Customs, Excise and Gold Tribunal - Delhi
Castrol Ltd. vs Collector Of Central Excise on 31 December, 1984
Equivalent citations: 1985(21)ELT333(TRI-DEL)
ORDER V.T. Raghavachari, Member (J)
1. The appellants M/s. Castrol Limited were manufacturing blended and compounded lubricating oil without use of power and were, therefore, enjoying the exemption under Notification No. 143/71, dated 26-7-1971. On replacement of the above notification by Notification No. 36/1973, dated 1-3-1973 they became disentitled to the exemption. But with reference to stocks held by them on the midnight of 28-2-1973, i.e. manufactured during the period when they were entitled to exemption, they claimed they are not liable to pay duty as the manufacture had been during the period when the exemption notification was applicable. But since the clearances thereof were subsequent to the midnight of 28-2-1973 the department claimed that duty was payable as at the time of clearances the notification had been replaced. After payment of duty under protest the appellants made an application for refund. This was rejected by the Assistant Collector of Central Excise, Ranchi on the ground that though the manufacture may have been at a time when exemption was applicable the clearances were at a time when duty was payable after withdrawal of the exemption and hence duty had been rightly collected. This order was affirmed on appeal by the Appellate Collector of Central Excise, Calcutta under order dated 10-7-1980. The revision petition to the Government of India against the said order has been transferred to this Tribunal and is being disposed of as an appeal under this order.
2. Sri P.R. Biswas, Consultant, appeared for the appellants and Sri S.N. Khanna, Senior Departmental Representative, for the department.
3. The appellants relied upon several decisions of High Courts, and also an order of the Supreme Court, in support of their contention that if manufacture had been at a time when no duty was payable by reason of an exemption notification then no duty can be recovered even if the clearances were subsequent to the withdrawal of the exemption notification. On the other hand the department relied upon certain other decisions of High Courts to the contrary as also a decision of this Tribunal in ED(SB)(T) A. No. 346/81-C, dated 31-7-1984.
4. The decisions in favour of the appellants are :-
(i) Kirloskar Brothers Limited v. Union of India (1978 E.L.T. 33) (Madhya Pradesh), dated 26-4-1974 ;
(ii) Union of India v. Delhi Cloth and General Mills (1978 E.L.T. 177 (Allahabad); and
(iii) Sirpur Paper Mills Limited v. Union of India 1984 (17) E.L.T. 217 (Andhra Pradesh), dated 16-7-1984.
As against the decision of the Madhya Pradesh High Court cited supra an application for Special Leave to Appeal had been filed in the same Court and the dismissal thereof is reported in Union of India v. Kirloskar Brothers (1978 E.L.T. 690) (Madhya Pradesh), dated 30-7-1975. Subsequently a Special Leave Petition had been dismissed by the Supreme Court on 1-9-1977, the order being "SLP Dismissed on Merits".
In all the above decisions of the Madhya Pradesh, Allahabad and Andhra Pradesh High Courts it had been held that if a commodity had been manufactured at a time when no duty was payable thereon by virtue of any exemption notification then no duty could be levied and collected even if the clearances were subsequent to the withdrawal of the exemption notification. So far as the order of the Supreme Court is concerned the same was only to the effect that the Special Leave Petition was dismissed on merits but there was no detailed judgment giving reasons, in affirming the order sought to be appealed against.
5. The decisions to the contrary and relied upon by the department are :-
(i) Union of India v. Elphinstone Spinning and Weaving Mills (1978 E.L.T. 680) (Bombay), dated 20-1-1978 ;
(ii) Alembic Chemical Works Company Limited v. Union of India (1979 E.L.T. 258) (Gujarat), dated 18-7-1975 ;
(iii) Kesar Sugar Works v. Union of India (1983 E.C.R 139) (Allahabad); and
(iv) Shree Synthetics Limited v. Union of India (1982 E.L.T. 97) (Madhya Pradesh), dated 16-1-1982.
These judgments have held that irrespective of the fact that at the time of manufacture no excise duty could be levied by reason of an exemption notification, the department would be entitled to collect excise duty if on the date of the clearance of the goods duty was payable. The Bombay High Court as well as the Allahabad High Court (in the above judgments) had held that though the article may not have been even excisable at the time of manufacture, duty could yet be collected if at the time of clearance duty was payable.
