1. M/s. Hindustan Shipyard Limited, Visakhapatnam is a Government Company incorporated under Section 617 of the Companies Act, 1956.
During the period 1978-79 they had manufactured among other things a Floating Cassain Gate and a Flap Typj Gate in their factory situated at Gandhigram, Visakhapatnam and supplied the same to Naval Dry Dock Authorities under a contract valued at Rs. 1,12,55,050.00 (including the cost of towing and transport) without payment of any Central Excise duty.
2. M/s. Hindustan Shipyard Ltd., Visakhapatnam did not inform the Department about the fact of the manufacture of these Gates and supply of the same to the Naval Dry Dock Authorities, Visakhapatnam. The Excise Authorities came to know about this fact from the Audit Reports and after perusing the balance sheet of the company for the year ending 31-3-1979.
3. Show cause notice C. No, V/4/1/649/81 dated 2-11-1981 was issued by the Assistant Collector of Central Excise, Visakhapatnam to M/s.
Hindustan Shipyard Ltd. informing therein that those goods were classifiable under Tariff Item No. 68 of Central Excise Tariff.
4. M/s. Hindustan Shipyard Ltd., replied upon Notification No.56/75-C.E., dated 1-3-1975. It was contended that the Floating Cassain Gate and Flap Type Gate in question were manufactured by them for the Naval Authorities at Visakhapatnam. Hindustan Shipyard Ltd. Visakhapatnam is wholly owned by the Government of India and the goods in question manufactured by it were intended to be used by Naval Dry Dock Authorities -a Dapartmsnt of the Central Government and as such those goods were exemptel for the levy of excise duty vide Notification No. 56/75-C.E., dated 1-3-1975. It was also contended that demand raised undar rule 9(2) of thsCentral Excise Tariff Rules was also not maintainable.
5. The Assistant Collector by his order No. 10/82 dated 27-1-1982 rejected the contentions raised by the appellants and held that a demand for duty at the appropriate rates on the total value of Rs. 1,12,55,050.00 under rule 9(2) of the Central Excise Rules be issued against the appellants.
6. Aggrieved by the said order of the Assistant Collector of Central Excise, the appellants filed an appeal before the Appellate Collector of Central Excise, Madras, reiterating the same facts which were raised before the Assistant Collector. The Appellate Collector by his order dated 8-7-1982 did not accept the plea of the appellants that they were exempt from payment of excise duty under Notification No. 56/75-C.E., dated 1-3-1975, but on the point of limitation it was held that there was no intention on the part of the appellants to evade duty and the clearances of the impugned goods could not amount to suppression or mis-statement of the facts and the applicability of rule 9(2) was disallowed. It was ordered that the demand be restricted to the normal time limit of 6 months only.
7. Aggrieved by the said order of the Appellate Collector, the Collector of Central Excise, Guntur, filed an appeal before this Tribunal pleading therein that in terms of the amended provisions of rule 1738 read with rule 173PP of the Central Excise Rules, the assesses should have declared the excisable goods falling under T.I.No. 68 by filing with the proper officer for approval a list of those goods with their full description before their removal from the factory. The assessee did not file any declaration in the relevant period to the effect that the impugned goods were intended to be produced and on completion thereof to be cleared by them. Whereas they filed classification list covering other excisable goods falling under C.E-T, Item NO, 68 produced and cleared by them, they failed to file any classification list with respect to the impugned goods, manufactured and cleared by them. The assessee maintained R.G. 1 account i.e. account of production and clearance contemplated under rule 53 read with rule 173G(4) but failed to record the production and clearance of the impugned goods. Similarly the assessee failed to record the particulars of the production and clearance under the monthly report in form R.T. as required under rule 173G(3). The provisions of rule 9(2) of the Central Excise Rules are applicable in this case and the demand raised under this rule was within time.
