Customs, Excise and Gold Tribunal - Delhi
Sirpur Paper Mills Ltd. vs Collector Of Central Excise on 9 January, 1984
Equivalent citations: 1984(16)ELT546(TRI-DEL)
ORDER G. Sankaran, Member (T)
1. The captioned appeal was initially filed as a Revision Application before the Central Government, which, under Section 35-P of the Central Excises and Salt Act, 1944, has come as transferred proceedings to this Tribunal for disopsal as if it were an appeal filed before it.
2. The interesting point of law which arises for decision in the present case is regarding the levy of special excise duty on goods manufactured before the said levy came into force but cleared later. The appellants are manufacturers of paper and paper board which is an excisable item since long. The Finance Bill of 1978 imposed, with effect from 1-3-1978, special excise duty on all excisable goods at the rate of l/20th of the duty of excise chargeable under the First Schedule to the Central Excises and Salt Act read with any Notification in relation to such duty for the tims being in force. It appears that the appellants had, as at the midnight of 28-2-78/1-3-78, certain quantities of paper and paper board in a fully manufactured condition. They cleared these goods on and from 1-3-1978 on payment of not only the duty of excise in terms of the First Schedule to the Act (we may call this basic excise duty), but also special excise duty in terms of the provisions of the Finance Bill of 1978. Later on, they claimed refund of the amounts of special excise duty paid on these goods on the ground that the levy was not attracted in respect of these goods. The refund claim and the subsequent appeal did not meet with success and hence the present appeal.
3. In the Memorandum of Revision Application (the appeal before us), the following grounds are urged :-
(a) Special excise duty is not in the nature of a change or increase in the rate of basic excise duty. It is a fresh levy and, therefore, it applies only to goods manufactured and brought into existence from the mid-night of 28-2-78/1-3-78 ;
(b) As a corollary, the levy of special excise duty is not applicable to goods that had already been manufactured on which basic excise duty had already accrued and which were lying in the appellants' premises as at the mid-night of 28-2-78/1-3-78 ;
(c) Recourse to Rule 9A of the Central Excise Rules by the lower authorities for justifying the levy of Central Excise duty on such goods was not tenable. The charging Section is Section 3 of the Act. The goods in question were in a fully manufactured condition and basic excise duty in terms of Section 3 has already accrued thereon, but not special duty which was a new impost effective from 1-3-1978 ;
(d) The Finance Bill of 1978 did not make the levy of special excise duty retrospectively applicable.
In short, the contention of the appellant is that special excise duty being a new and additional impost and not being a change in the existing rates of basic excise duty, it is correctly and legally leviable on the goods manufactured or brought into existence from the mid-night of 28-2-78/1-3-78. The said levy being not applicable retrospectively was not attracted to clearances of goods that were in a fully manufactured and ready-for-delivery condition in the appellants' premises as at the said mid-night. In support of this contention, they placed reliance on certain judicial pronouncements to which we shall make reference later.
4. The appeal was heard on 5-9-1983. Shri Tulsidas Nayudu, Consultant for the appellants, submitted that the taxable event for the levy of excise duty is manufacture or production of goods. In support of this proposition, he cited several judgments. In support of his submission that special excise duty was not attracted in the case of the subject goods, he placed reliance on the judgment of the Madhya Pradesh High Court in Kirloskar Bros. Ltd., Dewas. v. Union of India and Ors., 1978 E.L.T. J 33 and in Union of India v. Kirloskar Bros., 1978 E.L.T. J-690. The Special Leave Petition filed by the Union of India in the Supreme Court against the said judgment was dismissed by the Supreme Court and, therefore, the law laid down in the Kirloskar's case was binding. Shri Nayudu also stated that the original authority had not served a show cause notice on the appellants before rejecting their claim for refund of the special excise duty paid by them. However, he submitted that he was not pressing this point.
