Vildirect: IncomeTax-caselaws-1992-VIL-159-ITAT-CHD

1992-VIL-159-ITAT-CHD

Equivalent Citation: ITD 041, 119,

Income Tax Appellate Tribunal CHANDIGARH

Date: 02.03.1992

DEPUTY COMMISSIONER OF INCOME-TAX

SHREE LALIT FABRICS (P.) LTD.

BENCH

Member(s) : S. K. CHANDER., S. P. KAPUR., D. N. SHARMA.

JUDGMENT

Per D.N. Sharma, J.M. --- A Special Bench of the Tribunal has been constituted by the President to consider the following question

"Whether the activities of bleaching, dyeing and printing of grey cloth amount to manufacture or production of any article or thing for the purpose of section 32A of the Income-tax Act, 1961?"

That is how the above question has come up for consideration before this Bench in this bunch of twenty-six appeals and one cross-objection.

2. Shri Jitinder Singh, the senior departmental representative at the outset raised a preliminary objection, challenging the constitution of the Special Bench for consideration of the above question. It was pointed out that in all these appeals, filed by the Revenue, no request has been made by the Department for constitution of a Special Bench for consideration of the aforesaid issue. The respondents could not have any grievance as they already have been granted relief by the first appellate authority in these cases. It was contended that in view of the Full Bench decision of the jurisdictional High Court of Punjab & Haryana in the case of Niemla Textile Finishing Mills (P.) Ltd. v. ITO [1985] 152 ITR 429, which squarely covered the issue, there was no necessity to constitute a Special Bench. In this connection it was also contended that decision of the jurisdictional High Court is binding on the Tribunal as has been held in the case of CIT v. Mohan Lal Kansal [1978] 114 ITR 5 83 (Punj. & Har.). Since the decision of the jurisdictional High Court would be binding on the authorities within its jurisdiction, it would be an exercise in futility to constitute a Special Bench for consideration of the issue. It was next contended that since the Amritsar Bench of the Tribunal has taken a consistent view on the matter, the constitution of the Special Bench for consideration of the same question was unwarranted. In this connection our attention was invited to the decision of the Amritsar Bench of the Tribunal in the case of Priya Textiles (P.) Ltd. [IT Appeal No. 311 (Asr.) of 87] wherein the Tribunal following the decision of the jurisdictional High Court in the case of Niemla Textile Finishing (P.) Ltd. held that the assessee carrying on the business of bleaching, dyeing and printing of grey cloth was not a manufacturer or producer of any article or thing and that one of the conditions mentioned for the claim of investment allowance has not been satisfied in that case. Shri Jitinder Singh contended that in view of this decision of the Division Bench, the Single Member Bench in the case of Essma Woollen Mills (P.) Ltd. [IT Appeal No. 489 (Asr.) of 1990] should not have taken a contrary view by following the decision in CIT v. Bengal Card Board Industries & Printers (P.) Ltd. [1989] 176 ITR 193 (Cal.). In this connection it was pointed out that the decision of the Calcutta High Court in Bengal Card Board Industries & Printers (P.) Ltd.'s case is an entirely different issue. Shri Jitinder Singh also contended that a smaller Bench of the Tribunal has to follow the decision of a larger Bench and that, therefore, on the basis of the decision of the Single Member Bench in the aforesaid case it cannot be said that there was any real conflict, in the view expressed by the Amritsar Bench on the question. Thus, the sum and substance of contention advanced on behalf of the Revenue in respect of the legal objection raised on its behalf is that there was no necessity to constitute a Special Bench for consideration on the aforesaid question.

