1978 (8) TMI 81 - HC - Central Excise

Summary

Issues Involved:
1. Whether excise duty is payable on yarn produced as an intermediate product within the factory premises.
2. Interpretation of Rule 9 and the concept of "removal" for excise duty purposes.
3. Applicability of Supreme Court precedents on intermediate products and excise duty.
4. Relevance of the Delhi High Court's decision in similar contexts.

Summary:

1. Excise Duty on Intermediate Yarn:
The petitioners contended that the processes of preparing laps, slivers, weaving of yarn, and weaving of fabrics are not continuous and involve manual intervention. They argued that the yarn produced as an intermediate product within the factory premises should not be subject to excise duty if it is not removed from the factory but used for further manufacturing within the same premises. The court examined whether the central excise authorities could collect excise duty on such yarn under the Central Excises and Salt Act, 1944, and the Central Excise Rules framed thereunder.

2. Interpretation of Rule 9 and "Removal":
The court analyzed Rule 9, which stipulates that excisable goods cannot be removed from the place of manufacture until the excise duty is paid. The court concluded that "removal" for the purposes of Rule 9 refers to the movement of goods from the spinning department to the weaving department within the same factory premises. The licensing procedure under Chapter VIII of the Rules was crucial in determining that the place specified in the licence is the relevant location for excise duty collection.

3. Supreme Court Precedents:
The court relied on two Supreme Court decisions: Union of India v. Delhi Cloth Mills Co. Ltd. and South Bihar Sugar Mills Ltd. v. Union of India. These cases established that excise duty is on the manufacture of goods, not on their sale, and that intermediate products known to the market as distinct articles are subject to excise duty. The court applied these principles to conclude that yarn, as an intermediate product, is excisable when it is removed from the spinning to the weaving department.

4. Delhi High Court Decision:
The petitioners cited the Delhi High Court's decision in Delhi Cloth and General Mills Co. Ltd. v. Joint Secretary Government of India, which held that excise duty could not be collected on calcium carbide used within the same factory for producing acetylene gas. However, the court distinguished this case based on the specific facts and the inapplicability of Section 4 (which deals with ad valorem duty) to the present case. The court respectfully disagreed with the Delhi High Court's interpretation of "removal" under Rule 9.

Conclusion:
The court concluded that excise duty must be paid when yarn is removed from the spinning department to the weaving department within the same factory premises. The special civil applications were dismissed with costs, and the rule was discharged accordingly.