6. The Bombay High Court (at page 686 of the report, has, in fact, observed as follows :
"We do not find any warrant in the Act or the Rules to spell out a construction that it is only the stage of manufacture or production of goods which attracts duty. The scheme of the Act is that a duty of excise is levied on certain goods which are specified in the First Schedule to the Act. The qualifications so far as the classes of goods on which the duties are levied are two, namely-(1) that they must be specified in the First Schedule as being subject to a duty of excise and (2) they must be produced or manufactured in India. Section 3 does not itself specify the point of time at which the duty is to be levied or imposed. It requires the levy of the duty and the collection of the amount of duty to be prescribed by the Rules. The combined effect of Section 3 and Rules 7, 9 and 9-A so far as the present case is concerned, is that in the case of the mills the duty was attracted on the goods in question on the date of the actual removal of the goods from the mills' factory. The point of time at which we have to see whether the goods were liable to duty would be thus the dale of removal of the goods from the factory or warehouse and not the date of manufacture or production, for the date when the goods were sought to be removed from the factory or of warehouse they were goods of the description mentioned in on of the items in the First Schedule as being subject to a duty of excise and were goods which were manufactured or produced in India they could not be removed unless duty at the rate set-forth in the First Schedule to the Act was paid."
7. It may be noted that thus so far as the Allahabad High Court is concerned there are two conflicting judgments and similarly with reference to the Madhya Pradesh High Court. In the decision reported in 1982 E.L.T. 97 the Madhya Pradesh High Court had in fact taken into consideration its earlier decision and also the dismissal by the Supreme Court of the Special Leave Petition but had yet held in favour of the department in the manner mentioned above. The decision of this Tribunal referred to in para (3) supra did not deal with a case of manufacture of a commodity during exempted period but removed subsequent to the withdrawal of the exemption. It dealt with the case of a commodity which was manufactured when it fell under Tariff Item 68 but removed after it was brought under Tariff Item ISA. It was in that connection held, following 1978 E.L.T. 680 that duty as on the date of removal was payable.
8. It is, therefore, in the background of all the above decisions that this appeal has to be disposed of. Of the above decisions the latest in point of time is that of the Andhra Pradesh High Court reported in 1984 ((7) E.L.T. 217. In the said decision all the decisions of the various High Courts as also the order of the Supreme Court mentioned earlier have been taken in to consideration in finding against the department on the question of the right to collect duty on commodities manufactured during the time when an exemption notification was in force. May be it will be open to this Tribunal, as held in the Alma Steel case 1984 (17) E.L.T. 532, in cases of conflicts between several High Courts to choose to follow the decision which appears to be most appropriate to the facts of the given case before the Tribunal. But there can be no such approach if there is a decision of the Supreme Court on the matter at issue, since this Tribunal would be bound to follow the decision of the Supreme Court irrespective of conflicts between the High Courts.
9. It has been already seen that the Madhya Pradesh High Court had in 1978 E.L.T. 33 held that in respect of goods manufactured during a period when they were exempted from payment of duty under a particular notification the department could not demand duty on the basis that the clearances of the goods were subsequent to the withdrawal of the notification. It has also been seen that when the Government applied to the Madhya Pradesh High Court for leave to appeal to the Supreme Court the same was dismissed under the decision reported in 1978 E.L.T. 690. It has also been seen that when a Special Leave Petition was filed before the Supreme Court the same was dismissed, the dismissal being specified to be on merits though" no detailed judgment was pronounced. The question is as to what would be the effect of such an order, whether it should be deemed to have-been by way of affirmation of the principles laid down in the judgment sought to be appealed against or without such specific affirmation. When this question had to be considered by the Madhya Pradesh High Court itself in the decision reported in 1982 E.L.T. 97 the said Court had observed-
"the order of the Supreme Court does not give any reasons. The words 'dismissed SLP on merits' are too vague for declaration of any law under Article 141 of the Constitution,"
On the other hand, the Andhra Pradesh High Court in its judgment reported in 1984 (17) E.L.T. 217 has observed-
"Likewise the contention in regard to the dismissal of the SCLP on merits by the Supreme Court passed on September 1, 1977 against the aforesaid judgment of the Madhya Pradesh High Court in Kirloskar's case, it should not be taken to be really a decision on merits, also merits no consideration, as it is fairly settled by now that when the Court records its order as dismissal on merits, it must be taken to have been a decision on merits."
Thus, on this question as to the effect of an order by the Supreme Court by way of dismissing a SCLP on merits, without a detailed order, there is a conflict between the High Courts. But it may be noted that even the Madhya Pradesh High Court in its decision reported in 1982 E.L.T. 97 has sought to distinguish the order of the Supreme Court on the basis that in the case out of which that proceedings arose the goods were totally exempted from duty at the time of manufacture, whereas in the case then being considered by the Madhya Pradesh High Court there was only partial exemption from duty at the time of manufacture. But it should be noted that in the present case the goods were totally exempted from duty at the time of manufacture by reason of an exemption notification. Therefore, the reason mentioned by the Madhya Pradesh High Court for distinguishing the Supreme Court order would no! apply to the facts of the present case.