5. Appearing on behalf of the Respondent, Smt. Vijay Zutshi, SDR, submitted that the Kirloskar's case arose out of a situation in which the goods under consideration were not subject to any duty at all during a particular period of time by virtue of an exemption Notification and on withdrawal of the said Notification, the Department sought to charge duty on the goods manufactured at a time when the exemption was in force but cleared subsequent to the withdrawal of the exemption. Such was not the case before us. Here, piper and paper board were always liable to the excise duty and the effect of the levy of special excise duty was to increase the incidence of that duty by l/20th. She submitted that the rate of duty leviable had to be determined with reference to the date of the clearance of the goods and not the time of manufacture. In support of this proposition, the SDR cited the decision of the Bombay High Court in Elphinstone Spinning & Weaving Mills Ltd., 1978 ELT. J 680, of the Madras High Court in Tamil Nadu Handloom Cooperative Society Ltd., 1978 ELT J 56 and of the Gujarat High Court in Alembic Chemical Ltd., 1979 E.L.T. 258. Had the subject goods been free of basic excise duty prior to 1-3-1978, Smt. Zutshi submitted, the appellants might have had an arguable case. We have carefully considered the submissions of both sides. The proposition that excise duty is a tax on manufacture or production of goods is too well known and reiterated often by the Supreme Court that it is not necessary for us to deal with the several judgments cited by the appellants in support thereof. The question before us is whether special excise duty, which admittedly was levied for the first time by Section 37 of the Finance Act of 1978 and which was brought into force from the mid-night of 28-2-1978/1-3-1978, is attracted on goods whiten were manufactured prior to 1-3-1978 but cleared on or after 1-3-1978. Boch sides have cited certain judicial pronouncements in support of their respective stands. In Kirloskar Bros. Ltd., Dewas v. Union of India and Ors. (1978 E.L.T. J 33), a learned single Judge of the Madhya Pradesh High Court held that the liability for excise duty would arise no sooner its manufacture or production is completed and that it is immaterial as to what machinery may be devised by the Central Government under the rule making powers for recovery of the duty. The point of recovery of any restriction on removal will not be the determining factor for grant of exemption in respect of goods manufactured during the duty-free period. In the case before the Court the goods were exempted from duty by virtue of a Notification under Rule 8(1) of the Central Excise Rules. Later this exemption was withdrawn. The Excise authorities sought to collect duty on the goods which were manufactured during the period of exemption but cleared subsequent to withdrawal of the exemption. The Court held that the levy of duty was not warranted by law.
6. The judgment referred to in the preceding paragraph was appealed against by the Union of India and a Division Bench of the Madhya Pradesh High Court in its judgment dated 30-7-1975 [1978 ELT (J 690)] reiterated the position that excise duty being a tax on manufacture or production, the material time for liability of excise duty under Section 3 of the Central Excises and Salt Act will be the date of manufacture or production. Therefore, if the Notification withdrawing the exemption came into effect from 16-3 1972 (the relevant date in that case) and had no retrospective operation, the excisable articles which were in stock till 16-3-1972 were exempt from excise duty and excise duty would be payable on excisable articles produced or manufactured on 17-3-1972 and onwards only. The Court further held that the liability for payment of excise duty would not be determined with reference to Section 4 or the Rules made thereunder where exemption had for the first time been rovoked and an article had been made subject to excise duty with effect from a particular date.
7. In the case before us, the goods attracted excise duty even prior to 1-3-1978, but special excise duty was not in force. With effect from 1-3-1978, in addition to basic excise duty, an additional levy of special excise duty came into force. The situation, therefore, is not on all fours with that in theKirloskar's case.
8. The Union of India took up the aforesaid judgment of the Madhya Pradesh High Court in SLP to the Supreme Court. The Supreme Court dismissed the SLP on merits.
