P L D 1969 Lahore 228 (PLP)

MUHAMMAD AFZAL CHEEMA, J.‑‑Messrs Colony Sarhad

Textile Mills Limited, Rawalpindi (hereinafter called the petitioner felt aggrieved by the addition of Explanation 10 to item No. 15‑A of the First Schedule of the Central Excises and Salt Act, 1944 introduced by section 4 (iv) of Finance Act, 1966, whereby a second time levy of Excise Duty oil processed fabrics already taxed as grey or unprocessed fabrics was made permissible. Invoking the writ jurisdiction of this Court it has been prayed by the petitioner that the aforesaid Explanation 10, may be declared to be without lawful authority and of no legal effect and the Collector Central Excise and Land Customs be directed not to enforce the same against the petitioner.

2. The brief facts of the case are that the petitioner‑Mill; manufactures processed cotton cloth after it goes through the various processes of bleaching, dyeing and calendaring etc. Levy and collection of Excise Duty is provided for in section 3 of the Central Excises and Salt Act of 1944 as amended from time to time. Subsection (1) of section 3 which still remains intact reads as follows:‑ "3(1)‑There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in the Provinces and the Capital of the Federation and a duty on salt manufactured in, or imported by land into, any part of the Provinces and the capital of the Federation as, and at the rates, set forth in the First Schedule." Till the year 1963, an Excise Duty at the rate of 15 ad velorem was prescribed for "cotton fabrics" of all sorts as defined and detailed in Item 15‑A of the First Schedule, which reads as follows:‑ Item No. (1) Description of goods. (2) Rate of duty. (3) 15‑A. COTTON FABRICS‑‑ "Cotton Fabrics" means fabrics of any des cription manufactured either wholly or partly from cotton, but does not include any such fabric‑ (a) if it contains 10 percent or more by weight of wool; or (b) if it contains 10 percent or more by weight of man‑made fibres; or (c) if manufactured on a handloom. Cotton fabrics all sorts ... Fifteen percent. ad valorem Vide item 3 of the Third Schedule to the Finance Act, 1964 the following new item was substituted for the existing Item 15‑A. '15‑A. Cotton Fabrics. `Cotton fabrics' means fabrics of any description manufactured either wholly or partly from cotton, and any such fabrics processed in any manner, but does not include any such fabrics which‑ (a) contains 10 percent or more by weight of wool; or (b) contains 60 percent or more by weight of man‑made fibres. (i) Fine fabrics ... Thirty one paisa per square yard. (ii) Medium fabrics .Nineteen paisa per square yard. (iii) Coarse fabrics ..Six paisa per square yard. (iv) Tapestry, curtain fabrics, bed‑ ..... Thirty‑one paisa per square yard. covers and table‑covers Explanations: (1) "Fine fabrics" means fabrics in which the average count of yarn is 355 or more ; (2) "Medium fabrics"' means fabrics in which the average count of yarn is 15s or more but less than 35s. (3) "Coarse fabrics" means fabrics in which the average count of yarn is less than 17s; (4) "Tapestry curtain fabrics, bed‑covers and table‑cover" means fabrics commonly known as such, made from yarn of any count; (5) "Count" means count of grey yarn; (6) For the purposes of determining the average count of yarn, the following rules shall apply, namely:‑‑‑ (a) yarn used in the border or selvedges shall be ignored (b) for multiple fold yarn, the count of the basic single yarn shall be taken and the number of ends per inch in the reed or the number of picks per inch, as the case may be, shall be multiplied by the number of plies in the yarn; (c) the average count shall be obtained by applying the following formula, namely: (Count of warp x number of ends per inch in the reed) plus (count of weft x number of picks per inch), (number of ends per inch in the reed plus (number of picks per inch) the result being rounded off, wherever necessary by treating any fraction which is one‑half or more as one, and disregarding any fraction which is less than one‑half." From the above substitution, it would appear that instead of levying duty ad valorem, duty per yard was levied on different kinds of cotton fabrics which were divided into four categories. the Finance Act of 1965, the scheme of levy remained un altered and only the rates were increased. In the Finance Act of 1966 again. a fresh scheme for the levy of Excise Duty was introduced and vide item No. 4 of the Third Schedule ; the following new item 15‑A relating to cotton fabrics was substituted. "15‑A. Cotton Fabrics.‑"Cotton Fabrics" means fabrics of any description manufactured either wholly or partly from cotton, and arty such fabric processed in any manner, but does not include any such fabric which‑ (a) contains 10 per cent., or more by weight of wool; or (b) contains 60 per cent., or more by weight of man‑made fibres. (1) Grey (unprocessed) fabrics‑ (i) Superfine fabrics Forty‑seven paisa per square yard. (ii) Fine fabrics ...Twenty‑eight paisa per square yard. (iii) Medium fabrics ....Seventeen paisa per square yard. (iv) Coarse fabrics .....6 paisa per square yard. (v) Drill, tapestry, curtain fabrics, Twenty‑eight paisa per square yard. bed‑covers and table‑covers. (II) Processed fabrics‑ (i) Calendered, bleached dyed and/ Three paisa per square yard. or raised fabrics. (ii) Printed fabrics .....Five paisa per square yard. (iii) Mercerized and/or sanforized .Ten paisa per square fabrics yard. (iv) Embroidered or rubberised .Fifty paisa per square yard. fabrics or fabrics processed in any other manner." From this it would appear that in 1966 cotton fabrics were divided into two broad categories (i) grey or unprocessed and (ii) processed fabrics which were further classified into different sub‑categories with varying levy of Excise rates. To these were added ten explanations of which the most important are Explanations B to 10 which may be advantageously reproduced below: "(8) If a fabric has undergone processes which fall under two/or more of the clauses of sub‑items II in the same factory, duty shall be levied only under the clause carrying the higher or the highest rate, as the case may be; (9) `Grey (unprocessed) fabrics' means fabrics which have undergone no process of any kind after weaving or knitting or fabrication otherwise; (10) The liability to duty under sub‑item II shall not be affected by any duty paid or payable under sub‑item I." It is the validity or Explanation 10 which we are directly concerned in the present case.

