B.J. DIVAN

(1) In this group of seven matters every one of the petitioners is a processor of fabrics that is task of bleaching dyeing and printing of fabrics which are already in existence is done by these processors. Three out of these petitioners are processors of art silk fabrics whereas the remaining are processors of cotton fabrics. These processors are only the owners of processing houses. They have no weaving or spinning departments. The fabric which is woven on power looms mostly is brought to them for being processed by bleaching dyeing and printing so as to make the fabric more attractive to the consumer.

(2) The objection by these processors is to the mode of the levy of excise duty under the First Schedule to the Central Excises and Salt Act 1944 hereinafter referred to as the Act. Item 68 refers to All other goods not elsewhere specified manufactured in a factory but excluding (a) alcohol all sorts including alcoholic liquors for human consumption; (b) opium Indian hemp and other narcotic drugs narcotics; and (c) dutiable goods as defined in sec. 2(c) of the Medicinal and Toilet Preparations (Excise Duties) Act 1955 and the Explanation to Item 68 points out that in this item the expression factory has the meaning assigned to it in sec. 2(m) of the Factories Act 1948 Under sec. 2(f) of the Act manufacture includes any process incidental or ancillary to the completion of a manufactured product. Item 18-A of the Schedule to the Act refers to Cotton twist yarn and thread all sorts containing not less than nine per cent by weight of cotton calculated on the total fibre content whether sized or unsized. Item 19 of the Schedule provides for the description of goods and rates of duty. Item 19 covers cotton fabrics and is in these terms: Cotton fabrics means all varieties of fabrics manufactured either wholly or partly from cotton and includes dhoties sarees chadders bed-sheets bed-spreads counterpanes table-cloths embroidery in the piece in strips or in motifs and fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic materials but does not include any such fabric if it contains

(i) 40 per cent or more by weight of wool;

(ii) 40 per cent or more by weight of silk;

(iii) 40 pet cent or more by weight of rayon or artificial silk or

(iv) 50 per cent or more by weight of the Jute (including Bimlipatam jute or mesta fibre):

Provided that in the case of embroidery in the piece. in strips or in motifs and fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic materials the percentages referred to in (i) to (iv) above shall be in relation to the base fabrics which are embroidered or impregnated or coated as the case may be. Then the rates of duty are provided. Explanation I to Item 19 states:

"Base fabrics means fabrics falling under sub-item I of this item which are subjected to the process of embroidery or which are impregnated or coated with preparations of cellulose derivatives or of other plastic materials.

(3) Sec. 3 is the charging section and says that:

"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 India and a duty on salt manufactured in or imported by land into any part of India as and at the rates set forth in the First Schedule".

By sec. 2(d) of the Act excisable goods are goods specified in the First Schedule as being subjected to a duty of excise and includes salt. It is clear when sec. 3 and sec. 2(d) are read together that if any of the goods specified in the First Schedule are manufactured or produced such manufacture or production is the excisable event on which duty of excise can be levied. If there is no production or manufacture of an excisable article or goods in the sense of goods specified in the First Schedule there cannot be any levy of excise. Art silk would fall under Item 22 which deals with man-made fabrics and the entry reads:

"Man-made fabrics means ail varieties of fabrics manufactured either wholly or partly from man-made fibres or yarn and includes embroidery in the piece in strips or in motifs and fabrics impregnated coated or laminated with preparations of cellulose derivatives or of other artificial plastic materials in each of which man-made (i) cellulosic fibre or yarn or (ii) non-cellulosic fibre or yarn predominates in weight".

