1. The petitioners are manufactures of diverse metal products at their factory situated at Chembur in Greater Bombay. The petitioners are manufacturing since the year 1960 LP Gas Cylinders used for storage of liquid petroleum gas. The manufacture was done under an Industrial Licence bearing No. MEI(10)/59-EI(M) and the gas cylinders were manufactured from mild steel sheets.
2. In the year 1963, the petitioners obtained an Industrial Licence to manufacture valves. The valves are manufactured from brass by hot forging of brass rods. In the year 1964, the petitioners obtained from the Government of India, a licence to manufacture regulators and the regulators are manufactured from corrosion resistant materials such as zinc alloy die casting, brass and stainless steel. The regulators are used to regulate pressure of gas and are not required in every type of utilisation of gas. The petitioners have been selling gas cylinder without fitting the valves and regulators. Though in some cases, the customers purchase cylinders fitted with valves and regulators, it is obvious that the valves and regulators are distinct from cylinders and are not parts of the cylinders and it is so recognised by the International trade and in the trade circles in the country.
3. Item No. 46 of the Tariff provides for levy of excise duty on the containers and it reads as under :
'46. Metal Containers Not Elsewhere Specified
Explanation. - The expression 'Containers' has the meaning assigned to it in the Explanation to Item No. 27.'
Explanation to Item No. 27 reads as under :-
'Containers' means containers ordinarily intended for packaging of goods for sale, including casks, drums, cans, boxes, gas cylinders and pressure containers, whether in assembled or unassembled condition, and containers known commercially as flattened or folded containers.
Under the said Item No. 46, an ad valorem duty at the rates specified from time to time was levied on metal containers manufactured by the petitioners and the petitioners have paid the said duty. Some time in July 1972, the petitioners received from the Superintendent of Central Excise a notice purporting to be under Rule 10 of the Central Excise Rules asking the petitioners to show cause why an amount of Rs. 9,06,097.25 being the excise duty allegedly short levied between March 1, 1970 and May 31, 1972 should not be recovered. The petitioners also received another notice in respect of short levy of Rs. 51,474.15 for the period between June 1, 1972 and June 30, 1972. The petitioners gave their replies but by an order dated September 6, 1974, the Assistant Collector held that the price of valves and regulators had to be included in the assessable value of the gas cylinders because such valves and regulators were integral parts of the cylinders. On the strength of this finding, the Assistant Collector confirmed the demand made under the two show cause notices.
4. The petitioners carried an appeal before the Appellate Collector of Central Excise and that appeal was allowed by order dated February 8, 1975. The Appellate Collector felt that as the cylinders, valves and regulators are manufactured under two distinct industrial licences, the materials used for the cylinders and for valves and regulators being altogether different, their construction and method of manufacturing being different, the prices of valves and regulators could not be included in the value of cylinders for the purpose of assessment. On the strength of these findings, the Appellate Collector quashed both the show cause notices and the demands made thereunder. The Government of India, in exercise of the powers under Section 36(2) of the Central Excises and Salt Act, issued review notice dated December 5, 1975 calling upon the petitioners to show cause as to why the order of Appellate Collector should not be reversed. In paragraph 4 of this notice, it is, inter alia, mentioned that the excise levy is to be guided by the product itself and not by the fact that as to whether it is being manufactured under different licences. The notice further mentions that the valves and regulators are essential parts of the gas cylinders as the gas cylinders cannot be used without the valves and regulators. The petitioners sent a detailed reply on January 23, 1976 and on consideration of the same, the Joint Secretary to the Government of India passed the impugned order on November 21, 1977. The Government observed that in so far as the valves are concerned, they are essential for the functioning of the gas cylinders and accordingly have to be treated as essential parts of the cylinders and their value has to be included in the assessable value of the gas cylinders. As regards the regulators, the order finds that their value need not be included in the assessable value of the gas cylinders. As the finding about the inclusion of the value of the valves in the assessable value of the gas cylinders went against the petitioners, the petitioners have filed the present petition under Article 226 of the Constitution of India.
5. Shri Setalvad, the learned counsel appearing in support of the petition, urged that the petitioners had a factory at Chembur where the cylinders are manufactured, while the valves and regulators were manufactured at their factory at Surat. The learned counsel pointed out that the manufacture of cylinders, valves and regulators is totally distinct from each other and different machinery is employed for such manufacture and so also the different raw material. Shri Setalvad points out that there are various companies which are manufacturing only valves and regulators and not the cylinders. The learned counsel further urged that it is not in dispute that in numerous cases, customers merely purchase cylinders. The learned counsel, therefore, urged that the assessable value of the cylinders manufactured by the petitioners cannot include the price of valves and regulators. In my judgment, the submission of the learned counsel is correct and deserves acceptance. The material produced on record by the petitioners establishes that the cylinders can be sold without fixation of valves and manufacture of valves on the one hand and the cylinders on the other is totally distinct.
6. Shri Dalal, the learned counsel appearing on behalf of the respondents, relied upon Tariff Item No. 46 and claimed that the expression 'containers' means 'containers intended for packaging of gas for sale' and, therefore, cylinders cannot be sold without fitting of valves. The submission is not accurate because the material unmistakably indicates that the cylinders are in fact sold without fitting of valves. The revisional authority has proceeded to include the value of the valves while assessing the value of the cylinders only on the ground that the valves are essential for the functioning of the gas cylinders. Even assuming that it is so, it is difficult to appreciate how the value of the valves can be included while determining the assessable value of the cylinder. The necessity of valves for the use of cylinders is no ground to include the value of the valves in the assessable value of the cylinders. In my judgment, the revisional authority is clearly in error in disturbing the order passed by the Appellate Collector and the impugned order requires to be set aside.
7. Accordingly, the petition succeeds and the rule is made absolute in terms of prayer (b) of the petition. The Bank guarantee furnished by the petitioners in pursuance of the interim order stands discharged. In the circumstances of the case, there will be no order as to costs.