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Issues: Whether yarn manufactured and cleared before the coming into force of Notification No. 226/77 could be subjected to duty merely because the resulting cotton fabrics were manufactured thereafter and the earlier exemption notifications had ceased to operate.
Analysis: Excise duty is attracted by manufacture, and the rate and collection mechanism operate with reference to the time of removal under Rule 9 of the Central Excise Rules. Where the yarn had already been manufactured and cleared while the exemption notifications were in force, no duty was leviable, computable, or collectible on that yarn at the relevant time. A later notification could not be construed so as to impose duty retrospectively on goods already manufactured and removed, merely because they were subsequently used in the manufacture of cotton fabrics. Such a construction would negate the earlier exemption that had already been availed and would run contrary to the basic concept of excise levy.
Conclusion: The demand of duty on the yarn was not sustainable, and the assessee was entitled to refund.
Ratio Decidendi: Excise duty is attracted by manufacture, and a subsequent exemption or charging notification cannot retrospectively impose duty on goods already manufactured and cleared when they were exempt.
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