Full Judgment Text
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PETITIONER:
J.K. COTTON SPINNING AND WEAVING MILLS LTD. & ANR.
Vs.
RESPONDENT:
UNION OF INDIA & ORS.
DATE OF JUDGMENT30/10/1987
BENCH:
DUTT, M.M. (J)
BENCH:
DUTT, M.M. (J)
PATHAK, R.S. (CJ)
MISRA RANGNATH
CITATION:
1988 AIR 191 1988 SCR (1) 700
1987 SCC Supl. 350 JT 1987 (4) 421
1987 SCALE (2)903
ACT:
Levy of excise duty on yarn obtained at an intermediate
stage in the process of manufacture of fabrics-Amended rules
9 and 49 of the Central Excise Rules, 1944 1nterpretation
thereof.
HEADNOTE:
%
The appellant No. 1, J.K. Cotton Spinning and Weaving
Mills Limited, has a composite mill wherein it manufactures
fabrics of different types, for which yarn is obtained at an
intermediate stage, and the yarn is processed in an
integrated process in the said composite mill for weaving
the same into fabrics.
The Central Board of Excise issued a Circular dated
September 24, 1980, purporting to interpret the rules 9 and
49 of the Central Excise Rules, 1944 (the Rules) and
directing the subordinate excise authorities to levy and
collect excise duty in accordance therewith. The Board
further directed vide the said Circular that the use of the
goods in the manufacture of another commodity even within
the place premises specified in this behalf by the Central
Excise officers in terms of the powers conferred under rule
9 of the Rules, would attract duty. As the implementation of
the Circular worked to the prejudice of the appellants, they
filed a writ petition in the High Court, challenging the
validity of the Circular.
During the pendency of the said writ petition, the
Central Government issued a Notification dated February 20,
1982, amending the rules 9 and 49 of the Rules, with section
51 of the Finance Act, 1982, providing that the amendments
in the rules 9 and 49 shall be deemed to have, and to have
always had, the effect with retrospective effect from the
date on which the Rules came into force i.e. February 28,
1944. Upon the amendments of the rules 9 and 49, with
retrospective effect of the amendments, the appellants
amended their writ petition above-said to challenge the
constitutional validity of Section 51 of the Finance Act
abovementioned and the amendments to the rules 9 and 49.
701
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The High Court allowed the writ petition in part. It
held (i) that section 51 and the rules 9 and 49 as amended
were valid, (ii) the retrospective effect allowed by section
51 would be subject to the provisions of sections 11A and
11B of the Central Excises and Salt Act, 1944 (the Act),
(iii) the yarn produced at an intermediate stage in the mill
of the appellants and subjected to the integrated process of
weaving into fabrics, would be liable to payment of excise
duty in view of the amended provisions of the rules 9 and
49, but the sized yarn actually put into the integrated
process would not again attract excise duty. The appellants
then filed this appeal (Civil Appeal No. 297 of 1983) before
this Court by certificate.
Dismissing the Appeal, the Court,
^
HELD: The decisions of various High Courts cited, deal
with the rules 9 and 49 of the Central Excise Rules, 1944,
as they stood before they were amended by the Government
Notification dated February 20, 1982. In this case, what is
involved is the interpretation of the said two rules after
their amendment and the constitutional validity of the rules
as amended. The amendments to the rules 9 and 49 are quite
legal and valid. Section 51 of the Finance Act, 1982, giving
retrospective effect to the said amendments is also legal
and valid. The apprehension of the appellants that the
amendments to rules 9 and 49 having been made retrospective
from the date the rules were framed, that is, February 28,
1944, the appellants may be called upon to pay enormous
amounts of duty in respect of the intermediate goods which
have come into existence and again consumed in the
integrated process of manufacture of another commodity, is
not right. In view of section 11A of the Finance Act, there
is no cause for such an apprehension. Under Section 11A(1),
the excise authorities cannot recover duties not levied or
not paid or short-levied or short-paid or erroneously
refunded beyond the period of six months, the proviso to
section 11A not being applicable in the present case. Thus
though section 51 has given retrospective effect to the
amendments of rules 9 and 49, it must be subject to the
provision of section 11A of the Act. Section 51 does not
contain any non-obstante clause, nor does it refer to the
provision of section 11A, and it is difficult to hold that
section 51 overrides the provision of section 11A. [712F-H;
714D-F]
The appellants are liable to pay excise duty on the
yarn obtained at an intermediate stage and, thereafter,
further processed in an integrated process for weaving the
same into fabrics. Although it has been alleged that the
yarn is obtained at an intermediate stage of an
702
integrated process of manufacture of fabrics, it appears to
be not so. After the yarn is produced, it is sized, and
thereafter, subjected to a process of weaving the same into
fabrics. As the Court has held that the commodity which is
obtained at an intermediate stage of an integrated process
of manufacture of another commodity, is liable to the
payment of excise duty, the yarn that is produced by the
appellants is also liable to payment of excise duty. [720G-
H: 721A-B]
The High Court has rightly held that the appellants are
not liable to pay excise duty on the yarn after it is sized
for the purpose of weaving the same into fabrics. No
distinction can be made between unsized yarn and sized yarn,
for the unsized yarn when converted into sized yarn does not
lose its character as yarn. The judgment of the High Court
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affirmed. [721B-C]
In view of the decision of the Court in the Civil
Appeal No. 297 of 1983, the Civil Appeals Nos. 2658 and 4168
of 1983 also dismissed. [721D]
The Province of Madras v. Boddu Paidanna and Sons-AIR
1942 F.C. 33; Caltex oil Refining (India) Ltd. v. Union of
India & Ors. [1979] E.L.T. 581, Delhi Cloth and General
Mills Co. Ltd. v. Joint Secretary, Government of India,
[1978] E.L.T. 121; Modi Carpets Ltd. v. Union of India,
[1980] E.L.T. 320; Synthetics and Chemicals Ltd. Bombay v.
