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PUNJAB & HARYANA HIGH COURT
Sukhdev Singh Kang, J.
Punjab Rubber And Allied Industries And Others
Versus
Union Of India And Others
Civil Writ Petition No. 1284 of 1982,
Decided On : DECEMBER 22, 1983
CENTRAL EXCISE - Whether friction cloth/rubberised cloth produced at an intermediate stage in the production, by a composite, uninterrupted and continuous process of Transmission Rubber Belting, V-shaped Belts and Conveyor Belts is exigible to Central Excise Duty.
Fact of the Case:
The petitioners, manufacturers of T.R. belting, V-shaped and conveyor belts, challenged the notices issued by the excise authorities demanding excise duty on friction cloth, an intermediate product used in the manufacture of these belts. The petitioners contended that friction cloth is not an excisable product and that the process of manufacturing the belts is a composite, integrated, and uninterrupted process.
Finding of the Court:
The court held that friction cloth is not an excisable product as it is not a good that ordinarily comes to the market to be bought and sold. The court further held that the amendments to Rules 9 and 49 of the Central Excise Rules, 1944, which were introduced to make intermediary products liable to excise duty, do not apply to friction cloth as it does not fall within the definition of goods as envisaged in Section 3 of the Central Excise Act, 1944.
Issues: 1. Whether friction cloth is an excisable product? 2. Whether the amendments to Rules 9 and 49 of the Central Excise Rules, 1944, apply to friction cloth?
Ratio Decidendi: 1. The court relied on the definition of 'goods' in Section 2(d) of the Central Excise Act, 1944, and the decision of the Supreme Court in Union of India and another v. Delhi Cloth and General Mills Co. Ltd. etc., A.I.R. 1963 S.C. 791, to hold that friction cloth is not an excisable product as it is not a good that ordinarily comes to the market to be bought and sold. 2. The court held that the amendments to Rules 9 and 49 of the Central Excise Rules, 1944, do not apply to friction cloth as it does not fall within the definition of goods as envisaged in Section 3 of the Central Excise Act, 1944.
Final Decision: The court allowed the writ petitions and quashed the impugned notices issued by the excise authorities demanding excise duty on friction cloth.
1. Whether friction cloth/rubberised cloth produced at an intermediate stage in the production, by a composite, uninterrupted and continuous process of Transmission Rubber Belting, V-shaped Belts and Conveyor Belts is exigible to Central Excise Duty - is the meaningful question that arises for determination in this bunch of three writ petitions No. 1284 of 1982 ( M/s Punjab Rubber and Allied Industries & Ors. v. The Union of India and others ); No. 1460 of 1982 ( Universal Conveyor Belting Ltd. vUnion of India & Ors ); and No. 5739 of 1982 (The Northern India Rubber Mills v. Union of India & Ors. ).
2. The facts in C.W.P. No. 1284 of 1982 ( M/s. Punjab Rubber and Allied Industries & Ors. v. The Union of India and Ors. ) will provide an opposite backdrop to delineate the legal issue.
3. The petitioners are manufacturers and dealers of T.R. belting, V-shaped and conveyor belts. In order to manufacture these goods, the raw rubber, both natural and synthetic is compounded with various chemicals to make a master batch which is in the form of a sheet. This sheet is like a soft paste and is used in various forms in making a cushion compound, in impregnation or ply lamination. For the manufacture of the flat transmission belts the selected grade of cotton canvas is impregnated with the rubber paste in different consistency by Rolling the Paste in the fabric under pressure on a Calender Machine. The fabric thus impregnated with the rubber paste forms a ply inter-layer. The fabric thus treated-impregnated with the rubber paste is piled into layers to give a requisite thickness. While preparing this pile the thin sheet of rubber compound as described above is placed as inter-layers. The pile thus formed in required thickness is steam-heated in Hydraulic Press to heat cure. The piled curd sheets of laminated piles are cut to size for ultimate conversion into flat transmission belts.
4. The process of manufacture of V-Belts is almost similar to the process of flat transmission belts with the exception that it requires more compound to provide cushion and is shaped into a V-shape. The impregnation of fabric with rubber paste is an in-step operation.
5. The Union of India issued a trade notice dated October 25, 1980 to the effect that cotton fabrics quoted on both sides with rubber mixed compound known as friction cloth is classifiable under Item 19-1(b) of the Central Excise Tariff. In pursuance of this trade notice, the excise authorities issued notices to some of the petitioners to take L-4 Licence and to pay excise duty on friction cloth. The petitioners challenged these notices and the trade notice through C.W.P. No. 4459 of 1980 ( M/s. Punjab Rubber and Allied Industries v. Union of India and Ors ). A Division Bench of this Court vide judgment dated September 2, 1981 (now reported as 1983 Excise Law Times 82) held that the process of manufacture of transmission rubber belting/V-shaped belts and conveyor belts produced by the petitioners is a composite, integrated and uninterrupted process and if articles styled as friction cloth comes into existence at an intermediary stage, the department is not justified in demanding excise duty on the said product especially when it is nobody#25;s case that this intermediary product is used or sold by the petitioners in the market. The writ petition was allowed and the notices issued to the petitioners were quashed. Thereafter, in February 1982, the Central Government amended the Central Excise Rules, 1944 (`The Rules#25; in short) and added explanations to both Rules 9 and 49 of the Rules. The Superintendent, Central Excise, Jullundur issued notices to the petitioners (copy of one such notice is appended with this petition as annexure P/2), requiring them to take out by March 9, 1982 L-4 Licenses for the manufacture of Friction/Rubberised fabrics falling under Tariff Item 19-1(b) and start paying Central Excise Duty on the product being manufactured and cleared for captive consumption in th
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