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TMI Blog1983 (8) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1979 (No. 4 of 1979) imposes under Section 3 a cess which is described as a duty of excise. It reads : "3. Imposition of cess : (1) There shall be levied and collected as a cess, for the purposes of this Act, on copra consumed in any mill in India with a view to producing or manufacturing any goods therefrom a duty of excise at such rate, not exceeding five rupees per quintal of copra, as the Central Government may, by notification in the Official Gazette, specify : Provided that until such rate is specified by the Central Government, the duty of excise shall be levied and collected at the rate of sixty paise per quintal of copra. (2) The duty of excise leviable under sub-section (1) shall be payable by the occupier of the mill in which the copra is consumed." (emphasis supplied) The impost is on copra consumed in a mill with a view to producing or manufacturing any goods therefrom. The section is attracted only to consumption in a mill. A mill is defined under Section 2(d) as follows : "2(d). "mill" means any premises in which or in any part of which, copra is crushed, or is ordinarily crushed, with the aid of power for the extraction of oil or is otherwise processed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods. This is what is meant by "consumed in any mill". If copra is purchased and merely kept in a mill without "consumption", respondents' counsel points out, Section 3 would not be attracted. 4. The point at issue, in our view, really is whether the cess under Section 3 is imposed on copra or whether it is on the manufacture of any commodity therefrom. Is it the purchase of copra by the petitioner or is it the manufacture of goods therefrom that attracts the levy? Is consumption of copra in a mill an integral part of the process of manufacturing or producing goods? 5. The legislative practice in this matter can be traced to (The Indian) Coconut Committee Act, 1944 (the "1944 Act") which provided for the creation of a fund for the improvement and development of the cultivation, marketing and utilization of coconuts in India. Section 3 of that Act imposed a cess in the following words : "3. Imposition of coconut cess : (1) There shall be levied and collected, as a cess for the purpose of this Act, on all copra consumed in any mill in (India) whether produced in or imported from outside (India) a duty of excise at such rate, (not exceeding forty-nine naya paise per quintal), as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 3(2) read with column 2 of the Second Schedule relating to copra and the definition of mill in respect of that commodity was in substance identical to the relevant provisions of the present Act. It is significant that in both the 1944 Act and 1966 Act, the reference was to copra consumed in a mill in India, although in the latter Act, as in the present Act, the purpose of the consumption was specifically referred to. The consumption had to be with a view to producing or manufacturing any goods. This significant clarification in the 1966 Act and the present enactment was implicit in Section 3 of the 1944 Act inasmuch as copra could not be consumed in a mill otherwise than with a view to production or manufacture of goods. In other words, in all the three enactments, the legislature intended to levy and collect as a cess a duty of excise in relation to copra consumed in a mill with a view to producing or manufacturing goods therefrom. By the present Act, the 1966 Act has amended to delete any reference to copra in that Act. 6. "Manufacture" is a term which as a noun signifies the production of articles for use from raw or prepared materials by giving these materials new forms, q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence is being used up...........we think it proper and reasonable to say that whenever a commodity is so dealt with as to change it into another commercial commodity there is consumption of the first commodity........ When tobacco was delivered in the State of Bombay for the purpose of changing it into a commercially different article, viz., bidi patti the delivery was for the purpose of consumption...." 8. It is therefore clear that consumption denotes production or manufacture of new article from the raw material. Through consumption a commodity of a different and distinct commercial identity has come into existence. It is this process of conversion that is referred to by the Section as "consumed in any mill". Mill does not eat up copra when it is crushed or otherwise processed, and copra does not evaporate or cease to exist. It assumes new and distinct form. Consumption in a mill is an integral part of or an essential step in the process of transformation of copra into a new commodity. Copra consumed in a mill is the raw material from which the new commodity is made. Consumption and conversion are cause and effect. Together they constitute the goods manufactured or produced. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stralian Federal System", 1979, p. 747) says : "A duty of excise on goods can be levied from the producer, manufacturer, distributor, or seller in respect of the production, or any process prior or subsequent to the production, upto and including the step by which the goods finally reach the consumer from the retailer." (emphasis supplied) Referring to a number of cases decided in that country, Lane concludes : "The criterion of liability is the taking of a step in a process of bringing goods into existence or to a consumable stage, or passing them down the line which reaches from the earliest stage in production to the point of receipt by the consumer." This wide definition of excise includes even tax on sale of goods and it is justified by the wording of Section 90 of the Australian Constitution Act. (See also W. A. Wynes, "Legislative, Executive and Judicial Powers in Australia", 5th Edn., pp. 373 et. seq.) 11. Finally Shirras in "Science of Public Finance", (Vol. II, 3rd Edn., p. 654, quoted by Jayakar, J. in AIR 1939 F. C. 1 at 39) says : "Excise or taxes on commodities of domestic manufacture may be levied on the raw materials or at an intermediate stage of their produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 337 F.C.) = 1978 E.L.T. J 272 pointed out that duties of excise were : "........duties levied upon the manufacturer or producer in respect of the manufacture or production of the commodity taxed. The tax on the sale of goods.......is a tax levied on the occasion of the sale of the goods. Plainly a tax levied on the first sale must in the nature of things be a tax on the sale by the manufacturer or producer; but it is levied upon him qua seller and not qua manufacturer or producer. It may well be that a manufacturer or producer is sometimes doubly hit....If the tax-payer who pays a sales tax is also a manufacturer or producer of commodities subject to a central duty of excise, there may no doubt be an overlapping in one sense; but there is no overlapping in law. The two taxes which he is called on to pay are economically two separate and distinct imposts........" 15. Affirming the principle stated by the Federal Court in these decisions, the Privy Council in G. G. in Council v. Madras Province (AIR 1945 P.C. 98) = 1978 E.L.T. (J 280) held : ".....a duty of excise is primarily a duty levied upon a manufacturer or producer in respect of the commodity manufactured or produced. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n relation to property, such a tax would not be hit by the immunity, but would be saved by Clause 2 of Article 289. Referring to Articles 285 and 289 which respectively exempted properties of the Union and the States from taxes imposed by each other, the Court observed : "........Neither the Union nor the States can claim unlimited as regards the area of taxation. The right has been hedged in by considerations of respective powers and responsibilities........" The Court then pointed out that when Article 289(1) provided that the property of a State would be exempt from all Union taxation, the exemption extended only to tax imposed directly on property. Drawing a distinction between direct and indirect taxes, the Court upheld the argument of the Union of India that a tax on property meant a tax in respect of ownership, possession or enjoyment of property, in contradistinction to customs duties and duties of excise, which in their very nature were not taxes on property but only in relation to property. Affirming the principle laid down in AIR 1962 S.C. 1281, the Court continued : "This will show that the taxable event in the case of duties of excise is the manufacture of goods and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity. The impost is not on goods as such, but in relation to them. 19. The method of quantification of collection of the tax does not affect the nature of the impost. So long as the taxable event is the manufacture of goods, the tax can be quantified either with reference to the manufactured goods or with reference to the raw material from which the goods are manufactured. Quantification with reference to the raw material does not make it a tax on the purchase of the raw material. It is for administrative convenience that the quantity of raw material consumed in the manufacture of new articles is taken into account for the purpose of determining the quantum of the tax at the specified rate. But the impost itself is upon the production or manufacture. Entry 84 of List I of the 7th Schedule says : "Duties of excise on tobacco and other goods manufactured or produced in India except........" (the exceptions are not material). The words "manufactured or produced in India" are descriptive of the goods upon which duty of excise is leviable under that entry. That description is meant to distinguish it from entry 83 which relates to duties of customs including export duties. Unlike duties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that the levy is in respect of the commodity manufactured and not upon the raw material. Section 13 says that the "provisions of the Central Excises and Salt Act, 1944, and the rules made thereunder, including those relating to refunds and exemptions from duty shall, so far as may be, apply in relation to the levy and collection of duty payable to the Central Government under that Act". Sections 14 to 17 deal with offences. Section 19 provides for rules to be made by the Central Government to carry out the provisions of this Act and in particular with reference to the information and returns supplied by the occupier of the mill, the manner of assessment of duty, the conditions subject to which refund of amounts may be made under Section 9 and connected matters. By Section 20, as we have pointed out earlier, Section 15 of the Produce Cess Act, 1966 has been amended so as to remove all reference to copra under that Act. This is the general scheme of the Act. 21. These provisions show that the cess imposed is not on raw material purchased by the occupiers of mills, but in relation to the goods produced or manufactured from such raw material. What has attracted the cess under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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