Calcutta High Court
Indian Rayon Corporation Limited vs Union Of India (Uoi) And Ors. on 4 April, 1986
Equivalent citations: 1986(9)ECC356, 1986ECR722(CALCUTTA), 1986(25)ELT489(CAL)
JUDGMENT Dipak Kumar Sen, J.
1. The facts and proceedings leading up to this appeal are shortly as follows:
2. The Indian Rayon Corporation Ltd., the appellant, carries on business under the name of style of Jayashree Textiles & Industries at Rishra in the district of Hooghly, West Bengal where the appellant owns and runs a factory. The appellant at the material time manufactured flax fabrics at the said factory.
3. Flax fabrics were at the relevant time, included as an item in the Tariff Schedule to the Central Excises & Salt Act, 1944, under Serial No. 22AA and was made subject to an ad valorem excise duty of 15%.
4. By a Notification No. 63/73 dated the 1st March, 1973 all textile fabrics falling under the said Item No. 22AA of the Tariff Schedule including flax fabrics were wholly exempted from excise duty.
5. On or about the 18th June, 1977 Item No. 22 AA in the Tariff Schedule of the Act was amended. Under the amended item flax fabrics, in which flax predominated in weight, 15% ad valorem duty was included. By another Notification No. 138/77 dated the 18th June, 1977 the earlier exemption Notification No. 63/73 dated the 1st March, 1973 was rescinded.
6. On the 17th June, 1977 quantities of flax fabrics manufactured by the appellant in its said factory at Rishra were lying in a fully finished condition in the factory godown. By a letter dated the 8th July, 1977 the appellant enquired from the Collector of Central Excise and Customs, West Bengal whether such manufactured stock of flax fabrics would also to be exempted from excise duty at par with earlier manufactures and requested the Collector to allow the appellant to treat the same as part of the pre-excise stock not subject to levy of excise duty.
7. By a letter dated 3rd October, 1972 the Superintendent of Central Excise of the Jayshree Textiles & Industries Range, Rishra informed the appellant that the latter was eligible to exemption of the reimposed excise duty on flax fabrics which had been manufactured and were in a fully finished condition before the 17th June, 1977.
8. On the basis of the aforesaid the appellant from time to time removed the said flax fabrics manufactured before the 17th June 1977 which were lying in a fully finished condition at the factory godown of the petitioner without payment of any excise duty. The said goods have been sold in the market without including in its price any excise duty.
9. On the 20th June, 1978, the Superintendent of Central Excise, Jayashree Textiles & Industries Range, addressed a letter to the appellant alleging that flax fabrics manufactured prior to the 18th June, 1977 but lying in the godown and awaiting clearance would attract the excise duty at the appropriate rates. The appellant was requested to obtain clearance of such goods on payment of such duty.
10. On the same day, i.e., 20th June, 1978 a show cause-cum-demand notice was issued to the appellant by the said Superintendent of Central Excise alleging that there had been a non-levy of excise duty aggregating Rs. 1,17,024.83 on flax fabrics cleared from the appellants said factory from the 10th October, 1977 till the 20th June, 1978. The appellant was asked to show cause why it should not be required to pay such duty and also why a penalty should not be imposed on it for violation of Rules 173F and 173G of the Central Excise Rules. It was alleged further in this notice that the taxable event was the clearance of goods and the rate of duty prevailing on the date of clearance would be applicable under the provisions of the Central Excise Rules and therefore the goods cleared after the 18th June, 1977 would be exigible to excise duty at the rate prevailing after the 18th June, 1977.
11. By its letters dated the 3rd and the 7th July, 1978 the appellant duly replied to the said letter and the said show cause-cum-demand notice both dated the 20th June, 1978 disputing the contention therein and denying its liability to pay any excise duty. The appellant also demanded a personal hearing.
12. A personal hearing as asked for was given to the appellant by the Assistant Collector of Central Excise, Calcutta IV Division after which the Assistant Collector passed an order on the 21st September, 1978 confirming the demand raised in the show cause notice construing Rules 9, 9A and 49 of the Central Excise Rules. He held that excise duty was required to be paid at the time of removal at the rate prevailing on the date of removal. He held further that flax fabrics were at all materials excisable goods though exempted from payment of excise duty before the Notification of 1977 and with the withdrawal of the exemption Notification the item became dutiable.
13. From the said order dated the 21st September, 1978 the appellant preferred an appeal before the Appellate Collector of Customs and Central Excise, Calcutta. By an order dated the 3rd April, 1980, the Appellate Collector rejected the appeal. The Appellate Collector held that though the fabric had been manufactured at a time when they were exempted under the earlier notification from payment of any excise duty, the rate being zero, the manufactured goods were however cleared when the duty had been re-imposed in the sense that the rate had been raised from zero. The date for determination of duty was governed by Rule 9A of the Central Excise Rules under which the rate of duty as on the date of removal would be applicable.
14. Being aggrieved by the aforesaid the appellant moved this Court under Article 226 of the Constitution on or about the 2nd July, 1980 when a Rule nisi was issued as prayed for. The proceedings were marked as Matter No. 1326 of 1980.
15. In spite of the representation contained in the said letter of the Superintendent of Central Excise, Jayashree Textiles & Industries Range as contained in his letter dated 3rd October, 1977, the appellant following the procedure for self-removal under the Central Excise Rules had inadvertently paid excise duty from time to time at the time of removal of its stock of flax fabrics manufactured by the appellant prior to the 17th June 1977. The amounts paid on account of excise duty as aforesaid aggregated Rs. 3,81,784.13p.