Government of India, [1980] E.L.T. 675, Devi Dayal
Electronics and Wires Ltd. v. Union of India, [1982] E.L.T.
33; Oudh Sugar Mills Ltd. v. Union of India, [1980] E.L.T.
327, Oudh Sugar Mills Ltd. v. Union of India, [1982] E.L.T.
927, Maneklal Harilal Spg. & Mfg. Co. Ltd. v. Union of
India, [1978] E.L.T. 618; Nirlon Synthetic Fibres &
Chemicals Ltd. v. Shri R.K. Audim; Assistant Collector &
Ors. In Misc. 491 of 1964, unreported judgment of Bombay
High Court, dated April 30, 1970, Jawaharmal v. State of
Rajasthan & Ors., [1966] 1 S.C.R. 890; Rai Ramkrishna and
Ors. v. State of Bihar, [1964] 1 S.C.R. 897, K.P. Verghese
v. The Income Tax officer, Ernakulam, [1982] 1 S.C.R. 629
and Senior Electric Inspector and Ors. v. Laxmi Narayan
Chopra, [1962] 3 S.C.R. 146, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 297 of
1983. Etc.
From the Judgment and order dated 11 1.1983 of the
Delhi High Court in C.W No 1858 of 1981
Soli J. Sorabjee, A.N. Haksar, Ravinder Narain P.K.
Ram.
703
D.N. Mishra and Appellant-in-person (in C.A. No. 2658 of
1983) for the Appellants
K. Parasaran, Attorney General, A K. Ganguli, K. Swamy
and C.V.S. Rao for the Respondents
The Judgment of the Court was delivered by
DUTT, J. This appeal is directed against the judgment
of the Delhi High Court allowing in part only the petition
of the appellants under Article 226 of the Constitution of
India
The appellant No. 1, J.K. Cotton Spinning & Weaving
Mills Limited, has a composite mill wherein it manufactures
fabrics of different types. In order to manufacture the said
fabrics, yarn is obtained at an intermediate stage. The yarn
so obtained is further processed in an integrated process in
the said composite mill of the appellant No. 1 for weaving
the same into fabrics. The appellants do not dispute that
the different kinds of fabrics which are manufactured in the
mill are liable to payment of excise duty on their removal
from the factory. They also do not dispute their liability
in respect of yarn which is also removed from the factory.
It is the contention of the appellants that no duty of
excise can be levied and collected in respect of yarn which
is obtained at an intermediate stage and, thereafter,
subjected to an integrated process for the manufacture of
different fabrics. Indeed, on a writ petition of the
appellants, the Delhi High Court by its judgment dated
October 16, 1980 held that yarn obtained and further
processed within the factory for the manufacture of fabrics
could not be subjected to duty of excise. It is the case of
the appellants that in spite of the said decision of the
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Delhi High Court, the Central Board of Excise has wrongly
issued a circular dated September 24, 1980 purporting to
interpret rules 9 and 49 of the Central Excise Rules, 1944
(hereinafter referred to as ’the Rules’) and directing the
subordinate excise authorities to levy and collect duty of
excise in accordance therewith. In the said circular, the
Board has directed the subordinate excise authorities that
"use of goods in manufacture of another commodity even
within the place/premises that have been specified in this
behalf by the Central Excise officers in terms of the powers
conferred under rule 9 of the Rules, will attract duty". As
the said circular was being implemented to the prejudice of
the appellants, they filed a writ petition before the Delhi
High Court, inter alia, challenging the validity of the
circular.
During the pendency of the writ petition in the Delhi
High
704
Court, the Central Government by a Notification No . 20/82-
C. dated 20.2.1982 amended rules 9 and 49 of the Rules.
Section 51 of the Finance Act, 1982 provides that the
amendments in rules 9 and 49 of the Rules shall be deemed to
have, and to have always had the effect on and from the date
on which the Rules came into force i.e. February 28, 1944.
After the said amendments of the Rules with retrospective
effect, the appellants amended the writ petition and
challenged the constitutional validity of section 5 1 of the
Finance Act, 1982 and of the amendments to rules 9 and 49 of
the Rules.
The High Court came to the conclusion that section S I
and rules 9 and 49 of the Rules, as amended, were valid. It
has, however, been held that the retrospective effect given
by section S I will be subject to the provisions of sections
11A and 11B of the Central Excises and Salt Act, 1944
(hereinafter referred to as ’the Act’) Further, it has been
held that the yarn which is produced at an intermediate
stage in the mill of the appellants and subjected to the
integrated process of weaving the same into fabrics, will be
liable to payment of excise duty in view of the amended
provisions of rules 9 and 49 of the Rules. But the sized
yarn which is actually put into the integrated process will
not again be subjected to payment of excise duty for, the
unsized yarn, which is sized for the purpose, does not
change the nature of the commodity as yarn. The writ
petition was, accordingly, allowed in part. Hence this
appeal by the appellants upon a certificate granted by the
High Court. F
At this stage, we may refer to rules 9 and 49 before
and after amendment of the same. The relevant portion of
rule 9 before the same was amended is as follows:-
"Rule 9. Time and manner of payment of duty.-(1)
No excisable goods shall be removed from any place
where they are produced, cured or manufactured or
any premises appurtenant thereto, which may be
specified by the Collector in this behalf whether
for consumption, export, or manufacture of any
other commodity in or outside such place, until
the excise duty leviable thereon has been paid at
such place and in such manner as is prescribed in
these Rules or as the Collector may require, and
except on presentation of an application in the
proper form and on obtaining the permission of the
proper officer on the form: " [The remaining
provisions of rule 9 which are not relevant for
our purpose are omitted. ]
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705
By a Notification No. 20/82 C.B. dated 20.2.1982 of the
Central Government, rule 9 was amended by the addition of
the following A Explanation thereto:-
"Explanation.-For the purposes of this rule
excisable goods produced, cured or manufactured in
any place and consumed or utilised-
(i) as such or after subjection to any process or
processes; or
(ii) for the manufacture of any other commodity,
whether in a continuous process or otherwise,
in such place or any premises appurtenant
thereto, specified by the Collector under
sub-rule (1), shall be deemed to have been
removed from such place or premises
immediately before such consumption or
utilisation."