9. As against the aforesaid judgment, the Senior Deptl. Representative has cited the judgment of the Bombay High Court in the Union of India& Others v. The Elphinstone Spinning & Weaving Co. Ltd. [ 1978 ELT (J 680)] in which the Division Bench held that there was no warrant in the Central Excise Act or the Rules to spell out a construction that it was only the stage of manufacture or production of goods which attracts duty. Therefore, if on the date when the goods are removed from the place of manufacture, they are specified in Schedule I (to the Central Excises and Salt Act), they cannot be removed unless duty is paid on them, even though such goods have been manufactured when there was no excise duty on them. Their Lordships further held that, though the very basis of excise was the factum of manufacture or production in the country, that fact would not mean that a duty or a tax which is imposed upon articles manufactured or produced in the country must be levied at the time of manufacture or production. Once goods have been produced or manufactured in the country, the levy of duty can be imposed in respsct of these goods at any subsequent stage subject to the qualifications laid down by the Federal Court, Privy Council and the Supreme Court that such levy does not impinge upon the exclusive legislative power of the State Government. In this view of the matter, the Court held that the Respondents in that case were liable to pay excise duty under Item 22-B on goods of the description falling under that Item when they sought to remove such goods from the factory an or after the mid-night of 29-2 1968 and that the fact that these goods might have been manufactured prior to that date was irrelevant to the liability to pay the excise duty. The Court did not find it necessary to consider or decide the other contentions raised in the appeal, namely, that Item 22-B did not introduce a new head of excise duty but provided merely for alteration in the rate of duty.
10. The same proposition was laid down by a Division Bench of the Gujarat High Court in Alembic Chemical Works, Baroda v Union of India (1979 E.L-T. J 258) wherein their Lordships held that when a concession flows from the (Central Excise) Rules, the effect of withdrawal of that concession would have to be judged by the relevant Rules themselves which provide a crucial date for this purpose in the relevant Rule 9-A that the rate of duty shall be the duty in force at the time of removal of these goods.
11. In Tamil Nadu Handloom Weavers Co-operative Society Ltd. v. Assistant Collector of Central Excise, Erode, 1978 E.L.T. (J 57)-referring to the definition of the term "excisable goods" (Section 2(d) of the Central Excises and Salt Act: "excisable goods" means goods specified in the First Schedule as being subject to a duty of excise and includes salt;"]-the Madras High Court held that the words "as being subject to a duty of excise" were only descriptive of the goods specified in the First Schedule and had no reference to the factum of their liability to duty. The character as excisable goods does not depend on the actual levy of duty but on the description as excisable foods in the First Schedule to the Act.
12. The Madhya Pradesh High Court in Shree Synthetic Ltd., Ujjain v. Union of India and Ors.-1982 E.L.T. 97(M.P), decided on 16-1-82, held as follows:-
"It is not possible to accept the argument that Section 3 impliedly applies the rates of duty as in force on the date of manufacture or production for the reason that though excise duty is a tax on manufacture or production it need not necessarily be levied at the stage of manufacture or production and it may even be levied at the stage the excisable article reaches the retailer. This inference is further supported from Section 4 of the Act which deals with determination of value for purposes of duty. The material point of time with reference to which the value is determined under that section is the time of removal of the article chargeable with duty from the factory and not the time when it is manufactured or produced. As Section 3 or any other provision of the Act does not expressly or impliedly lay down that excise duty must be levied at the rate prevailing on the date of manufacture or production, it was open to the Central Government to make rules for fixing the time with reference to which the rate of duty must be applied. Rule 9-A(1)(ii) which applies the rate prevailing on the date of actual removal of the goods from the factory or warehouse is valid under Section 37(1) as it carries out the purpose of the Act by prescribing the manner of levy of duty under Section 3."
Referring to the dismissal by Supreme Court of the SLP filed against the judgment of the Division Bench of Madhya Pradesh High Court in Kirloskar Brothers v. Union of India-1978 E.L.T. (J 33), the Court observed as follows:-
"The order of the Supreme Court does not give any reasons. The words 'dismissed the SLP on merits' are too vague for declaration of any law under Article 141 of the Constitution."
