1988 INSC 0650
                                        SUPREME COURT OF INDIA

                                                 Kwality Silk Mills

                                                           Vs.

                                                    Union of India

                                         Writ Petns. Nos. 12183 of 1985

(R. S. Pathak, C.J.I., Sabyasachi Mukharji, S. Natarajan, M. N. Venkatachaliah and S. Ranganathan,
                                                           JJ.)

                                                      04.11.1988

                                                   JUDGEMENT

SABYASACHI MUKHARJI, J.

(Concurring with VENKATACHALIAH, J.):-

1. I have had the advantage of reading in draft the judgment proposed to be delivered by my learned
brother Venkatachaliah, J. I respectfully agree with him. There is, however, one aspect of the matter
in respect of which I would like to say a few words. Contention (e) as noted by my learned brother
in his judgment deals with the determination of the assessable-value. The processors in the cases
before us say that they have filed classification lists under R. 173-B of the Central Excises and Salt
Rules. 1944, as they had no other choice and that if the proper principles of determination of the
assessable-value do not legally justify the consequences flowing from the classification it is open to
them to contend against the validity of the determination and they are not estopped from doing so.
The processors are right in contending that the true principle should be followed in determining the
assessable-value. Then what is the true principle ? Section 4 of the Act deals with the valuation of
excisable goods for purposes of charging of duty of excise. Section 4(1)(a) of the Act stipulates that
the value should be, subject to other provisions of the section, the normal price thereof, that is to
say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of
wholesale trade for delivery at the time and place of removai, where the buyer is not a related
person and the price is the sole consideration for the sale. For the present purpose. we are not
concerned with the provisos nor the situation where the normal price of goods is not ascertainable
for any reason.

2. In Empire Industries Limited v. Union of India, 1985 Suppl (1) SCR 292 : AIR 1986 SC662) it
was held that where for the purpose of calculating assessable value, a notional sum is laid down by
the legislature to be arrived at on a certain basis, it is not permissible for the Courts to engraft into it
any other deduction or allowance or addition or read it down on the score that unless the said
deduction or allowance or addition is authorised elsewhere in the Act or in the Rules. A statutory
charge should be measured by the method of its own computation as laid down in the statute and not
by any other method of computation. The circumstances that thereby the benefit of any exemption
granted by the legislation may be lost and that in some cases hardship might result are not matters
which would influence Courts on the construction of the statute. A tax payer is entitled only to such
benefit as is granted by the legislature. It was emphasised that the taxation under the Act is the rule
and the benefit and exemption, the exception. And it was held that there was no hardship in these
cases. It was further reiterated that when the textile fabrics are subjected to the processes like
bleaching, dyeing and printing etc. by independent processes, whether on their own account or on
job charges basis, the value for the purposes of assessment under S. 4 of the Central Excise Act will
not be the processing charge alone but the intrinsic value of the processed fabrics which is the price
at which such fabrics are sold for the first time in the wholesale market. That is the effect of S. 4 of
the Act. The value would naturally include the value of grey fabrics supplied to the independent
processors for the processing. However, excise duty, if any, paid on the grey fabrics will be given
pro forma credit to the independent processors to be utilised for the payment on the processed
fabrics in accordance with the relevant rules.

3. In M/s. Ujagar Prints v. Union of India 1980 (Suppl) SCC 652 : ( AIR 1987 SC 874). Bhagwati.
C.J. held that the processes of bleaching dyeing, printing, mercerising etc. carried oil by a processor
on job-work basis in respect of grey cotton fabrics and man-made fabrics belonging to the customer
and entrusted by him for processing amount to 'manufacture' within the meaning of the Act prior to
its amendment so as to attract levy of excise duty on the processed fabrics and in any event, after the
Amendment Act these a processes amount to manufacture and excise duty is leviable on the
processed fabrics. The learned Chief Justice also dealt with the other question, namely, what is the
value of the processed fabrics liable to be assessed. Referring to the aforesaid decision of the
Empire Industries (supra). he illustrated the problem by reference to the example set out in the
judgment (page 654 of the report at para 2) (of SCC : (at p. 875 of AIR). In that example illustrated
by him the value of the grey cloth in the hands of the processor was Rs. 20/-. The value of the job-
work was Rs. 5/- Trader's selling price inclusive of his selling profits etc. was put at Rs. 30/-.
Bhagwati, C.J. at page 655 (of SCC ) : (at p. 876 of AIR) observed that the assessable value of the
processed fabric must obviously be taken to be the wholesale cash price of the processed fabric at
the factory gate that is when the processed fabric leaves the factory of the processor and it cannot
possibly include the selling profit of the trader who subsequently sells the processed fabrics. The
learned Chief Justice reiterated that it is at the point when the processed fabric leaves the factory of
the processor that its assessable value has to be determined and that assessable value cannot include
the selling profit oft he trader. Empire Industries (supra) did not say that the post-, manufacturing
profits or post-manufacturing costs could be included in the assessable-value of the processed fabric.
If the trader, who entrusted cotton or man-made fabrics to the processor for processing on job-work
basis, would give a declaration to the processor as to what would be the price at which he would be
selling the processed goods in the market that would be taken by the Excise authorities as the
assessable-value of the processed fabrics and excise duty would be charged to the processor on that
basis. Where a manufacturer sells the goods manufactured by him in wholesale to a wholesale
dealer at the arms length and in the usual course of business the wholesale cash price charged by
him to the wholesale dealer less trade discount would represent the value of the goods for the
purpose of assessment of excise. But the price received by the wholesale dealer who purchases the
goods from the manufacturer and in his turn sells the same in wholesale to other dealer, would be
irrelevant for determination of the value of the goods and the goods would not be charged on that
basis. This has been explained in Atic Industries Ltd. v. H. H. Dave, Asstt. Collector of Central
Excise, (1975) 3 SCR 563 : (AIR 1975 SC 960). This has also been explained in Union of India v.
Bombay Tyre International Ltd., (1984) 1 SCR 347 at p. 375 : (AIR 1984 SC 420 at p. 434). It has
to be reiterated that the valuation must be on the basis of wholesale cash price at the time when the
manufactured goods enter into the open market. See in this connection the ratio of this Court in
Union of India v. Cibatul Ltd., 1985 Suppl (3) SCR95 : (AIR 1986 SC 281) and the Joint Secy. to
the Govt. of India v. Food Specialities Ltd., 1985 Suppl. (3) SCR 165 : (AIR 1986 SC 685). It was
emphasised in Union of India v. Cibatul (supra) that the value of the trade-marks was not to be taken
into account in computing the assessable value as the affixation of the trade-marks of a particular
brand was extraneous to manufacture. The values of such extraneous or additional factors do not
enter into the computation of assessable value and as such the wholesale cash price at which the
goods enter into the wholesale market would be independent of the value of the trade-marks. So that
cannot be taken into the computation of the assessable value. Similarly, in the case of Joint
Secretary to the Govt. of India v. Food Specialities Ltd. (supra), it was held that the value of Nestle's
trade marks could not be to the wholesale price charged by the dealer to Nestle's for the purpose of
computing the value of the goods manufactured. The goods in both these cases were manufactured
independently of the addition of the trade-marks. The price thereof at the factory gate was not after
taking into account the value of the trade-marks. If that was the position the value of the trade-
marks cannot be added to the wholesale cash price charged by the dealer. Affixation of trademarks
for enhancement of the value thereof is extraneous to and independent of the process of
manufacture. The charges for the same are not part of the assessable value and cannot enter into
computation of the wholesale cash price on the basis of which excise duties are to be levied.

4. In the aforesaid view of the law and for the reasons mentioned by my learned brother, I agree
with his answer to this contention. The assessable value would, therefore, include the value of the
grey cloth in the hands of the processors plus the value of the job-work done plus manufacturing
profits and manufacturing expenses whatever would be included in the price at the factory gate. The
correct assessable value must be the value of the fabric at the factory gate, that is to say, the value at
which the manufactured goods leave the factory and enter the mainstream.
5. One more aspect will have to be reiterated. Computation of the assessable-value is one question
and as to who should be liable for the same is another. Duties of excise are imposed on production
or on manufacture of goods and are levied upon the manufacturer or the producer in accordance
with the relevant rules. This is quite independent of the ownership of goods. It is, therefore,
necessary to reiterate that the value for the assessment under Section 4 of the Act will not be the
processing charge alone but the intrinsic value of the processed fabrics whichis the price at which
the fabrics are sold for the first timein the wholesale market. The rules are clear on the computation
of that value. If the valuation is made according to the rules as adumbrated in Empire Industries,
(AIR 1986 SC 662) (supra) and as clarified by my learned brother in this judgment no difficulty
should arise.

6.VENKATACHALIAH, J (For himself and on behalf R. S. PATHAK, C. I. and S.
NATARAJAN, J.) :-.

These appeals, by Special Leave, preferred against the Judgments of the High Court of Gujarat and
the High Court of Bombay and the batch of writ-petitions under Article 32 of the Constitution of
India are heard together and disposed of by this common judgment as they all involve questions -
common to them - concerning the validity of the levy of duties of excise under tariff-items 19 and
22 of the Schedule to the Central Excises and Salt Act, 1944 ("Central-Excise-Act") as amended by
the Central Excises and Salt Additional Duties Excise (Amendment) 1980 Act ("Amending Act")
treating as "Manufacture" the process of Bleaching, Dyeing, Printing, Sizing, Mercerising, Water-
proofing, Rubberising, Shrink-proofing, Organdie, Processing, etc. done by the processor who carry
out these operations in their factories on Job-work basis in respect of 'Cotton-fabric and 'Man-made
fabric' belonging to their customers.

The Amending Act which became effective from 24-2-1979 sought to render the processes of
Bleaching, Dyeing, Printing, Sizing, Mercerising etc. "Manufacture" within the meaning of the
Section 2(f) of the Central Excise Act. The amendment was necessitated by the judgment of the
High Court of Gujarat which had declared the levy on such 'processing' as illegal as, according to
the High Court, the processing did not bring into being anew and commercially different article with
a distinctive character and use and did not, therefore, constitute 'manufacture' for purposes, and
within the meaning, of the charging section.

The processors who carry-out these operations on cotton fabrics or "man-made" fabrics which
popularly go by the name Grey fabric' in the particular trade also challenged the levy of the
additional duties of excise under the provisions of the Additional Duties of Excise Goods of Special
Importance) Act 1957 (Additional Duties Act) on the ground, first, that if the processes carried on
by them do not amount to "manufacture" under Section 2(f) as it Originally stood, then, consistent
with the impermissibility of the main impost, the levy of additional duties also fails and, that at all
events, even after the amendment the concept of 'manufacture' under the said Additional Duties Act
had not been correspondingly widened by an appropriate amendment.
7. The present batch of appeals and writ-petitions comprises of a large number of cases. It is not,
having regard to the questions requiring to be decided in these matters, necessary to go into, in any
particular detail, the fact-situation of each individual case. The processors in these cases, who may
conveniently be referred to as the "processors" or "jobbers", mainly carry out these operations of
Bleaching, Dyeing, Printing, Sizing, Finishing etc. of 'Grey-fabric' on 'job-work' against payment of
processing charges to them by the customers who are the owners of the Grey-fabric. The ownership
of the cloth rests with the customers who get these processes done to their specifications from these
processing-houses on payment of processing charges. The Grey-fabric, after processing, is returned
by the processing-house to the customers.

