1976 (11) TMI 127 - HC - Central Excise

Aerated waters - Whether containing blended flavouring concentrate - Interpretation of taxing statute - Concentrate and Essence

Summary

Issues Involved: Jurisdiction, Material Evidence, Natural Justice, Interpretation of Terms, Validity of Demand Notices.

1. Jurisdiction:
The petitioners challenged the jurisdiction of the Assistant Collector of Central Excise in passing the order dated 31-5-1973. The court found that the Assistant Collector's conclusion that essences used by the petitioners were deemed to be blended flavouring concentrates was based on no material evidence, making the order arbitrary and perverse. The order was thus passed without proper jurisdiction.

2. Material Evidence:
The Assistant Collector's decision was based on the report of the Chemical Analyser, which concluded that the samples contained blended flavouring concentrates. However, the court noted that the Assistant Collector did not provide the petitioners with the methodology or work sheets used in the analysis, nor did he give them an opportunity to contest the findings. This lack of evidence and transparency rendered the decision arbitrary.

3. Natural Justice:
The court emphasized that the principles of natural justice were not followed. The petitioners were not given an opportunity to be heard or to contest the test report before the impugned order was passed. The court held that before passing such an order, the petitioners were entitled to the material on which the report was based, including the method of analysis and work sheets, to enable them to meet the same.

4. Interpretation of Terms:
The central issue was whether synthetic essences used by the petitioners could be considered as blended flavouring concentrates under the notification. The court examined affidavits from experts and standard texts to conclude that essences and concentrates are distinct both in trade and scientific terms. The court held that synthetic essences used by the petitioners do not fall under the term blended flavouring concentrates, thus qualifying for the exemption and attracting only 10% ad valorem duty.

5. Validity of Demand Notices:
The demand notices issued under Rule 10 of the Central Excise Rules were challenged for being issued without a show cause notice. The court held that such notices are invalid if issued without complying with the procedural requirements of issuing a show cause notice first. Consequently, the demand notices were set aside.

Conclusion:
The court ruled in favor of the petitioners, setting aside the impugned orders and demand notices. The petitioners were entitled to the exemption and liable for excise duty at 10% ad valorem. The respondents were ordered to refund the excess duty paid and to discharge any bank guarantees given by the petitioners. The order regarding the refund and discharge of bank guarantees was stayed for eight weeks.