16. By its letters dated the 17th and the 21st January, the 21st Feb. and the 8th May, 1978 the appellant claimed refund of the said amount in accordance with the Central Excises & Salt Act, 1944 and the Rules thereunder.
17. By letters dated the 25th April and the 6th June, 1978 the Superintendent, Central Excise, Jayashree Textiles & Industries Range rejected the appellant's claim for refund.
18. Thereafter the appellant lodged a claim for refund of the said amount with the Assistant Collector of Central Excise, Calcutta IV Division. By a letter dated the 23rd April 1979 the Assistant Collector of Central Excise, Calcutta IV directed the appellant to show cause why its claims for refund should not be rejected. The appellant was further directed to indicate whether it intended to be heard in person and to submit relevant documents in support of the appellant's refund at such hearing. By its letter dated the 30th April 1979 the appellant replied to the said show cause notice and indicated that it would not avail of the personal hearing.
19. By an order dated the 16th December 1980 the Assistant Collector of Central Excise and Customs rejected the claim of the appellant for refund of the said amount. On or about the 26th December, 1980 the appellant preferred an appeal against the said order of the Assistant Collector dated the 16th December, 1980 before the Appellate Collector of Customs and Central Excise.
20. The Appellate Collector after hearing the appellant on the 15th April, 1981 rejected the appeal. By his order dated the 25th April, 1981, the Appellate Collector held that though the fabric was manufactured prior to the 18th June, 1977 when the exemption was in force, the said fabric not having been cleared prior to 18th June, 1977 was not entitled to exemption from excise duty which was imposed on the 18th June, 1977. Duty was required to be paid at the rates prevalent at the time of clearance in terms of Rules 9 and 9A of the Central Excise Rules.
21. Being aggrieved by the aforesaid the appellant moved another writ application before this Court on the 12th June, 1981 challenging the said decision. The said proceedings were marked as Matter No. 1192 of 1981.
22. The said two writ applications being Matter No. 1326 of 1980 and 1192 of 1981 were opposed by the Excise Authorities. Nikhilesh Chandra Lahiri, the Assistant Collector of Central Excise, Calcutta IV Division affirmed an affidavit on the 17th November, 1980 which Was filed in opposition to the petition in matter No. 1326 of 1980. Balbir Singh, the Assistant Collector of Central Excise, Serampore Textile Division affirmed an affidavit on the 7th March, 1982 which was filed in opposition to the petition in Matter No. 1192 of 1981. The case of the Excise Authorities as made out in the above affidavits was, inter alia, as follows:-
(a) Under the Finance Bill of 1972 a new item being No. 22AA was inserted in the Tariff Schedule to the Central Excises & Salt Act which included different types of textile fabrics not otherwise specified.
(b) The said Item 22AA was substituted in the Finance Bill, 1973 and the description of the item was "textile fabrics not elsewhere specified".
(c) Flax fabrics produced by the appellant came within the ambit of the said item.
(d) By the Notification No. 63/73 dated the 1st March, 1973, the Central Government exempted textile fabrics falling under the said Item 22AA of the Tariff Schedule from the whole of excise duty.
(e) By the Finance Bill, 1977 the description of the item 22AA was further changed and the new description included "Flax fabrics in which flax predominates in weight".
(f) By the Notification No. 138/77 dated the 18th June, 1977, the earlier Notification dated the 1st March, 1973 granting exemption was withdrawn.
(g) The Superintendent of Central Excise, Jayashree Textile & Industry Range was not competent to pass any orders under Rule 8 or to give any clarification in respect of exemption of excise duty. But by his letter dated the 3rd October, 1977, the said Superintendent wrongly and without authority purported to issue a clarification.
(h) The matter was thereafter reconsidered by the Excise Authorities. It was decided that the critical time for levy and collection of duty on manufactured goods was the point of removal from the factory or the time when if any payment of duty had been made before removal. On the basis of this decision a further letter was issued by the said Superintendent on the 28th June, 1978 that flax fabrics manufactured prior to 18th June, 1977 lying in storage attracted excise duty at the appropriate rate. The show cause notice was also issued on the same basis as goods had been cleared after the 18th June, 1977 without payment of excise duty.
(i) The Assistant Collector of Excise concerned passed his order dated the 21st September, 1978 holding that the flax fabrics at all material times remained excisable but between 1973 and 1977 the goods enjoyed a spell of exemption. As flax fabrics remained excisable at all material times the withdrawal of the exemption notification meant that the appellants were liable to pay excise duty on fabrics lying in storage and cleared after the withdrawal of the exemption notification.
(j) The same view was taken by the Appellate Collector of Excise in appeal. The Appellate Collector found that during the period of exemption the rate of excise duty leviable was nil. But at the time of clearance, after the exemption was withdrawn, the rate was enhanced from zero to the prescribed rate. The provisions of Rule 9A of the Central Excise Rules were attracted in the facts and therefore, the Appellate Collector rejected the appeal.
(k) It was contended that the character of a product as excisable goods did not depend on the actual levy of duty but depended upon the inclusion of the goods in the Tariff Schedule of the Act as excisable goods by description under the Central Excise Act and the Rules framed thereunder. The manufacture or production of goods is not the only stage which attracted excise duty. The exemption notification only conferred to privilege on the appellants to contend that liability during the relevant period was at nil rate. It was contended that the Superintendent of Central Excise concerned acted on a mistaken belief of law or misreading the law in issuing the said letter dated the 3rd October, 1977 which could not bind the Central Government and prevent levy and collection of excise duty payable oh flax fabrics.
