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TMI Blog1988 (3) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... ') read with the Central Excise Rules, 1944 (hereinafter called 'the Rules') framed thereunder. According to the petitioners, even though man-made fabric is an excisable commodity under the Tariff Act, no duty of excise is leviable thereon under Section 3 of the 1944 Act but an additional duty of excise is levied on specified goods under sub-section (3) of Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (hereinafter called 'the 1957 Act') i.e., inter alia, on goods falling under Chapters 54 and 55 of the Tariff Act. Section 3 of the 1957 Act reads as under :- "3. Levy and collection of additional duties - (1) There shall be levied and collected in respect of the following goods, namely, sugar, tobacco, cotton fabrics, silk fabrics, man-made fabrics and woollen fabrics produced or manufactured in India and on all such goods lying in stock within the precincts of any factory, warehouse or other premises where the said goods were manufactured, stored or produced, or in any premises appurtenant thereto, duties of excise at the rate or rates specified in the First Schedule to this Act. (2) The duties of excise referred to in sub-section (1) in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remises appurtenant thereto'. The duty imposed under this provision is in addition to the duties imposed under the 1944 Act or any other law for the time being in force. The provisions of the 1944 Act and the Rules made thereunder apply to the levy and collection of additional duty as they apply in relation to the levy and collection of duty under the said statute. Under the said provision the additional duty can be levied and collected on certain fabrics including man-made fabric. The present batch of petitions concerns goods referred to under the Headings 54.09 and 54.12 of Chapter 54 entitled "Man-made Filaments" and Headings 55.08, 55.11 and 55.12 of Chapter 55 entitled 'Man-made Staple Fibres' to the Tariff Act. Rule 8(1) of the Rules empowers the Central Government to exempt by notification any excisable goods from the whole or any part of duty leviable on such goods. In exercise of power conferred under the said Rule read with Section 3(3) of the 1957 Act, the Central Government issued the Notification No. 60/87 dated 1st March 1987 granting exemption to goods falling under Headings 54.09, 54.12, 55.08, 55.11 and 55.12 from so much of the duty leviable under the 1957 Act as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consistant with the chargin section. Note:- By an amendment of the petition the constitutional validity of Rule 9A came to be challenged but Mr. Nanavati stated that he did not press that contention in the present group of petitions. He also made it clear that he did not desire to address this Court on the point that under Rule 8(1) the Central Government has no power to enhance the rate of duty beyond that prescribed by the First Schedule to the 1944 Act. (See orders dated 24th December 1987 and 15th December 1987 respectively). 5. In the counter filed on behalf of the revenue it is pointed out that the petitioners are manufacturers of man-made fabric falling within Chapters 54 and 55, Headings 54.09, 54.12, 55.08, 55.11 and 55.12, of the Tariff Act. The additional duty of excise for the goods covered under the said Headings is 10 per cent plus Rs. 5 per sq. meter. However, the Central Government granted an exemption to the extent stated in Notification No./60/87 which later came to be replaced by the impugned Notification. The effective rate under both the Notifications was and is indisputably less than the rate prescribed under the 1957 Act and, therefore, the submission tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to any other place in India. Provided further that, unless specifically provided in any notification issued under this sub-rule, any exemption therein shall not apply to excisable goods produced or manufactured in a hundred per cent export-oriented undertaking and allowed to be sold in India. (2) The Central Board of Excise and Customs may, by special order in each case, exempt from the payment of duty, under circumstances of an exceptional nature, any excisable goods. (3) An exemption under sub-rule (1) or sub-rule (2) in respect of an excisable goods from any part of the duty of excise leviable thereon (the duty of excise leviable thereon being hereinafter referred to as the statutory duty) may be granted by providing for the levy of a duty on such goods at a rate expressed in a form or method different from the form or method in which the statutory duty is leviable and any exemption granted in relation to any excisable goods in the manner provided in this sub-rule shall have effect subject to the condition that the duty of excise chargeable on such goods shall in no case exceed the statutory duty. Explanation- 'Form or method', in relation to a rate of duty of excise, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder to decide whether the goods in question are to bear the duty under the old Notification No./60/87 or under the impugned Notification No./254/87, it is necessary to understand the scheme of taxation. Firstly, section 3 of the 1944 Act provides for the levy and collection of excise duty on all excisable goods manufactured in India at the rates set forth in the First Schedule in such manner as may be prescribed. Section 4 says that where the duty of excise is chargeable on any excisable goods with reference to its value, such value shall be deemed to be the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person, etc. The place of removal means a factory or any other place or premises of production or manufacture of excisable goods or a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed. It is obvious that emphasis here is clearly on the time and place of removal. 