Gujarat High Court
Tata Chemicals Limited vs Excise Authorities on 6 July, 1971
JUDGMENT B.J. Divan, J.
1. The petitioner in both these Special Civil Applications viz., Tata Chemicals Limited is a Public Limited Company, registered under the Indian Companies Act.
2. The respondents are different Excise Authorities and there is one common question which is required to be decided so far as both these petitions are concerned; and that common question relates to interpretation of certain notifications and exemptions issued by the Excise Authorities as regards the levy of excise duty on soda ash under the provisions of the Central Excise and Salt Act, 1944 (hereinafter referred to as the Act). Over and above this common point, in Special Civil Application No. 586 of 1968, there is also a further question regarding the applicability of rules 9, 10 and 10-A of the Central Excise Rules, 1944 (hereinafter referred to as the Rules) as to which one of these three rules is applicable to the facts of this case and depending upon our decision as to which one of these three rules is applicable, this further point in Special Civil Application No. 585 of 1968 will have to be decided. In order to appreciate the rival contentions which have been urged in these two matters, it is necessary to set out certain facts.
3. The petitioner Company has a chemical factory at Mithapur in Jamnagar district in the state of Gujarat. The said Company manufactures various chemicals including soda ash. Soda ash is utilised as a chemical in various processes and the petitioner's factory itself also utilises soda ash. Such use is made for the following purposes :-
(1) Soda ash is used for purification of brine, which is utilised for the purpose of manufacturing further soda ash. It may be mentioned that brine in this context means a solution of ordinary common salt, (sodium chloride) in water; and this solution of common salt in water is then purified by different chemicals processes and the resultant purified brine is used to manufacture other chemical products.
(2) The petitioner's factory also uses soda ash for the manufacture of (i) copper oxychloride, where soda ash is used as a re-agent, (ii) fustie, (iii) sodium bi-carbonate (iv) sodium carbonate mono-hydrate and (v) sodium bromide and some processes at the Research Laboratories. In these five products and the processes, which we have just now referred to the process of purification of brine is not used but soda ash is used as a re-agent in the manufacture of copper oxychloride and in the processes at the Research Laboratories, which it is used as an ingredient in the manufacture of the remaining four products.
(3) The third use of soda ash in the petitioner's factory is in the water softening and demineralisation plants for the purpose of removing impurities so as to make the water soft and free of all minerals so that water can be utilised in boilers and for other purposes in the factory.
4. With effect from March 11, 1961, Excise Duty was imposed for the first time on soda ash and the rate of excise duty was Rs. 2/- per quintal; and for this purpose in the First Schedule to the Act, item No. 14-A was added. Subsequently, the Excise duty basis has been changed and the Excise Duty on soda ash was 5 per cent ad valorem and subsequently it has been raised to 10 per cent ad valorem. Acting upon the powers conferred upon it by Sections 6, 12 and 37 of the Act, the Central Government has made Rules called the Central Excise Rules, 1944. Under Rule 8 of these Rules power to authorise exemption from duty in special cases has been conferred on two different authorities. Sub-Rule (1) of Rule 8 authorised the Central Government to exempt any excisable goods from the whole or any part of duty leviable on such goods and the exemption may be subject to such conditions as may be specified in the Notification issued in that behalf, but such exemption has to be by a Notification in the Official Gazette. Under sub-rule (2) of Rule 8, the Central Board of Revenue may by special order in each case exempt from the payment of duty, under circumstances of an exceptional nature on excisable goods. Rule 233 of the Rules empowers the Central Board and also the Collectors of Excise to issue written instructions providing for any supplemental matters arising out of the Rules. It appears that representations were made by manufacturers of soda ash asking the Central Board and the Central Government authorities for exemption for soda ash from levy of excise duty insofar as soda ash was used within the factory of the manufacturer for purposes of production inside the factory. Various decisions appear to have been taken at a meeting of the Secretary, Department of Revenue and the Collector of Central Excise in respect of commodities affected by the Finance Bill of 1961. Those decisions appear to have been adopted by the Board of Revenue and by a letter dated 3rd April 1961, the Board of Revenue passed on its decisions regarding exemption inter alia of soda ash from levy of excise duty insofar as small quantities of soda ash were involved. The relevant portion of the letter of the Central Board of Revenue is in these terms :-
"(4) Soda-ash. Soda-ash issued in large quantities for any industrial process within the factory of production will be subjected to duty : Where however, small quantities of soda ash are used within the factory for manufacture of either excisable or non-excisable commodities no duty may be levied."
