1. The petitioner is a manufacturer of Rubber products, which are exigible to duty under Tariff Item No. 16A of Schedule I to the Central Excises, and Salt Act, 1944, ('the Act'). On 19-11-1981 the petitioner entered into a sub-lease agreement with M/s. Regal Rubbers under which the petitioner acquired sub-lease rights in respect of premises, equipments and machinery, etc., of factory unit No. 1, situated at No. 122, Industrial Suburb, Rajajinagar, Bangalore. The petitioner started production on 1-12-1981, and we are concerned with the clearances of the rubber products upto 31-3-1982. The petitioner applied and obtained licence - L4 - to manufacture the rubber products in the said factory. On 24-11-1981, the petitioner filed a classification list as required under Rule 173B of the Central Excise Rules ('Rules') for approval by the proper authority. In the said classification list it was declared by the petitioner that the manufacturer of rubber products was dutiable under Tariff Item No. 16A(1) of Schedule I to the Act. The petitioner also claimed exemption from payment to duty under Notification No. 80/80, dated 19-6-1980, as amended from time to time. Under this notification issued under Rule 8 of the Rules, exemption of the whole of excise duty is allowed subject to satisfying the requirements referred to therein.
2. The classification list filed by the petitioner was approved by respondent-1-Asstt. Collector of Central Excise and Customs on 27-11-1981, and the monthly returns filed thereafter by the petitioner were also accepted by the proper officer.
3. Thereafter, respondent-1 issued a show cause notice dated 13-5-1982 proposing to withdraw the approval of the classification list and also to withdraw the exemption granted to the petitioner under Notification No. 80/80. It was proposed to club the production by M/s. Regal Rubbers, the lessors with the production by the petitioner from 1-12-1981 onwards. The value of the clearance during the year would then exceed Rs. 7.5 lakhs and as a result the petitioner was called upon to pay the Excise duty of Rs. 2,40,596.13.
4. The petitioner replied to the said show cause notice and claimed that he was an independent and separate manufacturer and had no connection whatsoever with the value of clearances by M/s. Regal Rubbers, the lessors and further stated that the production of the petitioner, therefore, cannot be clubbed with the clearances made by M/s. Regal Rubbers and the proposal to withdraw the exemption was opposed to the Notification No. 80/80.
5. Respondent-1, by his order dated 24-7-1982 held that the petitioner was not eligible to the full exemption from payment of duty in respect of clearances made by him from 1-12-1981 to 31-3-1982 taking into consideration the value of production by M/s. Regal Rubbers upto 30-11-1981, and upheld the demand to pay the duty of Rs. 2,40,596.13, as mentioned in the show cause notice.
Being aggrieved by the said order, the petitioner has filed this writ petition challenging the same. He has also challenged the vires of the proviso to Section 33 of the Act, and has contended that the order passed by respondent-1, is without jurisdiction.
It is obviously for this reason that a notice re. Rule was issued to the respondent and by order dated 1-9-1982 the operation of the impugned order was stayed subject to the condition that the petitioner furnished security for the demand made by the 1st respondent.
6. At the hearing, learned Counsel for the petitioner Sri Chander Kumar did not seriously press the contention as to the jurisdiction of respondent-1, and confined his challenge to the application of Notification No. 80/80 to the petitioner's case.
The question that arises for my consideration in this writ petition is : whether the clearances made by the petitioner between 1-2-1981 and 31-3-1982 from factory Unit I is liable to be clubbed with the clearances made by his predecessor upto 30-11-81 during the preceding financial year
7. It is necessary to set-out the Notification 80/80 for purposes of this case. The relevant portion is reproduced below :
'In exercise of the powers conferred by Sub-Rule (1) of Rule 8 of the Central Excise Rules, 1944 and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 71/78 Central Excise, dated the 1st March, 1978, the Central Government hereby examples the excisable goods of the description specified in Col. (3) of the Table hereto annexed (hereinafter referred to as the 'specified goods') and falling under such Item Number of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), as is specified in the corresponding entry in Column (2) of the said Table, and cleared for home consumption on or after the 1st day of April in any financial year, by or on behalf of a manufacturer from one or more factories.'
