J.P. Devadhar, J.
1. Whether, a manufacturer who manufactures goods falling under Tariff Heading 55.06 from duty paid inputs falling under Heading 55.01 of the Central Excise Tariff Act, 1985 ('CET' for short) is entitled to the exemption under Notification No. 30/2004 dated 9/7/2004 is the basic question raised in this petition.
2. According to the revenue, serial No. 10 of the Notification No. 30/2004 specifically provides that the inputs used in the manufacture of goods falling under Heading 55.06 must be `staple fibres' and therefore the exemption is available only if the inputs used are `staple fibres' falling under Heading 55.03 and the exemption would not be available if the inputs used are goods falling under Heading 55.01.
3. According to the petitioners, the Notification No. 30/2004 read with the new tax regime for the Textile sector announced by the Hon ble Finance Minister on 8/7/2004 clearly shows that the exemption is not restricted to the duty paid inputs falling under Heading 55.03 but it is also applicable to the duty paid inputs falling under Heading 55.01.
4. The petitioners contend that, if the argument of the revenue that the term `staple fibres in serial No. 10 of the Notification No. 30/04 applies only to the 'staple fibres' falling under Heading 55.03 is accepted, then the Notification would be violative of the new tax regime. Therefore, to save the Notification being ultra vires the new tax regime, the petitioners seek deletion of the word 'staple' so as to bring the Notification No. 30/04 in conformity with the new tax regime. Alternatively, it is contended that the term 'staple Fibres' in serial No. 10 of the Notification No. 30/04 be construed to apply to duty paid inputs whether falling under Heading 55.01 or under Heading 55.03.
5. The relevant facts are that the petitioners inter alia manufacture polyester tops, polyester woollen blended tops, wool tops, blended wool tops, woollen yarn, fabrics etc. In the present case, we are concerned with the duty exemption on the Polyester Tops manufactured by the petitioners. It is not in dispute that the tops manufactured by the petitioners are classifiable under Heading 55.06 of the CET. Ordinarily tops falling under Heading 55.06 are manufactured from inputs falling under Heading 55.03. However, the petitioners have installed machinery to manufacture `tops' falling under Heading 55.06 from `tow' falling under Heading 55.01 by a process known as the `tow to top process'.
6. Excise duty payable on various textile goods are enumerated in Chapters 50 to 63 of the CET. Chapter 55 of the CET with which we are concerned in the present case deals with 'Man-made staple fibres'. Chapter 55 consists of chapter headings 55.01 to 55.14 wherein the rate of excise duty payable on man-made staple fibres from the stage of synthetic filament tow/artificial filament tow till the stage of woven fabrics of synthetic staple fibres / woven fabrics of artificial staple fibres are prescribed.
7. Polyester chips is the base material required for manufacturing synthetic staple fibres. Polyester chips are first processed into `synthetic filament tow' (`tow' for short) 'Tow' of a length exceeding 2 metres is classified under Heading 55.01. Tow, of a length not exceeding 2 metres is classified under heading 55.03 and is known as unprocessed staple fibres. Ordinarily unprocessed staple fibres falling under Heading 55.03 are processed in to processed staple fibres falling under Heading 55.06. These processed staple fibres falling under Heading 55.06 are commonly called as `Tops' . However, with the advancement of Science & Technology, `Tops' falling under Heading 55.06 are also manufactured from `Tow' of a length exceeding 2 metre (covered under Heading 55.01) by a process known as `tow to top process'. By notification No. 30/04, excise duty on tops was exempted provided the inputs used in the manufacture of tops were staple fibres procured from outside and the manufacturer of tops does not have the facility to manufacture goods falling under Heading 55.01 to 55.04 of the CET. Dispute in the present case is, whether the petitioners who have manufactured tops from duty paid inputs falling under Heading 55.01 are entitled to the exemption contained in Notification No. 30/04 ?
8. Under the CET, excise duty on man-made synthetic staple fibres is payable at three stages specified in Chapter 55 of the CET as follows:
Head-ing No.
Sub- heading
No.
Description
Rateof duty
Rateof duty
Basic
Additi - onal
55.01
SyntheticFilament tow
16%
55.03
Synthetic staplefibres, not carded, combedor
otherwise processed for spinning
16%
55.06
Synthetic staplefibres, carded,combed or
otherwise processed for spinning
16%
9. With the introduction of the Modvat Scheme in the year 1986, the manufacturers became entitled to avail credit of duty paid on inputs. For example, where duty paid goods falling under Heading 55.01 or 55.03 were used as inputs in the manufacture of tops falling under Heading 55.06, then the manufacturer of tops was entitled to take credit of duty paid on inputs and utilise the said credit for discharging the duty payable on tops falling under Heading 55.06. The Modvat Scheme was renamed as Cenvat Scheme in the year 2000. However, the basic concept in the Modvat Scheme and the Cenvat Scheme remains the same, that is, to avoid cascading effect of paying tax again and again on the materials which have already suffered tax.
10. On 8-7-2004, the Hon'ble Finance Minister while presenting the Finance Bill (No. 2), 2004 in the Lok Sabha announced a new tax regime for the Textile Sector. Relevant portion of the Finance Minister's speech, reads thus:
141. I shall now deal with the most challenging tax problem that I faced this year. This relates to the textile sector. Last year, handlooms and powerlooms were brought into what is described as the Cenvat chain. The intention was good but, I am afraid, the decision did not take into account the decentralized and fragmented nature of production of fabrics in the country. Besides, the so-called Cenvat chain had nearly 40 exemptions at different stages. In fact, two exemptions were added after the decision.
142. I am conscious that the Agreement on Textiles and Clothing will come to an end on December 31,2004. Our textile sector must, therefore, be made more efficient and competitive. Those who can compete because of their organizational strength should be allowed to compete; for the rest, we must allow more time to comply with a mandatory tax regime. Meanwhile, there must be a level playing field.
143. If I have understood correctly the mind of Hon'ble Members of Parliament, and of the leaders of various political parties, I believe that there is a universal demand to free the handloom and powerloom sectors from the Cenvat regime. After giving my anxious consideration to the complex issues, I propose to withdraw the mandatory Cenvat duty. Instead, I propose to introduce a new tax regime for the textile sector and, in this exercise, I am happy to say that I have the full support of the Minister of Textiles.
