1996 (2) TMI 138 - SC - Central Excise

Whether the goods manufactured prior to March 1, 1978 but removed on or after March 1, 1978 are liable to pay the special duty of excise? Held that - The goods manufactured/produced before March 1, 1978 but cleared on or after March 1, 1978 are not exigible to special excise duty. At the same time, we have also expressed the view that the goods manufactured/produced on or before February 28, 1979 but cleared thereafter would be liable to pay the said duty at the rate and valuation in force as on February 28, 1979. In the light of the fact that the duty was continued from 1978 to 1986, indeed upto February 28, 1989 and also in view of the principle behind the presumption incorporated in Section 12B of the Central Excise Act inserted by the Central Excises and Customs Law (Amendment) Act, 1991 - which is but a legislative recognition of a widely accepted presumption - we think it appropriate to direct that the assessees shall not be entitled to refund of any amount collected from them by way of special excise duty on or after March 1, 1978 in respect of goods manufactured prior to the said date. Looked at from the standpoint of avoidance of multiplicity of proceedings and of unending legal quibbling also, it is desirable to give a quietus to this controversy. To avoid any discriminatory consequences, it is further directed that if any amounts are due and are yet to be recovered in respect of such goods on account of special excise duty, the same can be recovered according to law. In favour of assessee.

Issues Involved:
1. Applicability of special duty of excise on goods manufactured before March 1, 1978 but removed after that date.
2. Interpretation of Section 37 of the Finance Act, 1978.
3. Relevance of the Central Excise Act and Rules in the context of special excise duty.
4. Application of the decision in Wallace Flour Mills Company v. Collector of Central Excise.
5. Refund entitlement for special excise duty paid on goods manufactured before March 1, 1978 but removed after that date.

Issue-wise Detailed Analysis:

1. Applicability of Special Duty of Excise on Goods Manufactured Before March 1, 1978 but Removed After That Date:
The core issue was whether goods manufactured before March 1, 1978 but removed on or after that date are liable for the special duty of excise levied by Section 37 of the Finance Act, 1978. The respondent argued that since the special duty of excise is levied on manufacture or production, goods manufactured before March 1, 1978 should not be subject to this duty even if removed after this date. The Tribunal upheld this view, stating that the levy is on manufacture, not removal.

2. Interpretation of Section 37 of the Finance Act, 1978:
Section 37(1) of the Finance Act, 1978, imposed a special duty of excise equal to five percent of the central excise duty on goods. This levy was effective from March 1, 1978, to March 31, 1979. Sub-section (3) stated that this levy was in addition to other excise duties, and sub-section (4) applied the provisions of the Central Excise Act and rules to the levy and collection of this special duty. The court concluded that the special excise duty is an independent duty of excise, and its levy must be on the manufacture or production of goods, not on their removal.

3. Relevance of the Central Excise Act and Rules in the Context of Special Excise Duty:
The court analyzed the provisions of the Central Excise Act, particularly Section 3 and Rules 9 and 9A, which govern the levy and collection of excise duties. It was noted that while the levy is created by Section 3, the collection is regulated by the rules. The court emphasized that the levy remains upon manufacture or production, and the collection at the stage of removal is for administrative convenience. The goods must be "excisable goods" before their removal, meaning they must be subject to duty at the time of manufacture.

4. Application of the Decision in Wallace Flour Mills Company v. Collector of Central Excise:
The court distinguished the present case from the Wallace Flour Mills decision. In Wallace Flour Mills, the goods were excisable before March 1, 1987, even though the duty rate was nil due to an exemption. The court in Wallace Flour Mills held that the goods attracted duty at the rate prevailing on the date of removal. However, in the present case, the special excise duty was not in existence at the time of manufacture, and hence, the goods could not be subject to this duty upon their removal after March 1, 1978.

5. Refund Entitlement for Special Excise Duty Paid on Goods Manufactured Before March 1, 1978 but Removed After That Date:
The court directed that assessees are not entitled to a refund of any amount collected as special excise duty on or after March 1, 1978, for goods manufactured before that date. This decision was influenced by the principle behind Section 12B of the Central Excise Act, which presumes that the incidence of duty has been passed on to the buyer. The court aimed to avoid multiplicity of proceedings and provide a final resolution to the controversy.

Conclusion:
The appeals filed by the appellant-State were dismissed, and the appeals filed by the respondents-assessees were allowed, subject to the direction that no refunds would be granted for special excise duty collected on goods manufactured before March 1, 1978, but removed after that date. The court's decision clarified that the levy of special excise duty is on manufacture or production, not on removal, and that the provisions of the Central Excise Act and rules apply to the collection, not the levy, of this duty.

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