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TMI Blog2019 (9) TMI 1429X X X X Extracts X X X X X X X X Extracts X X X X ..... 005 that came into force on 28 February, 2005. HELD THAT:- The definition of power as contended in the Factories Act, in our considered opinion, cannot be taken aid of to determine the meaning of the expression power under the Tariff Act or the Exemption Notification as the purpose of defining power under the Factories Act is for an entirely different purpose and that the Finance Act does not deal with cognate subjects. That meaning of the expression power has to be adopted which people understand in commercial sense. The objective of providing no levy of duty or granting exemption is to discourage manufacturers of soaps by taking aid of electricity or of steam for heating - The meaning of the expression power as contained in dictionaries should also not be blindly applied to the meaning of the expression power as contained in the Tariff Act and the exemption notification and an attempt should be made to find out a meaning which would achieve rather than frustrate the object-of granting exemption and that meaning should be preferred which does not lead to uncertainty or unintended results. In the present case, soaps were exempted from payment of Excise Duty if, in or in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the manufacture of soap with the aid of gas and, therefore, no process has been carried on with the aid of power. The manufacture of soap by the Appellant, therefore, would be subjected to NIL rate of duty upto 27 February, 2005 and thereafter also would be subjected to NIL rate of duty because of the exemption Notification dated 24 February, 2005. The Commissioner has, however, confirmed the demand by order dated 15 November, 2006 holding that the Appellant has been manufacturing soap with the aid of power . Penalty - HELD THAT:- It is not possible to sustain the demand made in the impugned order. The imposition of penalty on the Appellant, the Factory Manager, the Authorized Signatory and the Managing Director are also not sustainable. Extended period of limitation - HELD THAT:- It is not necessary to examine the contention of the Learned Counsel for the Appellant regarding invocation of the extended period of limitation under the proviso to Section 11A of the Central Excise Act, 1944. Appeal allowed - decided in favor of appellant. X X X X Extracts X X X X X X X X Extracts X X X X ..... hat all the contentions available to the parties shall be decided afresh by the Tribunal on merits in accordance with law. The relevant portion of the judgment of the Supreme Court in the aforesaid four Civil Appeals is reproduced below :- "4. These appeals take exception to the judgment and order dated 23rd August, 2016 passed by the Customs, Excise and Service Tax Appellate Tribunal, Regional Bench Allahabad in final order Nos. A/70786-70789/2016-Ex (DB) in Appeal Nos. E-347-350/2007-Ex (DB), whereby the decision of the Commissioner has been reversed and appeals preferred by the assessee came to be allowed. 5. The sole grievance made in these appeals, which needs consideration, is that, the Appellate Tribunal has founded its decision on the basis of Circulars dated 22-3-1968 and 25-3-1968, which, however, are no longer in force. In paragraph 20 of the Order dated 15-11-2006 that fact has been noticed .by the Commissioner. 6. The Appellate Tribunal, however, has not examined that aspect at all. Resultantly, we are inclined to set aside the impugned judgment and relegate the parties before the Appellate Tribunal for reconsideration of the appeals afresh on its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seeking to amend Chapter 34 of the Tariff Act and the same is reproduced below :- Heading No. Sub-heading No. Description of Goods Rate of duty (1) (2) (3) (4) (10) in Chapter 34, - (i) for sub-heading No. 3401.10 and the entries relating thereto, the following sub-headings and the entries shall be substituted, namely :- "- Soap in any form : 3401.11 -- Soap, other than for toilet use, whether or not containing medicament disinfectant 10% 3401.12 -- Soap, in or in relation to the manufacture of which, no process has been carried on with the aid of power or of steam for heating Nil 3401.19 -- Other 20%";" 11. Thus, with effect from 1 April, 1996, the rate of duty prescribed for soap, in or in relation to the manufacture of which no process has been carried out with the aid of power or of steam for heating, was "nil". 12. The next amendment was made in Chapter 34 of the Tariff Act w.e.f. 28 February, 2005. The relevant Tariff Item Number of 'laundry soap' was changed to 3401 19 42 and the rate of duty was mentioned as 16%. 13. However, a Notification dated 24 February, 2005 was issued that was to be effective from 28 February, 2005. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anil Kumar Jain - Factory Manager. The Appellant was required to show cause as to why Central Excise Duty should not be recovered from it and the seized goods should not be confiscated. The Managing Director, the Authorized Signatory and the Factory Manager were also required to show cause as to why penalty should not be imposed upon them. 17. It was stated in the show cause notice that the Appellant has been manufacturing "laundry soaps" with the aid of gas since January, 2002 and therefore, would not be entitled to the benefit of exemption from payment of Excise Duty since soap was being manufactured with the aid of power. It was stated that though the term 'power' was not defined in the Central Excise Act, 1944 [the Act] or the Rules framed thereunder, but resort could be taken to the definition of 'power' under Section 2(g) of the Factories Act, 1948 wherein 'power' was defined to be electrical energy or any other form of energy which was mechanically transmitted and was not generated by human or any other agency. Resort was also taken to the definition of 'power' in various dictionaries. 