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Aryodaya Spg. and Wvg. Co. Ltd. Vs. Union of India and ors. - Court Judgment

LegalCrystal Citation
SubjectExcise
CourtGujarat High Court
Decided On
Case NumberSpecial Civil Application No. 1438 of 1977
Judge
Reported in1981(8)ELT274(Guj)
ActsCentral Excise Act; Central Excise Rules - Rule 8
AppellantAryodaya Spg. and Wvg. Co. Ltd.
RespondentUnion of India and ors.
Appellant Advocate I.M. Nanavati, Adv.
Respondent Advocate H.M. Mehta, Adv.
Cases ReferredIn The Cannanore Spinning and Weaving Mills Ltd. v. The Collector of Customs and Central Excise Cochin
Excerpt:
excise - notification - central excise act and rule 8 of central excise rules - clause under notification states that goods which were manufactured from wholly exempted cellulose spun yarn and which were not cleared from warehouses of petitioner became liable to duty not only to cotton fabrics but also on yarn - petition against such clause - rule making authority by making such clause seeks to levy duty with retrospective effect on cotton fabrics - impugned clause ultra vires to rule making power of central government - impugned clause struck down as it affects goods produced from wholly exempted cellulosic spun yarn and cotton yarn in composite mill. - - 1. the petitioner herein is a limited company and it manufactures both cellulosic spun yarn as well as cotton yarn and also.....b.j. divan, c.j.1. the petitioner herein is a limited company and it manufactures both cellulosic spun yarn as well as cotton yarn and also purchase the same from the market for manufacture of cotton fabrics. the petitioner company is a composite mill in the sense that it spins yarns, weaves cloth and also processes the same in its processing house unit. the cellulosic spun yarn, the cotton yarn and the cotton fabrics which the petitioner manufactures are excisable commodities. cellulosic spun yarn is liable to excise duty under tariff item no. 18. cotton yarn is liable to excise duty under tariff no. 18-a and cotton fabrics are liable to excise duty under tariff item no. 19 in the schedule to the central excises and salt act, 1944, hereinafter referred to as the act. under sections 6, 12.....
Judgment:

B.J. Divan, C.J.

1. The petitioner herein is a limited Company and it manufactures both cellulosic spun yarn as well as cotton yarn and also purchase the same from the market for manufacture of cotton fabrics. The petitioner company is a composite mill in the sense that it spins yarns, weaves cloth and also processes the same in its processing house unit. The cellulosic spun yarn, the cotton yarn and the cotton fabrics which the petitioner manufactures are excisable commodities. Cellulosic spun yarn is liable to excise duty under Tariff Item No. 18. Cotton yarn is liable to excise duty under Tariff No. 18-A and cotton fabrics are liable to excise duty under Tariff Item No. 19 in the Schedule to the Central Excises and Salt Act, 1944, hereinafter referred to as the Act. Under Sections 6, 12 and 37 of the Act, powers has been conferred upon the Central Government to make rules and one of the powers is to make rules for excepting goods from excise duty in special cases. In the exercise of this rule-making power, the Central Government has made Central Excise Rules, 1944 and rule 8 of these rules deals with the power to authorise exemption from duty in special cases. Under this rule, 'The Central Government may, from time to time, by notification in the Official Gazette, exempt, subject to such conditions as may be specified in the notification, any excisable goods from the whole or any part of duty leviable on such goods.' In exercise of this power under rule 8, the Central Government had issued Notification No. 131 of 1977 on June 18, 1977 granting partial exemption to cotton yarn falling under Tariff Item No. 18-A from payment of excise duty. Composite mills were however excluded from the operation of the said Notification by virtue of Clause (vii) of the proviso to this notification. On the same day, that is, June 18, 1977 another notification No. 132 of 1977 was issued under rule 8 and by this notification, cellulosic spun yarn falling under Tariff Item No. 18-III(i) and cotton yarn falling under Tariff Item No. 18-A(i) were exempt wholly from excise duty leviable thereon when these yarns were used for weaving cotton fabrics in a composite mill. Simultaneously with these two notifications, a third notification also dated June 18, 1977 was issued, being Notification No. 135 of 1977. Under this notification, partial exemption to cotton fabrics falling under Tariff Item 19(i) of the Schedule to the said Act was granted. As a result of these notifications and particularly the notification bearing No. 132 of 1977, duty on cellulosic spun yarn and cotton yarn was wholly exempt and duty on cotton fabrics falling under Tariff Item No. 18-A was partially exempt to the extend mentioned in Notification No. 135 of 1977. It is the case of the petitioner company that on and after June 18, 1977 the petitioner company had manufactured cotton fabrics at its composite mill and had used cotton yarn and cellulosic spun yarn for he purpose of manufacturing these cotton fabrics. 4,70,000 metres of cotton fabrics were lying in stock awaiting clearance as on September 26, 1977.

