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PETITIONER: COLLECTOR OF CENTRAL  EXCISE, AHMEDABADETC. ETC.

       Vs.

RESPONDENT: ASHOKA MILLS LTD. ETC. ETC.

DATE OF JUDGMENT08/09/1989

BENCH: RANGNATHAN, S. BENCH: RANGNATHAN, S. OJHA, N.D. (J)

CITATION:  1990 AIR   33            1989 SCR  Supl. (1)  86  1989 SCC  (4)  81        JT 1989 (3)   576  1989 SCALE  (2)553

ACT:       Central Excises & Salt Act, 1944/Central Excise Rules, 1944--First  Schedule  Item 18E and 19/Rules 96 V  &  W  and Notification  No.  110/61 dated 20.4.61,  No.  146/77  dated 18.6.77, No. 62/72 dated 17.3.72--’Yarn all sorts not other- wise   specified’--Interpretation   of--Duty--Levy   Special procedure--Availability   of--Yarn produced  after   17.3.72 cleared for captive consumption before 24.7. 72 but lying in various departments and not cleared as on 24.7. 72.

HEADNOTE:      The  department  took 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 18E  so  long as the fabric  manufactured out of  such  yarn remained uncleared from the factory as on 24.7.1972. On  the other hand the assessee’s contention was that excise duty on yarn is attracted as soon as it is produced and cleared for captive consumption.      The Customs, Excise & Gold Control Appellate Tribunal   (CEGAT)  accepted the contention of the assessee and  held that  the  yarn cleared for captive consumption  during  the period  from  17.3.72  to 23.7.72 in terms  of  the  special procedure  was  entitled to the benefit of  the  rate  fixed under  Notification No. 62/72-CE dated 17.3.72 and  that  no further duty was payable on that quantity of the yarn and  a consequential  refund  to the appellants was  directed.  Ag- grieved  by  the order of the Tribunal the  department  pre- ferred  these  appeals to this Court. While  dismissing  the appeals  and upholding the view taken by the Tribunal,  this Court,        HELD:  Rules  96 V & W of the Central  Excise  Rules, deal with two items: cotton yarn or yarn falling under  item 18E 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. [92C]       Yarn is an excisable commodity and but for the special procedure 87 and  notification, duty thereon is leviable at the point  of

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production  and clearance for captive consumption. The  duty attached itself at the point of production and clearance  of the yarn. The notification does not alter this position.  It does not shift the incidence of duty from yarn to the  woven fabric. [94E-F]     The  proviso to Rule 96-W does not help the Revenue.  It only contemplates cases where there is a change in the rates prescribed  under the notification between the date of  pro- duction of the yarn and the date of clearance of the fabric. [94H; 95A]     The words of the proviso can be extended to cover a case where  the  notification itself has ceased to apply  by  the date  of  clearance of the fabric. To apply the  proviso  to such  a case would result in its applicability to a  totally different  situation. It would involve a comparison  of  un- likes. [95E]     Crown  Spinning & Manufacturing Co. Ltd.  v.  Collector, [1983] E.L.T. 2433, referred to.

JUDGMENT:   CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2436-37 of 1987 etc.     From  the Judgment and Order dated 2.4.1983 of the  Cus- toms, Excise and Gold Control Appellate Tribunal, New  Delhi in Appeal No. ED (T)/SB/64/76-D and ED(SB)(T) A. No. 61/76-D in Order Nos. D- 169 and 170 of 1983.     V.C.  Mahajan, A. Subba Rao and C.V. Subba Rao  for  the Appellant.     Soli  J.  Sorabjee, P.H. Parekh, M.K.  Pandit  and  J.P. Pathak for the Respondent. The Judgment of the Court was delivered by     RANGANATHAN, J. 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. 88      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  con- taining  more than 40% 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 &  Salt Act, 1944 (hereinafter referred to as ’the Act’). "Yarn, all sorts,  not  elsewhere specified  .....  "became  liable  to duty under item 18E of the First Schedule under the  Finance Act,  1972  w.e.f. 17.3.72. The consequence was  that,  from 17.3.72, the yarn which was being produced by the appellants became liable to duty under item 18E while the fabric  manu- factured by them was dutiable under item 19.      The  Central Government decided to give two  categories of assessees the benefit of the provisions of Rules 96 V & W of  the  Central Excise Rules: (i)  assessees  manufacturing woollen  yarn; and (ii) assessees manufacturing cotton  yarn or yarn falling under item 18E 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 yarn, yarn  falling  under tariff  item  18E--Special Procedure". This Section  in  the rules was inserted by notification No. 110/61 dated  20.4.61 and  omitted by notification No. 146/77 dated 18.6.77.  They