18. A detailed reply dated 12 September, 2006 to the show cause notice was fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not generated by human or animal agency". From the reading of the definition, it is seen that for anything to qualify as "Power", it must satisfy three conditions namely : (i) It should be electrical energy or any other form of energy; (ii) It should be mechanically transmitted; (iii) It should not be generated by human or animal agency The GAS used by the Party in the manufacture of 'Laundry Soaps' conformed to all the three standards mentioned above as the same being a form of energy, mechanically transmitted through pipeline to the Party's factory and not generated by human or animal agency. Hence the GAS used by the Party in the manufacture of 'Laundry Soaps' came within the meaning of 'Power'." 20. The Commissioner also examined the definition of the term "power" in various dictionaries and observed as follows :- "From the above meaning/definition, it is crystal clear that 'power' is a particular source or form of energy. The GAS as used by the Party in the manufacture of 'Laundry Soaps', was a form of energy, had a heating capacity and was supplied through pipeline not only to the Party but also to 292 other units (a public supply of energy). Therefore the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not amount to use of 'power' and hence the product manufactured by the Appellant could not have been subjected to levy of excise duty under Tariff Subheading No. 3401.12 prior to 28 February, 2005. After 28 February, 2005 also, Central Excise Duty could not have been levied under Tariff Item No. 3401 19 42 because of the exemption Notification dated 24 February, 2005 that came into effect from 28 February, 2005; (ii) Admittedly, the expression 'power' has not been defined either under the Tariff Act or under the relevant notification but the meaning of the expression has to be understood in the context the expression has been used for the purpose of the Tariff Item and the Exemption Notification and not by applying the definition of the expression given in some other enactment or in dictionaries; (iii) The expression 'power' used in the Tariff Item and the Exemption Notification would cover only 'electricity' within its purview as the purpose of the exemption notification is to encourage manufacture of items without the use of electricity. This exemption has been invoked right from 1964 when 'soap' was for the first time subjected to levy of excise duty and thus, so long a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow cause notice, requires oil to be put in big kadhais followed by Caustic Soda and Silicate. This mixture is then boiled for a minimum of three hours. Thereafter some oil and Soap Stone are mixed in a small kadhai and this mixture is then put in the big Kadhai. The paste gathered from the big kadhai after an hour is then transferred in moulds and put in a shed. After 48 hours, the blocks that emerge are cut into sizes of required shape. Prior to January, 2002, the Appellant was using firewood for the heating and boiling activity and it was not subjected to levy of Central Excise Duty. Thereafter, this activity was undertaken by using LPG from January, 2002 and CNG from 11 December, 2002 for heating purposes. 28. The show cause notice is for the period January, 2002 to February, 2006. The issue that arises for consideration is whether in the manufacture of 'laundry soap' no process has been carried out with the aid of power or steam for heating because in that case no Excise Duty would be leviable in the manufacture of soap. 29. As noticed above, from January, 2002, the Appellant had started using LPG cylinder for the heating and boiling activity for the manufacturing p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd in accordance with its definition in another statute or statutory instrument, more so when such statute or statutory instrument is not dealing with any cognate subject. 33. The definition of 'power' as contended in the Factories Act, in our considered opinion, cannot be taken aid of to determine the meaning of the expression 'power' under the Tariff Act or the Exemption Notification as the purpose of defining 'power' under the Factories Act is for an entirely different purpose and that the Finance Act does not deal with cognate subjects. That meaning of the expression 'power' has to be adopted which people understand in commercial sense. The objective of providing no levy of duty or granting exemption is to discourage manufacturers of soaps by taking aid of 'electricity' or of 'steam' for heating. 34. The Commissioner relied upon a decision of the Karnataka High Court in Employees State Insurance Corporation for taking a view that the definition of the 'power' in the Factories Act can be taken aid of to give a meaning to the expression 'power' in the Tariff Act and the Exemption Notification. The Karnataka High Court observed that the respondent was admittedly carryi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption Notification, what is required to be considered is the object of the notification and the context in which that word is used in the notification. 