8. M/s. Hindustan Shipyard Ltd. filed the cross objections pleading therein that the Appellate Collector should have given the benefit of Notification No. 56/75-C.E., dated 1-3-1975 and should have held that the impugned goods were not subject to excise duty.
9. We have heard Sh. D. V. Subha Rao, Advocate for the M/s. Hindustan Shipyard Ltd. and Sh. Luxmi Kumaran, S.D.R. for the Department on both the appeals and cross objections and this order of ours will dispose of both the appeal and cross objections, (i) Whether M/s. Hindustan Shiypard Ltd. are entitled to the benefit of exemption Notification No. 56/75-C.E., dated 1-3-1975.
(ii) If issue No. 1 is not proved, whether demand raised under rule 9(2) of C.E.T. Rules is valid "All goods falling under Item No. 68 and manufactured by the factories belonging to the Central Government and intended for use by the Departments of the said Government, are exempt from the whole of the duty of excise leviable thereon".
11. The above notification grants an exemption from the whole of duty leviab'e on Tariff Entry No. 68-goods manufactured by the factories belonging to the Central Government and intended for use by the Departments of the said Government. This notification contemplates an exemption if two requirements are satisfied. Firstly, the goods must be manufactured by the factory belonging to the Central Government and fall under T.I. No. 68 of the Central Excise Tariff and secondly, those goods should be intended for use by the Departments of the said Government. Therefore, to get benefit of this exemption, the Hindustan Shipyard Ltd. has to satisfy both these conditions.
12. Admittedly, Hindustan Shipyard Limited is a Government Company incorporated under the Companies Act. It has got its own Memorandum of Association and Articles of Association. It is under the direct control and supervision of Board of Directors. The factory which had manufactured the goods in dispute, is being run under the management of M/s. Hindustan Shipyard Ltd. Under these circumstances, it has to be seen whether this factory can be said to belong to the Central Government.
13. In this regard, the learned counsel of M/s. Hindustan Shipyard Ltd. drew our attention to various decisions of Supreme Court viz. Raman Dayaram Shetty v. International Airport Authority of India and Ors.
(AIRSom Prakash Rekhi v. Union of India and anr. (AIR 1981 SC 212) Ajay Hasia etc. v. Khalid Mujib Sehravardi and Ors. etc.
(AIR 1981 SC-487) and the Managing Director, U.P. Warehousing Corporation and Ors. v. Vijay Narayan Vajpayee (AIR 1980 SC 840) in support of his contention that the Government companies are the instrumentalities of the State and merely because they are incorporated under the Companies Act, it cannot be said that they do not belong to the Government. M/s. Hindustan Shipyard Limited is a Government company belonging to the Central Government and the goods manufactured by the factory were for the use of Navy, a Department of the Government and therefore, exemption notification is directly applicable in this case.
He submitted that the word "belonging to" does not mean full ownership.
He drew our attention to a decision of Supreme Court in Raja Mohammed Amir Ahmed Khan v. Municipal Board of Sitapur and anr. (AIR 1965 SC 1923) in support of his contention. In this case the Government is the owner of Hindustan Shipyard Limited and has got the absolute right over it and therefore, the factory belongs to the Central Government.
14. Shri Subha Rao also drew our attention towards the Memorandum of Association and Articles of Association of Hindustan Shipyard Ltd. in support of his contention that the shares are held by the President of India, that the Government of India has a pervasive control over the Hindustan Shipyard Limited and that the ship building is the monopoly of the Central Government and that the power of appointment is given to the Chairman by the President of India and the Board is also to be appointed by the President of India in consultation with the Chairman and that financial powers are also vested in the Central Government.
According to him, for all intents and purposes Hindustan Shipyard Limited belongs to the Government and therefore, the factory running under the control and supervision of Hindustan Shipyard Limited belongs to the Central Government. The incorporation in the Companies Act is only to facilitate administrative efficiency and decentralisation.
