CHAIRMAN CENTRAL BOARD OF EXCISE AND CUSTOMS NORTH BLOCK NEW DELHI Vs. DAVANGERE COTTON MILLS LIMITED DAVANGERE

JUDGEMENT

(1.) these two cross-appeals are directed against the Order dated march 25, 1991 passed by the learned single judge in W.P. No. 17545 of 1986 and can be conveniently disposed of by this judgment. By the impugned Order the learned single judge quashed the demand notice dated may 2, 1986 served by the superintendent of central excise upon M/s. Davangere cotton mills limited (hereinafter referred to as 'the mills' for the sake of brevity). The learned single judge also directed the superintendent to refund the sum of Rs. 1,69,75,742.79 to the mills. The learned judge further directed the department to examine whether any further amount is required to be refunded in accordance with the claim made by the mills. The learned judge declined to award interest on the amount of refund.

(2.) the facts which give rise to the passing of this Order are not in dispute and are required to be set out to appreciate the grievance made in the two appeals. M/s. Davangere cotton mills limited is a composite mill and manufactures cotton and fabrics. The mills also manufacture different kinds of yarn and which is ultimately consumed in the factory for manufacture of different kinds of fabrics. The expression "composite mill" means a manufacturer, who is engaged in spinning of cotton yarn or weaving and processing of cotton fabrics with the aid of power in the same factory. The different kinds of yarn manufactured by the mills was liable to payment of excise duty under tariff item nos. 18-iii, 18-a and 18-e of the first schedule to the central excises and salt Act, 1944 (hereinafter referred as 'the act'). The mills were paying excise duty on yarn manufactured and consumed till august 9, 1981. The mills then became aware of the decision rendered by the Delhi High Court in Delhi Cloth and General Mills Company Limited v. Joint Secretary, Government of India. The Delhi High Court held that yarn manufactured in the factory and exclusively consumed within the same factory is not liable for payment of excise duty. The mills thereupon preferred writ petition No. 19994 of 1981 in this court under Article 226 of the constitution. The mills claimed that manufacture of yarn captively consumed is not liable to payment of excise duty. The petition was admitted in september 1981 and the interim Order was passed to the following effect: "pending issue of Rule nisi, it is ordered by the court on 18-9-1981 that the levying and collecting excise duty by the respondents on different types of yarn manufactured and used for the manufacture of fabrics within the factory premises without removal thereof be and are hereby stayed for a period of 4 weeks from 18-9-1981". It is not in dispute that the stay Order remained in operation till the disposal of the petition. The petition was then amended and the constitutional validity of rules 9 and 49 of central excise rules, 1944 (hereinafter referred to as 'the rules') and Section 51 of finance Act, 1982 was challenged. The petition was heard by the division bench and by judgment in mis. Davangere Cotton Mills Limited v. Union of India, the petition was dismissed. The division bench upheld the validity of rules 9 and 49 as amended by finance act. The division bench also held that the decision of the Delhi high court, on which relief in the petition was based, is no longer good law in view of the decision of the Supreme Court in M/s. J.K.Cotton Spinning and Weaving Mills Limited and Another v. Union of India and others. The division bench while dismissing the petition observed in para 47 of the judgment that the interim Order stands terminated and the department is entitled to adjudicate and recover the amounts that may be found due for the period during which the interim relief was in operation. The division bench further observed that the mills cannot plead bar of limitation and it is open for the department to recover all amounts due from the date of grant of interim relief.

(3.) the mills had opted for advantage of the procedure prescribed under chapter vii-a of the rules and were filing the returns as contemplated under Rule 173-g(l)(iii) of the rules at the end of each month. The returns were filed in form r.t. 12 prepared under Rule 173-g of the rules. Rule 173-i provides that the officer on the basis of the information contained in the returns filed by the assessee under sub-rule (iii) of Rule 173-g(1) shall assess the duty due on the goods removed and complete the assessment memorandum on the returns. The Rule further provides that the assessee shall pay the deficiency of the duty determined within 10 days of receipt of the copy of the returns, inspite of the Order of stay granted by this court from levy and collection of duty, the mills had filed form r.t. 12 from month to month. The assessment memorandum is printed at the foot of the form. While filing the return the mills made an endorsement on the form that yarn was removed to weaving Section without paying excise duty in pursuance of the stay Order granted by the high court. The central excise officer therefore did not complete the assessment. Form r.t. 12 clearly sets out the quantity removed without payment of duty during each month. After the dismissal of the writ petition preferred by the mills and after the stay Order for levy and collection stood vacated, the superintendent of central excise by letter dated 2nd may, 1986 informed the mills that a sum of Rs. 2,11,86,467.27 is due for the period commencing from september 1981 ending with 20th july, 1985 for the clearance of cotton yarn, cellulosic spun yarn and non-cellulosic spun yarn captively consumed by the mills for the manufacture of fabrics without payment of duty. The mills were called upon to make payment within a period of ten days. The demand letter was also accompanied by detailed worksheets setting out how the amount of duty was calculated. The calculations were made on the basis of returns filed by the mills. There was no dispute about the rate at which the duty was payable.