1983 (10) TMI 266 - AT - Central Excise

Issues Involved:
1. Levy of cess on jute yarn captively consumed within the same factory.
2. Cumulative incidence of duty exceeding statutory limits.

Issue-wise Detailed Analysis:

1. Levy of cess on jute yarn captively consumed within the same factory:

The primary issue concerns whether cess can be levied on jute yarn manufactured and used within the same factory for producing hessian and sacking. The appellants argued that cess should not be levied on jute yarn used captively within the factory, relying heavily on the Patna High Court's judgment in the case of Rameshwar Jute Mills Ltd., which stated that cess is not leviable unless the manufactured goods are removed outside the precincts of the factory. The Patna High Court emphasized that the term "removal" means from the factory, and since the goods were not removed out of the factory, cess could not be levied.

The Department, however, argued that the explanation to Section 9(1) of the Industries (Development and Regulation) Act, which refers to the "wholesale cash price for which such goods of the like kind and quality are sold or are capable of being sold," implies that the capability of being sold arises within the factory even before removal. They further contended that the substantive provision in Section 9(1) authorizes the levy on all goods manufactured or produced, without the necessity of removal.

The Tribunal noted conflicting judgments from various High Courts on the interpretation of "removal." The Calcutta High Court held that jute yarn used in the manufacture of other jute products within the same factory was liable to cess, emphasizing that the term "all goods manufactured or produced" includes both intermediate and final products. The Tribunal also considered other High Court judgments, such as the Delhi High Court's rulings in the J.K. Synthetics and Caltex cases, which upheld that utilization for captive consumption within the factory amounts to "removal."

Ultimately, the Tribunal concluded that the preponderance of judicial opinion supports the view that captive consumption amounts to "removal" within the meaning of Rules 9 and 49 of the Central Excise Rules. The Tribunal also noted the retrospective amendment of Rules 9 and 49, which clarified that utilization or consumption within a factory amounts to removal, further supporting the Department's stance.

2. Cumulative incidence of duty exceeding statutory limits:

The appellants contended that if cess were levied on both jute yarn and the jute fabrics (hessian or sacking) manufactured from it, the cumulative incidence of duty would exceed the statutory limit of 13 paise per cent of the value of the goods, as prescribed in Section 9(1) of the Industries (Development and Regulation) Act. They argued that the cumulative incidence would come to about 17 or 18 paise per Rs. 100 of the value of the goods, which would be illegal.

The Tribunal observed that the statutory orders issued by the Ministry of Industry and Civil Supplies specify different rates for different classes of jute goods, including yarn and hessian/sacking. The Tribunal noted that these statutory orders have not been contested before the High Courts, and it is not within their competence to pronounce on their validity. The Tribunal further emphasized that Section 9(1) allows for different rates for different goods or classes of goods, and the statutory orders clearly classify yarn and hessian/sacking as different classes of goods.

The Tribunal concluded that there is no provision in Section 9(1) suggesting that the limit of 13 paise per cent of the value should refer to the cumulative incidence of duty on different goods produced by a particular industry. Therefore, the levy of cess on both jute yarn and hessian/sacking does not violate the statutory limit.

Conclusion:

The Tribunal rejected both grounds advanced by the appellants. It upheld the Department's view that cess is leviable on jute yarn captively consumed within the factory and that the cumulative incidence of duty does not exceed the statutory limits. The Tribunal confirmed the Order-in-Appeal of the Collector (Appeals) and dismissed the five appeals.

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