The petitioner company was engaged in processing man-made fabrics at Bhilwara after taking on lease the land, building and plant of M/s Suzuki Textile Ltd. It had obtained Central Excise registration under Rule 174 and regularly discharged excise duty, filing monthly returns which were accepted by the Department.

Subsequently, the Anti-Evasion Wing conducted searches and seized various books of account and records. Thereafter, the Finance Act introduced Section 3A enabling levy of excise duty on the basis of production capacity for specified textile processors. The petitioner claimed to be an independent processor eligible for the compounded levy scheme under Notifications No. 36/98 and 42/98.