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Pidilite Industries Pvt. Ltd. and ors. Vs. Government of India and ors. - Court Judgment

LegalCrystal Citation
SubjectExcise
CourtMumbai High Court
Decided On
Case NumberMisc. Petition No. 144 of 1975
Judge
Reported in1983LC728D(Bombay); 1983(12)ELT46(Bom)
ActsCentral Excise Act, 1944 - Sections 3
AppellantPidilite Industries Pvt. Ltd. and ors.
RespondentGovernment of India and ors.
Appellant AdvocateG.A. Thakkar, ;V.J. Tarapurwala and ;M.C. Parekh, Advs.
Respondent AdvocateDalal and ;R.L. Mukherjee, Advs.
Excerpt:
central excises & salt act, 1944: section 3 - classification--tariff item 14(5): carbon blackcarbon black is an inorganic pigment classifiable under ti/14(5). department's order classifying it under ti/14(4a) held perverse. - - it is interesting to note that in the colour index itself the carbon black is included under the heading 'inorganic' following the conventional pattern. thakker further submitted that carbon black in its scientific and technical meaning is recognised all over the world and by all international authorities as an organic substance and the excise authorities were clearly in error in overlooking this international opinion. the learned counsel pointed out that the well-known book on 'pigments, dyestuffs and lakes' by taylor & mark includes carbon black under..........(emulsions) and one of the pigment dispersions manufactured by the petitioner was made from carbon black and was known as 'acron black g. supra cone'. the central excises and salt act, 1944 was enacted on february 24, 1944 and section 3 of the act provides that there shall be levied and collected in such a manner as may be prescribed, duties of excise on all excisable goods which are produced or manufactured in india at the rates set forth in the first schedule. the first schedule was amended from time to time and by finance act, 1955, item no. 22-i(5) was introduced which reads as follows : '22. pigments, colours, paints,enamels, varnishes, black andcellulose lacquers.i. * * *(5) pigments, colours, paints and seven rupeesenamels not otherwise per cwt. ifspecified. sold by.....
Judgment:

1. The 1st petitioner is a private limited company and carries on business of manufacturing adhesives, dyestuffs, chemicals, paints, synthetic resins, etc. The 1st petitioner was also manufacturing pigment dispersions (emulsions) and one of the pigment dispersions manufactured by the petitioner was made from Carbon Black and was known as 'Acron Black G. Supra Cone'. The Central Excises and Salt Act, 1944 was enacted on February 24, 1944 and Section 3 of the Act provides that there shall be levied and collected in such a manner as may be prescribed, duties of excise on all excisable goods which are produced or manufactured in India at the rates set forth in the First Schedule. The First Schedule was amended from time to time and by Finance Act, 1955, Item No. 22-I(5) was introduced which reads as follows :

'22. PIGMENTS, COLOURS, PAINTS,ENAMELS, VARNISHES, BLACK ANDCELLULOSE LACQUERS.I. * * *(5) Pigments, colours, paints and Seven rupeesenamels not otherwise per cwt. ifspecified. sold by weight;Two rupees perimperial gallonif soldby volume.'

There are subsequent amendments and Item 14D was inserted in 1961 and it was amended in 1962 which reads as under :

'14D. Synthetic Organic Dyestuffs Fifteen per cent(including pigment dyestuffs) ad valorem.'and synthetic organicderivatives used in anydyeing process.

By Finance Act, 1964 certain additions were made to the First Schedule and Item 4A was inserted which reads as under :

'14. (4A) Dispersed Organic Pigments Two rupees andordinarily used for the fifty naya paise perprinting of textiles, whether kilogram.'in the form of powder,paste or in emulsions

The sub-item (5) of Tariff Item No. 14 is pigments, colours, paints and enamels, not otherwise specified and the basic rate of duty is Rs. 17.25 per quintal plus 20% of the basic duty chargeable as special excise. The rate in respect of Item No. 14-I(4A) is Rs. 2.50 per kilogram plus 20% of the basic duty chargeable as special excise. The dispute involved in this petition is whether the product manufactured by the petitioners and known as 'Acron Black G. Supra Cone' is liable to impost under Tariff Item No. 14-I(4A) or 14-I(5). The petitioners were assessed to excise duty till October 3, 1967 under sub-item (5) of Tariff Item No. 14. The Tariff Item No. 14(4A) was introduced, as mentioned earlier, by Finance Act of 1964 and even after 1964 till October 3, 1967 the petitioners were assessed on the basis that their product attracts duty under sub-item (5).

