Full Judgment Text
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PETITIONER:
COLLECTOR OF CUSTOMS & CENTRAL EXCISE & ANR.
Vs.
RESPONDENT:
M/S. ORIENTAL TIMBER INDUSTRIES
DATE OF JUDGMENT26/03/1985
BENCH:
SEN, AMARENDRA NATH (J)
BENCH:
SEN, AMARENDRA NATH (J)
DESAI, D.A.
CITATION:
1985 AIR 746 1985 SCR (3) 475
1985 SCC (3) 85 1985 SCALE (1)627
CITATOR INFO :
R 1987 SC1576 (3)
D 1989 SC 617 (11)
ACT:
Central Excise & Salt Act 1944 First Schedule Item 16B.
Plywood circles-Manufacture of-Assessment to duty-
Determination of.
HEADNOTE:
The respondent firm is a manufacturer of plywood
circles to be used as component part of packing materials
for wire and cables. The firm used to be assessed to duty
under the Central Excise and Salt Act, 1944 on the basis of
the Total area of the circles manufactured and the duty to
be collected when the circles were issued out of the factory
premises. An audit objection was taken to this mode of
assessment on the ground that the process of cutting out
circles and punching of holes cannot be considered as
incidental or ancillary to the completion of the manufacture
of plywood, that the levy of excise duty must be on the
total area of blocks or panels of plywood that come out of
the press and not on the area of the circles made out of the
blocks or panels and that by plywood it was meant only
plywood which had a general market and not plywood circles
specially manufactured for a particular purpose or a
particular customer. Pursuant to the audit objection, the
Central Excise Range Officer issued a notice calling upon
the firm to furnish area of the plywood manufactured at the
panel stage for taking clearance of the plywood circles. It
was also mentioned that the assessment of the plywood
circles would be made at the panel stage and not on the
finished circles and directed the firm to file ARI
accordingly. The firm sent reply through an Advocate and
wanted the order of the Collector referred to in the notice,
but the same was not furnished and instead the Range Officer
issued another notice reiterating the earlier stand and
directed that duty paid on plywood panels cleared outside
the factory could not be brought back for further process of
cutting circles with prior permission.
The firm challenged the validity of the two notices
under Article 226 of the Constitution.A Single judge of the
High Court disposing of the writ petition directed the
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Collector to issue a copy of the order referred to in the
notice on the Range Officer dated 22-2-67 within a month and
on receipt on that order the firm might seek appropriate
remedies by way of appeal under the statute.
476
The Division Bench, however, allowed the appeal of the
firm and quashed the said two notices. It held that the real
dispute was as to what stage the excise duty-became leviable
on the goods, and that the blocks or panels from which the
firm cuts out circles are all unfinished products, because
they will become furnished products only when they are
trimmed and their edges are sanded.
In the appeal by the Revenue to this Court it was
contended that the plywood as and when it comes out of the
press in blocks or panels is a manufactured product known in
the market as plywood and is exigible to duty, that the
blocks or panels so manufactured do not cease to be plywood
under item 16B merely because they are not trimmed and their
edges are not sanded, that the cutting of the blocks does
not form a part of the manufacture of the plywood, that the
circles which are made by the cutting of the blocks and
punching holes into blocks and panels, do not result in the
manufacture of any different product for the purpose of
assessment to duty and that the plywood earlier manufactured
in blocks and panels when it came out of the press can be
said to constitute materials for the purpose of manufacture
of circles and becomes exigible to duty under Item 16B.
Allowing the Appeal,
^
HELD: 1. The High Court was in error in quashing the
two notices. They are valid and lawful. Item 16B makes it
clear that plywood in sheets, blocks, boards or the like
attracts excise duty.A special provision by way of exception
is made only in the case of plywood for tea-chests when cut
to size in panels or shocks and packed in sets. The
provision in Item 16B that ply wood in sheets, blocks and
board or the like, which attracts duty is in very broad
terms and the expression ’like’ includes circles. There is
nothing to indicate in this item that plywood must be
trimmed or sanded Plywood is manufactured as soon as it
comes out of the press, though the same may not be trimmed
or sanded out of which circles are to be produced. There is
nothing to indicate that plywood in panel stage not trimmed
and not sanded, is not known in the market as plywood.