The facts of W.P. No. 12183 of 1985 (M/s. Ujagar Prints v. Union of India) in which the petitioner
has challenged the levy by a petition under Article 32 of the Constitution are typical and
representative of all other similar cases. The petitioner is a firm of partners with its Head Office at
51, Sheikh Memon Street, Bombay. It has a factory at Sunder Baug, Deonar, Bombay, which is
equipped with machinery and plants for processing of manmade grey-fabric. The machinery and
euipment installed in the petitioners' factory, it is averred - and that is not disputed either - are
suited. for and appropriate to the processing of Grey-fabric and are not capable of manufacturing
Grey-fabric. The man-made grey-fabric such as Art Silk Grey-fabric, it is stated, is manufactured in
mills and on power looms and that latter is exempt from excise duty on its manufacture. Petitioners
further aver that the Art Silk Grey-fabrics which are processed in the petitioners' factory are those
manufactured on power looms and not by the mills and that the Art Silk Grey-fabric received do not
come from the manufacturers of the grey-fabric through the manufacturing stream but from the
various traders through the sales- stream. The point that the petitioners seek to make is that the
processing of the grey-fabric is not a part, or continuation, of the process of manufacture in the
manufacturing-stream, but is an independent and distinct operation carried out in respect of the
Grey-fabric, after it has left manufacturing-stage and has become part of the common-stock of
goods in the market. It is also averred that the firm M/s. Ujagar Prints does not purchase the Grey-
fabric but is only engaged in processing it for charges and that in many cases the Grey-fabric would
have passed on from trader to trader with the attendant increase in the prices with each successive
change of hands and is entrusted to the petitioner by the last purchaser for processing against
stipulated processing-charges on job work basis.

It is contended that these job work processing operations do not amount to manu facture" as the
petitioners do not carry out any spinning or weaving operations; that what they receive from their
customers for processing is otherwise fully manufactured man-made fabric and that what is returned
to the customers after processing continues to remain man-made fabric. The imposition of excise
duty on the processor on the basis of the full-value of the processed material. which reflects the
value of grey-fabrics, the processing-charges, as well as the selling profits of the customers is, at
once unfair and anomalous, for, in conceivable cases the duty itself might far exceed the processing-
charges that the processors stipulate and get.
8. The batch of cases also includes cases where the grey-fabric is also purchased by these
processing-houses and are sold by them. after processing. In some cases the manufacturers of the
grey-fabric subject it to captive consumption and process them in their own composite-
establishments.

The essential question is whether these situational-differences have a bearing on the principles Of
determination of the assessable-value of processed grey-fabric and whether the assessable value
could be different in the different fact-situations which would be the logical corollary if the
contention of the processing-houses which do the processing work for charges on the goods not their
own. is accepted and the assessable value determined on the basis of mere processing-charges.

But the main questions that arise are whether "processing" of the kind concerned in these cases
amounts to whether the provisions of Section 2 of the Amending Act which impart an artificial-
dimension to the concept of is ultra vires Entry 84 List 1: whether. at all events, the imposition of a
tax on such 'processing' is referable to Entry 97 List 1: and if the impost on the processors is
justified under tariff-items 19 and 22. according as whether the Grey-fabric is cotton or 'man-made',
what should be the assessable-value for purposes of levy of duty so far as processors are concerned.

9. Prior to the Amending Act of 1980. the levy on the processors was challenged before the Gujarat
High Court. The Gujarat High Court by its judgment dated 24-1-1979 reported in 1980 Tax LR
1766), in the cases of Vijay Textiles Mills v. Union of India and Real Honest Textiles v. Union of
India. held that the processes that the processing- houses imparted to the Grey-fabric did not amount
to 'manufacture' and did not attract ad valorem duty under tariff-items 19 and 22. and that
processors were liable to pay duty under tariff-entry 68 only on the value added by the processing.

Following this judgment a large number of similar claims of processing-houses were allowed by the
High Court by its judgment dated 13-3-1979. Civil Appeals 1685 to 1766 of 1979 are preferred by
the Union of India challenging this view of the High Court.

10. The Bombay High Court on the contrary by its judgment, dated l6th June, 1983 in writ petition
623 of 1979: 1 reported in 1983 ELT 1736). New Shakti Dye Works Pvt. Ltd. v. Union of India,
took a view different from the one that commended itself to the Gujarat High Court. Bombay High
Court held that even under the concept of "manufacture" envisaged in Section 2(f) even prior to its
amendment, the operations carried on by the processors amounted to "manufacture" and that, at all
events, the matter was placed beyond any controversy by the Amending Act i.e. Act of 1980. The
aggrieved processors have come up in appeal by Special Leave in Civil Appeal No. 6396 of 1983.

11. Some oft he processors have. as stated earlier. filed writ-petitions under Article 32 directly in
this Court challenging the impost on grounds that commended themselves for acceptance to the
Gujarat High Court.

12. Before its amendment by the Amending Act (Central Act VI of 1980) Section 2(fi) Of the
Central Excise Act, defined 'manufacture' in its well accepted legal-sense- nomen-juris- and not with
reference to an arlificial and statutorily expanded import.

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

(i) and (ii) Omitted as unnecessary.

The reasoning of the Gujarat High Court was on these lines. [1980 Tax LR 1766 at p. 1775]

"In the instant case, the excise duty claimed on the basis of the market value of the processed cotton
fabrics or man-made fabrics cannot be levied because, assuming that process amounts to
manufacture, all that they have done is to manufacture processed cloth processed fabric. either
cotton or man-made and that not being a taxable event in the light of Section 3 read with section
2(d) of the Act and Items 19 and 22 levy of excise duty on this basis was ultra vires and contrary to
law ......."

This view, according to the Revenue. was incorrect and caused serious prejudice to the legitimate
financial interests of the State. Accordingly. the President of India promulgated an Ordinance called
the Central Excises and Salt and Additional Duties of Excise ( Amendment) Ordinance', 1979
(Central Ordinance No. 12 of 1979) subsequently replaced by Central Act VI of 1980 of the same
name with retrospective effect from 24-2-1979 - amending Section 2(f) of the Central Excise Act
and tariff-items 1911) and 22(l). The relevant entries in the Schedule to the Additional Duties Act'
were also amended. So far as amendment to Section 2(f) was concerned Section 2 of the Amending
Act introduced three sub-items in the definition of 'manufacture'. Two of them are material for the
present purpose :

"(v) in relation to goods comprised in Item No. 19 I of the First Schedule, includes bleaching,
mercerising, dyeing. printing. water-proofing, rubberising, shrink- proofing. organdie processing or
any other process or any one or more of these processes."
"(vii) in relation to goods comprised in Item No. 22(1) of the First Schedule, includes bleaching,
dyeing, printing, shrink- proofing, tentering, heat-setting. crease resistant processing or any other
processor any one or more of these processes."

Similarly, amendments were effected by Section 3 of the Amendment Act which amended the
original tariff-items 19 and 22 by substituting the following provisions in their respective places :

"1. Cotton fabrics other than (i) embroidery in the piece, in strips or in motifs, and (ii) fabrics
impregnated, coated or laminated with preparations of cellulose derivatives or of other artificial
plastic materials

(a) cotton fabrics. not subjected to any process : Twenty per cent ad valorem

(b) cotton fabrics, subjected to the process of bleaching, mercerising. dyeing, printing, water-
proofing, rubberising, shrink- proofing, organdie processing or any other process or any two or
more of these processes. Twenty per cent ad valorem

    xxx xxx xxx

"22(1). Man-made fabrics other than (i) embroidery in the piece. in strips or in motifs, (ii) fabrics
impregnated, coated or laminated with preparations of cellulose derivatives or of other artificial
plastic materials-

(a) man-made fabrics, not subjected to any process. : Twenty per cent ad valorem plus rupees five
per square metre.

(b) man-made fabrics, subjected to the process of bleaching, dyeing. printing, shrinkproofing,
tentering, heat-setting, crease resistant processing or any other process or any two or more of these
processes. : Twenty per cent ad valorem plus rupees five per square metre.

Section 4 of the Amending Act amended the relevant entries in the Schedule to the Additional
Duties Act. Section 5(2) of the Amending Act provided:
"5. Special provisions as to duties of excise on cotton fabrics, woollen fabrics, mart-made fabrics,
etc.. during a certain past period and validation :-

(1) ..................................................

(2) Any rule or notification or any action or thing made, issued. taken or done or purporting to have
been made, issued, taken or done under a Central Act referred to in sub-section ( 1) before the date
of commencement of this Act, with respect to or in relation to the levy of duties of excise on-

(a) "cloth", "cotton cloth" or, as the case may be, "cotton fabrics",

(b) "woollen fabrics",

(c) "rayon or artificial silk fabrics" or, as the case may be, "man-made fabrics",

shall for all purposes be deemed to be and to have always been, as validly and effectively made,
issued taken or done as if the provisions of this section had been in force at all material times and,
accordingly, notwithstanding any judgment, decree or order of any Court, tribunal or other authority

(a) all duties of excise levied, assessed or collected or purported to have been levied assessed or
collected before the date of commencement of this Act, on -

(i) "cloth", "cotton cloth" and "cotton fabrics" subjected to any process,

(ii) "woollen fabrics" subjected to any process,

(iii) "rayon or artificial silk fabrics" and man-made fabrics" subjected to any process,
under any such Central Act shall be deemed to be, and shall be deemed always to have been, as
validly levied, assessed or collected as if the provisions of this section had been in force on and
from the appointed day;

(b) no suit or other proceeding shall be maintained or continued in any Court for the refund of, and
no enforcement shall be made by any Court of any decree or order directing the refund of, any such
duties of excise which have been collected and which would have been validly collected if the
provisions of this section had been in force on and from the appointed day;

(c) and (d) ............................................"

13. Indeed, the correctness of the judgment of the Gujarat High Court in the cases of Vijaya Textiles
and Real Honest Textiles were considered by a Bench consisting of three judges of this Court in
Empire Industries v. Union of India, (1985) Supp 1 SCR 292: (AIR 1986 SC 662), by the judgment
dated 6-5-1985, one of us (Sabyasachi Mukharji, J.) speaking for the Court upheld the validity of
the impost. Vijay Textiles Mills v. Union of India, 1979 ELT (J) 181 : (1980 Tax LR 1766), was
held not to have been decided correctly. The view taken by the Bombay High Court in New Shakti
Dye Works Pvt. Ltd. v. Union of India, (1983 ELT 1736) was approved.

The pronouncement of this Court in Empire Industries case otherwise covers, and is a full answer
to, the contentions raised in this batch of cases. However, the correctness of the view taken in the
Empire Industries' case on certain aspects was doubted by another Bench of this Court and the
matter was, accordingly, referred to a Bench of five judges.

14. It is, perhaps, necessary to refer to the order dated 9-12-1986 made by the Division Bench
referring the cases to a larger bench. What came before the Division Bench were WP 12183/1985
(M/s. Ujagar Prints v. Union of India) and CA Nos. 1685-1766/1979 (Union of India v. Narendra
Processing Industries) : (reported in AIR 1987 SC 874). Two questions arose before and were
examined by the Referring Bench. The first was whether the processing of Gray-fabric amounted to
'manufacture' within the meaning of Section 2(f) as it stood prior to its amendment. The second
question was whether, even if such processing did amount to 'manufacture' what should be the
proper basis for determining the assessable-value of the processed fabrics. Both these questions had
earlier been examined and answered in the Empire Industries case. It is necessary to ascertain as to
the precise points on which the Empire Industries' decision was required to be reconsidered. The
Referring Bench did not disagree with the decision in Empire Industries' case on the question
whether 'processing' did amount to 'manufacture'. Indeed, the Referring Bench appears to have
proceeded on the premise that the view taken in Empire Industries' case on the point was the correct
one. Referring Bench said this on the point : (at p. 875 of AIR)
"...... So far as the first question is concerned it was agitated before this Court in Empire Industries
Ltd. v. Union of India, (AIR 1986 SC 662) and this Court held that the processes of bleaching,
mercerising, dyeing, printing, water-proofing, etc. carried out by the processors on job-work basis
amount to manufacture both under the Act as it stood prior to the amendment as also under the Act
subsequent to the amendment and the processed fabrics are liable to be assessed to excise duty in the
hands of what may be called 'jobbers'. Since this was a decision given by a Bench of three Judges,
the petitioners and appellants who are carrying on business of processing on job-work basis could
not contend that these processes do not amount to manufacture and that the processed fabrics are not
liable to be assessed to 'excise duty in the hands of the jobbers. But, it was the second question
which provoked serious controversy before us ......."

