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TMI Blog1983 (10) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, issued under Section 30 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), at the rates specified in Ministry of Industries and Civil Supplies (Department of Industrial Development) Order No. S.I. (141) E, dated 25-2-1976, and subsequent orders to the same effect. The short point is whether the excise authorities were justified in seeking to collect cess in terms of the above provisions on jute yarn manufactured by the appellants and used by them for the manufacture of jute manufactures such as hessian and sacking. 3. To facilitate a proper appreciation of the points at issue, it would be useful to reproduce the various relevant provisions. Section 9(1) of the Industries (Development and Regulation) Act, 1951, which provides the basic authority for the imposition of the cess, reads as follows :- 9. Imposition of cess on scheduled industries in certain cases. - (1) There may be levied and collected as a cess, for the purposes of this Act, on all goods manufactured or produced in any such scheduled industry as may be specified in this behalf by the Central Government by notified order, a duty of excise at such rate as may be specified in the notified ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. S.I. (141) E, dated 25-2-1976 specifies various descriptions of classes of jute goods and the rate of duty of excise (that is, cess) thereon, expressed in rupees per tonne. The rate of duty on hessian and jute fabrics other than sacking has been specified as ₹ 4.50 per tonne, and on sacking and jute yarn as ₹ 3.75 per tonne. In the subsequent notifications dated 14-2-1977, 7-2-1978 and 26-2-1979, issued from time to time, the rates were revised or continued, but no material change was made so far as the question now before us is concerned. 7. Appearing before us for the appellants, Shri Khaitan drew our attention to certain judgments of the Calcutta and Patna High Courts which are of direct relevance to the question before us. He fairly pointed out that the judgments of the Calcutta High Court were in favour of the Department s stand, while that of the Patna High Court was in favour of the assessees. The present appellants were not parties in any of the above cases. The first judgment of the Calcutta High Court was the one in the case of the Fort William Co. Ltd. v. Inspector, Central Excise and Others, reported in 1979 E.L.T. (J23). This was a judgment of a Sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be levied on jute goods captively consumed. Shri Khaitan relied very strongly on the judgment of the Patna High Court in the case of Rameshwar Jute Mills Ltd. In para 4 of that judgment the following observations have been made :- it is clear that the cess shall be levied at the time of delivery of goods at the place of manufacture and at the time of removal therefrom. In my opinion, the word therefrom means from the factory. Later on in the judgment, it was observed as follows :- Learned counsel for the respondents further contends that as soon as the manufacture of twines and yarn is completed and if they are removed from one place to another within the same factory, it amounts to removal of manufactured goods. I am unable to accept this contention for the reasons mentioned above. I am of the opinion that if the definition of factory is read along with the explanation to Section 9(1) of the Act, it is clear that the cess is not leviable unless the manufactured goods are removed outside the precincts of the factory. [para 10] The Hon ble Judge drew support for his interpretation from Rule 5 of the Jute Manufactures Cess Rules, 1976, and to the form of return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in so far as they were applicable to the levy of the cess. In this connection he quoted the judgment of the Supreme Court in the case of M/s. Mahindra and Mahindra v. Monopolies and Restrictive Trade Practices Commission, reported in AIR 1979 S.C. 798. 13. Shri Khaitan also argued that Section 9(1) of the Industries (Development and Regulation) Act refers to both the imposition of the cess and the removal of the goods. No doubt, the main part of the section provides that a cess may be levied and collected on all goods manufactured or produced in any specified schedule. However, in view of the reference to removal in the explanation, which has to be read as an integral part of the section, it should be considered that the charge of duty was not on manufacture alone, but only where there was both manufacture and also removal. 14. In was put to Shri Khaitan that the word removed occurring in Rules 9 and 49 of the Central Excise Rules, even prior to their amendment, had been the subject of interpretation by other High Courts, some of which had held that they covered even consumption or utilisation within a factory. There was no indication in the judgment of the Patna High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y clear that the cess may be levied on all goods manufactured or produced in any....... scheduled industry..... . There was no condition that removal should also be necessary. 17. Smt. Zutshi referred to the argument of Shri Khaitan that the provisions of the Central Excises and Salt Act and judgments delivered with reference to that Act and the Rules thereunder were not applicable to the cess imposed under the Industries (Development and Regulation) Act. She pointed out that Section 9 of the latter Act itself made it clear that the cess was a duty of excise. Accordingly, the various procedural provisions relating to the collection of duties of excise would be equally applicable for collection of the cess. 18. Smt. Zutshi then cited the judgment of the Delhi High Court in the case of J.K. Cotton Spinning and Weaving Mills and Another v. Union of India and Others, reported in 1983 E.L.T. 239 (Del.). In this judgment, the validity of the retrospective amendments to Rules 9 and 49 of the Central Excise Rules had been upheld. It had also been held (vide para 22 of the judgment) that in terms of the amended Rules 9 and 49, the utilisation of excisable goods even in a continuous p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that Government were fully competent to impose cess on jute yarn as well as hessian/sacking as they were different goods. 22. Smt. Zutshi concluded by submitting that the two judgments of the Calcutta High Court were clearly against the appellants, and that the fact of an appeal was pending in the Supreme Court would not change the position. 