2. On July 15, 1977 the Central Government issued three notifications, each one of which was issued in exercise of powers conferred by sub-rule (1) of rule 8 on the Central Government. By Notification No. 224 of 1977, Clause (vii) of the proviso and Explanation (ii) of Notification No. 131 of 1977 were omitted. By Notification No. 225 of 1977, also dated July 15, 1977, Notification No. 132 of 1977 was rescinded and by Notification No. 226 of 1977, Notification No. 135 of 1977 was superseded and new set of partial exemptions in the case of cotton fabrics were prescribed.

3. As a result of these three notifications of July 15, 1977, complete exemption which was granted in respect of cellulosic spun yarn and cotton yarn used by composite mills in manufacturing cotton fabrics, was taken away. By deletion of Clause (vii) of the proviso to Notification No. 131 of 1977, excise duty on cellulosic spun yarn and cotton yarn even when used for manufacture of cotton fabrics by composite mills could be levied at the rates mentioned in Notification No. 131 of 1977 and so far as all cotton fabrics were concerned, by virtue of Notification No. 226 of 1977 a different Table was prescribed for levying excise duty on cotton fabrics. The result of these three notifications was thus to put forward a different scheme for levying excise duty on cellulosic spun yarn and cotton yarns of all kinds and used by all types of manufacturers but in the case of composite mills, the exemption which from June 18, 1977 was available in respect of cellulosic spun yarn and cotton yarn used by composite mills in manufacture of cotton fabrics, was taken away. No difficulty can possibly arise and, in fact, no difficulty was felt so far as prospective operation of the notifications of July 15, 1977 was concerned. However as regards cotton fabrics which were manufactured after June 18, 1977 by composite mills from cellulosic spun yarn and cotton yarn and which were still lying in stock with them and were not cleared, a special provision was made in the second proviso to the Notification dated July 15, 1977, bearing No. 226 of 1977. That second proviso was in these terms :

'Provided further that in case where cotton fabrics have been produced in a composite mill or are produced therein and in the production of such cotton fabrics cellulosic spun yarn falling under sub-item III(i) of Item No. 18 of the said First Schedule or cotton yarn falling under item No. 18A(i) of the said First Schedule or both, on which no duty of excise was paid prior to the 15th day of July, 1977, was of is used, then duty payable on such fabrics shall be -

(a) at the appropriate rate of duty as specified in this notification plus

(b) the duty payable on such cellulosic spun yarn or cotton yarn or both, as the case may be, under the notification of the Government of India in the Department of Revenue and Banking No. 131/77-Central Excises, dated the 18th June, 1977.'

4. The petitioner herein challenges clause (b) of the second proviso which we have set out hereinabove. According to the petitioner company, it was purely a fortuitous circumstance that some of the goods which were manufactured from wholly exempted cellulosic spun yarn or cotton yarn during the period between June 18, 1977 and July 15, 1977 and which were not cleared from the godowns or from the warehouses of the petitioner, became liable to duty not only on cotton fabrics but on yarn as well. The petitioner has prayed that the second proviso which we have hereinabove set out is violative of Article 14 of the Constitution as well as ultra vires and in contravention of rule 8 of the Central Excise Rules. The petitioner has also prayed for a writ of or in the nature of mandamus and/or any other appropriate writ, direction or order quashing and setting aside that part of the Notification No. 226 of 1977 dated July 15, 1977 which contains the proviso reproduced hereinabove. The petitioner has also prayed for a writ of or in the nature of mandamus and/or any other appropriate writ, direction or order directing the respondents to refund the amount recovered by the respondents from the petitioner so far on the stock of cotton fabric lying with the petitioner company as on July 15, 1977 as yarn duty payable pursuant to the impugned proviso to Notification No. 226 of 1977.

