Bombay High Court
Aditya Birla Nuvo Ltd vs The Union Of India And Ors on 21 September, 2017
Bench: S.C. Dharmadhikari
ASWP817.06.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 817 OF 2006
Aditya Birla Fashion & Retail Limited ]
a company incorporated under the ]
Companies Act having its registered ]
office at 7th Floor, Skyling Icon Business]
Park, 86-92, Off A.K. Road, Marol ]
Village, Andheri (E), Mumbai - 400059 ] ... Petitioners
Versus
1 The Union of India, through the ]
Secretary, Ministry of Finance ]
Department of Revenue, Aayakar ]
Bhavan, M.K. Road, Churchgate, ]
Mumbai - 400 020. ]
2 Textile Committee Cess Appellate ]
Tribunal (TCCAT) through the ]
Registrar, at 4th Floor, New CGO ]
Building, New Marine Lines, ]
Mumbai - 400 020. ]
3 Assessing Officer, Textile Committee ]
Raj Chambers, 978-A, Coimbatore - ]
641 002. ] ... Respondents
Mr. S. Sridharan, senior counsel with Mr. Jas Sanghvi i/b PDS
Legal for the Petitioner.
Mr. L.S. Shetty with Mr. M.M. Nair i/b M/s. L.S. Shetty and
Associates for the Respondent Nos.2 and 3.
Ms. Rutuja Ambekar for the Respondent No.1 - Union of India.
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CORAM : S.C. DHARMADHIKARI &
PRAKASH D. NAIK, JJ.
THURSDAY, 21ST SEPTEMBER, 2017
ORAL JUDGMENT : [Per S.C. Dharmadhikari, J.]
1 Leave to amend. Amendment to be carried out
forthwith.
2 By this writ petition under Article 226 of the
Constitution of India, the petitioners pray for a writ of certiorari
or any other writ, order or direction in the nature thereof to call
for the records pertaining to their case and after scrutinizing the
impugned order as to its legality and validity, to quash and set
aside the same.
3 The facts lie in a very narrow compass. The
petitioners before us are a public limited company registered
under the Companies Act, 1956, and the respondents are the
Union of India, the Textile Committee Cess Appellate Tribunal and
the Assessing Officer of the Textile Committee.
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4 The petitioners were earlier known as M/s. Indian
Rayon & Industries Limited. The Division of the petitioners=
company, namely, "Madurai Garments" was earlier belonging to
M/s. Coats Viyella India Limited. M/s. Indian Rayon & Industries
Limited purchased this Division from M/s. Coats Viyella India
Limited and now that entity is known as Aditya Birla Nuvo
Limited. Aditya Birla Nuvo Limited was demerged and the same
was merged with Pantaloons Fashion & Retail. Subsequently,
Pantaloons Fashion & Retail has changed its name to Aditya Birla
Fashion & Retail Limited.
5 There is a Textile Committee Act, 1963, and there
have been Rules made thereunder.
6 On 27th January, 1994, the petitioners were asked to
submit returns to the Assessing Officer, Textile Committee and
pay the applicable textile cess. The petitioners were informed in
terms of section 5A of the Textile Committee Act,1963 (for short
TC Act) that cess on textiles and textile machinery manufactured
in India is leviable. It should be levied and collected as a duty of
excise on all textiles and on all textile machinery manufactured
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in India at such rate, not exceeding one per cent ad valorem as
the Central Government may, by Notification in the Official
Gazette. That duty has to be collected by the Committee in
accordance with the Rules made in that behalf from every
manufacturer of textile or textile machinery. The petitioners
pointed out that the Act and the Rules may not define the term
"manufacturer", but this concept has to be understood in the
context of the Central Excise and Salt Act, 1944. The petitioners
point out that they are engaged in the supply of fabrics purchased
from the market to the various independent job workers who
manufacture garments as per the specifications provided by the
petitioners and thereafter petitioners sell these garments. The
fabrics are purchased from the market, supplied to various
independent manufacturers who manufacture the garment for
the petitioners and for which the petitioners make payment.
However, the specifications are given and provided by the
petitioners to these job workers, but the petitioners have no
control over their manufacturing activities. The garments
manufactured are returned to the petitioners and later on sold by
the petitioners in their brand name.
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7 Having explained all this in detail and specifically
alleging that the job workers are independent manufacturers, the
petitioners expected the authorities to accept their version
contained in their communication dated 24 th February, 1994
(Annexure-D).
8 However, there was further correspondence and
eventually a letter was addressed (Annexure-E) by which the
petitioners apprehended measures being taken to recover the
cess. They, therefore, approached the Hon'ble High Court of
Karnataka at Bangalore challenging the said communication
dated 6th April, 1994.
9 That writ petition being Writ Petition No.17762 of
1994 was disposed of on 21st February, 1998 by observing that
the cess will have to be recovered in accordance with law. The
law postulates issuance of a show cause notice, a hearing and
thereafter a reasoned order which can be tested in appeal. This
being the scheme of the law, the petitioners need not apprehend
coercive recovery or recovery by unlawful means.
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10 It is in pursuance of this order and direction that a
show cause notice was issued to the petitioners dated 24 th June,
1999, to which the petitioners replied on 14th July, 1999. The
petitioners reiterated some of the contentions which we have
noted above.
11 The Assessing Officer, however, disagreed with the
petitioners and passed an order dated 7th April, 2000.
12 The petitioners carried the matter in appeal and it
was urged that during the course of appeal as well, that there are
job workers who are independently manufacturing the garment.
