DUNLOP INDIA LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) - The present writ petition has been filed challenging the impugned Show Cause Notice dated October 31, 1980, November 4, 1980, 29th November, 1980, 30th January, 1981 and the impugned requisition dated October 29, 1980 copies of which are Annexure "G" & "H" respectively to the writ petition and for other consequential relief' as stated in the writ petition itself It is stated that the petitioner Dunlop India Limited is one of the principal manufacturers of tyres and tubers and various rubber products like belting, hoses etc, in India and in its factory at Shahaganj near Calcutta and also at Ambatur in Tamil Nadu. It is father stated that a considerable technological advancement was made which did away with the use of canvas cloth and used only cords known as 'warp cords', calendered or spread with rubber. It has been elaborated in details that with use of man-made fibre cord as such rayon polyester etc. it was found to be necessary to pre-treat the warp cords by subjecting it to certain chemical processes to impart the adequate strength and stretching ability. Due to various technological advancement the elimination of abrasion at the cross-over points of the warp and wept has been a very significant improvement in tyre construction. Of late steel cords are also being used for reinforcing tyres. The essential character of fabric is lacking in warp sheets as there are no wept cords or thread at all or of equal density with the wrap cords. The petitioner has chimed that the warp sheets are purchased by them from the market at a stretch when they had already been subjected to charge of the excise duty relating to the yarn under the First Schedule to the Central Excises & Salt Act, 1944 and the petitioner Company purchased the warp cord sheets from the manufacturers thereof and the price paid by the petitioner includes excise duty, levies upto the stage of manufacturing of warp cord sheets. In the petitioner's factory, there is alleged to be continuous process of manufacture starting from the impart by way of using the rubber with various chemicals and warp cord sheets ending with finished tyre. The petitioner has referred to an expert's report giving in details as to the stages of manufacture of the product and use of the chemical and other component materials. The continuous process of making a tyre is allegedly to subject the tyre cords to rubberisation by a thin film of rubber compound being pressed to the tyre cord. The petitioner has claimed that at stages in the series of steps whether it be in the case of belting or in the case of hoses as well as in the case of tyre cord, there is negligible use of fabric and such productions do not necessary cling to the definition of 'fabric' as laid down in Tariff Item No. 19 or under 22 of the Central Excise Tariffs. It is, however, placed on, record that by a Tariff Advice No. 36/77 dated 5th of October, 1977 the Central Board of Excise and Customs purported to express the view, that tyre cords, warp sheets are classifiable as fabrics under Item Nos. 19 to 22 (as the case may be) of the Central Excise Tariffs. Consequent upon the determination as contained in the said Tariff Advice No, 36/77 demands were made for payment of excise duty under the said Act as well as additional duty of excise under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. Being aggrieved, the petitioner made representations to the respondents showing the true nature of the tyre cords and wrap sheets and the change on technology resulting in substitution of canvas cloth which is a true fabric by the wrap sheets. The Central Board by its letter dated June 12, 1978 held that tyre cord warp sheets was not a classifiable either under the Item Nos. 19(1)(4) or 22(1) (b) of the First Schedule of the said Act. However, with effect from the 24th November, 1979 the said Act. as well as the said 1937 Act were amended by the Central Excises arid Salt and Additional Duties of Excise (Amendment) Act, 1980 under which the word 'Manufacture' in relation to goods comprised in the item Nos. 12, 21 and 22 of the Central Excise Tariff's was defined to include certain process mentioned therein. By a Trade Notice No. 154/Cotton Fab.-10CE/80 dated 30th September, 1980 issued by the West Bengal Collectorate purported to announce with tyre cord warp sheets were fabric and were to be classified under Item No. 19 or 20 passed on the Content of fabric or yarn or both used in this manufacture as the case may be. Pursuant to the above trade notice, the petitioner has been served with a communication dated 28/29th October, 1980 issued by the Superintendent of Central Excise alleging that tyre cord warp sheets were classifiable as warp sheets under Central Excise Tariffs Item No. 19 or No. 22 based on the contents of fabrics from yarn or both used in its manufacture. The petitioner has been called upon to take out the licence and to submit various applications and/or' declarations on the footing of the said communication. The petitioner is alleged to have been served with the notices to show cause-cum-demand as indicated above. Stating all these facts in details, the petitioner Company has moved the present writ petition on the ground that rubberisation tyre cord warp sheets and/or rubberised materials with vulcanisation is an intermediary and in-process stage and in a continuous process of manufacture which does not and cannot involve clearance or removal for the purpose of attracting excise duty. The application of non-vulcanised rubber, warp cord sheets and/or rubberised materials being sticky and adhesive substance is impossible of handling separately as a product and is of no use in a continuous process of manufacture ending with tyres and other rubber products of different number of plies. The warp cord sheets is not commercially known as 'Fabric' and it is accepted as such by those who used the warp cord sheets. A mere process cannot be equated with manufacture and the process applicable to a tyre cord warp sheets and/or rubberised materials does not amount to manufacture and as such no duty of excise can be levied on a process not amounting to manufacture within the meaning of Entry 84 of List I of the 7th Schedule to the Constitution. The Rule was issued on 18th of February, 1981.

