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PETITIONER: AHMEDABAD MANUFACTURING AND CALICOPRINTING CO.  LTD.  AND  A

       Vs.

RESPONDENT: UNION OF INDIA AND ORS.

DATE OF JUDGMENT12/01/1993

BENCH: YOGESHWAR DAYAL (J) BENCH: YOGESHWAR DAYAL (J) VERMA, JAGDISH SARAN (J) VENKATACHALA N. (J)

CITATION:  1993 SCR  (1) 142        1993 SCC  Supl.  (2)   7  JT 1993 (1)    85        1993 SCALE  (1)63

ACT: Central  Excises  and Salt Act, 1944/Central  Excise  Rules, 1944: Schedule I--Tariff Items 18.I, 18 III and 18E/Rules  9 and  49--Notification  dated 20.2.1982  amending  the  Rules retrospectively--Yarn sized for purpose of weaving the  same into   fabrics--Levy  of  duty  on  the  weight   of   sized yarn--Validity of.

HEADNOTE: The petitioners challenged before the High Court the levy of excise duty on the weight of the yarn sized for the  purpose of  weaving them into fabrics.  The High Court held that  no duty  could be levied on the weight of the  sizing  material contained  in  yarn, and directed that the  duty  should  be refunded  since it has been levied not on the basis of  yarn at the spindle stage, but on the weight of the sized yarn. After   the  said  judgment,  the  Central   Government   by Notification  dated 20.2.1982 amended Rules 9 and 49 of  the Central  Excises  and Salt Act, 1944 and Section 51  of  the Finance Act, 1982 with retrospective effect.  In  accordance with the said Notification, Central Excise Department issued show  cause notices to the petitioners.  The  constitutional validity   of  these  amendments  are  challenged   by   the petitioners in the present Writ Petitions filed before  this Court. On  behalf of the petitioners, it was contended  that  their cases  were  covered by the decision of this Court  in  J.K. Cotton  Spinning and Weaving Mills Ltd. & Anr. v.  Union  of India and Ors., [1988] 1 SCR 700 and that excise duty  could be  levied on the weight of the unsized yarn and not on  the basis of the weight of the sized yarn. Allowing the petitions, this Court HELD:     1.1.  The Vires of Rules 9 and 49 of  the  Central Excise Rules, 1944 as well as section 51 of the Finance Act, 1982 and the retrospective 143 application  of  the same has already been  upheld  by  this Court. [145E] 1.2. The sized yam which is actually put into the integrated process  will  not again be subjected to payment  of  excise duty,  for the unsized yam which is sized for  the  purpose,

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does  not  change  the nature of commodity  as  yarn.   Thus excise duty cannot be levied on the weight of the yarn after the  yarn is sized for the purpose of weaving the same  into fabrics. [145G] 13.  Practically  nine  years have gone by  since  the  show cause  notices were issued by virtue of the same  directives which were subject matter of J.K Cotton Mills case.  In view of  this  peculiar fact it would not be in the  interest  of justice  if  the  petitioners are directed  to  contest  the individual show cause notices issued by the respondents.  In order  to avoid multiplicity of proceedings  involving  time and  expense, the show-cause notices in all these cases  are quashed. [148F-G] J.K Cotton Spinning and Weaving Mills Ltd & Anr. v. Union of India & Ors., [1988] 1 S.C.R. 700, applied.

JUDGMENT: ORIGINAL JURISDICTION: Writ Petition (Civil) No. 3 of 1983. (Under Article 32 of the Constitution of India).                         WITH W.P.  Nos. 4OO-402, 425, 492, 2493-2495, 2526-2528  of  1983 and 1256 of 1987. Soli  J.  Sorabjee,  Ravinder Narain,  DA.   Dave  and  P.H. Parekh, for the Petitioners. A.K.  Ganguli,  T.V.S.N. Chari Ms. Radha Rangaswamy  and  P. Parmeshwaran for the Respondents. The Judgment of the Court was delivered by YOGESHWAR DAYAL J. This order will dispose of the  aforesaid writ  petitions  under  Article 32 of  the  Constitution  of India.   All these cases come under Item 18.1 and/or 18  III and/or 18E of the Tariff contained in the schedule  attached to  the  Central  Excise  and  Salt  Act  1944  (hereinafter referred to as ’the Act’).  For facility of reference we are giving the facts of the case of Civil Writ Petition No. 3 of 1983. 144 This  Writ Petition is stated to be covered by the  decision of this Court in J.K Cotton Spinning and Weaving Mills  Ltd. & another v. Union of India and others, [1988] 1 S.C.R.  700 and the surviving prayer in the writ petition is to  declare that  the duty of excise in respect of Tariff Item  Nos.  18 (A) (a), 18 (III) (ii) and 18E is to be levied and collected on  the weight of the unsized yarn and not on the  basis  of the weight of the sized yarn". Before  we deal with the objections of the  learned  counsel for  the  respondents,  it would be useful  to  examine  the points  which  were involved in the aforesaid  case  of  J.K Cotton  Mills.   The  appellants  in the  said  case  had  a composite mill wherein it manufactured fabrics of  different types.   In order to manufacture the said fabrics, yarn  was obtained at an intermediate stage.  The yarn so obtained was further  processed  in  an integrated process  in  the  said composite  mill  for  weaving the same  into  fabrics.   The appellants  did  not  dispute that the  different  kinds  of fabrics  which were manufactured in the miff were liable  to payment  of excise duty on their removal from  the  factory. They also did not dispute their liability in respect of yarn which  was  also  removed  from the  factory.   It  was  the contention of the appellants therein that no duty of  excise could  be levied and collected in respect of yam  which  was obtained at an intermediate stage and, thereafter  subjected to  an integrated process for the manufacture  of  different fabrics.  On a writ petition, by those appellants, the Delhi