Rule 49 before its amendment was as follows:-
"Rule 49. Duty chargeable only on removal of goods
from the factory premises or from an approved
place of storage.-(1) Payment of duty shall not be
required in respect of excisable goods made in a
factory until they are about to be issued out of
the place or premises specified under rule 9 or
are about to be removed from a store-room or other
place of storage approved by the Collector under
rule 47:" [The remaining provisions of rule 49
which are not relevant for our purpose are omitted
. ]
By the said Notification rule 49 was amended by the
addition of an Explanation thereto as follows:-
"Explanation.-For the purposes of this rule,
excisable goods made in a factory and consumed or
utilised-
(i) as such or after subjection to any process or
processes; or
(ii) for the manufacture of any other commodity,
whether in a continuous process or otherwise, in
such factory or place or premises specified under
rule 9 or store-
706
room or other place of storage approved by the
Collector under rule 47, shall be deemed to have
been issued out of, or removed from such factory,
place, premises, store-room or other place of
storage, as the case may be, immediately before
such consumption or utilisation."
It has been already noticed that by section 5 1 of the
Finance Act, 1982, amendments made to rules 9 and 49 have
been given retrospective effect from the date on which the
Rules came into force, that is to say, from February 28,
1944
It is not disputed before us that under section 3(1) of
the Act, the taxing event is the production or manufacture
of the goods in question. Indeed, section 3 provides that
there shall be levied and collected in such manner as may be
prescribed, duties of excise on all excisable goods other
than salt which are produced or manufactured in India and at
the rates set forth in the First Schedule. It is, therefore,
clear that as soon as the goods in question are produced or
manufactured, they will be liable to payment of excise duty.
While section 3 lays down the taxable event, rules 9 and 49
provide for the collection of duty. There is a distinction
between levy and collection of duty. In The Province of
Madras v. Boddu Paidanna & Sons, A.I.R. 1942 FC 33 it has
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been observed by the Federal Court as follows:-
"There is in theory nothing to prevent the Central
Legislature from imposing a duty of excise on a
commodity as soon as it comes into existence, no
matter what happens to it afterwards, whether it
be sold, consumed, destroyed or given away. A
taxing authority will not ordinarily impose such a
duty, because it is much more convenient
administratively to collect the duty (as in the
case of most of the Excise Acts) when the
commodity leaves the factory for the first time,
and also because the duty is intended to be an
indirect duty which the manufacturer or producer
is to pass on to the ultimate consumer, which he
could not do if the commodity had, for example,
been destroyed in the factory itself. It is the
fact of manufacture which attracts the duty, even
though it may be collected later."
Relying upon the aforesaid observation of the Federal
Court, it has been urged by Mr. Soli Sorabjee, learned
Counsel appearing on behalf of the appellants, that although
it is true that as soon as the commodity is manufactured or
produced it is liable to the payment of
707
excise duty, the duty will not, however, be collected unless
the commodity leaves the factory. It is submitted by him
that the commodity must be removed from one place to another
either for the purpose of consumption in the factory or for
sale outside it before excise duty an be claimed. Counsel
submits that rules 9 and 49, as they stood before they were
amended, and even the main part of these two rules after
amendment, indicate in clear terms that so long as the goods
which are manufactured in the factory are not removed, there
is no question of payment of excise duty on the goods.
Several decisions have been cited on behalf of the
appellants to show that some High Courts also have taken the
view that removal is the main criterion for the collection
of excise duty on the commodity produced or manufactured
inside the factory or the place of manufacture. We shall
presently refer to these decisions. It may, however, be
noticed that the decisions are not also uniform on the
interpretation of rules 9 and 49, as they stood before
amendment. We are, however, really concerned with the
interpretation of these two rules after amendment, but as
much submissions have been made by the parties in the light
of the decisions of the High Courts on the interpretation of
these two rules, we would like to refer to the same.
In Caltex oil Refining (India) Ltd. v. Union of India
and others, [1979] E.L.T. 581 it has been held by the Delhi
High Court that there can be removal only if the product
goes out of one stream of production into another stream of
production or if the product is issued out of or taken out
or consumed if no further processing of that product is to
be done. Further, it has been observed that there can be no
removal of a product within the plant itself so long as the
product is in the process of manufacture. According to this
decision, if the product, which is obtained at an
intermediate stage of an integrated and uninterrupted
process of manufacture, there is no removal of such product.
But, if the intermediary product is transferred from one
plant to another for the manufacture of another commodity,
there will be removal for the purpose of collection of duty.
In an earlier decision in Delhi Cloth & General Mills
Co. Ltd. v. Joint Secretary, Government of India, [1978]
E.L.T. 121 the Delhi High Court had taken a different view.
