TMI Blog1983 (1) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the Companies Act, 1956. Petitioner No. 2 is a Director and shareholder of the first petitioner. A composite Spinning and Weaving Mill is owned and run by the first petitioner in which yarn is spun and ultimately converted into fabrics of different types. According to the petitioners, yarn is obtained at an intermediary stage as an intermediary product for use in its composite mill in which the said cotton yarn is ultimately utilised for making fabrics of different types. Cotton yarn, as such, attracts excise duty under Tariff Item 18A. Cellulosic Spun Yarn falls under Tariff Item 18 and Non-Cellulosic Spun Yarn falls under Tariff Item 18 E are also obtained and further processed within the composite mill in the manufacture of cotton fabrics or man-made fabrics as the case may be. In these petitions there is no dispute raised with regard to duty of excise on the end product, namely, the different kinds of fabrics produced by the petitioners. Some yarn which is not utilised for making fabrics is also cleared by the petitioners from its factory. There is no dispute regarding the duty payable thereon. The dispute relates to the liability to pay duty in respect of yarn which is fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng fabrics; and if duty can be charged for the intermediary product whether it has to be charged on 'Unsized Yarn' or 'Spun-Yarn' or on both. 5. The Central Excises and Salt Act, 1944, hereinafter referred to the Act, is a consolidating and amending law relating to central duties of excise on goods manufactured or produced in India and to salt. Section 3 of the said Act declares that there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt 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 to the Act. Section 4 of the Act lays down that where under the Act, the duty of excise is chargeable on any excisable goods with reference to value, how the said value would be arrived at. Section 9 deals with offences and penalties. It lays down that anyone contravening any of the provisions of a notification issued under section 6 or section 8, or of a rule made under clause (iii) of sub-section (2) of section 37 and thereby does or does not do certain things shall be punishable in the manner provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns was that factories which had generally been paying excise duty even on such intermediary product stopped paying duty and even claimed refund where duty had earlier been paid on an incorrect impression of law. The revenue naturally suffered. In many cases, the Government filed appeals in the Supreme Court or applied for grant of special leave to appeal. As it was not possible to have those cases decided by the Supreme Court expeditiously, the Central Government decided to amend the law. Accordingly, while enacting the Finance Act of 1982, the Parliament enacted Section 51, which reads as under :- "Retrospective effect for certain amendments to Central Excise Rules and Validation :- (1) The amendmeitts made in rules 9 and 49 of the Central Excise Rules, 1944 by the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. G.S.R. 74 (E) dated the 20th day of February, 1982, shall be deemed to have and to have always had effect on and from the date on which the Central Excise Rules, 1944 came into force. (2) Any action or thing taken or done or purporting to have been taken or done before the 20th day of February, 1982, under the Central Excises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumption, export or manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these rules or as the Collector may require, and except on presentation of any application in the proper form and on obtaining the permission of the proper officer on the form : Explanation :- For the purposes of this rule excisable goods, produced, cured or manufactured in any place and consumed or utilized - (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." "Rule 49. Duty Chargeable only on Removal of the Goods from the Factory Premises or from an Approved Place of Storage :- (1) Payment of duty shall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified under rule 9 or are about to be removed fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the notice : Provided that where any duty of excise has been not levied or paid or has been short-levied or short paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement, or suppression of facts, or contravention of any of the provisions of this Act or of the Rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, as if for the words, "six months", the words "five years" were substituted. Explanation : - Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of six months or five years, as the case may be. (2) The Assistant Collector of Central Excise shall, after considering the representation if any, made by the person on whom notice is served under sub-section (1), determine the amount of duty of excise duty from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined. (3) For