13. The Supreme Court in M/s. Shinde Brothers etc. v. Deputy Commissioner, Raichur-AIR 1967 SC 1512 held as follows: -
"In order to be an excise duty (a) the levy must be upon 'goods' and (b) the taxable event must be the manufacture or production of goods. Further the levy need not be imposed at the stage of production or manufacture but may be imposed later. The question whether the particular levy in respect of manufacture or production of goods has to be decided on the fact of each case, but in deciding the question certain principles must be borne in mind. First, one of the essential characteristics of an excise duty is uniformity of incidence. Secondly, the duty must be closely related to production or manufacture of goods. It does not matter if the levy is made not at the moment of production or manufacture but at a later stage. If a duty has been levied on an excisable article but this duty is collected from a retailer, it would not necessarily cease to be an excise duty."
14. Now, we shall examine the matter before us in the light of the above judicial pronouncements. Paper which is the commodity involved herein, was inserted as an item in the First Schedule to the Central Excises and Salt Act in the year 1955. Paper has thus been "excisable goods" within the meaning of Sections 2(d) and Section 3 of the Act since then, in the light of the ratio of the decisions of the Gujarat High Court in the Alembic Chemical Works (1979-E.L.T. J 258) case; of the Bombay High Court in the Elphinstone case (1978 E.L.T. J 680) and the Madras High Court in the Tamil Nadu Handloom Weavers Co-operative Society case (1978 E.L.T. J 57).
15. Section 37 of the Finance Act, 1978 which levied special excise duties for the first time reads thus:-
"37. (1) In the case of goods chargeable with a duty of excise under the Central Excises Act as amended from time to time read with any notification for the time being in force issued by the Central Govt. in relation to the duty so chargeable, there shall be levied and collected a special duty of excise equal to five per cent, of the amount so chargeable on such goods.
(2) Sub-section (41) shall cease to have effect after the 31st day of March, 1979, except as respects thing done or omitted to be done before such cesser, and Section 6 of the General Clauses Act, 1897 shall apply upon such cesser as if the said Sub-section had then been repealed by a Central Act.
(3) The special duties of excise referred to in Sub-section (1) shall be in addition to any duties of excise chargeable on such goods under the General Excises Act or any orther law for the time being in force.
(4) The provisions of the Central Excises Act and the rules made thereunder, including those relating to refunds and exemptions from duties, shall, as far as may be, apply in relation to the levy and collection of the special duties of excise leviable under this section in respect of any goods as they apply in relation to the levy and collection of the duties of excise on such goods under that Act or those rules, as the case may be.
16. It may be seen from Sub-section (1) above that the particularisation of the goods on which special Excise Duty was imposed were achieved by the phrase "goods chargeable with a duty of excise under the Central Excises Act as amended from time to time, read with any notification for the time being in force issued by the Central Government in relation to the duty so chargeable"- other words, goods specified in the First Schedule to the Central Excises and Salt Act subject to the further qualification that any exemption notification under Rule 8(1) must simultaneously betaken note of. In effect, therefore, Special Excise Duty was chargeable on excisable goods on which the Basic Excise Duty was not nil whether because of the Tariff Schedule or the Schedule read with any relevant Rule 8(1) notification. And Special Excise Duty was chargeable at 5 per cent of the Basic Excise Duty. The levy was attracted on all goods on which there was, in effect, a levy of Basic Excise Duty. This provision came into force on 1-3-1978. Though Special Excise Duty was a new levy, its coverage was, as we have noted earlier, all excisable goods which effectively attracted some basic excise duty. Adopting the ratio of the Bombay, Madras and Gujarat High Court judgments referred to and the Supreme Courtjudgment in the Shinde Bros, case, Special Excise duty must be held to be a duty closely related to the manufacture or production of goods. As its very name connotes, it is a duty of excise. But it was leviable on all "excisable goods, that is, goods figuring in the First Schedule to the Central Excises and Salt Act and bearing effectively some Basic Excise Duty and not wholly exempt from Basic Excise Duty. In this view of the matter, the levy of Basic Excise Duty cannot be said to be on all fours with levy of Basic Excise Duty on an article for the first time. It was more in the nature of a surcharge on the basic excise duty already leviable on excisable goods. The test to be applied was whether the goods were chargeable with a duty of excise (Basic Excise Duty) under the Central Excises Act read with any relevant notification for the time being in force. If the answer was in the affirmative, Special Excise Duty was automatically attracted. The date of removal of the goods from the producing factory or warehouse in terms of Rule 9A(I)(ii) would, therefore, in our opinion, be relevant for determining the levy of Special Excise duty and not the date of manufacture of production of the goods. If the excisable goods, in this case paper, were so removed on and from 1-3-1978, Special Excise Duty was attracted since the goods were "excisable goods" as on 1-3-1978 (in fact, even prior to that date) and effectively bore some Basic Excise Duty.