(1) For the same reason the doctrine of estoppel could not come into play by virtue of a wrong decision given by an authority. The Central Government could not be prejudiced for a wrong done by its servant.
(m) It was also contended that the proceedings were not maintainable as the appellants failed to avail of the alternative remedy of revision before the Central Government.
(n) It was contended further in the said affidavit of Balbir Singh that exemption granted under Rule 8 of the Central Excise Rules related only to the duty leviable and not the goods. The goods remained excisable and what was exempted was the duty leviable on such goods. There could be no question of exemption unless the duty was leviable.
23. By a Judgment and Order dated the 15th June 1982 the said application being Matter No. 1326 of 1980 was disposed of as follows:-
"The order dated February 21, 1980 passed by Shri Tarun Roy, Appellate Collector of Customs and Central Excise, Calcutta is set aside. The said Officer will rehear the appeal in accordance with law after giving both the parties an opportunity of being heard and after taking into consideration the judgments of the Supreme Court referred to in this order and also the amendments made by the Central Government by the Notification dated February 20, 1982. The points urged in the writ petition are left open. If possible, the Appellate Collector will dispose of the matter preferably within a period of six months from date. Pending the disposal of the Appeal the Excise Authorities should not raise the demands impugned in this petition."
Similarly by a judgment and order dated the 12th July 1982 the said Matter No. 1192 of 1981 was also disposed of by the same Learned Judge on the same terms as in Matter No. 1326 of 1980.
24. Pursuant to the terms of the said judgments and orders the Appellate Collector of Customs and Central Excise, Calcutta the respondent No. 5 personally heard the Learned Lawyers appearing on behalf of the appellant on the 8th December, 1982. At the hearing a number of reported decisions were cited before the respondent No. 5. The respondent No. 5 after hearing the parties passed an order on the 13th December 1982. The respondent No. 5 noted the decision of Madhya Pradesh High Court in the case of Kirloskar Brothers Ltd. v. Union of India and Ors. reported in 1978 Cencus 120 and distinguished the same by relaying on a judgment of the Madras High Court in the case of Tamil Nadu (Madras State) Handloom Weavers Cooperative Society Ltd. where it was held that even if the goods are exempted from excise duty the goods did not cease to be excisable goods thereby. What was material was whether the goods remained described as excisable goods in the Tariff Schedule to the Central Excise Act.
25. The respondent No. 5 also considered a decision of the Gujarat High Court in Alembic Chemical Works Co. Ltd. v. Union of India where it was held that on similar facts the withdrawal of exemption resulted in substitution of a rate of full duty for a nil rate. The respondent No. 5 also considered a decision of the Bombay High Court in the case of Elphinstone Spinning & Weaving Mills Co. Ltd. where it was held that duty was attracted on the goods on the date of actual removal at the rate which was in force at the date.
26. The respondent No. 5 held that the date when goods in dispute were sought to be removed from the factory or warehouse of the appellant were excisable goods liable to pay duty at the rate in force on that date and the goods could not be removed unless such duty was paid. The respondent No. 5 held that the orders passed by the Assistant Collector were correct in law and facts and upheld the same. The two appeals of the appellants were rejected.
27. Being aggrieved by the aforesaid order of the respondent No. 5 the appellant moved another application under Article 226 of the Constitution of the 21st December 1982 when a Rule nisi was issued calling upon the respondents to the said application viz. the Union of India; the Assistant Collector of Central Excise, Calcutta IV Division; the Superintendent of Central Excise, Jayashree Textile & Industry Range; the Collector of Central Excise and Customs, West Bengal and the Appellate Collector of Customs and Central Excise, Calcutta to show cause why appropriate writs should not be issued directing the respondents to forbear from giving effect to and withdraw, recall or rescind the said order dated the 13th December, 1982 and for cancelling or quashing the same.
28. It was alleged in this application, inter alia, that at the hearing of the appeal at the initial stage the respondent No. 5 the Appellate Collector had taken a view favourable to the appellants and in fact a draft order was dictated granting complete relief to the appellant in both the appeals.
29. It is contended further that the impugned order dated 13th December 1982 was illegal, void, arbitrary and not binding on the appellants inasmuch as the said order was vitiated by complete non-application of mind by the respondent No. 5 and by malice in law and fact. The said order was passed on consideration of irrelevant and extraneous matters and failing to consider relevant matters.
30. Balbir Singh, the Assistant Collector of Central Excise, Serampore Textile Division affirmed an affidavit on the 14th March 1983 which was filed in opposition to the said petition. In the said affidavit the case of the excise authorities as made out in the earlier affidavits filed on behalf of the said authorities were reiterated. It was denied in this affidavit that the respondent No. 5 dictated any order granting relief to the appellant. It was stated that it was not the practice to dictate orders in presence of the parties. The other allegations in the petition were denied and contentions disputed.
31. Ganesh Lal Moondra, a Principal Officer of the appellants affirmed an affidavit on the 22nd March, 1983 which was filed in reply to the said affidavit of Balbir Singh. It was, inter alia, alleged in this affidavit that the case of the appellant as made in the petition had been recorded by a letter of the advocate on record of the appellants dated the 15th December 1982 which was addressed to the respondent No. 5. The said letter remains unanswered. It has contended further that no affidavit has been affirmed by the respondent No. 5 denying the allegations in the petition against him.
