1. These are five appeals arising out of the combined Order-in-Appeal Nos. 41 to 45/ALLD/83, dated 11-4-1983 passed by the Collector of Central Excise (Appeals), New Delhi, on five appeals filed to him against orders of the Assistant Collector of Central Excise, Gorakhpur.
Since all the appeals were from the same appellants and the issue involved in all the appeals was the same, and the submissions were also common, the Collector passed a common order in respect of all the five appeals. Before us also all the appeals were heard together and therefore the discussion which follows would cover all of them.
2. The issue relates to the levy of a "cess", namsly a duty of excise, on jute manufactures, in terms of the Jute Manufactures Cess Rules, 1976 dated 18-2-1976, issued under Section 30 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), at the rates specified in Ministry of Industries and Civil Supplies (Department of Industrial Development) Order No. S.I. (141) E, dated 25-2-1976, and subsequent orders to the same effect. The short point is whether the excise authorities were justified in seeking to collect cess in terms of the above provisions on jute yarn manufactured by the appellants and used by them for the manufacture of jute manufactures such as hessian and sacking.
3. To facilitate a proper appreciation of the points at issues it would be useful to reproduce the various relevant provisions. Section 9(1) of the Industries (Development and Regulation) Act, 1951, which provides the basic authority for the imposition of the cess, reads as follows : - "9. Imposition of cess on scheduled industries in certain cases.- (1) There may be levied and collected as a cess, for the purposes of this Act, on all goods manufactured or produced in any such scheduled industry as may be specified in this behalf by the Central Government by notified order, a duty of excise at such rate as may be specified in the notified order, and different rates may be specified for different goods or different classes of goods: Provided that no such rate shall in any case exceed 13 paise per cent of the value of the goods.
Explanation.-In this Sub-section, the expression "value", in relation to any goods, shall be deemed to be the wholesale cash price for which such goods of the like kind and quality are sold or are capable of being sold for delivery at the place of manufacture and at the time of their removal therefore without any abatement or deduction whatsoever except trade discount and the amount of duty then payable." 4. The list of scheduled industries is given in the First Schedule to the Act, wherein against serial No. 23 "Textiles" have been mentioned.
Though there was some controversy whether this entry authorised the levy of cess on jute yarn, this point has not been raised before us and it is not therefore necessary to deal with it.
5. The Jute Manufactures Cess Rules, 1976, dated 18-2-1976, to which reference has been made above, contain the detailed provisions relating to the levy of cess under Section 9(1) of the Industries (Development and Regulation) Act on jute manufactures. The following provisions of these rules are particularly relevant:- "2. Definitions.-In these rules, unless the context otherwise requires,-" ' (g) words and expressions used herein and not defined but defined in the Central Excises and Salt Act, 1944 (1 of 1944) or the rules made thereunder, have the meaningss respectively assigned to them in that Act or the rules," "3. Application of Central Excises and Salt Act and the Rules made thereunder,- Save as otherwise provided in these rules, the provisions of the Central Excises and Salt Act, 1944 (1 of 1944) and the rules made thereunder, including those relating to refund of duty, shall, so far as may be, apply in relation to the levy and collection of the cess as they apply in relation to the levy and collection of the duty of excise on jute manufactures under that Act." "5. Submission of Returns.-(1) Every manufacturer shall submit to the Collector and Commissioner on or before the l0th of every month a return in the form specified in the Annexure to these rules of all stocks of jute manufactures manufactured, and removed from, his factory during the previous month." 6. Order No. S.I. (141) E, dated 25-2-1976 specifies various descriptions of classes of jute goods and the rate of duty of excise (that is, cess) thereon expressed in rupees per tonne. The rate of duty on hessian and jute fabrics other than sacking has been specified as Rs. 4.50 per tonne, and on sacking and jute yarn as Rs. 3.75 per tonne.
In the subsequent notifications dated 14-2-1977, 7-2-1978 and 26-2-1979, issued from time to time, the rates were revised or continued, but no material change was made so far as the question now before us is concerned.
7. Appearing before us for the appellants, Shri Khaitan drew our attention to certain judgments of the Calcutta and Patna High Courts which are of direct relevance to the question before us. He fairly pointed out that the judgments of the Calcutta High Court were in favour of the Department's stand, while that of the Patna High Court was in favour of the assessees. The present appellants were not parties in any of the above cases. The first judgment of the Calcutta High Court was the one in the case of the William Co. Ltd. v. Inspector, Central Excise and Ors., reported in 1979 E.L.T. (J 23). This was a judgment of a Single Judge, in which the writ petition of the assessees was dismissed. The matter was taken up in appeal and by a Division Bench of the Calcutta High Court. Shri Khaitan was good enough to furnish us with a copy of the judgment dated 28-3-1979 of the Divi-sion Bench. In its judgment the Division Bench dismissed the appeals of assessees. It also rejected a prayer made by the appellants for certificates under Article 133 of the Constitution for preferring appeals to the Supreme Court. Shri Khaitan informed us that the appellants before the Calcutta High Court had subsequently filed a Special Leave Petition before the Supreme Court, which had admitted the SLP and also granted the stay. Supreme 8. The judgment of the Patna High Court, reported in 1981 E.L.T. 30 (Pat.), was on a writ petition filed by M/s. Rameshwar Jute Mills Ltd., against the Inspector of Customs and Central Excise and Ors.. This petition was also heard by a Division Bench which decided the petition in favour of the petitioners. We are also informed by Shri Khaitan that an appeal has been preferred by the Department in this case to the Supreme Court and pending. is 9. Since the judgments of the Calcutta and Patna High Courts were with reference to the provisions which are now before us (although the High Courts differed in their conclusions), the contentions of the respective parties and th evidence thereon, as set out in those two judgments, are of undoubted rele vance to the cases before us. However, Shri Khaitan stated that he would be pressing before us only the following two grounds :- (1) No cess could be levied on jute yarn which was captively consumed in the same factory for the manufacture of jute fabrics; and (2) if cess were levied on jute yarn as well as on the jute fabrics (hessian or sacking) manufactured therefrom, the cumulative inci dence of the duty, in the case of both hessian and sacking would exceed 13 paise per cent of the value of the respective goods and would be in excess of the powers granted under Section 9 of the Industries (Development and Regulation) Act.