Plywood when it comes out of the press at the panel stage,
therefore, clearly falls within Item 16B of the First
Schedule and the authorities were justified in seeking to
levy duty on plywood at the panel stage.
[488H; 489A-B]
2. The facts and circumstances go to indicate that the
respondent firm is a small scale industry and carried on
business on small scale. Prior to the impugned notification,
the assessment of the excise duty was made on the plywood
circles after the same had been produced and not on plywood
as and when the same came out of the press. This was the
mode of assessment adopted by the Excise Authorities and
there was no default on the part of the firm. It was‘ only
in the year 1967 the Excise Authorities sought to change the
mode of assessment because of audit objection. The
respondent assessee succeeded in the High Court. The present
was instituted in 1971 and this is being
477
disposed of in the year 1985. If the respondent firm is
saddled with all the accumulated liability on account of
excess amount of excise duty payable for all these years,
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the firm will be very seriously prejudiced and it may be
difficult to meet this liability. On the other hand, so far
as the Union of India is concerned even without this excess
amount, it had managed without any serious prejudice or
inconvenience. The excess amount is not likely to be a very
substantial sum from the point of view of Union’s financial
position and will not be of any material gain but may very
likely spell doom for the respondent firm. Apart from this
aspect, no assessment for all these years on the basis of
the said notices has been made or could have been made. To
make fresh assessment for imposition of duty for so many
years after such a long lapse of time may require a
prolonged exercise which may not ultimately be worth the
trouble and is bound to cause a great deal of hardship and
harassment to the firm. In these circumstances, the ends of
justice require that there should be no levy of excise duty
on the basis of the said notices for the years which have
already passed.
[489D-H; 490A-B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION; Civil Appeal No. 21 of
1971
From the Judgment & order dated 21.1.1970 of the Kerala
High Court in W.A. No. 820 of 1969
V.C. Mahajan, N.S. Das Bahl and R.N. Poddar for the
Appellants.
P.K Pillai and A.G. Pudissery for the Respondents.
The Judgment of the Court was delivered by
AMARENDRA NATH SEN’, J. The question for consideration
in this appeal by Special Leave is whether the plywood
manufactured by the Respondent and utilised by the
respondent in manufacturing plywood circles to be used as
component parts of packing material for wire and cables is
exigible to excise duty under the Central Excise and Salt
Act, 1944.
The respondent is a manufacturer of plywood circles to
be used as component parts of - packing materials for wire
and cables. The Respondent used to be assessed to duty under
the Central Excise and Salt Act, 1944 (hereinafter referred
to as the Act) on the basis of the total area of the circles
manufactured and the duty used to be collected when the
circles were issued out of the factory premises. On
13.2.1967 an audit objection was taken to this mode of
assessment of excise duty on the ground that the process of
cutting out circles and punching of holes cannot be
considered as incidental or ancillary to the completion of
the manufacture of plywood. The audit objection pointed out
that the levy of excise
478
duty must be on the total area of blocks or panels of
plywood that came out of the press and not on the area of
the circles made out of the blocks or panels. It was further
indicated that by plywood it was meant only plywood which
had a general market and not plywood circles specially
manufactured for a particular purpose or a particular
customer. In consequence of the audit objection, the Range
‘ Officer, Central Excise, Irinjalakuda, the appellant No. 2
herein, issued a notice on 22.2.1967 to M/s. Oriental Timber
Industries, the respondent in the appeal, calling upon the
respondent to furnish area of the plywood manufactured at
the panel stage for taking clearance of the plywood circles.
