2019 (7) TMI 1692 - HC - Central Excise

Levy of Central Excise Duty - Process amounting to manufacture - raw pine resin - forest department of the State of Uttarakhand collects such resin from pine trees growing spontaneously in the forest - scope of Tapping or rill method . Are the respondent-writ petitioners entitled to question of levy of Excise Duty on Oleo-Pine Resin? - HELD THAT - While it may have been open to the Forest department to question the levy of excise duty on them, on the ground that such a levy violates Article 265 of the Constitution of India, the Forest department has, in its counter-affidavit, stated that the appellants were justified in levying excise duty. In any event, it is not the Forest department which has questioned the levy or collection of excise duty by the appellants. The appellants have neither levied nor collected excise duty from the respondents-writ petitioners. The mere fact that excise duty was included in the sale price, which the respondents-writ petitioners were required to pay in order to purchase oleo-pine resin from the Forest department, would not make the sale price a levy of excise duty on them. Permitting such challenges may well result in a third party questioning the assessment order, passed against another, in writ proceedings. Such a course of action, in our opinion, is impermissible. While we have strong reservations regarding the maintainability of the Writ Petition, at the instance of a third party questioning the levy and collection of excise duty from another, we cannot also ignore the fact that the learned Single Judge has examined, on merits, the power of the appellants to levy excise duty on oleo-pine resin. We shall not, therefore, non-suit the respondent-writ petitioners on the ground of lack of standing, and shall instead examine the question whether or not extraction of oleo-pine resin, from pine trees by the Forest department, would amount to production of goods on which excise duty can be levied under Section 3(1)(a) of the Excise Act. Scope of the words 'manufacture' and 'production' used in Entry 84 of List I of the Seventh Schedule to the Constitution and in section 3(1)(a) of the Central Excise Act. (a) Meaning of Excise Duty - HELD THAT - A duty of excise is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, i.e. its ultimate incidence is always on the consumer. The said tax can be levied at a convenient stage so long as the character of the impost is not lost - The taxable event, in the case of duties of excise, is not directly on the goods, but on the activity i.e. the manufacture or production thereof. Though both excise duty and sales-tax are levied with reference to the goods, the two are very different imposts; in one case the imposition is on the act of manufacture or production, while in the other it is on the act of sale. In neither case, can it be said that the excise duty or sales tax is a tax directly on the goods for, in that event, they will really become the same tax - To be justified as such, the tax should be closely related to production or manufacture of goods. (b) Words used in the entries in the Lists of the VII schedule should be given the widest possible meaning? - HELD THAT - As long as the amplitude of Entry 84 in List I is not so extended as to trench upon the Entries in List-II which are reserved for law making to the State Legislatures, the widest possible meaning should be given thereto. In the absence of any limitation placed on the word produce in Entry 84, and as the widest meaning should be given to the Entries in the Lists in the VII Schedule, there is no justification in restricting its scope, and in not extending it to all kinds of production - it is very difficult to accept that the words manufacture / production used in Entry 84 of List I, on being given a liberal construction and the widest amplitude, would nonetheless require us to hold that both these words mean the same. If that be so Parliament, in exercising its constituent power, must be held to have, unnecessarily and without any reason, used both the words production and manufacture when use of either one of the two words would have sufficed. (c) Use of the word 'or' between the words 'manufacture' and 'production' in several provisions of the Excise Act and its effect - HELD THAT - The word 'or', as used in Section 3 of the Excise Act, can only mean that the Central Government has the power to levy duty either on manufacture or on production or on both. The language of Section 3 is clear, and the Excise Act does not require us to substitute 'or', or read this word interchangeably, for achieving its object. On the contrary, the object of the Excise Act is to subject both manufacture and production to levy of excise duty. Use of the word or between them would require the words manufacture / production to be read disjunctively. Consequently, even if the subject goods are not manufactured articles, but are only those which are produced, they can still be subjected to excise duty under Section 3 of the Act - The word produced is used, besides the word manufactured , not in one particular Section, but in several provisions of the Excise Act. Similarly, the word producer is also used, besides the word manufacturer , in several Sections of the said Act. If, as is contended before us, the word produced were to mean the same as manufactured , would Parliament, having used the word produced besides the word manufactured , in several Sections of the Excise Act, not be held to have indulged in a redundant exercise of using two words with the same meaning, over and over again, when use of either one of them would have sufficed? As Parliament has used the two words produced or manufactured , and producer or manufacturer , in several Sections of the Excise Act, and each word in a Statute must be given its natural meaning, it is difficult for us to hold that the word production means manufacture , and vice versa. What do words 'Manufacture' and 'Production' mean? - HELD THAT - The word production has a wider connotation than the word manufacture . While every manufacture can be characterised as production, every production need not amount to manufacture - The word 'produced' includes an activity of manufacturing the materials by applying human endeavour on some existing raw material, but the word 'produce' may include securing certain produce from natural elements, for example, by growing plants on soil, or by operating mines and the like or, for example, by milking the cow the milkman produces milk though he has not applied any process on any raw material for the purpose of bringing into existence the thing known as milk. (e) Does extraction of Oloe-Resin from pine trees amount to 'production'? - HELD THAT - The mode of resin collection, and central groove cleaning, involves removal of the resin pots from the tree, and thereafter removal of resin from the pot with the help of a scraper and collected in the collection