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TMI Blog1985 (1) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... f within its scope. Accordingly the goods viz. Wood-based Compreg Board and articles thereof manufactured by the respondents have become classifiable under the new structured Tariff Item 16B of the C.E.T. w.e.f. 28-2-1982 and liable to duty of excise at the appropriate rate. 1.2. Due to above change in Tariff classification. Respondents, submitted an application in form AL 4 for the issue of licence in form L4 for manufacture of excisable goods falling under Tariff Item 16B of Central Excise Tariff. The respondents also filed a classification list in respect of the said goods claiming its approval w.e.f. 28-2-1982, classifying Wood-based Compreg Board and articles thereof under Tariff Item 16B of C.E.T. with effective Basic Excise duty at the rate of 20% ad valorem. Simultaneously, they filed another classification list claiming approval of basic excise duty at the rate of 8% ad valorem under Tariff Item 68 of C.E.T. on pre-budget stock of Wood-based Compreg Board and articles thereof. The Superintendent Central Excise, Range IV Bhopal, having jurisdiction over the factory of respondents, however, rejected the respondents' claim, as inadmissible in terms of the provisions of Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is defined as meaning "goods specified in the First Schedule as being subject to a duty of excise... ". According to him inclusion in the First Schedule with a rate of duty brought the goods within the scope of this definition. Admittedly the goods in this case were excisable goods both before and after introduction of the 1982 Finance Bill. The only difference was that immediately on the introduction of the Bill. together with the invocation of the Provisional Collection of Taxes Act, the excisable goods were specified under a different entry of the Schedule. 6. Shri Raghavan Iyer submitted that in some of the authorities reference had been made to the point of time when the goods came into existence. He submitted that the only reference which he had been able to find in the Act or in the Rules to "coming into existence" was in the proviso to sub-rule (2) of Rule 224. That Rule imposed certain restrictions on the removal of goods beyond office hours, and also on the day of introduction of a Finance Bill or similar legislation. Even in this case. where "pre-budget" stocks were allowed to be removed with the permission of the Central Government, the applicant had to undertake to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he terms of the statute itself, namely the Central Excises and Salt Act, would have to be taken into account. In terms of the statute whether the Central Excises and Salt Act itself or the Rules framed thereunder-it was not permissible to apply for the purpose of assessment a Tariff Item or a notification which was not in existence (or in existence in an amended form). Shri Raghavan Iyer further submitted that if Rule 9A were to be ignored, on the ground that the necessary provision was incorporated in Section 3 there would be left no provision to determine the rate of duty in the varying circumstances set out in that Rule. 10. Shri Raghavan Iyer submitted that under Section 3(1), the aspects relevant for levying and collecting excise duties were (a) whether they were excisable goods, (b) whether they were produced or manufactured in India and (c) what was the relevant rate in the First Schedule. The point of time for determination of the rate of duty came only at the time of removal of the goods. Section 3 of the Act did not contain a time element, which was provided by Rule 9A, framed under the Act. The Rule could not be considered as repugnant to Section 3. Linking the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L.T. 272) : "There is in theory nothing to prevent the Central Legislature from-imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed, destroyed, or given away. A taxing authority will not ordinarily impose such a duty, because it is much more convenient administratively to collect the duty (as in the case of most of the Indian Excise Acts) when the commodity leaves the factory for the first time, and also because the duty is intended to be an indirect duty which the manufacturer or producer is to pass on to the ultimate consumer, which he could not do if the commodity had, for example, been destroyed in the factory itself. It is the fact of manufacture which attracts the duty, even though it may be collected later." In para 12, it had been-pointed out that while the levy of excise duty in our country has the status of a constitutional concept, the point of collection is located where the statute declares it will be. 14. Shri Raghavaa Iyer submitted that the observations of the Andhra Pradesh High Court in the case of Sirpur Paper Mills had to be read in the light of the position set out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suggested to him that there were two relevant aspects which he might deal with in the course of his arguments. One was the effect of the provisions of the Provisional Collection of Taxes Act, 1931, in a case like the one under consideration. The other was the view taken in a number of cases relating to Section 15 of the Customs Act, as for instance the judgment of the Supreme Court in the case of Prakash Cotton Mills (P) Ltd. v. B. Sen [AIR 1979 S.C. 675 = 1979 E.L.T. (J 241)]. 