8. We now pass on to the rules framed under section 37 of the 1944 Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual removal of such goods. On a plain reading of the said rule it becomes obvious that the first part applies to a case where the goods are removed by a curer on payment of duty whereas the second part relates to removal of goods from the factory or warehouse on which duty is yet to be paid. In the case of the former, the critical date is the date on which the duty is assessed whereas in the latter case the critical time is the time of actual removal of the goods from the factory or the warehouse. Mrs. Mehta contends that the cases on hand belong to the latter category. On the other hand, Mr. Nanavati contends that since the taxable event is manufacture or production of excisable goods, the critical date for assessing the duty of excise can only be the date of manufacture regardless of the date of removal. According to him, 'manufacture' takes place no sooner there is transformation of a commodity into a new commodity commercially distinct and seperate from the earlier one having its own character, use and name, whether it be the result of a single or several processes. He submitted that on the date a new commodity comes into being, if the same is excisable, the liability to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective application. 11. In R.C. Jall v. Union of India, A.I.R. 1962 S.C. 1281 it was held that once the levy is relatable to manufacture or production of excisable goods, the same can be levied at any convenient stage so long as the character of the impost is not changed. Their Lordships pointed out :- "The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience." Thus even though the taxable event is the manufacture or production of an excisable article, the duty can be levied and collected at a later date for administrative convenience. 12. In Province of Madras v. M/s. Boddu Paiddana and Sons, 1978 E.L.T. (3 272), the Federal Court observed as under :- "There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed, destroyed or given away. A taxing authority will not ordinarily impose such a duty because it is much more convenient administratively to collect the duty (as in the case of most of the Excise Acts) when the commodity leaves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the railway track came to a dead-end on the other side. On 27th February 1961 it loaded 20 wagons of paper after effecting clearance of these goods by payment of the excise duty under Rule 52 of the Rules. On the next day, 28th February 1961, it loaded 13 more wagons and cleared them. These wagons were seal by the railway administration and railway receipts were issued in due course. The Company had also obtained the necessary gate passes. The wagons were shunted to the new siding for want of a pilot engine. The Deputy Superintendent of Central Excise wrote to the Company on 1st March 1961 that the wagons loaded on 27/28th February 1961 were found inside the factory premises till 9.45 A.M. on 1st March 1961 and the goods were, therefore, liable to be assessed at the higher rates of excise duty current on that day. The Company contended that the wagons were taken out of the factory premises and were not in the factory when the new rates came into force. Relying on Rule 9A of the Rules, it submitted that duty was payable at the rate in force on the date on which the duty was actually paid. In the alternative it submitted that since the goods had been cleared or removed from the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption notification which was issued under Rule 8(1) read with Section 37(2)(x)(vii) of the 1944 Act. The exemption notification was withdrawn by a subsequent notification with effect from 1st March 1970. The assessee Company had a stock of 'Protinules' manufactured before 1st March 1970. The revenue sought to tax the said stock under Rule 9A as and when the same was sought to be removed from the factory premises. The question which arose before the Court was whether the Company was liable to pay excise duty in force at the date of removal of 'Protinules' manufactured before 1st March 1970. After referring to the decision of the Supreme Court in Orient Paper Mills Ltd., (supra) and the scheme of the 1944 Act and the relevant rules, this Court observed as under :- "....when the concession flows from the rules, the effect of the withdrawal of that concession would have to be judged by the relevant rules themselves, which provide a crucial date for this purpose in the relevant Rule 9A that the rate of duty shall be the duty in force at the time of removal of these goods. The petitioner having got concession only under the relevant rules could never contend for a moment that the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tton yarn used by composite mills in the manufacture of cotton fabrics was taken away. By deletion of clause (vii) of the proviso to Notification No. 131 of 1977 excise duty on cellulosic spun yarn and cotton yarn even if used in the manufacture of cotton fabrics by composite mills became liable to duty at the rate mentioned in Notification No. 131 of 1977. So far as cotton fabrics were concerned, by Notification No. 226 of 1977 a different table was prescribed for levying excise duty thereon. In regard to cotton fabrics which were manufactured after June 18, 1977 by composite mills from