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The Union of India (Uoi) and ors. Vs. the Elphinstone Spinning and Weaving Mills Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectExcise;Custom
CourtMumbai High Court
Decided On
Case NumberAppeal No. 122 of 1973 and Misc Petition No. 262 of 1968
Judge
Reported in1978(2)ELT680(Bom)
ActsCentral Excise Act, 1944 - Sections 3, 7, 8, 9, 9A and 9(1); Central Excise Rules, 1944 - Rules 2, 8(1), 9A, 9A(1), 9A(2), 9A(3), 9A(7), 9A(8) and 9A(9); Provisional collection of Taxes Act, 1931; ;Constitution of India - Article 226; Government of India Act, 1935 - Sections 213; Finance Act, 1968; Finance Act, 1956; Custom Act, 1962 - Sections 3, 12, 12(1), 15 and 25(1); Customs Tariff Act, 1975;Government of India Act, 1935 - Sections 213; Finance Act, 1968; Finance Act, 1956; Custom Act, 1962 - Sections 3, 12, 12(1), 15 and 25(1); Customs Tariff Act, 1975
AppellantThe Union of India (Uoi) and ors.
RespondentThe Elphinstone Spinning and Weaving Mills Co. Ltd.
Excerpt:
- - the trade notice further went on to say that 'the changes effected by the finance bill as well as the said notifications came into effect from the midnight of 29th february/1st march, 1968. it should be noted that the stocks of excisable commodities at midnight of 29th/lst march, 1968 in a fully manufactured condition even if lying within the precincts of the producing factories will not be dutiable. under that section where any article is chargeable with duty at a rate dependent on the value of the article, such value is to be deemed to be the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of the removal of the article chargeable with duty from the factory or any other premises of manufacture or production for.....madon, j.1. this is an appeal filed by the union of india and the collector and assistant collector of central excise against the judgment and order of rege j. by which he inter alia allowed the writ petition filed by the respondents in this court and issued an order under article 226 of the constitution directing the appellants, their officers and agents to permit the respondents to remove without payment of excise duty under item 22b of the first schedule to the central excise and salt act, 1944 the goods mentioned in item 7 of ex. d and ex. e to the respondent's petition and further directing the appellants to refund to the respondents a sum of rs. 44,603.73 paid by them as excise duty to the appellants.2. the respondents, the elphinstone spinning & weaving mills co. ltd., to whom it.....
Judgment:

Madon, J.

1. This is an appeal filed by the Union of India and the Collector and Assistant Collector of Central Excise against the judgment and order of Rege J. by which he inter alia allowed the writ petition filed by the respondents in this Court and issued an order under Article 226 of the Constitution directing the appellants, their officers and agents to permit the respondents to remove without payment of excise duty under Item 22B of the First Schedule to the Central Excise and Salt Act, 1944 the goods mentioned in Item 7 of Ex. D and Ex. E to the respondent's petition and further directing the appellants to refund to the respondents a sum of Rs. 44,603.73 paid by them as excise duty to the appellants.

2. The respondents, the Elphinstone Spinning & Weaving Mills Co. Ltd., to whom it will be convenient hereinafter to refer to as 'the mills', carry on inter alia the business of plasticising amongst other articles cotton fabrics and manufacturing P.V.C. (Poly Vylyn Chloride) leather cloth.

3. Prior to the financial year 1968 the Item of cotton fabrics was liable to excise duty at the rate prescribed in Item 19 of Schedule I to the Central Excise and Salt Act, 1944 (hereinafter referred to as 'the said Act'). It is unnecessary for the purposes of this appeal to reproduce the whole of the said Item No. 19. Suffice it to say that under that Item 'cotton fabrics' meant all varieties of fabrics manufactured either wholly or partly from cotton including various articles made from cotton and specified in the said Item. From this definition of cotton fabrics as given in Item 19 certain fabrics containing certain percentage or more by weight of wool, silk, rayon or artificial silk were excluded. The rates of duty prescribed by the said Item 19 were dependent upon different average count of yarn in different varieties of cotton fabrics and was levied per square metre. Under Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Goernment has the power by notification in the Official Gazette to exempt from time to time, 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. In pursuance of this power the Central Government by a notification dated March 01, 1966 exempted cotton fabrics falling under Item No. 19 of the First Schedule to the said Act and specified in column 2 of the First Table to the said notification from so much of the duty of excise leviable thereon as was in excess of the duty specified in the corresponding entries in column (3) of the said Table. In respect of the cotton fabrics processed by them the mills were paying duty at the lower rate provided by the said notification. On February 24, 1968 by another notification issued under the said Rule 8(1) the Central Government exempted all rubberised or plasticised fabrics the cotton, contents of which were less than 20% weight of the articles as so processed from so much of the duty as was in excess of the duty leviable on the cotton fabrics before its being subjected to either of the aforesaid processes.

