1986 (4) TMI 53 - HC - Central Excise

Summary

Issues Involved:
1. Liability of excise duty on flax fabrics manufactured before the imposition of duty but cleared after the duty was re-imposed.
2. Validity of the Superintendent's letter exempting duty.
3. Applicability of Rule 9A of the Central Excise Rules.
4. Whether the goods remained excisable despite exemption.
5. Whether the doctrine of estoppel applies against the erroneous decision of the Superintendent.
6. Maintainability of the writ application without exhausting alternative remedies.
7. The point of time when excise duty becomes payable.

Detailed Analysis:

1. Liability of Excise Duty on Flax Fabrics Manufactured Before the Imposition of Duty but Cleared After the Duty was Re-imposed:
The appellant manufactured flax fabrics which were exempt from excise duty until June 17, 1977. The exemption was withdrawn on June 18, 1977, making the fabrics subject to a 15% ad valorem duty. The appellant argued that the fabrics manufactured before June 18, 1977, should remain exempt even if cleared after this date. The Assistant Collector and the Appellate Collector held that the duty was payable at the rate prevailing on the date of removal, as per Rule 9A of the Central Excise Rules. The High Court, however, held that excise duty is a tax on the manufacture or production of goods, and since the goods were manufactured during the exemption period, they should not be subject to duty imposed later.

2. Validity of the Superintendent's Letter Exempting Duty:
The Superintendent of Central Excise initially informed the appellant that the flax fabrics manufactured before June 18, 1977, were exempt from the re-imposed duty. This was later contradicted by a show cause-cum-demand notice. The Court observed that the Superintendent was not competent to issue such an exemption under Rule 8 and that his letter could not bind the Central Government.

3. Applicability of Rule 9A of the Central Excise Rules:
Rule 9A states that the rate of duty applicable is the one in force on the date of actual removal of goods from the factory. The Assistant Collector and Appellate Collector applied this rule to hold that the duty was payable at the rate prevailing on the date of removal. The High Court, however, held that this rule pertains to the mode and manner of assessment and not to the point of time when excise duty becomes payable. The Court emphasized that excise duty is levied on the manufacture or production of goods.

4. Whether the Goods Remained Excisable Despite Exemption:
The Excise Authorities argued that the goods remained excisable even during the exemption period and that the withdrawal of the exemption made the goods dutiable. The High Court disagreed, stating that goods manufactured during a period of total exemption cannot be considered taxable goods once the exemption is withdrawn.

5. Whether the Doctrine of Estoppel Applies Against the Erroneous Decision of the Superintendent:
The Excise Authorities contended that the doctrine of estoppel could not apply due to the erroneous decision of the Superintendent. The High Court agreed, noting that a wrong decision by an authority cannot bind the Central Government or prevent the levy and collection of excise duty.

6. Maintainability of the Writ Application Without Exhausting Alternative Remedies:
The Excise Authorities argued that the writ application was not maintainable as the appellant had not exhausted the alternative remedy of revision before the Central Government. The High Court did not find this argument compelling enough to dismiss the writ application.

7. The Point of Time When Excise Duty Becomes Payable:
The Court extensively discussed the point of time when excise duty becomes payable, referencing multiple High Court and Supreme Court decisions. The Court concluded that excise duty is attracted at the time of manufacture or production of goods, not at the time of their removal from the factory.

Conclusion:
The High Court allowed the appeal, setting aside the judgment and order dated March 22, 1983, and quashing the impugned order dated December 13, 1982. The Court directed the respondents to act in accordance with the law and dispose of the proceedings in light of the observations made in the judgment. The Court emphasized that excise duty is a tax on the manufacture or production of goods and that goods manufactured during an exemption period should not be subject to duty imposed later. The appeal was allowed, and the respondents were directed to issue appropriate writs. There was no order as to costs.