Kerala High Court
Sabmiller India Limited vs Union Of India on 2 April, 2019
Author: A.K.Jayasankaran Nambiar
Bench: A.K.Jayasankaran Nambiar
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR
TUESDAY ,THE 02ND DAY OF APRIL 2019 / 12TH CHAITHRA, 1941
WP(C).No. 3123 of 2015
PETITIONER/S:
SABMILLER INDIA LIMITED
(FORMERLY KNOWN AS SKOL BREWERIES LIMITED),
UNIT-MALABAR BREWERIES,MELOOR(P.O),POOLANI,
CHALAKUDY,THRISSUR REPRESENTED BY ITS GENERAL
MANAGER,MR.SRINIVASA.N.
BY ADVS.
SRI.JOSEPH KODIANTHARA (SR.)
SRI.ABRAHAM JOSEPH MARKOS
SRI.BINU MATHEW
SRI.ISAAC THOMAS
SRI.NOBY THOMAS CYRIAC
SRI.TOM THOMAS (KAKKUZHIYIL)
SRI.V.ABRAHAM MARKOS
RESPONDENTS:
1 UNION OF INDIA
THROUGH ITS SECRETARY,MINISTRY OF FINANCE,DEPARTMENT OF
REVENUE,NORTH BLOCK,NEW DELHIPIN-110001.
2 COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE
KOZHIODE-1,COMMISSIONERATE,MANANCHIRA,KOZHIKODE-673001.
BY ADVS.
SRI.SREELAL WARRIER,SC
SRI.THOMAS MATHEW NELLIMOOTTIL, SC,
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
02.04.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
WP(C).No. 3123 of 2015 2
(CR)
JUDGMENT
The petitioner is a company engaged in the manufacture of beer. In the Writ Petition, the petitioner impugns Ext.P1 show cause notice dated 05.08.2014 issued by the 2nd respondent Commissioner of Central Excise, Kozhikode, that seeks to demand an amount of Rs.6,65,308/- from the petitioner towards Central Excise duty, Education Cess and Secondary Higher Education Cess for the period from July 2009 to January 2014, in respect of the carbon dioxide that was produced in its factory and captively consumed in the course of manufacture of beer. The basic premise in the show cause notice is that, during the process of fermentation that is integral to the manufacture of alcoholic liquor, carbon dioxide, which is an excisable commodity, is generated as a byproduct and the petitioner admittedly uses the said carbon dioxide in the further manufacturing process to produce alcoholic liquor for human consumption (beer). A reference is made to Notification No.67/95-C.E., dated 16.03.1995, which provides for an exemption from Central Excise duty on excisable goods produced in a factory of a manufacturer, when the same is captively consumed in the same unit for manufacture of a final WP(C).No. 3123 of 2015 3 product, and it is pointed out that the said Notification clearly states that the benefit of exemption will not be available in cases where the final product manufactured is either exempt from the whole of duty of excise leviable thereon or is chargeable to Nil rate of duty. It is contended, therefore, that inasmuch as the petitioner does not pay duty on the final product, namely, alcoholic liquor for human consumption, the petitioner must necessarily pay duty on the carbon dioxide at the stage of captive consumption thereof.
2. The petitioner has impugned the show cause notice in this Writ Petition without first replying to the same and getting the matter adjudicated before the statutory authorities under the Central Excise Act. The contention raised in the Writ Petition is essentially that, this being a case where the show cause notice has been issued without jurisdiction, the petitioner cannot be relegated to any alternate remedy under the statute.
3. A counter affidavit has been filed on behalf of the respondents where the stand taken is that, while it may be a fact that the final product manufactured by the petitioner company is non-excisable, being alcoholic liquor for human consumption, the WP(C).No. 3123 of 2015 4 carbon dioxide that is generated as a byproduct in the manufacturing process is an independent product mentioned in the Schedule to the Central Excise Tariff Act, and hence, the petitioner cannot escape liability to pay duty on the said product at the stage of captive consumption of the same. A reference is made to Rule 4 of the Central Excise Rules, which clearly stipulates that captive consumption is also deemed to be a removal for the purposes of levy of Central Excise duty. Referring to the provisions of Notification No.67/95-C.E., dated 16.03.1995, the respondents would contend that, inasmuch as the petitioner is admittedly not paying any Central Excise duty on the beer manufactured by it, they cannot claim the benefit of exemption from payment of duty on the carbon dioxide captively consumed by them in the manufacture of beer. It is also contended that, at any rate, since there are factual matters that arise for adjudication, the petitioner cannot be permitted to approach this Court under Article 226 of the Constitution of India impugning the show cause notice, and the adjudication of the issue ought to be before the statutory authorities under the Central Excise Act.
4. I have heard Sri.Joseph Kodianthara the learned Senior WP(C).No. 3123 of 2015 5 counsel duly assisted by Sri.Abraham Joseph Markos appearing on behalf of the petitioner and Sri.Sreelal Warrier, appearing for the respondents.
5. On a consideration of the facts and circumstances of the case and the submissions made across the bar, I find that the Writ Petition has been preferred impugning a show cause notice issued under the Central Excise Act. While it is trite that this Court would not normally entertain a Writ Petition impugning a show cause notice issued under a taxing statute, the exceptional cases in which this Court would interfere would include instances where the statutory authority is seen transgressing the limits of its jurisdiction while issuing a show cause notice. The contention of the learned Senior counsel for the petitioner being that the show cause notice is issued without jurisdiction, the matter needs to be examined in that light.
