1970 (4) TMI 163 - HC - Central Excise

Issues Involved:
1. Classification of factories for excise duty based on output.
2. Application of higher excise duty rates to factories with no production in a specific financial year.
3. Discrimination in excise duty rates based on the date of licence application.
4. Violation of Article 14 of the Constitution (Right to Equality).
5. Violation of Articles 19(1)(f) and (g) of the Constitution (Right to Property and Freedom to Practice any Profession).

Detailed Analysis:

1. Classification of Factories for Excise Duty Based on Output:
The petitioner applied for a licence to manufacture safety matches and commenced production in October 1966. The excise duty on matches is governed by item 38 of Schedule 1 to the Central Excises and Salt Act, 1944, and the rates are specified in Notification No. 75 dated 30-4-1966. The notification classifies factories into categories A, B, C, and D based on their output during the financial year 1964-65, with different excise duty rates for each category. The petitioner's factory, with an output not exceeding 75 million matches, falls under Category D, which has the lowest duty rate of Rs. 3.75 per gross.

2. Application of Higher Excise Duty Rates to Factories with No Production in a Specific Financial Year:
Clause 7 of the notification stipulates that factories with no clearance during the financial year for which they had a licence must pay a higher duty rate applicable to Category B factories (Rs. 4.40 per gross). The petitioner's factory, which did not commence production until October 1966, was subjected to this higher rate despite falling under Category D based on its output. This clause was challenged as it imposed a higher duty rate on factories that did not produce any matches during the financial year 1964-65, which the court found to be discriminatory and unreasonable.

3. Discrimination in Excise Duty Rates Based on the Date of Licence Application:
Clauses 4 and 6 of the notification require factories that applied for a licence on or after 1-4-1964 to pay higher duty rates in their first financial year of production and in subsequent years. Factories in Category D, for instance, must pay Rs. 4.10 per gross if they applied for a licence on or after 1-4-1964, compared to Rs. 3.75 per gross for those that applied earlier. The court found this differentiation based solely on the date of licence application to be arbitrary and lacking a reasonable basis.

4. Violation of Article 14 of the Constitution (Right to Equality):
The court held that the discrimination created by clauses 4, 6, and 7 of the notification violated Article 14 of the Constitution. Factories similarly placed in terms of output were subjected to different duty rates based on arbitrary criteria such as the date of licence application and whether they had production in a specific financial year. This lack of reasonable nexus to the object of the Act rendered these clauses void.

5. Violation of Articles 19(1)(f) and (g) of the Constitution (Right to Property and Freedom to Practice any Profession):
The petitioner argued that the impugned clauses infringed upon their fundamental rights under Articles 19(1)(f) and (g) of the Constitution. Although the court primarily focused on the violation of Article 14, the arbitrary and unreasonable imposition of higher duties could also be seen as an infringement on the right to property and the freedom to practice any profession.

Conclusion:
The court found that the imposition of higher excise duty rates on factories with no production in 1964-65 and the discrimination based on the date of licence application were arbitrary and violated Article 14 of the Constitution. Consequently, clauses 4, 6, and 7 of the notification were struck down as void. The petitioner was entitled to a refund of the duty collected under these void provisions. The writ petition was allowed with costs, and the respondents were directed to refund the excise duty collected from the petitioner.

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