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TMI Blog1980 (12) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... Government have made the Central Excise Rules, 1944. Rule 8 provides that the Central Government may, from time to time, by notification in the official Gazette, exempt subject to such conditions as may be specified in the notification any excisable goods from the whole or any part of duty leviable on such goods. In exercise of this power, the Central Government were prescribing from time to time lower rates than those prescribed under Item 38. 2. Prior to 1967, for the purpose of levy of excise duty, match factories were classified on the basis of their production during the financial year and matches produced in different factories were subjected to varying rates of duty a higher rate being levied on matches produced in factories having higher output. This classification thus was not on any technological differences but on the basis of output. There were four classes, namely, 'A','B', 'C' and 'D'- 'A' class comprising factories whose annual output exceeds 4,000 million match sticks, 'B' class comprising factories whose annual output exceeds 500 million match sticks but does not exceed 4,000 million match sticks, 'C' class comprising factories whose annual output exceeds 50 mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision reported in Murthy Match Works v. Assistant Collector of Central Excise (A.I.R. 1974, Supreme Court, 497 = 1978 (2) E.L.T. (J 429), the Supreme Court rejected this contention observing: "There is no doubt, that in the past among the non-mechanised manufacturers of matches a further classification based on viability had been made. It is also true that the financial resources, the capacity to command a market on their own without depending on intermediateries, etc. marked off the 'B' category from the 'C' category. But then experience gathered subsequently disclosed certain evils which the state took note of and endeavoured to set right. Ultimately the present notification was issued obliterating the distinction which gave a concessional edge to the 'C' group over the 'B' group." The Supreme Court also held : "Another proposition which is equally settled is that merely because there is room for classification it does not follow that legislation without classification is always unconstitutional. The Court cannot strike down a a law because it has not made the classification which commends to the court as proper. Nor can the legislative power be said to have been unconstitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise per gross of boxes; (iii) in the case of matches referred to in category 2, the rate of exemption shall be increased by 50 paise per gross of boxes, if bamboo is used for the splints or for both splints and veneers ; (iv) the rate of duty applicable to matches referred to in category 2, the splints of which are made of bamboo and which are packed in boxes of 40s shall be four-fifths of the rate applicable to matches of identical description produced in the same factory but packed in boxes of 50s, and if such packing in boxes of 50s is not done, it shall be four-fifths of the notionally determined rate for matches packed in boxes of 50s. Explanation. - For the purpose of this notification, no process other than the mechanical process employed for dipping of splints in the composition for match heads or for filling of boxes with matches, or both, shall be deemed to be a process ordinarily carried on with the aid of power." As may be seen from the proviso, even among the non-mechanised sector units, differential rates were levied with reference to the output. The explanation defined what is meant by non-mechanised sector. There was an amendment of this notification by Not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducers or dealers in, khadi or the products of any village industry. These provisions indicate that the Khadi and Village Industries Commission is competent to grant certificates recommending village industries for exemption under clause (d) of the notification dated 4th September, 1967." 4. There was a further Notification No. 154 of 1975, dated 3rd June, 1975 which came into effect on and from first of July, 1975. This Notification also maintained the distinction of mechanised and non-mechanised units and among the non-mechanised units further concessional levy with reference to output, and further increased the concession with reference to some other factors also which are not relevant for our purpose. This was the situation prevailing before the financial year 1980-81. During the financial year 1980-81, the following two Notifications were issued : Notification No. 98/80-CE, dated 19th June, 1980 "In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue and Insurance) No. 154/75-CE, dated the 3rd June, 1975, the Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is ordinarily carried on with the aid of power falling under Item No. 38 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), from so much of the duty of excise leviable thereon as is in excess of ₹ 1.60 per gross boxes of 50 matches each : Provided that the matches are cleared for home consumption by manufacturer from a factory which is recommended by the Khadi and Village Industries Commission for exemption under this notification as a bona fide cottage unit, or which is a member of a co-operative society (including a marketing or service industrial co-operative society but excluding a co-operative bank) registered under any law relating to co-operative societies for the time being in force and assisting exclusively manufacturers of such matches : Provided further that the matches are sold or marketed through the Khadi and Village Industries Commission or a Co-operative Society (including a marketing or service industrial co-operative society but excluding a co-operative bank) aforesaid or an agency established by a State Government : Provided also that where the matches are produced by a factory recommended by the Khadi and Village Industries Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of non-mechanised sector. However, Notification No. 99 