By this notice the Range Officer - also mentioned that the
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assessment of the plywood circles would be made at the
panel stage and not on the finished circles and directed
M/s. Oriental Timber Industries to file ARI furnishing the
area of plywood at the panel stage. In the notice dated
22.2.1967 issued by the Range Officer, the Range Officer had
also mentioned that the said notice was issued as the
Collector of Customs had ordered that the assessment of
plywood circles would be made at the panel stage and not on
the finished circles.
For the sake of convenience we shall describe the Range
Officer, Central Excise, Irinjalakuda who happens to be
second appellant before us as the Range Officer and we shall
refer to the Collector of Customs and Central Excise,
Cochin, the first appellant before us, as the Collector and
M/s. Oriental Timber Industries, the writ petitioner before
the High Court and the respondent before us in this appeal,
will be described as the firm.
The firm sent a reply to this notice on 23-2.1967
through the lawyer asking for a copy of the order of the
Collector referred to in the notice of the Range Officer. It
further appears that the Advocate, of the firm had also
addressed a letter on 24-2-1967 to the Collector, requesting
the Collector for, a copy of the order. No copy of the order
was furnished to the firm or the Advocate and instead the
Range Officer on 24-2-1967 issued a further notice to the
firm reiterating the stand earlier taken in the notice dated
22 2.1967 and this notice dated 24-2-1967 further directed
that duty paid on plywood panels cleared outside the factory
could not be brought back for further process of cutting
circles without obtaining prior permission.
On 28.2.1967 the firm filed a writ petition in the High
Court in which the validity of the aforesaid notice was
challenged
479
and obtained an order of stay of the operation of the
aforesaid notices The writ petition came up for final
hearing on 27.3.1969.A learned Single Judge of the High
Court passed an order to the effect that the Collector of
Customs would issue a copy of the order referred to in the
notice of the Range Officer dated 22.2.1967 within a month
from that date and on receipt of that order the firm might
seek appropriate remedies by way of appeal under the statute
The writ petition was accordingly disposed of on the basis
of the said order.
Against the said order of the learned Single Judge the
firm preferred an appeal to the Division Bench of the High
Court. For reasons recorded in the judgment delivered on
21.7.1670, the Division Bench of the High Court allowed the
appeal and quashed the said two notices.
The correctness of the judgment of the Division Bench
has been questioned in this appeal by special leave granted
by this Court. The Division Bench noted that the real
dispute was as to at what stage the excise duty becomes
leviable on the goods. The contention of the Excise
Authorities was that plywood became dutiable or excisable at
the panel stage, that is at the stage it came out of the
press, whereas the contention of the firm was that excise
duty would only be attracted when the plywood left the
factory premises in the shape of Circles, cut, trimmed and
sanded. The Division Bench referred to S.3 of the Act, which
is the charging section and also item 16B in the First
Schedule. The Division Bench also considered Rule 49(1) of
the Central Excise Rules framed under the Act.
The Division Bench proceeded to hold:-
"Item 16B itself, in our opinion throws considerable
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light on this question. Plywood and other articles
mentioned in the body of the item may be in sheets,
blocks, boards or the like, which means that the
plywood or other article may be in the shape of circles
as well. Moreover, the articles are classed into two
Sub-item (I) makes plywood for tea-chests, when cut to
size in panels or shooks and packed in sets, exisable
at 10 per cent ad valorem, and sub-item (ii) makes ’all
others’ dutiable at 15 per cent ad valorem; Evidently,
the articles mentioned in the body of Item 16B must be
exhausted by these two classes under Sub
480
items (i) and (ii). If plywood is dutiable at the state
when it comes out of the press (hydraulic press or hand
press). Sub-item (i) becomes meaningless. This item
indicates that the plywood which comes out of the press
can be cut to size in panels or shooks suitable for
making tea chests and duty is leviable only such cut
pieces. If so, the argument that the cutting of the
panels into circles is not a process in or part of
manufacturing plywood loses all significance, because
the cutting of the bigger sheets emerging from the
press into smaller panels or shooks is equally not part
of the process of manufacture of plywood but is a part
of making tea-chests. Sub-item (ii) includes ’all
others’, which evidently means that all the rest
excluding the cut panels shooks suitable for making
tea-chests mentioned in sub-item (i): this means that
all the rest of the plywood out into any other shape or
not cut."
