TMI Blog1978 (8) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... ers point out that even after laps or slivers or yarn are prepared, the same are not ultimately processed into the next stage without loss of time. Quality of laps, slivers or yarn is not affected by passage of time and these different articles do not get deteriorated by storage or being kept in stock. The petitioners contend that though different articles like laps, slivers, yarn, etc. come into existence at different stages of process of manufacture of fabrics, none of these articles is ever removed from the factory premises of the petitioner concerned and none of them is ever sold in the market. The entire quantity of these articles which are produced in the petitioners' textile mills is used in the manufacture of textiles within the factory premises. The question which the petitioners in these petitions have raised is whether, in law, the central excise authorities can collect excise duty on the yarn which comes into existence at the intervening stage during the course of manufacturing cloth, if such yarn is not removed out of the factory premises but is used for consumption within the factory premises for manufacturing the end product, namely, cotton fabrics or polyester carbo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective petitioners mill is used for the weaving section in the mills and there is no removal of yarn outside the factory premises. **** 9. From what we have stated hereinabove regarding the rules, it is obvious that, under rule 9 referred to above, removal of excisable goods from the place where they are produced or manufactured is not permitted except until the excise duty leviable on them has been paid at such place and in such manner as is prescribed in the rules. Because of the removal procedure referred to in Chapter VII-A in accordance with rule 173-G, the petitioners before us pay excise duty by making necessary entries in the register maintained by them and by maintaining an account-current in respect of each excisable article manufactured by them. 10. The law relating to intermediate products manufactured in the course of production of a final end-product, when the intermediate product is also an excisable article, has been clearly laid down by two decisions of the Supreme Court. In Union of India and another v. Delhi Cloth Mills Co. Ltd. - A.I.R. 1963 S.C. 791 = 1977 E.L.T. (J 199), in para 8, the law is laid down by Das Gupta J. speaking for the Supreme Court, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned oil which fell within the description of 'vegetable non-essential oil, all sorts' in Item 23 of the First Schedule. ...This Court held that if a new substance was brought into existence from raw materials and that substance was the same as 'refined oil' as known to the market it would be subject to duty." In the S.B. Suger Mills v. Union of India (supra), the question before the Supreme Court was whether Kilm Gas was the same thing as the gas which was known to the market as carbondioxide and, on the material before the Supreme Court, it was held that Kilm Gas was not carbondioxide. In paragraph 15, it was observed by Shelat J : "The analogy given by the learned Attorney-General of a manufacturer of cotton cloth also producing at an intermediate stage cotton yarn and such cotton yarn being liable to excise duty would not help the Revenue as cotton yarn obtained by such a manufacturer is known as such in the commercial community and brought to the market for being bought and sold ." Therefore, in paragraph 15, the Supreme Court proceeded on the footing that, so far as cotton yarn is concerned, if cotton yarn which is an excisable article under Item 18A of the First Schedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of further articles which may or may not be excisable goods. In the case before us, the end-product, namely, cotton fabrics, and polyester carbonised fabrics, are both liable to excise duty as such. But, the question that we have to ask ourselves is whether removal which is spoken of in rule 9 is removal from the spinning sections which are licenced premises as shown in the affidavits before us, or whether yarn, an excisable article, is produced or manufactured and in respect of which licence to produce yarn, either cotton or polyester, is issued to each of the petitioners, or whether it is only removal of cotton fabrics from the factory as such is the event which will attract collection of excise duty. 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 at the time, so far as yarn is concerned, when yarn is removed from the spinning department to the weaving department. This conclusion gets support from the language of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of levying and collection of ad valorem duty. In the case before us where excise duty has to be paid on the basis of weight of yarn, the question of invoking section 4 does not arise, and whatever has been said by the Delhi High Court in the context of the provisions of section 4 will, therefore, not apply in the instant case. However, the learned Advocate General relied very strongly on the decision of the Delhi High Court on point 4 at page J-126 of the Report. He relied on the following passage : "The expression `factory' is defined in section 2(c) to mean any premises including the precincts thereof wherein or in any part of which excisable goods are manufactured. The definition covers the present case because the calcium carbide is manufactured in one part of the factory while the acetylene gas is manufactured in another part thereof. The definition of 'factory' makes it clear that the meaning of factory is not restricted to only the part in which the excisable goods are manufactured. On the other hand it includes the whole of the premises in a part of which such goods are manufactured. At any rate the case of the petitioner is that the whole of the premises which comprise b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or special procedure of fixing of rate of duty when yarn was used by the same manufacturer for the purpose of manufacture of fabrics and rule 49A now provides that, in addition to the appropriate duty payable on polyester yarn or cotton yarn, one and a half per cent. of the duty payable on such cellulosic spun yarn or cotton yarn or both, has to be paid by way of interest on the amount to yarn duty, and when cotton fabrics are cleared after processing, the yarn duty is payable along with three per cent. interest on the duty payable on such cellulosic spun yarn, cotton yarn or both, as the case may be, and this applies to composite mills which are defined to mean manufacturers who are engaged in spinning of cotton yarn or weaving or processing of cotton fabrics with the aid of power and have a proprietary interest in at least two of such manufacturing activities. Rule 49A, we are informed, has come into force with effect from the end of November, 1977. This rule 49A and old rule 96 W indicate that so far as composite textile mills are concerned, special procedure has been laid down under the rules for collection of duty leviable on yarn which is consumed by the same manufacturer in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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