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Writ Petition No. 617 of 1967, decided on 2gth May 1967.

S. 2(d), (e), (f) and item 15(c), First Schedule‑Word "manufacture" used in S. 2(f) --Must be read subject to item 15(c)‑"Manufacture" always remains manufacture irrespective of method, mechanical or manual Expressions "excisable goods" appearing in S. 2(d) and "factory" appearing in S. 2(e)‑Not subject to item IS(c), First Sched.‑ Exemption for woollen fabrics manufactured on handloom‑ Not available if after being taken off handlooms articles were further submitted before completion to other refining processes through power machines‑Owner of "factory" manufacturing excisable goods cannot be allowed to frustrate provisions of law by dexterously having recourse to evasive tactics such as retention of some handlooms in a factory otherwise equipped with power processing machines.

Three different situations could possibly be visualised is regard to hand‑loom manufacture. Firstly, a manufactured product prepared on a hand‑loom may be straightaway issued for sale in the market as soon as it is taken off the hand‑loom. Secondly, it may be subjected to further processing through devices, operated by manual labour without the use of power. Thirdly, after an article is prepared on a hand‑loom, it may be submitted to further processing through power driven machines. Since in the case of the first two categories all the processes incidental or ancillary to the completion of the product manu factured on the hand‑looms were gone through, without having recourse to power driven mechanical devices it would certainly be a case of "woollen fabrics manufactured on a hand‑loom" falling within the purview of exemption granted in item 15(c) of the First Schedule, but in so far as the third category is concerned, since after being taken off the hand‑loom the articles were further submitted before completion to other refining processes through power driven machines the case would obviously fall outside the ambit of the aforesaid exemption and as such would be liable to the levy of excise duty as an excisable goods.

Superintendent of Central Excise, Lyallpur v. Faqir Muhammad P L D 1959 S C (Pak.) 103; Encyclopaedia Britannica 1953 Edn., Vol. 5, p. 846 and Pakistan v. Muhammad Aqil P L D 1960 S C (Pak.) 4 ref.

Zaheer Ahmad Khan for Petitioner.

Date of hearing : 11th May 1967.

Messrs Chenab Woollen and Textile Mills Limited, Lahore Road, Lyallpur, have invoked the writ jurisdiction of this Court to challenge the legality of an order, dated the 21st of November 1966 (Annexure E'), passed by respondent No. 1, partly accepting the petitioners' revision against the appellate order of the Deputy Collector of Customs and Central Excise, dated the 8th July 1966 (Annexure C'), by which he upheld the demand of Excise Duty amounting to Rs. 1,95,692.50 raised against the petitioners on the manufacture of woollen fabrics.

2. The facts giving rise to the case briefly are that the petitioner‑company which was incorporated under the Companies Act of 1913 and is engaged in the manufacture of woollen fabrics was served by respondent No. 3, with a demand notice of Rs. 1,95,692.50 on account of the assessment of Excise Duty on the woollen fabrics manufactured by the petitioners from 26th of October 1960 to 25th of October 1964. Feeling aggrieved the petitioner preferred an appeal before the Deputy Collector challenging the legality of the order of demand on the ground that under section 3 of the Central Excises and Salt Act, 1944, Excise Duty was leviable on scheduled goods only and item 15(c) of the Schedule had clearly exempted "woollen fabrics manufactured on hand‑looms". Another ground taken was that earlier in the year 1958, the Central Board of Revenue bad exempted from the levy of duty woollen cloth, blankets, carpets, etc. manufactured on hand‑looms in a factory producing its own yarn in a power plant. The last ground taken was that at least a part of the demand had become time‑barred in view of rule 10 of the Excise and Taxation Rules, 1944. These contentions did not find favour with the learned Deputy Collector who took the view that the petitioner's Mill com pletely fell within the definition of 'Factory' given under section 2(c) of the Central Excises and Salt Act, and as such, the exemption granted under item 15(c) of the Schedule was not available to them. It would be advantageous to reproduce the relevant portion of the appellate order:‑--

"This factory was also inspected on my visit to Lyallpur. The position is that the entire spinning plant is run by power but the production of woollen yarn is not very efficient as the machinery is very old and worn out. It is, however, capable of producing more yarn than can be consumed by the present hand‑loom section of the factory. The production of blankets, etc. is very slow. It is a fact that the hand‑looms are worked by manual labour, but they are situated side by side. The power‑driven machinery and the factory have fitted the processing plaint which is equipped with most modern machinery and is run with the aid of power. They consume indigenous wool to produce high quality of woollen fabrics which fetch very good price in the market. The entire premises is walled and the spinning plant, weaving plant and the processing unit, though separate in individual capacity, are situated within the same premises."

