1987 (10) TMI 51 - SC - Central Excise

Rules 9 and 49 permit excise on goods at intermediate production stages, but not on yarn once sized

SC upheld the High Court and dismissed the appeal, confirming that deeming provisions in Rules 9 and 49 are valid and may treat goods produced at an ... Deeming provision - removal for collection of excise duty - taxing event as production or manufacture - limitation on recovery under Section 11A - retrospective amendment of collection rules - prospective penal liability and non-retrospectivity of punishment - specification of premises under Rule 9(1)Deeming provision - taxing event as production or manufacture - removal for collection of excise duty - Validity of the Explanations added to Rules 9 and 49 (deeming intermediate-stage goods as removed) and their consistency with the charging provision. - HELD THAT: - The Court held that the deeming Explanations to Rules 9 and 49 are lawful and consistent with the charging provision which makes production or manufacture the taxable event. Deeming an intermediate product in a continuous integrated process to be 'removed' for purposes of collection is a permissible legislative device because the legislature may enact a fiction for collection convenience while the levy is attracted on manufacture. The amendments were introduced to remove judicial doubt and are not unreasonable; they harmonise collection procedure with the taxing event under the statute and are therefore valid. [Paras 27, 39, 45]The Explanations to Rules 9 and 49 are valid and consistent with the charging provision; the deeming fiction of removal for intermediate-stage goods is permissible.Retrospective amendment of collection rules - limitation on recovery under Section 11A - prospective penal liability and non-retrospectivity of punishment - Scope of retrospective operation given by Section 51 and whether it overrides limitation on recovery or permits retrospective imposition of penalties/confiscation. - HELD THAT: - Although Section 51 gave retrospective effect to the amendments from February 28, 1944, the Court held that such retrospective effect is subject to the limitation on recovery contained in Section 11A; Section 51 contains no non-obstante clause and does not override Section 11A. Consequently duties not levied or paid cannot be recovered beyond the periodic limits of Section 11A (except where proviso applies). Further, the Explanation to Section 51, which disclaims punishability of acts that were not offences before amendment, does not permit imposition of penalties or confiscation for acts or omissions which were lawful when done; penalties or confiscation cannot be imposed retrospectively in contravention of basic legal principles. [Paras 30, 31, 33, 36]Retrospective operation under Section 51 is subject to Section 11A's limitation on recovery, and penal consequences/confiscation cannot be imposed retrospectively for pre-amendment lawful acts.Specification of premises under Rule 9(1) - removal for collection of excise duty - Whether the Collector must specify the place of manufacture (site of the factory) under Rule 9(1) and validity of the Board's circular requiring such specification. - HELD THAT: - The Court interpreted the phrase in Rule 9(1) and held that the Collector's power to 'specify' relates to premises appurtenant to the place of manufacture, not to the place of manufacture itself; the site of the factory is for the manufacturer to choose and cannot be specified by the Collector. Accordingly the Board's Circular purporting to require separate specification of the place of production as well as appurtenant premises under Rule 9(1) was contrary to the correct construction of the rule and not to be followed. [Paras 40, 41, 42, 43, 44]Collector need not (and cannot) specify the place of manufacture under Rule 9(1); the circular directing specification of both place of manufacture and appurtenant premises is incorrect.Removal for collection of excise duty - deeming provision - Liability of yarn obtained at an intermediate stage in an integrated process to excise duty, and whether sized yarn already put into the integrated process is chargeable again. - HELD THAT: - Applying the valid deeming provisions, the Court held that yarn produced at an intermediate stage and thereafter further processed in an integrated process for manufacture of fabrics is liable to excise duty. However, yarn that has been seized and is actually put into the integrated process will not be subjected to duty again after it is sized and fed into the weaving process; conversion from unsized to sized yarn does not alter its character as yarn and does not attract a second duty. [Paras 46]Yarn produced at an intermediate stage in an