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Oudh Sugar Mill Ltd. Vs. Union of India (Uoi) and ors. - Court Judgment

LegalCrystal Citation
SubjectExcise
CourtAllahabad High Court
Decided On
Case NumberWrit Petition Nos. 3662 of 1980 and 102 of 1981
Judge
Reported in1982(10)ELT937(All)
ActsCentral Excise Act, 1944 - Sections 2, 3, 3(1) and 4(4); Finance Act, 1980; Central Excise Rules - Rules 9, 47 and 49; Uttar Pradesh Shhera Niyantar Adhiniyam, 1964; Uttar Pradesh Shhera Niyantar Rules; Constitution of India - Articles 133 and 134A
AppellantOudh Sugar Mill Ltd.
RespondentUnion of India (Uoi) and ors.
Appellant AdvocateR.N. Trivedi and ;R.K. Srivastava, Advs.
Respondent AdvocateStanding Counsel
DispositionPetition dismissed
Excerpt:
.....in which relying on delhi cloth mills' case (supra) it was held that rule 49 clearly provided that excise duty shall not be required to be paid until the goods are about to be issued out of the place or premises specified under rule 9, under which a specific order has to be passed by the collector specifying the place for the purpose of removal which is evident from the words 'which may be specified by the collector in this behalf',which words cannot be held to be redundant in view of rule 49. it was further observed that the place of issue need not necessarily be the same as the place of manufacture as the action of issuing is different from the action of manufacture. we are not satisfied that the case involves any substantial question of law of general importance which requires to be..........schedule to the constitution of india which provides for levy of excise duty of tobacco and other goods manufactured or produced in india except certain narcotics and alcoholic preparations. thus excise duty can be levied only on goods which are manufactured or produced in india.5. the word 'goods' has not been defined in the act and as such its dictionary meaning is to be seen. in the dictionary 'goods' means something which can ordinarily come to the market to be bought and sold and is known to the market as goods. the word 'manufacture' as a verb is generally understood and means bringing into existence a new substance and does not mean merely to produce some change in substance however minor it may be. in the act a wide definition to the word 'manufacture' has been given in section.....
Judgment:

U.C. Srivastava, J.

1. These writ petitions have been filed by two Sugar Mills praying for the quashing of inclusion of molasses in Item 15CC of the 1st Schedule to the Central Excises and Salt Act, 1944, and also for quashing the demand notice in pursuance thereof. Apart from other reliefs declaring certain provisions of the Central Excises and Salt Act, 1944 ultra vires, a prayer is for issue of a writ in the nature of mandamus commanding the opposite parties not to deposit or realise any excise duty on molasses used for captive consumption in their distillery which is located in the compound in which the Sugar Factory itself is located. At the time of hearing of these writ petitions, the other pleas including the plea that molasses is a waste product was given up and it was contended by Sri Sorabjee appearing on behalf of the petitioners in one writ petition and Sri K R. Bhatt, Advocate appearing for the petitioner in the other writ petition that molasses is not a waste product but is the intermediate product during the course of manufacture of sugar from sugarcane and the same is used as raw material for manufacturing alcohol in the petitioners' distillery. It was canvassed before us that molasses is used in captive consumption and in the same compound for manufacture of alcohol in the Distillery and is not removed from the factory and the Collector not having specified the place for storage of molasses, there could not be any levy and collection of duty on molasses in the absence of any such specification, as is required under Rule 9 of the Central Excise Rules. There is thus no removal of molasses from the factory itself as the Distillery is also included in their factory licence and is located in the same compound. The levy and collection of excise duty was without any authority of law and in violation of Rules 9 and 49 of Central Excise Rules. The other pleas raised in the writ petitions were not argued.

2. For the first time in the Finance Act, 1980, which came into force with effect from midnight of 18/19th June, 1980 molasses has been included in 1st Schedule to Central Excises and Salt Act, 1944, as Item No. 15-CC and has thus been made excisable goods within the meaning of the said Act.

3. The charging Section under the Central Excises and Salt Act, 1944, is Section 3 and Section 3(1) which is relevant reads thus : Section 3(1). Duties specified in the 1st Schedule to be levied: (1) 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 setforth in the First Schedule.

4. Section 3(1) of the Central Excises and Salt Act, 1944 (hereinafter mentioned as 'Act') authorises levy on manufacture or production of goods which levy also gets sanction from Entry 84 of the List I of Seventh Schedule to the Constitution of India which provides for levy of excise duty of tobacco and other goods manufactured or produced in India except certain narcotics and alcoholic preparations. Thus excise duty can be levied only on goods which are manufactured or produced in India.

