K.L. Rekhi, Member (T)

1. The appellants manufacture coated cotton fabrics (upholstery cloth). They purchase grey cotton fabrics from the market. Before coating them, they first apply dye of the required colour to the grey fabrics. The dispute in this appeal is whether, during the period from 16-3-76 to 28-2-77, the appellants were liable to pay processing duty on account of their activity of dyeing the grey fabrics. The Department has served on them a demand for the processing duty of Rs. 54,802.62 and both the lower authorities have upheld this demand.

2. The pleas of the appellants against the demand are as under : -

(1) The show cause notice dated 15-3-77 issued by the Superintendent states that the demand was raised on account of the exemption notification No. 78/76-C.E., dated 16-3-76. An exemption notification can only grant relief from payment of duty; it cannot impose duty reliance on 1978 [E.L.T. J 211 (Patna) -M/s. Bata India Ltd. v. Assistant Collector of Central Excise, Patna.]

(2) Duty can be collected only on the end product ; otherwise repeated taxation at. intermediate stages would lead to absurd results [1983 E.L.T. 54 (P. H.) (Punjab Haryana) Punjab Rubber Allied Industries v. U.O.I.

(3) The process of dyeing by the appellants did not amount to manufacture of a new commodity [reliance on 1975-CENCUS-90 (Bombay) - 1977 E.L.T. (J 34) -The Empire Dyeing Manufacturing Co. Ltd. v. V.P. Bhide and Ors. and 1 979 E.L.T. J 181 (Gujarat) - Vijay Textiles v. U.O.I.].

(4) The process undertaken by the appellants was not even a process of dyeing as they applied a kutcha dye. The colour not being fast, the dyed fabrics were not saleable in the market and were, therefore, not "goods".

(5) There was total non-application of mind in issuing the show cause notice. The notice was issued under the then Rule 10A but the demand was confirmed under Rule 10.

(6) The appellants had pointed out certain calculation errors. The Appellate Collector remanded the matter to the Asstt. Collector to re-examine the calculations and to revise the demand, if necessary. The Asstt. Collector had since written to the appellants that there were no calculation mistakes and that the demand already issued was in order.

3. The Department's Representative relied on the Bombay High Court judgment in the case of New Shakti Dye Works and Mahalaxmi Dyeing Printing Works v. Union of India etc. [1982 E.L.T. 1736 (Bom.)] to say that because of the legislative changes of 1979 and 1980, which had been given retrospective effect from 1-3-55 in the case of cotton fabrics and the Constitutional validity of which had been upheld by the Bombay High Court, there could now be no controversy that grey fabrics and processed fabrics were two different products and that processing of grey fabrics amounted to manufacture. He further relied on the Delhi High Court judgment in the case of M/s. Hyderabad Asbestos Products [1980 E.L.T. 735 (Delhi)] to assert that once the Parliament had specifically provided that a certain activity involved manufacture, it was no longer open to the appellants to say that it did not. He referred to the definition of "dye" as given by the Textile Institute, Manchester, and stated that kutcha dyeing was also dyeing and that even the definition of "dyeing" in the Websters Third New International Dictionary relied on by the appellants did not say that the colour should always be permanent. The fact that the appellants used the dyed fabrics themselves for further manufacture of coated fabrics and did not sell the dyed fabrics was not material because central excise duty was on manufacture and not on sale [reliance on Supreme Court judgments in the case of Delhi Cloth Mills- 1977 E.L.T. 199 and in the case of South Bihar Sugar Mills- 1978 E.L.T. 336; also Allahabad High Court judgment in the case of M/s. Union Carbide- 1918 E.L.T. 1]. So far as mention of Rule 10A in the show cause notice was concerned, he relied on the Supreme Court judgment i