Holding

The amendments to Rules 9, 49 and Section 51 are valid (subject to Sections 11A and 11B), and excise duty cannot be levied on the sized yarn; consequently, the show‑cause notices are quashed.

Summary

The petitioners, Ahmedabad Manufacturing and Calico Printing Co. Ltd. and others, challenged the levy of central excise duty on the weight of yarn after it had been sized for weaving, contending that duty should be based on the unsized yarn. The High Court had ordered a refund, but the Government retrospectively amended Rules 9 and 49 of the Central Excise Rules, 1944 and Section 51 of the Finance Act, 1982, to permit duty on sized yarn. The petitioners filed writ petitions under Article 32 questioning the constitutional validity of these amendments and the show‑cause notices issued thereafter. The Supreme Court, relying on its earlier decision in J.K. Cotton Spinning and Weaving Mills Ltd. v. Union of India (1988), upheld the validity of the amended rules and Section 51 (subject to Sections 11A and 11B of the Act) but held that the sized yarn does not attract a fresh duty because its nature as yarn remains unchanged. To avoid multiplicity of proceedings after a nine‑year delay, the Court quashed all the show‑cause notices and allowed the writ petitions.

Issues considered

Whether the retrospective amendment of Rules 9 and 49 of the Central Excise Rules, 1944 and Section 51 of the Finance Act, 1982 is constitutionally valid.
Whether excise duty can be levied on the weight of yarn after it has been sized for weaving, as opposed to the unsized yarn.
Whether the show‑cause notices issued under the amended provisions should be sustained.

Legislation cited

Central Excise and Salt Act, 1944s. Section 11A, s. Section 11B
Central Excise Rules, 1944s. Rule 49, s. Rule 9
Finance Act, 1982s. Section 51

Subjects

Excise dutySized yarnRetrospective amendmentConstitutional validityCentral Excise ActTariff items 18.1, 18.III, 18EShow cause noticeArticle 32

Judgment

A AHMEDABAD MANUFACTURING AND CALICO
PRIN11NG CO. LTD. AND ANR.
v.
UNION OF INDIA AND ORS.

JANUARY 12, 1993
B
(J.S. VERMA, YOGESHWAR DAYAL AND
N. VENKATACHALA, JJ.]

Central Excises and Salt Act, 1944/Central Excise. Rules, 1944:
C Schedule I-Tariff Items 18.1, 18. III and 15E/Ru/es 9 and 49-Notification
dated 20.2.1982 amending the Rules retrospectively-Yam sized for purpose
of weaving the same into fabrics-Levy of duty on the weight of sized
yam-Validity of

The petitioners challenged before the High Court the levy of excise
D duty on the weight of the yarn sized for the purpose of weaving them into
fabrics. The High Court held that no duty could be levied on the weight of
the sizing material contained in yarn, and directed that the duty should
be refunded since it has been levied not on the basis of yarn at the spindle
stage, but on the weight of the sized yarn.

E After the said judgment, the Central Government by Notification
dated 20.2.1982 amended Rules 9 and 49 of the Central Excises and Salt
Act, 1944 and Section 51 of the Finance Act, 1982 with retrospective effect.
In accordance with the said Notification, Central Excise Department is-
sued show cause notices to the petitioners. The constitutional validity of
F these amendments are challenged by the petitioners in the present Writ
Petitions filed before this Court.

On behalf of the petitioners, it was contended that their cases were
covered by the decision of this Court in J.K Cotton Spinning and Weaving
Mills Ltd. & Anr. v. Union of India and Ors., [1988) 1 SCR 700 and that
G excise duty could be levied on the weight of the unsized yarn and not on
0

the basis of the weight of the sized yarn.

