Holding

The amendments to Rule 9 and Rule 49 and their retrospective effect are valid, subject to Section 11A, and yarn obtained at an intermediate stage is liable to excise duty, but the sized yarn used for weaving is not liable again.

Summary

J.K. Cotton Spinning & Weaving Mills Ltd., a composite mill, produced yarn as an intermediate product and then wove it into fabrics on the same premises. The issue was whether the yarn was liable to central excise duty under the amended Rule 9 and Rule 49 of the Central Excise Rules, 1944, which were given retrospective effect by Section 51 of the Finance Act, 1982, and whether those amendments violated Articles 14 and 19 of the Constitution. The Supreme Court held that the amendments and their retrospective operation were valid but subject to the limitation period in Section 11A of the Central Excises and Salt Act, 1944. Consequently, the yarn obtained at the intermediate stage is chargeable to excise duty, whereas the sized yarn, once used for weaving, is not liable to duty again. The Court dismissed the appeal and affirmed the High Court’s order.

Issues considered

Whether the amendment of Rule 9 and Rule 49 of the Central Excise Rules, 1944, with retrospective effect under Section 51 of the Finance Act, 1982, is constitutionally valid.
Whether Section 51 overrides the limitation provisions of Section 11A (and Sections IIA, IIB) of the Central Excises and Salt Act, 1944.
Whether yarn produced at an intermediate stage in an integrated manufacturing process is liable to excise duty under the amended rules.
Whether the sized yarn, after being used for weaving, attracts excise duty again.
Interpretation of ‘removal’ and the validity of the deeming provision in the explanations to Rule 9 and Rule 49.

Legislation cited

Central Excise Rules, 1944s. Rule 49, s. Rule 9
Central Excises and Salt Act, 1944s. Section 11A, s. Section 3, s. Section 4, s. Sections IIA and IIB
Finance Act, 1982s. Section 51

Subjects

Excise dutyIntermediate goodsRemovalDeemed removalRetrospective legislationConstitutional challengeCentral Excise RulesSection 51 Finance ActSection 11A limitation periodIntegrated manufacturing process

Judgment

A
J .K. COTTON SPINNING AND WEA YING MILLS LTD. & .
~-
...
ANR.
v.
UNION OF INDIA & ORS.

OCTOBER 30, 1987
B
[R.S. PATHAK, C.J., RANGANATH MISRA
AND MURARI MOHON DUTT, JJ.] \-·-
Levy of excise duty on yarn obtained at an intermediate stage in ...
the process of manufacture of fabrics-Amended rules 9 and 49 of the
Central Excise Rules, 1944-lnterpretation thereof
c
_J
The appellant No. 1, J.K. Cotton Spinning and Weaving Mills
Limited, has a composite mill wherein it manufactures fabrics of diffe-
rent types, for which yarn is obtained at an intermediate stage, and the
yarn is processed in an integrated process in the said composite mill for
D weaving the same into fabrics.

The Central Board of Excise issued a Circular dated September
24, 1980, purporting to interpret the rules 9 and 49 of the Central
Excise Rules, 1944 (the Rules) and directing the subordinate excise
authorities to levy and collect excise duty in accordance therewith. llte ~-
E
Board further directed vide the said Circular that the use of the goods
in the manufacture of another commodity even within the place/
premises specified in this behalf by the Central Excise Officers in terms
of the powers conferred under rile 9 of the Rules, would attract duty.
As the implementation of the Circular worked to the prejudice of the
appellants, they filed a writ petition in the High Court, challenging the
F validity of the Circular.
-
).'

During the pendency of the said writ petition, the Central Gov-
ernment issued a Notification dated February 20, 1982, amending the
rules 9 and 49 of the Rules, with section 51 of the Finance Act, 1982,
G providing that the amendments in the rules 9 and 49 shall be deemed to
have, and to have always had, the effect with retrospective effect from
the date on which the Rules came into force i.e. February 28, 1944. )I
Upon the amendments of the rules 9 and 49, with retrospective effect of >-..~"'
the amendments, the appellants amended their writ petition above-said
to challenge the constitutional validity of Section 51 of the Finance Act I

H abovementioned and the amendments to the rules 9 and 49.
700
J.K. COTION MILLS v. U.0.1. 701

The High Court allowed the writ petition in part. It held (i) that
A
section 5I and the rules 9 and 49 as amended were valid, (ii) the
retrospective effect allowed by section 5I would be subj•ct to the pro'vi·
sions of sections IIA and IIB of the Central Excises and Salt Act,
1944 (the Act), (iii) the yarn produced at an intermediate stage in the
mill of the appellants and subjected to the integrated process of weaving
into fabrics, would be liable to payment of excise duty in view of the B
amended provisions of the rules 9 and 49, but the sized yarn actually
---f put into the integrated process would not again attract excise duty. The
appellants then filed this appeal (Civil Appeal No. 297 of 1983) before
this Court by certificate.

Dismissing the Appeal, the Court,
c
HELD: The decisions of various High Courts cited, deal with the
rules 9 and 49 of the Central Excise Rules, I944, as they stood before
they were amended by the Government Notification dated February 20,
I982. In this case, what is involved is the interpretation of the said two
rules after their amendment and the constitutional validity of the rules D
as amended. The amendments to the rules 9 and 49 are quite legal and
valid. Section Sl of the Finance Act, 1982, giving retrospective effect to
the said amendments is also legal and valid. The apprehension of the
appellants that the amendments to rules 9 and 49 having been made
retrospective from the date the rules were framed, that is, February 28,
I944, the appellants may be called upon to pay enormous amounts of E
duty in respect of the intermediate goods which have come into exist-
ence and again consumed in the integrated process of manufacture of

---
' another commodity, is not right. In view of section I IA of the Finance
Act, there is no cause for such an apprehension. Under Section llA(l),
the excise authorities cannot recover duties not levied or not paid or
short-levied or short-paid or erroneously refunded beyond the period of F
six months, the proviso lo section IIA not being applicable in the
present· case. Thus though section SI has given retrospective effect
to the amendments of rules 9 and 49, it must be subject to the
provision of section llA of the Act. Section 5I does not contain
any non-obstante clause, nor does it refer to the provision of section
HA, and it is difficult to hold that section SI overrides the provi- G
sion of section HA. 17l2F-H; 7140-F]

The appellants are liable to pay excise duty on the yarn obtained
at an· intermediate stage and, thereafter, further processed in an
integrated process for weaving the same into fabrics. Although it bas
been alleged that the yarn is obtained at an intermediate stage of an H
702 SUPREME COURT REPORTS (19881 I S.C.R.