It is that garment which is received from the job workers by the
petitioners, branded and then sold in the market. However, the
Appellate Authority, according to the petitioners, insisted that
they must provide all the details and having allegedly failed to
point out such details of the job workers and their activities, the
order of the Assessing Officer came to be confirmed.
13 It is this order of the Appellate Authority which is
challenged before us on various grounds.
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14 Mr. Sridharan, learned senior counsel appearing for
the petitioners would submit that the show cause notice itself is
premised on the fact that the petitioners activities, as
enumerated hereinabove, are undisputed. If the show cause
notice itself proceeds on this basis that the petitioners have got
the fabrics further processed upon by the job workers and it is
those job workers who have manufactured the garment, then, it
was impermissible for the Assessing Officer to hold that the levy
is recoverable from the petitioners. Our attention is specifically
invited to the show cause notice and equally a communication
preceding the same dated 6th April, 1994. In this communication,
according to Mr. Sridharan, the Deputy Chief Inspecting Officer of
the Committee has alleged that the garments might have been
manufactured through some independent job workers, but that
does not mean that the ownership of the material lies with them.
Since the garments were manufactured on behalf of the
petitioners, on account of the petitioners, their ownership would
mean they are liable to pay the cess under the Act. Mr. Sridharan
has, therefore, submitted that the whole order must be quashed
and set aside if this is how the facts have been appreciated and
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understood.
15 Mr. Sridharan has emphasized that the petitioner is a
marketing concern. The petitioner does not have a manufacturing
set up as far as their branded products. The garments which
have been branded by the petitioners and sold in the market have
been manufactured by independent manufacturers. The
petitioners have absolutely no control over nor supervise their
activities.
16 Our attention has been invited to sections 5 and 5A of
the Act, Rules 3, 4 and 8 of the Rules so also to the copy of the
notice at page 88 of the paper-book. Mr. Sridharan would submit
that the show cause notice itself states that the petitioners have
been termed as 'manufacturers'. However, that was completely
incorrect. If the petitioners' activities have been understood and
appreciated by the Committee itself in the communication prior
to the issuance of the show cause notice, then, the petitioners
could not have been termed as manufacturers. Therefore, the
assessment order and equally the appellate order affirming it are
vitiated by an error of law, apparent on the face of the record.
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The conclusions therein can be safely termed as perverse. The
factual conclusions therein are also not supportable by the
record. Mr. Sridharan submits that there has never been any
suggestion, leave alone a conclusive finding that the
arrangement, based on which the petitioners are selling the
garments in their brand in the market, is sham and bogus. It is in
these circumstances that he would submit that being owner of the
goods does not attract levy. The levy is attracted only on the
manufacturer and which the petitioners cannot be termed as one.
It is in these circumstances that Mr. Sridharan criticizes the
appellate order and submits that there was no need to have been
critical of the petitioners' conduct during the proceedings. The
remarks are not only adverse, but wholly unjustified. In such
circumstances, he would submit that the impugned order be
quashed and set aside.
17 During the course of arguments, Mr. Sridharan has
fairly brought to our notice that the understanding of the levy
and its justification by the authorities is based on a Division
Bench judgment rendered by the Delhi High Court. Mr.
Sridharan submits that the assessment order concludes that the
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definition of the term "manufacturer" in section 2 clause (f) of the
Central Excise Act, 1944, has no application to the Textile
Committee Act, 1963. That is even reiterated in the affidavit-in-
reply filed by the Assessing Authority before the Tribunal. Later
on, the respondents have changed their version and relied upon
this definition. However, they realised that when they rely upon
this definition, there must be a factual backing so as to not only
allege, but establish and prove that the petitioner is a
manufacturer. That was hopelessly lacking. The decision of the
Delhi High Court was based solely on the definition of these
terms. The decision is otherwise distinguishable. That was a case
of a public notice issued to manufacturer-exporter to pay the cess
under the TC Act. That public notice was challenged on the
ground that no cess can be levied on textiles manufactured from
out of a handloom and powerloom industry. The Delhi High Court
held that the garments exported or manufactured from out of a
handloom /powerloom industry is merely a version and that has
to be established and proved. In such circumstances, the
garments will not be exempt from levy of cess under the proviso
to section 5A(1) as the finished garments cannot be said to be
textiles manufactured from out of handloon / powerloom
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industry.
18 Then, the argument was of double taxation in the
sense that a basic duty is levied on imported silk materials under
the Customs Act, 1962, at the stage of import itself. Therefore, no
further cess can be levied under the Act in respect of the goods
manufactured out of the same imported silk and that would be a
double taxation.
19 Mr. Sridharan would submit that the above two
submissions or contentions of the petitioners before the Delhi
High Court have been rightly rejected by the Court. That is not an
issue relevant for us. The third ground was that a duty of excise
can be collected only from the manufacturer of textiles and not
from an exporter. Once the registration of those petitioners
before the Delhi High Court was as manufacturers-cum-exporters
of readymade garments, then, they could not have argued on
these lines.
20 Mr. Sridharan would submit that the paragraphs of
the judgment heavily relied upon before us by Mr. Shetty
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appearing for the Revenue and equally by the Appellate
Authority in the impugned order, with greatest respect, does not
take into account the binding judgments of the Hon'ble Supreme
Court. In that regard, he would invite our attention to the series
of judgments rendered on section 2 clause (f) of the Central
Excise Act, 1944, by the Hon'ble Supreme Court.
