1979 (5) TMI 22 - HC - Central Excise

Summary

Issues Involved:
1. Applicability of Serial No. 2(iii) of Notification No. 156/64 and 82/67 for excise duty.
2. Classification of blended yarn under Item 18 of the Central Excise Tariff (CET).
3. Legitimacy of the demand for additional duty and subsequent refund claims.
4. Timeliness and legality of refund applications under Rule 11 of the Central Excise Rules.

Issue-wise Detailed Analysis:

1. Applicability of Serial No. 2(iii) of Notification No. 156/64 and 82/67 for Excise Duty:
The court examined whether the blended yarn manufactured by the petitioner was liable to duty under Serial No. 2(iii) of Notification No. 156/64 read with Notification No. 82/67. The earlier judgment in C.W. 579/69 held that "synthetic staple fibre" in Serial No. 2 included both cellulosic and non-cellulosic origins. Since the petitioner's yarn was wholly cellulosic, it was not covered by Serial No. 2. Thus, the demand notices for additional duty under this serial were quashed.

2. Classification of Blended Yarn under Item 18 of the Central Excise Tariff (CET):
The court scrutinized whether the blended yarn could be classified under Item 18 of the CET. The judgment referenced the Gujarat High Court's decision in The Ahmedabad Manufacturing and Calico (P) Ltd. v. Union of India, which clarified that blended yarn was not covered under Item 18, 18A, or 18B before the 1972 amendment. The court concluded that the blended yarn was not intended to be covered under Item 18, and any attempt by the Revenue to support the levy under this item was invalid.

3. Legitimacy of the Demand for Additional Duty and Subsequent Refund Claims:
The court held that the assessment of excise duty under Serial No. 2(iii) was illegal. Consequently, the respondents were bound to refund the duty collected under this serial. The court emphasized that the Department should have raised a demand under Item 18 at the appropriate stage if it believed duty was leviable under that item. Since the period for raising such a demand had expired, the respondents could not retain the duty collected under an invalid assessment.

4. Timeliness and Legality of Refund Applications under Rule 11 of the Central Excise Rules:
The court addressed the respondents' argument that the refund applications were barred by Rule 11, which requires applications to be made within three months of payment. The court clarified that this rule did not apply because the duty was paid under protest during the pendency of appeals. Furthermore, Rule 11 was amended in 1977 to exclude amounts paid under protest from the limitation period. The court found that the petitioner's continuous efforts to contest the demand negated any claim of laches.

Conclusion:
Both writ petitions were allowed, directing the respondents to refund the additional duty levied and recovered from the petitioner for the specified periods, less any amounts already refunded. The court rejected the respondents' contentions and upheld the petitioner's entitlement to a refund due to the illegal demand under Serial No. 2(iii). There was no order as to costs.