In revision, it was readily conceded by respondent No. 1 that the demand for duty before 13th of February 1963, being time‑barred was not enforcible. It was accordingly modified but feeling aggrieved the petitioners have now filed the present Writ Petition.

3. The contentions raised by the learned counsel for the petitioners before us are nothing but a reiteration of the grounds of appeal and revision and the burden of his arguments is that since Excisable woollen fabrics do not include woollen fabrics manufactured on hand‑looms, as such no demand could be raised against the petitioners who were admittedly manufacturing blankets and carpets, etc. on hand‑looms worked by manual labour.

4. For a proper appreciation of the force of the argument, it is necessary to reproduce the relevent provisions of law in this regard. Section 3(1) of the Central Excises and Salt Act of 1944 (hereinafter called the Act) reads as follows :‑

"3. Duties syecified in the First Schedule to be levied.‑--

(1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in (the Province and the Capital of the Federation) and a duty on salt manufactured in, or imported by land into, any part of (the Province and the Capital of the Federation) as and at the rates, set forth in the First Schedule.

In the Act unless there is anything repugnant in the subject or context "Excisable Goods" are defined in section 2(d) as follows:---

"(d) 'excisable goods' means goods specified in the First Schedule as being subject to a duty of excise and includes salt:

Item 15(c) of the First Schedule is given in the following terms:

"15‑C. Woollen Fabrics. Woollen Fabrics' means all varieties of fabrics manufactured wholly of wool or which contains 10 per cent. or more by weight of wool, and includes blankets, lohis and shawls, but does not include woollen fabrics manufactured on a hand‑loom‑

Woollen fabrics, all sorts ... Ten per cent. ad valorem."

In order to appreciate the precise scope of the exemption contained in the concluding sentence of this item, the exact connotation of the expression 'manufacture' shall have to be understood. It is defined in section 2(f ) of the Act in the following terms:

"2. In this Act, unless there is anything repugnant in the subject or context:

(f) 'manufacture' includes any process incidental or ancillary to the completion of a manufactured product . . . . ."

It was contended by the learned counsel for the petitioners that the blankets and carpets, etc. prepared by the petitioners were manufactured on hand‑looms and that this position had been admitted by the learned Deputy Collector in his appellate order. Reliance was particularly placed on the observation made by the latter authority that "it was a fact that hand‑looms were worked by manual labour". We consider that the argument is without substance for more than one reason. In the first instance, it is not denied that after the manufactured articles are taken off the band‑looms, instead of being straightaway put in the market, they are subjected to further processing in a power driven plant. Secondly, it is not the petitioners' case that their entire products are manufactured on band‑looms and not subjected to further mechanical process of calendering, etc. No effort was made to controvert the a correctness of the finding of the learned Deputy Collector in his appellate order that the petitioners' mills was in fact a "factory" within the definition of the term as contained in section 2 (e) of the Act. Factory has been defined as follows :‑--

"(e) 'factory' means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any, manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on."

There appears to be no provision in the Act itself dealing with the case of a "factory" as such except that of a "salt factory" referred to in sections 31 and 32"of the Act which is separately defined and has a distantly different connotations. The object of inserting such a definition not referred to anywhere in the Act itself becomes clear when we come to rule 44 of the Central Excise Rules which reads as follows :‑

"44. Declaration of "Factory" Premises and Equipment.

(1) Every manufacturer shall, before beginning to manufacture excisable goods, declare in the proper form all premises, plant, machinery and fittings intended to be used by him for the manufacture or production of the excisable goods, specifying the purpose for which each room, place, plant, machinery, fittings or equipment is to be used and the mark by which it is to be distinguished and shall also state the quantity of goods which his "factory" is capable of producing.

(2) .

(3) .

(4) The manufacturer shall also submit to the proper officer the plan of the premises, plant, machinery and fittings along with the declaration under sub‑rule (1), and no exisable goods shall be manufactured unless such officer has given a certificate of approval."