the purposes of this section- (i) ``refund" includes rebate of duty of excise on excisable goods exported out of India or on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules, other than offence and punishments postulated by the Act. It is also said that clause (c) of sub-section (2) of Section 51 of the Finance Act suffers from the vice of arbitrariness as past transactions of as much 30 years could be reopened, causing excessive hardships. With regard to the unconstitutionality of amended Rules 9 and 49, the submissions made are as under :- I. The amended rule is arbitrary and unreasonable inasmuch as the goods which in fact are not removed from the factory and which are incapable of removal because of the nature and construction of the plant or the nature and character of the manufacturing process, are fictionally treated as having been removed. As a consequence of the fiction, the petitioners are exposed to huge liabilities for excise duty and also to penalties and confiscation in respect of acts and transactions which in reality have not taken place. As a result of the amendment of the rules, the petitioners are also exposed to excessive hardship in complying with the statutory provisions. II. The amended rules 9 and 49 make no attempt to distinguish between products and processes which are fundamentally dissimilar and different. All are treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an offence meant adjudged guilty of any act or omission punishable by law. As a result of the retrospective operation of the amended rules, the petitioners can be found guilty of contravention of Rule 9 or Rule 173Q by the Excise Authorities under the Act." 12. Before we deal with the contentions raised on behalf of the petitioners, we may briefly notice some of the decisions given prior to the impugned amendments. M/s Nirlon Synthetics Fibres/and Chemicals Ltd. filed a petition under Article 226 of the Constitution challenging the legality of excise duty sought to be levied on 'Polymer chips' (otherwise called Nylon Six Chips), under item 15A in Schedule I to the Act. By a petition filed in the Bombay High Court in 1964, it was held by a judgment dated April 30, 1970 that reading rules 9 and 49, as then in force together, if the rule making authority wanted to include 'removal' of the excisable articles occurring within the equipment, machinery, or any part or parts thereof, such as vessel, tubes or pipes, it could have done so while framing rules 9 and 49. Rules 9 and 49 speak of 'removal' from factory premises or specified place or premises and not parts of plants etc. It was fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the respondents had no opportunity to get this view tested by taking an appeal to the Supreme Court. 14. On March 28, 1974, a learned Single Judge of the Allahabad High Court decided a petition filed in 1973, in which also a question was raised with regard to leviability of excise duty on an intermediary product. This judgment was reported in Nagrat Paints v. Union of India, 1978 E.L.T. (J 39). The Learned Single Judge said that under Rule 9 duty is leviable only if the excisable article is removed from the place where it is manufactured or produced for consumption, export or manufacture of any other commodity. In that case, he noticed, there was no finding given by the authorities that Alkyd Resin was removed, from the place where it was produced for consumption, export or manufacture of any other commodity. Indeed, it was admitted that the conversion of V.N.E. Oil into Alkyd is only an intermediary stage in the manufacture of paints and varnishes. Therefore, he held that no duty was leviable on Alkyd Resin and the credit allowed for the use of V.N.E. Oil in the manufacture of paints and varnishes was properly available to the petitioner. We are not aware as to whether any appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacture. It is an admitted case of the parties that the silver which is obtained by the petitioners is consumed within the very premises in which it is manufactured; namely, within the spinning section of the factory. We are of the opinion that in this view of the matter as there is no removal from the place of manufacture, no duty of excise can be levied and recovered." 17. The judgment in Delhi doth General Mills Co. Ltd. and Another (Supra) was noticed. The High Court disagree with the contrary view expressed by the Gujarat High Court in Maneklal Harilal Spg. Mfg. Co. Lid. v. Union of India and others, 1978 E.L.T. (J 618). Referring to Rule 173Q it was held that the said provisions only provided for the manner or time of the payment of the duty. It postulates that duty is leviable. The question as to when duty can be levied and collected has to be decided by a joint reading of rules 9 and 49. 18. The same view was reiterated by the same Bench of this Court in Synthetics and Chemicals Limited, Bombay v. Government of India, 1980 E.L.T. 675. In J.K. Cotton Spinning and Weaving Mills Co. Ltd. and another v. Union of India and others, 1981 E.L.T. 887. This Bench, in the case of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... context of earning revenue. This is in nutshell the respondents answer to the challenge put forth by the petitioners. 