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Issues Involved:
1. Entitlement to tax credit certificate for newsprint exempt from excise duty. 2. Classification of newsprint into different categories for tax credit calculation. Issue-Wise Detailed Analysis: 1. Entitlement to tax credit certificate for newsprint exempt from excise duty: The petitioner, a government company manufacturing newsprint and wrapper, applied for a tax credit certificate under Section 280ZD of the Income Tax Act, 1961. The Central authority granted a tax credit certificate for Rs. 5,774, which was upheld on appeal. The petitioner challenged these orders under Article 226 of the Constitution. Section 280ZD provides for the grant of a tax credit certificate in relation to increased production of certain goods, calculated at a rate not exceeding 25% of the excise duty payable on the excess quantum of goods cleared beyond the base year (1964-65). The petitioner contended that the Central authority and the director erred by considering the exemption of duty on newsprint intended for newspapers. The petitioner argued that "the amount of the duty of excise payable" should denote the duty leviable under Section 3 of the Central Excises and Salt Act, 1944, irrespective of the exemption granted under Rule 8. The court held that for a tax credit certificate under Section 280ZD, the excise duty must be payable on the goods cleared during the relevant financial year. If the excise duty is exempt, it cannot be considered payable. The court stated that Section 3 and the Schedule of the Central Excises and Salt Act must be read along with Section 37(2)(xvii), which empowers the Central Government to exempt goods from duty. The court concluded that the duty exempted under Rule 8 ceases to be leviable or payable, aligning with the Madras High Court's view in Seshasayee Paper & Boards Ltd. v. Dy. Director of Inspection, Customs and Central Excise. Therefore, the Central authority and the director were correct in holding that no excise duty was payable on newsprint sold to newspapers, and the petitioner was not entitled to a tax credit certificate for this category. 2. Classification of newsprint into different categories for tax credit calculation: The Central authority divided the newsprint cleared by the petitioner into three categories: (i) newsprint for newspapers, (ii) newsprint used as printing and writing paper, and (iii) newsprint used as wrapper. The petitioner argued that the newsprint, regardless of its use, should be treated as one variety for tax credit purposes. The court noted that the words "any goods" or "such goods" in Section 280ZD are not defined, but different varieties of goods should be considered separately for tax credit certificates. The distinction should be based on whether, in a commercial sense, the goods are understood as different. The court referred to the Calcutta High Court's decision in Union of India v. Titaghur Paper Mills Co., which stated that different varieties of paper cannot be considered the same goods as they are distinct in the market. The petitioner admitted that the paper manufactured for use as a wrapper is thicker than other newsprint. The court concluded that the wrapper is a different variety of paper. However, the court found no material to justify treating newsprint not sold to newspapers separately. The variety of paper does not change based on its use. If commercially, newsprint sold to newspapers and others is of the same variety, they should be treated as one class of goods for tax credit calculation. The Central authority and the director did not examine this aspect, necessitating a remand to the director for reconsideration. Conclusion: The petition was partly allowed. The court quashed the director's order and directed a rehearing and decision of the appeal in accordance with the law and the observations made. No order as to costs was issued, and the security amount was ordered to be refunded to the petitioner.
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