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Chandrasekara Bharathi Weaving Mills and ors. Vs. Assistant Collector of Central Excise and anr. - Court Judgment

LegalCrystal Citation
SubjectExcise
CourtChennai High Court
Decided On
Case NumberWrit Petition Nos. 734 and 735 of 1964 and 3180 and 3181 of 1965
Judge
Reported in1981(8)ELT62(Mad)
ActsCentral Excise Act - Sections 37; Central Excise Rules - Rules 12A, 96J and 230
AppellantChandrasekara Bharathi Weaving Mills and ors.
RespondentAssistant Collector of Central Excise and anr.
Appellant AdvocateG. Ramaswami, Adv.
Respondent AdvocateT. Selvaraj, Adv.
Cases ReferredSurat and Ors. v. Jayantilal Balubhai and Ors.
Excerpt:
- - the supreme court held that the test that the production of artificial silk fabrics must be attributable to the same person was not satisfied in the case before them. the petitioners in these cases are on a better footing as gopalakrishna & company is not a partner of balaji & company, and balaji & company is also not a partner in gopalakrishna & company......in writ petition no. 734 of 1964 and writ petition no. 735 of 1964, had a licence for 17 powerlooms. on 11-8-1958 they entered into an agreement with gopalakrishna and company by which gopalakrishna and company were empowered to work the powerlooms from 11-8-1958 to 31-12-1962. the parties are not agreed as to the real nature of the transaction. according to the petitioner, gopalakrishna and company was appointed as their managing agent, while, according to the respondent by this transaction the powerlooms were leased to gopalakrishna and company. the agreement provided that gopalakrishna and company was to pay a fixed sum of rs. 1,100 to the petitioner and also pay the taxes due on the powerlooms. on 11-9-1961 the assistant collector directed the petitioner to transfer the.....
Judgment:

Kailasam, J.

1. Writ Petition No. 734 of 1964 is filed by Messrs. Chandrasekara Bharathi Weaving Mills, Rajapalayam for the issue of a writ of certiorari for calling for the records of the Assistant Collector of Central Excise, in his order of detention dated 14-5-64 issued under Rule 230 of the Central Excise Rules and to quash the order of detention dated 14-5-64 in Demand DD2. No. 12888-1/61 dated 12-5-64. Writ Petition No. 735 of 1964 is by the same partnership for the issue of a writ of Prohibition directing the Assistant Collector to forbear from enforcing the order of detention dated 14-5-64. Writ Petition No. 3180 of 1965 is by Messrs. Janakiram Mills Limited, Rajapalayam, for the issue of a writ of certiorari for calling for the records of the Collector of Central Excise Madras, C. No. IV/16/49/65-B-2 dated 18-6-1965 confirming the order of the Assistant Collector of Central Excise, Integrated Divisional Office, Sivakasi, dated 14-5-1964 in C. No. VIa/10/1/62 (MDU) dated 5-6-64. Writ Petition No. 3181 of 1965 is by Messrs. Sankara Subbiah & Company for the issue of a writ of mandamus directing the issue of L-4 Licence in their favour. All these four writ petitions are connected and may be dealt with together.

2. Chandrasekara Bharathi Weaving Mills, Rajapalyam petitioner in Writ Petition No. 734 of 1964 and Writ Petition No. 735 of 1964, had a licence for 17 powerlooms. On 11-8-1958 they entered into an agreement with Gopalakrishna and Company by which Gopalakrishna and Company were empowered to work the powerlooms from 11-8-1958 to 31-12-1962. The parties are not agreed as to the real nature of the transaction. According to the petitioner, Gopalakrishna and Company was appointed as their Managing Agent, while, according to the respondent by this transaction the powerlooms were leased to Gopalakrishna and Company. The agreement provided that Gopalakrishna and Company was to pay a fixed sum of Rs. 1,100 to the petitioner and also pay the taxes due on the powerlooms. On 11-9-1961 the Assistant Collector directed the petitioner to transfer the powerlooms to Gopalakrishna and Company, and also directed Gopalakrishna and Company to take out a licence. In 1962 the petitioner filed an appeal to the Collector of Central Excise, explaining as to how the agreement dated 11-8-1958 was not a transfer and was only a Managing agency agreement. No orders have been passed on this petition and it was stated on behalf of the petitioner that uptill date no orders have been passed by the Department. At the expiry of the lease period, i.e., 31-12-1962, the petitioner took back the powerlooms, but they did not get the licence renewed as they were not working the powerlooms. As the petitioner intimated to the authorities that they were not working on the powerlooms, they were sealed by the Department. While so, on 1-8-1963 the petitioner sold these 17 powerlooms to one Thangamani Textiles for a sum of Rs. 59,625. The petitioner also wrote to the Department on 13-2-1964 intimating that they had sold the powerlooms and that the seals might be removed. Not getting any reply to this letter the petitioner caused a lawyer's notice dated 29-4-1964 to be sent to the Department asking for the removal of the seals. On 4-5-1964 the Department informed the petitioner that the matter was receiving its attention and was under consideration. On 11-5-1964 the petitioner removed the seals.