21 Then, Mr. Sridharan would submit that there is no
allegation that the job work arrangement in the case of the
petitioners is tainted or can be termed as an agency or principal -
agent relationship. On the other hand, the show cause notice
itself is based on the understanding that the relationship is on
principal to principal basis.
22 It is in these circumstances that once the show cause
notice itself styles the petitioner as owners of the garments and
not manufacturers, the entire proceedings are without
jurisdiction and ab initio void.
23 Similarly, our attention was also invited to the fact
that those job workers/manufacturers having not been proceeded
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against or proceeded against, but no recovery possible therefrom
means the petitioner becomes liable for the levy is the other
incorrect understanding of the levy. Therefore, Mr. Sridharan
would submit that looked at from any angle, the levy is not
imposable and recoverable. Consequently, on this short ground
alone, the orders be quashed and set aside.
24 Alternatively and without prejudice to the above, Mr.
Sridharan would submit that the demand in this case is barred by
the law of limitation. The proceedings were initiated by the
Committee in 1994 seeking to impose cess from 1 st April, 1975
onwards. The demand raised by the show cause notice dated 26 th
June, 1999, is for the period 1981-1982 till 1998-1999. It is
erroneousy held by the authorities that no period of limitation is
applicable and the proceedings could have been initiated any
time. However, that is not a correct understanding of the law and
there is always a reasonable period presumed for initiation of the
proceedings. If the proceedings are not initiated in a reasonable
time, then, the demand of this nature is hit by delay and laches.
25 Further, alternatively and without prejudice, the
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argument is that no assessment can be based on sales tax
returns. By its very nature the sales tax is a tax on sale of goods.
The assessment of sales tax and the records pertaining thereto
can never be of any assistance so as to impose and calculate the
cess under the TC Act. In such circumstances, even on this count,
according to him, the demand cannot be sustained. Mr. Sridharan
would submit, therefore, that the writ petition be allowed.
26 Mr. Sridharan places reliance on the following
judgments :
(i) Nath Bros. Exim International Ltd. vs. UOI AIR 1997 DELHI
383.
(ii) Ujagar Prints Etc. Etc. vs. UOI & Ors 1989 (39) ELT 493
(SC).
(iii) CCE vs. M.M/Khambatwala1996 (89) ELT 22(SC).
27 On the other hand, Mr. Shetty appearing on behalf of
the respondents would submit that the issue raised in the writ
petition is squarely covered by a judgment of this Court in the
case of J.K. (Bombay) Limited vs. Union of India & Ors. Writ
Petition No. 160 of 1995 decided on 7th August, 2001. The
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controversy is identical to that dealt with in this judgment and
Mr. Shetty would rely upon the observations and conclusions
therein.
28 He also relies upon the judgment of the Delhi High
Court in the case of M/s. Nath Bros. Exim International Ltd. vs.
Union of India reported in AIR 1997 383, which has been followed
and applied by this Court in the above judgments.
29 Mr. Shetty then points out as to how the levy has been
understood and explained and there is no basis for accepting the
arguments of Mr. Sridharan in that regard. The levy has been
understood to be a levy on manufacture of textiles and textile
machinery. However, there may be a few articles of textiles
manufactured by parties on job work basis. If the article is liable
to cess, then cess should be paid jointly and severally by the job
workers or the supplier of raw material on the value of the
product manufactured. Therefore, a simultaneous or joint
proceeding against both is permissible and when there is an
arrangement which is clearly demonstrating that the petitioners
and parties like them were the manufacturers, then, appropriate
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apportionment can be also made.
30 Mr. Shetty, therefore, would submit that the writ
petition has no substance and ought to be dismissed with costs.
31 For properly appreciating these contentions, we would
have to make a reference to the Act and the Rules.
32 As is evident, the Act is enacted by the Parliament on
3rd December, 1963. The Act contains definitions in section 2.
The term "Committee" is defined in section 2 clause (b) to mean
the committee established under section 3. The words "handloom
industries", "power loom" and "power loom industry" are defined
in section 2 clauses (ca), (da) and (db). The word "textile
machinery" is defined in section 2 clause (f) to mean an
equipment employed directly or indirectly for the processing of
textile fibre into yarn and for the manufacture of fabric
therefrom by weaving or knitting and includes equipment used
either wholly or partly for the finishing, folding or packing of
textiles. The word "textile" is defined in section 2 clause (g) to
mean any fabric or cloth or yarn or garment any other article
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made wholly or in part of cotton or wool or silk or artificial silk or
other fibre, and includes fibre.
33 Section 3 envisages establishment of the Textile
Committee which shall be a body corporate having perpetual
succession and a common seal with power to acquire, hold and
dispose of property and to contract and may, by that name, sue or
be sued. It is to be established by the Central Government and its
head office shall be in Bombay. The functions of the Committee
are set out in section 4 which reads thus :
"4. Functions of the Committee. (1) Subject
to the provisions of this Act, the functions of the
Committee shall generally be to ensure by such
measures, as it thinks fit, standard qualities of
textiles both for internal marketing and export
purposes and the manufacture and use of standard
type of textile machinery.