8. The proviso to the main part of the Notification reads as under :
'Provided that the aggregate value of clearance of the specified goods from any factory by or on behalf of one or more manufacturers :
(i) at nil rate of duty in terms of clause (a) of this paragraph, or
(ii) at reduced rate of duty in terms of clause (b) of this paragraph, shall not in either case exceed rupees seven and a half lakhs in any financial year.'
9. Clause No. 4, which is relevant for our purpose reads thus : 'Nothing contained in this notification shall apply :
(i) If the aggregate value of clearance of all excisable goods, from 'any factory' by or on behalf of one or more manufacturers, for home consumption, during the preceding financial year, had exceeded rupees twenty lakhs;
(ii) if the aggregate value of clearances of the specified goods by him or on his behalf, for home consumption, from one or more factories, during the preceding financial year, had exceeded rupees fifteen lakhs.'
10. Under the Notification exemption is granted in respect of goods specified in the Table annexed to the Notification subject to various conditions, viz. :
(i) the aggregate value of the first clearances should not exceed Rs. 7.5 lakhs during any financial year;
(ii) the clearances following the first clearance will be exempt from duty as is in excess of 75% of such duty.
11. This exemption is again subject to what is contained in the proviso, viz.,
that the aggregate value of the clearances from 'any factory' shall not exceed Rs. 7.5 lakhs in any year.
12. The contention of the petitioner is that M/s. Sun Rubbers and M/s. Regal Rubbers are two distinct legal entities and though they manufactured and cleared identical excisable goods in the same factory during the two different periods of the preceding financial year, such manufacture is not in any way connected with each other. The petitioner herein, who took over the factory Unit-I with effect from 19-11-1981 obtained a separate licence in his own name and the classification was also approved by the proper officer. The licence which had been granted to Regal Rubbers was also cancelled with effect 27-11-1981. Therefore, the clubbing of the value of goods manufactured by the two different entities, is not called for and the order of the Assistant Collector is illegal. Thus, the manufacture of excisable goods by the petitioner between 1-12-1981 and 31-3-1982, cannot be clubbed with the clearances made by his predecessor and lessor namely, M/s. Regal Rubbers upto 30-11-1081 from the same factory.
13. The petitioner has argued relying upon the definition of 'manufacture' under Section 2(f) of the Act, that the clubbing done is not warranted 'Manufacturer' according to his submission, is to be understood as a 'manufacturer' on his own account. Therefore, the present petitioner who, is 'manufacturer' on his own account, is a distinct legal entity and his production cannot be clubbed with the production of another legal entity.
14. In support of this submission Sri Chandar Kumar has relied upon a decision of Allahabad High Court in Philip India Ltd. v. Union of India and Others (1980 E.L.T. 263).
No doubt the Allahabad High Court was considering the meaning of the phrase 'on his own account' in Section 2(f) of the Act, Explaining this the Court observed :
'2(f). Because of the use of words 'engages', 'production', 'manufacture' and 'on his own account', in Section 2(f) , a person though not owning a factory or not himself doing the manufacturing process, can be considered to be a manufacturer if those who own a factory are dummy or camouflage for him or he gets the goods manufactured by them under his direction and control.'
Further, dealing with the phrase 'on behalf of' in Section 2(f), their Lordships held that a person being a director of two companies is not indicative of the fact that one Company is a dummy for the other and they are two distinct legal entities carrying on business on their own account and one cannot be held to be controlled by the other.
15. One other decision relied upon by the petitioner on the same point is the one reported in 1978 E.L.T. 317 (S.C.) - (Assistant Collector of Central Excise v. Shah). It was held, interpreting 'on behalf of' that clubbing of two different factories, in which same person is a partner cannot be clubbed and they are two different entities.
