1. All these three appeals arise out of the same combined Order-in-Appeal of the Appellate Collector of Central Excise, Madras, and they were therefore, heard together.
2. The basic issue involved is the interpretation of certain provisions of Government of India, Ministry of Finance (Revenue) Notification No.198/76-C.E., dated 16-6-1976. Briefly, the notification granted exemption (popularly called "rebate") to the extent of 25% of the excise duty, on excess clearances of certain specified excisable goods.
These excess clearances were to be calculated with reference to the base clearance to be determined in respect of each manufacturer in the manner prescribed in the notification.
3. The appellants in the present case are manufacturers of cutting tools classifiable under Central Excise Tariff Item SI A. They had been manufacturing these goods for several years, but th| goods became excisable only with effect from 1-3-1974. The value of the goods cleared by the appellants from their factory during the relevant financial years (using the term "cleared" to1973-74 ...
Rs. 1,51,36,067.001974-75 ...
Rs. 3,27,44,124.361975-76 ...
Rs. 4,17,01,768.87 (Certain adjustments were required to be made to the above figures to take into account changes in the price index, but this does not affect the discussion).
4. The benefit of the above notification was to be calculated with reference to the "base clearances" of the specified goods during the "base period". The base period and the base clearances were to be arrived at in the manner prescribed in the notification. The Central Excise authorities in the first instance fixed the base clearances of the appellants as Rs. 2,52,94,080.09. The matter was subsequently reconsidered and after issue of a show cause notice the base clearance was refixed as Rs. 4,17,01,768.87. Consequently three refund claims filed by the appellants were rejected and instead, differential duty was demanded from them on the basis that they were entitled to the 25% rebate only on clearances in excess of the revised base clearance of Rs. 4,17,01,768.87. In appeal, this decision was upheld by the Appellate Collector. It is against this decision of the Appellate Collector that the present appeals have been filed.
5. Appearing before us for the appellants, Shri Ramasubramaniam took us through the relevant notification and drew our attention to the points of controversy. The main issue is the correct interpretation of Clause 2(2) of the said notification, which reads as under :- "(2) After comparing the clearances of specified goods under sub-paragraph (1), the base period and base clearances, in relation to a factory, shall be determined as under :- (a) where the specified goods were or are cleared from a factory for the first time on or after the 1st day of April 1976, the base period shall be the year 1975-76, and the base clearances shall be nil; (b) where the specified goods were cleared from a factory for the first time on or after the 1 st day of April 1973, but not later than the 31st day of March 1976, the base period shall be the three financial years, namely, 1973-74, 1974-75 and 1975-76 and the base clearances shall be one-third of the aggregate of the clearances of such goods during such base period; (c) where the specified goods were cleared from the factory for the first time earlier than 1st day of April 1973, the base period shall be the year in which the aggregate of the clearances of such goods during any of the financial years 1973-74, 1974-75 and 1975-76 was the highest and the clearances during such base period shall be the base clearances." Shri Ramasubramaniam submitted that the term "clearances" could apply only to excisable goods, this being a word peculiar to the operation and coverage of excise law. In their case no doubt the goods were being manufactured even prior to 1-4-1973, However, since they became liable to Central Excise duty only with effect from 1-3-1974, it was only with effect from that date that there could be said to be clearances of the goods. Accordingly, their case fell under Clause 2(b) of the provision reproduced above. The Excise authorities had in the first instance correctly applied this clause and arrived at a figure of Rs. 2,52,94,080.09 as the base clearance. Subsequently however they had taken the view that even removals of goods prior to the date of imposition of excise duty should be taken into account. Since the factory had been in existence and had been producing goods even prior to 1-4-1973, they had applied Clause 2(c) of the abovementioned provision, with the result that the maximum of the "clearances" during the three financial years 1973-74, 1974-75 and 1975-76 became the "base clearance". This revised figure was much higher than the original one, as a result of which not only were refunds denied to them but they were called upon to pay extra duty.
