Judgment

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.

2. 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 containing 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 and Salt Act, 1944 (hereinafter referred to as the Act). "Yarn. all sorts, not elsewhere specified ......." became liable to duty under Item 18-E of the First Schedule under the Finance Act, 1972 w.e.f. 17-3-1972. The consequence was that, from 17-3-1972, the yarn which was being produced by the appellants became liable to duty under Item 18-E while the fabric manufactured by them was dutiable under Item 19.

3. The Central Government decided to give two cate