144. Let me now explain briefly the new regime.
Firstly, the mandatory Cenvat chain will stand abolished.
Secondly, there will be no mandatory excise duty on pure cotton, wool and silk, whether it is fibre, yarn, fabric or garment.
Thirdly, blended textiles and pure non-cotton (polyester, viscose, acrylic and nylon) will have a different tax regime.
Fourthly,there will be a mandatory excise duty on man-made staple fibre at 16 per cent; on polyester filament yarn (including textured yarn) at 24 per cent; and on other man-made filament yarn (including textured yarn) at 16 per cent.
145. Every manufacture - be it handloom or powerloom or composite mill - will have the option to choose between two routes. One will be the exemption route and the other will be the Cenvat route. Under the exemption route, no excise duty will be payable at any stage (except on man-made fibre and filament yarn). Under the Cenvat route, credit can be taken for all excise duties paid at earlier stages. For the purposes of the optional Cenvat route, it is necessary to specify in the Tariff schedule the applicable excise duty rates. For the pure cotton sector, the uniform rate will be 4 per cent on yarn, fabrics, garments and made-ups. For the blended textiles sector and pure noncotton sector, the uniform rate will be 8 per cent.
146. It is my firm belief that the millions of handlooms weavers and powerloom weavers will welcome the new regime. As far as the composite mills are concerned, there is no cause for worry. They are also free to take the exemption route, but if they choose to opt for the Cenvat route, they may do so and claim Cenvat credit for all duties paid at earlier stages. Garment exporters should give the new regime a fair chance. I expect that prices of fabrics will moderate and garment exporters will stand to benefit. Their concerns, if any, can be addressed through the drawback or DEPB mechanism.
147. In course of time, it is possible that some manufacturers of handlooms and powerlooms will take advantage of the low uniform rates of duty and opt for the Cenvat route.
11. It is pertinent to note that the exemption Notification No. 30/04 dated 9/7/2004 was issued in implementation of the new tax regime contained in the budget proposals. Though the budget proposals were presented on 8/7/2004, the Notification No. 30/04 issued along with the budget proposals was dated 9/7/2004 because, the budget proposals were to be effective from the midnight of 8/7/2004. While forwarding the budget proposals together with exemption notification No. 30/04 as well as other Notifications to the Chief Commissioner / Commissioner, the Joint Secretary (TRU), Ministry of Finance, Department of Revenue in his letter dated 8-7-2004 stated that the salient features of the Government policy in respect of excise are as follows:
4.8 Textiles:
4.8.1 The duty structure has been completely revised. There will be mandatory duty only on man made fibres. The mandatory duty will be as under:
(a) 24% on polyester filament yarn (including textured yarn)
(b) 16% on all other filament yarns (including textured yarn) and man made fibres.
However, when these duty paid fibres and filament yarns are subjected to any processing in a unit which has not made the basic filament yarn (including textured yarn) or the fibre, there will be an optional exemption. The existing duty of 16% on polyester filament above 750 deniers will also continue.
4.8.2 The Cenvat scheme for textiles has been made optional. There will be a mandatory duty only on man made fibres (artificial and synthetic staple fibres and filament yarns). Except for these duties, textile goods (yarn, fabrics, garment, articles of chapter 50 to 63) will be fully exempt if no credit of duties is taken under the Cenvat Credit Rules.
In the concluding para of the aforesaid letter dated 8-7-2004, the Joint Secretary (TRU) stated as follows:
10. All rate changes in customs and excise duties are explained in detail in the Explanatory Notes. You would appreciate that number of changes have been carried out through amendments in notifications, rules and Acts. Though every care has been taken to reflect the intention of the Government clearly in all these documents, the chances of human error cannot be ruled out. I would, therefore, request you to kindly go through the explanatory notes, notifications and Finance Bill carefully and bring to my notice at the earliest any omission / error that might have crept in....
12. In the Explanatory Notes to the budget proposals, the new tax regime for the textile sector was explained as follows:
14.0 Chapters 50 to 63 (Textiles)
14.1 Polyester filament yarns, including polyester textured yarns (of sub-headings 5402.20, 5402.32, 5402.42 and 5402.43) would continue to attract Cenvat duty of 24%. Cenvat duty on other synthetic and artificial filament yarns and mono filaments including textured yarns (of sub-heading Nos. 5402.10, 5402.31, 5402.39, 5402.41, 5402.49, 5403.10, 5403.20, 5403.31, 5403.33 and 5403.39) has been increased to 16% (notification No. 30/2004-CE superseding notification No. 7/2003-CE refers). Non-textured polyester filament yarn of denierage 750, and of tenacity exceeding 6.5 gm/denier falling under heading No. 54.02 would continue to attract excise duty of 16% (notification No. 36/2004-CE refers).
14.2 Synthetic and artificial fibres i.e. tow and staple fibres and wastes thereof (of heading Nos. 55.01 to 55.05) would continue to attract duty of 16%. However, wastes of man made fibres(of sub-heading 55.05),other than those arising during the course of manufacture of man made fibres or filament yarns (including textured filament yarns) attracting mandatory duty, have been exempted. (S. No. 8 of notification No. 30/2004- CE refers).
14.3 Twisted, folded or cabled polyester filament yarns of subheading headings 5402.52 and 5402.62 would also continue to attract cenvat duty of 24%. Carded, combed or otherwise processed fibres of heading Nos. 55.06 and 55.07 and twisted, folded or cabled man made filament yarns (other than polyester) of heading Nos. 54.02 and 54.03 would continue to attract excise duty of 16%. However, such fibres or yarns, procured from outside and subjected to processes such as carding, combing, twisting, folding, cabling etc., but not texturising, by a manufacturer not having facility in his factory to make base fibres / yarns or textured yarn, have been exempted subjected to non-availment of Cenvat credit.(S. Nos. 6 & 10 of notification No. 30/2004-CE refer). The exemption is optional. For those opting to pay duty and avail Cenvat credit, the applicable rate of duty will be 24% or 16%, as the case may be.
13. The Finance Bill introduced on 8-7-2004 has been approved by the Parliament and has also received the assent of the President of India. There is nothing on record to suggest and it is not even the case of the revenue that the new tax regime for the textile sector announced by the Hon ble Finance Minister on 8/7/2004 has been modified or altered by the Parliament.