of 1980 gives a larger concession if certain further conditions are satisfied. They are to be found in the first, second and third provisos. The conditions to be satisfied under the first proviso is that either the manufacture should be in a factory which is recommended by the KVIC for exemption under this Notification as a bona fide Cottage Unit, or the manufacturing unit must be a member of a Co-operative Society referred to therein. The second proviso laid a further condition that the matches manufactured by these units shall be sold or marketed through the KVIC or a Co-operative Society or a Governmental agency. We are not concerned with the other conditions because they are not the subject matter of dispute in these cases. Leaving apart the unit being a member of a Co-operative Society because none of the Petitioners are such member on a literal understanding of the first proviso, we are of the view that the recommendation required to be produced from the KVIC related only to the question of the Cottage Unit being a bona fide unit and it did not relate to a question whether it is a cottage unit at all and, herein to deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine the duty concession to match boxes bearing approved labels and sold to or marketed through the KVIC, Stage Agencies and registered co-operative societies. At the same time, I do not find justification for the continuance of the existing limits placed on the clearances of matches by the cottage sector at the concessional rate of duty. I, therefore, propose to abolish the existing limit on production by the cottage sector units. I am confident that this package of measures will result in accelerated growth of the cottage sector of the match industry." It will be seen from this extract that the intention of the Government was to abolish the existing limits on production by cottage sector units. However, in order to ensure that the benefit of the lower rate of duty accrued only to the genuine cottage sector units it was proposed to confine the duty concession to match boxes bearing approved labels and sold to or marketed through the KVIC, State Agency and registered Co-operative Societies. In our opinion, the two Notifications clearly give effect to this proposal. As already stated, except the distinction between mechanised sector and non-mechanised sector, the Notifications do no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d may direct that such supply be obtained from the KVICs own godown. 8. The Unit shall undertake to use labels prescribed by the KVIC and also agree to sell its entire production of matches to the KVIC at prices that may be fixed by the KVIC from time to time which shall ensure a fair reasonable margin of profit to the unit and shall be fixed by the KVIC after obtaining the advice of the Financial Adviser to the KVIC and after consulting a committee (which would include representatives of the Cottage Match Associations, if any, of the State) regarding the cost on production. Representatives of Institutions may also be included in the Committee. This Committee shall review the cost of production atleast once in the beginning of each quarter but may review the same more frequently if circumstances so demand. The KVIC may grade quantity-wise the production of a unit, fix different prices for different grades of quality of matches and may direct that particular labels be used for particular grades. 9. The KVIC may reject matches which do not conform to the specifications laid down by it or are otherwise found to be sub-standard. Such rejected matches shall be destroyed by the unit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e excise notification that the entire produce should be surrendered to Khadi and Village Industries Commission and consequently the responsibility of the marketing of matches was solely done by the Commission. However, in practice the Commission experienced marketing difficulties in middle of September because of sub-standard matches dumped on Commission's godown despite best efforts taken by the Commission to improve the quality of matches. This has resulted in heavy loss. Hence, it is decided by the Commission, not to issue bona fide certificate to the new units till such a time, Commission was able to dispose of the heavy stock. But the position as obtained throughout the later part of the last year and the year also is same and therefore Commission did not issue bona fide certificate after 22-9-1980". 10. The learned counsel for the petitioners contended that the Notification as such does not enable the KVIC to formulate any criteria limiting the output per year in order to be eligible for obtaining bona fide certificate. If it is construed as enabling the KVIC to formulate such criteria, the Notification itself would be affected as sub-delegation of legislative power. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 15 indicate that the Khadi and Village Industries Commission is competent to grant certificates recommending village industries for exemption under clause (d) of the Notification dated 4th September, 1967. We have already noticed that sub-clause (d) of the Notification No. 205, dated 4th September, 1967 only related to the bona fide nature of a unit and not for prescribing other conditions which have no relevance for the determination of the question of bona fide nature. 