2. On February 24, 1967, the Deputy Chief Chemist, Bombay, secured samples of the product manufactured by the petitioners and forwarded his report on April 19, 1967 to the Assistant Collector of Central Excise. The report merely stated that the sample is aqueous emulsion of Carbon Black. This report obviously did not indicate that the product of the petitioners is a dispersed organic pigment. Relying on this report, the Assistant Collector directed the Inspector of Central Excise to assess the product under Tariff Item No. 14(4A) instead of sub-item (5). Accordingly, the Inspector informed the petitioners that they will be assessed under Tariff Item No. 14(4A). This letter was followed by a demand notice dated October 13, 1967 for the differential Central Excise duty on the clearance of Acron Black. The period covered by the demand notice was from July 3, 1967 to September 30, 1967 and the amount was Rs. 12,563.47. The petitioners immediately sent a letter on October 14, 1967 complaining that the product of the petitioners is assessed under Item No. 14(4A) on certain misunderstanding and requested the authorities to supply reasons for change of opinion. The authorities did not think it necessary to give any explanation but issued another demand notice on November 27, 1967 claiming an amount Rs. 55,612.40 as differential duty for the period commencing from June 23, 1966 to June 30, 1967. Thereafter the petitioners addressed another letter dated December 26, 1967 pointing out that Carbon Black from which Acron Black is manufactured is internationally accepted to be an inorganic pigment and there is no dispute about that among the chemist all over the world. The petitioners also requested the authorities to obtain the opinion of the qualified chemist and technicians from the Institute of Technology, University of Bombay. There is also one more letter addressed by the petitioners on February 1, 1968, reiterating their earlier stand.

3. The Assistant collector by a very cryptic order dated June 11, 1968 confirmed the demand notice holding that the Carbon Black is an organic pigment and Acron Black is manufactured out of Carbon Black and the same is liable for duty under Tariff Item No. 14(4A). The petitioners carried an appeal before the Collector of Central Excise against that order. During the pendency of the appeal, the petitioners addressed a letter dated July 14, 1969 to the Collector of Central Excise furnishing two reports of Mr. Clark, Chairman of the Colour Index Editorial Board and Prof. (Dr.) Sunthankar, Head of the Dyes and Intermediates Section. Department of Chemical Technology. Both these reports supported the claim of the petitioners that Carbon Black is an inorganic pigment. The petitioners also invited the attention of the Appellate Authority to a large number of textbooks of chemistry which are treated all over the world as authoritative and in which Carbon Black is treated as an inorganic pigment. The petitioners have also received a letter dated December 29, 1969 addressed by the Deputy Director (Chemical), National Test House, which is an organisation set up by Government of India, and where the Deputy Director stated that Carbon Black should be classified as an inorganic pigment. The petitioners laid all these material before the Appellate Authority to establish that the product Acron Black is manufactured from Carbon Black which is an inorganic pigment. The dispute before the Appellate Authority was whether the Carbon Black is an inorganic pigment or an organic one. During the hearing before the Collector of Central Excise the attention of the petitioners was invited to Chamber's Technical Dictionary and a book by Mooler 'Inorganic Chemistry' in support of the claim that Carbon Black is an organic pigment. A report by the Chief Chemist dated December 7, 1968 was also read over to the petitioners, but more about this report at a later stage. The Appellate Authority by an equally cryptic order held that the Carbon Black is the basic constituent of all organic substances and since the petitioners' product has been classified by the Chief Chemist as organic pigment, the same is liable to excise duty under Tariff Item No. 14(4A). It requires to be stated that the Appellate Authority did not record any finding as to whether the authorities relied upon by the petitioners and the reports given by Dr. Clark, Dr. Bose and Dr. Sunthankar were correct or otherwise.