5. The Collector of Central Excise, Baroda, issued a Trade Notice bearing No. 73 of 1961, and by this Trade Notice this decision of the Board to exempt small quantities of soda ash used within the factory for the manufacture of soda ash or any other excisable or non-excisable product from the levy of excise duty, was communicated to all concerned. In this Trade Notice it was clarified that small quantities of soda ash not exceeding 8 per cent of the production when used within the factory in the manufacture of soda ash or any other excisable or non-excisable commodities were not to be liable to duty. After April 3, 1961 the Board of Revenue seems to have reconsidered its decision and on June 9, 1961 the Board of Revenue issued a circular letter in connection with exemption from duty on soda ash. Para 2 of that Circular letter is material for the purposes of this judgment and that para is in these terms :-
"In accordance with para 4 of the decision enclosed with Board's letter F. No. 40/27/61-CXI, dated the 3rd April, 1961 small quantities of soda ash may be issued free of duty for use within the factory for manufacture of either excisable or non-excisable commodities. The term 'small quantities' should be interpreted to mean "upto 2 per cent on the quantity of common salt put into the process". Where, however, the manufacturers claim that the common salt (impure sodium chloride) used by them is too impure and requires a larger amount of sodium carbonate (soda ash) for purification, a sample may be sent to the Chief Chemist, Central Revenue Control Laboratory, New Delhi, for test to fix up the percentage of soda ash required for purification."
6. The Board of Revenue issued another Circular on December 28, 1961 stating that on reconsideration of the matter, the Board had decided that the percentage of the quantity of soda ash to be issued duty free for use within the factory for manufacture of either excisable or non-excisable goods fixed there-under at 2 per cent should be raised to 3 per cent and the Board's earlier letter, dated June 9, 1961 was to be treated as modified to that extent. The question was again considered by the Board on February 13, 1963. At that time the question was raised in connection with caustic soda and soda ash so far as the use of these chemicals for the purification of brine in the manufacture of caustic soda was concerned. This circular letter refers to the earlier circular of December 28, 1961; and continues :-
"It has been brought to the notice of the Board that certain factories are using either soda ash or caustic soda while other factories use both soda ash and caustic soda in the purification of brine in the manufacture of caustic soda and it has been represented that such caustic soda should not be charged to duty. After careful consideration, the Board have decided that the factories using soda and/or caustic soda for the purification of brine may be allowed to consume duty free soda ash and/or caustic soda upto a maximum limit of 3 per cent. Duty should be charged on the quantities consumed in excess of the above limits. The maximum 3 per cent exemption limit for soda ash and/or caustic soda used for the purification of brine should be calculated on the common salt (i.e. the equivalent 100 per cent common salt in the brine solution) and not on the total production of caustic soda in the factory."
7. Thereafter no further Circulars appear to have been issued by the Board of Revenue but on a query raised by one of the excise officers as to the method of computation of 3 per cent of the soda ash as co-related to the consumption of common salt in the process as mentioned in the earlier circulars, a clarification was issued by the Board of Revenue on May 15, 1965; and thereafter that letter of clarification issued by the Board of Revenue was circulated to all concerned together with a copy of the query, which necessitate that explanation. By this letter of explanation, the Board stated that the 3 per cent limit prescribed was with reference to purification of brine in soda ash manufactured of other manufacture. Therefore, on the basis of the total quantity of common salt taken in brine purification process, 3 per cent of soda ash would be allowed without payment of duty provided that this soda ash is actually used within the factory.
8. Special Civil Application No. 585 of 1968 though filed later in point of time refers to an earlier period whereas Special Civil Application No. 394 of 1968 relates to a later period and, therefore, we will take up the question on the facts pertaining to Special Civil Application No. 585 of 1968 first. After Circular letter of April 3, 1961 for the period commencing from March 1, 1961 to April 4, 1963, the petitioners were allowed to remove soda ash for use within their factory. The said removal was on the basis of 8 per cent soda ash produced, upto July 3, 1961 and thereafter at the rate of 2 per cent of the common salt used in the processes of the petitioner's factory and later on at the rate of 3 per cent of the common salt thus used.
9. On March 31, 1962, the Inspector of Central Excise, Mithapur, addressed a letter to the petitioner Company in connection with soda ash used by the petitioner Company for water softening purposes. By this letter, the petitioner Company's attention was drawn to Trade Notice No. 128 of 1961, which dealt with the Board's decision of June 9, 1961; and the Inspector stated in this letter :-
"The Trade Notice No. 128/61 para 1 instructs not to levy duty on quantities, within permissible limits of soda ash, used for industrial processes within the factory for the manufacture of either excisable or non-excisable products.
The softening of water cannot be termed as a manufacture of a product as can the production of fusite, soda bicarbonate etc. be described. Secondly, this softened water is used for boiler and for town water supply also. So the clearance of soda ash for use in water softening may please be made as a duty payable clearance."