A integrated process of manufacture of fabrics, it appears to be not so.
After the yarn is produced, it is sized, and thereafter, subjected to a
process of weaving the same into fabrics. As the Court has held that the
commodity which is obtained at an 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
B to payment of excise duty. [720G-H; 721A-BI

The High Court has rightly held that the appellants are not
liable to pay 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
C into sized yarn does not Jose its character as yarn. The judgment
of the High Court affirmed. [721B-C]

In view of the decision of the Court in the Civil Appeal No. 297 of
1983, the Civil Appeals Nos. 2658 and 4168of1983 also dismis<e<I. (72101

D The Province af Madras v. Boddu Paidanna and Sons-AIR
1942 F.C. 33; Caltex Oil Refining (India) Ltd. v. Union of India &
Ors. [1979] E.L.T. 581, Delhi Cloth and General Mills Co. Ltd. v.
Joint Secretary, Government of India, (19781 E.L. T. 121; Modi Carpets
Ltd. v. Union of India, (19801 E.L.T. 320; Synthetics and Chemicals
Ltd. Bombay v. Government of India, (19801 E.L.T. 675, Devi Dayal
E Electronics and Wires Ltd. v. Union of India, (19821E.L.T.33; Oudh
Sugar Mills Ltd. v. Union of India, (19801 E.L.T. 327, Oudh Sugar
Mills Ltd. v. Union of India, (19821E.L.T.927, Maneklal Harilal Spg.
& Mfg. Co. Ltd. v. Union of India, (19781E.L.T.618; Nirlon Syntheti~
Fibres & Chemicals Ltd. v. Shri R.K. Audim; Assistant Collector &
Ors. In Misc. 491 of 1964, unreported judgment of Bombay High
--
'
'

F Court, dated April 30, 1970, Jawaharmal v. State of Rajasthan & Ors.,·
(196611 S.C.R. 890; Rai Ramkrishna and Ors. v. State of Bihar, [19641 )
1 S.C.R. 897, K.P. Verghese v. The Income Tax Officer, Ernakulam,
(19821 1 S.C.R. 629 and Senior Electric Inspector and Ors. v. Laxmi
Narayan Chopra, (196213 S.C.R. 146, referred to.

G CIVIL APPELLATE JURISDICTION: Civil Appeal No. 297
of 1983. Etc.

From the Judgment and Order dated 11.1.1983 of the Delhi High >...,J'
Court in C.W. No. 1858 of 1981.

H Soli J. Sorabjee, A.N. Haksar, Ravinder Narain, P.K. Ram,

;
J.K. COTTON MILLS v. U.0.1. [DUTT, J.] 703

D.N. Mishra and Appellant-in-person (in C.A. No. 2658 of 1983) for
~-_..,..- A
the Appellants.
K. Parasaran, Attorney General, A.K. Ganguli, K. Swamy and
C.V.S. Rao for the Respondents.

The Judgment of the Court was delivered by
B
DUTT, J, This appeal is directed against the judgment of the
---( Delhi High Court allowing in part only the petition of the appellants
under Article 226 of the Constitution of India.

""" The appellant No. l, J.K. Cotton Spinning & Weaving Mills
Limited, has a composite mill wherein it manufactures fabrics of diffe-
1 rent types. In order to manufacture the said fabrics, yarn is obtained at
an intermediate stage. The yarn so obtained is further processed in an
integrated process in the said composite mill of the appellant No. I for
c

weaving the same into fabrics. The appellants do not dispute that the
different kinds of fabrics which are manufactured in the mill are liable
to payment of excise duty on their removal from the factory. They also D
do not dispute their liability in respect of yarn which is also removed
from the factory. It is the contention of the appellants that no duty of
excise can be levied and collected in respect of yarn which is obtained
at an intermediate stage and, thereafter, subjected to an integrated
process for the manufacture of different fabrics. Indeed, on a writ
~
petition of the appellants, the Delhi High Court by its judgment dated E
October 16, 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 is the case o{ the appellants that in spite of the said
decision of the Delhi High Court, the Central Board of Excise has
wrongly issued a circular dated September 24, 1980 purporting to
interpret rules 9 and 49 of the Central Excise Rules, 1944 (hereinafter F
'
_( 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 has directed the subordinate excise
authorities that "use of goods in manufacture of another commodity
even within the place/premises that have been specified in this behalf
by the Central Excise Officers in terms of the powers conferred under G
rule 9 of the Rules·, will attract duty". As the said circular was being
implemented to the prejudice of the appellants, they filed a writ peti-
v tion before the Delhi High Court, inter alia, challenging the validity of
the circular.

During the pendency of the writ petition in the Delhi High H
704 SUPREME COURT REPORTS [ 1988) I S.C.R.

