Holding

Calendering and shearing, as performed, do not alter the nature of the grey fabric; therefore the fabric remains "grey" and attracts the lower interest rate under Rule 49A(1)(b).

Summary

Mafatlal Fine Spinning & Manufacturing Co. Ltd. deferred payment of yarn excise duty under Rule 49A of the Central Excise Rules, 1944. The cotton fabrics produced were subjected to calendering and shearing before clearance. The question was whether these finishing operations transformed the "grey" (unprocessed) fabric into a "processed" fabric, thereby attracting the higher 3% interest rate on the deferred duty. The Tribunal held that calendering and shearing were finishing processes that removed the grey status, imposing the higher rate. The Supreme Court examined the language of Rule 49A and held that the nature of the processes, not merely their duration, determines the rate, and that the specific calendering and shearing performed did not change the fabric’s commercial nature. Consequently, the appeals were allowed, the Tribunal’s order set aside, and interest was to be calculated at the lower rate under Rule 49A(1)(b).

Issues considered

Whether calendering and shearing constitute "processing" that removes the "grey" (unprocessed) character of cotton fabric under Rule 49A.
Whether the measure of delay for differential interest rates under Rule 49A is based on the nature of the process rather than the time taken.
Interpretation of the term "grey fabric" in the context of textile industry practices.

Legislation cited

Central Excise Rules, 1944s. Rule 49A
Central Excises and Salt Act, 1944s. 2(f)(v), s. 35-L

Subjects

central excisedeferred dutyinterest rategrey fabriccalenderingshearingrule interpretationtextile industryfinishing processes

Judgment

A MAFA1LAL FINE SPINNING & MFG. CO. "LTD.
v.
COLLECTOR OF CENTRAL EXCISE, BOMBAY

JANUARY 17, 1989

B [R.S. PATHAK, CJ AND M.N. VENKATACHALIAH, J.)

Central Excises and Salt Act, 1944/Central Excise Rules,
1944: Section 39L/Rule 49A-Differential rates of interest on deferred
payment of yarn duty depending on whether fabrics are cleared 'grey' or
'after processing'-'Grey' fabrics subjected to 'calendering' and 'shear-
(; ing' before clearance-Whether cease to he 'grey fabric' and 'unpro-
cessed'-Whether higher rate payable-Calendering and shearing-
What are.

Words and Phrases: 'Calendering' and' Shearing'-Meaning of.

0 Rule 49A of the Central Excise Rules, 1944 provided for pay-
'ment of different rates of interest on the excise duty on the yarn,
payment of which was deferred at the option of the manufacturer till
the manufacture and clearance of the fabrics made out of the dutiable
yarn, depending on whether cotton fabrics were cleared 'grey' (unpro- :><,
cessed) or 'after processing'. When the fabrics were cleared grey the
E interest payable was 1'h% of the yarn-duty. But where the cotton-
fahrics were cleared after 'processing', it was 3% of yarn duty.

AppeUant-Company, engaged in the manufacture of cotton-
fahrics, in its composite mills, opted for such deferment of paymentof
-
duty of excise. The cotton-fabrics cleared admittedly underwent the
F process of 'calendering' and 'shearing'. The Appellate Tribunal held
that 'calendering' and 'shearing' were 'finishing processes' which
rendered the 'grey' fabrics to cease to be 'unprocessed' and thus
attracted interest at 3% of yarn duty.

In the appeal before this Court, ii was contended on behalf of
G the appellant company that whether the fabric, after 'calendering'
~nd 'shearing' ceased to be 'unprocessed' fabric would require to be
'resolved on the language of the Rule 49A itself and that the differentium
for the attraction of the different rates of interest was whether the
cotton-fabrics cleared were 'grey-fabrics' as known and understood in
the textile industry, and that the condition for levy of 1'h% was not
H whether some process or processes were applied to the 'grey fabrics'
204
MAFATLAL MFG. CO. v. COLLECTOR OF C.E. 205

but whether such process or processes to which the grey-fabric was A
subjected bad the effect of making snch grey-fabric ceased to be 'grey-
fabric', and that actual processes or 'calendering' and 'shearing'
involved in the present case were amongst the simplest of the processes
and did not have the effect of bringing about any change in the 'grey-
fabric', as to take it out of Rule 49A(l)(b). B
On behalf of the Revenue it was contended that the conditions for
the choice of the different rates of interest were not envisaged in the
context whether the process or processes amounted to 'manufacture'
within the meaning of s. 2(0(v) of the Act, but only in the context of
estimating the extent of time consumed by the process or processes and
that the test appropriate in this context -was not whether the grey- c
fabrics nnder-went any change in their nature or quality as a result of
the processes bnt was whether any time consuming process, whatever
be its nature, was resorted to by the manufacturer which, in turn,
occassioned delays in the clearance of the cotton-fabrics and thereby
delayed payment of the yarn-duty. D
Allowing the appeals,