cellulosic spun yarn and cotton yarn and which were lying uncleared in stock, B special provision was made in the second proviso to Notification No. 226 of 1977 in the following terms :- "Provided further that in case where cotton fabrics have been produced in a composite mill or are produced therein and in the production of such cotton fabrics cellulosic spun yarn falling under sub-item III(i) of Item No. 18 of the said First Schedule or cotton yarn falling under item No. 18A(i) of the said First Schedule or both, on which no duty of excise was paid prior to the 15th day of July, 1977, was or is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f excise duty payable on yarn. Such interest is to be paid for the period between manufacture of the yarn and the removal of the cotton fabrics made out of that yarn from the premises of the composite mill. Thus it is clear that so far as excise duty payable by a composite mill is concerned, the duty both on yarn as on cotton fabrics is collected at the time when the cotton fabrics are removed from the warehouse or godown of the composite mill. But it must be borne in mind that in the case of yarn, whether cellulosic spun yarn or cotton yarn, duty is leviable at what is known as spindle stage, namely, at the stage when the yarn comes into existence and a distinct and separate commodity comes into existence." (Emphasis supplied) It is manifest from the above statement that the duty on cellulosic spun yarn or cotton yarn became payable at the spindle stage, that is, when the yarn came into existence as a distinct and separate commodity and since the actual payment was postponed till the removal of the cotton fabrics from the manufactory, provision for payment of interest on the duty payable on the yarn for the period between the date of manufacture of the yarn and the date of remov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the exemption period from 1st March 1969 to 16th March 1972. By a notification dated 17th March 1972 the earlier notification dated 23rd April 1969 was modified and excise duty was made payable at 10 per cent ad valorem on the price of the goods and duty in excess thereof continued to be exempted. The question which arose for consideration was whether goods manufactured during the exemption period could be subjected to tax when removed from the manufactory after 16th March 1972. The Court took the view that since excise duty is a tax on the manufacture or production of goods, those goods manufactured or produced during the exemption period would be outside the tax not regardless of the date of actual removal. It will be seen from Union of India v. Kirloskar Brothers Ltd., 1978 E.L.T. (3 690) that the Court refused to grant a certificate of fitness for appeal to the Supreme Court. With respect, we cannot accept this view firstly because it runs counter to the view expressed by this Court in the case of Alembic Chemical Works Co. (supra) and secondly because it ignores the scheme of the 1944 Act and the Rules made thereunder. As pointed out earlier, the imposition of excise duty u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 of Sirpur Paper Mills case (ibid). 18. Reliance was next placed on the decision of the High Court of Andhra Pradesh in Sirpur Paper Mills Ltd. v. Union of India, 1984 (17) E.L.T. 217. In that case the assessee was manufacturing paper. It enlarged its production capacity by installing new machines which went into production from April 1967 or thereabouts. By Notification No. 163/65 dated 1st October, 1965, the Government extended concessional rates in respect of paper which was attributed to the enlarged production capacity of the Company and cleared after 1st March 1966. Later, the said notification was rescinded by Notification No. 87/73 dated 1st March 1973. The assessee claims the benefit of the concessional rates of duty in respect of the paper produced during the period related to the enlarged production capacity but removed after 1st March 1973. The revenue rejected the claim on the basis of Rule 9A. The argument in the main was that since excise duty is a tax on the manufacture or production of excisable goods, no tax can be levied on paper produced during 'the period prior to 1st March 1973. This argument found favour with the learned Judges as will be apparent from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stponed to a subsequent date and the rate of tax may be the one prevailing on the date of removal. Any other view may truncate Rule 9A. We are, therefore, of the view that it is too simplistic to hold that merely because the taxable event is manufacture of excisable goods, the rate of levy must be the one prevailing on the date of manufacture regardless of Rule 9A. With respect, such a view would run counter to the plain language of Rule 9A which fixes not only the critical date but also relates the rate of duty to that date. We, therefore, think that view expressed by this Court in Alembic Chemical Works case (supra) states the law correctly. That apart, it is binding on us and we must respectfully follow the same. It may incidentally be mentioned that the fact that the notification was issued as an incentive to expansive production weighed with the Court as it thought that the withdrawal of concession after the assessee had produced in compliance thereof would destroy the very purpose of the concession which could never have been the authority's intention. 19. The above, discussion shows that the view expressed by the Madhya Pradesh High Court in the. case of Kirloskar Brothers ..... X X X X Extracts X X X X X X X X Extracts X X X X
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