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High Court Of Calcutta
Ajit Kumar Sengupta, J. N. Hore
UNION OF INDIA (UOI) - Appellant
Versus
BATA INDIA LTD. - Respondent
Suit 195 Of 1971
Decided On : 01/12/1993
EXCISE DUTY - LEVIABILITY - MANUFACTURE OF HEREFIT SHEETS, THERMOPLASTIC SHEETS AND CELLULOID SHEETS - WHETHER EXCISABLE GOODS - WHETHER LIABLE TO DUTY UNDER ENTRY 19 AND 22 OF THE FIRST SCHEDULE TO THE CENTRAL EXCISES AND SALT TAX ACT, 1944.
Fact of the Case:
Bata India Limited, a manufacturer and dealer in footwear, used cotton and artificial silk fabrics in the course of manufacturing footwear. These fabrics were treated with certain solutions and chemicals and then incorporated into the upper portion of the shoes. The processed fabrics were referred to as 'herefit sheets', 'thermoplastic sheets', and 'celluloid sheets'. Bata alleged that the excise duty levied on these processed fabrics from 1st March 1968 was illegal and without jurisdiction. They filed a suit claiming a refund of the duty paid under protest.
Finding of the Court:
The court found that the processed fabrics were not excisable goods and the duty levied was illegal and without authority of law. The court held that the processes adopted by Bata were only intermediary processes and did not result in the manufacture of any new substance or article with a distinctive name, character, or use. The court also found that the processed fabrics were not marketable and could not be bought and sold in the open market.
Issues: 1. Whether the goods produced and named as Herefit sheets, thermoplastic sheets, and celluloid sheets from cotton and silk fabrics for use in footwear amounted to manufacture to attract excise duty under entry 19 and 22 of the First Schedule to the Central Excises and Salt Tax Act, 1944? 2. Whether the processed fabrics were excisable goods? 3. Whether the duty levied on the processed fabrics was illegal and without jurisdiction?
Ratio Decidendi: The court held that the processed fabrics were not excisable goods and the duty levied was illegal and without authority of law. The court relied on the following principles: * The mere fact of processing does not lead to a conclusion that there is manufacture. Manufacture requires that there should be such processing as results in the emergence of a substance known to the market. * The definition of 'manufacture' in Section 2(f) of the Central Excises and Salt Tax Act, 1944 cannot be equated with processing. Processing is distinct from manufacture in the sense of bringing into existence a new substance to the market liable to duty. * The goods subjected to duty must be goods known as such in the market. In the present case, the processed fabrics were not marketable and could not be bought and sold in the open market.
Final Decision: The appeal filed by the Union of India was dismissed. The court held that the processed fabrics were not excisable goods and the duty levied was illegal and without authority of law.
( 1 ) THIS appeal is from the judgment and decree in Suit No. 195 of 1971. The major issue is whether the goods produced and named as Herefit sheets, thermoplastic sheets and celluloid sheets from cotton and silk fabrics for use in footwear amounted to manufacture to attract excise duty under entry 19 and 22 of the First Schedule to the Central Excises and Salt Tax Act, 1944. The facts of the case in brief are as under:
( 2 ) THE respondent Bata India Limited a manufacturer and dealer in footwear, for the purpose and in the course of- manufacture of footwear, uses cotton and artificial silk fabrics. These fabrics are purchased by the respondent and after being processed and/or chemically treated the fabrics are incorporated into upper portion of the shoes manufactured by the respondent. The fabrics undergo and/or are subject to the certain intermediary processes before final incorporation in the footwear. Some cotton fabrics are treated in the stiffner solution of urea formaldyhide resin compounded with various other non-plastic ingredients like filter, oil and resin and dissolved in water. The said solution is spread on the cotton fabrics. Some cotton fabrics are treated with a solution of polystyrene compounded with plasticisef and other unsaturated elastomer dissolved in a blend of solvent like solvent naptha, acetate and spirit. Thereafter, the compound and/or, solution is spread on the cotton fabric and dried. The cotton fabrics treated as aforesaid are referred to by the respondent as 'herefit sheets', 'thermoplastic sheets' and 'celluloid sheets' respectively. These descriptions have been coined by the respondent for purpose of their own identification. Artificial silk fabrics are not treated in the aforesaid manner but are coated with a suitable rubber compound dissolved in petrol. Thereafter, the said fabrics are cut into small pieces which are then reactivated with a catalyst solution. Then these pieces are put on to the shoe and the same are then vulcanised. The whole purpose and object of these processes is to ensure that the fabrics become sufficiently adhesive and capable of reinforcing the leather uppers of the footwear manufactured by the respondent either at the toe or at the heel.
( 3 ) THE respondent alleged in the suit that since 1st March, 1968 the appellant wrongfully and illegally, levied and collected from the respondent excise duties on cotton fabrics processed by the respondent and utilised by it in the course of manufacture of footwear at its factory at Batanagar. In fact, an aggregate sum of Rs. 3,16,973. 31p. has been collected as excise duty on the said cotton fabrics for the period between 1st March, 1968 and 23rd February, 1971. Since 1st March, 1968 the appellants also wrongfully levied and collected from the respondent duties on the artificial silk fabrics processed by the respondent and utilised by the respondent in the manufacture of footwear at its said factory. An aggregate sum of Rs. 15,670. 27p. has been collected as duties between 1st March, 1968 and 23rd February, 1971. According to the respondent, those levies and/or collections and/or recoveries are illegal, without jurisdiction or authority of law and ultra vires the statute under which they were collected. As the respondent did not and does not produce or manufacture cotton and artificial silk or other textile fabrics as such the respondent was not under any obligation to pay any duty thereupon as the said materials and fabrics were purchased by the respondent from the open market and excise duty or any other duty has already been paid thereupon. The processing of the said fabrics by the respondent did not and does not make or transform them to any new substance or new products. The mere application of the said processes to the said fabrics did not and does not result in the manufacture by the respondent of any new substance or article with a distinctive name, character or use. As such the said processed f
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