Customs, Excise and Gold Tribunal - Delhi
Nellimarla Jute Mills vs Collector Of Central Excise on 12 February, 1987
Equivalent citations: 1988(15)ECC98, 1987(12)ECR1018(TRI.-DELHI), 1987(31)ELT209(TRI-DEL)
ORDER
G. Sankaran, Vice-President
1. By adjudication Order No. 23/85 dated 26-2-1985, the Assistant Collector of Central Excise, Visakhapatnam demanded from M/s Nellimarla Jute Mills Co. Ltd. (hereinafter referred to as "the appellants") under Central Excise Rule 9(2) read with Section 3(1) of the Jute Manufactures Cess Act, 1983, an amount of Rs. 3,77,095.68 being the cess on jute yarn produced and captively consumed by the appellants during the period from 1-5-1984 to 30-9-1984 confirming the show cause notice issued by the Superintendent of Central Excise on 30-10-1984.
2. Similarly, the Assistant Collector, by another order No. 29/85 dated 2-3-1985, confirmed the amounts of Rs. 2,91,620.57 and Rs. 45,256.57 demanded by show cause notice dated 30-10-1984 being the cess payable under Central Excise Rule 9(2) read with Section 3(1) of the Jute Manufactures Cess Act, 1983, during the period from 1-5-1984 to 30-9-1984 on sacking cloth produced and captively consumed within the factory and the differential amount of cess short-paid on gunny bags.
3. The appeals against the two aforesaid orders were dismissed by the Collector (Appeals) by his order dated 4-11-1985 which is impugned in the presento proceedings.
4. The basis on which the Collector (Appeals) dismissed the appeals is this. While jute yarn/twine fell under the same serial number of the Schedule to the Jute Manufactures Cess Act, sacking cloth falls under a different serial number. Similarly, sacking cloth and bags are specified under different serial numbers. Therefore, when sacking cloth is captively consumed for production of jute bags or yarn/twine is captively consumed for production of sacking cloth, cess has to be paid on the goods so consumed. The entries in the Schedule being different, the provisions of Central Excise Rules 9 and 49 would not be applicable for the purpose of exemption.
5. We have heard Dr. L.M. Singhvi, Senior Advocate, and Shri A.M. Singhvi, Advocate, for the appellants and Smt. Dolly Saxena, Senior Departmental Representative, for the respondent.
6. Section 3 of the Jute Manufactures Cess Act 1983 (Act No. 28 of 1983), which came into force on the 1st May 1984 reads as follows:-
"3. Levy and Collection of cess on jute manufactures produced in India -
(1) There shall be levied and collected by way of cess for the purposes of the Jute Manufactures Development Council Act, 1983, on every article of jute manufacture specified in column 2 of the Schedule and produced in India, a duty of excise at such rate not exceeding the rate specified in the corresponding entry in column 3 thereof, as the Central Government may, by notification in the Official Gazette, specify:
Provided that until such rate is specified by the Central Government, the duty of excise shall be levied and collected at the rate specified in the corresponding entry in column 4 of the Schedule.
(2) The duty of excise levied under Sub-section (1) shall be in addition to the duty of excise leviable on jute manufactures under the Central Excises and Salt Act, 1944 (1 of 1944) or any other law for the time being in force.
(3) The duty of excise levied under Sub-section (1) shall be payable by the producer of a jute manufacture.
(4) The provisions of the Central Excises and Salt Act, 1944 (1 of 1944), and the rules made thereunder, including those relating to refunds and exemptions from duty, shall, so far as may be, apply in relation to the levy and collection of the duty of excise on jute manufactures under this Act."
7. The Central Government, in exercise of the powers conferred on it by Section 6(1) of the Jute Manufactures Cess Act (hereinafter referred to as the Cess Act), made the Jute Manufactures Cess Rules, 1984. The Rules were published under Notification No. 658 (E) dated 15th September, 1984, by the Ministry of Commerce, Department of Textiles. Rule 3 reads as follows:-
"3. Rate of Cess: Cess shall be payable at the rate specified by the Central Government in accordance with the Act from time to time on finished jute manufactures removed and sale/subsequent sale by the producer for export abroad and/or for distribution and consumption within the factory."