Court, the Central Government by a Notification No. 20/82-C.E.
A
dated 20.2. !982 amended rules 9 and 49 of the Rules. Section 51 of the
Finance Act, 1982 provides that the amendments 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. February
28, 1944. After the said amendments of the Rules with retrospective
B effect, the appellants amended the writ petition and challenged the
constitutional validity of section 51 of the Finance Act, 1982 and of the
amendments to rules 9 and 49 of the Rules.
The High Court came to the conclusion that section 51 and rules
9 and 49 of the Rules, as amended, were valid. It has, however, been
held that the retrospective effect given by section 51 will be subject to
C the provisions of sections I IA and I !B of the Central Excises and Salt
Act, 1944 (hereinafter referred to as 'the Act'). Further, it has been _)
_
held that the yarn which is produced at an intermediate stage in the
mill of the appellants and subjected to the integrated process of weav-
ing the same into fabrics, will be liable to payment of excise duty in
D view of the amended provisions of rules 9 and 49 of the Rules. But 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 purpose, does not change the nature of the
commodity as yarn. The writ petition was, accordingly, allowed in
part. Hence this appeal by the appellants upon a certificate granted by
the High Court.
E
At this stage, we may refer to rules 9 and 49 before and after
amendment of the same. The relevant portion of rule 9 before the
same was amended is as follows:-

"Rule 9. Time and manner of payment of duty.-(!) No
F 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 •uch
place, until the excise duty leviable thereon has been paid
G at such place and in such manner as is prescribed in these
Rules or as the Collector may require, and except on pre-
sentation of an application in the proper form and on
obtaining the permission of the proper officer on the .V
form:"
[The remaining provisions of rule 9 which are not relevant
IH for our purpose are omitted.)
J.K. COITON MILLS v. U.O.I. [DUIT,. J.i 705

By a Notification No. 20182 C.B. dated 20.2.1982 of the Central A
Government, rule 9 was amended by the addition of the following
Explanation thereto:-·

"Explanation.-For the purposes of this rule excisable
goods produced, cured or manufactured in any place and
consumed or utilised- B

(i) as such or after subjection to any process or processes;
or

(ii) for the manufacture of any other ~ommodity, whether
in a continuous process or otherwise, in such place or

1 any premises appurtenant thereto, specified by the C
Collector under sub-rule (1), shall be deemed to have
been removed from such place or premises immediately
before such consumption or utilisation."

Rule 49 before its amendment was as follows:- D

"Rule 49. Duty chargeable only on removal of goods from
the factory premises or from an approved place of stor-
age. -( i) Payment of duty shall not be required in respect
of excisable goods made in a factory until they are about to
be issued out of the place or premises specified under rule 9 E
or are about to be removed from a store-room or other
place of storage approved by the Collector under rule 47:"

- [The remaining provisions of rule 49 which are not relevant
for our purpose are omitted.]

By the said Notification rule 49 was amended by the addition of F
( [!n Explanation thereto as follows:-

"Explanation.- For the purposes of this rule, excisable
goods made in a factory and consumed or utilised-

(i) as such or after subjection to any process or processes; G
or

(ii) for the manufacture of any other commodity,

whether in a continuous process or otherwise, in such
factory or place or premises specified under rule 9 or store- H
706 SUPREME COURT REPORTS ( 1988] 1 S.C.R.

room or other place of storage approved by the Collector .
A
under fl\le 47, shall be deemed to have been issued out of, 1'- ...
or removed from such factory, place, premises, store-room
or other place of storage, as the case may be, immediately
before such consumption or utilisation."

B It has been already noticed that by section 51 of the Finance Act,
1982, amendments made to rules 9 and 49 have been given retrospec-
tive effect from the date on which the Rules came into force, that is to ~~
say, from February 28, 1944.

It is not disputed before us that under section 3(1) of the Act, the
taxing event is the production or manufacture of the goods in question.
c Indeed, section 3 provides that there shall be levied and collected in
such manner as may be prescribed, duties of excise on all excisable ,,l, •
goods other than salt which are produced or manufactured in India and
at the rates set forth in the First Schedule. It is, therefore, clear that as
soon as the goods in question are produced or manufactured, they will
D be liable to payment of excise duty. While section 3 lays down the
taxable event, rules 9 and 49 provide for the coll~ction of duty. There
is a distinction between levy and collection of duty. ln•The Province of
Madras v. Boddu Paidanna & Sons, A.LR. 1942 FC 33 it has been
observed by the Federal Court as follows:-

E "There is in theory nothing to prevent the Central Legisla- ~--
ture from impoc;ng a duty of excise on a commodity as soon
as it comes into existence, no matter what happens to it
afterwards, whether it be sold, consumed, destroyed or
given away. A taxing authority will not ordinarily impose
such a duty, because it is much more convenient adminis-
F tratively to collect the duty (as in the case of most of the
Excise Acts) when the commodity leaves the factory for the '
first time, and also because the duty is intended to be an ~J
indirect duty which the manufacturer or producer is to pass
on to the ultimate consumer, which he could not do if the
commodity had, for example, been destroyed in the factory
G itself. It is the fact of manufacture which attracts the duty,
even though it may be collected later."

Relying upon the aforesaid observation of the Federal Court, it ).__ ..<
has been urged by Mr. Soli Sorabjee, learned Counsel appearing on
behalf of the appellants, that although it is true that as soon as the
H commodity is manufactured or produced it is liable to the payment of
J.K. COTION MILLS v. U.0.1. [DUTI, J.] 707

~ . excise duty, the duty will not, however, be collected unless the com- A
·-"( modity leaves the factory. It is submitted by him that the commodity
must be removed from one place to another either for the purpose of
consumption in the factory or for sale outside it before excise duty can
be claimed. Counsel submits that rules 9 and 49, as they stood before
they were amended, and even the main part of these two rules after
amendment, indicate in clear terms that so long as the goods which are B
manufactured in the factory are not removed, there is no question of
··-(. payment of excise duty on the goods.

.. Several decisions have been cited on behalf of the appellants to
show that some High Courts also have taken the view that removal is
the main criterion for the collection of excise duty on the commodity
produced or manufactured inside the factory or the place of manufac- c
I

l . lure. We shall presently refer to these decisions. It may, however, be
noticed that the decisions are not also uniform on the interpretation of
rules 9 and 49, as they stood before amendment. We are, however,
really concerned with the interpretation of these two rules after
amendment, but as much submissions have been made by the parties D
in the light of the decisions of the High Courts on the interpretation of
these two rules, we would like to refer to the same.

In Caltex Oil Refining (India) Ltd. v. Union of India and others,
[1979] E.L.T. 581 it has been held by the Delhi High Court that there
·...( can be removal only if the product goes out of one stream of produc- E
tion into another stream of production or if the product is issued out of
or taken out or consumed if no further processing of that product is to
be done. Further, it has been observed that there can be no removal of
a product within the plant itself so long as the product is in the process
of manufacture. According to this decision, if the product, which is
obtained at an intermediate stage of an integrated and uninterrupted F

l process of manufacture, there is no removal of such product. But, if
the intermediary product is transferred from one plant to another for
the manufacture of another commodity, there will be removal for the
purpose of collection of duty.

