1. This is an appeal preferred by the original petitioners against the judgment dated October 31, 1985 delivered by Justice Mrs. Manohar dismissing the petition filed under Article 226 of the Constitution of India for quashing the show cause notices issued by the Superintendent, Central Excise and the orders passed thereon by the Assistant Collector and in appeal by the Collector. The facts giving rise to filing of the petition are as follows.
2. The petitioners are a composite textile mill and manufacture cotton yarn and cotton fabrics out of cotton yarn manufactured. The petitioners are liable to pay excise duty under the provisions of the Central Excises and Salt Act, 1944, both in respect of the manufacture of cotton yarn as well as cotton fabrics. Rule 96V of Central Excise Rules, 1944 prescribes for a special procedure where a manufacturer, who manufactures cotton yarn falling under Item No. 18E of the First Schedule to the Central Excise Act, uses the whole or part of the yarn manufactured in the manufacture of cotton fabrics in his own factory. The rule requires the manufacturer to make an application to the Collector and thereafter the special procedure under Rule 96W applies. Under Rule 96W, the Central Government has been empowered to issue notification fixing a rate per square meter of the cotton fabrics having regard to the average production of cotton fabrics from one kilogram of cotton yarn. A manufacturer whose application had been granted under Rule 96V can pay a sum calculated according to such rate and such payment shall be the full discharge of the liability for the duty leviable on the yarn and used in the manufacture of fabrics. Rule 96W(3) prescribes that the sum payable in respect of the cotton yarn shall be paid by the manufacturer along with the duty on fabrics in the manner prescribed in Rule 52. The Central Government issued notifications from time to time fixing the rate of duty payable on yarn under the provisions of Rule 96W.
3. The petitioners had applied under Rule 96V and were accorded facility of the special procedure. The petitioners paid duty in accordance with the procedure from March 1, 1974. The petitioners received three show cause notices in respect of the period commencing from March 1, 1974 till May 24, 1977. By these show cause notices the Superintendent of Central Excise called upon the petitioners to pay excise duty on cotton fabrics which was short levied on account of non – calculation of excise duty on yarn in the value of the cotton fabrics. The petitioners sent the reply, but the Assistant Collector of Central Excise confirmed the demands by order dated 12, 1981. The petitioners preferred appeals, but the Collector of Central Excise confirmed appeals and upheld the order passed by the Assistant Collector. The petitioners thereupon moved this Court in write jurisdiction and the learned Single Judge by the impugned order dismissed the petition upholding the orders of the excise authorities, and that has given rise to filing of the present appeal.
4. Shri Talyarkhan, learned Counsel appearing on behalf of the petitioners, submitted that the excise authorities as well as the learned Judge was in error in holding that the duty was short levied. It is not possible to accept the submission of the learned Counsel. The petitioners had not included the compounded yarn duty element in the assessable value of the fabrics and that led to short levy of duty on the fabrics cleared by the Mills during the relevant period. It is not in dispute that the cotton yarn is used as raw material for the manufacture of fabrics. The question for determination is whether the petitioners should have included the cotton yarn duty while working out the assessable value of the fabrics. Shri Talyarkhan submitted that as the petitioners were entitled to the advantage of special procedure under Rule 96V and Rule 96W and the composite duty was paid at the time of clearance of cotton fabrics, it was essential for the excise authorities to assess the value of cotton fabrics by excluding the excise duty payable on cotton yarn. It is not possible to accede to the submission of the learned Counsel. The advantage of payment of composite duty is conferred upon the petitioners as a special procedure and it merely postpones the stage of collection of duty, but that cannot be confused with the liability to pay duty which arises out of the manufacture of the yarn. The assessable value of the cotton fabrics would include the value of the yarn plus the excise duty required to be said thereon. Shri Talyarkhan relied upon the expression “value” in relation to excisable goods as prescribed under Section 4 of the Central Excise Act. The expression “value” in relation to an excisable goods does not include the amount of duty of excise, but the reliance on this definition is not accurate, because while determining the assessable value of cotton yarn, excise duty payable thereon cannot be included, but surely while determining the assessable value of cotton fabrics the value of the yarn as well as the excise duty paid thereon must be taken into consideration. In our judgment, the view taken by the Excise Authorities and the learned Single Judge suffers from no infirmity and the petitioners are not entitled to any relief.
3. Accordingly, appeal fails and is dismissed with costs.
The appellants had secured stay of the recovery of the duty from this Court on an undertaking that the duty would be paid along with interest at the rate of 12% per annum. The respondents are entitled to recover the duty along with the interest. The Counsel for the appellant applied for installments to pay the duty due along with interest on the ground that the Mill has been declared as a sick unit. We are not inclined to grant any installment, because declaration as a sick unit does not suspend the recoveries due to the Government.