As stated earlier not a word was said to challenge the correctness of the finding that the petitioners' mills was in fact a "factory", or that in the declaration submitted by the petitioners there' was any special reference to the quantity of woollen fabrics manufactured on handloom for which exemption from the levy of excise duty might have been claimed by the petitioner. But even so, further processing of a greystate hand‑loom product might convert it into a much finer and finished product and thus take away the exemption granted in the case of hand‑loom manufacture. This view is fully supported by the dictum of their Lordships of the Supreme Court in Superintendent of Central Excise, Lyallpur v. Faqir Muhammad (P L D 1959 S C (Pak.) 103). In this case one Faqir Muhammad a proprietor of a colouring and finishing mills was directed by the Central Excise Department to take out a licence of his business of calendering cloth under rule 174(l)(c) of the Central Excise Rules, as calendering was deemed to be one of the process ancillary to the product. This rule, according to which no manufacturer could conduct his business otherwise by the authority or terms and condition of his licence was framed under section 6(a) of the Act, which empowered the Central' Government to provide by a notification in the official Gazette that no person shall engage in the production or manufacture of any specified goods etc., except under the authority and in accordance with the terms and conditions of a licence granted under the Act. On receipt of notice, Faqir Muhammad invoked the Writ Jurisdiction of the High Court for the issuance of a Writ of Mandamus or any other appropriate writ or direction to the Superintendent of Central Excise to withdraw the said notice. The position taken up by him was that his mills did not manufacture cloth. but only calenders it after lifting it from the open market and once cloth came into the market, the presumption would be that the excise duty due on it had already been paid. It was also his case that any process done to the cloth thereafter, neither amounted to manufacture nor made the cloth excisable to duty. This position was contested by the Superintendent, Central Excise whose argument was that manu factured object was not merely cloth but calendered cloth and as calendering was an ancillary process in its manufacture, the mills was a manufacturer in that sense and as such, there was no question of a double levy of the duty at two stages. The High Court allowed the Writ Petition on the view that the Act being a taxing statute was to be strictly construed and even otherwise the business of calendering could not be brought within section 6 of the Act or rule 174(1)(a) of the Rules framed thereunder. While accepting the appeal of the Superintendent, Central Excise and recalling the 'Writ, their Lordships of the Supreme Court took the view that calendering like dyeing, bleaching and printing was a distinct process which transformed the article. In this regard their Lordships while reproducing an extract from Encyclopaedia Britannica (1953 Edn., Vol. 5, p. 846) observed as follows :‑‑

"There can be no doubt that calendering is a process ancillary to the completion of the manufactured product which is the calendered cloth. It is true that under section 6 a licence is necessary only if the manufactured goods are excisable but there is nothing in Article 15 of the 1st Schedule to show that it excludes calendered cloth. If the respondents' mills had manufactured cloth and calendered it before issuing it out he could not have pleaded that as calendered cloth is not specifically mentioned in Article 15 of the First Schedule he need not pay duty at all."

5. If we consider the finding given by the Deputy Collector in his appellate order on the basis of his personal inspection of the petitioners' Mills, we are driven to the irresistible conclusion that the dictum is attracted with full force to the case before us. The petitioners mills had admittedly a spinning plant, a finishing plant and a processing unit. The yarn produced by the spinning plant was in excess of the consumption of the hand‑loom section. Side by side with the hand‑looms, a power driven plant equipped with modern machinery was also installed producing high quality woollen fabrics and as such there could be no question of any exception in respect of this category of finished products. Even in respect of the greystate hand‑loom production it was frankly admitted by the learned counsel for the petitioners that the articles were further subjected to processing before they were issued for sale in the market. This obviously transformed them into new articles, and as such the petitioners would no longer be entitled to any protection from the levy of duty even in so far as this category of goods was concerned.

6. As argument of some nicety was raised by the learned counsel that since section 2 of the Act was hedged in by the qualifying clause, i.e. "In this Act, unless there is anything repugnant in the subject or context", the definition of the expression "excisable goods", "factory" and "manufacture would not be absolute but subject to the aforesaid restrictions, and as item 15(c) of the First Schedule which specified excisable goods excluded "woollen fabrics manufactured on a hand‑loom" it constituted a repugnancy and as such the definition of "manufacture" contained in section 2(f) was to be real subject to clause 15(c) of the Schedule which unlike section 2 was not hedged in by any limiting words. In view of an earlier dis cussion we are clear in our mind that the owner of a "factory" manufacturing excisable goods cannot be allowed to frustrate provisions of law by dexterously having recourse to such evasive tactics, such as, the retention of some hand‑looms in a factory otherwise fitted with power driven processing plant equipped with most modern machinery. Notwithstanding this, however, the argument has to be considered on its own merits. In the first instance, we have not been able to see any repugnancy in so far as the definition of "manufacture" is concerned, as there is not the slightest indication of any inconsistency in its connotations, when this expression occurs subsequently in Item 15(c) of the First Schedule. "Manufacture" always remains a "manufacture" irrespective of the method be it mechanical or manual. For tt comprehensive definition of some thing which constitutes a series of accts or processes there is wisdom in its vagueness as provided for by the use of the expression "includes any process incidental or ancillary to the completion of a manufactured product" with a view to encompass all kinds of Incidental or ancillary processes before the manufactured article is converted into a finished product. Similarly, there is not even a shadow of repugnancy in the definition of "Excisable Goods" as contained in section 2tdt, the taking (sic) provision of section 3 and item 15(c) of the First Schedule. All of these can easily stand together without even remotely giving rise to any apprehension of absurdity all these read together, the ex. emption from the levy of excise duty created in favour of "woollen fabrics manufactured on a hand‑loom" can be clearly and unequivocally spelt out. However, in order to fix the precise scope of this exemption, we have inevitably to fall back upon the definition of "manufacture" and the rider contained in the beginning of section 2 of the Act.