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In that case calcium carbide manufactured in the factory in
one plant was used to generate acetylene gas by the transfer
of the article from one plant to another in the same
factory. The question that came up for consideration of the
High Court was whether there was removal of calcium carbide
for the
708
purpose of levy and collection of excise duty. The High
Court relied upon the definition of ’factory’ under section
2(e) of the Act and took the view that the definition was
not restricted to only the part in which the excisable goods
were manufactured. It was, accordingly, held that it could
not, therefore, be said that calcium carbide made by the
petitioner-Company was removed from the factory in which it
was produced. This decision lays down that so long as a
commodity is not removed from the factory premises, there is
no removal within the meaning of rules 9 and 49. A similar
view has been taken by the Delhi High Court in a later
decision in Modi Carpets Ltd. v. Union of India, [1980]
E.L.T. 320 where the High Court has expressed the view that
o excise duty can be levied and recovered on ’sliver’
obtained by the petitioners, if it is consumed within the
very premises in which it is manufactured because in such
cases there is no removal of sliver from the place of
manufacture as envisaged by rules 9 and 49
More or less a similar view has been taken by the Delhi
High Court in another decision in Synthetics and Chemicals
Ltd., Bombay v. Government of India, [19801 E.L.T. 675. In
that case, the petitioner manufactured Bentol, a mixture of
Benzene and Toluene, in the factory, which was again used
for the manufacture or rubber The High Court took the view
that it was not a case of removal under rules 9 and 49 and,
as such, no excise duty was payable on Bentol.
We may notice another decision of the Delhi High Court
in Devi Dayal Electronics and Wires Ltd. v. Union of India,
[ 1982] L.T 33 In that case it has been held that since the
impugned resins (polyester or phenolic resins) are not
removed from the place of manufacture but are used for the
manufacture of end product (Varnish) within the plant
itself, there is no removal of goods within the meaning of
rule 9 read with rule 49 of the Rules.
Thus it appears that there is a conflict of opinion in
the decisions of the Delhi High Court as to what is meant by
the word ’removal’ for the purpose of payment of excise
duty. Two views have been expressed by the Delhi High Court.
One view is that so long as any product manufactured in the
factory is not actually removed from the factory premises,
there is no removal and, accordingly, no excise duty is
payable on the product, even if the product is used for the
manufacture of another commodity inside the factory. The
other view is that if at one stage a commodity known to the
market is produced and is transferred, within the factory
for the manufacture of another commodity, there is removal
within the meaning of rules 9 and 49.
709
Apart from the above two views, there is a third view
which has A also been expressed by the Delhi High Court,
namely, that if an intermediate product is obtained in an
integrated process of manufacture of a commodity, there is
no removal and, therefore, such intermediate product
although known to the market and comes under a particular
tariff item yet, as there is no removal, there will be no
question of payment of excise duty on such intermediate
product.
The Nagpur Bench of the Bombay High Court in Oudh Sugar
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Mills Ltd. v. Union of India, [ 1980] L.T. 327 has adopted
the second and third views. It has been held that if the
purpose of removal of excisable goods is consumption in the
same place where the excisable goods are manufactured or
cured or if such excisable goods are used in the manufacture
of any other goods in the same place, this cannot be done
without payment of excise duty at the place and in the
manner prescribed. Further, it has been held that where the
plant of production is treated as a composite plant and
where the process of manufacture is an integrated,
continuous and uninterrupted process, a transfer of a
produce which is a component of the final produce from one
part of the plant to another, does not amount to removal as
contemplated by rule 9. According to this decision, a
process of onward movement of a component for being
converted into a final product is not covered by the concept
of removal contemplated by the provision of rule 9 of the
Rules.
In Oudh Sugar Mills Ltd. v. Union of India, [1982]
E.L.T 927 the Allahabad High Court has taken more or less
the same view as that of the Bombay High Court. It has been
observed that an intermediate product which by itself is
goods known to the market and is used in captive consumption
for bringing out altogether a new goods not by an integrated
process, but by a distinct and separate process, is liable
to excise duty before its removal.
So far as captive consumption is concerned, the Gujarat
High Court has taken the same view as that of the Allahabad
High Court in Maneklal Harilal Spg. & Mfg. Co. Ltd. v. Union
of India, [1978] E.L.T. 618 where it has been held by the
Allahabad High Court that excise duty is payable when yarn
is removed from the spinning department to the weaving
department for the manufacture of fabrics
All the above decisions relate to rules 9 and 49 before
they were amended. Leaving aside the question of
specification for the time being. rule 9 before its
amendment prohibits the removal of excisable goods
710
whether for consumption, export or manufacture of any other
commodity in or outside such place, until the excise duty
leviable thereon has been paid. It is manifestly clear from
rule 9 that it contemplates not only removal from the place
where the excisable goods are produced, cured or
manufactured or any premises appurtenant thereto, but also
removal within such place or premises for captive
consumption or ’home consumption’, as it is called. Thus if
a commodity which is manufactured in such place or premises
and is used for the manufacture of another commodity, then
it will be a case of removal for the purpose of payment of
excise duty. This view which we take clearly follows from
the expression "whether for consumption, export or
manufacture of any other commodity in or outside such
place". Thus consumption of excisable goods may be within
such place or outside such place. The decisions which have
taken the view that if a commodity manufactured within the
factory in one plant is transferred to another plant for the
purpose of production of another commodity will be removal
for the purpose of payment of excise duty are, in our
opinion, correct. It is not easily understandable why the
definition of expression ’factory’ under section 2(e) of the
Act has been taken resort to in some of the decisions for
the purpose of interpretation of rule 9. There can be no
doubt that if a commodity is taken outside the factory it
will be removal, but rule 9 does not, in any manner,
indicate that it is only when the goods are removed from the
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factory premises it will be removal and when the excisable
goods manufactured within the factory is removed from one
plant to another it will not be a case of removal. On the
contrary, as noticed already, rule 9 clearly embraces within
it captive consumtion of excisable goods, that is to say,
when excisable goods manufactured in the factory are used
for production of another commodity.