4. The petitioners carried a Revision Application against the order passed by the Appellate Authority but the same ended in a dismissal by order dated September 30, 1974. The Government of India merely relied upon the entry in the Colour Index where Carbon Black is basically described as organic. It is interesting to note that in the Colour Index itself the Carbon Black is included under the heading 'Inorganic' following the conventional pattern. The petitioners have approached this Court by filing this petition under Article 226 of the Constitution to challenge the legality and validity of the orders passed by the Central Excise Authorities.

5. Mr. Thakker, the learned Counsel appearing in support of the petition, has raised two or three contentions to attack the orders of the authorities below. The learned Counsel submitted that the Excise Authorities have suddenly started assessing the product of the petitioners under Item No. 14(4A) instead of sub-item (5) and the change was based solely on the report of the Deputy Chemist which nowhere indicates that Carbon Black is an organic Pigment. Mr. Thakker further submitted that Carbon Black in its scientific and technical meaning is recognised all over the world and by all international authorities as an organic substance and the Excise Authorities were clearly in error in overlooking this international opinion. The learned Counsel further submitted that even the popular meaning or the meaning attached to Carbon Black by those dealing in them, that is to say the trade, was that it is an inorganic pigment. It was urged that the expression Carbon Black should be considered in its ordinary parlance and in the commercial sense as understand by the trade circles. Mr. Thakker made a grievance that all the three authorities have dealt with the grievance of the petitioners in a very slip-shod fashion and heavy financial liability is caused without any application of mind. Mr. Dalal, appearing on behalf of the respondents, on the other hand, submitted that the order passed by the Excise Authorities are correct and even if the other views is possible still the decision taken by the Excise Authorities should not be disturbed in this writ proceedings.

6. In support of the submission that Carbon Black in its scientific or technical meaning is recognised in an inorganic pigment reliance is placed by Mr. Thakker first on the three reports of Dr. Clark, Dr. Sunthankar and Dr. Bose. Dr. Clark is the Chairman of the Society of Dyers and Colorists Incorporated by Royal Charter and is also the Chairman of Colour Index Editorial Board in his letter dated July 2, 1969 addressed to the Director of the petitioner-company it is stated that Carbon Black is listed in the 2nd Edition of the Colour Index as an inorganic pigment and will also be listed in the 3rd Edition to be published in 1971 because it has always been and still is universally regarded as an inorganic pigment. Dr. Clark further states that he is not aware of any textbook on pigments in which Carbon Black is dealt with other than as an inorganic pigment. Dr. Clark further mentioned that the papers referred to by the Central Excise Authorities, Bombay were considered years ago and, though of theoretical interest, have not practical implications and do not warrant the abolition of the universally established custom of regarding Carbon Black as an inorganic pigment. The certificate given by Dr. Sunthankar recited that Carbon Black is classified in the group of inorganic pigments. The letter of Dr. Bose addressed to the Director of the Company on December 29, 1969 recites that on the basis of the literature survey, it is considered that Carbon Black should more appropriately be classified as an inorganic pigment. In addition to this, Mr. Thakker relied upon a large number of technical books and a list of which is annexed as Exhibit 'M' to the petition. The Encyclopaedia of Chemical technology and the Encyclopaedia of Chemistry mention Carbon Black as an inorganic pigment. The learned Counsel pointed out that the well-known book on 'Pigments, Dyestuffs and Lakes' by Taylor & Mark includes Carbon Black under coloured inorganic pigments. The perusal of technical books listed at Exhibit 'M' leaves no manner of doubt that Carbon Black is recognised internationally and universally all throughout as an inorganic pigment. Mr. Thakker relying upon these authoritative books and the reports of Dr. Clark, Dr. Sunthankar and Dr. Bose contended that the scientific and technical meaning of Carbon Black clearly indicates that it is an inorganic pigment and the Excise Authorities were clearly in error in treating as an organic pigment. The submission appears to be sound and deserves to be upheld.