Since Shri Khaitan did not raise or press any of the other points which had been mentioned in the appeals or agitated by the parties before the Calcutta and Patna High Courts, it is not necessary to refer to them, except incidentally.
10. As regards the first ground, namely that cess could not be levied on jute goods captively consumed. Shri Khaitan relied very strongly on the judgment of the Patna High Court in the case of Rameshwar Jute Mills Ltd. In para 4 of that judgment the following obseivauons have been made :- " it is clear that the cess shall be levied at the time of delivery of goods at the place of manufacture and at the time of removal therefrom. In my opinion, the word "therefrom" means from the factory." "Learned counsel for the respondents further contends that as soon as the manufacture of twines and yam is compleltd and if they are removed from one place to another within the same factory, it amounts to removal of manufactured goods. 1 am unable to accept this contention for the reasons mentioned above. lam of the opinion that if the definition of "factory" is read along with the "explanation" to Section 9 (1) of the Act, it is clear that the cess is not leviable unless the manufactured goods are removed outside the precincts of the factory." [para 10] The Hon'ble Judge drew support for his interpretation from Rule 5 of the Juie Manufactures Cess Rules, 1976, and to the form of return prescribed under those Rules. He pointed out that in the prescribed form the manufacturer was required to mention the stocks of jute manufactured by him and removed from his factory. He observed that it was therefore clear that it was the removal of the goods which envisaged levy or assessment of the cess upon the manufacturer.
"In this circumstance, I am of the opinion that the authorities under the Act and the Rules are not entitled to levy cess on twines and yarn since these goods were not delivered at the place of manufacture, nor they were removed from the precincts of the factory. Since these goods were not removed out of the factory, as such cess cannot be levied on those goods." 12. Apart from relying on the judgment of the Patna High Court, Shri Khaitan made specific reference to the wording of Section 9 (1) of the Industries (Development and Regulation) Act, and the explanation thereto. He cited the judgment of the Supreme Court in the case of Bengal Immunity v. State of Bihar, for the proposition that an explanation in a section had the same force and validity as the main section itself. The explanation to Section 9(1) specifies what should be deemed to be the "value" of any goods for the levy of cess. This is the wholesale cash price for which such goods were sold or were capable of being sold for delivery at the place of manufacture and at the time of their removal therefrom. He therefore submitted that it was very clear that delivery and removal from the factory were essential conditions, in the absence of which the cess would not be leviable, It was put to Shri Khaitan that Rules 9 and 49 of the Central Excise Rules, 1944, had subsequently been amended to make it clear that consumption within the factory would also to be deemed to be a removal ; and that these amendments had been made retrospictive through the Finance Act, 1982. Shn Khaitan submitted that Rule 3 of the Jute Manufactures Cess Rules, 1976, no doubt provides for application of the Central Excise Rules. However, in the absence of another specific provision, this would only authorise the applcation of those rules as they stood on the date of the notification, namely 18-2-1976.
Subsequent amendments to those rules, even if given retrospective effect by legislation, could not have the effect of amending the rules in so far as they were applicable to the levy of the cess. In this connexion he quoted the judgment of the Supreme Court in the case of M/s. Mahindra and Afyhindra v. Monopolies and Restrictive Trade Practices Commission, reported in AIR 1979 S.C. 798.
13. Shri Khaitan also argued that Section 9(1) of the Industries (Development and Regulation) Act refers to both the imposition of the cess and the removal of the goods. No doubt, the main part of the section provides that a cess may be levied and collected on all goods manufactured or produced in any specified schedule. However, in view of the reference to ''removal" in the explanation, which has to be read as an integral part of the section, it should be considered that the charge of duty was not on manufacture alone, but only where there was both manufacture and also removal.
14. It was put to Shri Khaitan that the word "removed" occurring in Rules 9 and 49 of the Central Excise Rules, even prior to their amendment, had been the subject of interpretation by other High Courts, some of which had held that they covered even consumption or utilisation within a factory. There was no indication in the judgment of the Patna High Court that these decisions had been placed before it.
Shri Khaitan replied that any judgments with reference to the Central Excise Rules would not be applicable to the present case, which had to be considered purely with reference to the provisions of Section 9 of the Industries (Development and Regulation) Act.
15. Coming to his second ground, regarding the rate of cess, Shri Khaitan fairly admitted that the wording of the proviso to Section 9 of the Industries (Development and Regulation) Act was not wholly clear.
