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1987 (2) TMI 91
The Tribunal's order for the assessment years 1978-79 and 1979-80 did not decide ground No. 1 for the year 1979-80. The Tribunal corrected the order, allowing the appeal for the year 1979-80. The standard deduction from the wife's remuneration should not be included in the assessee's income under section 64(1)(ii) of the IT Act. The Tribunal allowed the appeal for the assessment year 1979-80.
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1987 (2) TMI 90
Issues:
1. Whether the amount received from insurance policies on the death of a minor can be subjected to levy under the Estate Duty Act, 1953.
Detailed Analysis:
The deceased, a minor, passed away, and the insurance company paid a sum of Rs. 1,57,440 to the father, who was the proposer of the policies. The Assistant Controller examined sections 5, 6, and 7 of the Act to determine the applicability of estate duty. It was concluded that there was no passing of property under section 5, the deceased was not competent to dispose of the property as a minor under section 6, but the case fell under the provisions of Section 7 as the deceased had an interest in the policy money, which ceased on his death due to the policies being assured in his name.
The Assistant Controller treated the amount as a separate estate under section 34(3) of the Act, a decision upheld by the Controller, leading to the appeal before the Tribunal. The arguments presented highlighted that the ownership of the policies vested in the father until the deceased reached 18 years of age, and in case of the assured's death before attaining majority, the proceeds were to be considered as the estate of the proposer.
The Tribunal examined the terms of the policies and the endorsement, emphasizing that the policies vested in the proposer until the deceased reached 18 years of age. The Tribunal considered a letter from the LIC confirming the terms of the policies, stating that the deceased never became the owner of the policies as he died before attaining majority. The Tribunal concluded that no property passed on the deceased's death since he did not become the owner of the policies.
The Tribunal analyzed the provisions of section 7 of the Act, which deemed property to pass on the deceased's death if an interest ceased, determining that the deceased had no interest in the policies that could be said to cease on his death. The Tribunal also referenced special clauses attached to the policies, indicating that the deceased had no interest until he reached majority, which he did not. Therefore, the amount received by the father from the insurance policies was not taxable as a separate estate in the deceased's hands.
In conclusion, the Tribunal allowed the appeal, ruling that the amount received from the insurance policies on the death of the minor was not subject to levy under the Estate Duty Act, 1953.
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1987 (2) TMI 89
Issues Involved:
1. Validity of reopening assessment under Section 8(b) of the Companies (Profits) Surtax Act, 1964.
2. Computation of capital base for statutory deduction under Section 2(8) of the Act.
3. Treatment of development rebate reserve and issuance of bonus shares.
Issue-wise Detailed Analysis:
1. Validity of Reopening Assessment under Section 8(b):
The core issue revolves around whether the STO was justified in reopening the assessment under Section 8(b) based on an internal audit report. The assessee argued that all relevant materials were presented during the original assessment, and the reopening was merely a change of opinion. The STO, however, justified the reopening by citing new information received from an internal audit report, which referenced the decision in CIT v. Zenith Steel Pipes Ltd. (1978) 112 ITR 215 (Bom.). The Tribunal, however, noted that the decision in Zenith Steel Pipes Ltd. pertained to excess depreciation reserves, not development rebate reserves, and thus did not constitute 'information' under Section 8(b). Additionally, the Tribunal found that the STO's reliance on the decision in CIT v. Sundaram Clayton Ltd. (1983) 140 ITR 235 (Mad.) was misplaced, as it was rendered after the STO initiated the proceedings. Consequently, the Tribunal held that the STO was not justified in reopening the assessment under Section 8(b).
2. Computation of Capital Base for Statutory Deduction under Section 2(8):
The STO initially computed the net chargeable profits and capital base, including a deduction for proposed dividends and treating certain reserves as liabilities. The assessee contended that the capital base should include the proportionate increase due to the issuance of bonus shares and that the development rebate reserve should not be deducted from the general reserve. The Commissioner (Appeals) initially accepted the assessee's computation but did not rule on the validity of the reopening. The Tribunal directed the Commissioner (Appeals) to reconsider the matter, including the applicability of CIT v. Century Spinning & Mfg. Co. Ltd. (1978) 111 ITR 6 (Bom.). Upon review, the Tribunal found that the original computation by the STO was flawed and that the assessee's approach, supported by the CBDT Circular No. 53 (F. No. 7/2/68-TPL) dated 11-1-1971, was correct.
3. Treatment of Development Rebate Reserve and Issuance of Bonus Shares:
The STO reduced the general reserve by the amount of excess development rebate reserve and the issuance of bonus shares. The assessee argued that the excess development rebate reserve should be treated as 'other reserves' for computing the capital base, as per the CBDT Circular No. 53. The Tribunal agreed with the assessee, noting that the circular was binding and that the development rebate reserve in excess of statutory requirements should be included in the capital base. Furthermore, the Tribunal accepted the assessee's argument that the issuance of bonus shares, decided after the first day of the previous year, should not result in a reduction of the general reserve, citing CIT v. New Swadeshi Sugar Mills Ltd. (1985) 151 ITR 220 (Bom.).
Conclusion:
The Tribunal concluded that the STO was not justified in reopening the assessment under Section 8(b) and that the original computation of the capital base by the STO was incorrect. The Tribunal set aside the orders of the surtax authorities and allowed the appeal, thereby accepting the assessee's computation of the capital base and treatment of reserves.
