Modella Woollens Ltd. vs Union Of India
1992 Latest Caselaw 156 Del

JUDGMENT

Sunanda Bhandare, J.

1. The petitioner is engaged in the business of processing of wool tops and blended wool tops by admixture with duty paid synthetic fibre. During the course of routine inspection by the Central Excise Inspection Group on 15-9-1977 the petitioner's accounts maintained at the Chandigarh factory were scrutinised and as a sequel to the inspection, respondent No. 4 issued a show cause notice dated 27-10-1977. In the said show cause notice it was alleged that in the course of inspection it was detected that the petitioner had willfully supressed facts and misdeclared the contents in regard to the percentage of wool so as to evade duty on wool tops under Tariff Item No. 43 and thereby declared the goods as duty paid. The petitioner was, therefore, required to show cause why penalty should not be imposed for contravention of Rules 9(1), 52A, 53, 173G and 173F of the Central Excise Rules, 1944 (hereinafter referred to as the Rules). The petitioner submitted a reply denying the allegations made in the show cause notice. No action was taken by the respondent for some time, however later on fresh show cause notice dated 15-11-1977 was issued to the petitioner alleging that the petitioner had not accounted for dutiable goods in RG-1 and had removed excisable goods without payment of Central Excise Duty and without complying with the other Central Excise formalities. The petitioner, was, therefore, again required to show cause why penalty should not be imposed upon the petitioner under Rules 9(2) and 173Q and why the duty amounting to Rs. 39,771.99 should not be charged to the petitioner for contravention of Rules 9(1), 52A, 53, 173G, 173F read with Rule 173 of the Rules. The petitioner replied to the show cause notice vide letter dt. 25-11-1977 and 20-1-1979 and denied their liability. Oral hearing was also given to the petitioner by respondent No. 2. Respondent No. 2 by order dated 23-3-1980 held that the stage for payment of duty of Central Excise on blended wool tops having more than 50% wool content was when the goods were cleared from the factory after giving to the petitioner allowance of duty of Central Excise paid on wool tops having 100% wool content. Being aggrieved by the said Order dated 23-3-1980 of Respondent No. 2, the petitioner preferred an appeal to the Board of Central Excise. The Board of Central Excise set aside the order of Respondent No. 2 and observed that taxable event in the case of duty of Excise is the manufacture of goods and charging section is Section 3 of the Act. Rule 9 of the Rules only extends an option or concession to an assessed to discharge the duty liability on a deferred basis at the time of removal. Thus, when the petitioner discharged the duty liability on the goods at the initial production stage when the tops came into existence, the duty cannot be levied again on the blended wool tops produced from such duty paid wool tops. Thereafter, the Government of India in the exercise of powers under Section 36(2) of the Central Excises & Salt Act, 1944 (hereinafter referred to as the Act) issued a show cause notice dated 5-9-1981 to the petitioner as to why the order of Board of Central Excise should not be set aside. The petitioner submitted its reply on 5-10-1981 and submitted that Rule 9 of the Rules could not override the statutory provisions under the Act and as provided under the Act, the liability to pay duty arose at the first stage of manufacture. However the Central Government set aside the order of the Board of Central Excise and restored the order of Collector of Customs, Chandigarh. The Central Government held that though Section 3 is the charging section, the manner of collection is prescribed in the Rules and the Central Excise has to be paid when goods are removed. The Central Government further relied on Rule 51A of the Rules and observed that in an integrated factory, duty has necessarily to be paid after blending. Being aggrieved, by this decision of the Central Government, the petitioner has filed the present writ petition under Article 226 of the Constitution of India.

2. It was submitted by the learned Counsel for the petitioner that the taxable event in the case of duties of Excise is the manufacture or production of goods that even excisable goods taken for captive consumption within the factory premises are liable to duty of excise at the first stage of manufacture. Learned Counsel relied on the circular issued by the Ministry on 30-6-1976 and the trade notice issued by the Collectorate of Bangalore in support of his submission that since the petitioner had paid duty at the first stage of manufacture and since blended wool tops also fall under the same tariff no duty was payable at the later stage. Learned Counsel relied on J.K. Spinning & Weaving Mills Ltd. & Another v. Union of India & Others, 1987 (32) E.L.T. 234, Union of India & Others v. Delhi Cloth & General Mills Co. Ltd. & Others, 1977 (1) E.L.T. (J 199), South Bihar Sugar Mills. Ltd. & Another Etc. v. Union of India & Another Etc., 1978, (2) E.L.T. (J 336) and Collector of Central Excise, Bombay v. Kiran Spinning Mills, 1988 (34) E.L.T. 5 in support of his connection.