(2.) The writ petition is contested by the respondents by filing affidavit-in-opposition. It is disclosed therein that the petitioner Company manufactures diverse exciseable goods including tyres falling under Item No. 16, Rubber product falling under Item No 16A and goods covered by the residuary Item No. 68 of the First Schedule to the Central Excises 1t Act, 1944. For carrying out the manufacturing operation as aforesaid, the petitioner company purchases textile fabrics commonly known in the market as "tyre, cord wrap sheet" from the producers of such textile fabrics These tyre cord warp sheets can be made of cotton yarn or of synthetic and/or man made yarn. The yarn so obtained are first come in companies and thereafter the said yarns are in a twisting machines. After twisting is complete the twisted yarns are used in warp yarns on a loom. There was all a1ong a confusion and/or doubt as to the Classification of said tyre cord warp sheets, whether made of cotton or of rayon, nylon yarn under the provisions of the said Act for the purpose of levy and/or imposition of duty thereon. The dispute regarding classification tyre cord warp sheets has been set at rest and a clear-cut unambiguous advice as to the attraction of excise duty in this behalf, a Tariff Advice bearing No. 52/80 dated 10.9.50 was issued indicating the principle that tyre cord warp sheet depending on the nature of yarn content should be classified either Item No. 19 or Item No. 22 of the said First Schedule to the said Act. By an Act, namely the Central Exercises & Salt Additional Duties of Excise (Amendment) Act, 1980 there is an amendment to Section 2(f) was made and simultaneously with the said amendments in the substantive law corresponding amendments were carried outs in the First Schedule against the respective Item No. 19(1) 21, 21(1) , 22(1) of the first Schedule importing and unsearching therein the required concept of processing which was to be construed as manufacture within the meaning of the said section 2(f) as amended by the said Amending Act. Pursuant to the issue of Trade Notice No. 154/Cotton Fabrics/10/CE/80 dated 30.9.80 as stated above, the respondent No. 4, the Superintendent of Central Excise, Dunlop-I Range invited the attention of the petitioner Company informing inter alia that it was cord warp sheets be classifiable under Item No. 19 or Item No. 22 of the First Schedule of the said Act, the petitioner Company should not clearly consume in the petitioner's factory any process fabric without payment of Central Excise Duty thereon from the date of receipt of the said letter. The petitioner Company was also requested to submit an application for Central Excise Licence for manufacture of the processed fabrics and furnish a necessary declaration, classification list and price list along with relevant records. Inspite of such specific communication, the petitioner company failed and ignored to comply with the said request and the respondent No. 4 to furnish the requiring information and the respondent No. 4 had no alternative but to issue show-cause-cum-demand notices on different dates.

(3.) The petitioner, however, controverted the averments made in the affidavit-in-opposition by filing an affidavit-in-reply and reiterated the stand already taken in the main writ petition.