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1987 (2) TMI 88
Issues:
1. Interpretation of section 29A(b) of the Estate Duty Act regarding exemption of superannuation fund amount.
2. Determination of estate duty exemption on the balance amount of superannuation fund beyond Rs. 15,000.
Analysis:
The judgment involves a challenge to the action of the CED(A) regarding the exemption of a superannuation fund amount under section 29A(b) of the Estate Duty Act. The deceased was a member of an approved superannuation fund, and the accountable person claimed an exemption of Rs. 29,463 from the fund. The CED(A) allowed an exemption of only Rs. 15,000, citing section 29A(b). The tribunal examined the legislative intent behind section 29A, introduced in 1965, to exempt amounts received from approved superannuation funds from estate duty. The tribunal highlighted that payments from such funds are not liable to income tax or wealth tax, except under specific circumstances.
The tribunal analyzed the provisions of section 29A(b) and emphasized that the exemption limit is Rs. 15,000 per annum for annuities or pensions from approved superannuation funds. The tribunal clarified that the employer contributes to the fund, and the purpose is to provide annuities to employees or their dependents. The judgment highlighted relevant clauses of the Income-tax Act and Rules regarding superannuation funds, emphasizing the nature and tax treatment of such funds.
Moreover, the tribunal referred to provisions in the Income-tax Act and Wealth-tax Act to demonstrate that amounts from approved superannuation funds are generally exempt from tax. The tribunal interpreted section 29A(b) to explain that the exemption applies to the amount received by legal heirs, subject to the annual limit. The judgment provided examples to illustrate the application of the exemption based on lump sum payments or installment payments over time.
However, the tribunal noted that neither the CED(A) nor the lower authorities had examined the terms of the specific superannuation fund in question to determine the payment structure to legal heirs. Therefore, the tribunal directed the matter to be sent back to the Assistant Controller for further examination of the fund's scheme. The tribunal clarified that this decision should not affect the relief already granted by the CED(A) and instructed the Assistant Controller to decide on the exemption for the balance amount exceeding Rs. 15,000.
In conclusion, the tribunal allowed the appeal, subject to the directions provided for reevaluation of the exemption on the remaining amount of the superannuation fund beyond the initial Rs. 15,000 exemption granted by the CED(A).
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1987 (2) TMI 87
Issues Involved:
1. Addition of interest under Section 2(24)(iv) of the IT Act.
2. Disallowance of claim of interest under Section 57(iii) of the IT Act.
3. Levy of interest under Section 215 of the IT Act.
Issue-wise Detailed Analysis:
1. Addition of Interest under Section 2(24)(iv) of the IT Act:
The primary issue was whether the amounts outstanding for the purchase of shares, bonds, and undertakings from subsidiaries should be considered loans, and whether the non-payment or lower payment of interest constituted a taxable benefit under Section 2(24)(iv) of the IT Act.
- The assessee argued that these were not loans but outstanding balances for asset purchases, and that the transactions were fair market value transactions between a parent company and its fully owned subsidiaries, thus no profit or loss should be considered.
- The ITO had added the difference between the market rate of interest (18%) and the actual interest paid (0% or 11%) to the assessee's income, which was reduced by the CIT (Appeals) to a 12% rate.
- The assessee contended that the word 'person' in Section 2(24)(iv) applies only to natural persons, not companies, and that the benefit was already included in the returned income, thus adding it again would result in double taxation.
- The revenue argued that saving interest is equivalent to receiving it, citing various case laws to support that the deferred payment was equivalent to a loan and non-payment of interest was a benefit.
Judgment:
The Tribunal held that the price paid for the assets included both the amount payable and the interest factor, and since the price was reasonable, the interest must be considered to have been included and paid to the subsidiaries. Therefore, the addition of interest to the assessee's income was cancelled. The Tribunal did not find it necessary to address the legal submissions regarding the interpretation of Section 2(24)(iv) as the inclusion of interest in the price was deemed a complete answer to the revenue's case.
2. Disallowance of Claim of Interest under Section 57(iii) of the IT Act:
The second issue was the disallowance of the assessee's claim for interest on borrowings under Section 57(iii) of the IT Act.
- The assessee had borrowed money for investments in past years, and although the investments changed over time, the borrowings continued.
- The ITO disallowed the claim on the ground that there was no connection between the borrowings and the current investments.
- The CIT (Appeals) confirmed the ITO's order, maintaining that the expenditure could not be said to be for the purpose of earning income from the current investments.
Judgment:
The Tribunal noted that Section 57(iii) refers to 'income from other sources' and that the continuity of borrowing and the kind of income were the relevant considerations. The Tribunal held that the connection between the original borrowings and the present investments was sufficient, even if indirect, and allowed the deduction of the interest amount. The Tribunal relied on various case laws, including the Supreme Court's decision in Seth R. Dalmia and the Gujarat High Court's decision in Kasturbhai Lalbhai, to support this conclusion.
3. Levy of Interest under Section 215 of the IT Act:
The final issue was the levy of interest under Section 215 of the IT Act due to the additions made by the ITO.
- The CIT (Appeals) upheld the levy but reduced the interest because of partial relief given regarding the addition of interest under Section 2(24)(iv).
- The assessee contended that it could not have reasonably foreseen the additions, citing the Gujarat High Court's decision in Bharat Machinery & Hardware Mart.
