1964 (3) TMI 9 - HC - Central Excise

Summary

Issues Involved:
1. Legality of the excise duty demand based on the proviso to the notification.
2. Discrimination against persons starting manufacture after a certain date.
3. Interpretation of the proviso in the context of the dissolution of a partnership.

Issue-wise Detailed Analysis:

1. Legality of the Excise Duty Demand Based on the Proviso to the Notification:

The court examined the validity of the excise duty demand imposed by the Assistant Collector of Central Excise. The demand was based on a notification (G.S.R. No. 373, dated 18th March 1961, as amended by Notification No. 81/1961, Central Excise, dated 1st April 1961) which stated that a higher rate of excise duty would apply to those commencing manufacture after 1st April 1961 by acquiring power looms from a previous licensee. The petitioners argued that this proviso led to unlawful discrimination and was not justified by the Central Excises and Salt Act, 1944, which levies excise duty on the manufacture of specified goods, not on the date of commencement of manufacture. The court found this proviso to be somewhat strange and doubted its validity, as it did not see a reasonable connection between this discrimination and the object of the excise law.

2. Discrimination Against Persons Starting Manufacture After a Certain Date:

The petitioners contended that the proviso unlawfully discriminated against those starting manufacture after 1st April 1961, as they were required to pay a higher rate of excise duty compared to those who started earlier. The court noted that the proviso indeed created a discriminatory situation where a person acquiring power looms from a previous licensee after the specified date had to pay a higher rate. The court expressed doubts about the validity of this proviso but did not arrive at a definitive conclusion on this matter, as the petitioners' counsel did not argue this point extensively, nor did the Department provide sufficient justification for the discrimination.

3. Interpretation of the Proviso in the Context of the Dissolution of a Partnership:

The court examined whether the petitioners, who were previously partners in a business and later operated individually, fell within the scope of the proviso. The Department argued that the petitioners acquired 10 looms each from the partnership, thereby triggering the higher rate of duty. However, the court found that the previous license was issued not to the partnership firm but jointly to the two brothers as individuals. Consequently, the court concluded that there was no transfer of assets from one entity to another; rather, it was a division of jointly owned assets. The court held that the proviso could not apply in this context, as the firm was not a "person" under the Central Excise Act and rules. Therefore, the demand made by the Department was not justified.

Conclusion:

The court quashed the orders of the Assistant Collector of Central Excise, finding that the application of the proviso was erroneous in law. The court did not impose any costs.