HELD: I. Thongh the purpose of Rule 49A of tbe Central Excise
Rules 1944, was to provide for rates of interest depending on the
time consumed by the processing, the measure of the delay so as to
E
attract one or the other of the rates is not in terms of any period of time

-
··.~l
specified, but is prescribed to be with reference to the nature of the
processes. The measure of the delay in deferment of yarn-duty legisla-
tively considered appropriate to attract higher rate of interest at 3%, is
in terms of the processes that would be required to make the 'grey-
cloth' cease to be grey-cloth. Any processing that can take a case out of
F
Rule 49A(l)(b) must be a process which renders cotton fabric cease to
be 'grey' fabric as commercially known and understood. That is why in
Rule 49A(l) of the expression 'grey' is used while in Rule 49A(2), that
word is omitted. [209E-F I

The matter has to he examined by those standards, which in turn,
G
depends on the fact, whether the process or processes concerned were
such as to change the nature of the 'grey-fabric'. [209G-H]

2.1 There is no dispute that before clearance the cotton fabrics
were subjected to 'calendering' and 'shearing' which in the jargon o!
the textile Industry are finishing processes. [207G I H
206 SUPREME COURT REPORTS [1989] 1 S.C.R.

2.2 Both 'calendering' and 'shearing' involve an assortment and
A
variety of processes, some of which might and some others might not
affect or alter the nature of the fabric. Both the expressions, 'calender•
ing' and 'shearing' are collective expressions representing number of
sub-species of operations which, depending upon the nature of the
particular operation, may or may not alter the nature of the 'grey-
B fabric' as such. [212B-C)

2.3 These matters depend on particularities of the facts of each
case and are to be decided on a case by case basis. [212E)

In the present case, the claim of the appellant before the
authorities that the 'calendering' process employed by them was such as
C to give temporary finish by pressing the fabric is not controverted. No
lasting change is brought about. There is no finding to the contrary.
Likewise the claim as to the "shearing" which was only to trim protrud-
ing, stray fibres from the fabric. If these are the nature of the opera-
tions, the 'grey' fabric, in the facts of these cases, does not become new
D and commercially different commodity :md cease to be 'grey' cloth.
There is thus no justification to take it out of Rule 49A(l)(b). [212G-H;
213A)
CIVIL APPELLATE WRISDICTION: Civil Appeal No. 3695-
96of1988.
)<- .
E From the Judgment and Order dated 10.12.87 of Customs Excise
and Gold Control Appellate Tribunal New Delhi in Appeal No. 1105/
83-D (Order No. 961/87-B). -.;·

Soli, J. Sorabjee, S. Ganesh, C.M. Mehta P.G. Gokhale and
R.B. Hathikhanawala for the Appellants. I· >'
\~-
F
A.K. Ganguli, Mrs. Sushma Suri and K. Swami for the
Respondent.

The Judgment of the Court was delivered by

G VENKATACHALIAH J. These two appeals under Section 35-L
of the Central Excises and Salt Act, 1944 (Act) by Messrs Mafatlal 1
Fine Spinning & Manufacturing Co. Ltd., arise out of and are directed --,,,
against the common appellate-order dated 10.2.1987 of the Customs
Excise & Gold (Control) Appellate Tribunal in Appeal Nos. 1105 of
1983 and 2540 of 1987 holding that in respect of the defered duty on
H yarn appellant is liable to pay interest at 3 per cent of the duty under
MAFA1LALMFG. CO. v. COLLECTOROFC.E. IVENKATACHALIAH,J.] 2()7

j. Rule 49A(2) of the Central Excises & Salt Rules, 1944, as according to A
the Tribunal, the cotton-fabric cleared is not 'Grey' (unprocessed)
cotton-fabric.

2. Appellant is engaged in the manufacture of cotton-fabrics in
its composite mills and opted under Rule 49A for facility of payment of
~· duty of excise payable on the yarn to be defered until the clearance B
of the cotton-fabrics manufactured therefrom.

