Holding

The classification for excise duty depends on the nature and character of the product at its final stage of production, so the fabric falls under Item No.22 and not Item No.19.

Summary

The respondent, Calico Mills, manufactured a fabric called "Calikut Special" which at an intermediate stage contained 54% cotton and 46% artificial silk, but after further processing the final product contained 38.48% cotton and 61.52% artificial silk. The Central Excise Department, relying on the intermediate composition, ordered that excise duty be levied under Tariff Item No.19 (cotton fabrics), whereas the respondent argued that the final composition made it a Item No.22 (rayon/artificial silk fabrics) product. The High Court quashed the department's order and held that duty should be levied under Item No.22. On appeal, the Supreme Court held that, unless the statute indicates otherwise, the classification for excise duty must be based on the nature and character of the product at its final stage of production, not at an intermediate stage, and that clause (vii) of section 2(f) confirms ancillary processes are part of the final product. Consequently, the fabric was liable to duty under Item No.22 and the appeal was dismissed.

Issues considered

Whether the "Calikut Special" fabric is liable to excise duty under Tariff Item No.19 or Item No.22 of the First Schedule to the Central Excise and Salt Act, 1944.
Whether the character of the goods at the intermediate stage of production can determine the liability for excise duty.
Interpretation of clause (vii) of section 2(f) of the Central Excise and Salt Act, 1944 with respect to ancillary processes.

Legislation cited

Central Excise and Salt Act, 1944s. 2(f)

Subjects

excise dutytariff classificationintermediate stagefinal stageCentral Excise and Salt ActItem No.19Item No.22ancillary processescotton fabricartificial silk

Judgment

537

. UNION OF INDIA & ORS. A

AllMEllABAD MANUFACTURING AND CALICO PRINTING
CO. LTD. (CALICO MILLS), AHMEDABAD.

AUGUST 12, 1985·
B
l E. S. VENKATARAMµ\H AND R. a. MISRA, J J. J

Central Excise and Salt Act, 1944, Tariff Item No.19 and 22,
First Schedule - Excise duty -· Whether leviable ·at intermediate
stage of production or at final stage.
c
· · Processed fabric - "Galikut Special" - Excise duty - lev1-
ability of.

The respondent was manufacturing processed fabrics known as
"Galikut Special" since 1965. At the intermediate stage of the'
production, the said fabrics contained 46 per cent · of syothetie D
fibres (Art Silk) and the cotton content was about 54 per cent.
Due to further processing, when goods reached the final stage of
production, the cotton contents of the said goods was .reduced to
about 38;48 per cent and 61.52 per cent to the fabrics consisted
of Artificial Silk. Having regard to the cotton content of the
final product, which was less than 40 per cent the said goods
were being treated all along as Artificial Silk Fabrics and E
excise duty was being levied under· item No. 22 of the First Sche-
dule to· the Central Excise & Salt Act, 1944. · ·· ,.

In 1967· the Excise Department issued a Notice to· the
respondent to show cause why the "Galikut Special" should not· be
subjected to excise duty under Item No. 19 because in the f
intermediate stage of production the cotton content was more t:ian
40 per cent while Artificial Silk content was less than 60 per
cent. After considering the explanation of the respondent, the
Assistant Collector, Central Excise held that the goods in ·ques-
tion ~ere liable to payment pf -excise duty under Item No. 19 and
not under Item No.22. The respondent questioned the validity of G
the said order of Assistant Collector under Article 226 and the
same was quashed by the High Court.

Dismissing the appeal of the Union of India,

HELD:- l. If the product manufactured by the. respondent·
contained cotton and less tlian 60 per cent by weight of Rayon or
538 SUPRtJME COURT REPORTS [1985] SUPP.2 s.c.R.

A Artificial Silk it wquld fall outside Item No.22 because Item
No.22 excludes such prpduct from its scope and it would be cotton
fabrics as stated in item No.19. [540 G-H]
'
2. In the instant case,. having regard to the process
involved in the manufatcui:e of "Calikut Special" by the
B respondent it is not possible to hold that the character of the
goods at the intermed:Lllte stage of production could be taken into
consideration for det~rmining the liability under the Act. The
processes involved ~fter the intermediate stage formed an
integral part of the manufacture of the product in the question
and the classificatio.I of the manufactured product for purposes
of excise duty should depend upon its nature and character at its
c final stage of production unless a contrary intention appears
frOlll the statutue. [541 E-F]
'

Clause (vii) of section 2(f) of the Central Excises and Salt
Act, 1944 introduced 'subsequently, shows that bleaching, heat
setting etc. are incidental and ancillary processes necessary for
the completion of thJ manufactured product fall.lug under Item
u No.22. This amendment ~s only clarificatory in nature. 'l'herefore,
even though. the product in question might have fallen under Item
No. 19 in the First Schedule lo the Act at the intermediate stage
of production, at the final stage when the duty became exigible
1

it became taxable undef Item No.22 only. [541 G-H, 542 A]

~ Vijay Te:&tiles a Partnership l!'im at Plot 'o.4. Nerol
A)>endaly v. Union of ~. 1979 E.L.T.(J 181) held O\.!r-ruled.