23. We have given our careful consideration to the arguments advanced by both sides. We observe that Shri Khaitan has fairly not agitated before us those points which he agrees as having been clearly decided against the assessees by the Calcutta High Court and has confirmed his arguments to two main grounds. 24. In regard to the first ground, namely that captive consumption would not constitute removal, Shri Khaitan has advanced a number of interesting arguments. As already mentioned, he has relied heavily on the judgment of the Patna High Court, which no doubt is in favour of his stand. We, however, observe that in the similar cases which went up before the Calcutta High Court, a contrary decision was given. It is true that the discussion on this points is not in the Calcutta High Court judgments as detailed as in the Patna H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgments of the Calcutta High Court have taken the contrary view (although not in such explicit terms), we have to decide which of the two views would be applicable to these cases. (It is relevant to note that the present appellants were not parties to either of the court cases, nor indeed are they situated within the jurisdiction of either the Calcutta High Court or the Patna High Court). 27. In this connection we pointed out to Shri Khaitan that there are a number of judicial decisions of other High Courts regarding the interpretation of the terms removed and removal with reference to Rules 9 and 49 of the Central Excise Rules. This is without reference to the question of the subsequent retrospective amendment of these Rules. There is no indication in the judgment in the Patna High Court that reference was made to any of these authorities. However, it appears that substantial reliance has been placed by the Court on the entries in the form of return prescribed in the Jute Manufactures Cess Rules, 1976. We have noted the submission of Smt. Zutshi that the form of return might not be considered as conclusive in this regard, because if refers equally to goods manufactured a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or even to have a general marketability in order to be considered as excisable goods . There are however, more pointed observations in some other judgments, to which we shall now advert, making it clear that they have reference to the wording of Rules 9 and 49 as they stood on 18-2-1976, that is, before the retrospective amendments made in 1982. 31. The judgments we have in mind are five in number. The first (referred to for convenience as the Nirlon Case ) is a judgment dated 30-4-1970 of the Bombay High Court in the case of Nirlon Synthetic Fibres and Chemicals Ltd., in Misc. Petition No. 491 of 1964. The second (referred to for convenience as the J.K. Synthetics Case ) is a judgment dated 28-8-1970 of the Delhi High Court in the case of J.K. Synthetics Ltd., Kota (Rajasthan), in Writ Petition No. 115-D of 1963. The third (referred to for convenience as the Caltex Case ) is another judgment dated 3-4-1972 of the Delhi High Court, in the case of Caltex Oil Refining (India) Ltd. v. Union of India, reported in 1979 E.L.T. (J 581) (Del.). The fourth (referred to for convenience as the D.C.M. case ) is a judgment dated 16-2-1978, also of the Delhi High Court, in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll within that item. 33. In the J.K. Synthetics case, the question was again whether polymer chips produced by the petitioner company were covered by Item 15A of the Central Excise Tariff and whether the petitioner company was liable to pay duty under the said item. The learned Judge held that the polymer chips were not covered by the above-mentioned item of the Central Excise Tariff. The petitioner company had also advanced the contention that in order to attract excise duty there must be removal of the excisable goods and that as the polymer chips were never removed within the meaning of the Central Excises and Salt Act or the Rules thereunder, they were not liable to payment of any excise duty. The attention of the learned Judge was also drawn to the judgment of the Bombay High Court in the Nirlon case, referred to above. After considering the question in depth, the learned Judge observed that with great respect to the learned Judge (the Bombay High Court), he was not able to agree with the interpretation put on the Rules by him as being a correct one. Since the observations made by the learned Judge of the Delhi High Court in reaching his conclusion are very relevant to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 yarn. The whole argument of the learned Counsel for the petitioner seems to hinge on the fact that one import licence was obtained for the plant and further that the same building houses the plant for the manufacture of Polymer Chips and for the manufacture of Nylon 6 yarn. Even here of course, it is not in the same part of the room both these processes are carried on. It is on an admitted fact that polymer chips which are put in the airtight containers are sent to another part of the premises where the process for the manufacture of Nylon 6 yarn is carried on. The removal of polymer chips would attract the Excise duty. The mere fortuitous chance of both the processes being available in one place or building cannot result in the Polymer Chips which may be excisable goods not being subject to a levy of excise on the ground that there is no removal. The counsel for the petitioner also pointed out that there was a process by which the polymer chips could be pumped into the Feeding Hopper from the Dryer directly. The suggestion was that if that continuous process was there, there would obviously be no removal of the Polymer chips which would be pumped directly and without having to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or outside such place until the excise duty leviable has been paid. The Rule thus contemplates the citus of manufacture as the place from where removal has to take place whether for consumption, export or manufacture of any other commodity. It obviously makes no reference to the plant or equipment. But where there are two distinct plants within the same factory premises removal can take place either outside the factory premises or within the factory premises if the product obtained by working of one plant is sent to another plant for obtaining another product. There can be no removal of a product within the plant itself so long as the product is in the process of manufacture. There can be removal only if the product goes out of one stream of production into another stream of production or if the product is issued out of or taken out or consumed if no further processing of that product is to be done. The Rule also contemplates that consumption within the place of manufacture would also amount to removal.... The moment oil goes out of the pipe-line for consumption as fuel for furnaces and not for being converted into any other product whether within or out of the factory it amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d calcium carbide made by the petitioner is removed from the factory in which it is made. A perusal of Rules 9 and 49 makes it clear that the question of collection of any excise duty cannot arise unless and until the goods are removed from the factory. 