MANGALAM ORGANICS LIMITED vs. UNION OF INDIA

* IN THE HIGH COURT OF DELHI AT NEW DELHI
th
% Judgment reserved on: 13 October, 2015
th
Judgment delivered on: 16 February, 2016
+ WP(C) 2885/2015 & CM No.5176/2015 (stay)
MANGALAM ORGANICS LIMITED .... Petitioner
versus
UNION OF INDIA …. Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Prashant Bhushan and Mr Rohit Kumar Singh, Advocates.
For the Respondent : Mr Kirtiman Singh and Ms Prerna Shah Deo, Advocate.
CORAM:-
HON’BLE MR JUSTICE BADAR DURREZ AHMED
HON’BLE MR JUSTICE SANJEEV SACHDEVA
JUDGEMENT
SANJEEV SACHDEVA, J
1. The petitioner has filed the present petition seeking quashing of
the decision of the respondent communicated by letter dated
30.09.2014 to the effect that Notification under Section 11C of the
Central Excise Act, 1944 (hereinafter referred to as ‘the Act’) cannot
be issued for extending the benefit of not requiring to pay the Central
Excise Duty to the units manufacturing rosin and turpentine without
aid of power, except for the purpose of using electricity to pump, for

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lifting up water for condensation to the overhead tank, for the period
from 27.05.1994 to 28.02.2006 and for a writ of mandamus for
directing the respondent to issue a Notification under Section 11C of
the Act extending the benefit of not requiring the Central Excise Duty
for the units manufacturing rosin and turpentine without the aid of
power, except for the purpose of using electricity to pump, for lifting
up water to overhead tanks; for the period from 27.05.1994 to
28.02.2006.

2. As per the petitioner, there are two methods of manufacturing
rosin and turpentine from Oleo Pine Resin. One method is the
vacuum chemical treatment process which uses power in almost all
the processes and the second method is the ‘Bhatti process’ which is
entirely manual except for the use of power to operate the pump for
lifting up water to the storage tank for the purpose of condensation.
3. It is contended that the number of units adopting the first
method is around 10 whereas majority of the units (i.e., about 300) are
using the latter method and confining the use of power only for lifting
of water to overhead tanks for condensation of turpentine vapours
collected as liquid turpentine in tanks.
4. It is contended that rosin and turpentine oil manufactured
without the aid of power were exempted from Central Excise Duty

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vide Notification No.179/77-CE dated 18.06.1977. The Tax Research
Unit, Department of Revenue, Ministry of Finance, Government of
India vide its letter dated 16.01.1978, in the context of Notification
No.179/77-CE had clarified that if use of power is limited to drawing
water into the cooling tank through which turpentine vapours
condensation coils pass, the manufacture could not be said to be with
the aid of power and, therefore, all units using the Bhatti process
became entitled for exemption for excise duty.

5. The Notification dated 18.06.1977 was rescinded by
Notification No.180/86 – CE dated 01.03.1986 and superseded by
another Notification No.167/86 – CE dated 01.03.1986 under which
units manufacturing rosin and turpentine without use of power
continued to be exempted.
6. By circular No.38/38/94 – CX dated 27.05.1994, all
circulars/instructions/tariff advises issued prior to March 1986 were
withdrawn. It is contended by the petitioner that despite withdrawal
of the earlier circulars/instructions/tariff advises, all manufacturers
using Bhatti process, including the respondents, remained under the
impression that the clarification of 1978 was still in operation. As no
excise duty was levied on any of the Bhatti units till 2003/2004, when
for the first time show cause notices were issued to two units one
being the petitioner’s unit.