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High  Court  by its judgment dated 16th October,  1980  held that yarn obtained and further processed within the  factory for  the  manufacture of fabrics could not be  subjected  to duty  of excise.  It was the case of the appellants that  in spite  of  the said decision of the Delhi  High  Court,  the Central Board of Excise had wrongly issued a circular  dated 24th September, 1980 purporting to interpret Rules 9 and  49 of  the Central Excise Rules, 1944 (hereinafter referred  to as   the  Rules’)  and  directing  the  subordinate   excise authorities to levy and collect duty of excise in accordance therewith.  In the said circular, the Board had directed the subordinate   excise  authorities  that  use  of  goods   in manufacture   of   another   commodity   even   within   the place/premises  that have been specified in this  behalf  by the Central Excise Officers in terms of the powers conferred under Rule 9 of the Rules, will attract duty".  As the  said circular  was  being  implemented to the  prejudice  of  the appellants,  they filed the writ petition before  the  Delhi High Court, inter alia, challenging the validity of the said circular. During  the pendency of the writ petition in the Delhi  High Court, the 145 Central Government by Notification No. 20/82-C.E. dated 20th February, 1982 amended Rules 9 and 49 of the Rules.  Section 51 of the Finance Act provides that the amendments in  Rules 9  and 49 of the Rules shall be deemed to have, and to  have always  had  the effect on and from the date  on  which  the Rules  came into force i.e. 28th February, 1944.  After  the said amendments of the Rules with retrospective effect,  the appellants  amended  the Writ petition  and  challenged  the constitutional  validity of Section 51 of the  Finance  Act, 1982 and of the amendments to Rules 9 and 49 of the Rules. The High Court came to the conclusion that section 51 of the Finance  Act,  1982  and Rules 9 and 49  of  the  Rules,  as amended,   were  valid.   It  was  further  held  that   the retrospective effect given by Section 51 of the Finance Act, 1982  will be subject to the provisions of Sections 11A  and 11B  of the Act.  It was further held that the yam which  is produced  at  an  intermediate  stage in  the  mill  of  the appellants  therein and subjected to the integrated  process of weaving the same into fabrics, will be liable to  payment of excise duty in view of the amended provisions of Rules  9 and  49 of the Rules.  But the sized yam which  is  actually put into the integrated process will not again be  subjected to  payment of excise duty for, the unsized yarn,  which  is sized  for  the purpose, does not change the nature  of  the commodity  as  yarn.   The  Writ  Petition  was  accordingly allowed  in  part,  as stated aforesaid,  and  it  was  this decision  which came up in appeal before this  Court.   This Court agreed with the Delhi High Court and upheld the  vires of Rules 9 and 49 of the Rules as well as Section 51 of  the Finance  Act,  1982.  This Court also agreed with  the  High Court  that the retrospective effect given by section 51  of the  Finance Act, 1982 will be subject to the Provisions  of Sections  11A  and 11B of the Act.  This Court  also  agreed with  the  view  of the High Court that the  yarn  which  is produced  at  an  intermediate  stage in  the  mill  of  the appellants  and subjected to integrated process  of  weaving the same into fabrics, would be liable to payment of  excise duty  in view of the amended provisions of the  Rules,  But, this  Court  further agreed with the High Court,  the  sized yarn which is actually put into the integrated process  will not  again be subjected to payment of excise duty  for,  the unsized yarn, which is sized for the purpose does not change

