Prakash Narain, C.J.
1. This batch of writ petitions (viz. C.W. 1858 of 1981, C.W. No. 1113 of 1981, C.W. 1190 of 1982 and C.W. 2568 of 1982) filed by the petitioners under Article 226 of the Constitution of India have been heard together and are being disposed of by a common judgment as all the petitions raise identical question of law. The facts as such are not in dispute.
2. To understand the controversy it will be pertinent to briefly notice some facts. As common questions of law alone have been raised, we will only set out the facts in civil Writ No. 1858 of 1982.
3. Petitioner No. 1 is a company registered under the Companies Act, 1913 and is an existing company within the meaning of the Companies Act, 1956. Petitioner No. 2 is a director and shareholder of the first petitioner. A composite Spinning and Weaving Mill is owned and run by the first petitioner in which yearn is spun and ultimately converted into fabrics of different types. According to the petitioners, yearn is obtained at an intermediary stage as an intermediary product for use in its composite mill in which the said cotton yarn is ultimately utilised for making fabrics of different types. Cotton yarn, as such, attracts excise duty under Tariff Item 18A. Cellulosic Spun Yarn falls under Tariff Item 18 and Non-Cellulosic Spun Yarn falls under Tariff Item 18E are also obtained and further processed within the composite mill in the manufacture of cotton fabrics or man-made fabrics as the case may be. In these petitions there is no dispute raised with regard to duty of excise on the end product, namely, the different kinds of fabrics produced by the petitioners. Some yarn which is not utilised for making fabrics is also cleared by the petitioners from its factory. There is no dispute regarding the duty payable thereon. The dispute relates to the liability to pay duty in respect of yarn which is further processed in the composite factory to obtain fabrics. According to the petitioners no duty of excise can be levied and collected, in respect of yarn obtained within the petitioners' composite mill which is further processed in the manufacture of fabrics. This contention of the petitioner has been upheld by this Court in a judgment of a Bench of this Court dated October 16, 1980 in Civil Writ No. 664 of 1979, M/s J.K. Cotton Spinning and Weaving Mill Co. Ltd. v. Union of India 1981 ELT 887. According to the petitioners, they continue manufacturing fabrics from yarn spun in their own factory and in accordance with the law settled by this Court they are not liable to pay any duty on the intermediary product. They contend that the spun yarn, which is not cleared as yarn, does not leave the stream of production and in a continuous process of manufacture is ultimately converted into fabrics. Such yarn obtained by the petitioners is processed in an integrated process to obtain fabrics by undergoing various processes. Some processes to which such yarn is further subjected are preparatory processes for the purpose of weaving (vide paragraph 5 of the writ petition). These further processes, according to the petitioners, facilitate the weaving of the yarn into fabrics. Explaining the processes, it is said that for the purpose of weaving yarn into fabrics, yarn is taken on warp beam. The fabrics consist of a warp and a weft. The warp is taken from the said warp beam. A number of such beams are put on a reel of the sizing machine. The next stage preparatory for weaving is called draw in where the yarn ends and passed through the Roads and Healds. The warp is thus ready for weaving and in the process of weaving the weft is passed through the warp and thereafter the process of weaving is completed. The fabric is then desired and the starching material is washed out. It is then bleached and dyed etc. according to the requirement. It is contended that the various processes to which yarn is subjected are processes which are preparatory for the purpose of weaving and the yarn remains within the stream of production in the manufacture of fabrics.
4. The question that arise for determination in the present case are whether excise duty can be charged of 'Spun Yarn' or 'Sized Yarn' which in a continuous process of manufacture is utilised in the composite mill for producing fabrics; and if duty can be charged for the intermediary product whether it has to be charged on 'Un-sized Yarn' or 'Spun-Yarn' or on both.
5. The Central Excises and Salt Act, 1944, hereinafter referred to the Act, is a consolidating and amending law relating to central duties of excise on goods manufactured or produced in India and to salt. Section 3 of the said Act declares that there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the First Schedule to the Act. Section 4 of the Act lays down that where under the Act, the duty of excise is chargeable on any excisable goods with reference to value, how the said value would be arrived at.
