GRENTEX AND COMPANY Vs. UNION OF INDIA

JUDGEMENT

(1.) The 1st petitioner in this petition is a partnership firm, while the 2nd petitioner is one of the partners of the said firm. However, for the sake of convenience, I will refer only to the 1st petitioner as "the petitioner". The petitioner firm purchased, by an agreement of 25th of March, 1982, 800 spindles wool spinning plant from a private limited company known as Gokulchand Rattanchand Wollen Mills Private Ltd. The petitioner firm is utilising the said machinery for the purpose of manufacturing woollen yarn in the same manner in which the said Gokulchand Rattanchand Woollen Mills Pvt. Ltd. was doing. On 25th of May, 1982, which is the culmination of the correspondence between the petitioner and the Excise Authorities, the Superintendent of Central Excise, who is the 4th respondent in this petition called upon the petitioner to file two separate classification lists - one for wool tops and the other for carded gilled sliver under Tariff Item No. 43. It is the petitioner's case that the petitioner is not liable to pay any excise duty on carded gilled sliver under Tariff Item No. 43 for the reasons mentioned in the judgment of this Court given by Suresh, J. on 24th of August, 1987, in Writ Petition No. 1180 of 1980, which had been filed by Gokulchand Rattanchand Woollen Mills Private Ltd. against the same respondents in respect of the same machinery by which woollen yarn is now being manufactured.

(2.) Apart from the fact that the petitioner is manufacturing woollen yarn of the same type which was being manufactured by Gokulchand Rattanchand Woollen Mills Private Ltd. on a machinery which is now purchased by the petitioner, the petitioner has explained in this petition the nature of the product on which the respondents are trying to levy excise duty. The description of the product is mentioned in great details in the petition. Carded gilled sliver is a product which energes at an intermediate stage of a continuous and uninterrupted process which is followed in the manufacture of woollen yarn. It is the petitioner's case, a case which has been accepted by Suresh, J. in the petition filed by Gokulchand Rattanchand Woollen Mills Private Ltd., that the said product namely, carded gilled silver is a commodity which is incapable of being sold to any consumer. Indeed it is incapable of being removed from the factory promises. It an be so removed only by totally destroying its identity as carded gilled silver. The word "silver" is understood to mean "a continuous ribbon or band of loose, untwisted, unparallelised fibres of wool, cotton, flax, etc., ready for drawing, roving or slubbing". (See Shorter Oxford English Dictionary, 3rd Edition, page 1918). The sliver comes into existence after the raw-material, namely, the wool is subjected to carding process and it is drawn through certain machines for the purpose of making it uniform with the ultimate object of using the same for the manufacture of wool tops or for the manufacture of woollen yarn. After slubbing, it is collected on wooden bobbins and then it is spun into woollen yarn, the entire process of manufacture has been explained in the petition. The same was taken note of also by Suresh, J. in Writ Petition No. 1180 of 1980. If a product, which is either manufactured or which comes into existence during the manufacture of some other commodity is incapable of being removed from the factory promises or, for that matter, incapable of being sold to a consumer, then it cannot be the subject of excise duty under the Excise Act at all. 2A. In support of this, naturally, the petitioner relied upon the judgment of Suresh, J. which judgment itself relied upon the judgment of the Supreme Court in Union Carbide India Ltd. v. Union of India and Others, 1986 (24) Excise Law Times 169. The facts in that case disclosed that the appellant before the Supreme court was manufacturing, after purchasing aluminium slugs from the market, aluminium capsules or cans which were ultimately utilised for manufacturing battery cells. The question before the Supreme Court was whether the aluminium cans manufactured by the appellant were capable of being sold to a consumer. From the facts before the Supreme Court, it was noted that there were two manufacturers of flashlights in India, the appellant being one of them. The aluminium cans prepared by the appellant were employed entirely by it in the manufacture of flashlights and were not sold as aluminium cans in the market. The further question was whether the aluminium can were capable of being sold in the market. The conditions in which they came into existence in the factory of the appellant and in which they were utilised by the appellant in its own factory made it impossible for the said cans being sold in the market. It was noted by the Supreme Court that the cans had sharp uneven edges and in order to use them as a component in making flashlight cases, the cans had to undergo various processes, such as trimming, threading and redrawing. After examining the evidence before it, the Supreme Court came to the conclusion that the aluminium cans which were being utilised by the appellant before it were incapable of being sold to a consumer in the market. If that was so, then the same could not be excisable goods and did not fall within the terms of Section 3 of the Central Excises and Salt Act read with, in that case, entry 27 of the First Schedule thereto. The petitioner, in the instant case, has contended, and this contention has been upheld earlier by Suresh, J. in the case of Gokulchand Rattanchand Woollen Mills Private Ltd., that the woollen slivers which are now sought to be made the subject of excise duty are incapable of being sold outside to anyone. It is, therefore, clear that in the light of the law laid down by the Supreme Court in Union Carbide India Ltd.'s case referred to above, the same cannot be the subject-matter of excise duty as is being contended by the respondents. This is the view taken by Suresh, J. and in the light of the law laid down by the Supreme Court in Union Carbide India Ltd.'s case, I do not see how it is possible for me to take a different view.

(3.) However, Mr. Bhatia, the learned Advocate appearing for the respondents, has contended that in the subsequent judgment of the Supreme Court, namely, J. K. Cotton Spg. & Wvg. Mills Ltd. v. Union of India, 1987 (32) ELT 234 (S.C.) = A.I.R. 1988 Supreme Court 191, there are clear-cut observations which support the contention of the respondents that a commodity, though not being taken out of the factory can still be the subject-matter of excise duty. I have, with the assistance of Mr. Bhatia, gone through the judgment in J. K. Cotton Spg. & Wvg. Mills Ltd.'s case, but I am unable to find any observations in the said judgment which support the contention of Mr. Bhatia. The question before the Supreme Court in the case of J. K. Cotton Spg. & Wvg. Mills Ltd. was whether a commodity can be taxed without being removed from the factory. It was urged on behalf of the appellant before the Supreme Court that this could not be done, whereas Rule 9 provided for a point at which excise duty could be levied irrespective of whether the commodity was taken out of the factory or not. The validity of Rule 9 was upheld and it was held that if a particular commodity could be the subject-matter of excise duty, the levy can be made at a point fixed by the Rules, in that case Rule 9. The question as to whether excise duty could be levied on a commodity which was incapable of being sold to a consumer did not arise and obviously, therefore, was not considered by the Supreme Court in the case of J. K. Cotton Spg. & Wvg. Mills Ltd. The question is not, as Mr. Bhatia says, whether it is sold or not. The question is whether it is capable of being sold. If it is incapable of being sold, Section 3 of the Excise Act is not attracted.