36. We have not been able to find the judgment the authorities of any cited by the petitioners to support the contention that there was no `removal of the goods from the factory and therefore duty was not chargeable, or the counter-arguments advanced on behalf of the respondents. We do not also find any reference to the judgment in the Nirlon case in the J.K. Synthetics case, and the Caltex case, in which the question of removal had been discussed at great length. It may be that the Hon ble High Court did not consider it necessary to examine this argument at length because it had already reached the conclusion, on the basis of the decisive consideration of the law relating to the marketability of calcium carbide, that the calcium carbide was not dutiable. 37. In the Maneklal case, the petitioners were a firm of textile manufactures who manufactured different articles like laps, slivers, yarn, etc., at different stages of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and not removal from the larger compound of the factory where excisable goods are consumed for production of further articles which may or may not be excisable goods. * * * * 14. In our opinion it is obvious from the scheme of the Rules and particularly in the light of the language of Rule 9 read in the context of licensing procedure and Rules relating to licences issued to manufacturers of excisable goods, that excise duty has to be collected and paid by the manufacturer concerned, when yarn is removed from the spinning department to the weaving department. This conclusion gets support from the language of proviso to Rule 52A(2). * * * * 15. Rule 9 applies to place where excisable goods are manufactured and not a factory and if the question of intermediate product, which is by itself an excisable article, arises for consideration, it is always a part of the larger factory where intermediate product will be manufactured if it is manufactured in the same larger premises of the factory. But, in view of the licensing procedure and in view of Rule 9, it is the place where a particular excisable article is manufactured that is material so far as collection at the stage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference in that judgment to either the Nirlon judgment or the J.K. Synthetics judgment or the Caltex judgment, and no indication that the fact of different view having been previously taken by the same High Court was brought to the notice of the Delhi High Court. Further, in the D.C.M. judgment the deciding factor seems to have been the law relating to the marketability of calcium carbide, in the light of which it was held that the calcium carbide manufactured by the petitioner company was not marketable and therefore not excisable. The reference to removal seems to be of an incidental nature. In the appeals before us there is no such ground that the yarn manufactured by the appellants was not itself marketable. 39. Thus, on a very careful study of the various judgments, we find that the majority of them are in favour of the view that use for captive consumption, as in the present case, would amount to removal . Among the three judgments of the Delhi High Court (within whose Jurisdiction we are situated), The preponderance of opinion again seems to be in favour of the same view. In such a situation, where there are conflicting judgments, we have to arrive at our own decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty. As regards the point that the charge is on manufacture combined with removal, we are inclined to agree with Smt. Zutshi that the explanation only has reference to the manner of collection of the duty, and deals with the value to be adopted for that purpose. As pointed out by Smt. Zutshi, the words capable of being sold make it clear that actual sale is not a necessary ingredient. The argument based on the reference to the time of their removal would also not survive, if the word removal is held to include (as, having regard to the overall effect of various judicial decisions, we think it must) captive consumption within the factory. 42. For these reasons, and having given the most anxious consideration to the various authorities on the subject, we are of the view that jute yarn which is used for captive consumption is also liable to the cess. 43. As regards the second ground advanced by Shri Khaitan, it has not been controverted, and we shall assume it to be correct for the sake for the purposes of the present discussion, that the cumulative incidence of cess on jute yarn and hessian/sacking would come to about 17 or 18 paise per ₹ 100/- of the value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an take judicial notice of it, that yarn can be and is sold in the market, and that it is clearly goods different from hessian or sacking. We do not find anything in Section 9(1) of the Industries (Development and Regulation) Act to the effect that the limit of 13 paise per cent of the value should be taken to refer to the cumulative incidence of the goods produced by a particular industry, even though the goods may be quite different and distinct from one another. Accordingly, we are unable to accept the contention of Shri Khaitan that the levy of cess on jute yarn would be illegal in view of the maximum limit imposed in Section 9(1) of the Industries (Development and Regulation) Act. 45. In the result, we are unable to accept either of the two basic grounds which have been argued by Shri Khaitan on behalf of the appellants. We note that substantial relief has already been given by the Collector (Appeals) on the ground of limitation under Rule 10 of the Central Excise Rules. For the reasons we have set out above in detail, we do not find any valid ground for further relief. We accordingly confirm the Order-in-Appeal of the Collector (Appeals) and reject these 5 appeals. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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