1983 (7) TMI 58 - HC - Central Excise

Summary

Issues Involved:
1. Interpretation of the Exemption Notification dated 1st March 1979 under Rule 8 of the Central Excise Rules, 1944.
2. Method of calculating assessable value and excise duty on cigarettes.
3. Applicability and benefit of the Exemption Notification to cigarette manufacturers.
4. Validity of the demand for short payment of excise duty.
5. Relevance of the Appellate Collector's order in a similar case (Golden Tobacco Company).
6. Jurisdiction and propriety of the writ petition without availing the appeal process.

Issue-wise Detailed Analysis:

1. Interpretation of the Exemption Notification dated 1st March 1979 under Rule 8 of the Central Excise Rules, 1944:
The Exemption Notification issued on 1st March 1979 exempted cigarettes from so much of the duty of excise leviable thereon as was in excess of the duty specified in the notification, provided certain conditions were met. The proviso specified that if cigarettes were manufactured from unmanufactured tobacco on which duty had already been paid before 28th February 1979, the excise duty on such cigarettes would be reduced by Rs. 5.50 per thousand cigarettes. The court emphasized that this notification was intended to confer a benefit upon the cigarette manufacturer.

2. Method of calculating assessable value and excise duty on cigarettes:
The respondents suggested a method of calculation that artificially raised the price of the cigarettes by reducing the excise component and increasing the assessable value. The court found this method improper, stating that the excise component should remain constant, and the assessable value should not be altered. The correct method was to calculate the excise duty based on the original assessable value and then apply the exemption.

3. Applicability and benefit of the Exemption Notification to cigarette manufacturers:
The court held that the benefit of the exemption was intended for the manufacturer who used unmanufactured tobacco on which the appropriate duty had been paid. The impugned order's interpretation, which resulted in a higher liability for the manufacturer, was contrary to the notification's intent. The notification should not be interpreted in a way that deprives the manufacturer of the intended benefit.

4. Validity of the demand for short payment of excise duty:
The demand for short payment of Rs. 21,69,704.07 was based on the incorrect method of calculation suggested by the respondents. The court found that the petitioners' method of calculation, which was supported by an earlier appellate order, was correct. Therefore, the demand for short payment was invalid.

5. Relevance of the Appellate Collector's order in a similar case (Golden Tobacco Company):
The petitioners relied on an order of the Appellate Collector of Central Excise, Bombay, dated 24th September 1979, which supported their method of calculation. The 2nd respondent had dismissed this order, stating that the department was considering a review. The court found the Appellate Collector's order to be correct and relevant, emphasizing that the government could have directly reduced the duty rates if that was the intention, instead of providing a relief through the notification.

6. Jurisdiction and propriety of the writ petition without availing the appeal process:
The respondents argued that the petitioners had rushed to court without availing the appeal process. The court noted that given the 2nd respondent's view and his dismissal of the Appellate Collector's order, it was understandable that the petitioners chose to approach the writ court directly. The court decided the petition on the fundamental question, making it unnecessary to address subsidiary points.

Conclusion:
The petition was made absolute in terms of prayers (a) and (b), with costs. The court ruled in favor of the petitioners, finding that the correct method of calculation should not artificially raise the price of cigarettes and that the benefit of the exemption notification was intended for the cigarette manufacturer. The demand for short payment of excise duty was invalid, and the petitioners were justified in approaching the writ court directly.