Now the question is whether rule 9 before it was
amended also envisaged a case of an intermediate product
obtained in an integrated and continuous process of
manufacture of another commodity, that is, the end product.
It must be admitted that prima facie rule 9 does not show
that it also covers a case of integrated, continuous and
uninterrupted process of manufacture producing a commodity
at an intermediate stage which again is utilised in such
continuous process for the manufacture of the end product
The learned Attorney General, appearing on behalf of the
Union of India, submits that rule 9 and rule 49 also
envisaged such a case of integrated process of manufacture
of the end product using a product produced at an
intermediate stage In support of his contention he has
placed reliance on an unreported decision of the Bombay High
Court in Misc. 491 of 1964, dated April,
711
30, 1970 (Nirlon Synthethic Fibres & Chemicals Ltd. v. Shri
R.K. Audim, Assistant Collector & Ors.) The learned Single
Judge of the Bombay High Court took the view that a
continuous or integrated process of manufacture was not
initially contemplated by rule 9 or rule 49, but after the
addition of a new set of rules being rules 173A to 173K to
the Rules by the Notification dated May 11, 1968 a
continuous and integrated process of manufacture came to be
contemplated by the scheme of the Act and the Rules.
Reliance has been placed by the learned Judge on the
Explanation to rule 173A as added by the said Notification
dated May 11, 1968. The Explanation is as follows:-
"Explanation-The expression ’home use’ means the
consumption of such goods within India for any
purpose and includes use of such goods in the
place of production or manufacture or any other
place or premises (whether by continuous process
or not), for manufacture of any commodity.
Reliance has also been placed on rule 173G which
provides for the procedure to be followed by an assessee who
is a manufacturer of matches or cigarettes or cheroots. The
relevant portion of rule 173G is a proviso thereto which is
as follows:-
"Provided that the duty due on the goods consumed
within the factory in a continuous process may be
so paid at the end of the factory day."
From the above provisions of the Explanation to rule
173A and the proviso to rule 173G, the learned Judge has
taken the view that a continuous or integrated process of
manufacture has come to be contemplated by the scheme of the
Act and the Rules framed thereunder for the first time only
in May, 1968, the scheme having been brought into force with
effect from June 1, 1968 and prior thereto such a continuous
or integrated manufacturing process was never contemplated
by the Act or the Rules.
The. learned Attorney General gets inspiration from the
said unreported case of the Bombay High Court and submits
that atleast since after May, 1968, rule 9 and rule 49
envisage the case of an integrated and continuous process of
manufacture involving the use or utilisation of a commodity
produced at an intermediate stage of such process for the
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manufacture of an end product or commodity. It is submitted
by him that if the interpretation as given by the learned
712
Single Judge of the Bombay High Court in the above
unreported decision is accepted, in that case, it will not
be necessary to consider the effect of amended rule 9 or
rule 49, that is to say, the Explanations that have been
added to these two rules.
It may be that the concept of continuous or integrated
process of manufacture has been recognised in the
Explanation to sub-rule (2) of rule 173A and in the proviso
to rule 173G but we do not think that rule 9 or rule 49
should be interpreted in the light of provisions of the
Explanation to sub-rule (2) of rule 173A or the proviso to
rule 173G Moreover, we are not concerned with the
interpretation of rule 9 and rule 49, as they stood before
the amendment. In the instant case, the appellants have
challenged rule 9 and rule 49 as amended by the Notification
dated February 20, 1982 We are, therefore, concerned with
the interpretation of these rules as amended, particularly
the question of validity of these rules.
Before we proceed to consider the contentions made on
behalf of the parties, it may be stated that in view of the
divergence of judicial opinions as to the interpretation of
rules 9 and 49, before they were amended, the Explanations
to rules 9 and 49 have been added so as to obviate any
doubt. The Explanations to rule 9 and rule 49, inter alia,
provide that commodity obtained at an intermediate stage of
manufacture in a continuous process shall be deemed to have
been removed from such place or premises as mentioned in
sub-rule (1) of rule 9 This deeming provision has been given
retrospective effect by virtue of section S l of the Finance
Act 1982.
It is urged by Mr. Sorabjee, learned Counsel for the
appellants, that the amended rule 9 and rule 49 are
arbitrary and unreasonable inasmuch as the goods which, in
fact, are not removed from the factory and which are
incapable of removal because of the nature and construction
of the plant or the nature and character of the
manufacturing process, are fictionally treated as having
been removed. It is submitted that as a result of the
amendment of these rules the appellants are exposed to
excessive hardship for not complying with the statutory
provisions In view of the length of the retrospective
operation of the amendments, namely 38 years from the date
of the commencement of the Act, that is, February 28, 1944
the appellants would be called upon to pay enormous amount
of duty in respect of the entire quantity of goods which
have come into existence and have been captively consumed
within the factory premises. The appellants will not,
however, be able to pass on this burden to consumers and
will have to bear
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the same themselves It is submitted that in view of the
arbitrariness and unreasonableness of the amendments and the
hardships that will be caused to the appellants and other
manufacturers of excisable goods, the amendments should be
struck down as violative of the provisions of Article 14 and
Article 19(1)(g) of the Constitution of India.