10. In reply to this letter of March 31, the petitioner wrote a letter dated April 21/25, 1962 and it was contended that the duty free soda ash was to be computed at 3 per cent of the quantity of common salt put in the process within the factory for manufacturing either excisable commodities including soda ash or non-excisable products. Then it was contended that for manufacturing soda ash another products at the words of the petitioner, steam and power were the most essential commodities without which these products could not be manufactured. Therefore, soda ash used in water softening plant and in the demineralisation plant for purifying water to be supplied to the boiler would not attract the payment of the duty if soda ash comes within 3 per cent limit. It was pointed out that the use of soda ash or purifying water in the water softening plant and also in the demineralisation plant for steam and power required for manufacturing soda ash and other products was within the factory premises of the petitioner-company and, therefore, no duty could be levied for such use if it was within the prescribed limit of 3 per cent in accordance with the Trade Notice. In furtherance of that letter, the acting General Manager of the Company in charge of the factory at Mithapur addressed a letter, dated May 2, 1962, reiterating the stand of the Company and calling upon the Inspector to release three tons of soda ash duty-free for the water-softening plant. Letter dated May 4, 1962 was addressed in this connection by the Acting General Manager at Mithapur to the Assistant Collector of Central Excise, Jamnagar and the Superintendent of Central Excise, Jamnagar wrote back on May 9, 1962. This letter of May 9, 1962 was addressed to the Inspector of Central Excise at Mithapur and the letter was in these terms :-
"Please allow the party to use soda ash for water softening used in the boilers within the permissible exemption limits as per Trade Notice No. 126/1961.
However, the quantity of soda ash used for water softening required for use outside factory premises would not be deemed as use for the industrial purposes, and hence the same is liable to levy of Central Excise duty."
11. On behalf of the petitioner, reliance is placed on this correspondence to show that even though soda ash was sought to be utilised for water softening process in May, 1962 the Excise Authorities permitted the petitioner-Company to use duty-free soda ash for its water-softening plant as long as the water is treated in the plant was utilised for industrial processes. Apparently, things continued in this fashion fill April, 1963. On April 4, 1963 the Deputy Superintendent of Central Excise at Mithapur wrote a letter to the petitioner Company regarding the free clearance of soda ash on requisition slips and the contents of the letter are in these terms :-
"I have been directed to inform you that no duty free clearance of soda ash will be given for the under-mentioned processes as no common salt is used with such soda ash in these processes. Please note :-
(1) Copper Oxychloride, (2) Fusite, (3) Sodium bicarbonate, (4) Sodium carbonate monohydrate, (5) Sodium bromide, (6) Demineralised water, (7) Processes for Research Laboratory, (8) Softening of Water."
12. We may also mention at this stage that in the beginning i.e. in 1961 April onwards, for sometime the practice of the petitioner-Company was to fill in what are known as AR-1 forms for the purpose of securing duty free soda ash for utilizing the same in the factory premises for industrial purposes. On July 7, 1961 the Inspector of Central Excise at Mithapur addressed letter to one of the officers of the Company in these terms :-
"As I have told you, I have stopped the practice of clearance of soda ash for internal consumption on AR-1s. You have not to present AR-1 for this, but only a requisition memo, a copy of which was already shown to Mr. Shah of your Department and the whole procedure explained to him even before commencement of July month. But this is not done. Please see that this procedure is properly followed. Your AR-1 dated 6-7-1961 for the clearance is returned for this. This requisition memo is to be got sanctioned before the clearance is effected and not on the next day as in case of duty paid goods."
This letter of the Inspector of Central Excise will have considerable importance when we come to consider the argument regarding the demand notice and the period of limitation; and consideration of Rules 9, 10 and 10A of the Central Excise Rules, 1944.
13. On July 3, 1963, a Demand Notice was issued by the Excise Authorities for sum of Rs. 1,71,093.10P on the footing that that was the amount of Excise Duty payable in respect of soda ash which had been cleared duty free though that much quantity of soda ash was not exempted from the payment of duty. This demand was in respect of soda ash used during the period April 24, 1961 to July 2, 1963. Against this Demand Notice, there was an appeal and representations to the Assistant Collector of Central Excise and by his order, dated April 29, 1964 the Assistant Collector confirmed the demand after the protest of the Company had been considered. Against this decision of the Assistant Collector, an appeal was preferred to the Collector on July 30, 1964; and the Collector by his order dated May 31, 1965 dismissed the appeal. A revision application against the decision of the Collector was preferred to the Central Government and by its order dated January 9, 1968 the Central Government dismissed the Revision Application. Thereafter the present Special Civil Application was filed by the petitioner Company challenging the Demand Notice for the sum of Rs. 1,71,098.10P or any other sum in respect of soda ash said to have been used by the petitioner without payment of excise duty between April 24, 1961 and April 13, 1963.
