1980 (2) TMI 261 - HC - Central Excise

Issues Involved:
1. Validity of annexures 7 and 8.
2. Stage at which cess is required to be levied.
3. Interpretation of Section 9(1) of the Industries (Development and Regulation) Act, 1951.
4. Distinction between Central Excises and Salt Act, 1944 and the Industries (Development and Regulation) Act, 1951.
5. Applicability of cess on intermediary products like twine and yarn.
6. Interpretation of the explanation appended to Section 9(1) of the Act.

Detailed Analysis:

1. Validity of Annexures 7 and 8:
The petitioners challenged the demand notices issued under the Industries (Development and Regulation) Act, 1951, which levied cess for specific periods. The court examined whether the demand notices (annexures 7 and 8) were valid under the Act.

2. Stage at Which Cess is Required to be Levied:
The primary issue was to determine the stage at which cess is to be levied on manufactured goods. The court found that cess should be levied at the time of delivery of goods at the place of manufacture and at the time of their removal from the factory. The explanation to Section 9(1) clarified that cess is levied on goods sold or capable of being sold, indicating that notional sales are also covered.

3. Interpretation of Section 9(1) of the Industries (Development and Regulation) Act, 1951:
Section 9(1) allows for the imposition of cess on goods manufactured or produced in scheduled industries. The explanation to this section defines "value" as the wholesale cash price of the goods at the place of manufacture and at the time of their removal. The court emphasized that the explanation is an integral part of the section, citing the Supreme Court's decision in Bengal Immunity Co. Ltd. v. State of Bihar and Others, which stated that an explanation appended to a section becomes an integral part of it.

4. Distinction Between Central Excises and Salt Act, 1944 and the Industries (Development and Regulation) Act, 1951:
The respondents argued that cess should be levied as soon as goods are manufactured, similar to the Central Excises and Salt Act, 1944. However, the court differentiated between the two Acts, noting that under the Industries Act, cess is levied when goods are delivered and removed from the factory, whereas under the Excise Act, excise duty is levied upon manufacture.

5. Applicability of Cess on Intermediary Products Like Twine and Yarn:
The court discussed whether intermediary products like twine and yarn, which are not sold but used within the factory for further manufacturing, are subject to cess. It concluded that cess cannot be levied on intermediary products that are not delivered or removed from the factory. The court accepted the petitioner's contention that twine and yarn are not marketable goods and are used within the factory to produce final products like sacks and hessians.

6. Interpretation of the Explanation Appended to Section 9(1) of the Act:
The respondents contended that the explanation should not be considered if it goes beyond the main provision. The court rejected this argument, reiterating that the explanation is an integral part of the section and must be read together. The court referenced the Supreme Court's decision in M/s. Hiralal Ratan Lal v. The Sales Tax Officer, which stated that even if an explanation widens the scope of the main section, it must be given effect to.

Conclusion:
The court concluded that the authorities under the Act and the Rules are not entitled to levy cess on twines and yarn since these goods were not delivered at the place of manufacture nor removed from the precincts of the factory. The petition was allowed, and annexures 7 and 8 were quashed. The court issued a writ of certiorari and held that the explanation to Section 9(1) is an integral part of the section, clarifying the stage at which cess is levied. The judgment emphasized that cess is applicable only on goods that are delivered and removed from the factory, not on intermediary products used within the factory for further manufacturing.

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