16. One other contention of the petitioner is that the order now made by the Assistant Collector purported to be under Section 11-A of the Excises Act, is without jurisdiction. The point urged is that by the order impugned, the Assistant Collector has virtually reviewed his own order which is not permissible in law.
17. In support of this contention the decision of Madras High Court in 1983 E.L.T. 34 (Indian Organic Chemicals Ltd. v. Union of India and Others), has been relied upon.
18. In that case the approval of the classification which was unconditional, was sought to be treated as provisional.
19. The High Court held that the approval once granted is final and unless it was a case of provisional approval under Rule 9-B and there was no inherent power of review.
20. Sri Chander Kumar has also relief upon a decision of the Special Bench of the Tribunal, New Delhi, reported in 1984(16) E.L.T. 389 (Entremonde Polycoaters Pvt. Ltd., Nasik v. Collector of Central Excise, Pune), for the proposition that a classification list once approved cannot be reviewed by the same officer, the remedy to interfere with the said list is in proceeding or appeal or revision under Section 35A.
21. To this, the reply on behalf of the respondents is that the order is one passed under Section 11-A of the Act. It is not a case of review by the same officer, but a case of reopening of the assessment on the basis of facts which were not before the assessing officer and not considered by him while granting exemption. That the value of the production of the previous owner - M/s. Regal Rubbers had exceeded Rs. 7.5 lakhs during the same financial year and that the production was of identical goods from the same factory, came to the knowledge of the Assistant Collector after the assessment, hence, the order passed under Section 11-A is valid in law.
22. Shri Shivashankar Bhat has relied upon a decision of the Supreme Court in D. R. Kohli and Others v. Atul Products Ltd - : 1985(20)ELT212(SC) , in support of his contention that the order passed by the Assistant Collector in this case is one made under Section 11-A of the Central Excises Act. Section 11-A was inserted by Act No. 25/1978 with effect from 17-11-80. This has been enacted in substitution of Rule 10 of the Central Excise Rules. Both Rules 10 and 10-A were omitted with effect from 17-11-80. The proviso to Section 11-A has been introduced in place of Rule 10.
23. Rule 10A, as it stood before omission, read this :
'10-A. Residuary powers for recovery of sums due to Government - where these Rules do not make any specific provision for the collection of any duty, or any deficiency in duty is duty has for any reason between short-levied, or of any other sum of any kind payable to the Central Government under the Act or these Rules, such duty, deficiency in duty or sum shall, on a Written demand made by the proper officer, be paid to such person and at such time and place, as the proper officer may specify'.
24. In D. R. Kohli's case, the Supreme Court was considering the scope of Rules 10 and 10-A and observed, that any error committed at the time of granting approval to the classification list can be corrected by invoking powers under Rule 10-A.
25. Under what circumstances the said rule could be applied will depend upon the facts of each case. The crucial question in all such cases would be whether the case falls within the scope of the law granting exemption or not
26. On the facts of the present case, it was urged by Sri Shivashankar Bhat that whether the notification in question was applicable to the case and the assessment made against the petitioner without proper application of the Government notification to this case, would fall squarely under the provisions of Section. 11-A which corresponds to Rule 10A.
27. The decision of Bombay High Court in Jenson and Nicholson India Ltd v. Union of India and Others - 1981 E.L.T. 128 (Bombay), is also relied upon by Sri Bhat. Their Lordships of the Bombay High Court were interpreting the term 'factory' occurring in the notification of the Central the Government bearing No. 137/60, dated 1-10-1960 issued under Rule 8(1) of the Central Excise Rules. The relevant portion of the said notification is reproduced below :
'In supersession of the notification of the Government of India, Ministry of Finance (Department of Revenue No. 38, dated the 1st August, 1955) and CER-8(12)/56, dated the 1st March, 1956, the Central Government hereby exempts the goods specified in Column 1 of the Table below, which are cleared by any manufacturer for home consumption on or after the 1st day of April of any financial year, in the circumstances and to the extent specified in the corresponding entries in Columns 2 and 3 respectively of the said Table, from so much of the duty leviable thereon as is in excess of the amount specified in the corresponding entries in column thereof.