(2) Without prejudice to the generality of the
provisions of sub-section (1), the Committee may -
(a) undertake, assist and encourage, scientific,
technological and economic research in textile
industry and textile machinery;
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(b) promote export of textiles and textile
machinery and carry on propaganda for that purpose;
(c) establish or adopt or recognise standard
specifications for -
(i) textiles, and
(ii) packing materials used in the packing of
textiles or textile machinery, for the purposes of
export and for internal consumption and affix
suitable marks on such standardized varieties of
textiles and packing materials;
(d) specify the type of quality control or
inspection which will be applied to textiles or textile
machinery;
(da) provide for training in the techniques of
quality control to be applied to textiles or textile
machinery;
(e) provide for the inspection and examination
of -
(i) textiles;
(ii) textile machinery at any stage of
manufacture and also while it is in use at mill-
heads;
(iii) packing materials used in the packing of
textiles or textile machinery;
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(f) establish laboratories and test houses for the
testing of textiles;
(g) provide for testing textiles and textile
machinery in laboratories and test houses other than
those established under clause (f);
(h) collect statistics for any of the above mentioned
purposes from -
(i) manufacturers of, and dealers in, textiles;
(ii) manufacturers of textile machinery; and
(iii) such other persons as may be prescribed;
(i) advise on all matters relating to the
development of textile industry and the production of
textile machinery;
(j) provide for such other matters as may be
prescribed.
(3) In the discharge of its functions, the
Committee shall be bound by such directions as the
Central Government may, for reasons to be stated in
writing, give to it from time to time."
34 A perusal of this section would indicate that by sub-
section (1), subject to the provisions of this Act, the functions of
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the Committee shall generally be to ensure by such measures, as
it thinks fit, standard qualities of textiles both for internal
marketing and export purposes and the manufacture and use of
standard type of textile machinery. The whole emphasis appears,
therefore, to be on empowering the committee to exercise all such
powers as may be necessary and expedient for the purpose of
carrying out its functions under the Act. The Committee can
collect statistics for any of the purposes mentioned in section 4
from manufacturers and dealers in textiles and manufacturers of
textile machinery and such other persons as may be prescribed.
Then comes section 5A which reads as under :
"5A. Imposition of cess on textiles and
textile machinery manufactured in India. (1)
There shall be levied and collected as a cess for the
purposes of this Act, a duty of excise on all textiles
and on all textile machinery manufactured in India at
such rate, not exceeding one per cent. ad valorem as
the Central Government may, by notification in the
Official Gazette, fix:
Provided that no such cess shall be levied on
textiles manufactured from out of handloom or
powerloom industry.
(2) The duty of excise levied under sub-section
(1) shall be in addition to any cess or duty leviable on
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textiles or textile machinery under any other law for
the time being in force.
(3) The duty of excise levied under sub-section
(1) shall be collected by the Committee, in accordance
with the rules made in this behalf, from every
manufacturer of textiles or textile machinery
(hereinafter in this section and in sections 5C and 5D
referred to as the manufacturer).
(4) The manufacturer shall pay to the Committee the
amount of the duty of excise levied under sub-section
(1) within one month from the date on which he
receives a notice of demand therefor, from the
Committee.
(5) For the purpose of enabling the Committee to
assess the amount of the duty of excise levied under
sub-section (1), -
(a) the Committee shall , by notification in the
Gazette of India, fix the period in respect of which
assessments shall be made; and
(b) every manufacturer shall furnish to the
Committee a return, not later than fifteen days after
the expiry of the period to which the return relates,
specifying the total quantity of textiles or textile
machinery manufactured by him during the said
period and such other particulars as may be
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prescribed."
35 Thus, there shall be levied and collected a cess for the
purposes of the TC Act, a duty of excise on all textiles and on all
textile machinery manufactured in India. Sub-section (3) of
section 5A says that the duty of excise levied under sub-section
(1) shall be collected in accordance with the rules made in this
behalf, from every manufacturer of textiles or textile machinery.
Once it is conceded before us that this duty of excise levied under
sub-section (1) of section 5A of the TC Act is in addition to any
fees and duty leviable on textiles or textile machinery under any
other law for the time being in force, then, there is no double
taxation.
36 However, what is running throughout the section 5A
and prior sections together with the sub-sections thereof so also
the Act as a whole is a common thread, namely, that this duty
shall be levied and collected as a cess and as a duty of excise on
all textiles and on all textile machinery manufactured in India. It
is the manufacturer who shall pay to the Committee the amount
of duty of excise levied under section 5A(1) within one month
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from the date he receives a notice of demand therefor from the
Committee. It is the Committee, therefore, which is empowered
to call for the returns from every manufacturer if it feels to do so
and, therefore, sections 5B and 5C would denote that every
authority set up and established under the TC Act so as to levy
assess and recover the cess has to bear in mind that the recovery
of duty of excise is from the manufacturer and if he fails to pay,
then, that can be recovered from him in accordance with law. It
is a very short but precise enactment and containing few
sections, out of which we have referred to the material ones. It is
not necessary for us, therefore, to then refer to all other
provisions for what we have understood this levy to mean being
in addition to the excise duty payable on manufacture of goods
and in this case textiles.
37 By section 20, there is a power to make rules and the
rules have been made. By section 22, there is a power conferred
in the Central Government to make rules and, inter alia, in the
manner in which the duty of excise leviable under section 5A
may be assessed, paid or collected and the manner in which any
refund of such duty paid or collected in excess of the amount due,
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may be made.
38 In accordance with this power flowing from the Act,
Textile Committee (Cess) Rules have been made and duly notified
on 31st March, 1975. In Rule 2(e) the term "manufacturer" is
defined to mean the manufacturer referred to in sub-section (3)
of section 5A. Maintenance of Register is contemplated by Rule
3 and that is the obligation of every manufacturer of textiles and
textile machinery. Submission of monthly returns is
contemplated by Rule 4 and the revision of returns by Rule 5.
