MAFATLAL FINE SPINNING & MFG. CO. LTD versus COLLECTOR OF CENTRAL EXCISE, BOMBAY

Citation: [1989] 1 S.C.R. 204 · Decided: 17-01-1989 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
MAFA1LAL FINE SPINNING & MFG. CO. "LTD. 
v. 
COLLECTOR OF CENTRAL EXCISE, BOMBAY 
JANUARY 17, 1989 
[R.S. PATHAK, CJ AND M.N. VENKATACHALIAH, J.) 
Central Excises and Salt Act, 1944/Central Excise Rules, 
1944: Section 39L/Rule 49A-Differential rates of interest on deferred 
payment of yarn duty depending on whether fabrics are cleared 'grey' or 
'after processing'-'Grey' fabrics subjected to 'calendering' and 'shear-
(; ing' before clearance-Whether cease to he 'grey fabric' and 'unpro-
cessed'-Whether higher rate payable-Calendering and shearing-
What are. 
Words and Phrases: 'Calendering' and' Shearing'-Meaning of. 
0 
Rule 49A of the Central Excise Rules, 1944 provided for pay-
'ment of different rates of interest on the excise duty on the yarn, 
payment of which was deferred at the option of the manufacturer till 
the manufacture and clearance of the fabrics made out of the dutiable 
yarn, depending on whether cotton fabrics were cleared 'grey' (unpro-
:><, 
cessed) or 'after processing'. When the fabrics were cleared grey the 
E interest payable was 1 'h% of the yarn-duty. But where the cotton-
fahrics were cleared after 'processing', it was 3% of yarn duty. 
AppeUant-Company, engaged in the manufacture of cotton-
fahrics, in its composite mills, opted for such deferment of paymentof 
duty of excise. The cotton-fabrics cleared admittedly underwent the 
F process of 'calendering' and 'shearing'. The Appellate Tribunal held 
that 'calendering' and 'shearing' were 'finishing processes' which 
rendered the 'grey' fabrics to cease to be 'unprocessed' and thus 
attracted interest at 3% of yarn duty. 
In the appeal before this Court, ii was contended on behalf of 
G the appellant company that whether the fabric, after 'calendering' 
~nd 'shearing' ceased to be 'unprocessed' fabric would require to be 
'resolved on the language of the Rule 49 A itself and that the differentium 
for the attraction of the different rates of interest was whether the 
cotton-fabrics cleared were 'grey-fabrics' as known and understood in 
the textile industry, and that the condition for levy of 1 'h% was not 
H whether some process or processes were applied to the 'grey fabrics' 
204 
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MAFATLAL MFG. CO. v. COLLECTOR OF C.E. 
205 
but whether such process or processes to which the grey-fabric was 
subjected bad the effect of making snch grey-fabric ceased to be 'grey-
fabric', and that actual processes or 'calendering' and 'shearing' 
involved in the present case were amongst the simplest of the processes 
and did not have the effect of bringing about any change in the 'grey-
fabric', as to take it out of Rule 49A(l)(b). 
On behalf of the Revenue it was contended that the conditions for 
the choice of the different rates of interest were not envisaged in the 
context whether the process or processes amounted to 'manufacture' 
within the meaning of s. 2(0(v) of the Act, but only in the context of 
estimating the extent of time consumed by the process or processes and 
that the test appropriate in this context -was not whether the grey-
fabrics nnder-went any change in their nature or quality as a result of 
the processes bnt was whether any time consuming process, whatever 
be its nature, was resorted to by the manufacturer which, in turn, 
occassioned delays in the clearance of the cotton-fabrics and thereby 
delayed payment of the yarn-duty. 
Allowing the appeals, 
HELD: I. Thongh the purpose of Rule 49A of tbe Central Excise 
Rules 1944, was to provide for rates of interest depending on the 
time consumed by the processing, the measure of the delay so as to 
attract one or the other of the rates is not in terms of any period of time 
specified, but is prescribed to be with reference to the nature of the 
processes. The measure of the delay in deferment of yarn-duty legisla-
tively considered appropriate to attract higher rate of interest at 3%, is 
in terms of the processes that would be required to make the 'grey-
cloth' cease to be grey-cloth. Any processing that can take a case out of 
Rule 49A(l)(b) must be a process which renders cotton fabric cease to 
be 'grey' fabric as commercially known and understood. That is why in 
Rule 49A(l) of the expression 'grey' is used while in Rule 49A(2), that 
word is omitted. [209E-F I 
The matter has to he examined by those standards, which in turn, 
depends on the fact, whether the process or processes concerned were 
such as to change the nature of the 'grey-fabric'. [209G-H] 
2.1

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