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read thus:               "96-V  Application to avail of special  proce-               dure ,--               (1)  Where  a  manufacturer  who  manufactures               cotton  yarn, yarn falling under item  18E  of               the  First Schedule to the Central  Excises  &               Salt Act, 1944 (1 of 1944) or woollen yarn and               in  the  case of cotton yarn of  yarn  falling               under  item 18E of the First Schedule  to  the               Central  Excises & Salt Act, 1944 (1 to  1944)               uses  the whole or part of the  yarn  manufac-               tured  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               89               be granted for a shorter period in the discre-               tion 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  avail-               ing 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 18E  of  the               First  Schedule to the Central Excises &  Salt               Act, 1944 (1. to 1944) or the average prevail-               ing prices of woollen yarn the Central Govern-               ment  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 rule 96V pays a sum  calcu-               lated  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  of               yarn  falling  under  item 18E  of  the  First               Schedule  to the Central Excises &  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

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             exemption,  the sum payable shall be  recalcu-               lated on the basis of the revised rates and/or               exemption  limit from the date  of  alteration               and liability for duty leviable on the quanti-               ty  of cotton yarn or yarn falling under  item               18E  of  the  First Schedule  to  the  Central               Excises  & Salt Act, 1944 (1 to 1944) used  in               the  manufacture of cotton fabrics or  woollen               yarn  produced shall not be discharged  unless               differential duty is paid.               90               (a)  in the case of such cotton yarn, or  yarn               falling  under item 18E 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  ap-               plied, 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 licencee  of               the processing factory.               A  notification as envisaged by Rule  96V  was               issued,  being  notification  No.  62/72,   on               17.3.72. It reads as follows:               "In  pursuance  of rule 96-W  of  the  Central               Excise  Rules,  1944, the  Central  Government               hereby  directs that the rate of duty  in  re-               spect  of yarn containing partly more than  40               per  cent by weight of cotton and  partly  any               other  fibre or fibres, the wool or silk  con-               tent  being  less than 40% by weight  of  such               yarn  (where such yarn contains wool or  silk)               and  falling under Item No. 18E 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. 91                        THE TABLE S. No.  Description of yarn                 Rate (1)      (2)                      (3)                                   Paise per square metre                                   of the fabric made. 1.  Yarn used in making super-              20.00 fine fabrics. 2. Yarn used in making fine fabrics.        12.00

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3.   Yarn used in making medium              6.00 fabrics. 4.   Yarn used in making                     4.40 medium fabrics. 5. Yarn used in making coarse fabrics.       2.20 6.  Yarn used in the manufacture             4.40     of cotton fabrics generally     described as Malimo type fabrics     or fabrics in which warp and weft     yarns are connected and fastened     together by chain stiches baned     against each other. 7.  Yarn used in making embriodery      The duty for the     in the place in steps or in         time being leviable     motifs.                             on yarn contained in                                         the base fabrics if                                         not already paid. 8.  Yarn used in making fabrics            -do-     impregnated or coated with     preparation of cellulose     derivations or of other     artificial plastic materials.               Provided  that if the manufacturer  elects  to               avail  himself of the special provisions  con-               tained  in rule 96-W aforesaid, the  procedure               set  out  in that rule in  this  behalf  shall               uniformly  apply  to all the yarn of  the  de-               scription  specified  in the above  table  and               used  by him in the production of cotton  fab-               rics in his factory.               92               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 &  Salt               Act, 1944 (1 to 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 & W, it will be noticed, deal with two items: cotton  yarn  or yarn falling under item 18E  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

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on the production of yarn or on the date of clearance of the fabrics. Sub-section (3) of section 96-W clears this  doubt. It provides that the duty would be paid along with the  duty payable  on  the fabrics under rule 52. This  clearly  shows that  it is not the incidence of liability that  is  shifted but only the collection of the duty.      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 bases, may not only impose an undue burden on 93 the  manufacturer but may also unnecessarily complicate  the process of collection of duty at two stages. The Act, there- fore,  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 manufac- ture  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-V 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 24.7.72  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  pay- able on yarn under Item 18E so long as the fabrics  manufac- tured  out of such yarn remained uncleared from the  factory as on 24.7.72. 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 94 the  proviso applies only in a case where  the  notification under  section 96-W continues to be in force and there is  a