It is well-known that art silk fabrics are manufactured from cellulosic fibre or yarn and therefore the entry would cover art silk of the type under Item 22. It is to be noticed that so far as embroidery in piece and strips or motifs is concerned and fabrics impregnated or coated or laminated with preparations of collulosic derivatives or other artificial plastic materials are concerned both as regards cotton fabrics as well as manmade fabrics the description is the same both under Item 19 and 22 arid in each of those two cases the Legislature has taken special care to point out that fabrics whether man-made cotton on which embroidery in piece or strips or motifs is worked out when they are impregnated coated or laminated with preparations of collulosic derivatives or other plastic materials they are deemed to be cotton fabrics if the base fabric is cotton and man-made fabric if the base fabric is man-made fabric. The whole argument before us turns upon the question whether grey cloth in the case of cotton fabrics which comes out from the production by power looms or other weaving textile mills which have no processing houses of their own and which is processed by independent processors can be said to be a newly manufactured cotton fabric or man-made fabric as the case may be when i. is processed by the processing house either by bleaching dyeing or printing carried out in the processing house. It is undoubtedly true that in the case of cotton fabrics cotton fabrics mean all varieties of fabrics manufactured from cotton and similarly under Item 11 man-made fabric means all varieties of fabrics manufactured either wholly or partly from man-made fibres or yarn. As to what exactly is meant by fabric we have now the recent decision of the Supreme Court in Porritts and Spencer v. State of Haryana Civil Appeal No. 2212 of 1977 decided by the Supreme Court on September 6 1978 The question before the Supreme Court in that case was whether dryer felts manufactured by the assessee in that case fell within the category of all varieties of cotton woollen and silken fabrics as specified in Item 13 of Schedule B to the Punjab General Sales Tax Act 1948 While dealing with this question the Supreme Court pointed out that the word textiles is not defined in the Act but it is well-settled as a result of several decisions of the Supreme Court which were mentioned in the judgment that in a taxing statute words of everyday use must be construed not in their scientific or technical sense but in the sense as understood in common parlance. It was also pointed out that the word textiles is derived from the Latin texere which means to weave and it means any woven fabrics. When yarn whether cotton silken woollen rayon nylon or of any other description or made out of any other material is woven into a fabric what comes into being is a textile and it is known as such. It may be cotton textile silk textile woollen textile rayon textile nylon textile or any other kind of textile. The method of weaving adopted may be the warp and woof pattern as is generally the case in most of the textiles or it may be any other process or technique. There is such phenomenal advance in science and technology so wondrous is the variety of fabrics manufactured from materials hitherto unknown or unthought of and so many are the new techniques for making fabrics out of yarn that it would be most unwise to confine the weaving process to the warp and woof pattern. Whatever be the mode of weaving employed woven fabric would be textile. What is necessary is no more than weaving of yarn and weaving would mean binding or putting together by some process so as to form a fabric. In the course of the same judgment it was pointed out: But here the word textiles is not sought by the assessee to be given a scientific or technical meaning in preference to its popular meaning. It has only one meaning namely a woven fabric and that is the meaning which it bears in ordinary parlance.

(4) So far as the word fabric is concerned The Oxford English Dictionary Vol. IV at page 2 defines fabric to mean A manufactured material; how only a textile fabric a woven stuff. Therefore a fabric must always be a woven stuff. Meaning 7 under the word fabric means of a textile article: The woven substance; tissue fibre. It is therefore clear that when one speaks of manufacturing a fabric what is meant is manufacture or production of a woven stuff or woven substance and the only meaning which can be attributed to the words manufacture of a cotton fabric or a man-made fabric is weaving of cotton fabric or weaving of man-made fabric. If fabric brings in the concept of woven stuff or woven substance manufacturing a woven substance or woven stuff means weaving by the aid of power and mechanical means any cotton fabric or man-made fabric. No other meaning can be attributed to the words manufacturing a fabric. It is from this angle that we will have to examine the entries in the instant case.

(5) It has been held by the Supreme Court in Union of India v. Gujarat Woollen Felt Mills 1977 ELT (J-24) that The term Woollen fabrics in Entry 21 means all varieties of fabrics manufactured out of wool including blankets Lohis rugs shawls and embroidery in the piece in strips and in motifs. In scientific and technical sense also the term is wide enough to cover woven or knitted material which is wool based. Therefore the word fabrics in tariff Item 21 has been used to mean woven material in which sense it is popularly understood and includes not only woollen garments but also woollen material used as covering or for similar other purposes. Therefore according to the Supreme Court also fabric means woven material.