4. On February 29, 1968 the Finance Bill 1968 was introduced in Parliament. By this Bill a new Item, namely, Item 22B was introduced in the First Schedule to the said Act. The said Item 22B read as follows :-

'22B. Textile fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic materials.'

The rate of duty prescribed in that Item was 25% ad valorem. In respect of this Item 22B a declaration was made under the Provisional collection of Taxes Act, 1931 to the effect that it was expedient in the public interest that the provisions inter alia of the said Item should have immediate effect, that is, the rate of duty prescribed by Item 22B for textile fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic materials came into effect from the midnight or the morning of February 29, 1968.

5. On March 01, 1968 the Central Government in supersession of its earlier notification dated March 01, 1966 issued another notification whereby it exempted cotton fabrics falling under the said Item 19 and specified in the second column of the First Schedule to the said notification from so much of the excise duty leviable thereon as was in excess of the duty specified in the corresponding entries in column (3) thereof. The Explanation III to the said notification provided that 'Impregnating or coating of cotton fabrics with preparations of cellulose derivatives or of other artificial plastic materials, if the resultant fabrics fall under Item No. 22B of the First Schedule to the Central Excise and Salt Act,1944, shall not be treated as processing of cotton fabrics.'' Consequent upon the introduction of the said Finance Bill in Parliament and the issue of the aforesaid and other notifications, the Collector of Central Excise issued a trade notice which is dated February 29, 1968. In that trade notice the Collector stated that by the new Finance Bill and the said notifications changes had been made in the rates of duty and exemptions granted in respect of various excisable commodities and that six new commodities had also been brought under excise control. The said trade notice further went on to state that by the said Finance Bill excise duty had been imposed for the first time on six Items, mentioned therein which were included in the description of goods given in Item 22B. The trade notice further went on to say that 'The changes effected by the Finance Bill as well as the said notifications came into effect from the midnight of 29th February/1st March, 1968. It should be noted that the stocks of excisable commodities at midnight of 29th/lst March, 1968 in a fully manufactured condition even if lying within the precincts of the producing factories will not be dutiable. The manufacturers should immediately declare the stock of these new commodities in the prescribed form to the Central Excise Officers visiting their factories. . . . The new commodities have been allotted for the purpose of administration to the following Assistant Collectors of Central Excise.' The textile fabrics subjected to the process mentioned in the said Item 22B were allotted by the said notification to the Assistant Collector, Central Excise, Bombay Division I. By this letter dated February 29, 1968 the Superintendent of Central Excise communicated to the mills the said trade notice dated February 29, 1968 and directed the mills to make a declaration in the for in appended to the said letter of all their stocks of artificial leather, of PVC leather cloth including rexine as on the midnight of February 29, 1968 and to permit a physical verification of such stocks. The Assistant Collector visited the factory of the mills and took inspection of the stocks of the said goods held by the mills. According to the mills this inspection was on March 01, 1968. According to the appellants it was on March 02, 1968. This controversy as to date is immaterial for the purposes of this appeal. Amongst the stocks of these goods held by the mills there were certain goods without wrapping on hessian or paper. The Assistant Collector insisted the mills should make two declarations, one in respect of goods which were packed and the other in respect of goods which were not packed. Accordingly, the mills made the said declarations. These declarations have been annexed as Ex. D. and Ex. E to the petition. Ex. D also include in Item 7 thereof PVC leather cloth and other artificial leather cloth wrapped on wooden rolls with marking on cloth itself without wrapping of hessian or paper. The declaration Ex. E is a list of various types of goods manufactured by the mills which were not packed or wrapped. The Assistant Collector allowed the mills to remove the goods mentioned in Items 1 to 6 of Ex. D without payment of any duty of excise but refused to allow them to remove the goods mentioned in Item 7 of Ex.D or any of the goods mentioned in Ex. E unless duty under the said Item 22B of the first Schedule to the said Act was paid by them and he did not accept the contention of the mills that the said goods also had been fully manufactured before the midnight of February 29, 1968.

