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TMI Blog1990 (8) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... arn. Cellulosic spun yarn, cotton yarn and cotton fabrics which are ultimately manufactured by the first respondent are all excisable commodities. 3. Cellulosic spun yarn is liable to excise duty under Tariff Item No. 18, cotton yarn is liable to excise duty under Tariff Item No. 18A and cotton fabrics are liable to excise duty under Tariff Item No. 19 in the Schedule to the Central Excises and Salt Act, 1944 (hereinafter referred to as "the Act"). Under Sections 6,12 and 37 of the Act power has been conferred upon the Central Government to make rules and one of such powers is the power to make rules for exempting goods from excise duty in special cases. In exercise of this rule making power the Central Government has made Central Excise Rules, 1944. Rule 8 of these Rules deals with the power to authorise exemption from duty in special cases. Under this Rule - "The Central Government may, from time to time, by notification in the Official Gazette, exempt, (subject to such conditions as may be specified in the notification) any excisable goods from the whole or any part of duty leviable on such goods." In exercise of this power under Rule 8 the Central Government had issued No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otifications was to put forward a substantially different scheme for levying excise duty on cellulosic spun yarn and cotton yarn of all kinds used by all types of manufacturers. In the case of composite mills however, the exemption which was available from June 18,1977 in respect of cellulosic spun yarn and cotton yarn used in manufacturing of cotton fabrics was taken away. No difficulty appears to have arisen in prospective operation of the Notifications of July 15,1977. However, as regards cotton fabrics which were manufactured by composite mills after June 18,1977 from cellulosic spun yarn and cotton yarn and which were still lying in stock and not cleared, a special provision was made in the second proviso in the Notification dated July 15,1977, i.e. No. 226 of 1977. That proviso is subject matter of controversy. The relevant proviso reads as under - "Provided further that in cases 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely to take away the exemption which had already been earned by the cellulosic spun yarn and cotton yarn manufactured between 18th June, 1977 to 14th July, 1977. By the time the writ petition came up for hearing, there was already a judgment of a Single Judge, Pratap, J., dated June 15, 1982, in O.O.C.J. Miscellaneous Petition No. 215 of 1978 which held the field. Pendse, J. by his judgment dated July 10,1986, followed the judgment of Pratap, J. in O.O.C.J. Miscellaneous Petition No. 215 of 1978 and made the rule absolute in terms of prayer (a) quashing and setting aside the show-cause-cum-demand notice dated 19th May, 1979 issued to the first respondent. The appellants are in appeal against the said decision of Pendse, J. 8. Mr. Sethna, the learned counsel for the appellants, basically raised three contentions. He strenuously urged that the judgment under appeal and the judgment of Pratap, J. in O.O.C.J. Miscellaneous Petition No. 215 of 1978 were inconsistent with the law laid down by the Supreme Court in Wallace Flour Mills Company Ltd. v. Collector of Central Excise -1989 (44) E.L.T. 594 and hence must be held to have been overruled. He further contended that the yarn in ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the user of the assets in the business of the assessee. Here again in the judgment does not carry us any further and we do not think that it advances the contention of Mr. Sethna. As far as the facts of the present case are concerned, the short answer to Mr. Sethna's second contention is found in the wording of the show-cause-cum-demand notice itself. It was the case of the appellants in the said notice that cotton yarn of specified quantity which was held in stock in their various Departments as on the mid-night of 14th/15th July, 1977 had been removed and used for fabrication of cotton fabrics. In the face of this case made out in the show-cause-cum-demand notice, we are not in a position to accept the contention of Mr. Sethna that the yarn in question had not been "used" and therefore it had not earned the exemption under the notification which held the field prior to 15th July, 1977. Apart from this fact, it is also necessary to emphasise that in the annexure to the show-cause-cum-demand notice the appellants had specified the various Departments in which the yarn was held in stock. Considering the fact that yarn in question was manufactured in the Spinning Department, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that even though the taxable event is the manufacture or production of the excisable articles, the duty can be levied and collected at a later stage for administrative convenience and the scheme of the Act and the relevant Rules framed under the Act, particularly Rule 9A, revealed that though the taxable event is the fact of manufacture or production of excisable articles, the payment of duty is related to the date of removal of such articles from the factory. The Supreme Court observed, - "....... Excise is a duty on manufacture or production. But the realisation of the duty may be postponed for administrative convenience to the date of removal of goods from the factory. Rule 9A of the said rules merely does that. That is the scheme of the Act. It does not, in our opinion, make removal be the taxable event. The taxable event is the manufacture. But the liability to pay the duty is postponed till the time of removal under Rule 9A of the said Rules........ On the basis of Rule 9A of the said rules, the Central Excise authorities were within the competence to apply the rate prevailing on the date of removal. We are of the opinion that even though the taxable event is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the levy of the excise duty had not become crystallised on the date of manufacture of the yarn and hence the respondents were obliged to make payment at the rates current on the date of clearance of the fabric made out of the yarn. The Division Bench placed reliance on the explanation to Rule 9, which was brought into effect retrospectively from 2-10-1944, and a similar statement annexed to the show-cause notice therein which was issued to the company in the said case. There also the Department had alleged that the yarn in question was lying in various Departments, such as the Weaving Shed, and from the said description the Division Bench took the view that the yarn in question was in the process of blending and, therefore, in the process of manufacture. Even assuming that it was still yarn, it had been removed from the Department in which it had been made and transported to the weaving shed and other Departments for manufacture of cloth, and, therefore, the process of consumption and utilisation must be held to have commenced. In this view of the matter, the Division Bench dismissed the appeal of the Department and upheld the judgment of the single Judge. 12. Since the single J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spun yarn." We must point out here that the judgment in the Aryodaya Spinning Company's case was given by the Division Bench of the Gujarat High Court on 10th September, 1980, at which time Rule 9 did not contain the explanation. The explanation was added by the amending notification dated 28th February, 1982, although with retrospective effect from 28th February, 1944. The Gujarat High Court, while deciding the Aryodaya Spinning Company's case did not therefore have the benefit of the explanation. 14. The newly added explanation reads as under - Explanation. - For the purposes of this rule, excisable goods produced, cured or manufactured in any place and consumed or utilised - (i) as such or after subjection to any process or processes; or (ii) for the manufacture of any other commodity, whether in a continuous process or otherwise, in such place or any premises appurtenant thereto, specified by the Collector under sub-rule (1), shall be deemed to have been removed from such place or premises immediately before such consumption or utilisation." The explanation has been added to take care of the situation where an employer produces excisable goods and consumes or ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yarn in question from duty, the attempt on the part of the Government to impose duty thereupon by virtue of the Notification No. 226 of 1977 was, therefore, rightly held to be an attempt to levy duty retrospectively on the yarn in question which was wholly exempt from duty when it was manufactured upto and including the time of its removal. Thus, in our view, the judgments of the single Judge under appeal and of Pratap, J. in Miscellaneous Petition No. 215 of 1978, are correct and are quite consistent with the law laid down in the Wallace Flour Mills case, taking into consideration the newly added explanation to Rule 9. We, therefore, have no hesitation in rejecting the second contention of the appellants. 17. Turning to the last contention of Mr. Sethna that the first respondent had not complied with the procedure of removal of the goods, we are of the view that it is unnecessary for us to go into the said question for the disposal of the present appeal. The present appeal arises out of the successful challenge to the show-cause-cum-demand notice issued to the first respondent and if there is any substance in the grievance made, namely, that the first respondent had not complie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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