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TMI Blog1985 (3) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to as the Respondent). 2. On behalf of the appellants, their learned Advocate, Shri T.M. Ansari, referred briefly to the facts of their case, which are not in dispute. The goods in this case were cigarettes, which were cleared between 1-3-1978 and 12-3-1978 The question is whether these cigarettes were liable to the Special Excise Duty (SED) which was imposed under Section 37 of the Finance Act, 1978. The provisions of this Section took effect from 1-3-1978 by virtue of a declaration under the Provisional. Collection of Taxes Act inserted in the Finance Bill, 1978. It is common ground that these goods were liable to the duty under Item 4.11(2) of the First Schedule to the Central Excises and Salt Act (hereafter referred to as "the basic duty"), both before and after 1-3-1978. It is also common ground that prior to 1-3-1978 such goods were not liable to the SED. It was the contention of the appellants that they were not required to pay the SED on goods which had been manufactured prior to 1-3-1978 and removed between 1-3-1978 and 12-3-1978. As this contention was not accepted by the Central Excise authorities, they cleared the goods on payment of SED amounting to Rs. 86, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of pre-excise stock (We find that the issue in that case was somewhat different, but for reasons which will become apparent, it is not necessary to go into the differences) ; (b) 1978 E.L.T. 127 (Del.) in the case of Modi Rubber Limited v. Union of India and others. Shri Ansari fairly pointed out that the issue in that case was a different one. However he relied on para 13 at page 132 wherein it had been observed that the charging section in the Central Excises and Salt Act is Section 3, which itself does not refer to the clearance of the goods from the factory. Shri Ansari submitted by analogy that in this case the charging section was Section 37 of the Finance Act, 1978 which also did not refer to the clearance of goods from the factory and did not fix that event as the point of incidence of the duty ; (c) 1978 E.L.T. 33 Madhya Pradesh in Kirloskar Brothers v. Union of India. This case related to goods which had been exempt from duty at the time of manufacture, the exemption being subsequently withdrawn before the time of clearance. Shri Ansari relied on para 9 of the judgment wherein it had been observed that excise duty would not be leviable in respect of goods manufactured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment of the Supreme Court in Civil Appeal No. 2277 of 1970 in the case of D.R. Kohli and others v. Atul Products Limited. Although the question in that case was slightly different, the decision was of relevance to the present case, because one of the questions which arose for consideration there turned on the contention that the goods under consideration were not liable for payment of excise duty when they were manufactured, that is, before the introduction of a new Item 14D in the Central Excise Tariff. With reference to this question the Supreme Court had observed that "payment of excise duty on dyes was possible only if they had been manufactured after the introduction of Item 14D into the First Schedule to the Act. Admittedly, in this case the dyes which were used by the respondent had been manufactured prior to that date". 7. Shri Ansari therefore submitted that in the present case SED should not have been levied on goods which had been manufactured prior to 1-3-1978, and that the appeal should be allowed. 8. Appearing for the Intervener, their learned Advocate, Shri A.C. Gulati, stated that while adopting the arguments of Shri Ansari had certain additional submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne before such cesser, and Section 6 of the General Clauses Act, 1897, shall apply upon such cesser as if the said sub-section had then been repealed by a Central Act. (3) The special duties of excise referred to in sub-section (1) shall be in addition to any duties of excise chargeable on such goods under the Central Excises Act or any other law for the time being in force. (4) The provisions of the Central Excises Act and the rules made thereunder, including those relating to refunds and exemptions from duties, shall, as far as may be, apply in relation to the levy and collection of the special duties of excise leviable under this section in respect of any goods as they apply in relation to the levy and collection of the duties of excise on such goods under that Act or those rules, as the case may be." Shri Raghavan Iyer laid stress on sub-section (1), which provides that the SED shall be levied and collected "in the case of goods chargeable with a duty of excise under the Central Excises Act......", and sub-section (3), which provides that the SED shall be in addition to any duties of excise chargeable on such goods under the Central Excises Act or any other law. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be found which impose such duties at stages subsequent to manufacture or production. He submitted that in the present case, reading the relevant provision, namely Section 37, it would be clear that the SED was leviable on all goods on which the basic excise duty was leviable. He further submitted that, reading the Central Excises and Salt Act and the Central Excise Rules, together, it would be found that they did not provide for the levy and collection of excise duty immediately on the production of the goods. 