It is not disputed that the Legislature is competent to
make laws both prospectively and retrospectively But, as
pointed out by this Court in Jawaharmal v. State of
Rajasthan and others, [ 19661 I S.C. R. 890, the cases may
conceivably occur where the court may have to consider the
question as to whether excessive retrospective operation
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prescribed by a taxing statute amounts to the contravention
of the citizens’ fundamental rights; and in dealing with
such a question the court may have to take into account all
the relevant and surrounding facts and circumstances in
relation to the taxation. Again in Rai Ramkrishna & others
v. State of Bihar, [ 1964] I S C.R 897 this Court has
pointed out that if the retrospective feature of a law is
arbitrary and burdensome, the statute will not be sustained
and the reasonableness of each retrospective statute will
depend on the circumstances of each case; and the test of
the length of time covered by the retrospective operation
cannot, by itself, necessarily be a decisive test.
The apprehension of the appellants is that the
amendments to rules 9 and 49 having been made retrospective
from the date the Rules were framed, that is from February
28, 1944, the appellants and others similarly situated may
be called upon to pay enormous amounts of duty in respect of
intermediate goods which have come into existence and again
consumed in the integrated process of manufacture of another
commodity There can be no doubt that if one has to pay duty
with retrospective effect from 1944, it would really cause
great hardship but, in our opinion, in view of section I IA
of the Act, there is no cause for such apprehension. Section
I IA(I) of the Act provides as follows:-
"Section l1A.-(1) When any duty of excise has not
been levied or paid or has been short-levied or
short-paid or erroneously refunded, a Central
Excise officer may, within six months from the
relevant date, serve notice on the person
chargeable with the duty which has not been levied
or paid or which has been short-levied or short-
paid or to whom the refund has erroneously been
made, requiring him to show cause why he should
not pay the amount specified in the notice:
714
Provided that where any duty of excise has
not been levied or paid or has been short-levied
or short-paid or erroneously refunded by reason of
fraud, collusion or any wilful misstatement or
suppression of facts, or contravention of any of
the provisions of this Act or of the rules made
thereunder with intent to evade payment of duty,
by such person or his agent, the provisions of
this sub-section shall have effect, as if for the
words "six months", the words "five years ’ were
substituted.
Explanation.-Where the service of the notice
is stayed by an order of a court, the period of
such stay shall be excluded in computing the
aforesaid period of six months or five years, as
the case may be "
Under section 11A( I) the excise authorities cannot
recover duties not levied or not paid or short-levied or
short-paid or erroneously refunded beyond the period of six
months, the proviso to section l IA not being applicable in
the present case. Thus although section 5 l of the Finance
Act, 1982 has given retrospective effect to the amendments
of rules 9 and 49, yet it must be subject to the provision
of section 11A of the Act. We are unable to accept the
contention of the learned Attorney General that as section 5
1 has made the amendments retrospective in operation since
February 28, 1944, it should be held that it overrides the
provision of section 11A. If the intention of the
Legislature was to nullify the effect of section 11A, in
that case, the Legislature would have specifically provided
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for the same Section 5 1 does not contain any non-obstante
clause nor does it refer to the provision of section 1 IA.
In the circumstances it is difficult to hold that section 5
l overrides the provision of section 1 IA.
It is, however, contended by the learned Attorney
General that as the law was amended for the first time on
February 20, 1982, the cause of action for the excise
authorities to demand excise duty in terms of the amended
provision, arose on that day, that is, on February 20, 1982
and, accordingly, the authorities are entitled to make such
demand with retrospective effect beyond the period of six
months. But such demand, though it may include within it
demand for more than six months, must be made within a
period of six months from the date of the amendment.
There is no provision in the Act or in the Rules
enabling the excise authorities to make any demand beyond
the periods mentioned
715
in section 11A of the Act on the ground of the accrual of
cause of action. The question that is really involved is
whether in view of section 5 1 of the Finance Act, 1982,
section 11A should be ignored or not. In our view section S
I does not, in any manner, affect the provision of section
11A of the Act. In the absence of any specific provision
overriding section 1 IA, it will be consistent with rules of
harmonious construction to hold that section 51 of the
Finance Act, 1982 in so far as it gives retrospective effect
to the amendments made to rules 9 and 49 of the rules, is
subject to the provision of section 11A.
In the circumstances, there is no question of the
amended provision of rule 9 and rule 49 being arbitrary,
unreasonable or violative of the provision of Article 14 and
Article 19(1)(g) of the Constitution of India.
We may now deal with the challenge made to the
retrospective operation of amendments of rules 9 and 49 on
another ground. In order to appreciate the ground of such
challenge, we may once more refer to section 51 of the
Finance Act, 1982. The Explanation to section 5 1 provides
as follows:-
"Explanation.-For the removal of doubts, it is
hereby declared that no act or omission on the
part of any person shall be punishable as an
offence which would not have been so punishable if
this section had not come into force."
Under the Explanation, although rules 9 and 49 have been
given retrospective effect, an act or omission which was not
punishable before the amendment of the Rules, will not be
punishable after amendment. The Explanation does not
however, provide for the penalties and confiscation of
goods. It is the contention of the appellants that as the
appellants had not complied with the requirements of the
amended rules 9 and 49, they would be subjected to penalties
and their goods would be confiscated under the amended rules
9 and 49 read with rule 173Q of the Rules with retrospective
effect. It is, accordingly, submitted on behalf of the
appellants that the amendment of these two rules with
retrospective effect is arbitrary and unreasonable and
should be struck down as violative of Article 14 of the
Constitution.
