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Shreeram Mills Ltd. and Another Vs. Union of India and Others - Court Judgment

LegalCrystal Citation
SubjectExcise
CourtMumbai High Court
Decided On
Case NumberMisc. Petition No. 215 of 1978
Judge
Reported in1982(10)ELT457(Bom); [1982]138ITR823a(Bom)
Acts Central Excise Rules, 1944 - Rule 8, 8(1) and 9(A); Central Excise Act; Constitution of India - Article 226
AppellantShreeram Mills Ltd. and Another
RespondentUnion of India and Others
Excerpt:
.....to the extent subsequent notification that seeks to take away effect of earlier notification - held, on basis of precedents show cause-cum-demand notice set aside. - - prior to the said instructions, the duty under the said proviso was being accounted for and charged as 'yarn duty' and was also being collected by debiting in the personal ledger account for yarn maintained by the company herein with the excise authorities as well as similar accounts of other composite mills. it is best that in such matters the law is uniform throughout the country......stocks of cotton fabrics (packed and loose), manufactured prior to july 15, 1977, on which no yarn duty was paid as on the mid-night of 14th/15th july, 1977. the company furnished to the concerned authorities the relevant information. in october 1977 the central government issued communication to the various collect orates of central excise inter alia instructing the excise collectors to account and collect duty under the second proviso to the notification no. 226 of 1977 as 'fabric duty' under item no. 19 of the central excise tariff. prior to the said instructions, the duty under the said proviso was being accounted for and charged as 'yarn duty' and was also being collected by debiting in the personal ledger account for yarn maintained by the company herein with the excise.....
Judgment:

1. The petitioner-company Shreeram Mills Limited (hereinafter the company) is having three separate departments consisting of spinning, weaving and processing departments respectively. In the spinning department yarn is manufactured which yarn intended to be used for the manufacture of fabrics is cleared into the weaving department in which latter department it is woven into cloth whereafter the same is cleared into the processing department where the cloth is intended to be cleared as processed cloth. The articles manufactured by the company viz., cellulosic spun yarn, cotton yarn and cotton fabrics are excisable goods falling under Tariff Item Nos. 18, 18-A and 19 respectively of the First Schedule to the Central Excises and Salt Act, 1944. Now, under rule 8 of the Central Excise Rules, the Central Government is authorised to exempt, subject to such conditions as may be specified in the notification, any excisable goods from the whole or part of the duty leviable on such goods. In exercise of this power under the said rule 8, the Central Government issued on June 18, 1977 Notification No. 131 of 1977 granting partial exemption to cotton yarn and cellulosic spun yarn falling under Tariff Item Nos. 18A and 18-III from payment of excise duty. Composite mills such as the company herein were, however, excluded from the operation of the said Notification No. 131 of 1977 by reason of proviso (vii) to the said notification, under which proviso :

'...nothing contained in this notification shall apply to any yarn which is used for weaving in a composite mill.'

The company here, which is a composite mill, was thus excluded from the operation of Notification No. 131 of 1977. Simultaneously, the Central Government also issued another notification on the same day June 18, 197 being Notification No. 132 of 1977 by which cellulosic spun yarn falling under Tariff Item No. 18-III(i) and cotton yarn falling under Tariff Item No. 18-A(i) were exempted from the whole of the duty of excise leviable thereon when used for weaving cotton fabrics falling under Tariff item No. 19 in a composite mill. Again, on the same day June 18, 1977 the Central Government issued a third notification bearing No. 135 of 1977 granting exemption to cotton fabrics falling under Tariff Item No. 19(I) of the Schedule to the said Act. Net effect of the aforesaid notifications was that duty on cellulosic spun yarn and cotton yarn covered by Notification No. 132 of 1977 and applicable to composite mills stood wholly exempted and duty on cotton fabrics falling under Tariff Item No. 19(I) stood partially exempted to the extent indicated in Notification No. 135 of 1977.

