1. The facts giving rise to the present appeal are that the Supdt. of Central Excise, Ahmeda-bad issued a Show Cause Notice dated 2.1.1973 and a subsequent corrigendum dated 2.12.1974 under Rule 10-A of the Central Excise Rules, 1944 (hereinafter referred to as the rules) asking the appellants to show cause why duty amounting to Rs. 1,43,105.00 should not be recovered from them on the "yarn not elsewhere specified" (Item 18-E of the Central Excise Tariff Schedule CET for short) used in the manufacture of cotton fabrics. In reply, the appellants raised several contentions and contested to Show-Cause Notice. The Assistant Collector of Central Excise, Ahmeda-bad, in his adjudication order dated 3.12.1974 rejected the contentions and confirmed the demand notice. The appeal against his order was rejected by the Appellate Collector by his order dated 24.1.1976. It is against this order that the appellants filed a Revision Application to the Central Government which stands transferred to this Tribunal for disposal.
2. The main points put forth in the Revision Application (Appeal) are :- (a) Under the 1972 Budget, a new item viz. 18-E was inserted in the Central Excise Tariff with effect from 17-3-1972 to cover "yarn, all sorts, not elsewhere specified...". Yarn containing 50% polyester and 50% cotton being manufactured by the appellants became liable to duty under the said item; (b) On 17.3.1972, the Central Government issued Notification No. 62/72 in pursuance of Rule 96W of the Rules in accordance with which duty on such yarn was payable at the time of clearing the fabrics at the rate (per square metre of the fabric) fixed in the notification; (c) The appellants, on application, were granted permission to avail of the special procedure in Rule 96W to discharge their duty liability on such yarn in terms of Rule 96W read with Notification No. 62/72 dated 17.3.1972 for the period ending 31.12.1972; (d) On 24.7.1972, Government issued Notification No. 169/72, amending Notification 62/72. The effect of the amendment was that the special procedure (referred to above) was made inapplicable to the type of yarn manufactured and cleared by the appellants on or after 24.7.1972. The aforesaid amendment did not have' restrospective effect and, therefore, it would not affect the liability on the yarn cleared by the appellants for weaving fabrics before 24.7.1972 and lying in different departments of the mill in various stages of manufacture. The amendment would affect only yarn cleared for weaving fabrics on or after 24.7.1972; (e) Duty payable on goods cleared for captive consumption within the factory is that payable on the date of such clearance. The entire quantity of yarn involved in the present case was cleared for captive consumption before 24.7.1972 and was lying in different departments at various stages of manufacture or duly woven into fabrics. The duty rates applicable to such yarn were those in force prior to 24.7.1972 i.e. those specified in Notification 62/72, dated 17.3.1972. Consequently, the appellants were not liable to pay the duty demanded in terms of the adjudication order which had been upheld by the Appellate Collector; (f) If it was held that the rates specified in Notification 62/72 did not apply at the time of clearance of the fabrics, the yarn should be assessed at the concessional rate of Rs. 1.55 per kg.
specified in Notification No. 65/72, dated 17.3.1972, which was the rate in force on the date of removal of the subject yarn for captive consumption within the factory, in accordance with Rule 9A(l)(ii); (g) The Appellate Collector's order does not deal with the appellants' contentions and is liable to be set aside as a non-speaking order.
3. Shri G. Koruthu, Consultant, appearing on behalf of the appellants, reiterated the contentions as set out in the preceding paragraph. He stressed that excisable goods removed for captive consumption should be deemed to be removed in terms of Rule 9. In the present case the yarn was so removed at a time when the concessional rate of duty in terms of Rule 96W read with Notification 62/72 was in force and, therefore, it was this duty rate that would apply in the appellants' case.
4. Shri K.D. Tayal, Senior Departmental Representative, appearing on behalf of the Respondent, rebuted the appellants' contention by submitting that the situation in the present case was analogous to one where the rate of duty leviable on a particular article was increased as a consequence of the budget proposals. In such a case, the increased rate would apply in respect of goods cleared after the coming into force of the increased rate. This was the situation in the present case too. The stage of clearance of goods is relevant in such cases. In this connection, he relied on certain judgments. Firstly, he referred to the judgment of the Bombay High Court in the Union of India and Ors. v.Elphinston Spinning & Weaving Co. Ltd. [1978 ELT (J 680)] in which their Lordships had held that there is no warrant in the Central Excise Act or the Rules to spell out a construction that it is only the stage of manufacture or production of goods which attracts duty. Therefore, if on the date when the goods are removed from the place of manufacture, they are specified in the Central Excise Tariff Schedule, they cannot be removed unless duty is paid on them, even though such goods may have been manufactured when there was no excise duty on them.