Allowing the petitions, this Court

HELD: 1.1. The Vires of Rules 9 and 49 of the Central Excise Rules,
H 1944 as well as section 51 of the Finance Act, 1982 and the retrospective
142
"
AHMEDABAD MFG. & PTG. CO. v. U.O.l [DAYAL, J.] 143

application of the same has already been upheld by this Court. [145E] A·
1.2. The sized yarn which is actually put into the integrated process
will not again be subjected to payment of excise duty, for the unsized yam
which is sized for the purpose, does not change the nature of commodity
as yarn. Thus excise duty cannot be levied on the weight of the yarn after
the yam is sized for the purpose of weaving the same into fabrics. [145G] B
1.3. Practically nine years have gone by since the show cause notices .
were issued by virtue of the same directives which were subject matter of
J.K Cotton Mills case. In view of this peculiar fact it would not be in the
interest of justice if the petitioners are directed to contest the individu.d
show cause notices issued by the respondents. In order to avoid multi·
c
plicity of proceedings involving time and expense, the show cause notices
in all these cases are quashed. [148F·G]

J.K Cotton Spinning and Weaving Mills Ltd. & Anr. v. Union of India
& Ors., (1988] 1 S.C.R. 700, applied. D
ORIGINAL JURISDICTION : Writ Petition (Civil) No. 3 of 1983.

(Under Article 32 of the Constitution of India).

WITH
E
W.P. Nos. 400-402, 425, 492, 2493-2495, 2526-2528 of 1983 and 1256
of 1987.

Soli J. Sorabjee, Ravinder Narain, DA. Dave and P.H. Parekh,
for the Petitioners.
F
A.K. Ganguli, T.V.S.N. Chari, Ms. Radha Rangaswamy and P. Par-
meshwaran for the Respondents.

The Judgment of the Court was delivered by

YOGESHWAR DAYAL, J. This order will dispose of the aforesaid G
writ petitions under Article 32 of the Constitution of India. All these cases
come under Item 18.l and/or 18.III and/or 18E of the Tariff contained in
..
).
the schedule attached to the Central Excise and Salt Act 1944 (hereinafter
referred to as 'the Act'). For facility of reference we are giving the facts of
the case of Civil Writ Petition No. 3 of 1983. H
144 SUPREME COURT REPORTS (1993] l S.C.R.

A This Writ Petition is stated to be covered by the decision of this
Court in J.K Cotton Spinning and Weaving Mills Ltd. & another v. Union
of India and others, (1988] 1 S.C.R. 700 and the surviving prayer in the writ
petition is to declare that the duty of excise in respect of Tariff Item Nos.
18 (A) (ii), 18 (III) (ii) and 18E is to be levied and collected on the weight
B of the unsized yarn and not on the basis of the weight of the sized yarn".

Before we deal with the objections of the learned counsel for the
respondents, it would be useful to examine the points which were involved
i!' the aforesaid case of J.K Cotton Mills. The appellants in the said case
had a composite mill wherein it manufactured fabrics of different types. In
C order to manufacture the said fabrics, yarn was obtained at an intermediate
stage. The yarn so obtained was further processed in an integrated process
in the said composite mill for weaving the same into fabrics. The appellants
did not dispute that the different kinds of fabrics which were manufactured
in the mill were liable to payment of excise duty on their removal from the
D factory. They also did not dispute their liability in respect of yarn which
was also removed from the factory. It was the contention of the appellants
therein that no duty of excise could be levied and collected in respect of
yarn which was obtained at an intermediate stage and, thereafter subjected
to an integrated process for the manufacture of different fabrics. On a writ
petition, by those appellants, the Delhi High Court by its judgment dated
E 16th October, 1980 held that yarn obtained and further processed within )
the factory for the manufacture of fabrics could not be subjected to duty
of excise. It was the case of the appellants that in spite of the said decision
of the Delhi High Court, the Central Board of Excise had wrongly issued
a circular dated 24th September, 1980 purporting to interpret Rules 9 and
F 49 of the Central Excise Rules, 1944 (hereinafter referred to as 'the Rules')
and directing the subordinate excise authorities to levy and collect duty of
excise in accordance therewith. In the said circular, the Board had directed
the subordinate excise authorities that use of goods in manufacture of
another commodity eve~ within the place/premises that have been spcilied
in this behalf by the Central Excise Officers in terms of the powers
G conferred under Rule 9 of the Rules, will attract duty". As the said circular
was being implemented to the prejudice of the appellants, they filed the
writ petition before the Delhi High Court, inter alia, challenging the validity
of the said circular.