10. It is, therefore, seen that in respect of a commodity which though excisable was totally exempted from duty by reason of an exemption notification the Supreme Court had affirmed the judgment of the Madhya Pradesh High Court wherein it had held that in respect of such goods manufactured during the period of exemption no duty could be demanded though they were cleared subsequent to the withdrawal of the notification. This is the view in the latest judgment on this point by the Andhra Pradesh High Court.
11. In the circumstances we are of opinion that this Tribunal is bound to follow the same principle in the present case also, as the facts are identical to the facts in the case in which the Supreme Court passed its order dated 1-9-1977.
12. We, therefore, hold that the appellants were entitled to the refund claimed. Accordingly, this appeal is allowed and the orders of the lower authorities are set aside, with consequential relief.
H.R. Syiem, Member
13. This Tribunal has held in Order No 367/84-C, dated 12-6-1984 and Order No. 420/84-C, dated 29-6-1984 that the rate of duty on the day of removal must be the rate that should be applied. These decisions of this Tribunal receive support from two decisions of the Supreme Court both delivered after the order of 1-9-1977 (b-y the Supreme Court) in the Kirloskar case. The first in the Prakash Cotton Mills v. B. Sen-Civil Appeal Nos. 1992-1997 and 2219 of 1969 decision delivered on 25-1-1979, To the question "whether the Customs authorities were justified in applying the rate of duty (to the imported goods in question) according to the rate prevalent on the date of their actual removal from the warehouse", to use the Court's own words, the Court answered "the clear requirement of Clause (b) of Sub-section (1) of Section 15 of the Act that the rate of duty, rate of exchange and tariff valuation applicable to any imported goods shall be the rate and valuation in force on the date on which the warehoused goods are actually removed from the warehouse".
14. Section 15 (1) (b) of the Customs Act, 1962, provides that-
"the rate of duty, rate of exchange and tariff valuation, if any, applicable to any imported goods shall be the rate and valuation in force,-
(a) ...
(b) In the case of goods cleared from a warehouse under Section 68, on the date on which the goods are actually removed from the warehouse ;
(c) ...
15. The Court ruled that it was the rate of duty as current on the date of the removal of the goods and not the rate of duty that was current before that date of removal that should be applied. Although, this is a decision that arose from a dispute regarding the rate of exchange as applicable before and after the date of removal, the Court, going into Section 15, observed that the rate of duty that had to be applied in accordance with the law was the one prevalent on the date the goods were removed from the warehouse. The true spirit of this decision is that when goods on which the duty had not been recovered are to be assessed to duty, and if there is one rate of duty -claimed by the assessor and another by the assessee, it is the rate of duty current on the day on which the goods are removed and assessed for the purpose of payment of duty that should be applied and not the rate of duty that may have been leviable but which was not levied and collected, even though it may have arisen as a possible rate of duty for the goods Thus, imported goods placed in a warehouse could be assessed at one rate of duty when they enter the warehouse ; but when they are removed, an if the duty has been raised or lowered in the meantime, they must be assessed on the rate applicable on the date relevant for such application. In the case of warehoused goods, it will be the rate in force on the date on which the goods are actually removed from the warehouse. And this is the last rate that can possibly be relevant or applicable to the goods.
16. it might be argued that this decision of the Prakash Cotton Mills is not applicable to our present problem because the Supreme Court was concerned with a dispute under the Customs Act in respect of imported goods, while the present problem is in respect of goods manufactured in India and the law is the Central Excises and Salt Act, 1944. Such an argument fails to comprehend the true spirit of the decision of the Supreme Court. Rule 9A of the Central Excise Rules, 1944, has provisions very similar to Section 15 of the Customs Act, 1962. The relevant part of this central excise rule runs as follows-
"the rate of duty and tariff valuation, if any, applicable to any excisable goods shall be the rate and valuation in force,-
(i) ...
(ii) In the case of goods (removed) from a factory or a warehouse, subject to Sub-rules (2), (3) and (3A), on the date of the actual removal of such goods from such factory or warehouse."
17. The event that sets in motion the rate of duty of central excise is the removal of the goods from a factory for sale and consumption. Various duties could have arisen in respect of the goods from the time they are manufactured till the duty on them is paid. If the duty is paid a considerable time after the manufacture, there can be two or three rates of duty. But according to this law it is the rate of duty in force on the date on which the goods are cleared. [This rule also applies to goods removed from the warehouse, but we are concerned with direct clearance here]. The principle is the assessment of duty that becomes necessary on the removal of the goods. Under central excise law (Rules 9 and 49), duty is not recovered until the goods are removed from a factory. Here also the question of the rate of duty arises when assessment is to be made for the purpose of payment of duty and that assessment is made when goods are about to be removed. This will be the last rate of duty that might become applicable to goods manufactured in a factory. If we apply the spirit of the Prakash Cotton Mills judgment truly and faithfully, we cannot evade the conclusion that it is the rate of duty in force at the time when duty is to be assessed for actual recovery, that is to say, at the time of removal, that should be applied. [There are different provisions for determining the rate of duty in different circumstances. The date of payment of duty, for example, determines the rate of duty when goods lost in storage in a factory are to be assessed].
