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High Court Of Delhi
J.K.COTTON SPINNING AND WEAVINGMILLS - Appellant
Versus
UNION OF INDIA - Respondent
Decided On : 01/11/1983
EXCISE DUTY - SPINNING MILLS - INTERMEDIARY PRODUCT - LEVY OF DUTY - RULES 9 AND 49 OF CENTRAL EXCISE RULES, 1944 - SECTION 51 OF FINANCE ACT, 1982 - VALIDITY - RETROSPECTIVE EFFECT - UNREASONABLENESS - ARTICLE 19(1)(G) OF THE CONSTITUTION - APPLICABILITY - SIZED YARN OR UNSIZED YARN - LIABILITY TO DUTY.
Fact of the Case:
The petitioners, composite spinning and weaving mills, challenged the validity and vires of Section 51 of the Finance Act, 1982, and the explanations added to Rules 9 and 49 of the Central Excise Rules, 1944, which made them liable to pay duty even on an intermediary product or "in-process product", though the same was utilized in their composite mill for the manufacture of an end product. They contended that the retrospective effect given to the amendment of Rules 9 and 49 was unconstitutional and violative of Article 20(1) of the Constitution.
Finding of the Court:
The Court held that Section 51 of the Finance Act, 1982, and the amended Rules 9 and 49 were valid and intra vires the legislature. The retrospective operation of the rules from 1945 was not unreasonable or arbitrary and did not violate Article 19(1)(g) of the Constitution. However, the Court clarified that the levy and collection of duty on past deemed clearances had to be done in accordance with the provisions of the Act and the rules in force from time to time. The Court also held that sized yarn was not new goods and that the deemed "issue out" or "removal" for purposes of weaving would be "issue out" or "removal" of unsized yarn.
Issues: 1. Whether Section 51 of the Finance Act, 1982, and the amended Rules 9 and 49 of the Central Excise Rules, 1944, were valid and intra vires the legislature? 2. Whether the retrospective operation of the rules from 1945 was unreasonable or arbitrary and violative of Article 19(1)(g) of the Constitution? 3. Whether the levy and collection of duty on past deemed clearances could be done by ignoring the other provisions of the Act and the rules? 4. Whether sized yarn was liable to duty in an integrated process of manufacture?
Ratio Decidendi: 1. The Court held that Section 51 of the Finance Act, 1982, and the amended Rules 9 and 49 were valid and intra vires the legislature. The retrospective operation of the rules from 1945 was not unreasonable or arbitrary and did not violate Article 19(1)(g) of the Constitution. 2. The Court held that the levy and collection of duty on past deemed clearances had to be done in accordance with the provisions of the Act and the rules in force from time to time. 3. The Court held that sized yarn was not new goods and that the deemed "issue out" or "removal" for purposes of weaving would be "issue out" or "removal" of unsized yarn.
Final Decision: The Court allowed the petitions partially. It held that Section 51 of the Finance Act, 1982, and the amended Rules 9 and 49 were valid and intra vires the legislature. However, the Court clarified that the levy and collection of duty on past deemed clearances had to be done in accordance with the provisions of the Act and the rules in force from time to time. The Court also held that sized yarn was not liable to duty in an integrated process of manufacture.
( 1 ) THIS batch of writ petitions (viz. C. W. 1858 of 1981; C. W. 1113 of 1981,c. W. 1190 of 1982, and C. W. 2568 of 1982) filed by thepetitioners under Article 226 of the Constitution of Indiahave been heard together and are being disposed of by acommon judgment as all the petitions raise identical questionof law The facts as such are not in dispute. "
( 2 ) TO understand the controversy it will be pertinent tobriefly notice some facts. As common questions of lawalone have been raised, we will only set out the facts incivil Writ No. 1858 of 1982.
( 3 ) PETITIONER No. 1 is a company registered under the companies Act, 1913 and is an existing company within themeaning of the Companies Act, 1956. Petitioner No. 2 isa director and shareholder of the first petitioner. A composite Spinning and Weaving Mill is owned and run by thefirst petitioner in which yarn is spun and ultimately converted into fabrics of different types. According to the petitioners, yarn is obtained at an intermediary stage as an intermediary. product for use in its composite mill in which thesaid cotton yarn is ultimately utilised for making fabrics ofdifferent types. Cotton yarn, as such attracts, excise dutyunder Tariff Item 18 A, Cellulosic Spun Yarn falls undertariff Item 18 and Non-Cellulosic Spun Yarn falling undertariff Item 18e are also obtained and further processedwithin the composite mill in the manufacture of cottonfabrics or man-made fabrics as the case may be. In thesepetitions there is no dispute raised with regard to duty ofexcise on the end product, namely, the different kinds offabrics produced by the petitioners. Some yarn which isnot Utilised for making fabrics is also cleared by the petitioners from its factory. There is no dispute regarding theduty payable thereon. The dispute relates to the liabilityto pay duty in respect of yarn which is further processedin the composite factory to obtain fabrics. According to. the petitioners no duty of excise can be levied and collectedin respect of yarn obtained within the petitioners compositemill which is further processed in the manufacture of fabrics. This contention of the petitioner has been upheldby this Court in a judgment of a Bench of this Court dated 16/10/1980 in Civil Writ No. 664 of 1979, M\s. J. K. Cotton Spinning and Weaving Mills Co. Ltd. , v. Union ofindia (l ). According to the petitioners the continuemanufacturing fabrics from yarn spun in their own factoryand in accordance with the law settled by this Court theyare not liable to pay any duty on the intermediary product. They contend that the spun yarn, which is. not cleared as yarn, does not leave the stream of production and ina continuous process of manufacture is ultimately converted into fabrics. Such yarn obtained by the petitioners isprocessed in an integrated process to obtain fabrics byundergoing various processes. Some processes to whichsuch yam is further subjected are preparatory processesfor the purpose of weaving (vide paragraph 5 of the writpetition ). These further processes, according to the petitioners, facilitate the weaving of the yam into fabrics. Explaining the processes, it is said that for the purpose ofweaving yarn into fabrics, yarn is taken on warp beam. Thefabrics consist of a warp and a weft. The warp is takenfrom the said warp beam. A number of such beams areput on a creel of the sizing machine. The next stage preparatory for weaving is called draw in where the yam endsare passed through the Reeds and Healds. The warp isthus ready for weaving and in the process of weaving theweft is passed through the warp and thereafter the processof weaving is completed. The fabric is then de-sized andthe starching material is washed out. It is then bleachedand dyed etc. according to the requirement. It is contended that the various processes to which yarn is subjectedare processes which are preparatory for the purpose ofweaving and the yarn remains within the stream of production in the manuf
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