(6) For the purposes of this judgment we will proceed on the footing that processing with the aid of power is manufacture as defined in sec. 2 (f) of the Act. But the question is whether by manufacture in the sense of processing a fabric which is already woven and in existence any manufacture of cotton fabric takes place or any manufacture of man-made fabric takes place. It may be borne in mind that under sec. 3 the taxable event or the event which attracts levy of excise is the production or manufacture of any excisable goods and excisable goods are goods specified in the First Schedule as being subject to a duty of excise. If processing a fabric made on power loom or any other manner to dyeing printing or bleaching does not call for or involve any manufacture of a fabric then item 19 would not in terms apply to this particular type of manufacture namely processing of fabrics. So far as embroidery in piece in strips or in motifs is concerned it would be embroidery by mechanical process on fabric already in existence. Similarly impregnating or coating that preparation with cellulosic or of other artificial plastic materials of fabric which are already in existence is a separate manufacture of an excisable goods since embroidery in piece in strips or in motifs and impregnated or coated fabrics are specifically mentioned in Items 19 and 22 in the First Schedule to the Act. Processed fabrics whether cotton fabrics or man-made fabrics are not specifically mentioned in these two items 19 and 22 of the First Schedule to the Act and the question is whether as was urged by Mr. Shelat processing of grey power loom cloth means production of a variety of fabric. If fabric means woven material or woven substance or woven stuff such substance or stuff may be woven out of cotton or man-made fabric or yarn. Processing of cotton fabrics or man-made fabrics does not bring into existence any new woven stuff or substance. It is merely processing in the sense of bleaching dyeing or printing fabric which was already in existence.

(7) In this connection two decisions one by our High Court and another of the Court in England should be borne in mind. In Extrusion Processes Pvt. Ltd. v. N. R. Jadhav (1974) 15 G.L.R. 161 a Division Bench of this High Court consisting of J. B. Mehta and S. H. Sheth JJ. dealt with the question of excise duty levied on manufacture of extruded aluminium collapsible tubes and the question was whether printing and lacquering of aluminium tubes involved extrusion process. The Division Bench held:

"Sub-item (3) of Item 27 of the First Schedule read With sec. 3(1) of the Central Excises and Salt Act subjects to payment of excise duty manufacture of extruded tubes of aluminium. Printing and lacquering do not involve the process of forming tube from metal slug or dump which extrusion means. It is therefore clear that since printing and lacquering of plain extruded tubes do not require application of any further process of extrusion it cannot be covered by sub-item (e) of Item 27. Secondly by printing and lacquering plain extruded tubes it cannot be said that the petitioners manufacture aluminium tubes. If such a commodity is subjected to central excise duty after it has once been paid on the plain extruded tubes it will not he a duty on the manufacture of extruded aluminium tubes but it will be a duty on the sale of that commodity. Therefore the printing and lacquering of plain extruded aluminium tubes do not fall within the ambit of sub-item (e) of Item 27.99"

The decision of the Supreme Court in South Bihar Sugar Mills Ltd. v. Union of India A.I.R. 1968 S. C. 922 was taken into consideration. It was pointed out that the Supreme Court in the case of South Bihar Sugar Mills: the word Manufacture implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name character or use. The said Act does not define goods. The Legislature therefore must be taken to have used every word in its ordinary dictionary meaning. The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market. In other words a new substance must be brought into existence from raw materials. In the instant case before us what has happened is that cotton fabric which was grey fabric a manmade fabric is being processed. It may be that from the point of view of market a new substance has been brought in existence but the question is whether it falls within the description of excisable goods within the meaning of item 19 or Item 22 of the First Schedule to the Act. The Division Bench emphasized from the decision of the Supreme Court that central excise duty is a tax on manufacture and not on sale and so long as this taxable event namely manufacture is borne in mind and it has to be borne in mind in the case before us that fabric means woven stuff or woven substance the question that we have to ask ourselves is whether processing fabrics involves manufacture of woven stuff for woven substance. The contentions of the excise authorities were therefore rejected and the conclusion that we have set out hereinabove was reached by the Division Bench.

(8) In McNicol v. Pinch (1906) 2 KB 352 the question before the Court in England was whether enhancing the sweetness of sachharin already in existence amounted to manufacture of sachharin within the meaning of the Finance Act 1901 and the Revenue Act 1903 It was held by the Court that manufacture of sachharin meant bringing into being as sachharin. The appellants before the Court subjected a certain 330 sachharin (that is sachharin 330 times as sweet as sugar) to a chemical process the result of which was that in some cases 550 sachharin (that is sachharin 550 times as sweet as sachharin) was produced in others a mixture sweeter than 330 but not so sweet as 550 sachharin. It was held by the Court per Bray and Darling JJ. Ridley J. dissenting that the appellants were not manufacturing sachharin within the meaning of the Finance Act 1901 so as to be compelled to take out the excise licence required by sec. 9 of that Act and sec. 2 of the Revenue Act 1903 and to obtain from an officer of Inland Revenue a book such as was prescribed by Regulation No. 633 of the Statutory Rules 1904 inasmuch as the substance the appellants dealt with was always sachharin both before and after their treatment of it. At page 359 Bray J. observed:

"We have to determine whether upon the facts stated in the case the appellants did manufacture sachharin. Let us see what those facts are. One of the admitted facts is that sachharin is a substance produced from toluene sulphonamide. That is the definition of sachharin. This sachharin was not produced by the appellants from toluene sulphonamide; But it was always sachharin; it was sachharin before it was treated and it was sachharin after it was treated".