3. We have given our due consideration to the submissions made on behalf of the Revenue in support of the legal objection raised before us. Section 255(2) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act'), provides that ordinarily a Bench shall consist of two Members - one Judicial and the other Accountant Member. Such a Bench shall be competent to discharge all functions and exercise all powers of the Tribunal. Section 255(3) provides for exercise of all powers and discharge of all functions of the Tribunal by a Bench consisting of a Single Member only, but such Single Member Bench may dispose of cases where the total income of the assessee, as computed by the Income-tax Officer, does not exceed Rs. one lakh. Section 255(3) also empowers the President of the Tribunal to constitute a larger Bench consisting of three or more members for the disposal of any particular case. One of the Members of such a Special Bench must necessarily be a Judicial Member and one Accountant Member. In the case of one of the assessees, namely, M/s Shree Lalit Fabrics (Pvt.) Ltd., the Income-tax Officer had disallowed the claim for investment allowance for the assessment year 1983-84 following the decision of the Punjab & Haryana High Court in the case of Niemla Textile Finishing Mills (P.) Ltd. On appeal, the CIT (Appeals) upheld the assessee's claim for investment allowance. In second appeal, filed by the Revenue, the Tribunal in ITA No. 459/ASR/ 1986 vide its order dated 20th February, 1987 expressed the view that in view of the authority of the Supreme Court in the case of Empire Industries Ltd. v. Union of India [1986] 162 ITR 846, the assessee was engaged in the manufacture or production of an article or thing and, therefore, investment allowance on the machinery was admissible. However, subsequently, the Amritsar Bench in the case of Priya Textiles (P.) Ltd. took a view favourable to the Revenue by following the decision of the jurisdictional High Court in the case of Niemla Textile Finishing Mills (P.) Ltd. vide its order dated 12th September, 1990. However, a couple of days later, a Single Member Bench took a different view in the case of Essma Woollen Mills (P.) Ltd. It may further be pointed out that in spite of the decision of the Division Bench in the case of Shree Lalit Fabrics (P.) Ltd. [IT Appeal No. 459 (Asr.) of 1989] a Single Member Bench of Amritsar took a contrary view in favour of the Revenue in the case of Woollen Processors (P.) Ltd. (IT Appeal No. 495 (Asr.) of 1989]. It is, thus, clear that the Amritsar Bench expressed conflicting views on the subject. Therefore, in order to resolve this conflict it was necessary to constitute a Special Bench to consider the aforesaid question arising in the cases falling within the territorial jurisdiction of Amritsar Bench.

4. A copy of the letter dated 27-3-1991 from Shri K.S. Vishwanathan, the then Vice-President, Northern Zone, addressed to one of us (Shri S.K. Chander) is available on the file, which shows that because of the conflict in the decision given by the jurisdictional High Court in the case of Niemla Textile Finishing Mills (P.) Ltd., and the Supreme Court in the case of Empire Industries Ltd. Special Bench was constituted by the President to go into the issue, relating to the claim for investment allowance under section 32A of the Act. Thus, the constitution of the Special Bench to consider and decide the aforesaid question was fully warranted in view of the facts stated above. We would like to make it clear that in these proceedings it is not open to any party to challenge the constitution of the Special Bench. For the purpose of constituting a Special Bench the President may either act suo moto or at the instance of one of the parties or on a reference made by a Division Bench or a Single Member Bench in this regard. The legal objection raised on behalf of the Revenue, in our opinion, is devoid of force and is, accordingly, rejected

5. In all these cases, except in the case of Ram Chander Janak Raj Spg. Mills (P.) Ltd. in IT Appeal No. 546 (Asr.) of 1988, the assessee's claim for investment allowance under section 32A has been allowed by the first appellate authority. In the case of Ram Chander Janak Raj Spg. Mills (P.) Ltd. the Assessing Officer has in fact allowed the assessee's claim for investment allowance and depreciation on the machinery though he did so after deducting the amount of subsidy received by the assessee from the Government from the cost of machinery. So, the question which arises in that appeal in fact is whether investment allowance and depreciation are to be allowed on the cost of machinery as reduced by the amount of subsidy received by the assessee. As a specific question has been referred for decision to the Special Bench, we would refrain from going into the facts of each case.