The Division Bench further held:-
"Again, the blocks or panels from which the appellant
cuts out circles are all unfinished products, because
they will become finished products only when they re
trimmed and their edges are sanded. Therefore, the
argument that the manufacture of plywood is over the
moment the product comes out of the press cannot be
correct."
The Division Bench negatived the other contention
raised on behalf of the authorities that plywood for the
purpose of assessment is only that plywood which has a
general market with the following observations:-
"The second contention that plywood is only plywood
which has a general market cannot also stand serious
scrutiny. The panels or shooks cut to size for making
tea chests do not have a general market in that sense,
so that they stand on the same position as the circles
cut but, finished and sent out of the factory by the
appellant Moreover, this line of reasoning is not
warranted by the Act or the Rules."
The learned counsel appearing on behalf of the
Collector and the Range Officer, the appellants before us in
this appeal, has submitted that the decision of the Division
Bench is erroneous. It is
481
contended that Item 16B on which the High Court has relied
has not been properly construed. The contention is that Item
16B‘provides that plywood and other articles mentioned in
the main body of the rule may be in sheets, blocks, boards
or the like and are excisable to duty as plywood at the rate
of 15% ad valorem under sub-item (2) of the said Rule; and
sub-item (I) of the said rule makes an exception in case of
plywood for tea-chests when cut to size in panels or shooks
and packed in sets and provides duty at the rate of 10% ad
valorem. The argument is that plywood as and when it comes
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out of the press in blocks or panels is a manufactured
product known in the market as plywood and is exigible to
duty: and the blocks or panels so manufactured do not cease
to be plywood under item 16B merely because they are not
trimmed and their edges are not sanded. It has been
submitted that the cutting of the blocks does not form a
part of the manufacture of the plywood, and the circles
which are made by the cutting of the blocks and punching
holes into blocks and panels, do not result in the
manufacture of any different product for the purpose of
assessment to duty and the circles so made form part of the
plywood. It is further argued that if the making of the
circles of the plywood blocks and panels can be said to
involve any process of manufacture and the plywood earlier
manufactured in blocks and panels when it came out of the
press can be said to constitute materials for the purpose of
manufacture of circles even then the plywood in view of the
provision of Item 16B, becomes exigible to duty, when is
comes out of the press in panel or block. On behalf of the
respondent firm it has been submitted that the view
expressed by the High Court is correct and the Respondent
firm adopts the reasons stated by the High Court in the
Judgment.
The relevant provisions contained in S.3 of the Act
which‘ is indeed the charging Sections reads as follows:-
"(1) There shall be levied and collected in such manner
as may be prescribed duties of excise on all
excisable goods other than salt which are produced
or manufactured in India and a duty on salt
manufactured in, or imported by land into, any
part of India as, and at the rates, set forth in
the First Schedule. X X ‘X X x
X X X
X X X
482
(2) The Central Government may, by notification in the
official gazette, fix, for the purpose of levying
the said duties, tariff values of any articles
enumerated, either specifically or under general
headings, in the First Schedule as chargeable with
duty ad valorem and may alter any tariff values
for the time being in force.
(3) Different tariff values may be fixed
(a) for different classes or description of the
same excisable goods; or
(b) for excisable goods of the same class or
description;
(i) produced or manufactured by different
classes of producers of manufacturers;
(ii) sold to different class of buyers:
Provided that in fixing different tariff values in of
excisable goods falling under sub-clause (i) or sub-
clause (ii ), regard shall be had to the sale prices
charged by the different classes of producers or
manufacturers or, as the case may, the normal practice
of the wholesale trade in such goods".
