however, sought to be ·put across is that, even if the concept of 'manufacture' for purposes of levy of excise duty u~der the 'Central Excise Act' is validly expanded or that a tax on processing is, H

')

p. 802

otherwise, supportable under Entry 97(1), the position under the A 'Additional Duties Act' is quite different. The 'Addiiional Duties Act' does not expressly invoke or attract the definition of 'Manufacture' in Section 2(f) of the 'Central Excise Act'; nor does the 'Additional Duties Act' itself contain a definition of 'manufacture' in the broad terms in which Section 2(f), as amended, contains. The result is, it is B urged, that the ordinary legal connotation of 'manufacture', contained in the charging Sectioin 3(1) of the 'Additional Duties Act' can alone support the levy. It is not, it is urged, permissible to import the artifi- cial and expanded definition of 'manufacture' containing in Section 2(f), as amended, into Section 3(1) of the Additional Duties Act.

The following observations of this court in Pandit Ram Narain v. c The State of Uttar Pradesh and Ors., [1956] SCR 664 at 673 are pressed in to service: ·

" ..... It was rightly pointed out that it is no sound princi- ple of construction to'interpret expressions used in one Act D, with reference to their use in another Act ..... "

Again, the observations in Macbeth & Co. v. Chislett, [1910] AC 220 at 224 referred to with approval by this court in Commissioner of Sales Tax, Madhya Pradesh v. Jaswant Singh Charan Singh, [1967] 2 SCR 720 at 725-26 were relied upon:

" ..... 'it would be a new terror in the construction Acts of Parliament if we were required to limit a word to an unnatural sense because in some Act which is not incor- porated or referred to such an interpreta~ion is given to .. it, for the purposes of that Act alone' ..... " F It is further contended that a mere amendment of the schedules to the 'Additional Duties Act' purported by Section 4 of the Amending Act VI of 1980 would be inadequate to serve the purpose of a valid levy on the activity of processing. It was also urged that Section 3(3) of the 'Additional Duties Act' which provides that the provisions of 'Central G Excise Act' and the rules made thereunder shall, so far as may be, apply in relation to the 'levy and collection" of the Additional Duties would not also enable the wider definition of 'manufacture' .in Section 2(f) to be imported into Section 3(1) of the Additional Duties Act to justify levy of Additional Duties on 'processing'.

H 23. The· contention was neatly and attractively presented and

'·~'

' UJAGAR PRINTS v. U.0.1. [VENKATACHALIAH, J.) 803

appeared, at .first blush, to merit a serious cosideration of the validity A of the levy of additional duties. But on a closer examination of the concept of, and the scheme for, levy and collection of the additional duties .and the specific statutory provisions, the tensile strength of the argument breaks down. There are at least two circumstances which render the definition of 'manufacture' under Section 2(f) attracted to the additional levies. Section 3(3) of the Additional Duties Act B provides:

... , .... levy and collection of the additional duties as they ., apply in relation to the levy and collection of the duties of excise on the goods specified in sub-section (1)."

"The term "levy" appears to us to be wider in its import than the term "assessment". It may include both of a tax as well as assessment. The term "imposition" is generally used for the levy of a tax or duty by legislative provision indicating the subject matter of the tax and the rates at which it has to be taxed ..... "

24, That apart, Section 4 of Amending Act VI of 1980 has F- amended the relevant items in the schedule to the Additional Duties Act. The expressions 'produce' or 'manufacture' in Section 3(1) of the Additional Duties Act must be read along· with the entries in the schedules.

In Att.-Gen v. Lamplough, [1878) 3 r3i... D. 214, 229 it is G. observed:

"A schedule in an Act is a mere question of drafting, a mere question of words. The sl:hedule is as much a part of the statute, and is as much an enactment, as any other part" H

\ '

p. 804

Maxwell says (in Interpretation of Statutes 11th ed. p. 156): A

... " ..... if an enactment in a schedule contradicts an earlier ·~ I clause it pevails against it."

Bennion (in Bennion's Statutory Interpretation, p. 568-569) referring B to the place of schedules in statutes observes:

"The Schedule is an extension of the section which induces it. Material is put into a Schedule because it is too lengthy or detailed to be conveniently accommodation in· a section, .. ·... " c "A Schedule must be attached to the body of the Act by words in one of the sections (known as inducing words). It was formerly the practice for the inducing words to say that the Schedule was to be construed and have effect as part of the Act. (See, e.g. Ballot Act 1872 s. 28.) This is no longer done, being regarded as unnecessary. If by mischance the inducing words were omitted, the Schedule would still form part of the Act if that was the apparent intention."