7. In answer to this submission, Mr. Dalal submitted that the Appellate Authority has relied upon Chambers Technical Dictionary which the word has been defined as the base of all theoretical organic chemistry. The reliance by the learned Counsel on the entry in the Chamber's Technical Dictionary is clearly erroneous. The Carbon Black has been defined on page 183 as under :

'Carbon Black (Chem.) Finely divided carbon by burning hydrocarbons 9 e.g., methane) in conditions where combustion is incomplete. Carbon black is widely used in the rubber, paint, plastics, ink, and other industries. It forms a very fine pigment containing upto 95% of carbon, giving a very intense black; prepared by burning natural gas and allowing the flame to impinge on to a cool surface.'

From this definition it is very difficult to conclude that it is an organic pigment. Mr. Dalal submitted that an organic substance is one which completely burns out while the inorganic substance is one where combustion is incomplete. It is difficult to appreciate the reliance on definition or expression in Chamber's Technical Dictionary to support the claim of the department that Carbon Black is an organic pigment. Mr. Dalal then submitted that the Appellate Authority has relied upon a book by Mooler known as 'Inorganic Chemistry' wherein Carbon Black has been defined as organic. The book is not made available at the hearing and Mr. Dalal states that he is not in possession of the same. The learned Counsel then submitted that the Appellate Authority, to determine the scientific or technical meaning of the expression 'Carbon Black', has relied upon the Chief Chemist's report and authorities quoted therein. The Chief Chemist has addressed a letter dated December 7, 1968 to the Collector of Central Excise. The Appellate Authority on the subject of assessment of Carbon Black to excise duty. The letter states that Carbon Black is described as an inorganic pigment in the 'Colour Index' but the basis for such inclusion is not given therein. The letter relies upon the entry on page 353 of the same book 'Colour Index' Vol. III wherein it is stated that although Carbon Black are really organic they are treated in the conventional fashion as inorganic materials. The letter then refers to a book by Burns and Bradley 'Protective coating for Metals' and on the 1962 Annual Volume of 'Colourage' wherein it is stated that Carbon Black is an organic pigment. The last sentence of the letter requires exact reproduction :

'...... In view of the above technical positions and in the interest of revenue I have taken the view that it is an organic pigment.'

The last sentence is sufficient to destroy the value of the letter and the report of the Chief Chemist. If the Chief Chemist is willing to give his opinion to subserve the interest of the revenue then it would be worthless to rely upon such report to conclude that Carbon Black is an organic pigment. Mr. Thakker is also right in submitting that the Customs Authorities had not relied upon this report in the return filed to the petition and the same was not produced till the hearing had almost concluded. I have perused the report and a copy is taken on record because I find that the Appellate Authority has proceeded to dismiss the appeal only on the strength of this report. In my judgment, this report has no value and Appellate Authority should not have based its conclusion on this report. It is clear that save and except the report by the Deputy Chemist and Chief Chemist and the reliance on the Chamber's Technical Dictionary and on the book by Mooler, there were nothing before the Customs Authorities to conclude that scientific and technical meaning of the expression 'Carbon Black' is an organic pigment. As I pointed out hereinabove that the Deputy Chemist's report is totally silent on the point while the Chief Chemist's report is thoroughly worthless and the Chamber's Technical Dictionary does not support the conclusion of the Appellate Authority. The Appellate Authority has clearly overlooked the vast material produced before it in the shape of authoritative reports and the opinions of experts on the subject. The Assistant Collector had not given a thought to the problem involved while the Appellate Authority has ignored the entire material on record and the Revisional Authority has passed a very cryptic order. In my judgment, the decision of the authorities below are clearly perverse and are not based on consideration of material on record. The orders suffer from non-application of mind to the evidence on record and it requires to be quashed in this proceeding.