The said Rule 49A provides for payment of interest on the excise
~ duty payable on the yarn which is deferred till the manufacture and
clearance of the fabrics made out of the dutiable yarn. As such pay-
ment is deferred, at the instance of the option of the manufacturer, till
c
+ completion of manufacture and clearance of fabrics out of the yarn and
Rule 49A envisages that when cotton-fabrics are cleared 'grey' (un-
processed) the yam duty shall be paid at the time of clearance of the
fabrics along with 1 'h % of the yarn-duty, by way of interest. But
where the cotton-fabrics are cleared after 'processing', the interest
payable on, and along with, the yarn-duty would, however, be 3% of D
the yarn-duty.

3. The question in these appeals is whether the interest-rate
- )I should be one & half per cent or three per cent which in tum depends
upon whether the cotton-fabrics cleared are 'grey' (unprocessed) or

- they are cleared after 'processing'. The cotton fabrics cleared in this
case, admittedly, underwent the process of 'calendering' and 'shear-
ing '. The cognate and sequential question is whether these processes
render the 'grey' fabric, a 'processed' fabric within the meaning of
E

~1
Rule 49A(2). The Appellate Tribunal has held that 'calendering' and
'shearing' are 'finishing-processes' and render the 'Grey' fabrics to
cease to be 'unprocessed' so as to attract interest at 3%. F

4. We have heard Sri Soli J. Sorabjee, learned Senior Counsel
for the appellant and Sri A.K. Ganguly, learned Senior Counsel for
the revenue.

There is no dispute that before clearance, the cotton-fabrics were G
*- subjected to 'calendering' and 'shearing' which, in the jargon of the
textile industry are 'finishing-processes'. The Tribunal, accordingly,
held that the cotton-fabrics cleared were not 'unprocessed' for pur-
poses of Rule 49A( l)(b). In regard to 'calendering', the Tribunal
relied upon the views expressed by it in the case of Siddeshwari Cotton
Mills Ltd. and Anr. v. Collector o[ Central Excise, Calcutta [1984] 18 H
208 SUPREME COURT REPORTS [1989) 1 S.C.R.

A ELT 297. The relevant part of Rule 49A provides:

"(1) When the cotton fabrics are cleared grey (un-
processed), the yarn duty payable shall be-

B (a) the appropriate duty payable on such cellulosic
spun yarn or cotton yarn, or both, as the case may be; ·-+
plus

(b) one and a half per cent of the duty payable on
such cellulosic spun yarn or cotton yarn, or both, as :>----:
the case may be, by way of interest on the amount of
c yarn duty;

(2) When the cotton fabrics are cleared after processing,
the yarn duty payable shall be-

(a) the appropriate duty payable on such cellulosic
D
spun yam, or cotton yam, or both,. as the case may
be; plus

(b) three per cent of the duty payable on such cel-
lulosic spun yam, or cotton yarn, or both, as the case
may be, by way of interest on the amount of yarn
E
duty:

Explanation-Omitted as unnecessary."
.....
5. Sri Sorabjee contended that such controversy, as is raised, as
F
to whether the fabric, after 'calendering' and 'shearing' ceases to be
'unprocessed' fabric would require to be resolved on the language of
the Rule 49A itself and that the differentium for the attraction of the
different rates of interest was whether the cotton-fabrics cleared were
'grey-fabrics' as known and understood in the textile industry. The
learned counsel emphasised the distinction between the expressions in
Rule 49A(l) which refer to the expression "cotton fabrics are cleared
G
grey (unprocessed)" on the one hand and the expression "cotton
fabrics are cleared after processing" in Rule 49A(2) on the other, to
demonstrate that the condition for levy of 1 'h % is not whether some
-+
process or processes were applied to the 'grey fabrics' but whether
such process or processes to which the grey-fabric was subjected had
H the effect of making such 'grey-fabric' cease to be 'grey-fabric'.
MAFATIALMFG.CO. v. COllECTOROFC.E. IVENKATACHALIAH,J.J 209

6. Sri Ganguly, for the revenue, urged that the conditions for
A

"' the choice· of the different rates of interest are not envisaged in the
context whether the process or processes amounted to 'manufacture'
within the meaning of Sec. 2(f)(v) of the Act, but only in the context of
estimating the extent of time cousumed by the process or processes as
that is the criterion for the choice of the rate of foterest. The purpose
and intendment of the rule, says Sri Ganguly, is to provide for the B
+ rates of interest on the deferred yam-duty depending on the time
consumed by the processing. If 'grey-cloth' directly obtained from the
loom-and that is what -'grey fabric' or 'greige' in textile parlance
means-is cleared then a lesser rate of interest is attracted. But,
where, as here, the 'grey fabric' is subjected to time-consuming pro-