3. The new policy continued to be in force during the year 1967, but the rates of each category were enhanced. Further, the following Explanation 11 was also added to item 15‑A: "(11) If any fabric is embroidered or rubberised in the process of weaving or knitting, duty shall be leviable thereon under sub‑item II in addition to duty under sub‑item I" In the Finance Act of 1968, the law was changed with effect from the Ist of May 1968 when excise duty on cotton fabrics was proposed to be levied on production capacity as prescribed under the relevant rules known as "Excise Duty on Production Capacity (Cotton Fabrics) Rules, 1968" framed by the Central Board of Revenue in exercise of the powers conferred on it by subsection (4) of section 3 of the Central Excises and Salt Act, 1944.

4. While challenging the validity of the levy of double duty in terms of Explanation 10 aforesaid, the learned counsel for the petitioner raised the following contentions:‑‑ (i) That Explanation 10 was being misinterpreted by the Collector, Central Excise and Land Customs, in spelling out justification for a double levy of the Excise Duty on the same fabric at two stages, namely, as grey fabrics in the first instance and subsequently as processed fabrics; (ii) if Explanation 10 may be interpreted as amounting to a warrant for the double levy of Excise Duty, it would be un constitutional being contrary to the legal concept of "Excise Duty" as envisaged by item 43 (d) of the Third Schedule of the Constitution.

5. A preliminary objection was raised by the learned counsel for the respondent as to the competency of the Writ Petition on the ground that alternative adequate remedies in the form of appeal and revision had been provided in sections 35, 35‑A and 36 of the Act, which had not been availed of by the petitioner. The factual correctness of this position cannot be denied. In the aforesaid sections, provisions have been made for appeal against the orders of the Central Excise Officers before the Central Board of Revenue, a suo motu revision before the Central Board of Revenue, and a second revision before the Central Government on the application of any person feeling aggrieved by a decision or order of any Central Excise Officer or the Central Board of Revenue. Admittedly, none of these remedies was availed of by the petitioner and on this short ground alone the petition merits dismissal. Notwithstanding this, however, we stave deemed it proper also to examine the legal contentions raised by the learned counsel for the petitioner.

