JUDGMENT
1. The petitioners are a composite textile mill in Greater Bombay. The petitioners manufacture, inter alia, cotton yarn as well as cotton fabrics out of cotton yarn manufactured by them. Under the provisions of the Central excises and Salt Act the petitioners are liable to pay excise duty on cotton yarn manufactured by them as well as on cotton fabrics manufactured by them out of the said cotton yarn.
2. At the material time Central Excise Rules of 1944 contained a special procedure for payment of excise duty, inter alia, on cotton yarn and cotton fabrics in the case of a manufacturer who manufactures cotton yarn and uses it in the manufacture of cotton fabrics. The relevant rules in this connection were rule 96V and rule 96W (Since repealed in June 1977). Under rule 96V “where a manufacturer who manufactures cotton yarn……. and……. uses the whole or part of the yarn manufactured by him in the manufacture of cotton fabric in his own factory, makes in the proper form an application to the Collector in this behalf, the special provisions contained in this section, on such application being granted by the Collector, apply to such manufacturer in substitution of the provisions contained elsewhere”. Rule 96W provides that, “having regard to the average production of cotton fabrics from one kilogram of cotton yarn ……. the Central Government may, by notification in the Official Gazette, fix from time to time a rate per square metre of the cotton fabrics………. and if a manufacturer whose application has been granted under rule 96V pays a sum calculated according to such rate………. such payment shall be a full discharge of his liability for the duty leviable on the quantity of cotton yarn manufactured by him and used in the manufacture of fabrics in his factory.” Sub-rule 3 of rule 96W permits the manufacturer to pay the duty as aforesaid in respect of cotton yarn along with the duty on fabrics in the manner prescribed. Accordingly the Central Government issued notifications from time to time fixing the rate of duty payable on yarn under these provisions on the basis of square metre of the fabric manufactured out of this yarn.
3. The petitioners at the material time paid and duty on cotton yarn in accordance with the provisions of rules 96V and 96W. The petitioners also paid duty on cotton fabrics. However, while calculating the duty on cotton fabrics, the petitioners did not include the excise duty on yarn in the value of cotton fabrics.
4. The petitioners received three show cause notices. The first show cause notice is dated 10th June, 1976. It pertains to the period of 1st March, 1974 to 29th February, 1976. The second show cause notice is dated 28th March, 1977. It pertains to the period 1st of March, 1976 to 28th February, 1977. The third show cause notice is dated 8th August, 1977. It pertains to the period 1st March 1977 to 24th May, 1977. Under these three show cause notices the petitioners have been called upon 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 cotton fabrics. In respect of these show cause notices the Assistant Collector of Central Excise passed an order dated 12th January, 1981 confirming the demands contained in the said show cause notices. Thereafter the petitioners went in appeal before the Collector of Central Excise. The Collector of Central Excise by his order dated 14th August, 1981 upheld the order appealed from to the extent that it held that the duty on yarn had to be included in the assessable value of cotton fabrics. The Appellate Authority however, held that claims for certain periods were time-barred as set out in that order. Therefore in respect of these periods no duty was recoverable from the petitioners. Thereafter the petitioners received a demand notice dated 26th September, 1981. This demand notice is for the full amount of the original demand without making any reduction for the period in respect of which the claim for duty was time-barred. The present petition challenges these orders.
5. The only point which requires consideration is whether the value of excise duty on yarn is to be included in the value of cotton fabrics for the purpose of calculation of excise duty on cotton fabrics. The petitioners contend that under rules 96V and 96W both the duties, viz., duty on cotton yarn as well as on cotton fabrics, are payable by him at the time of payment of excise duty on fabrics. Hence the duty on cotton yarn is not to be included in the assessable value of cotton fabrics. This contention is not borne out by the provisions of rules 96V and 96W. These rules merely provide a special procedure for calculation and payment of excise duty on yarn when the manufacturer of yarn uses the yarn in his own factory for the manufacture of cotton fabrics. (We are not concerned with other provisions of rules 96V and 96W). There is nothing in these rules to suggest that the excise duty on cotton yarn is not to be included in the assessable value of cotton fabrics. The valuation of excisable goods for the purpose of charging of duty of excise is provided for in section 4 of the Central Excise and Salt Act, 1944. It is not in dispute that ordinarily any excise duty paid on cotton yarn which goes into the manufacture of cotton fabrics would form part of the assessable value of cotton fabrics. The provisions of rules 96V and 96W do not entail any departure from this normal method of valuation of excisable goods. Hence the petitioners are required to include the excise duty on cotton yarn in the assessable value of cotton fabrics for the purpose of calculation of excise duty on cotton fabrics.
6. Under rule 10 read with rule 173(J) as it was in force at the relevant time, the time limit, inter alia, for recovery of duty short-levied, was one year. The show cause notice of 10th June, 1976 covers a period beyond one year. Under this show cause notice the claim for the period prior to 11th June, 1975 is time-barred. Similarly under the show cause notice of 28th March, 1977, the claim for the period prior to 29th March, 1976 is time-barred. The respondents are, therefore, directed not to recover any excise duty for the period which is beyond the period of limitation prescribed under rule 10 read with rule 173(J) as aforesaid. The respondents will be only entitled to recover excise duty short-levied for the period which is within the time as prescribed under rule 10 read with rule 173(J). Save as aforesaid the petition is dismissed and the rule is discharged with costs.