18. Shri Haksar commenced his reply by referring to the provisions of Section 3 of the Central Excises and Salt Act. Sub-section (1) of this Section delegated only the manner of the levy and collection of duties of excise, the power to impose a duty being only with Parliament. No doubt. Rule 9A laid down the manner in which duty should be collected. Shri Haksar clarified that it' was not his case that Rule 9A was not applicable here. Sub-rule (1) was obviously applicable. However, his submission was that on a true interpretation of this sub-rule, what it governed was only the rate of duty (the question of tariff valuation would not arise in this case) and not the classification of the goods based on their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufactured was kept, and it would not justify shifting of goods already manufactured from one entry 10 another. 22. Shri Haksar thereafter submitted that no provision of an Act could be given retrospective effect unless' this was specifically provided for. In the present case, if Tariff Item 16-B as amended were applied at the time of removal, this would amount to giving retrospective effect, which was not permissible, in the absence of a specific provision in the Finance Bill. He referred in this connection to the judgment of the Supreme Court in the case of Income-tax Officer, Tuticorin v. T.S. Devinatha Nadar, etc. (AIR 1968 S.C. 623). In para 6 of that Judgjment the Hon'ble Supreme Court had quoted with approval the observations of Halsbury that : "The general rule is that all statutes, other than those which are merely declaratory, or which relate only to matters of procedure or of evidence, are prima facie prospective and retrospective effect is not to be given to them unless, by express words or necessary implication, it appears that this was the intention of the legislature." 23. Shri Haksar also referred to the case of Amar Dye Chem Ltd. This related to dyes derived fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this article, which might be regarded as a kind of contemporanea expositio. When it was pointed out by the Bench that this was apparently an article by some practitioner and not an official publication, Shri Haksar submitted that we could still take notice of it. 26. Shri Haksar, therefore, submitted that, in the view propounded by him. Rule 9A would get full effect. By the same Finance Bill the rate of duty under Item 68 was raised from 8% to 10%. and this increase would, no doubt, be applicable to the goods under consideration. However, the change in classification from Item 68 to Item 16-B would not apply to these goods. 27. It was pointed out to Shri Haksar that in the relevant clauses of the Finance Bill and the Schedule, no distinction had been made between the description and the rate of duty, whether with reference to their provisional application or their final effect. Shri Haksar submitted that the amendment only had the effect that whatever was henceforth manufactured and fell within the amended description in Item 16-B would be classifiable under that item. Whatever had already been manufactured and had attracted the charge of duty in terms of Section 3 would not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, because Rule 9A clearly applied, and that Rule made no exception in the case of goods manufactured prior to the change. He cited the reference at page 63 of "The Law of Central Excise (Second Edition) by Taraporevala and Parikh, to the case of Ajsankutty v. Assistant Collector of Central Excise, wherein reference was made to a decision of the Kerala High Court. This was a case where vegetable non essential oils became excisable in 1956, a new item being introduced in the Finance Bill of that year, to which the Provisional Collection of Taxes Act was applied. The Court had held that the fact that the petitioner's goods were manufactured prior to 29-2-1956 was irrelevant and that the liability to duty attached the moment an item was included in the First Schedule to the Central Excises and Salt Act. 31. Shri Raghavan Iyer also referred to the judgment of the High Court of Bombay in the case of Union of India and others v. The Elphinstone Spinning & Weaving Mills Co. Ltd. (1978 E.L.T. 680). In para 13 of the judgment it had been held that "the point of time at which we have to see whether the goods were liable to duty would be thus the date of removal of the goods from the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble, classifiable under Item 16B (as amended), and not exempt from duty. The question is whether their tariff classification for the purpose of levy and collection of duty should be determined by the tariff as it stood at the time of manufacture or as it stood at the time of removal. 