1983 (1) TMI 86 - HC - Central Excise

Court Upholds Retroactive Excise Duty on Intermediary Products; Disallows Duty on Yarn in Production Stream.

The court upheld the validity of Section 51 of the Finance Act, 1982, and the explanations to Rules 9 and 49, confirming the retrospective application of ... Rules 9 and 49 of Excise Rules' - Valid and Constitutional - Dutiability of intermediary products - Intermediary process - Dutiability - Yarn Issues Involved:1. Whether excise duty can be charged on 'Spun Yarn' or 'Sized Yarn' utilized in the composite mill for producing fabrics.2. Validity and vires of Section 51 of the Finance Act, 1982, and the explanations added to Rules 9 and 49.3. The requirement of 'removal' prior to the levy and collection of duty.4. Retrospective effect of the amendments to Rules 9 and 49.5. Classification and differentiation of intermediary products and processes.6. Compliance difficulties and maintenance of records.Issue-Wise Detailed Analysis:1. Excise Duty on 'Spun Yarn' or 'Sized Yarn':The court examined whether excise duty could be levied on yarn processed within a composite mill to manufacture fabrics. The petitioners argued that yarn, as an intermediary product, should not attract excise duty if it remains within the production stream and is not cleared from the factory. The court, referring to previous judgments, held that 'the yarn remains within the stream of production in the manufacture of fabrics,' and thus, no duty should be levied on such intermediary products.2. Validity and Vires of Section 51 of the Finance Act, 1982, and Explanations to Rules 9 and 49:The petitioners challenged the validity of Section 51 and the explanations added to Rules 9 and 49, arguing they were arbitrary and unreasonable. The court noted that Section 51 aimed to amend the law retrospectively to validate the collection of excise duty on intermediary products. The court upheld the validity of Section 51 and the amended rules, stating that the retrospective application did not make them ultra vires or unreasonable, as the amendments were necessary to ensure uniform enforcement of excise duties and address revenue loss.3. Requirement of 'Removal' Prior to Levy and Collection of Duty:The court addressed whether the requirement of 'removal' was still mandatory for the levy and collection of duty. The court concluded that the amended rules introduced a fiction that deemed intermediary products to be 'issued out' or 'removed' just before their utilization in further processing. This fiction nullified the previous requirement of physical removal for the levy of duty.4. Retrospective Effect of the Amendments to Rules 9 and 49:The petitioners argued that the retrospective effect of the amendments, dating back to 1945, was unreasonable and arbitrary. The court acknowledged the concerns but held that the retrospective application was valid as it aimed to correct the legal position and ensure consistent enforcement. The court emphasized that the amendments did not override the provisions of Sections 11A and 11B of the Act, which govern the recovery and refund of duties.5. Classification and Differentiation of Intermediary Products and Processes:The court examined whether the amended rules failed to distinguish between different types of intermediary products and processes. The court found that the rules applied uniformly to all intermediary products, regardless of their nature or the manufacturing process. The court rejected the argument that the rules were arbitrary or lacked rational classification.6. Compliance Difficulties and Maintenance of Records:The petitioners raised concerns about the difficulties in maintaining records and complying with the amended rules. The court noted that appropriate forms and procedures could be prescribed to address these concerns. The court found no merit in the argument that the amended rules would create insurmountable compliance difficulties.Conclusion:The court upheld the validity of Section 51 of the Finance Act, 1982, and the explanations added to Rules 9 and 49, allowing the retrospective application of excise duty on intermediary products. The court clarified that the duty would be levied on unsized yarn in an integrated manufacturing process, and the amendments did not override the provisions governing recovery and refund of duties. The petitions were partially allowed, with each party bearing its own costs.