Full Judgment
2. We have accordingly taken up the matter, heard the Department's Representative and examined the records. The facts of the case, in brief, are that during the period from January, 1976 to January, 1978, the appellants manufactured non-cellulosic spun yarn and removed it for weaving into fabrics within their mills. They paid duty on 3,320 kgs.
of such yarn on the basis of unsized weight of the yarn. A demand for differential duty of Rs.14,328/- was issued to them' under Rule 9(2) of the Central Excise Rules on the ground that duty should have been paid on 3,917 kgs. of the yarn on the basis of its sized weight. The demand was confirmed by the Assistant Collector. The Appellate Collector, by his order dated 8-2-1980, upheld the charge of duty on the basis of the sized weight but gave benefit of time bar under Rule 9(2) for the period on and from 6-8-1977 to the appellants. Thereupon, the appellants filed a revision application before the Central Government (since transferred to this Tribunal and taken up as this appeal).
Simultaneously, the appellants applied for consequential refund of Rs.5,184/- on 12-12-1980 to get the relief ordered by the Appellate Collector. The Assistant Collector kept quiet for about one and a half years. After Section 51 of the Finance Act, 1982 was enacted in May, 1982 which gave retrospective effect to amendments of Rules 9 and 49, the Assistant Collector issued a show cause notice to he appellants on 15-6-1982 proposing to reject their refund claim under Sub-section (2) of the said Section 51. By his Order-in-Original dated 22-7-82 the Assistant Collector rejected the refund claim on the ground that the Order-in-Appeal dated 8-2-1980 relied on by the appellants for their refund claim, being inconsistent with the amended Section 51(2), had become null and void. The Appellate Collector, by his order dated 3-1-1983, confirmed the Assistant Collector's order.
3. We have given our earnest consideration to the matter. We observe that Section 51 of the Finance Act, 1982 was a validating provision and its effect was to put the charge of duty on deemed removals for captive consumption, whether by continuous process or otherwise, beyond the pale of doubt. The appellants had never contested the charge as such.
The dispute between them and the Department was only on the question whether the charge should be on the sized weight of the yarn or on its unsized weight. Though the question was decided against them by the Appellate Collector on 8-2-1980, he nevertheless gave the appellants partial relief on the ground of limitation. We find nothing in Section 51 to withdraw such a relief. The Appellate Collector's order dated 8-2-1980 was not reviewed by the competent authority. That part of the order which granted relief, therefore, became final. We observe further that even on the question whether duty should be charged on sized weight or unsized weight of the type of yarn manufactured by the appellants, there are the following three High Court judgments in favour of the appellants and none against them:- (2) 1983 E.L.T. 239 (Delhi) - J.K. Cotton Spinning & Weaving Mills and Anr. v. U.O.I. and Ors.
(3) 1983 E.L.T. 326 (Gujarat) - Arvind Mills Limited v. U.O.I. and Ors.
In the Delhi High Court judgment cited at (2) above, the question was considered in the context of the amended Rules 9 and 49 and Section 51 of the Finance Act, 1982. The High Court, in paragraph 30 of their judgment, held that sizing was a preparatory process in the course of weaving of fabrics. All the three High Courts held that in the case of a mill spinning yarn and then removing it for weaving of fabrics in an integrated process, the duty should be charged on the yarn before it was removed for sizing, i.e., on the unsized weight of the yarn.
4. Accordingly, we set aside the impugned order, allow this appeal and direct that the consequential refund of Rs.14,328/- shall be granted to the appellants.