" .... The schedule is as much a part of the statute, and is as much an enactment, as any other par.. (See also, to the like effect, Flower Freight Co. Ltd. v. Hammond, [1963] 1 QB 275; R v. Legal Aid Committee No. 1 (London) Legal Aid Area, exp. Ronde!, I 1967] 2 QB 482 and Metropolitan Police·Commr. v. Curran,, [1976] l WLR 87.)"

What appears, therefore, clear is that what applies to the main p levy, applies to the additional duties as well, we find no substance in Contention {c) either.

25. Re: Contention (d)

There is really no substance in the grievance that the retroacti-. G vity imparted to the amendments is violative of Article 19( l)(g). A Competent legislature can always validate a law which has been declared by courts to be invalid, provided the infirmities and vitiating infactors noticed in the declaratory-judgment are removed or cured. Such a validating law can also be made retrospective. If in the light of such validating and curative exercise made by the Legislature- H granting legislative competence-the earlier judgment becomes

UJAGAR PRINTS v. U.0.1. [VENKATACHALIAH, J.] '805

irrelevant and unenforceable, that cannot be called an impermissible A legislative overruling of the judicial decision. All that the legislature does is to usher in a valid law with retrospective effect in the light of which earlier judgment becomes irrelevant. (See Sri Pritkvi Cotton Mills Ltd. & Anr. v. Broach Borough Municipality & Ors., [1970] 1 SCR, 388) B Such legislative expedience of validation of laws is of particular significance and utility and is quite often applied, in taxing statutes. It is necessary that the legislature should be able to cure defects in statutes. No individual can acquire a vested right from a defect in a statute and seek a windfall from the legislature's mistakes. Validity of legislations retroactively curing defects in taxing statutes is well re- cognised·and courts, except under extraordinary circumstances, would c be reluctant to override the legislative judgment as to the need for and wisdom of the retrospective legislation. In Empire Industries Limited & Ors. Etc. v. Union of India & Ors. Etc., [1985] 1 Supp. 292 at 327 this court observed: D " ..... not only because of the paramount governmental interest in obtaining adequate revenues, hut a]so because taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of government amongst those who benefit from it". E. In testing whether a retrospective imposition of a tax operates so harshly as to violate fundamental rights under Article 19(1)(g), ihe factors considered relevant include the context in which retroactivity was contemplated such as whether the law is one of validation of taxing statute struck-down by courts for certain defects; the period of such retroactivity, and the degree and extent of any unforeseen or unforse- F able financial burden imposed for the past period etc. Having regard to all the circumstances of the present case, this court in Empire Industries' case held that the retroactivity of the Amending provisions was not such as to incur any infirmity under Article 19(1)(g). We are in respectful agreement with that view. G There is no merit in contention (d) either.

26. Re: Contention (e)

This concerns the question of the correctness of the determina- tic>n of t~e asse~able-vallle. The processors say_ that th_ey have _f~ed H

p. 806

A classification lists under rule 173 B of the Central Excises and Salt Rules 1944 as they had no other choice and that if the proper principles of determination of the assessable-value do not legally justify the con- ' sequences flowing from the classification, it is open to them to contend against the validity of the. determination and they are not estopped from doing so. ~ B Duties of excise are imposed on the production or manufacture of goods and are levied upon the manufacturer or the producer, in respect of the commodity taxed. The question whether the producer or the manufacturer is or is not the owner of the goods is not determina- tive of the liability. The essential and conceptual nature of the tax is to be kept clearly distinguished from both the extent of the power to ! c impose and the stage at which the tax is imposed. Though the levy is on the production or manufacture of the goods, the imposition of the duty ~ould be at the stage which the law considers most covenient to impose as long as a rational relationship with the nature of the tax is maintained. D

27. The processors contend that,:the assessable-value could only be the job-work charges received hy them for the processing of 'Grey- fahric' and cannot be the selling-price at which the customer who entrusts the Grey fabric for processing-ul.timately sells it in the market. Such a sale-price, it is said, would; quite painly, include the value of E the Grey fabric, the processing-charges and also the selling-profits of the customer. Even in regard to the price of the Grey fabric itself which comes to the processing-houses in fully manufactured condition would again depend upon how many hands it has changed before reaching the particular customer who brings them for processing. The determination of assessable-value at the actual or hypothetical selling- fi price of goods of like nature and quality in ~he wholesale market would include the post-manufacturing profits of the trader which cannot legitimately be regarded as part of the assessable-value.

