S. Ranganathan, J.
1. These are two connected writ petitions raising the same issues. The petitioner is the Bharat Commerce and Industries Ltd. (hereinafter referred to as 'the assessed') carrying on the business of spinning yarn at its mills situated in Maharashtra, Punjab and Madhya Pradesh. It manufactures mixed yarn from synthetic staple fibre of cellulosic origin and wool containing 35% wool and 65% of cellulosic staple fibre. The two writ petitions arise out of the levy of central excise duties in respect of the production of its two factories, one at Rajpura (Punjab) and the other at Nagda (Madhya Pradesh).
2 The facts are as follows : Under Rule 9 of the Central Excise Rules, 1944, the assessed is required to pay excise duty on the yarn manufactured by it before the yarn is removed from the premises of its mills. In the present case, the excise duty, between March 1967 and 8-5-67, was paid by the Rajpura Unit of the assessed under Seriall No. 4 of a notification No. 194/66, dated 19-12-66 read with trade notice of 18-6-63. The notification had been issued under Rule 8(1) of the Central Excise Rules, 1944 (hereinafter referred to as 'the Rules') and limited the excise duty on the following categories of 'Woolen yarn covered by item 18B of the First Schedule to the Central Excises and Salt Act, 1944' (the Act for short) as follows :
* * * *
The trade notice seems to have classified blended yarn as Woolen yarn if it contained not less than 10% by weight of wool when mixed with staple fibre only Hence, item 18B and the notification there under were applied and the assessed paid duty under Sr. No, 4 above.
3. On 13-6-67 the Inspector of Central Excise, Rajpura (respondent No. 4 in C.W. J 259/76) issued and served a demand notice calling upon the Rajpura Unit of the assesses to pay an additional duty of Rs. 4,182.04. It was now claimed that the assessed was liable to pay duty under Section No. 2 (iii) falling under Item No. 18 of the First Schedule to the Act under a notification dated 16-10-1964 (No. 156/64) read with another dated 26-5-67 (No. 82/67).
Notification No. 156/64 exempted 'Yarn spun out of synthetic staple fibres falling under Item No. 18' from duty in excess of the following amount:
* * *
4. So far as the Nagda Unit is concerned duty was assessed on the basis of the notification No. 156/64 as revised by No. 28/65 and No 82/67 under Sr. No. l(b) at 45 p. and 25 p. per kilogram from 21-2-67 to 17-6-67. However, on 23-6-67, a notice was served on the assessed claiming additional duty of Rs. 2,05,052.15 on the ground that the assessed's goods were covered by Sr. No. 2(iii) of the notification of 1964 and 1967 read together. This demand came from the Inspector of Central Excise and the assessed's appeals to the Assistant Collector and Collector were unsuccessful. A further revision also having failed, the assessed came to this Court under Article 226 of the Constitution.
5. C.W. 579/69 filed by the Nagda Unit was allowed by Deshpande J. (as he then was) on 28-1-1970. It was held that 'synthetic staple fiber' referred to in Sr. No. 2 included synthetic staple fibre of non-cellulosic origin as well as such fibre of both cellulosic and non-cellulosic origin and that as the mixed yarn manufactured by the assessed did not contain any non-cellulosic fibre at all, and its origin was wholly cellulosic, it was not covered by Section No. 2. The demand notice dated 23-6-67 was, thereforee, quashed. The Union of India preferred an appeal from this judgment (L.P.A. 86/70) but it was dismissed on 22-2-1971. The Division Bench agreed with the learned Single Judge on the interpretation of Sr. No. 2 (iii) and held that the yarn manufactured by the present assessed was covered by Sr. No. l(b) of the 1964 notification. It is, however, necessary to refer lo certain observations of the Bench in regard to and of the contentions put forward before it:
* * * *
6. The Rajpura Unit had similarly filed GW. 936/70 which was allowed by Rangarajan J. on 20-8-71 and following the judgment of the Division Bench, the demand raised on 13-6-1967 was quashed. The learned Judge added:
'The petitioner's learned counsel also urges yet another ground, not decided by the Division Bench namely, that the impugned notification could not have been made under item 18 of the first schedule to the Central Excises and Salt Act, 1944. It is needless for the purpose of this petition to go into that question.'