15. The Departmental Representative countered the contention of the learned counsel of the Hindustan Shipyard Ltd. in the present circumstances of the case. A perusal of the Memorandum of Association and Articles of Association of Hindustan Shipyard Limited shows that this company was originally registered with the Registrar of Joint Stock Companies, Delhi vide certificate of incorporation No. 2064 of 1951-52 as a private company limited by shares. Later on under Section 23 of the Companies Act and under the order of the Central Government its name was changed from Hindustan Shipyard Pvt. to Hindustan Shipyard Limited and the said company was duly incorporated as a Government Company under the provisions of the Indian Companies Act. Limited Company has been defined under Section 3 (23) of the Company's Act, 1956 as a Company Limited by shares or by guarantee.
16. It shows that it is a corporate body having its existence under the Company's Act, 1956. It is a separate entity different from its shareholders. It is a juristic person with a perpetual succession and a common seal as such it never dies, nor does its life depend upon the life of its members. It is created by a process of law and can be put to an end only by a process of law. Members may come and go but the company goes for ever until dissolved. It is capable of owning, enjoying and disposing of property in its own name. Although the capital and assets of the company are contributed by its shareholders, the shareholders are not the private and joint owners of the company.
The company is the real person under which all its property is vested and by which it is controlled, managed and disposed of. No member can claim himself to be owner of company's properties during its existence or its winding up. A shareholder does not have even an insurable interest in the properties of the company.
17. In this case though the entire shares are held by the Central Government but the Central Government cannot be said to be the owner of this limited company. Lord Macnaghten in a case Salomon v. Salomon & Co. Ltd. (1897) A.C. 22 observed as under :- "The company is at law a different person altogether from the subscribers to the Memorandum ; and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor the subscribers are liable, in any shape or form, except to the extent and in the same manner provided by the Act".
18. The various decisions cited by the learned counsel of M/s.
Hindustan Shipyard Limited are not helpful in the present circumstances of the case. In all these judgments, the Hon'ble Judges of the Supreme Court came to the conclusion that where a Corporation is an instrumentality or agency of the Government, it must be held to be an 'authority' within the meaning of Article 12 of the Constitution of India and hence subject to the same basic obligations as the Government.
19. The facts of the case however, are quite different. The question before us is whether Hindustan Shipyard Limited (A Government of India Undertaking) can be said to belong to the Government who has got its entire shareholders. The ratio of the decisions of the Hon'ble Supreme Court are not applicable in the present circumstances of the case before us.
20. The welfare State under the Constitution of India has encouraged a number of public undertaking whose control lies with the State. The Government of India has evolved three basic legal patterns for state enterprises, namely : (1) Statutory corporations formed by and under special status both parliamentary and State : (3) Government company under the Companies Act with special Articles of Memorandum.
21. The Hindustan Shipyard Limited is a Government company under the Company's Act with special Article of Memorandum. The Hon'ble Supreme Court in H.EM. Union v. Bihar State (AIR 1970 SC 82) held that a Government company could not be treated to be a servant or an agent of the State. The question before their Lordship was whether the Government company concerned was carrying on business under the authority of the Government for purposes of Section 2(a) of the Industrial Dispute Act, 1947 where "the appropriate Government" in relation to any industrial dispute concerning an industry carried on by or under the authority of Central Government is defined as the Central Government. "Under the authority", according to the Court, "mean pursuant to the authority, such as where an agent or a servant acts under or pursuant to the authority of his principal or master". The Government company is not an agent of either the President of India or the Central Government. Government undertaking is a separate legal entity from the Government and it cannot avail the immunity attached to the Government under Article 300 of the Constitution with respect to Civil Suits etc. It is a company registeied under Section 617 of Companies Act which is being administered by a body consisting of a Chairman and Board of Directors having a status of an autonomous body and its main object is commercial. It cannot be said to be owned or belonging to the Central Government. The facts of the case in Raja Mohammed Amir Ahmed Khan (Supra) were quite different from the facts of the case before us. In that case the dispute related to the nature of the title and the interest in a land situated within the area of Sitapur Cantonment. Here the question before us is, whether a Government company incorporated under the Companies Act, can be said to be owned by the Government and belonging to it The ratio of the decision of this case does not help Hindustan Shipyard Limited.
