9911796707
TMI Blog1970 (8) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... Petitioner Company is of "independent processor" within the meaning of that phrase in the Central Excise Rules, 1944, made under the Central Excise and Salt Act, 1944 hereinafter referred to as the Act. 3. Under Item 19 in the First Schedule to the Act, excise duty is levied on cotton fabrics. The rate of duty fixed in respect of these goods in the First Schedule has never been enforced, except in respect of sub-item (5) which is cotton fabrics, not otherwise specified". At the material time, the rate of duty for that sub-item was 83 paise per sq. metre. The rate of duty as regards the other four sub-items of Item 19 was by the Notifications issued under sub-rule (1) of rule 8 of the Central Excise Rules continuously charged at much lower rates specified in the Notifications issued from time to time. By the Notification dated July 4, 1958 for the first time these sub-items (1) to (4), (viz. Cotton fabrics, (i) Superfine, (ii) Fine. (iii) Medium, and (iv) Coarse were expanded so as to levy excise duty so that even independent processors became liable to pay duly of excise for processing "grey" cotton fabrics produced by other manufacturers. Now, this Notification and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 15, 1968, the goods processed by the Petitioner Company. were allowed to be removed from the licensed and specified godown maintained by the Petitioner Company. In January, 1968 the Excise Authorities decided that the excise duty - in respect of "lappet full voiles" and "Butta voiles" was not chargeable on the footing that these were cotton fabrics superfine falling in sub-item (1) of Item 19, i.e., these goods were Cotton fabrics, not otherwise specified" and were liable to pay excise duty at the rate of 80 paise per sq. metre. The three impugned reassessments and the notices of demand were made on the above footing. By the notices of demand dated April 12, 1968 copy whereof is Ex. I to the Petition, in respect of the period May 26, 1966 to October 25, 1967 under rule 10A of the Excise Rules, the Petitioner Company was called upon to pay ₹ 3,48,571.94. By the two notices of demand, both dated February 16, 1968, copies whereof are respectively Exs. D and C, as subsequently modified by a further notice dated March 23, 1968. Copy whereof is Ex. H to the Petition in respect of the two respective periods of October 26, 1967 to November 15, 1967 and November 16, 1967 to Fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturers of these fabrics. If duty was short-levied, the same was liable to be recovered from those manufacturers. The attempt to recover the same excise duty from the Petitioner Company was an attempt to collect twice over the duty that was recoverable from those manufacturers. Law does not permit collection of duty twice over in respect of any of the excisable goods mentioned in the First Schedule to the Act. As the duty claimed was never levied and or payable by the Petitioner Company, the reassessments and the demands are without jurisdiction and illegal. 6. The further subsidiary contentions, which we will not be required to dispose of in detail, were that having regard to the circumstances mentioned above, the Central Excise Department had knowledge that the Petitioner Company wat not liable to pay any further duty and the demand made was accordingly fraudulent exercise of power. The Department had found it impossible to make the claim for the alleged short levy of duty against the original manufacturers and therefore, the Department had been arbitrarily and capriciously attempting to recover duty payable by those manufacturers from the Petitioner Company. In connectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Processed in any other manner, including shrink proofed and/or organdie processed. His emphatic submission was that the arguments advanced by Mr. Joshi on behalf of the Petitioner Company were on the wrong footing that goods falling under this sub-item (5) were not liable to pay excise duty at the above three different stages of processing of grey fabrics. The effect of the submission................was that the lappet full voile and Butta voile recovered by the Petitioner Company for processing were merely grey goods. By processing them, that is, by bleaching, dying and/or printing. The Petitioner Company had produced now excisable goods. This article was once again liable to pay duty as falling under sub-item (5) of Item 19, that is, as "Cotton fabrics, not otherwise specified". For the above reason, in his submission, there was no substance in the contention of Mr. Joshi that in respect of the same article, duty was sought to be recovered by the above demands twice over from two manufacturers. He developed this argument by stating that the price of the "grey" lappet voile and Butta-voile sold in the market would always be altogether different from the bleached, dyed and/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oped by once again contending that cotton fabrics when grey and unprocessed were one kind of excisable goods and these very goods when subsequently processed were new and different kind of excisable goods. The Petitioner Company never applied for relief under section 56A and was, therefore, liable to