Empire Industries Ltd. & Ors. v. Union of l.nd1a & Ors.
[1985] (20) E.L.T. 179 (S.C.) referred to.

F CIVIL APPELLATE J,URISDICTION : Civil Appeal No. 259 (N) of
1972. .

From the Judgment and Order dated. 30.4.1970 of the Gujarat
High Court in s.c.A. No. 67 of 1968.

G Govind Das and R.N. Poddar for the Appellant.

Soli J. Sorabjee,. A.N. llaksar, Ravindra Nath, R.K.Ram and
Miss Ratna Kapur for tl\e Respondent.

The Judgment of tl/e Court was delivered by
Ii
u.o.r. v. AHMEOAllAD MFG. co. [VENKATARAMlAll, J.] 539

VENKATARAMIAI!, J, This a~peal by special leave is filed
A
against the judgment dated April 30, 1970 of the High Court of
Gujarat at Ahmedabad in opecial Civil Application No. 67 of 1968.
The only question which l'lrises for consideration in this appeal
·is whether the goods called "Calikut. Special" manufactured by the
respondent, the Ahemedabad Manufacturing and Calico Printing Co.
Ltd. (Calico Mills) Ahmedabad, were liable to excise duty under
the Tariff Item No. 19 in the First Schedule to the Central
11
1'.xcises a<ld Salt Act, 1944 (Act No.l of 1944) (hereinafter
referred to as 'the Act') or under Tarriff Item No. 22 thereof as
they stood during the relevant time. The material part of Item
No.19 in the First Schedule to the Act read· as follows:-

"19. COTTON FAJlRICS -
c
"Cotton Fabrics" means all varieties of fabrks manu-
factured either wholly or pactly from cotton and
includes dhoties, sarees, .chadders, bed-sheets,
bed-spreads, counter-panes, table-clothes but do not
lnc lude any such fabric ••••.••..••••••••••••••••.•••

(c) if it contains 60 per cent or more by weight of
rayon or Artificial Silk: ........................... ..

The material part of Item No.22 in the First Schedule to the
Act read as follows:- E

"22. RAYON OR ARTIFICIAL SILK FABRICS -

"Rayon or artificial silk fabrics" includes varieties
of fabrics manufactured either wholly or partly from
Rayon or Artificial Silk but do no include any such
fabrics - •••••••••• • • • • ••••• • ~ •••••••• • • • • • • • • • • • • • • • F

(iii) if it contains cotton and less than 60 per cent
by weight of Rayon or Artificial Silk; or ........... "

The respondent was the manufacturer of the processed fabrics
known as "Calikut Special" from the year 1965. At the inter- I G
mediate stage of their production, the said fabrics contained•46
per cent of synthetic fibres (Art Silk) and their cotton content
was about 54 per cent. The said goods were subject to further
processing such as bleaching, heat. setting etc. and at the time
when goods reached the final stage of production the cotton II
content of the aaid goods WilS reduced to about 38.48 per cent and
540 SUPREME COURT REPORTS. [1985] SUPP;2 S.C.R.