It was further held that the combined effect of Section 3 of the Central Excises & Salt Act and Rules 7, 8, 9 and 9A of the Central Excise Rules is that the point of time at which the goods were liable to duty would be the actual removal of the goods from the factory, or warehouse and not the date of manufacture or production of goods in the factory. Next he referred to the judgment of the Gujarat High Court in the Alembic Chemical Works Co. Ltd. v. Union of India [1979 ELT (3 258)] where the Court held that when duty concession flows from the Central Excise rules, the effect of the withdrawal of that concession would have to be judged by the relevant rules themselves which provide a crucial date and for this purpose, under Rule 9A, the rate of duty shall be the one in force at the time of removal of the goods. Lastly, he referred to the judgment of the Madhya Pradesh High Court in Shree Synthetic Ltd., Ujjain v. Union of India and Ors. [1982 ELT (97 MP)] in which the Court held that the crucial time of levy of excise duty is the time of removal as envisaged by Rule 9A of the Central Excise Rules and not the date of manufacture or production of goods in the factory.
Relying on these judgments, Shri Tayal submitted that the lower authorities were correct in demanding from the appellant the difference in duty between that leviable at the rate- applicable to yarn on the date of removal of the fabrics made out of such yarn and that originally paid by them at the rate applicable to yarn when it was removed for manufacture of fabrics.
5. We have given careful consideration to the submissions of both the parties. The yarn of the type manufactured by the appellants fell for classification under Item 18-E ("Yarn, all sorts, not elsewhere specified, in or relation to the manufacture of which any process is ordinarily carried on with the aid of power"). While the statutory rate of duty specified in the tariff schedule was Rs. 50/- per kg., the Central Government by notification issued under Rule 8(1) of the Central Excise Rules, had prescribed concessional rates of duty in respect of yarn of different compositions. In addition the Central Government had also issued a Notification in pursuance of Rule 96W of the Central Excise Rules specifying concessional rates of duty in respect of certain types of yarn, including the type of yarn, manufactured by the appellants. The said Notification expressed these concessional rates of duty as so many Paise per sq. metre of the fabric made using such yarn.
(1) Having regard to the average production of cotton fabrics from one kilogram of cotton yarn or yarn falling under item No. 18E of the First Schedule to the Central Excises and Salt Act, 19M (1 of 1944) or the average prevailing prices of woollen yarn, the Central Government may by notification in the Official Gazette, fix from time to time a rate per square metre of the Cotton fabrics produced or per kilogram of the woollen yarn produced, as the case may be, subject to such conditions and limitations as it may think, fit to impose, and if a manufacturer whose application has been granted under rule 96-V pays a sum calculated according to such rate, in the manner hereinafter laid down, such payment shall be a full discharge of his liability for the duty leviable on the quantity of cotton yarn (or yarn falling under Item No. 18-E of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) manufactured by him and used in the manufacture of fabrics in his factory, or the quantity of woollen yarn produced by him : (Provided that if there is an alteration in the rates of duty and/or in the limit of exemption, the sum payable shall be re-calculated on the basis of the revised rates and/or exemption limit from the date of alteration and liability for duty leviable on the quantity of cotton yarn (or yarn falling under item No. 18-E of the First Schedule to the Central Excises and Salt Act, 19444 (1 of 1944) used in the manufacture of cotton fabrics or woollen yarn produced shall not be discharged unless differential duty is paid; (a) in the case of such cotton yarn, (or yarn falling under Item No. 18-E of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) as on the date of clearance of the aforesaid cotton fabrics; and (b) in the case of woollen yarn, as on the date of clearance of such woollen yarn; from the factory of the manufacturer, should, however, the amount of duty so recalculated be less than the sum paid, the balance shall be refunded to the manufacturer : Provided further that in case cotton fabrics are manufactured out of cotton yarn as well as yarn falling under Item No. 18-E of the First Schedule to the Act, the rates prescribed for the yarn which predominates in terms of weight shall apply, and where such yarns are used in equal ratio, the higher of the rates of the duty prescribed for such yarns shall apply.
It is clear that the duty fixed under Rule 96-W is in relation to Cotton Yarn or Yarn falling under Item No. 18-E of the Central Excise Tariff which goes into consumption for manufacture of cotton fabrics.