Section 9 deals with offences and penalties. It lays down that anyone contravening any of the provisions of a notification issued under section 6 or section 8, or of a rule made under clause (iii) of sub-section (2) of section 37 and thereby does or does not do certain things shall be punishable in the manner provided. Section 11 lays down that the sums recoverable by way of duty under the Act or the Rules there under may be recovered even by attachment or sale of excisable goods belonging to persons from whom duty is to be recovered and even the procedure normally followed for recovery of revenue may be followed. Chapter III sets out powers of search, seizure and arrest. This chapter then deals with adjudication of confiscations and penalties. This is over and above the liability for prosecution already adverted to. Section 37 gives the Central Government power to make rules to carry into effect the purposes of this Act. In pursuance of this power the Central Excise Rules, 1944 were promulgated by notification dated February 28, 1944. The two rules with which we are primarily concerned are Rules 9 and 49, which originally read as under :-
'Rule 9. Time and Manner of Payment of Duty. - No excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf, whether for consumption, export or manufacture of any other commodity in or outside such place, until the excise duty livable thereon has been paid at such place and in such manner as is prescribed in these rules or as the Collector may require, and except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the form.' Rule 49. Duty chargeable only on Removal of the Goods from the factory premises or from an approved place of storage. - Payment of duty shall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified under rule 9 or are about to be removed from a store-room or other place of storage approved by the Collector under Rule 47.'
6. By various decisions rendered by the High Courts in India, it was held that an intermediary product obtained in a composite mill could not be subjected to levy of excise duty unless the said product was utilised or consumed by itself. Such intermediary product did not attract excise duty and none could be levied or collected, if it was, what has been described in the judgments as an 'in process product' and was utilised or consumed in a continuous process of manufacture for obtaining another end product. The result of these decisions was that factories which had generally been paying excise duty even on such intermediary product stopped paying duty and even claimed refund where duty had earlier been paid on an incorrect impression of law. The revenue naturally suffered. In many cases, the Government filed appeals in the Supreme Court or applied for grant of special leave to appeal. As it was not possible to have those cases decided by the Supreme Court expeditiously, the Central Government decided to amend the law. Accordingly, while enacting the Finance Act of 1982, the Parliament enacted section 51, which reads as under :-
'Retrospective effect for certain amendments to Central Excise Rules and Validation :- (1) The amendments made in rules 9 and 49 of the Central Excise Rules, 1944 by the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. G.S.R. 74 (E) dated the 20th day of February, 1982, shall be deemed to have and to have always had effect on and from the date on which the Central Excise Rules, 1944 came into force. (2) Any action or thing taken or done or purporting to have been taken or done before the 20th day of February 1982, under the Central Excises Act and the Central Excise Rules, 1944 shall be deemed to be, and to have always been, for all purposes, as validly and effectively taken or done as if the amendments referred to in sub-section (1) had been in force at all material times, and accordingly, notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority.
(a) all duties of excise levied, assessed or collected or purporting to have been levied, assessed or collected before the 20th day of February, 1982 on any excisable goods under the Central Excises Act, shall be deemed to be and shall be deemed to have always been, as validly levied, assessed or collected as if the amendments referred to in sub-section (1) had been in force at all material times;
(b) no suit or other proceedings shall be maintained or continued in any court for the refund of, and no enforcement shall be made by any court of any decree or order directing the refund of, any such duties of excise which have been collected and which would have been validly collected if the amendments referred to in sub-section (1) had been in force at all material times;
(c) refund shall be made of all such duties of excise which have been collected but which would not have been so collected if the amendments referred to in sub-section (1) had been in force at all material times;
(d) recovery shall be made of all such duties of excise which have not been collected or, as the case may be, which have been refunded but which would have been collected or, as the case may be, would not have been refunded if the amendments referred to in sub-section (1) had been in force at all material times;
Explanationn : - For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if this section had not come into force.'
7. Rule 9 and 49 were earlier amended by the Central Government by Notification No. 20/82 C-E. issued on February 20, 1982. The amendment in the said two rules comprised of addition of Explanationns. Amended rules 9 and 49 read as under :-
'Rule 9. Time and Manner of Payment of Duty :- (1) No excisable goods shall be removed from any place where they are produced, curred or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf, whether for consumption, export or manufacture of any other commodity in or outside such place, until the excise duty livable thereon has been paid at such place and in such manner as is prescribed in these rules or as the Collector may require, and except on presentation of any application in the proper form and on obtaining the permission of the proper officer on the form :
Explanationn :- For the purposes of this rule excisable goods produced, cured or manufactured in any place and consumed or utilised -
(i) as such or after subjection to any process or processes; or
(ii) for the manufacture of any other commodity, whether in a continuous process or otherwise, in such place or any premises appurtenant thereto, specified by the Collector under sub-rule (1) shall be deemed to have been removed from such place or premises immediately before such consumption or utilisation.'