6. In support of his argument that the reference to "clearances" was intended only to cover goods which were excisable, Shri Ramasubramaniam pointed to two other provisions in the notification. One of these was Clause (a) of para 1 of the notification. In this clause it has been provided that "the clearances made during any financial year shall be separately calculated... on the basis of the accounts maintained under the Central Excise Rules, 1944...". The other was Explanation (2) under Clause (c) of para 1, which reads as under : - "Explanation 2.-In this paragraph unless the context otherwise requires, "Value" means the value as determined under Section 4 of the Central Excises and Salt Act, 1944 (1 of 1944) or, as the case may be, according to the tariff values fixed or altered under Section 3 of the said Act." Shri Ramasubramaniam submitted that where goods were not liable to excise duty nor subject to excise control, there would be no question of maintaining accounts under the Central Excise Rules or of determining the value under Section 4 of the Central Excises and Salt Act. The introduction of these concepts in the context of calculating "clearances" would show that these must necessarily be clearances of excisable goods.
7. Shri Ramasubramaniam also referred to Clause (b) of para 1 of the notification, wherein it was laid down that "clearances of any specified goods, exempted from the whole of the duty leviable thereon in any financial year shall not be taken into account". He argued that this would show that all production of goods was not material for the purpose of the exemption, but only what was specifically covered.
8. It was put to Shri Ramasubramaniam that the notification, providing a 25% exemption on excess clearances of a wide range of excisable goods, had been issued with the specific intention of rewarding and encouraging increased production of goods. This was an important measure announced in the Union Budget for 1976-77. It was pointed out to him that the interpretation which he was advocating would have the effect of granting exemption even where there was no excess production, and would therefore be contrary to the declared intention behind the measure. Shri Ramasubramaniam fairly did not contest this proposition, but according to him, the notification had to be applied, not on the basis of the intention, but with reference to its wording; and if because of defective wording a manufacturer became entitled to a benefit, that benefit should not be denied to him. He therefore submitted that the orders of the lower authorities deserved to be set aside and that the three appeals should be allowed.
9. Replying on behalf of Collector, Smt. Dolly Saxena submitted that the clear intention behind exemption Notification No. 191/76 was to give an incentive for the production of goods. It should not therefore be interpreted in a manner which would result in the exemption being given even when there was no increase in production. This however would be the case if the interpretation advocated by the appellants were adopted.
10. Smt. Saxena further submitted that the exemption was in respect of excisable goods of the description specified in the table annexed to the notification. It was clear from this that they were goods which at the time of issue of the notification were excisable. There was no basis to hold that they should also have been excisable earlier.
11. Smt. Saxena further submitted the term "clearances" used in the notification had not been defined therein. Having regard to the intention behind the notification, it should not be taken as applying only to clearances of goods which were excisable at the time of clearance. The term "clearance" should be understood in a broad sense consistent with the purpose of the notification.
12. Smt. Saxena therefore submitted that the interpretation adopted by the lower authorities was correct and that the appeals should be rejected.
13. In reply, Shri Ramasubramaniam referred to Clause 1 of para 2 of the notification wherein it is stated that "for the purpose of determining the base period, (a) clearances of all specified goods from a factory, whether existing before or after the date of publication of this notification...shall...be compared...". He submitted that this was a recognition that some factories might come into existence later on.
14. Shri Ramasubramaniam again drew our attention to the provision that the value meant the value as determined under Section 4 of the Central Excises and Salt Act. He submitted that the appeals deserved to be allowed.
15. We have given our very careful consideration to the submissions of the learned representatives of both sides. The notification which is the subject-matter of consideration is a noteworthy illustration of how the simplest concept may become complex when translated into legislative form. The learned advocate for the appellants had fairly agreed that the declared intention of Government in issuing the notification was to give an incentive for the increased production of selected goods (we shall return to this aspect later). However, so many conditions and qualifications have been built into the notification that it has led to considerable difficulty in interpretation. That however should not deter us from seeking to give a proper interpretation to the provisions which are the subject-matter of the dispute. It is appropriate in this connection to recall the following observations of the Hon'ble Supreme Court in the case of J.K. Steel Ltd. v. Union of India and Ors.- "It is true that a taxing statute should be strictly construed, but no rule or principle of interpretation requires that close reasoning should not be employed to arrive at the true meaning of a badly drafted entry in an Excise Act." Without being uncharitable to those who drafted the said notification, we feel that this is a case where the above observations clearly apply.
We have accordingly examined closely the provisions in dispute, taking into account not only the wording of the notification itself but of the declared intention behind it.