In an earlier decision in Delhi Cloth & General Mills Co. Ltd. v. G
Joint Secretary, Government of India, (1978] E.L.T. 121 the Delhi
High Court had taken a different view. In that case calcium carbide
manufactured in the factory in one plant was used to generate
~~ acetylene gas by the transfer of the article from one plant to ~nother in
the same factory. The question that came up for cons1deral!on of the
..,. High Court was whether there was removal of calcium carbide for the H
708 SUPREME COURT REPORTS [ 1988] 1 S.C.R.

A purpose of levy and collection of excise duty. The High Court relied
upon the definition of 'factory' under section 2( e) of the Act and took
the view that the definition was not restricted to only the part in which
the·excisable goods were manufactured. It was, accordingly, held that
it could not, therefore, be said that calcium carbide made by the
petitioner-Company was removed from the factory in which it was
B produced. This decision lays down that so long as a commodity is not
removed from the factory premises, there is no removal within the
meaning of rules 9 and 49. A similar view has been taken by the Delhi

-
High Court in a later decision in Modi Carpets Ltd. v. Union of India,
[ 1980] E.L.T. 320 where the High Court has expressed the view that
no.excise duty can be levied and recovered on 'sliver' obtained by the
petitioners, if it is consumed within the very premises in which it is
C manufactured because in such cases there is no removal of sliver from
the place of manufacture as envisaged by rules 9 and 49.

More or less a similar view has been taken by the Delhi High
Court in another decision in Synthetics and Chemicals Ltd., Bombay v.
D Government of India, [1980] E.L.T. 675. In that case, the petitioner
manufactured Bento), a mixture of Benzene and Toluene, in the
factory, which was again used for the manufacture or rubber. The
High Court took the view that it was not a case of removal under rules
9 and 49 and, as such, no excise duty was payable on Bento!.

E We may notice another decision of the Delhi High Court in Devi
Dayal Electronics and Wires Ltd. v. Union of India, [1982] E.L.T. 33.
In that case it has been held that since the impugned resins (polyester
or phenolic resins) are not removed from the place of manufacture but
are used for the manufacture of end product (Varnish) within the plant
itself, there is no removal of goods within the meaning of rule 9 read
F with rule 49 of the Rules.

Thus it appears that there is a conflict of opinion in the decisions
).
of the Delhi High Court as to what is meant by the word 'removal' for
the purpose of payment of excise duty. Two views have been expressed
by the Delhi High Court. One view is that so long as any product
G manufactured in the factory is not actually removed from the factory
premises, there is no removal and, accordingly, no excise duty is pay-
able on the product, even if the product is used for the manufacture of
another commodity inside the factory. The other view is that if at one
stage a commodity known to the market is produced and is transferred
within the factory for the manufacture of another commodity, there is
H removal within the meaning of rules 9 and 49.
J.K. COTION MILLS v. U.0.1. (DUTI, J.] 709

Apart from the above two views, there is a third view which has
also been expressed by the Delhi High Court, namely, that if an A
intermediate product is obtained in an integrated process of manufac-
ture of a commodity, there is no removal and, therefore, such
intermediate product although known to the market and comes under
a particular tariff item yet, as there is no removal, there will be no
question of payment of excise duty on such intermediate product. B

The Nagpur Bench of the Bombay High Court in Oudh Sugar
Mills Ltd. v. Union of India, [1980] E.L.T. 327 has adopted the second
and third views. It has been held that if the purpose of removal of '
excisable goods is consumption in the same place where the excisable
, goods are manufactured or cured or if such excisable ~oods are used in
J... the manufacture of any other goods in the same place, this cannot be C
ilone without payment of excise duty at the place and in the manner
prescribed. Further, it has been held that where the plant of produc-
tion is treated as a composite plant and where the process of man-
ufacture is an integrated, continuous and uninterrupted process, a
transfer of a produce which is a component of the final produce from D
one part of the plant to another, does not amount to removal as con-
templated by rule 9. According to this decision, a process of onward
movement of a component for being converted into a final product is
not covered by the concept (l)f removal contemplated by the provision
_ -t of rule 9 of the Rules.
E
In Oudh Sugar Mills_ Ltd. v. Union of India, [1982] E.L.T. 927,
the Allahabad High Court has taken more or less the same view as that
...- of the Bombay High Court. It has been observed that an intermediate
product which by itself is goods known to the market and is used in
captive consumption for bringing out altogether a new goods not by an
' integrated process, but by a distinct and separate process, is liable to F
. \. excise duty before its removal.

So far as captive consumption is concerned, the Gujarat High
Court has taken the same view as that of the Allahabad High Court in
Maneklal Harilal Spg. & Mfg. Co. Ltd. v. Union of India, [1978]
E.L.T. 618 where it has been held by the Allahabad High Court that G
excise duty is payable when yarn is removed from the spinning depart-
ment to the weaving department for the manufacture of fabrics.
')..l
. '
All the above decisions relate to rules 9 and 49 before they were
amended. Leaving aside the question of specification for the time being,
rule 9 before its amendment prohibits the removal of excisable goods H
710 SUPREME COURT REPORTS [ 1988) I S.C.R.

A whether for consumption, export or manufacture of any other com-
modity in or outside such place, until the excise duty leviable thereon
has been paid. It is manifestly clear from rule 9 that it contemplates
not only removal from the place where the excisable goods are pro-
duced, cured or manufactured or any premises appurtenant thereto,
but also removal within such place or premises for captive consump-
B tion or 'home consumption', as it is called. Thus if a commodity which
is manufactured in such place or premises and is used for the man-
ufacture of another commodity, then it will be a case of removal for
the purpose of payment of excise duty. This view which we take clearly
follows from the expression "whether for consumption, export or
manufacture of any other commodity in or outside such place". Thus
consumption of excisable goods may be within such place or outside
c such place. The decisions which have taken the view that if a commod-
ity manufactured within the factory in one plant is transferred to
another plant for the purpose of production of another commodity will
be removal for the purpose of payment of excise duty are, in our
opinion, correct. It is ·not easily understandable why the definition of
D expression 'factory' under section 2( e) of the Act has been taken resort
to in some of the decisions for the purpose of interpretation of rule 9.
There can be no doubt that if a commodity is taken outside the factory
it will be removal, but rule 9 does not, in any manner, indicate that it is
only when the goods are removed from the factory premises it will be
removal and when the excisable goods manufactured within the
E factory is removed from one plant to another it will not be a case of
removal. On the contrary, as noticed already, rule 9 clearly embraces .
within it captive consumtion of excisable goods, that is to say, when
excisable goods manufactured in the factory are used for production of
another commodity.