cans or tins. The central groove is also cleaned, after each collection, with a groove cleaner to facilitate smooth running of fresh resin in the resin pot. During the period April to July, when the resin yield is the maximum, the resin should be collected as early as possible to avoid overflow from the resin pot, but the freshening should be one only, at weekly intervals and not before. The manual also details the manner in which the tapping should be closed, and for crop setting for subsequent years. Since Oleo Pine Resin is extracted from Pine trees by human endeavor following an elaborate and well laid down procedure, we are satisfied that such activity would amount to production under Section 3(1)(a) of the Excise Act. (f) Does Oleo-Resin sold by the forest department satisfy the test of marketability - HELD THAT - For articles to be goods, they must not only be moveable but also be known in the market as such, and they must be capable of being sold in the market as goods. Actual sale in the market is not necessary, user in captive consumption is not determinative, but the articles must be capable of being sold in the market or known in the market as goods - In the present case, the oleo resin extracted from Pine trees are moveable goods which are put to auction by the Forest Department; and the respondent-writ petitioners have, in fact, purchased oleo resin from the Forest Department. Since Oleo Pine Resin has been bought by the respondent-writ petitioners, and has been sold to them by the Forest Department, it satisfies the test of marketability ; and, since it is referred under Tariff Entry No. 13019049, it constitutes excisable goods on which excise duty can be levied under Section 3(1)(a) of the Excise Act. Inclusion of a particular 'good' in a tariff entry does not automatically render it exigible to Excise Duty - HELD THAT - Unlike oleoresins from seeds, fruits, leaves, spices, flowers or roots, which are specifically enumerated under Chapter 13, the subject goods are oleoresins extracted from the bark of oleo pine trees and, therefore, fall under other oleoresins under chapter heading 1301 90 49. Just as human effort is required for extraction of oleoresin from seeds, fruits, leaves, spices, flowers or roots, extraction of oleoresin from the bark of pine trees, as detailed hereinabove , also requires human effort and a prescribed procedure being followed. If as is contended, on behalf of the respondent-writ petitioners, oleo-resin extracted from seeds, flowers, leaves, roots etc. is a new commodity which emerges on the seeds, flowers, leaves, roots etc. being crushed, oleo resin extracted from the bark of a Pine tree is also a new commodity derived on its extraction from the stem or bark of a Pine tree. Suffice it to state that the oleo-resin extracted from all the aforesaid categories of plant-produce is a natural product which involves human effort involving employment of a scientific procedure of its extraction - The subject goods are also plant-produce extracted from the stem or the bark of a pine tree, and stand on a similar footing as oleo-resins from the aforesaid categories. Can natural products be subjected to duty under Excise Act? - HELD THAT - Agriculture production is a common and widely recognized phrase. Illustrations of Agriculture production are many. For instance horticulture production where systematic activity is carried on to produce fruits for commercial purposes, such as apple orchards. Another instance is of rubber plantations. Even in meat processing industries, production of meat is from live animals, and no new substance comes into existence - If Entries, in the three Lists of the Seventh Schedule to the Constitution of India, are to be given the widest possible meaning, there is no justification in reading the words production in a restricted sense and thereby exclude natural produce from its ambit. Reading the word produced in Entry 84 of List I in a wide manner to include natural produce would not result in its trenching upon any Entry in List II of the Seventh Schedule. We see no reason, therefore, to hold that natural produce would not amount to production of goods . This contention, urged on behalf of the respondent-writ petitioners, also necessitates rejection. Would application of ejusdem Generis rule require exclusion of oleo- Resin extracted from the pine trees from the ambit of Chapter-13 of the Tariff Act - HELD THAT - For the ejusdem generis principle to apply there must be sufficient indication of a category that can properly be described as a class or genus, even though not specified as such in the enactment - To invoke the application of the ejusdem generis rule, there must be a distinct genus or category running through the bodies already named. The specific words must apply not to different objects of a widely differing character but to something which can be called a class or kind of objects - The general words other oleo resins are broad enough to bring within its ambit all kinds of oleo resins, other than oleo resins from seeds, fruits, roots, flowers etc, and may not call for the application of the Ejusdem Generis test. Even if the ejusdem generis rule were to be applied, it would only require the general words other oleo-resins in Tariff Item No. 1301 9049 to take their colour from the earlier special words and, since the earlier special words are oleo-resin extracted from different parts of a plant , the general words other oleo-resins must, at best, be confined to plants alone. Consequently, applying the ejusdem generis rule, the words other oleo-resins in Item No. 1301 9049 would bring within its ambit oleo-resin extracted from the stem or the bark of trees (in the present case pine trees). Should a new article emerge in the case of production of goods also? - HELD THAT - While holding that the intention of the legislature, in employing the word production , was to introduce an element of volition and effort involving employment of some process of bringing into existence goods, the Supreme Court held that the assessee had not done anything towards production of the trees, and even the cutting had been done by the contractor. In the case on hand, an elaborate and well laid down process of extraction of Oleo Resin from pine trees is followed by the Forest Department. As volition and effort, involving employment of a scientific process to remove Oleo Resin from Pine trees, is involved, the Forest department must be held to have produced oleo-resin; and such production may be subjected to the levy of excise duty under Section 3(1)(a) of the Excise Act. It is declared that extraction of Oleo Resin from Pine trees, by the Forest Department of the Government of Uttarakhand, involves human endeavor and an elaborate and well laid down procedure being followed. Such extraction would amount to production of goods on which Central Excise duty, under Section 3(1)(a) of the Excise Act, can be levied - appeal allowed.

