A refund of octroi duty is not available if the goods have undergone a substantial change in their form, condition, state, or appearance after processing, regardless of whether the change is brought about by a process of manufacture or otherwise.

Headnote:
OCTROI - REFUND - GREY YARN - BLEACHING AND MERCERISING - MANUFACTURE - CHANGE IN FORM, CONDITION, STATE OR APPEARANCE - RULE 16(E) OF OCTROI RULES - INTERPRETATION - FACT OF IMPORTANCE IS CHANGE IN FORM, CONDITION, STATE OR APPEARANCE OF YARN AFTER PROCESSING, NOT WHETHER IT IS MANUFACTURE OR NOT.
Fact of the Case:

The petitioner, a small-scale industry, imported grey yarn into the city limits of Pune for processing by bleaching and mercerising. After processing, the yarn was exported outside the city limits. The petitioner claimed a refund of 90% of the octroi paid on the import of the yarn under Rule 16 of the Octroi Rules framed by the respondent Corporation. The Corporation denied the refund on the ground that the yarn had undergone a substantial change after its import and therefore did not satisfy the conditions for refund under Rule 16(e).
Finding of the Court:

The court held that the yarn had undergone a substantial change in its form, condition, state, or appearance after processing, and therefore did not satisfy the conditions for refund under Rule 16(e). The court found that the process of bleaching and mercerising resulted in a change in the yarn's color, strength, and luster, making it a different and distinct product from the original grey yarn. The court also held that the process of bleaching and mercerising amounted to "manufacture" within the meaning of Rule 16(e), as it involved the application of human skill and labor to transform the yarn into a new and distinct product.
Issues: 1. Whether the yarn had undergone a substantial change in its form, condition, state, or appearance after processing, and therefore did not satisfy the conditions for refund under Rule 16(e). 2. Whether the process of bleaching and mercerising amounted to "manufacture" within the meaning of Rule 16(e).
Ratio Decidendi: 1. The court interpreted Rule 16(e) of the Octroi Rules to mean that a refund of octroi duty is not available if the goods have undergone a substantial change in their form, condition, state, or appearance after processing, regardless of whether the change is brought about by a process of manufacture or otherwise. 2. The court held that the process of bleaching and mercerising resulted in a substantial change in the yarn's color, strength, and luster, making it a different and distinct product from the original grey yarn. The court also held that the process of bleaching and mercerising amounted to "manufacture" within the meaning of Rule 16(e), as it involved the application of human skill and labor to transform the yarn into a new and distinct product.
Final Decision: The court dismissed the petition and upheld the Corporation's denial of the refund of octroi duty.

JUDGMENT - V.S. KOTWAL, J. ---A Small Scale Industry for processing grey yarn by bleaching and mercerising the same is being owned and run by the 1st Petitioner partnership firm known as Deccan Embroidery Manufacturing Company, operating from Pune, and the 2nd petitioner is the partner of the same. The said firm by itself does not deal in the manufacture of any yarn as such, but grey yarn of different types is imported within the limits of Municipal Corporation of the City of Pune from various places in India and after processing on the same yarn, the finished yarn is packed in shape of bales and bundles and then marketed to the customers outside the limits of the said Corporation which are impleaded as the 1st respondents. The export out side they city limits of Pune is either directly to the customers or to various branches of the petitioners firm located at different places like Bombay, Hyderabad, Delhi and Calcutta. The ownership of the yarns rests with the firm till delivery is taken by the customers. In effect, therefore, grey yarn is imported within the octroi limits of the respondents Corporation whereafter the process of bleaching and mercerising is effected on the said yarn and after that process the said yarn is exported in a short period outside the city limits. According to the petitioners, on the export of the yarn in this manner, the petitioners were getting refund of 90% of the octroi paid on the yarn on its importation under the provisions of Rule 16 of the Octroi Rules framed by the respondent Corporation and this practice was in vogue from 1955 to 1971. However, a different stance is adopted by the Corporation by 1972 onwards when they have refused to give such a refund in view of the prescription in Rule 16 as construed by the Corporation. Several reminders could make no impact and ultimately the petitioners are obliged to move this Court under Article 226 of the Constitution challenging the said action of the Corporation.

2. This is countered by the respondent Corporation on all counts and in substance it is stated that the said yarn has undergone a substantial change after its import and therefore the petitioners forfeit their right to claim refund of 90% of the octroi in view of specific provisions made in Rule 16, and for that purpose reliance is placed on sub-clause (e) of the said Rule. In effect, it is submitted that an absolutely new product comes out of the said process of bleaching and mercerising which is salable in the market with a label apparently distinct from coarse and grey yarn and thus it undergoes a process of manufacture, or even otherwise the process entails into the change of the commodity which is distinguishable in the market field.

3. The first of the rival contentions obviously culminates into posing a question upon the Constitution of the relevant Clause of Rule 16 of the Octroi Rules of the respondent Corporation and about the search to be made to find out whether the process of bleaching and mecerising the grey yarn changes its form, which change is accepted in the market either by process of manufactured or otherwise through the said stages of bleaching and mercerising. The entire controversy revolves around this aspect. According to Shri Apte, the learned Counsel for the petitioners, its processing does not amount to manufacture at all and secondly, the foundation viz. the yarn remains the same even after the process of bleaching and mercerising is complete and therefore, what is imported is yarn and what is exported is also the same yarn though its outward appearance to some extent is changed by the process, and therefore, according to learned Counsel, it does not amount to any process of manufacture and even otherwise there is no change in the commodity. While countering this contention Shri A.V. Sawant for the respondent. Corporation submitted that in the very nature of things, by imparting labour and skill and putting the coarse or grey yarn to undergo the process of bl

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1989 Supreme(Bom) 1

A refund of octroi duty is not available if the goods have undergone a substantial change in their form, condition, state, or appearance after processing, regardless of whether the change is brought about by a process of manufacture or otherwise.

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