35. As seen from what has been stated above, detailed arguments were addressed by both sides, and several authorities relied upon. We observe that there can be a number of different situations, based on two variables. One is the point of time, i.e. whether the time of completion of manufacture or the time of removal. The other variable is the nature of duty liability : whether not excisable, excisable but fully exempt and excisable but not exempt (goods partially exempt are considered as "not exempt") The various judgments which were relied upon cover one or other of the situations which would arise from combinations of the two variables. Naturally, some of these are more frequent and more important than the others. The situations which are covered by the cases cited and are relevant to the present issue appear to be the following : (i) Goods excisable but fully exempt at the time of manufacture, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture, which was modified, so that a higher rate was prevailing on the date of removal. There was a change in the statutory rate also, but this does not affect the discussion). In that case, the Hon'ble High Court held that Rule 9A was valid and was rightly applied with reference to the rate of duty prevailing on the date of removal. The attention of the High Court was drawn to the decisions of the same High Court and of the Supreme Court in the case of Kirloskar Brothers to which reference has been made above. The Court distinguished the case before it from that of Kirloskar Brothers, in the following terms : "When an application for leave to appeal to the Supreme Court was made, the Division Bench rejected the leave application by a speaking order which is reported as Union of India v. Kirloskar Brothers - 1978 E.L.T. (J 690). It appears that at the time of hearing the leave application the attention of the Court was drawn to Rule 9-A and the decision of the Supreme Court in Orient Paper Mills v. Union of India - AIR 1967 S.C. 1564. After referring to them the Court observed: '"There can be no doubt that as laid down by their Lordships, the rate would be as existing at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpur Paper Mills Ltd. v. Union of India and others [1984 (17) E.L.T. 217 AP] (vide para 8 above). The High Court took into account the judgments of the Madhya Pradesh High Court in the cases of Kirloskar Brothers and also Shree Synthetics. It held that the answer was to be found in Section 3 and not in Rule 9A and held that the petitioners were entitled to the benefit of the exemption notification as in force at the time of manufacture. The Court also, evidently with reference to the observations of the Madhya Pradesh High Court in the Shree Synthetics case, observed as follows : "Likewise, the contention in regard to the dismissal of the S.C.L.P. on merits by the Supreme Court passed on September 1, 1977 against the aforesaid judgment of the Madhya Pradesh High Court in Kirloskar's case, it should not be taken to be really a decision on merits, also merits no consideration, as it is fairly settled by now that when the Court records its order as dismissal on merits, it must be taken to have been a decision on merits." 39. The third situation has been covered by the judgment of the Kerala High Court in the case of Assankutty v. Assistant Collector of Central Excise, referred to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the headnote to the judgment as reported in one journal, where the High Court is reported as having held as follows : "It is true that excise duty is on the manufacture or production of goods but the above rules leave no room for doubt that it is leviable At the time of removal of goods from the place of manufacture and not with reference to the manufacture of excisable goods. Thus, the taxable event is the date of removal and not the date of manufacture of goods." We find, however, that there is so such observation or assumption in the judgment that the taxable event is the date of removal and not the date of manufacture of goods. What has been observed by the High Court is as follows : "These rules leave no room for doubt that excise duty is leviable not with reference to the date of manufacture of the excisable goods but at the time and at the rate on the date of removal of goods from the place of manufacture or from the approved place of storage. Thus, the duty is linked in point of time to the date of removal and not to the date of manufacture." Thus, it would not be correct to say that the Hon'ble Allahabad High Court had gone contrary to the advisory opinion of the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, has come to be well-known. This is the judgment of the Delhi High Court in the case of Jain Shudh Vanaspati Ltd. and another v. Union of India and another [1983 E.L.T. 1688 (Del.) - (1984) 1 ECC 490]. In this judgment, the Hon'ble High Court, after a very detailed discussion, held that the calculation for the purpose of rate of duty must be done with reference to the date mentioned in Section 15 in various circumstances; and that under the Customs Act the incidence of chargeability to duty arises under Section 15 itself, and the same cannot be treated as a mere machinery provision for effectuating the assessment. There are also a number of other judgments to the same effect, differentiating the date of importation or the date of entry into the territorial waters from the date of filing of the bill of entry (or other date as mentioned in Section 15), and holding that it is the latter date which determines the rate of duty. 44. In the above discussion, we have