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High Court Of Delhi
MODI CARPETS LIMITED - Appellant
Versus
UNION OF INDIA - Respondent
Civil 506 of 1979
Decided On : 04/16/1980
EXCISE DUTY - LEVY - SLIVER - NOT REMOVED FROM FACTORY - NO LIABILITY TO PAY DUTY - CENTRAL EXCISES AND SALT ACT, 1944, SECTIONS 3, 4 - CENTRAL EXCISE RULES, 1944, RULES 9, 49.
Fact of the Case:
The petitioner, a manufacturer of woollen yarn, challenged the levy of excise duty on sliver, an in-process material used in the manufacturing process. The petitioner contended that sliver was not a marketable commodity and was not removed from the factory premises, hence not liable to excise duty.
Finding of the Court:
The court held that excise duty could only be levied on excisable goods removed from the place of manufacture, and since the sliver was not removed from the factory premises, no excise duty could be levied.
Issues: 1. Whether sliver is a marketable commodity subject to excise duty? 2. Whether the removal of sliver from the factory premises is necessary for the levy of excise duty?
Ratio Decidendi: 1. The court held that it was not necessary to determine whether sliver was a marketable commodity since the duty could only be levied on goods removed from the place of manufacture. 2. The court interpreted Rules 9 and 49 of the Central Excise Rules to mean that excise duty could only be levied on goods removed from the place of manufacture specified under Rule 9. Since the place of manufacture was not specified in the present case, the entire factory was considered the place of manufacture, and since the sliver was not removed from the factory premises, no excise duty could be levied.
Final Decision: The court allowed the writ petition and restrained the respondents from levying excise duty on the sliver obtained by the petitioners as an in-process material used in the manufacture of semi-woollen worsted yarn.
( 1 ) IN this writ petition the petitioners are challenging the validity and levy of excise duty in respect of sliver which is obtained by them as an in process material in the manufacture of woollen yarn in its factory premises.
( 2 ) THE petitioner-Company manufactures, inter alia, woollen yarn from raw-wool. The writ petition sets out the entire process of manufacture of woollen yarn from raw-wool.
( 3 ) BRIEFLY stated, according to the petition, the raw-wool purchased from the market is first of all opened in a cleaning machine and loose dirt, grease and vegetable matter is removed. This opened wool is thereafter cleaned and washed. The washed wool is dried and there after the partially dried wool is opened in a machine called the preparatory willow. This machine separates the wool fibres and further removes the dirt and vegetable matter which may have remained in it. Thereafter different types of wool are blended. At this stage, the wool is conveyed to the spinning department in the factory. In the said department humid conditions are maintained as the same are necessary and essential for further processing. The wool is then put on a carding machine. This carding machine consists of cylindrical speed rollers with pins mounted on their surface. Rolling on this machine straightens the fibres and opens the wool. "the web of wool emerging from these rollers is pulled by a drawing head. This reduces the width of the carded web of wool and gives it the appearance of a cylindrical form being a mere collection of loosely held fibres. However, this cylindrical form consists of fibres of varying lengths which have been carded. There is no twist in these fibres. This form of wool, which is still in its fibre form, is described by the petitioner as sliver
( 4 ) THIS Sliver is then processed through three stages to make it more uniform in diameter and to further reduce the weight per meter and to make it suitable for feeding into ring frames for spinning yam. These machines are called draft-O-Matic Machine, Inter Draw Frame and Finisher Draw Frame . It is essential to note that this product is not combed. The processing of wool through the Draft-O-Matic Machine is called gilling. The process or gilling has to be completed prior to combing. Combing is a separate operation which is done in order to remove the short fibres. Thereafter the combed sliver is given a false twist and rolled into balls to form wool tops which are used in the manufacture of worsted yarn. The contention of the petitioners is that combing of sliver is not done by it. The uncombed sliver which is obtained by the petitioners is used in the manufacture of semiworsted yarn which in turn is used in weaving carpets. It is contended by the petitioners that this sliver which is not processed by combing, false twisting or winding into balls is not traded in the market and, in other wolds, is not a marketable commodity.
( 5 ) PRIOR to 1979 excise duty was being reviewed and charged, inter alia, on wool tops. In view of the fact that petitioners do not produce wool tops, they were not subjected to levy of excise duty. By the Finance Act, 1979, however, Item No. 43 of the 1st Schedule, of the Central Excises and Salt Act (hereinafter referred to as the Act ) was amended. The new item is as follows :
"wool tops and carded gilled sliver containing in either case, more than 50 per cent by weight of wool calculated on the total fibre contents. "by this amendment the words carded Gilled Sliver were added to the old entry.
( 6 ) ON Ihe 1st of March, 1979 the Range Officer, Central Excise, Range II (Respondent No. 4) wrote to the petitioners asking them to apply for grant of a licence and for filing of a classification list under Rule 173-B of the Rules in respect of carded gilled sliver stated to have been manufactured in the petitioners factory. Thereafter correspondence was exchanged between the petitioners and the respondents. The contention of the
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