TMI Blog1995 (4) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... om, whether any excise duty was payable on the manufactured yarn prior to 15-7-1977 when an earlier notification dated 18-6-1977 exempting such yarn from payment of excise duty was in operation, only because the ultimate fabrics got manufactured from such yarn on and from 15-7-1977 when the earlier notification stood rescinded . 2. Civil Appeals 103 and 104 of 1988 are moved by the Collector of Central Excise of Bombay being aggrieved by the order passed by the Customs, Excise and Gold (Control) Appellate Tribunal (hereinafter referred to as the Tribunal ) which has taken the view that such yarn would not be liable to pay any duty while Civil Appeal No. 5408 of 1990 is moved by the assessee against the order of the Tribunal which has taken a contrary view. In order to appreciate the contours of this controversy, it is necessary to note a few relevant facts. 3. There is no dispute that the assessee textile mills in both the sets of appeals are composite textile mills. Composite textile mill is one which contains two departments amongst others, namely, spinning and weaving departments. In the weaving department yarn is manufactured. That yarn is captively consumed in the spinnin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds as under :- Cotton Fabrics [Tariff Item 19] Notification No. 226/77-C.E., dated 15-7-1977. In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, read with sub-section (3) of Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), and in supersession of the notification of the Government of India in the Department of Revenue and Banking, No. 135/77-Central Excises, dated the 18th June, 1977, the Central Government hereby exempts cotton fabrics, falling under sub-item I of Item No. 19 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) and specified in column (2) of the Table hereto annexed (hereafter in this notification referred to as the Table ) from so much of the duty of excise leviable thereon as is in excess of the duty specified in the corresponding entry in column (3) thereto. TABLE S. No. Description Rate of duty (1) (2) (3) 1. Cotton fabrics in which the ave-rage count of yarn is 41s or more. fifteen per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso shows that under the notification dated 15-7-1977 two types of cotton yarns manufactured by the composite textile mills, were sought to be taxed by way of excise duty as per Notification No. 131/77, namely, (1) cotton yarn manufactured prior to 15-7-1977 and removed for captive consumption and utilised in production of fabrics; and (2) cotton yarn already manufactured prior to 15-7-1977 but removed for captive consumption from and after 15-7-1977 for manufacturing of fabrics. This is clearly discernible from the words where cotton fabrics have been produced in a composite mill or are produced therein and in the production of such cotton fabrics....... cotton yarn........... on which no duty of excise was paid prior to the 15th day of July, 1977, was or is used... The dispute centres around the cotton yarn in the first category. In Civil Appeals 103 and 104 of 1988, the Tribunal has taken the view following the decisions of the Bombay High Court in Sriram Mills Ltd. v. Union of India (1982 E.L.T. 457) and the Gujarat High Court in Aryodaya Spinning and Weaving Company Ltd. v. Union of India (1981 E.L.T. 274), that when cotton yarn is manufactured prior to 15-7-1977 and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (iii) 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." A conjoint reading of Rule 9(1) and Explanation makes it clear that if a manufactured item covered by the charge of excise duty by the charging provisions of the Central Excise Act is captivity consumed, it would amount to removal of such manufactured item. Consequently once the yarn is manufactured in the weaving department of the composite textile mill and is taken to the spinning department for being captively utilised by way of consumption in spinning department, and gets consumed, it is deemed to have been removed within the meaning of Rule 9(1). Once that happens, the liability of such manufactured yarn to pay excise duty at the then prevalent rate of duty is crystalised. Thereafter, the question a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in Civil Appeal 5408 of 1990. At this stage it is also appropriate to note that the Explanation to Rule 9(1) and Section 49 inserted with retrospective effect by the rule making authorities were upheld by this Court in the case of M/s. J.K. Cotton Spinning Weaving Mills Ltd. Anr. v. Union of India Ors. [1987 Supp. SCC 350 = 1987 (32) E.L.T. 234]. A latter Bench of the Bombay High Court in the case of Union of India v. Hindustan Spinning Weaving Mills Ltd. [1992 (61) E.L.T. 531 at 535], has taken the same view which has appealed to us. According to us no other view is possible on the scheme of the relevant provisions of the Act and the Rules. We respectfully concur with the view of the Division Bench of the Bombay High Court in Union of India v. Hindustan Spinning Weaving Mills case (supra). 9. For all these reasons, Civil Appeals 103 and 104 are liable to fail and are dismissed. Civil Appeal 5408 of 1990 is allowed and it is held that the yarn manufactured by the appellant composite mills from 18-6-1977 upto 14-7-1977 and removed for captive consumption and used as such during that time in the spinning department for manufacture of fabric will not be liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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