Provided that where a factory producing any such goods is run at different times of any financial year by different manufacturers, the Nil and the concessional rates of duty shall apply only to the quantities not exceeding the limits specified in Column 3 of the said Table.'
28. While interpreting the term : 'factory', this is what their Lordships observed in para 7 page 133 :
It is no doubt true that in the first proviso, a positive reference is made to 'a factory'. The first proviso provides for a special case where the same factory is run at different times for a financial year by different manufacturers. A question which would necessarily arise in such a case is whether each of the manufacturers will be entitled to the exemption which is contemplated by the Notification. If the proviso was not there and if the same factory is run by different individuals at different times, in a financial year, possibly each manufacturer being a different person, it would have been permissible for him to make a claim for exemption on the ground that his total output does not exceed what is specified in the Notification. This would positively have resulted in placing a premium on the factory run by different persons at different times and a benefit of exemption would have accrued to the manufacturer, merely because he happens to be a person different from one who had earlier run the factory in the same financial year. The result would have been that such a benefit would have accrued to more than one person in the course of the same financial year, though in the case of a manufacturer to whom the first part applies, the benefit would have been comparatively less. The first proviso, it appears to us, is designed to prevent every, manufacturer, who runs the same factory at different periods of time in the financial year, from claiming the special exemption individually. That is why a special provision has been made and the exemption is restricted not on the basis of a manufacturer but on the basis of the production. In other words, the benefit is limited to the quantity and not on the basis whether the manufacturer is the same or not. The proviso, therefore, provides for entirely different circumstances than the one contemplated by the main part of the Notification. Since the proviso deals with the goods produced by different manufacturers in the same factory, reference to 'a factory' has been made in that proviso.'
29. On a careful consideration of the arguments advanced by both the sides and on a close analysis of the several clauses in the Notification, I am of the view that the contention put forward on behalf of the petitioner has to be decided in the light of the Notification.
30. Reading the notification as a whole, and on a proper construction of the proviso to Clause (1), the aggregate value of the clearances of specified goods from any factory exceed Rs. 7.5 lakhs during any preceding during the year.
31. Clause 4 also lends guidance to the proper understanding of the exemption provision. Stress is laid on clearance of the specified goods from 'any factory' though production is by more than one manufacturer during the same year.
32. It may thus be seen that what is important for the purpose of granting exemption under the notification is the aggregate value of clearances from 'any one factory' during the financial year. If several clauses of notification are read harmoniously, the unit for the purpose of granting exemption would be 'a factory'. If such an interpretation is accepted, it is the aggregate value of clearances from that factory during the preceding financial year, that is to be taken for purposes of granting exemption even in cases where the clearances may be by more than one independent manufacturer or owner.
33. As is clear from the show cause notice, Assistant Collector proposed to withdraw the approval to the classification list and assess the clearances of the petitioner clubbing it with the clearances of its predecessor. It was also proposed to apply the Notification No. 80/80 to the facts of the case and take the production of the full year 1981-82 from the 'factory'. This was clearly a matter falling within the purview of Section 11-A of the Act.
34. But, it is contended on behalf of the petitioner that 11-A is only a recovery provision and it does not enable the original authority under the Act to reopen and re-assess. This argument is no longer open to the learned Counsel for the petitioner to press this contention in view of the Supreme Court decision in Kohli's case.
35. Therefore, on the facts found by the Assistant Collector, his order withdrawing the approval of the classification accorded to the petitioner-owner and imposing the duty on the aggregate value of the goods cleared by M/s. Regal Rubbers and M/s. Sun Rubbers during the previous financial year, notwithstanding the lease, is to be upheld.
36. It is ordered accordingly and the writ petition is dismissed.