1980 (9) TMI 102 - HC - Central Excise

Summary

Issues Involved:

1. Classification of blended yarn under excise duty items.
2. Entitlement to credit for duty paid on staple fiber.
3. Legality of excise duty collection on blended yarn prior to 17th March 1972.
4. Refund of excise duty paid under mistaken belief.
5. Application of trade notifications versus statutory provisions.
6. Limitation period for claiming refunds.

Issue-wise Detailed Analysis:

1. Classification of Blended Yarn under Excise Duty Items:

The petitioner contended that the blended yarn manufactured did not fall under Item 18 or 18A of the First Schedule to the Central Excises and Salt Act, 1944. Item 18 covered "Rayon and Synthetic fibres and yarn," while Item 18A covered "Cotton twist, yarn and thread, all sorts." The petitioner argued that the blended yarn, containing 60% cotton and the balance staple fiber of cellulosic origin, did not fit these descriptions. The Court noted that the Finance Act of 1972 introduced Item 18E, which specifically covered "yarn all sorts, not elsewhere specified," indicating that prior to this, blended yarn was not explicitly covered under the existing items.

2. Entitlement to Credit for Duty Paid on Staple Fiber:

The petitioner had credited amounts of excise duty already paid on staple fiber used in the manufacture of blended yarn in accordance with Rule 56A of the Central Excise Rules. Despite the notification dated 29th May 1971 rescinding the earlier exemption, the petitioner argued that the credit already earned should not be affected. The Court found that the petitioner was entitled to utilize the balance credit towards the payment of duty on the blended yarn manufactured prior to 29th May 1971.

3. Legality of Excise Duty Collection on Blended Yarn Prior to 17th March 1972:

The Court held that blended yarn was not excisable until the introduction of Item 18E on 17th March 1972. The petitioner had paid excise duty under Item 18A since 19th November 1965 under a mistaken belief. The Court concluded that the recovery of duty on this basis was wrongful and that the petitioner was entitled to a refund for the period from 9th November 1965 to 17th March 1972.

4. Refund of Excise Duty Paid under Mistaken Belief:

The Court referenced the Gujarat High Court's decision in Ahmedabad Manufacturing Calico Printing Co. Ltd. v. Union of India, which held that blended yarn was not excisable under Items 18 or 18A. The petitioner, upon realizing this through legal advice in 1977, applied for a refund. The Court ruled that the petitioner was entitled to a refund of the excise duty paid under the mistaken belief, as the duty was not legally payable.

5. Application of Trade Notifications versus Statutory Provisions:

The respondents relied on a trade notification dated 30th September 1963 to classify blended yarn under Item 18A. The Court, however, emphasized that statutory provisions could not be altered by trade notifications. It was noted that the legislature's introduction of Item 18E in 1972 was necessary to cover blended yarn, which was not previously specified in the statute.

6. Limitation Period for Claiming Refunds:

The Court considered the limitation period for refund claims, referencing the Supreme Court's judgment in Messrs D.Cawasji & Co. v. State of Mysore, which allowed for a writ petition for refund within three years from the date of knowledge of the mistake. The Court held that the petitioner's claim for a refund was within the permissible period, as the petitioner became aware of the mistake only in 1977.

Conclusion:

The Court ruled in favor of the petitioner, making the Rule absolute. The petitioner was entitled to a refund of the excise duty paid on blended yarn manufactured prior to 17th March 1972, as the duty was collected under a mistaken belief and was not legally payable. The Court emphasized the importance of clear statutory provisions over trade notifications and upheld the petitioner's right to utilize the credit earned for duty paid on staple fiber.