TMI Blog1980 (9) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... rules and one of the powers is to make rules for exposing goods from excise duty in special cases. In the exercise of this rule making power, the Central Government has made Central Excise Rules, 1944 and 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 Notification No. 131 of 1977 on June 18, 1977 granting partial exemption to cotton yarn falling under Tariff Item No. 18-A from payment of excise duty. Composite mills were however excluded from the operation of the said Notification by virtue of Clause (vii) of the proviso to this notification. On the same day, that is, June 18, 1977 another Notification No. 132 of 1977 was issued under Rule 8 and by this notification, cellulosic spun yarn falling under Tariff Item No. 18-III(i) and cotton yarn falling under Tariff Item No. 18-A(i) were exempt wholly from e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and cotton yarns of all kinds and used by all types of manufacturers but in the case of composite mills, the exemption which from June 18, 1977 was available in respect of cellulosic spun yam and cotton yarn used by composite mills in manufacture of cotton fabrics, was taken away. No difficulty can possibly arise and, in fact, no difficulty was felt so far as prospective operation of the notifications of July 15, 1977 was concerned. However as regards cotton fabrics which were manufactured after June 18, 1977 by composite mills from cellulosic spun yarn and cotton yarn and which were still lying in stock with -them and were not cleared, a special provision was made in the second proviso to the Notification dated July 15, 1977, bearing No. 226 of 1977. That second proviso was in these 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on such fabrics was to be at the appropriate rate of duty as specified in Notification No. 226 of 1977 plus the duty payable on such cellulosic spun yarn or cotton yarn or both under Notification No. 131 of 1917. It was contended that the reference to duty on cellulosic spun yarn and cotton yarn in Clause (b) of the second proviso to Notification No. 226 of 1977 was merely with a view to enable the excise authorities to compute excise duty on fabrics, that is, cotton fabrics, produced in a composite mill from cellulosic spun yarn or cotton yarn on which no duty had been paid prior to July 15, 1977. 6. In view of these rival contentions, Mr. I.M. Nanavati, learned counsel for the petitioner company, submitted before us as follows : (1) It is will settled that while issuing a notification under rule 8(1), the Central Government cannot give retrospective effect to such a notification; (2) The power under Rule 8(1) is to exempt totally or partially duty of excise levied by Parliament by prescribing the rate in the Schedule. Consequently, Notification No. 226 of 1977 second proviso, particularly clause (b) thereof, is ultra vires the rule-making power inasmuch as it enables imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, but by virtue of Notification No. 226 of 1977, the excise duty leviable on cotton fabrics was at a lower rate than what was prescribed under Notification No. 135 of 1977 and in the result there was a mere reshuffling of the entire burden. Under the earlier scheme of June 18, 1977 cotton fabrics made out of cellulosic spun yarn and cotton yarn in composite mills paid duty at a higher rate based on ad valorem value per square metre of cotton fabrics. Under the new scheme of Notification No. 226 of 1977, the basis of levying excise duty was changed and depending upon the count of yarn used in manufacturing of cotton fabrics (yarn may be either cellulosic spun yarn or cotton yarn), duty was levied at a lesser rate and the broad classification under Notification No. 226 of 1977 was between cotton fabrics in which the average count of yarn was 41 or more and in that category excise duty was leviable at 15 per cent ad valorem, whereas in respect of cotton fabrics other than those in which the average count of yarn was 41 or more, the duty payable was on ad valorem basis but the rates were lower than in Notification No 135 of 1977 dated June 18, 1977. Mr. Mehta contended on behalf of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the First Schedule." The rest of the provisions of Section 3 are not material for the purposes of this judgment. 11. In South Bihar Sugar Mills Ltd v. Union of India - 1978 E.L.T. (J 336) = 1968 S.C. 922, the Supreme Court has pointed out that the excise duty is on production or manufacture of an excisable article and not on the sale of that excisable article. In Special Civil Application No. 707 of 1978 decided by a Division Bench of this High Court on August, 10, 1978-1978 (2) E.L.T. (J 618), it was held that the event which leads to the levy of excise under Section 3 is the production or manufacture. But for the sake of convenience of collection of excise duty, it may be collected at the time when the goods leave the premises or are removed from the premises where they are manufactured or produced. The whole scheme works to the convenience of all concerned and it provides for the collection of excise