1987 (12) TMI 50 - HC - Central Excise

Excise Duty on Captive Yarn Includable in Fabric Value

The court held that excise duty on captively consumed yarn must be included in the assessable value of fabric. Adjudications based on notices under the ... Valuation - Fabrics - Demand - Arising out of short levy - Time-limit Issues Involved:1. Inclusion of excise duty on captively consumed yarn in the assessable value of fabric.2. Validity of adjudications post-omission of Rule 10 without a saving clause.3. Applicability of Rule 10A versus Rule 10 for recovery of short-levied duty.4. Validity of adjudications under new Rule 10 for notices issued under old Rule 10.5. Jurisdiction of the Assistant Collector to review approved price lists.Summary:1. Inclusion of Excise Duty on Captively Consumed Yarn in the Assessable Value of Fabric:The court held that the excise duty paid on yarn, which is captively consumed for manufacturing fabric, must be included in the assessable value of the fabric. The rationale is that the cost of inputs, including excise duty, forms part of the manufacturing cost of the final product. The court rejected the argument that this inclusion amounts to 'duty on duty,' clarifying that yarn and fabric are separate excisable commodities taxed under different tariff items. The court concurred with the Bombay High Court's decision in Kamala Mills Ltd. v. Union of India, which supported this view.2. Validity of Adjudications Post-Omission of Rule 10 Without a Saving Clause:The court ruled that adjudications based on notices issued under the omitted Rule 10 could not continue after 17-11-1980, as there was no saving clause in the notification omitting Rule 10. The court relied on the Supreme Court's decision in M/s. Rayala Corporation P. Ltd. v. The Director of Enforcement, which held that Section 6 of the General Clauses Act does not apply to omissions of rules. Consequently, pending proceedings under the omitted Rule 10 lapsed.3. Applicability of Rule 10A Versus Rule 10 for Recovery of Short-Levied Duty:The court found that Rule 10, not Rule 10A, applied to the recovery of short-levied duty due to the non-inclusion of excise duty on yarn in the assessable value of fabric. Rule 10 covered the relevant period for issuing show cause notices, and the adjudications had to adhere to the one-year limitation period prescribed by Rule 10. The court noted that the Collector of Central Excise had already upheld this position, rendering further relief unnecessary.4. Validity of Adjudications Under New Rule 10 for Notices Issued Under Old Rule 10:The court upheld the contention that adjudications made under new Rule 10 for notices issued under old Rule 10 were invalid. The omission of old Rules 10 and 10A and their substitution by new Rule 10 on 6-8-1977 without a saving clause meant that pending proceedings under old Rule 10 could not continue. The court relied on the Division Bench decision in Amrit Processors Pvt. Ltd. v. Union of India, which followed the Supreme Court's ruling in M/s. Rayala Corporation P. Ltd.5. Jurisdiction of the Assistant Collector to Review Approved Price Lists:The fifth contention regarding the jurisdiction of the Assistant Collector to review approved price lists was not pressed by the petitioners and, therefore, was not decided by the court.Conclusion:The court concluded that the excise duty on captively consumed yarn must be included in the assessable value of fabric. Adjudications based on notices issued under the omitted Rule 10 were invalid post-17-11-1980, and Rule 10A could not be applied where Rule 10 was applicable. Adjudications under new Rule 10 for notices issued under old Rule 10 were also invalid. The fifth contention was not addressed as it was expressly given up by the petitioners.