32. The said application was disposed of on the 22nd March 1983 in the first Court by the following order :
"I set aside the order dated 13th December, 1982 and remand the matter to the Collector (Appeals) who will hear the matters afresh in accordance with law, after giving the parties an opportunity of being heard and after taking into consideration the decisions etc. referred to him. The points urged in the writ petition are left open and may be taken before the officer concerned. The parties would also be at liberty to file written arguments. If possible, the appeals should be disposed of within a period of six weeks from date. Any amount which has been paid to the petitioner in excess, which I am given to understand is Rs. 1,00,000/- should be refunded to the Excise Authorities and the Bank Guarantee furnished by the petitioner would be reduced."
The present appeal is from the said judgment and order.
33. Learned Advocate for the appellants contended at the hearing that the Appellate Collector of Customs and Central Excise, Calcutta, the respondent No. 5 had disposed of the appeal after taking a particular view of law which was cited in extenso. It was submitted that in the circumstances it would be pointless to again agitate the same question before the same authority as it could not be expected that the authority would be likely to change his view. In the judgment and order under appeal no new principle of law was laid down or decided and nor was the Appellate Collector of Customs and Central Excise, Calcutta, the respondent No. 5 directed to dispose of the appeal on the basis of any such law or principle laid down. The matter was left at large. A further hearing before the respondent No. 5, it was contended, would only result in multiplicity of proceedings and the appellants would be again forced to come to this Court.
34. Learned Advocate for the appellant submitted that the order which was impugned in the writ petition, being the order of the respondent No. 5 dated the 13th December, 1982, was a speaking order. The said order it was contended was exfacie erroneous and it was open to this Court to set aside the order.
35. It was submitted that excise duty was a duty imposed on production or manufacture of goods. In the instant case the goods in dispute had been produced or manufactured at a time when the goods concerned viz. flax fabrics were exempted wholly from excise duty. The duty which was imposed on flax fabrics on and from the 18th June 1977 could not be levied on fabrics manufactured prior to 18th June, 1977.
36. It was submitted that law on the controversy was settled by a number of decisions of various High Courts and the Supreme Court. Even the Central Board of Excise and Customs as also the Customs and Excise Appellate Tribunal had adjudicated on the controversy in reported case.
37. In support of his contentions learned Advocate for the appellant cited the following decisions :
(a) Kirloskar Brothers Ltd. v. Union of India and Ors. reported in 1978 Cencus 12-D. Kirloskar Brothers Ltd. carried on business, inter alia, in manufacture of power driven pumps. By a Notification dated the 23rd April, 1969 the Central Government in exercise of its powers conferred under Rule 8(1) of the Central Excise Rules, 1944 exempted power driven pumps which fell under item 30A of the First Schedule to the Central Excises & Salt Act, 1944 from the whole of excise duty leviable during the period from 1st March 1969 till 20th April, 1969. The benefit was thereafter continued upto the 16th March, 1972.
By a Notification dated the 17th March, 1972 the earlier Notification dated the 23rd April, 1969 was modified and excise duty at the rate of 10% ad valorem was levied on the price of power driven pumps.
On the 16th March 1972 the 'manufacturer declared its stocks in its factory which had been manufactured till the 16th March, 1972 and claimad that in respect of such stocks no excise duty was payable and that the manufacturer be permitted to remove the said stock without the payment of excise duty. Such request was rejected by the excise authorities and the manufacturer was intimated that he could remove its such stocks of pumps only on payment of excise duty as levied under the Notification dated the 17th March 1972. The manufacturer challenged the said decision of the excise authorities in an application under Articles 226 and 227 of the Constitution before the Madhya Pradesh High Court.
The High Court considered Section 3 of the Central Excises & Salt Act, 1944 as also two decisions of the Supreme Court viz. British India Corporation Ltd. v. Collector of Central Excise and Chhotabhai Jethabhai Patel & Co. v. Union of India and Ors. reported in AIR 1962 SC 1006 and held that excise duty was essentially a tax levied on production or manufacture of excisable goods though it could be imposed retrospectively. The High Court rejected the contention of the Excise Authority that if the goods were sought to be removed from their place of production or manufacture at a time when excise duty was payable the producer or manufacturer would be liable to pay excise duty and observed as follows :
"The nature of the duty is that it is essentially a tax on production or manufacture of excisable goods. Therefore, whenever an exemption is granted by the Central Government, it is in respect of goods manufactured or produced during the period. But excise duty will certainly not be leviable in respect of goods manufactured or produced during the exemption period. Therefore, interpreting Section 3 of the Central Excises and Salt Act, 1944, we are of the opinion that the liability for tax, namely, the excise duty would arise no sooner the manufacture of the production is completed and it is immaterial as to what machinery may be devised by the Central Government under the rule making powers for recovery of a tax. The point of recovery or any restriction on removal will not be the determining factor for grant of exemption in respect of goods manufactured during the duty free period."
The High Court quashed the decision of the Excise Authorities disallowing the removal of the pumps from the factory of the manufacturer without payment of excise duty.
An application for Special Leave to Appeal from this judgment was dismissed by the Supreme Court after hearing.
(b) Union of India v. Kirloskar Brothers Ltd. reported in 1978 Excise Law Times 690.