pay duty at the rate of 80 paise per sq. metre in respect of the goods processed by it on the footing that these were new goods falling in sub-item (5) of Item 19. In that connection he argued that the goods in question were even more sophisticated than the Cotton fabrics, Superfine mentioned in sub-item (1). It was impossible that for such highly sophisticated goods duty was not payable under sub-item (5). He pointed out that under the scheme of the Act there were several items where duty was charged on the same goods more than once. He relied upon item 4 in the First Schedule to the Act relating to tobacco, which has sub-items of unmanufactured tobacco" and "manufactured tobacco" "thereunder there are further sub-items reading "cigars" and "cheroots" as well as "cigarettes" and "Biris". The submission was that there was nothing novel in recovering excise duty in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule to the Act. Now, the only relevant item in the present case is Item 19 in the First Schedule. That item as contained in the First Schedule runs as follows : "19 COTTON FABRICS * * * * (1) Cotton Fabrics, Superfine- * * * * (2) Cotton Fabrics, Fine- * * * * (3) Cotton Fabrics, Medium- * * * * (4) Cotton Fabrics, Coarse- * * * * (5) Cotton Fanbrics, Coarse * * * * The completed manufactured product which is excisable goods under this Item must he cotton fabrics of the description contained in the above sub-item (1) to (5). Now, in connection with the collection of the duty in respect of the goods which fall within these sub-items (1) to (5) and each and all excisable goods specified in the First Schedule, with the object of collection of duty, the excise rules provide inter alia for compulsory storage of all excisable goods manufactured in any factory in the licensed premises and thereupon finally and wholly to collect duty when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holly and completely the duty payable in respect of such goods, nor will such dealer in the market be concerned with mistakes which might have been committed as regards the true item of excise which was applicable to such released goods. The questions raised in this petition will have to be decided in this case on the footing of the above general propositions. 12. It is necessary in the first instance to mention that the rate of duly prescribed in the First Schedule to the Act in respect of the excisable items was always on a high scale. Administration has always proceeded to enforce duty of excise on the footing that the rates prescribed in the First Schedule were generally not to be enforced. lt is for this reason that in connection with the item of "cotton fabrics" as well as in connection with almost all items appearing in the First Schedule, the Administration has from time to time issued innumerable Notifications under sub-rule (1) of rule 8, exempting the excisable goods from the payment of rates of duties prescribed under the First Schedule and fixing the rates at much lower scales. Thus in connection with the rates of duty chargeable on "cotton fabrics" we have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and/or dyed and/or printed were liable to pay 32 paise per. sq. metre. The rate of duty was increased for the next two sub-classifications to 52 paise and 67 paise per sq. metre. Now apparently before sub-classification of each of the sub-items was made in the above manner, duty was levied on cotton fabrics,superfine once and for all and at the same rate. The question is what is the difference that was brought about under the above Notification by sub-classification of the cotton fabrics falling in the above sub-items superfine, fine, medium and coarse. Now, a composite mill could manufacture cotton fabrics of the description of each of the above 4 sub-items completely processed into condition mentioned in the sub-classifications. A composite mill may manufacture superfine cotton fabrics "processed in any other manner including shrinkproofed and/or organdie processed". The duty charged on such goods would be calculated at the rate of 67 paise per sq. metre. The question is whether in connection with the goods which are liable to pay duty at the above maximum rate of 97 paise per sq. metre, the composite mills must pay and/or was liable to pay duty when these very goods were only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above quoted provision is for the purpose of giving credit for the duty already paid in respect of the goods further processed by 3rd party processors. Thus, difference in the three rates of duty in respect of superfine cotton fabrics, that is 22 paise, 52 paise and 67 paise, when paid was not recovered from the ultimate processors. Similar is the scheme with reference to the sub-classification in the sub-items (2), (3) and (4) of Item 19. In this notification the scheme contained in this Notification becomes more clear when the Notification, is read with the first above referred Notification, dated March 19, 1958. There was no sub-classification of the sub-items (1) to (4) of item 19 in the Notification. There was accordingly no question of higher duty to be paid in respect of the goods falling in any of these four sub-items after they were released from the original manufacturer's licensed warehouse. Apparently, under