14. Various orders which have been referred to by us above, viz., orders of the Assistant Collector of Customs, order in appeal passed by the Collector and the order on the Revision Application passed by the Central Government have all been challenged in this Special Civil Application. The main ground on which the orders and the demand notice have been challenged are, firstly, that on a true construction of the orders issued by the Central Board on April 3, 1961, June 9, 1961, December 23, 1961 and February 13, 1963 soda ash used in the manufacture of excisable and non-excisable products within the factory premises within the exempted limits was exempt from duty so long as soda ash used duty free in these processes was within the exempted limits. It has been contended in this connection that the exemption limits were upto 8 per cent of soda ash production in any one month for the period from March 1, 1961 to July 3, 1961 and to 2 per cent of the common salt used in the processes in the factory for the period July 3, 1961 to January 11, 1962; and upto 3 per cent of the common salt used in the processes from January 11, 1962. In this connection, the main controversy between the Excise Authorities on the one hand and the petitioner on the other is regarding the interpretation of the words, "common salt used in the process". The Excise Authorities contend that the percentage weightwise of soda ash which is to be exempted from payment of excise is to be computed looking to the weight of common salt used for purification of brine, provided purification of brine is one of the necessary processes for the manufacture of a particular product, viz., soda ash which requires use of purified brine; but it is contended by the excise Authorities that process of purification of brine is not required in the actual process of manufacture of copper oxychloride, fusite, sodium bicarbonate, sodium carbonate monohydrate and sodium bromide or in water softening and demineralisation process. The petitioner-Company on the other hand contends that the exemption has been granted by the decisions of the Central Board referred to above irrespective of the process of purification of brine in the manufacture of a particular product so long as the total quantity of soda ash does not exceed the exemption limit of 2 per cent or 3 per cent, as the case might be depending upon the period concerned so long as the soda ash is used within the factory premises for one or the other of its industrial processes for manufacturing excisable or non-excisable products.
15. So far as Special Civil Application No. 585 of 1968 is concerned, it is further the contention of the petitioner that the Demand Notice of Rs. 1,71,098.10 issued on July 3, 1963 is beyond the period of limitation contemplated by Rule 10 of the Central Excise Rules, 1944. According to the petitioner Rule 10 of the Central Excise Rules applied to their case and rules cannot apply in as much there was no clandestine, surreptitious or fraudulent removal of goods from the storage place of soda ash to the facts premises and there was no evasion of excise duty at the time when they used duty free soda ash for their factory purposes. It has been contended by the petitioner Company that their case does not fall either under Rule 9 or under Rule 10A of the Central Excise Rules but falls within Rule 10. They contend that so far as Special Civil Application No. 585 of 1968 is concerned, even if their first contention may be rejected, the second contention about limitation mentioned in Rule 10 would still remain and if they succeed in that contention, the demand notice issued by the Excise Authorities must be held to be time-barred as having been made beyond the period of limitation mentioned in Rule 10 of the rules.
16. So far as Special Civil Application No. 394 of 1968 is concerned, it deals with different items of excise duty on soda ash collected from the petitioner-Company from time to time for different periods and paid by petitioner-Company under protest from time to time. According to the petitioner-Company five different batches of cases for five different periods have been dealt with by different sets of orders by the petitioner-Company and an aggregate amount of Rs. 1,28,017.22P has been thus paid under protest in respect of the different batches referred to in the petition. The petitioners have challenged the different sets of orders under which demands were made from them and under which they were compelled to pay excise duty on soda ash, for which, according to the contention of the petitioners, no excise duty could be collected from them. The five different batches of orders refer to the periods from (1) April 5, 1963 to April 15, 1965 (but excluding part of July, 1964) and April 1, 1967 to October 31, 1967; (2) January 16, 1965 to March 31, 1966 (but excluding July 15, 1965; (3) part July, 1964, July 1965 and April 1, 1966 to January 31, 1967; (4) February 1, 1967 to March 31, 1967 and (5) November 1, 1967 to August 31, 1965. In all these cases, payment of excise duty on soda ash was made under protest by the petitioner Company and applications for refund of these amounts of duty so paid were made from time to time. In connection with these five batches for the different periods referred to above the petitioner-Company puts forward the main contention which is set out hereinabove as the first contention when dealing with the contentions in connection with Special Civil Application No. 585 of 1968. The difference between the Department on the one hand and the petitioner-Company on the other is as to whether soda ash was used for the manufacture of chemicals or chemical products when the process of manufacture of the product in question involves purification of brine as an essential ingredient of the process or whether duty free soda ash could be used within the permissible limits irrespective of the question of purification of brine as an essential ingredient of the process being involved in the manufacture of the particular product concerned.
