ORDER :- Two questions have been raised for consideration in this group of cases. One question is whether the processes of bleaching, dyeing, printing, mercerising, etc., carried on by a processor on job work basis in respect of grey cotton fabrics and man made fabrics belonging to the customer and entrusted by him for processing amount to manufacture within the meaning of the Central Excises and Salt Act as it stood prior to its amendment by the Central Excises and Salt and Additional Duty of Excise (Amendment) Act 1980 so as to attract levy of excise duty on the processed fabrics and whether, in any event, after the Amendment Act, these processes amount to manufacture and excise duty is leviable on the processed fabrics. The other question is whether, even if the processed fabrics are assessable to excise duty in the hands of the processor who carries on these processes on job work basis, what is the value on the basis of which the processed fabrics are liable to be assessed. So far as the first question is concerned, it was agitated before this Court in Empire Industries Ltd. v. U. O. I. (1985) 3 SCC 314: (AIR 1986 SC 662) 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 assessed to excise duty in the hands of what may be called jobbers. Since this was a decision given by a Bench of three-Judges, the petitioners and appellants who are carrying on business of processing on job work basis could not contend 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. So far as this question is concerned, it was also incidentally argued in the Empire Industries case (supra) and Mukharji, J. speaking on behalf of the Court observed as follows (at pp 678-79 of AIR) :

"When the textile fabrics are subjected to the processes like bleaching, dyeing and printing, etc., by independent processes, whether on their own account or on job charges basis, the value for the purposes of assessment under S. 4, Central Excises Act will not be the processing charges 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 S. 4 of the Act. The value would naturally include the value of grey fabrics supplied to the independent processors to be utilised for the payment on the processed fabrics in accordance with Rule 56-A or 96-D of the Central Excises Rules, as the case may be."

The learned counsel for the petitioners and the appellants contended that these observations did not represent the correct law on the subject and that this question was required to be reconsidered in some depth because it vitally affected the processors who were carrying on processing of cotton and man made fabrics on job work basis.

2. It was common ground between the parties that the procedure followed by the excise authorities was that the trader, who entrusted cotton or man made fabrics to the 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 may be illustrated by giving the following example :

(1) Value of grey cloth in the hands of the processor Rs. 20,00

(2) Value of job work done Rs. 5.00

Value of finished cloth returned to the trader (1 + 2) Rs. 25,00