Circular No. 201/35/96-Central Excise
Government of India
Ministry of Finance
Department of Revenue
Tax Research Unit, New Delhi
Subject: Central Excise Notification No. 84/95-CE dt. 18.5.95- reg.
It may be recalled that notification No. 35/95-CE dated 16.3.95 was amended vide Notification No. 84/95-CE dated 18.5.95 Notification No. 35/95-CE grants exemption to yarn (other than sewing thread) doubled or multifold falling under Chapters 51,52,54 and 55 subject to certain conditions. The said notification further provides exemption on yarn (other than doubled or multifold including cabled yarn and sewing thread) falling under the said chapters if they are manufactured from yarns on which the excise duty or countervailing duty, as the case may be, has already been paid. The effect of the amendment vide notification No. 84/95-CE was to deny the exemption mentioned above to yarns cleared from factories having facilities (including plant and equipment) for producing single yarn. The amendment was carried out so as to make if clear that the exemption was meant for yarns made in small units on job work basis/ power looms.
2. The exclusion of integrated units, that is, factories having facilities for producing single yarn, was challenged by the Bombay Mill Owners Association before the Honourable High Court of Bombay. The said petition was dismissed by the Honourable High Court vide an order dated 23rd January, 1996. The relevant extract from the judgement are enclosed for your information.
EXTRACT FROM THE ORDER PASSED BY HON”BLE HIGH COURT OF BOMBAY IN THE WRIT PETITION NO. 2163/95 FILED BY THE BOMBAY MILL OWNERS ASSOCIATION CHALLENGING THE VALIDITY OF NOTIFICATION NO. 84/ 85-CE DATED 18.5.95.
4. “………………. It is clear to us that the withdrawal of the exemption in case of the “integrated units” viz. a factory having facilities (including plant and machinery) for producing singly yarn as well, is not in any way arbitrary. Carrying on only a post- spinning activity like the doubling process, would stand on a totally different footing and would been titled to the benefit of the exemption notification at Exh. “B”. The administrative convenience set out in the said two affidavits appears to be valid and it in not possible for us, sitting in writ jurisdiction, to question the wisdom of the said administrative policy, which is not at all arbitrary. It is clear from the second affidavit dated 22nd January, 1996 that the initial exemption under the Notification at Exh. “B” was conferred only on such doubling processors, who were popularly called as “Independent Small Processors”. It was never meant to be intended for large composite mills referred to as “integrated units” who carry on both the activities viz. the production of single yarn, as also the post-spinning process, such as the doubling process. Small processors are stated to be those who are not able to manufacture basic yarn which require a huge capital investment and a project of high cost. As against this, the small processors including those who do the only process of doubling require a much smaller capital investment.
5. In view of the above explanation tendered in the affidavits in support of the impugned proviso, we find no illegality or arbitrariness in clarifying that the exemption contained in the Notification at Exh. “B” would not apply to clearances of yarn from an “integrated unit” referred to as a factory having facilities (including plant and equipment ) for product single yarn. The result of the impugned proviso would be that it would be only processors carrying on the activity of processing alone who would be entitled to enjoin the exemption accorded by Notification No. 35/95 at Exh. “B” dated 16th March, 1995. However, once it is found that the processor is not a processor simplicitor, but has an “integrated unit”, having facilities (including plant and equipment) for producing single yarn, he would not be entitled to the benefit of exemption notification at Exh. “B” in view of the impugned proviso added by Exc. “C”.