6. Shri Jitinder Singh, learned Senior Departmental Representative, relied heavily on the decision of the Punjab & Haryana High Court in the case of Niemla Textile Finishing Mills (P. )Ltd. in support of the contention that activities of carrying on the business of bleaching, dyeing and printing of grey cloth do not amount to "manufacture or production of any article or thing within the meaning of section 32A of the Act. According to Shri Singh, the said authority of the jurisdictional High Court is directly on the point, since it was concerned with the benefit available under section 280-ZB of the Act. It was pointed out that that section also used the expression " manufacture or production of any article". In this connection it was further pointed out that in that case reference to the High Court was made under the provisions of the Act. Since the phraseology in section 280-ZB as well as section 32A is the same, the Full Bench decision of the Punjab & Haryana High Court in the said case should be treated as a direct authority on the interpretation of the expression "manufacture or production of any article or thing" occurring in sub-clauses (ii) and (iii) of clause (b) of section 32A(2) of the Act. It was submitted that even though subsequently, a Full Bench of the Punjab & Haryana High Court expressed some doubt about the correctness of the decision of the Full Bench in the case of Niemla Textile Finishing Mills (P.) Ltd. yet that decision still holds good and all authorities including the Tribunal functioning within the jurisdiction of the Punjab & Haryana High Court are bound by the said decision of the Full Bench. It was further submitted by Shri Singh that even after the activities of bleaching; dyeing and printing have been carried out, cloth retained its basic character as a cloth. The basic material does not undergo any change and a mere transformation of grey cloth into a printed cloth does not amount to manufacture or production of any article or thing. According to Shri Singh, the processes of bleaching, dyeing and printing do not have the effect of changing the input, namely, raw or grey cloth, whether cotton or woollen into an entirely different commodity but it still retains its character as a cloth and, therefore, it cannot be said that these processes result in manufacture or production of any article or thing within the meaning of section 32A of the Act.

7. Shri Jitinder Singh then sought to distinguish the decision of the Supreme Court in the case of Empire Industries Ltd. by urging that in that case the Supreme Court was concerned with the amended definition of section 2(f) of the Central Excises & Salt Act, 1944 and that in that case the word 'manufacture' was considered in the context of the amended section 2(f). According to Shri Singh, in that case the Supreme Court did not give any general interpretation of the word 'manufacture'. It was then contended that the Supreme Court in the said case gave a negative interpretation of the word 'manufacture'. Shri Singh then referred to the following observations of the Supreme Court in the case of Empire Industries Ltd. in support of the contention that the decision in that case, if superficially read, might be construed as laying down a proposition against the Revenue, but if carefully and minutely read, it is in fact in favour of the Revenue ---

"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."

Thus, according to Shri Singh, the Supreme Court was of the view that the processes of bleaching, dyeing and printing etc. were in fact foreign to the concept of "manufacture", though these were not so alien to that concept so that these processes could not come within that concept. According to the submissions made before us on behalf of the Revenue the decision of the Supreme Court in the case of Empire Industries (P.) Ltd. which has been subsequently affirmed by a larger Bench of the Supreme Court in the case of Ujagar Prints v. Union of India [1989] 179 ITR 317, was given in context of a different Act and that the interpretation given therein cannot be applied to a case falling under section 32A of the Act.

8. Shri Jitinder Singh then, referring to the decision of the Special Bench of the Tribunal in ITO v. J.K.K. Textile Processing Mills [1990) 35 ITD 396 (Mad.) submitted that the Special Bench in that case did not take into consideration the decision of the Full Bench of the Punjab & Haryana High Court in the case of Niemla Textile Finishing Mills (P.) Ltd. and that this Bench may take an independent view in the matter and is not bound by the Special Bench decision in the said case. Reliance has also been placed on the decision of the Madras High Court in CIT v. S.S.M. Finishing Centre [1985] 155 ITR 791 and the decision of the same High Court in CIT v. S.S.M. Finishing Centre [1990] 186 ITR 597, affirming the earlier decision given in S.S.M. Finishing Centre's case.

9. Certain documents filed on behalf of the assessees represented by Shri R.K. Bansal, have been strongly objected to on behalf of the Revenue on the ground that these papers were not filed before the authorities below and since they contained merely an opinion given by certain authorities, they have no value as a precedent. The said documents which are at pages 15 to 21 of the paper book, filed on behalf of some of the assessees, contain opinion of the Law Ministry as also of the Joint Director, Direct Taxes, Office of the Comptroller & Auditor General of India on the question relating to admissibility of investment allowance to cloth processing units. To cut short the matter, we agree with this part of the submissions of the learned departmental representative and, therefore, the aforesaid papers shall be excluded from consideration.