3. On the other hand, it was submitted by the learned Counsel for the respondent that though Section 3 of the Act is the charging Section, it does not decide the time at which the duty of excise is to be paid by a manufacturer. This section merely provides that the Excise Duty shall be leviable and collected in such manner as may prescrible, and the manner of collection has been prescribed in Rule 9 of the Rules. Thus, the petitioner was required to pay excise on blended wool tops at the stage of the removal of the goods from the factory premises. Learned Counsel further submitted that the trade notice issued by the Collectorate of Bangalore did not have a binding effect as far as Chandigarh was concerned and the Central Government was right in disregarding the said trade notice. It was further submitted that the petitioner ought to have made the necessary declaration under Rule 51A because the petitioner was specifically prohibited from retaining such duty paid goods inside the factory under Rule 51A. Thus, it was not open to the petitioner to contend that since they had paid duty on 100% wool tops which were later on blended they were not liable to pay duty on blended wool tops.

4. We are unable to accept the contention of the learned Counsel for the respondent. Under Sec. 3(1) of the Act, the instance of excise duty is on the manufacture or production of goods. The Supreme Court in J.K. Spinning & Weaving Mills' case (supra) while dealing with the question of collection of duty leviable on production of a commodity at an intermediate stage of an integrated process of manufacture of another commodity held as follows :-

"The taxing event for excise duty under Sec. 3 of the Central Excise Act is the production or manufacture of goods and not removal. The Explanation added to Rules 9 and 49 by Notification No. 20/82-C.E., contemplated the collection of duty levied on production of a commodity at an intermediate stage of an integrated process of manufacture of another commodity by deeming such production or manufacture of the commodity at an intermediate stage to the removal. [The] deeming provisions are quite consistent with Section 3 of the Act. Moreover, Rule 9(1) does not require the Collector to specify the place where the excisable goods are produced, cured or manufactured. The words "which may be specified by the Collector in this behalf" occurring in Rule 9(1) of the Rules do not qualify the words "any place where they are produced, cured or manufactured", but relate to or qualify the words "any premises appurtenant thereto". In other words, if the place of removal is not the place where the goods are produced, cured or manufactured, but any premises appurtenant to such place, in that case, the Collector has to specify such premises for the purpose of collection of excise duty. Accordingly, the amendment to the Rules 9 and 49 by Notification No. 20/82-C.E., are legal and valid."

Thus, the petitioner was obliged to pay duty at the stage of manufacture of 100% wool tops and had no option but to pay the duty at that stage. The blending of more than 50% of wool with synthetic yarn does not result in manufacture of any new commodity or a different article. Therefore, there is no question of paying any duty at that stage once duty was paid at the first stage of manufacture of 100% wool tops. The word "manufacture" has been defined in the Act and is generally understood to mean as bringing into existence a new substance. The Supreme Court in Delhi Cloth & General Mill's case (supra) has held that the mere processing of goods is not liable to Excise duty and the word "manufacture" used as a verb is generally understood to mean as "bringing into existence a new substance". Undoubtedly, if the petitioner has not made the necessary declaration as required under Rule 51A, the consequences of violation of that Rule would follow, however that is not the question for consideration before us today nor is the question of retention of goods in the factory premises after manufacture of 100% wool tops is a subject of the show cause notice. In fact it is not urged and considered either before the Collector or the Central Board of Excise & Custom. The only question, therefore, which falls for our consideration is the stage at which Excise duty was payable. We find in the impugned order the Central Government has upheld the order of Collector on the ground that in an integrated factory, duty has necessarily to be paid after blending. To our mind, this reasoning is incorrect and contrary to the judgment of the Supreme Court in J.K. Spinning & Weaving Mills Limited case (supra). In our view since the petitioner had discharged the liability on the 100% woolen tops when they were manufactured, no further duty was leviable on blended wool tops at the stage of clearance particularly because the classification remained unchanged.

5. In the circumstances, the writ petition is allowed. The order of the Central Government dated 20th July 1982 is quashed. However, there will be no order as to costs.