The term ’manufacture’ in so far as the same is
relevant for the present appeal is defined in S.2 (g) of the
Act to mean: ‘manufacture’ includes any process incidental
or ancillary to the completion of a manufactured product".
Item 16B of the First Schedule as it read at the
relevant time, was :-
"PLYWOOD, BLOCK BOARD. LAMINBOARD, BATTEN BOARD, HARD
OR SOFT WALL BOARDS OR INSULATlNG BOARD, AND VENEERED
PANELS, WHETHER OR NOT CONTAINING ANY MATERIAL OTHER
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THAN WOOD; CELLULAR WOOD PANELS; BUILDING BOARDS OF
WOOD PULP OR OF VEGETABLE FIBRE, WHETHER OR NOT BONDED
WITH NATURAL OR ARTIFICIAL RESINS OR WITH SIMILAR
BINDERS; AND ARTIFICIAL OR RECONS-
483
TITUTED WOOD BEING WOOD SHAVlNGS, WOODCHIPS, SAW DUST,
WOOD FLOUR OR OTHER LIONEOUS WASTE AGGLOMERATED WITH
NATURAL OR ARTIFICIAL RESINS OR OTHER (ORGANIC BINDING
SUBSTANCES, IN SHEETS, BLOCKS, BOARDS OR THE LIKE) :"
(i) plywood for tea-chests when cut in Ten per
panels or shooks and packed in sets:ad valorem
(ii) all others.. fifteen per
cent, ad
valorem".
Rule 49 of the Central Excise Rules (hereinafter
referred to as the Rules) referred to in the course of the
arguments and also in the judgment of the High Court does
not in the facts and circumstances of this case have a
material bearing on the question in dispute. Rule 9,
however, may be noticed and the relevant provision of Rule 9
read as follows:-
"No excisable goods shall be removed from any place
where they are produced, cured or manufactured or any
premises appurtenant thereto, which may be specified by
the Collector in this behalf whether for, consumption,
export, or manufacture of any other commodity in or
outside such place, until the excise duty leviable
thereon has been paid at such place and in such manner
as is prescribed in these Rules or as the Collector may
require, and except on presentation of an application
in the proper form and on obtaining the per mission of
the proper officer on the form".
This Rule makes it clear that no excisable goods even
for consumption or manufacture of any other commodity can be
removed except on payment of excise duty.
Item 16-B in the First Schedule which we have earlier
set out contains the relevant provisions which, as the High
Court rightly pointed out, throw proper light on the
question On a careful consideration of the provisions
contained in Item 16-B, we find it difficult to agree with
the view expressed by the High Court. The main provision in
Item 16-B indicates that plywood is liable to excise duty
whether in Sheets, Blocks, Boards or the like. Sub-item (i)
484
provides that plywood for tea-chests when cut to size in
panels or shooks and packed in sets will be charged duty at
the rate of 10% ad valorem and sub-item (2) provides that in
all other cases duty will be charged, at the rate of 15% ad
valorem.A proper reading of this Item indicates that
plywood, except in case of tea chests, is liable to be
charged at the rate of 15% ad valorem whether in sheets,
blocks, boards or the like. In other words, this item makes
it clear that the excise duty is payable on plywood whether
in sheets, blocks, boards or the like at the rate of 15% ad
valorem, except is case of plywood for tea-chests; and, in
case of plywood for tea-chests when cut to size in panels or
shooks and packed in sets, duty payable is 10% ad valorem.
