S.RANGANATHAN - (1.) THESE are three appeals by the Collector of Central Excise. Two of them relate to Ahmedabad and one to Bombay. The Ahmedabad appeals are in the case of M/s. Ashoka Mills Ltd. and the Bombay appeal is in the case of M/ s. Mafatlal Fine Spinning and Manufacturing Co. Ltd. THESE appeals raise a very interesting question.
(2.) THE assessee respondents are companies manufacturing yarn and cotton fabrics the manufacture of yarn being a step in the process of the manufacture of cotton fabrics. Cotton fabrics (which expression included all fabrics containing more than 40 Per Cent by weight of cotton) were subject to excise duty on an ad valorem basis under Item 19 of the tariff in the First Schedule to the Central Excises and Salt Act, 1944 (hereinafter referred to as 'the Act'). "Yarn. all sorts, not elsewhere specified ... .." became liable to duty under Item 18-E of the First Schedule under the Finance Act, 1972 w.e.f. 17-3-1972. The consequence was that, from 17-3-1972, the yarn which was being produced by the appellants became liable to duty under Item 18-E while the fabric manufactured by them was dutiable under Item 19. The Central Government decided to give two categories of assessees the benefit of the provisions of Rr. 96-V & 96-W of the Central Excise Rules: (i) assessees manufacturing woollen yarn, and (ii) assessees manufacturing cotton yarn or yarn falling under Item 18-E and using the same wholly or partly, in the manufacture of fabrics in their own factory. These rules appeared in Chapter V of the Rules as Section E. VI, headed "Cotton Yarn, woollen yearn, yarn falling under tariff Item 18E- Special Procedure". This section in the rules was inserted by notification No. 110/61 dated 20-4-1961 and omitted by notification No. 146/77 dated 18-6-1977. They read thus: "96-V Application to avail of special procedure -- (1) Where a manufacturer who manufactures cotton yarn, failing under Item 18E of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) or woollen yarn and in the case of cotton yarn or yarn falling under Item 18-E of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) uses the whole or part of the yarn manufactured by him in the manufacture of cotton fabrics in his own factory, makes in the proper form an application to the Collector in this behalf the special provisions contained in this section shall, on such application being granted by the Collector, apply to such manufacturer in substitution of the provisions contained elsewhere than in this section for the period in respect of which the application has been so granted. (2) Such application shall be made so as to cover a period of not less than six consecutive calendar months, but may be granted for a shorter period in the discretion of the Collector. (3) If at any time during such period, the manufacturer does not want to avail himself of the special provisions contained in this section, he shall give a notice in writing to the proper officer of his intention at least one week in advance; and if he fails to give such notice he shall be precluded from availing himself of such provisions for a period of 6 months from the date of such failure. 96-W. Discharge of liability for duty on payment of certain sum - (1) Having regard to the average production of cotton fabrics from one kilogram of cotton yarn or yarn falling under Item 18-E of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) or the average prevailing prices of woollen yarn the Central Government may, by notification in the Official Gazette, fix from time to time a rate per square metre of the cotton fabrics produced or per kilogram of the woollen yarn produced, as the case may be, subject to such conditions and limitations as it may think fit to impose, and if a manufacturer whose application has been granted under R. 96V pays a sum calculated according to such rate in the manner hereinafter laid down, such payment shall be a full discharge of his liability for the duty leviable on the quantity of cotton yarn or yarn falling under Item 18-E of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) manufactured by him and used in the manufacture of fabrics in his factory or the quantity of woollen yarn produced by him: 1. Provided that if there is an alteration in the rates of duty and/ or in the limit of exemption, the sum payable shall be recalculated on the basis of the revised rates and/ or exemption limit from the date of alteration and liability for duty leviable on the quantity of cotton yarn or yarn falling under Item 18-E of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) used in the .manufacture of cotton fabrics or woollen yarn produced shall not be discharged unless differential duty is paid. (a) in the case of such cotton yarn, or yarn, failing under Item 18-E of the First Schedule to the Central Excises & Salt Act, 1944 (1 of 1944) as on the date of clearance of the aforesaid cotton fabrics, and (b) in the case of woollen yarn, as on the date of clearance of such woollen yarn from the factory of the manufacturer; should, however, the amount of duty so recalculated be less than the sum paid, the balance shall be refunded to the manufacturer. (2) The rate specified under sub-rule (1) shall be separately and distinctly notified, and shall be separately and distinctly applied, in respect of (i) cotton yarn and (ii) woollen yarn. (3) The sum payable under sub-rule (1) in respect of cotton yarn shall be paid by the manufacturer along with the duty on fabrics in the manner prescribed in Rule 52. Provided that where cotton fabrics are allowed to be removed in bond under Rule 96-D from one factory to another (hereinafter referred to as the processing factory) for processing and the cotton fabrics also processed are cleared from the processing factory, the duty payable under sub-rule (1) shall be paid by the licensee of the processing factory. A notification as envisaged by R. 96-V was issued, being notification No. 62/72, on 17-3-1972. It reads as follows: "In pursuance of R. 96-W of the Central Excise Rules, 1944, the Central Government hereby directs that the rate of duty in respect of yarn containing partly more than 40 per cent