1976 (10) TMI 36 - SC - Central Excise

Whether the agricultural implements which were manufactured in the State s Implements Factory fell within the purview of Item 26AA as they were forged or extruded during the process of manufacturing the agricultural implements? Held that - The rods and bars in question not produced or manufactured in the State Government s Implements Factory. They could not therefore be subjected to the levy of excise duty. It is true that the rods and bars were utilised for the manufacture of agricultural implements like shovels and spades, but those agricultural implements were not of the description specified in Item 26AA of the First Schedule with reference to Section 3 of the Act. Section 3 of the Act could not therefore be invoked to levy excise duty merely on the ground that the pre-excise stock of rods and bars was utilised for the purpose of manufacturing agricultural instruments. There is therefore nothing wrong with the view which has prevailed with the High Court in this respect. Appeal dismissed.

Issues:
1. Quashing of demand notice for excise duty by the State of Mysore.
2. Interpretation of newly inserted Item 26AA in the First Schedule to the Central Excises and Salt Act, 1944.
3. Application of sub-sections (1) and (1A) of Section 3 of the Act in relation to the levy of excise duty.
4. Dispute between the Government of India and the State Government under Article 131 of the Constitution.

Analysis:
1. The case involved an appeal against a demand notice issued by the Inspector of Central Excise for the payment of excise duty on iron and steel products used in the manufacture of agricultural implements by the State's Implements Factory. The State Government sought to quash the demand notice, which was based on the newly inserted Item 26AA in the Act. The High Court of Mysore had initially moved under Article 226 of the Constitution to challenge the demand, leading to subsequent appeals and revisions by the State Government against the demand notice.

2. The Central Government contended that the iron and steel products held by the State Implements Factory were "pre-excise stock" and became liable to duty when forged into agricultural implements. The dispute centered around whether the products were subject to excise duty under the newly inserted Item 26AA. The High Court rejected the contentions of the Central Government, leading to the appeal by the Union of India to challenge the quashing of the demand notice and related orders.

3. The levy of excise duty was based on sub-sections (1) and (1A) of Section 3 of the Act, which pertains to the production or manufacture of excisable goods in India. The claim for excise duty hinged on whether the iron and steel products used in manufacturing agricultural implements qualified as excisable goods. The court found that the products were not "produced or manufactured" in the State Government's Implements Factory, thereby negating the justification for levying excise duty on them.

4. The issue of a dispute between the Government of India and the State Government under Article 131 of the Constitution was raised by the Central Government. However, the High Court dismissed this contention, stating that there was no evidence of a substantial dispute between the Central and State Governments. The appeal was ultimately dismissed by the Supreme Court, upholding the decision of the High Court to quash the demand notice and related orders.

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