5. On behalf of the respondents, namely, the Union of India, the Collector of Central Excises and the Superintendent of Central Excise, it has been contended that under the second proviso to Notification No. 226 of 1977, what was being levied was an excise duty on cotton fabrics and it was only for the purpose of computation of excise duty on cotton fabrics that a reference was made to the duty on yarn. It was contended that under the impugned proviso, what was sought to be done was that in respect of cotton fabrics which had been produced from wholly exempted cellulosic spun yarn or cotton yarn, the duty payable on such fabrics was to be at the appropriate rate of duty as specified in Notification No. 226 of 1977 plus the duty payable on such cellulosic spun yarn or cotton yarn or both under Notification No. 131 of 1977. It was contended that the reference to duty on cellulosic spun yarn and cotton yarn in Clause (b) of the second proviso to Notification No. 226 of 1977 was merely with a view to enable the excise authorities to compute excise duty on fabrics, that is, cotton fabrics, produced in a composite mill from cellulosic spun yarn or cotton yarn on which no duty had been paid prior to July 15, 1977.

6. In view of these rival contentions, Mr. I. M. Nanavati, learned counsel for the petitioner company, submitted before us as follows :

(1) It is well settled that while issuing a notification under rule 8(1), the Central Government cannot give retrospective effect to such a notification;

(2) The power under rule 8(1) is to exempt totally or partially duty excise levied by Parliament by prescribing the rate in the Schedule. Consequently, Notification No. 226 of 1977 second proviso, particularly clause (b) thereof, is ultra vires the rule-making power inasmuch as it enables imposition of duty on cellulosic spun yarn or cotton yarn which had been exempted under Notification No. 137 of 1977, dated June 18, 1977;

(4) Duty of excise is on manufacture of goods and the collection of such duty on removal is only a convenient method for collection of excise duty;

(4) The impugned second proviso to Notification No. 226 of 1977 seeks to impose duty on distinct excisable goods coming within the purview of Items 18-III(i) and 28-A(i) while seeking to give partial exemption from excise duty on cotton fabrics falling under item 19(i). According to Mr. Nanavati, the vice lies in imposing duty on distinct goods, namely, yarn while partially exempting duty on cotton fabrics.

(5) If the second proviso to Notification No. 226 of 1977, Clause (b) thereof, which is severable, is not struck down it would create fortuitous discrimination between those composite mills which had cleared out cotton fabrics manufactured out of exempted yarn and those other composite mills which had not or could not clear out cotton fabrics manufactured out of exempted yarn before July 15, 1977;

(6) If submission No. (5) is not accepted, the second proviso clause (b) thereof is liable to be struck down under Article 14 as it discriminates between composite mills having used exempted yarn in the manufacture of cotton fabrics, on a purely fortuitous circumstances, namely, that the composite mill concerned carried stock of cotton fabrics made out of exempted yarn on July 15, 1977.

7. On behalf of respondents Mr. H. M. Mehta, learned counsel for respondents, urged before us that if the scheme of these notifications is examined closely, what was being done was that during the intervening period between June 18, 1977 and July 15, 1977 cellulosic spun yarn or cotton yarn used in a composite mill for manufacturing of cotton fabrics was exempted but under Notification No. 135 of 1977 the duty on cotton fabrics was being levied at a particular level which was to be calculated on ad valorem basis on the value per square metre of cotton fabrics. Under the new set-up or scheme for levying excise duty which came into existence on July 15, 1977 excise duty leviable on cellulosic spun yarn and cotton yarn under Notification No. 131 of 1977 came to be in force even on such cellulosic spun yarn and cotton yarn as would be used in the manufacture of cotton fabrics in a composite mill, but by virtue of Notification No. 226 of 1977, the excise duty leviable on cotton fabrics was at a lower rate that what was prescribed under Notification No. 135 of 1977 and in the result there was mere reshuffling of the entire burden. Under the earlier scheme of June 18, 1977 cotton fabrics made out of cellulosic spun yarn and cotton yarn in composite mills paid duty a a higher rate based on ad valorem value per square metre of cotton fabrics. Under the new scheme of Notification No. 226 of 1977, the basis of levying excise duty was changed and depending upon the count of yarn used in manufacturing of cotton fabrics (yarn may be either cellulosic spun yarn or cotton yarn), duty was levied at a lesser rate and the board classification under Notification No. 226 of 1977 was between cotton fabrics in which the average count of yarn was 41 or more and in that category excise duty was leviable at 15 per cent ad valorem, whereas in respect of cotton fabrics other than those in which the average count of yarn was 41 or more, the duty payable was on ad valorem basis but the rates were lower than in Notification No 135 of 1977 dated June 18, 1977. Mr. Mehta contended on behalf of the respondents that what the Central Government was seeking to do was to rationalise the scheme of levying excise duty on cellulosic spun yarn, cotton yarn and cotton fabrics manufactured or produced in a composite mill and as a result of rationalship, the burden under the old scheme or under the new scheme was not much different.