14. Thus, under the new tax regime for the textile sector introduced on 8/7/2004, the manufacturer of textile goods had the option of following either the CENVAT method or the exemption method by paying the mandatory excise duty under the new tax regime.
15. The petitioners had opted to follow the exemption method. Accordingly, from 9/7/2004 the petitioners had cleared `Tops falling under Heading 55.06 manufactured from duty paid Tow falling under Heading 55.01 without payment of duty, on the ground that under the new tax regime read with Notification No. 30/04 no excise duty was payable on tops manufactured from 16% excise duty paid tow. The petitioners contend that these facts are reflected in the monthly ER-1 returns regularly filed by them from 9/7/2004.
16. However, almost after four years, i.e. in March 2008, the excise officers on the basis of audit objection raised a dispute to the effect that the exemption Notification No. 30/04 is available only if the polyester tops are manufactured by procuring from outside duty paid staple fibres falling under Heading 55.03. Since the petitioners had manufactured tops by procuring duty paid Tow and not duty paid `staple fibres covered under Heading 55.03, it was contended by the excise officers that the petitioners had illegally availed the exemption. In April 2008, pending investigation and adjudication, the excise officers had also seized the goods lying in the petitioners factory.
17. The petitioners thereupon filed a Writ Petition bearing No. 2471 of 2008 on 9/4/2008 inter alia seeking a writ to quash the action of the excise officers in seizing the goods belonging to the petitioners and also to restrain the excise officers from arresting the officers of the petitioners. The petitioners had also sought a declaration that no excise duty was payable on the polyester tops manufactured from duty paid Tow as per Notification No. 30/2004.
18. While the above petition was pending, the petitioners filed the present Writ Petition on 24-4-2008 claiming that the term `staple fibres in serial No. 10 of the Notification No. 30/04 if held to be restricted to `staple fibres' covered under Heading 55.03, then the Notification would be ultra vires the new tax regime announced on 8/7/2004 and, therefore, to bring the said Notification in conformity with the new tax regime, the word 'staple' at serial No. 10 of Notification No. 30/04 be directed to be deleted.
19. Both the above Writ Petitions were admitted on 6/5/2008. While admitting Writ Petition No. 2471 of 2008 on 6/5/2008 this Court continued the ad interim relief granted on 9/4/2008 subject to the petitioners depositing Rs. 16 crores and also furnishing a bank guarantee in the sum of Rs. 16 crores in favour of the respondent No. 2 therein within a period of two weeks from 6/5/2008.
20. Challenging the said order passed in Writ Petition No. 2471 of 2008 on 6/5/2008, the petitioners filed an S.L.P. before the Apex Court. On 20/6/2008 the said S.L.P. was disposed of by directing the petitioners to deposit Rs. 8 crores within 8 weeks and the respondents were directed to dispose of expeditiously the show cause notice already issued to the petitioners.
21. Thereafter, by an order in original dated 31/12/2008 the Commissioner of Central Excise, Mumbai- III has confirmed the demand raised against the petitioners by holding that the exemption Notification No. 30/2004 was not available to the petitioners and, therefore, clearances of the polyester tops by the petitioners from 9/7/2004 without payment of duty was illegal and contrary to law. The Commissioner has also imposed penalty and interest as more particularly set out in the said order. Appeal filed against the said order in original is pending.
22. When the present Writ Petition was taken up for the final hearing, counsel on both sides submitted that irrespective of the fact that the appeal filed against the adjudication order is pending, it would be just and proper to decide the Writ Petition on merits since the dispute relates to the interpretation of the term `staple fibres used in serial No. 10 of Notification No. 30/04. Accordingly, we have heard Counsel on both sides.
23. Before dealing with the rival contentions, we may reproduce the Notification No. 30/04 in full which reads thus:
Notification New Delhi, dated the 9th July, 2004No.30/2004-Central Excise 18 Asadha,1926 (Saka)G.S.R.(E) - In exercise of the powers conferred by Sub-section (1)of Section 5A of the Central Excise Act, 1944 (1 of 1944) read with Sub-section (3) of Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue)No.07/2003-Central Excise dated the 1st March 2003, published in the Gazette of India vide number G.S.R.137(E), dated 1st March 2003, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the exciseable goods of the description specified in column (3) of the Table below and falling within the Chapter, heading No. or sub-heading No. of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Central Excise Tariff Act), specified in the corresponding entry in column (2) of the said Table, from whole of the duty of excise leviable thereon under the said Central Excise Act:
Provided that nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs or capital goods has been taken under the provisions of the CENVAT Credit Rules, 2002.
Sr No
Chapter or heading No.Subheading No.
Descriptionof Goods
1
50.04, 50.05
All goods.
2
51.05,5106.11, 5106.12, 5106.13,5107.11,5107.12,51.08,51.09,51.10,51.11, 51.12
All goods.
3
52.04,5202.11, 5205.19, 5206.11,5206.12, 52.07, 52.08, 52.09
All goods.
4
53(except 53.01, 53.03, 5305.31,5305.39,5306.90,53.07, 5308.11 & 5308.90
All goods.
5
54.01,54.04,54.05,54.06,54.07
All goods.
6
54.02, 54.03
Yarns procured from outsideand subjected to any process other than texturising, by a manufacturer who does not havethe facilities in his factory (including plant and equipment) for manufacture of yarns or textured yarn (including draw twisted and draw wound yarn) of heading 54.02 or 54.03.
Explanation, - For thepurpose of this exemption, manufacture f arns means manufactureof filaments of organic polymers produced by processes, either;
(a) by polymerization of organic monomers, such as polyamides, polyesters, polyurethanes, or polyvinylderivatives; or
b) by chemical transformation of natural organicpolymers (for examplecellulose, casein, proteins or algae), such as viscose rayon, cellulose acetate, cuproor alginates.
7
5402.10,5402.41,5402.49,5402.51,5402.59,5402.61, 5402.69
NylonFilamentyarn or polypropylene multifilament yarn of 210 denierswith tolerance of 6 per cent.
8.
