1985 (3) TMI 62 - SC - Central Excise

Whether the plywood manufactured by the Respondent and utilised by the respondent in manufacturing plywood circles to be used as component parts of packing material for wires and cables is exigible to excise duty under the Central Excises and Salt Act, 1944? Held that - Item 16B makes it clear that plywood in sheets, blocks, boards or the like attracts excise duty. A special provision by way of exception is made only in the case of plywood for tea-chests when cut to size in panels or shooks and packed in sets. The provision in Item 16B that plywood in sheets, blocks and board or the like, which attracts duty is indeed in very broad terms and the expression like does necessarily include circles. There is nothing to indicate in this item that plywood must be trimmed or sanded. Plywood is manufactured as soon as it comes out of the press, though the same may not be trimmed or sanded out of which circles are to be produced. There is nothing to indicate that plywood in panel stage, not trimmed and not sanded, is not known in the market as plywood. Plywood when it comes out of the press at the panel stage, therefore, clearly falls within Item 16B of the First Schedule, and the authorities concerned were, therefore, justified in seeking to levy duty on plywood at the panel stage. We are, therefore, of the opinion that the High Court was in error in allowing the writ petition and in quashing the said two Notices. We must, therefore, allow the appeal and set aside the judgment of the High Court holding that the two notices issued which were quashed by the High Court, are valid and lawful.

Issues Involved:
1. Stage at which excise duty becomes leviable on plywood.
2. Interpretation of Item 16B of the First Schedule under the Central Excises and Salt Act, 1944.
3. Definition and scope of 'manufacture' under the Act.
4. Validity of the notices issued by the Excise Authorities.
5. Prospective application of the judgment.

Detailed Analysis:

1. Stage at which excise duty becomes leviable on plywood:
The primary issue was whether the plywood manufactured by the respondent and used to produce plywood circles for packing materials is exigible to excise duty at the panel stage or the finished circles stage. The Excise Authorities contended that plywood becomes dutiable at the panel stage when it comes out of the press, whereas the respondent argued that duty should be levied when the plywood leaves the factory as finished circles. The Supreme Court held that plywood is manufactured and becomes exigible to duty as soon as it comes out of the press in sheets, blocks, or boards, even if not trimmed or sanded.

2. Interpretation of Item 16B of the First Schedule under the Central Excises and Salt Act, 1944:
Item 16B was crucial in determining the issue. The Division Bench of the High Court had held that plywood for tea-chests, when cut to size in panels or shooks and packed in sets, is excisable at 10% ad valorem, and all other plywood is excisable at 15% ad valorem. The Supreme Court disagreed with the High Court's interpretation, stating that the main provision in Item 16B indicates that plywood is liable to excise duty whether in sheets, blocks, boards, or the like. The Court emphasized that the exceptional provision for tea-chests does not imply that plywood in other forms, such as circles, should not be assessed at the panel stage.

3. Definition and scope of 'manufacture' under the Act:
The term 'manufacture' as defined in Section 2(f) of the Act includes any process incidental or ancillary to the completion of a manufactured product. The Supreme Court noted that whether cutting plywood blocks into circles constitutes a manufacturing process is debatable. However, it concluded that plywood is manufactured as soon as it comes out of the press, and the subsequent cutting into circles does not alter its status as a manufactured product for excise duty purposes.

4. Validity of the notices issued by the Excise Authorities:
The notices issued by the Range Officer, directing the respondent to furnish the area of plywood at the panel stage and stating that duty would be assessed at this stage, were challenged by the respondent. The High Court had quashed these notices, but the Supreme Court held that the notices were valid and lawful. The Court found that the Excise Authorities were justified in seeking to levy duty on plywood at the panel stage, as supported by the provisions of Item 16B and the definition of 'manufacture' under the Act.

5. Prospective application of the judgment:
The Supreme Court expressed concern about the potential hardship to the respondent firm, a small-scale industry, if the judgment were applied retrospectively. Given the long lapse of time and the previous mode of assessment adopted by the Excise Authorities, the Court decided that the judgment should be applied prospectively. The Court noted that this approach would prevent undue hardship to the respondent while recognizing the legal correctness of the notices issued by the Excise Authorities. The Union of India agreed with this prospective application.

Conclusion:
The Supreme Court allowed the appeal, set aside the judgment of the High Court, and held that the notices issued by the Excise Authorities were valid. However, to prevent undue hardship to the respondent, the Court directed that the judgment should be applied prospectively from the date of the judgment, not retrospectively. This decision balanced the legal principles involved with the practical implications for the respondent firm.

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