8. We are unable to accept this contention of Mr. Mehta because the basis for the levy of excise duty on cotton fabrics under Notification No. 226 of 1977 is not the same as the basis for levy of excise duty on cotton fabrics under Notification No. 135 of 1977. It is true, that by and large, even in the event of a fortuitous event of calculation of scale namely, scale in which yarn of more than 41 counts was being used, arrived at on the ground of duty on yarn as well as duty on cotton fabrics, would be more or less the same as the duty which was payable under Notification No. 135 of 1977, but since the basis of calculating excise duty under the two notifications was different, it cannot be said that the overall effect would be the same under Notification No. 226 of 1977.

9. We must make it clear that there is no challenge to the prospective operation of Notification No. 226 of 1977, dated July 15, 1977. The challenge before us is only to second proviso to Notification No. 226 of 1977 which provides for cotton fabrics which had already been produced in a composite mill before July 15, 1977 but in respect of which no duty on cellulosic spun yarn or cotton yarn used in the manufacture of those cotton fabrics had been paid prior to July 15, 1977.

10. Mr. Nanavati is right when he contends that in the case of excise duty, taxable event is the manufacture or production of the excisable article. Under the Seventh Schedule, List I, Item 84, duties of excise on tobacco and other goods manufactured or produced in India except alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics has been provided for but medicinal and toilets preparations containing alcohol or any substance included in sub-paragraph (h) of this entry would also be included within this Item 84, so far as duties of excise are concerned. Section 3 of the Act is the charging section and it provides :

'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 slat manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the First Schedule.'

The rest of the provisions of Section 3 are not material for the purposes of this judgment.

11. In South Bihar Sugar Mills Ltd. v. Union of India - 1978 ELT (J 336) = 1968 S.C. 922, the Supreme Court has pointed out that the excise duty is on production or manufacture of an excisable article and not on the sale of that excisable article. In Special Civil Application No. 707 of 1978 decided by a Division Bench of this High Court on August, 10, 1978 - 1978 ELT (J 618), it was held that the event which leads to the levy of excise under Section 3 is the production or manufacture. But for the sake of convenience of collection of excise duty, it may be collected at the time when the goods leave the premises or are removed from the premises where they are manufactured or produced. The whole scheme works to the convenience of all concerned and it provides for the collection of excise duty, not at the exact moment of manufacture but at the time when they are removed from the place where the goods are manufactured. So far as composite mills are concerned, under rule 49-A which came into effect from the end of November 1977 and the old rule 96-W which was in force prior to the end of November, 1977, a Special provision was made in the case of composite mills by which they could pay excise duty on yarn, not at the time when the yarn was manufactured but when the cloth made out of the yarn left the premises of the composite mill. It is to be noted that under rule 49-A provision has been made for the payment of interest ny the composite mill on the amount of excise duty payable on yarn. Such interest is to be paid for the period between manufacture of the yarn and the removal of the cotton fabrics made out of that yarn from the premises of the composite mill. Thus it is clear that so far as excise duty payable by a composite mill is concerned, the duty both on yarn as on cotton fabrics is collected at the time when the cotton fabrics are removed from the warehouse or godown of the composite mill. But it must be borne in mind that in the case of yarn, whether cellulosic spun yarn or cotton yarn, duty is leviable at what is known as spindle stage, namely, at the stage when the yarn comes into existence and a distinct and separate commodity comes into existence. In The Maneklal Harilal Spg. & Mfg. Co. Ltd.'s case (Special Civil Application No. 707 of 1978-Supra) = 1978 ELT (J 618), the Division Bench relied upon decision of the Supreme Court in Union of India v. Delhi Cloth Mills Co. Ltd. - 1977 ELT (J 199) = A.I.R. 1963 S.C. 791 and in South Bihar Sugar Mills' case (supra) - 1978 ELT (J 336) and came to the conclusion that when even in a composite mill yarn came into existence as such or was produced as such, duty was leviable but it could be collected, because of the special procedure laid down, not when the yarn was removed from the spinning section to the weaving section but when the cloth manufactured out of that yarn left the premises of the mill. At the time when the cotton fabrics were removed, duty both on yarn as well as on cotton fabrics as leviable in law and the relevant notifications would be collected by the excise authorities from the composite mill.