5. The word 'goods' has not been defined in the Act and as such its dictionary meaning is to be seen. In the dictionary 'goods' means something which can ordinarily come to the market to be bought and sold and is known to the market as goods. The word 'manufacture' as a verb is generally understood and means bringing into existence a new substance and does not mean merely to produce some change in substance however minor it may be. In the Act a wide definition to the word 'manufacture' has been given in Section 2(f) and the said word includes any process incidental or ancillary to the processing of manufactured product. The word 'production' has not been defined in the Act and it has got no exact legal meaning and as such it is to be interpreted in the context it is used. In Section 3 of the Act it is used in juxtaposition with the word 'manufacture' and it obviously refers to finished and semi-finished article made from raw material. Any by-product or intermediate or residual product in the manufacture of a particulat goods will be covered by the word 'production'. Section 3 of the Act does not concern itself with the marketability or sale-ability, consumption or storage and duty being on goods as and where it is manufactured or produced it becomes liable to duty. Molasses thus being a by-product or intermediate to product of sugar it becomes an excisable article. The question that remains for consideration is the point of time and place when this levy is to be made and collected or that if the same is used for captive consumption and used as raw material for manufacture of another goods in the same compound notwithstanding Section 3 of the Act is it free from levy and collection of excise duty.

6. The admitted position is that molasses are intermediate product is stored in tanks from where through the pipelines it goes to the distillery where it is used for preparation of alcohol. There is no integrated continuous process in so far as manufacture of sugar and that of alcohol from molasses is concerned. It is process separately to bring out altogether a new goods known as alcohol. Both the Distilleries are holding separate licences for the said purpose under Central Excises and Salt Act, 1944, without which no Distillery can engage itself in manufacture of alcohol and in the licence they have obviously specified the place of their Distillery.

7. On the application of petitioners' Mill which is in the prescribed Form AI-IV licence was granted to both the Mills. The original form AI-IV was produced before us. Items 3, 4 and 5 of the same read as follows:

(3); Brief description (with boundaries) of the premises intended to be used as factory.

(4) Description of each main division and sub-division of the factory.

(5) Store-rooms and other places of storage.

The petitioners annexed the site-plan and against columns 3 and 4 mentioned the words 'as per site-plan annexed'. Against column No. 5 they mentioned the two tanks. From column No. 3 it is clear that even for intermediate production the brief description of the entire premises intended to be used as factory is to be given. In view of the definition of 'factory' given in Section 2(e) of the 'Act' 'factory' means any premises including the precincts thereof wherein or in any part of which excisable goods other than salt are manufactured or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried. Thus if in a part of factory manufacturing process is carried on or goods are manufactured or produced, it too will still be the factory within the meaning of the Act. Item 2 of AI-IV requires the description of factory itself a part of which is actually used as such. Each and everything having been specified in the site-plan which forms part of it and licence having been issued, it cannot be said that there was no specification of the place by the Collector. Thus from AI-IV it is evident that not only the place was specified as required under Rule 9 of the Central Excise Rules and the same was duly approved by the Collector, but a declaration as contemplated in Rule 47 regarding storage tank was made and the same was approved. It was only after submitting the said application that licence was granted and the petitioners took prompt action in sending protest letters that they were made to do so in compelling circumstances. The words 'under protest' have no distinct meaning and by themselves amount to nothing except that it can be said that it was allegedly not a voluntary act. But if a particular thing is required to be done under law for enabling a person to claim or get certain benefits any subsequent mention of the words 'under protest' will not mean that the compliance of legal requirement was not a voluntary act. Thus the letters so sent are of no avail and do not help the petitioner.

8. Even otherwise in the State of Uttar Pradesh control of storage, gradation and price of molasses produced by Sugar Factories and the regulation and supply thereof is governed by U.P. Shhera Niyantar Adhiniyam, 1964 and rules framed thereunder. The said Act casts a duty upon the occupier of a factory to provide for safe preservation of molasses though it also provides for covered tanks also. The dimensions of tank are to be recorded in register in Form MF 14, as is required in rules which rules also apply to Distilleries. Provision for emptying tanks before next year or adulteration of old and new molasses obviously within the capacity of tanks so fixed too has been provided. A factory or distillery is thus required to make provision for tanks and the capacity of which is not only to be specified and checked, but is also to be displayed. Thus the specification of tanks for storage of molasses is a legal requirement under the Act with the result that mentioning of the same in licence AL-1V could not be avoided.

9. In view of this factual position the argument that the place of manufacture or/production of molasses has not been specified and the same puts a bar on levy and collection of excise duty merits no consideration.

10. Before dealing with the main submission of Sri Sorabjee, it would be relevant to quote relevant parts of Rules 9 and 49 of the Central Excise Rules: Rule 9: Time and manner of payment of duty (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 provided 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

(2)...