9. A close reading of the Notification discloses that the State intended to give benefit of exemption or reduction in rate to these new industrial units and existing units undertaking expansion, diversification or modernization which were to make substantial capital investment. Paragraph 2 of the Notification prescribing conditions of having licence or a letter of intent and of owning land or building or taking them on lease for a period of not less than 15 years and paragraph 3 prescribing fixed capital investment consisting of land, building, plant, machinery, equipment and apparatus are indicative of that intention. Entry 18 of Annexure II is also suggestive of the same intention. The items mentioned therein viz. 'sweetmeat', 'namkeen', 'reori', and 'gazak' are usually prepared by shopkeepers and restaurants for selling them to their consumer-customers. They are not manufactured in factories having plants and machinery. 10. The notification further discloses that the object of declaring exemption from payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how toffee is understood by the people of the country where it originated rather than by considering how 'toffee' is understood in India and more particularly in the State of U.P. As held by this Court in Collector of Central Excise v. M/s. Parle Exports (P) Ltd. (1989) 1 SCC 345 "The words used in the provision, imposing taxes or granting exemption should be understood in the same way for which they are understood in ordinary parlance in the area in which the law is in force or by the people who ordinarily deal with them". In that case, the question that had arisen for consideration was whether non-alcoholic beverage bases are food products or food preparations in terms of Central Excise Notification No. 55/75, dated 1-3-1975. This Court observed that non-alcoholic beverages are not understood in India as food products or food preparations, though they might have been regarded as such in foreign countries The High Court, therefore should have applied the test of popular parlance by finding out how toffee is understood in the country and more particularly in the State of U.P. No evidence was led by the State to substantiate its case that 'toffee' is considered as sweetmeat either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intended results should be avoided. The Supreme Court also observed that the High Court should have applied the test of popular parlance by finding out as how 'toffee' is understood in the State of Uttar Pradesh. 38. In the present case, 'soaps' were exempted from payment of Excise Duty if, in or in relation to the manufacture of such soap no process was carried out with, the aid of 'power or of steam' for heating. In common parlance, 'power' is understood as 'electricity'. Thus, though power may have a wider dictionary meaning or connotation, but only that meaning should be given that would achieve the object of granting exemption. The object behind granting exemption from payment of excise duty to the manufacture of soaps in cases where in or in relation to the manufacture of soap no process is carried out with the aid of power is to discourage the manufacturers from using electricity in the manufacture of soap. 39. The matter can be examined from another angle and that is to look to the Hindi version of the Tariff Act and the Exemption Notification. The Hindi version of sub-heading 3401.12 of the Tariff Act is as follows :- 40. The Hindi version of the Exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rculars dated 22 March, 1968 and 25 March, 1968 that were issued by the Central Board of Excise & Customs in the context of identically worded Central Excise Notifications that clarified that the use of 'gas' would not be the same as use of 'power'. The relevant portion of the Circular dated 22 Match, 1968 is as follows : "43. 1968 Budget-Central Excise-Definition of 'Power' used in item No. 40-Steel Furniture. Reference C.C.E., Allahabad's letter No. V-40(30)183/68, dated the 5th March, 1968 (copy appended). The instruction issued by him that the use of gas for welding steel furniture parts will not be considered as use of 'Power' is hereby confirmed. 46. It needs to be stated that Tariff Item No. 40 of the Schedule to the Tariff Act fell for consideration before the Central Board of Excise & Customs in the aforesaid Circular and the said item is reproduced below : "STEEL FURNITURE Tariff Item No. Description of Goods Rate of Duty 40. STEEL FURNITURE MADE PARTLY OR WHOLLY OF STEEL, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power, whether in assembled or unassembled condition and parts of such steel furnit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be treated as use of 'power'. 50. The words now used in the Tariff Act and the Exemption Notification are also 'in or in relation to the manufacture of which, no process has been carried on with the aid of power'. The meaning of the expression 'power' will, therefore, not change even if fresh Circulars have not been issued by the Board to clarify the meaning of the expression 'power'. The Commissioner was, therefore, not justified in ignoring the meaning assigned to the expression 'power' under the aforesaid two Circulars merely because they have been withdrawn because the Board had clearly expressed its views in the aforesaid two Circulars regarding the meaning of the expression 'power'. There is nothing in the present Tariff Act which would justify assigning any other meaning to the expression 'power' from that which was assigned in the two Circulars. 51. Learned Counsel for the Appellant also submitted that the Tariff Item and the Exemption Notification refer to use of both 'power' and 'steam'. According to the Learned Counsel for the Appellant, 'steam' is also a source or form of energy and, therefore, if 'power' is understood and interpreted to include any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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