Judgment:
The Tribunal found that the principles laid down in the Bharat Machinery & Hardware Mart case were applicable and that the assessee could not have reasonably foreseen the additions. Since both the additions were deleted, the interest under Section 215 could not be charged. Therefore, this ground was also allowed.
Final Outcome:
The appeal was allowed in favor of the assessee, cancelling the additions and the levy of interest.
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1987 (2) TMI 86
Issues Involved:
1. Validity of the grounds of appeal raised by the revenue.
2. Assessment of professional income and the associated penalties under section 271(1)(c) of the IT Act.
3. Evaluation of the evidence and the credibility of the assessee's claims regarding professional income and expenses.
4. Application of the "Explanation" to section 271(1)(c) and the concept of "concealment" of income.
Detailed Analysis:
Issue 1: Validity of the Grounds of Appeal Raised by the Revenue
The initial objection raised by the learned Advocate General was that the grounds of appeal by the revenue did not clearly articulate their grievance. Specifically, ground No. 3 was criticized for being a "jumbled array of words without any meaning whatsoever." However, it was accepted that ground No. 1 was sufficiently broad to cover all issues related to the imposition and deletion of the penalty.
Issue 2: Assessment of Professional Income and Associated Penalties Under Section 271(1)(c) of the IT Act
The assessee, an Advocate of the Gujarat High Court, initially filed a return showing professional income of Rs. 18,600. However, the ITO assessed the professional income at Rs. 96,000, later revised to Rs. 51,000 after re-examination. The CIT(A) provided relief by deleting an addition of Rs. 5,000 and recognizing Rs. 13,000 as reimbursement of expenditure. The ITO issued a show-cause notice under section 271(1)(c) for concealment of income, which was contested by the assessee, leading to a penalty of Rs. 14,400.
Issue 3: Evaluation of the Evidence and Credibility of the Assessee's Claims
The ITO's assessment was based on a diary seized during a raid, containing details of receipts linked to the assessee's professional income. The assessee's claims of expenditure (Rs. 22,050 on hotel bills and Rs. 4,500 paid to a Junior Counsel) were not substantiated with proper evidence. The CIT(A) deleted the penalty, accepting the principle that both receipts and expenditure sides of the diary should be considered. However, the Tribunal found the assessee's explanations inconsistent and lacking credibility, particularly regarding the characterization of gross receipts and net receipts.
Issue 4: Application of the "Explanation" to Section 271(1)(c) and the Concept of "Concealment" of Income
The Tribunal held that the "Explanation" to section 271(1)(c) applied, as the returned income was less than 80% of the assessed income. The onus was on the assessee to prove that the failure to file the correct income did not arise from fraud or gross or willful neglect. The Tribunal found that the assessee failed to rebut the presumption of concealment, with explanations that were contradictory and unsupported by evidence. The Tribunal concluded that the expenditure claimed was not bona fide but bogus, and upheld the penalty.
Conclusion:
The Tribunal reversed the order of the CIT(A) and confirmed the levy of penalty, finding that the revenue had conclusively proved the charge of concealment. The appeal by the revenue was allowed.
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1987 (2) TMI 85
Issues Involved:
1. Whether packing of manufactured goods can be considered a process incidental or ancillary to manufacture.
2. The applicability of Section 4(4)(d)(i) of the Central Excises and Salt Act to the case.
3. The relevance of marketability as a criterion for determining the completion of manufacture.
4. The applicability of the Madras High Court judgment versus the Supreme Court judgment in the context of the case.
Detailed Analysis:
1. Whether Packing of Manufactured Goods Can Be Considered a Process Incidental or Ancillary to Manufacture
The core issue referred to the larger bench was whether the packing of manufactured goods is a process incidental or ancillary to the manufacture itself, making the manufacture incomplete without such packing. The Appellant argued that fertilisers are available in the market only in packed condition, and thus, packing should be considered part of the manufacturing process as per Section 2(f) of the Central Excises and Salt Act. The Tribunal noted conflicting judgments on this issue from various High Courts and the Tribunal itself.
The Tribunal referenced several cases where it was held that packing is incidental or ancillary to manufacture, such as:
- Collector of Central Excise, Calcutta v. Kanoria Jute Mills (1984 (17) E.L.T. 455)
- Collector of Central Excise, Indore v. M/s. Orient Paper & Industries (1984 (18) E.L.T. 88)
- M/s. Hindustan Lever Ltd. v. Collector of Central Excise (1984 ECR 1662)
- Ahmedabad Manufacturing and Calico Printing Ltd. v. Union of India (1982 E.L.T. 821)
Conversely, other judgments held that packing is not part of the manufacturing process:
- M/s. E.I.D. Parry Ltd. v. Union of India (1978 E.L.T. 18)
- Orissa Industries v. U.O.I. (1979 E.L.T. 457)
- Alembic Glass Industries v. U.O.I. (1979 E.L.T. 461)
- Seshasayee Paper & Boards v. Appellate Collector (1984 (15) E.L.T. 3)
- Bhadrachalam Paper Boards v. Collector of Central Excise (1984 (18) E.L.T. 229)
The Tribunal concluded that packing does not enter into the character of the fertiliser and, therefore, cannot be considered a process incidental or ancillary to manufacture. The statutory requirement for packing under the Fertiliser Control Order is for preventing adulteration and contamination, not for defining the manufacturing process under the Central Excise Law.
