1990 (8) TMI 170 - HC - Central Excise

Summary

Issues Involved:

1. Retrospective application of excise duty exemptions.
2. Interpretation of the term "use" in the context of excise duty exemptions.
3. Applicability of the Supreme Court judgment in Wallace Flour Mills Company Ltd. v. Collector of Central Excise.
4. Compliance with procedural requirements for removal of goods.

Issue-wise Detailed Analysis:

1. Retrospective Application of Excise Duty Exemptions:

The core issue revolves around whether the Central Government could retrospectively impose excise duty on cellulosic spun yarn and cotton yarn that had already earned exemption under previous notifications. The court held that the exemption earned by the yarn manufactured between June 18, 1977, and July 14, 1977, could not be retrospectively taken away by Notification No. 226 of 1977. The court observed that the taxable event for excise duty is the manufacture of goods, and once the yarn had earned exemption, it could not be retrospectively subjected to duty. The court relied on the explanation to Rule 9, which deems goods to be removed immediately before their consumption or utilization, to conclude that the yarn in question was exempt from duty based on the notifications in force prior to July 15, 1977.

2. Interpretation of the Term "Use":

The term "use" was pivotal in determining whether the yarn had earned exemption. The appellants contended that the yarn had not been "used" in manufacturing cotton fabrics as of the midnight of July 14/15, 1977, and hence had not earned exemption. The court rejected this contention, stating that the process of "use" begins when the yarn is taken out of the manufacturing department with the intent of being consumed in further manufacturing processes. The court emphasized that the yarn held in various departments indicated the commencement of the process of use, thus qualifying for the exemption under Notification No. 132 of 1977.

3. Applicability of the Supreme Court Judgment in Wallace Flour Mills Company Ltd. v. Collector of Central Excise:

The appellants argued that the judgment under appeal and the judgment of Pratap, J. were inconsistent with the Supreme Court's ruling in Wallace Flour Mills, which held that excise duty is levied at the time of removal of goods. The court distinguished the Wallace Flour Mills case, noting that it dealt with the point of time when goods become subject to excise duty, not the retrospective imposition of duty. The court held that the duty on the yarn in question was governed by the notifications in force when the yarn was manufactured and removed for further processing, thus rejecting the appellants' contention.

4. Compliance with Procedural Requirements for Removal of Goods:

The appellants contended that the first respondent had not followed the requisite procedures for the removal of goods as prescribed under the rules. The court found it unnecessary to delve into this issue for the disposal of the appeal, as the primary focus was on the validity of the show-cause-cum-demand notice. The court left open the possibility for the Department to address any procedural non-compliance through appropriate legal recourse.

Conclusion:

The court dismissed the appeal, upholding the judgment of the single judge and affirming that the yarn in question had earned exemption from excise duty under the notifications in force prior to July 15, 1977. The court clarified that the attempt to levy duty retrospectively was invalid, and the show-cause-cum-demand notice issued to the first respondent was rightly quashed. The appellants' request for leave to appeal was also refused.