integrated manufacturing process is liable to excise duty; sized yarn that remains yarn is not liable to a further duty once put into the integrated process.Final Conclusion: The amendments to Rules 9 and 49 (deeming intermediate-stage goods as 'removed') and Section 51's retrospective effect are valid; retrospective operation is, however, subject to the limitation on recovery under Section 11A and does not permit retrospective penalisation or confiscation of acts that were lawful when done. The Collector need not specify the place of manufacture under Rule 9(1), and the appellants' yarn produced at an intermediate stage in an integrated process is chargeable to excise, although sized yarn already incorporated in the integrated process is not liable to be charged again. Issues Involved:1. Validity of the Central Board of Excise Circular dated September 24, 1980.2. Constitutional validity of Section 51 of the Finance Act, 1982.3. Interpretation of amended Rules 9 and 49 of the Central Excise Rules, 1944.4. Retrospective application of the amendments to Rules 9 and 49.5. Specification requirement under Rule 9(1) for deemed removal.Detailed Analysis:1. Validity of the Central Board of Excise Circular dated September 24, 1980:The appellants challenged the Circular issued by the Central Board of Excise, which directed subordinate Excise authorities to levy and collect duty on goods used in the manufacture of another commodity within the same premises. The Delhi High Court had previously ruled that yarn obtained and further processed within the factory for the manufacture of fabrics could not be subjected to duty of excise. Despite this, the Board issued the Circular interpreting Rules 9 and 49 to levy duty on such goods. The Supreme Court examined this issue in the context of the amendments to Rules 9 and 49 and their retrospective application.2. Constitutional validity of Section 51 of the Finance Act, 1982:The appellants contended that Section 51 of the Finance Act, 1982, which amended Rules 9 and 49 with retrospective effect from February 28, 1944, was arbitrary and unreasonable. They argued that the retrospective operation of the amendments exposed them to excessive hardship and violated Articles 14 and 19(1)(g) of the Constitution of India. The Court acknowledged that while the Legislature is competent to make laws retrospectively, excessive retrospective operation could be burdensome and arbitrary. However, the Court held that Section 51 does not override Section 11A of the Act, which limits the recovery of duties to six months, thus mitigating the hardship.3. Interpretation of amended Rules 9 and 49 of the Central Excise Rules, 1944:The Court analyzed the amendments to Rules 9 and 49, which included an Explanation deeming goods produced or manufactured at an intermediate stage and consumed or utilized in a continuous process to be removed immediately before such consumption or utilization. The Court held that the deeming provision was consistent with Section 3 of the Act, which imposes duty on the production or manufacture of goods. The Court rejected the argument that the amendments were arbitrary or unreasonable, affirming their validity.4. Retrospective application of the amendments to Rules 9 and 49:The Court addressed the appellants' concern about the retrospective effect of the amendments, which could lead to enormous amounts of duty being payable for goods produced and consumed within the factory premises since 1944. The Court clarified that Section 11A of the Act limits the recovery of duties to six months, except in cases of fraud or wilful misstatement, where the period extends to five years. The Court emphasized that the retrospective effect of the amendments is subject to Section 11A, thereby alleviating the appellants' apprehensions.5. Specification requirement under Rule 9(1) for deemed removal:The appellants argued that the deemed removal provision under the amended Rules 9 and 49 could not be applied without the specification of the place of manufacture or premises appurtenant thereto by the Collector. The Court clarified that Rule 9(1) does not require the Collector to specify the place of manufacture, but only any premises appurtenant thereto. The Court rejected the appellants' contention that without such specification, the deemed removal provision could not be enforced.Conclusion:The Supreme Court upheld the amendments to Rules 9 and 49 and Section 51 of the Finance Act, 1982, as legal and valid. The Court affirmed the Delhi High Court's judgment that the appellants are liable to pay excise duty on yarn obtained at an intermediate stage and further processed in an integrated process for weaving into fabrics. The appeal was dismissed with no order as to costs.