2. The Applicability of Section 4(4)(d)(i) of the Central Excises and Salt Act to the Case
The Appellant argued that under Section 4(4)(d)(i) of the Act, the value of the goods is deemed to be the value of the goods delivered at the time of removal from the factory in a packed condition. However, the Tribunal noted that this provision came into existence in 1975 and could not be applied retroactively to the facts of the present case, where the duty was paid in 1969.
3. The Relevance of Marketability as a Criterion for Determining the Completion of Manufacture
The Assistant Collector had rejected the refund application by referring to the Supreme Court judgment in the matter of Delhi Cloth Mills, which held that marketability is a criterion for the definition of goods under the Central Excise Act. However, the Tribunal noted that the goods in question were marketable in their loose condition as of 28-2-1969, and no trade opinion was provided to prove otherwise. The statutory requirement for packing under the Fertiliser Control Order did not limit or define the manufacture under the Central Excise Law.
4. The Applicability of the Madras High Court Judgment Versus the Supreme Court Judgment in the Context of the Case
The Tribunal observed that the Madras High Court's judgment in E.I.D. Parry Limited and Another v. Union of India (1978 E.L.T. J 19) squarely covered the facts of this case and should be followed in the absence of any contrary judgment. The judgment considered similar circumstances and was delivered after the Supreme Court judgment in DCM.
Conclusion:
The Tribunal concluded that the manufacture of fertilisers was complete even before packing, and the statutory requirement for packing under the Fertiliser Control Order did not make packing a part of the manufacturing process under the Central Excise Law. The appeal was dismissed, and the judgment of the Madras High Court was followed.
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1987 (2) TMI 84
Issues Involved:
1. Whether packing materials (paper tubes, corrugated paper discs, and cardboard boxes) are considered 'inputs' under Notification No. 201/79-C.E.
2. Interpretation of the term 'used in the manufacture' in the context of Notification No. 201/79-C.E.
Detailed Analysis:
1. Whether packing materials (paper tubes, corrugated paper discs, and cardboard boxes) are considered 'inputs' under Notification No. 201/79-C.E.:
The appellants manufacture rayon tyre yarn cord, which is wound on paper tubes and secured with corrugated paper discs to prevent collapse. These are then placed in cardboard boxes. The appellants claimed that these packing materials should be considered 'inputs' under Notification No. 201/79-C.E., allowing them to set off the duty paid on these materials against the duty payable on the final product.
The Assistant Collector of Central Excise disallowed the claim, stating that these packing materials were not essential ingredients in the manufacture of rayon tyre yarn and cord. The Appellate Collector upheld this decision, arguing that the use of goods "in connection with manufacture" does not equate to use "in the manufacture."
The appellants contended that the cost of packing was included in the assessable value of the goods, and hence, the packing materials should be considered as 'inputs.' However, they failed to provide evidence that these materials met the criteria laid down in the notification and constituted goods used in a process ancillary or incidental to the manufacture of finished excisable products.
2. Interpretation of the term 'used in the manufacture' in the context of Notification No. 201/79-C.E.:
The core issue was whether packing materials could be considered as 'used in the manufacture' of the finished goods. The appellants argued that the materials used for packing were 'inputs' under the notification. They relied on several case laws, including 'Union of India v. Bombay Tyre International,' 'Union of India & Others v. Godfrey Phillips India Ltd.,' and others, to support their argument.
The respondents argued that packing materials could not be considered as 'inputs' for the purpose of the notification. They cited the Supreme Court's judgment in 'J.K. Cotton Spinning and Weaving Mills Ltd. v. Sales Tax Officer, Kanpur,' which examined the term 'manufacture' in the context of the Sales Tax Act, not the Central Excises and Salt Act, 1944.
The Tribunal noted that the Supreme Court's observations in 'Union of India v. Bombay Tyre International' and 'Union of India & Others v. Godfrey Phillips India Ltd.' were related to valuation and not directly applicable to the issue at hand. Similarly, the Tribunal's order in 'CCE, Calcutta v. M/s. Union Carbide India Ltd.' and the Supreme Court's order in 'Assistant Collector of Central Excise and Others v. Madras Rubber Factory and Others' dealt with valuation and were not applicable to the present case.
The Tribunal referred to the Supreme Court's judgment in 'J.K. Cotton Spinning and Weaving Mills Ltd. v. Sales Tax Officer, Kanpur,' which examined the expression 'in the manufacture of goods' within the meaning of Section 8(3)(d) read with Rule 13 of the Central Sales Tax Act and Central Sales Tax (Registration & Turnover) Rules, 1957. The Supreme Court observed that the expression 'in the manufacture of goods' should encompass the entire process of converting raw materials into finished goods. If a process is integrally connected with the ultimate production of goods, the goods required in that process would fall within the expression 'in the manufacture of goods.'
Applying this interpretation, the Tribunal held that the paper tubes and discs used by the appellants were essential for winding the yarn and preventing it from collapsing, making them integral to the manufacture of the finished goods. However, the cardboard boxes were deemed necessary only for protecting the already manufactured yarn and not for the manufacturing process itself.
Conclusion:
The Tribunal concluded that the paper tubes and discs used by the appellants were 'inputs' under Notification No. 201/79-C.E. as they were used in the manufacture of the finished goods. The appeal was allowed in respect of these items. However, the cardboard boxes were not considered 'inputs' as they were used only for protecting and transporting the already manufactured yarn. The appeal was rejected in respect of the cardboard boxes.