'Rule 49. Duty Chargeable only on Removal of the Goods from the Factory Premises or from an Approved Place of Storage :- (1) Payment of duty shall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified under rule 9 or are about to be removed from a store-room or other place of storage approved by the Collector under rule 47 :
Explanationn :- For the purposes of this rule, excisable goods made in a factory and consumed or utilised -
(i) as such or after subjection to any process or processes; or
(ii) for the manufacture of any other commodity, whether in a continuous process or otherwise, in such factory or place or premises specified under rule 9 or store-room or other place of storage approved by the Collector under rule 47, shall be deemed to have been issued out of, or removed from such factory, place, premises, store-room or other place of storage, as the case may be, immediately before such consumption or utilisation.'
8. The result of enacting of Section 51 of the Finance Act, 1982 was that the amended rules 9 and 49 set out above, are deemed to have come into force with effect from the date when the Central Excise Rules, 1944 came into force, i.e., August 2, 1945.
9. One other fact may be noticed by us at this stage. Section 11A of the Act was enacted by the amending Act, 25 of 1978. This sets out limitation within which proceedings may be initiated for recovery of duty not levied or unpaid or short levied or short paid or erroneously refunded. The same amending Act 25 of 1979 also inserted in the Act. Section 11B, which fixes the limitation for making an application for refund of excise duty erroneously paid or when according to the manufacturer or producer, he was not liable to pay the same. Section 11A substituted Rule 10 as originally promulgated while Section 11B replaced Rule 11 as originally promulgated. The two original rules also provided for the period within which duty could be claimed or refund could be asked for. In this case we are primarily concerned with Section 11A and, thereforee, it will be advantageous to read the said provision.
'Section 11A. Recovery of duties not levied or not paid or short levied or short paid or erroneously refunded.
(1) When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, a Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice :
Provided that where any duty of excise has been not levied or paid or has been short-levied or short paid or erroneously refunded by reason of fraud, collusion or any willful mis-statement, or suppression of facts, or contravention of any of the provisions of this Act or of the Rules made there under with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, as if for the words, 'six months', the words 'five years' were substituted.
Explanationn :- Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of six months or five years, as the case may be.
(2) The Assistant Collector of Central Excise shall, after considering the representation if any, made by the person on whom notice is served under sub-section (1), determine the amount of duty of excise duty from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined.
(3) For the purposes of this section -
(i) 'refund' includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;
(ii) 'relevant date' means :-
(a) in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short paid -
(A) where under the rules made under this Act a monthly return, showing particulars of the duty paid on the excisable goods removed during the month to which the said return relates, is to be filed by a manufacturer or producer or licensee of a warehouse, as the case may be, the date on which such return is so filed;
(B) where no monthly return as aforesaid is filed, the last date on which such return is to be filed under the said rules;
(C) in any other case, the date on which the duty is to be paid under this Act or the rules made there under;
(b) in a case where duty of excise is provisionally assessed under this Act or the rules made there under, the date of adjustment of duty after the final assessment thereof;
(c) in the case excisable goods on which duty of excise has been erroneously refunded, the date of such refund.'
10. As a consequence of the amendment of rules 9 and 49 read with Section 51 of the Finance Act, 1982, the petitioners have become liable to pay duty even on an intermediary product or 'in-process product', though the same is utilised in their composite mill for the manufacture of an end product. Petitioners, thereforee, challenge the validity and virus of Section 51 of the Finance Act as well as the Explanationns added to Rules 9 and 49. In the alternate they submit that the law settled by this Court and by other Courts regarding the requirement of 'removal' prior to levy and collection of duty should still be applied despite amendments in Rules 9 and 49.
11. The challenge to Section 51 of the Finance Act, 1982 is not that there is no legislative competence in Parliament that a validation Act or retrospective legislation cannot be passed. The contention is that sub-section (1) of Section 51 makes the amended Rules 9 and 49 operative from 1944, which is arbitrary and almost un-conscionable. Furthermore, though the Explanationn under sub-section (2) of Section 51 of the Finance Act, does away with the liability for prosecution and punishment for a deemed offence for past deemed acts, no provision is made for relief from penalties and forfeitures contemplated by the various provisions of the Act and the Rules, other than offence and punishments postulated by the Act. It is also said that clause (c) of sub-section (2) of Section 51 of the Finance Act suffers from the vice of arbitrariness as past transactions of as much 30 years could be reopened, causing excessive hardships. With regard to the unconstitutionality of amended Rules 9 and 49, the submissions made are as under :-
I. The amended rule is arbitrary and unreasonable inasmuch as the goods which in fact are not removed from the factory and which are incapable of removal because of the nature and construction of that plant or the nature and character of the manufacturing process, are fictionally treated as having been removed.