10. Shri R.K. Bansal, learned counsel for Shree Lalit Fabrics Pvt. Ltd. and some other assessees, submitted that the assessees' case fell within the ambit of section 32-A(2)(b)(iii) as the assessees were not manufacturing or producing any article or thing specified in the list in the Eleventh Schedule to the Act. It was contended that the decision of the Madras High Court in the case of S.S.M. Finishing Centre was rendered in the context of a claim for higher development rebate under section 33(1)(b)(B)(i) of the Act and that the question considered in that case was whether the item manufactured by the assessee was one of the items specified in the Fifth Schedule to the Act. Shri Bansal also contended that the decision of the jurisdictional High Court in the case of Niemla Textile Finishing Mills (P.) Ltd. was also not applicable to the facts of the instant case for the reason that in that case the Punjab & Haryana High Court was concerned with a claim made under section 280-ZB which depended on the question whether the activities carried on by the assessee in that case amounted to manufacture or production of textiles within the meaning of Entry 23 of the First Schedule to the Industries (Development and Regulation) Act, 1951 (hereinafter referred to as the 'Industries Act'). In support of this contention Shri Bansal took us through various passages in the decision of the Full Bench in the case of Niemla Textile Finishing Mills (P.) Ltd. According to Shri Bansal in the case of Empire Industries Ltd. the Supreme Court interpreted the meaning of the word 'manufacture' on general principles. The word 'manufacture' as interpreted by the Supreme Court in the said case included processes of bleaching, dyeing and printing, though that interpretation was given in the context of the provisions contained in the Excise Act. Yet, according to Shri Bansal, the decision of the Supreme Court in the said case is fully applicable in the instant case. It was further submitted that the said decision was reaffirmed by a larger Bench of the Supreme Court in the case of Ujagar Prints. It was further contended that in both these cases the Supreme Court considered the meaning of the word 'manufacture' before amendment of section 2(f) of the Excise Act and was of the view that even without the expanded meaning of the word 'manufacture' as given in the amended section 2(f) " manufacture" includes process of bleaching, dyeing and printing. It was then contended that raw or grey cloth after it undergoes process of bleaching, dyeing and printing results in a commercially different marketable commodity and, therefore, these processes amount to manufacture or production of an article or thing. In this connection reliance has been placed on the decision of the Gujarat High Court in the case of CIT v. J.B. Kharwar & Sons [1987] 163 ITR 394 which, according to Shri Bansal, squarely covers the issue raised before this Bench. Reliance has also been placed on the Special Bench decision of the Tribunal in J.K.K. Textile Processing Mills case. Thus, according to Shri Bansal, the CIT(Appeals) in these cases was justified in allowing the assessee's claim for investment allowance on new machinery under section 32A of the Act.

11. Shri Sudershan Kapur, appearing for M/s S.R.S. Textiles and some other assessees, adopted the arguments of Shri Bansal and further submitted that in all these cases raw material used was altogether different from the end-product. It was submitted that grey cloth as such is unusable and is not a saleable commodity. It is only after grey cloth undergoes processes of bleaching, dyeing and printing etc. that the end-product, namely, finished cloth becomes a commercially different saleable commodity. Thus, according to Shri Kapur, in all these cases basic raw material used was altogether different from the end-product. It was next contended that the object and purpose of enacting section 32A was to give encouragement to certain industries and keeping in view that objective and purpose, the provision of section 32A should be construed liberally. In this connection reliance has been placed on the decisions of the Supreme Court in CGT v. N.S. Getti Chettiar [1971] 82 ITR 599 and CIT v. Strawboard Mfg. Co. Ltd. [1989] 177 ITR 431.

12. Shri N.S. Anand, who also appeared for Shree Lalit Fabrics Pvt. Ltd. and some other assessees, adopted the arguments of Shri Bansal and Shri Kapur.

13. We have carefully considered the rival submissions as also the authorities cited at the bar. Section 32A of the Act was inserted by the Finance Act, 1976 w.e.f. 1-4-1976. The Finance (No. 2) Act, 1977 substituted sub-clauses (ii) and (iii) to clause (b) of section 32A(2) by two new sub-clauses. Under the new provisions, investment allowance is to be allowed in respect of new machinery or plant installed for the purpose of business of construction, manufacture or production of any article or thing except certain articles or things of low priority specified in the list in the Eleventh Schedule to the Act. Disqualification arising from the installation of machinery or plant for the purposes of business of manufacture or production of any article or thing specified in the list in the Eleventh Schedule does not, however, apply in respect of machinery or plant installed in a small scale industrial undertaking and such machinery or plant will be eligible for investment allowance even if it is in use of business of manufacture or production of any article or thing specified in the said list. Indisputably, the process of bleaching, dyeing and printing do not result in manufacture of any article or thing specified in the list in the Eleventh Schedule and, therefore, in case it is held that these processes result in manufacture or production of any article or thing, the case would fall within the ambit of sub-clause (iii) of clause (b) of section 32A(2).