17. Before we come to consider the main contention and the arguments regarding the first contention in Special Civil Application No. 585 of 1968, we may point out that an attempt was made on behalf of the Excise Authorities to contend that different circulars issued in the name of the Central Board of Revenue were mere executive instructions and could not be construed as exemptions given by the Board under Rule 8. We have already referred to Rule 233, which empowers the Central Board of Revenue and Collectors to issue written instructions providing for supplemental matters arising out of the rules. Under all these four different directions viz., directions issued on April 3, 1961, June 9, 1961, December 28, 1961 and February 13, 1963 the Central Board of Revenue was exempting certain quantities of soda ash used by the manufacturers of soda ash within the factory premises from payment of excise duty. Now, supplemental matters arising out of the rules cannot be said to cover exemption from payment of excise duty. Under Section 3 of the Central Excises & Salt Act, there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India, and a duty on salt manufactured in, or imported by land into any part of India as, and at the rates set forth in the First Schedule. Central Excise Rules, which are statutory Rules, provide inter alia for exemption from the payment of duty and the power to authorise exemption from the payment of duty has been conferred on two bodies - by sub-rule (1) of Rule 8 on the central Government and by sub-rule (2) of Rule 8 on the Central Board Revenue. As we have pointed out earlier, under sub-rule (2) of Rule 8 it is open to the Central Board of Revenue by Special order in each case to exempt from the payment of duty any excisable goods in the circumstances of an exceptional nature. Now, sub-rule (1) of the Rule 8 requires that when the Central Government exempts any excisable goods from the whole or any part of duty leviable on such goods, it must do so by notification in the Official Gazette but no such requirement of notification in the official gazette is required in connection with the exemption of payment of excise duty when it is granted by the Central Board of Revenue. The normal requirement of the statute is the payment of excise duty on all excisable goods produced or manufactured in India and if an exemption from duty is to be given, it can only be given by an authority duly empowred in that behalf and within the limits of the power conferred upon that authority. The power to exempt any excisable goods from the payment of duty cannot be said to be a matter of departmental instructions or supplemental instructions referred in Rule 233; and, therefore, this particular argument urged on behalf of the Excise Authorities must be rejected.
18. We may point out that the very language used in these different decisions of the Central Board indicates that the Board was utilising its power given under sub-rule (2) of Rule 8 for the purpose of exempting small quantities of soda ash used within the factory in the manufacture of soda ash itself and other excisable or non-excisable products. By the decision taken by the Central Board on April 3, 1961, it was decided that small quantities of soda ash not exceeding 3 per cent of the monthly production when used within the factory in the manufacture of soda ash or any other excisable or non-excisable products was not liable to repayment of any excise duty. By the decision of the Central Board of June 9, 1961 the earlier decision remained the same viz., small quantities of soda ash ought be issued free of duty for use within the factory for manufacture of other excisable or non-excisable commodities; but the definition of small quantities of soda ash was changed in June 1961. Instead of 3 per cent of the monthly production of soda ash the words "small quantities of soda ish" were to mean after June 9, 1961 upto 2 per cent of the quantity of common salt put into the process. The question is whether in terms of this decision of the Board, dated June 9, 1961 which we have set out in extenso hereinabove, it can be said that the words : "common salt put into the process" refer to the process of purification of brine as an essential ingredient process in the manufacture of a particular specified product or whether it can be utilised within the limit of 2 per cent of the total quantity of common salt used by the factory concerned in all its processes. In our opinion, the words which the Excise Authorities want to read into this decision of the Board, dated June 9, 1961 viz., that order to earn the exemption soda ash must have been used for purification of brine in he manufacture of a particular product, in the manufacture of which such purification of brine is an essential ingredient, cannot be read into this decision of the Board, dated June 9, 1961. All that this decision did was to confirm the earlier decision of April 3, 1961, viz. that small quantities of soda ash may be issued free of duty for use within the factory for manufacture of either excisable or non-excisable commodities but it changed the basis of computation of the quantity of duty free soda ash which could be issued for such purposes for use within the factory of the manufacturer. Instead of 8 per cent of the monthly production of soda ash, now the duty tree quantity of soda ash to be issued for such purposes was to be computed on the quantity of common salt put into the process. Now, the words "common salt put into the process" do not either expressly or by necessary implication bring in the concept of purification of brine being an essential ingredient in the process of manufacture of the particular chemical product concerned. Thus, the stand taken up by the Excise Authorities is untenable, when one looks at the language of the decision of the Board, dated June 9, 1961. We may mention that this interpretation which we put upon the exemption granted by the Board is borne out by the latter portion of the decision of the Board, dated June 9, 1961, which points out :-
"Where however, the manufacturers claim that the common salt (impure sodium chloride) used by them is too impure and requires a larger amount of sodium carbonate (soda ash) for purification, a sample may be sent to the Chief Chemist, Central Revenues Control Laboratory, New Delhi, for test to fix up the percentage of soda ash required for purification."