2. About a month later of July 15, 1977 the Central Government issued four further notifications being Notification Nos. 224, 225, 226 and 228 of 1977. Under Notification No. 224 of 1977 clause (vii) of the proviso and Explanation II of Notification No. 131 of 1977 were omitted. By Notification No. 225 of 1977 the earlier Notification No. 132 of 1977 under which cellulosic spun yarn and cotton yarn falling under sub-item III(i) of Tariff item No. 18 and Tariff Item No. 18A(i) respectively of the First Schedule to the Central Excises and Salt Act, 1944, falling under Tariff Item No. 19 in a composite mill, were exempted from the whole of the duty of excise leviable thereon, was rescinded. Under Notification No. 226 of 1977 the earlier notification No. 135 of 1977 was superseded and a new set of partial exemptions was prescribed as stated therein. Under Notification No. 228 of 1977 exemption was granted qua cotton fabrics produced in composite mills from so much of the duty of excise as was equivalent to the duty leviable with reference to the part of value which represented duty on yarn paid by composite mills under Notification No. 131 of 197.

3. After the aforesaid July 1977 notifications, the Assistant Collector of Central Excise, Bombay, sent two communications, one dated July 21, 1977 and the other dated July 28, 1977 respectively to the company herein, calling upon the company and all composite mills to declare stocks of cotton fabrics (packed and loose), manufactured prior to July 15, 1977, on which no yarn duty was paid as on the mid-night of 14th/15th July, 1977. The company furnished to the concerned authorities the relevant information. In October 1977 the Central Government issued communication to the various Collect orates of Central Excise inter alia instructing the Excise Collectors to account and collect duty under the second proviso to the Notification No. 226 of 1977 as 'fabric duty' under Item No. 19 of the Central Excise Tariff. Prior to the said instructions, the duty under the said proviso was being accounted for and charged as 'yarn duty' and was also being collected by debiting in the personal ledger account for yarn maintained by the company herein with the excise authorities as well as similar accounts of other composite mills. In pursuance of the aforesaid instructions of the Central Government, the Assistant Collector of Central Excise intimated to the company herein that the exemption available under Notification No. 228 of 1977 would not be applicable to cotton fabrics produced by the company prior to July 15, 1977. Correspondence thereafter ensued between the company and the excise officers. Subsequently the company received as many as four show cause-cum-demand notices dated December 8, 1977, January 13, 1978, January 13, 1978 and January 30, 1978 respectively, these four show cause-cum-demand notices being Exhibit E collectively to this petition. It is against these show cause-cum-demand notices that the company has filed the present petition under Article 226 of the Constitution.

4. In support of the petition, I have heard Mr. K.H. Bhabha, learned Counsel for the petitioner-company. The respondents - Union of India and others - though served have not chosen to appear at the time of hearing of this petition. I have, therefore, not had the benefit of their arguments.

5. The petitioners' task was, however, considerably lightened by virtue of a Division Bench ruling of the Gujarat High Court in Arodaya Spinning and Weaving Company Limited v. Union of India and others 1981 Elt 274 in which the same notifications of June 1977 as also of July 1977 as are the subject matter of this petition were involved. Not only so but the questions involved in this petition are also identical to the questions involved before the Division Bench of the Gujarat High Court in the aforesaid ruling. This ruling has been strongly relied upon by the petitioners' learned Counsel.