Darling J. observed at page 361:

"A carpenter uses wood; he begins with wood; he makes the wood into boxes. What would you say if you wanted to talk of his manufacturing Ordinary people would not say that he manufactured wood; they would say he manufactured boxes. But I am not quite sure it might not be strictly said that he manufactured the wood He applies a process to it. I suppose etymologically to manufacture is to make it by hand Everybody knows that you cannot absolutely make a thing by hand in the sense that you can create matter by hand because in that sense you can make not hing: Ex nihilo nihil fit you can only make one thing out of which it is made Even if it could be strictly said that the carpenter manufactures wood it could not be said that he makes wood. The same with a man who makes boots; he takes leather and he makes it into boots. If he simply made leather into leather nobody could possibly say that he was a leather manufacturer but it would be possible to say that a man who took leather and made it into boots manufactured leather but made boots. I think it would be possible to say that and I am not sure it would not be strictly accurate but I cannot read this statute in that way. Whether it would be possible to read manufacture etymologically as something very different from make I think the Act of 1901 uses manufacture and make as being convertible terms and that a man who manufactures sachharin under sec. 9 is doing the same thing as is called the making of sachharin under sec. 5 the appellants did not make sachharin because they began and ended with sachharin. They did not make sachharin and in my opinion from the way in which the word is used by the statute they did not manufacture sachharin and therefore did not require a licence".

Using the phraseology of the Court in England in the instant case it can be said that the petitioners began with cotton fabrics or man-made fabrics before they started processing and ended with cotton fabrics or man-made fabrics. No specified item as in the case of embroidery or coated or laminated fabrics is to be found so far as processed cloth is concerned and therefore processing of cotton fabric or man-made fabric cannot amount to manufacturing of any variety of cotton fabric or man made fabric.

(9) Mr. Shelat relied on certain decisions in the context of sales tax law in support of his argument. Of course it must be borne in mind as pointed out by the Supreme Court that under the Excise Act it is the manufacture which is the taxable event and not the sale thereof and therefore the decisions rendered in the context of sales tax law should be read with this distinction clearly in mind.

(10) In Hiralal Jitmal v. Commissioner of Sales Tax (1957) 8 S.T.C 325 a Division Bench of the Madhya Pradesh High Court held that to constitute manufacture for the purposes of the Madhya Bharat Sales Tax Act 1950 it was not necessary that there must be a transformation in the materials and that the transformation must have progressed so far that the manufactured article become commercially known as another and different article from the raw material. All that was necessary was that the material should have changed or modified by mans art or industry so as to make it capable of being sold in an acceptable form to satisfy some want or desire or fancy or taste of man. It was held that a person who was engaged in the work of printing and dyeing textiles purchased by him and in the business of selling or supplying the printed and dyed material was a manufacturer within the meaning of the definition given in sec. 2(k) of the Act. It was further held that the fact that sales tax had been recovered on the sale of the cloth by the manufacturing mills or by the importer will not prevent recovery of the sales tax on the sale of dyed and printed goods under sec. 5(1).

(11) In Commissioner of Sales Tax v. Harbilas Rai (1968) 21 S.T.C. 17 the Supreme Court held that the word manufacture had various shades of meaning and in the context of sales tax legislation if the goods to which some labour was applied remained essentially the same commercial article it could not be said that the final product was the result of manufacture. At page 19 of the report Sikri J. as he then was speaking for the Supreme Court observed:

"The learned counsel for the appellant relied on C. R. Kulkarni v. The State (1957 8 S.T.C. 294) and Hiralal Jitmal v. Commissioner of Sales Tax (1957 8 S.T.C. 325) in support of his submission that bristles were manufactured goods within the meaning of sec. 2(h) Explanation 11(ii). But in our opinion the first case is distinguishable.....In the second case it was held that a person who is engaged in the work of printing and dying textiles purchased by him and in the business of selling or supplying the printed and dyed material is a manufacturer........ .............. The decision of the Madhya Pradesh High Court might perhaps be justified on the ground that a printed or dyed cloth is commercially a different article from the cloth which is purchased and printed or dyed"

