S. Ranganathan, J.
1. The first petitioner J.K. Cotton Spinning & Weaving Mills Co. Ltd., as its name indicates, is carrying on the business of spinning yarn and also manufacturing fabrics. The second petitioner is a Director-Shareholder of the company. By this writ petition the petitioners pray for a writ of certiorari quashing the directive of the Central Board of Excise and Customs (Respondent No. 2) dated 6th October, 1976 as well as the orders dated 26th April 1979, 30th April, 1979 and 5th May, 1979 issued by the Superintendent of Central Excise (Respondent No. 5). There is also a prayer in the alternative for a writ of mandamus which will be adverted to later. The controversy arises in the following way.
2. The petitioner company has a composite mill where it manufactures blended non-cellulosic spun yarn on which excise duty is payable under Tariff item 18E of the First Schedule to the Central Excises & Salt Act, 1944, ('the Act,' in brief) and utilises the yarn within its own factory for the purposes of making man-made fabric. The yarn spun in the factory of the petitioner is wound on the bobbins and thereafter transferred to cones for the purpose of preparing a larger package. There is no dispute that the yarn as wound on cones in the petitioner's factory is a commodity that is ordinarily bought and sold in the market as yarn which is an item of goods excisable under item 18E aforesaid.
3. However, instead of selling the cones in the market the petitioner company uses the yarn for the manufacture of fabric within the same composite mill. For this purpose the yarn is subjected to various processes which are preparatory to the actual weaving process and which facilitate the weaving of the yarn into fabrics. For the purpose of weaving yarn into fabric about 500 cones of yarn are taken and the yarn thereforem is transferred to a warp beam, which has the same number of ends. The fabric to be made consist of a warp and a weft. The warp is taken from the warp beams to which the cones of yarn have been transferred. After the yarn is transferred to the beam, about eight, such beams are put on a creel of a sizing machine in order to give about 4000 ends. Sizing is a process in which the yarn on creel is passed through a liquid sizing compound consisting of starch and other Chemicals. This sizing parts strength to the warp. The warp after sizing is dried on the cylinders of the sizing machine and then wrapped on what is known as the sized wrap beam. The yarn ends are thereafter passed through reeds and healds. Thereafter the process of weaving commences and the weft is passed through the warp. After the weaving is completed the fabric is desized, that is to say that the starchy material into which it was dipped is completely washed off. The fabric is then bleached and dried according to the requirements.
4. Having regard to the above process of manufacture employed in its mill two points of controversy arose between the petitioner company and the Central Excise Authorities. The petitioner company claimed that though yarn was a dutiable item since 17-3-1972 under item 18E of the Central Excise Tariff and though the petitioner has been paying excise duty on the blended non-cellulosic spun yarn manufactured by it between 1972 and some time in 1979, the petitioner company was really not liable to pay excise duty on the yarn inasmuch as it was only an inproduct in the course of manufacture of fabric carried out by the petitioner; and inasmuch as the yarn obtained in the factory of the petitioner company was not removed and cleared from the factory which is a condition precedent for the collection of duty. This plea raised after several years during which the assessed petitioner had been paying the excise duty on yarn was apparently inspired by a judgment of a Division Bench of this court dated 16th February, 1978 in the case of The Delhi Cloth & General Mills Co. Ltd. & Another v. The Joint Secretary, Govt. of India & Another, 1978 ELT J 121. The petitioner's case was that though Section 3 of the Central Excise Act purported to levy and collect a duty on all excisable goods as per the Tariff in the Schedule, such duty could be levied only when the goods are removed from the factory in which they are manufactured having regard to the provisions contained in Rules 9 and 49 of the Central Excise Rules (the Rules). It was contended that since the yarn manufactured in the petitioner company is not removed from its premises of manufacture and is used within the same premises, no duty of excise could be levied thereon. Alternatively, the contention of the petitioner company was that even if the yarn manufactured in the assessed's factory was liable to excise duty on the basis of weight as set out in the Tariff, the duty should be levied on the basis of the weight of the yarn as manufactured and wound on the cones. As against this the Excise Department claimed that duty would be levied on yarn on the weight of sized yarn and no its weight before it underwent the process of sizing. The fifth respondent by his letters dated 26th April, 1979, 30th April, 1979 and 5th May, 1979 insisted, in reply to the petitioner's repeated representations, that the matter has already been finally discussed before the higher authorities that you have to pay duty on the above yarn on its weight before issue for weaving i.e. after sizing as directed....... failing which suitable action will be taken under rules as the matter is being delayed unduly. The second respondent had issued a letter to all Collectors of Central Excise on 6th October, 1976 which contained, inter alia, the following sentences :
The matter has been examined in consultation with the Ministry of Law. The Board has been advised that the Yarn NES cleared from the factory after sizing is liable to be charged to duty on the basis of its weight after sizing. The Board has further been advised that duty should be charged on the weight of the yarn at the point of clearance i.e. whether in sized form or unsized form. All the pending cases may be disposed of accordingly.