22. The word "Belonging" has been defined in Stroud's Judicial Dictionary at page 269 as under : "Property 'belonging' to a person, has two general meanings (1) ownership (2) the absolute right of user".
The Central Government is neither the owner nor has it the absolute right of user and hence Hindustan Shipyard Limited cannot be said to belong to the Government. When Hindustan Shipyard Limited does not belong to the Central Government, how can the factory which is being run and managed by the Hindustan Shipyard Limited be said to belong to the Central Government The cross objections filed by M/s Hindustan Shipyard Limited are, therefore, not maintaitable hence rejected. ' 23. On the question of applicability of rule 9(2) of the Central Excise Rules, the Appellate Collector found that the appellants i.e. Hindustan Shipyard Limited bonafide believed that the impugned goods were not liable to duty and there was no intention on their part to evade duty and therefore, the provisions of rule 9(2) of Central Excise Rules, 1944 could not be used against them and that the demand should be restricted to the normal time limit of 6 months only.
24. The findings of the Appellant Collector do not seem to be justified on this point in the present circumstances of the case.
25. Rule 9, as it stood prior to its amendment before 20th February, 1982 lays down time and manner of payment of duty. It lays down that no excisable goods shall be removed from any place where they are produced, cured or manufactured or from 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, except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the form.
26. If any excisable goods are removed in violation of rule 9(1), the provisions of rule 9(2) are attracted immetiiatly. In N.B. Sanjana's case their Lordship of the Supreme Court had an occasion to decide the question of applicability of rule 9(2) of the Central Excise Rules and observed as under: "Sub-rule (1) of rule 9 provides for the time and the manner of payment of duty. In this case there is no controversy that whatever goods were cleared by the respondents, necessary application had been made to the officer concerned and the latter had passed orders of assessment to nil duty. To attract Sub-rule (2) of rule 9, the goods should have been removed in contravention of Sub-rule (1)".
27. In the present case before us, M/s. Hindustan Shipyard Limited had not even disclosed the fact of manufacture of these goods to the excise authorities and therefore, the question of their removal within the knowledge of the excise authorities could not have arisen.
28. In this case before us, M/s. Hindustan Shipyard Limited had not declared about the manufacture of these goods though they were excisable under T.I. No. 68 of the C.E.T. No classification list was filed with respect to these items. The assessee maintained R.G. 1 Account, i.e. account of production and clearances contemplated under rule 53 read with rule 173 G(4) but failed to record the production and clearance of the impugned goods. Similarly, M/s. Hindustan Shipyard Limited failed to record the particulars of the production and clearance in the monthly report in form R.T. 12 as required under rule 173G(3). As M/s. Hindustan Shipyard Limited removed the excisable goods without the knowledge and premission of the excise authorities, they have violated the provisions of rule 9(1) and demand was validly made under the provisions of rule 9(2) within a period of 5 years, Before removing these goods which were excisable goods falling under Item No.68 of the Central Excise Tariff, M/s. Hindustan Shipyard Limited should have made it known to the excise authorities by claiming exemption under Notification No. 56/75-C.E., dated 1-3-1975 and if after knowing these facts the excise authorities had allowed these goods to pass for nil duty and later on raised the demand of the excise duty, in that case the department could not be said to be justified in raising the demand under rule 9(2) of the Central Excise Rules. This is not the case here. The Appellate Collector has not correctly appreciated the provisions of rule 9(2) and therefore, we have got no alternative but to set aside the order of the Appellate Collector on this point and to accept the appeal filed by the Department.
29. In view of our findings above, we accept the appeal filed by the Department and reject the cross objections filed by M/s. Hindustan Shipyard Limited.