As a consequence of the fiction, the petitioners are exposed to huge liabilities for excise duty and also to penalties and confiscation in respect of acts and transactions which in reality have not taken place.
As as result of the amendment of the rules, the petitioners are also exposed to excessive hardship in complying with the statutory provisions.
II. The amended rules 9 and 49 make no attempt to distinguish between products and processes which are fundamentally dissimilar and different-All are treated with the same brush without recognising the essential and pertinent differences obtaining between them.
There has been no attempt at a rational classification and in the present case inequality arises by treating unequal situations and transactions in a uniform manner.
In any event retrospective effect given to amendment to rule 9 and 49 is unconstitutional for the following amongst other reasons :
(i) Length of retrospective effect viz., 30 years reckoned from the date of the commencement of the Excise Act which was 28th February, 1944; consequently, the petitioners will be called upon to pay enormous amounts of duty in respect of the entire quantity of goods which had come into existence and have been actively consumed within the factory premises and the petitioners will not be liable to pass on this burden to its customers and will have to bear the same out of its own pocket. This will have the consequence of adversely affecting the petitioners' business.
(ii) the law affects an indirect tax as it is well-known that the excise duty is normally passed on to the purchaser; in the present case, it will be impossible and/or commercially impracticable to recover past duties from the customers;
(iii) vast amount of monetary liability is involved.
(iv) the substantive liability is imposed for the first time on a captive product; thus it is a new tax imposed for the first time and that too with retrospective effect and again, much after the law was laid down in favor of petitioners coupled with the fact that there have been a succession of decisions of this Hon'ble Court and other Hon'ble High Courts taking a similar view as stated above;
(v) The most objectionable part is that the petitioners will be exposed to personal penalties and confiscation of their goods and plant and machinery by virtue of the retrospective operation of the amended rules read with rules 9(2) and 173Q. It is significant to note that the Explanationn to Section 51 does not contain any exception in respect of penalties and confiscations under Act.'
III. Retrospective operation of the amendment of the rules is in violation of Article 20 sub-rule (i) of the Constitution. An Act in contravention of Rule 9 or rule 173Q is an offence as defined in Section 3, sub-section 38 of the General Clauses Act and thereforee an offence within the meaning of Art. 20, sub-article (i). Convicted of an offence meant adjudged guilty of any act or omission punishable by law.
As a result of the retrospective operation of the amended rules, the petitioners can be found guilty of contravention of Rule 9 or Rule 173Q by the Excise Authorities under the Act.'
12. Before we deal with the contentions raised on behalf of the petitioners, we may briefly notice some of the decisions given prior to the impugned amendments. M/s Nirlon Synthetics Fibres and Chemicals Ltd. filed a petition under Article 226 of the Constitution challenging the legality of excise duty sought to be levied on 'Polymer chips' (otherwise called Nylon Six Chips), under item 15A in Schedule I to the Act. By a petition filed in the Bombay High Court in 1964, it was held by a judgment dated April 30, 1970 that reading rules 9 and 49, as then in force together, if the rule making authority wanted to include 'removal' of the excisable articles occurring within the equipment, machinery, or any part or parts thereof, such as vessel, tubes or pipes, it could have done so while framing rules 9 and 49. Rules 9 and 49 speak of 'removal' from factory premises or specified place or premises and not parts of plants etc. It was further observed that a continuous or integrated process of manufacture was not within the contemplation of the scheme of the Act and the Rules framed there under, as operating up to May 1968. thereforee, prior in 1968, 'removal' within the factory could not be regarded as removal within the Rule 49 but thereafter it could be by virtue of the promulgation of rules 173A and 173K by a notification dated May 11, 1968, in which the expression 'home use' was used. Thus as far as respondents were concerned the law in cases like the present one was declared to be in their favor.