This is a judgment delivered in an application made by the Union of India praying for a certificate of fitness for leave to appeal to the Supreme Court against the decision of a Division Bench of the Madhya Pradesh High Court in Kirloskar Brothers Ltd. v. Union of India and Ors. (Supra). On behalf of the Union of India the decision of the Supreme Court in Orient Paper Mills Ltd. v. Union of India reported in 1978 Excise Law Times 328 was cited. A Division Bench of the Madhya Pradesh High Court distinguished the said decision and held that the said decision would be relevant in cases for determination of rates of excise duty leviable. The question would be different where it had to be ascertained at what point of time excise duty would be payable when the impost was made or exemption revoked for the first time. On such cases the different considerations would prevail and excise duty being a tax on manufacture or production, the material time would be the date of manufacture or production. The petition of the Union of India was dismissed.
(c) Union of India and Ors. v. Delhi Cloth & General Mills Co. Ltd. reported in 1978 Excise Law Times 177.
To provide an incentive for increase of production of sugar during the year 1959-60 the Central Government issued a Notification dated the 25th June 1960 under rule 8(1) of the Central Excise Rules providing that a sugar factory would be exempt for payment of excise duty leviable on sugar beyond Rs. 5.63 per cwt. on the quantity of sugar produced by it during the 1959-60 season i.e. between 1st November 1959 and the 31st October 1960 in excess of the average quantity of sugar produced during the two preceding years.
During the said period the manufacturer produced sugar in excess of its average production in the immediately preceding two years. On the excess production the manufacturer claimed and was allowed exemption granted under the said Notification dated the 25th June, 1960. Subsequently it was found that out of the said excess quantity of sugar the manufacturer had reprocessed 1272 mds. after the 31st December, 1960 i.e. after the expiry of 1959-60 season. The excise authorities contended that the manufacturer was not entitled to the concessional rate of duty as provided in the said Notification dated the 25th June 1960 in respect of the said 1272 mds. of sugar reprocessed after the season.
The authorities raised an additional demand for an additional amount on the manufacturer and collected the same by debiting the manufacturer's account with the Collector of Central Excise. The manufacturer went up on appeal and revision without success and thereafter moved the High Court of Allahabad under Article 226 of the Constitution. The first Court allowed the writ petition and quashed the demand for the additional amount holding that the petitioner was entitled to the benefit of the concessional rate of duty under the said Notification in respect of the said sugar produced during the season but reprocessed thereafter.
An appeal was preferred by the Union of India against the said decision. A Division Bench of the Allahabad High Court held that excise duty was leviable on sugar produced by the manufacturer. It was not a duty on the sale or removal of sugar from the factory. Even if the Rules provided for realisation of duty at the time when the sugar was removed from the factory, the event which attracted the liability of duty was the production of sugar. The said 1272 mads, of sugar had been actually produced during the season. Merely because it was damaged, was not immediately marketable and required reprocessing, it did not mean that it was not produced during the relevant season. The reprocessed sugar was held to be entitled to the benefit of the concession.
(d) In re: Garg Sugar Industries, Khari reported in 1981 ELT 843.
In this case Kahdsari Sugar was granted complete exemption from excise duty from 1st January, 1979 to the 30th September, 1979. The manufacturer in this case sought to clear such sugar which had been manufactured during the exemption period but after exemption was withdrawn. The Collector imposed the excise duty as also a penalty. In an appeal the Central Board of Excise and Customs following its earlier decision as also the decision of the Madhya Pradesh High Court in the case of Kirloskar Bros. Ltd. held that the said sugar could be cleared even after the exemption was withdrawn without any payment of excise duty.
(e) In re: J.K. Steel & Alloys, Bunder Road reported in 1982 ELT 665.
This is an order in revision of the Government of India from the order of Assistant Collector. In this case the manufacturer produced iron and steel products. By a Notification No. 206 of 1963 as amended by another Notification No. 123 of 1963 iron and steel products were exempted from excise duty. Such exemption was claimed in respect of goods manufactured during the period of exemption but cleared after the exemption were withdrawn. The Assistant Collector of Excise rejected the claim of the manufacturer on the ground that duty as leviable on the date of clearance would be payable. There vision application was allowed by the Government of India in terms of an order passed by the Additional Secretary and it was held that the manufacturer was entitled to the exemption claimed.
(f) In Sripur Paper Mills Ltd. v. Union of India and Ors. reported in 1984 ELT 217.
By a Notification dated the 1st October, 1975, the Government allowed concessional rates of excise duty in respect of paper which was attributable to the enlarged production capacity of producers and cleared after the 1st March 1964. The enlarged production in case of the manufacture law occurred from April 1967. The Notification allowing concessional rates was rescinded by a subsequent Notification dated the 1st March, 1973. The manufacturer claimed benefit of concessional rates of excise duty in respect of paper produced during the relevant period that is after April 1967 but removed from the factory after 1st March, 1973 after the concession was withdrawn. The Assistant Collector of Central Excise applied rule 9A of the Central Excise Rules and rejected the claim of the manufacturer. The decision of the Assistant Collector was upheld by the Appellate Collector, Central Excise and thereafter in revision by the Government of India.
Being aggrieved the manufacturer challenged the decision of the Government in an application under Article 226 of the Constitution before the Andhra Pradesh High Court. The High Court considered the relevant sections of the Central Excises & Salt Act, 1944 and also the relevant rules. The High Court also considered the decisions of different High Courts on this question and held that levy of excise duty was on goods produced or manufactured and therefore the imposition would be on the production or manufacture of the excisable goods. The High Court applied the principles laid down by the Supreme Court in A.K. Roy v. Voltas Ltd. and also in Atic Industries v. The Assistant Collector, Central Excise . The High Court held that time and mode of payment of excise duty was laid down under Rule 9 and the rate for determination of duty and the Tariff valuation was laid down in Rule 9A. The High Court observed as follows :
"True, what Rule 9A stipulates is that the rate of duty shall be the one which is in vogue on the date when the duty is assessed. But, nevertheless it should not make any difference, as there cannot be any quarrel, that the provisions postulated by the said rule lays down the mode and manner of assessment. It does not answer the question posed herein. The question is, what is that attracts the tax and not when, how and to what extent: it attracts. In our undoubted view,, as we observed earlier, the attraction of tax is at the very threshold when excisable commodity is manufactured or produced, notwithstanding the point of its removal, consumption or being caused the disappearance of.
