1993 (12) TMI 58 - HC - Central Excise

Summary

Issues Involved:
1. Constitutionality of Notification No. 223/87-C.E., dated 22nd September 1987.
2. Classification of Small Scale Industries (SSI) based on brand name affixation.
3. Judicial review of policy objectives and methods.

Summary:

1. Constitutionality of Notification No. 223/87-C.E., dated 22nd September 1987:

The petitioners, Small Scale Industries (SSI), challenged Notification No. 223/87-C.E., which amended an earlier notification (No. 175/86-C.E.) by denying excise duty exemption to SSIs manufacturing goods for large scale units and affixing the brand name of such large scale units. The petitioners argued that the notification was unconstitutional as it discriminated between SSIs based on brand name affixation, which did not amount to manufacture.

2. Classification of Small Scale Industries (SSI) based on brand name affixation:

The respondents justified the notification by stating that it aimed to prevent large scale units from evading excise duty and to protect SSIs from unequal competition. However, the court found that the classification was arbitrary. It was held that affixing a brand name did not constitute manufacture, and thus, the distinction between SSIs affixing and not affixing brand names was unjustified. The court noted that large scale units could still avoid excise duty by purchasing unbranded goods from SSIs and later affixing their brand names.

3. Judicial review of policy objectives and methods:

The court emphasized that while the objectives of the notification (preventing duty evasion by large scale units and protecting SSIs) were not subject to judicial review, the methods to achieve these objectives could be scrutinized. The court found that the notification failed to achieve its stated objectives and created an unreasonable classification among SSIs. Consequently, the notification was deemed arbitrary and quashed.

Conclusion:

The writ application was allowed, and the impugned notification was quashed. The respondents were directed to return the duty paid by the petitioners and discharge any bank guarantees within a week from the service of the judgment. No order as to costs was made.