Case: Collector of Central Excise, Bombay Vs. Kohinoor Mills, Bombay

the appropriate tariff applicable at the time when such manufactured commodity is cleared by the manufacturer as per the provisions of the Excise Rules. In this connection, Rule 19(1) of the Central Excise Rules, 1944 becomes relevant. It reads as under "9. Time and manner of payment of duty. - (1) No excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf, whether for consumption, export or manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these Rules or as the Collector may require and except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the form :" * 7. It, therefore, becomes obvious that the duty becomes payable on a manufactured item once it is removed from the place of manufacture for consumption, export or manufacture of any other commodity in or outside such place. There is an explanation of sub-rule (2) of Rule 9, which is relevant for the present purpose. It reads as under "Explanation. - For the purposes of this rule, excisable goods, produced, cured or manufactured in any place and consumed or utilised -(i) as such or after subjection to any process or processes; or(ii) for the manufacture of any other commodity;Whether in a continuous process or otherwise, in such place or any premises appurtenant thereto, specified by the Collector under sub-rule (1), shall be deemed to have been removed from such place or premises immediately before such consumption or utilisation." 8. A conjoint reading of Rule 9(1) and Explanation makes it clear that if a manufactured item covered by the charge of excise duty by the charging provisions of the Central Excise Act is captively consumed, it would amount to removal of such manufactured item. Consequently once the yarn is manufactured in the weaving department of the composite textile mills and is taken to the spinning department for being captively utilised by way of consumption in spinning department, and gets consumed, it is deemed to have been removed within the meaning of Rule 9(1). Once that happens, the liability of such manufactured yarn to pay excise duty at the then prevalent rate of duty is crystallised. Thereafter, the question as to when subsequently the fabric is manufactured or emerges or is removed from factory gate becomes irrelevant for the purpose of deciding the question of liability of excise duty on such captively consumed yarn. 9. It is not in dispute between the parties that in the present case captively consumed yarn was manufactured on and from 18-6-1977 and removed to spinning department and was utilised in the spinning department prior to 15-7-1977. Thus such yarn falls in the first category of yarn to which we have referred to earlier. The liability to pay excise duty on such yarn, therefore, has to be decided prior to 15-7-1977 in the light of Rule 9(1) read with Explanation and subject to the relevant exemption notification then holding the field. Once that happens, it has to be held that as at the relevant time the earlier Notification No. 132 of 1977 of 18-6-1977 was holding the field under which such yarn was wholly exempt from payment of excise duty, no excise duty was to be paid thereon. The view taken by the Tribunal, therefore, in Civil Appeals Nos. 103 and 104 of 1988 cannot be found fault with. That was in conformity with the view taken by the Gujarat and the Bombay High Courts in the earlier mentioned cases. We concur with the same. 10. The latter view taken by the Tribunal in judgment under appeal in Civil Appeal No. 5408 of 1990 seeks to rely to the decision of this Court in Wallace Flour Mills case ( 1989 (4) SCC 592 : 1990 SCC(Tax) 10 : 1989 (44) ELT 598 ). In that case this Court was not concerned with the manufacture and utilisation of a commodity by way of captive consumption. It was a case dealing with manufacture of food articles by an assessee company. After their manufacture but before they could be removed from the factory gate for home consumption, the rate of duty changed. It was, therefore, held that the said products had to bear the excise duty in the light of the prevailing tariff rate when such manufactured items were removed from the factory gate for home consumption. The said view was obviously based on operation of Rule 9(1). Explanation to Rule 9(1) was not attracted on the facts of the case. Such is not the present situation where the manufactured yarn is not removed in its then existing condition from the factory gate for home consumption. On the contrary, it was removed for being utilised for captive consumption prior to 18-7-1977. It is, therefore, not possible to uphold the view taken by the Tribunal in Civil Appeal No. 5408 of 1990. At this stage it is also appropriate to note that the Explanation to Rule 9(1) and Section 49 inserted with retrospective effect by the rule-making authorities were upheld by this Court in the case of J. K. Cotton Spg. & Wvg. Mills Ltd. v. Union of India 1987 Supp(SCC) 350 : 1988 SCC(Tax) 26). A later Bench of the Bombay High Court in the case of Union of India v. Hindustan Spg. & Wvg. Mills Ltd. ( 1992 (61) ELT 531 (Bom)) (ELT at p. 535) has taken the same view which has appealed to us. According to us no other view is possible on the scheme of the relevant provisions of the Act and the Rules. We respectfully concur with the view of the Division Bench of the Bombay High Court in Union of India v. Hindustan Spg. & Wvg. Mills case ( 1992 (61) ELT 531 (Bom)) .