14. The words 'manufacture' and 'production' have not been defined in the Act except that for the purposes of sections 10A and 10B the word 'manufacture' includes any process or assembling or recording of programmes on any disc, tape, perforated media, or other information storage device. For the purpose of section 32A the Legislature, however, has not given these expressions any technical or artificial meaning and intended to give them the ordinary meaning as understood in common parlance. It will, therefore, be useful to refer to the dictionary meaning of these words. The Webster New International Dictionary, Second Edition, Vol. II, gives the following meaning of the word 'manufacture' ----

(a) The process or operation of making wares or any material products by hand, by machinery or by other agency, often such process or operation carried on systematically with division of labour and with the use of machinery ;

(b) Anything made from raw materials by hands, by machinery or by Art;

(c) The making of anything by any agency or process. According to the meaning assigned to this word in Black's Law Dictionary, manufacture' is the process or operation of making wares or any material produced by hand, by machinery or by other agency; anything made from raw materials by the hand, by machinery or by art. It also states that the production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine, would be 'manufacture'. In the same dictionary the meaning of the word 'production' is given as act or process of producing, bringing forth.

15. As has been pointed out by their Lordships of the Gujarat High Court in the case of J.B. Kharwar & Sons the dictionary meaning also points out that the meaning to be attributed to the word "manufacture" would be to work up materials into forms for use, making of article or materials by physical labour or mechanical power and making of goods by hand or by machinery often on large scale by division of labour. Grey or raw cloth after it undergoes various processes like bleaching, dyeing and printing, is transformed into a distinct article having a distinct use as distinguished from the grey cloth. As a result of these processes the grey cloth gets transformed into a new marketable commodity which is commercially known as a distinct and separate commodity having its own character, use and name. Thus, the processes of bleaching, dyeing and printing convert the raw material into a distinct and different commercial commodity and, therefore, these processes, in our opinion, tantamount to 'manufacture' or 'production' of any article or thing within the meaning of section 32A(2)(b)(iii).

16. Since the Revenue has relied heavily on the decision of the jurisdictional High Court in the case of Niemla Textile Finishing Mills (P.) Ltd., it will be necessary to discuss this case in detail. A Division Bench of the Punjab & Haryana High Court in the case of Niemla Textile Finishing Mills (P.) Ltd. expressed some doubt about the correctness of the decision of a Division Bench of the same High Court in East India Cotton Mfg. Co. (P.) Ltd. v. Assessing Authority-cum-Excise & Taxation Officer [1972] 30 STC 489. The Division Bench, therefore, referred the matter to the Full Bench. The question of law which was considered for decision by the Full Bench is as follows :---

"Would, mere dyeing, printing, singeing or otherwise finishing or processing of fabrics amount to the 'manufacture or production of textiles', within the meaning of Entry 23 of the First Schedule to the Industries (Development and Regulation) Act, 1951?"

