1985 (3) TMI 266 - AT - Central Excise

Summary

Issues:
Interpretation of Notifications under the Central Excises and Salt Act, 1944 regarding duty exemption on yarn used in the manufacture of cotton fabrics in a composite mill; Application of Notification No. 226/77 and its impact on duty liability; Refund claim for duty paid under protest on cotton fabrics due to Notification No. 226/77.

Analysis:
The judgment by the Appellate Tribunal CEGAT New Delhi involved the interpretation of Notifications under the Central Excises and Salt Act, 1944, specifically focusing on duty exemption on yarn used in the manufacture of cotton fabrics in a composite mill. The case revolved around the application of Notification No. 226/77 and its impact on duty liability for the appellant. The undisputed facts presented the scenario where the appellant, a manufacturer of textiles, utilized cellulosic spun yarn and cotton yarn in the production process. Initially, the appellant enjoyed duty exemption on these yarns under Notifications No. 132/77 and No. 135/77. However, subsequent notifications rescinded the exemptions and introduced a new scheme of partial exemption under Notification No. 226/77.

The crux of the issue lay in the retrospective application of Notification No. 226/77 to yarn that had been cleared and used in the manufacturing process before the notification came into force. The appellant was compelled to pay a substantial amount towards duty on fully manufactured cotton fabrics due to the new notification. The appellant, having paid the duty under protest, sought a refund which was initially denied by the Assistant Collector and subsequently by the Collector (Appeals), leading to the appeal before the Tribunal.

The Tribunal, after considering the submissions and legal precedents, concluded that the levy of duty on yarn cleared and used before the enforcement of Notification No. 226/77 was unsustainable. The taxable event in excise duty is the manufacture, and if both the manufacture and removal occurred before the new notification took effect, it cannot be applied retrospectively. Levying duty on cotton fabrics manufactured using yarn cleared before the notification would negate the benefits of earlier exemptions and go against the fundamental principles of excise levy.

Therefore, the Tribunal allowed the appeal, directing the refund of the duty amount collected in July 1977 without further delay. The judgment emphasized the importance of upholding the principles of excise duty and ensuring that notifications are applied prospectively without unintended retrospective implications.