7. Three different situations could possibly be visualised in regard to hand‑loom manufacture. Firstly, a manufactured product prepared on a hand‑loom may be straightaway issued for sale in the market as soon as it is taken off the hand‑loom. Secondly, it may be subjected to further processing through devices, operated by manual labour without the use of power. Thirdly, after an article is prepared on a hand‑loom, it may be submitted to further processing through power driven machines. Since in the case of the first two categories all the processes incidental or ancillary to the completion of the product manufactured on the hand‑looms were gone through, without having recourse to power driven mechanical devices, it would certainly be a case of "woollen fabrics manufactured on a hand‑loom" falling within the purview of exemption granted in item 15(c) of the First Schedule, but in so far as the third category is concerned, since after being taken off the hand‑loom the articles were further submitted before completion to other refining processes through power driven machines the case would obviously fall outside the ambit of the aforesaid exemption and as such would be liable to the levy of Excise duty as an excisable goods. It would thus be clear that the argument of the learned counsel though appearing to be rather attractive in the first instance, loses all its force. Even if the definition of "manufacture" is to be read subject to item 15(c) of the First Schedule and hand loom manufacture is excluded from the levy of the Excise duty, lit would nevertheless be directly hit by the dictum of their Lordships of the Supreme Court in Superintendent, Central Excise, Lyallpur v. Faqir Muhammad (P L D 1959 S C (Pak.) 103), because whet) removed from the hand‑looms in a rough and crude state technically known as greystate, the articles are admittedly subjected to further pro cessing in a power driven plant which transforms it altogether into a different product definitely fetching much higher price than the coarse cloth. If, however, the subsequent processing were also done by manual labour without the help of a power driven machines and such an exemption were claimed by the petitioner‑mills as provided in rule 44 of the relevant rules there could be perhaps some force in the argument advanced by the learned counsel. But that being not so, there is hardly any justification for him to claim a protection as envisaged by item 15(c) of the First Schedule.

8. The view expressed by their Lordships in the aforesaid case was almost a reiteration of what their Lordships held in an earlier case Pakistan v. Muhammad Aqil (P L D 1960 S C (Pak.), 4). In this case, the respondent who carried on "business of dyeing and glazing tanned leather of sheep by putting colour on such tanned leather and polishing it to give it shine" claimed exemption from the obligation to obtain licence on the ground that he neither sold or tanned any hide or skin, nor was his factory a part of any tannery for producing leather, also that it did not produce or convert any skins or hides into a leather and as such he was not a "manufacturer" falling within the purview of section 6(a) or 9 (6) of Central Excises and Salt Act, 1944. The contention found favour with the learned Judges of the High Court who took, the view that although the tanned leather by undergoing the process of dyeing and glazing by machines might become more valuable yet it remained tanned leather notwithstanding this further processing. In consequence, the High Court issued the writ which on appeal by the State was recalled by their Lordships of the Supreme Court. It was observed:

"The learned Judges in the High Court were of the opinion that the "process of dyeing and glazing by the petitioner would not attract the provisions of the Central Excises and Salt Act." There would appear to be a misconception here, for the duty does not fall upon any process, but upon the goods produced, and the articles produced by Muhammad Aqil are clearly, as seen above, tanned leather of the category falling within the precise definition of "uppers" contained in item 23 of the First Schedule to the Act."

9. The proposition can hardly be disputed that a taxing statute is to be strictly construed and in case of doubt a construction beneficial to the subject should be adopted in so far as the liability of payment of tax is concerned. But, as stated earlier, there is hardly any equivocation or doubt in the case before us. The same argument which found favour with the High Court in the first instance was repelled by their Lordships of the Supreme Court in Superintendent Central Excise, Lyallpur v. Faqir Muhammad referred to earlier. We are thus firmly of the view that the petitioner's claim to exemption from the levy of excise duty by keeping some hand‑looms in what has been otherwise found to be a well‑equipped modern factory only an ingenious effort to evade payment of Excise duty which can be legitimately levied against it.

10. For the foregoing reasons we see no force in this petition which is dismissed in limine.

A.E. Petition dismissed in limine.

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