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]In our view the contention canvassed on behalf of the Revenue cannot be accepted. The reasons are obvious. It has to be kept in view that charge under the Central Excise Act is fastened on a manufactured item once manufacture takes place. But the liability to pay the duty thereon will have to be decided in the light of the appropriate tariff applicable at the time when such manufactured commodity is cleared by the manufacturer as per the provisions of the Excise Rules. In this connection, Rule 19(1) of the Central Excise Rules, 1944 becomes relevant. It reads asTime and manner of payment of duty.(1) No excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf, whether for consumption, export or manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these Rules or as the Collector may require and except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the form :"It, therefore, becomes obvious that the duty becomes payable on a manufactured item once it is removed from the place of manufacture for consumption, export or manufacture of any other commodity in or outside such place. There is an explanation of(2) of Rule 9, which is relevant for the present purpose. It reads asFor the purposes of this rule, excisable goods, produced, cured or manufactured in any place and consumed oras such or after subjection to any process or processes; or(ii) for the manufacture of any other commodity;Whether in a continuous process or otherwise, in such place or any premises appurtenant thereto, specified by the Collector under(1), shall be deemed to have been removed from such place or premises immediately before such consumption or utilisation.A conjoint reading of Rule 9(1) and Explanation makes it clear that if a manufactured item covered by the charge of excise duty by the charging provisions of the Central Excise Act is captively consumed, it would amount to removal of such manufactured item. Consequently once the yarn is manufactured in the weaving department of the composite textile mills and is taken to the spinning department for being captively utilised by way of consumption in spinning department, and gets consumed, it is deemed to have been removed within the meaning of Rule 9(1). Once that happens, the liability of such manufactured yarn to pay excise duty at the then prevalent rate of duty is crystallised. Thereafter, the question as to when subsequently the fabric is manufactured or emerges or is removed from factory gate becomes irrelevant for the purpose of deciding the question of liability of excise duty on such captively consumedIt is not in dispute between the parties that in the present case captively consumed yarn was manufactured on and fromand removed to spinning department and was utilised in the spinning department prior toThus such yarn falls in the first category of yarn to which we have referred to earlier. The liability to pay excise duty on such yarn, therefore, has to be decided prior toin the light of Rule 9(1) read with Explanation and subject to the relevant exemption notification then holding the field. Once that happens, it has to be held that as at the relevant time the earlier Notification No. 132 of 1977 ofwas holding the field under which such yarn was wholly exempt from payment of excise duty, no excise duty was to be paid thereon. The view taken by the Tribunal, therefore, in Civil Appeals Nos. 103 and 104 of 1988 cannot be found fault with. That was in conformity with the view taken by the Gujarat and the Bombay High Courts in the earlier mentioned cases. We concur with theThe latter view taken by the Tribunal in judgment under appeal in Civil Appeal No. 5408 of 1990 seeks to rely to the decision of this Court in Wallace Flour Mills case ( 1989 (4) SCC 592 : 1990 SCC(Tax) 10 : 1989 (44) ELT 598 ). In that case this Court was not concerned with the manufacture and utilisation of a commodity by way of captive consumption. It was a case dealing with manufacture of food articles by an assessee company. After their manufacture but before they could be removed from the factory gate for home consumption, the rate of duty changed. It was, therefore, held that the said products had to bear the excise duty in the light of the prevailing tariff rate when such manufactured items were removed from the factory gate for home consumption. The said view was obviously based on operation of Rule 9(1). Explanation to Rule 9(1) was not attracted on the facts of the case. Such is not the present situation where the manufactured yarn is not removed in its then existing condition from the factory gate for home consumption. On the contrary, it was removed for being utilised for captive consumption prior toIt is, therefore, not possible to uphold the view taken by the Tribunal in Civil Appeal No. 5408 of 1990. At this stage it is also appropriate to note that the Explanation to Rule 9(1) and Section 49 inserted with retrospective effect by theauthorities were upheld by this Court in the case of J. K. Cotton Spg. & Wvg. Mills Ltd. v. Union of India 1987 Supp(SCC) 350 : 1988 SCC(Tax) 26). A later Bench of the Bombay High Court in the case of Union of India v. Hindustan Spg. & Wvg. Mills Ltd. ( 1992 (61) ELT 531 (Bom)) (ELT at p. 535) has taken the same view which has appealed to us. According to us no other view is possible on the scheme of the relevant provisions of the Act and the Rules. We respectfully concur with the view of the Division Bench of the Bombay High Court in Union of India v. Hindustan Spg. & Wvg. Mills case ( 1992 (61) ELT 531 (Bom))