It is only on the second question touching valuation that it expressed some doubts. Nevertheless, in
para 6 of the Order, the Referring Bench made a further observation to this effect :

"........Of course, when these writ petitions and appeals are referred to the larger Bench it will be
open to the larger Bench to consider not only the question of determination of the assessable value
but also the other question, namely, whether processing of grey fabric by a processor on job-work
basis constitutes manufacture, because the judgment in Empire Industries case which has decided
this question in favour of the revenue and against the processor is a judgment of a Bench of only
three Judges and now the present writ petitions and appeals will be heard by a Bench of five
Judges."

15. This is how the first question which is, otherwise, concluded by the pronouncement in Empire
Industries case is sought to be reagitated before us. Out of deference to the learned counsel who
vigorously argued this aspect at great length and we thought we should examine the submissions on
this point also, though the matter could by no means be considered to have been referred to a larger
bench.

On the second question also the matter is within a short compass. The Referring Bench clearly
excluded any possibility of the assessable-value being limited to the mere processing- charges. It
contemplated the alternative possibilities of valuation thus : (at p. 875 of AIR 1987 SC).

"It was common ground between the parties that the procedure followed by the Excise Authorities
was that the trader, who entrusted cotton or man made fabrics to the processor for processing on
job-work basis would give a declaration to the processor as to what would be the price at which he
would be selling the processed goods in the market and that would be taken by the Excise
authorities as the assessable value of the processed fabrics and excise duty would be charged to the
processor on that basis. This may be illustrated by giving the following example:
(1) Value of grey cloth in the hands of the processor : Rs. 20.00

(2) Value of job-work done : Rs. 5.00 Value of finished cloth returned to the trader (I + 2) : Rs.
25.00

(3) Trader's selling price inclusive of his selling profits, etc. : Rs. 30.00

The assessable value in the case given in this example would be taken by the Excise Authorities
atRs. 30 which was the sale price of the trader ......"

The view of the Referring Bench on the point was this: (at p. 876 of AIR).

"We cannot accept the contention of the learned counsel on behalf of the petitioners and the
appellants that the value of the grey cloth which is processed by the processor should not be
included in the assessable value of the processed fabric since the grey cloth is one of the raw
materials which goes into the manufacture of the processed fabric and the value of the processed
fabric cannot be computed without including the value of the raw material that goes into its
manufacture. The assessable value of the processed fabric cannot therefore be limited merely to the
value of the job-work done but it must be determined by reference to the wholesale cash price of the
processed fabric at the gate of the factory of the processor ........"

The Referring Bench was of the view that the correct assessable-value should be: (at p. 876 of AIR)

"....... Thus in the example given above the assessable value of the processed fabric must be taken to
be Rs. 20 + 5 that is Rs. 25 and the profit of Rs. 5 which the
trader may make by selling the processed fabric cannot be included in the assessable value. The
element of selling profit of the trader would be entirely an extraneous element and it cannot be taken
into account for the purpose of determining the assessable value of the processed fabric which
would comprise the value of the grey cloth and the job-work charges but exclude the profit at which
the trader may subsequently sell the processed fabric."

16. We have heard Sri A. K.Sen, Sri Soli. J. Sorabjee, Dr. Chitale and Sri Dholakia, learned Senior
Advocates in the appeals and writ-petitions preferred by the processors; and Sri K. Parasaran,
learned Attroney General and Sr; A. K. Ganguli learned Senior Advocate for the Union of India and
its authorities. On the contentions urged. the points that fall for determination are :

(a) (i) Whether the processes of Bleaching, Dyeing, Printing, Sizing, Shrink-proofing etc. carried on
in respect of cotton or man-made 'Grev-fabric' amount to 'manufacture' for purposes, and within the
meaning of Section 2(f) of the Central Excises and Salt Act 1944 prior to the Amendment of the
said Section 2(f) by Section 2 of the Amending Act VI of 1980.

(a) (ii) Whether the decision in Empire Industries Limited v. Union of India, 1985 Supp(1) SCR292:
(AIR 1986 SC 662) holding that these operations amount to a manufacture is wrongly decided and
requires reconsideration.

(b) Whether the amendment brought about by the Amending Act of 1980 of %Section 2(f) and to
tariff-items 19 and 22 of the Central Excise Act is ultra vires Entry 84 List I and therefore. beyond
the competence qkqnce of the Union Parliament.

Whether, at all events, even if the expanded concept of manufacture introduced by the Amendment
is beyond the scope of Entry 84 List 1, whether the impost is, at all events, referable to and
supportable by the residual Entry 97 of List 1.

(c) Whether. at all events. even if the amendments to Central Excise Act are valid. i tic levy under
the Additional Duties Act is unsupportable and without the authority of law as there is no
corresponding enlargement of the definition of 'manufacture' under the Additional Duties Act.

(d) Whether the retrospective operation of the Amending Act is an unreasonable restoration on the
'processors' under Article 19(l)(g) of the Constitution.

(e) Whether, even if the levy is justified at all events, the computation of the assessablevalue of the
processed Grey-fabric on the basis of the whole-sale cash selling-price declared under classification
list under Rule 173(b) is unjustified and illegal in respect of the assessable-value of the processed
Grey-abric done on job-work basis.

17. Re: Contention (a)
The essential condition to be satisfied to justify the levies, contend counsel, is that there should be
'manufacture' of goods and in order that the concept of 'manufacture' in Entry 84 List I is satisfied
there should come into existence a new article with a distinctive character and use, as a result of the
processing. It is contended that nothing of the kind happens when 'Grey fabric' is processed; it
remains' grey- fabric; no new article with any distinctive character emerges.

A number of authorities of this Court and of the High Courts were cited. Particular reference was
made to Union of India v. Delhi Cloth and General Mills, (1963) Supp (1) SCR 586 at p. 597 : (AIR
1963 SC 791 at p. 795): Tungabhadra Industries Ltd. v. Commercial-tax Officer, Kurnool, (1961) 2
SCR 14: (AIR 1961 SC 412); Dy. Commr. of Sales Tax v. Pio Food Packers, (1980) 3 SCR 1271 at
p. 1275 : (AIR 1980 SC 1227 at p. 1229); Sterling Foods v. State of Karnataka. (1986) 3 SCC 469
at pp. 475 and 476 : (AIR 1986 SC 1809 at P. 1813); Kailash Nath v.,State of U.P 8 STC 358 : (AIR
1957 SC 790) Dy. Cornmr. of Sales Tax v. Sadasivan. (1978) 42 STC 201 (Kerala); Swastic
Products, Baroda v. Supdt. of Central Excise, 1980 ELT164 (Gujarat): Swan Bangle Stores v.
Assistant ales Tax Officer, 25 STC 122 (1969 All LJ 30); State of Andhra Pradesh v. Sri Durga
Hardware Stores. 32 STC 322: 1973 Tax LR 317) (Andh. Pra): Extrusion Process Pvt. Ltd v. N. R.
Jadhav. Supdt. of Central Excise. 979 ELT (J) 380 : (1974 Tax LR 1655) (Gujarat).

18. The following observations of this Court in Union of India v. Delhi Cloth and General Mills
AIR 1903 SC 791 at p. 794 were emphasised :

"According to the learned counsel manufacture" is complete as soon as by the application of one or
more processes, the raw material undergoes sonic change. To say this is to equate "processing" to
manufacture" and for this we can find no warrant in law. The word "nianufacture" used as a verb is
generally understood to mean as 'bringing into existence a new substance" and does not mean
merely "to produce some change in a substance however minor in consequence the change may be."

These(sic) observations in Health and Milligan Manufacturing Company, The Sherwin-Williams
Company, etc. v. J. H. Worst, Director of the North Dakota Government Agricultural Experiment
Station which were referred to with approval by this Court in the case of Pio Food Packers', (AIR
1980 SC 1227 at p. 1229) ( supra), was relied upon :

"At some point processing and manufacturing will merge. But where the commodity retains a
continuing substantial identity through the processing stage we cannot say that it has been
"manufactured". (Emphasis Supplied)

The following observations of Bhagwati J. in Pio Food Packers case were cited (at pp. 1228- 29 of
AIR) :
".... manufacture is the end result of one or more processes through which the original commodity is
made to pass..... where there is no essential difference in identity between the original commodity
and the processed article it is not possible to say that in one commodity has been consumed in the
manufacture of another. Although it has undergone a degree of processing, it must be regarded as
still retaining its original identity." (Emphasis supplied)

The observations of this Court in Kailash Nath v. State of U.P. 8 STC 358 : (AIR 1957 SC790)
made while repelling the contention of the revenue urged in that case that when cloth is printed and
coloured it gets transformed to some other material and that therefore when such printed and
coloured cloth is exported what was exported was not the same cloth and that by such printing and
dyeing the original cloth got transformed into different material were relied on : (at Pp. 793-94 of
AIR)

"The cloth exported is the same as the cloth sold with this variation or difference that the colour has
changed by printing and processing. In view which we take the cloth exported is the same as the
cloth sold by the petitioners. there can be no question about the exemption clause not applying to it
....... " (Emphasis supplied)

The following passage in the permanent Edition of 'Words and Phrases' referred to with approval in
Delhi Cloth and General Mills, AIR 1963 SC 791 at p. 795 case was referred to :

"Manufacture implies a change, but every change is not manufacture and yet every change of an
article is the result of reatment. labour and manipulation. But something more is necessary and there
must be transformation; a new and different article must emerge having a distinctive name.
character or use."

Further learned counsel placed reliance upon Tungabhadra Industries' case. (AIR 1961 SC 412)
where it was held that groundnut oil after the process of hydrogenation which improved its keeping-
quaiities and shelf life yet remained basically groundnut oil and that the quality of the oil had been
improved by the processes it was subjected to. did not detract from its continuing identity as
groundnut oil. The change brought about in the oil. it was observed by this Court, rendered it more
acceptable to the customers by improving its quality, but did not render the oil a commodity other
than groundnut oil which still continued to be groundnut oil notwithstanding the processing which
was merely for the purpose of rendering the oil more stable thus improving its keeping qualities for
those who desire to consume ground-nut oil. Likewise the processing such as bleaching. Dyeing,
printing, finishing etc., it was urged, merely improved the quality of Grey-fabric and rendered it
more acceptable to the customer while not shedding its basic character as, 'cotton-fabric' or 'man-
made fabric'. It was also urged that the affidavits filed by persons engaged in and familiar with the
textile-trade indicated that the finished fabric was not a commercially different commodity.
19. We have carefully considered these submissions. In the Empire Industries Case, (AIR 1986 SC
662) this Court considered similar submissions in an almost identical context and situation. Learned
judges referred to the observations of this Court in Commr. of Sales Tax, UP (Lucknow) v. Harbilas
Rai, (1968) 21 STC 17, in which the view expressed by the Division Bench of the Madhya Pradesh
High Court in Hiralal Jitmal v. Commr. of Income-tax, 8 STC 325 at p. 326: (AIR 1957 Madh Pra
37) was held supportable on the reasoning that :

"The decision of the Madhya Pradesh High Court might perhaps be justified on the ground that a
printed or dyed cloth is commercially a different article from the cloth which is purchased and
printed or dyed'.

The Division Bench also referred to, with approval, the decision of the Bombay High Court in
Kores (India) Limited v. Union of India, 1982 ELT 253 : (1982 Tax LR 2823). The Division Bench
noticed the question arising for decision :

"Fabric itself means woven materials It was contended that processing the manufactured fabric does
not bring into existence any new woven material but the question is: does new and different goods
emerge having distinctive name, use and character?"

Answering, the Bench said:

"it appears in the light of the several decisions and on the construction of the expression that the
process of bleaching, dyeing and printing etymologically also means manufacturing processes ......."

20. It is strenuously urged for the processors that the view taken by the Division Bench in the
Empire Industries case suffers from fallacies both of reasoning and conclusion and requires to be
reconsidered.