13. On April 3, 1972, a Bench of this court delivered a judgment in Caltex Oil Refining (India) Limited v. Union of India and others 1979 ELT 581. In this petition under Article 226 of the Constitution the petitioner complained of rejection of claim made by it for refund of excise duty, earlier paid allegedly by mistake or under mis-apprehension or on account of an incorrect interpretation of the relevant issue on fuel oil on which duty had been levied and collected as an and product by classifying it as furnace oil. The writ petition was dismissed. Dealing with the concept 'removal' within rule 49, as it then stood, approving an earlier decision of this Court in Civil Writ No. 115-D of 1963, J.K. Synthetics Ltd., Kota v. The Collector of Central Excise, Delhi as well as judgment of the Bombay High Court in Nirlon Synthetic Fibres and Chemicals Limited, adverted to earlier, it was held that the scheme of the Act and the Rules did not contemplate the imposition of excise duty on an intermediary product utilised for producing an end product in a continuous and integrated process of manufacture until the rules were amended in 1968. It was held that though the rules contemplate consumption within the place of manufacture as 'removal', the consumption of the product contemplated by rule 9 is consumption of the product by itself and not by converting it into another product as in the case of Polymer Chips. Unless the continuous process snaps, there could be no removal. Thus it was for the first time in the context matter before this court, that the rule regarding in-process product or intermediary product being utilised by itself or being utilised for manufacture of another product without snapping the process of manufacture, was propounded. Inasmuch as the judgment was against the petitioners, the respondents had no opportunity to get this view tested by taking an appeal to the Supreme Court.
14. On March 28, 1974, a learned Single Judge of the Allahabad High Court decided a petition filed in 1973, in which also a question was raised with regard to leviability of excise duty on an intermediary product. This judgment was reported in Nagrat Paints v. Union of India, 1978 E.L.T. 39. The Learned Single Judge said that under Rule 9 duty is livable only if the excisable article is removed from the place where it is manufactured or produced for consumption, export or manufacture of any other commodity. In the case, he noticed, there was no finding given by the authorities that Alkyd Resin was removed, from the place where it was produced for consumption, export or manufacture of any other commodity. Indeed, it was admitted that the conversion of V.N.E. Oil into Alkyd is only an intermediary stage in the manufacture of paints and varnishes. thereforee, he held that no duty was livable on Alkyd Resin and the credit allowed for the use of VNE Oil in the manufacture of paints and varnishes was properly available to the petitioner. We are not aware as to whether any appeal was taken from this decision to the Supreme Court.
15. On February 16, 1978 this Court decided Civil Writ No. 1358 of 1975 : Delhi Cloth & General Mills Co. Ltd. and another v. Joint Secretary, Government of India and another 1978 ELT 121. One of the propositions which came up for determination was whether the calcium carbide manufactured by the petitioner as an intermediary product, which is used for the generation of acetylene gas in the factory could attract duty. It was contended that it does not do so because it is not goods within the meaning of provisions of the Act and is also not removed from the factory but is consumed for getting acetylene gas. The value of he intermediary product cannot be determined under Section 4 of the Act. The Bench held that the crucial requisite of Section 4 was that the value had to be determined at the time of the removal of the article chargeable with duty from the factory. The petitioner had alleged that the article manufactured by it was not removed from the factory but was straightway used to generate acetylene gas by the transfer of the article from one plant to another in the same factory. There was no denial by the respondents of this assertion. All that was said was that removal from one plant to another was removal within the meaning of Section 4. It was not disputed that both plants were in the same factory. It was held that since there was no traverse by the respondents of the pleading of the petitioner that the movement took place within the factory such movement could not be regarded as removal. Thus this was one of the first cases which went against the revenue. We are told that an appeal has been filed in the Supreme Court.
16. On April 16, 1980 a Bench of this Court decided Civil Writ No. 506 of 1979 : Modi Carpets Limited and another v. Union of India and others 1980 ELT 320. In the judgment of the Bench rendered by one of us (B. N. Kirpal, J.) it was held reading the pleadings in the context of interpreting Rules 9 and 49 :-
'Reading the aforesaid provisions together it is evident that duty can be charged only when excisable goods are removed from the place of manufacture, in this case the factory, and at the value which it may have at the time of removal from the place of manufacture. The question which now arises is whether any duty can be levied when there is no removal from the place of manufacture. It is an admitted case of the parties that the silver which is obtained by the petitioners is consumed within the very premises in which it is manufacture; namely, within the spinning section of the factory. We are of the opinion that in this view of the matter as there is no removal from the place of manufacture, no duty of excise can be levied and recovered.'
