ARVIND MILLS LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) The petitioners in this group of Special Civil Applications are all composite mills who manufacture yarn and thereafter from the yarn manufactured by them. they weave cloth thus utilising the yarn for the purpose of weaving in the weaving department or the weaving section Excise duty on yarn is by weight and the question is whether excise duty should be taken on yarn as it emerges from the spinning department of these composite mills. Sizing is a process as found from the materials which will hereafter be referred which is applied to yarn when it is taken to the weaving department. Sizing is applied to yarn in order to strengthen the yarn so as to have proper strength at the time of wea- ving and it must be borne in mind that it is used only for the warp yarn for the weaving of fabric weft being un-sized. If a manufacturer manu- factures only yarn and then sells the yarn manufactured by it the manu- facturer is not required to size the yarn and yarn a commercial commodity known to the trade comes into existence without any sizing being required. It is therefore obvious that since it is the manufacture of yarn which is the taxable event for the purpose of excise duty yarn should be weighed as un-sized for excise duty because the very process of sizing would add to the weight of the yarn and if excise duty on yarn is to be levied the sizing of the yarn having added weight to the yarn the sizing which is not part of the manufacture of yarn is allowed to influence the levy of excise duty. On general principles therefore it is obvious that if excise duty is to be levied on yarn it must he on the weight of un-sized yarn and not on the weight of the sized yarn. This is the conclusion which has been reached by the Government of India Ministry of Finance Department of Revenue in its order dated 26/07/1980 being the order No. 702:722 of 1980 on the Central Excise Revision Application preferred by Messrs Binny Limited and in that revision application the Government of India set aside the orders of the excise authorities. It was held that the central excise duty under item 18E of the First Schedule to the Central Excises & Salt Act 1944 should be charged on the yarn in the form in which it is cleared from the spinning department of the composite mill for further use in the weaving of fabrics namely un-sized yarn that is on the weight of the un-sized yarn. The same conclusion was also reached by the office of the Collector of Central Excise (Appeals) Bombay in a group of appeals bearing Nos. 867/80 874/80 in the case of Messrs Maharana Mills Ltd. Porbandar and other appeals which were heard along with it and there also it was held that sizing process is carried out to add some strength to the yarn to undergo stress and strain of weaving. This size so added is removed completely after weaving and blenching processes to make the fabric suitable for dyeing printing etc. The manufacture of yarn is completed the moment it leaches the market- able stage which stage is the spindle stage or cone stage. The Collector considered the question from the angle as to whether yarn known as such in commerce and trade has come into existence prior to its beaming and sizing and thereafter he observed:

(2.) We are informed that a similar conclusion has been reached by the Delhi High Court in Civil Writ Petition No. 664 of 1979 decided by the Delhi High Court on 16/10/1980 Under these circumstances it is obvious that the petitioners before us in this group of matters who are all composite mills that is mills having spinning as well as weaving departments cannot be called upon to pay excise duty on yarn on the weight of the sized yarn since sizing is necessary for weaving purposes after the yarn is completely manufactured. The taxable event is the manufacture of yarn and not the use of yarn at any subsequent stage and therefore excise duty is only levied on the weight of the yarn manu- factured by the particular manufacturer and the weight of the sized yarn cannot be taken into consideration for the purpose of levying excise duty on yarn. It is only the weight of the unsized yarn as it emerges at the spindle stage that has to be taken into consideration for the purpose of levying excise duty.

(3.) We therefore allow the Special Civil Application in each of the cases of this group and direct the respondents to refund the difference in excise duty between the weight of sized yarn and the weight of unsized yarn as explained above if duty has already been collected. All demand notices issued without recognizing the difference between unsized yarn and sized yarn so far as levy of excise is concerned are also quashed and set aside. If money has already been collected on the basis of the weight of sized yarn instead of the basis of the weight of unsized yarn the same should be refunded with interest at twelve per cent per annum from the date of collection till date of refund such refund to be made within three months from today. The respondents to report to this Court on or before 31/10/1981 the fact that they have so refunded the money. The respondents are also restrained by orders and injunctions of this High Court from collecting excise duty on yarn on the basis of the weight of the size yarn instead of on the weight of unsized yarn at the spindle stage. If any show cause notices have been issued against any of of the petitioners in this group of matters for the purpose of collecting the difference between excise duty on the basis of the weight of sized yarn and the weight of unsized yarn the same are also quashed and set aside. The respondents must pay the costs of the petitioners in each of this group of matters. Petition allowed.