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 categories of assessees the benefit of the provisions of Rr. 96-V & 96-W of the Central Excise Rules: (i) assessees manufacturing woollen yarn, and (ii) assessees manufacturing cotton yarn or yarn falling under Item 18-E 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 yearn, yarn falling under tariff Item 18E- Special Procedure". This section in the rules was inserted by notification No. 110/61 dated 20-4-1961 and omitted by notification No. 146/77 dated 18-6-1977. They read thus:

"96-V Application to avail of special procedure --

(1) Where a manufacturer who manufactures cotton yarn, failing under Item 18E of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) or woollen yarn and in the case of cotton yarn or yarn falling under Item 18-E of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) uses the whole or part of the yarn manufactured 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 be granted for a shorter period in the discretion 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 availing 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 18-E of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) or the average prevailing prices of woollen yarn the Central Government 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 R. 96V pays a sum calculated according to such rate in the manner hereinafter laid down, such payment shall be a