Judgment

RAMASWAMI, J.: This appeal is brought by certificate from the judgment of the High Court of Gujarat dated July 31, 1964 in Special Civil Application No. 1054 of 1963.

2. The appellant is the sole proprietor of Messrs. Gordhandas and Co. carrying on business as a dealer in textiles in Bombay. Under an agreement between the appellant on the one hand and the Gandevi Vanat Udhoog Sahkari Mandli Ltd. (hereinafter referred to as the Society ) the Society manufactured cotton fabrics during the period between June 1959, and September 1959 and from October 1, 1959 to January 31, 1961 for the appellant on certain terms and conditions which were later reduced to writing on October 12, 1959. Under these terms, the Society agreed to carry out weaving work on behalf of the appellant on payment of weaving charges fixed at 19 nP per yard which included expenses the Society would have to incur in transporting yarn from Bombay and Cotton fabrics woven by the Society to Bombay. The appellant was to supply yarn to be delivered at Bombay to the Society and the Society was to make its own arrangement to bring the yarn to its factory at Gandevi. Clause II provided that the yearn supplied by the appellant remaining either in stock or in process or in the form of readymade pieces would be in the absolute ownership of the appellant and the Society, as the bailee of the yarn, undertook to take such care of it as it would normally take if the yarn belonged to it. The Society also undertook to have the yarn insured against fire, theft and all other risks including transit risks and further undertook to reimburse the appellant in case it failed to do so. The terms of the agreement though recorded on October 12, 1959 were to be deemed to be effective as from April 21, 1959 and the agreement was terminable by either party by giving one month s notice.

3. The Society was a co-operative society carrying on its work at Gandevi and was registered on or before May 31, 1961 and consisted of members who owned powerlooms. The Society started the weaving work for the appellant some time in May or June 1959 and supplied to the appellant between June 1, 1959 and January 3, 1961 cotton fabrics measuring 3, 19, 460 yards. The Society had obtained L-4 licence as required by the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act ). By letters dated August 29, 1959 and October 27, 1961 the Excise Department had granted exemption from excise duty payable on cotton fabrics manufactured by the Society under the notification issued by the Central Government. On November 10, 1961 the excise authorities issued a notice to the appellant demanding a sum of Rs. 1,69,263.44 payable as excise duty. It was alleged that the duty was payable by the appellant as it had got the goods manufactured through the Society and had got them removed from the Society s factory at Gandevi without payment of duty. On January 10, 1962 the Superintendent of Central Excise, Bulsar sent another notice to show cause why penalty should not be imposed upon the appellant for contravention of Rule 9 and why duty should not be charged for the cotton fabrics so removed by the appellant. The appellant showed cause and on November 26, 1962 the Assistant Collector of Central Excise and Customs, Surat held that the appellant was liable to pay excise duty to the extent of Rs. 2,20,574.74, being the total amount of basic duty and a penalty of Rs. 350 was levied for Contravention of Rule 9. The appellant preferred an appeal to the Collector of Central Excise Baroda but the appeal was dismissed. Thereafter the appellant moved the High Court of Gujarat for grant of a writ under Article 226 of the Constitution. The High Court dismissed the writ petition by its judgment dated July 31, 1964, but gave a direction that the respondent was to work out the excise duty on the footing that the appellant was entitled to exemption from duty altogether in respect of goods supplied for the period from June