. Thus approval accorded by the Supreme Court to the decision of the Madhya Pradesh High Court in Hiralal Jitmals case was on the footing of bringing into existence a new commercial article. In Commissioner of Sales Tax v. Hastimal Ratanlal (1972) 30 S.T.C. 484 the Court dealt with the case of an assessee who purchased white cotton yarn dyed it into colours and then sold the coloured yarn and it was held that the dyeing of white cotton yarn was a process of manufacture within the meaning of sec. 2(j) of the Act. In paragraph 5 at page 486 Bishambhar Dayal C.J. speaking for the Division Bench of the Madhya Pradesh High Court observed:

"A very similar question arose in this court in Hiralal Jitmal v. Sales Tax Commissioner where cotton cloth was coloured by the assessee and sold as coloured cloth. It was held that it was a process of manufacture. This case was approved by their Lordships of the Supreme Court in Commissioner of Sales Tax v. Harbilas Rai and Sons".

It is undoubtedly true that according to these three decisions in the context of sales tax law dyeing or processing of cotton cloth as in Hiralal Jitmals case or of cotton yarn as in the case of Hastimal Ratanlal was held to be manufacture within the meaning of the Madhya Pradesh Sales Tax Act but the question that we have to ask ourselves is whether there is manufacture of textile goods as falling within any of the items in the First Schedule to the Act.

(12) Under these circumstances we are clearly of the opinion that these three decisions rendered in the context of sales tax law where the taxable event was sale of goods that is sale of commercially known article. cannot help us in deciding the case before us where the taxable event is the manufacture of an excisable article or excisable goods.

(13) We may point out that in Empire Dyeing and Manufacturing Co. Ltd. v. V. P. Bhide and Others Miscellaneous Petition No. 244 of 1968 decided by a Division Bench of the Bombay High Court consisting of K.K. Desai J (as he then was) and J.L. Nain J. on 19/20th August 1970 a situation similar to the present one arose. There the Division Bench of the Bombay High Court was dealing with item 19 of the Schedule of the Act as it then stood and the question was whether cotton fabric not otherwise specified would cover processed cloth. It was pointed out that the completed manufactured product which is excisable goods under the item must be cotton fabrics of the description contained in sub-items (a) to (e) of Article 19 as it then stood Categories (a) to (e) were (a) cotton fabrics superfine (b) cotton fabrics fine (c) cotton fabrics medium (d) cotton fabrics coarse and (e) cotton fabrics not otherwise specified. It was pointed out by the Division Bench that the Scheme of the Act and the rules made thereunder did not contemplate and never intended collection of excise duty in respect of the same excisable goods twice over. It was pointed out that by virtue of the notifications issued under sub-rule (1) of rule 8 of the Central Excise Rules sub-classifications of cotton fabrics falling under the categories (a) (b) (c) (d) and (e) of item 19 namely superfine fine medium coarse and not otherwise provided for had been issued and under these notification 7 and/or 9 and 3 and/ or 6 Paise per square metre of cotton fabric were specifically mentioned as duty on certain items. However no notification of sub-classification was issued in connection with the residuary item under Article 19 namely cotton fabrics not otherwise specified. It was observed by the Division Bench

"Admittedly in this case duty of excise is claimed against the petitioner company on the basis that the goods processed by the petitioner company were cotton fabrics not otherwise specified thus falling in sub-item (5) of item 19. The goods are the same as were originally manufactured except that they are processed. The goods are the same as have been subjected to payment of excise duty when they were released from the factories of the manufactures. In respect of the goods which have already borne excise duty and do not fall into a different item of excisable goods in the First Schedule it is impossible that duty cold come again to be levied and/ or recovered".

We agree with the reasoning of the learned Judges of the Bombay High Court because out conclusion arrived at on the wording of item 19 and 22 as they now stand does not permit of any other meaning except that the goods where were received by the petitioners before us remain the same speaking in terms of excisable goods namely cotton fabrics or man-made fabrics. Processing did not involve any further manufacture of the woven stuff or woven substance and unlike embroidery and coated or laminated fabrics there is no specific mention in the inclusive difinition so far as processed cloth is concerned either in Item 19 or in Item 22.

