1981 (9) TMI 129 - HC - Central Excise

Issues Involved:
1. Determination of tax credit certificate amount: item-wise or aggregate quantity.
2. Inclusion of special excise duty in tax credit certificate calculation.

Detailed Analysis:

1. Determination of Tax Credit Certificate Amount: Item-wise or Aggregate Quantity

The primary issue was whether the tax credit certificate should be calculated based on the aggregate quantity of all varieties of paper manufactured or item-wise for each variety of paper. The court examined the relevant statutory provisions, particularly Section 280ZD of the Income Tax Act and the Tax Credit Certificate (Excise Duty on Excess Clearances) Scheme, 1965.

The court noted that the Finance Act, 1965, introduced tax credit certificates for increased production of goods, with different rates for different goods. Section 280ZD(1) specifies that a tax credit certificate is granted for an amount calculated at a rate not exceeding 25% of the excise duty payable on the excess quantum of goods cleared during the relevant financial year over the base year. The goods and rates are specified in the scheme.

The court emphasized that the First Schedule to the Central Excises and Salt Act categorizes paper under Item 17 into different sub-items (17(2), 17(3), and 17(4)), each with distinct rates of excise duty. The court held that the quantum of cash credit relief should be calculated separately for each variety of paper, as aggregating all types would be inconsistent with the statutory language and intent. The court stated, "To hold it otherwise would be doing violence to the language."

The court rejected the argument that aggregating all varieties would align with the scheme's objective to incentivize production. It concluded that each variety of paper must be considered independently for tax credit purposes, supporting its view with decisions from other courts, including Titaghur Paper Mills Co. Ltd. v. Union of India and Seshasayee Paper & Boards v. Dy. Director of Inspection.

2. Inclusion of Special Excise Duty in Tax Credit Certificate Calculation

The second issue was whether the special excise duty, equal to 20% of the total excise duty chargeable under the Central Excises and Salt Act, should be included in the tax credit certificate calculation. The court referred to the Finance Acts of 1968 and 1969, which imposed this special duty.

The court examined Section 280ZD(6)(b) of the Income Tax Act, which defines "duty of excise" as the duty leviable under the Central Excises and Salt Act. The court noted that the special excise duty was levied under the Finance Acts, not the Central Excises and Salt Act. It cited the Supreme Court's decision in Madurai Co-operative Bank Ltd. v. I.T.C., which held that a new and distinct charge introduced by a Finance Act is independent of the primary legislation.

The court found that the special excise duty, being a distinct and independent levy, could not be considered part of the excise duty under the Central Excises and Salt Act for tax credit purposes. It stated, "The special duty of excise is not duty of excise as contemplated under section 280 ZD of the Income-tax Act and therefore cannot be taken into account in the matter of granting a tax credit certificate."

The court also referred to the Delhi High Court's decision in Associated Cement Co. v. Director of Inspection, which held that special excise duty could not be included in the tax credit calculation under the Tax Credit Certificate Scheme.

Conclusion

The court allowed the appeal in part, quashing the tax credit certificates issued for the years 1968-69 and 1969-70. It directed the respondents to issue new tax credit certificates for these years, treating each item in Item 17 of the First Schedule to the Central Excises and Salt Act separately and excluding the shortfall under Item 17(3). The special excise duty was not to be considered in the tax credit calculation. The writ appeal was allowed in part, with no costs awarded.

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