1982 (8) TMI 57 - HC - Central Excise

Tariff Item in the Schedule-Canons of interpretation - Assembling of cycle parts is not manufacture - Classification

Issues Involved:

1. Interpretation of the term 'cycle' under Item 35 of the First Schedule to the Central Excises and Salt Act, 1944.
2. Applicability of Item 68 to cycles in CKD (completely knocked down) condition.
3. Relevance of Brussels Trade Nomenclature in interpreting the term 'cycle'.
4. Impact of trade practices and commercial parlance on the interpretation of statutory terms.

Detailed Analysis:

Issue 1: Interpretation of the term 'cycle' under Item 35 of the First Schedule to the Central Excises and Salt Act, 1944.

The appellant contended that the term 'cycle' should include cycles despatched in CKD condition, falling within the ambit of Item 35. The department, however, argued that 'cycle' refers to a fully assembled cycle ready for use. The court noted that the term 'cycle' has not been defined in the Act. It emphasized that in the absence of a definition, the term should be understood in its popular and commercial parlance, as held in various Supreme Court decisions such as Dunlop India Ltd. v. Union of India and others and Messrs Indo International Industries v. Commissioner of Sales Tax U.P. The court concluded that a cycle despatched in CKD condition is understood by the trade as a 'cycle' and falls within Item 35.

Issue 2: Applicability of Item 68 to cycles in CKD condition.

The department took the stance that parts of cycles cleared in CKD condition should be charged under the residuary Item 68, except for rims and free wheels which fall under Item 35. The court disagreed, stating that the appellant is a manufacturer of cycles, not parts. The cycles despatched in CKD condition are complete cycles, merely unassembled for ease of transport. The court held that cycles in CKD condition should not be classified under Item 68 but under Item 35, as they are complete cycles in unassembled form.

Issue 3: Relevance of Brussels Trade Nomenclature in interpreting the term 'cycle'.

The appellant argued that according to Brussels Trade Nomenclature, goods despatched in CKD condition are treated as complete articles. The court supported this view, citing the decision in Tata Sons Ltd. v. Union of India and others, which allowed the use of Brussels Trade Nomenclature as an interpretative aid. The court concluded that cycles in CKD condition can be equated to assembled cycles, thus falling under Item 35.

Issue 4: Impact of trade practices and commercial parlance on the interpretation of statutory terms.

The court emphasized the importance of understanding terms in their commercial context, as established in decisions like Deputy Commissioner of Sales tax (Law) Board of Revenue (taxes) Ernakulam v. Messrs G.S. Pai and Co. It noted the historical and prevailing practice of despatching cycles in CKD condition for convenience and cost-efficiency. The court rejected the department's narrow interpretation, stating it ignored commercial realities and the common understanding of the trade.

Conclusion:

The court allowed the appeal, holding that cycles despatched in CKD condition fall under Item 35 of the First Schedule to the Act. It issued a writ of Mandamus restraining the respondents from demanding or collecting excise duty under Item 68 pursuant to Trade Notice No. 21/76. The judgment underscored the necessity of interpreting statutory terms in light of commercial parlance and trade practices, aligning with the broader legal principles established by higher courts.

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