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7. It is contended that thereafter by Notification No.21/2006 – CE
dated 01.03.2006, the Notification dated 01.03.1986 granting
exemption from excise duty to those units manufacturing without the
aid of power was also rescinded.
8. The dispute pertains to the period from 27.05.1994 to
28.02.2006. It may be noted that by circular dated 27.05.1994, all
previous circulars issued prior to March 1986 had been withdrawn
and by Notification dated 01.03.2006, the exemption was completely
withdrawn.
9. As per the petitioner, the petitioner as well as the respondents
were under the impression that no excise duty had to be levied on all
Bhatti units during the said period. Various show cause notices had
been issued to the petitioner demanding duty on the clearances made
during the said period.
10. On representations made by the trade organizations, survey and
resurvey were conducted in respect of the contentions of the
manufacturer organizations that excise duty should not be levied
during the said period. Consequent upon the survey and resurvey, the
Finance Ministry by its letter dated 30.09.2014 communicated to the
Excise Commissioner that requests of All India Manufacturers
Organization for reconsideration of the issue and to extend the benefit

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of Section 11C had been examined and the case was not found fit for
issuance of 11C Notification. In this premise, the petitioners have
filed the present petition seeking quashing of the decision
communicated by the letter dated 30.09.2014 that the case has not
been found fit for issuance of Notification under Section 11C and,
further, for a mandamus for directing the respondents to issue the
Notification under Section 11C of the Central Excise Act, 1944 for
extending the benefits of not recovering the Central Excise Duty
from the units manufacturing rosin and turpentine without the aid
of power, except for the purpose of using electricity to pump
water to overhead tank, for the period from 27.05.1994 to

28.02.2006.
11. Section 11C of the Act reads as under:-

(1) Notwithstanding anything contained in this
Act, if the Central Government is satisfied-
(a) that a practice was, or is, generally prevalent
regarding levy of duty of excise (including
non-levy thereof) on any excisable goods;
and
(b) that such goods were, or are, liable-

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(i) to duty of excise, in cases where
according to the said practice the duty
was not, or is not being, levied, or
(ii) to a higher amount of duty of excise
than what was, or is being, levied,
according to the said practice, then,
the Central Government may, by
notification in the Official Gazette,
direct that the whole of the duty of
excise payable on such goods, or, as
the case may be, the duty of excise in
excess of that payable on such goods,
but for the said practice, shall not be
required to be paid in respect of the
goods on which the duty of excise
was not, or is not being, levied, or
was, or is being, short- levied, in
accordance with the said practice.]

(2) Where any notification under sub- section
(1) in respect of any goods has been issued, the
whole of the duty of excise paid on such goods or,
as the case may be, the duty of excise paid in
excess of that payable on such goods, which would
not have been paid if the said notification had been
in force, shall be dealt with in accordance with the
provisions of sub- section (2) of section 11B:
Provided that the person claiming the refund of
such duty or, as the case may be, excess duty,
makes an application in this behalf to the Assistant
Collector of Central Excise, in the form referred to
in sub-section (1) of section 11B, before the expiry

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of six months from the date of issue of the said
notification."

12. A reading of Section 11C shows that the Central Government is
empowered not to recover duty of excise where a practice was
generally prevalent regarding levy of duty including non-levy thereof
and where according to the said practice the duty was not levied or is
not being levied or short levied. However, it is only in a case where
the Central Government is satisfied that a practice was, or is,
generally prevalent that the Central Government by notification may
direct that whole of the duty of excise payable on such goods, or, as
the case may be, the duty of excise in excess of that payable on such
goods, but for such practice, shall not be required to be paid in respect
of the goods on which the duty of excise is not or was not being levied
or was, or is being, short levied in accordance with the said practice.
13. We may note that the petitioners in the writ petition themselves
have mentioned that show cause notices were issued to the petitioners
as well as to one M/s Gurukripa Resins Pvt. Ltd., Nagpur.
14. M/s Gurukripa Resins Pvt. Ltd. had challenged the show cause
notice but the Deputy Commissioner as well as the Commissioner
(appeals) held against M/s Gurukripa Resins Pvt. Ltd. The Custom
Excise & Service Tax Appellate Tribunal (hereinafter referred to as

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the Tribunal) by its judgment dated 14.01.2004 allowed the appeal by
M/s Gurukripa Resins Pvt. Ltd..
15. The Tribunal held that the clarification letter dated 16.01.1978
was binding on the Department and on Commissioners (appeals). It
further held that in the process of manufacture no power is used and
the fact that water is pumped up to the overhead tanks does not
amount to manufacture with the aid of power, hence, M/s Gurukripa
Resins Pvt. Ltd. was entitled to the benefit of the exemption.