It is only in case of tea-chests, plywood, when cut to size
in panels or shooks and packed in sets, is to be taken into
consideration and this item does not indicate that in other
cases like making of circles, plywood in the form of circles
can be taken into account for assessment of duty. The
exceptional provision made in case of tea-chests and the
general provision made in all other cases, makes it clear
that plywood, whether in sheets, blocks, boards or the like
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has to be assessed at the stage of plywood blocks or panels
before circles are made out of the same. Whether cutting of
plywood blocks or panels into circles constitutes a
manufacturing process and whether circles made out of the
plywood blocks or panels constitute a different product from
the plywood may be debatable. There, can, however, be no
doubt that plywood is manufactured as soon as the product
comes out of the press and plywood in sheets, blocks, boards
or the like come within Item 16B, even if they are not
trimmed and their edges are not sanded, as the Item does not
speak of trimmed or sanded plywood. Even if plywood blocks
or panels manufactured by the firm can be said to constitute
the raw material of the firm for producing plywood circles
and not as the finished product of the firm, the position,
in view of the definition of ’manufacture’ as given in S. 2F
of the Act, the provisions of Rule 9 and the provisions
contained in Item 6B in the First Schedule, remains
unaltered and unaffected, and plywood manufactured for
producing circles becomes liable to duty at the block stage
or panel stage. No question of double taxation arises as
duty is leviable only once on the plywood as it comes out of
the press in the panel or block stage and no further duty is
to be levied on the circles which are made out of the
plywood blocks or panels.
The decision of this Court in Union of India v. Hind
Undivided
485
Family Business Known as Ramlal Mansukhrai, Rewari and
Anr.(l) lends support to the contention raised on behalf of
the Excise Authorities that plywood as and when the same
comes out of the press at the panel stage, even though not
trimmed and sanded, becomes liable to excise duty under Item
16B of the First Schedule. In this case the facts were
briefly as follows:-
The Hindu Joint Family Business known as Ramlal
Mansukhrai used to carry on business of manufacture of Kansi
and Brass utensils. Kansi is prepared as an alloy of copper
and tin, and brass as alloy of copper and zinc. These alloys
are prepared by melting metals and mixing them together.
These alloys are then converted into billets. These billets
were of two kinds viz of Kansi and Brass. These billets are
then sent by the respondent joint family business to their
agents who had a rolling mill and the rolling mills relied
the billets into uncut circles. Subsequently, these uncut
circles are trimmed and after further work on them, they are
converted into utensils and sold as such in the market by
the respondents. The Excise Authorities imposed Excise Duty
at the stage when the rolling mills prepared circles from
the billets under item 20-A of the First Schedule read with
S. 3 of the Act. Item 26-A of the First Schedule as noted in
the judgment reads as follows:-
"Description of goods . Rate of
duty
Copper and copper alloys containing not
less than Fifty per cent by weight of
copper:-
(1) In any crude form including ingots, Three
hundred rupees
bars, blocks, slabs, billets, shots per metric
tonne.
and pollets.
(2) Manufactures, the following namely, Five
hundred
plates, sheets, circles, strips and foils rupees per
in any form or size. metric tonne.
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(3) Pipes and tubes Ten per
cent ad
valorem."
(1) [1970] 2 S.C.C. 472
486
The Respondent Hindu Joint family business filed a suit
challenging the imposition of excise duty on circles of
Kansi and Brass prepared in the process of manufacturing
utensils. The Trial Court decreed the suit holding that the
circles were not liable to excise duty. The Appellate Court
in the first appeal and the High Court in the second appeal
confirmed the decree. The Union of India representing the
Excise Authorities preferred an appeal to the Supreme Court.
Allowing the appeal filed by the Union of India, this Court
held:-
"It appears to us that, on a plain reading of the
provisions of the Act and Item 26-A of the First
Schedule, the contention raised on behalf of the
appellant must be accepted. Under Section 3, all
excisable goods set forth in the First Schedule, which
are produced or manufactured in India, are made liable
to excise duty at the rates mentioned in the Schedule.