16. Of the intention there is no room for doubt. Clear pointers are available even from the copy of the notification filed by the appellants. The heading (which is not a part of the notification but clearly reflects the popular understanding) reads as "25% rebate scheme on excess clearances". The operative part of the notification contains internal evidence to the same effect. It reads as follows :- "The Central Government hereby exempts the excisable goods...
cleared from one or more factories in excess of the base clearances by or on behalf of a manufacturer, from so much of the duty of excise leviable thereon...as is in excess of '75% of such duty...".
Whatever may be the complexities in the succeeding parts of the notification, the operative part makes it very clear that its effect was to grant partial exemption from duty on excess clearances by a manufacturer, 17. The intention behind the notification was specifically set out in para 2.15 of the budget speech of the then Finance Minister, which reads as follows :- "It has been decided to introduce a new scheme of excise duty relief to encourage higher production. The scheme visualises grant of relief in respect of selected commodities to the extent of 25 per cent of duty payable on goods produced in excess of production in a selected base year. Details of the scheme are now being worked out and I expect that it will be introduced for one year in the first instance." The learned advocate for the appellants, as already stated had accepted that such was the intention of Government. In the circumstances attending this notification, the Finance Minister's speech can legitimately be considered as contemporanea expositio. Set out as it is in succinct language as contrasted with the profuse language of the notification, necessitated by legal requirements, it shows that the intention was to encourage production, by granting relief in respect of selected commodities on goods produced in excess of production in a selected base year. The accent is on production which was sought to be increased, by providing a fiscal incentive.
18. Shri Ramasubramaniam had not contested the intention behind the notification (this is why we have referred to the budget speech, although it was not available to us at the time of hearing). He however submitted that we should go by the literal construction of the notification, which according to him would support the appellants' case. We shall in due course examine whether the wording of the notification is really such as to support the appellants case and be inconsistent with the Department's case. Before this however we propose to consider how the general principles of interpretation of statutes would apply to the present case.
19. It is well recognised that the primary rule of interpretation is that of literal construction. This could be stated as follows :- "The words of a statute are first understood in their natural, ordinary or popular sense and phrases and sentences are construed according to their grammatical meaning, unless that leads to some absurdity or unless there is something in the context, or in the object of the statute to suggest the contrary." ("Principles of Statutory Interpretation" by G.P. Singh, 3rd Edition, page 63). This has also been referred to as the "golden rule". But even in applying this "golden rule" a caution has been added that "of course, Parliament is to credited with good sense; so that when such an approach produces injustice, absurdity, contradiction or stultification of statutory objective the language may be modified sufficiently to avoid such disadvantage, though no further (ibid, page 65).
20. While the rule of literal construction or the "golden rule" provides the basic approach, it may be found inappropriate in particular cases, as is in fact seen from the qualification added on in both the above enunciations. Thus in the case of Mahackolal Kanodia v.Administrator General of West Bengal (AIR 1960 S.C. 936) the Supreme Court has observed as follows :- "If the strict grammatical interpretation gives rise to an absurdity or inconsistency such interpretation should be discarded and an interpretation which will give effect to the purpose the legislature may reasonably be considered to have had, will be out on the words if necessary even by modification of the language used.' 21. The other rule which is relevant and, in our view applicable to the present case is the one which has been termed by Maxwell the "mischief rule" following from Heydon's case. It has been stated as follows by Shah J. (as he then was) :- "It is recognised rule of interpretation of statutes that expressions used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute, and which effectuate the object of the legislature."(New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar, AIR 1963 S.C. 1207). It has therefore been held in a number of decisions that when two interpretations are feasible the Court will prefer that which advances the remedy and suppresses the mischief as the legislature envisioned (G.B. Singh, Op. Cit., page 87).
22. The above principles are applicable to the present notification. It is not material that it is a notification rather than an Act of Parliament, since a notification is delegated legislation, and in this particular case it is an expression of a measure included in the budget proposals presented to Parliament. The ingredients of the scheme are quite clear. Government were faced with a mischief, namely stagnant or falling production. The remedy was to give an incentive for increased production. The mechanism was to allow a substantial reduction in excise duty on production which was in excess of the "base clearance".
Such a scheme would make economic sense only if the reward was for production which was in excess of the existing level, determined in a practicable manner, and the entire framing of the notification represents an attempt at this objective. Clause 2(2) of the notification (reproduced in para 5 above) sets out different rules to be applied for arriving at the base clearances, depending on the period for which the factory had been in operation. Although the scheme was meant to reward increased production, the exemption was linked to clearances. This is apparently because the exact point of time at which goods could be deemed to have been produced could be a matter of dispute (questions could arise regarding finishing processes, packing etc.), whereas clearances would be more definite and determinable in point of time.