(14) Mr. Nanavati for the petitioners rightly pointed out that with effect from July 15 1977 under the notification issued by the Central Government in exercise of power conferred by rule 8(1) of the CEntral Excise Rule the Central Government had exempted unprocessed cotton fabrics falling under sub-item (1) of Item 19 of the First Schedule of the Act manufactured fabrics commonly known as power loom cloth without finishing or processing if the installation of such power loom was with the written permission of the Textile Commissioner from duty leviable thereon under the Central Excises and Salt Act 1944 Similar notifications were issued under the Additional Duty of Excise (Goods of Special Importence) Act 1957 Another Notification was also issued on July 15 1977 in exercise of the power conferred by rule 8(1) of the Central Excise Rules read with section 393) of the Additional Duty of Excise (Goods of Special Importance) Act 1957 Under this notification the CEntral Government exempted cotton fabrics falling under sub-item (1) of Item 19 of the First Schedule of the Central Excises And Salt Act from duty leviable thereon as is in excess of the duty specified in the corresponding entry in column 3 thereof. It was urged by Mr. Nanavati that it was this notification which applied to processors. However Mr. Nanavati for the petitioners pointed out clause (vi) of the proviso and under clause (vi) fabrics on which duty has been paid at the appropriate rate when subjected to finishing process or further finishing process or processes. shall be exempt from so much of the duty of excise leviable thereon as has already been paid on such fabrics. (Emphasis supplied by us). It is clear that so far as grey cloth that is cotton fabric known as grey cloth manufactured in factories commonly known as power looms which have been installed with the written permission of the Textile Commissioner were concerned no duty is payable after July 15 1977 Therefore the lesser rates of duty mentioned in the other notification which we have just now referred to of July 15 1977 would not apply to the case of the petitioners if they are held to be manufacturing cotton fabrics.

(15) It may be pointed out that so far as item 22 is concerned in the case of man-made fabrics the Government has issued similar notifications.

(16) Mr. Shelat for the respondents urged that it was open to the petitioners in this group of matters to apply for the refund of excise duty after paying excise duty on the footing of the value of the material as it comes out from the processing house instead of paying duty under Art. 68 only on the value which they add by the processing of the cloth. He contended that elaborate machinery hiss been laid down under the Act and therefore the petitions should not be entertained. Alternatively he contended that there is an alternative remedy for refund under rule 11 and there is complete procedure for refund under the Act and therefore the petitions should not be entertained. He relied in this connection on the observations of the Supreme Court in Suganmal v. State of Madhya Pradesh A.I.R. 1965 S. C. 1740. There it was pointed out by the Supreme Court:

"Though the High Courts have power to pass any appropriate order in the exercise of the powers conferred on them under Art. 226 of the Constitution a petition solely praying for the issue of a writ of mandamus directing the State to refund the money alleged to have been illegally collected by the State as tax is not ordinarily maintainable for the simple reason that a claim for such a refund can always be made in a suit against the authority which had illegally collected the money as a tax and in such a suit it is open to the State to raise all possible defences to the claim defences which cannot in most cases be appropriately raised and considered in the exercise of writ jurisdiction".

(17) However it may be pointed out that in two cases under the Excise Act the Supreme Court gave directions in proceedings which arose under Article 226 of the Constitution in connection with Excise Act. In Union of India v. Delhi Cloth and General Mills Ltd. A.I.R. 1963 S.C. 791 the manufacturers of Vanaspati had filed three separate petitions under Article 226 of the Constitution in the Punjab High Court and the challenge was to the legality of the imposition of excise duty on what was called by the taxing authorities as manufacture of refined oil or raw oil and the Punjab High Court allowed those writ petitions and directed the excise authorities to withdraw the impugned demand notices of excise duty on the petitioners. The Supreme Court observed in paragraph 20 at page 725: We are therefore of the opinion that the High Court was right in its conclusion that there was no legal basis for the demands of excise duty which were made on the petitioners and in directing the authorities to withdraw these demands. So even when the challenge is to the demand notices in connection with levy of excise duty this decision of the Supreme Court approved of the action of the High Court in issuing directions under Article 226 directing the authorities to withdraw the demand notices. Similarly in South Bihar Sugar Mills Ltd. v. Union of India A.I.R. 1968 S. C. 922 also the petitions were filed under Article 226 of the Constitution. The Supreme Court held in paragraph 17 at page 929:

"We hold that the demand notices served on these concerns are illegal and must be quashed. The respondents in these appeals as also in the writ petition will pay costs to the appellants and the petitioners in the writ petition".