17. Niemla Textile Finishing Mills (P.) Ltd.'s case was engaged in scouring, singeing, milling and finishing of all types of woollen, silken or cotton fabrics. Under section 280-ZB of the Act, the assessee was entitled to a tax credit certificate if the conditions specified therein stood satisfied. The petitioner company in that case preferred applications for the assessment years 1966 to 1970 before the Income-tax Officer, Amritsar, for taking advantage of section 280-ZB and seeking tax credit certificates thereunder. The Income-tax Officer, however, rejected all these applications on the ground that the petitioner was not manufacturing any textiles and that it was merely carrying on the process of dyeing on a wage basis which would not amount to manufacture of textile goods. The petitioner preferred appeals before the Commissioner of Income-tax, which were also dismissed. The petitioner then filed a writ petition before the High Court which originally came up for hearing before a Division Bench, which referred the matter for decision by a larger Bench. Before the Full Bench it was submitted on behalf of the petitioner that mere process of dyeing, finishing, scouring and singeing of fabrics and textiles of all kinds would come well within the ambit of manufacture or production of textiles, as envisaged by the statute and, consequently, the petitioner would be entitled to the tax credit certificate under section 280-ZB of the Act. On the other hand, on behalf of the Department it was submitted that the petitioner was not manufacturing any textile goods and that mere dyeing and finishing of manufactured textile goods would not fall within the definition of the word "manufacture or production". It is note-worthy that the said case arose with reference to the Industries Act and Entry 23 of the First Schedule thereof. In terms of the said Act if the industry in question was engaged in the manufacture or production of textiles, it would be entitled to a tax credit certificate. The question which arose for determination by the Full Bench was whether the process of dyeing, finishing, scouring and the alike would fall within the ambit of "manufacture or production" of textiles within the meaning of Entry 23 of the First Schedule to the Industries Act. Entry 23 is as follows :---

"23. Textiles (including those dyed, printed or otherwise processed):

(1) Made wholly or in part of cotton, including cotton yam, hosiery and rope;

(2) Made wholly or in part of jute, twine and rope;

(3) Made wholly or in part of wool, including wool tops, woollen yarn, hosiery, carpets and druggets;

(4) Made wholly or in part of silk, including silk yam and hosiery;

(5) Made wholly or in part of synthetic, artificial (man-made) fibres, including yarn and hosiery of such fibres."

18. The Full Bench has observed at page 443 of the report that a bare perusal of the aforesaid item shows that its heading is "Textiles (including those dyed, printed or otherwise processed)" and under this there are five sub-headings. At page 444 of the report it was observed that the tax credit certificate scheme under section 280-ZB provides for the grant of a tax credit certificate to companies engaged in the manufacture or production of any of the articles specified in the First Schedule to the Industries Act for a period of five years for the assessment years 1966-67 to 1970-71. Thus, it is a pre-condition to the grant of tax credit certificate that the articles manufactured or produced by the company find place in the First Schedule to the Industries Act. At the same page of the report their Lordships have observed that it would be wholly unnecessary to advert to the ordinary dictionary meaning of the words 'manufacture', 'production' and 'textiles' or as occurring in some other statutes, as the meaning which the Legislature intended to give to these words is available in the entry itself. At page 445 of the report their Lordships have observed that in the Entry i.e., Entry 23, the emphasis is on of what the textile is made of and not on the process of its making, may it be dyeing, printing or processing in any other manner. The acts which are claimed to fall within the meaning of words "manufacture or production" only result in giving a good finish to a particular article manufactured or produced, and making it a better marketable article, but those acts by themselves do not at all fall within the ambit of the entry. The Full Bench finally held that a company only doing the work of dyeing, printing, singeing or otherwise finishing or processing of fabrics would not fall within Entry 23 of the First Schedule nor would it be entitled to claim advantage of the provisions of section 280-ZB. This finding was given by the Full Bench in the context of Entry 23 of the First Schedule to the Industries Act. It has to be borne in mind that in that case the petitioner company contended that dyeing, printing, finishing, scouring and singeing of fabrics would amount to manufacture or production of textile within the meaning of Entry 23. This contention was rejected by the Full Bench. In the cases in hand it is no body's case that the process of bleaching, dyeing and printing amounted to manufacture or production of textile goods. The question, as has already been stated above, to be considered here is whether these processes tantamount to manufacture or production of any article or thing. The Full Bench decision is an authority for the proposition that for the purpose of claiming benefit under section 280-ZB of the Act, the process of dyeing, printing, singeing or otherwise finishing or processing of fabrics would not amount to manufacture or production of textiles within the meaning of Entry 23 of the First Schedule to the Industries Act. This authority, in our opinion, cannot, therefore, be pressed into service for the proposition that the aforesaid processes do not amount to manufacture or production of any article or thing within the meaning of section 32A(2)(b)(iii) of the Act.