H During the pendency of the writ petition in the Delhi High Court, the
AHt,fEDABAD MFG. & PTG. CO. v. U.0.1 [DAYAL, J.] 145

Central Government by Notification No. 20/82-C.E. dated 20th February, A
1982 amended Rules 9 and 49 of the Rules. Section 51 of the Finance Act
provides that the amendment~ in Rules 9 and 49 of the Rules shall be deemed
to have, and to have always had the effect on and from the date on which the
Rules came into force i.e. 28th February, 1944. After the said amendments of
the Rules with retrospective effect, the appellants amended the Writ petition
and challenged the constitutional validity of Section 51 of the Finance Act,
B.
1982 and of the amendments to Rules 9 and 49 of the Rules.

The High Court came to the conclusion that section 51 of the Finance
Act, 1982 and Rules 9 and 49 of the Rules, as amended, were valid. It was
further held that the retrospective effect given by Section 51 of the Finance C
Act, 1982will be subjectto the provisions of Sections llA and llB of the Act.
- It was further held that the yarn which is produced at an intermediate stage in
the mill of the appellants therein and subjected to the integrated process of
weaving the same into fabrics, will be liable to payment of excise duty in view
·.~
of the amended provisions of Rules 9 and 49 of the Rules. But the sized yarn D
which is actually put into the integrated process will not again be subjected to.
payment of excise duty for, the unsized yarn, which is sized for the purpose, ·
does not change the nature of the commodity as yarn. The Writ Petition was
accordingly allowed in part, as stated aforesaid, and it was this decision which
came up in appeal before this Court. This Court agreed with the Delhi High
Court and upheld the vires of Rules 9 and 49 of the Rules as well as Section E
51 of the finance Act, 1982. This Court also agreed with the High Court that
the retrospective effect given by section 51 of the F"mance Act, 1982 will be
subject to the Provisions of Sections llA and llB of the Act. This Court also
agreed with the view of the High Court that the yarn which is produced at an
intermediate stage in the mill of the appellants and subjected to integrated F
process of weaving the same into fabrics, would be liable to payment of excise
duty in view of the amended provisions of the Rules, But, this Court further
agreed with the High Court, the sized yarn which is actually put into the
~--~·
integrated process will not again be subjected to payment of excise duty for,
the unsized yarn, which is sized for the purpos~, does not change the nature
of the commodity as yarn. This Court observed at pages 720 and 721 of the G
report as under:-
•
"In the instant case, the appellants are liable to pay excise duty
on the yarn which is obtained at an intermediate stage and,
thereafter, further processed in an integrated process for weav- H
146 SUPREME COURT REPORTS (1993) 1 S.C.R.

A ing the same into fabrics. Although it has been alleged that the
yarn is obtained at an intermediate stage of an integrated
process of manufacture of fabrics, it appears to be not so. After
r-
the yarn is produced it is sized and, thereafter, subjected to a
process of weaving the same into fabrics. Be that as it may, as
we have held that the commodity which is obtallied at an
B intermediate stage of an integrated process of manufacture of
another commodity, is liable to the payment of excise duty, the
yarn that is produced by the appellants is also liable to payment
of excise duty. In our view, the High Court by the impugned
judgment has rightly held that the appellants are not liable to
c pay any excise duty on the yarn after it is sized for the purpose
of weaving the same into fabrics. No distinction can be made
between unsized yarn and sized yarn, for the unsized yarn when
converted into sized yarn does not lose its character as yarn."

The petitioner herein on the other hand approached the Gujarat High
;.
D Court and the Gujarat High Court by its judgment dated 30th July, 1981 had,
;

before the issuance of the impugned circular dated 24th May, 1982, taken the jl
view that no duty can be levied on the weight of sizing material contained in
yarn, falling under Tariff Item no. 18-111or18-E and directed that the duty
levied should be refunded because the duty has been levied not on the basis
~
E of yarn at the spindle stage, but on the weight of the sized yarn. After the }-
decision of the Gujarat High Court the Central Government had amended
Rules 9 and 49 of the Rules and Section 51 of the Finance Act, 1982, had
made them effective retrospectively.