6. On March 14,1968, another trade notice was issued by the Collector of the Central Excise, Bombay. That notice inter alia stated that with the introduction of the new item No. 22B textile fabrics impregnated or coated with preparations of cellulose derivatives or of other artificial plastic material, artificial leather cloth or rexine with textile fabrics backing which was chargeable to processing duty as for processed fabrics subject to the percentage laid down regarding the fabrics content of the finished product would no longer be classified under item 19 or 22 of the First Schedule to the said Act but would attract 25% ad valorem duty under the said item 22B. The said trade notice further stated that stocks of new excisable commodities at the midnight of 29th February/1st March, 1968 in a fully manufactured condition even if lying within the precincts of producing factories would not be dutiable provided that goods would not be considered as fully manufactured unless at midnight of 29th February/1st March, 1968 they were ready for delivery.

7. As the Excise Authorities refused to accept the Mills contention as regards the goods which were not packed but nonetheless in fully manufactured condition on the midnight of February 29/March 01, 1968, the mills removed a part of the stock of such goods after payment under protest of the excise duty in the sum of Rs.44,234.73. In respect of the said goods mentioned in item 7 of Ex. D. and in Ex. E to the petition the mills filed the petition under Article 226 of the Constitution from which this appeal arises.

8. The two main contentions taken by the mills in their said petition were (1) that the goods mentioned in item No. 7 of Ex. D and in Ex. E. were fully manufactured on the midnight of February 29, 1968 and (2) that under the said Act the levy of the excise duty was at the time of manufacture of the goods and the same was to be determined in accordance with law at the time when the goods were manufactured and that the insertion of an item in the First Schedule to the said Act after the manufacture of the goods did not attract the duty prescribed by the said Act in respect of goods which were manufactured prior to the insertion of the new item. An affidavit in reply to the petition was filed by A J. Butler, Assistant Collector of Central Excise, Bombay. The only contention taken up in the said affidavit was that the mills were liable to pay the duty under the said item 22B in respect of the goods which were the subject-matter of the petition since the said goods were not packed and ready for delivery on the midnight of February 29, 1968 and as such could not be regarded as having been completely manufactured. To this affidavit copies of correspondence exchanged between the Excise Department and certain dealers and manufacturers in leather cloth and PVC cloth were annexed to show that in the trade this type of goods were sold in packed condition. The mills filed their affidavit in rejoinder annexing copies of certain other letters to show that this type of goods were at time sold even though they may not have been wrapped or packed in paper, matting or hessian. Subsequently with the permission of the Court a further affidavit in reply was filed on behalf of the appellants by K.R. Bhatia, Assistant Collector of Central Excise, Bombay Division IV, taking up a contention wholly contrary to what had been stated by the Collector of Central Excise in the said trade notices referred to above as also in the earlier affidavit in reply of A.J. Butler. It was contended that what was done by the insertion of the said Item 22B was not to introduce a new excisable commodity in Schedule I to the said Act but was to reclassify Item 19. It was contended that by the insertion of the said Item 22B what was altered was the rate of duty imposed on the type of goods described in the said Item 19. Before Rege J. who heard the petition of the mills the main argument centred round the question whether the said item 22B was new head of excise duty created for the first time by the Finance Act of 1968 or was a reclassification of the said Item 19. Rege J. negatived the contention of the appellants that the said Item was reclassification of Item 19, and held that a new head of excise duty was created for the first time by Item 22B of the said Finance Act. In the view that he took the learned Judge thought it unnecessary to decide the other questions which arose in the petition. He further opined that even if the mills' goods fell at the same time under two different items in the First Schedule the mills would be liable to be charged under that item which provided for a lesser rate of duty. Pending the petition by a consent order passed on July 08, 1968 the appellants were allowed to assess the duty on the goods which were the subject-matter of the petition and to issue demand notices against the mills but were prohibited from enforcing any such notice until the hearing and final disposal of the petition. In pursuance of this consent order assessement orders were passed against the mills assessing the goods under the said Item No. 22B. By this order under appeal Rege J. vacated all the said assessment orders.