The petitioners' allegation is that it is a result of this directive of the Central Board of Excise and Customs followed up by a trade notice issued by the Deputy Collector of Central Excise in 1976 that the respondents had decided rejecting the objections of the petitioner, to levy duty of excise on the yarn manufactured by it and that too on the basis of weight after the sizing process was done. The petitioners have, thereforee, come to this court with a prayer for the issue of appropriate writs as already set out earlier.
5. Sri Ravinder Narain, counsel for the petitioners, put forward the same two contentions before us. His primary contention was that the yarn manufactured by the petitioner company is not dutiable as there is no removal of the said goods within the meaning of Rules 9 and 49 and such removal is a condition precedent for the levy and collection of duty. Learned counsel contends that it is carrying on an integrated of manufacture of fabric in a composite spinning and weaving mill. It is no doubt true that at one stage in this manufacture the commercial commodity known as yarn on which duty is payable under item 18E is produced but the petitioner does not market this commodity. It only utilises the yarn thus produced for the manufacture of fabric within the same composite mill. For the purposes of the Central Excise Act the entire factory of the petitioner company has been licensed as the premises and no part of the premises has been specified within the meaning of Rule 47. It is contended that on a proper construction of the Central Excise Act and Rules no excise duty is livable in respect of a product which emerges at an intermediate stage in a continuous uninterrupted and integrated process of manufacture unless there is a removal either for the purpose of sale or for the purpose of consumption.
6. We are of opinion that the contention of the learned counsel for the petitioners is well founded and directly covered by a number of earlier decisions of this court. As mentioned earlier, the contention of the petitioners is based on the decision in the case of The Delhi Cloth & General Mills Co. Ltd. 1978 E.L.T. J 121 which has been earlier referred to. This case has been followed and the relevant principles discussed and illustrated in the judgment of this court in Caltex Oil Refining (India) Limited v. Union of India 1979 E.L.T. J 581, to which one of us was a party. The same principle has also been enunciated by this court in the case of Modi Carpets Limited and Another v. Union of India (1980 E.L.T. 320 Del. This Bench has also had an occasion to consider the same questions in the cases of The Collector of Central Excise v. M/s. J.K. Synthetics Ltd. (L.P.A. 21/77) - 1981 ELT 5 and Devi Dayal Electronics & Wires Ltd. & Another v. Union of India (C.W. 219/78). In view of these decisions we do not consider it necessary to discuss the matter elaborately once again. It has been pointed out in these decisions that under Section 3 of the Act the levy and collection of excise duty has to be in the manner prescribed under the Act. The section thereforee, has to be read along with the relevant Rules which are Rules 9, 47 and 49. Such a joint reading of the Act and the Rules makes it clear that if an excisable commodity is manufactured by one process and it is thereafter either marketed or removed for the purpose of manufacturing another commodity by a different process then excise duty will be livable on the first commodity when it is removed from the first stage of manufacture to the second. On the other hand, if there is one single process of manufacture then the mere fact that at some stage during that process an excisable commodity emerges will not make it liable to excise duty unless it is removed for the purpose of consumption or sale. In this context consumption refers to the utilisation of the commodity for a different purpose and not the mere conversion of the same commodity into another product. Thus, for example, in the Caltex case it was held that the furnace oil which was produced at an intermediate stage in the manufacture of various petroleum products would be excisable when it was used as a fuel and consumed as such at a later stage in the process of manufacture. But where the said oil continues in the pipeline and is utilised in the production of the final petroleum products it will not be liable to duty. Similarly in the case of Modi Carpets it was held that the silvers which were utilised for the manufacture of carpets would not be excisable as there was no removal from the place of manufacture within the meaning of Rules 9 & 49. To a similar effect is the position in the other writ petition and L.P.A. referred to earlier. In the light of these decisions we are of opinion that in the present case the assessed's contention is well founded. The assessed is running a composite textile mill in which it is licensed to manufacture and produced man-made fabrics. There is only one process for which the assessed has been licensed and the entire factory is the place of manufacture the removal from which will attract excise duty. But there is no such removal within the meaning of the rule at all. The yarn produced by the petitioner company is passed on to the warp beams wherefrom are made to attribute several processes before the final fabric emerges. This, in our opinion, is a case where there is a single end product, and the various processes are all towards the emergence of that end product. No doubt if the yarn that is wound up on the cones is removed by the assessed for the purpose of sale or for the purpose of consumption otherwise the goods so removed would attract duty and that is not denied by the petitioner itself. But so long as the cones are not removed from the pipeline and they continue so wound on the cones, transferred to the wrap beams and thereafter sent in for the process of weaving, it is difficult to see how there can be said to be a removal of the goods within the meaning of the Act and the Rules. We are, thereforee, of opinion that the contention of the petitioners is well founded and that no duty is payable on the yarn produced by the assessed in its spinning and weaving mill and which is utilised for the purpose of weaving the fabric manufactured by the petitioner company.