6. As regards the nest contention that a justification for double levy of Excise Duty on the same fabrics at two stages is being erroneously sought to be spelt out from Explanation 10, it may be straightaway observed that the contention is wholly misconceived. In the first instance we are not impressed by the argument that the difference in the phraseology employed in the subsequent Explanation 11 added by the Finance Act of 1967 to Item 15‑A in contradistinction to that employed in Explanation 10 could be so construed as giving rise for the first time to the levy of double‑duty in the former case. As a matter of fact, the object of adding an Explanation to a statutory provision is only to facilitate its proper interpretation and to remove any possible confusion or misunderstanding. It does not, per se create or extinguish a liability which is to be spelt out only from the main provision sought to be interpreted with the assistance of the Explanation. In other words, an Explanation is to be relied upon only as a useful guide or an aid to the construction of the main provision which m this case is the charging provision contained in section 3 of the Act read with Item 15‑A of the Schedule I. It is well‑settled that an Explanation does not enlarge the scope of the original section that it is supposed to explain. It is, therefore, wrong to argue that Explanation 10 did not create liability whereas Explanation 11 had really done so. From the main provision contained in Item 15‑A of the Third Schedule of the Finance Act of 1966, two broad categories of fabrics unprocessed and processed had been separately held leviable to Excise rates which have been specifically mentioned against each sub‑category. It does not suggest that the two categories are leviable to Excise Duty in the alternative. This position is further clarified by the addition of Explanation

10. For a proper appreciation of the object of employing different phraseology in the two Explanations, they are reproduced below to be considered in juxtaposition: "(10) 'The liability to duty under sub‑Item II shall not be affected by any duty paid or payable under sub‑Item I" (11) If any fabric is embroidered or rubberised in the process of weaving or knitting, duty shall be leviable thereon under sub‑Item II in addition to duty under sub‑Item I." The unmistakable terms and categorical manner is which Explanation 10 has been expressed leaves us in no doubt as to the precise intention of the law‑giver regarding liability to pay double‑duty. From the comparative study of the rates of Excise Duty levied on cotton fabrics at unprocessed Stage in the first instance and subsequently when they are processed would clearly show that bulk of the Duty is levied at the first stage i.e. on grey (unprocessed) fabrics. A manufacturer who buys cotton and after taking it through the various processes of ginning, spinning and weaving, turns out cloth in coarse condition technically known as grey fabric. He might choose to sell this product in its entirety or the bulk of it, in the same un processed state or alternatively he might subject it to various refining processes which may be elementary in nature such as calendaring, bleaching, dyeing and printing, more advanced such as mercerizing, sanforizing and highly advanced such as embroidery or rubherising. As the two stages, namely, manufacturing of the grey fabrics and its processing may be undertaken by the same manufacturer, as done by petitioner or by different manufacturers, the law does not make any distinction in this regard. This position was further clarified by Explanation 10 which removed any possible doubt as to the liability for the payment of second‑time duty under sub‑Item 11, relating to processed fabrics after duty under sub‑Item I had already been paid on it in an unprocessed state. We are clearly of the view that the object elf adding Explanation 11 was not for the first time to create liability of double‑duty, but to remove any possible doubt as to whether double‑duty would also be leviable in the case of embroidered or rubberised fabric, if these refining processes were undertaken at the earliest stage simultaneously with and in the course of weaving or knitting, inasmuch as the process of rubberising or embroidering may be resorted to either at the earliest stage or in the midway or as the last refining process. It was obviously in order to remove this confusion that Explanation 11 was added. The contention is, therefore, wholly misconceived and devoid of force.

7. In support of his second contention the learned counsel relied on the language used in the charging provision contained in section 3 of the Act reproduced earlier. it was argued that for the levy of Excise Duty two conditions must b fulfilled, firstly, the goods should be excisable and, secondly, it should be produced or manufactured in Pakistan. The first expression "excisable goods" has been defined in clause d of section 2 Of the Act meaning thereby goods specified in the First Schedule are subject to a duty of excise. There can thus be no manner of doubt that "cotton fabrics" having been specifically mentioned in Item 15‑A of the First Schedule are excisable goods. Likewise, the expression "manufacture" has also been defined in clause (g) of section 2 of the Act as "including any process incidental or ancillary to the completion of a manufactured cloth". This would also show that the expression manufactured is com prehensive and wide enough to include all processes principal or ancillary which a finished product had to undergo before its completion. The proposition becomes further clear by the Supreme Court authority in Superintendent of Central Excise, Lyallpur v. Ch. Faqir Muhammad (P L D 1959 S C 103). In this case a. notice was issued by the appellant to the respondent to take out a licence for his business of calendering loth. The validity of the notice was challenged by the respondent before the High Court by invoking writ jurisdiction on the ground that his mills did not manufacture cloth but after lifting it from the open market only calendered it, and mare calendering of cloth was not tantamount to manufacturing the same, so as to make it excisable once again. The contention found favour with the learned Judges of the High Court who took the view that the article remained the same after it had been calendered though it become finer and fetched better price. Their Lordships of the Supreme Court did not agree with this view and held that calendering was distinct process which transformed the article and amounted to "manufacture" as defined in section 2 (i) of the Act. On the question of the liability to pay duty a second time, their Lordships observed as follows:‑ "As for the liability to pay duty a second time, which has been pressed before us on behalf of the respondent there is the fact that Notification No. 6, dated 29‑4‑1955 issued under section 37 of the Act exempts cloth undergoing any process incidental or ancillary to the completion of its manufacture from so much of the duty liable under the Act as may have already been levied on it prior to that process. In the present case duty was admittedly levied when the cloth was manu factured by the concerned mills and before it came into the market, and to that extent further duty is not leviable on it after it is calendered. But that does not mean that calendered cloth is not excisable." Although at the relevant time the law was different, yet it is quite clear from the aforesaid observation of their Lordships that an additional duty could be levied for calendering over and above the one levied on original manufacture.

