1983 (12) TMI 62 - HC - Central Excise

Issues Involved:
1. Validity of the imposition of cess on jute yarn.
2. Interpretation of "textiles" under Item 23 of the First Schedule.
3. Marketability and saleability of jute yarn.
4. Applicability of Central Excise Rules to the levy of cess under the Act.
5. Levy of cess on intermediate goods versus end-products.
6. Constitutional validity of multiple cess levies on the same product.

Detailed Analysis:

1. Validity of the Imposition of Cess on Jute Yarn:
The petitioners challenged the imposition of cess on jute yarn under Section 9(1) of the Industries (Development and Regulation) Act, 1951. The court held that the First Schedule merely identifies industries to be controlled by the Central Government in public interest. Under Section 9(1), cess can be levied on all goods manufactured or produced in any industry listed in the First Schedule. The petitioners' mills, which produce jute textiles, fall under Item 23(2) of the First Schedule. Therefore, the notification issued by the Central Government under Section 9(1) imposing cess on jute yarn was deemed valid and not ultra vires.

2. Interpretation of "Textiles" Under Item 23 of the First Schedule:
The court interpreted "textiles" as per Webster's Dictionary, which includes cloth, fibre, filament, or yarn used in making cloth. Thus, an industry producing yarn is also engaged in the manufacture or production of textiles. The inclusion of specific yarns (cotton, woollen, silk, synthetic) in sub-items of Item 23 does not exclude jute yarn from being classified as textiles. Therefore, the manufacture of jute yarn falls within the scope of Item 23(2).

3. Marketability and Saleability of Jute Yarn:
The petitioners argued that jute yarn is not marketable as it is an intermediary product. However, the court found that jute yarn is recognized as a separate article or goods under various statutory provisions, including the Jute Licensing and Control Order and the Central Excises Act. The manufacturing process described in the supplementary manual of departmental instructions also indicates that jute yarn is a distinct product. Hence, jute yarn is marketable and saleable, making it subject to cess under Section 9(1).

4. Applicability of Central Excise Rules to the Levy of Cess Under the Act:
The petitioners contended that Rules 9 and 49 of the Central Excise Rules, which require excisable goods to be removed from the factory for duty to be levied, should apply to the levy of cess on jute yarn. The court disagreed, stating that the provisions of the Central Excise Act and Rules cannot override Section 9(1) of the Industries (Development and Regulation) Act. The Act allows for the levy of cess on all goods manufactured or produced, regardless of their removal from the factory.

5. Levy of Cess on Intermediate Goods Versus End-Products:
The petitioners argued that cess should only be levied on end-products, not on intermediate goods like jute yarn. The court rejected this argument, noting that the purpose of the cess under the Act is to fund the development and regulation of industries, including research and quality improvements. The court cited the Fort William Co. Ltd. case, which upheld the levy of cess on jute twine and yarn consumed within the factory. The court did not agree with the Patna High Court's ruling in Rameshwar Jute Mills Ltd., which limited cess to goods removed from the factory for sale.

6. Constitutional Validity of Multiple Cess Levies on the Same Product:
The court acknowledged the petitioners' concern about multiple cess levies on the same weight of jute yarn used to produce other end-products. However, it stated that the constitutional validity of the Act was not in question. The court suggested that the issue of multiple cess levies and the diversion of cess proceeds contrary to Section 9(4) should be addressed by the Central Government and the Development Council.

Conclusion:
The writ petitions were dismissed with costs. The court granted leave to appeal to the Supreme Court of India, recognizing the substantial questions of law involved. A stay of collection of the cess was granted for two months, conditional on the petitioners furnishing bank guarantees, to allow them to seek appropriate directions from the Supreme Court.

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