1978 (2) TMI 207 - HC - Central Excise

Issues Involved:
1. Nature of excise duty and its incidence.
2. Calculation of base clearances and base period.
3. Entitlement to partial tax exemption.
4. Jurisdiction of administrative action under the notification.
5. Requirement to pass on tax exemption benefits to consumers.
6. Interpretation of the notification and its impact on excise duty calculation.

Issue-wise Detailed Analysis:

1. Nature of Excise Duty and Its Incidence:
The judgment addresses the nature of excise duty, which is levied on the process of manufacture under Section 3 of the Central Excises and Salt Act, 1944. The duty is calculated based on the value determined under Section 4 of the Act, which considers the normal wholesale price of goods. The Central Government may exempt certain excisable goods from duty under Rule 8(1) of the Central Excise Rules, 1944, as per Notification No. G.S.R. 409 (C), dated 16th June 1976, which provides a 25% exemption on excise duty for tyres and tubes.

2. Calculation of Base Clearances and Base Period:
The judgment elaborates on the method for determining the base period and base clearances. Paragraph 2(1)(b) of the notification requires the value of goods to be adjusted with the average index number of wholesale prices in India for manufactures. The base period is determined under Paragraph 2(2), which specifies different periods based on when the goods were first cleared from the factory. The petitioner, who started manufacturing after April 1, 1973, falls under category (b) and must calculate the base clearance as one-third of the aggregate clearances during the financial years 1973-74, 1974-75, and 1975-76.

3. Entitlement to Partial Tax Exemption:
The petitioner initially calculated the base clearances using the adjusted value of goods, which was provisionally accepted by the Excise Department. However, the department later issued show cause notices, arguing that the base clearances should be calculated using the unadjusted value, leading to a demand for additional excise duty. The petitioner challenged these notices, claiming they were contrary to the notification's provisions.

4. Jurisdiction of Administrative Action under the Notification:
The court considered whether the administrative action of issuing show cause notices was within jurisdiction. It referred to the Supreme Court's ruling in Dhulabhai and Others v. The State of Madhya Pradesh, which held that administrative actions contrary to fundamental statutory provisions are without jurisdiction and can be challenged without resorting to alternative statutory remedies. The court found that the show cause notices were without jurisdiction as they contradicted the notification's fundamental provisions.

5. Requirement to Pass on Tax Exemption Benefits to Consumers:
The respondents argued that the petitioner was not entitled to the tax exemption benefit because it did not pass on the relief to consumers. The court noted that while the excise duty is levied on the process of manufacture, the notification did not explicitly require the benefit to be passed on to consumers. The court emphasized that any such condition must be part of the notification itself and cannot be imposed through administrative directions or guidelines.

6. Interpretation of the Notification and Its Impact on Excise Duty Calculation:
The court interpreted the notification to mean that the adjusted value of goods should be used to determine base clearances. It rejected the respondents' argument that the adjustment applied only to determining the base period. The court highlighted that the notification did not differentiate between categories (b) and (c) regarding the method of calculating base clearances. The court also noted that different interpretations for goods subject to ad valorem duty and those assessed by weight or number would lead to unjustifiable discrimination, violating Article 14 of the Constitution.

Conclusion:
The writ petition was allowed, and the show cause notices were quashed. The respondents were prohibited from recovering any supposed deficit excise duty based on these notices. The court directed the respondents to assess the tyres and tubes manufactured by the petitioner in accordance with the notification dated 16th June 1976, as interpreted in the judgment. The petitioner was entitled to continue clearing goods under the notification's terms.

Separate Judgment by H.L. Anand, J.:
H.L. Anand, J. concurred with the judgment and highlighted the inconsistency in the government's action. He questioned why the notification did not explicitly require the benefit to be passed on to consumers, as was done in previous exemptions. He suggested the need for administrative action or an inquiry to protect consumer interests and proposed the introduction of an Ombudsman in the industry for oversight.

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