23. The interpretation advocated by the appellants would, as pointed out in the Assistant Collector's order, lead to results which are opposed to the declared object of the scheme. The appellants' case was that they would come under Clause (b) of para 2, and that their clearances during the 25 months March 74 to March 76 when their goods were excisable should be divided by three to give the average production during the three years 1973-74, 1974-75 and 1975-76, which would constitute the base clearance in terms of Clause 2(2) of the notification. On this basis, the moment they exceeded 25/100 of their total production during the three-year base period (or a little over two-thirds of their annual production during the period), they became entitled to the rebate for "excess clearances". Even if there was a substantial fall in their production during 1976-77 as compared with their average production during the three preceding years-say a fall by 15%, leaving their production at 27/108 of their total production during the three-year base period, they would still have got the benefit of the exemption on a part of their production. In other words, they would have been "rewarded" for a substantial fall in their production, something directly contrary to the expressed object of the measure.
24. As against this, the interpretation sought to be given by the Department would ensure that the benefit of the notification accrued to the appellants only if they actually produced goods in excess of their best performance during the three preceding years, and thus achieved the objective behind the scheme.
25. Where the alternatives are so diametrically opposed, it appears to us that this is a case where we should adopt that interpretation which would best harmonise with the object of the statute and would effectuate the object of the legislature.
26. We have reproduced above Clause 2(2) of the notification which prescribes how the base period and base clearances are to be determined. According to the appellants, the use of the term "cleared" shows that only excisable goods were referred to and therefore production and removals of goods at a time when they were not excisable could not be taken into account. It is true that normally the words "cleared" and "clearances" carry the sense of compliance with certain requirements or formalities, and accord with the idea of goods being subject to excise duty and control. However, it should be noted that the terms "cleared" and "clearances" are used in the notification not only with reference to the past but also to the present and future. The notification provides not only for determining the base clearances but also for regulating the grant of exemption to clearances during the currency of the exemption notification. This would be clear from the operative part of the notification, which has been extracted in para 16 above, and also from various other references in the notification. It was obviously the most convenient term to use, particularly in the context that the exemption was to be regulated with reference to the accounts maintained under the Central Excise Rules. It is only in a very few cases, like the present, that there would be a period when there was production but no duty and therefore no "clearance" in the sense described above. To ignore goods produced and removed during the non-excisable period would result in the anomalous referred to above.
If however we take the term "clearances" in a broad sense as covering removals of goods, after compliance with Central Excise formalities where these were applicable, this patent anomaly would be avoided.
27. Shri Ramasubramaniam had laid stress on the references to Central Excise accounts and the value under Section 4, as indications that "clearances" would only refer to clearances of excisable goods. Where the goods at any point of time were excisable, the Central Excise accounts and the value as determined under Section 4 were obviously the most reliable and relevant basic material to be taken into account, and it would be natural and appropriate to refer to them. As we have already said, barring an exceptionl case like the present, such data would be available for all the goods sought to be covered by the notification. It is true that in the present case there would be no Central Excise accounts for the 11 months April 73 to February 74, nor would the goods produced and removed by the appellants during that period have been valued in terms of Section 4 of the Central Excises and Salt Act. Therefore for this period of 11 months the data on clearances in terms of the notification would not be available. As will be explained later, the absence of data for this period would not affect the calculation in terms of Sub-clause (c) of Clause 2(2), under which the Excise Department has classified the case of the appellants; or rather, the absence of such data might be to the benefit of the appellants. It is perfectly possible to work out the basic clearance in the case of the appellants, and to give them the benefit of the notification (subject to their clearances reaching a sufficient level) even in the absence of such data for the said 11 months. We do not therefore think that the references to Central Excise accounts and Section 4, which involve an apparent but not a real difficulty in an isolated case like the present one, should lead us to give an interpretation to the terms "clearances" and "cleared" which would be directly contrary to the declared purpose of the notification.