duty, not at the exact moment of manufacture but at the time when they are removed from the place where the goods are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r from the premises where they are allowed to be stocked pending their clearance, but the excisable events are two, namely, the stage of production of cotton yarn or cellulosic spun yarn, and the second stage is that of manufacture or production of cotton fabrics out of such cellulosic spun yarn or cotton yarn. 13. When this position regarding the taxable event which gives rise to the liability to pay excise duty and the stage when the excise duty is collected looking to the convenience of collection, is borne in mind, the problem posed before us can be solved very easily. In the instant case, during the period July 15, 1977, by virtue of the Notification No. 132 of 1977 such cellulosic spun yarn and cotton yarn as was used in a composite mill for the manufacture of cotton fabrics was wholly exempted from duty on yarn. The result was that as and when cotton fabrics produced or manufactured in a composite mill left the premises of the manufacturer, the duty which was leviable at the stage of removal was only the duty on cotton fabrics, because at the stage when the yarn, whether cellulosic spun yarn or cotton yarn, was manufactured or produced, in respect of such of that yarn as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the duty-free premises or from the warehouses of the manufacturer. Because of the operation of Rule 9A in respect of cotton fabrics manufactured from duty-free cotton yarn or cellulosic spun yarn, the rate of duty applicable shall be the rate in force on the date on which duty is assessed, that is, on the date on which the goods are removed from the premises of the manufacturer. Hence, so far as cotton fabrics manufactured between June 18, 1977 and July 15, 1977 is composite mills were concerned, they would bear excise duty payable on the date on which the goods were removed from the premises of the manufacturer. But the impugned second proviso to Notification No. 226 of 1977 requires the manufacturer to pay excise duty on such fabrics, not only at the appropriate rate of duty as specified in the Notification but it requires the manufacturer to pay the duty payable on such cellulosic spun yarn or cotton yarn or both, as the case may be, under Notification No. 131 of 1977. It must be borne in mind that Notification No. 131 of 1977 deals not with duty on cotton fabrics. It deals with duty on cellulosic spun yarn and cotton yarn. When cellulosic spun yarn and cotton yarn which were u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government to provide for levy of excise duty on cellulosic spun yarn or cotton yarn which had been used in making cotton fabrics manufactured prior to July 15, 1977 by a composite mill and by the rules then in force it became wholly exempted from payment of excise duty when the yarn was used for manufacture of cotton fabrics in a composite mill. The taxable event in the light of which excise duty on cellulosic spun yarn or cotton yarn was payable was over before July 16, 1977. The event which had earned exemption for cellulosic spun yarn and cotton yarn had also occurred, namely, use of such cellulosic spun yarn and cotton yarn by a composite mill for the manufacture of cotton fabrics. What Clause (b) of the impugned second proviso to Notification No. 926 of 1977 was seeking to do was to collect at the stage of removal from the premises in question the excise duty, not on cotton fabrics but on cotton yarn and cellulosic spun yarn. Notification No. 135 of 1977 which dealt only with excise duty on cellulosic spun yarn and cotton yarn was sought to be tagged on to the excise duty payable on cotton fabrics under Item 19 of the Schedule to the Act. 18. It may be, as Mr. Mehta for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) namely, in respect of goods which are produced after July 15, 1977 the whole of the second proviso including clause (b) are within the powers of the Central Government and the whole of that proviso would be valid. Therefore, we strike down clause (b) in so far as it affects goods which were produced from wholly-exempted cellulosic spun yarn and cotton yarn in a composite mill during the period June 18, 1977 to July 15, 1977 and which were not cleared from the premises of the manufacturer before July 15, 1977. 19. In the course of the arguments our attention was drawn by counsel at the Bar to an apparent conflict of decisions between the decision of this High Court in Alembic Chemical Works' case - 1979 E.L.T. (J 258) = 17 G.L.R. 452 and the decision of the Madhya Pradesh High Court in The Union of India v. M/s. Kirloskar Bros. - 1978 E.L.T. =(J 33). February 1978 Issue-Section D of Cencus Volume VI. It has been pointed out in that volume that special leave partition against this decision of the Madhya Pradesh High Court was dismissed on merits by the Supreme Court. In the view which we take of the operation of the scheme for the collection of excise duty, it is not necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X
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