55.05
All goods, exceptsuch goods which arises during thecourse of manufacture of filament yarns, monofilaments, filament towsor staple fibres or manufactureof textured yarn (including draw twisted and draw wound yarn)of heading Nos. 54.02, 54.03,55.01, 55.02, 55.03 or 55.04
Explanation:-For the purposes of this exemption, manufacture f filament yarns, monofilaments,filament tows or staple fibresmeans manufacture of filaments or staple fibres of organic polymers produced byprocesses, either;
(a)by polymerization of organic monomers, such as polyamides,polyesters, polyurethanes, or polyvinyl derivatives; or
(b) by chemical transformation of natural organic polymers(for example cellulose, casein, proteins or algae), such as viscose rayon, cellulose acetate, cupro oralginates.
9
55.08,55.09, 55.10, 55.11,55.12, 55.13, 55.14
All goods
10
55.06, 55.07
Staplefibres procured from outside and subjected to carding, combing or any other processrequired for spinning, by a manufacturer who does not have the facilities in his factory (including plant and equipment) for producing goods of heading Nos.55.01,55.02, 55.03 and 55.04.
11
56 (except 5601.10, 5607.10, 5608.11)
All goods.
12
5702.19, 5703.90
All goods.
13
58 (except5804.90, 5805.90, 58.07, 5808.10)
All goods.
14
59 (except 5907.30)
All goods.
15
60
All goods.
16
61,62, 63 (except 6307.10)
All goods.
[F. No. 334/3/2004-TRU]
(G.S. Karki)
Under Secretary to the Government of India
24. Mr. Sridharan, learned Counsel appearing on behalf of the petitioners submitted that the Notification No. 30/04 has to be read in the context of the new tax regime. As per the new tax regime, mandatory excise duty at 16% is payable on man-made staple fibres. Since the man-made staple fibres were classified under Heading 55.01 or 55.03 or 55.06, the mandatory excise duty at 16% was payable either under Heading 55.01 or 55.03 or 55.06. Thus under the new tax regime, if 16% mandatory excise duty paid raw materials falling under Heading 55.01 or 55.03 are used as inputs in the manufacture of tops covered under Heading 55.06, then excise duty is not payable on tops. Exemption Notification No. 30/04 has been issued in implementation of the above new tax regime. Therefore, the term `staple fibres at serial No. 10 of Notification No. 30/04 has to be construed to apply to duty paid inputs falling under Heading 55.01 as well as inputs falling under Heading 55.03. If the term `staple fibres set out at serial No. 10 of Notification No. 30/04 is held to be restricted to the staple fibres falling under Heading 55.03 then it would be contrary to the new tax regime. In such a case, it is argued that either the word staple at serial No. 10 of Notification No. 30/04 be directed to be deleted so as to bring the Notification in consonance with the new tax regime or in the alternative, the term `staple fibres used in serial No. 10 of Notification No. 30/04 be construed to have been used in the generic term and accordingly hold that the tops falling under Heading 55.06 manufactured from duty paid inputs falling under Heading 55.01 or 55.03 are exempt from payment of excise duty.
25. The argument of Mr. Sridharan that the term `staple fibres' used at serial No. 10 of Notification No. 30/04 applies not only to inputs falling under Heading 55.03 but also to inputs falling under Heading 55.01 can be summarised as follows:
(a) As per Note No. 1 to Chapter 54 of the CET, the term `man-made fibres in the entire first Schedule to the CET means staple fibres. While presenting the budget proposals on 8/7/2004, the Hon ble Finance Minister had stated at para 144 and 145 of the budget proposals that he is introducing new tax regime for the textile sector under which the mandatory duty at 16% would be payable on man-made staple fibres / man-made fibres. Thus, in the new tax regime the term `staple fibre and `fibre have been used as interchangeable term and therefore the term `staple fibre' in the Notification No. 30/04 would apply to fibre falling under Heading 55.01 as well as staple fibre falling under Heading 55.03.
(b) Even in the Explanatory Notes to the budget proposals [see para 14 (2)], tow and staple fibres have been considered as fibres. Therefore, the term `staple fibre at serial No. 10 of Notification No. 30/04 are liable to be construed to apply to fibres falling under Heading 55.03 and 55.01.
(c) As per the new tax regime the mandatory excise duty at 16% is payable on the man-made staple fibres. Since excise duty on the synthetic staple fibre under the CET is payable at three stages viz. 55.01, 55.03 and 55.06, it is evident that the mandatory duty has to be paid either at the stage of 55.01 or 55.03 & 55.06. Therefore, if 16% duty paid fibres falling under Heading 55.01 are used as inputs in the manufacture of fibres falling under Heading 55.06, then as per the new tax regime no excise duty is payable on fibres falling under Heading 55.06. Similarly if 16% duty paid inputs falling under Heading 55.03 are used in the manufacture of fibres falling under Heading 55.06, then no excise duty would be payable on such fibres falling under Heading 55.06. The exemption Notification issued in implementation of the new tax regime has to be read accordingly. In this view of the matter, the term `staple fibre at serial No. 10 of Notification No. 30/04 issued in implementation of the new tax regime has to be construed to apply to duty paid inputs either falling under Heading 55.01 or 55.03.
(d) Serial No. 10 of Notification No. 30/04 provides that the excise duty on staple fibres falling under Heading 55.06 to 55.07 would be exempt where the staple fibres used as inputs are firstly procured from outside and subjected to carding, combing or any other process required for spinning and secondly, the manufacturer of goods falling under Heading 55.06 and 55.07 does not have the facility in his factory for producing goods of heading No. 55.01, 55.02, 55.03 and 55.04. These conditions clearly show that in the manufacture of goods falling under Heading 55.06 / 55.07, the inputs are goods falling under Heading 55.01 to 55.04 and to ensure that these inputs are duty paid it is provided that the inputs must be procured from outside. If the exemption was restricted to staple fibres falling under Heading 55.03, then there was no need to provide that the manufacturer of goods falling under Heading 55.06 must not have the facility to manufacture goods falling under Heading 55.01 to 55.04. Thus, it is obvious from the Notification No. 30/04 that the goods falling under Heading 55.01 to 55.04 are the inputs in the manufacture of goods falling under Heading 55.06 / 55.07, but to avail the exemption, the manufacturer must not have the facility to manufacture these inputs falling under Heading 55.01 to 55.04, because under Notification No. 67/95 dated 16-3-1995 a manufacturer is entitled to clear the inputs without payment of duty for manufacture of final products within the factory. Therefore, to ensure that the inputs are duty paid for availing the exemption under Notification No. 30/04 it is provided that the manufacturer of goods falling under Heading 55.06 / 55.07 must not have the facility to manufacture inputs falling under Heading 55.01 to 55.04 because, the inputs procured from outside are bound to be duty paid. Accordingly, it is submitted that the term `staple fibres in the Notification must be held to apply to duty paid inputs falling under Heading 55.01 to 55.04.