13. Shri Raghavan Iyer also cited the judgment of the Kerala High Court in the case of Aluminium Industries Limited v. Union of India, reported in 1984 (16) E.L.T. 183 (Ker.) = 1985 (4) ECC 1. This was a case dealing with Sections 12 and 15 of the Customs Act, corresponding to Section 3 and Rule 9A of the Central Excises and Salt Act and the Central Excise Rules. In the above judgment, it had been laid down that the chargeability and the computation of the charge (i.e. Customs duty) are both centered at the time and place of presentation of the bill of entry and payment of the duties and other charges; and that any other construction of those provisions so as to separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the new levy was applicable to all excisable goods both before and after the introduction of the Finance Bill, 1978. Secondly, for the reasons advanced by him and set out in paras 6 and 7 of the above-mentioned order, the interpretation canvassed by the Appellants and the Intervener would have the effect of rendering Rule 9A of the Central Excise Rules redundant, and therefore such an interpretation could not be supported. Thirdly, he referred to his argument set out in para 9 of the above order, namely that the description of excise duty as a tax on manufacture was a constitutional concept, but for actual assessment of duty the statute itself, namely the Central Excises and Salt Act, would have to be taken into account. 16. As regards the argument that the levy of SED in this case would amount to giving retrospective application to Section 37, Shri Raghanan Iyer submitted that there was no question of retrospectivity. The SED was expressed as a percentage of the basic excise duty and had to be levied and collected wherever basic excise duty was levied and collected. As already stated, the goods were excisable both before and after the introduction of the Finance Bill and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r manufactured in this country the levy of duty can be imposed in respect of these goods at any subsequent stage, subject to the qualification laid down by the Federal Court, the Privy Council and the Supreme Court that such levy does not impinge upon the exclusive legislative power of the State Government. 17. In the light of the above authorities Shri Raghavan Iyer submitted that even though excise duty might be grounded on production or manufacture, that was not conclusive as regards the manner of levy. In the present case, having regard to the provisions of Section 37 of the Finance Act, 1978, the SED was clearly leviable on goods which were removed after 1-3-1978. He, therefore, submitted that the appeal should be rejected. 18. Replying to Shri Raghavan Iyer, Shri Ansari controverted the proposition that because the SED was expressed as a percentage of the basic excise duty, it could be considered as on the same footing as the basic excise duty. No doubt it was an excise duty, but it was clearly a separate levy, under a separate provision of law. In this connection he referred to the decision of the Delhi High Court in the case of Khandelwal Metal and Engineering v. Union ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in dispute. The questions which have been raised before us are basically the following :- (a) whether, in the case of goods which were not excisable at the time of manufacture but were excisable at the time of removal (an excise duty having been imposed in between the two dates) such goods would be liable to the excise duty ; and (b) whether the fact that the goods were liable to basic excise duty at the time of manufacture would have a bearing on their liability to special excise duty, which was not leviable at the time of manufacture. 26. Much of the argument before us was directed to the first question. We do not think it necessary to discuss this question in great detail, as it is amply covered by decisions of the Supreme Court. In this connection it would be convenient to reproduce certain paragraphs from the order of the Tribunal in the case of Collector of Central Excise, Indore v. M/s. Parmali Wallace Limited, Bhopal (vide para 15 above) :- "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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made to the same Division Bench of the Madhya Pradesh High Court for a certificate of fitness for leave to appeal to the Supreme Court. In the second judgment, the said Division Bench refused a certificate of fitness for leave to appeal to the Supreme Court (1978 E.L.T. 690). Thereafter, an application for special leave was made to the Supreme Court, of which the result was that the Supreme Court "dismissed the SLP on merits". xxx xxx xxx 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 para 30 above. In that case, although the goods were not excisable at the time of manufacture, it was held that they would be liable to duty as applicable at the time of removal. However, as against this, there is the case of Amar Dye Chem Ltd. (vide para 23 above). In that case, a new tariff item was introduced. Certain goods were sought to be assessed to duty by the Central Excise authorities at the time of their removal (after the introduction of the new item). It was ultimately held by the Bombay High Court that it was incumbent on the excise authorities to establish that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therein is similar to the third situation, except that in the first situation the goods are excisable but exempt at the time of manufacture, whereas in the third situation the goods are not excisable at all at the time of manufacture : accordingly, the decisions cited in connection with the first situation would apply a fortiori to the third situation. 