17. The judgment in Delhi Cloth & General Mills Co. Ltd. and another (Supra) was noticed. The High Court disagree with the contrary view expressed by the Gujarat High Court in Maneklal Harilal Spg. & Mfg. Co. Ltd. v. Union of India and others 1978 ELT 618. Referring to Rule 173Q it was held that the said provisions only provided for the manner or time of the payment of the duty. It postulates that duty is leviable. The question as to when duty can be levied and collected has to be decided by a joint reading of rules 9 and 49.
18. The same view was reiterated by the same Bench of this court in Synthetics and Chemicals Limited, Bombay v. Government of India 1980 ELT 675. In J.K. Cotton Spinning and Weaving Mills Co. Ltd. and another v. Union of India and others 1981 ELT 887. The Bench, in the case of the petitioners in C.W. 664 of 1979, held the petitioners to be entitled to refund of duty approving the view taken by this Court earlier on the construction of Rules 9 and 49. It was held that the yarn manufactured by the petitioners in that case and wound up on the cones was assessable under Tariff Item 18E, if the yarn was removed at that stage. An excisable commodity came into existence immediately the yarn was manufactured. Thereafter, sizing the yarn did not change the nature of the commodity and thus sized yarn was not the commodity removed for purpose of manufacture of fabrics. This judgment was delivered on October 16, 1980. We are told that against the judgment of this Court the Central Government has gone up in appeal to the Supreme Court.
19. The position, thereforee, was that up to 1968 or even 1978 by and large manufacture of intermediary products which were utilised further in continuous processes of manufacture for producing another product were paying duty on the intermediary product. As a consequence of the various decisions given by the Courts in India, many manufacturers came to the Court and got stay orders for payment of duty on intermediary products in cases where the intermediary product was obtained as an 'in-process product' for fabrication of an end product in factories having an integrated continuous process of manufacture of the end product. There were come High Courts, like the Gujarat High Court, which had taken the view that the intermediary product did attract duty even if it was an in-process product utilised in a continuous process of manufacture for obtaining an end product. The Central Government could rightly take the view that the Act which is a Central Act could, thereforee, not be uniformally enforced and there was also the problem of revenue being adversely affected. thereforee, Rules 9 and 49 were required to be amended by the Central Government. These amendments were made. The Parliament, in its wisdom, by enacting Section 51 of the Finance Act, 1982 made the amended Rules 9 and 49 retrospective or retrospective in operation. Section 51 of the Finance Act is thus not only a validating law but also a law enabling the Central Government and its agencies to enforce the excise rules and in particular Rules 9 and 49 uniformly throughout the country. The amendment thus brought about was also conducive in and necessary to the context of earning revenue. This is in nutshell the respondents answer to the challenge put forth by the petitioners.
20. The present batch of cases deal with spinning mills or spinning section of the composite mills. Spun yarn is a commercial commodity known to the market and factually comes into existence. In a composite mill the spun yarn is first sized and then processed to make fabrics. thereforee, the question of goods incapable of removal because of the very nature of the manufacturing process does not really arise. Learned counsel for the petitioners, thereforee, in the present set of cases has not addressed any arguments on the first contention noticed earlier and does not press for determination of the issue. We also, thereforee, refrain from making any observation on this point.
21. Mr. Soli Sorabjee, learned counsel for the petitioners contends that despite amendments made in Rules 9 and 49 and enactment of Section 51 of the Finance Act the requirement to specify the 'place' where goods are produced, cured or manufactured or the 'premises' appurtenant to such place is still mandatory. thereforee, he contends, unless the 'place' or 'premises are specified utilisation of intermediary product within the factory cannot de subjected to levy or collection of duty as the same are not physically removable from the factory. Learned counsel is assuming that in the absence of specification of a 'place' or a 'premises' the factory itself may be regarded as fore place or premises from which the goods are required to be removed be such levy or duty, of course, he does not concede that without the factory as d 49 being specified as the place or premises within the meaning of Rules 9 amuse removal from the factory would attract duty. He assumes it only bocce o this Court in several decisions has taken the view that where a planter premises is not specified it is the removal from the factory which would be the point of time when levy is to be made and collected. In respect of this contention he relies on the various judgments of this Court, noticed earlier, in which it has been held that till there is removal from the factory under Rule 49 duty cannot be levied and collected. In particular, he refers to a judgment of this Court in C.W. 115-D of 1963, adverted to earlier and says that utilisation of the goods within the composite factory or mill cannot be regarded as 'issued out' of the specified place unless the place is actually, by an order specified. There is a fallacy in this argument. If the amended Rules 9 and 49 are valid by attraction of a fiction the yarn which is the intermediary product will be specified as having been 'issued out' or removed just before the yarn is utilised for further processing relevant to waving cloth. The Explanationn to Rule which bring about this fiction is a clear in its terms. Referring to the decision of this Court in Caltex case (Supra) and Modi Carpet's case (Supra), it is urged that removal contemplated by the rules is removal by itself of the commodity in question and not utilisation of the commodity for being converted into another. This would not be a correct reading of our judgments. In the context of the unamended rules 9 and 49 we had laid down that removal had to be of the commodity manufactured by itself and not that an in-process product could be subjected to duty without physical removal which alone attracted levy under the unamended Rules 9 and 49, if the fiction brought in by the amended rules is valid then utilisation of the product for manufacture of another product would be removal within the meaning of the amended rules. The term 'issued out' in Rule 49 and 'removed' in Rule 9 as well as in Rule 49 must conform to the intention of the amended rules. Indeed, in Caltex case (supra) this Court had already made it clear that utilisation within the factory itself can in certain circumstances attract levy of duty. That principle has been clarified by the Explanationn added to Rules 9 and 49 by the amendment.