(e) If the product emerging from the tow to top process is admittedly synthetic staple fibres carded, combed or otherwise processed for spinning specified under Heading 55.06, then, obviously the `tow used as inputs, would be synthetic staple fibres which are uncarded, uncombed or otherwise not processed for spinning. In other words, `tow' (55.01) which is nothing but uncarded, uncombed or otherwise unprocessed synthetic staple fibre would be squarely covered by the term `staple fibres' used at serial No. 10 of Notification No. 30/04.
(f) Relying on the judgment of the Apex Court in the case of R.B.I. v. Peerless General Finance & Investment Co. Ltd. reported in , it is contended that Notification should be looked at by wearing the glasses of statute makers and so looked at, it would be clear that the exemption on manufacture of goods covered under 55.06 is not restricted to the duty paid inputs falling under Heading 55.03 and the exemption is available where duty paid inputs falling under heading 55.01 are used in the manufacture of goods falling under Heading 55.01. Reliance is also placed on the decision of the Apex Court in the case of State of Bihar v. Suprabhat Steel reported in : AIR1999SC303 wherein it is held that a statutory notification issued to implement a policy if found to be contrary to the policy, then the policy would prevail.
For all the aforesaid reasons, Mr. Sridharan submitted that it must be held that the petitioners who manufacture staple fibres falling under Heading 55.06 by utilizing 16% duty paid inputs falling under Heading 55.01 are entitled to avail the exemption under Notification under Notification No. 30/04.
26. Mr. M.I. Sethna, learned senior Advocate appearing on behalf of the respondents, on the other hand, strenuously argued that the exemption on processed staple fibre falling under Heading 55.06 is available only if the starting raw material (input) is the staple fibre and not the `tow . In the present case the raw material or input used is `tow and not staple fibre as specifically stated in the Notification. Therefore, in view of the express term used in the Notification, the petitioners are not entitled to avail the exemption.
27. Mr. Sethna further submitted that admittedly, Chapter 55 of the CET makes a clear distinction between `tow' and `staple fibres by classifying them separately under Heading 55.01 and 55.03. Therefore, the Legislature by specifically using the term `staple Fibre' has made it clear that the exemption under the Notification No. 30/04 is availing only if the inputs used as `staple fibres . In these circumstances, the question of deleting the term `staple from the Notification or extending the benefit of the exemption to the inputs other than `staple fibres does not arise at all.
28. Mr. Sethna submitted that as per Chapter Note 1 to Chapter 55 of the CET, the length of a tow is very very important in the matter of classification, because, `tow' of a length, not exceeding 2 metre is classified as `unprocessed staple fibre' under Heading 55.03 and `tow' of a length exceeding 2 metre is classified as `synthetic filament tow' under Heading 55.01. Therefore, when there is a basic difference between the `tow' and `staple fibres' and the Notification No. 30/04 specifically uses the term `staple fibre' and it is not open to the petitioners to contend that the term `staple fibre' covers `tow' . Consequently, the argument of the petitioners that the term `staple fibre' has been used as an interchangeable term for `tow' cannot be accepted.
29. Mr. Sethna submitted that the legislature has deliberately used the word `staple fibre' and not merely `fibre at Sr. No. 10 of the Notification with a view to restrict the grant of exemption. He submitted that no doubt, the word `fibre' would include `Tow' as well as `staple fibre' . However, as the legislature has deliberately chosen the word `staple fibre', it is clear that unless the starting raw material is `staple fibre , the exemption is not available. In the present case, admittedly the process had not commenced with staple fibre as raw material, and therefore, the benefit of the exemption would not be available to the petitioners.
30. Mr. Sethna submitted that in the tow to top process adopted by the petitioners, the initial raw material viz. `tow' does result in the emergence of unprocessed staple fibre falling under Heading 55.03 which is thereafter converted into processed staple fibre falling under Heading 55.06. Even then the exemption would not be available to the petitioners because, the `unprocessed staple fibre' is not procured from outside which is a condition to be fulfilled for availing the exemption.
31. Relying on the decisions of the Apex Court in the case of Hemraj Gordhandas v. H.H. Dave Assistant Collector of Central Excise & Customs 1978 (2) ELT 350 Novopan India Limited v. Collector of Central Excise & Customs, Hyderabad : 1994(73)ELT769(SC) , Trutuf Safety Glass Industries v. Commissioner of Sales Tax, U.P. : 2007(215)ELT14(SC) , Hind Plastics v. Collector of Customs, Bombay : 1994ECR336(SC) and Collector of Customs, Bombay v. M.J. Exports Ltd. : 2001(132)ELT514(SC) , Mr. Sethna submitted that the language of the notification being clear and unambiguous, there is no scope for intendment and the notification must be construed strictly and effect must be given to the clear words used in the notification. Relying on the Judgment of the Apex Court in the case of Compack Pvt. Ltd. v. Commissioner of Central Excise, Vadodara : 2005(189)ELT3(SC) , I.T.C. Limited v. Commissioner of Central Excise, New Delhi : 2004(171)ELT433(SC) , Parle Biscuits v. State of Bihar : 2005(192)ELT23(SC) and Bombay Oil Industries v. Union of India : 1995ECR436(SC) , Mr. Sethna submitted that literal meaning should be given to the words used in the notification unless it leads to absurdity. He submitted that addition or amendment of the words in a notification is not permissible and ordinary natural meaning of words has to be given as intended by the legislature.