28. As seen from para 26 above, we have, in the Parmali Wallace order, cited the decisions relating to the first and the third situations. These decisions would lead to the conclusion that in such a case the goods should not be subjected to the duty which was not leviable at the time of manufacture. In the course of arguments before us in the present case, two further judgments were brought to our notice dealing with the same issue. One (vide para 6 above) was the judgment of the Supreme Court in the case of D.R. Kohli and others v. Atul Products. This is in line with the earlier judgments of the Supreme Court in the case of Kirloskar Brothers and Amar Dye Chem. The other judgment, cited by Shri Raghavan Iyer (vide para 16 above) was that of the Bombay High Court in the case of Elphinstone Spinning and Weaving Mills Company Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of removal to excise duty which became chargeable in between. We therefore hold that, considering the Special Excise Duty by itself as a duty of excise, then, in a case where it was not leviable at the time of manufacture but was imposed between the time of manufacture and the time of removal, it could not be levied and collected at the time of removal. 30. We now come to the second question, namely, whether the fact that the goods were already subject to the basic excise duty would make any difference. At this stage it would be appropriate to refer to two earlier orders of the Tribunal on this very issue, although they were not cited by either of the parties before us. One of these is the order in the case of Sirpur Paper Mills Ltd. v. Collector of Central Excise, Madras, reported in 1984 (16) E.L.T. 546, where an identical question, with reference to Section 37 of the Finance Act, 1978, was involved. In that case the Tribunal, by a majority, held that the SED was leviable, whereas the contrary view was taken by one learned Member in a dissenting order. Subsequently, in the Tribunal's Order No. C./488/1984, dated 21-7-1984, 1984 (18) E.L.T. 409 in the case of Hindustan Petrole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the State of Mysore had no authority to levy and collect the health cess on shop rent. In the course of the judgment the Supreme Court referred to the nature of duties of excise. The observations made by the Hon'ble Court in paras 20 and 21 of the majority judgment of three Hon'ble Judges (one Hon'ble Judge wrote a separate but concurring judgment), as reproduced in a headnote in the report in AIR 1967 S.C. 1512, were as follows :- "In order to be an excise duty (a) the levy must be upon 'goods' and (b) the taxable event must be the manufacture or production of goods. Further the levy need not be imposed at the stage of production or manufacture but may be imposed later. The question whether the particular levy is a levy in respect of manufacture or production of goods has to be decided on the fact of each case, but in deciding the question certain principles must be borne in mind. First, one of the essential characteristics of an excise duty is uniformity of incidence. Secondly, the duty must be closely related to production or manufacture of goods. It does not matter if the levy is made not at the moment of production or manufacture but at a later stage. If a duty has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is similar though not identical to that in the present case; and all three judgments are subsequent to the Supreme Court judgment in the Shinde Brothers case. For these reasons we do not find that the observations of the Hon'ble Supreme Court in the Shinde Brothers case would justify us in taking a decision different from the conclusion which we have reached based on the three subsequent judgments of the Supreme Court. 35. In his arguments as regards the second question, Shri Raghavan Iyer had advanced two arguments. These are :- (1) On a plain reading of the provisions of Section 37, the SED is attracted to all goods which on the date of removal were liable to the basic excise duty; and (2) even if the levy of duty were dependent on the goods having been liable to excise duty at the lime of manufacture, they should be deemed as so liable, since the basic excise duty was leviable on them. 36. As regards the first argument, it is no doubt true that if only the wording of sub-sections (1) and (3) of Section 37 is taken into account, the conclusion suggested might appear to follow. However, as was pointed out to Shri Raghavan Iyer, sub-section (4) also has to be taken int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it an excise duty. So also the fact that the SED is expressed as a percentage of the basic excise duty would not make it lose its identity as a separate and distinct levy. 39. It is in the light of this position, namely that the SED is a separate levy, that we have to consider the application of the judgments of the Supreme Court in the case of Kirloskar Brothers, Amar Dye Chem and Atul Products. It appears to us that for the purpose of applying those decisions, and considering whether the goods in question were liable to the duty of excise at the time of manufacture, we have to look solely at the duty which is sought to be applied, namely the SED, and not at some other duty, even though it may also