22. We are not impressed with the argument that the word 'such' used in the Explanationn to Rule 49 should be so construed as to refer to any place in a factory, as contended on behalf of the respondents. Indeed, nothing turns on it. On our reading of the amended rules 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. Indeed, in one way of looking at it there will always be physical removal, either bodily or mechanically when goods go 'within the pipe line' for being utilised to be converted into another type of goods. Under the unamended Rules 9 and 49 we held that such utilisation would not amount to being issued out from the factory in the absence of place or a premises being specified under Rule 9. By the amended rules this view has been, so to say, nullified.
23. It is then contended on behalf of the petitioners that there would be difficulty in maintaining the accounts and records and in any case for the past there would be no records. This aspect need not detain us. From a reading of the rules, it is apparent that appropriate forms can be prescribed depending upon the nature of industry or factory. Rule 49A lays down that procedure for collection of duty livable on cellulosic spun yarn and cotton yarn along with duty on cotton fabrics. Rule 53 deals with how daily stock account is to be kept. This rule says that the same will be kept in such form as the Collector may in any particular case or class of cases allow. Rule 54 speaks of how monthly returns have to be submitted. There are other similar rules which deal with this aspect and we see no difficulty in the account being properly maintained.
24. One more difficulty has been mentioned by petitioners' counsel. It is submitted that in working the amended rules 9 and 49 it would be difficult not well neigh impossible to levy excise duty with reference to value as postulated by Section 4 of the Act. The difficulty is more imaginary than real. In regard to such goods where duty is chargeable with reference to value it is not necessary to value the goods which are supposed to be the in-process goods. If such goods are marketable and are in fact marketed by anyone else then that valuation can be the basis of fixing the value of the in-process goods. Indeed, clause (b) of sub-section (i) in Section 4 itself makes this position clear.
25. We now come to the challenge to the virus of the rules as well as Section 51 of the Finance Act. It is conceded that merely because the rules operate retrospectively by virtue of the provisions of Section 51 of the Finance Act, it would not make the rules or the section ultra virus the legislature or the legislative authority. What is contended is that if the retrospectivity is unreasonable to the extent that the whole legislation appears to be arbitrary then the provisions can be struck down as being ultra vires, the doctrine of ultra virus being invoked in the context of the arbitrariness and unreasonableness. Article 19(1)(g) of the Constitution it is urged, could also in such circumstances be invoked to test whether the provisions of law are arbitrary or unreasonable Mr. Sorabjee's main contention, thereforee, is that making the rules operative from 1945 makes them vocative of Article 19(1)(g) of the Constitution as then the rules become unreasonable. The trader or the business community or the industry cannot be expected to be called upon to pay taxes retrospectively from 1945. The effect of the amended rules is that all clearances made in the past, which previously did not attract duty, would now attract duty. Inasmuch as clearances have been made or are deemed to have been made without payment of duty the provisions for penalties and forfeitures as well would also be attracted.
