1980 (4) TMI 108 - HC - Central Excise

Goods consumed within the factory of production not liable to duty - Scope - Place of manufacture - Meaning

Summary

Issues Involved:
1. Validity of the amended Item No. 43 under Section 3 of the Central Excises and Salt Act.
2. Competence of Parliament under Entry 84 of List I of the 7th Schedule to the Constitution to amend Item No. 43.
3. Requirement of removal of goods for excise duty under Rules 9 and 49 of the Central Excise Rules, 1944.

Detailed Analysis:

1. Validity of the amended Item No. 43 under Section 3 of the Central Excises and Salt Act:
The petitioners argued that the amended Item No. 43, which includes 'carded gilled sliver,' is ultra vires Section 3 of the Act. They contended that excise duty can only be levied on "manufactured goods which are known to the market." Since the sliver is not a marketable commodity, it should not be subject to excise duty. However, the court did not find it necessary to delve into this issue as the petition was decided on the third contention.

2. Competence of Parliament under Entry 84 of List I of the 7th Schedule to the Constitution to amend Item No. 43:
The petitioners further argued that Parliament was not competent to amend Item No. 43 to include an item that is not 'goods' and not 'manufactured.' They relied on Supreme Court decisions that excise duty can only be levied on marketable commodities produced through a manufacturing process. Again, the court did not address this issue in detail, as the decision was based on the third contention.

3. Requirement of removal of goods for excise duty under Rules 9 and 49 of the Central Excise Rules, 1944:
The court focused on the third contention, which argued that excise duty could only be charged and collected if there was removal of the product from the place of manufacture, as per Rules 9 and 49. The court examined the relevant provisions:

- Section 3(1) of the Act: It mandates that excise duty is levied and collected in a prescribed manner.
- Section 4 of the Act: It prescribes the mode of computing the value of excisable goods, emphasizing that the value is determined at the time and place of removal.
- Rules 9 and 49 of the Central Excise Rules: These rules stipulate that no excisable goods shall be removed from the place of manufacture without payment of excise duty. Rule 49 specifically states that duty is required only when goods are removed from the place of manufacture or an approved place of storage.

The court noted that in this case, the sliver is consumed within the factory premises and is not removed. Therefore, no excise duty can be levied. The court relied on the precedent set in the case of The Delhi Cloth & General Mills Co. Ltd., where it was held that excise duty could not be levied if the goods were not removed from the factory.

Judgment:
The writ petition was allowed, and the respondents were restrained from levying excise duty on the sliver obtained by the petitioners as an in-process material used in the manufacture of semi-woollen worsted yarn. The court concluded that the proposed levy and collection were not in accordance with the provisions of Rules 9 and 49 of the Central Excise Rules. Each party was ordered to bear its own costs.