1993 (3) TMI 94 - SC - Central Excise

Whether Factory A was entitled to the benefit of rebate provided in Clause (1) of the Table contained in the notification No. 203/72 dated 28-9-1972 with respect to the said 1,000 quintals? What will be the working of Clause (2) in Notification No. 146/74 dated 12-10-1974 relating to the sugar year 1974-75? Held that - On a consideration of the rival points of view, we are of the opinion that it does take in. Holding otherwise would have this absurd consequence a factory which has produced, say, just one quintal of sugar during the relevant corresponding period and has produced 1000 quintals during October-November, 1972 would qualify for the rebate on 999 quintals while another factory which has not produced any sugar - nil production - but has produced 1000 quintals during October-November, 1972, would not qualify. How does this interpretation advance the purpose of the notification, is difficult to appreciate.We must reiterate that no factory owner would keep his factory idle during a particular period only with a view to produce sugar during the same period in the next sugar year and earn rebate in the next year. More particularly, it can not reasonably be expected that a factory-owner would deliberately keep his factory idle during the peak production period (December to April) only with a view to produce sugar during that period next year and earn rebate in such next year. It would be unrealistic to say so. Keeping in mind that the basis for these percentages is the average production of the previous five years and not the excess production. Out of 2,500 quintals produced during the said period in the current sugar year (December 1, 1974 to September 30, 1975), the average of the five previous sugar years i.e., 1000 quintals should be deducted first, which means the excess production during the current year is 1500 quintals. 7.5% of 1000 quintals is 75 quintals. On this quantity of 75 quintals, the rate of rebate as per sub-clause (a) will be ₹ 20 per quintal in the case of free sale sugar and ₹ 5 per quintal in the case of levy sugar. Next 10% of excess production means 100 quintals which would be eligible for rebate under sub-clause (b) at the rate of ₹ 40 per quintal in the case of free sale sugar and ₹ 10 per quintal in the case of levy sugar. The next 100 quintals would be eligible for rebate under sub-clause (c) at the rate of ₹ 50 per quintal in the case of free sale sugar and ₹ 14 per quintal in the case of levy sugar. Then again the next 100 quintals would be eligible for rebate under sub-clause (d) at the rate of ₹ 60 per quintal in the case of free sale sugar and ₹ 18 per quintal in the case of levy sugar. The balance of 1125 quintals would qualify for rebate under sub-clause (e) at the rate of ₹ 82 per quintal in the case of free sale sugar and ₹ 22 per quintal in the case of levy sugar. This is the interpretation and understanding contended for by Shri Ganguli and we must say that none of the counsel for the factory-owners disputed the same. It is accordingly directed that the above method shall be followed in working out clause (2) of the notification dated 12-10-1974.

Summary

Issues Involved:
1. Interpretation of notifications regarding excise duty rebates for sugar production.
2. Entitlement to rebates for factories not producing sugar during the base period.
3. Clarification of rebate calculation methods under specific clauses of the notifications.

Detailed Analysis:

1. Interpretation of Notifications Regarding Excise Duty Rebates for Sugar Production:
The Supreme Court examined the interpretation of four notifications issued by the Central Government under Rule 8(1) of the Central Excise Rules, 1944, which provided rebates in excise duty to sugar factories under certain conditions. These notifications aimed to encourage sugar factories to produce more sugar and to start production earlier in the sugar year. The notifications in question were dated 28-9-1972, 4-10-1973, 12-10-1974, and 30-9-1976.

2. Entitlement to Rebates for Factories Not Producing Sugar During the Base Period:
The Court addressed whether factories that did not produce sugar during the base period (previous sugar year) but produced sugar in the current sugar year were entitled to rebates. The key issue was whether the phrase "the quantity of sugar produced during the corresponding period" included factories with nil production in the base period. The Court concluded that the phrase did include such factories, reasoning that excluding them would lead to absurd results and would not advance the purpose of the notifications, which was to incentivize increased production and early start of operations.

3. Clarification of Rebate Calculation Methods Under Specific Clauses of the Notifications:
The Court clarified the method of calculating rebates under Clause (2) of Notification No. 146/74 dated 12-10-1974. The rebate percentages mentioned in sub-clauses (a) to (e) were to be applied to the excess production over the average production of the preceding five sugar years, not to the excess production itself. The Court provided a detailed example to illustrate the correct method of calculation, ensuring that the rebate was calculated based on the average production of the previous five years.

Conclusion:
The Supreme Court upheld the interpretation of the notifications by the majority of the High Courts, which favored the sugar factories. The Court dismissed the civil appeals except for Civil Appeal Nos. 3831-32 of 1988, which were allowed. The authorities were directed to take action in accordance with the judgment, with no order as to costs.