The prevalent and generally accepted test to ascertain that there is 'manufacture' is whether the
change or the series of changes brought about by the application of processes take the commodity to
the point where, commercially, it can no longer be regarded as the original commodity but is,
instead, recognised as a distinct and new article that has emerged as a result of the processes. The
principles are clear. But difficulties arise in their application in individual cases. There might be
border-line cases where either conclusion with equal justification be reached Insistence on any sharp
or intrinsic distinction between 'processing' and 'manufacture', we are afraid, results in an over
simplification of both and tends to blur their interdependence in cases such as the present one. The
correctness of the view in the Empire Industries case cannot be tested in the light of material - in the
form of affidavit expressing the opinion of persons said to be engage in or connected with the textile
trade as to the commercial identity of the commodities before and after the processing - placed
before the Court in a subsequent case. These opinions are, of course, relevant and would be amongst
the various factors to be taken into account in deciding the question.

21. On a consideration of the matter, we are persuaded to think that the view taken in the Empire
Industries case, (AIR 1986 SC 662) that 'Grey-fabric' after they undergo the various processes of
bleaching, dyeing, sizing, printing, finishing etc. emerges as a commercially different commodity
with its own price-structure, custom and other commercial incidents and that there was in that sense
a 'manufacture' within the meaning of Section 2(f), even as unamended, is an eminently plausible
view and is not shown to suffer from any fallacy. Indeed, on this point the Referring Bench did not
disagree or have any reservations either. It is to be noticed that if the amending law is valid, this
aspect becomes academic.

We think, we should reject contention (a).

22. Re: Contention (b)

The concept of 'manufacture' embodied in Entry 84 of List I, it is urged, should be construed not in
an artificial sense, but in its recognised legal sense and so construed artificial dimensions sought to
be imparted to it by the amendment would be impermissible. Learned counsel drew attention to the
following observations of this Court in Diamond Sugar Mills v. State of U.P. (1961) 3 SCR 242 at p.
248: (AIR 1961 SC 652 at p. 655).

" .... we have, on the one hand, to bear in mind the salutary rule that words conferring the right of
legislation should be interpreted liberally and the powers conferred should be given the widest
amplitude; on the other hand we have to guard ourselves against extending the meaning of the
words beyond their reasonable connotation, in an anxiety to preserve the power of the legislature''.
(Emphasis supplied ).

Though entries in the legislative lists are to be construed liberally and the widest possible amplitude
given to them, however, no artificial or arbitrary extensions of the meaning of the words in the
entry, it is urged, are permissible. It is submitted the concept 'manufacture' in Entry 84 List I has a
well accepted legal connotation and in construing the entry the precise connotation which it
possesses and conveys in law must be kept in mind. There is in law no 'manufacture' unless as a
result of the process a new and commercially distinct product with distinct use emerges. The idea of
manufacture might imply change. but every change is not necessary manufacture. It is, accordingly,
contended that the amendment which seeks to equate "processing" with "manufacture" is beyond the
scope of Entry 84 List I.
23. In the Empire Industries' case, (AIR 1986 SC 662), a similar argument was urged but without
success. Learned Judges were persuaded to the view that such processes which were referred to by
the amendment were not so alien or foreign to the concept of 'manufacturer' that they could not
come within that concept.

Entries to the legislative lists, it must be recalled, are not sources of the legislative power but are
merely topics or fields of legislation and must receive a liberal construction inspired by a broad and
generous spirit and not in a narrow pedantic sense. The expression "with respect to" in Article 246
brings in the doctrine of "Pith and Substance" in the understanding of the exertion of the legislative
power and wherever the question of legislative competence is raised the test is whether the
legislation, looked at as a whole, is substantially 'with respect to' the particular topic of legislation.
If the legislation has a substantial and not merely a remote connection with the entry, the matter may
well be taken to be legislation on the topic.

In Empire Industries case, it was held :

"As has been noted, processes of the type which have been incorporated by the impugned Act were
not so alien or foreign to the concept of "manufacture" that these could not come within that
concept.

24. At all events, even if the impost on process is not one under Entry 84, List I, but is an impost on
"processing" distinct from "Manufacture" the levy could yet be supported by Entry 97, List I, even
without the aid of the wider principle recognised and adopted in Dhillon's case, AIR 1972 SC 1061.
It was, however, contended that the levy of tax on an activity which cannot reasonably be regarded
as an activity of 'manufacture' cannot be described as a levy of duties of excise under Entry 84, List
I. If it is a non-descript tax under Entry 97, the Parliament, it is urged, has not chosen to enact any
such law in this case. The charging section does not, it is urged, bring such a taxable event to
charge. This argument was noticed in Empire Industries case,( AIR 1986 SC 662 at P. 677) thus :

"It was then argued that if the legislation was sought to be defended on the ground that it is a tax on
activity like processing and would be covered by the powers enumerated under Entry 97, List I of
the Seventh Schedule then it was submitted that there was no charging section for such an activity
and as such the charge must fail, and there cannot be any levy ........."

The contention was rejected holding (at p. 677) :
"......This argument proceeds on an entire misconception. The charging section is the charging
Section 3 of the Central Excises and Salt Act,1944. It stipulates the levy and charge of duty of
excise on all excisable goods produced or manufactured "Manufactured" under the Act after the
amendment would be the 'manufacture' as amended in Section 2(f) and Tariff item 19-I and 22 and
the charge would be on that basis. Therefore it is difficult to appreciate the argument that the levy
would fail as there will be no appropriate charging section or machinery for effectuating the levy on
the activity like the method of processing even if such an activity can be justified under Entry 97 of
List I of Seventh Schedule. We are, therefore, of the opinion that there is no substance in this
contention ......."

we respectfully agree.

25. If a legislation purporting to be under a particular legislative entry is assailed for lack of
legislative competence the State can seek to support it on the basis of any other entry within the
legislative competence of the legislature. It is not necessary for the State to show that the legislature,
in enacting the law, consciously applied its mind to the source of its own competence. Competence
to legislate flows from Articles 245, 246, and the other Articles following, in Part XI of the
Constitution. In defending the validity of a law questioned on ground of legislative incompetence,
the State can always show that the law was supportable under any other entry within the competence
of the legislature. Indeed in supporting a legislation sustenance could be drawn and had from a
number of entries. The legislation could be a composite legislation drawing upon several entries.
Such a "rag-bag" legislation is particularly familiar in taxation.

Bennion in his "Statutory Interpretation" (at page 644) refers such a composite legislation, though
the observations must be understood in the context of the supremacy of the British Parliament and
one of unlimited powers and which is, under no inhibitions unlike a federal polity, of distribution of
legislative powers. Learned author refers to :

" 'Ragbag' Acts : Some Acts are 'ragbag' Acts, covering many areas. The annual Finance Act is an
extreme example. It is divided into parts, dealing respectively with customs and excise duty, value
added tax, income tax, capital gains tax, stamp duty, capital transfer tax and so on. Even within a
Part of a Finance Act the various provisions have quite different aims."

In Hari Krishna Bhargav v. Union of India (1966) 2 SCR 22: (AIR 1966 SC 619 at p. 622), this
Court said :

"......There is no prohibition against the Parliament enacting in a single statute, matters which call
for the exercise of power under two or more entries in List I of the Seventh Schedule. Illustrations
of such legislation are not wanting in our statute book, and the fact that one of such entries is the
residuary entry does not also attract any disability...."

26. So far as, the exclusive competence of the Union Parliament to legislate is concerned all that is
necessary is to find out whether the particular topic of legislation is in List II or List III. If it is not,
it is not necessary to go any further or search for the field in List I. Union Parliament has exclusive
power to legislate upon that topic or field. Of course, it has concurrent power also in respect of the
subjects in List III.
Contention (b) is, therefore, insubstantial.

27. Re : Contention (c)

This pertains to the validity of levy of additional duties. The contention proceeds on the pre-
supposition that processing does not amount to 'manufacture' under Section 3(l) of the Additional
Duties Act. If it does, as has been held on point (a), this argument does not survive at all.

The point, however, sought to be put across is that, even if the concept of 'manufacture' for purposes
of levy of excise duty under the 'Central Excise Act' is validly expanded or that a tax on processing
is, otherwise, supportable under Entry 97(l), the position under the 'Additional Duties Act' is quite
different. The 'Additional Duties Act' does not expressly invoke or attract the definition of
'Manufacture' in Section 2(f) of the 'Central Excise Act'; nor does the 'Additional Duties Act' itself
contain a definition of 'manufacture' in the broad terms in which section 2(f), as amended, contains.
The result is, it is urged, that the ordinary legal connotation of 'manufacture', contained in the
charging Section 3(l) of the "Additional Duties Act' can alone support the levy. It is not, it is urged,
permissible to import the artificial and expanded definition of 'manufacture' containing in Section
2(f), as amended, into Section 3(l) of the Additional Duties Act.

The following observations of this Court in Pandit Ram Narain v. State of Uttar Pradesh, 1956 SCR
664 at p. 673: (AIR 1957 SC 18 at p. 23) are pressed into service :

".....It was rightly pointed out that it is no sound principle of construction to interpret expressions
used in one Act with reference to their use in another Act ......"
Again, the observations in Macbeth and Co. v. Chislett, 1910 AC 220 at p.224 referred to with
approval by this Court in Commr. of Sales Tax, Madhya Pradesh v. Jaswant Singh Charan Singh
(1967) 2 SCR 720 at pp. 725-26 : (AIR 1967 SC 1454 at p. 1457) were relied upon :
"........... it would be a new terror in the construction of Acts of Parliament if we were required to
limit a word to an unnatural sense because in some Act which is not incorporated or referred to such
an interpretation is given to it for the purposes of that Act alone'......."

It is further contended that a mere amendment of the schedules to the "Additional Duties Act'
purported by Section 4 of the Amending Act VI of 1980 would be inadequate to serve the purpose
of a valid levy on the activity of processing. It was also urged that Section 3(3) of the 'Additional
Duties Act' which provides that the provisions of 'Central Excise Act' and the rules made thereunder
shall, so far as may be, apply in relation to the "levy and collection" of the Additional Duties would
not also enable the wider definition of 'manufacture' in Section 2(f) to be imported into Section 3(l)
of the Additional Duties Act to justify levy of Additional Duties on 'processing'.

28. The contention was neatly and attractively presented and appeared, at first blush, to merit a
serious consideration of the validity of the levy of additional duties. But on a closer examination of
the concept of, and the scheme for, levy and collection of the additional duties and the specific
statutory provisions, the tensile strength of the argument breaks down. There are at least two
circumstances which render the definition of 'manufacture' under Section 2(f) attracted to the
additional levies. Section 30) of the Additional Duties Act provides :

"... levy and collection of the additional, duties as they apply in relation to the levy and collection of
the duties of excise on the goods specified in sub-section (1).

It is plain that the statute expressly makes the provision in the "Central Excise Act" apply in relation
to 'levy and collection' of the additional duties. The question is whether this provision is sufficient to
attract Section 2(f) of the main Act as amended. This, in turn, depends upon what the expression
"levy" connotes and carries with it. The term 'levy' it is held, is an expression of wide import. It
includes both imposition of a tax as well as its quantification and assessment. In Assistant Collector
of Central Excise, Calcutta Division v. National Tobacco Co. of India Ltd, (1973) 1 SCR 822 at P.
835 : (AIR 1972 SC 2563 at p. 2571) this Court held :

"The term "levy" appears to us to be wider In its import than the term "assessment". It may include
both of a tax as well as assessment. The term "imposition" is generally used for the levy of a tax or
duty by legislative provision indicating the subject matter of the tax and the rates at which it has to
be taxed . ......"

29. That apart, Section 4 of Amending Act VI of 1980 has amended the relevant items in the
schedule to the Additional Duties Act. The expressions 'produce' or manufacture in Section 3(l) of
the Additional Duties Act must be read along with the entries in the schedules.

In Att. Gen. v. Lamplough, (1878) 3 Ex. D.214, 229 it is observed :

"A schedule in an Act is a mere question of drafting, a mere question of words. The schedule is as
much a part of the statute, and is as much an enactment, as any other part".