Even in this latter portion, the Board indicated that the limit of 2 per cent of the quantity of common salt put into the process had reference to the total quantity of common salt used by the factory in all processes irrespective of purification of brine being an essential ingredient of the process for the manufacture of a particular product.
19. The decision of the Board given on December 28, 1961, merely raised the limit of exemption from payment of duty from 2 per cent to 3 per cent; and even in this decision of December 28, 1961 the Central Board did not indicate that purification of brine was to be an essential ingredient of the process of manufacture of a particular product before computing the total quantity of soda ash to be used within the factory for manufacture of any such excisable or non-excisable goods. The decision of the Board dated February 13, 1963 specifically refers to the process of manufacture of caustic soda. This decision points out :-
"It has been brought to the notice of the Board that certain factories are using either soda ash or caustic soda while other factories use both soda ash and caustic soda in the purification of brine in the manufacture of caustic soda and it has been represented that such caustic soda should not be charged to duty. After careful consideration, the Board have decided that the factories using soda ash and/or caustic soda for the purification of brine may be allowed to consume duty free soda ash and/or caustic soda upto a maximum limit of 3 per cent. Duty should be charged on the quantities consumed in excess of the above limits. The maximum 3 per cent exemption limit for soda ash and/or caustic soda used for the purification of brine should be calculated on the common salt (i.e. the equivalent 100 per cent common salt in the brine solution) and not on the total production of caustic soda in the factory."
20. This decision of the Central Board dated February 13, 1963, refers only to the process of purification of brine required in the manufacture of caustic soda but it has nothing to do with the question of soda ash being issued duty-free in terms of the earlier Notifications of the Board viz, of April 3, 1961, June 9, 1961 and December 28, 1961. Moreover, by this decision of the Board of February 13, 1963 the exemption which upto now was available in case of soda ash in certain circumstances was extended to caustic soda, provided - and here the proviso is material - that such soda ash or caustic soda was used for the purification of brine in the process of manufacture of caustic soda and the total quantity of caustic soda and/or soda ash was fixed at 3 per cent of the common salt in the brine solution utilised for the purpose of manufacture of caustic soda.
21. In our opinion, looking to the fact that the Central Board from the very first decision of April 3, 1961 was indicating that it wanted to give exemption from payment of excise duty in respect of small quantities of soda ash used within the factory premises for certain industrial processes carried out in the premises of the factory for manufacture of excisable or non-excisable goods and from the very fact that even after June 9, 1961 when the small quantity was defined to mean 2 per cent of the common salt used in the process, the Central Board did not co-relate soda ash to common salt used in the brine, for the purification of which the necessary quantity of soda ash was to be utilised as an essential process for the manufacture of a particular product, the subsequent stand of the excise authorities is not tenable. The correspondence which we have referred to above regarding the use of soda ash for the purpose of water-softening plant of the petitioner Company at Mithapur also goes to show that the Excise Authorities themselves had interpreted the decisions of the Central Board on these lines. It seems that it was only after the decision of February 13, issued in connection with the manufacture of caustic soda that the Excise Authorities started thinking along different lines and for the first time on April 4, 1963 a letter was addressed by the Excise Authorities to the petitioner-Company saying that no duty-free soda ash clearance would be given for use in the manufacture of certain products as no common salt was used with soda ash in the manufacture of those products. So far as this main contention is concerned, the interpretation sought to be put by the Excise Authorities on these decisions of the Board must be rejected and it must be held that the exemption of small quantities of soda ash used for different processes within the factory could not be co-related to soda ash used for the purification of brine in the process of manufacture of a particular chemical product, as the Excise Authorities contend. On this ground alone, therefore, the decision of the Excise Authorities calling upon the petitioner-Company to pay a sum of Rs. 1,71,098.10P. In respect of the duty-free soda ash used within the factory of the petitioner Company during the period April 24, 1961 to April 13, 1963 must be set aside. This conclusion of ours would necessarily mean that Special Civil Application No. 394 of 1968 must be allowed into because that is the only contention which is required to be considered in that petition.
