Mafatlal Fine Spinning & Mfg. Co. Ltd v. Collector of Central Excise, Bombay

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. - )I 3. The question in these appeals is whether the interest-rate 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 E - case, admittedly, underwent the process of 'calendering' and 'shear- ing '. The cognate and sequential question is whether these processes ~1 render the 'grey' fabric, a 'processed' fabric within the meaning of 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 EL T 297. The relevant part of Rule 49A provides: "(1) When the cotton fabrics are cleared grey (un­ processed), the yarn duty payable shall be- (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 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 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 duty: Explanation-Omitted as unnecessary." 5. Sri Sorabjee contended that such controversy, as is raised, as 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 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, I where, as here, the 'grey fabric' is subjected to time-consuming pro- cesses the rate of interest, says Sri Ganguly, would be the higher rate c of 3 per cent, taking note of the delays consequential upon such pro- 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. )I 7. Sri Ganguly is right in his submission as to the objects of Rule 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. 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 "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 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 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, 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 rollers, used to produce film and sheet material". ' ' ·+ MAFAlLALMFG. CO. v. COLLECTOR OF CE. IVENKATACHAUAH,J.I 211 "Calendering-A mechanical method done by rollers to 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 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 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 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 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: "SHEAR: (1) (2) To Cut the fleece from a sheep. ....................... (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 (a) Cutting fleece from live sheep, (b) Trimming nap or pile to the required uniform height, and ( c) Removing all protruding fibres from the surface of the fabric i.e. cropping." I + 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 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 ... ' -t· " j. ,__..-~ 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 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). 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. N.P.V. Appeals allowed.