F Now the question is whether rule 9 before it was amended also I
envisaged a case of an intermediate product obtained in an integrated
and continuous process of manufacture of another commodity, that is,
_)
the end product. It must be admitted that prima facie rule 9 does not
show that it also covers a case of integrated, continuous and uninter-
rupted process of manufacture producing a commodity at an
G intermediate stage which again is utilised in such continuous process
for the manufacture of the end product. The learned Attorney Gen- I
(
eral, appearing on behalf of the Union of India, submits that rule 9 and
rule 49 also envisaged such a case of integrated process of manufacture
of the end product using a product produced at an intermediate stage.
In support of his contention he has placed reliance on an unreported
H decision of the Bombay High Court in Misc. 491 of 1964, dated April,
J.K. COTION MILLS v. U.0.1. [DUTI. J.I 711

( 30, 1970 (Nirlon Synthethic Fibres & Chemicals Ltd. v. Shri R.K. Au·
A
dim, Assistant Collector & Ors.) The learned Single Judge of the
Bombay High Court took the view that a continuous or integrated
process of manufacture was not initially contemplated by rule 9 or rule
49, but after the addition of a new set of rules being rules 173A to 173K
to the Rules by the Notification dated May 11, 1968 a continuous and
integrated process of manufacture came to be contemplated by the B
scheme of the Act and the Rules. Reliance has been placed by the
learned Judge on the Explanation to rule 173A as added by the said
Notification dated May 11, 1968. The Explanation is as follows:·

"Explanation-The expression 'home use' means the con·
sumption of such goods within India for any purpose and
includes use of such goods in the place of production or C
manufacture or any other place or premises (whether by
continuous process or not), for manufacture of any
commodity."

Reliance has also been placed on rule 173G which provides for D
the procedure to be followed bv an assessee who is a manufacturer of
matches or cigarettes or cheroots. The relevant portion of rule l73G is
a proviso thereto which is as follows:-

-< "Provided that the duty due on the goods consumed within
the factory in a continuous process may be so paid at the E
end of the factory day."

From the above provisions of the Explanation to rule 173A and
the proviso to rule J73G, the learned Judge has taken the view that a
continuous or integrated process of manufacture has come to be con-
1 templated by the scheme of the Act and the Rules framed thereunder F
\ for the first time only in May, 1968, the scheme having been brought
into force with effect from June l; 1968 and prior thereto such a
continuous or integrated manufacturing process was never contemp·
lated by the Act or the Rules.

The learned Attorney General gets inspiration from the said G
unreported case of the Bombay High Court and submits that atleast
since after May, 1968, rule 9 and rule 49 envisage the case of an
integrated and continuous process of manufacture involving the use or
utilisation of a commodity produced at an intermediate stage of such
process for the manufacture of an end product or commodity. It is
submitted by him that if the interpretation as given by the learned H
.71: SUPREME COURT REPORTS (1988] I S.C.R .

A
Single Judge of the Bom~ay High Court in the above unreported deci- A
sion· is accepted, in that case, it will not be necessary to consider the
effect of amended rule 9 or rule 49, that is to say, the Explanations that
have been added to these two rules .
. .
. It may be that the concept of continuous or integrated process of
B manufacture has been recognised in the Explanation to sub-rule (2) of
rule 173A and in the proviso to rule 173G, but we .do not think that
.rule 9 or rule 49 should be· interpreted in the light of provisions of the )..-
Explanation to sub-rule (2) of rule 173A or the proviso to rule 173G.
Moreover, we are not concerned with the interpretation of rule 9 and
rule 49, as they stood before the amendment, In the instant case, the
appellants have challenged rule 9 and rule 49 as amended by the
C Notification dated February 20, 1982. We are, therefore, concerned~
with the interpretation of these rules as amended, particularly the -t
question of validity of these rules. ·.

·.\lefore we proceed to consider the conte.ntions made on behalf of
D the parties, it may be stated that in view of the divergence of judicial
opinions as to the interpretation of rules 9 and 49, before they were
amended, the Explanations to rules 9 and 49 have been added sci as to
obviate any doubt. The Explanations to rule 9 and rule 49, inter a/ia,
provide that commodity obtained at an inteqnediate stage of man-
ufacture in a continuous process shall be deemed to have been . )..
E .removed from such place or premises as mentioned in sub-rule (I) of
rule 9. This deeming provision has been given retrospective effect by
virtue of section 51 of the Finance Act, 1982.

It is urged by Mr. Sorabjee, learned Counsel for the appellants,
that the amended rule 9 and rule 49 are arbitrary and unreasonable
°"· F inasmuch as the goods which, in fact, are not removed from the factory
_ • '· and which are incapable of removal because of the nature and con.-.Y
struction of the plant or the nature and character of the manufacturing }
. process, are fictionally treated as having been removed. ·It is submitted
that as a result of the amendment of these rules the appellants are
exposed to· excessive hardship for not complying with the statutory
G .. provisions. In view of the length of the retrospective operation of the
amendments, namely, 38 years from the date of the commencement of
the Act, that is, February 28; 1944, the appellants would be called
-...____ upon to pay enormous amount of duty in respect of the entire quantity
. of goods which have come into existence and have been captively
•

