1980 (9) TMI 96 - HC - Central Excise

Summary

Issues Involved:
1. Retrospective effect of the notification.
2. Validity of the second proviso to Notification No. 226 of 1977.
3. Discrimination under Article 14 of the Constitution.
4. Collection of excise duty on yarn and cotton fabrics.
5. Rule-making power under Rule 8(1) of the Central Excise Rules.

Detailed Analysis:

1. Retrospective Effect of the Notification:
The petitioner challenged the retrospective effect of the second proviso to Notification No. 226 of 1977, arguing that the Central Government cannot give retrospective effect to such a notification. The court agreed, stating that the rule-making authority under the Central Excises and Salt Act does not have the power to make rules with retrospective effect. The court cited the Supreme Court's decision in The Cannanore Spinning and Weaving Mills Ltd. v. The Collector of Customs and Central Excise Cochin, which established that subordinate legislation cannot have retrospective effect unless explicitly provided by the parent statute.

2. Validity of the Second Proviso to Notification No. 226 of 1977:
The petitioner argued that clause (b) of the second proviso to Notification No. 226 of 1977 was ultra vires the rule-making power under Rule 8(1) because it sought to impose duty on yarn that had been exempted under Notification No. 132 of 1977. The court found that the second proviso, particularly clause (b), was indeed ultra vires to the extent that it sought to impose duty on yarn used in the manufacture of cotton fabrics before July 15, 1977. The court held that the rest of the second proviso was within the powers of the Central Government and, therefore, valid.

3. Discrimination under Article 14 of the Constitution:
The petitioner contended that the second proviso created fortuitous discrimination between composite mills that had cleared their cotton fabrics before July 15, 1977, and those that had not. The court acknowledged this contention, stating that the interpretation which works lesser hardship and is in consonance with the scheme of the Act should be applied. The court found that upholding clause (b) would lead to retrospective imposition of duty, which is discriminatory and violates Article 14.

4. Collection of Excise Duty on Yarn and Cotton Fabrics:
The court clarified that excise duty is on the manufacture of goods, and the collection of such duty on removal is only a convenient method for collection. The court noted that the taxable event for excise duty is the production or manufacture of the excisable article. The court emphasized that the duty on yarn and cotton fabrics should be collected at the time of removal from the premises, but the taxable event is the production or manufacture.

5. Rule-Making Power under Rule 8(1) of the Central Excise Rules:
The court examined the scope of the rule-making power under Rule 8(1) and concluded that it allows the Central Government to exempt excisable goods from duty but does not confer the power to impose duty retrospectively. The court held that the Central Government exceeded its rule-making power by including clause (b) in the second proviso to Notification No. 226 of 1977, which effectively imposed a retrospective duty on yarn.

Conclusion:
The court allowed the petition to the extent that clause (b) of the second proviso to Notification No. 226 of 1977 was struck down for goods produced before July 15, 1977, from duty-exempted yarn. The respondents were directed to refund the excess duty collected. The application for leave to appeal to the Supreme Court was rejected as no substantial question of law of general importance was involved.