22. We may point out that a letter addressed by the Central Board of Revenue on May 15, 1965 clarifying the concept of 3 per cent limit was issued to answer certain queries raised by certain Excise Officers. By this letter, the Board clarified that the 3 per cent limit was prescribed with reference to the purification of brine in the factory irrespective of the use of brine in soda ash manufacture or other manufacture. Therefore, on the basis of the total quantity of common salt taken in brine purification process, 3 per cent of soda ash should be allowed without payment of duty provided that this soda ash is actually used up within the factory as process material and is not delivered as such. How this explanatory letter cannot help the Excise Authorities if the words of the decisions of the Board regarding exemption limits, being decisions issued under sub-rule (2) of Rule 8 of the Rules, clearly indicate to the contrary. But even in this explanatory letter it is nowhere mentioned that purification of brine must be an essential ingredient process for the manufacture of the particular product for the manufacture of which soda ash is used. The query raised by the particular Excise Officer, in reply to which this explanation was given by the Central Board, does raise this question but the explanation given by the Board does not cover that particular point. In any event, the explanatory letter of the Central Board cannot take place of a decision of the Board issued in exercise of its power under sub rule (2) of Rule 8 of the Rules. It cannot have the effect of validating or explaining away all that had been done till that date. If the Board wanted to vary, amend or alter its earlier decisions regarding exemption it could have done so clearly in a forthright manner by issuing another Notification and it could not be done by way of explanatory letter addressed by it to one of its Excise Offices.
Over and above this first contention, there is an additional ground why Special Civil Application No. 585 of 1968 must be allowed.
23. Coming now to the second contention of Mr. Nanavati in connection with Special Application No. 585 of 1968, it may be mentioned that the Inspector of Central Excise himself asked the petitioner-Company not to submit AR-1 form and, therefore, a representation was made by the Excise Office concerned to the petitioner-Company not to present AR-1 form. We are emphasizing this aspect because there is a line of decisions which lay down that in order to get exemption from payment of excise duty a form called AR-1 form should have been presented and 'NIL' endorsement should have been obtained in order to secure the benefit of Rule 10 and in order to get away from Rule 9 of the Rules. In this connection, we may point out that after the recent decisions of the Supreme Court in N. B. Sanjana v. Elphinstone Spinning & Weaving Mills Co. Ltd. (1971) 1 S.C. 337 and J. K. Steel Ltd. v. Union of India, A.I.R. 1970 S.C. 1173, it is clear that Rule 9 of the Central Excise Rules can only apply if the goods have been removed clandestinely and without assessment. In J. K. Steel Ltd. case (supra), the Supreme Court held that Rule 9(2) applies only to cases where there has been evasion from payment of duty.
24. The scheme of Rules 9, 10 and 10A of the Central Excise Rules is that under sub-rule (1) of Rule 9, no excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf whether for consumption, export or manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these Rules or as the Collector may require and except on presentation of an application in the proper, form and on obtaining the permission of the proper officer on the form. Under sub-rule (2), if any excisable goods are, in contravention of sub-rule (1) deposited in, or removed from any place specified therein, the producer or manufacturer thereof shall pay the duty levy on such goods upon written demand made by the proper officer, whether such demands delivered personally to him, or is left at his dwelling house, and shall also be liable to a penalty which may extend to two thousand rupees, and such goods shall be liable to confiscation. Rule 10 on the other hand provides for recovery of dues or charges which have been short levied through inadvertence, error, collusion or misconstruction on the part of an officer, or through misstatement on the part of the owner, but the important requirement under Rule 10 is that a written demand should be made by the proper officer within three months from the date on which duty or the charge was paid or adjusted. Rule 10-A is a residuary rule, which provides that where the rules do not make specific provision for the collection of any duty or of any deficiency in duty if the duty has for any reason been short levied, or of any other sum of any kind payable to the Central Government under the Act or the Rules, such duty, deficiency in duty or sum shall, on a written demand made by the proper officer, be paid to such person and at such time and place as the proper officer may specify. It is, therefore, clear that if this is not a case of evasion or of clandestine removal, the case cannot fall under Rule 9 and no demand can be made under Rule 9(2). The Supreme Court pointed out in N. B. Sanjana's case (supra), that sub-rule (2) of Rule 9 is a penal provision as shown from the fact that apart from the duty payable, the party is also made liable to a penalty and he also incurs the risk of the goods being confiscated. To attract sub-rule (2) of Rule 9, the goods should have been removed in contravention of sub-rule (1). Even if it were to be held that the goods were removed on mere requisition slips without presentation of AR-1 form, it cannot attract Rule 9 in the present case in view of the attitude taken up by the Inspector of Central Excise at Mithapur as far back as July, 1961. It must be held that the Excise Authorities themselves represented to the petitioner Company that the goods could be removed duty free on mere requisition slips and that presentation of AR-1 forms was not necessary and getting of 'NIL' endorsement was not necessary for removing soda ash from the factory premises.