One matter was directly under Article 32 of the Constitution and the others were appeals against the decisions of the Punjab High Court in petitions filed under Article 226 of the Constitution. In the writ petitions under Article 226 the legality of the excise duty levied against them was challenged by the petitioners. In this case also the question of the alternative remedy under the machinery of Excise Act was not held to be a bar to the maintainability of the petitions. Hence in our opinion when excise levy is challenged as illegal and an application under Article 226 is made it is open to the High Court to examine the legality of the proposed levy or the demand notice issued under the Excise Act for the levy of excise duty and if the High Court finds that the proposed levy is illegal and not justified by the law relating to excise it is open to the High Court to quash and sot aside the same. The question of alternative remedy in such a situation does not arise.

(18) It was next contended that from 1958 onwards the different petitioners had been paying excise duty on the processed cloth on the basis of the value of the cloth sold by them and they have never challenged the excise duty in the past nor have they raised any protest against the same.

(19) In M/s. D. Cawasji and Co. v. State of Mysore A.I.R. 1975 S.C. 813 Mathew J. speaking for the Supreme Court observed in paragraph 5 at page 814:

"In State of Madhya Pradesh v. Bhailal Bhai (A.I.R. 1964 S C. 1006) Das Gupta J. who delivered the judgment of the Court while holding that High Courts have power for the purpose of enforcement of fundamental rights and statutory rights to give consequential relief by ordering repayment of money realised by the Government without the authority of law said that the special remedy provided in Art. 226 is not intended to supersede completely the modes of obtaining relief by an action in a civil court or to deny defences legitimately open in such actions and that among the several matters which the High Courts rightly take into consideration in the exercise of that discretion is the delay made by the aggrieved party in seeking this special remedy and the excuse there is for it He further said that if a person comes to the court for relief under Art. 226 on the allegation that he has been assessed to tax under a void legislation and having paid it under a mistake is entitled to get it back the court if it finds that the assessment was void being made under a void provision of law and the payment was made by mistake is still not bound to exercise its discretion directing repayment; and that whether repayment should be ordered in the exercise of this discretion will depend in each case on its own facts and circumstances and that it is not easy nor is it desirable to lay a general rule. He was of the view that if there has been unreasonable delay the court ought not ordinarily to lend its aid to a party by the extraordinary remedy of mandamus".

(20) It may be pointed out that in Special Civil Applications Nos. 909 910 and 911 of 1970 decided by a Division Bench of this High Court on March 17/18 1972 the relevant case law regarding refund was taken into consideration and after examining the provisions on the point the Division Bench speaking through Sheth J. observed:

"...an order of assessment must in the context mean an order of assessMent made under the charging statute. Since sec. 2A could not levy at the relevant time any countervailing duty there could not have been an order of assessment under that statute. The order of assessment therefore which was made de hors and ultra vires the statute. The position is not much different even when we look at the question from the point of view of customs duty Since the orders of assess ment in any view of the matter were ultra vires and de hors the statute in our opinion the provisions of the statute were not attracted to them. Even without exhausting these remedies it was open to the petitioners to claim the refund of what they had paid by instituting a civil suit. In our opinion they could have filed a civil suit within three years from the date on which they came to know that they had paid some amount under mistake of law. It was not only the petitioners who were ignorant of the exact position of law in that behalf. The decision of the Central Board of Excise and Customs recorded on 18th September 1967 to which we have referred hereinabove goes to show unmistakably that even that body was completely ignorant until that date of the correct position of law Obviously therefore the payment which the petitioners were called upon to make was the payment made by them under a mistake of law with which was inter-mixed the misconception of law on the part of the customs authorities.....We are therefore of the opinion that in the instant case there was no statutory levy and there was no statutory assess ment so far as the excess amount paid by the petitioners in respect of which they now claim refund is concerned. Therefore. no statutory remedy for obtaining refund of that amount was available to them. Therefore the provisions of sub-sec. (1) of sec. 27 of the Customs Act 1962 have no application to the instant case. Next these petitions as shown hereinabove were filed by the petitioners within the time within which they could have instituted an action under the civil law. Until they filed these petitions they were vigilant in exploring all possible avenues to get back the moneys recovered from them without any authority of law".

