1.The undisputed facts, insofar material, in this proceeding before the Government of India transferred to, and heard by, the Tribunal as if it were an Appeal, pursuant to S. 35P of the Central Excises and Salt Act, 1944 (hereinafter, the Act) are- (a) the Appellant is a manufacturer of textiles. The composite mill owned by the Appellant has three separate departments for spinning, weaving and processing. Yarn manufactured in the Spinning Department is removed/cleared to the Weaving Department where it is woven into cloth. It is then cleared and sent to the Processing Department; (b) in the manufacture of cotton fabrics classifiable under Item 19 of the First Schedule to the Act, the Appellant uses cellulosic spun yarn and cotton yarn (classifiable under Items 18 and 18A of the said Schedule respectively); (c) in terms of Notification No. 132/77, dated 18-6-1977, cellulosic spun yarn and cotton yarn were exempted from the whole of the duty leviable when used for weaving of cotton fabrics in a composite mill. A composite mill was defined to mean a manufacturer who is engaged in spinning of cotton yarn or weaving of cotton fabrics or processing of cotton fabrics with the aid of power and has a proprietory interest in two of such manufacturing activities ; (d) similarly, in terms of another Notification No. 135/77 of the same date, partial exemption from the leviable duty was accorded to cotton fabrics; (e) by virtue of the two aforesaid Notifications, the Appellant was not liable to pay duty on cellulosic spun yarn and cotton yarn used in the manufacture of cotton fabrics in the Appellant's composite mill. The Appellant was merely liable to pay duty on cotton fabrics at the concessional rate provided for in Notification No. 135/77 ; (f) Notification No. 132/77 aforesaid was rescinded by Notification No. 225/77 dated 15-7-1977. Notification No. 135/77 aforesaid was superseded by Notification No. 226/77, dated 15-7-1977 and a new scheme of partial exemption in case of cotton fabrics was prescribed. In terms of the second proviso to the said Notification No. 226/77, it was provided that in case cotton fabrics had been produced in a composite mill or are produced therein and in the production of such cotton fabrics, cellulosic spun yarn or cotton yarn or both on which no duty of excise was paid prior to 15-7-1977, was or is used, the duty payable on such fabrics shall be at the appropriate rate of duty specified in the said Notification plus the duty payable on cellulose spun yarn or cotton yarn or both, as the case may be, under Notification No. 131/77, dated 18-6-1977 ; (g) the Appellant had, when the Notification No. 226/77 came into force, i.e., on the mid-night of 14th/15th of July, 1977, not merely packed and loose stocks of cotton fabrics but also considerable quantities of fully manufactured yarn cleared from the Spinning Department and under process in the Weaving Department. The cotton fabrics manufactured by the Appellant were not permitted to be cleared unless duty was paid on yarn in accordance with Notification No. 226/77. Accordingly, the Appellant was compelled to pay an amount of Rs. 10,41,792.31 towards duty in respect of the fully manufactured cotton fabrics lying in stock on the mid-night of 14th/15th July, 1977 ; (h) the Appellant paid the duty under protest and claimed refund.
The claim for refund was turned down by the Assistant Collector, in adjudication, on the ground that it was the duty on cotton fabrics that was being realised under Notification No. 226/77 and not the duty on yarn, either cellulose or cotton. The Collector (Appeals) confirmed the Order-in-Adjudication and hence the instant proceeding now heard by us as an Appeal.
2. Shri Thakore, learned Advocate for the Appellant invited our attention to the decisions of the High Court of Gujarat in 1981 E.L.T.274 (Aryodaya Spinning and Weaving Co. Ltd. v. Union of India) and the Bombay High Court in 1982 E.L.T. 457 (Sriram Mills Ltd. v. Union of India) in both of which levy of excise duty, in terms of Notification No. 226/77, on cotton yarn and cellulosic spun yarn previously exempted from duty under Notification Nos. 132/77 and 135/77 was held to be unsustainable in identical facts and circumstances. He accordingly prayed that the Appeal may be allowed in terms of the ratio of the aforesaid two decisions.
3. It would appear to us on a perusal of the papers and on the submissions made that- (a) indisputably, by the time Notification No. 226/77 came into force on the mid-night of 14th/15th of July, 1977, certain yarn was not merely manufactured but also cleared from the Spinning Department to the Weaving Department; (b) excise is a duty on manufacture specified in First Schedule to the Act. Accordingly, the taxable event is the manufacture. It is the time with reference to which the rate of duty must be reckoned and applied that removal in terms of the rules assumes importance in terms of Rule 9 of the Central Excise Rules. If the taxable event as well as the removal had both occurred prior to the point of time when Notification No. 226/77 came into operative force; obviously it cannot be contended that the said Notification has any application; (c) in the facts and circumstances of the case, the yarn in question became the subject of levy on its manufacture which was to have been computed and collected, in terms of Rule 9 at the point of removal.
No duty was either leviable or computed or collected because of the exemptions in force at the time of removal ; (d) there could be no levy of duty upon such goods notwithstanding that the Notification No. 226/77 had come into force before cotton fabrics were manufactured using the yarn so cleared, since that would not only imply giving an unintended retrospective effect to the said Notification but is also contrary to the fundamental concept relating to a levy of excise. To contend that it is not a levy on yarn but on the cotton fabric manufactured subsequent to the promulgation and in terms of Notification No. 226/77 is to negate the benefit of the earlier Notification Nos. 132/77 and 135/77 applicable to yarn in question and actually availed of as well and cannot therefore, commend itself for acceptance. ' 4. In the premises, the Appeal is allowed. It would appear that the amount was collected in July 1977 and has been with the Department for the last about 8 years. It should be refunded without any further delay.