18. We now come to the second decision of the Supreme Court. The decision of the Madhya Pradesh High Court Kirloskar Brothers Limited v. Union of India (and which culminated in the decision of the Supreme Court on 1-9-1977) was based on the premise that excise duty was a tax on manufacture or production, and that therefore, the material time under Section 3 of the Central Excises and Salt Act, 1944, would be the rate of manufacture or production. In its judgment delivered on 7th October, 1983, in the case of Union of India v. Bombay Tyre International Ltd., Civil Application Nos. 2269/80, 2679/79, 2619/77 and Ors., the Supreme Court observed in a long and detailed judgment that even though excise is a tax on manufacture or production of goods, it was unable to accept the proposition that "the old Section 4 denned the value of an excisable article in terms of the manufacturing costs and manufacturing profits exclusively" and that "from an examination of the provisions of the new Section 4 that a similar conclusion must follow". It quoted from Seervai's Constitutional Law of India the following words-
"Another principle for reconciling apparently conflicting tax entries follows from the fact that a tax has two elements : the person, thing or activity on which the tax is imposed and the amount of the tax. The amount may be measured in many ways ; but decided cases establish a clear distinction between the subject-matter of a tax and the standard by which the amount of tax is measured. These two elements are described as subject of a tax and the measure of a tax."
19. The Court observed the levy of a tax is denned by its nature, while the measure of the tax may be assessed by its own standards. The Court further went on to say that when enacting a measure to serve as a standard for assessing the levy, the legislature need not contour it along lines which spell out the character of the levy itself. Viewed from this stand point, the Court said, it is not possible to accept the contention that because the levy of excise is the levy on goods, manufactured or produced, the value of an excisable article must be limited to the manufacturing costs and the manufacturing profit In paragraph 15 of this judgment, the Court said that Section 4 envisages a method of collecting tax at the point of the first sale effected by the manufacturer.
20. This decision was, of course, as we all know, a decision on the problems of valuation under Section 4 of the Central Excises and Salt Act, 1944. The manufacturers and several High Courts had held that only the manufacturing cost and the manufacturing profit should form the asssessable value of the goods : that is to say, the costs and profits that arise at the time when the goods are manufactured, and that the value arrived in that manner should govern the pricing and assessment of the goods even when they are cleared subsequently. As a consequence, this would also mean that if the goods undergo a revision in price because of the market operations, the price arrived at on the basis of the cost of manufacturing and the profits at the time of manufacturing should continue to hold as the assessable value of the goods. The Supreme Court dismissed these claims saying that even though excise duty was on goods manufactured, the assessable value for the purpose of assessment to duty of excise cannot be held down to the price arrived at by including only the manufacturing costs and manufacturing profits but that it should also include other elements that arise subsequent to the act of manufacturing. One reading of the judgment will convince anyone that the Supreme Court pronounced that, except for certain permissible deductions, the price of the goods at the time of removal has to be taken as (he assessable value under Section 4. Thus, we arrive again at the day of removal and this day even in respect the assessable value will be the last of different possible values that might apply to the goods because of market fluctuations, demand and supply, etc. etc. It is not difficult to draw the conclusion from this that even though excise duty is levied on manufactured goods, the act of manufacture is not relevant for the purpose of assessment to duty of excise.
21. The act. of assessment to duty under Section 4 of the Central Excises and Salt Act, 1944, has two important components-(i) the assessable value and (ii) the rate of duty. If the assessable value is to be determined with respect to the last possible moment that the goods are in the central excise taxing authorities' sapience and cognition, it is reasonable to say that the same would be true of the rate of duty also.
22. The above two rulings of the Supreme Court will enable us to say that the rate of duty should be the rate of duty on the day of removal of the goods and not any rate of duty that may have been current or applicable before that event. The decisions of the Bombay High Court in the Elphinstone Spinning and Weaving Mills case and of other High Courts also support this reasoning and conclusion :
(i) Union of India v. Elphinstone Spinning and Weaving Mills (1978 E.L.T. 680) (Bombay) dated 20-1-1978.
(ii) Alembic Chemical Works Company Ltd. v. Union of India (1979 E.L.T. 258) (Gujarat) dated 18-7-1975.
(iii) Kesar Sugar Works v. Union of India (1983 E.C.R. 139) (Allahabad) ; and
(iv) Shree Synthetics Limited v. Union of India (1982 E.L.T 97) (Madhya Pradesh) dated 16-1-1982.
23. I am accordingly of the view that the action of the lower authorities was correct. I, therefore, reject the appeal.