The duty rate under the Special Procedure is expressed as the rate per sq. metre of Cotton Fabrics produced. Though the rate is expressed as so many paise per sq. metre of the fabric, it is evident that the duty rate is only in respect of the yarn and not in respect of the Fabrics.
That this is so is clear from the proviso to the said Rule 96-W which postulates that if there is alteration in the rate of Compounded levy, the sum payable shall be recalculated on the basis of the revised rates of duty and duty so calculated must be paid on the date of clearance of the Cotton fabrics. This position is further confirmed by Sub-rule (3) of Rule 96-W, which provides that the sum payable under Sub-rule (1) in respect of Cotton Yarn or Yarn falling under Item 18-E of the Central Excise Tariff shall be paid by the manufacturer along with the duty on fabrics in the manner prescribed under Rule 52 of the Central Excise Rules. Now, Notification No. 62/72-C.E., dated 17.3.1972 provided that yarn of the type manufactured by the appellants was entitled to the benefit of the Compounded Levy Procedure and the rate of duty was prescribed at 20 paise per sq. metre of the fabrics made. It is evident that duty or yarn at the prescribed rate could be determined only after manufacture of and at the stage of clearance of the fabrics made out of such yarn. lift the nature of things, therefore, the duty payable on yarn under the Compounded Levy Procedure could not be assessed at the time of removal of yarn within the factory for manufacture of fabrics but only at the time of clearance of the fabrics made out of such yarn.
On 24.7.1972, by Notification No. 169/72-C.E-, the Central Government made the type of yarn manufactured by the appellants ineligible to the Compounded Lew rate laid down in Notification No. 62/72-C.E., dated 17.3.1972, with the result that such yarn had to Day duty at normal rate without reference to Compounded Levy Procedure., 6. The question which arises for decision in the present case is whether duty on the subject yarn, which admittedly was removed from the place of its manufacture within the Factory to another place for manufacture of fabrics at a time when the Compounded Levy was applicable to such yarn, attracted the normal rates of the duty as a result of withdrawal of the compounded levy, having regard to the fact that the fabrics made out of such yarn were admittedly cleared from the factory after withdrawal of the compounded levy in respect of such yarn. The learned Consultants for the Appellants argued that since the relevant stage for determination of the applicable rate of duty on such yarn would be the stage of removal of such yarn from the place of manufacture to another place within the factory for manufacture of fabrics and that, following this test, since the yarn was so removed at a time when the compounded levy was in force, the said compounded levy rate was the applicable rate. The position would not be altered by the subsequent withdrawal of the compounded levy rate in respect of such yarn. The duty at the normal rates would apply only on such yarn removed for manufacture of fabrics on or alter 24.7.1972, the date on which the compounded levy was withdrawn in respect of such yarn. On the other hand, the learned Departmental Representative urged that in the light of the judicial pronouncements cited by him the relevant stage for determination of the applicable rate of duty would be the stage of clearance of the fabrics. The compounded levy rate was expressed in Notification No. 62/72, dated 17.3.1972 not in terms of so many rupees or paise per kg. but in terms of so many paise per sq. metre of fabric made. The implied argument seems to be that since the quantity of fabrics would be known only at the time of clearance of the fabrics, the duty on the yarn out of which such fabrics were made could be computed only at the time of clearance of such fabrics outside the factory. The Departmental Representative submitted that in the light of the judgments cited by him, the rate of duty in force on yarn at the stage of clearance of the fabrics was the correct rate leviable in the circumstances of the case. In the cases which led to the judicial pronouncements cited by the Departmental Representative, the situation which arose for decision were different from the one which has arisen in the present case. In the case of the Union of India and Ors. v. The Elphinstone Spinning 5c Weaving Mills Co. Ltd. [1978 ELT (J 680)] the question which arose was whether textile fabrics impregnated or coated with preparations of celiulosic derivates or other artificial plastic material which were being assessed under Item No. 19 relating to cotton fabrics, at a particular rate of duty, would attract the higher rate of duty under the new specific Item 22-B inserted by the Finance Bill, 1968 to cover such goods, in a situation where the goods were manufactured prior to the introduction of Item No. 22-B but cleared thereafter. Their Lordships held that the mills were liable to pay duty of excise under Item 22-B and the fact that the goods might have been manufactured prior to that date was irrelevant. In the case of Alembic Chemical Works Co. Ltd. v. Union of India [1979 ELT (J 258)) the question which arose was whether the stock of certain excisable goods which were manufactured at a time when art exemption was In force in respect of such goods