The rate of cess could not exceed "13 paise per cent of the value of the goods". If this was held to be 13 per cent of the value of the goods, his point would not survive. If, however, it was held to mean 13 paise per Rs. 100/- of the value of the goods, his point would be very relevant. He referred to certain calculations, according to which, if cess were levied on both yarn and hessian/ sacking, the cumulative incidence would come to 17.39 paise and 18.97 paise per Rs. 100/- of the value of the goods, exceeding in each case the limit of 13 paise per Rs. 100/-. He submitted that such a levy would be illegal and we should hold that for this reason also cess could not be levied on the yarn used in the manufacture of hessian/sacking. (In reply to a question from us, as to whether this point had been specifically raised before either the Calcutta High Court or the Patna High Court, Shri Khaitan fairly replied in the negative).
16. Smt. Zutshi, appearing for the Department, opposed both the grounds put forward by Shri Khaitan. As regards the first ground, namely that cess could not be levied on goods captively consumed, and on the appellants' reliance on the explanation to Section 9 (1) of the Industries (Development and Regulation) Act, she pointed out that the explanation referred to the "wholesale cash price for which such goods of the like kind and quality are sold or are capable of being sold ...". She submitted that the capability of being sold arose within the factory even before the removal from the factory took place. She further submitted that the explanation was solely concerned with the value for the purpose of levy of cess, and it referred to the manner in which the cess should be collected. It could not undermine the substantive provision in Section 9 (l), which related to the imposition of the cess. That provision was very clear that the cess may be levied "on all goods manufactured or produced in any ... scheduled industry ...". There was no condition that removal should also be necessary.
17. Smt. Zucshi referred to the argument of Shri Khaitan that the provisions of the Central Excises and Salt Act and judgments delivered with reference to that Act and the Rules the rounder were not applicable to the cess imposed under the Industries (Development and Regulation) Act. She pointed out that Section 9 of the latter Act itself made it clear that the cess was a duty of excise. Accordingly, the various procedural provisions relating to the collection of duties of excise would be equally applicable for collection of the cess.
18. Smt. Zutshi then cited the judgment of the Delhi High Court in the case of J.K. Cotton Spinning and Weaving Mills and Anr v. Union of India and Ors., reported in 1983 E.L.T. 239 (Del.). In this judgment, the validity of the retrospective amendments to Rules 9 and 49 of the Central Excise Rules had been upheld. It had also been held (vide para 22 of the judgment) that in terms of the amended Rules 9 and 49, the utilisation of excisable goods even in a continuous process, so long as the goods are identifiable and capable of physical removal, would attract duty whether in fact they are physically removed or not.
According to her, this judgment squarely covered the cases before us.
She also pointed out that there had been a number of earlier tutlgments of various High Courts covering the same issue. While in some of jhem it had been held that use for captive consumption was not "removal" in other cases the contrary view had been taken. In this connection she referred to the judgment of the Allahabad High Court in the case of Union of India and Ors. v. Union Carbide India Ltd., reported in 1978 E.L.T. (J 1), and the judgment of the Calcutta High Court in the case of Union Carbide Co. Ltd. v. Assistant Collector of Central Excise and Ors., reported in 1978 E.L.T. (J 180). According to her, these judgments supported the Department's view that even captive consumption amounted to "removal".
19. Referring to the judgment of the Patna High Court, and in particular to its reliance on the form of return prescribed under the Jute Manufactures Cess Rules, 1976, Smt. Zutshi pointed out that the prescribed form of return had separate columns for "Goods, subject to Cess, manufactured" and "Goods, subject to Cess, removed". This would make it clear that account was to be kept on all goods manufactured as well as goods removed. Therefore, according to her, it could not be said that the form was concerned only with goods removed, and a conclusion that cess was leviable only on goods removed from the factory would not be justified. Further, Smt. Zutshi referred to paragraph 16 of the judgment of the Patna High Court, in which it had been observed :- "Nobody disputes the proposition that twines and yarns manufactured are also subject to imposition of cess, provided such products are finished goods capable of being sold and at the time of their removal from the place of manufacture for marketability." According to her, this observation made it clear that cess was leviable provided the goods were capable of being sold.20. Smt. Zutshi also advanced certain other arguments with reference to the contentions raised before the Calcutta and Patna High Courts. As these were not among the grounds raised before us, it is not necessary for us to comment on them.
21. As regards the second ground argued by Shri Khaitan, Smt. Zutshi submitted that Government were fully competent to impose cess on jute yarn as well as hessian/sacking as they were different goods.
22. Smt. Zutshi concluded by submitting that the two judgments of the Calcutta High Court were clearly against the appellants, and that the fact of an appeal was pending in the Supreme Court would not change the position.
23. We have given out careful consideration to the arguments advanced by both sides. We observe that Shri Khaitan has fairly not agitated before us those points which he agrees as having been clearly decided against the asstssees by the Calcutta High Court and has confined his arguments to two main grounds.
24. In regard to the first ground, namely that captive consumption would not constitute removal, Shri Khaitan has advanced a number of interesting arguments. As already mentioned, he has relied heavily on the judgment of the Patna High Court, which no doubt is in favour of his stand. We, however, observe that in the similar cases which went up before the Calcutta High Court, a contrary decision was given. It is true that the discussion on this point is not in the Calcutta High Court judgments as detailed as in the Patna High Court judgment.
However, the same issue, namely, whether jute yarn used in the manufacture of other jute products in the same factory was liable to cess, was squarely before the Calcutta High Court and that High Court did not accept the contention that cess could not be levied on such yarn. Some observations which have a bearing on this question, which have been made in the appellate judgment of the Calcutta High Court, and they are reproduced below :- "Therefore, a scheduled industry may conceivably manufacture or produce not only the articles specified in the first schedule of the Act but also various other goods-both intermediate and finished products. Section 9(1) authorises levy on all such goods manufactured or produced by a scheduled industry".