8. It is Dr. Singhvi's contention that, according to the aforesaid Rule 3 of the Jute Manufactures Cess Rules (hereinafter referred to the Cess Rules, for brevity's sake), Cess is payable on finished jute manufactures removed for sale for home consumption or export. Captive consumption within the factory of production, as in the present case, does not attract Cess since that would not amount to removal for sale for home consumption or for export. Dr. Singhvi also draws our attention to Central Excise Notification No. 56/72 dated 17-3-1972 issued by the Central Government under Central Excise Rule 8(1) which exempts Jute twist, yarn, thread, ropes and twine, all sorts, falling under item No. 18-D of First Schedule to Central Excises and Salt Act, 1944 (the said first schedule is hereinafter referred to as the GET), and consumed within the factory in which it is produced for the manufacture of jute manufactures falling under item No. 22A of the C.E.T., from the whole of the duty of excise leviable thereon. It is submitted that jute manufactures produced and captively consumed in the same factory for the manufacture of other jute manufactures would be exempted from payment of Cess by virtue of this notification. It is stated that cess is not independent of central excise duty. It is an adjunct of the latter. Therefore, if certain jute goods are non-excisable or exempt from excise duty, no cess would be chargeable on such goods. The basis for this contention is that, in terms of Section 3W of the Cess Act, the provisions of the Central Excises and Salt Act (hereinafter referred to as the Central Excises Act) and rules made thereunder, including those relating to refunds and exemptions from duty, shall apply in relation to the levy and collection of cess on jute manufactures under the Cess Act. The exemption conferred by Central Excise Notification No. 56/72 would thus serve to exempt such goods also from jute cess.
9. The learned counsel for the appellants refers to the Supreme Court's judgment in Union of India and Ors. v. Ahmedabad Mfg. & Calico Printing Co. Ltd. (Calico Mills) 1985 (21) ELT 633 (S.C.) in support of the contention that duty (cess in the present instance) would not be chargeable on intermediate goods which are captively consumed within the producing factory.
10. Apart from the above submissions, reference is also drawn to Trade Notices issued by different Collectors (for e.g. Trade Notice No. 69/Jute Manufactures-1/86 dated 19-3-1986 issued by the Calcutta II Collectorate) clarifying that jute manufactures captively consumed for manufacture of jute manufactures would not be chargeable to cess and that cess would be chargeable only on final products sought to be cleared from the manufacturing purposes.
11. Replying on behalf of the respondents, the learned Senior Departmental Representative, Smt. Saxena, submits that the position that cess was liable to be* paid only on removal of jute manufactures for sale, for home consumption or export, came about only on the promulgation of the Cess Rules, 19W, with effect from l-10-1984. The Rules had no retrospective effect. During the period prior to 1-10-1984, no similar exemption was in force in respect of cess leviable on jute manufactures, expressly or otherwise. She also submits that Central Excise Notification No. 56/72 has application only to the levy of Central Excise duty leviable under the Central Excises Act, It has no application to' levy of cess under the Cess Act. It is also submitted that the Trade Notices issued by different Collectorates would not affect the position prior to 1-10-1984.
