Case: Hansraj Gordhandas Vs. H. H. Dave, Assistant Collector Of Central Excise

2. The appellant is the sole proprietor of Messrs. Gordhandas and Co. carrying on business as a dealer in textiles in Bombay. Under an agreement between the appellant on the one hand and the Gandevi Vanat Udhoog Sahkari Mandli Ltd. (hereinafter referred to as the Society) the Society manufactured cotton fabrics during the period between June 1959, and September 1959 and from October 1, 1959 to January 31, 1961 for the appellant on certain terms and conditions which were later reduced to writing on October 12, 1959. Under these terms, the Society agreed to carry out weaving work on behalf of the appellant on payment of weaving charges fixed at 19 nP per yard which included expenses the Society would have to incur in transporting yarn from Bombay and Cotton fabrics woven by the Society to Bombay. The appellant was to supply yarn to be delivered at Bombay to the Society and the Society was to make its own arrangement to bring the yarn to its factory at Gandevi. Clause II provided that the yearn supplied by the appellant remaining either in stock or in process or in the form of readymade pieces would be in the absolute ownership of the appellant and the Society, as the bailee of the yarn, undertook to take such care of it as it would normally take if the yarn belonged to it. The Society also undertook to have the yarn insured against fire, theft and all other risks including transit risks and further undertook to reimburse the appellant in case it failed to do so. The terms of the agreement though recorded on October 12, 1959 were to be deemed to be effective as from April 21, 1959 and the agreement was terminable by either party by giving one months notice.3. The Society was a co-operative society carrying on its work at Gandevi and was registered on or before May 31, 1961 and consisted of members who owned powerlooms. The Society started the weaving work for the appellant some time in May or June 1959 and supplied to the appellant between June 1, 1959 and January 3, 1961 cotton fabrics measuring 3, 19, 460 yards. The Society had obtained L-4 licence as required bythe Central Excises and Salt Act, 1944 (hereinafter referred to as the Act). By letters dated August 29, 1959 and October 27, 1961 the Excise Department had granted exemption from excise duty payable on cotton fabrics manufactured by the Society under the notification issued by the Central Government. On November 10, 1961 the excise authorities issued a notice to the appellant demanding a sum of Rs. 1,69,263.44 payable as excise duty. It was alleged that the duty was payable by the appellant as it had got the goods manufactured through the Society and had got them removed from the Societys factory at Gandevi without payment of duty. On January 10, 1962 the Superintendent of Central Excise, Bulsar sent another notice to show cause why penalty should not be imposed upon the appellant for contravention of Rule 9 and why duty should not be charged for the cotton fabrics so removed by the appellant. The appellant showed cause and on November 26, 1962 the Assistant Collector of Central Excise and Customs, Surat held that the appellant was liable to pay excise duty to the extent of Rs. 2,20,574.74, being the total amount of basic duty and a penalty of Rs. 350 was levied for Contravention of Rule 9. The appellant preferred an appeal to the Collector of Central Excise Baroda but the appeal was dismissed. Thereafter the appellant moved the High Court of Gujarat for grant of a writ under Article 226 of the Constitution. The High Court dismissed the writ petition by its judgment dated July 31, 1964, but gave a direction that the respondent was to work out the excise duty on the footing that the appellant was entitled to exemption from duty altogether in respect of goods supplied for the period from June 1, 1959 to September 30, 1959. As regard the two other periods i. e., October 1, 1959 to April 30, 1960 and from May 1, 1960 to January 31, 1961, the High Court dismissed the writ petition and directed the respondent to charge duty at the rate of 29.3 nP. per square meter.

Court's reasoning:
In our opinion the argument of the appellant is well founded and must be accepted as correct. The notification dated July 31, 1959 grants exemption to "cotton fabrics produced by any Co-operative Society formed of owners of cotton powerlooms which is registered or which may be registered on or before March 31, 1961" subject to four conditions set out in the notification. In the next notification dated April 30, 1960 exemption was granted to "cotton fabrics produced on powerlooms owned by any co-operative society or owned by or allotted to the members of the society, which is registered or which may be registered on or before March 31, 1961" subject to the conditions specified in the notification. It was contended on behalf of the appellant that under the contract between the appellant and the Society there was no relationship of master and servant but the appellant supplied raw material and the contractor i.e., the Society produced the goods. But even on the assumption that the appellant had manufactured the goods by employing hired labour and was therefore a manufacturer, still the appellant was entitled to exemption from excise duty since the case fell within the language of the two notifications dated July 31, 1959 and April 30, 1960, and the cotton fabrics were produced on powerlooms owned by the co-operative society and there is nothing in the notifications to suggest that the cotton fabrics should be produced by the Co-operative Society "for itself" and not for a third party before it was entitled to claim exemption from excise duty.It was contended on behalf of the respondent that the object of granting exemption was to encourage the formation of co-operative societies which not only produced cotton fabrics but which also consisted of members, not only owning but having actually operated not more than four powerlooms during the three years immediately preceding their having joined the society. The policy was that instead of each such member operating his looms on his own, he should combine with others by forming a society which, through the co-operative effort should produce cloth.The intention was that the goods produced for which exemption could be claimed must be goods produced on its own behalf by the society.We are unable to accept the contention put forward on behalf of the respondents as correct. On a true construction of the language of the notifications dated 31, July 1959 and April 30, 1960 it is clear that all that is required for claiming exemption is that the cotton fabrics must be produced on power-looms owned by the co-operative society. There is no further requirement under the two notifications that the cotton fabrics must be produced by the Co-operative Society on the power looms "for itself".It is well established that in a taxing statute there is no room for any intendment but regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the notification. If the tax-payer is within the plain terms of the exemption it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority.If such intention can be gathered from the construction of the words of the notification or by necessary implication therefrom ,the matter is different but that is not the case here.