Rule 6 empowers an Assessing Officer to assess the amount of the
cess payable by each manufacturer for each quarter on the basis
of the data furnished in monthly returns referred to in Rule 4.
Then, Rule 7 enables issuance of notice of demand to the
manufacturer for payment of cess under Rule 6.
39 The assessment is contemplated in terms of Rule 8
which reads as under :
"8. Assessment when return is not
furnished or furnished incorrectly etc.- If any
manufacturer fails to furnish the return referred to in
rule 4 within the period specified therein, or
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furnishes a return which the Committee has reason to
believe is incorrect or defective, the Assessing Officer
may, after giving the manufacturer an opportunity of
being heard, assess the amount of cess on the basis of
figures obtained from the Central Excise Department
or on the basis of the average of the cess levied during
the previous two quarters immediately proceeding
the quarters for which assessment is being made.
40 Mr. Shetty heavily relied on the object of the TC Act to
submit that is laudable and we must give a meaning to the words
and expressions consistent with it. In that regard, he relied upon
the judgment of the Hon'ble Supreme Court in the case of The
Sirsilk Ltd. & Ors. vs. The Textiles Committee & Ors. reported in
AIR 1989 SC 317. He would submit that the following paragraphs
of this judgment are relevant :
"10 In order to appreciate the rival contentions,
it is necessary to set out the background in which the
Textiles Committee was constituted, the object and
purpose of the Textiles Committee Act as also the
relevant provisions of the said Act and the Rules
made thereunder. The history of the legislation has
been set out in the counter-affidavit filed on behalf of
the Textiles Committee and is as follows.
11 The Second world war gave a completely
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sheltered market for Indian Textiles and created an
unprecedented boom for their products. They were,
however, for a variety of reasons, unable to with-
stand the severe international competition they had
to face in foreign markets with the return of normal
conditions after the war. Alive to the various
problems faced by the Textile Industry in general and
the Cotton Textile Industry in particular, the
Government of India took timely steps to arrest the
crisis by adopting various measures to safeguard
production and export of cotton textiles and to assure
the efficiency of the Cotton Textile Industry. It was in
this context that the Cotton Textiles Fund Ordinance,
1944' was promulgated, establishing a `Fund' for
supervising the exports of cloth and yarn and for
development of technical education, research and
other matters in relation to the Cotton Textile
Industry. The Cotton Textiles Fund Committee which
was appointed as the body to perform the various
functions imposed under the Ordinance did very
useful work during the period from 1945 to 1964 for
the improvement of the said industry and so as to
enable it to meet the competition of foreign textiles in
international market. The Ordinance, promulgated in
1944 establishing the Cotton Textiles Fund
Committee, had provisions to safeguard exports of
Cotton Textiles only. As more and more items of
textiles such as wool. silk, art silk and other man-
made fibre fabrics and yarn started finding their way
into the international market in increasing quantities.
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it became necessary for the Government of India to
create a homo- genous entity to look after and
promote the improvement and safeguard for all such
textile items. It was also necessary to take such step
in the case of these schemes of the Textile Industry
both for improving standards in such industry and
because the same were in many ways connected and
inter-related with the Textile Industry. Such action
and inter-relation arose because of the nature of the
commodities and because in many cases composite
fibres and textiles were produced and many units
engaged in production of such synthetics and other
materials were also engaged in the Cotton Textile
Industry.
12 Parliament accordingly enacted the Textiles
Committee Act (hereinafter referred to as `the Act')
which received the assent of the President on
December 3, 1963. It was PG NO 890 meant to re-
enact the provisions of the aforesaid Ordinance and to
make the same applicable to all textiles including all
synthetic fibres i.e. rayon yarn, staple fibre, nylon
yarn, man-made fibre commonly known as artificial
silk.
13 The avowed object and purpose of the Act, as
reflected in the long title, is to provide for the
establishment of a Committee for ensuring the.
quality of textiles and textile machinery and for
matters connected therewith. S. 2(f) of the Act
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defines `textile machinery' to mean the equipment
employed directly or indirectly for the processing of
textile fibre into yarn and for the manufacture of
fabric therefrom by weaving or knitting and to
include equipment used either wholly or partly for
the finishing, folding or packing of textiles.
............
29 For all these reasons the contention that
rayon yarn and nylon yarn manufactured by the
appellants and the petitioners are made wholly of
filaments and not of fibres and therefore did not come
within the purview of textiles as defined in S. 2(g) of
the Act prior to its amendment and therefore they
were not liable for payment of the fee levied under r.
21 of the Rules, cannot prevail.
