1. The Petitioner No. 1 is a joint stock company existing under and governed by the provisions of Companies Act 1 of 1956 and has its registered office at Dr. Ambedkar Road, Parel, Bombay - 400012. Petitioner No. 2 is a shareholder and principal officer of the 1st Petitioner.
2. It is an undisputed fact that the 1st Petitioner holds a Central Excise licence duly issued to them under the provisions of the Central Excises and Salt Act, 1944 (hereinafter referred to as 'the said Act') and the Central Excise Rules. 1944 (hereinafter referred to as 'the said Rules') for the purposes of manufacturing, inter alia, blended yarn. It is also not disputed that the 1st Petitioner manufactures the said blended yarn, at its factory and textile mill situated at Parel, Bombay - 400012. The aforesaid mill of the 1st Petitioner is a composite mill, i.e. engaged in spinning of yarn and weaving fabrics.
3. Some time in the year 1962, various textile mills in India started manufacturing blended yarn on experimental basis. Blended yarn means yarn which is made out of two or more fibres. The blending of such yarn is done in a textile mill by mixing the desired fibres in desired quantities in a room which is known as the 'Blow Room'. Thereafter, the said mixed fibres undergo various processes and ultimately emerge from what are known as ring frames. It is contended by the petitioners that at the stage when the yarn emerges from ring frames it becomes fully blended and the process of manufacturer of blended yarn with all its essential ingredients and characteristics, is complete, and no further process is required to be imparted upon such yarn which emerges from the ring frames as the same is in a completely and fully manufactured condition at that stage. This yarn is made for sale or for captive consumption for weaving purposes. It is gathered on bobbins, cones, reels, beams, etc. If the yarn is intended to be used within the mill premises for the manufacture of fabrics the said yarn is first wound on beams and then sized. According to the petitioner the sizing has got a peculiar meaning which means the application of a starchy or gluey substance on the said blended yarn. Sizing is done in order to enable the yarn to withstand the friction caused on the looms during the process of weaving. According to the petitioner the said sizing in not at all necessary for the purpose of completing the manufacture of yarn nor is sizing a process incidental or ancillary to the manufacture of yarn. Blended yarn is in a fully manufactured condition when it emerges from ring frames i.e. before it is sized. As a result of sizing the weight of the blended yarn increases by 10 to 20 per cent. If the said sized yarn is washed the sizing material applied thereon is washed away but yarn even after the washing away of such sizing material remains yarn.
4. According to the petitioner some time in 1964, the 1st Respondent sought to subject the said blended yarn to excise duty under the then existing Tariff Item No. 18 which related to man-made fibres and yarn. The 1st Respondent accordingly issued a notification prescribing thereby various rates for such blended yarn, depending upon the content of non-cellulosic fibre i.e. polyester staple fibre within such blended yarn. This Tariff Item No. 18 was considered by the High Court of Judicature at Gujarat in Ahmedabad Calico Mills v. Union of India, which struck down this tariff item.
5. It is then alleged by the petitioner that thereafter a new tariff item being Tariff Item No. 18E was sought to be introduced in the First Schedule to the said Act by the Financial Bill of 1972 so as to provide for a separate tariff item in order to bring the blended yarn within the excise net. The said Tariff Item No. 18E as originally introduced read as follows :-
Description Rate of Duty'18E. Yarn, all sorts, not elsewhere Rupees fiftyspecified, containing any two or more per kilogram.of the following fibres namely :i. Cotton;ii. Silk;iii. Wool;iv. Jute (including Bimlipatamjute or mesta fibre); andv. Man-made fibres.'
According to the petitioners, since 1972, excise duty was being levied and collected on the weight of the blended yarn at the stage when it emerged from the ring frames, i.e. before it was sized. By Notification No. 65/72, dated 17-3-1972 which provides for the effective rates of duty on yarn falling under Tariff Item 18E and used for weaving of fibres in a composite mills, it was provided that while assessing sized yarn to excise duty (under Tariff Item No. 18E) the duty would have to be levied on the basis of its weight before sizing. The 1st Petitioner from time to time filed classification lists as provided by the provisions of Rule 173C of the said Rules and classified the yarn under Tariff Item No. 18E and the weight of the said yarn for the purposes of levy of excise duty was shown at spindle point, that is the point before the yarn was subjected to size.