9. The main contention urged by Mr. Dhanuka learned counsel for the appellants before us in this appeal was that the stage or point of time at which the duty of excise is attracted by reason of the provisions of the said Act and the rules is not at the point of time of manufacture or production of goods but at a subsequent stage. In Mr. Dhanuka submission that subsequent stage in the present case was at the time when the goods were sought to be removed from the Mills' factory. To this contention a preliminary objection was taken by Mr. Parekh learned counsel for the respondents. That preliminary objection was that the construction now sought to be placed upon the said Act and rules on behalf of the appellants ran counter to the two trade notices we have earlier referred to. This undoubtedly is true, but if the construction canvassed before us by Mr. Dhanuka is correct, the appellants cannot be precluded from putting it forward. The trade notices have no statutory effect. It is a matter of regret that senior officers of the Government should have put forward before the trade wrong interpretation of the Act, but that cannot be held to estop the appellants from canvassing the true interpretation of the statute.

10. In order to appreciate the rival submissions on this part of the case, it is necessary to refer briefly to the relevant provisions of the said Act and the rules as they stood at the material time. Section 2 is the definition section. Clause (d) of that section defines the term 'excisable goods' as meaning goods specified in the First Schedule as being subject to a duty of excise and as including salt. Clause (f) defines the term 'manufacture' as including any process incidental or ancillary to the completion of a manufactured product. In four sub-clauses that clause then sets out certain processes which in relation to different categories of goods would be included within the statutory definition of the term 'manufacture'. We are not concerned with these sub-clauses. Chapter II of the said Act deals with levy and collection of duty and Section 3 in that chapter is headed 'Duties specified in the First Schedule to be levied'. Sub-section (1) of Section 3 provides as follows :-

'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.'

11. Section 4 provides for determination of value for the purposes of duty. Under that section where any article is chargeable with duty at a rate dependent on the value of the article, such value is to be deemed to be the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of the removal of the article chargeable with duty from the factory or any other premises of manufacture or production for delivery at the place of manufacture or production and in a case where a wholesale market does not exist for such article at such place, at the nearest place where such market exists ; or in a case where such price is not ascertainable, the price at which an article of the like kind and quality is sold or is capable of being sold by the manufacturer or producer, or his agents, at the time of removal of the article chargeable with duty from such factory or other premises for delivery at the place of manufacture or production or if such article is not sold or is not capable of being sold at such place, at any. other place nearest thereto. Section 37 confers upon the Central Government power to make the rules to carry into effect the purposes of the said Act. Section 38 provides as follows :-

'38. Publication of rules and notifications.-All rules made and notifications issued under this Act shall be made and issued by publication in the Official Gazette. All such rules and notifications shall thereupon have effect as if enacted in this Act.'

12. There is a proviso to this section with which we are not concerned. 'In pursuance of the power can ferried by Section 37 the Central Government has made the Central Excise Rules, 1944. Clause (v) of Rule 2 defines 'duty' as meaning the duty payable under Section 3 of the Act. Chapter HI of the Rules is headed 'Levy and Refund of, and Exemption from, duty'. Under Rule 7, every person who produces, cures or manufactures any excisable goods, or who stores such goods in a warehouse, shall pay the duty or duties leviable on such goods, 'at such time and place and to such person as may be designated, in, or under the authority of these Rules, whether the payment of such duty or duties is secured by bond or otherwise'. Rule 9 prescribes the time and manner of payment of duty. Sub-rule (1) of Rule 9 provides as follows:-

'9 (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 . . .'

Rule 9-A(1) provides as follows :-

'9-A. 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 the rate and valuation in force.

(i) 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) and (3), on the date of the actual removal of such goods from such factory or warehouse.'