3. On 12-5-1964 a notice in Form D.D. 2 was issued by the Department to Gopalakrishna and Company claiming that a sum of Rs. 29,212 was due by them. On 14-5-1964 an order of detention on the looms belonging to the petitioner was served under Rule 230. An order of demand was also served upon Gopalakrishna and Company on 15-5-1964.

4. The petitioner in Writ Petition No. 3180 of 1965 Messrs. Janakiram Mills Limited, Rajapalayam, owns 90 powerlooms. They leased out these 90 looms to one Balaji & Company for the period September 1959 to December 1961. Balaji & Company had the looms transferred for the period and obtained a licence for the looms. Balaji & Company was also levied a duty on the 90 powerlooms. The lease in favour of Balaji & Company expired on the 31st of December, 1961, and the petitioner M/s. Janakiram Mills1 Limited, took possession of the powerlooms, applied for the licence, and had it renewed in their name. From 1st January, 1962 to 16th May, 1964 M/s Janakiram Mills Limited were carrying on manufacturing business in the powerlooms. In May 1964 M/s. Janakiram Mills Limited were running only 48 looms, and 42 looms were idle. They sold those 42 looms to one Sankara Subbiah & Company, petitioner in Writ Petition No. 3181 of 1965, in May 1964. On 12-5-1964 Balaji & Company received a demand for payment of a sum of Rs. 37,919 from the Department, and on 14-5-1964, detention of the 90 looms belonging to Janakiram Mills Limited was ordered under Rule 230 of the Central Excise Rules.

5. The demand for a sum of Rs. 29,212 made on Gopalakrishna and Company, and the sum of Rs. 37,919 made on Balaji & Company is stated to be the amount of short levy made by the Department. According to the Department, one Jethanand Thakurdas was a partner of Gopalakrishna and Company. He was also a partner of Balaji & Company along with others. The levy is stated to be under Rule 96 J which provides the rates to be levied per powerloom per shift per month employed by or on behalf of the same person in the manufacture of cotton fabrics. According to the rule, the rate increases if the same person owns more than a particular number of powerlooms. The Department would construe the rule to mean that for the purpose of levy under the rule the total number of looms of the partnerships in which the person is interested would be taken into account. In this case, as Jethanand Thakurdas was a partner in both Gopalakrishna and Company and Balaji and Company, and as Gopalakrishna & Company was operating the 17 looms belonging to M/s. Chandrasekara Bharathi Weaving Mills, and Balaji & Company had taken on lease 90 looms from M/s. Janakiram Mills both Gopalakrishna & Company and Balaji & Company according to the Department should be deemed to have been working 107 looms under these rules.