A
61.52 per cent of the fabrics consisted of Artificial Silk.
Having regard to the cotton content of the final product which
was less than 40 per cent, the said goods were being treated all
along as. falling under item No. 22 of the First Schedule to the
Act as Artificial Silk Fabrics and excise duty was being levied
on that l·.:basis. Howe:ver, the Superintendent, Central Excise,
B
Ahemdabad by his letter dated November 25, 1967 proposed to treat
the .above goods as falling under Item No. ·19 thereof as cotton
fabrics on the ground that at the intermediate stage of produc-
tion the cotton content was more than 40 per cent while the Arti-
ficial. Silk content was less than 60 per cent. The respondent
repudiated the claim i"'de by the Superintendent, Central Excise,
Ahemdabad by its reply dated November 25, 1967. On December 11,
c 1967 the Superintendent, Central Excise, Ahemda- bad, formally
issued a Show Cause 'Notice to the respondent to show cause why
,the "Calikut Special" variety of goods referred to above should
not be subjected to·etcise duty under Item No.19. The respondent
sent its ·reply on December 12, 1967 reiterating its stand that
since at the final stage the product consisted of less than 40
per cent of cotton and of more than 60 per cent of Artificial
u
Silk, the goods in question were liable to be taxed only under
Item No. '·22. After taking· into· consideration the explanation
given by the respondeµt the Assi~tant Collector, Central Excise,
Ahemdabad Division - I, Ahemdabad by his order dated D~cember 29,
1967 held that the goods in question were liable to payment of
excise duty under I~em No. 19 and not under Item No. ·22.
!:.
Aggrieved by the above decision the respondent filed a writ
petition under Article.226 of the Constitution on the file of the
High Court of Gujarat 1questioning the validity of the said order.
The· High· Court after hearing the parties · agreed with the
·contention of the respondent and allowed the writ petition
quashing :·the order dated December 29, 1967 ·passed by the
F
Assistant··Collector, Central· Excise; Ahmedabad Division - I,
Ahmedabad, and restraining the Central Excise Department from
levying excise duty under lt:em No. '19 in the Fir'st Schedule to
the Act. The High Cour,t directed the Central Excise Department to
levy excise duty under Item No. 22. This appeal by special leave
is fil~d by the Union of India' against the judgment 'of th"· High
G
~ Court. ·

There is no dispute that if the product manufactured by 'the
respondent contained cotton and less than 60 per cent by weight
·of Rayon or Artifici~l Silk it would fall outside Item No. 22
.because Item· No; 22 excludes Such product from its scope · aii.d it
H
· would' be cotton fabr;ic as stated in Item No. 19. · It is not
u.o.r. v. AHMEl.lABAD MFG. co. [VENKATARAMIAH, J.] . 541

disputed in this case by the Central Excise Department that. the A
final product called "Calikut Special" which was manufactured· by
the respondent contained cotton· and more· than 60 per cent by
weight of · Rayon or Artificial· Silk and that only at the
intermediate stage of its· production it contained less than 60
per cent of l<ayon or Artificial Silk. The question for considera-
tion in this case is whether merely because the goods in question H
contained less than 60 per cent of l<ayon or Artificial Silk at
the intermediate stage they· wer'e liable to be taxed under Item
No. 19 which imposed a heavier duty than the duty payable under
Item No. 22.

Shri Govind.Dass, learned couns£1 for the Union ot India, in c
suport of its contention relied upon the decision of High tourt
of Gujarat in Vijay Textiles a Partnership Firm at Plot No.4,
Nerol Af>endaly v. Unioo of India [l979j E.L.T. (J 181). The
petitioner in that case claimed before the High Court that the
goods involved therein were liable to excise duty at the inter-
mediate stage itself and excise duty was leviable under Item No. u
68 and not under Item No. 19 or. Item No.22 perhaps because the
total liability under Item No. 68 when compared with the excise
duty either under Item No. 19 or under Item No. 22 was less at
that stage. The High Court accepted the contention of the peti-
tioner in that case. But in Empire Industries Ltd. & Ors. v.
Union of India & Ors. [1985j 20 E.L.T. 179 (S.C.), this court has
disapproved the deci~ion in Vijay Textiles -case (supra). t.

Having regard to the process invOlved in the manufacture of
"Calikut Special" by the respondent we are of the view that it is
not possible to hold that the chracter of the goods at the inter-
mediate stage of production could be take"n into consideration for
determining the liability under the Act. The processes involved
in the instant case after the intermed.iate stage referred to
above formed an- integral part of the manufacture' of the prod1.ict
in question and the classification of the -manufactured product
for purpose of excise duty should aepend upon its nature and
character as its final stage of -production unless a contrary
intention appears from the statute. It is seen from clause (vii)
Of section 2(£) of the Act which is no doubt introduced
subsequently that bleaching, h~t setting etc. are incidental and
ancillary 'processes necessary foe the completion of the manufac-
tured product falling under Item No. 22. ThiS amendment has only
attempted ·to explain the obvious and to put the queStion beyond
dispute. Therefore, even though the product in question .. might
542 SUPHEM<: COURT l\EPORTS [1985] SUPP.2 S.C.R. >

have fallen under Item No. 19 in the First Schedule to the Act at
A
the intermediate state of production, at the final stage when the
duty became exigible it became taxable under Item No. 22 only. We
are, therefore, in agreement with the decision of the High Court
that the goods in question fell under Item No. 22 and not under
B Item No. 19 in the First Schedule to the Act for purposes of
payment of excise duty under the Act.

The appeal, therefore, lails and it is dismissed with costs.
c
'

A.P.J. Appeal dismissed.

~··