F The present writ petition filled in this Court had inter a/ia pleaded that
the retrospective amendment of Rules 9 and 49 of the Rules as well as Section •.
51 of the Finance Act, 1982 be declared as ultra vires of the Constituti~n. This
Court upheld the validity of the Section as well as the retrospective ap- "'··
plicability of the Rules but took the view that this would be subjected to the
provisions of Sections llA and llB of the Act and at the same time declared
G that the appellants were not liable to pay excise duty on the yarn after it is
sized for a purpose of weaving the same into fabrics.

J_
It will be noticed that under items 18.1, 18.III and 18E the measure
is "per kilogram". At this stage items 18.1, 18.III and 18E of the Tariff may
H be noticed :-
AHMEDABAD MFG. &. PTG. CO. v. U.O.I [DAYAL, J.) 147

"18. I. Man-made fibres, other A
than mineral fibres :

(i) Non-cellulosic Eighty-five n.pees per
kilogram

(ii) Cellulosic Ten rupees per kilorgram." B
"18. III. Cellulosic spun yarn:

Yam, in which man-made fibre
of cellulosic origin predomi-
nates in weight and, in or in c
relation to the manufacture of
which any process is ordinarily
carried en with the aid of
power -

l i) not containing, any man- Six paise per count per D
made fibres of non-cellulosic kilogram.
origin.

(ii) containing man-made fibr- Eighteen Rupees
es of non-cellulosic origin. per kilogram E
Eignteen Rupees per kilogram.
Explanation I: "Count" means
the size of grey yarn (excluding
any sizing _material) expressed
in English Count.
F

"18E. Non-cellulosic Spun Yarn: Twenty-four rupees per
Spun (discontinuous) yarn, in kilogram.
which man-made fibres of non-
cellulosic origin, other than G
acrylic fibre, predominate in
weight and, in or in relation to
the manufacture of which any
process is ordinarily carried on
with the aid of power. H
148 SUPREME COURT REPORTS [1993] 1 S.C.R.

A Explanation : Explanation III
under sub-item III of item No.
18 shall, so far as may be, apply
in relation to this Item as it
applies in relation to that item."

B It will be noticed from the aforesaid items that the measure for
imposition of excise duty is by weight "per kilogram" in all the three items,
namely-18.1, 18.III and 18E. Therefore, the aforesaid decision in J.K. '"'·
Cotton Mills will be applicable to all types of cases under Items 18.1, 18.III
and 18E. After the decision of the Gujarat High Court, instead of granting
C the refund, the Superintendent of Central Excise, Range IV, Division V,
Ahmedabad, issued impugned notices, collectively annexed as Annexures
'B' and 'C' to the present writ petition in pursuance of the directives dated
24th May, 1982 which are subject matter of challenge in the present writ
petition.

D On behalf of the respondents Mr. Ganguly learned counsel submitted
that this Hon'ble Court ought not to entertain the present writ petition
under Article 32 of the Constitution. He, however, could not dispute that
the matter is directly covered by the decision of this Court in the aforesaid
case of J.K. Cotton Mills.
E
These petitions were admitted to hearing in view of the pendency of
the aforesaid appeal in the case of J.K. Cotton Mills and in view of the
decision of the Delhi High Court which was appealed against in the
aforesaid case of J.K. Cotton Mills. Practically nine years have gone by now
and the impugned show cause notices have been issued by virtue of the
same directives which were subject matter of the aforesaid case of J.K.
Cotton Mills. In view of this peculiar fact it would not be in the interest of
justice if the parties are directed to contest the individual show cause
notices issued by the respondents in view of the aforesaid directives. ln
order to avoid multiplicity of proceedings involving time and ellpense, we
G quash the impugned notices in all the cases.

The result is that all the aforesaid writ petitions are accepted and the
impugned show cause notices are quashed. There will be no order as to
costs.

G.N. Petitions allowed.