28. Shri Ramasubramaniam had referred to para 1 of the notification, which Jays down that the grant of the exemption is subject to certain conditions, the following being one :- "(b) the clearances of any specified goods, exempted from the whole of the duty leviable thereon in any financial year shall not be taken into account; but clearances of any specified goods under bond for exports or clearances of any specified goods entitled for exemption, when used in the production or manufacture of any other goods shall be taken into account.
(i) any goods which were exempted from the whole of the duty leviable thereon in the base period but not so exempted in any financial year subsequent to the base period, shall not be entitled to any exemption from duty or be taken into account for calculating the excess clearances ; The effect of the main clause above is not very clear. However, the explanation covers a situation which bears some resemblance to a case where goods were not excisable during the base period but were excisable during the current period. According to the explanation, where any goods were exempted during the base period but not during a subsequent period (including the current period), they would not be entitled to any exemption from duty during the current period. If we were to seek guidance from these provisions to which Shri Ramasubramaniam drew our attention and apply them by analogy to the present situation, it would lead to the conclusion that no exemption at all should be given under the notification. This goes even beyond what the Department has contended.
29. Shri Ramasubramaniam had also referred to Clause 2(1) of the notification, which talks of "a factory, whether existing before or after the date of the notification". With all respect to him we are unable to see how it supports his interpretation or is of assistance in settling the point at issue.
30. Assuming that Clause 2(2)(c) is applicable to the case, a point could still be raised that for the purpose of applying that clause, it is necessary to have figures of "clearances" on the basis of the Central Excise accounts, with the values being in terms of Section 4 of the Central Excises and Salt Act. In the nature of things, figures of such "clearances" by the appellants for the period April 73 to February 74 would not be available. We have to consider how this would affect the application of the aforesaid provision.
31. It is apparent that while the fact of pre-excise "clearances" could be taken into account for deciding whether alternative (a) or (b) or (c) of Clause 2(2) applies (taking the broad interpretation of the term "clearances which alone would give effect to the intention of the legislature), when it comes to the actual quantum of clearances the other provisions of the notification which refer to Central Excise accounts and Section 4, cannot be ignored. The result would then be that for 11 months of the financial year 1973-74, and therefore in effect for the whole of that financial year, figures of "clearances" in terms of the prescribed yardsticks would not be available. What would be the effect of this non-availability 32. Under Clause (c), it is the highest of the clearances during the three financial years 1073-74, 1974-75 and 1975-76 that has to be taken as the base clearance. It could happen in a rare case that the figures for one or more of these financial years are not available. In the present case this has happened because excise duty was imposed only with effect from 1-3-1974. In some other case it could happen that the relevant records are not available due to natural reasons or an Act of God. In such a case it would obviously not be fair to hold that the entire notification and the concession thereunder becomes inapplicable because some data are not available. An attempt would have to be made to apply the notification cm the basis of best judgment and with the available data. Following the same approach in the present case, it would mean that the figure of clearances for 1973-74 should be ignored as being not available, and the base clearances taken as the higher of the figures for 1974-75 and 1975-76 (after the adjustments prescribed in the notification). The appellants would not be prejudiced by such a course, which would, if at all, act in their favour. If the figures for 1973-74 are assumed to be lower than those for the other two years, they would not affect the result, because it is the highest figure which has to be taken. If the figures for 1973-74 are assumed to be the highest, then by ignoring them the appellants would be benefited and not put to loss. Thus by going on the basis of the two years for which figures in Central Excise terms are available, the appellants would not be put to a disadvantage, and this would certainly be more beneficial to them than the alternative of denying them the concession altogether.
So far as the Department is concerned, the result, in the case before us, is the same as has already been arrived at by them because in this case it happens that the highest clearance has been found to be the clearance during 1975-76.
33. In sum, therefore, by ignoring the figures of "clearances" during 1973-74, since those figures are not available in Central Excise terms, the appellants would not be prejudiced; nor would the final conclusions of the lower authorities be affected.
34. In the light of the careful and indeed anxious consideration which we have given to the matter, we are of the view that the words "cleared from a factory for the first time" in the three Sub-clauses of Clause 2(2) should be interpreted as relating to removals of goods from a factory, whether or not such goods were excisable at a previous point of time. The Assistant Collector was therefore right in holding that the appellants' case was covered by alternative (c) of Clause 2(2). The Appellate Collector was also right in upholding the Assistant Collector's order. We accordingly confirm the orders of the Appellate Collector and reject these three appeals.