Summary

Issues Involved:
1. Entitlement of respondent-writ petitioners to question levy of excise duty on oleo-pine resin.
2. Scope of the words "manufacture" and "production" in Entry 84 of List I of the Seventh Schedule to the Constitution, and in Section 3(1)(a) of the Excise Act.
3. Inclusion of a particular "good" in a tariff entry and its exigibility to excise duty.
4. Whether natural products can be subjected to duty under the Excise Act.
5. Application of the ejusdem generis rule to exclude oleo-resin extracted from pine trees from the ambit of Chapter 13 of the Tariff Act.
6. Requirement of a new article emerging in the case of production of goods.
7. Claim of the respondent-writ petitioners for refund of the excise duty collected by the appellants.

Detailed Analysis:

1. Entitlement of Respondent-Writ Petitioners to Question Levy of Excise Duty on Oleo-Pine Resin:
The court examined whether the respondent-writ petitioners, as subsequent purchasers, had the locus standi to challenge the levy of excise duty on oleo-pine resin. It was noted that excise duty is levied on the producer (Forest Department) and passed on to the purchasers. The court held that the respondents, being aware of the excise duty at the time of auction, could not challenge the levy. The court emphasized that the liability to pay excise duty falls on the producer, and subsequent purchasers cannot question the levy on their vendors.

2. Scope of the Words "Manufacture" and "Production" in Entry 84 of List I of the Seventh Schedule to the Constitution, and in Section 3(1)(a) of the Excise Act:
The court analyzed the distinction between "manufacture" and "production," noting that "production" has a wider connotation than "manufacture." While every manufacture can be characterized as production, every production need not amount to manufacture. The court held that the extraction of oleo-resin from pine trees involves human effort and a scientific process, satisfying the definition of "production" under Section 3(1)(a) of the Excise Act.

3. Inclusion of a Particular "Good" in a Tariff Entry and Its Exigibility to Excise Duty:
The court discussed that merely being included in a tariff entry does not automatically render a good exigible to excise duty. The good must also be produced or manufactured and satisfy the test of marketability. The court found that oleo-resin extracted from pine trees is a marketable good and falls under Tariff Item No. 1301 90 49, making it subject to excise duty.

4. Whether Natural Products Can Be Subjected to Duty Under the Excise Act:
The court rejected the argument that natural products cannot be subjected to excise duty. It held that natural products, when extracted through human effort and a scientific process, can be considered "produced" goods and thus subject to excise duty. The court emphasized that reading the word "production" in a restricted sense would render several entries in the Tariff Act redundant.

5. Application of the Ejusdem Generis Rule to Exclude Oleo-Resin Extracted from Pine Trees from the Ambit of Chapter 13 of the Tariff Act:
The court applied the ejusdem generis rule, which requires general words to take their meaning from preceding specific words. It held that the term "other oleo-resins" in Tariff Item No. 1301 90 49 includes oleo-resin extracted from the bark of pine trees, as it falls within the category of plant produce.

6. Requirement of a New Article Emerging in the Case of Production of Goods:
The court clarified that while the emergence of a new article is necessary in the case of "manufacture," it is not a requirement for "production." The court held that the extraction of oleo-resin from pine trees, involving human effort and a scientific process, constitutes "production" even if no new article emerges.

7. Claim of the Respondent-Writ Petitioners for Refund of the Excise Duty Collected by the Appellants:
The court examined the respondents' claim for a refund of excise duty paid by the Forest Department. It held that the respondents could not claim a refund directly from the Central Excise Department, as the duty was paid by the Forest Department. The respondents' remedy lies in a contractual claim against the Forest Department, not under the Excise Act.

Conclusion:
The court declared that the extraction of oleo-resin from pine trees by the Forest Department involves human endeavor and a scientific process, amounting to "production" of goods subject to excise duty under Section 3(1)(a) of the Excise Act. Consequently, the appeals challenging the levy of excise duty were allowed, and the appeal for a refund of the excise duty was dismissed.