12. Thus it is clear that it is for the sake of convenience of collection of excise duty that it is collected at the time when the goods are removed from the premises of the manufacturer or from the premises where they are allowed to be stocked pending their clearance, but the excisable events are two, namely, the stage of production of cotton yarn or cellulosic spun yarn, and the second stage is that of manufacture or production of cotton fabrics out of such cellulosic spun yarn or cotton yarn.

13. When this position regarding the taxable event which gives rise to the liability to pay excise duty and the stage when the excise duty is collected looking to the convenience of collection, is borne in mind, the problem posed before us can be solved very easily. In the instant case, during the period July 15, 1977, by virtue of the Notification No. 132 of 1977 such cellulosic spun yarn and cotton yarn as was used in a composite mill for the manufacture of cotton fabrics was wholly exempted from duty on yarn. The result was that as and when cotton fabrics produced or manufactured in a composite mill left the premises of the manufacturer, the duty which was leviable at the stage of removal was only the duty on cotton fabrics, because at the stage when the yarn, whether cellulosic spun yarn or cotton yarn, was manufactured or produced, in respect of such of that yarn as was used for manufactured of cotton fabrics in a composite mill was concerned, the yarn in question was wholly exempted from payment of excise duty by virtue of Notification No. 132 of 1977. The taxable event being production or manufacture of yarn at that stage, so long as Notification No. 135 of 1977 was in force, no duty on yarn of a specified category, namely, cellulosic spun yarn or cotton yarn used by a composite mill for manufacture of cotton fabrics, was leviable.

14. When Notification No. 132 of 1977 was rescinded on July 15, 1977 and duty on cotton yarn and cellulosic spun yarn even when used in a composite mill of manufacture of cotton fabrics was payable in the light of Notification No. 131 of 1977, the result was that so far as yarn, whether cellulosic spun yarn or cotton yarn, produced or manufactured after July 15, 1977, was concerned, or used in a composite mill after 15th July, 1977 was concerned, excise duty under Notification No. 131 of 1977 would be required to be paid on all such yarn and furthers duty on cotton fabrics, when manufactured in a composite mill would be payable under Notification No. 226 of 1977 when the cotton fabrics were manufactured after July 15, 1977. It is true that so far as such duty on these types of cotton fabrics manufactured after July 15, 1977 from yarn on which duty was payable, was concerned, both the duty on yarn as well as duty on cotton fabrics would be collected at the time when the cotton fabrics left or were removed from the premises of the composite mill where they were manufactured.

