1980 (7) TMI 111 - HC - Central Excise

Issues Involved:
1. Interpretation of "the amount of the duty of excise payable" under Section 280ZD(1) of the Income-tax Act, 1961.
2. Classification of newsprint into different categories for the purpose of tax credit certificates.

Issue-wise Detailed Analysis:

1. Interpretation of "the amount of the duty of excise payable" under Section 280ZD(1) of the Income-tax Act, 1961:

The petitioner, a government company manufacturing newsprint and wrapper, challenged the orders of the Central Authority and the Director of Inspection, Customs, and Central Excise regarding the tax credit certificate under Section 280ZD of the Income-tax Act, 1961. The petitioner argued that the Central Authority and the Director erred in considering the exemption of duty for newsprint intended for newspaper printing. The petitioner contended that the phrase "the amount of the duty of excise payable" should denote the duty leviable under Section 3 of the Central Excises and Salt Act, irrespective of any exemption granted under Rule 8 of the rules framed under the Act.

The court clarified that for a tax credit certificate under Section 280ZD, the duty of excise must be payable on the goods cleared during the relevant financial year. If the excise duty on the goods is exempt, it cannot be considered payable. The court stated, "Section 3 and the Schedule cannot be read in isolation; they have to be read along with Section 37(2)(xvii) which empowers the Central Government to exempt any goods from the whole or any part of duty imposed by the Act." The court concluded that the Central Authority and the Director were correct in holding that no excise duty was payable on the newsprint sold to newspapers due to the exemption.

2. Classification of newsprint into different categories for the purpose of tax credit certificates:

The petitioner contended that the Central Authority and the Director should not have divided the newsprint into three categories based on its use: (i) newsprint for newspapers, (ii) newsprint used as printing and writing paper, and (iii) newsprint used as a wrapper. The petitioner argued that all newsprint manufactured should be treated as a single variety for the purpose of the tax credit certificate.

The court examined the interpretation of "any goods" or "such goods" under Section 280ZD. It reasoned that different varieties of goods should be considered separately for tax credit purposes. The court referred to the commercial understanding of goods, stating, "The test to find out whether the goods manufactured or produced by a person fall under different categories and have to be treated separately i.e. as different kinds of goods, would be to see whether in commercial sense they are understood as different goods."

The court acknowledged that the petitioner admitted the wrapper paper was thicker than other newsprint, indicating it was a different variety. However, the court found no material to justify why newsprint not sold to newspapers was treated separately. It stated, "The variety of paper does not change because of its use. If commercially newsprint sold to newspapers and newsprint sold to others were of the same variety, they have to be treated as one class of goods for purposes of calculating the amount of tax credit certificate."

The court concluded that the Central Authority and the Director did not examine whether newsprint sold to newspapers and others were commercially the same variety. Therefore, it directed the Director to re-hear and decide the appeal, considering the observations made.

Conclusion:

The petition was partly allowed. The court quashed the impugned order of the Director and directed a re-hearing of the appeal to decide in accordance with the law, considering the court's observations. There was no order as to costs, and the security amount was to be refunded to the petitioner.

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