6. The Central Excise Act is a Central legislation enacted pursuant to the legislative power conferred on the Parliament in terms of Article 246 read with Entry 84 of List I of the VII th Schedule to the Constitution. Entry 84 of List I as is stood during WP(C).No. 3123 of 2015 6 the relevant time read as follows:
"84. Duties of excise on tobacco and other goods manufactured or produced in India except (a) alcoholic liquors for human consumption and (b) opium, Indian hemp and other narcotic drugs and narcotics."
Under the Central Excise Act, the levy and collection of duty is envisaged under Section 3, which is the charging Section. As per the said Section, the levy and collection of Central Excise duty is to be on all excisable goods produced or manufactured in India and at the rates set forth in the Schedule to the Act. Excisable goods are in turn defined under the Act to mean those goods that are specified in the First and Second Schedule to the Central Excise Tariff Act, 1985. The word "produced" or "manufactured" in Section 3 of the Act has to be read as in relation to the excisable goods resulting from such processes, and when so read, it would follow that the provisions of the Central Excise Act, including the procedure for levy and collection of duty, would apply only to such production or manufacturing process that result in the production/manufacture of excisable goods. In the instant case, the WP(C).No. 3123 of 2015 7 final product manufactured by the petitioner company being beer, which is an alcoholic liquor for human consumption, the manufacturing process cannot be seen as coming under the purview of the Central Excise Act.
7. Captive consumption in the context of a manufacturing process is a concept that is relevant in the context of payment of Central Excise duty under the Central Excise Act. It essentially ensures that there is a payment of Central Excise duty on every dutiable product that emerges in the factory of a manufacturer of an excisable final product even though the manufacturer may not clear the said product outside his factory but chooses to use the said product in the manufacture of the excisable final product. In such cases, the manufacturer is said to resort to a captive consumption of the first product to manufacture the ultimate final product, which is then cleared from his factory. While, prior to the introduction of the MODVAT/CENVAT Scheme under the Central Excise Act, the requirement of payment of Central Excise duty on each dutiable product manufactured in the factory of the manufacturer led to an increase in the cost of manufacture of the final product (since the duty paid on the intermediate product had WP(C).No. 3123 of 2015 8 to be absorbed by the manufacturer into the cost of manufacture of the final product), with the introduction of the MODVAT/CENVAT Scheme that was designed to avoid the cascading effect of taxes on the various products that went into the manufacture of a final product, it became possible for a manufacturer to set off any duty paid on a captively consumed product in his factory, against the duty paid on the final product that was cleared from his factory. With a view to spare the manufacturer of the requirement of maintaining additional MODVAT/CENVAT records, Notification No.67/95-C.E., dated 16.03.1995 was published which exempted manufacturers from the requirement of payment of duty on captively consumed products so long as they paid duty on the final product that was cleared from their factory premises. This intention can also be gathered from the proviso to the Notification itself, which clearly indicates that if the final product cleared from the factory of the manufacturer attracts only a Nil rate of duty or is otherwise exempt from payment of duty, then the benefit of exemption at the captive consumption stage will not accrue to such manufacturer. What is significant to note, in the proviso to the Notification, is that the non-payment of duty by a manufacturer on his final WP(C).No. 3123 of 2015 9 product must be on account of the final product being exempt from duty or attracting a NIL rate of duty. Non-payment of duty by the manufacturer on account of his final product being non-excisable is not a situation covered by the notification. In my view, this is yet another indication that the levy of duty on a product, at the captive consumption stage, was not envisaged in circumstances where the final product cleared from the factory was non- excisable.
8. In the instant case, it is not in dispute that the carbon dioxide that is generated in the factory of the petitioner manufacturer is a byproduct that arises in the fermentation process leading to the production of alcoholic liquor for human consumption. While carbon dioxide may be an independent product mentioned under the Central Excise Tariff, in the instant case, it is a product that arises in a manufacturing process that does not attract the levy of Central Excise duty under the Central Excise Act. The further use of the carbon dioxide by the manufacturer can only be seen as an efficient process for the manufacture of beer, where the manufacturer puts to use the carbon dioxide generated, which otherwise would have to be let out from the factory as a waste gas. In my view, the levy of WP(C).No. 3123 of 2015 10 Central Excise duty is not attracted in such cases, where a byproduct emerges in the course of manufacture of non-excisable products and the captive consumption of the said byproduct is only intended to efficiently manufacture a non-excisable product. Inasmuch as the final product emerging from the factory of the manufacturer is not excisable (as opposed to exempt or cleared at Nil rate of duty), I am of the view that, Ext.P1 show cause notice has been issued on an erroneous premise and without jurisdiction. The Writ Petition is therefore allowed by quashing Ext.P1 notice as one issued without jurisdiction, with consequential reliefs to the petitioner.
Sd/-
A.K.JAYASANKARAN NAMBIAR JUDGE mns WP(C).No. 3123 of 2015 11 APPENDIX PETITIONER'S/ EXHIBITS:
EXHIBIT P1 EXT.P1 TRUE COPY OF THE IMPUGNED SHOW CAUSE NOTICE DATED 05.08.2014 ISSUED BY THE 2ND RESPONDENT.
EXHIBIT P2 EXT.P2 TRUE COPY OF THE LETTER DATED
03.03.2014 ISSUED BY THE PETITIONER
EXHIBIT P3 EXT.P3 TRUE COPY OF THE NOTIFICATION
NO.24/2003 DATED 25.03.2003.
RESPONDENTS EXHIBITS:NIL
//TRUE COPY//
P.A TO JUDGE