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1987 (2) TMI 83
Issues Involved:
1. Legality of penalties under Section 112 of the Customs Act.
2. Jurisdiction to order absolute confiscation of goods.
3. Imposition of separate penalties on the proprietor and the proprietary firm.
4. Classification of goods as "prohibited goods."
5. Applicability of Section 117 for penalty.
6. Option to redeem confiscated goods under Section 125 of the Customs Act.
Issue-wise Detailed Analysis:
1. Legality of Penalties under Section 112 of the Customs Act:
The appellants contended that the penalties imposed under Section 112 were not legal as the goods were validly imported and the only contravention was the failure to comply with Chapter IV-A. They argued that Section 112 was not applicable and that the appropriate penalty should be under Section 117. The Tribunal found that the goods, even though validly imported, became liable for confiscation under Section 111(p) due to non-compliance with Chapter IV-A, thus attracting penalties under Section 112. The Tribunal concluded that the penalty of Rs. 75,000/- on Shri H.D. Ganatra was justified under Section 112, as the goods were subject to restrictions under Chapter IV-A, which constituted a prohibition under the Customs Act.
2. Jurisdiction to Order Absolute Confiscation of Goods:
The appellants argued that the absolute confiscation of the goods was illegal as the goods were not "prohibited" and that an option to redeem the goods on payment of a fine should have been given under Section 125. The Tribunal noted that the goods were not "prohibited" under Section 2(33) of the Customs Act but were subject to restrictions under Chapter IV-A. The Tribunal held that the Addl. Collector was required to give an option to redeem the goods on payment of a fine. The final order allowed the appellants to redeem the goods on payment of a fine of Rs. 24,000/-.
3. Imposition of Separate Penalties on the Proprietor and the Proprietary Firm:
The appellants contended that separate penalties on Shri H.D. Ganatra and his proprietary firm were not legal. The Tribunal agreed, stating that it was not correct to impose separate penalties on the proprietor and the proprietary firm as they are not distinct legal entities. The penalty of Rs. 25,000/- on M/s. Export Enterprises was set aside.
4. Classification of Goods as "Prohibited Goods":
The Tribunal examined whether the 79 takas of synthetic fabrics were "prohibited goods" under the Customs Act. It was concluded that the goods were not "prohibited goods" as defined in Section 2(33) of the Customs Act because they were imported under valid licenses. However, the goods were subject to restrictions under Chapter IV-A, which constituted a prohibition for the purposes of Section 112. Thus, the goods were liable for confiscation under Section 111(p).
5. Applicability of Section 117 for Penalty:
The appellants argued that the penalty should be under Section 117, which provides for a penalty not exceeding Rs. 1,000/- for contraventions where no express penalty is provided. The Tribunal held that since the goods were liable for confiscation under Section 111(p) and the restrictions under Chapter IV-A constituted a prohibition, the penalty under Section 112 was applicable. Therefore, Section 117 was not applicable in this case.
6. Option to Redeem Confiscated Goods under Section 125 of the Customs Act:
The Tribunal held that the Addl. Collector was required to give an option to redeem the goods on payment of a fine under Section 125, as the goods were not "prohibited" under the Customs Act. The final order allowed the appellants to redeem the confiscated goods on payment of a fine of Rs. 24,000/-.
Final Order:
The appeal regarding the confiscation of the goods was rejected, but the appellants were given an option to redeem the confiscated goods on payment of a fine of Rs. 24,000/-. The penalty of Rs. 75,000/- on Shri H.D. Ganatra was confirmed, while the penalty of Rs. 25,000/- on M/s. Export Enterprises was set aside. The combined appeal of Shri H.D. Ganatra and M/s. Export Enterprises was disposed of accordingly.
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1987 (2) TMI 82
Issues Involved:
1. Whether the use of hydro-extractor and electrically operated blower constitutes manufacturing the yarn with the aid of power.
2. Whether the dyeing of grey yarn to coloured yarn amounts to manufacture u/s 2(f) of the Central Excises and Salt Act, 1944, inviting fresh duty.
Summary:
Issue 1: Use of Hydro-extractor and Blower as Manufacturing Process
The Tribunal examined whether the use of hydro-extractor for squeezing excess water and an electrically operated blower for drying dyed yarn could be regarded as manufacturing activities. The appellants argued that these processes were merely for drying and did not constitute manufacturing. They cited various judgments to support their contention that no new product emerged from these processes. The Tribunal noted that the manufacture of dyed yarn was complete before these processes and that drying in the open yard or manual squeezing would not attract duty. It concluded that the use of mechanical equipment for drying or squeezing did not constitute manufacturing activities. Thus, the Tribunal held that the use of hydro-extractor and blower did not amount to manufacturing yarn with the aid of power.
Issue 2: Dyeing of Grey Yarn to Coloured Yarn as Manufacture
The Tribunal considered whether dyeing grey yarn to coloured yarn constituted manufacture u/s 2(f) of the Central Excises and Salt Act, 1944. The appellants argued that dyeing did not create a new commercial commodity and relied on various rulings to support their claim. However, the Tribunal noted that grey yarn and dyed yarn were distinct commercial commodities with different uses and market identities. The Tribunal referred to the Supreme Court's decision in Empire Industries Ltd. v. Union of India, which held that processes like dyeing amounted to manufacture. The Tribunal concluded that dyeing grey yarn to coloured yarn did constitute manufacture, making the dyed yarn a distinct excisable commodity.