19. At this stage it would be worth-while to point out that in the case of CIT v. Sovrin Knit Works Amritsar [IT Reference Nos. 6 and 7 of 1981] a Full Bench of the Punjab & Haryana High Court was concerned with a matter relating to the quantum of development rebate that the assessee was entitled to in respect of new machinery installed by it, namely, whether it should be 25 per cent or 15 per cent. This in term depended upon the interpretation of section 33(1)(b)(B)(i) of the Act read with Item 32 of the Fifth Schedule thereof. The Full Bench vide its order dated 5-4-1989 a copy whereof has been placed before us, has noted that reliance on behalf of the Revenue was placed upon the judgment of the Full Bench in the case of Niemla Textile Finishing Mills (P.) Ltd. Their Lordships observed that this case arose with reference to the Industries Act and Entry 23 of Schedule I thereof. The Full Bench noted that in dealing with the said judicial precedent, it deserves note that the Division Bench had referred the matter to the Full Bench as it came to doubt the correctness of the decision of the Division Bench in East India Cotton Mfg. Co. (P.) Ltd.'s case. The Full Bench eventually took the same view as the Division Bench. The Full Bench proceeded to observe that the judgment of the Division Bench in East India Cotton Mfg. Co. (P.) Ltd.'s case has, however, since been specifically affirmed by the Supreme Court in the case of Assessing Authority-cum-Excise and Taxation Officer v. East India Cotton Mfg. Co. Ltd. [1981] 48 STC 239. This, according to the Full Bench, provided an occasion for are consideration of the decision of the Full Bench in Niemla Textile Finishing Mills (P.) Ltd.'s case by a larger Bench. Their Lordships were of the view that the judgment of the Full Bench in Niemla Textile Finishing Mills (P.) Ltd.'s case clearly warrants reconsideration. It was, therefore, directed that the said case, accordingly, be placed before the Hon'ble Chief Justice for being referred to a larger Bench.

20. The Madras High Court in the case of S.S.M. Finishing Centre was concerned with a claim for higher development rebate under section 33(1)(b)(B)(i) of the Act in respect of the machinery used by the assessee in its business. One of the questions referred for the opinion of the Hon'ble High Court was whether on the facts and in the circumstances of the case, the Tribunal's view that the operations carried on by the assessee would amount to manufacture of textiles specified as item 32 in the Fifth Schedule and that, therefore, the assessee should be allowed higher rate of development rebate, is sustainable in law. In that case the assessee purchased cloth manufactured by others. On the cloth so purchased, the assessee carried out operations of bleaching, dyeing, centering and printing. On the basis of these operations carried on by the assessee, the Tribunal took the view that though no cloth had been manufactured by the assessee yet the operations carried on by it would amount to manufacture of textiles. The High Court held that the assessee did not manufacture the cloth but merely expended its labour on the cloth manufactured by others by bleaching, dyeing, centering and printing the cloth. The basic quality of the commodity as cloth had remained the same both at the time of its purchase by the assessee and even after the carrying on by the assessee the operations referred to above. It was further observed that the assessee started with cloth purchased from outside and ended up with cloth even after performance of the operations. In other words, the end-product in this case is not any different from the feed-in-material. It was held that it is the manufacture or production or bringing into existence of textile material or cloth or fabric that is contemplated under section 33(1)(b)(B)(i) read with item 32 of Fifth Schedule. It was further held that important requirement therefore, is that the operations carried on must be directed towards the "manufacture or production" of textiles. Thus, it was in context of the provisions of section 33(1)(b)(B)(i) read with item 32 of Fifth Schedule that the High Court gave its finding that the aforesaid operations did not amount to manufacture or production of textiles. This authority was followed by the same High Court in the case of the same assessee in S.S.M. Finishing Centre's case. These cases cannot, therefore, be regarded as an authority for the proposition canvassed before us on behalf of the Revenue that processes of bleaching, dyeing and printing do not amount to manufacture or production of any article or thing within the meaning of section 32A.