30 The various activities undertaken by the
Textiles Committee for the development of the textile
industry and the promotion of textile exports which
have expanded considerably, and the duties
entrusted to the Committee to ensure the quality of
all textiles whether made wholly or partly of cotton
wool, silk, artificial fibre or silk, particularly when
Indian Textiles by and large and artificial silk or man-
made fibres like rayon yarn, viscose staple fibres and
nylon yarn as well as fabrics made of artificial silk,
are facing ever increasing competition in PG NO 906
the international market from other exporting
countries like Japan, China etc. and the production
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and export of textiles having substantially increased,
the legislature thought it necessary to make adequate
provision and accordingly created a Textiles Fund
under S. 7 of the Act to meet the expenditure of the
Textiles Committee which necessarily has to be on a
larger scale. At the time when the Textiles Committee
was established under S. 3, the legislature
accordingly provided for the establishment of a
Textiles Fund constituted under S. 7 of the Act from
out of which the expenditure of the Committee has to
be defrayed. Sub-s. (1) of S. 7 provides that the
Committee shall have a Fund to be called the Textiles
Fund and there shall be credited thereto various
items specified in cls. (a) to (d), apart from all the
moneys standing to the credit of the Cotton Textiles
Fund established under the repealed Ordinance,
immediately before the date on which the Textiles
Committee came to be established, which by virtue of
S. 24(2)(a) stood transferred to and formed part of
the Textiles Fund, and such sums of money as the
Central Government after due appropriation made by
Parliament in that behalf, pays to the Committee in
each financial year by way of grant, loan or otherwise
for purposes of enabling the Committee to discharge
its functions under the Act. There are only two other
sources of income. One of the main sources of
revenue, as indicated in cl. (c), is the income derived
from the levy of the fee under r. 21 of the Rules, and
the other that indicated in cl. (d) viz. all moneys
received by the Committee by way of grant, gift,
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donation, contribution, transfer or otherwise. After
the imposition of the duty of excise as a cess by S. 5A
of the Act introduced by Act No. 51/73, the income
derived from such cess becomes another source. Sub-
s. (2) of S. 7 provides that the moneys in the Fund
shall be applied for (a) meeting the pay and
allowances of the officers and other employees of the
Committee and administrative expenses of the
Committee, and (b) carrying out the purposes of the
Act. Sub-s. (3) of S. 7 provides that all moneys in the
Fund shall be deposited in the State Bank of India or
be invested in such securities, as may be approved by
the Central Government.
31 ... ... ... ... It is not in dispute that the Textiles
Committee has over the years built up a huge
infrastructure and the Central Government has spent
crores of rupees to make the legislation effective and
meaningful and to bring about an overall
improvement in the quality and standard of the
textiles including man-made fibres or artificial silk so
that our country may continue to retain its rightful
place in the world market in a fiercely competitive
international trade."
41 While it is true that there is a law and arming this
Committee with the power to levy, assess and recover the cess,
what we find is that preceding the adjudication and the impugned
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orders, there was a correspondence. The whole correspondence
commenced when the Textile Committee on 27th January, 1994,
invited the attention of the petitioners' predecessor in title to the
enactment. It also invited the attention of the petitioners
predecessor to the definition of the term 'manufacturer' as
understood by law and specifically the Committee. It says that the
manufacturer includes the person who employ hired labour or
who engage in production or manufacture of textile goods on
their own account. Then, our attention was invited to the return
filed by textile manufacturers and it is alleged that the
petitioners have not submitted the required monthly returns
from 1st April, 1975 onwards. The petitioners were requested to
submit the returns covering the period from April, 1975 or from
the date of commencement of the production to the date of
issuance of this communication immediately so that the cess
amount can be determined. A copy of the balance sheet may be
sent in support, in lieu or excise return, namely, RT 12. On
receipt of this communication, the petitioners' predecessor
clarified that they cannot be construed to be a manufacturer of
textiles. It was urged that textiles may include garments, but the
petitioners do not manufacture garments. The garments were
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manufactured by independent manufacturing organizations and
these are independent establishments with their own factory
sheds, machinery, labour and administrative skills and finance.
The petitioners are in no way concerned with any aspect of
running these independent units. These manufacturers are paid
a fabrication charge for manufacturing garments, which are
finalized periodically after appropriate negotiations and are in
line with the market rates. The allegation was specifically denied
and it was also denied that the manufacturer in this case is not a
person employed as hired labour, namely, engaging in production
and manufacturing of textile goods on account of the petitioners.
Thus, the petitioners throughout clarified that there could be
independent manufacturers of garments in the market to whom
the petitioners may forward their fabric and it is not to the
named or specified job worker and even otherwise this job worker
is not an agent, but operating independent and on his own.
42 The definition, therefore, of the term "textiles" was
emphasized and equally the Act and the Rules and essentially
section 5A thereof. However, the Textile Committee proceeded to
assert and as noted above. However, the Committee's opinion
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appears to be founded on the communication dated 6 th April,
1994, copy of which is at pages 84 and 95 of the paper book. It
makes interesting reading :
"... ... ... ...
As pointed out by you, the garments might
have been manufactured through some independent
job contractors which does not mean that the
ownership o the materials lies with them. Since the
garments manufactured on your behalf and on
account of enjoyment of ownership the garment
material, you are liable to pay the cess to the Textiles
Committee as required under the Act. You are
therefore requested to submit the returns and pay
cess from the date of inception of your firm. In case
you require any clarification you may call on the
undersigned on any working day between 9:15 a.m. to
5:30 p.m. to clarify any doubt."
43 When the petitioners predecessor approached the
High Court of Karnataka at Bangalore, it was clarified before that
Court that there are specific objections and there is a denial of the
liability. The levy cannot be thrust upon the petitioners, save and
except in accordance with law. It is, therefore, that on 24 th June,
1999, the Committee proceeded to issue the show cause notice.
Throughout the petitioners were referred to as manufacturers.
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44 However, in the reply to show cause notice the
petitioners' predecessor asserted that it is not a manufacturer of
textiles and hence there cannot be a levy of cess on it. The
written submissions and with this common thread flowing
through it are on record.