Item 26-A(2) clearly mentions the manufactures, amongst
others, of circles in any form or size. There can be
no dispute that what the rolling mills prepared by
rolling the billets are circles in some form or the
other and in different sizes. The contention that the
uncut circles cannot be held to be circles mentioned in
this item has, on the face of it, no force at all. Brij
Mohan, the Karta of the respondent Hindu undivided
family business, in his statement himself admitted that
the billets are sent to the rolling mills and the same
are converted into P-6 and P-7, i.e., circles or Penas.
P-6 and P-7, according to him, are a kansi circle and
brass circle respectively. He added that the rolling
mills never become the owners of either the billets P
or the circles. It is true that, at some stages, he
described these circles as uncut circles; but he did
not dispute that P-6 and P-7 are, in fact, circles as
uncut circles; but he did not dispute that P-6 and P-7
are, in fact, circles of kansi and brass. The mere fact
that they are uncut at the stage when they are prepared
after rolling by the rolling mills cannot, therefore,
mean that they are not circles and are not cove red by
that word as used in Item 26-A. No doubt, evidence has
been given that subsequently, these uncut circles are
trimmed and then converted into utensils. The argument
of learned counsel that only trimmed circles can be
treated as circles and as finished product for purposes
of Item 26-A
487
cannot be accepted because that item itself envisages
excise duty being levied on ’circles in any form or
size’. We can not understand how it can possibly be
contended that uncut circles are not circles in any
form or size. There is nothing in the item from which
an inference can be drawn that the intention of the
Legislature was to tax trimmed circles and not uncut
circles. If there had been any such intention, the
Legislature would not have used the expression ’circles
in any form’. Uncut circles are certainly one form of
circles".
It may be noted that in this decision the Court
considered the case of Union of India v. Delhi Cloth and
General Mills 1 on which reliance was placed by the counsel
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for the respondent and also the case of South Bihar Sugar
Mills Ltd. v. Union of India.2 This Court observed:-
"In our opinion, neither of these cases supports the
contention raised on behalf of the respondents, and it
appears that the ratio of these decisions has been
misunderstood by the High Court and the lower, courts.
In the case of Union of India v. Delhi Cloth and
General Mills (supra), the contention on behalf of the
Union of India was that, in the course of manufacture
of Vanaspati, the vegetable product from raw groundnut
and ’til’ oil, the respondents used to bring into
existence at one stage, after carrying out some
processes with the aid of power, what is known to the
market as ’refined oil’, and this ’refined oil’ falls
within the description of ’vegetable non essential
oils, all sorts, in or in relation to the manufacture
of which any process is ordinarily carried on with the
aid of power,’ and so is liable to excise duty under
Item 12 of the First Schedule. The Court examined the
process of manufacture of Vanaspati and found that
vegetable non essential oils as obtained by crush. a
ing containing the impurities were first produced as
raw vegetable as non-essential oils. They had then to
undergo
(1) 119631 Supp 1 SCR 586
(2)[1968] 3 SCR 21
488
the process of refining which consisted of adding an
aqueous - solution of an alkali which will combine with
the free fatty acids to form a soap and settle down
with it a large amount of suspended and mucilaginous
matter; after settling the clear supernatant layer is
drawn off and treated with an appropriate quantity of
bleaching earth and carbon is then filtered. In this
process, the colouring matter is removed and the
moisture that was originally present in the neutralised
oil will also be removed. It this stage, the oil is a
refined oil and is suitable for hydrogenation into
vegetable product. What was sought to be taxed was the
refined oil at this stage; but that contention was
rejected, because the Court held that the oil produced
at that stage is not known as refined oil to the
consumers in the commercial community and be described
as refined oil only after deodorization. Since the
process of deodorization is not carried out before that
stage, no refined oil had come f into existence and,
consequently, the oil could not be taxed as such. That
case has on applicability to the case before us where
the tax is to be imposed on circles in any form. When
the rolling mills have rolled the billets, what comes
into existence are circles known as such, even though
the are in uncut form. The product at that stage fully
satisfies the description contained in Item 26-A (2).