6. Mr. G. Ramaswami, the learned counsel for the petitioners, submitted that the levy is illegal and unsustainable. He submitted that Rule 230 of the Central Excise Rules is not applicable to either of the two detention orders, and, in the alternative, if Rule 230 is held to be applicable, it would be ultra vires of the rule making powers of the Government conferred on it under Section 37 of the Central Excise Act. He further contended that Rule 230 was amended on 20-10-1962 and as the levy was due for a period before that date, the amended rule cannot be made applicable. He further submitted that the order of detention is arbitrary as the Department had detained the property of the petitioners (in Writ Petition Nos. 734 of 1964 and 3180 of 1965) without having recourse to. the persons from whom the amounts are recoverable, namely, Gopalakrishna & Company and Balaji & Company. It was also contended that the order of detention of the goods indefinitely was, also illegal. As an instance of arbitrariness, the learned counsel pointed out the petition presented by the petitioner (in W.P. No. 734 of 1964) in 1962 to the Department submitting that the transaction which they had entered into with Gopalakrishna and company was not a lease, has not yet been disposed of. Finally, the learned counsel submitted that the demand on Gopalakrishna & Company and Balaji & Company are themselves illegal and contrary to the Central Excise Rules, and relied on a recent decision of the Supreme Court in Civil Appeal No. 394 of 1962- Assistant Collector of Central Excise and Customs at Surat and Ors. v. Jayantilal Balubhai and Ors.-[1978 EL.T. (J 317)]. As the contention of the learned counsel that the levy itself is illegal, has to be accepted, the other points raised by the learned counsel need not be considered in this case.

7. The rule with which we are concerned is Rule 96-J which provides for the discharge of liability for duty on a payment of certain sum. The rate of duty payable is fixed by the Government of India, Ministry of Finance (Department of Revenue), Notification No. 74/58-C.E., dated the 4th July, 1958. The tabular statement at page 246 of the Central Excise Manual gives the rate of levy. It will be seen that the levy increases as the number of powerlooms increase. The more powerlooms a person has, the higher the levy he has to pay. It is provided that the rates have been fixed taking into account the shift etc., and is payable on behalf of the same person in the manufacture of cotton fabrics. If the same person is held to include the different partnerships in which he has a share, then he will have to pay a higher levy. In this case neither Gopalakrishna & Company is a partner in Balaji & Co., or Balaji & Co. a partner in Gopalakrishna & Co. But the total number of looms in both the companies are brought to be added up as one Jethanand is a partner in both the partnerships. The fact that a person owns certain shares in the partnership would not mean that the person and the partnership in which he has some share would be the same person for the purpose of levy under this rule. The Supreme Court in Civil Appeal No. 394 of 1962 had to construe the effect of Rule 12A(v) of the Rules which related to Rayon and which is in part materia with the present rules. One Shah was carrying on business in the manufacture of silk fabrics. He was owner of 9 powerlooms at Surat. He was also a partner in a firm known as Saurashtra Mills at Surendranagar running 24 looms. In this firm there were 12 partners and Shah had a 2 annas share. Shah was also a partner in another firm, Sunlight Textile Mills in Bhandup. In this partnership, Shah had 8 annas share. According to the Department, the total number of looms run by him, that is, 9, and the powerlooms in the two partnerships, 24 and 19, should be added for the purpose of arriving at the number of looms which Shah was operating. This contention was repelled by the Supreme Court. The Supreme Court held that the test that the production of artificial silk fabrics must be attributable to the same person was not satisfied in the case before them. It negatived the contention that every partner of a firm is in law the same person as the firm within the meaning of item 12A (v) as it was inconsistent with the said item and the object intended to be served by it in granting the exemption to cases covered by it. The petitioners in these cases are on a better footing as Gopalakrishna & Company is not a partner of Balaji & Company, and Balaji & Company is also not a partner in Gopalakrishna & Company. But the liability is sought to be fixed on the ground that Jethanand Thakurdss is a partner of both Gopalakrishna & Company and Balaji & Company. As one of the partners is a partner in both the firms, the statement of the Department is that Gopalakrishna & Company and Balaji & Company should be taken to Tun the sum total of powerlooms possessed by both the companies. In view of the decision of the Supreme Court, this contention cannot be accepted. The two demand notices are not, therefore, according to law, and the consequential order of detention cannot also be supported.

8. In the result, Writ Petition No. 734/64 for the issue of a writ of certiorari is allowed and the order of detention is quashed. In view of the order in Writ Petition of. 734/64, no orders are necessary in Writ Petition No. 735 of 64. Writ Petition 3180/65 is allowed. The petitioner in Writ Petition No. 3181/65 is the purchaser of 42 looms from Janakiram Mills Limited, and prays that the Collector may be directed to issue L-4 licence in their favour. The petitioner will apply to the authorities for grant of the licence, and that application will be dealt with according to law. No order as to costs.


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