6. Contention of the learned Counsel for the petitioners is that it is not open by virtue of the rule-making power under rule 8 of the Central Excise Rules to issue notification under the Central Excise Act and the Rules thereunder giving retroactive or retrospective effect thereto, If this is the correct position in law then the consequence follows that the respondents herein were not entitled to issue to the petitioners the impugned show cause-cum-demand notices which in fact seek to give retroactive or retrospective effect to July 1977 notifications despite the full effect and operation of June 1977 notifications till the issue of July 1977 notifications. I see considerable substance in the contention of the learned Counsel Mr. Bhabha in the aforesaid behalf. It is not open to the Central Government while issuing a notification in the exercise of its powers under rule 8(1) of the Central Excise Rules to give to such a notification retrospective effect. Power under the said rule 8(1) is basically to exempt totally or partially duty of excise levied by Parliament by prescribing the rate in the Schedule. Exemption already granted in pursuance of exercise of power accordingly cannot be taken away retrospectively or retroactively to the extent a subsequent notification seeks to take away the effect of the earlier exemption notification retrospectively. To that extent, the said subsequent notification must be held to be beyond the rule-making powers of the Central Government. In Cannanore Spinning and Weaving Mills Ltd. v. The Collector of Customs and Central Excise, Cochin, and others, : 1978(2)ELT375(SC) , the Supreme Court had an occasion to consider the scope and ambit of the rule-making powers of the Central Government conferred by rule 8 of the Central Excise Rules. The Supreme Court in its aforesaid ruling observed thus :

'..... The rule-making authority had not been vested with the power under the Central Excises and Salt Act to make rules with retrospective effect.'

(Vide paragraph 6.)

The position thus being settled on high authority, the contention of the learned Counsel Mr. Bhabha supported as it is not only by the Supreme Court ruling in Cannanore Spinning and Weaving Mills' case supra but also by a Division Bench ruling of the Gujarat High Court in Arodaya's case supra deserves to be accepted.

7. Going through the Division Bench ruling of the Gujarat High Court in Arodaya's case, I find myself in agreement with the reasoning and the ultimate conclusion reached therein consistent also with the ratio of the Supreme Court ruling in Cannanore's case. As observed in the said ruling in Arodaya's case :

'It may be, as Mr. Mehta for the respondent emphasized, that because of this interpretation, those composite mills which had not cleared their goods from their premises prior to July 15, 1977 would be called upon to pay excise duty on cotton fabrics at a lower rate than those composite mills which cleared their goods prior to July 15, 1977, but the other interpretation which the revenue asks us to accept would lead to the peculiar situation that the composite mills which had not removed their cotton fabrics from their premises would be liable to pay a duty in some respects higher that those composite mils which had cleared their goods prior to July 15, 1977. Some sort of discrimination is bound to arise but the interpretation which works lesser hardship and is inconsonance with the scheme of the Act and its operation has to be applied. The interpretation which we are putting upon clause (b) of the impugned proviso is in consonance with the scheme of the Central Excises and Salt Act and the rules made thereunder.... The effect of upholding the validity of clause (b) of the second proviso to Notification No. 226 of 1977 would be to give retrospective effect to the levy of central excise on cotton yarn and cellulosic spun yarn, though such yarn when used in the manufacture of cotton fabrics during the interregnum between June 18, 1977 and July 15, 1977 was wholly exempted from payment of excise duty.'

And further :

'.... The rule-making authority by enacting clause (b) of the second proviso to Notification No. 226 of 1977 was seeking to levy with retrospective effect duty on cellulosic spun yarn and cotton yarn, though in the guise of a component of duty on cotton fabrics. In our opinion, therefore, only clause (b) of the second proviso, in so far as it would operate on goods which were produced prior to July 15, 1977 in a composite mill from wholly-exempted cotton yarn of cellulosic yarn, to this limited extent, is ultra vires the rule-making power of the Central Government under the Central Excises and Salt Act inasmuch as it seeks to give retrospective effect to duty on such cellulosic spun yarn and cotton yarn.'