15. However, in respect of cotton fabrics produced in a composite mill prior to July 15, 1977 from cellulosic spun yarn or cotton yarn on which no excise duty had been paid, by virtue of Notification No. 135 of 1977 dated June 18, 1977, a different situation would prevail. Duty was not payable at all on cotton yarn or cellulosic spun yarn so long as Notification No. 132 of 1977 was in force. However, even under the scheme of Notification of June 18, 1977 duty at particular rates mentioned in Notification of June 18, 1977 duty at particular rates mentioned in Notification No. 135 of 1977 was payable on cotton fabrics. Since the removal of the goods is the stage at which excise duty is to be collected, it has been specifically provided in rule 9A of the Central Excise Rules that the rate at which excise duty is to be paid is the rate prevailing on the day when the goods are removed from the duty-free premises or from the warehouses of the manufacturer. Because of the operation of rule 9-A in respect of cotton fabrics manufactured from duty-free cotton yarn or cellulosic spun yarn, the rate of duty applicable shall be the rate in force on the date on which duty is assessed, that is, on the date on which the goods are removed from the premises of the manufacturer. Hence, so far as cotton fabrics manufactured between June 18, 1977 and July 15, 1977 is composite mills were concerned, they would bear excise duty payable on the date on which the goods were removed from the premises of the manufacturer. But the impugned second proviso to Notification No. 226 of 1977 requires the manufacturer to pay excise duty on such fabrics, not only at the appropriate rate of duty as specified in the Notification but it requires the manufacturer to pay the duty payable on such cellulosic spun yarn or cotton yarn or both, as the case may be, under Notification No. 131 of 1977. It must be borne in mind that Notification No. 131 of 1977 deals not with duty on cotton fabrics. It deals with duty on cellulosic spun yarn and cotton yarn. When cellulosic spun yarn and cotton yarn which were used in the manufacture of such cotton fabrics by a composite mill prior to July 15, 1977 from the wholly duty-free yarn were concerned, an element of excise duty is sought to be brought in, so to say, by the back door, by including the duty on cellulosic spun yarn and cotton yarn as a component of the duty on cotton fabrics. It is true that the words of the proviso purport to show that what is being collected is the duty payable on cotton fabrics but when one bears in mind the scheme which we have set out in the earlier part of this judgment for collection of excise duty at the stage of removal, it is obvious that even if the earlier exemption had not been in force, duty payable at the time when the fabrics were removed from the premises of the manufacturer would be the duty on cotton fabrics together with the duty on yarn used in the manufacture of such cotton fabrics.

16. In The Cannanore Spinning and Weaving Mills Ltd. v. The Collector of Customs and Central Excise Cochin - 1978 ELT (J 375) = A.I.R. 1970 S.C. 1950, it has been laid down by the Supreme Court in the context of notifications issued under the Central Excises and Salt Act of 1944 that the rule-making authority had not been vested with the power under the Act to make rules with retrospective effect. Therefore, retrospective effect purported to be given in that particular case was beyond the rule-making powers of the rule-making authority. The principle behind this decision of the Supreme Court is clear, namely, that it is only the parliament which can make legislation with retrospective effect but a delegate from Parliament cannot make subordinate legislation with retrospective effect unless the rule-making authority has been specifically vested with the power to make rules with retrospective effect. So far as the Act before us is concerned, it has been specifically laid down by the Supreme Court that the rule-making authority under that Act, namely, the Central Government, has not been vested with the power to make rules with retrospective effect.

17. Under rule 8(1) power has been given to the Central Government to provide for exemption from the prescribed rates of duty and it has been authorised to provide conditions subject to which exemption could be had, but no power has been conferred upon it to make rules with retrospective effect. The result is that it was not open to the Central Government to provide for levy of excise duty on cellulosic spun yarn or cotton yarn which had been used in making cotton fabrics manufactured prior to July 15, 1977 by a composite mill and by the rules then in force it became wholly exempted from payment of excise duty when the yarn was used for manufacture of cotton fabrics in a composite mill. The taxable event in the light of which excise duty on cellulosic spun yarn or cotton yarn was payable was over before July 16, 1977. The event which had earned exemption for cellulosic spun yarn and cotton yarn had also occurred, namely, use of such cellulosic spun yarn and cotton yarn by a composite mill for the manufacture of cotton fabrics. What Clause (b) of the impugned second proviso to Notification No. 226 of 1977 was seeking to do was to collect at the stage of removal from the premises in question the excise duty, not on cotton fabrics but on cotton yarn and cellulosic spun yarn. Notification No. 135 of 1977 which dealt only with excise duty on cellulosic spun yarn and cotton yarn was sought to be tagged on to the excise duty payable on cotton fabrics under Item 19 of the Schedule to the Act.