Rule 49 : Duty chargeable only or removal of goods from the factory premises or from an approved place of storage.

(2) Payment of duty shall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified under Rule 9 or are about to be removed from a storeroom or other place of storage approved by the Collector under Rule 47.

11. Sri Sorabjee, learned counsel for the petitioners made reference to certain cases in support of his contention as to the bar of Rules 9 and 49 for levying excise duty.

12. The first case referred is the Division Bench case of Delhi High Court in Delhi Cloth and General Mills Co. Ltd. v. Joint Secretary, Government of'India--1978 ELT (J 121) in which it was held that as per Rules 9 and 49 question of collection of any excise duty cannot arise unless and until the goods are removed from the factory. In the said case not the place where the excisable article was manufactured, but the larger factory was considered to be place of removal. In the said case calcium carbide was manufactured by a separate plant in the petitioners' factory and the said calcium carbide was used in the manufacture of acetylene gas. It was held that the calcium carbide was not marketable commodity as such and was therefore, not goods within the meaning of Section 3 but, could have been used for generation of acetylene gas. In the alternative it was held that even if it was goods then as it was not removed from the factory, in view of the definition of 'factory', as such no duty could be collected. This was a case where the intermediate product was held to be not 'goods' within the meaning of the Act.

13. The next case referred by the learned counsel is Sundershan Lal Chemicals Ltd. v. Union of India-1919 ELT (J 275). In the said case it was held by the Bombay High Court that the words 'in or outside'occurring in Rule 9 do not qualify the words 'shall be removed', on the other hand they go with the words immediately preceding them. Rule 49 does not contain the word 'in' at all. Rule 9, as it stands, without the support of any other rule, does not make an article liable to excise duty if it is removed in a place where it is manufactured'. It was a case in which the article in question was a synthetic organic derivative and was used as a base for manufacture of pigments but duty was payable only if it was used predominantly in the dyeing process. Both questions were remitted back for decision by the Excise Authorities.

14. In the case of Geep Flashlight Industries Ltd., Allahabad v. Union of India-1979 ELT (J 674) nothing particular in respect of Rule 49 was observed.

15. In Modi Carpets Limited v. Union of India (1980 ELT 320) a Division Bench of the Delhi High Court took the view that in the absence of any place having been specified by the Collector under Rule 9, the place of manufacture,has to be deemed to be the entire factory in which the manufacturing process takes place. In the said case as a fact it was admitted that no place was specified by the Collector and as such the Court took the view that the place of manufacture will be deemed to be the factory itself and as there was no removal from the factory, there was no question of collecting excise duty on the woollen yarn. The Division Bench decision of the Delhi High Court in Caltex Oil Refining {India) Ltd. v. Union of India, 1979 ELT (J 581), a reference to which will be made hereunder was distinguished on the ground that the Court was concerned with the question of removal of goods under Rule 9 and in the said case the Court was of the view that there was no question of removal of product within the plant so long as the product is in the process of manufacture.

16. The case of Gujarat High Court in Manek Lal Hira Lal Spg. and Mfg. Co. Ltd., Ahmedabad v. Union of India-MS ELT (J 618) the reference to which will also be made hereunder was also distinguished on the ground that in the said case [1980 ELT (J 320)] in the licence which had been applied for by the petitioner, the petitioner had specified the place of manufacture as the factory itself and not any particular part of the factory.

17. Lastly the learned counsel for the petitioners referred to the case Synthetics and Chemicals Ltd., Bombay v. Government of India [1980 ELT 675 (Delhi)] in which relying on Delhi Cloth Mills' case (supra) it was held that Rule 49 clearly provided that excise duty shall not be required to be paid until the goods are about to be issued out of the place or premises specified under Rule 9, under which a specific order has to be passed by the Collector specifying the place for the purpose of removal which is evident from the words 'which may be specified by the Collector in this behalf', which words cannot be held to be redundant in view of Rule 49. It was further observed that the place of issue need not necessarily be the same as the place of manufacture as the action of issuing is different from the action of manufacture. It was also observed that it was not correct to say that Rule 47 contemplates levy of excise duty even when the goods are stored within the same premises. But in Oudh Sugar Mills Ltd. v. Union of India-1980 ELT (J 327) (which is between same parties so far as Writ Petition No. 3220 of 1980 is concerned) the Bombay High Court held that place of removal does not mean a part of a composite plant nor it can refer to the storage tank in which oil is collected where it has no independent existence and is a part of the composite plant. The process of manufacture in this case was continuous integrated process and the vegetable oil which was manufactured was a composite part of the final product. The decision in Caltex case (supra) was referred to in support of this distinction.