"The expression "all" in Sub-section (1) of Section 9 of the Act in the present context means "eveiy goods produced or manufactured by a scheduled industry". The Legislature has also deliberately used the words "manufactured or produced" to include both intermediate and the final products of the scheduled industry as may be notified." In the context in which the above observations were made, as well as from the final decisions of the Calcutta High Court, it is quite clear that the High Court did not accept the plea of the appellants that jute yarn captively consumed could not be charged to duty.
25. Shri Khaitan had fairly conceded that if the retrospective amendment of Rules 9 and 49 of the Central Excise Rules were held to be applicable to these cases, his argument that no cess was leviable on jute captively consumed would not survive. He, however, strongly argued that under Rule 3 of the Jute Manufactures Cess Rules, 1976, only the Central Excise Rules as in force on 18-2-76 would be applicable for the purpose of levy of the cess. He also quoted the authority of the Supreme Court in this regard. We consider that there is substance in this argument of Shri Khaitan and that the Department would not be entitled to rely on the retrospective amendment of Rules 9 and 49 with reference to the levy of the cess.
26. This, however, does not dispose of the matter. We have studied with great care and utmost respect the judgment of the Patna High Court in the case of Rameshwar Jute Mills Ltd., and it does support the contention of Shri Khaitan. Since, however, the judgments of the Calcutta High Court have taken the contrary view (although not in such explicit terms), we have to decide which of the two views would be applicable to these cases. (It is relevant to note that the present appellants were not parties to either of the court cases, nor indeed are they situated within the jurisdiction of either the Calcutta High Court or the Patna High Court).
27. In this connection we pointed out to Shri Khaitan that there are a number of judicial decisions of other High Courts regarding the interpretation of the terms "removed" and "removal" with reference to Rules 9 and 49 of the Central Excise Rules. This is without reference to the question of the subsequent retrospective amendment of these Rules. There is no indication in the judgment in the Patna High Court that reference was made to any of these authorities. However, it appears that substantial reliance has been placed by the Court on the entries in the form of return prescribed in the Jute Manufactures Cess Rules, 1976. We have noted the submission of Smt. Zutshi that the form of return might not be considered as conclusive in this regard, because it refers equally to "goods manufactured" and "goods removed".
28. Shri Khaitan argued that judicial pronouncements on the interpretation of the word "removed" with reference to the Central Excise Rules would not be applicable to those rules as made applicable for the levy of Jute Manufactures Cess. We find it difficult to accept this argument. Section 9(1) of the Industries (Development and Regulation) Act, makes it quite clear that the levy is a duty of excise. Rule 3 of the Jute Manufactures Cess Rules, 1976, makes the provisions of the Central Excise Rules, 1944, applicable for the levy of cess. Further, Rule 2(g) provides that words and expressions used in the Jute Manufactures Cess Rules and defined in the Central Excises and Salt Act, or the Rules made thereunder, have the meanings respectively assigned to them in that Act or those Rules. It is difficult to conceive that when the whole body of the Central Excise Rules as in force on 18-2-1976 was made applicable for the levy of the cess, and also the meanings to expressions wherever assigned in those Rules, there should be a different set of meanings with reference to some expressions used in the Central Excise Rules, only because they have not been specifically defined in the Central Excise Rules.
29. The concept of "removal" is very important in the matter of levy and collection of Central Excise duties. As mentioned in para 13 above, we had put it to Shri Khaitan that the word "removal" occurring in Rules 9 and 49 of the Central Excise Rules, even prior to their amendment, had been the subject of interpretation by various High Courts. Shri Khaitan did not deal in detail with any of these judgments, as according to him, they would not be applicable to the present cases. Smt. Zutshi also, while generally stating that the word "removed" had been the subject of varying interpretations by High Courts, did not elaborate this point. Since we consider this to be material for the purposes of the present appeals, we shall now proceed to refer to these authorities.
30. So far as the two judgments specifically cited by Smt. Zutshi are concerned, namely Union of India and Ors. v. Union Carbide India Ltd., and Union Carbide Co. Ltd. v. Assistant Collector of Central Excise and Ors., while they generally support the proposition that duty is leviable even on goods captively consumed, they are more on the point that an article does not have to be sold or even to have a general marketability in order to be considered as "excisable goods". There are however more pointed observations in some other judgments, to which we shall now advert, making it clear that they have reference to the wording of Rules 9 and 49 as they stood on 18-2-1976, that is, before the retrospective amendments made in 1982.
31. The judgments we have in mind are five in number. The first (referred to for convenience as "the Nirlon Case") is a judgment dated 30-4-1970 of the Bombay High Court in the case of Nirlon Synthetic Fibres and Chemicals Ltd., in Misc. Petition No. 491 of 1964. The second (referred to for convenience as "the J.K. Synthetics Case") is a judgment dated 28-8-1970 of the Delhi High Court in the case of J.K.Synthetics Ltd., Kota (Rajasthan), in Writ Petition No. 115-D of 1963.
The third (referred to for convenience as "the Caltex Case") is another judgment dated 3-4-1972 of the Delhi High Court, in the case of Caltex Oil Refining (India) Ltd. v. Union of India, reported in 1979 EL.T. (J 581) (Del,). The fourth (referred to for convenience as "the D.C.M.Case") is a judgment dated 16-2-1978, also of the Delhi High Court, in the case of Delhi Cloth and General Mills and Anr. v. Joint Secretary, Government of India and Anr., reported in 1978 E.L.T. (J 121) (Del.).