12. We have carefully considered the submissions of both sides. Section 3(4) of the Cess Act makes the provisions of the Central Excise Act and the Central Excise Rules (including those relating to refunds and exemptions from duty) applicable "so far as may be" to the levy and collection of cess under the Cess Act. Now, what is the effect of this provision? We think it is this. All the provisions of the Central Excise Act and the Central Excise Rules (so far as they may be applicable) are made applicable to the levy and collection of Cess under the Cess, Act. That is to say, the machinery or procedural provisions of the Central Excises Act and the Rules will, unless the context otherwise warrants, be the machinery or procedural provisions for levy and collection of the cess under the Cess Act. Section 3(4) of the Cess Act has thus achieved the purpose that would have been achieved had all the relevant provisions of the Central Excises Act and the Central Excise Rules been written into the Cess Act and the Cess Rules. Now coming specifically to the provisions relating to exemption from cess, the authority or power of the Central Government to grant exemption to any jute manufacture from the cess leviable under the Cess Act would be Central Excise Rule 8 as made applicable by Section 3(4) of the Central Cess Act. A notification issued under Section 3(4) of the Cess Act read with Central Excise Rule 8(1) would achieve the object. The learned counsel's contention is that since Central Excise Notification No. 56/72 issued under Rule 8(1) exempts from payment of Central Excise duty jute manufactures used captively for the manufacture of other jute manufactures, a similar exemption from the Cess leviable under the Cess Act would be the result insofar as the present cases are concerned because of the operation of Section 3(4) of the Cess Act. In our opinion, this result will not follow from Central Excise Notification No. 56/72. Our reason for saying so are the following. Firstly, that notification exempts goods in the circumstances stated therein from "duty". The expression "duty" for the purpose of the Central Excise Rules is defined as "duty payable under Section 3 of the Act" [Central Excise Rule 2(v)l Section 3 of the Act (i.e. the Central Excises Act) provides for levy and collection of duties of excise on all excisable goods produced or manufactured in India as, and at the rates set forth, in the First Schedule to the Act. This duty is not the same thing as the duty levied in terms of Section 3(1) of the Cess Act. Though both levies are described as duties of excise, the authority for levy is, as already noted, through separate and different enactments. Therefore, the exemption by means of a notification issued under Central Excise Rule 8(1) exempting goods from duty (leviable under the Central Excises Act) will not constitute an authority for exemption from the cess leviable under the Cess Act. For this purpose, there has to be an exemption notification specifically in terms of Section 3(4) of the Cess Act read with Central Excise Rule 8(1). No such notification has been placed before us, nor is it contended that there is any such notification.
13. Rule 3 of the Cess Rules which came into force on 1.10.84 (reproduced earlier) specifically provides that Cess shall be payable on finished jute manufactures removed for sale/subsequent sale by the producer for export abroad/and/or distribution and consumption within the country. Thus, from 1.10.84, cess, in effect, became payable only when finished jute manufactures were removed from the factory for sale, home consumption or export abroad. Consequently, cess which was payable (not being exempted) on jute manufactures used within the producing factory for manufacture of other jute manufactures till the Cess Rules were promulgated, ceased to be payable on and from 1.10.84. Rule 3 achieved the object which on exemption notification would have.
14. Our above view would also flow from a plain reading of the provisions. of the Central Excise Laws (Amendment and Validation) Act 1982 (Act No. 58 of 1982). Sections 2(2) and 2(3) of the said Act are reproduced below :-
(2) Every Central law providing for the levy and collection of any duty of excise when makes the provisions of the Central Excises Act and the rules made thereunder applicable by reference to the levy and collection of the duty of excise under such Central law shall have, and shall be deemed always to have had, effect with respect to the matters dealt with in Sub-section (3) in the manner provided in that sub-section and this Act shall be construed as one with such Central law.
(3) Where any Central Law providing for the levy and collection of any duty of excise makes the provisions of the Central Excises Act and the Rules made thereunder applicable by reference to the levy and collection of the duty of excise under such Central Law, then, -
(a) it shall be necessary for the purpose of granting, by any notification or order, any exemption from any duty of excise, or fixing by any notification or order, any rate of duty, leviable under such Central Law, to expressly refer to the provisions of the said Central Law, in the preamble to such notification or order, or to state by express words in such notification or order that the exemption provided for, or the rate of duty fixed, by such notification or order, is an exemption from, or the rate of duty under such Central Law;
(b) no notification or order issued or made under the Central Excises Act or the said Rules (whether issued or made before, on or after the 24th day of September, 1982, and whether or not in force on such date) granting any exemption from any duty of excise or fixing any rate of such duty shall have the effect of, or be construed as, providing for exemption from the duty of excise leviable, or, as the case may be, fixing the rate of duty, under the said. Central Law unless such notification or order (i) expressly refers to the provisions of the said Central Law in the preamble; or (ii) by express words provides, for an exemption from the duty of excise leviable or, as the case may be, fixes the rate of duty, under the said Central Law; and
(c) every notification or order of the nature referred to in clause (b) which expressly refers to the provisions of any Central Law or Central Laws in the preamble, shall have the effect of, and be construed as, providing for exemption from the duty of excise leviable, or, as the case may be fixing a rate of duty, only under such Central Law or Central Laws, unless such notification or order also, by express words, provides for an exemption from the duty of excise leviable, or, as the case may be, fixes the rate of duty, under the Central Excises Act."
