Bombay High Court
Nirlon Synthetic Fibres & Chemicals ... vs State Of Maharashtra on 24 January, 1995
Equivalent citations: 1996(54)ECC50, 1997(96)ELT251(BOM)
Author: D.K.. Trivedi
Bench: D.K.. Trivedi
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference made at the instance of the assessee under Section 61(1) of the Bombay Sales Tax Act 1959, the Maharashtra Sales Tax Tribunal, Bombay has referred the following questions of law to this Court for opinion :
"1. Whether, on the facts and circumstances of the case and on a true and correct interpretation of entry 41 of Schedule A to the Bombay Sales Tax Act, 1959, the sale of the nylon tyre cord fabrics sold under invoice dated August 28, 1980, is exempt from the levy of tax ?
2. Whether, on a true and correct reading of entry 41 of Schedule A to the Bombay Sales Tax Act, 1959 is additional duty of excise levied or leviable under the Additional Duties of Excise (Goods of Special Importance) Act of 1957 ?
3. Whether, on the facts and circumstances of the case and regard being had to section 3 of the Additional Duties of Excise (Goods of Special Importance) Act of 1957 was additional excise duty levied or leviable on the tyre cord fabrics produced and sold by the applicant ?
4. Whether, on the facts and circumstances of the case and true and correct interpretation of the notification dated April 30, 1975, issued under Rule 8(1) of the Central Excise Rules, 1944 was the Tribunal correct in law in holding that no duty is levied or leviable under the Additional Duties of Excise (Goods of Special Importance) Act of 1957 ?"
2. The material facts of the case giving rise to this reference, briefly, stated, are as follows :
The assessee, Nirlon Synthetic Fibres and Chemicals Ltd., is a dealer registered under the Bombay Sales Tax Act, 1959 ("the Act"). It manufactures in its plant at Goregaon, among other things, nylon tyre cord fabrics and sells the same in the State of Maharashtra. On August 28, 1980, the assessee filed an application before the Commissioner of Sales Tax under Section 52(1)(e) of the Act seeking determination of the rate of tax applicable to the sale of nylon tyre cord fabrics made by it to one M/s. Bombay Tyre International of Bombay vide invoice No. 100-D-0032, dated June 28, 1980. The case of the assessee before the Commissioner was that nylon tyre cord fabrics were covered by entry 41 of Schedule A to the Act and hence, sales there of were exempt from sales tax under the Act. The Commissioner did not accept this contention of the assessee because, according to him, "rayon tyre cord fabrics" sold by the assessee did not fall under entry 41 of Schedule A to the Act in view of the specific exclusion of "rayon tyre cord fabrics on which additional duty of excise was not leviable or was not levied" from the ambit of the said entry. The Commissioner noted that the uncontroverted factual position is regard to levy of additional duty of excise on rayon tyre cord fabrics at the material time was that such tyre cord fabrics were exempted from the whole of duty of additional excise by notification issued by the Central Government in exercise of powers under rule 8 of the Central Excise Rules, and in view of the same, no additional duty of excise was leviable or was levied under the Additional Duties of Excise (Goods of Special Importance) Act, 1957, on the manufacture of "rayon tyre cord fabrics" sold by the assessee. He, therefore, held that the "rayon tyre cord fabrics" did not fall under entry 41 of Schedule A to the Bombay Sales Tax Act and hence, fell under entry 10A of Schedule C to the Act and were taxable under the Act at the rate of 3 paise in the rupee.
