COLLECTOR OF CENTRAL EXCISE, BOMBAY versus M/S KOHINOOR MILLS BOMBAY

Citation: [1995] 3 S.C.R. 159 · Decided: 04-04-1995 · Supreme Court of India · Bench: R.M. SAHAI · Disposal: Dismissed

Judgment (excerpt)

COLLECTOR OF CENTRAL EXCISE, BOMBAY 
A 
v. 
MIS KOHINOOR MILLS BOMBAY 
APRIL 4, 1995 
[R.M. SAHA! AND S.B. MAJMUDAR, JJ.] 
B 
Central Excises and Salt Act, 1944: 
...,.J"___., 
Item 18(III)(i), 18-A(i) and 19 . 
' 
c 
Central Excise Rules, 1944: Rules 18(1) and 19. 
Excise-Exemption Notification-Applicability of-Composite Textile 
Mill:-Yam manufactured-Captive consumption of-Notification exemption 
levy of duty-Subsequent withdrawal of notificatio~Yam manufactured and 
captively consumed prior to withdrawal of notification-Fabric manufactured D 
out of such yam removed from factory subsequent to withdrawal of exemp· 
tio~,Assessee held entitled to benefit of exemption n<!tification. 
The assessees In both these appeals are composite textile mills. The 
yarn manufactured by them In their weaving department was captlvely E 
consumed In there spinning department. Under a notification No. 132n7 
dated 18.6.1977 the yarn manufactured In the Composite Textile Mill from 
18.6.1977 onwards was exempted from excise duty when such yarn was 
removed for captive consumption and used for that purpose by the same 
mill In Its spinning department for manufacturing fabrics. However, this 
exemption was partially withdrawn with effect from 15.7.1977. The respon· F 
dent assessee claimed benefit of the notification· dated 18.6.1977 and the 
Tribunal held that when cotton yarn was manufactured prior to 15.7.1977 
and was removed for captive consumption and used by the composite textile 
mill in manufacturing fabric prior to that date no excise duty was levlable 
.. 
thereon even if the fabric was manufactured out of it after 15.7.1977. In the G 
other connected appeal the Tribunal took contrary view and held that It was 
not the date or manufacture but the date of clearance or the manufactured 
commodities that was relevant for deciding the tax liability and as cotton 
fabric was cleared after 15.7.1977, the input of yarn was liable to be taxed as 
per the notification holding the field after 15.7.1977. Against the orders of 
the Tribunals appeals were preferred before this Court. 
H 
159 
160 
SUPREME COURT REPORTS 
(1995] 3 s:c.R. · 
A 
On behalf of the Revenue it was contended that even though the yam 
might have been manufactured between 18.6.1977 and 14.7.1977 if such 
yam was captively consumed and ultimately resulted Into fabric and if 
such fabric was removed from the factory gate after 15.7.1977, the captively 
consumed yarn out of which such fabric was manufactured was liable to 
B excise duty as per notification dated 15.7.1977. 
Dismissing the appeals preferred by Revenue and allowing the ap· 
peals of assessees, this Court 
HELD: 1. The view taken by the Tribunal in the impugned judgment 
C against which Revenue bas preferred appeals cannot be found fault with. 
The view taken by the Tribunal in the Impugned judgment against which 
assessee bas preferred appeal cannot be upheld. [167-H, 168-D] 
2. The yarn manufactured by the appellant composite mills from 
D 18.6.1977 upto 14.7.1977 and removed for captive consumption and used 
as such during that time In the spinning department for manufacture of 
fabric will not be liable to bear any excise duty as per the latter notification 
dated 15.7.1977. [164-H, 165-A] 
3. A conjoint reading of Rule 9(1) and Explanation to Rule 9(2) of 
E the Rules makes it clear that if a manufactured item covered by the charge 
of excise d11ty by the charging provisions of the Central Excise Act is 
captively consumed, it would amount to removal of such manufactured 
item . Consequently once the yam is manufactured in the weaving depart· 
ment of the composite textile mill and Is taken to the spinning department 
F for being captively utilised by way of consumption in spinning department, 
and gets consumed, it Is deemed to have been removed within the meaning 
of Rule 9(1). Once that happens, the liability of such manufactured yarn 
to-pay excise duty at the then prevalent rate of duty is crystalised. There· 
after, the question as to when subsequently the fabric is manufactured or 
emerges or Is removed from factory gate becomes irrelevant for the pur-
G pose of deciding the question of liability of excise duty on such captively 
consumed yarn. [167-C to El 
4. In the present case cap lively consumed yarn was manufactured on 
and from 18.6.1977 and removed to spinning department and was utilised 
H prior to 15.7.1977. Thus such yam falls In first category under notification 
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C.C.E. v. KOHI

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