32. Mr. Sethna submitted that ordinarily `tow' was cut into varying length not exceeding 2 metre in length and packed in the form of bales. These bales were then subjected by the yarn manufacturer to the process of carding and/or combing to obtain processed staple fibre falling under Heading 55.06. In the `tow to top process' also the `tow' is cut into the desired length to obtain unprocessed staple fibre which is thereafter subjected a process to obtain processed staple fibre falling under Heading 55.06. The important difference between staple fibre used in the manufacture of Tops under the conventional method and the `tow to top method is that in the case of conventional method, in view of cutting tow to a length less than 2 metres, the continuity of the fibres is broken, whereas in the `tow to top process' the continuity of the fibres is not lost. However, the fact remains that even in the `tow to top process', the tow on being cut to a desired length, unprocessed staple fibre emerges which is thereafter processed in to `processed staple fibre falling under Heading 55.06. Therefore, it is clear that in the present case, staple fibre emerges as an intermediate product within the factory and it being not procured from outside as provided in the Notification, the benefit of the exemption is not available to the petitioners.
33. Mr. Sethna submitted that admittedly the processed staple fibre (55.06) is manufactured by the petitioners from tow of higher quality because the processed staple fibre is thereafter blended with polywool which is a much costlier blended commodity. He submitted that the Notification is intended to benefit the conventional producers in the hand loom and power loom sector who procure from outside 98% of the tow converted into unprocessed staple fibres and not intended to benefit the manufacturers like petitioners and six others who procure from outside `tow' of a length exceeding 2 metres.
34. Dealing with the argument of the petitioners that Chapter 55 deals with `man-made staple fibre , Mr. Sethna submitted that in the General rules for interpretation of the first schedule to the Excise Tariff it is clearly stated that the titles of sections, chapters and sub-chapters are provided for easy reference only and for legal purposes, classification shall be determined according to the terms of the heading and any relative section or Chapter Notes etc. Therefore, merely because Chapter 55 deals with `manmade staple fibres', it is not open to the petitioners to contend that the term `staple fibre' in Notification includes `Synthetic filament tow'.
35. Mr. Sethna further submitted that in view of the clear and unambiguous words used in the Notification it would not be proper to refer to the Finance Ministers speech delivered on 8-7-2004. Relying on a decision of the Apex Court in the case of Union of India v. Ganesh Rice Mills reported in : 1998(99)ELT199(SC) , Mr. Sethna submitted that the speech of Finance Minister cannot be treated as a promises.
36. In any event, Mr. Sethna submits that from the Finance Minister's speech it is clear that the stage of spun yarn is the starting point for the exemption route. He submitted that the Finance Minister has stated that the exemption is intended to benefit the manufacturers in the hand loom and power loom sector who use staple fibre falling under Heading 55.03 as raw materials in the manufacture of processed staple fibre falling under Heading 55.06. Mr. Sethna submitted that any doubt in the Finance Minister's speech is cleared by TRU notes wherein it is clearly stated that the exemption route starts from the spun yarn stage. Accordingly, Mr. Sethna submitted that the petition is without any merit and the same is liable to be dismissed with costs.
37. We have carefully considered the rival submissions.
38. The first question to be considered herein is, whether the exemption Notification No. 30/04 was issued in implementation of the new tax regime announced on 8-7-2004 While presenting the budget proposals in the Lok Sabha on 8-7-2004, the Hon ble Finance Minister had announced a new tax regime for the textile sector and the Notification No. 30/04 was issued along with the budget proposals. The Joint Secretary (TRU) while forwarding the budget proposals together with various Notifications to the Chief Commissioners / Commissioners on 8-7-2004 specifically stated that every care has been taken to reflect the intention of the Government in the Notifications and in spite of the above, if any error is found in the Notifications, the same should be brought to his notice immediately. Thus, it is clear that the Notification No. 30/04 was issued in implementation of the new tax regime.
39. The next question to be considered is, what was the new tax regime for the textile sector announced by the Hon ble Finance Minister on 8-7-2004 ?
40. Prior to the introduction of the new tax regime, excise duty payable on the textile goods were enumerated in Chapters 50 to 63 of the CET. The dispute in the present case relates to the excise duty on manmade staple fibres covered under Chapter 55 of the CET.
41. Man-made staple fibres in Chapter 55 of the CET were classified into two categories viz. Synthetic staple fibres and artificial staple fibres. Excise duty payable on these two types of staple fibres from the stage of manufacture of filament tow upto the stage of woven fabrics were enumerated in chapter Headings 55.01 to 55.14 of Chapter 55.
42. Excise duty on synthetic staple fibres were leviable at three stages under Heading 55.01 (synthetic filament tow), 55.03 (unprocessed synthetic staple fibre) and 55.06 (processed synthetic staple fibre). Similarly, the excise duty on artificial staple fibres were leviable at three stages viz 55.02 (artificial filament tow), 55.04 (unprocessed artificial staple fibre) and 55.07 (processed artificial staple fibre). Thus, excise duty on synthetic staple fibre was levied at each of the three stages viz. 55.01, 55.03 & 55.06. Similarly, excise duty on artificial staple fibre was levied at each of the three stages viz. 55.02, 55.04 and 55.07.
43. With the introduction of the MODVAT/CENVAT scheme, the manufacturers became entitled to take credit of duty paid on inputs and utilize the said credit while discharging the excise duty on the final products. The object of introducing the MODVAT/CENVAT scheme was to eliminate the cascading effect of paying tax again and again on the materials which have already suffered tax. Thus, excise duty on synthetic staple fibre though leviable at three stages, in view of the input credit taken, effectively, excise duty was paid on synthetic staple fibre only once.
44. By introducing the new tax regime for the textile sector on 8-7-2004, the mandatory CENVAT chain was abolished and it was provided that mandatory excise duty would be payable only on three products viz. (one) mandatory excise duty on man-made staple fibre at 16% (two) mandatory excise duty on polyester filament yarn (including textured yarn) at 24% and (three) mandatory excise duty on other man-made filament yarn (including textured yarn) at 16%. Thus, under the new tax regime, instead of paying excise duty on various textile goods at different stages specified in the CET, it was provided that excise duty would be mandatorily payable only on three products and the rest were all exempted. Notification No. 30/04 was issued in implementation of the new tax regime.
45. The petitioners inter alia manufacture processed staple fibre (Tops) falling under Heading 55.06 out of 16% excise duty paid inputs viz. Synthetic filament tow (`Tow ) falling under Heading 55.01 by a process known as `Tow to Top process . The question is, under the new tax regime read with Notification No. 30/04, whether excise duty is payable on clearance of Tops (55.06) manufactured from 16% duty paid Tow (55.01)?