Attractive though the argument is, we regret we are
unable to accept the same. It is true that the Explanation
to section 51 has not mentioned anything about the penalties
and confiscation of goods but H
716
we do not think that in view of such non-mention in the
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Explanation excluding imposition of penalties for acts or
omissions before amendment. such penalties can be imposed or
goods can be confiscated by virtue of the amended provisions
of rules 9 and 49. It will be against all principles of
legal jurisprudence to impose a penalty on a person or to
confiscate his goods for an act or omission which was lawful
at the time when such act was performed or omission made,
but subsequently made unlawful by virtue of any provision of
law. The contention made on behalf of the apellants is
founded on the assumption that under the Explanation to
section 5 1, the penalties can be imposed and goods can be
confiscated with retrospective effect. In the circumstances,
the challenge to the amendments of rules 9 and 49, founded
on the provision of the Explanation to section 51 of the
Finance Act, 1982, is without any substance and is rejected
The appellants have also challenged the prospective
operation of the Explanation to rules 9 and 49 introduced by
amendments of the same. It is strenuously uged by Mr.
Sorabjee, learned Counsel for the appellants, that even
after amendment there must be removal of the goods from one
place to another for the purpose of collection of excise
duty. Our attention has been drawn on behalf of the
appellants to clause (b) of sub-section (4) of section 4 of
the Act, which defines "place of removal" as follows:-
"Sub-section (4)-For the purpose of this section,-
(a).....................................
(b) "place of removal" means-
(i) a factory or any other place or premises
of production or manufacture of the excisable
goods; or
(ii) a warehouse or any other place or
premises wherein the excisable goods have been
permitted to be deposited without payment of duty,
from where such goods are removed.
It is submitted on behalf of the appellants that the
Explanations to rule 9 and rule 49 are ultra vires the
provision of clause (b) of sub-section (4) of section 4 of
the Act inasmuch as "place of removal" as defined therein,
does not contemplate any deemed removal, but a
717
physical and actual removal of the goods from a factory or
any other place or premises of production or manufacture or
a warehouse etc. A This contention is unsound and also does
not follow from the definition of "place of removal . Under
the definition "place of removal" may be a factory or any
other place or premises of production or manufacture of the
excisable goods etc The Explanation to rules 9 and 49 do not
contain any definition of "place of removal", but provide
that excisable goods produced or manufactured in any place
or premises at an intermediate stage and consumed or
utilised for the manufacture of another commodity in a
continuous process, shall be deemed to have been removed
from such place or premises immediately before such
consumption or utilization. Clause (b) of sub-section (4) of
section 4 has defined "place of removal", but it has not
defined ’removal’. There can be no doubt that the word
’removal contemplated shifting of a thing from one place to
another. In other words, it contemplates physical movement
of goods from one place to another
It is well settled that a deeming provision is an
admission of the non-existence of the fact deemed.
Therefore, in view of the deeming provisions under
Explanations to rules 9 and 49, although the goods which are
produced or manufactured at an intermediate stage and,
thereafter, consumed or utilised in the integrated process
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for the manufacture of another commodity is not actually
removed, shall be construed and regarded as removed. The
Legislature is quite competent to enact a deeming provision
for the purpose of assuming the existence of a fact which
does not really exist. It has been already noticed that the
taxing event under section 3 of the Act is the production or
manufacture of goods and not removal The Explanations to
rules 9 and 49 contemplate the collection of duty levied on
the 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 be removal from such place or
premises of manufacture. The deeming provisions are quite
consistent with section 3 of the Act As observed by the
Federal Court in Boddu’s case (supra) there is in theory
nothing to prevent the central legislature from imposing a
duty of excise on a commodity as soon as it comes into
existence, no matter what happens to it after- wards,
whether it be sold, consumed or destroyed or given away. It
is for the convenience of the taxing authority that duty is
collected at the time of removal of the commodity. There is,
therefore, nothing unreasonable in the deeming provision
and, as discussed above, it is quite in conformity with the
provision of section 3 of the Act The contention that the
amendments to rules 9 and 49 are ultra vires clause H
718
(b) of sub-section (4) of section 4 of the Act, is without
substance and is overruled.
It is next contended on behalf of the appellants that
even assuming that there can be fictional removal as
provided in the Explanation to rules 9 and 49, there cannot
be such fictional or deemed removal without the
specification of the place where the excisable goods are
produced, cured or manufactured or any premises appurtenant
thereto. Rule 9(1), inter alia provides that no excisable
goods shall be removed from any place where they are
produced, cured or manufactured or any premises appurtenant
thereto, which may be specified by the Collector in this
behalf until the excise duty leviable thereon has been paid.
The Explanations to rules 9 and 49 refer to the
specification that has been made by the Collector under sub-
rule (1) of rule 9. It is submitted on behalf of the
appellants that as no specification has been made by the
Collector of such place or premises appurtenant thereto, the
provision of deemed removal with regard to the commodity
produced at the intermediate stage and consumed or utilised
in the continuous process of manufacture of the end product,
is inapplicable. It is contended that so long as such
specification is not made by the Collector of the place of
manufacture or of any premises appurenant thereto, the
provision of deemed removal as contained in the Explanations
to rule 9 and 49 cannot be given effect to.