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the nature of the commodity as yarn.  This Court observed at pages 720 and 721 of the report as under:-               "In  the  instant  case,  the  appellants  are               liable to pay excise duty on the yarn which is               obtained   at  an  intermediate   stage   and,               thereafter, further processed in an integrated               process for weav-               146               ing  the same into fabrics.  Although  it  has               been  alleged that the yam is obtained  at  an               intermediate stage of an integrated process of               manufacture  of fabrics, it appears to be  not               so.   After the yarn is produced it  is  sized               and,  thereafter,  subjected to a  process  of               weaving the same into fabrics.  Be that as  it               may, as we have held that the commodity  which               is  obtained  at an intermediate stage  of  an               integrated  process of manufacture of  another               commodity, is liable to the payment of  excise               duty,  the  yarn  that  is  produced  by   the               appellants is also liable to payment of excise               duty.   In  our view, the High  Court  by  the               impugned  judgment has rightly held  that  the               appellants  are not liable to pay  any  excise               duty  on  the yarn after it is sized  for  the               purpose of weaving the same into fabrics.   No               distinction  can be made between unsized  yarn               and  sized  yarn, for the  unsized  yarn  when               converted  into sized yarn does not  lose  its               character as yarn." The  petitioner  herein  on the other  hand  approached  the Gujarat  High  Court  and  the Gujarat  High  Court  by  its judgment  dated 30th July, 1981 had, before the issuance  of the  impugned circular dated 24th May, 1982, taken the  view that no duty can be levied on the weight of sizing  material contained  in yarn, falling under Tariff Item no. 18-111  or 18-E  and directed that the duty levied should  be  refunded because the duty has been levied not on the basis of yam  at the  spindle  stage, but on the weight of  the  sized  yarn. After  the  decision of the Gujarat High Court  the  Central Government  had  amended  Rules 9 and 49 of  the  Rules  and Section 51 of the Finance Act, 1982, had made them effective retrospectively. The  present  writ petition filled in this Court  had  inter alia pleaded that the retrospective amendment of Rules 9 and 49  of the Rules as well as Section 51 of the  Finance  Act, 1982  be declared as ultra vires of the Constitution.   This Court  upheld  the validity of the Section as  well  as  the retrospective  applicability of the Rules but took the  view that  this would be subjected to the provisions of  Sections 11A  and 11B of the Act and at the same time  declared  that the  appellants  were not liable to pay excise duty  on  the yarn  after  it is sized for a purpose of weaving  the  same into fabrics. It will be noticed that under items 18.1, 18.III and 18E the measure is "per kilogram".  At this stage items 18.1, 18.111 and 18E of the Tariff may be noticed 147 "18.  I. Man-made fibres, other than mineral fibres : (i)  Non-cellulosic Eighty-five rupees per kilogram (ii) Cellulosic Ten rupees per kilogram ’18.III. Cellulosic spun yarn: Yam,  in which man-made fibre of cellulosic origin  predomi-

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nates in weight and, in or in relation to the manufacture of which  any process is ordinarily carried on with the aid  of power (i)  not  containing, any manmade fibres  of  non-cellulosic origin. six paise per count per kilogram (ii) containing man-made fibres of non-cellulosic origin. Eighteen Rupees per kilogram.  Explanation 1: "Count"  means the  size  of  grey yarn  (excluding  any  sizing  material) expressed in English Count. Eighteen Rupees per kilogram "18E.   Non-cellulosic Spun Yam: Spun (discontinuous)  yarn, in which man-made fibres of noncellulosic origin, other than acrylic fibre, predominate in weight and, in or in  relation to  the  manufacture  of which  any  process  is  ordinarily carried on with the aid of power. Twenty-four rupees per kilogram. 148 Explanation : Explanation III under sub-item III of item No. 18  shall, so far as may be, apply in relation to this  item as it applies in relation to that item." It will be noticed from the aforesaid items that the measure for imposition of excise duty is by weight "per kilogram" in all   the   three  items,  namely-18.1,  18.111   and   18E. Therefore,  the aforesaid decision in J.K. Couon Mills  will be applicable to all types of cases under Items 18.1, 18.111 and  18E.   After the decision of the  Gujarat  High  Court, instead  of  granting  the  refund,  the  Superintendent  of Central  Excise,  Range IV, Division  V,  Ahmedabad,  issued impugned notices, collectively annexed as Annexures ’B’  and ’C’  to  the  present  writ petition  in  pursuance  of  the directives dated 24th May, 1982 which are subject matter  of challenge in the present writ petition. On  behalf  of the respondents Mr. Ganguly  learned  counsel submitted that this Hon’ble Court ought not to entertain the present writ petition under Article 32 of the  Constitution. He,  however, could not dispute that the matter is  directly covered by the decision of this Court in the aforesaid  case of J.K Cotton Mills. These  petitions  were admitted to hearing in  view  of  the pendency  of the aforesaid appeal in the case of J.K  Cotton Mills  and in view of the decision of the Delhi  High  Court which  was  appealed against in the aforesaid  case  of  J.K Couon  Mills.  Practically nine years have gone by  now  and the  impugned show cause notices have been issued by  virtue of  the  same directives which were subject  matter  of  the aforesaid  case  of  J.K.cotton  Mills.   In  view  of  this peculiar fact it would not be in the interest of justice  if the  parties  are directed to contest  the  individual  show cause  notices  issued  by the respondents in  view  of  the aforesaid  directives.   In order to avoid  multiplicity  of proceedings  involving  time  and  expense,  we  quash   the impugned notices in all the cases. The  result  is that all the aforesaid  writ  petitions  are accepted  and the impugned show cause notices  are  quashed. There will be no order as to costs. G.N.                           Petitions allowed. 149