7. The above conclusion of ours really renders the alternative contention of Sri Ravinder Narain academic. But, in our opinion, that contention is also clearly well founded. The yarn manufactured by the assessed and wound up on the cones is clearly within the meaning of Tariff item 18E and indeed this is not denied by the respondents. If, thereforee, the first contention of the petitioners had been found unacceptable the respondents would have been within their rights in levying excise duty on the yarn as soon as it was wound up on the cones. As rightly pointed out by Sri Ravinder Narain, this commercial and excisable commodity does not change its character or become a fresh excisable commodity merely by the process of sizing. From the outline of the process which we have given earlier it will be seen that sizing is nothing more than the dipping of the yarn into a solution which imparts strength and facilitates the process of weaving. Sizing is merely a physical process and even the effect of this process is reversed when after the process of weaving is complete, the sizing compound is completely washed off and the fabric is desized. It is, thereforee, difficult to understand how the process of sizing on the yarn would render it a different commodity excisable in itself. If the yarn wound up on the cones is an excisable commodity there cannot be a second stage of levying excise duty thereon unless there is a fresh process of manufacture. This expression has been explained by the Supreme Court in the case of The Delhi Cloth & General Mills, : 1973ECR56(SC) and the South Bihar case : 1973ECR9(SC) and several other decisions cited by the learned counsel. It is unnecessary to refer to these decisions in detail but they clearly show that a manufacturing process must impart a change to the commodity and result in the production or emergence of a new substance or commodity. Yarn before and after sizing is nothing but yarn and it is difficult to say that sized yarn is a commercial article which is different from the unsized yarn. This conclusion is also fortified by the reference in Section 2(f) which defines manufacture in which the process of sizing is specifically referred to in relation to cotton yarn and sized cotton yarn is made an item excisable under Seriall No. 18A in the Tariff. In view of our conclusion on the principal contention raised by the petitioner, we do not dwell at length on this aspect of the matter except to express out clear conclusion that if excise duty were chargeable on yarn it would be chargeable at the stage when the yarn is wound on the cones and not at the stage of sizing unless it be that it is the sized yarn and not the yarn on the cones that is removed by the petitioner for the purpose of consumption or other manufacture. In the present case, we have already mentioned, neither the cone yarn nor the sized yarn is removed within the meaning of the Act and the Rules and, thereforee, no question of levying duty on either of them could arise.
8. Before we conclude we should refer to a preliminary objection taken by Sri Chandrashekharan on behalf of the respondents replying on a decision of this court dated 23rd July, 1979 in C.W. 795/79. The objection raised by him is that the Assessing Authorities in this case are located at Kanpur which is outside the territorial jurisdiction of this court and that thereforee this court has no jurisdiction to entertain the writ petition in relation to their acts or conduct. We are, however, unable to accept this contention. As we have mentioned earlier, the petitioner tried his best to pursuade the assessing authorities to accept its contentions, one of which was based on, what seems to us to be, the direct authority of this court. The assessing authorities, however, did not accept this contention, but, on the other hand, insisted on charging duty on the sized yarn purporting to follow the advice contained in the letter of the Central Board of Excise & Customs which has been referred to earlier. In view of this it is clear that a part of the cause of action leading to the grievance of the petitioners had arisen in Delhi on account of the letter circulated by the Central Board. Since a part of the cause of action is within the jurisdiction of this court, it is not possible to accept the contention of the learned, counsel for the respondents that this court has no jurisdiction to entertain the writ petition.
9. In the result, we allow the writ petition and make the rule absolute. The letters dated 6th October, 1976, 26th April, 1979 and 5th May, 1979 are quashed and the respondents are restrained from levying any excise duty on the petitioners in respect of the yarn manufactured by it whether at the stage of cone yarn or at the stage of sized yarn. The petitioners will be entitled to their costs. Counsel's fee Rs. 500.