The fifth (referred to for convenience as "the Maneklal Case") is a judgment dated 10-8-1978 of the Gujarat High Court, in the case of Maneklel Hiralal Spg. & Wvg. Co. v. Union of India, reported in 1978 E.L.T. (J 618) (Guj ). We shall now set out in brief the issues in these various judgments and the conclusions reached, having a bearing on the interpretation of the term "removed" and cognate terms in the context of Rules 9 and 49.
32. In the Nirlon case, the question was regarding the legality of excise duty sought to be levied on polymer chips manufactured at an intermediate stage in the factory of the petitioner company. One of the arguments advanced by the petitioner company was that since it employed a continuous and integrated process for the manufacture of nylon yarn, and since the polymer chips that were obtained at an intermediate stage were used or consumed in the said nylon yarn without the said chips being taken out of the equipment, there occurred no removal of polymer chips from the place or premises of manufacture within the meaning of Rule 49 read with Rule 9 of the Central Excise Rules. This contention was upheld by the learned Judge, who however qualified this finding by drawing a distinction between the position upto the 31st May, 1968 and the position thereafter. He observed that by a notification dated the 11th May, 1968, an Explanation to Sub-rule (2) of Rule 173A had been inserted, which was very material and ran as follows :- "Explanation-The expression 'home use' means consumption of such goods within India for any purpose and in eludes use of such goods in the place of production or manufacture or any other place or premises (whether by continuous process or not), for manufacture of any commodity." The learned Judge concluded that a continuous or integrated process of manufacture had come to be contemplated by the scheme of the Act and the Rules for the first time only in May, 1968, and with effect from 1-6-1968. In view of this, he held that after the 3lst May, 1968, all manufacture of the petitioner company would have attracted duty (despite the fact of having been used in a continuous process), but for the fact that on a construction of Item 15A he had held that the polymer chips did not fall within that item.
33. In the J.K. Synthetics case, the question was again whether polymer chips produced by the petitioner company were covered by Item 15A of the Central Excise Tariff and whether the petitioner company was liable to pay duty under the said item. The learned Judge held that the polymer chips were not covered by the above-mentioned item of the Central Excise Tariff. The petitioner company had also advanced the contention that in order to attract excise duty there must be removal of the excisable goods and that as the polymer chips were never removed within the meaning of the Central Excises and Salt Act or the Rules thereunder, they were not liable to payment of any excise duty. The attention of the learned Judge was also drawn to the judgment of the Bombay High Court in the Nirlon case, referred to above. After considering the question in depth, the learned Judge observed that with great respect to the learned Judge (the Bombay High Court), he was not able to agree with the interpretation put on the Rules by him as being a correct one. Since the observations made by the learned Judge of the Delhi High Court in reaching his conclusion are very relevant to the present appeals, these observations are reproduced below : - "If a reference is made to Rule 9, the requirement is that the excisable goods shall not be removed from any place where they are manufactured whether for consumption, export or manufacture of any other commodity in or outside such place until the excise duty leviable has been paid. This rule clearly contemplates that even if the goods are removed from one part of the premises to another part of the premises for the purpose of further manufacture excise duty has to be paid. This Rule does not support the interpretation that the goods must be removed from the premises of the factory as such.
In this connection the definition of factory in Section 2(e) of the Act which means any premises, including the precincts thereof wherein or in any part of which excisable goods other than salt are manufactured or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on, show that even a part of the premises where excisable goods are manufactured is covered by the word "factory" within the meaning of the Act. Now Rule 49 only says that payment of duty shall not be required in respect of excisable goods made in the factory until they are about to be issued out of the place or premises specified under Rule 9. As excise is on the manufacture of goods, the moment polyester chips are manufactured they attract the excise duty. Rule 49, however, defers the payment of this duty until the time they are about to be issued out of place. It cannot be denied in the present case that polymer chips are manufactured and then placed in the containers. They are sent to the other part of the plant for the purpose of manufacturing nylon yarn. It cannot be said that the manufacture of polymer chips and the manufacture of nylon yarn is one such continuous integrated and without interruption process that it must be held that the polymer chips as an excisable goods are never removed. The petitioner has not disputed that for some time it was importing polymer chips (Ultramid BS) and was using it for the manufacture of Nylon 6 yarn.
This shows that these processes are separate and that there is a removal from a part of the premises when the polymer chips are taken to the other part of the premises for the purpose of further manufacture of Nylon 6 yarn. The whole argument of the learned counsel for the petitioner seems to hinge on the fact that one import licence was obtained for the plant and further that the same building houses the plant for the manufacture of Polymer Chips and for the manufacture of Nylon 6 yarn. Even here of course, it is not in the same part of the room both these processes are carried on. It is on an admitted fact that polymer chips which are put in the airtight containers are sent to another part of the premises where the process for the manufacture of Nylon 6 yarn is carried on. The removal of polymer chips would attract the Excise duty. The mere fortuitous chance of both the processes being available in one place or building cannot result in the Polymer Chips which may be excisable goods not being subject to a levy of excise on the ground that there is no removal. The counsel for the petitioner also pointed out that there was a process by which the polymer chips could be pumped into the Feeding Hopper from the Dryer directly. The suggestion was that if that continuous process was there, there would |obviously be no removal of the Polymer chips which would be pumped directly and without having to put them into the airtight containers. I am not sure that necessarily would be the result because it may be possible to urge that even (if) the Polymer chips are pumped from the Dryer to the Feeding Hopper yet they are being removed from the place of their manufacture and therefore, they are liable to excise. It may be further possible to say that the automatic or manual picking up of an excisable goods should make no difference in determining the question of the levy of excise. But it is not necessary to give any decision on this point as admittedly that process is being followed by the petitioner-company. (The petitioner company is admittedly manufacturing Polymer chips which are put in airtight containers at one place and the same are then removed from that part of the premises and then taken to another part of the premises for manufacture of another commodity, i.e.
