1980 (10) TMI 71 - HC - Central Excise

Summary

Issues Involved:
1. Whether excise duty is leviable on yarn manufactured and used within the same factory without removal.
2. Whether excise duty should be levied on the weight of yarn before or after the sizing process.
3. Jurisdiction of the High Court of Delhi to entertain the writ petition.

Summary:

1. Excise Duty on Yarn Used Within the Same Factory:
The petitioners argued that the yarn manufactured in their composite mill, which is used internally for fabric production, should not be subject to excise duty as there is no "removal" of goods within the meaning of Rules 9 and 49 of the Central Excise Rules. The court agreed, stating that excise duty is only leviable when goods are removed from the factory for sale or consumption. The court referenced several earlier decisions, including *The Delhi Cloth & General Mills Co. Ltd.*, *Caltex Oil Refining (India) Ltd.*, and *Modi Carpets Ltd.*, which established that intermediate products in a continuous manufacturing process are not subject to excise duty unless removed for sale or consumption. The court concluded that the yarn used within the same factory for fabric production does not constitute removal and thus is not dutiable.

2. Weight of Yarn for Excise Duty Calculation:
The petitioners contended that if excise duty were applicable, it should be based on the weight of the yarn as wound on the cones, not after the sizing process. The court supported this view, stating that sizing is a physical process that does not change the commercial character of the yarn. The court emphasized that excise duty should be levied at the stage when the yarn is wound on the cones, as sizing does not create a new excisable commodity. The court referenced Section 2(f) of the Central Excise Act and relevant Supreme Court decisions to support this conclusion.

3. Jurisdiction of the High Court of Delhi:
The respondents argued that the High Court of Delhi lacked jurisdiction as the assessing authorities were located in Kanpur. The court rejected this objection, noting that part of the cause of action arose in Delhi due to the directive issued by the Central Board of Excise and Customs. Therefore, the court held that it had jurisdiction to entertain the writ petition.

Conclusion:
The writ petition was allowed, and the court quashed the letters dated 6th October 1976, 26th April 1979, 30th April 1979, and 5th May 1979. The respondents were restrained from levying any excise duty on the petitioners for the yarn manufactured, whether at the stage of cone yarn or sized yarn. The petitioners were awarded costs, with counsel's fee set at Rs. 500.