15. We have carefully studied the Supreme Court's judgment in (supra) relied on by the appellants. In that case, the assessee manufactured a type of fabric called "Calikut special" which consisted of 38.48% cotton and 61.52% of artificial silk. At the intermediate stage of production, the fabric contained 46% art silk and 54% cotton. The Central Excise department was treating the final product as falling under item No. 22 GET ("Rayon or artificial silk fabrics") because of its percentage composition. At some stage, the department sought to tax the intermediate product under item No. 19 GET ("Cotton fabrics") by virtue of its* percentage composition. The Supreme Court disapproved the assessment of the intermediate product having regard inter alia to the process involved in the manufacture of "Calicut special". The processes involved after the intermediate stage (bleaching, heat setting etc.) formed an integral part of manufacture of "Calicut special". The Court observed that the classification of the manufactured product for the purpose of excise duty would depend upon its nature and character at its final stage of production unless the contrary intention appears from the statute. In this connection, the Court also took note of the fact that Section 2(f)(vii) of the Central Excises Act had subsequently made bleaching, heat setting etc. as incidental and ancillary process necessary for the completion of manufactured product falling under item No. 22 GET. It is in this view of the matter that the Court held that, even though the product in question might have fallen under item No. 19 GET at the intermediate stage of production, at the final stage when the duty become exigible it become taxable under item No. 22 only.
16. We do not quite see how the above decision is of assistance to the appellants. Unlike in the "Calicut special" case where the intermediate product emerged in an integrated process of manufacture of the final product, in the present case, there is no evidence to show that the process of manufacture of jute yarn through twine through sacking cloth to sacking bags is one continuous integrated process. On the other hand, it would appear that yarn and twine come into existence as distinct products which, no doubt, are subsequently taken into use for the manufacture of sacking cloth which, in turn, is taken into use for the manufacture of sacking bags. We do not have the details of the complete process of manufacture of "Calicut special" in the Supreme Court's judgment but from what is recorded therein, it would appear that the intermediate product had to emerge and did emerge at the intermediate stage though that would not appear to be the product which the manufacturer set out to manufacture. In the present instance, the situation would not appear to be similar. Jute yarn, twine, sacking cloth, sacking bags all have distinct identities and are finished goods by themselves though they may serve as raw material for further manufacture. It is seen from the Assistant; Collector's order dated 26.2.85, that jute yarn as such is sold by the assessee. It cannot, therefore, be said to be a "process material arising at an intermediate stage of a continuous, integrated process of manufacture. In this view of the matter, we do not think that the Supreme Court's judgment has any application to the facts of the present case.
17. One of the contentions of the appellants is that the third proviso to Central Excise Rule 9 would apply to the present case and would achieve the result to exempting jute manufactures taken into captive consumption for manufacture of other jute manufactures from payment of cess under the Cess Act. We have examined this contention with reference to the provisions of Rule 9. The Rule provides that no excisable goods shall be removed from the place of production inter alia for the manufacture of any other commodity in or outside such place until the excise duty leviable thereon has been paid in the manner prescribed. The Rule is subject to several provisos. The third proviso inserted by Central Excise Notification No. 187/83 dated 9.7.83 is relevant for the present purpose. It reads as follows :-
"Provided also that such goods may be removed without payment of duty leviable thereon, if they are consumed or utilised in the place where such goods are produced or manufactured or any premises appurtenant thereto so specified under this sub-rule, either as raw material or as component parts for the manufacture of any other commodity which -
(i) is excisable goods specified by the Central Government by notification under Sub-rule (1) of Rule 56A.
(ii) falls under the same item number in the First Schedule to the Act as such goods so consumed or utilised fall under, and
(iii) is neither exempt from the whole of the duty of excise leviable thereon nor is chargeable to nill rate of duty.