the present Notification, dated March 1, 1966, the question of the higher rate of duty prescribed for goods mentioned in three more Sub-classifications could justifiably be raised where grey goods manufactured by another are processed by some other independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether, when the Petitioner Company processed the goods which were brought to it by its customers in grey condition, the Petitioner Company manufactured cotton fabrics falling in the sub-item (5). As discussed above, when there was no sub-classification of any kind of the cotton fabrics mentioned in sub-items (1) to (4), the duty of excise could only be recovered once and once only from the manufacturer of those goods. No difference has been made in connection with the duty to be collected for the cotton fabrics falling in sub-item (5) of Item 19 by enactment of sub-classifications as has been done in connection with the fabrics falling into sub-items (1) to (4) of Item 19. It is, therefore, abundantly clear that- in respect of cotton fabrics falling within the description of sub-item (5) of item 19, duty could be recovered once and once only and from the manufacturer of such fabrics. Mr. Advani submits that since the Petitioner Company processed the goods already manufactured, they must be considered to have produced new goods falling within the description of sub-item (5) of Item l9 and, therefore, they must be considered `manufacture' and must pay duty in respect of these goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urers. There is no dispute that the powerloom goods received and processed by the Petitioner Company might not have been charged to duty except at compounded rates and accordingly on a very small scale. The compounded rate of duty was only for unprocessed (Grey) fabrics. Mr. Advani contends that when these grey powerloom manufactured goods were subsequently processed by the Petitioner Company they were saleable in the market with different description at much higher prices than grey goods. The result, according to him, was that the Petitioner Company was manufacturer of new goods falling into sub-item (5) of Item 19 and irrespective of the release of the goods from the factories and warehouses of powerloom manufacturers and the duty charged to such manufacturers, the Petitioner Company became liable to pay once again duty of 80 paise per sq. metre as prescribed in the First Schedule. We have not been able to appreciate this submission made by Mr. Advani. We have to repeat that as cotton fabrics mentioned in this sub-item (5) have not been sub-classified into goods of different descriptions in the manner done with reference to the fabrics mentioned in the sub item (1) to (4) of Item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner Company was not entitled to any credit for the duty already collected on grey fabrics processed by it, because an application as required under rule 56-A had not been made by the Petitioner Company. Now there is no substance in this connection because the question of application under rule 56A does not arise and could not arise unless the product subsequently manufactured by use of the duty-paid goods falls into another different Item (of excisable goods) mentioned in the First Schedule. This can be made more clear by referring to the excisable goods in ltem 24 which is silver. Now, if once the manufacturer of silver mentioned in this item has got released silver of his manufacture from his factory, apparently there would be no reason why a jeweller or a trader who uses such silver in manufacturing ornaments and wares of silver could be liable to pay duty fixed by the First Schedule again in respect of the same silver. On the contrary, a manufacturer of a refrigerator which is exisable under Item 29A in the First Schedule, would necessarily use in manufacturing process electric motors which are excisable goods under Item 30 in the First Schedule. If the manufacturer of ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reassessment has been exercised in the manner not warranted by law. Levy of the reassessed duty and the demands made were illegal and are liable to be set aside. The first contention made by Mr. Joshi accordingly succeeds. 20. Reliance has been placed on the trade notice dated February 27, 1968 in support of the submission that the impugned demands were arbitrary and capricious and without any application of mind to the relevant facts. The demands were made only because the superior authority had given instructions to proceed to make reassessments which were not warranted in law. As we have made findings on the main issue arising between the parties, it would not be appropriate to refer here all the contents of the trade notice. It is sufficient to state that the contents of the trade notice go to show that the authorities which made impugned demands were aware that in all probability the demands were illegal and not justified. It is therefore, clear that it was most improper for the authorities concerned to proceed to make demands because they were instructed to do so by higher authorities. 21. It is unnecessary to decide the contentions raised regarding violation of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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