Nylon 6 yarn). I fail to see how this process does not involve the removal of polymer chips within the meaning of the Excise Act and the Rules. The contention, therefore, of Mr. Palkhiwala, the learned counsel for the petitioner that even if polymer chips were covered under the entry of plastics, the petitioner would still not be liable to pay excise duty because polymer .chips are not removed within the meaning of the Act and Excise Rules, therefore, has no force and must be rejected," 34. In the Caltex case, the .question was whether a product described as "Burner fuel oil" produced by the petitioner company and used within its factory as fuel in the manufacture"of other products, was liable to excise duty. The attention of tile 'High Court Was drawn in this case also the judgment of the Bombay High Court in the Nirlbn'case. After considering the various arguments advanced, the High Court came to the conclusion that, in a case where there was no continuous process of manufacture, but where a product goes out of one stream of production info another stream of production, even within the same factory, it would amount to removal within the meaning of Rule 49 read with Rule 9.
The relevant observations of the High Court are reproduced below :- "Rule 9, which we have read earlier, in terms lays down that no excisable goods shall be removed from any place where they are produced, or any specified premises appurtenant thereto, whether for consumption, export or manufacture of any other commodity in or outside such place until the excise duty leviable has been paid. The Rule thus contemplates the citus of manufacture as the place from where removal has to take place whether for consumption, export or manufacture of any other commodity. It obviously makes no reference to the plant or equipment. But where there are two distinct plants within the same factory premises removal can take place either outside the factory premises or within the factory premises if the product obtained by working of one plant is sent to another plant for obtaining another product. There can be no removal of a product within the plant itself so long as the product is in the process of manufacture. There can be removal only if the product goes out of one stream of production into another stream of production or if the product is issued out of or taken out or consumed if no further processing of that product is to be done. The Rule also contemplates that consumption within the place of manufacture would also amount to removal- ... The moment oil goes out of the pipe-line for consumption as fuel for furnaces and not for being converted into any other product whether within or out of the factory it amounts to removal within the meaning of Rule 49 read with Rule 9".
(We may add that in the case before us it is not contended that the use of yarn for the manufacture of hessian/sacking is in a continuous process).
35. In the D.C.M. case, the question was whether calcium carbide manufactured in the factory of the petitioners and used for producing acetylene gas in the same factory, was liable to excise duty. On behalf of the petitioners one of the points raised was that the calcium carbide produced by them was not "goods". It was pointed out that the calcium carbide produced by the petitioners did not satisfy the conditions regarding form, composition, etc., required for its marketability under the Carbide of Calcium Rules, 1937, made under the Petroleum Act, 1934. Holding that calcium carbide which does not attain the form and composition required by the Carbide of Calcium Rules for marketability is not marketable at all in view of the prohibition imposed by the Carbide of Calcium Rules, the High Court concluded that the calcium carbide was not "economic goods" and was not therefore capable of being sold. The importance attached to this factor can be seen from the Court's observation that "what is decisive in the present case, however, is the law relating to the marketability of calcium carbide". In the course of its judgment the High Court made the following further observations : - "The expression "Factory" is defined in Section 2(c) to mean that any premises including the precincts thereof, wherein or in any part of which excisable goods are manufactured- The definition covers the present case because the calcium carbide is manufactured in one part of the factory while the acetylene gas is manufactured in another part thereof. The definition of "Factory" makes it clear that the meaning of factory is not restricted to only the part in which the excisable goods are manufactured. On the other hand, it includes the whole of the premises in a part of which such goods are manufactured. At any rate the case of the petitioner is that the whole of the premises which comprise both the plants making calcium carbide and acetylene gas are its factory. It is not contended by the respondents that the calcium carbide plant constitutes a separate factory and the acetylene gas plant constitutes another factory. It cannot be said, therefore, that the so-called calcium carbide made by the petitioner is removed from the factory in which it is made. A perusal of Rules 9 and 49 makes it clear that the question of collection of any excise duty cannot arise unless and until the goods are removed from the factory." 36. We have not been able to find in the judgment the authorities if any cited by the petitioners to support the contention that there was no 'removal' of the goods from the factory and therefore duty was not chargeable, or the counter-arguments advanced on behalf of the respondents. We do not also find any reference to the judgment in the Nirlon case and in the J.K. Synthetics case, and the Caltex case, in which the question of "removal" had been discussed at great length. It may be that the Hon'ble High Court did not consider it necessary to examine this argument at length because it had already reached the conclusion, on the basis of the decisive consideration of the law relating to the marketability of calcium carbide, that the calcium carbide was not dutiable.