Conclusion:
The Tribunal allowed the appeal on the first issue, holding that the use of hydro-extractor and blower did not constitute manufacturing activities. However, it upheld the view that dyeing grey yarn to coloured yarn amounted to manufacture, making the dyed yarn subject to fresh duty. The majority decision on the first issue led to the appeal being allowed.
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1987 (2) TMI 81
Issues:
Challenge to order of Appellate Collector regarding assessable value determination based on sale price, interpretation of manufacturing relationship between two petitioners.
Analysis:
The writ petition challenged the order of the Appellate Collector, which determined the assessable value of goods manufactured by petitioner No. 2 to be the price at which they are sold by petitioner No. 1. The case involved the manufacturing and sale of paints, varnishes, enamels, etc., by petitioner No. 2 to petitioner No. 1, with the goods branded under petitioner No. 1's name. The dispute arose when the Excise Authorities requested the price list at which goods were sold by petitioner No. 1, leading to a conclusion by the Deputy Collector that petitioner No. 1 should be deemed the manufacturer and the selling price should be the assessable value.
The Appellate Collector, in the subsequent appeal, considered the transaction between the petitioners as at arms length but found the wholesale cash price unascertainable due to exclusive sales to petitioner No. 1. Consequently, the assessable value was determined based on the price at which petitioner No. 1 sold goods to independent dealers, a decision challenged in the writ petition. The judgment referenced a Supreme Court case where the Court analyzed a similar scenario, emphasizing the joint manufacturing program, quality standards, buyer's right to reject goods, and ownership of plant and machinery as factors indicating the seller as the manufacturer.
The High Court highlighted that the Excise Authorities did not examine the inter se agreement between the petitioners and failed to apply established legal principles. While acknowledging the authorities' duty to consider all facts to determine if the petitioners were related and if petitioner No. 1 qualified as a manufacturer, the court refrained from delving into factual investigations. The court directed the Deputy Collector to pass a fresh order considering the Supreme Court decisions cited in the judgment within six months, without interference with the Appellate Collector's decision. Ultimately, the writ petition was disposed of with each party bearing its costs.
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1987 (2) TMI 80
Issues:
1. Contract for import of HDPE with a foreign party in Singapore.
2. Presentation of documents for payment to the banker.
3. Goods arrival at Calcutta Port and customs duty assessment.
4. Allegations by Income Tax Officer regarding unaccounted money.
5. Dispute over ownership of imported goods between Inter Metal & Allied Co. and petitioners.
6. Customs investigation and correction of Manifest under Customs Act, 1962.
7. Claim by petitioners for release of goods detained by Customs authorities.
Analysis:
1. The petitioner claimed to have entered into a contract with a foreign party in Singapore for the import of HDPE. However, specific dates and details regarding the contract, including the opening of a letter of credit and bill of lading particulars, were not provided, raising uncertainties about the transaction's legitimacy.
2. Documents related to the shipment were presented for payment to the petitioner's banker, M/s. Bank of Madura Ltd., Brabourne Road, Calcutta, and were retired by payment from the petitioner's account. The lack of specific dates and details in this regard added to the ambiguity surrounding the transaction.
3. The goods arrived at Calcutta Port on a specific date, and customs duty was assessed upon unloading the goods from the vessel. The petitioner's involvement in this stage of the process was not evident, indicating a disconnect between the petitioner and the goods' arrival and assessment.
4. Allegations by the Income Tax Officer regarding the purchase of goods with unaccounted money by Inter Metal & Allied Co. led to a directive to the Customs Department not to release the goods, initiating a dispute over the goods' ownership and legality of the transaction.
5. The dispute escalated as the petitioner's agent attempted to present the bill of entry on behalf of the petitioners, leading to conflicting claims between Inter Metal & Allied Co. and the petitioners regarding the ownership of the imported goods, further complicated by the intervention of the Income Tax Department.
6. A Customs investigation was launched to determine the importation's legality and the possibility of correcting the Manifest under the Customs Act, 1962, highlighting the regulatory scrutiny and procedural complexities surrounding the importation process.
7. The petitioner contended that the goods rightfully belonged to them and should not be detained by Customs authorities based on Inter Metal & Allied Co.'s disclaiming of interest in the goods. However, the court dismissed the Writ petition, emphasizing the unresolved questions regarding the goods' ownership, the transfer of interest, and the absence of the petitioner's name in the Manifest, suggesting alternative legal recourse for the petitioners.
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1987 (2) TMI 79
Issues:
1. Rejection of application for refund of Additional Duty on imported consignment.
2. Classification of imported goods as a "drug" and exemption from Additional Duty.
3. Compliance with Drug Act and Drug Rules.
4. Application of the principle of unjust enrichment.
5. Verification of refund claim and interest on the refunded amount.
Detailed Analysis:
1. The petitioner sought a refund of Additional Duty allegedly illegally recovered on an imported consignment of Sorbitol 70% Liquid USP. The application for refund was rejected by the customs authorities citing limitation under Section 27(i) of the Customs Act, 1962. The petitioner argued that the consignment was a "drug" exempt from Additional Duty, as per Notification No. 104/82-C.E. The rejection was challenged based on a judgment by Pendse, J. in a previous case. The court considered the timeliness of the refund application and the grounds for rejection.
