Judgment

VENKATARAMIAH, J.: - This appeal by special leave is filed against the judgment dated April, 30, 1970 of the High Court of Gujarat at Ahmedabad in Special Civil Application No. 67 of 1968. The only question which arises for consideration in this appeal is whether the goods called "Calikut Special" manufactured by the respondent, the Ahmedabad Manufacturing and Calico Printing Co. Ltd. (Calico Mills), Ahmedabad, were liable to excise duty under the Tariff Item No. 19 in the First Schedule to the Central Excises and Salt Act, 1944 (Act No. 1 of 1944) (hereinafter referred to as the Act) or under Tariff Item No. 22 thereof as they stood during the relevant time. The material part of Item No. 19 in the first Schedule to the Act read as follows :-

"19. Cotton Fabrics -

"Cotton Fabrics" means all varieties of fabrics manufactured either wholly or partly from cotton and includes dhoties, sarees, chadders, bed-sheets, bed-spreads, counter-panes, table-cloths but do not include any such fabric .....................

(c) if it contains 60 per cent or more by weight of rayon or Artificial Silk ................"

2. The material part of Item No. 22 in the First Schedule to the Act read as follows :-

"22. Rayon or Artificial Silk Fabrics -

"Rayon or artificial silk fabrics" includes varieties of fabrics manufactured either wholly or partly from Rayon or Artificial Silk but do not include any such fabric -. . ..................

(iii) if it contains cotton and less than 60 per cent by weight of Rayon or Artificial Silk; or ............"

3. The respondent was the manufacturer of the processed fabrics known as "Calikut Special" from the year 1965. At the intermediate stage of their production, the said fabrics contained 46 per cent of synthetic fabrics (Art Silk) and their cotton content was about 54 per cent. The said goods were subject to further processing such as bleaching heat setting, etc., and at the time when goods reached the final stage of production the cotton content of the said goods was reduced to about 38.48 per cent and 61.52 per cent of the fabrics consisted of Artificial Silk. Having regard to the cotton content of the final product which was less than 40 per cent, the said goods were being treated all along as falling under Item No. 22 of the First Schedule to the Act as Artificial Silk fabrics and excise duty was being levied on that basis. However, the Superintendent, Central Excise. Ahmedabad by his letter dated November, 23, 1967 proposed to treat the above goods as falling under Item No. 19 thereof as cotton fabrics on the ground that at the intermediate stage of production the cotton content was more than 40 per cent while the Artificial Silk content was less than 60 per cent. The respondent repudiated the claim made by the Superintendent, Central Excise, Ahmedabad by its reply dated November, 25, 1967. On December, 11, 1967 the Superintendent, Central Excise, Ahmedabad, formally issued a Show Cause Notice to the respondent to show cause why the "Calikut Special" variety of goods referred to above should not be subjected to ecxise duty under Item No. 19. The respondent sent its reply on December, 12, 1967 reiterating its stand that since at the final stage the product consisted of less than 40 per cent of cotton and more than 60 per cent of Artificial Silk, the goods in question were liable to be taxed only under Item No. 22. After taking into consideration the explanation given by the respondent the Assistant Collector, Central Excise, Ahmedabad Division - 1, Ahmedabad by his order dated December, 29, 1967 held that the goods in question were liable to payment of excise duty under Item No. 19 and not under Item No. 22. Aggrieved by the above decision the respondent field a writ petition under Art. 226 of the Constitution on the file of the High Court of Gujarat questioning the validity of the said order. The High Court after hearing the parties agreed with the contention of the respondent and allowed the writ petition