Relying upon these statutory provisions Mr. Dhanuka submitted that under Section 3 the duties of excise at the rates set forth in the First Schedule were to be levied and collected in such manner as may be prescribed by the Rules According to Mr. Dhanuka levy as well as the collection of excise duties were to be prescribed by the Rules, He further submitted that these were Rules which had to be published in the Official Gazette and that these Rules had been so published and, therefore, they had effect as if they were enacted in the said Act. Mr. Dhanuka further submitted that Section 4 which provided for determination of value of goods in cases where ad valorem duty was attracted, indicated that the point of time when the duty was attracted was the removal of goods, from the place where they were stored. He also further strongly relied upon Rule 9-A(1) to show that in case of goods cleared from the factory the duty became attracted and was levied and imposed and also collected on the date of the actual removal of excisable goods from such factory or warehouse. In reply, Mr. Parekh submitted that the phrase 'in such manner as may be prescribed', occurring in Section 3 went only with the word 'collected' and did not go with the words 'levied and collected'. In Mr. Parekh's submission Section 3 was the only charging section and duty of excise was levied only by that section and since that section used the words 'on all excisable goods other than salt which are produced or manufactured in India,' the true construction of that section would be that the duty of excise could only be levied on goods which are manufactured or produced in India, provided that at the date of manufacture or production such goods were included in Schedule I to the said Act.

13. As mentioned earlier, Chapter II in which the said Section 3 occurs is headed 'Levy and Collection of Duty'. On a plain and grammatical reading of the said section we do not find it possible to read the phrase 'in such manner as may be prescribed' occurring in the said section as merely qualifying the word 'collected' and not as qualifying the words 'levied and collected'. According to us, under the said section the duty of excise at the rates specified in the said Schedule are levied on all excisable goods other than salt which are produced or manufactured in India. Levy of such duty and collection of such duty both are to be in the manner as might be prescribed by the Rule. This construction appears to be for tidied by the heading of Chapter III of the Rules, namely, 'Levy and Refund of, and Exemption from, duty'. Chapter III, in which the said Rules 7, 8, 9 and 9-A occur, does not deal merely with collection of duty or refund of duty but also levy of duty. We do not find any warrant in the Act or the Rules to spell out a construction that it is only the stage of manufacture or production of goods which attracts duty. 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 9-A so far as the present case is concerned, is that in the case of the mills the duty was attracted on the goods in question on the date of the 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 or produced in India they could not be removed unless duty at the rate set-forth in the First Schedule to the Act was paid. It support of his submissions Mr. Dhanuka relied upon an unreported judgment of the Kerala High Court in O.P. No. 728 or 1961 P.C, Assankutty, Managing Partner P.C. AssanKutty & Co., Badagara v. Assistant Collector of Central Excise, Ernakulam and Ors, decided by Vaidyalingam, J. as he then was, on June 27, 1962. The facts in that case were that the petitioner was the licensee of the Badagara Oil Mills which produced vegetable non-essential oil. The Finance Act of 1956 introduced a new item No. 23 in the First Schedule to the said Act. The Finance Bill was introduced in Parliament on February 29, 1956 and it contained a declaration under the Provisional Collections of Taxes Act, 1931 by reason of which inter alia the said item No. 23 came into force with immediate effect. By this item vegetable non-essential oils became liable to duty of excise. According to the petitioner in that case he had certain quantity of coconut oil produced prior to February 29, 1956 which he had sold prior to the month of February, 1956 but which had not been taken delivery of by the purchasers. According to the Department, the oil was produced not in February 1956 but in March 1956. On a consideration of the relevant provisions of the said Act and the Rules Vaidyalingam, J. came to the conclusion that the question whether the goods in question were manufactured or produced prior to February 29, 1956 or later was no consequence inasmuch as when an item was introduced in the First Schedule to the said Act the levy of excise duty automatically attached itself and the proper period or stage for collection was alone to be looked at and that for that purpose the rules afforded considerable guidance regarding when exactly the duty was to be collected. He further held that if the conditions mentioned in Section 3 were satisfied namely, that the goods were excisable goods and that they had been produced or manufactured in India, the levy of excise duty automatically attached itself. He rejected the contention advanced before him that the goods should have been manufactured or produced only after that levy had been imposed.