45 What we then find is that the Assessing Officer in the
order dated 7th April, 2005, though aware of this stand of the
petitioners, proceeded on the footing that as long as the
petitioners' predecessor is engaged in the production and sale of
garments and the garments so produced are sold, it is immaterial
whether the garments are actually manufactured by the
independent job workers / contractors. Their engagement by the
the petitioners may be strictly for the limited purpose of making
garments as per required quality specifications and other
requirements, but there is degree of control and supervision,
though not limited to the actual production of the garments and
that is still being exercised by the petitioners. Therefore, the
direction to manufacture a specific quality of garments and
issued to these independent job workers was understood as an
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arrangement by which the petitioners could be termed as a
manufacturer.
46 We do not see any supporting materials for this
factual conclusion. If there has to be a finding and conclusion of
degree of control and supervision, though not limited to the
actual production of the garments, then, the materials in that
behalf have to be referred to. One cannot confuse and contradict
oneself in appreciating and determining the issue at hand. The
conclusion which the Assessing Officer reaches and particularly
in paragraph 1(a) is, therefore, not borne out from the record.
Thus, the preceding communications set out the case of the
Committee and reproduced as above. The show cause notice
terms the petitioners "manufacturer" but the assessment order
while admitting that the petitioners may not be a manufacturer,
then proceeds to hold that the manufacture is on account of the
petitioners. The persons who are manufacturing are not termed
as job workers and independent, but contractors. What is then
held against the petitioners is that the job workers have been
engaged by the petitioners strictly for the purpose of making
garments as per the required quality specifications and other
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requirements of the petitioners. Therefore, there is a degree of
control and supervision though not limited to the actual
production of garments. The Assessing Officer holds that it is not
the case of Madura Garments, the predecessor of the petitioners,
that the garments so manufactured by independent job workers /
contractors, once they are so manufactured, are directly sold by
the job workers/manufacturers and the sale proceeds are
appropriated by them. There are no details or factual materials
referred to support the finding. Pertinently the petitioners
asserted that it is not only one job worker but several parties are
undertaking the said job for the petitioners. Thus, the initial duty
and obligation of the respondents before seeking to recover the
cess from the petitioners has not been discharged. We are, with
greatest respect, confused by such an approach. We do not see
how the cess can be levied once the petitioners have been
marketing the garments manufactured by persons who are styled
as job workers merely because the manufacturers/job workers do
not sell the product manufactured themselves in the market.
This understanding, according to the Assessing Officer, shows
that the petitioners being the sellers of the garments
manufactured by these persons, means the petitioners
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themselves can be termed as manufacturers of textiles. It is this
lighthearted and casual approach of the Assessing Officer which
is rightly criticized before us. In fact, the Assessing Officer goes
ahead and further to hold that the products are admittedly
handed over to the petitioners' predecessor by these persons and
those manufactured garments are purportedly sold by the
petitioners through selling agents/distributors. The last finding
and conclusion really cinches the whole matter. The Assessing
Officer finds and holds that the ownership of the products so
manufactured and all rights pursuant thereto lie with the
petitioners or their predecessor. Therefore, the incidence of cess
cannot be upon the job workers and it is the petitioners who are
liable to pay cess as per the Act.
47 This is really making a short shrift or resorting to a
short cut. Those who are brought within the purview of the Act
are manufactures of textiles and textile machinery. What is
clearly envisaged by the law is that the duty will be in addition to
an excise duty on manufacture of textiles and textile machinery.
It is that cess which can be recovered by the Textile Committee
for fulfilling the object and purpose of setting up such a
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Committee and the Textile Committee Act as a whole. Thus, the
above reproduced paragraphs of the judgment in Sirsilk will not
assist the respondents and though the law seeks to fulfill a social
purpose, its application and implementation has to be in terms of
its provisions and nothing not provided therein can be read into
it.
48 The Assessing Officer concedes that the term
"manufacturer", though not defined under the Textile Committee
Act, would have the same meaning as under the Excise Act, 1944,
or Rules framed thereunder. However, the cases relied upon by
the petitioners and equally the decisions of the Hon'ble Supreme
Court would have no bearing, according to the Assessing Officer,
for what is done is a process of manufacturing. Though it is by
independent job workers / contractors, it is under the supervision
of the petitioners.
49 As held above by us, there is absolutely no material
referred in the Assessing Order or in the show cause notice which
would enable the Assessing Officer to conclude that the
petitioners can be brought within the purview of the Act and the
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cess can be recovered from them on the foundation that the
process of manufacturing may be by independent persons, but
under the control and supervision of the petitioners. A mere
statement by the petitioners in their reply to the show cause
notice or in the preceding correspondence that they gave
specifications to the garment manufacturers to manufacture a
specific garment which is capable of being then branded by the
petitioners and sold under its popular name, is not enough to hold
and conclude as above. That statement, without anything more,
will not mean that there is such degree of supervision as is
ordinarily expected and envisaged in law which would enable the
authorities to conclude that it is really the petitioners including
in such activities. The degree of control and supervision is so
pervasive and deep that it is none other than the petitioners who
manufacture the goods can be the conclusion only if there are
supporting factual materials and which have remained
uncontroverted.
50 We do not think that the levy could be, therefore,
imposed on the petitioners.
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51 Even on the point of limitation we find that the
petitioners' contentions are well founded.