1
consumed within the factory premises. The appellants will not, how-
L_H--e-ve-r, be able to pass on this burden to consumers and will have to bear
J.K. COTION MILLS v. U.0.1. (DUTI. J.J 713

the same themselves. It is submitted that in view of the arbitrariness
;:,,- A
and unreasonableness of the amendments and the hardships that will
be caused to the appellants and other manufacturers of excisable
goods, the amendments should be struck down as violative of the
provisions of Article 14 and Article 19(l)(g) of the Constitution of
India.
B
It is not disputed that the Legislature is competent to make laws
{ both prospectively and retrospectively. But, as pointed out by this
Court in Jawaharmal v. State of Rajasthan and Others, [ 1966] 1 S.C.R.
890, the cases may conceivably occur where the court may have to
consider the question as to whether excessive retrospective operation
prescribed by a taxing statute amounts to the contravention. of the
citizens' fundamental rights; and in dealing with such a question the c
J court may have to take into account all the relevant and surrounding
facts and circumstances in relation to the taxation. Again in Rai
Ramkrishna & Others v. State of Bihar, [ 1964] 1 S.C.R. 897 this Court
has pointed out that if the retrospective feature of a law is arbitrary
and burdensome, the statute will not be sustained and the reasonable-
ness of each retrospective statute will depend on the circumstances of D
each case; and the test of the length of time covered by the retrospec-
tive operation cannot, by itself, necessarily be a decisive test.
The apprehension of the appellants is that the amendments to
rules 9 and 49 having been made retrospective from the date the Rules
---< were framed, that is from February 28, 1944, the appellants and others E
similarly situated may be called upon to pay enormous amounts of
duty in respect of intermediate goods which have come into existence
and again consumed in the integrated process of manufacture of
another commodity. There can be no doubt that if one has to pay duty

~
with retrospective effect from 1944, it would really cause great hard-
ship but, in our opinion, in view of section l lA of the Act, there is no F
cause for such apprehension. Section I IA( 1) of the Act provides as
follows:-

"Section llA.-(1) When any duty of excise has not been
levied or paid or has been short-levied or short-paid or
erroneously refunded, a Central Excise Officer may, within G
six months from the relevant date, serve notice on the
person chargeable with the duty which has not been levied
or paid or which has been short-levied or short-paid or to
whom the refund has erroneously been made, requiring
him to show cause why he should not pay the amount
specified in the notice: H
714 SUPREME COURT REPORTS ( 1988] I S.C.R.

Provided that where any duty of excise has not been
A
levied or paid or has been short-levied or short-paid or
erroneously refunded by reason of fraud, collusion or any
wilful misstatement or suppression of facts, or contraven-
tion of any of the provisions of this Act or of the rules made
thereunder with intent to evade payment of duty, by such-
B person or his agent, the provisions of this sub-section shall
have effect, as if for the words "six months", the words
"five years" were substituted.

Explanation.-Where the service of the notice is
stayed by an order of a court, the period of such stay shall
be excluded in computing the aforesaid period of six
c months or five years, as the case may be."

Under section llA{ 1) the excise authorities cannot recover
duties not levied or not paid or short-levied or short-paid or errone-
ously refunded beyond the period of six months, the proviso to section
D I IA not being applicable in the present case. Thus although section 5 I
of the Finance Act, 1982 has given retrospective effect to the amend-
ments of rules 9 and 49, yet it must be subject to the provision of
section ! IA of the Act. We are unable to accept the contention of the
learned Attorney General that as section 51 has made the amendments
retrospective in operation since February 28, 1944, it should be held
E that it overrides the provision of section llA. If the intention of the
Legislature was to nullify the effect of section I IA, in that case, the
Legislature would have specifically provided for the same. Section 51
does not contain any non-obstante clause, nor does it refer to the
provision of section l!A. In the circumstances, it is difficult to hold
that section 51 overrides the provision of section ! IA.
F
It is, however, contended by the learned Attorney General that _)
as the law was amended for the first time on February 20, 1982, the
cause of action for the excise authorities to demand excise duty in
terms of the amended provision, arose on that day, that is, on
February 20, 1982 and, accordingly, the authorities are entitled to
G make such demand with retrospective effect beyond the period of six
months. But such demand, though it may include within it demand for
more than six months, must be made within a period of six months i
from the date of the amendment. )
'
There is no provision in the Act or in the Rules enabling the
H excise authorities to make any demand beyond the periods mentioned
J.K. COTION MILLS v. U.0.1. [DUTI, J.] 715

in section 1lA of the Act on the ground of the accrual of cause of A
action. The question that is really involved is whether in view of sec-
tion 51 of the Finance Act, 1982, section I IA should be ignored or not.
In our view section 51 does not, in any manner, affect the provision of
section 1lA of the Act. In the absence of any specific provision over-
riding section llA, it will be consistent with rules of harmonious con-
struction to hold that section 51 of the Finance Act, 1982 in so far as it B
gives retrospective effect to the amendments made to rules 9 and 49 of
the rules, is subject to the provision of section I IA.

In the circumstances, there is no question of th' amended provi-
sion of rule 9 and rule 49 being arbitrary, unreasonable or violative of
the provision of Article 14 and Article 19( l)(g) of the Constitution of
India. C

We may now deal with the challenge made to the retrospective
operation of amendments of rules 9 and 49 on another ground. In
order to appreciate the ground of such challenge, we may once more
refer to section 51 of the Finance Act, 1982. The Explanation to sec- D
lion 51 provides as follows:-

"Explanation.-For the removal of doubts, it is hereby
declared that no act or omission on the part of any person
shall be punishable as an offence which would not have
been so punishable if this section had not come into force." E

Under the Explanation, although rules 9 and 49 have been given
retrospective effect, an act or omission which was not punishable
before the amendment of the Rules, will not be punishable after
amendment. The Explanation does ::ot, however, provide for the
penalties and confiscation of goods. It is the contention of the appel- F
!ants that as the appellants had not complied with the requirements of
the amended rules 9 and 49, they would be subjected to penalties and
their goods would be confiscated under the amended rules 9 and 49
read with rule 1730 of the Rules with retrospective effect. It is, accord-
ingly, submitted on behalf of the appellants that the amendment of
these two rules with retrospective effect is arbitrary and unreasonable G
and should be struck down as violative of Article 14 of the

,. 'I
Constitution.