18. In Manak Lai's case (supra) it was held by the Gujarat High Court that an intermediary product which is by itself an excisable article is liable to excise duty even though it is not removed from the factory. It was further held that Rule 9 applies to the place where excisable goods are manufactured and not to the larger compound of the factory. Delhi Cloth Mills' case (supra) was dissented from to this extent.

19. The Delhi High Court in Caltex case (supra) held that no duty is leviable on intermediate products if they are not end products by themselves provided the intermediate product and the end product are obtained by one continuous uninterrupted integrated processes opposed to separate distinct processes. It was further observed that Rule 9 contemplates the situs of manufacture as the place for which removal has to take place and makes no reference to plant or equipment. But in case there are two distinct plants within , (the same factory premises removal can take place both outside and inside the factory and the latter happens when the product obtained from the plant is sent to another plant for obtaining another product. The consumption of a product within the place of manufacture would also amount to removal.

20. The Calcutta High Court in Union Carbide Co. Ltd. v. Assistant Collector of Central Excise, 1978 ELT (J. 180) observed that if there are separate and different processes of manufacture and each process results in such transformation that a new and distinct article in the market as such comes into being then each process would be subject to duty.

21. In our view Rule 9 of Central Excise Rules puts a bar on the removal of excisable goods from the place where the same are produced or manufactured unless duty is paid. The rule by itself does not create a liability, nor can it be read as destroying a liability which is incurred under Section 3 because of manufacture or production of goods. A rule which is framed to carry out the purpose of an Act cannot be read or go to the extent of frustrating its purpose instead of giving effect to it. An intermediate product which by itself is goods known to the market and is used in captive consumption for bringing out altogether a new goods not by an integrated process, but by a distinct and separate process is liable to excise duty before its removal for purposes of its character (sic) for bringing out another finished goods.

22. Thus the cases Delhi Cloth and General Mills (supra); Sudarshan Chemicals Ltd. (supra); Modi Carpets Ltd. (supra); Synthetics and Chemicals Ltd. (supra) and Oudh Sugar Mills (supra) are distinguishable even on the question of fact inasmuch as the intermediate products in those cases were either not goods at all within the meaning of Central Excises and Salt Act or were used for the manufacture of finished goods (and the process was one continuous integrated process) in a plant which was a component of the bigger plant, while in the case before us the intermediate product is not only goods by itself, but it was used as a raw material for manufacture of another goods and the process for manufacturing the same is a discontinuous and disintegrated one. In Delhi Cloth and General Mills' case (supra) which was followed by in some other cases the meaning of the words 'place' or 'premises' have been taken synonymous with the factory and the definition of the factory has been given in wider terms; may be in those cases where there was no site plan showing the existence of separate part of places within a common compound.

23. Thus 'removal', a word used in Rule 9 which word also finds place in Section 4, sub-Section (4) ) of the Central Excises and Salt Act, 1944 means removal of the product from the place where the same is manufactured or produced including stores and does not mean merely the bigger factory itself which is described by factory producing other goods within the same campus.

24. So far as Rule 49(1) is concerned it is noted that the word 'made' has been used although in the Central Excises and Salt Act and the Rules framed thereunder the words 'manufacture' and 'production' have been used. The word 'made' appears to have been loosely used to cover both 'manufacture' and 'production'. In view of wide definition of the word 'manufacture' it will include the goods manufactured including the intermediate product if the same are goods as the same come out in the process of manufacture of end-product for which the factory itself was established. Rule 49 only refers to the point of time when the duty is to be levied or collected. If the goods so manufactured including the intermediate product is to be issued out of the place or premises specified it is the point of time when the same is to be collected. The word 'issued' connotes a a wider meaning than the word 'removal'. It includes the removal under the direction of an authority empowered to do so as removal contemplated in the rules is by the manufacturer or producer only. Rule 49 of the Central Excise Rules is only a supplemental Rule.

25. A cumulative reading of Rules 9 and 49 of the Central Excise Rules does not lead to any other conclusion except that so far as intermediate product is concerned, it is a goods by itself and used in captive consumption for manufacturing of another by-product in the same compound and becomes chargeable to duty the moment it is removed in any manner out of the place where it is manufactured or produced in that campus or compound within those boundaries or is removed from the storage or store-rooms where it collects after it comes into existence as a result of manufacturing process of the end-product for which the factory is established.

26. We thus find no force in these writ petitions which are accordingly dismissed with costs.

27. Immediately after we delivered our judgment learned counsel for the petitioners in each case Dr. R.K. Srivastava made an oral prayer for grant of certificate for leave to appeal in the Hon'ble Supreme Court under Article 133 read with Article. 134-A of the Constitution. We are not satisfied that the case involves any substantial question of law of general importance which requires to be decided by the Hon'ble Supreme Court. The certificate prayed for is accordingly refused.


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