11. The learned counsel for the revenue then referred to the Report of the Working Group on Khadi and Village Industries. The terms of reference to the Working Group included the following subjects among other : "To define clearly and terms- (i) Cottage Industry, (ii) Village household sector". Chapter 7 of this report dealt with the definition of cottage household and village industry. After examining the pros and cons of the various definitions and terms and taking into account the various factors, the Working Group recommended the following definition for cottage industries : "Cottage industry can be defined as one which is carried on wholly or partly with the help of members of the family ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orator is employed. The condition relating to certification as village industry by the Board or Commission in order to be eligible for exemption by a manufacture of Khandasari sugar was questioned in that case. The Gujarat High Court held that there was sub-delegation of legislative power and it amounted only to an entrustment of an administrative function. It was also held that the power delegated is not an unguided power, because it had to be exercised consistent with the object of the disputed notification which proposed to give exemption to the village industry in Khandsari sugar. The Gujarat High Court was further of the opinion that the disputed Notification revealed sufficient guidelines inas much as it contemplates exemptions to be given only to a genuine village industry which purchases sugar cane for its own use in the manufacture of Khandsari sugar. The Board and the Commission are expected to function within the boundaries of those guidelines while considering whether a particular dealer is entitled to the requisite certificate or not. The Bench also held that the Board and the Commission may adopt any relevant principle but they are not at liberty to take a policy deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atch Units in the hand made sector both Working under Match Service Industrial co-operatives and enrolled with the KVIC were allowed a concessional duty of ₹ 1.60 per gross. This concession was subject to a production ceiling of 75 million sticks per year, and was in force till 18-6-1980. In the Central Budget for 1980-81, the production ceiling of 75 million sticks per year for cottage match units has been removed and the excise duty concession is extended to all factories who market their products through :- 1. Khadi & Village Industries Commission, 2. Service Co-operatives, 3. Co-operative Marketing Societies, and 4. Government Agencies. Consequently, several representations have been received by the Government for the formation of Match Co-operative Marketing Societies with a view to await the benefit of the excise duty concession. There have also been representations against the formation of such co-operative marketing societies, as it will affect the working of the Industrial Cooperative Match Societies. 2. The Director of Industries and Commerce was consulted in the matter. He has expressed the opinion that if Co-operative Marketing Societies are allowed to be or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red for membership in Industrial Cooperative Service Societies and they accordingly pass the following orders :- (i) There is no need to form Match Cooperative Marketing Societies in the State. (ii) There will be no ceiling on the number of Industrial Cooperative Service Societies to be registered for Cottage Match Units, without financial assistance from the Government. (iii) The ceiling on the production of member units of the societies will be fixed at 120 million sticks per annum. (iv) Factories which are paying excise duty of ₹ 4.50 per gross up to 18-6-1980 shall not be admitted as member in the service Societies. (v) KVIC certificate holders shall be admitted as members in the service after they surrender their certificates with KVIC and after verification of their standing. (vi) The Society shall continue to adopt the practice of enrolling only one member per family. (vii) In traditional areas new factories which have applied for licences as on 18-6-1980 should also be considered for Membership in Service Societies. (viii) In non-traditional areas, there will be no bar in the enrolment of new factories as members in Service Societies. (ix) For registering any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which case Notification No. 98 of 1980 will govern and the petitioners will be liable to pay at the rate of ₹ 30 unless they come under the proviso therein. The learned counsel for the petitioners on the other hand, contended that since the agency referred to in the proviso is not willing to issue the bona fide certificate and imposed illegal conditions and since they also refused to purchase the material from them on the ground that they have enough stock in their hands, the petitioners shall be deemed to have complied with the provisions of the first and the second provisos during the relevant period. Alternatively the learned counsel for the petitioners also contended that under Explanation II to the Notification No. 99 of 1980, the persons who are holding the bona fide certificates issued under Notification Nos. 162 of 1967 and 154 of 1975, though situated in the same position as that of the petitioners, are able to claim the benefit of Notification No. 99, the petitioners also shall be given similar benefits. It may be mentioned that in respect of the persons who come under the second explanation, it was not necessary for them to prove further that they are selling the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the part of a governmental agency, by this order we only propose to rectify the same and not reject the whole scheme. Such an approach would be destructive of a wholesome effort towards nationalisation of bus transport which is generally undertaken in public interest, when discrimination is glaring the State cannot take recourse to inadvertence in its action resulting in discrimination. The approach is, what is the impact of State action on the fundamental rights of citizen. In this case denial of equal protection is complained of. And this denial of equal protection flows from State action and has a direct impact on the fundamental rights of the petitioners. We, therefore, propose to take a constructive approach by removing the discrimination by putting the present petitioner in the same class as those who have enjoyed favourable treatment by inadvertence on the part of the Regional Transport Authority." 14. It may be seen from these cases that when two classes are brought into existence but they are differently taxed, the class which is discriminated against is entitled to get the same concession and the discriminatory provision need not be set aside. The principle is applica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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