17. In the light of the above discussions, we see no merit in the appeal which we, therefore, dismiss.
M. Gouri Shankar Murthy
18. I regret my inability to agree with my learned Brothers in this case.
19. Admittedly, -
(a) Section 37 of the Finance Act, 1978 by which the Special Excise Duty in question was imposed for the first time became effective on 1-3-1978 ;
(b) it was a new levy : (para 16 supra); and
(c) it is in the nature of a duty of excise levied on all goods chargeable to duty under the Central Excises and salt Act, 1944.
20. It is axiomatic in law that the incidence of a duty of excise is upon the act of manufacture, notwithstanding that due to administrative convenience the actual amount of duty leviable may be assessed and collected on removal from the place of manufacture subsequently.
Thus-
(a) "It is the act of manufacture which attracts the duty even though it may be collected later." (Para 8 of the Judgment of the Federal Court in the Province of Madras v. Boddu Paidanna & Sons- ECR C 84);
(b) "a duty of excise is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced-..
the method of collecting the tax is an accident of administration; it is not of the essence of the duty of excise, which is attracted by the manufacture itself." (Para 21 of the Judgment of the Privy Council in Governor-General-in-Council v. Province of Madras-ECR C 94 Privy Council).
21. Once it is "manufacture" that attracts the levy, qua (Special) Excise and not removal from the place of manufacture and it was not the legislative intent in Section 37 of the Finance Act, 1978 to levy Special Excise Duty retrospectively, it stands to reason that the fresh impost is not attracted to goods manufactured prior to its imposition. Obviously, the manufacture preceded the levy. A levy which is wholly prospective cannot, in the circumstances, be attracted to a "manufacture" that preceded it, notwithstanding that the goods so manufactured have been removed subsequently. That it was leviable on excisable goods should not make any difference as far as the new levy is concerned. There is no warrant for the assumption that the fresh levy was in the nature of a surcharge on the basic excise duty already leviable on excisable goods, when the Act, itself, speaks of a Special Excise Duty rather than a surcharge on the existing duty. Nor does it make for any difference even if it were a surcharge.
22. The test to be applied was not whether the goods were previously chargeable with duty of excise under the Central Excises and Salt Act, 1944, but whether the goods were previously chargeable to the special Excise Duty. If they were not so chargeable at the time of their manufacture, such Special Excise Duty cannot be levied just because their removal takes place after 1-3-78.
23. It is true that in Union of India v. The Elphinstone Spinning and Weaving Co. Ltd. [1978 ELT 680], it was held that duty in terms of Item 22-B, which came into operative force with effect from 2-29-1968, could be levied on goods fully manufactured prior to the said date but removed after the said date. But then, it may, with the utmost respect, be stated that-
(a) it does not appear from para 14 of the judgment that the attention of their Lordships had been specifically drawn to-
(i) the observation "subject always to the legislative competence of the taxing authority, a duty on home produced goods will obviously be imposed at the stage which the authority find to be the most convenient and the most lucrative, wherever it may be; but that is a matter of the machinery of collection and does not affect the essential nature of the tax"
[Occurring a little after the passage extracted from the judgment of Sir Maurice Gwyer, C.J. in the case of In re : The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act-AIR 1938 F.C.I.=FCR C 15-(para 77];
(ii) the statement-"the essence of a tax on goods manufactured or produced is that the right to levy it accrues by virtue of their manufacture or production. It is immaterial whether the goods are actually sold or consumed by the owner or even destroyed before they can be used. If a duty is imposed on the goods manufactured or produced when they issue from the manufactory then the duty becomes leviable independently or the purpose for which they leave it and irrespective of what happens to them later. (Per Sir Shah Mohd. Sulaiman, J. in para 137 of ECR C 15);
(iii) the affirmation that the incidence of Excise Duty is to be distinguished from the point of levy adverted to in para 3 supra in the judgments cited therein.