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change  in rates under the scheme of compounded levy  intro- duced  by the notification but not where the  difference  in rates is one between those prevailing on the date of produc- tion  of yarn under the scheme and the date of clearance  of the goods after the abandonment of the scheme.     The  Customs, Excise & Gold Control  Appellate  Tribunal (CEGAT)  accepted the contention of the  assessee  following its  earlier decision dated 2.4.1983 in M/s Raipur  Manufac- turing Co. v. Collector of Central Excise, Ahmedabad, [1988] 33  E.L.T.  542. It held that the yarn cleared  for  captive consumption during the period from 17.3. 1972 to 23.7.  1972 in terms of the special procedure was entitled to the  bene- fit of the rates fixed under Notification No. 62/72-CE dated 17.3.1972  and  that  no further duty was  payable  on  that quantity  of the yarn. A consequential refund to the  appel- lants was directed. We notice that this order of the  Tribu- nal  was  followed by another Bench of the Tribunal  in  its order  dated 20.7.1983 and this decision had  been  reported much  earlier as Crown Spinning & Manufacturing Co. Ltd.  v. Collector, [1983] E.L.T. 2433. The Collector, Central Excise has preferred these appeals.     We  have come to the conclusion that the view  taken  by the  Tribunal has to be upheld. ’Yarn’ is an excisable  com- modity and it is common ground before us that, normally  and but for the special procedure and notification, duty thereon is  leviable  at the point of production and  clearance  for captive consumption. On that view, the duty attaches  itself at  the point of production and clearance of the  yarn.  The notification does not alter this position. it does not shift the  incidence  of duty from yarn to the  woven  fabric.  It still  talks only of the liability of the yarn to  duty  and proceeds to provide only for its postponed collection. If we are  right on this, the duty on such yarn--produced  between 17.3.72 and 24.7.72--has to be determined in accordance with the  rates specified in the notification, though such  rates may have to be calculated in terms of the area of the fabric cleared on or after 24.7.1972. The duty cannot be determined at the rates specified for yarn under item 18E as applicable on  the  dates of clearance of the  fabric  manufactured  by using the yarn. To hold otherwise would really mean  holding that  the incidence of duty on the yarn under the  notifica- tion  arises only on the date of clearance of  the  manufac- tured  fabric. This, in our view, is not the effect  of  the notification. The proviso to Rule 96-W does not help the revenue. It only 95 contemplates  cases  where there is a change  in  the  rates prescribed  under the notification between the date of  pro- duction of the yarn and the date of clearance of the fabric. In  such a case, an assessee may well contend, but  for  the proviso, that the duty having attached itself on the date of production of the yarn, it has to be calculated only at  the rates  then prevalent and should not be recalculated at  the rates  prevalent on the dates of clearance of  the  fabrics. The proviso precludes such an argument. It would be entirely superfluous and redundant if, as contended for by the  reve- nue,  the  liability to pay duty on the yarn  itself  arises only on the date of clearance of the fabrics. It is intended to  provide  specifically that it is the  intention  of  the Government  that in such a case, the rates prevalent on  the date  of  clearance of the fabric should  govern.  The  word ’recalculated’  used  in the proviso also  supports  such  a conclusion. This word would be inappropriate if the  notifi- cation envisaged the levy of duty at the point of  clearance of the fabrics, as contended for by the Revenue, for in that

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event, there would be only one calculation as at that  point of  time  and no question of recalculation would  arise.  In other  words, the notification grants a concession but  only subject to change in these concessional rates that may occur until the fabrics made out of the yarn are cleared.     We  do  not think that the words of the proviso  can  be extended  to cover a case where the notification itself  has ceased  to apply by the date of clearance of the fabric.  To apply  the  proviso to such a case would result in  its  ap- plicability  to  a  totally different  situation.  It  would involve a comparison of unlikes. It would mean the substitu- tion  of  one set of rates prescribed in connection  with  a special  procedure  on  the basis of the area  of  cloth  by another set of rates applicable to yarn in the normal course which  is  to  be worked out on the basis  of  weight.  This involves  a mix-up of two totally different schemes of  levy of duty on yarn. We do not think it is correct to place this construction on these provisions. In our opinion, the normal rates de hors the notification will apply only in respect of yarn  produced on or after 24.7.72 and not to yarn  produced between  17.3.72 and 23.7.72. The assessees having  paid  at the normal rates in respect of the latter period were right- ly held entitled to seek a refund.     We may also point out that the best that can be said for the department is that the system of compounded levy  ceased only  on  24.7.1972. This means that the normal  rules  will become  applicable. But the normal duty on  yarn,  effective from 24.7.72, cannot be retrospectively applied to the  yarn which  had been authorisedly removed from the  spindles  for captive consumption prior to that date. The fact that 96 the  clearance of the fabrics made of such yarn was,  after. 24.7.72  would be irrelevant in computing such  normal  duty for,  yam. There is no principle or statutory language  that compels an assessee to be deprived of the concessional  rate that  has been made available to it, under a special  proce- dure, in respect of the yam produced by it and utilised  for captive consumption.     For  these reasons, we agree with the view taken by  the Tribunal  and  dismiss these appeals. We, however,  make  no order as to costs. R.N.J.                                        Appeals   dis- missed, 97