37. In the Maneklal case, the petitioners were a firm of textile manufacturers who mauufactured different articles like laps, slivers, yarn, etc., at different stages of the process of manufacture of fabrics. They contended that since none of these articles was removed from the factory premises but was used for captive consumption for manufacture of textiles within the factory premises, there was no removal, and therefore duty was not leviable. In this case the Court observed that the law relating to intermediate products manufactured in the course of production of a final end-product, when the intermediate product was also an excisable article, had been clearly laid down by two decisions of the Supreme Court, namely the Union of India and anr v. Delhi Cloth Mills Co. Ltd. [AIR 1963 S.C. 791] and the South Bihar Mills Ltd. v. Union of India [AIR 1968 S.C. 922]. Relying on these two judgments of the Supreme Court, the Gujarat High Court observed as under :- "In the light of these two decisions of the Supreme Court, it is clear that excise duty will have to be paid in the case of cotton yarn which emerges as an intermediate product." With regard to the words "place or premises" occurring in Rule 9 of the Central Excise Rules, 1944, the Gujarat High Court held that it has to be read in the light of Rule 175 ibid and the provisions as to licences. The relevant observations are as under :- "13. Under Rule 9 it is clear that excise duty must be paid before the goods are removed from the place where they are produced or manufactured and, in the light of Rule 175 and the provision as to licences, it is clear that in the case of each excisable article, a separate licence has to be taken specifying the particular place where the excisable goods in question are to be manufactured. Unless the place is specified in the licence, it is not open to the manufacturer of any excisable goods to carry on manufacturing activity, and for the purpose of Rule 9, it is the place specified in the licence concerned that is the place where the goods are produced or manufactured and it is the removal from the place thus specified in the licence in question that is the place referred to in Rule 9. Once this position is clearly appreciated in the light of the licensing procedure and it is borne in mind that each licence has to specify under the Rules and the place where excisable goods are to be manufactured, it is obvious that its removal from the place mentioned in the licence which is material and not removal from the larger compound of the factory where excisable goods are consumed for production of further articles which may or may not be excisable goods.
14. In our opinion it is obvious from the scheme of the Rules and particularly in the light of the language of Rule 9 read in the context of licensing procedure and Rules relating to licences issued to manufacturers of excisable goods, that excise duty has to be collected and paid by the manufacturer concerned, when yarn is removed from the spinning department to the weaving department. This conclusion gets support from the language of proviso to Rule 52A (2).
15. Rule 9 applies to place where excisable goods are manufactured and not a factory and if the question of intermediate product, which is by itself an excisable article, arises for consideration, it is always a part of the larger factory where intermediate product will be manufactured if it is manufactured in the same larger premises of the factory. But, in view of the licensing procedure and in view of Rule 9, it is the place where a particular excisable article is manufactured that is material so far as collection at the stage of removal is concerned and not the larger factory. Reading in the wording of Rule 9 a factory as equivalent to the place where goods are manufactured is, with great respect to the learned Judges of the Delhi High Court, not permissible, and with great respect we differ from them .
18. Under these circumstances, our conclusion is that removal, for the purpose of Rule 9 of the Central Excise Rules, is removal from the spinning department to the weaving department and not removal from the premises of the factory as a whole. This conclusion is the only conclusion which we can come to in the light of Rules relating to licence under Chapter VIII of the Rules." We observe that the facts of the Maneklal case bear a considerable resemblance to those in the cases before us, since there also the question was regarding yarn manufactured and U5ed or an intermediate product in the manufacture of fabrics.
38 The above judgments are the ones which have come to our notice in this context, some of them being frequently cited before various judicial and quasi-judicial authorities. It would be seen that three of the judgments, namely those in the J.K. Synthetics case and the Caltex case, delivered by the Delhi High Court, and in the Maneklal case delivered by the Gujarat High Court, uphold the view that utilisation for captive consumption within the factory (excluding the case of a continuous process) amounts to "removal". As against this there is the judgment in the Nirlon case of the Bombay High Court and that in the D.C.M. case of the Delhi High Court. So far as the Nirlon case is concerned, it may be observed that it has been consciously differed from by the Delhi High Court in the J.K. Synthetics case and the Caltex case. Again, the Delhi High Court's judgment in the D.C.M. case has been consciously differed from by the Gujarat High Court in its judgment in the Maneklal case. Further, the Gujarat High Court had drawn support for its conclusion from two judgments of the Supreme Court. It is true that in the D.C.M. case the Delhi High Court had come to the opposite conclusion, and it is also true that the judgment in the D.C.M. case is subsequent to these in the J.K. Synthetics and the Caltex cases of the same High Court. However, we have already pointed out that in the D.C.M. case, the question of removal has been mentioned only briefly, and there is no reference in that judgment to either the Nirlon judgment or the J.K. Synthetics judgment or the Caltex judgment, and no indication that the fact of a different view having been previously taken by the same High Court was brought to the notice of the Delhi High Court. Further, in the D.C.M. judgment the deciding factor seems to have been the law relating to the marketability of calcium carbide, in the light of which it was held that the calcium carbide manufactured by the petitioner company was not marketable and therefore not excisable. The reference to removal seems to be of an incidental nature. In the appeals before us there is no such ground that the yarn manufactured by the appellants was not itself marketable.
39. Thus, on a very careful study of the various judgments, we find that the majority of them are in favour of the view that use for captive consumption, as in the present case, would amount to "removal".
Among the three judgments of the Delhi High Court (within whose jurisdiction we are situated), the preponderance of opinion again seems to be in favour of the same view. In such a situation, where there are conflicting judgments, we have to arrive at our own decision as to which of these can be taken as representing the preponderance of judicial opinion. It seems to us that the preponderance is undoubtedly in favour of the view that captive consumption, as in the present case, amounts to "removal" within the meaning of Rules 9 and 49.