3. Against the above order of the Commissioner, the assessee appealed to the Maharashtra Sales Tax Tribunal ("the Tribunal"). There was no dispute before the Tribunal that rayon type cord fabrics on which additional duty of excise was not leviable or was not levied under the Additional Duties of Excise (Goods of Special Importance) Act, 1957, were excluded from the purview of entry 41 of Schedule A to the Act. There was also no dispute about the fact that the rayon tyre cord fabrics were exempted from the whole of the additional duty of excise by notification under Rule 8 of the Central Excise Rules. The only contention of the assessee was that such exemption did not affect the "leviability" of the additional duty of excise. The contention, in other words, was that the word "levy" implied "imposition by the Act of the Legislature" and once duty is levied by the Legislature, duty would be "leviable" under the Act even in cases where it is not required to be paid by virtue of full exemption granted under the Act by the Government. This contention of the assessee did not find favour with the Tribunal. The Tribunal held that once a particular item is exempted from the whole of the duty by a notification under Rule 8(1) of the Central Excise Rules, no duty can be said to be leviable thereon under the Additional Duties of Excise Act. Accordingly, the Tribunal held that nylon tyre cord fabrics sold by the assessee did not fall within the purview of the exemption entry 41 of Schedule A to the Act and that it would fall under entry 10A of Schedule C to the Act and sales thereof would be taxable at the rates specified against the said entry. Hence, this reference at the instance of the assessee.
4. For the purpose of appreciation of the controversy raised in the questions referred to us by the Tribunal, it may be expedient to set out the relevant entries of Schedule A and Schedule C to the Bombay Sales Tax Act. Schedule A to the Bombay Sales Tax Act contains the list of goods, the sale or purchase of which is free from all taxes. The State Government has the power to amend the Schedule by adding to or enlarging any entry in the said Schedule or relaxing or omitting any condition or exemption specified therein by a notification in the official gazette. It is clearly provided in Section 5(1) of the Act that if a particular item is specified in Schedule A, no tax shall be payable on the sales or purchases thereof notwithstanding "anything in this Act". Schedule B contains the list of declared goods which are subject to sales tax. We are not concerned in this case with this Schedule. Schedule C contains the list of goods other than declared goods the sale or purchase of which is subject to sales tax and the rates of tax. Entry 41 of Schedule A, with which we are concerned in the present case, originally read as follows :
"41. Rayon or artificial silk fabrics as defined in the First Schedule to the Central Excises and Salt Act, 1944."
The following was added at the end of the above entry by the Maharashtra Act 38 of 1977 with retrospective effect from June 17, 1972 :
"but excluding rayon or artificial silk tyre cord fabrics or warp sheet on which additional duty of excise is not leviable or is not levied under the Additional Duties of Excise, (Goods of Special Importance) Act, 1957."
By the same amending Act, Schedule C was also amended and a new entry, viz., entry 10A was inserted with retrospective effect from June 17, 1972. This entry reads :
"10A. Rayon or artificial Two paise in the Two paise in
silk tyre cord fabrics rupee the rupee"
or warp sheets.
The words "Two paise in the rupee" were substituted by the words "Three paise in the rupee" with effect from October 1, 1972.
We are concerned in this case with entry 41 of Schedule A (as amended) and entry 10A of Schedule C. The dispute pertains to transactions of sale that had taken place on June 28, 1980. It would be useful, therefore, to set out those entries as they stood at that time :
Entry 41 of Schedule A :
"41. Rayon or artificial silk fabrics as defined in the First Schedule to the Central Excises and Salt Act, 1944, but excluding rayon or artificial silk tyre cord fabrics or warp sheets on which additional duty of excise is not leviable or is not levied under the Additional Duties of Excise (Goods of Special Importance) Act, 1957."
Entry 10A of Schedule C :
"10A. Rayon or artificial silk tyre Three paise Three
cord fabrics or wrap sheets in the rupee paise in
the rupee."