* * * *
7. During the pendency of these proceedings, however, the assessed had to pay the duty-as demanded, under protest. Thus the Rajpura Unit paid Rs. 19,500/- between 30 10-67 and 24-11-67 and the Nagda Unit paid Rs. 2,18,241.27 for the period from 1-6-1967 to 17-9-67 for clearing the yarn from the factories. Consequent on the judgments referred to in para 5 above the assessed made applications for refund of the duty collected in excess to the Department of Central Excise. The Nagda Unit had filed an application for refund earlier claiming a refund of Rs. 1,188,162.62 on the basis of the difference of duty between Sr. No. 2(iii) of notification No. 82/67 and that under Sr. No.4 of notification No. 194/66. In doing so, it was pointed out that, by a notification (No. 118/68) dated 18-5-68 the Department had added the words 'or nil' in Section No. 2(iii) of notification No. 82/67. According to the assessed, this amendment made it clear that prior to the amendment the item covered only blended yarn having some content of non-cellulosic fibre, and so the demand for additional duty under Section No. 2(iii) was wrong and illegal. This was rejected by the Assistant Collector on 7-9-1968 and by the Collector on 23-6-1969, The assessed thereforee, preferred a revision petition to the Central Government, when this revision application was pending the writ petition filed by the assessed were decided and subsequent to the judgment of the High Court, the assessed filed, on 10-3-70, an amended application seeking a refund of Rs. 2,18,241.27 which was the amount paid in pursuance of the demands for the period from 1-7-1967 to 17-9-1967. In other words, the assessed was not now acceptable to the charge of duty even under Section No. l(b) of the 1966 notification. The revisional authority disposed of this application on 7-4-1972 by allowing a refund of only Rs. 1,88,162,62 stating that the balance was beyond the scope of the orders sought to be revised. Thereupon the assessed applied on 4-5-72 to the Assistant Collector for the refund of the balance amount of Rs. 30,051.65. But this request was rejected by the Assistant Collector on 25-11-1972 and the Appellate Collector on 27-2-1975. Similarly the Rajpura Unit filed an application for the refund of Rs. 19,500 paid between 30-10-67 and 24-11-67 under protest. These applications were rejected by the Assistant Collector Appeals to the Appellate Collector were unsuccessful. The appellate held by his orders dated 19-2-75 in this case and 27-2-75 in the case of Nagda unit that the yarn was assessable under Item 18 which prescribed much higher rates than the rates at which the yarn was assessed and he concluded :
'In view of the fact that the yarn was assessed at a rate of duty lower than what it would have attracted and the fact that the demand of duty at the higher tariff rate applicable would now be barred by limitation under Rule 10 of the Central Excise Rules. I consider that the duty already realised shall be appropriated towards the duty payable on the yarn. Under the circumstances, the refund claim of the appellants is liable to be rejected.'
8. The assessed filed revision petitions before the Government but these were rejected on 16-8-1976 in the case of both the units. The Government upheld the view of the Appellate Collector that the goods attracted duty under Item 18 of the Tariff prescribed in the First Schedule to the Act (hereinafter referred to as the GET) and that, since duty correctly chargeable under that item was short levied, 'the amount could be recovered from the duty already paid by the petitioners under the exemption notification'. Hence the present writ petitions.
9. Sri G.B. Pai, learned counsel for the the petitioners, contended that, in view of the decision of this Court holding that Section No. 2(iii) had no application, the petitioner was entitled to a refund of the duty collected. They could not refuse refund on the ground that duty could have been levied under Item 18 which there had in fact been no such levy and when further admittedly a demand on the basis of that item would be barred by limitation. He also relied on the decision of the Gujarat High Court dated 15-1-1976 in The Ahmedabad . v. Union of India and ors. (Special Civil Application No. 1058 of 1972) to support an alternative contention that item 18 'would not cover any cotton fibre or yarn which is from such natural fiber' and that prior to 1972 blended yarn was not an excisable item at all so that it is not open to the respondents to justify the levy by reference to Item 18.
10. In my opinion, the contentions on behalf of the petitioner are well founded. The present petitioner manufactures a blended yarn, consisting of a combination of synthetic staple fibre and wool. The major items under the tariff list set out in the First Schedule to the Act which are relevant to the present case are, as below : (the rates prescribed are left out here) : * * * *
It is not in dispute that, as a result of the d excisions of this Court in the earlier Writ Petitions, the department is not entitled to levy duty under Sr. No. 2(iii) of the Notification No. 156/64 and 82/67. The only question for Consideration is whether it can seek to retain the duty collected by applying the above notifications on the plea that, on a proper interpretation of the schedule and notifications, the commodity manufactured by the assessed falls directly under Item 18, CET.