8. In this connection, Mr. Dalal submitted that the article Carbon is not an article of common use and it commodes certain technical or scientific meaning, and, therefore, while determining whether the article is liable for import under one entry or the other the consideration should only be according to its scientific or technical meaning. In support of the submission reliance is placed on the decision of the Supreme Court in : [1967]2SCR720 in the case of the Commissioner of Sales Tax, Indore v. M/s. J. Singh. The Supreme Court did not decide the question, but the learned Counsel relied upon the contents of paragraph 4 where a passage from judgment of Justice Fry in a case reported in (1881) 16 CH D 718 is quoted. The passage is as follows :

'If it is a word which is of a technical or scientific character then it must be construed according to that which is its primary meaning, namely, its technical or scientific meaning.'

The learned Counsel also invited my attention to the judgment of Justice Fry and that indicates that the learned Judge made the observation quoted hereinabove while considering a case where an action was instituted to evict a lessee who had entered into a covenant not to use the shop as a public-house, tavern or beerhouse and thereafter opened a grocer's shop in which beer was sold as an ancillary business. It is clear that the observations were made while considering the terms of the agreement between lesser and the lessee and observations in such cases cannot be imported to determine what meaning should be given to the expression used in the taxing statute. Even assuming that the submissions of the learned Counsel is correct, as I mentioned earlier, even the scientific or technical meaning given to the expression 'Carbon Black' by Excise Authorities is not in consonance with the universally recognised meaning. Mr. Dalal also placed reliance upon contents of paragraph 1466 of Halsbury's Laws of England, Vol. 12 in which it is observed that where technical words occur in a document, it is assumed that they are used in their technical sense; but paramount regard must be had to the meaning and intention of the maker of the document. In my judgment, this observation does not assist Mr. Dalal in any manner whatsoever.

9. The second submission of Mr. Thakker that while interpreting the items or entries in schedules to taxing statute recourse should be had to the popular meaning; or the meaning attached by those dealing in the trade of the articles or the meaning given in ordinary parlance is also correct. The learned Counsel pointed out that it has been universally recognised and the contracts are entered into on that basis all over the world on the footing that Carbon Black is an inorganic pigment. The learned Counsel pointed out that the book 'Colour Index' which has been published by the Society of Dyers and Colorists, England and by the American Association of Textiles Chemists and Colorists is recognised as a standard authority all over the world, and in the commercial and trade circles. Relying upon the contents of this book the Carbon Black is treated as an inorganic pigment. Mr. Thakker then relied upon three decisions to support his submission that the popular expression must be taken into consideration to interpret the entry in the schedule to the Excise Act. The first one is the decision of the Supreme Court reported in AIR 1977 Supreme Court 597 in the case of Dunlop India Ltd. v. Union of India and the reliance is placed upon the contents of paragraph 36 of the judgment which reads as under :

'It is clear that meaning given to articles in a trade and commerce, conversant with the subject, generally treat and understand them in the usual course. But once an article is classified and put under a distinct entry, the basis of the classification is not open to question. Technical and scientific tests offer guidance only within limits. Once the articles are in circulation and come to be described and known in common parlance, we then see no difficulty for statutory classification under a particular entry.'

10. The second decision is of this Court reported in 72 Bom. L.R. 534 in the case of H. R. Syiem v. P. S. Lulla Chief Justice Kotval, delivering the judgment in a matter which was referred to him on a difference of opinion between two judges, observed on 561 of the report that in interpreting the entries in the tariff schedule scientific meaning should not be attached to the various entries but the same should be considered in regard to the custom or practice of the particular trade or industry in which the articles are used and that the enumeration and classification of the various articles of commerce should be in the sense in which they are popularly understood in the market, that is to say, by persons engaged in and used to trading in that article. The learned Judge after considering various decision held that the ordinary words in everyday use should be construed according to the popular sense. The third decision is of the Delhi High Court reported in 1973 Taxation Law Reports 1682 in the case of Tata Iron & Steel Co. Ltd. v. Union of India. The Division Bench of the Delhi High Court held that while interpreting the terms in statutes like the Excise Act resort should be had not to the scientific or the technical meaning of such terms but to their popular meaning or the meaning attached to them by those dealing in them, that is to say, to their commercial sense and in the ordinary parlance. These three decisions undoubtedly support the submission of Mr. Thakker that the popular meaning of the expression carbon black should be taken into account and not its scientific or technical meaning. The learned Counsel submitted that recognition of Carbon Black as an inorganic pigment all over the world and in the trade circles must be taken into account while determining whether the petitioner' product is liable to impost under Tariff Item No. 14(4A). The submission is sound and deserves to be uphold.