Maxwell says (in Interpretation of Statutes' 11th edn. p. 156) :

"........... if an enactment in a schedule contradicts an earlier clause it prevails against it."

Bennion (in Bennion's Statutory Interpretation, pp. 568-569) referring to the place of schedules in
statutes observes :

"The Schedule is an extension of the section which induces it. Material is put into a Schedule
because it is too lengthy or detailed to be conveniently accommodated in a section ........"

"A Schedule must be attached to the body of the Act by words in one of the sections (known as
inducing words). It was formerly the practice for the inducing words to say that the Schedule was to
be construed and have effect as part of the Act. (See, e.g., Ballot Act 1872, S. 28.) This is no longer
done, being regarded as unnecessary. If by mischance the inducing words were omitted, the
Schedule would still form part of the Act if that was the apparent intention."

".....The schedule is as much a part of the statute, and is as much an enactment, as any other part.
(See also to the like effect, Flower Freight Co. Ltd. v. Hammond, (1963) 1 QB 275; R. v. Legal Aid
Committee No. 1 (London) Legal Aid Area, ex P. Rondel, (1967) 2 QB 482; Metropolitan Police
Commr. v. Curran, (1976) 1 WLR 87.)"

What appears, therefore, clear is that what applies to the main levy, applies to the additional duties
as well. We find no substance in Contention (c) either.
30. Re : Contention (d)

There is really no substance in the grievance that the retroactivity imparted to the amendments is
violative of Article 19(l)(g). A competent legislature can always validate a law which has been
declared by Courts to be invalid, provided the infirmities and vitiating infactors noticed in the
declaratory-judgment are removed or cured. Such a validating law can also be made retrospective. If
in the light of such validating and curative exercise made by the Legislature - granting legislative
competence - the earlier judgment becomes irrelevant and unenforceable, that cannot be called an
impermissible legislative overruling of the judicial decision. All that the legislature does is to usher
in a valid law with retrospective effect in the light of which earlier judgment becomes irrelevant.
(See Sri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, (1970) 1 SCR 388 : (AIR 1970
SC 192).

Such legislative expedience of validation of laws is of particular significance and utility and is quite
often applied, in taxing statutes. It is necessary that the legislature should be able to cure defects in
statutes. No individual can acquire a vested right from a defect in a statute and seek a windfall from
the legislature's mistakes. Validity of legislations retroactively curing defects in taxing statutes is
well recognised and Courts except under extraordinary circumstances would be, reluctant to
override the legislative judgment as to the need for and wisdom of the retrospective legislation. In
Empire Industries Limited v. Union of India 1985 Supp.(1) SCR 292 at p. 327 : (AIR 1986 SC 662
at p. 678) this Court observed :

".......not only because of the paramount governmental interest in obtaining adequate revenues, but
also, because taxes are not in the nature of a penalty or a contractual obligation but rather, a means
of opportioning the costs of government amongst the who benefit from it".

In testing whether a retrospective imposition of a tax operates so, harshly as to violate fundamental
rights, under Article l9 (1) (g) the factors considered relevant include the context in which
retroactivity was contemplated such, as whether the law is one of validation of taxing statute struck
down by, Courts for certain defects; the period of such retroactivity, and the degree and extent of
any unforeseen or unforeseeable financial burden imposed for the past period. etc. Having regard to
all the circumstances, of the present case, this Court in Empire Industries" case held that the
retroactivity of the Amending provisions was not such as to incur any infirmity under Article
19(l)(g). We are in respectful agreement with that view.

There is no merit in contention (d) either.

31. Re : Contention (e)
This concerns the question of the correctness of the determination of the assessable value. The
processors say that they have filed classification lists under rule 173B of the Central Excise and Salt
Rules 1944 as they had no other choice and that if the proper principles of determination of the
assessable-value do not legally justify the consequences flowing from the classification, it is open to
them to contend against the validity of the determination and they are not estopped from doing so.
Duties of excise are imposed on the production or manufacture of goods and are levied upon the
manufacturer or the producer in respect of the commodity taxed. The question whether the producer
or the manufacturer is or is not the owner of the goods is not determinative of the liability. The
essential and conceptual nature of the tax is to be kept clearly distinguished from both the extent of
the power to impose and the stage at which the tax is imposed. Though the levy is on the production
or manufacture of the goods, the imposition of the duty could be at the stage which the law
considers most convenient to impose as long as a rational relationship with the nature of the tax is
maintained.

32. The processors contend that, the assessable value could only be the job-work charges received
by them for the processing of 'Grey-fabric' and cannot be the selling price at which the customer
who entrusts the Grey-fabric for processing ultimately sells it in the market. Such a sale-price, it is
said, would, quite plainly, include the value, of the Grey-fabric, the processing- charges and also the
selling-profits of the customer. Even in regard to the price of the Grey-fabric itself which comes to
the processing-houses in fully manufactured condition would again depend upon how many hands it
has changed before reaching the particular customer who brings them for processing. The
determination of assessable-value at the actual or hypothetical selling-price of goods of like nature
and quality in the wholesale market would include the postmanufacturing profits of the trader which
cannot legitimately be regarded as part of the assessable-value.

33. This contention was considered in detail in Empire Industries case, 1985 Supp. (1) SCR 292 at
p. 327 : (AIR 1986 SC 602 at pp. 678-79) wherein it was held :

"When the textile fabrics are subjected to the processes like bleaching, dyeing and printing etc. by
independent processes, whether on their own account or on job charges basis, the value of the
purposes of assessment under Section 4 of the Central Excise Act will not be the processing charges
alone but the intrinsic value of the processed fabrics which is the price at which such fabrics are sold
for the first time in the wholesale market. That is the effect of Section 4 of the Act. The value would
naturally include the value of grey fabrics supplied to the independent processors for the processing,
however, excise duty, if any, paid on the grey fabrics will be given pro forma credit to the
independent processors to be utilised for the payment on the processed fabrics in accordance with
the Rules 56A or 96D of the Central Excise Rules, as the case may be"

Even the Referring Bench did not doubt the correctness of the inclusion in the assessable value the
cost of the Grey-fabric and the processing charges. The Referring Bench held :
"We cannot accept the contention of the learned counsel on behalf of the petitioners and the
appellants that the value of the grey cloth which is processed by the processor should not be
included in the assessable value of the processed fabrics ......"

34. In the argument, as presented, that the assessable-value would include what is referred to as the
"post-manufacturing profits", there is an obvious fallacy. In Atic Industries Ltd. v. H. H. Dave,
Asstt. Collector of Central Excise, (1975) 3 SCR 563 : (AIR 1975 SC 960 at pp. 967-68) Bhagwati
J. speaking for the Court said :

"The value of the goods for the purpose of excise must take into account only the manufacturing
cost and the manufacturing profit, and it must not be loaded with post-manufacturing cost or profit
arising from post-manufacturing operation...."

"........... It may be noted that wholesale market in a particular type of goods may be in several tiers
and the goods may reach the consumer after a series of wholesale transactions. In fact the more
common and less expensive the goods, there would be greater possibility of more than one tier of
wholesale transactions......."

" ........If excise were levied on the basis of second or subsequent wholesale price it would load the
price with a post-manufacturing element, namely, selling cost and selling profit of the wholesale
dealer. That would be plainly contrary to the true nature of excise as explained in the Voltas' case
(AIR 1973 SC 225) (supra). Secondly, this would also violate the concept of the factory gate sale
which is the basis of determination of value of the goods for the purpose of excise ......."

"There can, therefore, be no doubt that where a manufacturer sells the goods manufactured by him
in wholesale to a wholesale dealer at arms length and in the usual course of business, the wholesale
cash price charged by him to the wholesale dealer less trade discount would represent the value of
the goods for the purpose of assessment of excise ......."

Explaining what really is the idea of "post-manufacturing profit" referred to in Atic's case this Court
in Union of India v. Bombay Tyre International Ltd., (1984) 1 SCR 347 at p. 375: (AIR 1984 SC
420 at p. 434) said :

"When it refers to post-manufacturing expenses and post-manufacturing profit arising from post-
manufacturing operations, it clearly intends to refer not to the expenses and profits pertaining to the
sale transactions effected by the manufacturer but to those pertaining to the subsequent sale
transactions effected by the whole other dealers." (Emphasis Supplied)

The principles for the determination of assessable-value are laid down under Section 4 of the Act.
Section 4 of the 'Central Excise Act' envisages that the value of an article for the purposes of duty
shall be deemed to be; (a) The wholesale cash price for which an article of the like kind and quality
was sold or was capable of being sold at the time of removal of the article from the factory or
premises of manufacture for delivery at the place of manufacture or; (b) Where such price was not
ascertainable, the price at which an article of the like kind and quality was sold or capable of being
sold at the time of removal of the article chargeable with duty.

The nature of the excise duty is not to be confused with, or tested with reference to, the measure by
which the tax is assessed. The Standard adopted as the measure of assessment may throw fight on
the nature of the levy but is not determinative of it. When a statutory measure for assessment of the
tax is contemplated, it "need not contour along the lines which spell out the levy itself and "a
broader based standard of reference may be adopted for the purposes of determining the measure of
the levy." Any statutory standard which maintains a nexus with the essential character of the levy
can be regarded as a valid basis for assessing the measure of the tax.

35. In the case of processing-houses, they, become liable to pay excise duty not because they are the
owners of the goods but because, they cause the 'manufacture' of the goods. The dimensions of the
Section 4 (1) (a) and (b) are fully explored in a number of decisions of this Court. Reference may be
made to the case of Bombay Tyres International.

Consistent with the provisions of Section 4 and the Central Excise (Valuation) Rules, 1975, framed
under Section 37 of the Act, it cannot be said that the assessable-value of the processed fabric
should comprise only of the processing-charges. This extreme contention if accepted, would lead to
and create more problems than it is supposed to solve; and produce situations which could only be
characterised as anomalous. The incidence of the levy should be uniform, uninfluenced by
fortuitous considerations. The method of determination of the assessable-value suggested by the
processors; would lead to the untenable position that while in one class of Grey-fabric processed by
the same processor on bailment, the assessable-value would have to be determined differently
dependent upon the consideration that the processing-house had carried out the processing
operations on job-work basis, in the other class of cases, as it not unoften happens, the goods would
have to be valued differently only for the reason the same processing-house has itself purchased the
Grey-fabric and carried-out the processing operations on its own.

It is to solve the problem arising out of the circumstance that goods owned by one person are
"manufactured" by another that at a certain stage under rule 174-A, a notification was issued by the
Central Government exempting from the operation of the rule 174-A :

".....every manufacturer who gets his goods manufactured on his account from any other person,
subject to the conditions that the said manufacturer authorises the person, who actually
manufactures or fabricates the said goods to comply with all procedural formalities under the
Central Excises and Salt Act, 1944 (1 of 1944) and the rules made thereunder, in respect of the
goods manufactured on behalf of the said manufacturer and, in order to enable the determination of
value of the said goods under section 4 of the said Act, to furnish information relating to the price at
which the said manufacturer is selling the said goods and the person so authorised agrees to
discharge all liabilities under the said Act and the rules made thereunder."

36. On a consideration of the matter, the view taken in the matter in the Empire Industries case does
not call for reconsideration. Contention (e) is also held and answered against the petitioner.

37. In the result the appeals preferred by the Union of India are allowed and the judgment of the
Gujarat High Court under appeal is set-aside. The appeals preferred by the processors against the
judgment of the Bombay High Court and the writ petitions filed by the processors directly in this
court are dismissed. There will, however, be no orders as to costs in the appeals and the writ
petitions.

The Union of India and its authorities shall be entitled to recover the amounts due by way of arrears
of excise-duty and shall be entitled to take necessary steps to seek the enforcement of the bank
guarantees, if any, for the recovery of the arrears.