26. Learned Solicitor General appearing on behalf of the respondents has contended that Section 51 of the Finance Act must be given full play and thus the retrospective operation has got to be with effect from 1945 when the excise rules were first promulgated. If that was not done the very purpose of the amendment would be lost. The mandate of the legislation, according to him, is to give power to refund and to collect where there was no fund to refund or collect prior to the amendment of rules 9 and 49. Indeed, the power to collect and refund is now given by Section 51 of the Finance Act, which in terms must be regarded as a legislation independent of the Act but sanctified by Article 265 of the Constitution. Learned Solicitor General further contends that keeping in view the possibility of criminal provisions being attracted by giving retrospective effect from 1945, in terms the Explanationn under Section 51 makes it clear that criminal liability will not be attracted. thereforee, the Legislation is both reasonable and intra vires. The contention is that Section 51 of the Finance Act creates only civil liability to pay tax and so is in the nature of a Validation Act. Mr. Sorabjee has very strenuously urged that on the ground of unreasonable retrospectivity the provisions should be struck down even if only civil liability is held to be attracted. The Civil liability would include levy of penalties and even confiscation, which would be most unreasonable.
27. Both parties have brought to our notice a large number of decisions in support of their rival contentions. It is neither necessary nor desirable to notice them in the view that we are going to take of this legislation.
28. In our view, Rules 9 and 49 must be deemed to have been enacted in the rules from 1945. This would mean that duty had to be levied and collected in accordance with the provisions of the Act and the rules from 1945. Section 51 of the Finance Act does no more than this, besides making the penal provisions inapplicable for past transactions. It does not touch any of the other provisions of the Act or the rules. This means, that levy, collection, assessment of penalties etc. would all have to be done in accordance with the provisions of the Act and the rules as in force from time to time. Prior to the enforcement of Section 11A and 11B of the Act with effect from November 17, 1980 by the Amending Act 25, of 1978, the limitation for recovery of duty not levied or not paid or short levied or short paid or erroneously refunded on the one hand and claim for refund of duty on the other were covered by rules in this regard, adverted to by us earlier. Thereafter, recoveries and refunds are covered by the provisions of Section 11A and 11B. We cannot pursuade ourselves to accept the argument of the learned Solicitor General that Section 51 of the Finance Act over-rides the effect of Sections 11A and 11B of the Act. The particularisation by Section 51 of the Finance Act cannot have the effect of repealing Sections 11A and 11B of the Act. The excise authorities had no power to levy and collect duty on 'in-process' goods and this is what seems to have been remedied by the amendment of the rules. We cannot read Section 51 of the Finance Act to mean that the levy and collection can be made for past deemed clearances by ignoring the other provisions of the Act and the rules. We also cannot accept the learned Solicitor General's argument that Section 51 of the Finance Act should be read as limited to actions postulated by clauses (a) to (d) only and not permit levy of penalties etc. We, however, agree with the argument that no prosecution for past alleged breaches can now be ordered.
29. In the view that we have taken, the argument of Mr. Sorabjee of unreasonableness on account of length of retrospectivity loses all force. We, thereforee, hold that Section 51 and Rules 9 and 49 as amended are valid.
30. There is only one other point which remains to be dealt with and that is with regard to sized yarn or un-sized yarn being liable to levy of duty in factories where spinning and weaving is done in a composite mill having a continuous integrated process of manufacture. To us the position admits of no doubt. The goods that come into existence after spinning is yarn which is unsized. Merely because the goods are sized the nature of the goods is not changed. Sizing is only a process in manufacturing fabrics and does not amount to manufacturing new goods. Sized yarn is not new goods which come into existence. We clarify, if unsized yarn is cleared from the factory or a place specified under Rule 9 or goes into the main stream of the market, then the unsized yarn would attract duty. Similarly, if sized yarn is cleared in the same way then sized yarn would attract duty. The question before us is whether sized or unsized yarn would be liable for duty in an integrated process of manufacture. Sizing is relevant to weaving and not to spinning. It is a process necessary for weaving cloth and not to spinning yarn. thereforee, reading the amended rule 49, the utilisation of yarn in a continuous process of manufacture 'immediately before such consumption or transaction' would have reference to unsized yarn and not sized yarn. The deemed 'issue out' or 'removal' for purposes of weaving would be 'issue out' or 'removal' of unsized yarn. Once this deemed removal takes place the unsized yarn is first sized, the process being the first process in the many processes, which ultimately results in weaving being completed and cloth being fabricated.
31. We may notice here that in Civil Writ No. 1190 of 1981 the Bombay High Court has already given this relief to the petitioners though a Letters Patent Appeal is said to be pending.
32. No other point really arises for decision. The rule is made absolute in each of the petitions disposed of by this common judgment in the above terms. Petitions are allowed partially. In the circumstances of the case the parties are left to bear their own costs.