When a notification is issued extending exemption, partial or total, with reference to, say, expansive production as in the case, and the assessee on that count produces or manufactures goods in compliance of the said notification and if the authority rescinds the same after the goods are manufactured and before the goods are cleared or removed for one reason or the other, then the very scheme and object behind such exemption clause is rendered abortive, stultifying the very incentive accorded to the authority concerned. We unhesitatingly hold that the excise duty would arise the moment the manufacture or production of the commodity is complete irrespective of the fact that the assessment arid collection is postponed to a later point of time when the said commodity is cleared or removed; the incidence for the impost being the manufacture or production of goods. If that be so, the petitioners are entitled to have the benefit of the exemption notification and so, the refund of the excess duty paid."
(g) Union of India and Ors. v. Bombay Tyre International Ltd. .
This decision was cited for the following observations of the Supreme Court:
"The observations show that while the nature of an excise is indicated by the fact that it is imposed in respect of the manufacture or production of an article, the point at which it is collected is not determined by the point of time when its manufacture is completed but will rest on considerations of administrative convenience, and that generally it is collected when the article leaves the factory for the first time. In other words, the circumstance that the article becomes the object of assessment when it is sold by the manufacturer does not detract from its true We think we have shown sufficiently that whole the levy is on the manufacture or production of goods, the stage of collection need not in point of time synchronize with the completion of the manufacturing process.
We have examined the principles of an excise levy and have considered the statutory construction of the Act, before and after its amendment, in view of the three propositions formulated, on behalf of the assesses, as principles constituting the essential characteristics of a duty of excise. It is apparent that the first proposition, that excise is a tax on the manufacture or production of goods and not on anything else, is indisputable and is supported by a catena of cases."
(h) Castrol Ltd., Calcutta v. Collector of Central Excise, Patna reported in 1985 ELT 333.
Castrol Ltd. were manufacturing blended and compounded lubricating oil without use of power and, therefore, entitled to exemption from an excise duty under a Notification dated the 26th July, 1971. By a subsequent Notification dated the 1st March, 1973 the exemption was withdrawn. But with reference to the stock as on the 28th February, 1973 manufactured during the period of exemption. Castrol Ltd. claimed that they were not liable to pay duty. As clearance of such products was after the withdrawal of exemption the excise authorities held that duty was payable. The manufacturer paid duty under protest and applied for refund. This application was rejected by the Assistant Collector whose decision was affirmed by the Appellate Collector. The manufacturer filed a revision petition to the Government of India which was transferred to the Customs and Excise Appellate Tribunal. The majority of the members of the Tribunal following the decision of the Madhya Pradesh High Court in the case of Kirloskar Bros. Ltd. (Supra) held that the manufacturer was entitled to the refund claimed. The appeal was allowed.
(i) Tata Export Ltd. v. Union of India and Ors. .
In this case a Division Bench of the Madhya Pradesh High Court reiterated the principle laid down by the Supreme Court in State of Tamil Nadu v. Kandaswami to the effect that after total exemption of tax the goods ceased to be taxable goods.
38. Learned Advocate for the respondent contended on the other hand that the controversy raised in these proceedings had not been concluded in favour of the appellants. The High Courts, it was submitted, had taken two different views and the matter was pending before the Supreme Court for a final decision.
39. Learned Advocate submitted that excise duty was no doubt a duty levied on the production or manufacture of goods but on a proper construction of the Central Excises & Salt Act, 1944 and the Rules framed thereunder it would be clear that such duty was not intended to be levied immediately on such production or manufacture. The duty could be levied at any subsequent stage. The said duty could also be levied retrospectively. It was contended that any item included in the tariff schedule of the Central Excises and Salt Act, 1944 became excisable goods and remained excisable goods as long as the item continued to remain included in the schedule. The Central Excise Rules, 1944 clearly provided that for removal the duty would be imposed on excisable goods at the current rate when the goods were sought to be removed from the factory. Rule 9A of the said Rules specifically provided that the rate of duty and tariff valuation could be fixed with reference to the date of actual removal of goods from the factory or warehouse concerned. The goods in the instant case being excisable goods and the same having been removed at a date when the excise duty was leviable on such goods the rate of duty as prevailing on the date of removal was imposable. By reason of the withdrawal of the exemption, the rate had been enhanced from 'nil rate' and duty was payable on the enhanced rate.
40. In support of his contentions learned Advocate for the respondents cited the following decisions :
(a) Orient Paper Mills Ltd. v. Union of India reported in 1978 Excise Law Times 328.
Paper comes as item 17 of the Tariff Schedule to the Central Excises & Salt Act, 1944. The duty of excise on paper and boards was increased on and from the 1st March 1961. On the 27th and 28th February the manufacturer loaded a number of wagons with paper and cleared them under a gate pass.. The wagons were sealed by the railway and railway receipts were issued to the manufacturer. The wagons however were left in the private siding belonging to the manufacturer.