RANGANATHAN, J. : -

(Concurring with Venkatachaliah, J.):-

38. I agree but I should like to add a few words on two of the points argued before us.

39. First, I should like to clarify the nature of the decision in Hindustan Milkfood Manufacturers
Ltd. v. Union of India (the HMM case) 1980 ELT 487 (to which I was a party), since learned
counsel for the petitioners sought to rely on my judgment in that case as supporting his contention
that the Union cannot seek to uphold the, amendment presently in question by reference to entry 97
of List I in the Seventh Schedule to the Constitution. In that case, the Delhi High Court was
concerned with the interpretation of the amendment to S. 4 of the Central Excises and Salt Act,
1944 by Act 22 of 1975. The pre-amendment section postulated the determination of excise duty on
the basis of the wholesale cash price of the excisable goods at "the factory gate"; and, an explanation
provided that, in determining this price, no abatement or deduction shall be allowed in respect of
trade discount and the amount of duty payable at the time of the removal of the goods from the
factory. The post-amendment section made certain changes in the concept of sale at the factory gate
by excluding therefrom sales effected in favour of a category of persons defined as "related persons"
with which we are not concerned here. The amendment also defined the assessable "value" so as to
include packing charges but to exclude the amount of excise duty, sales tax and other taxes as well
as trade discount. The question was whether this amendment precluded the deduction, from the
wholesale factory gate price, of post-manufacturing expenses and profits. The question had been
answered by several High Courts in the negative principally on the ground that the duty sought to be
levied under the Act was an excise duty, the very nature of which required a proximate connection
with production or manufacture and that what had passed beyond this region and entered the domain
of sale could not pass as excise duty. Counsel for the Union of India with a view to overcome these
decisions, had contended that since entry 97 of List 1 in the Seventh Schedule to the Constitution
enabled Parliament to enact a legislation even beyond the purview of an excise duty covered by
entry 84 of that list, the Court should not read into the amended section the limitations that had been
considered inherent in the section before its amendment. It was in repelling this contention that
certain observations were made by me in paras 30 to 32 of the judgment to which Sri Soli Sorabjee
drew our attention. It will, however, be clear from the discussion in the paragraphs referred to that
the contention was repelled not on the ground that the legislature could not make a wider levy by
reference to entry 97 but only on the ground that the history, context and language of the
amendment did not warrant the wider interpretation. This will be clear from the following two
sentences in para 31 where I said :

Mr. Chandrasekharan's contention ............that the language of the new section should be given an
enlarged scope and interpretation by relating it to entry 97 of List I of Seventh Schedule cannot, in
our opinion, be accepted. We do not think, in consider ring this amendment, that it is necessary for
us to discuss whether, if Parliament were to enact a law imposing on goods manufactured or
produced a duty based not only on the manufacturing cost / profits, but also including in the dutiable
value the whole or some part, of post manufacturing cost / profits, such a law would be intra vires or
not : because it appears to us that no such law has been enacted in this case. We shall assume with
Mr. Chandrasekharan, that in view of entry 97 in the Union List under the Constitution, it is open to
and competent for the legislature to expand or even modify the nature of the levy. The question,
however, will be whether it has done so."

It was concluded, after referring to the previous position as well as the Statement of Objects and
Reasons for the amendment, that there was nothing to show that the legislature had intended to
make any change and that the rule against a presumption of implicit alteration of the law should be
invoked in the context. In other words, the HMM decision was based not on the scope of legislative
entry 97 in List I but on the language and scope of the amendment actually effected. It was
considered not necessary or possible to stretch the language of the definition in S. 4 beyond the
ambit of the provision as delineated in the earlier decisions. The question decided was not that the
legislature could not, but that it did not, make any radical change in the nature of the levy.

40. The position considered in the HMM case may be illustrated by an analogy. Entry 82 in List I of
the Seventh Schedule to the Constitution permits the enactment, by the Union Legislature, of a law
relating to taxation of 'income'. The entry does not restrict such laws only to the income of a
'previous year', though this was the pattern of the prevalent Income Tax Acts activated by annual
Finance Acts. Between 1948 and 1955 however the Finance Acts purported to impose a tax on
"excess dividends" which, in brief, was a tax on dividends declared out of profits of past years. The
effect of these enactments was considered by the Bombay High Court as well as this Court. In C.I.T.
v. Elphinstone Spinning and Weaving Mills Co. Ltd., (1960) 3 SCR 953 : (AIR 1960 SC 1016), this
Court held that the language of the relevant provision in the Finance Acts was so framed that it
could not be read as an independent charging section. It will be appreciated that the Finance Acts
were also enactments of the Union Legislature and a taxation of profits, even of past years, by an
independent and specific enactment could certainly have been brought within the scope of entry 97,
if not entry 82 itself. Nevertheless, the enactments were held ineffective not because they could not
but because they did not contain the words necessary to effectuate the result. The position in the
HMM case was somewhat similar. The legislature retained the levy on the basis of the wholesale
cash price at the factory gate as before and only introduced a definition of the expression valued in
terms a little more elaborate but basically not very different from what had been contained in the
earlier section. The Court saw no reason to read into the language of the amended provision a
meaning much wider than had been attributed to the provision before its amendment. The
amendment gave no indication that, contrary to what had been decided earlier, it was the intention
of the legislature to bring into the assessable value even an element of post-manufacturing cost /
profits.

41. But here the position is entirely different. The amendment has specifically enlarged the meaning
and concept of the word "manufacture". If such extended concept is within the range of duties of
excise as envisaged under entry 84 - and I agree with my learned brothers that it is - there is no
difficulty. But, if, as contended for by Sri Soli Sorabjee that legislative entry permits a duty being
levied only on the process of "manufacture", stricto sensu, and the processing in this case cannot be
brought within that definition then this expanded definition cannot be fitted into that entry.
Nevertheless the specific statutory definition cannot be ignored and if it cannot be held valid by
reference to entry 84. its validity has to be considered with reference to the residuary entry 97. The
definition being what it is it cannot be read down or restricted only to the process of manufacture in
a limited sense. It explicitly enlarges the scope of the levy of excise duty and if it is not permissible
to bring it within the scope of entry 84, a resort to entry 97 cannot be ruled out. In my view,
therefore there is nothing in the decision in the HMM case(1980 ELT487) that supports the
contention of the petitioners here that the amendment 61 the definition of "manufacture" cannot be
sustained by reference to entry 97 of List I in the Seventh Schedule to the Constitution of India, if it
cannot be upheld as failing under the purview of entry 84.

42. The second point, on which I feel inclined to add a few words is in regard to the contention on
behalf of the petitioners that the definition of the term "manufacture" enacted in the Central Excises
and Salt Act, 1944 as enlarged by Amendment Act 6 / 80, cannot, be read into the provisions of the
Additional Duties of Excise Act (No. 58), 1957. The argument is in three phases and runs thus :

(i) S. 3 of the 1957 Act, which is the charging section, fastens the charge of duty at the stage of
'manufacture' but this expression is deliberately left undefined, though the statute takes special care
in S. 2 to adopt for its purposes, the definition of the specified goods as contained in the 1944 Act.
This excludes the definition of 'manufacture' enacted in S. 2(f) of the 1944 and enlarged from time
to time.

(ii) S. 3(3) cannot help the Revenue in this regard, as its only purpose and effect is to avoid a
repetition, in this Act, of the procedural provisions of the 1944, Act. The charge or imposition of the
tax having been laid under S. 3(l), the purpose of S. 3(3) is only to say that this charge shall be
quantified, demanded and recovered by, resort to the machinery provisions of the 1944 Act. This
sub-section cannot be read as having the effect of incorporating the substantive definition of
manufacture" in the 1944 Act particularly when S. 2 chose to incorporate only the definition of the
specified goods as contained in the 1944 Act.

(iii) Even if the language of S. 3(3) is construed more liberally, it will be effective only to
incorporate the definitions contained in the 1944 Act as on the date of commencement of the 1957
Act but not its subsequent legislative expansions.

43. In my opinion, there is no warrant or justification for giving such a narrow interpretation to the
wide language of S. 3(3) of the 1957 Act. Learned counsel for the petitioner, in advancing this
argument, apparently has in mind the famous dictum of Lord Dunedin in Whitney v. Inland
Revenue Commissioners, 1926 AC 37 (at p. 52) echoed in several decisions of this Court and of the
various High Courts in India :

"Now, there are three stages in the imposition of a tax : there is the declaration of liability, that is the
part of the statute which determines what persons in respect of what property are liable. Next, there
is the assessment. Liability does not depend on assessment. That, ex hypothesis has already been
fixed. But assessment particularizes the exact sum which a person liable has to pay. Lastly come the
methods of recovery, if the person taxed does not voluntarily pay."

The argument, founded on the above figurative analysis, seeks to equate the expressions "levy and
collection" used S. 3(3) with the stages of assessment an collection concerned with the procedure for
quantification and recovery of a duty that has already been imposed. The first stage of charge,
according to counsel, has already been dealt with in the first sub-section of S. 3, which has fastened
a charge on the production of manufacture of specified goods. The third sub-section, it is said, only
relates to the quantification or recovery of the charge imposed under S. 3(l). I do not see any force
in this argument.

44. In the first place, even S. 3(l) which according to the counsel, is, the charging section, uses the
same words "levied and collected". These are the same as the words used in article 265 of the
Constitution, which have been interpreted as comprehending the entire process of taxation
commencing from the imposition of the tax by enacting a statute to the actual taking away of money
from the pocket of a citizen. They take in every stage in the entire process of taxation. The words
"levied" is a wide and generic expression. One can say with as much appropriateness that the
Income-tax Act levies a tax on income as that the Income-tax Officer levies the tax in accordance
with the provisions of the Act It is an expression of wide import and takes in all the stages of
charge, quantification and recovery of duty, though in certain contexts it may have a restricted
meaning. In the context of sub-section (1) the word "levied" admittedly means "charged" as well as
assessed". The words 'levy and collection in sub-section (3) cannot be construed differently from the
words 'levied and collected used in sub-section (1). S. 3(3), therefore, also covers the entire gamut
of S. 3(1) and cannot be construed as becoming operative at a somewhat later stage. Its operation
cannot be excluded in determining the scope of the charge.

45. In this context, reference has to be made to a decision of this Court which had to consider a
Provisions almost identical with S. 3(3) of the 1957 Act, appearing in the Finance Act 1965, in. a
somewhat indirect manner, as the decision contains some observations, which, at first sight, appear
to support the fine of argument of the petitioner herein. Such a provision has been annually repeated
in all Finance Acts - vide, the Finance Acts from 1963 to 1983 - and imposes what has been
described as 'special, "regular" or "auxiliary" duties of excise and customs. The decision I am
referring to is that of this Court in Associated Cement Co. v. Director of Inspection, (1985) 2 SCC
719 : (AJR 1985 SC 8671). This decision was really concerned with S. 280 ZD of the Income-tax
Act, 1961, which, in turn called for a reference to S. 80 of the Finance Act, 1965 which is in the
following terms :

"(1) When goods of the description. mentioned in this section chargeable with a duty of excise
under the Central Excises Act .......are assessed to duty, there shall be levied and collected -

(a) as respects (certain) goods............, a special duty of excise equal to 10 per cent of the total
amount so chargeable on such goods;

(b) as respects (certain other) goods................., a special duty of excise equal to 20 per cent ...... ;
and
(c) as respects (certain other) goods............., a special duty of excise equal to 33-1/3 per cent
............

(2) xxx xxx xxx xxx

(3) The duties of excise referred to in sub-section (1)....shall be in addition of the duties of excise
chargeable on such goods under the Central Excise Act or any other law for the time being in force
.......