Attractive though the argument is, we regret we are unable to
f
i
accept the same. It is true that the Explanation to section 51 has not
mentioned anything about the penalties and confiscation of goods, but H
716 SUPREME COURT REPORTS [1988] I S.C.R.

A we do not think that in view of such non-mention in the Explanation
excluding imposition of penalties for acts or omissions before amend-
ment, such penalties can be imposed or goods can be confiscated by
virtue of the amended provisions of rules 9 and 49. It will bP ·~ainst all
principles of legal jurisprudence to impose a penalty on a person or to
confiscate his goods for an act or omission which was lawful at the time
B when such act was performed or omission made, but subsequently
made unlawful by virtue of any provision of law. The contention made
on behalf of the apellants is founded on the assumption that under the
Explanation to section 51, the penalties can be imposed and goods can
be confiscated with retrospective effect. In the circumstances, the
challenge to the amendments of rules 9 and 49, founded on the provi-
C sion of the Explanation to section 51 of the Finance Act, 1982, is
without any substance and is rejected.

The appellants have also challenged the prospective operation of
the Explanation to rules 9 and 49 introduced by amendments of the
same. It is strenuously uged by Mr. Sorabjee, learned Counsel for the
D appellants, that even after amendment there must be removal of the
goods from one place to another for the purpose of colleftion of excise
duty. Our attention has been drawn on behalf of the appellants to
clause {b) of sub-section (4) of section 4 of the Act, which defines
"place of removal" as follows:-

E "Sub-section (4)-For the purpose of this section,-

(a)

{b) "place of removal" means:-
F
(i) a factory or any other place or premises of pro- .).
duction or manufacture of the excisable goods; or

(ii) a warehouse or any other place or premises whe-
rein the excisable goods have been permitted to be
G deposited without payment of duty, from where such goods
are removed."

It is submitted on behalf of the appellants that the Explanations >. ·
to rule 9 and rule 49 are ultra vires the provision of clause (b) of
sub-section (4) of section 4 of the Act inasmuch as "place of removal"
H as defined therein, does not contemplate any deemed removal, but a
J.K. COTION MILLS v. U.0.1. [DUTI, J.] 717

\ physical and actual removal of the goods from a factory or any other
. -.-Jr
place or premises of production or manufacture or a warehouse etc. A
This contention is unsound and also does not follow from the definition
of "place of removal". Under the definition "place of removal" may
be a factory or any other place or premises of production or man-
ufacture of the excisable goods etc. The Explanation to rules 9 and 49
do not contain any definition of "place of removal", but provide that B
excisable goods produced or manufactured in any place or premises at
an intermediate stage and consumed or utilised for the manufacture of
another commodity in a continuous process, shall be deemed to have
been removed from such place or premises immediately before such
' consumption or utilisation. Clause (b) of sub-section (4) of section 4
has defined "place of removal", but it has not defined 'removal'.
There can be no doubt that the word 'removal' contemplated shifting c
I

" of a thing from one place to another. In other words, it contemplates
physical movement of goods from one place to another.

It is well settled that a deeming provision is an admission of the
non-existence of the 'fact deemed. Therefore, in view of the deeming D
provisions under Explanations to rules 9 and 49, although the goods
which are produced or manufactured at an intermediate stage and,
thereafter, consumed or utilised in the integrated process for the man-
ufacture of another commodity is not actually removed, shall be con-
strued and regarded as removed. The Legislature is quite competent to
enact a deeming provision for the purpose of assuming the existence of E
a fact which does not really exist. It has been already noticed that the

-
taxing event under section 3 of the Act is the production or man-
ufacture of goods and not removal. The Explanations to rules 9 and 49
' contemplate the collection of duty levied on the production of a com-
modity at an intermediate stage of an integrated process of manufac-
lure of another commodity by deeming such production or man- F
ufacture of the commodity at an intermediate stage to be removal from
-'\ such place or premises of manufacture. The deeming provisions are
quite consistent with section 3 of the Act. As observed by the Federal
Court in Boddu's case (Supra) there is in theory nothing to prevent
the central legislature from imposing a duty of excise on a commodity
as soon as it comes into existence, no matter what happens to it after- G
wards, whether it be sold, consumed or destroyed or given away. It is
for the convenience of the taxing authority that duty is collected at the
.... J.. time of removal of the commodity. There is, therefore, nothing
unreasonable in the deeming provision and, as discussed above, it is
quite in conformity with the provision of section 3 of the Act. The
contention that the amendments to rules 9 and 49 are ultra vires clause H
718 SUPREME COURT REPORTS [1988] 1 S.C.R.

A (b) of sub-section (4) of section 4 of the Act, is without substance and
is overruled.

It is next contended on behalf of the appellants that even assum-
ing that there can be fictional removal as provided in the Explanation
to rules 9 and 49, there cannot be such fictional or deemed removal
B without the specification of the place where the excisable goods are
produced, cured or manufactured or any premises appurtenant
thereto. Rule 9(1), inter alia provides that no excisable goods shall be
removed from any place where they are produced, cured or manufac-
tured or any premises appurtenant thereto, which may be specified by
the Collector in this behalf until the excise duty leviable thereon has
C been paid. The ExplanationS.to rules 9 and 49 refer to the specification
that has been made by the Collector under sub-rule ( 1) of rule 9. It is
submitted on behalf of the appellants that as no specification has been
made by the Collector of such place or premises appurtenant thereto,
the provision of deemed removal with regard to the commodity pro-
duced at the intermediate stage and consumed or utilised in the con-
D tinuous process of manufacture of the end product, is inapplicable. It
is contended that so long as such specification is not made by the
Collector of the place of manufacture or of any premises appurenant
thereto, the provision of deemed removal as contained in the Explana-
tions to rule 9 and 49 cannot be given effect to.

