ARYODAYA SPG AND WVG CO LTD Vs. UNION OF INDIA AND ORS

JUDGEMENT

(1.) The petitioner herein is a limited Company and it manufactures both cellulosic spun yarn as well as cotton yarn and also purchase the same from the market for manufacture of cotton fabrics. The petitioner company is a composite mill in the sense that it spins yarns, weaves cloth and also processes the same in its processing house unit. The cellulosic spun yarn, the cotton yarn and the cotton fabrics which the petitioner manufactures are excisable commodities. Cellulosic spun yarn is liable to excise duty under Tariff Item No. 18. Cotton yarn is liable to excise duty under Tariff No. 18-A and cotton fabrics are liable to excise duty under Tariff Item No. 19 in the Schedule to the Central Excises and Salt Act, 1944, hereinafter referred to as the Act. Under Sections 6, 12 and 37 of the Act, powers has been conferred upon the Central Government to make rules and one of the powers is to make rules for excepting 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 excise duty leviable thereon when these yarns were used for weaving cotton fabrics in a composite mill. Simultaneously with these two notifications, a third notification also dated June 18, 1977 was issued, being Notification No. 135 of 1977. Under this notification, partial exemption to cotton fabrics falling under Tariff Item 19(i) of the Schedule to the said Act was granted. As a result of these notifications and particularly the notification bearing No. 132 of 1977, duty on cellulosic spun yarn and cotton yarn was wholly exempt and duty on cotton fabrics falling under Tariff Item No. 18-A was partially exempt to the extend mentioned in Notification No. 135 of 1977. It is the case of the petitioner company that on and after June 18, 1977 the petitioner company had manufactured cotton fabrics at its composite mill and had used cotton yarn and cellulosic spun yarn for he purpose of manufacturing these cotton fabrics. 4,70,000 metres of cotton fabrics were lying in stock awaiting clearance as on September 26, 1977.

(2.) On July 15, 1977 the Central Government issued three notifications, each one of which was issued in exercise of powers conferred by sub-rule (1) of rule 8 on the Central Government. By Notification No. 224 of 1977, Clause (vii) of the proviso and Explanation (ii) of Notification No. 131 of 1977 were omitted. By Notification No. 225 of 1977, also dated July 15, 1977, Notification No. 132 of 1977 was rescinded and by Notification No. 226 of 1977, Notification No. 135 of 1977 was superseded and new set of partial exemptions in the case of cotton fabrics were prescribed.

(3.) As a result of these three notifications of July 15, 1977, complete exemption which was granted in respect of cellulosic spun yarn and cotton yarn used by composite mills in manufacturing cotton fabrics, was taken away. By deletion of Clause (vii) of the proviso to Notification No. 131 of 1977, excise duty on cellulosic spun yarn and cotton yarn even when used for manufacture of cotton fabrics by composite mills could be levied at the rates mentioned in Notification No. 131 of 1977 and so far as all cotton fabrics were concerned, by virtue of Notification No. 226 of 1977 a different Table was prescribed for levying excise duty on cotton fabrics. The result of these three notifications was thus to put forward a different scheme for levying excise duty on cellulosic spun yarn 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 yarn 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 :