The exemption of handloom fabrics from excise duty does not change the nature and character of the goods as excisable goods within the meaning of the Central Excise Act, 1944.

Headnote:
CENTRAL EXCISE ACT, 1944 - SECTION 2(A), 2(D), 3 - NOTIFICATION NO. 47 OF 1962, NOTIFICATION NO. 111 AND 112 OF 1962 - EXEMPTION OF HANDLOOM FABRICS FROM EXCISE DUTY - INTERPRETATION OF THE TERM "EXCISEABLE GOODS" - "INDEPENDENT PROCESSOR" - CONCESSIONAL LEVY ON PROCESSED FABRICS - APPLICABILITY OF RULE 10A - LIMITATION.
Fact of the Case:

The petitioner, a society registered under the Tamil Nadu Cooperative Societies Act, had a manufacturing unit at Cuddalore where cotton fabrics were woven and another unit at Erode for yarn and cloth processing. The Central Government exempted unprocessed cotton fabrics manufactured on a handloom from excise duty under Notification No. 47 of 1962. Notifications No. 111 and 112 of 1962 provided for a concessional levy on processed fabrics made from grey fabrics when processed by an "independent processor." The petitioner claimed the concessional levy, but the Assistant Collector of Central Excise held that the petitioner was not an "independent processor" because it had a factory in Cuddalore where cotton fabrics were woven. The petitioner challenged this decision in a writ petition.
Finding of the Court:

The court held that the petitioner was not an "independent processor" within the meaning of the definition in the Notification and was, therefore, not entitled to the concessional levy. The court found that the exemption granted by the Central Government on 24-4-1962 only exempted handloom fabrics from the levy of excise duty and it did not change the nature and character of the goods as excisable goods within the meaning of the Act.
Issues: 1. Whether the petitioner was an "independent processor" within the meaning of the definition in the Notification. 2. Whether the exemption of handloom fabrics from excise duty changed the nature and character of the goods as excisable goods within the meaning of the Act.
Ratio Decidendi: 1. The court interpreted the term "excisable goods" in section 2(d) of the Central Excise Act, 1944, and held that the words "as being subject to a duty of Excise" are only descriptive of the goods specified in the First Schedule and have no reference to the factum of their liability to duty. 2. The court held that the exemption granted by the Central Government on 24-4-1962 only exempted handloom fabrics from the levy of excise duty and it did not change the nature and character of the goods as excisable goods within the meaning of the Act.
Final Decision: The writ petition was dismissed.

Judgment :-

V. RAMASWAMI J

The petitioner is a society registered under the Tamil Nadu Cooperative Societies Act LllI of 1961. lt has a manufacturing unit at Cudilore in which cotton fabrics are woven. It has also another unit called the yarn and cloth processing centre at Erode. Under the Central Excises and Salt Act, 1944, manufacture of cotton fabrics is liable to excise duty. But Notification No. 47 of 1962, dated 24th April, 1962, the Central Government exempted unprocessed cotton fabrics falling under Item No. 19 of the First Schedule to the Central Excises and Salt Act if manufactured on a handloom, from the whole of the duty leviable thereon. The petitioner, Society, as one manufacturing handloom fabrics falling under Item No. 19, therefore, under the said Notification, was exempt from excise duty in respect of cotton fabrics, woven in the Cuddalore unit. By two other Notification Nos. 111 and No. 112 of 1962, dated 13-6-1962, the Central Government, in exercise of their powers under Rule 8 of the Central Excise Rules, 1944, provided for levy at concessional rate in respect of processed fabrics made from grey fabrics when processed by an independent processor. The concession consisted of two parts. In respect of the first 20, 000 sq. metres of cotton fabrics cleared, the goods were exempt from the whole of excise duty; and in respect of those in excess of 20, 000 sq. metres, a concessional rate of duty at four fifths of the normal rate was levied. But these notifications were subject to the condition that the processing was done by an "independent processor". The words "independent processor" is defined in the Notification as meaning a manufacturer, who is engaged exclusively in the processing of cloth with the aid of power, and who has not properietary interest in any factory engaged in the spinning of yarn or weaving of cotton fabric. There is no dispute that petitioner society is engaged in processing of cloth with the aid of power. But the only dispute is whether the petitioner-society has any proprietary interest in any "factory".

2.The Assistant Collector of Central Excise, Erode consideredthat the existence of its factory in Cuddalore, where weaving cotton fabrics is done, would disentile, the petitioner-society to the concessional levy. He accordingly issued a notice to the petitioner on 27th April, 1966, stating that since the petitionersociety is not an "indepenent processor" within the meaning of the definition in the Notification, it would not be entitled to the concessional levy and that the levy and collection of excise duty at the concessional rate was a mistake. He accordingly demanded the difference between the normal rate of duty and the amount collected at the concessional rate from the petitioner-society for the period from 14-6-1962 to 4-3-1963, which amounted to Rs. 1, 32, 767.10, be paid by the petitioner. He also ordered that the petitioner-society is liable to pay duty at the normal rate from 5-3-1966.

3.So far as the difference in the levy for the period from 14-6-1962 to 4-3-1963 is concerned, it has now been held that Rule 10A is not applicable and that the difference could not also be collected under rule as it is barred by limitation.

4.So far as the subsequent period is concerned, the petitioner had paid duty at the normal rate under protest and claimed the benefit of the notifications. The Assistant Collector of Central Excise heft that since handloom fabrics which are woven in the Cuddalore factory of the petitioner-society are excisable goods coming under Item No. 19 of the First Schedule to the Act, the petitioner is not an "independent processor" within the meaning of that term in the Notification and that, therefore' it is not entitled to concessional levy. That order of the Assistant Collector was confirmed by the Collector of Cent.al Excise and by the Government of India ultimately.

5.In this writ petition, the Learned Counsel for the petitioner contends that the factory at Cuddalore o

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