UJAGAR PRINTS v. U.0.1. [vENKATACHALJAH, J.] 807

rics 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 proces- sors for the processing. However, excise duty, if any, paid on the grey fabrics will be given pro forma credit to the indeperident processors to be utilised for the payment on the processed fabrics in accordance with the Rules 56A or 96D of the Central Excise Rules, as the case may be."

29. In the argument, as presented, that the assessable-value would include what is referred to as the "post-manufacture profits", there is an obvious fallacy. In Atic Industries Ltd. v. H.H. Dave, Asstt. Collector of Central Excise and Ors., [1975] 3 SCR p. 563 Bhagwati J. speaking for the Court said: E "The value of the goods for the purpose of excise must take into account only the manufacturing cost and the manufac- turing profit and it must not be loaded with post-manufac- turing cost or profit arising from post-manufacturing opera- tion ...... '' F

" .... It may be noted that wholesale market in a particular type of goods may be in several tiers and the goods may reach the consumer after a series of wholesale transactions. In fact. the more common and less expensive the goods, there would be greater possibility of more than one tier of G ...! wholesale transactions ..... "

" ..... If excise were levied on the basis of second or sub- sequent wholesale price, it would load the price with a post manufacuturing element, namely, selling cost and selling profit of the wholesale dealer. That would be plainly con- · H

p. 808

trary to the true nature of excise as explained in the Vo/las' A case (supra). Secondly, this would also violate the concept of the factory gate sale which is the basis of determination of value of the goods for the purpose of excise ..... "

"There can, therefore, be no doubt that where a B manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arms length and in the usual course of business, the wholesale cash price charged by him to the wh0lesale dealer .Jess trade discount would represent the value of the goods for the purpose of assess- ment of excise .... " c Explaining what really is the idea of "post-manufacturing profit" referred to in Alic's case this court in Union of India & Ors. etc. etc. v. Bombay Tyre International Ltd. etc. etc., [1984] 1 SCR, p. 347 at 375 said:

D " .... When it refers to post-manufacturing expenses and post-manufacturing profit arising from post-manufacturing operations, it clearly intends to refer not to the expenses and profits pertainillg to the sale transactions effected by the manufacturer but to those pertaining to the subsequent sale transactions effected by the wholesale buyers in favour E -0f other dealers." (Emphasis Supplied)

The principles for the determination of assessable-value are laid down under section 4 of the Act. Section 4 of the 'Central Excise Act' envis- ages that the value of an article for the purposes of duty shall be p deemed to be; (a) The wholesale cash price for·which an article of the like kind and quality was sold or was capable of being sold at the time of removal of the article from the factory or premises of manufacture for delivery at the place of manufacture or; (b) Where such price was not ascertainable, the price at which an article of the like kind and quality was sold or capable of being sold at the time of removal of the article o chargeable with duty.

The nature of the excise duty i~not to be confused with, or tested with reference to, the measure by which the tax is assessed. The standard adopted as the measure of assessment may throw light on the nature of the levy but is not determinative of it. When a statutory measure for assessment of the tax is contem£lated, it "need not con-

UJAGAR PRINTS v. U.0.1. [VENKATACHALIAH, J.I 809

tour along the lines which spell out the levy itself.", and "a broader based standard of reference may be adopted for the purposes of determining the measure of the levy." Any statutory standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the tax.

30. In the case of processing-houses, they become liable to pay excise duty not because they are the owners of the goods but because they cause the 'manufacture' of the goods. The dimensions of the Section 4(l)(a) and (b) are fully explored in number of decisions of this Court. Reference may be made to the case of Bombay Tyres International.

Consistent with the prov1S1ons of Section 4 and the Central c Excise (Valuation) Rules, 1975, framed under Section 37 of the Act it. cannot be said that the assessable-value of the processed fabric should comprise only of the processing-charges. This extreme contention if accepted, would lead to and create more problems than it is supposed to solve; and produce situations which could only be characterised as D anomalous. The incidence of the levy should be uniform, uninfluenced by fortuitous considerations. The method of determination of the. assessable-value suggested by the processors would lead to the untenable position that while in one class of Grey-fabric processed by the same processor on bailment, the assessable-value woul_d have to be deter- mined differently dependent upon the consideration that the process- E ing-house had carried out the processing operations on job-work basis, in the other class of cases, as it not unoften happens, the goods would have to be valued differently only for the reason the same processing- house has itself purchased the Grey-fabric and carried-out the proces- sing operations on its own. F It is to solve the problem arising out of the circumstances that goods owned by one person are "manufacture" by another that at a certain stage under rule 174A, a notification was issued by the Central Government exempting from the operation of the rule 174A:

" . . . . every manufacturer who gets his goods manufac- G tured on his account from any other person, subject to the conditions that the said manufacturer authorises the person, who actually manufactures or fabricates the said goods to comply with all procedural formalities under Central Excises and Salt Act, 1944 ( 1 of 1944) and the rules made thereunder, in respect of the goods manuactur.ed on H

p. 810

behalf of the said manufacturer and, in order to enable the A. determination of value of the said goods under section 4. of the said Act, to furnish information relating to the price at which the said manufacturer is selling the said goods and the person so authorised agrees to discharge all liabilities under the said Act and the rules made thereunder." B

31. On a consideration of the matter, the view taken in the mat- ter in the Empire Industries case does not call for reconsideration. Contention (e) is also held and answered against the petitioner.

32. In the result the appeals preferred by the Union of India are allowed and the Judgment of the Gujarat High Court under appeal is c set-aside. The appeals preferred by the processors against the judg- ment of the Bombay High Court and the writ petitions filed by the processors directly in this court are dismissed. There will, however, be no orders as to costs in the appeals and the writ-petitions.

D The Union of India and its authorities shall be entitled to recover the amounts due by way of arrears of excise-duty and shall be entitled to take necessary steps to seek the enforcement of the bank guaran- tees, if any, for the recovery of the arrears.

SABYASACHI MUKHARJI, J. I have had the advantage of reading in draft the judgment proposed to be delivered by my learned brother Venkatachaliah, J. I respectfully agree with him. There is, however, one aspect of the matter in respect of which I would like to say a few words. Contention (e) as noted by my learned brother in his judgment deals with the determination of the assessable-value. The processors in the cases before us say that they have filed classification lists under rule 173B of the Central Excises and Salt Rules, 1944, as they had no other choice and that if the proper principles of deter- mination of the assessable-value do not legally justify the conse- quences flowing from the classification it is open to them to contend against the validity of the determination and they are not estopped from doing so. The processors are right in contending that the true principle should be followed in determining the assessable-value. Then what is the true principle? Section 4 of the Act deals with the valuation ' of excisable goods for purposes of charging of duty of excise. Section 4( l)\a) of the Act stipulates that the value should be subject to other provisions of the Section the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of

UJAGAR PRINTS v. U.O.I. [MUKHARJI, J.] 811

removal, where the buyer is not a reiated person and the price is the sole consideration for the sale. For the present purpose, we are not concerned with the provisos nor the situation where the normal price of goods is not ascertainable for any reason.

In Empire Industries Limited & Others etc. v. Union of India & Others etc., [1985] Suppl. S.C.R. 292, it was held that where for the purpose of calculating assessable value, a notional sum is laid down by the legislature to be arrived at one a certain basis, it is not permissible for the courts to engraft into it any o\her deduction or allowance or addition or read it down on the score that unless the said deduction or allowance or addition is. authorised elsewhere in the Act or in the Rules. A statutory charge should be measured by the method of its own computation as laid down in the statute and not by any other c method of computation. The circumstances that thereby the benefit of any exemption granted by the legislation may be Jost and that in some cases hardship might result are not matters which would influence courts on the construction of the statute. A tax payer is entitled only to such benefit as is granted by the legislature. It was emphasised that the D taxation under the Ad is the rule and the benefit and exemption, the exception. And it was held that there was no hardship in these cases. It was further reiterated that when the textile fabrics are subjected to the processes like bleaching, dyeing and printing etc. by independent pro- cesses, whether on their own account or on job charges basis, the value for the purposes of assessment under section 4 of the Central Excise E Act will not be the processing charge alone but the intrinsic value of the processed fabrics which is the price at which such fabrics are sold for the first time in the wholesale market. That is the effect of section 4 of the Act. The value would naturally include the value of grey fabrics supplied to the independent processors for the processing. However, excise duty, if any, paid on the grey fabrics will be given proforma F credit to the independent processors to be utilised for the payment on the processed fabrics in accordance with the relevant rules. ·

In M/s. "Ujagar Prints v_. Union of India, [ 1986] Suppl. S.C.C. 652 Bhagwati C.J. held that the processes of bleaching, dyeing, printing, mercerising etc. carried on by a processor on job-work basis in respect r. of grey cotton fabrics and manmade fabrics belonging to the customer and entrusted by him for processing amount to 'manufacture' within · the meaning of the Act prior to its amendment so as to attract levy of excise duty on the processed fabrics and in any event, after ihe Amendment Act, these processes amount to manufacture· and-·excise duty is leviable on the processed fabrics. The learned Chief Justice also H

p. 812