18. It may be, as Mr. Mehta for the respondent emphasized, that because of this interpretation, those composite mills which had not cleared their goods from their premises prior to July 15, 1977 would be called upon to pay excise duty on cotton fabrics at a lower rate than those composite mills which cleared their goods prior to July 15, 1977, but the other interpretation which the revenue asks us to accept would lead to the peculiar situation that the composite mills which had not removed their cotton fabrics from their premises would be liable to pay a duty in some respects higher than those composite mills which had cleared their goods prior to July 15, 1977. Some sort of discrimination is bound to arise but the interpretation which works lesser hardship and is inconsonance with the scheme of the Act and its operation has to be applied. The interpretation which we are putting upon clause (b) of the impugned proviso is in consonance with the scheme of the Central Excise and Salt Act and the rules made thereunder, namely, the duty being paid at the time when the ultimate product leaves the premises of the manufacturer. The effect of upholding the validity of clause (b) of the second proviso to Notification No. 226 of 1977 would be to give retrospective effect to the levy of central excise on cotton yarn and cellulosic spun yarn, though such yarn when used in the manufacture of cotton fabrics during the interrugnum between June 18, 1977 and July 15, 1977 was wholly exempted from payment of excise duty. The rule making authority by enacting clause (b) of the second proviso to Notification No. 226 of 1977 was seeking to levy with retrospective effect duty on cellulosic spun yarn and cotton yarn, though in the guise of a component of duty on cotton fabrics. In our opinion, therefore, only clause (b) of the second proviso, in so far as it would operate on goods which were produced prior to July 15, 1977 in a composite mill from wholly-exempted cotton yarn or cellulosic yarn, to this limited extent, is ultra vires the rule-making power of the Central Government under the Central Excises and Salt Act inasmuch as it seeks to give retrospective effect to duty on such cellulosic spun yarn and cotton yarn. In our opinion the rest of the provisions of the second proviso are within the powers of the Central Government and therefore are not ultra vires. As regards the prospective operation of the clause (b) namely, in respect of goods which are produced after July 15, 1977 the whole of the second proviso including clause (b) are within the powers of the Central Government and the whole of that proviso would be valid. Therefore, we strike down clause (b) in so far as it affects goods which were produced from wholly-exempted cellulosic spun yarn and cotton yarn in a composite mill during the period June 18, 1977 to July 15, 1977 and which were not cleared from the premises of the manufacturer before July 15, 1977.

19. In the course of the arguments our attention was drawn by counsel at the Bar to an apparent conflict of decisions between the decision of this High Court in Alembic Chemical Works' case - 1979 ELT (J 258) = 17 G.L.R. 452 and the decision of the Madhya Pradesh High Court in The Union of India v. M/s Kirloskar Bros. - 1978 ELT = (J 33). February 1978 Issue-Section D of Cencus Volume VI. It has been pointed out in that volume that special leave partition against this decision of the Madhya Pradesh High Court was dismissed on merits by the Supreme Court. In the view which we take of the operation of the scheme for the collection of excise duty, it is not necessary for us to got into this question conflict so far as the facts of this particular case are concerned and hence we refrain from expressing any opinion about this particular controversy between the views of Gujarat High Court on the one hand and Madhya Pradesh High Court on the other.

20. In the result, we allow this special civil application only to this limited extent namely, that so far as cotton fabrics produced by the petitioner mill during the period June 18, 1977 and July 15, 1977 from cellulosic spun yarn or cotton yarn on which no excise duty at all was paid or payable by virtue of Notification No. 132 of 1977 dated June 18, 1977, are concerned, excise duty payable was only on cotton fabrics under Clause (a) of the second proviso to Notification No. 226 of 1977, namely, at the rates laid down in Notification No. 226 of 1977 and at no other rate. The respondents are directed to work out the excise duty payable by the petitioner in the light of this judgment and to refund the excess which they have paid over that amount to the respondents. The amount to be worked out within eight weeks from to-day and the amount due to the petitioner to be paid within two weeks thereafter. Rule is made absolute to that extent. The respondents will pay the costs of this petition to the petitioner.

21. At this stage, Mr. Mehta for the respondents applies for leave under Article 133(1) to appeal to the Supreme Court. In our opinion, no substantial question of law of general importance which is needed to be decided by the Supreme Court arises in this case. All that has been done is to apply the well-settled principles of law to the facts of the case before us and hence this application is rejected.


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