1988 (4) TMI 79 - HC - Central Excise

Summary

Issues Involved:
1. Taxability of "articles of hosiery" under tariff item No. 22D and later under tariff item No. 68.
2. Validity of excise duty collection from 1st March 1975 to 31st March 1980.
3. Entitlement to refund of excise duty paid during the disputed period.
4. Applicability of limitation on the refund claim.

Detailed Analysis:

1. Taxability of "articles of hosiery" under tariff item No. 22D and later under tariff item No. 68:

The petitioners, a registered partnership firm, claimed that their manufactured products, "articles of hosiery," were not liable to excise duty under the Central Excises and Salt Act, 1944, since their inception. In 1971, the Finance Act introduced tariff item No. 22D, which included "articles of ready-to-wear apparel" but expressly excluded "articles of hosiery" manufactured with the aid of power from taxability. The petitioners argued that their products continued to be immune from excise duty under this item.

In 1975, the Finance Act introduced a new tariff item No. 68, a residuary category covering "all other goods, not elsewhere specified." The petitioners contended that even after this introduction, their products remained non-excisable, as "articles of hosiery" were specifically excluded from tariff item No. 22D.

The court noted that the exclusion in item No. 22D was for goods manufactured with the aid of power, implying an exemption intent by the legislature. The court also observed that tariff item No. 68 should not be construed to override specific exemptions granted in earlier items unless explicitly stated.

2. Validity of excise duty collection from 1st March 1975 to 31st March 1980:

After the introduction of tariff item No. 68, the Central Excise Department demanded compliance from the petitioners, who subsequently paid excise duty under protest from July 1977. The court examined whether the "articles of hosiery" were dutiable under item No. 68 during this period.

The court held that the introduction of tariff item No. 68 did not intend to negate the specific exemption granted to "articles of hosiery" under item No. 22D. The general rule of statutory interpretation was applied, favoring the taxpayer when two constructions are possible. The court concluded that "articles of hosiery" were not intended to be taxed under item No. 68.

3. Entitlement to refund of excise duty paid during the disputed period:

The petitioners claimed a refund of the excise duty paid from March 1975 to March 1980, totaling Rs. 7,28,178.35P, arguing that the duty was paid under a mistake of law. The Assistant Collector and the Appellate Collector initially rejected the refund claim, asserting that the duties were correctly paid under item No. 68 until the exemption notification in June 1980.

The court disagreed, stating that the hosiery garments were not correctly classified under item No. 68 and that the duties were erroneously levied. Consequently, the court set aside the orders of the Assistant Collector and the Appellate Collector.

4. Applicability of limitation on the refund claim:

The respondents contended that the refund claim was barred by limitation. However, the court noted that the Appellate Collector had not addressed this issue in detail. The court directed the Appellate Collector to examine the limitation aspect and pass a fresh order after giving the petitioners a hearing.

Conclusion:

The court ruled in favor of the petitioners, holding that "articles of hosiery" were not dutiable under tariff item No. 68 during the disputed period. The court directed the Appellate Collector to reassess the refund claim, specifically addressing the limitation issue, and dispose of the case within six months. Each party was ordered to bear its own costs.