6. It is then alleged by the petitioner that some time in the year 1976, it was learnt that a decision was taken at the highest level in the Excise Department to levy excise duty on the said yarn falling under Tariff Item No. 18E on the basis of its weight at the stage after the same was sized, that is at the stage of cones, bobbins and beams and not at the stage before it was sized. According to the petitioner on the basis of this decision, the respondent No. 4 addressed a letter dated February 27, 1976 directing the petitioner to pay excise duty on the said yarn after the same was sized. The petitioner then stated that there was some correspondence between the Petitioner and the 1st respondent in which the petitioner tried to show that the excise duty is not leviable after the same was sized.
7. It is then alleged by the petitioner that the 1st Petitioner received two letters dated July 2, 1979 and August 3, 1979 from the 4th respondent calling upon the 1st petitioner to supply to the department details of the difference in the weight of the said yarn at the stage when it was sized and prior to its being sized. It is then alleged by the petitioner that it received two show cause notices dated February 22, 1980 and February 23, 1980 for the different periods from 1-4-1975 to 31-12-1975 by which the 1st petitioner was called upon to show cause why sums of Rs. 43,58,481.60 and Rs. 4,54,406.40 respectively should not be recovered from the 1st petitioner by way of purported differential duty on the ground that the said yarn was allegedly to be made subject to excise duty on the basis of its sized weight while the 1st petitioner had paid duty on the basis of its unsized weight. These notices are annexed to the petition as Ex. E collectively.
8. The Petitioners by this petition seek to challenge the legality and correctness of the notices issued by the 4th respondent at Ex. E. Several contentions were urged before me by Shri Ashok Desai, learned advocate on behalf of the petitioners but I do not think that it is necessary to go into all these questions. This petition can be disposed of only on point namely, whether the excise duty is leviable on the yarn at its spindle point or at the stage of after sizing it under tariff item No. 18E of the Act. The Government of India in Bharat Vijay Mill Ltd., vide its order No. 1173 of 1980 has observed as follows :-
'3. The applicants contest that the revision application should be decided on merits on the ground that the manufacture of yarn is complete at the spindle stage and the sizing which is done separately at the placed of weaving. The yarn used for warp only is sized before it is used in the weaving department.
4. Government observe that the applicants do not sell yarn but consume the same internally for purpose of weaving the fabrics. The sizing is done only in respect of the yarn used as warp after the yarn is taken from the spinning to their weaving department whereas the yarn used in the waft stage is not sized at all. Government therefore accept the applicants' arguments that the yarn should be assessed on its form and weight in which it is cleared in this case for captive consumption at the spindle stage.'
9. The same view is reiterated by the Government of India in In Re : M/s. Binny Limited, 1980 E.L.T. 725. The relevant observations are as follows :-
'6. Since the fact of clearance of yarn in cones in unsized form from the spinning department to the weaving department is not disputed and since there is nothing on record to show that petitioners ever cleared the impugned goods after sizing, Government held that central excise duty under Item 18E of the First Schedule to the Central Excises and Salt Act, 1944 should be charged on the yarn in the form in which it is cleared from the spinning department of the petitioners for further use in the weaving of fabrics, viz. on the unsized yarn i.e. on the unsized weight of the yarn.'
10. In view of these two decisions taken by the highest authorities while exercising revisional jurisdiction, the same would be binding upon the Union of India in the present petition also. Shri Dhanuka, learned advocate, appearing on behalf of the respondents could not point out to me any other judgment which has taken a contrary view. In view of these two judgments, I quash the notices at Ex. E collectively issued by the 4th respondent. Rule is made absolute in terms of prayer clauses (a) and (d) of the petition. In the circumstances of the case, there shall be no order as to costs. The bank guarantee furnished by the petitioners pursuant to the directions given by this Court on the interim orders shall stand discharged and the same shall be returned to the petitioners.