46. Notification No. 30/04 does not provide for exemption on synthetic / artificial filament tow (55.01 / 55.02). Therefore, on manufacture and clearance of tow (55.01 / 55.02) mandatory excise duty at 16% has to be paid under the new tax regime. Where tow (55.01 / 55.02) is manufactured but cleared after cutting it into pieces of a length less than 2 metre, then, it is classified under Heading 55.03 / 55.04. In such a case, mandatory excise duty at 16% is payable on clearance of tow of a length less than 2 metre (55.03 / 55.04). Where mandatory duty paid tow of a length exceeding 2 metre (55.01 / 55.02) or tow of a length less than 2 metre (55.03 / 55.04) is converted in to processed staple fibres (Tops) falling under Heading 55.06 / 55.07, under the new tax regime, no excise duty would be payable on clearance of Tops (55.06 / 55.07). Therefore, serial No. 10 of the Notification No. 30/04 provides that excise duty on manufacture and clearance of goods falling under Heading 55.06 / 55.07 would be exempt provided the inputs used are firstly procured from outside and secondly, the manufacturer of goods falling under Heading 55.06 / 55.07 does not have the facility to manufacture inputs falling under Heading 55.01 to 55.04.
47. In the present case, it is not in dispute that the processed synthetic staple fibres / Tops (55.06) were manufactured by the petitioners by utilizing 16% duty paid `tow (55.01) procured from outside. It is also not in dispute that the petitioners do not have the facility to manufacture goods falling under Heading 55.01 to 55.04 which is a requirement for availing the exemption under Notification No. 30/04. Thus, both the conditions in the Notification No. 30/04 being satisfied, Tops (55.06) manufactured from 16% duty paid tow were exempt from payment of excise duty as per the new tax regime read with Notification No. 30/04.
48. However, the exemption is sought to be denied to the petitioners on the ground that the Notification No. 30/04 uses the term `staple fibre and therefore, the exemption is available only if the tops are manufactured from duty paid staple fibres falling under Heading 55.03. As the petitioners have used synthetic filament tow falling under Heading 55.01 as inputs in the manufacture of Tops, it is contended by the revenue that the exemption is wrongly availed by the petitioners.
49. We see no merit in the above contention. The term `staple fibres at Serial No. 10 in the Notification No. 30/04 merely denotes the inputs used in the manufacture of processed staple fibres / Tops (55.06 / 55.07). As noted earlier, the inputs used in the manufacture of Tops are Tow of a length exceeding 2 metre (55.01 / 55.02) or Tow of a length less than 2 metre (55.03 / 55.04). As per the new tax regime, if 16% excise duty paid `tow , whether falling under Heading 55.01 / 55.02 or 55.03 / 55.04 are used as inputs in the manufacture of Tops (55.06 / 55.07), then no excise duty is payable on clearance of Tops (55.06 / 55.07). Therefore, in the context of the new tax regime, the term `staple fibres in the Notification No. 30/04 merely denotes the inputs falling under Heading 55.01 to 55.04 used in the manufacture of Tops (55.06 / 55.07). If it is held that the term `staple fibres in the Notification No. 30/04 is restricted to inputs falling under Heading 55.03 / 55.04, then it would mean that 16% excise duty has to be paid on clearance of Tops (55.06 / 55.07) even though it is manufactured from `tow' falling under Heading 55.01 / 55.02 on which 16% excise duty has already been paid. Such a construction of the Notification which defeats the mandate of the new tax regime cannot be accepted. Therefore, reading the term `staple fibre harmoniously with the new tax regime, it must be held that the term `staple fibres applies to inputs falling under Headings 55.01 to 55.04 which are used in the manufacture of Tops (55.06 / 55.07).
50. It is true that Chapter 55 of the CET classifies Tow under Headings 55.01 / 55.02 or 55.03 / 55.04 based on the length of the tow. In view of Chapter Note 1 to Chapter 55, tow of a length exceeding 2 metre are classified under Heading 55.01 / 55.02 and tow of a length not exceeding 2 metre are classified under Heading 55.03 / 55.04 as `staple fibres not carded, combed or otherwise processed for spinning . However, both these products are covered under Chapter 55 titled as `man-made staple fibres . In the General Rules for the interpretation of the First Schedule to the CET, it is stated that the titles to the Chapters are provided for easy reference only. If for easy reference, the `chapter 55 man-made staple fibres applies to Tow (55.01 / 55.02) as well as unprocessed staple fibre (55.03 / 55.04), then, for the same reason the term `staple fibre' in the Notification No. 30/04 would apply to `tow and unprocessed staple fibre' covered under Headings 55.01 to 55.04. In other words, for broad classification purposes if the Legislature has considered the term `staple fibre' to include tow and unprocessed staple fibre, then, in the absence of any intention to the contrary, the same broad meaning has to be given to the term `staple fibre' used in the Notification No. 30/04.
51. There is nothing in the Notification No. 30/04 to suggest that the term `staple fibre' has been used in a restricted sense so as to apply only to inputs falling under Heading 55.03 / 55.04. On the contrary, reading the Notification as a whole it is seen that the said Notification is issued to ensure effective implementation of the new tax regime so that the manufacturers are required to pay only the mandatory excise duty and not required to pay excise duty at different stages specified in the CET. Therefore, there is no reason to construe the terms `staple fibre narrowly so as to restrict it to unprocessed staple fibres used as inputs in the manufacture of Tops.
52. Conventionally tow of a length not exceeding 2 metre also known as unprocessed staple fibre (55.03 / 55.04) was subjected to the process of carding and combing to obtain Tops / processed staple fibre (55.06 / 55.07). Under the advanced method 'Tow' (55.01 / 55.02) of a length exceeding exceeding 2 metre is subjected to 'Tow to Top process' to obtain Tops / processed staple fibre (55.06 / 55.07). If Tops (55.06 / 55.07) processed from duty paid tow of a length not exceeding 2 metre (55.03 / 55.04) is exempted from payment of excise duty then in the absence of any intention to the contrary, there is no reason as to why the exemption be denied where tops are manufactured from duty paid tow of a length exceeding 2 metre (55.01 / 55.02). By choosing a general term `staple fibre' instead of choosing a specific term like `unprocessed staple fibre (55.03 / 55.04), the legislature has made it clear that the exemption is generally available to duty paid inputs falling under Heading 55.01 to 55.04 which are used in the manufacture of tops.