5. It may also be appropriate at this stage to refer to the circumstances that necessitated the above amendments with retrospective effect from June 17, 1972 and the object thereof. The circumstances are : In consequences to determination order made by the Commissioner on June 17, 1972, under Section 52 of the Act, since that date "rayon or artificial silk cord fabrics" or "cotton tyre cord fabrics" were being treated as rayon or artificial silk yarn or cotton yarn for the purpose of levy of tax. But the Tribunal, as an appellate authority, by its order dated October 29, 1976, held that rayon or artificial silk tyre cord fabrics were rayon or artificial silk fabrics as defined in the First Schedule to the Central Excises and Salt Act, 1944 and therefore fall under entry 41 of Schedule A to the Bombay Sales Tax Act. As a result of the above order of the Tribunal, rayon or artificial silk tyre cord fabrics and cotton tyre cord fabrics were not liable to any tax under the Act. The State Government was thus faced, not only with recurring loss of revenue by way of sales tax, but also with the liability for refund of all taxes collected by it under the Act since June 17, 1972. To get out of this situation, the Bombay Sales Tax (Amendment and Validating Provisions) Act, 1977 (Maharashtra Act No. 38 of 1977) was enacted to amend the Bombay Sales Tax and to exclude cotton tyre cord fabrics and rayon or artificial silk tyre cord fabrics from the provisions of entries 15 and 41 in Schedule A and to put them as separate entries in Schedule C as entries 1B and 10A with retrospective effect from June 17, 1972. We have referred to these amendments while discussing the legislative history of entry 41 and also set out entry 41 of Schedule A and 10A of Schedule C as amended by the above amending Act. We have omitted reference to entry 15 of Schedule A and entry 1B of Schedule C which deal with "cotton tyre cord fabric" because in the instant case the controversy pertains to rayon tyre cord fabrics only. It may also be pertinent to mention that by the above amending Act necessary validating provisions were also made to save past collections.
6. We have heard the learned Counsel for the assessee. The controversy raised by the assessee before us is really in a very narrow compass. After the amendment of entry 41 in Schedule A and insertion of entry 10A in Schedule C with retrospective effect there is no scope for the controversy that rayon tyre cord fabrics on which no additional duty of excise is leviable or levied under the Additional Duties of Excise Act, are not exempt from sales tax. There is also no dispute about the fact that rayon tyre cord fabrics are exempted from the whole of the additional duty of excise leviable thereon under the First Schedule to the Additional Duties of Excise Act. The limited controversy which needs to be resolved is whether despite the exemption of rayon tyre cord fabrics from the whole of the additional duty of excise, it can be said that additional duty of excise is leviable under that Act in rayon tyre cord fabrics. This controversy is based on the assumption that "levy" means "imposition by the Act of the Legislature." According to the assessee, additional duty of excise levied by the Parliament would not cease to be "leviable" by reason of the exemption granted by the Central Government by a notification issued under Rule 8(1) of the Central Excise Rules. Such exemption notification, according to the assessee, merely prevents the collection or recovery of duty but does not affect the "levy". A distinction was also sought to be made between exemption granted by the statute and exemption granted by a notification issued under the Act or the Rules by the Government. According to the Counsel for the assessee, leviability of duty can be affected only by statutory exemption and not by exemption granted by the Government or the delegated authority by a notification issued under the Act or the Rules.
7. We have given our careful considerations to the above submissions. We however find it difficult to accept the same. The distinction sought to be drawn between exemption granted by the Legislature and exemption granted by a notification made by the delegated authority in exercise of the power conferred upon it by the statute, in our opinion, is wholly misconceived, because it is well-settled that a notification made in accordance with the power conferred by the statute has statutory force and validity. Exemption under a notification is as if it were contained in the Act itself. Section 37(1) of the Central Excise Act empowers the Central Government to make rules to carry into effect the purposes of the said Act. Clause (xvii) of sub-section (2) of Section 37, specifically provides that the rules so framed may "exempt any goods from the whole or any part of the duty imposed by this Act." Rules 8(1) of the Rules framed under that Act ("the Central Excise Rules") empowers the Central Government to exempt any excisable goods from the whole or any part of the duty leviable on such goods. This rule, at the material time, read as follows :
"8. Power to authorise exemption from duty in special cases. - (1) The Central Government may from time to time, by notification in the official gazette, exempt (subject to such conditions as may be specified in the Notification) any excisable goods from the whole or any part of duty leviable on such goods."
In exercise of the power conferred under this rule read with Section 3(3) of the Additional Duties of Excise Act, the Central Government, by notification dated April 30, 1975, exempted, inter alia, rayon tyre cord fabrics from the whole of the additional duties of excise leviable thereon under the said Act. As a result of this notification, no additional duty of excise would be leviable on rayon tyre cord fabrics.