2. The respondents contended that the imported goods were not classified as a "drug" as they did not comply with the Drugs and Cosmetics Act, 1940, and the Drug Rules. They argued that the consignment fell under Tariff Heading No. 29.01/45(1) of the Customs Tariff Act, 1975. The court analyzed the compliance requirements under the Drug Act and Drug Rules to determine the classification of the imported goods as a "drug" and the exemption from Additional Duty.
3. The court examined the provisions of the Drug Act and Drug Rules, specifically focusing on Sections 8 and 16, the Second Schedule, and Rules 38 to 41. It concluded that the consignment of Sorbitol 70% Liquid USP met the standards required for a "drug" based on the USP designation, indicating compliance with the United States Pharmacopoeia. The court dismissed the argument that the goods did not qualify as a "drug" due to alleged non-compliance with specific provisions, emphasizing the sufficiency of the documentation provided.
4. The principle of unjust enrichment was raised by the respondents to oppose the refund claim. They argued that the claim was barred on the basis of unjust enrichment and referenced the decision in Khandelwal Metal and Engineering Works v. Union of India. The court considered this defense along with other arguments raised by the respondents but ultimately rejected them based on previous judgments by Pendse, J. and the court itself.
5. The court addressed the issue of verification of the refund claim and the petitioner's request for interest on the refunded amount. It emphasized the need for verification to prevent erroneous claims and ruled that interest would not be granted unless mandated by statute, custom, or agreement. The court directed the respondents to pay the Additional Duty wrongly recovered to the petitioner, subject to verification, within a specified timeframe. Failure to comply would result in liability for interest. The court also discussed the petitioner's request for special directions regarding the refund process and clarified the procedures for executing orders in favor of the petitioners.
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1987 (2) TMI 78
Issues:
1. Validity of detention order under Article 226 of the Constitution.
2. Extension of time limit for issuing show cause notice under Section 110 of the Customs Act, 1962.
3. Legality of detention and seizure of goods suspected as 'antiquities'.
4. Rights of petitioners as dealers in handicrafts and the impact of delay in permitting export.
Analysis:
Issue 1: Validity of detention order under Article 226 of the Constitution
The petition sought to revoke an order of detention and permit the export of items detained by Customs Authorities. The petitioners argued that the detention was causing financial and reputational harm. The Court noted the delay in permitting export and the petitioners' standing as handicraft dealers being jeopardized.
Issue 2: Extension of time limit for issuing show cause notice under Section 110 of the Customs Act, 1962
The Court observed that no show cause notice was given before seizing the goods, and an extension of time for issuing such notice was not a valid exercise of powers under Section 110. Citing a Supreme Court decision, the Court emphasized the quasi-judicial nature of the power to extend time, requiring a judicial approach and an opportunity for the affected party to be heard.
Issue 3: Legality of detention and seizure of goods suspected as 'antiquities'
The petitioners contended that the detained goods were not 'antiquities' and had obtained certificates to support this claim. The Court highlighted that no show cause notice was given before the seizure, rendering the seizure invalid as per legal precedents. The Court held that the Customs Authorities' communication did not confer validity on the seizure, emphasizing the need for due process.
Issue 4: Rights of petitioners as dealers in handicrafts and impact of delay in permitting export
The Court considered the petitioners' argument that the delay in permitting export was causing immense loss and jeopardizing their business. The Court noted the petitioners' reliance on a Delhi High Court decision regarding the review of clearance orders. Despite doubts on the correctness of that view, the Court found the matter to be covered by the Supreme Court's decision. The Court emphasized the petitioners' entitlement to relief and ordered the release and export of the detained goods.
In conclusion, the Court made the rule absolute in favor of the petitioners, directing the respondents to pay costs and stay the operation of the order for a week.
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1987 (2) TMI 77
The High Court of Judicature at Madras ruled that an appeal is competent against the impugned order. The petitioner may request discretion to not deposit the amount required by Section 35F of the Central Excises and Salt Act, 1944 if it causes undue hardship. The writ petition was dismissed, but the impugned order will not be implemented for two weeks to allow the petitioner to pursue the appeal process.
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1987 (2) TMI 76
The High Court of Allahabad dismissed an application under Section 35G(3) of the Central Excise Act as it was found to be misconceived and not maintainable. The application sought reference based on an interim order, which was rejected earlier. The court held that the proper procedure was not followed, leading to the dismissal of the application. The respondent No. 2 had already won the appeal against the Assistant Collector's order.
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1987 (2) TMI 75
The High Court of Allahabad directed the Assistant Collector, Central Excise Division, Allahabad, to comply with the directions given by the Collector, Central Excise (Appeals) in a case involving M/s. General Electric Co. of India Ltd. The Assistant Collector was instructed to decide the matter within six weeks unless a stay order was issued by the Appellate Tribunal.
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1987 (2) TMI 74
Issues:
1. Whether the process of manufacturing polyethelene sandwich board falls within the definition of 'manufacture' under Section 2(f) of the Central Excises and Salt Act, 1944.
2. Whether the notifications cited by the petitioner exempt the product from excise duty.
Analysis:
1. The petitioner sought relief from the court to prevent the levy of excise duty on polyethelene sandwich board manufactured using board, paper, and polyethelene granules. The petitioner argued that the process did not constitute 'manufacture' under Section 2(f) of the Act. The court referred to previous judgments, including one by Padmanabhan, J., and emphasized the Supreme Court's ruling in Empire Industries Ltd. v. Union of India. The Supreme Court held that 'manufacture' occurs when a new commodity with distinct characteristics is created. The court reiterated that any process incidental to the completion of a manufactured product falls under 'manufacture'. The court concluded that the process of bonding paper and board with polyethelene, as described by the petitioner, indeed constituted 'manufacture' under the Act.