11. In answer to the submission, Mr. Dalal submitted that the petitioners have not produced any material before the Customs Authorities to establish the popular meaning of the expression Carbon Black or in the sense in which it is understood in the trade circle. Mr. Dalal further submitted that even in these proceedings the petitioners have not produced affidavits of any persons dealing in this article in the market. It is true that the petitioners have not filed the affidavits of any person dealing in the product but the petitioners have relied upon Colour Index, a book which is universally recognised, and the entries in which are based on the customs and practice prevalent in the markets of various countries. Mr. Thakker is right in his submission that the entries in this book are gathered after consideration of the popular meaning of the expression and also the scientific meaning as understood by the trade in various markets. Mr. Dalal, in this connection, relied upon an unreported decision of the Division Bench of this Court in Appeal No. 12 of 1967. The learned Chief Justice Kantawala while delivering the judgment against order of the single Judge summarily dismissing the petition observed that no attempt was made to place before the concerned authorities the commercial sense in which the persons dealing with the subject understood the term, but the petitioners themselves resorted to scientific or technological meaning of the term. The learned Chief Justice even then considering the material produced before the Bench held that the subject was not understood in the commercial sense in the terms in which the petitioners were claiming. I fail to appreciate how the judgment could advance the submission of Mr. Dalal that the popular expression understood by the trade cannot be taken into consideration to interpret the entry in the schedule by the Excise Authority. In my judgment, Carbon Black is clearly understood in trade circles as an inorganic pigment and the Excise Authorities should not have overlooked that aspect. The petitioners are entitled to succeed on this ground also.

12. Lastly, Mr. Dalal submitted that the view taken by Excise Authorities is also a possible view on the material available on record and the decision taken by the Excise Authorities cannot be termed as perverse and, therefore, even though the other view is possible still this Court should not disturb the orders of the Excise Authorities while exercising the jurisdiction under Article 226 of the Constitution. In support of his submission Mr. Dalal placed reliance upon a decision of the Supreme Court : AIR1973SC194 in the case of V. V. Iyer v. Jasjit Singh. The principles stated by Mr. Dalal cannot be disputed but, in my judgment, in the present case, the view taken by the Excise Authorities is clearly perverse and unsustainable. As observed earlier the material before the Excise Authorities was thoroughly insufficient to alter their earlier opinion and levy impost under tariff item No. 14(4A). It is also not correct that the view taken by the Excise Authorities is a possible one on the material available on record. In this connection, Mr. Thakker rightly submitted that under the Indian Customs Tariff, Carbon Blacks and organic pigments are treated separately and distinctly and so also under the Import Trade Control Policy. Mr. Thakker is right in his submission that though tariff item No. 14(4A) was inserted in the year 1964 till October 3, 1967 the Excise Authorities never felt that Carbon Black is an organic pigment and their sudden change of opinion was not based on any substantial material. The submission of the learned Counsel that the Excise Authorities and so also the other taxing authorities have always treated Carbon Blacks and organic pigments separately is accurate and that would also indicate that the decision arrived at by the Excise Authorities was clearly perverse. In my judgment, this is a fit case in which this Court should interfere with the orders passed by the Excise Authorities and grant relief to the petitioners.

13. Accordingly, the petition succeeds and the rule is made absolute and the orders passed by the Excise Authorities on June 11, 1968, February 6, 1970 and September 30, 1974 being exhibits 'G', 'J' and 'L' are quashed and set aside. The petitioners are also entitled to refund of amount as claimed in prayer (c) of paragraph 44 of the petition. It is not necessary to quash the trade notice issued in the year 1974 as it is now well-settled that the trade notice has not force of law. In the circumstances of the case there will be no order as to costs. The respondent should refund the amount mentioned in prayer (c) of paragraph 44 of the petition within a period of three months from today.


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