11. The above plea is not open to the respondent for two reasons. In the first plea, Item 18 is not attracted in the present case. In its judgment in LPA 89/70, the Division Bench has summarised the arguments on behalf of the assessed in support of this contention this passage has been extracted earlier and in my opinion, on a logical and combined reading of the several items in the Schedule, it is clear that it was not the intention to deal with 'mixed yarn' under Item 18'. In para 3 of the center affidavit of the respondents, reliance has been placed perhaps due to or oversight on Item 18 as it stood after amendment in 1972, overlooking further that after 1972, the goods in question will be covered by Item 18E rather than Item 18.
12. The same issue has also been considered by the Gujarat High Court, in the context of a blended yarn made from synthetic staple fibre and cotton fibre, in the case relied upon by Sri Pai. After setting out the history of the relevant tariff items the learned Judges observed :
'The short question which, thereforee, must be answered is whether the blended yarn would ever be charged under entry No. 18 or entry No.18A. The revenue's affidavit itself makes it clear that initially they issued a trade notice in 1963 treating this item as a cotton yarn item covered by item No. 18-A, and thereafter when the exemption notification was issued in 1964, they began to treat this same blended yarn as covered by item No. 18 i.e. synthetic yarn. The relevant item No. 18 is of rayon and synthetic fibre and yarn, and the Explanationn only clarifies that it would also be deemed to include man-made fibre and yarn made out of man-made fibre. Similarly, the next item 18-A is of cotton yarn all sorts and 18-B Woolen yarn, all sorts. thereforee, a bare perusal of these entries make it abundantly clear that so far as this particular description of goods is concerned, it was sought to be made excisable item and these three entries only as synthetic yarn and cotton yarn and Woolen yarn till 1972, when the new Finance Act of 1972 for the first time covered this whole topic of yarn by wider inclusion of entry 18E, covering such blended yarn produced from mixture of two or more of the fibres specified therein. thereforee, such blended yarn became excisable item only under the Finance Act of 1972 from the midnight of March 16/17, 1972 and prior to that such blended yarn wax not an excisable item at all. The petitioner has categorically stated that it was a pioneer in this type of manufacture of blended yarn. These goods having been first introduced in the market, the legislature rightly made the goods excisable for the first time when the production became commercially viable production by wide spread use of such manufacture of blended yarn by mixing the man-made fibre under natural fibre in the country. When the legislature covers the new item of manufacture by a specific entry for the first time only in 1972, it is obvious that it had no intention to tax this item when it was only in the initial state of production by way of pioneering efforts. It is only when this manufacture got well established in the country that the blended yarn has been made into an excisable item only in 1972.'
A reference is then made to the decisions of the Supreme Court in South Bihar Sugar Mills Ltd. v. Union of India, A.I.R. 1968 S.C. 977 and Union of India v. The Tata Iron and Steel Co. Ltd., : 1978(2)ELT439(SC) and concluded:
'That decision completely concludes the present case where there is no identifiable test reasonably capable of identifying such blended mixture from man-made fibre and natural fibre because the three relevant entries 18, 18A and 18B dealt only with rayon and synthetic yarn, cotton yarn and Woolen yarn, and they did not at all deal with blended yarn. If any assumption on the predominance test is sought to be made then even blended yarn is covered under the synthetic yarn in entry 18, we would be clearly faced with this difficulty of findings no identifiable standards as to what is the correct test of predominance in wright, value, quality or tensile strength of the other blended fibre in such blended yarn. In fart the authority itself felt the same genuine difficulty, in this case, in absence of any identifiable standard For the prior period under the earlier trade notice from May 1, 1963 to October 15, 1974, this same blended yarn was treated as cotton yarn falling under tariff item No. 18A. But when the relevant exemption was issued, the authorities shifted their stand and treated this item of blended yarn for the subsequent period from October 16 1964 to March 16, 1972 as falling under Item No. 18 of synthetic yarn when they levied duty in the light of the exemption notification at Annex-C and 'D'. It is in order to avoid such arbitrary assessment that their Lordships have evolved this salutary principle that in a fiscal measure there should be identifiable standards, because otherwise, it would be open to the authorities to apply different standards and tests In the present case the test now canvassed for the Revenue is of Brussel's Nomenclature by applying the theory of predominant weight of fibre which test was discarded by the same authorities at the earlier stage when this blended yarn was treated as cotton yarn. There is also an inherent guidance in the other relevant entries at items 19 and 22 dealing with cotton fabrics or rayon or artificial silk fabrics respectively, where the legislature used the word 'fabric' manufactured either wholly or partly. thereforee, if the same phraseology was intended even in case of yarn the legislature would not have refrained from adopting this familiar terminology which issued in the campaign items. thereforee, on no process of construction this new blended yarn produced by the company could be treated as excisable item for the earlier period before the Finance Act, 1972, which introduced clear, unequivocal item No. 18E to cover such goods which were produced by the mixture of two or more fabrics man- made and natural. thereforee, the levying the present case is clearly an ultra virus levy..'