I
cesses the rate of interest, says Sri Ganguly, would be the higher rate
of 3 per cent, taking note of the delays consequential upon such pro- c
cessing occasioned in the recovery of yam-duty. Sri Ganguly, accord-
ingly, submitted that the test appropriate in this context is not whether
the grey-fabrics undergo any change in their nature or quality as a reult
of the processes but is whether any time consuming process, whatever
be its nature, is resorted to by the manufacturer which will, in turn, D
occasion delays in the clearance of the cotton,fabric and thereby delay
payment of the yarn-duty.

7. Sri Ganguly is right in his submission as to the objects of Rule
)I 49A in prescribing differential rates of interest on deferred yarn-duty.
But .the standards for assessment of the relative delays depending on E
which the different rates of interest are charged are themselves set by
the rule making authority. The measure of the delay so as to attract
one or the other of the rates is not in terms of any period of time
specified but is prescribed to be with reference to the nature of the

~
processes. The measure of the delay in deferment of yam-duty legisla-
tively considered appropriate to attract higher rate of interest at 3%, is F
in terms of the processes that would be required to.make the 'grey-
cloth' cease to be grey-cloth. That is why in Rule 49A(l) the expres-
sion 'grey' is used while in Rule 49A(2) that word is omitted. So the
period of deferment of yam-duty to attract higher interest 3% would,
according to the wisdom of the rule-makers, be the d~lay incidental to
converting 'grey fabric' into 'processed' fabric which ceases to be G
'grey-fabric'. With this legislative estimate of the period of deferment
-"r appropriate to a situation attracting 3% interest, the matter has neces-
sarily to be examined by those standards, which in tum, bring in the
idea whether the process or processes concerned are such as· to change
the nature of the 'grey fabric'. This leads to the question whether
'calendering' and 'shearing', though by themselves are finishing pro- H
cesses, render the 'grey' fabric cease to be so.
210 SUPREME COURT REPORTS [1989] 1 S.C.R.

A 8. Sri Sorabjee submitted that the process of calendering is
nothing more than mere pressing of the 'grey fabric' by running it
through plain rollers to impart a better finish, which is a mere tempor-
ary finish. Sri Sorabjee referred to some of the notifications issued
under Section 8(1) of the Act which say that calendering would not be
treated as "processing". Learned Counsel contended that having re-
B gard to the very nature, the calendering does not bring about any
change in the quality of the goods.

In Siddeshwari Cotton Mills' case, the Tribunal has referred to
certain technical and scientific literature on the process of 'calender-
ing'. Sri Sorabjee referred to some of them. In Modem Textiles (by
Dorothy S. Lyle John Welay & Sons, N. York) under the caption
c "Finishes that provide Asthethic Values", referring to "CALENDER
FINISH" it is stated:

"This is the simplest of all finishes used to give a good
appearance to the finished fabric. It consists of passing the
D fabric between the heated cylinders of a calendering
machine.,Jt is simply ironing a fabric to make it smooth and
giVe it a lustrous surface. The round yams are flattened,
hence reflect more light. It is a temporary finish, since the
yarns revert to their round shape with steaming, launder-
ing, and dry cleaning. Examples of calendered fabrics the
E sheeting, poplin, and broadcloth, both cotton and wool'.'.

Encyclopaedia Britannica has the following to say:

"Calendering-is a final process in which heat and pressure
are applied to a fabric by passing it between heated rollers,
F imparting a flat, glossy, smooth surface, Lustre, increases
when the degree of heat and pressure is increased.
Calendering is applied to fabrics in which a smooth, flat
surface is desirable, such as most cottons, many linen and
silks, and various man-made fabrics ...... : .......... .
. . . . . . . . . . . . . . Calendering is not usually a permanent
process."

In "Glossary of Terms relating to treated fabrics LS. 2244-1972
published by the Indian Standards Institution it is stated:

"Calender-A machine comprised of at least three heated
H rollers, used to produce film and sheet material".
211

'
MAFAlLALMFG. CO. v. COLLECTOR OF CE. IVENKATACHAUAH,J.I

"Calendering-A mechanical method done by rollers to A
provide glaze, glossiness, hardness, lustre, shine and even
embossed designs to fabrics. Calendering is usually done to
impart a special finish to fabrics."