25. In view of the decision of the Supreme Court in Union of India v. Anglo Afghan Agencies A.I.R 1968 S.C. 718 at page 726, the Excise Authorities are precluded from putting this contention of AR-1 form not having submitted in as much as by asking the petitioner-Company not to present AR-1 form, the Excise Authorities themselves represented to the petitioner-Company that the procedure of removing duty free soda ash for use within its factory merely on requisition slips was the proper procedure and on the basis of that procedure thus enjoined by the Excise Authorities on the petitioner-Company, the petitioner Company went on clearing the goods for the period right upto April 4, 1963. If it had been pointed out by the Excise Authorities to the petitioner-Company that the procedure of clearing the goods on requisition slips was not the correct procedure and that for want of compliance with the correct procedure, the petitioner-Company would be liable to payment of excise duty either the correct procedure would have been complied with or the petitioner Company would have paid and in turn recovered the excise duty from its customers in due course of time. The Excise Authorities appear to have realised the position nearly two years later and in the meanwhile, the petitioner Company went on clearing the duty free soda ash on requisition slips and did not pay the duty to the Excise Authorities nor did it collect excise duty from its customers. Under these circumstances, the principle laid down by the Supreme Court in Anglo Afghan Agencies case (supra) must clearly apply and the Excise Authorities cannot be permitted to adopt this particular stand regarding AR-1 form when the petitioner Company has acted on the strength of the representations made by the Excise Authorities. Since the representation of the Excise Authorities was that use of AR-1 form for clearance of duty free soda ash was not required and further AR-1 form filled in by the petitioner-Company was returned and the petitioner-Company was asked to fill in requisition slips, it does not lie now in the mouth of the Excise Authorities to say that the petitioner-Company should suffer because AR-1 form was not filled in on different occasions. Under these circumstances, the Excise Authorities are precluded, in our opinion, from contending that the case of the petitioner Company would fall under rule 9 simply because AR-1 form was not filled in at the time of clearing the duty free soda ash in the past.
26. It is clear in the light of the decision of the Supreme Court in N. B. Sanjana's case (supra), that the word "paid" occurring in Rule 10(1) means "ought to have been paid", and that being the case, in computing the period under Rule 10(2) we have to compute the period of three months not from the date on which the duty was short levied but from the date it ought to have been paid; and that means that all the duty free clearance of soda ash which has reference to the period prior to three months immediately preceding the demand must have been time barred and no demand in respect of such clearance can be made. It is clear taking the case of the Excise Authorities at its highest it was through misinterpretation on the part of the Excise Authorities that upto April 4, 1968 the goods were allowed to be cleared without payment of duty in that behalf. It was either through inadvertence, error or misconstruction on the part of the officer or officers concerned that soda ash was allowed to be cleared duty free for use within the factory of the petitioner-Company right down till April, 4, 1963. Therefore, when the Demand notice was issued on July 3, 1963, that Demand Notice just beyond the period of time mentioned in Rule 10. It is clear from the language of Rule 10-A that it is a residuary rule and only applies when other rules do not make any provision in that behalf. In the instant case since we have come to the conclusion that it was through inadvertance, error or misconstruction on the part of the Excise Officers that soda ash was allowed to be cleared duty free prior to April 4, 1963. The case would clearly fall under Rule 10 and Rule 10-A has no application in this connection.
27. In view of these conclusions of ours, both these Special Civil Applications are allowed. In Special Civil Application No. 585 of 1968, the impugned orders of the Excise Authorities, being Demand Notice for Rs. 1,71.098.10P, the order of the Assistant Collector confirming the demand, the order of the Collector dismissing the appeal and the order of the Central Government dismissing the Revision Application are each one of them quashed and set aside. The respondents are enjoined and directed by a writ of Mandamus not to enforce the demand notice for Rs. 1,71,098.10P or any other sum in respect of the soda ash cleared without payment of excise duty during the period April 24, 1961 to April 13, 1962.
28. Special Civil Application No. 394 of 1968 is allowed and the orders of (i) the first and second Respondents in the first batch of cases and (ii) the first, third, fourth and fifth Respondents in the second and third batch of cases and (iii) the first and third Respondents in the fourth batch of cases and the Orders, Annexures C-1, C-2, C-3, C-5 and C-6 are quashed and set aside. The respondents are directed to refund to the petitioner the sum of Rs. 1,28,017.22P.
29. In the result, both the Special Civil Applications are allowed and rule is made absolute in each matter the respondents must pay the costs of the petitioner in each of these two matters.
30. Mr. Shelat, appearing for the respondent, applies for a certificate for leave to appeal to the Supreme Court under Art. 133(1)(b) of the constitution. It is clear from the facts which we have discussed above that in each of these Special Applications the amount directly or indirectly involved is far in excess of Rs. 20,000. Hence we direct that a certificate under Art. 133(1)(b) be issued in each of these matters. Mr. Shelat undertakes to apply for an urgent certified copy of this judgment in course of today. The direction regarding refund of Rs. 1,28,017.22P not be enforced for a period of four weeks from the date of the certified copy of the judgment is ready.