Similarly, the decision in South Bihar Sugar Mills
Ltd, v. Union of India and Ors. (supra) is of no help
on this point, because, again, the gas, which was
subjected to excise duty, was held by the Court not to
be carbon dioxide, while only carbon dioxide was liable
to duty. It was held that the pro ducts that came into
existence was a mixture of gases containing only a
percentage of carbon dioxide and could not, therefore,
be held to be carbon dioxide alone which could be
subjected to excise duty under Item 14-H of the First
Schedule".
Item 16-B makes it clear that plywood in sheets, blocks,
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boards the like-attracts excise duty.A special provision by
way of exception is made only in the case of plywood for tea
chests when cut to s in panels or shooks and packed in sets.
The provision in Item 1 that plywood in sheets, blocks and
board or the like which attracts
489
duty is indeed in very broad terms and the expression ’like’
does necessarily include circles. There is nothing to
indicate in this item that plywood must be trimmed or
sanded. Plywood is manufactured as soon as it comes out of
the press, though the same may not be trimmed or sanded out
of which circles are to be produced. There is nothing to
indicate that plywood in panel stage, not trimmed and riot
sanded, is not known in the market as plywood. Plywood when
it comes out of the press at the panel stage, therefore,
clearly falls within item 16-B of the First Schedule, and
the authorities concerned were therefore, justified in
seeking to levy duty on plywood at the panel stage. We are,
therefore, of the opinion that the High Court was in error
in allowing the writ petition and in quashing the said two
Notices. We must, therefore, allow the appeal and set aside
the judgment of the High Court holding that the two notices
issued which were quashed by the High Court, are valid and
lawful.
Though this appeal has to be allowed, there is one
aspect which caused us some anxiety. The facts and
circumstances go to indicate that the respondent firm is a
small scale industry and carries on business on small scale.
Prior to the impugned notification, the assessment of the
excise duty was made on the plywood circles after the same
had been produced and not on plywood as and when the same
came out of the press. This was the mode of assessment
adopted by the Excise Authorities and there was no default
on the part of the firm. It was only in the year 1961 the
Excise Authorities sought to Exchange the mode of assessment
because of audit objection. The Respondent assessee
succeeded in the High Court. The present appeal was
instituted in 1971 and this is being disposed of in the year
1985. If the respondent firm be saddled with all the
accumulated liability on account of excess amount of excise
duty payable by the respondent firm for all these years, the
respondent firm will be very seriously prejudiced and it may
indeed be difficult for the respondent firm to meet this
liability. On the other hand, these years have all rolled by
and so far as the Union of India is concerned even without
this excess amount to which the Union of India may be
entitled from the respondent, the affairs of Union of India
had been managed without any serious prejudice or
inconvenience. The excess amount which the Union of India is
likely to recover from the respondent firm is not likely to
be a very substantial sum from the point of view of Union’s
financial position and will not be of any material gain to
the Union of India but may very likely spell doom for the
respondent firm. Apart from this aspect, it appears that on
all these for all these years on the basis of the
490
said notices had been made or could have been made. To make
fresh assessment for imposition of duty for so many years
after such a long lapse of time may require a prolonged
exercise which may not ultimately be worth the trouble, so
far as the Union of India is concerned and is bound to cause
a great deal of hardship and harassment to the respondent
firm. In these circumstances, we feel that the ends of
justice require that there should be no levy of excise duty
on the basis of the said notices for the years which have
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already passed in view of our judgment and our judgment
allowing the appeal and holding the notices to be valid
should be given effect to prospectively from now on and not
retrospectively. We may observe that counsel for the Union
of India fairly agreed that this should be the just course
to adopt and the counsel fairly submitted that the Union of
India was not concerned with the collection of additional
duty for years already passed from the respondent firm but
was merely concerned with the question of law involved in
this case. The appeal is accordingly allowed to the extent
and in the manner indicated with no order as to costs.
A.P.J. Appeal allowed.
491