(4) The provisions of the Central Excise Act and the rules thereunder, including those relating to
refunds and exemption from duty, shall, so far as may be, apply in relation to the levy and collection
of the duty of excise leviable under this section in respect of any goods as they apply in relation to
the levy and collection of the duties of excise on such. goods under that Act or rules." '

Section 280ZD of the Income-tax Act, 1961 enabled an assessee, in certain circumstances, to obtain
a "tax credit" certificate in respect of a percentage of the amount of "duty of excise payable by him.
"Duty of excise" was defined by the section to mean "the duty of excise leviable under the Central,
Excises and Salt Act". The question was whether the tax credit could also be given in respect of the
amount of the special duty of excise levied and collected under the Finance Act. This Court held
that, obviously, the special duty levied under S. 80 could not be regarded as having been levied
under the, Central Excise Act. It said :

"It is true that the expression 'leviable' is an expression of wide import and includes stages of
quantification and recovery of the duty but in the context in which that expression has been used in
clause (b) of sub-section (6) of S. 280 ZD, it is clear that it has been used in the sense of
chargeability to duty. In other words, the duty of excise in respect whereof tax credit is available
would be in respect of such duty of excise as is chargeable under the Excise Act and clearly the
special excise duty in respect whereof additional tax credit is sought by the appellant company is not
chargeable under the Excise Act but chargeable under the Excise Act."

Having said this, the Court added :

"Sub-clauses (3) and (4) of S. 80 of the Finance Act on which reliance has been placed by counsel
for the appellant company in terms refers to the procedural aspect such as the quantification and
collection of the special duty and simply because the quantification and collection of the special
duty under the Finance Act is to be done in accordance with the provisions of the Excise Act such
duty does not become leviable that is to say chargeable, under the Excise Act."

46. The above observations no doubt lend some support to the contention of the petitioner, as the
wording of S. 80(4) of the 1965 Finance Act is identical with that of S. 3(3) and has been
interpreted as attracting only the procedural aspect of the Central Excise Act. But, in my opinion,
while that may have been true of S. 80(4) of the Finance Act, 1965, it will not be correct to draw the
same conclusion about the 1957 Act. For S. 80(l) of the Finance Act, 1965 fully exhausted the
aspect of charge of the special duty. It specified the goods to be taxed and also laid down that the
special duty was to be a percentage of the normal excise duty chargeable on those goods. Nothing
else remained except the quantification and the collection. But here the position is different. There
are three ingredients of the charging provisions viz. S. 3(l). The additional duties are charged (a) on
manufacture, storage or production (b) of certain named goods (c) at the rates specified in the first
schedule. Of these, only aspect (b) finds mention in the 1957 Act but in relation to the definitions
contained in the 1944 Act. Aspect (c), clearly is not complete without a reference to the main Act.
For, turning to the First Schedule of the Act, originally it specified rates on the basis of length,
weight or number on all items except "cigarettes" where the duty was to be ad valorem. The
Amendment Act, No. 6 of 1980, substituted the rate per metre specified under the original schedule
in respect of the items with which we are concerned to ad valorem rates. Now the assessable value is
to be determined on the basis of which the special duty will have to be worked out cannot be found
out from the 1957 Act which contains no definition or indication in this regard. The statute cannot
be worked at least in respect of goods where an ad valorem rate is prescribed unless S. 3(l) is read
with S. 3(3) and the definition of "assessable value" in S. 4 of the 1944 Act is read with the Finance
Act. In like manner, I think, the content of aspect (a) cannot be understood differently from, or
independently of, the definition in the main enactment. Having regard to the nature and content of
the levy indicated in S. 3(1), it is obvious that S. 3(3) has to have the effect of attracting not only the
purely procedural and machinery provisions of the 1944 Act but also some of its charging
provisions. It is, therefore difficult to consider sect ion 3( 1) of the 1957 Act in contrast to the
Finance Act of 1965 as covering the entire ambit of the charge imposed. In short, the language of S.
3(3) has to be given a wider meaning than under the Finance Act, 1965. I have referred to the fact
that a provision similar to that in S. 80 of the Finance Act, 1965 is also found in other Finance Acts.
On perusal of these provisions, it will be found that a like position exists there also. These
provisions are all self-contained and completely specify the scope of the charge either as a
percentage of the excise duty normally chargeable under the Central Excises and Salt Act, 1944 or
as a percentage of the 'assessable value determined under S. 4 of the 1944 Act.' This, in my view, is
a very important reason why the observations in the Associated Cement Co.'s case (AIR 1985 S C
867) (supra) cannot be of application in the context of the 1957 Act.

47. A question has been raised as to why, if it were the intention of the Legislature to take in all the
provisions including definitions from the 1944 Act, it was considered necessary to make a specific
reference to the definitions of the various goods on which additional duty was being imposed as
contained in the schedule to the 1944 Act. Counsel says that this enactment of specific definitions
drawn from the 1944 Act should lead to an inference that no other definitions from that Act were
intended to be incorporated in the 1957 Act. A careful examination will, however, show that this is
not the effect. Actually, S. 2 is not much of a 'definition' section. Cl. (a) is not strictly necessary and
Cl. (b) is only intended to clarify that the proceeds of the duties are not be distributed to Union
Territories. So far as clause (c) is concerned, it is necessary to make a reference to S. 7 of the Act,
which reads thus :

"7. It is hereby declared that the following goods, namely, subject, tobacco, cotton fabrics, rayon or
artificial fabrics and woollen fabrics, are of special importance in inter-State trade or commerce and
every sales tax law of a State shall, in so far as it imposes or authorises the imposition of a tax on
the sale or purchase of the declared goods, be subject, as from the 1st day of April, 1958, to the
restrictions and conditions specified in S. 15 of the Central Sales Tax Act, 1956."

The effect of this provision, as held in M/s Mahendra Pratap Ram a Chandra v. Commercial Tax
Officer, AIR 1965 Cal 203 is that "the contents of S. 15 became a part of Section 7 from the
moment when S. 7 was enacted" S. 15 of the Central Sales Act applies to goods as defined in S. 2(c)
and enumerated in S. 14 of that Act as being of special importance in inter-State trade and
commerce. S. 14 of the Central Sales Tax Act, 1956, enumerates various items of goods among
which are the six items specified in S. 3(l) of the 1957 Act and this list further specifies that they
shall have the same meaning as is attached to the respective items in the First Schedule to the
Central Excises and Salt Act, 1944 vide items (ii-a), (vii), (viii), (ix), (x) and (xi). Thus, it was
always clear that the specified goods have to be understood in the way they were defined in the
Central Excises and Salt Act, 1944. The idea in 1956 was to restrict the powers of the States to levy
sales tax in respect of such goods and other goods. In 1958, the idea was conceived of the Centre
levying an additional excise duty on these goods and distributing the same to the States subject to
the condition specified in Schedule II that such States did not impose any sale or purchase tax on
these commodities. Subsequently, perhaps, it was realised that S. 7, served no specific purpose
under the Act except that of the definitions which was an aspect already covered by S. 2(c). In these
circumstances. not much significance need be attached to S. 2(c) much less can it be construed as
negativing the import of other definitions from the 1944 Act.

48. The next question that arises for consideration is, whether, even assuming that the terms of S.
3(3) are applicable. its terms are wide enough to take in not merely the provisions of the Central
Excises and Salt Act, 1944 and, in particular its definition clauses, as they stood in 1957 on the date
when the 1957 Act came into force but also the amendments effected therein from time to time. The
answer to this question depends upon the general principles applicable to what is described as
referential legislation of which this is an instance. Legislatures sometimes take a short cut and try to
reduce the length of statutes by omitting elaborate provisions where such provisions have already
been enacted earlier and can be adopted for the purpose on hand. While, on the one hand the
prolixity of modern statutes and the necessity to have more legislations than one on the same or
allied topics render such a course useful and desirable, the attempt to legislate by reference is
sometimes overdone and brevity is achieved at the expense of lucidity. However, this legislative
device is quite well known and the principles applicable to it fairly well settled.

49. Referential legislation is of two types. One is where an earlier Act or some of its provisions are
incorporated by reference into a later Act. In this event. the provisions of the earlier Act or those so
incorporated as they stand in the earlier Act at the time of incorporation, will be read into the later
Act. Subsequent changes in the earlier Act or the incorporated provisions will have to be ignored
because, for all practical purposes, the existing provisions of the earlier Act have been re-enacted by
such reference into the later one, rendering irrelevant what happens to the earlier statute thereafter.
Examples of this can be seen in Secretary of State v. Hindustan Co-operative Insurance Society. AIR
1931 PC 149, Bolani Ores Ltd v. State, AIR 1975 SC 17. Mahindra and Mahindra Ltd. v. Union of
India AIR 1979 SC 798. On the other hand, the later statute may not incorporate the earlier
provisions. It may on by make a reference of a broad nature as to the law on a subject generally, as
in Bhajiya v. Gopikabai, (1978) 3 SCR 561: (AIR 1978 SC 793), or contain a general reference to
the terms of an earlier statute which are to be made applicable. In this case any modification, repeal
or re-enactment of the earlier statute will also be carried into in the later, for here the idea is that
certain provisions of an earlier statute which become applicable in certain circumstances are to be
made use off or the purpose of the latter Act also. Examples of this type of legislation are to be seen
in Collector of Customs v. Nathella Sampathu Chetty, (1962) 3 SCR, 786 : (AIR 1962 SC 316),
New Central Jute Mills Co. Ltd. v. Assistant Collector, (1971) 2 SCR 92 (AIR, (1971 SC 454) and
Special Land Acquisition Officer, v. City, Improvement Trust (1977 1 SCR 569)*. Whether a
particular statute falls into the first or second category is always a question of construction. In the
present case, in my view, the legislation falls into, the second category. S. 3(3), of the 1957 Act does
not incorporate into the 1957 Act any specific provisions of the 1944 Act. It only declares generally
that the provisions of the 1944 Act shall apply "so far as may be", that is, to the, extent necessary
and practical, for the purposes of the 1957 Act as well.

* Special Land Acquisition Officer, City Improvement Trust Board, Mysore v. P. Govindan (1977) 1
SCR 549 : AIR 1976 SC 2517..............Ed.

50. That apart, it has been held even, when a specific provision is incorporated and the case
apparently falls in the first of the above categories, that the rule that repeals, modifications or
amendments of the earlier Act will have to be ignored is not adhered to in certain situations. These
have been set out in State of Madhya Pradesh v. Narasimhan, (1976) 1 SCR 6: (AIR 1975 SC 1835).
In that case, the Supreme Court was considering the question whether the amendment of S. 21 of
the Penal Code by the Criminal Law Amendment Act, 1958, was also applicable for purposes of the
Prevention of Corruption Act 1947, which by section 2 incorporates, for the purposes of that Act,
the definition of 'public servant' in S. 21 of the Penal Code. Answering the question in the
affirmative, the Court outlined the following propositions :

"Where a subsequent Act incorporates provisions of a previous Act, then the borrowed provisions
become an integral and independent part of the subsequent Act and are totally unaffected by any
repeal or amendment in the previous Act. This principle, however, will not apply in the following
cases:
(a) where the subsequents Act and the previous Act are supplmental to each other;

(b) where the two Act are pari materia;

(c) where the amendment in the previous Act, if not imported into the subsequent Act also, would
render the subsequent Act wholly unworkable and ineffectual; and

(d) where the amendment of the previous Act, either expressly or by necessary intendment, applies
the said provisions to the subsequent Act."

51. The present case falls within the scope of these exceptions, even if S. 3(3) is construed as
incorporating certain specific provisions of the 1944 into itself. The legislation presently in question
is clearly in pari materia with the 1944 Act. It is also merely supplemental. While the 1944 Act
imposes a general levy of excise duty on all goods manufactured and produced and aim of the
present Act is to supplement the levy by an additional duty of the same nature on certain goods. The
duration of the applicability is undefined but the statute is clearly enforceable as long as it is in, the
statute book side by side with the normal excise duties. The clear intention that the same provisions
shall govern both the levies except that the duty under the later Act is confined, to certain goods
only and its distributability among the, States may perhaps follow a different pattern from the
principal duty. There is no reason or logic why all the incidents attaching under the earlier
legislation, in so far as they are not clearly inconsistent with the later one should not be extended to
the later legislation as well. As has been pointed out earlier, the Finance Acts which levied special
or regular or additional excise duties contained in themselves all the elements of charge of duty. The
goods were mentioned and the duty as to be levied either at a percentage of the normal excise duty
payable under the 1944 Act or at a percentage of the value of the assessable goods as determined
under the 1944 Act. All that was further needed was the applicability of the procedural provisions of
the 1944 Act. Here, however, the 1957 Act is incomplete as to the basis of the charge and its
provisions would become totally unworkable unless the concepts of "manufacture" and "assessable
value" as determined under the 1944 Act are carried into it.