It is accordingly urged by Sri Sorabjee that calendering does not alter B
the nature of the 'grey fabric' and would not take cotton-fabric out of
' ··Rule 49(1)(b ). ·
·+ (
J 9. In regard to the process of "Shearing" Sri Sorabjee relied
. ( upon Fairchild's Dictionary of Textiles which says:
.-:.-~~-".
"SHEARING: 1. A process of cutting fleece from sheep c
generally by power-driven clippers or sometimes by hand

+ shears. Properly sheared fleece will be removed in one
solid sheet, which is rolled into a compact bundle with the
wool on the inside. 2. A finishing operation in which un·
even threads are mechanically cut or trimmed.from the face D
of the fabric. Almost always employed for woollen and
worsted. and extensively employed on other fabrics. The
amount of shearing on napped and pile fabrics varies
according to the desired height of the nap or pile; on clear-
finish fabrics like gabardine, a very close shearing is given.
3. A finishing operation in which floating portions of yam
E
are cut, e.g., in extra warp or extra filling figured fabrics.

..
•
The method is similar to that employed in para 2, above."

In "Textile Terms and Definitions" 8th Edn. by the Textile
Institute:
F
"SHEAR:

(1) To Cut the fleece from a sheep.
(2) .......................
(3) To cut loose fibres or yarn from the surface of a fabric G
after weaving (also called crop)."

In Handbook on Glossary of Textile Terms (Bureau of Indian
Standards):

"SHEARING Shearing indicates: H
212 SUPREME COURT REPORTS

(a) Cutting fleece from live sheep,
[1989] 1 S.C.R.
I
A
(b) Trimming nap or pile to the required uniform height,
and

(c) Removing all protruding fibres from the surface of the
B fabric i.e. cropping."

10. Both 'calendering' and 'shearing' involve an assortment and .
+
variety of processes, some of which might and some others might not '.
affect or alter the nature of the fabric. Both the expressions, 'calender- ' \ ,.
ing' and 'shearing' are collective expressions representing a number of . ~.
sub-species of operations which, depending upon the nature of the
c particular operation, may or may not alter the nature of the 'grey
fabric' as such.

Sri Sorabjee submitted that in the present case "calendering"
was not done by 'grooved' rollers or cylinders but only by plain rollers
D and the "Shearing" operation was only to cut-off protruding stray
fibres from the 'grey fabric', and that actual processes of 'calendering'
and 'shearing' involved in the present case were amongst the simplest
of the processes and did not have the effect of bringing about any
change in the 'grey-fabric'.

E 11. These matters depend on particularities of the facts of each
case and are to be decided on a case by case basis. The Tribunal
proceeded on the basis that "Calendering" and "Shearing" amounted
to process of finishing and that by itself, without more, satisfied the
...
conditions that would take the case out of Rule 49 A(l). The test
applied by the Appellate Tribunal, as well as by the authorities below,
F is not the appropriate one on the language of Rule 49A. Any pro-
cessing that can take a case ont of Rule 49A(l)(b) must be a process
which renders cotton-fabric cease to be 'grey fabric' as commercially
known and understood. The question whether 'calendering' and
'shearing', as actually carried out by the appellant has had the effect of
taking the cotton fabric out of Rule 49A(l) should be decided in the
G light of this test.

12. In the present cases, the claim of the appellant before the
authorities that the calendering process employed by them was such as
to give temporary finish by pressing the fabric is not controverted. No
lasting change is brought about. There is no finding to the contrary.
H Likewise the claim as to the "Shearing" which was only to trim
MAFATIAL MFG. CO. v. COLLECTOR OF C.E. (VENKATAOfALIAH, l.I 213

protruding, stray fibres from the fabric. If these are the nature of the A
operations, the 'grey' fabric, in the facts of these cases, does not
.• become new and commercially different commodity and cease to be
'Grey cloth'. There is thus no justification to take it out of Rule
49A(l)(b).
B
Accordingly, these appeals are allowed, the appellate order: of
the Tribunal and the decisions of the authorities below set-aside and
the liability for payment interest is directed to be computed under
Rule 49A(l)(b). No Costs.

'
-t·
N.P.V. Appeals allowed.

" j.
,__..-~