1985 (7) TMI 96 - HC - Central Excise

Paints and pigments - Manufacture - Value of clearances - Classification of goods - Dutiability

Issues Involved:
1. Levy of duty on pigment slurry and nitrocellulose lacquer under Central Excises and Salt Act, 1944.
2. Validity of Section 51 of the Finance Act, 1982 and Notification dated 20-2-1982 giving retrospective effect to Rules 9 and 49 of the Central Excise Rules, 1944.
3. Applicability of Notification No. 80/80 regarding exemption from excise duty.
4. Maintainability of the petition in light of alternative remedies.

Summary:

Issue 1: Levy of duty on pigment slurry and nitrocellulose lacquer

The petitioner, a company manufacturing finished leather, garments, and shoe uppers, challenged the levy of excise duty on pigment slurry and nitrocellulose lacquer used in their manufacturing process. The pigment slurry is created by mixing pigment powders like titanium dioxide with solvents, and nitrocellulose lacquer is made by combining chemicals such as nitrocellulose and alkyds with solvents. Both products are used for captive consumption within the factory and are not sold in the market.

The court referred to several precedents, including Union of India v. Delhi Cloth Mills and South Behar Sugar Mills v. Tata Chemicals, which established that "manufacture" implies a transformation resulting in a new and different article with a distinctive name, character, or use. The court found that pigment slurry is merely a mixture of pigment powders and water, without any change in chemical properties, and thus does not constitute "manufacture" u/s 2(f) of the Act. However, nitrocellulose lacquer, being a distinct product from its ingredients, was considered a manufactured item chargeable to duty.

Issue 2: Validity of Section 51 of the Finance Act, 1982 and Notification dated 20-2-1982

The petitioner challenged the retrospective effect given to Rules 9 and 49 of the Central Excise Rules, 1944, by Section 51 of the Finance Act, 1982, and Notification dated 20-2-1982. The court found no merit in this contention, endorsing the Delhi High Court's decision in J.K. Cotton Spinning & Weaving Mills, which held that retrospective operation does not make the rule or section ultra vires. The court concluded that the rules are intra vires of the Constitution.

Issue 3: Applicability of Notification No. 80/80

The petitioner argued that under Notification No. 80/80, nitrocellulose lacquer should be exempt from excise duty as its value did not exceed Rs. 5 lacs, despite the factory's total turnover being over Rs. 20 lacs. The court agreed, stating that the total value of the finished product (leather goods) exempted from excise duty should not be considered for assessing excise duty on nitrocellulose lacquer. Therefore, the petitioner was exempt from paying duty on nitrocellulose lacquer as its production value was less than Rs. 5 lacs.

Issue 4: Maintainability of the petition

The respondents contended that the petition was not tenable due to the availability of an alternative remedy of appeal u/s 35 of the Central Excise Act. The court, referencing Hirday Narain v. Income-tax Officer, held that once a writ petition is entertained and the alternative remedy is time-barred, the petition should be maintainable. The court found the petition maintainable as the petitioner had paid excise duty under protest and challenged the validity of Section 51 of the Finance Act, 1982, which could not have been addressed in an appeal.

Conclusion:

The petition was partly allowed. The orders of the Superintendent and Assistant Collector of Central Excise were quashed, and the respondents were directed to refund the excise duty of Rs. 20,051.74p. collected from the petitioner for the year 1980. No order as to costs was made, and the outstanding security amount was to be refunded to the petitioner.

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