40. An additional factor supporting the above conclusion is the retrospective amendment of Rules 9 and 49 to make it clear beyond doubt that utilisation or consumption of goods within a factory amounts to removal within the meaning of Rules 9 and 49. In saying this we are not departing from the view we have already expressed, namely that these amendments will not in terms be applicable to Rules 9 and 49 as applied to the levy of jute manufactures cess under the Rules of 18-2-1976. We consider, however, that it is permissible to look at this amendment for the purpose of seeing what light it throws on the intention of the Legislature. When the Legislature not only amends a particular provision but goes to the extent of making that amendment retrospective so as to have effect from the very coming into force of that provision, i.e., the Central Excise Rules, it appears to us that it can be taken as a fairly strong affirmation that the amended provision carries out the intention of the provision as it stood before amendment. In this connection, it is of interest that in the judgment of the Patna High Court in the case of Rameshwar Jute Mills Ltd., on which heavy reliance has been placed by the learned counsel for the appellants, there is a reference to Craies on Statute Law, as an authority for the proposition that the legislature, by subsequently incorporating an explanation to a particular provision, intended to explain that provision ; and that the explanation should be taken to relate back to the time when the prior provision was enacted.
41. One other argument of Shri Khaitan which remains to be dealt with is that the explanation to Section 9(1) of the Industries (Development and Regulation) Act has the effect of making the cess leviable only if there is both manufacture and removal, and also where there is to be a sale of the goods. We would observe that the necessity for a sale has not been accepted by either the Patna High Court or the Calcutta High Court, the latter having given a long list of judicial authorities to show that sale is not a necessary ingredient to justify the levy of duty. As regards the point that the charge is on manufacture combined with removal, we are inclined to agree with Smt. Zutshi that the explanation only has reference to the manner of collection of the duty, and deals with the value to be adopted for that purpose. As pointed out by Smt. Zutshi, the words "capable of being sold" make it clear that actual sale is not a necessary ingredient. The argument based on the reference to "the time of their removal" would also not survive, if the word "removal" is held to include (as, having regard to the overall effect of various judicial decisions, we think it must) captive consumption within the factory.
42. For these reasons, and having given the most anxious consideration to the various authorities on the subject, we are of the view that jute yarn which is used for captive consumption is also liable to the cess.
43. As regards the second ground advanced by Shri Khaitan, it has not been controverted, and we shall assume it to be correct for the sake for the purposes of the present discussion, that the cumulative incidence of cess on jute yarn and hessian/sacking would come to about 17 or 18 paise per Rs. 100/- of the value of the goods. In other words, it would exceed 13 paise per Rs. 100/- of the value. (We do not think there is any serious doubt that the maximum limit is 13 paise per Rs. 100/- of the value, and not 13 paise per 100 paise ; if the latter interpretation were intended, there was no need to use the words "13 paise per cent of the value of the goods", and the section could have simply said "13 per cent of the value of the goods"). The question is whether such a cumulative levy is contrary to the provisions of the proviso to Section 9(1). We observe that the classes of description of goods on which cess is to be levied, and the respective rates, have been specifically laid down in the various statutory orders issued by the Ministry of Industry and Civil Supplies. It has not been contested before us that both the yarn which is captively consumed and the hessian/sacking which is produced from it, are covered by these orders.
In effect, therefore, we are being invited to say that these statutory orders issued by the Government are in excess of its jurisdiction. This ground which could appropriately have been taken before the High Courts, but, as already observed, it was not. We do not think we are competent to pronounce on the validity or otherwise of these statutory orders.
44. Apart from this, there are other reasons why we cannot accept the appellants' contention. The charging section of the Industries (Development and Regulation) Act, namely Section 9(1), clearly states that "different rates may be specified for different goods or different classes of goods". In the tables annexed to the various orders there is a column "description of classes of goods". In the entries in this column, hessian has been shown under one entry, while yarn has been shown under another. Thus, hessian and yarn have clearly been shown as belonging to different classes of goods. It is true that sacking has been shown under the same entry as yarn. However, it would be doing violence to language to consider sacking as belonging to the same class of goods as yarn. (It is worth recalling in this connection that one of the main arguments of the assessees before the Calcutta High Court was that yarn was not a textile fabric, or in other words that yarn did not belong to the same description or class of goods as hessian or sacking). In any case there can be no doubt over the fact, and we can take judicial notice of it, that yarn can be and is sold in the market, and that it is clearly "goods" different from hessian or sacking. We do not find anything in Section 9(1) of the Industries (Development and Regulation) Act to the effect that the limit of 13 paise per cent of the value should be taken to refer to the cumulative incidence of the goods produced by a particular industry, even though the goods may be quite different and distinct from one another. Accordingly, we are unable to accept the contention of Shri Khaitan that the levy of cess on jute yarn would be illegal in view of the maximum limit imposed in Section 9(1) of the Industries (Development and Regulation) Act.
45. In the result, we are unable to accept either of the two basic grounds which have been argued by Shri Khaitan on behalf of the appellants. We note that substantial relief has already been given by the Collector (Appeals) on the ground of limitation under Rule 10 of the Central Excise Rules. For the reasons we have set out above in detail, we do not find any valid ground for further relief. We accordingly confirm the Order-in-Appeal of the Collector (Appeals) and reject these 5 appeals.