The same reasoning applies to the blended yarn in the present case also and I am thereforee of opinion that the attempt of the Revenue to support the levy under the main Item 18, CET cannot be upheld.
13. Secondly, even assuming that duty is livable on these goods under the above item, it is not open to the respondents to put up the plea at this stage. The assessment of the excise duty was in this case made under Sr. No. 2 (iii) earlier referred to and this having been held illegal the respondents are bound to refund the duty so levied. If it is the Department's case that duty is livable under item 18 itself, the Department should have raised a demand on that basis at the appropriate state. Rule 10 of the Central Excise Rules at the relevant time read :
* * * .*
It is admitted that no such demand can be raised in this case because the period mentioned in the rule has run out. While it may be legitimate for the respondent to adjust a refund payable to an assessed against other amounts of duty payable by him in accordance with law. It is certainly not open to them to make such an adjustment against a demand which has not been and which cannot be made. The orders of the Appellate Collector and the revisional order directing such appropriation by way of adjustment are wholly illegal and without justification.
14. On behalf of the respondents, Sri Kataria raised two points. The first was that in the assessment documents (described as FORM ARs) the petitioner had declared the description of the yarn as 'rayon and synthetic fiber' falling under the notifications of 1964 and 1967, thus admitting that they were excisable under Item No. 18 of the CET. This contention is not correct. In the case of the Rajpura Unit, the assessment in the first instance was under Section No. 4 of the 1966 notification in respect of Item 18B of the CET. There was no declaration based on Item 18. In the case of the Nagda Unit, duty was charged under Sr. No. l(b) of the 1964 and 1966 notification. Sri G.B. Pai states that, out of a large number of ARs, endorsement that duty was chargeable, if at all, under Section No. 1 (b) of item 1 of occurred only in for AR's. This is also borne out by the order of the Assistant Collector dated 25-11-72. But, even otherwise the fact that the assessed was willing to pay duty under the above Sr. No. cannot be construed as an. admission by the assessed that it was liable to duty under the main Item CET. The assessed is not going back on the assessments as made originally. The Department had made no attempt to charge them at any stage under the main Item 18 of the C.E.T. It did not accept the assessed's contention regarding the basis of exemption available to it and chose to make an additional assessment based on Section No. 2 (iii). Having failed in this it should refund the additional duty collected and it cannot without proper assessment in law. claim duty on the basis of the main Item 18 at this stage. I am, thereforee, unable to accept the contention of Sri Kataria that the assessed should be deemed to have admitted its liability to pay duty under Item 18.
15. The second point made by Sri Kataria was that, under Rule 11 where duty has been paid or adjusted and a repayment of it wholly or in part is claimed 'in consequence of the same having been paid though inadvertence, error or miss-description ' no refund shall be made unless the application for refund is made within three months of the payment or adjustment of the duty. This rule does not apply here, for it is not the case of the petitioner that duty has been paid in excess due to 'inadvertence, error misconstruction'. It had to be paid by it, under protest, during the pendency of the appeals filed against the demands made. In 1977, Rule 11 has been amended to make clear that the above period of limitation for applications does not apply to refunds of amounts paid under protest and to refunds consequent on appellate and revisional orders. .In the present case, the demand made under Section No. 2 (iii) has been held to be ultra virus and the amounts collected in pursuance of the above unauthorised and illegal demands should be refunded in consequence of the decision of this Court. Moreover, the applications for refund have not been dismissed by the respondents on the ground that they are barred by limitation. The counter affidavit raises a plea of laches which is hardly tenable, considering that the petitioner has been throughout urging against the demand made on it in one forum after another. This contention of Sri Kataria cannot also be accepted.
16. In the result, both the writ petitions are allowed. There will be direction to the respondents to refund to the petitioner the additional duty that has been already levied and recovered from the petitioner, for the period 30-10-1967 to 24-11-1967 in the case of the Rajpura Unit and for the period 1-2-1967 to 17-9-1967 in the case of the Nagda Unit less the amounts that may have been already refunded, if any. There will, however, be no order as to costs.