52 It could not be that the Act comes into force in 1963,
the returns are not filed from 1 st April, 1975, but the authority
wakes up to initiate the process of recovery in 1994 by calling
upon the petitioners to pay the cess from 1981-82. Assuming
that it could have been so levied, but once the above finding is
rendered, we do not think that we should pursue this issue any
further. It is only to emphasize as to how unreasonable, unfair
and unjust the authorities were in their approach with regard to
levy and in proceeding against the petitioners that we have
referred to this finding and conclusion on the point of limitation
as well.
53 The Appellate Authority has passed an order and by
terming the petitioners stand as dubious. We do not think that
there was any reason for terming the petitioners' conduct as
shameless. There was no basis for holding that the petitioners
have not approached the Appellate Authority or the Tribunal
with clean hands. There was no question of the petitioners
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suppressing material facts. The frustration of the Appellate
Authority / officer is apparent when he does not have materials in
his possession, but still holds that the petitioners are
manufacturers, this dejection does not justify his approach of
criticizing the petitioners in such strong language.
54 We do not think that apart from such aspersions being
cast on the petitioners and the petitioners' conduct being faulted,
the Appellate order contains anything which would enable us to
hold that the Committee was justified in proceeding against the
petitioners.
55 Then what remains is the reliance placed by Mr.
Shetty on the two decisions. The Delhi view has indeed been
referred by a Division Bench of this Court. However, the Division
Bench was dealing with a case of a company carrying on business,
inter alia, of manufacture of fabricated garments sold under the
brand name "Park Avenue". The petitioners before this Court did
not pay any cess on the garments cleared by them during the
period 1980-81to 1991-92. The only argument before this Court
was fabrication of garments out of duty paid fabrics does not
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amount to manufacture of textiles. Secondly, as the fabrics are
duty paid, levying of Textile Committee cess amounts to recovery
of tax on the same article twice over.
56 The second contention was dealt with first and we
have no hesitation in agreeing with the Division Bench that there
is no question of any double taxation.
57 That is not the issue before us.
58 Secondly, the Division Bench was justified in relying
upon the language of section 5A(1). The language being plain,
unambiguous and clear, there was no difficulty in rejecting the
primary argument of the petitioners before this Court that the
cess was leviable once it is held that they are manufacturers. The
petitioners had only contended that though the cess is leviable on
manufacture of textiles and textile machinery, but their activity
demonstrating that they are manufacturers of garments out of
duty paid fabrics, there was nothing by which they could escape
the levy. They, therefore, made another desperate attempt to
avoid making payment of cess by urging that their activities are
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not confined to manufacture, but sales, and the Committee is
proceeding to levy cess and recover it on sale of textiles as well.
However, in the absence of any factual material to support this
stand of the petitioners, the Division Bench rightly held that at
the stage at which the matter was brought before this Court, it is
difficult to interfere with the levy, imposition and recovery of
Textile Committee cess. Thus, there are no particulars which
would justify the interference by this Court and particularly for
the reason that on the textiles traded as well, the duty is
attempted to be recovered.
59 Beyond this, we do not see any reason to refer to this
judgment and it is clearly distinguishable on facts.
60 Equally, the observations of the Delhi High Court have
to be seen in the context of factual materials before it. There, the
first petitioner was an incorporated company. It was a registered
Export House engaged in the export of readymade garments,
including silk. The Textile Committee had found that the stand of
the petitioners before the Delhi High Court that they were merely
exporters is factually incorrect.
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61 The Delhi High Court concluded that the petitioners
could have been proceeded against. It is clear from paragraph 22
of this judgment that the petitioner is registered with the Textile
Committee as a manufacturer and exporter of readymade
garments. That stand of the Textile Committee in the counter
affidavit has not been countered or denied, leave alone expressly
contested. In such circumstances, there was factual material to
hold that the levy was imposable and recoverable from the
petitioners.
62 In such circumstances, we do not think that we should
refer to the further paragraphs in this judgment for we are of the
opinion that a wider question or larger controversy need not be
addressed for the purpose of this petition. This petition can be
conveniently disposed of by referring to the limited factual issue
before us and equally the response of the petitioners which
remains uncountered by the Committee. The Committee itself
proceeds on the footing that the petitioners are owners of the
garments though not manufacturers, then, we do not see any
reason for the Committee then to proceed against them.
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Secondly, the Committee could not prove and establish that
though the manufacture of textiles is by independent
contractors / job workers, over that activity the petitioners had
such control which can be said to be complete. In the absence of
any factual materials, this finding was clearly perverse.
63 For the reasons that we have aforestated and finding
that the impugned order is vitiated by total non application of
mind, errors of law apparent on the face of the record and
perversity, the writ petition succeeds. The impugned order
cannot be sustained. It is quashed and set aside. Rule is made
absolute accordingly.
64 The bank guarantee furnished by the petitioners shall
stand discharged and it shall be duly returned as cancelled, after
endorsing it as such, to the petitioners.
65 The petitioners have deposited a sum as crystallized
in the interim order and which sum is lying deposited with the
respondent No.3. That sum of Rs.70,00,000/- shall be refunded to
the petitioners with simple interest at the rate of six per cent per
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annum from the date of deposit until the actual refund. Since the
interim order itself stipulates the time to grant the actual refund,
we record the statement of Mr. Shetty that in the event the
respondents do not succeed in obtaining any order from the
higher court, this amount shall be returned with interest, as
above, within three months from today.
66 The writ petition, accordingly, stands disposed of.
PRAKASH D. NAIK, J. S.C. DHARMADHIKARI, J.
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