The Excise Authorities contended that the wagons loaded on the 27th and 28th February, 1961 remained in the factory premises till the 1st March, 1961 and therefore the paper loaded in the said wagons were liable to be assessed at the higher rate of excise duty current from the 1st March 1961. The manufacturer contended to the contrary and relying upon Rule 9A of the Central Excise Rules submitted that excise duty was payable at the rate in force on the date the duty was actually paid. It was further contended that the goods having cleared or removed from the factory before the midnight of the 28th February, 1961 could not be made liable for the enhanced duty. The contentions of the manufacturer were rejected by the 'Assistant Collector and on Appeal by the Collector of Central Excise. A revision application made before the Government of India from the order of the Collector was also rejected. The matter came up before the Supreme Court by Special Leave. The Supreme Court held that in case of manufactured goods the payment of duty and the clearance of goods may be synchronous or the payment may be postponed though the goods may be removed. The critical time was the removal from factory or warehouse but if duty was paid before the removal then the critical time would be the payment of duty. In the facts it was found that the goods have been removed on payment of duty on a gate pass. The wagons had left the factory premises and the siding was not regarded by the excise authorities as part of the factory. The Supreme Court held that the recovery of enhanced duty was erroneous and the duty collected must be refunded.
(b) Union of India and Ors. v. Elphinstone Spinning & Weaving Mills Co. Ltd. reported in 1978 Excise Law Times 680.
Prior to the financial year 1968, items of cotton fabric being item 19 of the Tariff Schedule to the Central Excises & Salt Act, 1944 were liable to excise duty. A Notification dated the 1st March, 1966 exempted processed cotton fabrics from a part of the duty and a subsequent notification dated the 24th February, 1968 exempted all rubberized or plasticized fabrics, the cotton contents of which was less than 20% of the total weight from that part of the duty as was in excess of the duty leviable on cotton fabrics.
On the 29th February 1968 a new Item 22(b) was introduced in the Tariff Schedule under the heading textile fabrics impregnated or coated with cellulose derivative or other artificial plastic materials and a rate of duty was prescribed for the same which came into effect from the midnight of the morning of 29th February, 1968. On the 1st March, 1968 several notifications and/or trade notices were issued by the Excise Department. In one of the trade notices dated the 29th February, 1968 it was recorded that stocks of excisable goods at midnight of the 29th February 1st March, 1968 in fully manufactured condition would not be dutiable even if lying within the factory. The manufacturers were directed to declare the stock immediately. The manufacturers in the instant case declared its stocks which were inspected. The goods which were packed were allowed to be removed without payment of duty but the goods which were not packed were not so allowed. On the 14th March 1968 another trade notice was issued stating that the new excisable commodities in a fully manufactured conditions would not be dutiable even if lying within the factory premises.
On these facts a dispute arose between the manufacturer and the excise authorities whether the stock of manufactured goods could be cleared from the factory without payment of excise duty so far as the stock which remained unpacked. The manufacturer moved an application under Article 226 of the Constitution and succeeded before a learned Judge of the Bombay High Court. On an appeal a Division Bench of the High Court held after construing Section 3 of the Act with Rules 7, 8, 9 and 9A of the Central Excise Rules that at the stage of manufacture or production of goods excise duty was not attracted. The High Court observed as follows :-
"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 9A so far as the present case is concerned, is that in the case of the mills the duty was attracted on goods in question on the date of 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 date 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 one of the items in the First Schedule as being subject to a duty of excise and were goods which were manufactured and produced in India they could not be removed unles the duty at the rate set-forth in the First Schedule to the Act was paid.
Undoubtedly under the Act and the rules, a duty of excise cannot be attracted or levied or imposed unless in the first instance there was manufacture or production of goods in this country. This is the very basis of excise namely the facturm of manufacture or production in this country. This, however, does not mean that a duty or tax which is imposed upon articles manufactured or produced in this country must be levied at the point of manufacture or production. Once goods have been produced or manufactured in this country the levy of duty can be imposed in respect of these goods at any subsequent stage subject to the qualification laid down by the Federal Court, the Privy Council and the Supreme Court that such levy does not impinge upon the exclusive legislative power of the State Government."
It was held that the manufacturer was liable to pay excise duty on the excisable goods when it sought to remove such goods from the factory. The fact that the goods had been manufactured earlier was not relevant to the liability to pay such duty. The appeal was allowed and the order of the first Court was set aside.
41. The relevant provisions of the Central Excises and Salt Act, 1944, and the Rules framed thereunder are noted as follows :-
Section 3 : Duties specified in the First Schedule to be levied.
(1) 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. (A) The Provisions of Sub-section (1) shall apply in respect of all excisable goods other than salt which are produced or manufactured in India by, or on behalf of, Government, as they apply in respect of goods which are not produced or manufactured by Government".
Rule 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.
(2) The Central Board of Excise and Customs, may by special order in each case exempt from the payment of duty, under circumstances of an exceptional nature any excisable goods".
Rule 9 : Time and manner of payment of duty. -
(1) 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:
Provided that such goods may be deposited without payment of duty in a store room or other place of storage of approved by the Collector under Rule 27 or Rule 47 or in a warehouse appointed or licensed under Rule 140 or may be exported under bond as provided in Rule 13:
Provided further that such goods may be removed on part-payment of duty leviable thereon if the Central Government, by notification in the official gazette, allow the goods to be so removed under Rule 49."
Rule 9A : Date for determination of duty and tariff valuation. -
(1) The rate of duty and tariff valuation, if any, applicable to any excisable goods, shall be rate and valuation in force.