52. In the circumstances, I agree that we should give full and literal effect to the language of S. 3(3)
and hold that it has the effect not only of attracting the procedural provisions of the 1944 Act but
also all its other provisions, including those containing the definition.

         Order accordingly.

SUPREME COURT OF INDIA AIR 1989 568
H. L. Trehan

Vs.

Union of India

C.A.Nos.3212, 3214 and 3518 of 1979

(M. M. Dutt, S. Natarajan and N. D. Ojha, JJ.)

22.11.1988

JUDGEMENT

DUTT, J.:-

1. Of these three appeals by special leave. we may first of all deal with Civil Appeal No. 3214 of
1979 for, admittedly the disposal of that appeal will virtually mean the disposal of the other two
appeals. The said Civil Appeal No. 3214 of 1979 is directed against the judgment of the Delhi High
Court whereby the High Court has quashed a circular dated March 8, 1978 issued by the Board of
Directors of Caltex Oil Refinery (India) Ltd. (for short 'CORIL'), a Government Company, on the
writ petition filed by the employees of CORIL being Writ Petition No. 426 of 1978.

2. The Caltex (Acquisition of Shares of Caltex Refining (India) Ltd, and of the Undertakings in
India of Caltex (India) Ltd.) Act 17 of 1977. hereinafter referred to as 'the Act', was enacted by the
Union Parliament and came into force with effect from April 23. 1977. The Act provides for the
acquisition of shares of CORIL and for the acquisition and transfer of the right, title and interest of
Caltex (India) Ltd. in relation to its Undertakings in India with a view to ensuring co-ordinated
distribution and utilisation of petroleum products.
3. Under S. 3 of the Act, the shares in the capital of the CORIL stood transferred to and vested in
the Central Government on the appointed day being December 30, 1976. Under S. 5, the right, title
and interest of Caltex (India) Ltd. in relation to its Undertakings in India stood transferred to and
vested in the Central Government on the appointed day. S. 9 of the Act provides that the Central
Government may by a notification direct that the right, title and interest and the liabilities of Caltex
(India) Ltd. in relation to any of its Undertakings in India shall, instead of continuing to vest in the
Central Government, vest in the Government Company either on the date of the notification or on
such earlier or later date not being a date earlier than the appointed day, as may be specified in the
notification. S. 11(2) provides that subject to rules made in this behalf under S. 23, every whole-
time officer or other employee of CORIL would on the appointed day continue to be an officer or
other employee of CORIL on the same terms and conditions and with the same rights to pension,
gratuity and other matters as are admissible to him immediately before that day and shall continue
to hold such office unless and until his employment under CORIL is duly terminated or until his
remuneration and conditions of service are duly altered by that company.

4. The Chairman of the Board of Directors of CORIL issued the impugned circular dated March 8,
1978, inter alia, stating therein that consequent upon the take over of the Caltex (India Ltd. by the
Government, the question of rationalisation of the perquisites and allowances admissible to
Management Staff had been under consideration of the Board for sometime, and that as an interim
measure, the Board had decided that the perquisites admissible to the Management Staff should be
rationalised in the manner stated in the said circular.

5. At this stage, it may be mentioned that by the Caltex Oil Refinery (India) Ltd. and Hindustan
Petroleum Corporation Ltd. Amalgamation Order, 1978 which was published in the Gazette of
India, Extraordinary, dated May 9, 1978, the Undertaking of CORIL was transferred to and vested
in Hindustan Petroleum Corporation Ltd. which thus became a Government Company referred to in
S. 9 of the Act.

6. After the issue of the said circular, the respondents Nos. 1 to 4, who were some of the employees
of CORIL, filed a writ petition in the Delhi High Court being Civil Writ Petition No. 426 of 1978
challenging the legality and validity of the impugned order. It was submitted by the said respondents
that under the said circular the terms and conditions of service of the employees of CORIL had been
substantially and adversely altered to their prejudice.

7. At the hearing of the said writ petition before the High Court it was contended an behalf of the
respondents Nos. 1 to 4 that the notification issued under S. 9 of the Act vesting the management of
the Undertakings of Caltex (India) Ltd. in CORIL was ultra vires sub-section (1) of S. 9. It was
contended that the provision of sub-see. (1) of S. 11 of the Act offended. against the provisions of
Arts. 14, 19 and 31 of the Constitution of India and, as such, it should be struck down. Further, it
was contended that there was no valid classification between the contracts referred to in S. 11(1) and
S. 15 of the Act. It was urged that unguided and arbitrary powers had been vested in the official by
sub-sec. (1) of S. 11 for the alteration of the terms and conditions of service of the employees.
Besides the above contentions, another contention was advanced on behalf of the respondents Nos. 1
to 4, namely, that the employees not having been given an opportunity of being heard before
altering to their prejudice the terms and conditions of service, the impugned circular should be
struck down as void being opposed to the principles of natural justice.

8. All the contentions except the last contention of the respondents Nos. 1 to 4 were rejected by the
High Court. The High Court, however, took the view that as no opportunity was given to the
employees of CORIL before the impugned circular was issued, the Board of Directors of CORIL
acted illegally and in violation of the principles of natural justice. In that view of the matter the
High Court quashed the impugned circular. Hence this appeal by special leave.

9. It is not disputed that the employees were not given any opportunity of being heard before the
impugned circular dated March 8, 1978 was issued. It is, however, submitted by Mr. Pai, learned
Counsel appearing on behalf of CORIL, that there has been no prejudicial alteration of the terms
and conditions of service of the employees of CORIL by the impugned circular. It is urged that
nothing has been pleaded by the respondents Nos. 1 to 4 as to which clauses of the impugned
circular are to their detriment. The High Court has also not pointed out such clauses before quashing
the impugned circular. It appears that for the first time before us such a contention is advanced on
behalf of CORIL In this connection, we may refer to an observation of the High Court which is
"Admittedly, the impugned order adversely affects the perquisites of the petitioners. It has resulted
in civil consequences." The above observation clearly indicates that it was admitted by the parties
that the impugned circular had adversely affected the terms and conditions of service of the
respondents Nos. 1 to 4 who were the petitioners. in, the writ petition before the High Court. Mr.
Sachhar, learned Counsel appearing on behalf of the respondents Nos. 1 to 4, has handed over to us
a copy of the writ petition filed by the respondents Nos. 1 to 4 before the High Court being Civil
Writ Petition No. 426 of 1978. In paragraph 12 of the writ petition it has been inter alia stated as
follows :-

"The petitioners respectfully submit that under the said circular the terms and conditions of service
of the employees of the second respondent including the petitioners herein have been substantially
and adversely altered to the prejudice of such employees. The same would be clear inter alia from
the statements annexed hereto and marked as Annexure IV."

10. Annexure IV is a statement of Annual Loss in Remuneration / Income per person / employee
posted at Delhi and U.P. Nothing has been produced before us on behalf of CORIL or the Union of
India to show that the statements contained in Annexure IV are untrue. In the circumstances, there is
no substance in the contention made by Mr. Pai that there has been no prejudicial alteration of the
terms and conditions of service of the employees of CORIL, and that nothing has been pleaded by
the respondents Nos. 1 to 4 as to which clauses of the impugned circular are to their detriment.
11. One of the contentions that was urged by the respondents Nos. 1 to 4 before the High Court at
the hearing of the writ petition, as noticed above, is that unguided and arbitrary powers have been
vested in the official by sub-sec. (1) of S. 11 for the alteration of the terms and conditions of service
of the employees. It has been observed by the High Court that although the terms and conditions of
service could be altered by CORIL, but such alteration has to be made 'duly' as provided in sub-sec.
(2) of S. 11 of the Act. The High Court has placed reliance upon the ordinary dictionary meaning of
the word 'duly' which, according to Concise Oxford Dictionary, means 'rightly, properly, fitly' and
according to Stroud's Judicial Dictionary, Fourth Edition, the word 'duly' means 'done in due course
and according to law'. In our opinion, the word 'duly' is very significant and excludes any arbitrary
exercise of power under S. 11(2). It is now a well established principle of law that there can be no
deprivation or curtailment of any existing right, advantage or benefit enjoyed by a Government
servant without complying with the rules of natural justice by giving the Government servant
concerned an opportunity of being heard. Any arbitrary or whimsical exercise of power
prejudicially affecting the existing conditions of service of a Government servant will offend against
the provision of Art. 14 of the Constitution. Admittedly, the employees of CORIL were not given an
opportunity of hearing or representing their case before the impugned circular was issued by the
Board of Directors. The impugned circular cannot, therefore, be sustained as it offends against the
rules of natural justice.

12. It is, however, contended on behalf of CORIL that after the impugned circular was issued, an
opportunity of hearing was given to the employees with regard to the alterations made in the
conditions of their service by the impugned circular. In our opinion, the post-decisional opportunity
of hearing does not subserve the, rules of natural justice. The authority who embarks. upon a post-
decisional hearing will naturally proceed with a closed mind and there is hardly any chance of
getting a proper consideration of the respresentation at such a post-decisional opportunity. In this
connection, we may refer to a. recent decision of this Court in K. L. Shephard v. Union of India, JT
1987 (4) 600 : (AIR 1988 SC 686). What happened in that case was that the Hindustan Commercial
Bank, the Bank of Cochin Ltd. and Lakshmi Commercial, Bank which were private Banks, were
amalgamated with Punjab National Bank, Canara Bank and State Bank of India respectively in
terms of separate schemes drawn under S. 45 of the Banking Regulation Act, 1949. Pursuant to the
schemes, certain employees of the first mentioned three Banks were excluded from employment and
their services were not taken over by the respective transferee Banks. Such exclusion was made
without giving the employees, whose services were terminated, an opportunity of being heard.
Ranganath Misra, J. speaking for the Court observed as follows :-

"We may now point out that the learned single Judge of the Kerala High Court had proposed a post
amalgamation hearing to meet the situation but that has been vacated by the Division Bench. For the
reasons we have indicated, there is no justification to think of a post-decisional hearing. On the
other hand, the normal rule should apply. It was also contended on behalf of the respondents that the
excluded employees could now represent and their cases could be examined. We do not think that
would meet the ends of justice. They have already been thrown out of employment and having been
deprived of livelihood they must be facing serious difficulties. There is no justification to throw
them out of employment and then give them an opportunity of representation when the requirement
is that they should have the opportunity referred to above as a condition precedent to action. It is
common experience that once a decision has been taken, there is a tendency to uphold it and a
representation may not really yield any fruitful purpose."

13. The view that has been taken by this Court, in, the above observation is that once a decision has
been taken, there is a tendency to uphold it and a representation may not yield any, fruitful purpose.
Thus, even if any hearing was given to the employees of CORIL after the issuance of the impugned
circular, that, would not be any compliance with the rules of, natural justice or avoid the mischief of
arbitrariness as contemplated by Art. 14 of the Constitution. The High Court, in our was perfectly
justified in quashing the impugned circular.

14. In the result, Civil Appeal No. 3214 of 1979 is dismissed.

15. In view of the reasons given in Civil Appeal No. 3214 of 1979, Civil Appeal No. 3518 of 1979
is also dismissed.

16. Civil Appeal No. 3212 of 1979 has been preferred by the writ petitioners in Civil Writ Petition
No. 426 of 1978 filed before the High Court. The writ petitioners succeeded in getting the
impugned circular quashed by the High Court. As the High Court rejected some of the grounds of
challenge to the impugned circular, the appeal has been preferred. There is no merit in this appeal
and it is wholly misconceived. The appeal is, therefore, dismissed.

17. There will be no order as to costs in any of these appeals.
         Appeals dismissed.

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