2. The petitioner relied on notifications to argue for exemption from excise duty. However, the court noted that the notifications merely specified the limit of exemption and did not exclude the product from being assessed under Tariff No. 17(2) of the Excise Tariff. The court found that the polyethelene sandwich board, after undergoing the manufacturing process described, became a marketable product and thus was liable to be assessed under the relevant tariff. Consequently, the court dismissed the Writ Petition, ruling against the petitioner's claim for exemption from excise duty.
In conclusion, the court held that the process of manufacturing polyethelene sandwich board constituted 'manufacture' under the Act and rejected the petitioner's claim for exemption from excise duty based on the notifications cited. The judgment emphasized the definition of 'manufacture' as per the Act and the criteria for determining the liability to pay duty.
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1987 (2) TMI 73
Issues:
1. Classification dispute between Central Excise authorities and petitioner regarding M.G. Poster Paper.
2. Refusal of refund by Assistant Collector based on grounds of consequential reliefs and passing on the burden of duty to customers.
3. Jurisdictional error by Assistant Collector in refusing to grant consequential relief as directed by the Appellate Collector.
4. Legal entitlement of petitioner to refund of duty paid under protest after successful appeal.
5. Argument of unlawful enrichment by petitioner if refund granted.
6. Precedents supporting the right of refund in cases of excessive duty collection under compulsion of law.
Analysis:
1. The judgment addresses a classification dispute between the Central Excise authorities and the petitioner regarding the assessment of M.G. Poster Paper under different tariff items. The Appellate Collector ultimately classified the paper as printing/writing paper, leading to the petitioner seeking a refund of duties paid under protest.
2. The Assistant Collector initially refused the refund, citing two main grounds. Firstly, the lack of explicit direction in the appellate orders for refund, and secondly, the argument that the burden of duty had been passed on to customers, thus precluding the petitioner from claiming a refund.
3. The judgment highlights the jurisdictional error by the Assistant Collector in refusing to grant the consequential relief of refund as directed by the Appellate Collector. The court emphasizes that the Assistant Collector had no authority to restrict the operative part of the order and was obligated to follow the directions of the higher authority.
4. The legal entitlement of the petitioner to seek a refund of duty paid under protest after succeeding in the appeal is underscored. The court emphasizes that if duty was unlawfully realized due to incorrect classification, the Excise Authority is obligated to refund the unlawfully collected amount to the petitioner.
5. The argument of unlawful enrichment by the petitioner if a refund is granted is dismissed by the court. It asserts that if duty was paid under protest and later deemed unlawful, the petitioner is entitled to a refund, and exercising the right to appeal against unlawful levies does not constitute unlawful enrichment.
6. The judgment cites legal precedents that support the right of an assessee to claim a refund of duty collected under compulsion of law, especially when the appellate authority deems the collection excessive or erroneous. It emphasizes the importance of fiscal administration ensuring the proper collection and refund of taxes to maintain tax compliance.
Overall, the judgment upholds the petitioner's right to the refund of duties paid under protest, emphasizing the legal obligation of the Excise Authority to refund unlawfully collected amounts and dismissing the notion of unlawful enrichment in such circumstances.
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1987 (2) TMI 72
Issues:
Classification of N.G. Poster Paper for excise duty assessment.
Analysis:
The dispute revolved around the classification of N.G. Poster Paper manufactured by a company for excise duty assessment. Initially, there was confusion regarding whether the paper should be classified as Printing & Writing Paper or Packing & Wrapping Paper. The Finance Act of 1961 raised the excise duty rate, leading to a change in classification. The company protested against the new classification, claiming that it should be classified differently based on previous practices. The matter escalated through various appeal stages, including the Collector of Central Excise, with no favorable outcome for the company. However, the Supreme Court intervened in a related case and emphasized the quasi-judicial nature of the authorities' powers, leading to a remittance of the matter for a fresh decision by the Collector.
Subsequently, the Appellate Collector of Central Excise conducted a detailed review and classified the Poster Paper as "Printing and Wrapping Paper." However, the Government of India initiated a review of this decision, alleging that crucial facts were overlooked. The government set aside the Appellate Collector's decision and directed a fresh assessment based on all evidence.
The Appellate Collector, upon reevaluation of the documents, reaffirmed the classification of the Poster Papers as printing and writing paper, disposing of multiple appeals and granting relief to the company. Nevertheless, the Government of India issued another notice for revising the Appellate Collector's order, prompting the company to file a writ petition due to concerns about a biased approach by the government.
Both parties presented arguments regarding the actual use of poster papers in the industry, with the company emphasizing historical practices and official documents supporting its stance, while the government highlighted industry testimonies and practical usage indicating the papers were primarily used for wrapping purposes.
The court acknowledged the importance of classifying the paper based on its actual use and industry practices, emphasizing the need to delve into the facts to make a precise determination. Despite the prolonged legal proceedings and the company's plea for a final decision, the court refrained from intervening due to the appeal pending before the Tribunal, emphasizing that the matter required a thorough examination of evidence, making it unsuitable for a writ jurisdiction decision.
Ultimately, the court discharged the rule, vacated the interim order, and directed the Tribunal to expedite the case's resolution. It clarified that all contentious points were left open for the Tribunal's determination, with no order regarding costs.
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