20. The present batch of cases deal with spinning mills or spinning sections of the composite mills. Spun yarn is a commercial commodity known to the market and factually comes into existence. In a composite mill the spun yarn is first sized and then processed to make fabrics. Therefore, the question of goods incapable of removal because of the very nature of the manufacturing process does not really arise. Learned counsel for the petitioners, therefore, in the present set of cases has not addressed any arguments on the first contention noticed earlier and does not press for determination of the issue. We also, therefore, refrain from making any observation on this point. 21. Mr. Soli Sorabjee, learned counsel for the petitioners contends that despite amendments made in Rules 9 and 49 and enactment of Section 51 of the Finance Act the requirement to specify the 'place' where goods are produced, cured or manufactured or the 'premises' appurtenant to such place is still mandatory. Therefore, he contends, unless the 'place' or 'premises' are specified utilisation of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the meaning of the amended rules. The term 'issued out' in Rule 49 and 'removed' in Rule 9 as well as in Rule 49 must conform to the intention of the amended rules. Indeed, in Caltex case (supra) this Court had already made it clear that utilisation within the factory itself can in certain circumstances attract levy of duty. That principle has been clarified by the explanation added to Rules 9 and 49 by the amendment. 22. We are not impressed with the argument that the word 'such' used in the explanation to Rule 49 should be so construed as to refer to any place in a factory, as contended on behalf of the respondents. Indeed, nothing turns on it. On our reading of the amended rules utilisation of excisable goods even in a continuous process, so long as the goods are identifiable and capable of physical removal would attract duty whether in fact they are physically removed or not. Indeed, in one way of looking at it there will always be physical removal, either bodily or mechanically when goods go 'within the pipe line' for being utilised to be converted into another type of goods. Under the unamended Rules 9 and 49 we held that such utilisation would not amount to being issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances be invoked to test whether the provisions of law are arbitrary or unreasonable Mr. Sorabjee's main contention, therefore, is that making the rules operative from 1945 makes them violative of Article 19(1)(g) of the Constitution as then the rules become unreasonable. The trader or the business community or the industry cannot be expected to be called upon to pay taxes retrospectively from 1945. The effect of the amended rules is that all clearances made in the past, which previously did not attract duty, would now attract duty. Inasmuch as clearances have been made or are deemed to have been made without payment of duty the provisions for penalties and forfeitures as well would also be attracted. 26. Learned Solicitor General appearing on behalf of the respondents has contended that Section 51 of the Finance Act must be given full play and thus the retrospective operation has got to be with effect from 1945 when the excise rules were first promulgated. If that was not done the very purpose of the amendment would be lost. The mandate of the legislation, according to him, is to give power to refund and to collect where there was no fund to refund or collect prior to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he effect of Sections 11A and 11B of the Act. The particularisation by Section 51 of the Finance Act cannot have the effect of repealing Sections 11A and 11B of the Act. The excise authorities had no power to levy and collect duty on 'in-process' goods and this is what seems to have been remedied by the amendment of the rules. We cannot read Section 51 of the Finance Act to mean that the levy and collection can be made for past deemed clearances by ignoring the other provisions of the Act and the rules. We also cannot accept the learned Solicitor General's argument that Section 51 of the Finance Act should be read as limited to actions postulated by clauses (a) to (d) only and not permit levy of penalties etc. We, however, agree with the argument that no prosecution for past alleged breaches can now be ordered. 29. In the view that we have taken, the argument of Mr. Sorabjee of unresonableness on account of length of retrospectivity loses all force. We, therefore, hold that Section 51 and Rules 9 and 49 as amended are valid. 30. There is only one other point which remains to be dealt with and that is with regard to sized yarn or un-sized yarn being liable to levy of duty in factori ..... X X X X Extracts X X X X X X X X Extracts X X X X
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