indicated the different types of situation which can arise, and the decisions available with reference to the respective situations. The various judgments which have been referred to above contain very detailed reasoning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion must be taken to have been a decision on merits. In other words, the Supreme Court must be held as having endorsed the reasoning contained in the judgment of the High Court. Thus, the Madhya Pradesh High Court and the Andhra Pradesh. High Court have adopted somewhat different approaches to the effect of the order of the. Supreme Court. However, it appears to us that, so far as the present case is concerned, this difference in approach is really not material. From the passage in the Madhya Pradesh High Court judgment in the Shree Synthetics case which has been reproduced in para 37 above, it will be seen that the High Court had recognised a distinction between the situation covered by the Kirloskar Brothers judgment and that in the Shree Synthetics case, and held that the judgment in the Kirloskar Brothers case, even though approved by the Supreme Court had no application to the Shree Synthetics case. We would like to stress that the scope for distinction was not newly introduced by the Division Bench which decided the Shree Synthetics case, but was found by them in the second order of the Division Bench in the Kirloskar Brothers case. One particular distinction contained in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the Act and the relevant rules pertaining thereto. The last-quoted observation would clearly indicate that where liability to duty under Section 3 is established as having existed at the time of manufacture, the actual rate of duty will be at the rate prevailing on the date of removal of the goods, in terms of the relevant rules including Rule 9A. This is quite consistent with the view taken in the Kesar Sugar Works judgment and with the stand of the Revenue in the present case. It goes against the stand of the respondents in this case because if in terms of Section 3 the liability to duty as well as the rate of duty is held to be established once for all at the time of manufacture, the references to the rate being the rate prevailing on the date of removal would be superfluous. 46. What emerges clearly from a study of the Kirloskar Brothers judgments is that in the first decision in this case, there was a categorical view that the liability for tax would arise no sooner the manufacture or production is completed, and the point of recovery or any restriction on removal would not be the determining factor for grant of exemption in respect of goods manufactured during the duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o refer to some of the other aspects which were argued before us. 48. One of these was the argument of Shri Haksar (vide para 22 above) that the view advanced by the Revenue would involve the retrospective application of law. We would observe that, if it is held that Rule 9A applies, the question of retrospectivity does not arise, because that Rule itself fixes the relevant point of time which determines the rate of duty as the time of removal. Shri Haksar did not contend that Rule 9A was not valid or that it was not applicable (though he had his own explanation as to the scope of its application). Once Rule 9A is held as valid and applicable, the question of retrospectivity really should not arise. 49. We shall, however, examine the matter on the basis that the application of Rule 9A in a case like the present could have an element of retrospectivity. Even in the quotation from Halsbury relied upon by Shri Haksar it is laid down that retrospective effect could be given to a provision if by express words or necessary implication it appears that this was the intention of the legislature. This is where the effect of the declaration under the Provisional Collection of Taxes Act come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty and the description. Since the same Finance Bill raised the rate of duty on Item 68 from 8% to 10%, and this provision also had immediate effect under the Provisional Collection of Taxes Act, Shri Haksar had conceded that the increased rate of duty under Item 68 as in force at the time of removal would be applicable to the goods in question, even though they had been manufactured earlier. He, however, contended that the changed description of Item 16B, which brought these goods within the scope of that Item, would not be applicable. We are unable to see any justification for drawing such a distinction in the matter of application of Rule 9A or of the provisions of the Finance Bill. Shri Haksar had laid stress on the fact that Rule 9A refers to the rate of duty and not to the description. But this obviously is because what finally determines an assessment is the rate of duty : the description is only an intermediate step, a signpost so to speak, which points out the correct rate of duty. This in our view is why Rule 9A refers only to the rate of duty. We have already seen that the Fifth Schedule to the Bill did not make any distinction between the description and the rate of d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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