1983 (8) TMI 59 - HC - Central Excise

Manufacture - Connotation of - Words and phrases Copra consumed - Excise duty - Interpretation of - Direct and indirect taxes - Distinction between

Issues Involved:
1. Constitutionality of the Copra Cess Act, 1979.
2. Nature of the cess imposed under Section 3 of the Copra Cess Act, 1979.
3. Legislative competence of the Parliament to impose the cess.
4. Interpretation of "consumption" under Section 3 of the Act.
5. Historical legislative practice regarding cess on copra.
6. Definition and scope of "manufacture" and "excise" duties.
7. Relationship between consumption and manufacture.
8. Validity of the cess as a duty of excise under the Indian Constitution.

Detailed Analysis:

1. Constitutionality of the Copra Cess Act, 1979:
The petitioners argued that the Copra Cess Act, 1979 is ultra vires and beyond the competence of the Parliament. They contended that the cess imposed is a tax on consumption rather than a duty of excise, which should fall under entry 84 of List I of the 7th Schedule of the Constitution.

2. Nature of the Cess Imposed Under Section 3:
Section 3 of the Copra Cess Act, 1979 imposes a cess described as a duty of excise on copra consumed in mills for producing or manufacturing goods. The petitioners argued that the cess is imposed on the consumption of raw material (copra), not on the production or manufacture of goods, thus making it a tax on consumption rather than an excise duty.

3. Legislative Competence of the Parliament:
The petitioners contended that the cess amounts to a purchase tax or a tax on profession or trade, which falls under List II of the 7th Schedule and is within the exclusive domain of the state legislature. The respondents, however, argued that the levy is on the conversion of copra into oil or other goods, which is a process of manufacture, thus falling within the legislative competence of the Parliament.

4. Interpretation of "Consumption" Under Section 3:
The court examined whether the cess under Section 3 is imposed on the copra itself or on the manufacture of goods from copra. The court concluded that consumption of copra in a mill is an integral part of the process of manufacturing or producing goods. Therefore, the cess is not on the purchase of copra but on the process of manufacture or production caused by the consumption of copra.

5. Historical Legislative Practice Regarding Cess on Copra:
The court traced the legislative practice to the Coconut Committee Act, 1944, and the Produce Cess Act, 1966. Both Acts imposed a duty of excise on copra consumed in mills. The present Act continues this legislative practice, emphasizing consumption in a mill for producing or manufacturing goods.

6. Definition and Scope of "Manufacture" and "Excise" Duties:
The court defined "manufacture" as the production of articles from raw materials by giving them new forms, qualities, or properties. It also discussed the wide import of "excise" as an indirect tax on commodities manufactured, produced, sold, used, or transported within a country. The court emphasized that excise duties are levied on the manufacture or production of goods, not directly on the goods themselves.

7. Relationship Between Consumption and Manufacture:
The court noted that consumption of copra in a mill implies its transformation into a new product, which is an essential part of the manufacturing process. The cess is thus a measure of manufacture, and the tax is on the process of conversion or transformation caused by the consumption of copra.

8. Validity of the Cess as a Duty of Excise Under the Indian Constitution:
The court concluded that the cess imposed under Section 3 of the Copra Cess Act, 1979 is a duty of excise as it is closely related to the production or manufacture of goods. The method of quantification with reference to the raw material (copra) does not alter the nature of the tax as an excise duty. The court held that the Act is within the legislative competence of the Parliament and dismissed the petitions challenging its validity.

Conclusion:
The court dismissed the petitions, holding that the Copra Cess Act, 1979 is constitutional and within the legislative competence of the Parliament. The cess imposed under Section 3 is a valid duty of excise related to the production or manufacture of goods from copra consumed in mills. The court did not make any order as to costs.

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