14. Mr. Parekh, learned counsel for the respondents, however, submitted that from the very nature of excise, a duty of excise was levied only on the manufacture or production of goods and that any other stage which might be provided for under the Act was merely the stage at which the amount of duty was to be collected and not the point of time at which the duty was attracted. The first time that the question of the nature of a duty of excise came up for consideration in this country was in the case of In re: The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, A.I.R.1939 F.C.I . This was a reference made by the Governor-General under Section 213 of the Government of India Act, 1935 to determine the validity of the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938. Gwyer CJ. in his judgment traced the history of excise duty, as follows. 'Its primary and fundamental meaning in English is still that of a tax on articles produced or manufactured in the taxing country and intended for home consumption. I am satisfied that is also its primary and fundamental meaning in India ; and no one had suggested that it has any other meaning in Entry (45)'. The contention on behalf of the Government of India that an excise duty is a duty which may be imposed upon home-produced goods at any stage production to consumption and that therefore the Federal legislative power extended to imposing excise duties at any stage, he observed that this was to confuse two things, the nature of excise duties and the extent of the Federal legislative power to impose them. He observed, 'But there can be no reason in theory why an excise duty should not be imposed even on the retail sale of an article, if the taxing Act so provides'. A similar question arose for consideration of the Federal Court in the case of Province of Madras v. Boddu Paidanna, 1942 F.C.R. 90=1978 E.L.T.( 272). The court held that a tax levied on the first sale must in the nature of things be a tax on the sale by the manufacturer or producer but it is levied upon him qua seller and qua manufacturer or producer, and that if a taxpayer who paid a sales tax was also a manufacturer or producer of commodities subject to a Central duty of excise he may have to pay two taxes, but those two taxes were economically two separate and distinct imposts. This view was accepted and approved by the Judicial Committee of the Privy Council in the case of Governor-General-in-Council v. Province of Madras 72 Ind App 91 = 1978 E.L.T. (280) and in AB. Abdulkadir and Ors. v. The State of Kerala and Anr. : AIR1962SC922 . Their Lordships of the Supreme Court after referring to these decisions said :

'It may therefore be accepted that a duty of excise is a tax on goods produced or manufactured in the taxing country. It may also be accepted that generally speaking the tax is on the manufacturer or the producer though it cannot be denied that laws are to be found which impose a duty of excise at stages subsequent to the manufacture or production.'

In R C. Jall Parsi and the Amalgamated Coalfields Ltd. v. Union of India and Anr. : AIR1962SC1281 after referring to the Federal Court and the Privy Council decisions, Subba Rao J., as he then was, speaking for the Court said :-

'With great respect, we accept the principles laid down by the said three decisions in the matter of levy of an excise duty and the machinery for collection thereof. Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost, that is, it is duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience. Whether in particular case the tax ceases to be in essence is an excise duty, and the rational connection between the duty and the person on whom it if imposed ceased to exist, is to be decided on fair construction of the provision of a particular Act.'

15. Mr. Parekh, however, placed considerable reliance upon certain observations to be found in the majority judgment of the Supreme Court in In re. Sea Customs Act (1878) -Section 20(2)-A.I.R. 1963 S.C. 1760. This was reference by the President of India under Article 143(1) of the Constitution relating to the true scope and interpretation of Article 289 of the Constitution relating to immunity of property and income of States from Union taxation. The passage on which Mr. Parekh relied is (at page 1376) as follows :- I

'This will show that the taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. We may in this connection contrast sales-tax which is also imposed with reference to goods sold, where the taxable event is the act of sale. Therefore, though both excise duty and sales tax are levied with reference to goods, the two are very different imposts ; in one case the imposition is on the act of manufacture or production while in the other it is on the act of sale. In neither case therefore can it be said that the excise duty or sales-tax is a tax directly on the goods, for in that event they will really become the same tax. It would thus appear that duties of excise partake of the nature of indirect taxes as known to standard works on economics and are to be distinguished from direct taxes like taxes on property and income.'

16. We are unable to see how the passage relied upon by Mr Parekh supports his contention that duty of excise is levied and attracted only at the point of time of manufacture or production and not at a subsequent stage. The question in that reference before the Supreme Court was whether excise duty could be levied on goods manufactured or produced by a State, or whether in so levying the excise duty the provisions of Article 289 were violated. The passage relied upon by Mr. Parekh occurs immediately after the passage quoted by us above from the Supreme Court decision in the case of R C. Jall Parsi and the Amalgamated Coalfields Ltd. v. Union of India and Anr. : AIR1962SC1281 . It clearly sets out what exactly the effect of the earlier decision is 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 factum 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.