by weight of cotton and partly any other fibre or fibres, the wool or silk content being less than 40 Per Cent by weight of such yarn (where such yarn contains wool or silk) and failing under Item No. 18-E of the First Schedule to the Central Excises and Salt Act, 1944 and of the description specified in column (2) of the Table hereto annexed, shall be the rate specified in the corresponding entry in column (3) of the said Table. THE TABLE JUDGEMENT_81_4_1989Html1.htm Provided that if the manufacturer elects to avail himself of the special provisions contained in rule 96-W aforesaid, the procedure set out in that rule in this behalf shall uniformly apply to all the yarn of the description specified in the above Table and used by him in the production of cotton fabrics in his factory. Explanation: - For the purpose of this notification (i) "base fabrics" shall have the same meaning as assigned to it in tariff item No. 19 of the. first schedule to the Central Excises and Salt Act, 1944 (1 of 1944) (ii) the average count of yarn in a fabric shall be deemed to be the count of all yarn contained in such fabric.. Rules 96-V & 96-W, it will be noticed, deal with two items: cotton yarn or yarn failing under item 18-E of the First Schedule and woollen yarn. Normally, under the Schedule to the Act, woollen yarn was being charged to excise duty on an ad valorem basis while cotton and other yarn was being assessed on weight basis. The rules cited above and the notification referred to, however, provided an alternative, on the application of the assessee. On a notification being issued and the assessee's option being exercised, duty on woollen yarn became payable on the basis of weight at the rates prevalent at the time of clearance of the yarn from the factory. If the rates had gone up in the meantime, the assessee had to pay the differential duty and if the rates had gone down, the assessee would be entitled to a refund. Thus the assessee was given the option of paying the duty on the woollen yarn on weight basis at the rates prevalent on the date of their clearance. We are not concerned with this here. So far as cotton and other yarn is concerned, the duty, in cases governed by a notification and application under this Section, would be levied not on the weight of the yarn manufactured but on the extent of fabric manufactured from such yarn. Naturally, this duty could be calculated only after the fabric had been manufactured, on the basis of the area of cloth or fabric manufactured. This would create a doubt whether the duty on yarn under the scheme is payable on the production of yarn or on the date of clearance of the fabrics. Sub-section (3) of S. 96-W clears this doubt. It provides that the duty would he paid along with the duty payable on the fabrics under R. 52. This clearly shows that it is not the incidence of liability that is shifted but only the collection of the duty.
(3.) THE purpose of the rules and notifications may be briefly set out thus. As already mentioned both yarn and fabrics are individual items exigible to duty. Two levies on the yarn as well as on the cotton fabrics, on different base, may not only impose an undue burden on the manufacturer but may also unnecessarily complicate the process of collection of duty at two stages. The Act, therefore, envisages what has been described as a scheme of "compounded levy". Under this scheme, the excise duty on the yarn is collected only as and when the manufactured goods, namely, cotton fabrics are cleared from the factory and no duty is collected at the stage of the production or manufacture of yarn. The duty paid as per this notification is treated as a full discharge of the assessee's liability for the duty leviable on the yarn used by the assessee for manufacture of fabrics in its factory. To sum up briefly, rules 96-Y and 96-W, together with the notification issued thereunder are concerned only with the issue of the excise duty leviable in respect of yarn and what they seek to achieve are (a) the alteration of the basis of duty from a rate calculated on the weight of yarn produced to a calculation on the basis of the area of fabric manufactured therefrom; (b) the postponement of the collection of the duty till the point of clearance of the fabrics; and (c) the levy of the duty at rates prevalent not on the date of production of the yarn but on the date of clearance of the fabric. If the notification of 17-3-1972 had continued in force, there would have been no difficulty in its application. However, on 24-7-1972, the Government issued Notification No. 169 of 1972, the result of which was that the special procedure referred to above was made inapplicable to the type of yarn manufactured, used for weaving and cleared by the appellants. The short question in these appeals is as to the effect of this omission in respect of yarn produced after 17-3-72 and cleared for captive consumption before 24-7-1972 but lying in various departments at various stages of manufacture or in the form of cotton fabrics not yet cleared as on 24-7-72. The Department has taken the view that in respect of the yarn manufactured between 17-3-72 and 23-7-72 the assessee is liable to pay the normal duty payable on yarn under Item 18-E so long as the fabrics manufactured out of such yarn remained uncleared from the factory as on 24-7-1972. On the other hand, the assessee's contention is that excise duty on yarn is attracted as soon as it is produced and cleared for captive consumption though kept in abeyance and collected, so long as the notification was in force, till the corresponding fabrics were cleared. The assessee is not liable to pay any higher duty in respect thereof unless one could bring it within the terms of the proviso to the notification. The short contention is that the proviso applies only in a case where the notification under S. 96-W continues to be in force and there is a change in rates under the scheme of compounded levy introduced by the notification but not where the difference in rates is one between those prevailing on the date of production of yarn under the scheme and the date of clearance of the goods after the abandonment of' the scheme.;