1980 (8) TMI 84 - SC - Central Excise

Whether the respondent concerned commenced manufacture of cotton fabrics on the powerlooms for the first time on or after 1st April 1961 irrespective whether he acquired the powerlooms before or after that date? Held that - Even though each of the respondents in the present case owned not more than four powerlooms he would be liable to pay excise duty at the next higher rate under the third proviso to the notification dated 18th March 1961 if he started manufacture of cotton fabrics on his powerlooms for the first time on or after 1st April 1961 irrespective whether he acquired the powerlooms from the licensee before or after that date. We must therefore set aside the judgment of the High Court and send the matter back to the High Court so that the High Court may decide the writ petitions of the respondents in accordance with law and in the light of the observations contained in this judgment. Appeals allowed.

Issues Involved:
1. Exemption from excise duty based on the number of powerlooms and the commencement date of production.
2. Interpretation of various notifications and provisos issued under the Central Excise Rules, 1944.
3. Liability of manufacturers for excise duty when acquiring powerlooms from licensees.
4. Compounded levy scheme for payment of excise duty on cotton fabrics.

Detailed Analysis:

1. Exemption from Excise Duty Based on the Number of Powerlooms and the Commencement Date of Production:
The respondents claimed exemption from excise duty under a notification dated 5th January 1957, which exempted cotton fabrics produced in factories with not more than 4 powerlooms. However, the Superintendent of Central Excise rejected this claim, stating that the respondents started manufacturing cotton fabrics after 1st April 1961, thus not qualifying for the exemption. The High Court allowed the writ petitions filed by the respondents, but the Union of India appealed to the Supreme Court.

2. Interpretation of Various Notifications and Provisos Issued Under the Central Excise Rules, 1944:
The Central Excises and Salt Act, 1944, along with various notifications, provided the legal framework for excise duty exemptions. The notification dated 5th January 1957 was amended multiple times, notably on 19th January 1957, 26th November 1960, 1st March 1961, and 1st April 1961. These amendments introduced conditions such as the number of powerlooms and the commencement date of production, significantly impacting the scope of exemptions.

3. Liability of Manufacturers for Excise Duty When Acquiring Powerlooms from Licensees:
The proviso introduced on 1st April 1961 stated that the exemption would not apply to manufacturers who commenced production on or after 1st April 1961 by acquiring powerlooms from licensees. The Supreme Court clarified that the date 1st April 1961 referred only to the commencement of production, not the acquisition of powerlooms. Therefore, if a manufacturer started production on or after this date, the exemption would not apply, regardless of when the powerlooms were acquired.

4. Compounded Levy Scheme for Payment of Excise Duty on Cotton Fabrics:
On 1st March 1961, the Central Government introduced a compounded levy scheme, fixing different rates per shift, per month, per powerloom. The rates varied based on the number of powerlooms and the type of fabrics produced. Subsequent notifications on 18th March 1961, 1st April 1961, and 20th April 1961 further modified these rates and introduced additional provisos. The third proviso, effective from 1st April 1961, required manufacturers who commenced production after this date to pay excise duty at the next higher rate.

Conclusion:
The Supreme Court concluded that the High Court erred in its interpretation of the provisos. The correct interpretation was that the date 1st April 1961 applied only to the commencement of production, not the acquisition of powerlooms. Therefore, manufacturers who started production on or after this date were liable to pay excise duty at the next higher rate, regardless of when they acquired the powerlooms. The judgment of the High Court was set aside, and the matter was remanded for disposal in accordance with the Supreme Court's observations. The appeals were allowed, but the appellants were ordered to pay the costs of the respondents.

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