21. We may now refer to the authorities cited on behalf of the assessees. In Empire Industries Ltd.'s case the petitioner company was engaged in job activities of dyeing, printing and finishing of man-made/cotton fabrics. It was contended by the petitioner that the processing operations of the petitioner company are job work operations of dyeing, bleaching and printing of fabrics which are cotton fabrics and/ or man-made fabrics. It was the petitioner's case that it begins with man-made or cotton fabrics before it starts the said process and also ends up with man-made or cotton fabrics after subjecting the fabrics to various processes. It was contended that the petitioner company received fully manufactured man-made fabrics and/or cotton fabrics from its customers, only for the purpose of carrying out one or more aforesaid processes thereon and after necessary processes were carried out the same were returned to the customers. According to the petitioner company, what was received by it was known as cotton man-made fabrics and what was returned was known as cotton man-made fabrics. It was in the context of these facts that the Supreme Court considered the meaning of the expression "manufacturing process" and "manufacture" used in section 2(f) of the Central Excises & Salt Act, 1944. Section 2(f) of the said Act was amended by the Central Excise & Salt and Additional Duties of Excise (Amendment) Act, 1980. The vires of the amendment was also challenged before the Supreme Court. Section 2(f) of the Central Excises & Salt Act, 1944 is as follows:

"2. Definitions. --- In this Act, unless there is anything repugnant to the subject or context,---

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

Sub-clauses (v), (vi) and (vii) were added to section 2(f) by the said Amending Act. Clause (v) is as follows :---

"(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."

22. After considering various decisions, the Supreme Court, in the said case, held that to constitute 'manufacture' it is not necessary that one should absolutely make out a new thing because it is well settled that one cannot absolutely make a thing by hand in the sense that nobody can create matter by hand. It is the transformation of the matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such. In other words, if by application of labour and skill an article is transformed to the extent that it is commercially known differently, it will suffice to say that manufacture has taken place for the purpose of central excise. Their Lordships in the aforesaid case have observed that (see page 865 of the report) 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 process. On page 869 it is observed that etymologically the word 'manufacture' properly construed would doubtless cover the transformation. On page 870 their Lordships have observed thus : "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."

23. Thus, the Supreme Court was of the view that even without taking into consideration the expended definition of "manufacture", as contained in section 2(f) of the Act, the processes of bleaching, dyeing and printing of fabrics would amount to manufacture.

24. Their Lordships, as has been held by the Full Bench of the Punjab & Haryana High Court in the case of Sovrin Knit Works, have specifically affirmed the decision of the Division Bench of the Punjab & Haryana High Court in East India Cotton Mfg. Co. (P.) Ltd.'s case, wherein the Division Bench positively took the view that singeing, bleaching or dyeing of a raw cloth turns it into a commercially marketable commodity and manufacture of a commercially new product. In our opinion, this decision of the Supreme Court which has been subsequently affirmed by a larger Bench of the Supreme Court in Ujagar Prints' case, clinches the issue in favour of the assessee.

25. Following the decision of the Supreme Court in Empire Industries Ltd.'s case, the Gujarat High Court in the case of J.B. Kharwar & Sons has held that when an assessee subjects to a grey cloth, whether belonging to itself or to its customers, to the process of dyeing and printing, it manufactures or produces an article which is distinct from grey cloth which is used as a raw material. It is immaterial whether the grey cloth which is subjected to process of dyeing and printing belongs to the assessee or to any one else. The activity which the assessee carries on is manufacturing activity irrespective of the fact whether the grey cloth belongs to it or its customers. The assessee in that case was engaged in the activities of dyeing and printing of grey cloth and claimed the benefit of section 80J. It was held by the Gujarat High Court that the conditions laid down in clause (iii) of section 80J(4) are satisfied in the case of the assessee. This case is indirectly on the point as it was concerned with the meaning of expression "manufactures or produces articles", which is more or less similar to the expression used in section 32A(2)(b)(iii) of the Act.

26. The Special Bench of the Tribunal in the case of J.K.K. Textile Processing Mills which also had an occasion to consider an issue similar to the one raised before us, held that the question whether the assessee's business of bleaching, dyeing and printing of unbleached grey cloth results in manufacture or production of any article, is concluded by the decision of the Supreme Court in the case of Empire Industries Ltd. The Special Bench in that case also took note of the decision of the Gujarat High Court in the case of J.B. Kharwar & Sons. We are in respectful agreement with the view expressed by the Special Bench in the aforesaid case.

27. For the aforesaid reasons, we hold that the activities of bleaching, dyeing and printing of grey cloth amount to manufacture or production of any article or thing within the meaning of section 32A of the Act.

28. These appeals and the cross-objection shall now be posted for hearing before the Division Bench.

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