On the other hand, it is contended by the learned
Attorney General that specification of the place of
manufacture and other places for the storage of the goods,
is made in the licence which is required to be obtained
under rule 174 of the Rules. Rule ]78 provides for the form.
of licence. Clause (b) of rule 178(1) provides that every
licence granted or renewed under rule 176 shall have
reference only to the premises, if any, described in such
licence. Form A L.-IV is the form of an application for
licence under rule 176. In the Schedule to the Form,
description of the premises intended to be used as a factory
and of each main division or sub-division of the factory has
to be given. Further, the detailed description of store-room
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or other place of storage and the purpose of each has also
to be given in the application form for the grant of licence
for the manufacture of excisable goods. Again under rule 44
of the Rules, the Collector may require any manufacturer to
make a prior declaration of factory premises and its
equipments. Such a declaration has to be given in Form D-2
in respect of buildings, rooms, vessel, etc. In view of the
particulars which are required to be given by a licensee for
the manufacture of excisable goods, it is submitted by the
learned Attorney General that the specification that is
719
required to be made under rule 9(1), is made in the licence
and in the declaration that has to be furnished by the
manufacturer in Form D-2.
It is true that under rule 9(1) there is a provision
for specification by the Collector, but the question is what
has to be specified by the Collector. It is the contention
of the appellants that the Collector has to specify the
place of manufacture and also any premises appurtenant
thereto. We are, however, unable to accept this contention.
The place where the goods are to be manufactured by a
manufacturer, that is to say, the site of the factory cannot
be specified by the Collector. It is for the manufacturer to
choose the site or the place where the factory will be
constructed and goods will be manufactured. Rule 9(1), in
our opinion, 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. Thus the contention of the appellants that the
Collector has to specify the place of manufacture and also
any premises appurtenant thereto under rule 9(1) of the
Rules, is without any substance.
Our attention has, however, been drawn to the impugned
circular dated September 24, 1980 issued by the Central
Board of Excise & Customs. In clause 3 of the circular, it
is stated as follows:-
"Mere approval of the ground plan in a routine
manner will not suffice for purposes of rule 9 as
under the said rule the place of production etc.
Or premises appurtenant thereto have also to the
specified separately "
Under the circular, the Collector is required to
specify under rule 9(1) both the place of production and
premises appurtenant thereto, if any. In view of this
direction given in the circular, the learned Counsel for the
appellants submits that it is not only binding on the
Collector and the other officers of the Central Excise
Department, but also the circular is in the nature of
contemporanea exposito rendering useful aid in the
construction of the provision of rule 9(I) of the Rules.
This contention finds support from the decision of this
Court in K.P. Var-
720
ghese v. The Income-Tax officer, Ernakulam, [1982] I S.C.R.
629 relied on by the learned Counsel of the appellants.
Indeed, it has been observed in that case that the rule of
construction by reference to contemporanea exposito is a
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well established rule for interpreting a statute by
reference to the exposition it has received from
contemporary authority, though it must give way where the
language of the 13 statute is plain and unambiguous. In our
opinion, the language of rule 9(1) admits of only one
interpretation and that is that the specification that has
to be made by the Collector is of any premises appurtenant
to the place of manufacture or production of the excisable
goods. The specification is not required to be made and, in
our view, cannot be made of the place of manufacture or
production of the excisable goods. Apart from that, as
observed by Subba Rao, J., upon a review of all the
decisions on the point, in an earlier decision of this Court
in the Senior Electric Inspector and others v. Laxmi Narayan
Chopra, [1962] 3 S.C.R. 146, the maxim contemporanea
exposito as laid down by Coke was applied to construing
ancient statutes but not to interpreting Acts which are
comparatively modern. Further, it has been observed that in
a modern progressive society it would be unreasonable to
confine the intention of a Legislature to the meaning
attributable to the word used at the time the law was made
and, unless a contrary intention appears, an interpretation
should be given to the words used to take in new facts and
situations, if the words are capable of comprehending them.
Most respectfully we agree with the said observation of
Subba Rao, J. In the circumstances, we do not agree with the
direction of the Board of Central Excise & Customs given in
the impugned circular that both the place of manufacture and
the premises appurtenant thereto must be specified by the
Collector under rule 9 1(1) of the Rules. Thus, there being
no question of specification of the place of manufacture,
the contention of the appellants that without such
specification there cannot be any deemed removal, fails.
In view of the discussion made above, we hold that the
amendments to rules 9 and 49 are quite legal and valid.
Further, section S 1 of this Finance Act, 1982 giving
retrospective effect to the said amendments is also legal
and valid.
In the instant case, the appellants are liable to pay
excise duty on the yarn which is obtained at an intermediate
stage and, thereafter, further processed in an integrated
process for weaving the same into fabrics. Although it has
been alleged that the yarn is obtained at an intermediate
stage of an integrated process of manufacture of fabrics, it
appears to be not so. After the yarn is produced it is sized
and,
721
thereafter, subjected to a process of weaving the same into
fabrics. Be that as it may, as we have held that the
commodity which is obtained at an intermediate stage of an
integrated process of manufacture of another commodity, is
liable to the payment of excise duty, the yarn that is
produced by the appellants is also liable to payment of
excise duty. In our view, the High Court by the impugned
judgment has rightly held that the appellants are not liable
to pay any excise duty on the yarn after it is sized for the
purpose of weaving the same into fabrics. No distinction can
be made between unsized yarn and sized yarn, for the unsized
yarn when converted into sized yarn does not lose its
character as yarn.
For the reason aforesaid, the judgment of the High
Court is affirmed and this appeal is dismissed. There will.
however, be no order as to costs.
Civil Appeal Nos. 2658 and 4168 of 1983.
In view of the judgment passed in Civil Appeal No. 297
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of 1983, these appeals are also dismissed. There will,
however, be no order as to costs.
S.L. Appeals dismissed.
722