Rational classification in excise exemption rules upheld where composite yarn units were treated differently from non-composite factories.

Notification No. 34/97 denying concessional duty to composite units manufacturing dyed yarn from the stage of single yarn was examined under Article 14. The classification was upheld because the exemption scheme treated composite units differently from factories without in-house single-yarn facilities, and that distinction had a rational basis in the production process. The notification also operated within conditions requiring manufacture from duty-paid textured or draw-twisted yarn and the absence of Modvat credit under Rule 57A or Rule 57O. No hostile or arbitrary preference was shown, so the challenge to discrimination failed.

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Issues: Whether Notification No. 34/97 dated 6-6-1997, which denied concessional duty treatment to composite units manufacturing dyed yarn from the stage of single yarn, was violative of Article 14 of the Constitution of India.

Analysis: The exemption scheme was examined in the context of the withdrawn dyed-yarn exemption and the subsequent notifications, which granted concessional duty only to factories lacking facilities for producing single yarn and subject to further conditions, including that the yarn should be manufactured out of duty-paid textured or draw-twisted yarn and that no Modvat credit under Rule 57A or Rule 57O had been taken. The classification between composite units and units without in-house single-yarn facilities was found to rest on a rational basis, since composite units operated at earlier stages of production and were not similarly situated. The challenge based on alleged discrimination in favour of another unit failed because no hostile or arbitrary preference was established.

Conclusion: The notification was not discriminatory and did not violate Article 14; the challenge failed.

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