It is again observed in paragraph 15 of the aforesaid ruling as follows :-

'Hence, so far as cotton fabrics manufactured between June 18, 1977 and July 15, 1977 in composite mills were concerned, they would bear excise duty payable on the date on which the goods were removed from the premises of the manufacturer. But the impugned second proviso to Notification No. 226 of 1977 requires the manufacturer to pay excise duty on such fabrics, not only at the appropriate rate of duty as specified in the Notification but it requires the manufacturer to pay the duty payable on such cellulosic spun yarn or cotton yarn or both, as the case may be, under Notification No. 131 of 1977. It must be borne in mind that Notification No. 131 of 1977 deals not with duty on cotton fabrics. It deals with duty on cellulosic spun yarn and cotton yarn. When cellulosic spun yarn and cotton yarn which were used in the manufacture of such cotton fabrics by a composite mill prior to July 15, 1977 from the whole duty free yarn were concerned, an element of excise duty is sought to be brought in, so to say, by the back door, by including the duty on cellulosic spun yarn and cotton yarn as a component of the duty on cotton fabrics. It is true that the words of the proviso purport to show that what is being collected is the duty payable on cotton fabrics but when on bears in mind the scheme which we have set out in the earlier part of this judgment for collection of excise duty at the stage of removal, it is obvious that even if the earlier exemption had not been in force, duty payable at the time when the fabrics were removed from the premises of the manufacturer would be the duty of cotton fabrics together with the duty on yarn used in the manufacture of such cotton fabrics.'

8. The emerging position thus is that the test and the principles laid down in the aforesaid Division Bench ruling of the Gujarat High Court in facts and circumstances similar as those in the present case squarely and fairly apply also to the instant case. In matters of customs and excise it is but just and proper that adjudications by different High Courts on identical questions should as far as possible be uniform and consistent. Besides, it would not be in accordance with propriety that the department having lost on the same point before another High Court or other High Courts should nevertheless seek to reagitate the same identical question before yet another High Court which did not have a similar occasion to adjudicate the same earlier. It is best that in such matters the law is uniform throughout the country. Even otherwise, on merits also I find myself in agreement with the ratio of the Gujarat High Court decision. As already indicated, the said decision is based inter alia on the ratio of the Supreme Court ruling in Cannanore Mills' case which latter ratio is indeed binding on this Court. This thus being the view I take of the matter, the impugned show cause-cum-demand notices issued to the petitioner-company herein deserves to be set aside and quashed.

9. The petitioner-company has not undergone the gamut of departmental proceedings but has instead come directly to this Court. However, in a matter such as this, going through the said gamut would have been an exercise in futility, the departmental authorities being duty bound to follow instructions and apply the notifications in all their vigour. In the light of the ratio of the Supreme Court ruling in Cannanore Mills' case and the Gujarat High Court ruling in Arodaya's case based inter alia on the said ruling of the Supreme Court, it would not be just to ask the petitioner to nevertheless first go through and complete the route from Caesar to Caesar under the Central Excises and Salt Act before coming to this Court under Article 226 of the Constitution. Such insistence can only result in multiplicity of proceedings and loss of everybody's (including the State) time, energy and expense with no gain either to the State or to the petitioner and no difference in the end-result.

10. In the result, this petition succeeds and is allowed. The impugned show cause-cum-demand notices dated December 8, 1977; January 13, 1978; and January 30, 1978 are set aside and quashed. It is expressly held that so far as cotton fabrics produced by the petitioner-company during the period June 18, 1977 to July 15, 1977 from cellulosic spun yarn or cotton yarn on which no excise duty at all was payable by virtue of Notification No. 132 of 1977, dated June 18, 1977 are concerned, excise duty payable was only on cotton fabrics under clause (a) of the second proviso to Notification No. 226 of 1977, namely, at the rates laid down in Notification No. 226 of 1977 and at no other rate. The respondents are directed to work out the excise duty payable by the petitioner-company in the light of this judgment and to refund the excess which the company has paid over that amount to the respondents. In this context, the respondents shall also consider the application for refund made by the company as per particulars at Exhibit M to this petition. The amount should be worked out within ten weeks from today and the amount found due to the company should be paid within two weeks thereafter.

11. Rule earlier issued on this petition is made absolute in terms aforesaid. The respondents shall pay costs of this petition to the petitioner-company. The bank guarantee furnished by the petitioners at the time of admission of this petition in favour of the Prothonotary and Senior Master, High Court, Bombay, shall stand cancelled.


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