(b) the emphasis in 1978 E.L.T. 680 on the Rules to justify the conclusion that the liability to duty arises on the date of removal of goods and not their manufacure was misplaced inasmuch as the Rules relate to the mode of assessment and collection rather than determine the point of the incidence of the duty. As stated in para 13 of the case reported in 1978 E.L.T. 127 (Modi Rubber Ltd., Modinagar v. Union of India). "the time and the manner of payment of duty is stated by Rule 9 and it is there that it is stated that no excisable goods shall be removed from a factory or godown of a factory until Excise Duty thereon has been paid in such manner as is prescribed in the Rules. The contention of the Respondent that the effective rate of duty is chargeable only on the value of the goods at the time of the clearance of the goods from the factory does not, therefore, fix the point of the incidence of the duty. It only fixes the point of the assessment of the duty."
(c) rules framed for the purpose of carrying out the legislative intent of the levy of duty on "manufacture" cannot be s construed as to change the point of incidence, as distinguished from assessment, from "manufacture" to "removal".
(d) on remand by the Supreme Court, the Bombay High Court, itself, had, in Amar Dye Chem Ltd. v. Union of India and Ors. [1980 Cen-Cus 242] found that the manufacture of dye in the said case was prior to the introduction of item 14B in the Central Excise Tariff with effect from the midnight of 28th February, 1961 and was thus, not exigible to duty.
24. Nor can the rate of duty prevailing on the date of removal beconfused with the imposition of or charge to duty itself. While the rate imposed on the date of removal is the applicable rate for assessment (Orient Paper Mills Ltd. v. Union of India-AIR 1967 SC 1564=1978 ELT 328) and Rule 9A specified the date with reference to which the duty payable was to be determined (Asstt. Collector of Central Excise, Calcutta v National Tobacco Co. of India Ltd. - AIR 1972 SC 2563 the character of imposition as a duty on the manufacture or production is immutable and cannot be lost sight of. In 1979 E.L.T. 258 (Alembic Chemical Works Ltd., Baordav. U.O.I.) the chargeto duty was very much in existence right from 1-3-69 when protinules became excisable goods No duty, however, was levied because of an exemption notification. Once that exemption was withdrawn, the rate in force determined the rate of duty payable, for the excisable goods never ceased to be excisable during all the relevant periods. The question in the said case was not whether the goods were subject to levy prior to 1-3-69. The issue actually was the determination of the exact rate of duty applicable, once the goods were, admittedly, excisable.
25. In Shree Synthetic Ltd., Ujjain v. Union of India and Ors. (1982 E.L.T. 97), "the goods were exigible to Excise Duty both on the date of manufacture and on the date of removal". (Para 8 of the judgment). It was on this ground that the decision in Union of India v. Kirloskar Brothers (1978 E.L.T. 690) was distinguished by the learned Chief Justice. That case can consequently have no application to the instant case. Even so there are observations in the course of the judgment to the effect that the date of removal is the crucial date for application of the rate of duty only although excise is essentially a duty on manufacture. In the case of Shinde Brothers v. Dy Commissioner, Raichur as well (AIR 1967 SC 1512), the axiomatic proposition that a taxable event must be the manufacture though the levy need not necessarily be at the stage of production or manufacture has been reiterated.
26. From the discussions supra, it would appear that- (a) excise is a duty upon manufacture of goods specified in the First Schedule to the Act;
(b) taxable event is accordingly "manufacture";
(c) the Rules fix the time with reference to which the rate of duty must be applied and not the point of incidence of the duty or the taxable event;
(d) if the taxable event occurs prior to the imposition of the duty, there cannot be any question of levy or assessment to duty afterwards.
27. In the premises, I propose an order allowing the Appeal.