To the same effect is the decision of the same Division Bench in Special Civil Application No. 1058 of 1972 decided on January 15 1976 J. B. Mehta J. speaking for the Division Bench dealt with the bar of rule 11 of the Central Excise Rules and observed: In the present case this was ultra vires levy made therefore Rule 11 would never be attracted to such a case. After citing the Supreme Court decision in D. Cawasjis case (supra) it was observed: ...their Lordships have now settled this legal position by pointing out that while exercising discretion in such refund claims for such ultra vires levy the Court should keep in mind the limitation period in a civil suit which is of three years. In that view of the matter as per the settled legal position there would be no bar to this petition because of the statutory rule for statutory refund but of course this Court would exercise its discretion to restrict the claim of refund only to a period of three years from the date of this petition. It may be pointed out that in D. Cawasjis case Mathew J. pointed out in paragraph 7:

"In a case where payment is made under a mistake of law as constrasted with a mistake of fact generally the mistake becomes known to the party only when a court makes a declaration as to the invalidity of the law. Though a party could with reasonable diligence discover a mistake of fact even before a court makes a pronouncement it is seldom that a person can even with a reasonable diligence discover a mistake of law before a judgment adjudging the validity of the law".

8 Therefore where a suit will lie to recover moneys paid under a mistake of law a writ petition for refund of tax within the period of limitation prescribed i.e. Within 3 years of the knowledge of the mistake would also lie. For filing a writ petition to recover the money paid under a mistake of law this Court has said that the starting point of limitation is from the date on which the judgment declaring as void the particular law under which the tax was paid was rendered as that would normally be the date on which the mistake becomes known to the party. If any writ petition is filed beyond three years after that date it will almost always be proper for the court to consider that it is unreasonable to entertain that petition though even in cases where it is filed within three years the court has a discretion having regard to the facts and circumstances of such case not to entertain the application". Under these circumstances we respectfully agree with the observations by the Division Bench of J. B. Mehta and S. H. Sheth JJ in the High Court judgment cited above and we hold that refund can be granted in respect of excise duty paid by the processors within three years immediately preceding the institution of the special civil applications. In the instant case the excise duty claimed on the basis of the market value of the processed cotton fabrics or man-made fabrics can not be levied because assuming that process amounts to manufacture all that they have done is to manufacture processed cloth processed fabric either cotton or man-made and that not being a taxable event in the light of sec. 3 read with sec. 2(d) of the Act and Items 19 and 22 levy of excise duty on this basis was ultra vires the Act and contrary to law. Therefore the petitioners are entitled to the refund of the excess of excise duty paid by them during the period of the three years immediately preceding the filing of the Special Civil Applications over that they were bound to pay on the footing that processing of cotton fabrics is an excisable activity covered by Item 68 refers to All other goods not elsewhere specified manufactured in a factory. Therefore processed cotton fabrics and processed man-made fabrics were manufactured in the factories of the petitioners and since they are not covered by Item 19 or 22 of the Schedule they were liable to pay at valorem duty only in respect of the value added by them at the time of processing because the only manufacturing activity which they have done is the manufacturing of processed fabrics from fabric which was already in existence. The excise authorities are therefor directed to calculate the ad valorem excise duty during the period of three years immediately preceding the institution of each petition before us and calculate the excise duty payable by each of these petitioners under Article 68 only in respect of the value added by each of the petitioners by the processing of the fabric concerned. The excise duty paid in excess of such ad valorem duty under Article 68 during the period of three years immediately preceding the institution of the respective special civil application is ordered to be refunded to the petitioners concerned in each of these petitions. It must be emphasized that these amounts which we are directing to be refunded were collected by the Excise authorities without the authority of law and were illegal levies The Central Government had use of these amounts during this period of three years and correspondingly the petitioner concerned was kept out of the use of these amounts during the said period. It is therefore just and proper that the respondents should pay interest at twelve per cent per annum (which is the proper rate looking to the conditions in the money market) from the dates of the collection of the said amounts directed to be refunded till the date of actual repayment. Rule is therefore made absolute in each of these petitions and the respondents in each of these matters will pay the costs of the petitioners.

(21) After the above judgment was delivered in open Court Mr. Shelat on behalf of the respondents applied for leave to appeal to the Supreme Court under Article 133 of the Constitution. In view of the fact that the question of law involved in this case is a substantial question of law of general importance which is needed to be decided by the Supreme Court we grant the certificate. We direct the respondents to make the necessary calculations of the amount to be refunded within six weeks from today and we further direct them to make payment within two months thereafter. However operation of the order passed in these matters is stayed barring the above direction for a period of six weeks to enable the respondents to obtain appropriate order from the Supreme Court. Petitions dismissed.