8. The submission of the learned Counsel for the assessee that the levy of duty on rayon tyre cord fabrics under the Additional Duties of Excise Act would not be affected by the exemption granted by the Central Government from the whole of the duty leviable thereon is, in our opinion, not only erroneous but contrary to and inconsistent with the provisions of Section 3 of the said Act. Section 3 of the Additional Duties of Excise Act provides for levy and collection of additional duties. This section, as it stood at the material time, read as follows :
"3. Levy and collection of additional duties. - (1) There shall be levied and collected in respect of the following goods, namely sugar, tobacco, cotton fabrics, rayon or artificial silk fabrics and woollen fabrics produced or manufactured in India and on all such goods lying in stock within the precincts of any factory, warehouse or other premises where the said goods were manufactured, stored or produced, or in any premises appurtenant thereto duties of excise at the rate or rates specified in the First Schedule to this Act.
(2) The duties of excise referred to in sub-section (1) in respect of the goods specified therein shall be in addition to duties of excise chargeable on such goods under the Central Excises and Salt Act, 1944 (1 of 1944), or any other law for the time being in force.
(3) The provisions of the Central Excises and Salt Act, 1944, and the rules made thereunder, including those relating to refunds and exemptions from duty, shall, so far as may be, apply in relation to the levy and collection of the additional duties as they apply in relation to the levy and collection of the duties of excise on the goods specified in sub-section (1)."
9. It is clear from a plain reading of the above section that while sub-section (1) provides for levy and collection of duties of excise in respect of the goods specified therein at the rates specified in the First Schedule, sub-section (3) makes the provisions of the Central Excise and Salt Act and the rules made thereunder including those relating to "exemptions from duty" applicable to the levy and collection of duties of excise on the goods specified in sub section (1). Obviously, sub-sections (1) and (3) have to be read together as a part of the integral whole and as being inter-dependent and not in isolation. A notification issued under Rule 8 of the Central Excise Rules read with sub-section (3) above, would have effect as if enacted in the Act itself. Sub-section (1) of Section 3 of the Act therefore would have to be read along with such notification. On such a reading, it is clear that additional duties of excise leviable under sub-section (1) would cease to be leviable on exemption being granted under sub-section (3) from the whole of the duty. No duty would then be leviable nor can it be levied during the subsistence of the exemption.
10. In the instant case, there is no dispute about the fact that rayon tyre cord fabrics have been exempted from the whole of the additional duty of excise leviable under the Additional Duties of Excise Act by the notification issued under Rule 8 of the Central Excise Rules read with sub-section (3) of Section 3 of the Additional Duties of Excise Act. No additional duty of excise is, therefore, leviable on rayon tyre cord fabrics. Hence, it would not be covered by entry 41 Schedule A to the Bombay Sales Tax Act. It would accordingly fall under entry 10A of Schedule C and sales thereof would be taxable accordingly.
11. In the light of the foregoing discussion, we answer the questions referred to us as follows :
Question No. 1 : In the negative, i.e., in favour of the Revenue and against the assessee.
The rayon tyre cord fabrics sold by the assessee does not fall under entry 41 of Schedule A to the Bombay Sales Tax Act. It is therefore not exempt from levy of tax.
Question No. 2 : In the negative, i.e., in favour of the Revenue.
Question No. 3 : In the negative, i.e., in favour of the Revenue.
Question No. 4 : In the affirmative, i.e., in favour of the Revenue.
On a correct interpretation of the notification dated April 30, 1975, issued under Rule 8(1) of the Central Excise Rules read with Section 3(3) of the Additional Duties of Excise (Goods of Special Importance) Act, 1957, the Tribunal was correct in law in holding that no duty was leviable or levied on rayon tyre cord fabrics under the Additional Duties of Excise (Goods of Special Importance) Act, 1957.
12. In the facts and circumstances, we make no order as to costs.