17. Mr. Parekh next relied on a judgment of a Division Bench of this Court in Shawhney v. Messers. Sylvania and Laxman Ltd. (1975) Bom. L.R. 380. This was a case under the Customs Act, 1962 and the question which fell for Court's consideration was whether and when there was notification under Section 25(1) of the said Act granting exemption to glass tubes used in the manufacture of fluorescent lamps, from customs duty, which was to expire on March 31,1967, the goods imported before the date of expiry but in respect of which the bill of entry was filed after the date of expiry, were entitled to such exemption. On consideration of the relevant sections of the said Act the Court held that under Section 12(1) of the Customs Act, 1962, chargeability in respect of levy of customs duty arose when the goods were imported into India and that by the combined effect of the definitions of the words 'import' and 'India' under the Customs Act the import took place when the goods were brought into the territorial waters of India and there was nothing in the Customs Act to indicate that the chargeability was postponed until a bill of entry was presented. Relying upon this decision, Mr. Parekh submitted that Section 12 of the Customs Act was in pari materia with Section 3 of the said Act and that accordingly, though under Section 15 of the Customs Act the rate of duty and tariff valuation of imported goods was to be the rate and valuation in force on the date on which the bill of entry in respect of such goods was presented, by virtue of this decision, since once chargeability was fixed under Section 12, it could not be postponed to a later date by reason of any other provisions of the Act or the rules which did not provide for chargeability or levy of tax. We are unable to accept this submission of Mr. Parekh. A plain reading of Section 12 shows that it is not in pari materia with Section 3 of the Central Excise and Salt Act, 1944. The relevant portion of the said Section 12 provides as under :-

'12(1) Except as otherwise provided in this Act or any other law for the time being in force, duties of customs shall be levied at such rate as may be specified under the Customs Tariff Act, 1975(51 of 1975), or any other law for the time being in force, on goods imported into, or exported from India . . .'

18. The levy under the Customs Act is provided for by Section 12 itself, while under Section 3 of the said Act, though the levy is provided for by the said Section 3, it is the duty of excise to be levied 'in such manner as may be prescribed'. These material words, 'in such manner as may be prescribed' are significantly absent from Section 12 of the Customs Act. These are the words which make all the difference. In the Customs Act, the levying section is Section 12 itself. In the said Act levying section is Section 3 read with such rules as may be framed by the Central Government under Section 37 of the said Act.

19. For the reasons stated above, we are of the opinion that the mills are liable to pay duty of excise under item 22B on goods of the description falling within that item when they sought to remove such goods from the factory on and after midnight of February 29, 1968 and the fact that these goods might have been manufactured prior to that date was irrelevant to the liability to pay the duty of excise. In this view that we take we find it unnecessary to consider or decide the other contentions raised in this appeal namely, that item 22B did not introduce a rew head of excise duty, but provided merely for alteration in the rate of duty or the contention that the goods were not completely manufactured prior to 29, February 1968.

20. In the result, we allow this appeal and set aside the order appealed against and dismiss the petition filed by the mills. For the sake of clarification and in order to leave no scope for any controversy hereafter we may add here that the orders of assessment against the mills assessing their goods under item 22B passed after the filing of the petition and which were vacated by Rege J are hereby restored. During the pendency of this appeal by an order dated December 19, 1973 the appellants have deposited in this Court a sum of Rs, 55,000/- which had been invested. This sum will be returned together with the accrued interest to the appellants.

21. This writ petition was necessitated by wrong interpretation communicated to the mills by the aforesaid two trade notices of the Collector of Central Excise, Bombay. According to us a fair order as to costs should therefore, be that each party should bear and pay its costs throughout. The deposit made by the appellants as security for the respondents costs will be refunded.

22. After this judgment was concluded Mr. Parekh orally applied for leave to appeal to the Supreme Court under Article 133 of the Constitution. Mr. Parekh submitted that a substantial question of law of general importance arose for determination of this Court in this appeal, that question being whether on a correct construction of Section 3 of the Central Excise and Salt Act, 1944, and in Rule 9A of the Central Excise Rules, 1944 is duty of excise on excisable goods leviable at the rate applicable thereto on the date of manufacture of the said goods, though removed from the factory premises or bonded store room after a new entry applicable thereto is inserted in the First Schedule to the said Act or at the rate applicable under the new entry when they arc removed from the factory premises or bonded store room? 'Mr. Dhanuka learned counsel for the appellants agrees that this is a substantial question of law of general importance and requires to be decided by the Supreme Court. In our opinion too this question is one which needs to be decided by the Supreme Court. We accordingly grant a certificate to the respondents to appeal to the Supreme Court on the question set out by us, above under Article. 133(1) of the Constitution of India.


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