8. Rather a subtle argument was sought to be raised by the learned counsel on a distinction between commodity and goods on the basis of Governor‑General‑in‑Council v. Province of Madras (A I R 1945 P C 98) wherein the question before the learned Lords was that of the vires of the Madras General Sales Tax Act, 1939 in so far as it pertained to the levy of tax on the first sale in Madras on goods manufactured or produced in India. It was contended on behalf of the appellant before their Lordships that the power to impose a duty of excise which was given to the Federal Legislature by Entry No. 45 of the Federal Legislative List entitled that Legislature alone and none else to impose a tax on first sale of goods manufactured or produced in India. This contention was overruled and it was held that the two taxes one levied upon a manufacture; in respect of his goods, the other upon a vendor in respect of his sales were two separate and distinct imposts. We hate not been able to appreciate the relevancy of this authority to the determination of the issue before us. But nevertheless, if any argument was sought to be raised on an assumed distinction between commodity and goods, their Lordships clearly seem to have employed both the terms in the same context and connotation as will be clear from the following observation. "Their Lordships are of the view that a duty of excise is primarily a duty levied upon a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax upon goods not upon sales or the proceeds of sale of goods." The next authority sought to be relied upon by the learned counsel was Pakistan v. Muhammad Aqil (P L D 1960 S C 4) in which Republic of Pakistan feeling aggrieved by writ issued by the High Court directing it not to levy any excise duty on tanned leather which the respondent subjected to dyeing and glazing, was called in question in appeal by special leave preferred before the Supreme Court. Tanned leather was brought to the respondent by leather merchants and shoe‑manufacturer. For the refining processes of dyeing and glazing the same, Excise Duty levied by the Collector of Central Excise and Land Customs, was successfully challenged before the High Court. Their Lordships of the Supreme Court came to the conclusion that goods tuned out by the respondent were excisable goods. The following observation by their Lordships was relied upon by the learned counsel in this regard: "There would appear to be a misconception here, for the duty does not fall upon any process, but upon the goods produced . . . . ." This proposition cannot be disputed. Once, it is held that as a result of the process to which a goods is subjected, the end product is covered by the definition of manufactured or produced, it would become excisable if mentioned in the Schedule.

9. On behalf of the respondent it was contended that excisable duty could be legitimately levied under the law on the production of yarn, the manufacture of grey cloth and 0:e manufacture of processed cloth at all the three stages, although in the exercise of the powers vested is it under section 5 of the Act the Government had by notifications issued from time to time exempted yarn from the levy of excise duty. Reliance was placed in this regard on Superintendent Central Excise, Lyallpur v. Ch. Faqir Muhammad discussed earlier. It was further argued that in 1955‑56 duty on fine fabrics was Rs. 0.35 per square yard. In 1966‑67 it was split up and a duty of Rs. 0.28 was levied on grey fine fabrics plus the additional Duty of Rs. 0.05 per square yard. In 1967‑68 rate of excise duty on grey unprocessed cloth was Rs. 0.65 per square yard with a provision for additional duty for various kinds of proceeding at different rates ranging from 3 to 5 paisas. The argument was that it was only a case of splitting up of the excise duty and not a case of imposition of double‑duty for the same goods. Having already held that the subjection of coarse cloth to refining processes is fully covered by the definition of "manufacture", we are clearly of the view that even if it were a case of double duty it could be legitimately imposed on the petitioner under the law.

10. The upshot of the discussion is that there is no merit in this petition which is hereby, dismissed, with costs. A. E. Petition dismissed.