53. The fact that the Notification No. 30/04 refers not only to the process of carding and combing but also to any other process clearly shows that the Notification is intended to cover inputs not only falling under Heading 55.03 / 55.04 but also inputs falling under Heading 55.01 / 55.02, because Tops (55.06 / 55.07) are obtained by carding and combing the unprocessed staple fibre (55.03 / 55.04) and Tops (55.06 / 55.07) are also obtained from Tow (55.01 / 55.02) by a process other than carding and combing, viz by the process known as `Tow to Top process'. Therefore, to construe that the term `staple fibre' in the Notification No. 30/04 applies only to the uncarded / uncombed staple fibre (55.03 / 55.04) would be contrary to the express words used in the Notification.
54. Apart from the above, the Notification No. 30/04 specifically provides that the exemption would not be available to a manufacture of goods falling under Heading 55.06 / 55.07 having facility to manufacture inputs falling under Heading 55.01, 55.02, 55.03 & 55.04, which clearly shows that the term 'staple fibre' is intended to refer to inputs falling under Heading 55.01, 55.02, 55.03 & 55.04. If the term 'staple fibre' was intended to apply only to the staple fibre falling under Heading 55.03 / 55.04, then there was not need to refer to the goods falling under Headings 55.01, 55.02, 55.03 & 55.04 in the Notification. Therefore, it is clear that since the goods falling under Heading 55.01 to 55.04 are the inputs in the manufacture of goods falling under Heading 55.06 / 55.07, the legislature has provided that the manufacturer of goods falling under Heading 55.06 / 55.07 must not have the facility to manufacture inputs falling under Heading 55.01 to 55.04. The reason being that under Notification No. 67/95 dated 16-3-1995 a manufacturer having facility to manufacture the inputs as well as the final products, is entitled to clear the inputs captively for manufacture of the final products without payment of duty. Therefore, a manufacturer having facility to manufacture both `Tow and `Top' may evade payment of duty on `Tow by availing Notification No. 67/95 and evade payment of duty by availing Notification No. 30/04. To prevent any such evasion, the legislature has provided that the manufacturer of goods falling under Heading 55.06 / 55.07 must procure inputs falling under Heading 55.01 to 55.04 from outside and must not have the facility to manufacture inputs falling under 55.01 to 55.04, so as ensure that duty paid inputs are used in the manufacture of Tops.
55. It is true that the exemption Notifications have to be construed strictly and literal meaning must be given to the words used in the Notifications, unless the literal meaning leads to absurdity. In our opinion, neither the term `staple fibres literally means unprocessed staple fibre falling under Heading 55.03 / 55.04 nor there is any direct or indirect indication in the Notification No. 30/04 warranting such an interpretation. In any event, if the contention of the revenue is accepted, then, it would lead to anomalous situation, because, the new tax regime contemplates payment of mandatory excise duty at 16% on man-made staple fibres and if the Notification No. 30/04 is read in the manner suggested by the revenue, then it would mean that the excise duty at 16% on staple fibres is payable not only at the stage of Tow (55.01 / 55.02) but also at the stage of Tops (55.06 / 55.07). Thus, to avoid any absurd situation, it is just and proper to construe the Notification in consonance with the new tax regime by holding that the term `staple fibres in the Notification refers to inputs falling under Heading 55.01 to 55.04.
56. The argument of the revenue that the exemption under Notification 30/04 is available only if the starting raw material is the `staple fibre falling under Heading 55.03 / 55.04 is also without any merit, because, if the legislature intended to restrict the exemption to the inputs such as `staple fibres falling under Heading 55.03 / 55.04 then it would have specifically stated so. However, the legislature has described the inputs as `staple fibre which clearly means that the Legislature intended to give larger meaning to the term `staple fibre instead of giving a restricted meaning. Therefore, in the absence of any indication to the contrary, it would not be proper to restrict the meaning of the term `staple fibre' to `staple fibre falling under Heading 55.03 / 55.04'.
57. The contention of the revenue that the Notification No. 30/04 is intended to benefit the hand loom and power loom sector who procure 98% of the raw materials falling under Heading 55.03 / 55.04 and is not intended to benefit the composite mills who procure 2% of the raw materials falling under Heading 55.01 / 55.02, is also without any merit, because, firstly nowhere in the Notification No. 30/04 it is stated that the exemption is meant for the benefit of the hand loom and power loom sector who procure from outside duty paid staple fibres falling under Heading 55.03 / 55.04. Secondly, even the Hon ble Finance Minister, while explaining the new tax regime has specifically stated that the new tax regime would benefit not only the hand loom and power loom sector but also benefit the composite mills.
58. It is contended on behalf of the revenue that the Finance Ministers speech cannot be relied upon for interpreting the exemption Notification. In the present case, what is relied upon is the new tax regime announced by the Hon ble Finance Minister while presenting the budget proposals in the Lok Sabha on 8-7-2004. The Apex Court in the case of Union of India v. Martin Lottery Agencies Limited reported in 2009 (7) SCALE 34, has held that the speech of the Hon ble Finance Minister in the House of the Parliament may be taken to be a valid tool for interpretation of a statute. In any event, in the present case, neither introduction of the new tax regime on 8-7-2004 is disputed nor there is any dispute regarding the liability to pay mandatory excise duty on the staple fibres under the new tax regime. Therefore, construing the Notification No. 30/04 in the light of the new tax regime, it is clear that when duty paid inputs falling under Heading 55.01 to 55.04 are used in the manufacture of goods falling under Heading 55.06 / 55.07, then excise duty on clearance of goods falling under Heading 55.06 / 55.07 would be exempted.
59. For all the aforesaid reasons, we hold that the term `staple fibres at Sr. No. 10 of Notification No. 30/04 applies to duty paid inputs falling under Heading 55.01 to 55.04 of the CET which are used in the manufacture of Tops (55.06 / 55.07) and the said term is not restricted to the inputs falling under Heading 55.03 / 55.04 only. Accordingly, we hold that in the present case, excise duty on Tops (55.06) manufactured from 16% duty paid Tow (55.01) would be exempt under Notification No. 30/04 issued in accordance with the new tax regime introduced on 8-7-2004.
60. In the result, the writ petition is allowed and the Rule is made absolute in above terms with no order as to costs.