was- liable. to pay excise duty in force at the time of removal of the goods from the factory when the exemption had been withdrawn. Their Lordships held that though the goods were manufactured prior to the withdrawal of the exemption, they would not be entitled to such an exemption because they were removed from the factory after the withdrawal of the exemption. In the case of Shree Synthetics Ltd., Ujjain v. Union of India and Ors. [1982 ELT (97 MP)], the question which arose was whether certain excisable goods which were liable to be charged at a particular rate during the period of their manufacture attracted the higher rate of duty in force when they were cleared from the factory. Their Lordships held that the crucial time for the levy of duty is the time of removal as envisaged by Rule 9A of the Central Excise Rules and not the date of manufacture or production of goods in the factory. In the present case, however, the situation is different from those in the three cases referred to above. We are concerned with the question of what is the relevant date for determination of the applicable rate of duty on excisable goods (for the sake of facility we may refer to these as "In-puts") manufactured by a manufacturer and removed within the factory from the place of manufacture to another place within the factory for manufacture of other excisable goods (we may refer to these as 'finished goods') at a time when a concessional rate of duty was in force in relation to the 'in-puts' although at the time when the 'finished goods' were cleared and said concessional rate on the 'in-puts' was no longer in force.
7. The important point to remember in the present case is that the Special Procedure (Compound Levy Procedure), set out in Section-E.VI of the Central Excise Rules in relation to Cotton Yarn, Woollen Yarn and Yarn falling, under Item No. 18-E of the Central Excis,e Tariff is a more or less self-contained Code. Rule-96-V of the Central Excise Rules postulates that where a manufacturer of the specified types of yarn uses the whole or part of the yarn manufactured by him in the manufacture of Cotton Fabrics in his own factory is permitted by the Collector to avail himself of the Special Procedure, the provisions contained in Section E-VI of the Rules were applicable to such manufacturer in substitution of the provisions contained elsewhere than in that Section for the period in respect of which the application is so granted. In the present case, it is an undisputed position that the subject yarn was cleared within the factory for the purpose of captive consumption for manufacture of Cotton Fabrics at a time when the Special Procedure was in force in relation to such yarn. In the normal course, therefore, the duty liability on the said yarn would be that computed in terms of the rate of compounded levy notified in Notification No. 62/72-C.E., dated 17.3.1972. The question of recalculation of the duty liability under the Special Procedure would have arisen only in the event of the rate notified under the Special Procedure undergoing a change. Such was not the case here. On 24.7.1972, the Special Procedure was made inapplicable to the type of yarn produced by the appellants, with the result that such yarn cleared on and after that date had to pay duty at the normal rate under the normal procedure. The appellants are not disputing this positron.
However, what they claim is that they were liable to pay any duty in addition to what was payable at the rate notified under the Special Procedure. As we have seen earlier, during the currency of the Special Procedure, the provision contained elsewhere than in Section E-VI of the Central Excise Rules were not applicable. The question of invoking the provisions of Rules 9 or 9A would not, therefore, arise in relation to the yarn for which the duty liability had been fixed in terms of Notification No. 62/72-C.E., dated 17.3.1972) which liability in terms of the Special Procedure had to be discharged at the time of clearance of the fabrics. The Department's stand is that since the yarn had not discharged its duty liability as at the time of clearance of the fabrics made out of such yarn, the normal rate under the normal procedure would apply, the Special Procedure having been withdrawn. If we were to accept this contention, the effect would be to deny the benefit of the Special Procedure in relation to Yarn which was permitted to be cleared for captive consumption under the Special Procedure and in respect of which the duty liability had to be determined in terms of Notification No. 62/72-C.E., dated 17.3.1972 which liability had to be discharged only at the time of clearance of the fabrics. This would be doing violence to the whole scheme of the Special Procedure.
8. In the result, we hold that the Yarn cleared for captive consumption during the period from 17.3.1972 ending 23.7.1972 in terms of the Special Procedure was entitled to the benefit of the rates fixed under Notification No. 62/72-C.E., dated 17.3.1972 and that no further duty was payable on that quantity of the Yarn. The Central Excise authorities are directed to calculate duty liability on this basis and allow consequential refund to the appellants, if duty at the rate computed by the department has already been paid, within two months of the date of this Order.
The appeal is allowed in the light of the above observations and directions.