18. Several things have to be noted in connection with the applicability or otherwise of Rule 9 read with the third proviso, to the facts of the present case. The proviso stipulated 3 conditions. The first is that the finished' commodity (this expression is being used by us to connote the final product for the manufacture of which excisable goods are permitted to be used either as raw material or component parts) must be excisable goods specified by the Government by notification under Sub-rule (1) of Rule 56A. Jute twist, yarn, thread, ropes and twine, all sorts, and jute manufactures (these fall under item Nos. 18D and 22A respectively of the C.E.T.) are specified in the list of goods to which Rule 56A applies. The second condition is that the finished product should fall under the same item number in the C.E.T. as the excisable goods consumed or utilised in their manufacture fall. It may be seen that jute twist, yarn, thread, ropes and twine, all sorts on the one hand, and jute manufactures on the other, fall under different items and not under the same item of the said C.E.T. Insofar as the Schedule to the Cess Act is concerned, jute yarn and twine fall under serial No. f whereas sacking falls under serial No. 3. Thirdly, the finished product should neither be exempted from the whole of the duty of excise leviable thereon nor is chargeable to nil rate of duty. This condition may be said to be satisfied in the present case.
19. In view of the fact that jute yarn on the one hand and sacking manufactured out of such jute yarn captively consumed within the appellant's factory fall under different Serial Nos. or items of the Schedule under the Cess Act, the requirement of the third proviso to Rule 9 that the finished product should fall under the same item number as the excisable goods consumed or utilized in their manufacture fall, is not fulfilled. Therefore, the demand for cess on yarn captively consumed by the appellants in their factory for the manufacture of sacking during the period prior to 1.10.84 was correctly made.
20. Insofar as sacking cloth and sacking bags are concerned, the demand is based on the ground that sacking bags fall under item No. 10 in the Schedule to the Cess Act whereas sacking cloth falls under item No. 3. However, we find that it has been accepted by the authorities (and this position has been notified by trade notices by different Collectors) that sacking bags and sacking cloth both fall under item No. 3. There is no contention raised before us to the contrary. Item No. 10 reads "any other article of jute manufacture". The view that sacking cloth and sacking bags are both covered by the term "sacking" (serial No. 3) appears to us to be the correct view. In this view, since sacking cloth and sacking bags both fall under the same serial number of the Schedule, the aforesaid requirement of the 3rd proviso to Rule 9 is fulfilled. Therefore, the demand for Cess in respect of sacking cloth captively consumed in the appellant's factory for the manufacture of sacking bags during the period prior to 1.10.84 cannot be sustained and is set aside.
21. It is further seen from the Assistant Collector's order No. 29/85 that the appellants have been paying cess on jute gunny bags at the rate applicable to jute sacking cloth. The demand for Rs. 45,256.57 represents the difference between the duty leviable under serial No. 10 of the Schedule (whereunder the department held sacking bags would fall) and that leviable under Serial No. 3 (i.e. sacking). Since, as we have seen, sacking cloth and sacking bags fall under the same serial No. and are covered by the same term "sacking", there would be no question of charging the aforementioned differential cess.
22. The learned counsel for the appellants has referred to and relied on a number of orders passed by quasi-judicial authorities in the Central Excise Department giving relief to the present appellants as well as other assesses in more or less similar cases. Some of these orders pertain to the period after the promulgation of the Cess Rules i.e. when the Cess was in fact made applicable only to finished products removed from the factory. In the appellant's own case, relief has apparently been granted even for the prior period. Apart from the position that these orders, being of lower authorities, are not binding on this Tribunal, we have already given our reasons in support of our conclusion that during the period prior to promulgation of the Cess Rules, cess was correctly leviable on jute yarn produced and captively consumed for manufacture of sacking cloth.
23. Reliance was also sought to be placed on Trade Notices issued by different collectorates. As far as we can see, these Trade Notices pertain to the period after the promulgation of the Cess Rules. Therefore, these trade Notices are also of no help to the appellants.
24. In the result our conclusions are :-
(a) The demand for Cess on jute yarn captively consumed for the manufacture of sacking cloth during the period prior to 1.10.84 was correctly made. The confirmation of this demand by the Assistant Collector and, later, the Collector (Appeals) was also correct. The orders of the lower authorities are upheld in this respect.
(b) The demand for Cess on sacking cloth captively consumed by the appellants for the manufacture of sacking bags during the period prior to 1.10.84 is not sustainable and is set aside. This part of the impugned orders is also, in consequence, set aside.
(c) The demand for differential Cess on sacking bags for the period prior to 1.10.84 cannot also be sustained and is set aside. The orders of the lower authorities in this behalf are also set aside.
25. The appeals are disposed of in the light of the above conclusions, with consequential relief to the appellants.