UNION OF INDIA Vs. BATA INDIA LTD

JUDGEMENT

(1.) This appeal is from the judgment and decree in Suit No. 195 of 1971. The major issue is whether the goods produced and named as Herefit sheets, thermoplastic sheets and celluloid sheets from cotton and silk fabrics for use in footwear amounted to manufacture to attract excise duty under entry 19 and 22 of the First Schedule to the Central Excises and Salt Tax Act, 1944. The facts of the case in brief are as under:

(2.) The respondent Bata India Limited a manufacturer and dealer in footwear, for the purpose and in the course of- manufacture of footwear, uses cotton and artificial silk fabrics. These fabrics are purchased by the respondent and after being processed and/or chemically treated the fabrics are incorporated into upper portion of the shoes manufactured by the respondent. The fabrics undergo and/or are subject to the certain intermediary processes before final incorporation in the footwear. Some cotton fabrics are treated in the stiffner solution of urea formaldyhide resin compounded with various other non-plastic ingredients like filter, oil and resin and dissolved in water. The said solution is spread on the cotton fabrics. Some cotton fabrics are treated with a solution of polystyrene compounded with plasticisef and other unsaturated elastomer dissolved in a blend of solvent like solvent naptha, acetate and spirit. Thereafter, the compound and/or, solution is spread on the cotton fabric and dried. The cotton fabrics treated as aforesaid are referred to by the respondent as 'herefit sheets', 'thermoplastic sheets' and 'celluloid sheets' respectively. These descriptions have been coined by the respondent for purpose of their own identification. Artificial silk fabrics are not treated in the aforesaid manner but are coated with a suitable rubber compound dissolved in petrol. Thereafter, the said fabrics are cut into small pieces which are then reactivated with a catalyst solution. Then these pieces are put on to the shoe and the same are then vulcanised. The whole purpose and object of these processes is to ensure that the fabrics become sufficiently adhesive and capable of reinforcing the leather uppers of the footwear manufactured by the respondent either at the toe or at the heel.

(3.) The respondent alleged in the suit that since 1st March, 1968 the appellant wrongfully and illegally, levied and collected from the respondent excise duties on cotton fabrics processed by the respondent and utilised by it in the course of manufacture of footwear at its factory at Batanagar. In fact, an aggregate sum of Rs. 3,16,973.31p. has been collected as excise duty on the said cotton fabrics for the period between 1st March, 1968 and 23rd February, 1971. Since 1st March, 1968 the appellants also wrongfully levied and collected from the respondent duties on the artificial silk fabrics processed by the respondent and utilised by the respondent in the manufacture of footwear at its said factory. An aggregate sum of Rs. 15,670.27p. has been collected as duties between 1st March, 1968 and 23rd February, 1971. According to the respondent, those levies and/or collections and/or recoveries are illegal, without jurisdiction or authority of law and ultra vires the statute under which they were collected. As the respondent did not and does not produce or manufacture cotton and artificial silk or other textile fabrics as such the respondent was not under any obligation to pay any duty thereupon as the said materials and fabrics were purchased by the respondent from the open market and excise duty or any other duty has already been paid thereupon. The processing of the said fabrics by the respondent did not and does not make or transform them to any new substance or new products. The mere application of the said processes to the said fabrics did not and does not result in the manufacture by the respondent of any new substance or article with a distinctive name, character or use. As such the said processed fabrics are not excisable goods within the meaning of the Central Excises and Salt Act, 1944 and are not liable to duty. The said processed fabrics did not fall within the description of any of the goods mentioned in the said Act or under the items mentioned in the Schedules therein. The respondent's case is that the said processed fabrics are not known to the consumer or to the commercial community or in the market in general under any of the description of items in the First Schedule to the Central Excises and Salt Act, 1944 or any other Acts. Those articles do not come to the market to be bought and sold. The respondent's case is that the said fabrics, after processing are merely unfinished intermediary components which are not marketable and cannot be bought and sold. They must be used immediately in the stage of manufacture of footwear, else processed fabrics lose all efficacy and become totally useless. In fact, those processed fabrics cannot be and are not stored, stocked or transported from the Batanagar factory to any other place, neither the cotton fabrics after processing nor the artificial silk fabrics after processing become finished products. So, no duty is leviable on the said processed fabrics under Items 22(B) or 19 of the Schedule as amended by the Finance Act of 1969. In any event, the said two items could not be lawfully levied for the period prior to 11th May, 1968 as amendment to the said Act was not retrospective only. The respondent made payments under the mistaken belief that the duty was legally due, when, in fact, such duty could not be levied and realised by the appellants-defendants and according to the respondent, such mistake was discovered by the respondent on 1st April, 1968 for the first time. Between 1st April, 1968 and 23rd February, 1971 the respondent has paid under protest an aggregate sum of Rs. 3,10,063.31p. in respect of duty demanded by them for the processed cotton fabrics for the said period. Between the said period the respondent has also paid under protest an aggregate sum of Rs. 15,670.27p. in respect of duty demanded by them in respect of the processed artificial silk fabrics. Such payments were made by the respondent as the appellants or their agents did not allow the said fabrics to be removed from the said place where they were processed to the place where they would be ultimately fixed on to the shoes and/or utilised in the next stage of manufacture. The non-removal of the said processed fabrics would have entailed cessation of the manufacture of footwear and also in loss of the processed fabrics themselves as, according to the respondent, the processed fabrics had a very short life unless they were utilised immediately after they were processed. As such the respondent's case is that the appellant is bound to return Rs. 3,16,943.31p. and Rs. 15,670.27p. paid by the respondent to the appellant under mistake of law and under coercion.