(1) in the case of goods cleared from the premises of a curer on payment of duty, on the date on which the duty is assessed, and
(ii) in the case of goods cleared 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.
(2) If the goods have previously been removed from warehouse under bond to be rewarehoused, and the duty is paid on such goods without their being rewarehoused, the rate and valuation, if any applicable thereto shall be the rate and valuation, if any, in force on the date on which duty is paid or if duty is paid through an account-current maintained which Collector under Rule 9, on the date on which an application in the proper form is delivered to the officer-in-charge of the warehouse from which the goods were removed.
(3) Where any person who has removed excisable goods for export in bond fails to export or to furnish proof of such export to the satisfaction of the Collector or diverts the goods for home consumption, the rate of duty leviable and the tariff valuation, if any, in respect of such goods shall be the rate and valuation in force on the date on which the duty is paid.
42. The controversy which has been raised in the instant proceedings is at what point of time the duty imposed under the Central Excises & Salt Act, 1944 becomes payable.
43. The Madhya Pradesh and the Andhra Pradesh High Courts have taken the view that the taxable event is the manufacture or production of goods and if excise duty was payable on the date of production or manufacture then the same has to be paid irrespective of the point of time when the goods are removed from the place of manufacture or production. The same view has been taken by the Allahabad High Court.
44. The Bombay High Court on the other hand in the case of Elphinstone Spinning & Weaving Mills Co. Ltd. (Supra) has taken the view that excise duty is not attracted at the stage of manufacture or production of goods but the date of the actual removal of the goods from the place of manufacture is the point of time when the duty is attracted.
45. So far as the Supreme Court is concerned the special leave petition to appeal from the decision of the Madhya Pradesh High Court in the case of Kirloskar Bros. Ltd. (Supra) was rejected. But in Orient Paper Mills Ltd. (supra) the Supreme Court observed that in the case of manufactured goods the payment of duty and the clearance of goods may be synchronous. The Supreme Court has further observed that the critical time is the removal of the goods from the factory or warehouse but if the duty is paid before removal then the critical time would be the time of payment of duty. The Madhya Pradesh High Court has considered and distinguished the decision of the Supreme Court in Orient Paper Mills in its subsequent judgment in the case of Kirloskar Brothers Ltd. (supra). It was held by the Madhya Pradesh High Court that where no excise duty had been imposed at the time of manufacture of goods then in such a case the fact that the goods were removed subsequently when the excise duty was imposed or exemption revoked for the first time would make no difference and the goods would not be exigible to excise duty. But where the goods were subject to any excise duty at the time of their manufacture then if the rates were varied subsequently then the rates would be determined by the situation prevailing at the time of removal.
46. The Andhra Pradesh High Court in Sripur Paper Mills Ltd. (supra) reiterated that an excise duty is attracted at the very threshold namely when the goods are manufactured or produced. If the duty is not chargeable at that time then the fact that the goods are not cleared or removed for some reason or other after manufacture would make no difference to the position.
47. We also note the decision of the Supreme Court in Bombay Tyre International Ltd. (supra) where the Supreme Court has reiterated that the levy of an excise duty is on manufacture or production of goods though the collection may not synchronize without completion of the manufacturing process. The Supreme Court also observed that the point of collection of excise duty rested on considerations of administrative convenience.
48. The same view was reiterated by the Supreme Court in Sinde Bros. v. Deputy Commissioner, Raichur, where it was laid down that so far as excise duty was concerned the taxable event must be the manufacture or production of goods.
49. On a consideration of all aspects of the controversy raised before us in the instant case we are in respectful agreement with the view taken by the Madhya Pradesh, Andhra Pradesh and Allahabad High Courts. Excise duty being a tax levied on manufacture or production of goods, if at the time of manufacture or production the goods were not made subject to payment of any tax, in our view a duty imposed later cannot be levied on such goods. This would result in a tax being imposed either on storage of goods or on movement of goods on their clearance. Such a construction in our view, militates against the true nature of an excise duty.
50. If no duty is imposed on particular goods the same can be cleared immediately after production without payment of any tax. There is no question of any assessment or payment of any duty at that stage because the goods are not taxable. Merely because the goods remain uncleared after their manufacture, in our view, cannot make the goods exigible to excise duty in the event a duty is imposed subsequent to the manufacture. We also hold that where the exemption is total the goods cannot be held to be taxable goods. We respectfully agree with the view of the Madhya Pradesh High Court on this point in Tata Exports Limited (supra).
51. We, however, make it clear that we are not expressing any opinion whether on account of subsequent change of rate of excise duty whether the old or new rate will apply at the time of clearance of the goods. In the facts before us, under the withdrawn Notification the goods were totally exempt from excise duty when they were manufactured and no duty was leviable at all. This is not a case of change of rate of duty.
52. For the reason as above, the appeal is allowed. The judgment and order dated the 22nd March, 1983 is set aside. The impugned order dated the 13th December, 1982 is directed to be quashed and the Rule Nisi is made absolute to the extent as above.
53. The order dated the 16th December, 1980 of the Assistant Collector of Central Excise, Calcutta on an appeal from which the impugned order dated the 13th December, 1982 was passed merged in the said later appellate order. The said order by implication will also stand quashed. In any event, we direct the same to be quashed. The respondents are directed to act in accordance with law and dispose of the proceedings in the light of the observations made in the judgment. Let appropriate Writs be issued.
54. In the facts and circumstances, there will be no order as to costs.