be a duty of excise. Seen in this light, the conclusion has to be that the goods were not liable to the relevant excise duty at the time of manufacture and therefore they could not be charged to that duty at the time of removal. We must therefore, with the greatest respect to our learned Brothers who passed the majority order/order in the case of Sirpur Paper Mills Ltd. and Hindustan Petroleum Corporation Ltd. differ from the conclusion arrived at by them. 40. We would like to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision and have to reiterate, in agreement with my learned Brothers in this Reference, that- (a) while excise, indisputably, is a levy upon manufacture, [as decided in a long catena of cases right from the Province of Madras v. M/s. Boddu Paidanna and Sons - E.C.R. C84 (Federal Court) and Governor General in Council v. Province of Madras - E.C.R. C94 (Privy Council) and ending with the case of the Union of India v. Bombay Tyres International Ltd.. and others - 1983 E.L.T. 1896 and D.R. Kohli v. Atul Products - Appeal No. 2277 of 1970 (Supreme Court)], it has to be remembered, all the time, that in the method devised for the assessment of the quantum of duty, once it is leviable, and the manner of its collection, the rate in force on the date of removal assumed primacy [AIR 1967 S.C. 1564 - 1978 E.L.T. 328 - Orient Paper Mills Ltd. v. Union of India, since R9A specified the date of removal as the date with reference to which the duty payable is to be determined (AIR 1972 S.C. 2563 - 1978 E.L.T. 416 - Asstt. Collector of Central Excise, Calcutta v. National Tobacco Co. of India Ltd.). Manufacture is the point of incidence for the charge to duty, while removal is relevant for its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was all along subject to a levy under one or the other of the entries in the tariff. It is not a case of manufacture prior to the levy itself : (e) the various decisions of the Courts except the decision of the Bombay High Court in 1978 E.L.T. 680 (Union of India v. The Elphinstone Spinning and Weaving Mills Co. Ltd.) and that of the Kerala High Court in Assankutty's case can be explained on the basis of the aforesaid ratio rather than on any other. However, as observed by the learned Senior Vice-President and pointed out in the dissent in the Sirpur Paper Mills case, it does not appear that their Lordship's attention in the Bombay and Kerala cases aforesaid had been drawn to the appropriate passages in the relevant decisions of the Federal Court, the Privy Council and the Supreme Court ; (f) there is no question of giving a retrospective effect to the rate of duty applicable when, it is axiomatic that although excise is a duty upon manufacture, the method of assessment and computation of the duty payable is an accident of administration. [The Privy Council in E.C.R. C94 aforesaid]. 45. I agree that the Appeal is to be allowed. [Per : H.R. Syiam, Member]. - 46. The issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only as a percentage of the duty leviable under the Central Excise Act. It has no personality of its own. It rises or falls with the rise and fall of the basic excise duty, and when that basic excise duty becomes 0, this special duty also disappears is in entity. 49. I do not think we can import the philosophy of the Central Excise Act levy or collection of duty for the purposes of determining to what goods this special duly would apply. This special duty has a rationale of its own distinct and different from Section 3 of the Central Excises and Salt Act, 1944. It may be tempting to say that sub-section (4) of Section 37 of the Finance Act imports all the mechanisms of the Central Excise Act into the levy and collection of special duty since this sub-section says that the provisions "of the Central Excise Act and the Rules made thereunder.... shall.... apply in relation to the levy and collection of the special duties....". If tills is interpreted as that Section 3 itself will literally apply to the levy of special central excise duty, then there would be no meaning in Section 37 of the Finance Act having a process of its own to provide a scale for the application of the (spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the date of its clearance should be the price at which it is assessed to duty, except for certain deductions under the law. A more categorical rejection of the doctrine of linkage between manufacture and central excise assessment cannot be found and I am in complete respectful agreement with this ruling. It seems to me that if this judgment is understood in its fulness and true spirit, we will also have to hold that though manufacture creates assessable goods, the levy of duty on those goods is not tied to their manufacture or production, but to the system of levy and collection embodied and specified by the law, and thus to levy of the duty on the last date on which the goods remain in central excise cognizance. In this principle, it would make no difference when the good was manufactured : if, at the lime of removal for the purpose of its entry into the market, it has become dutiable, then it must pay that duty. A very close parallel is the judgment of the Supreme Court in Prakash Cotton - AIR 1979 S.C. 675. Though a decision under the Customs Act, it lays down the same principle. Here also the Supreme Court showed itself in favour of saying that the last date of the tax receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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