E On the other hand, it is contended by the learned Attorney Gen-
eral that specification of the place of manufacture and other places for
the storage of the goods, is made in the licence which is required to be
obtained under rule 174 of the Rules. Rule 178 provides for the fon:-
of licence. Clause (b) of rule 178( 1) provides that every licence granted
or renewed under nile 176 shall have reference only to the premises, if
F any, described in such licence. Form A.L.-IV is the form of an
application for licence under rule 176. In the Schedule to the Form, )
description of the premises intended to be used as a factory and of each
main division or sub-division of the factory has to be given. Further,
the detailed description of store-room or other place of storage and the
purpose of each has also to be. given in the application form for the
G grant of licence for the manufacture of excisable goods. Again under
rule 44 of the Rules, the Collector may require any manufacturer to
make a prior declaration of factory premises and its equipments. Such
a declaration has to be given in Form D-2 in respect of buildings,
rooms, vessel, etc. In view of the particulars which are required to be
given by a licensee for the manufacture of excisable goods, it is submit-
H ted by the learned Attorney General that the specification that is
J.K. COTION MILLS v. U.0.1. [DUTI, J.] 719

required to be made under rule 9( !), is made in the licence and in the
A A
declaration that has to be furnished by the manufacturer in Form D-2.

It is true that under rule 9(1) there is a provision for specification
by the Collector, but the question is what has to be specified by the
Collector. It is the contention of the appellants that the Collector has
to specify the place of manufacture and also any premises appurtenant B
thereto. We are, however, unable to accept this contention. The place
•-f where the goods are to be manufactured by a l]lanufacturer, that is to
say, the site of the factory cannot be specified by the Collector. It is for
the manufacturer to choose the site or the place where the factory will
" be constructed and goods will be manufactured. Rule 9(1), in our
opinion, does not require the Collector to specify the place where the
l excisable goods are produced, cured or manufactured. The words
"which may be specified by the Collector in this behalf" occurring in
rule 9( 1) of the Rules do not qualify the words "any place where they
c

are produced, cured or manufactured', but relate to or qualify the
words "any premises appurtenant thereto". In other words, if the place
of removal is not the place where the goods are produced, cured or D
manufactured, but any premises appurtenant to such place, in that
case, the Collector has lo specify such premises for the purpose of
collection of excise duty. Thus the contention of the appellants that the
Collector has to specify the place of manufacture and also any pre-
I
. -f
mises appurtenant thereto under rule 9( !) of the Rules, is without any
substance. E

- Our attention has, however, been drawn to the impugned circu-
lar dated September 24, 1980 issued by the Central Board of Excise &
Customs. In clause 3 of the circular, it is stated as follows:-

"Mere approval of the ground plan in a routine manner will F
\ not suffice for purposes of rule 9 as under the said rule the
place of production etc. or premises appurtenant thereto
have also to the specified separately."

Under the circular, the Collector is required to specify under rule
9( 1) both the place of production and premises appurtenant thereto, if G
any. In view of this direction given in the circular, the learned Counsel
for the appellants submits that it is not only binding on the Collector
.-1< and the other officers of the Central Excise Department, but also the
circular is in the nature of contemporanea exposito rendering useful aid
in the construction of the provision of rule 9(I) of the Rules. This
contention finds support from the decision of this Court in K. P. Var- H
720 SUPREME COURT REPORTS [1988] 1 S.C.R.

A ghese v. The Income-Tax Officer, Ernakulam, [1982] 1 S.C.R. 629
relied on by the learned Counsel of the appellants. Indeed, it has been
observed in that case that the rule of construction by reference to
contemporanea exposito is a well established rule for interpreting a
statute by reference to the exposition it has received from contempor-
ary authority, though it must give way where the language of the
B statute is plain and unambiguous. In our opinion, the language of rule
9( 1) admits of only one interpretation and that is that the specification
that has to be made by the Collector is of any premises appurtenant to
the place of manufacture or production of the excisable goods. The
specification is not required to be made and, in our view, cannot be
made of the place of manufacture or production of the excisable
goods. Apart from that, as observed by Subba Rao, J., upon a review
c of all the decisiorts on the point, in an earlier decision of this Court in
the Senior Electric Inspector and others v. Laxmi Narayan Chopra,
[ 1962] 3 S.C.R. 146, the maxim contemporanea exposito as laid down
by Coke was applied to construing ancient statutes but not to
interpreting Acts which are comparatively modem. Further, it has
D been observed that in a modem progressive society it would be un-
reasonable to confine the intention of a Legislature to the meaning
attributable to the word used at the time the law was made and, unless
a contrary intention appears, an interpretation should be given to the
words used to take in new facts and situations, if the words are capable
of comprehending them. Most respectfully we agree with the said ob-
E servation of Subba Rao, J. In the circumstances, we do not agree with
the direction of the Board of Central Excise & Customs given in the
impugned circular that both the place of manufacture and the premises
appurtenant thereto must be specified by the Collector under rule
91{1) of the Rules. Thus, there being no question of specification of
the place of manufacture, the contention of the appellants that without
F such specification there cannot be any deemed removal, fails.
)
In view of the discussion made above, we hold that the amend-
ments to rules 9 and 49 are quite legal and valid. Further, section 51 of
this Finance Act, 1982 giving retrospective effect to the said amend-
ments is also legal and valid.
G
In the.instant case, the appellants are liable to pay excise duty on
the yam which is obtained at an intermediate stage and, thereafter,
further processed in an integrated process for weaving the same into ~ ·
fabrics. Although it has been alleged that the yarn is obtained at an
intermediate stage of an intergrated process of manufacture of fabrics,
H it appears to be not so. After the yam is produced it is sized and,
J.K. COTION MILLS v. U.0.1. (DUTI. J.] 721

thereafter, subjected to a process of weaving the same into fabrics. Be A
that as it may, as we have held that the commodity which is obtained at
an 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
B
rightly held that the appellants are not liable to 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
yam, for the unsized yarn when converted into sized yam does not lose
its character as yarn.

For the reason aforesaid, the judgment of the High Court is C
affirmed and this appeal is dismissed. There will, however, be no order
as to costs.

Civil Appeal Nos. 2658 and 4168 of 1983.
D
In view of the judgment passed in Civil Appeal No. 297 of 1983,
these appeals are also dismissed. There will, however, be no order as
to costs.

S.L. Appeals dismissed.

I