1. Vide our order dated 13-6-83 dismissing the appeal, we had indicated that a separate order would be issued. In pursuance of that order, the present detailed order is being issued.
2. Originally preferred as a Revision Application before the Central Government, on transfer to the Tribunal, the matter is being treated as an appeal before the Tribunal and is being disposed of accordingly.
3. The appellants are a composite mill and manufacture inter alia cotton yarn falling under TI 18-A GET and cotton fabrics falling under Item 19 CET. Further, the appellants captively consumed the cotton yarn in the manufacture of cotton fabrics. The appellants were served a Show Cause-cum-Demand Notice dated 14-3-77 for Rs. 1,30,046.40. This sum was demanded as being the differential duty on the ground that the yarn duty element paid by way of compounded duty ought to have been included in the assessable value of the cloth cleared by them during the period 16-3-76 to 28-2-77. The appellants represented to the Assistant Collector on the ground that the demand was barred by limitation and secondly in law a compounded duty which was paid at the time of clearance of fabrics was not includible in the assessable value of the cloth. The Assistant Collector confirmed the demand against which the appellants preferred an appeal to the Appellate Collector of Central Excise, Bombay. The said Collector confirmed the Assistant Collector's order and rejected the appeal. However, he accepted the appellants' contention that demands in such cases were covered under Rule 10 and not Rule 10-A of the Central Excise Rules, 1944. Thus the duty liability was restricted to a period of 12 months prior to the issue of the Show Cause Notice. Aggrieved with this decision of the Appellate Collector, the appellants have come to us for seeking relief. The main grounds urged by the Appellants in support of their case are briefly set out as hereunder.
4. At the relevant time, the appellants being a composite mill were working under special procedure under which duty on cotton yarn was allowed to be compounded to a duty on the fabrics at the fabric clearance stage. Since they had paid yarn compounded levy at the rates specified, their liability had been fully discharged. Further, since compounded yarn levy was being paid at the stage of removal of cotton fabrics such yarn levy should not form part of the assessable value of the fabrics. The excise duty has to be charged on the normal price as laid down in Section 4 of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act) and the prices declared by them for their fabrics, satisfied all the requirement of a normal price. The very purpose of adopting a special procedure for levy of duty on yarn was to defer it from the stage of production to the point of removal of the fabrics and, therefore, inclusion of the yarn duty levy in the assessable value of fabrics would tantamount to double taxation. Excise is a tax on production and real value should be composed of manufacturing cost plus manufacturing profit. The manufacturing cost of cotton yarn is already included in the assessable value of cotton fabrics and hence the question of inclusion of compounded yarn duty in the value of fabrics is not tenable in law and is violative of the provisions of Section 4(4)(d)(ii) of the Act. The Central Government issued Notification No. 99/77, dated 31-5-77 whereby the Government exempted cotton fabrics falling under Item 19-1(1) produced in a composite mill, from so much of the duty of excise as is equivalent to the duty leviable with reference to that part of value which represents duty on yarn paid by a composite mill in accordance with the provisions of Rule 96 W of the Central Excise Rules, 1944, at the time of removal of such fabrics from the said composite mill. It is contended that the issue of the Notification in question supports the appellants' case, namely, that prior to the issue of the said Notification, the cotton yarn levy under Rule 96 W formed part of the assessable value of cotton fabrics even though the yarn levy was paid only at the time of clearance of fabrics along with cotton fabrics levy.
5. Shri Mahesh Kumar, the learned representative of the respondent Collector stated that the Appellate Collector had passed a well-reasoned speaking order. He further submitted that there is no substance in the arguments advanced by the appellants and the legal position did not admit of any doubt or ambiguity. He, therefore, pleaded that the appeal be rejected.
6. We have devoted a good deal of thought to the matter. It is not in dispute that cotton yarn falls under item 18 of GET and cotton fabrics fall under item 19 of GET. Purely as a matter of convenience and facility to the composite mills, the Government extended the concession of compounded levy on cotton yarn and provided that the duty leviable on yarn should be collected not at the spindle point but at the time when the cotton fabrics are cleared from the factory. We are of the view that existence of this special procedure of collection of duty does not mean that duty on yarn has been exempted. As provided under item 18 duty on yarn has to be paid, but the stage and manner of its collection had only changed. Thus what has happened is that collection of duty on yarn has been deferred to the stage of clearance of fabrics.
7. The expression "such goods" appearing in Section 4(4)(d)(ii) of the Act refers to the fabrics sought to be cleared. For computing the assessable value of these fabrics, the excise duty on yarn, which had been deferred, has necessarily to be included as no exemption in respect thereof has been granted. Therefore, it is quite in accordance with the law that the duty on cotton yarn should form part of the assessable value of the cotton fabrics since the cotton yarn levy constitutes a part of the cost of manufacture of cotton fabrics.
8. The appellants' grievance about double taxation on yarn is also devoid of any force. A levy would amount to double taxation if the same commodity is charged to duty twice over under the same tariff item. In the instant case, this is not the position because, firstly the cotton yarn is charged to duty under item 18 GET at the specific (compounded) rates and later cotton fabrics are charged to duty under item 19 GET at ad valorem rates. The tariff items are different and the rates of duty are different.
9. The appellants' contention that the issue of Notification No.99/77-C.E., dated 31-5-77 supports their case, is also without any substance. If the duty on the cotton yarn were not to be included in the assessable value of cotton fabrics, the question of issuing an exemption Notification under Rule 8(1) of the Central Excise Rules would not have arisen.
10. In passing, it is pertinent to observe that if the appellants' stand were upheld, the resultant position at the relevant time would be to place composite mills, like the appellants, using cotton yarn manufactured by them captively, in a position of advantage vis-a-vis mills which procure duty paid cotton yarn from outside. This creates an anomalous situation which obviously would be discriminatory.
11. In the light of our observations contained above, we see no substance in the appeal and dismiss the same.