16. The petitioners likewise had challenged the show cause notices
issued to the petitioners. The Commissioner, Central Excise, Raigad
following the judgment of the Tribunal in M/s Gurukripa Resins Pvt.
Ltd. held that it would be incorrect to hold that the circular dated
27.05.1994 had withdrawn the clarification issued vide letter dated
16.01.1978 and, therefore, the clarification continue to hold. The
Commissioner, Central Excise, Raigad, accordingly, directed the
dropping of the proceedings of the show cause notices issued to the
petitioners. The Department filed an appeal against the order of the
Commissioner dropping of show cause notices in the case of the
petitioner before the Tribunal.
17. Meanwhile, as the Department had filed an appeal against the
decision of the Tribunal in M/s Gurukripa Resins Pvt. Ltd. before the

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Supreme Court, the Tribunal kept the appeal of the Department in the
petitioner’s case pending to await the decision of the Supreme Court
in M/s Gurukripa Resins Pvt. Ltd..
18. The Supreme Court by its judgment dated 11.07.2011 in the
case of M/s Gurukripa Resins Pvt. Ltd., (2011) 13 SCC 180) , held
that the process of lifting of water into cooling tank was integrally
connected with the manufacture of its goods and, hence, if power is
used for lifting of water, the exemption would not be available. The
Supreme Court further held that the circular of 1978 was not
applicable since the same stood withdrawn in 1994.
19. In view of the decision of the Supreme Court, the Tribunal
upheld the show cause notices in the case of the Petitioner, however,
held that the Department could not go beyond the limitation period of
one year to recover the excise duty. Both the Department as well as
the petitioners have challenged the said decision of the Tribunal
before the High Court of Judicature at Bombay and it is submitted that
the appeals are pending.
20. The above narration of facts clearly establish that the Supreme
Court in identical circumstances in the case of M/s Gurukripa Resins
Pvt. Ltd. has already held that the benefit of Notification would not be
available. Accordingly, the petitioner cannot claim the said relief in

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these proceedings. The categorical finding in the case of M/s
Gurukripa Resins Pvt. Ltd. (supra) is that the use of pump for lifting
water would amount to manufacturing with the aid of power and the
clarification of 1978 was deemed to have been withdrawn from
27.05.1994 and, thus, the units using pump for lifting water would not
be entitled to exemption from the period 27.05.1994 to 28.02.2006.
21. In view of the findings returned by the Supreme Court in the
case of M/s Gurukripa Resins Pvt. Ltd., which manufacturing unit was
admittedly identically situated as that of the petitioner’s unit, the
petitioner cannot, thus, seek the benefit of quashing of the decision
communicated by the Ministry of Finance by letter dated 30.09.2014.
22. Furthermore, as is evident from reading of Section 11C of the
Act, the said Section grants a discretionary power to the Government
to issue or not to issue such a notification. The said provision does
not mandate the Government to issue such a notification. The said
provision only empowers the Government to issue such a notification.
It is not obligatory on the Government to issue such a notification in
all circumstances. In facts and circumstances, the Government may or
may not issue such a notification even though the Government may be
satisfied that a notification is required to be issued.

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23. It is stated in the counter affidavit that the policy of the
Government is not to issue a notification under Section 11C when it
benefits only a few assessees. The policy, as stated, is that when a
large section of trade is affected and relief is proposed to be given,
notification under Section 11C is issued. When only a few assessees
would benefit then the notification is not issued. Discretion of the
Government is justifiably used only when larger public interest is
involved otherwise the decision would appear to favour a selected
few. It is further contended in the counter affidavit that issuance of
such a notification would lead to overriding the decision of the
Supreme Court in M/s Gurukripa Resins Pvt. Ltd., which was one of
the parties involved.
24. The decision of the Central Government has been taken on the
basis of the survey and resurvey conduced. It is contended that a
notification, if issued under Section 11C, would benefit only two
units, the petitioner and M/s Gurukripa Resins Pvt. Ltd.
25. As noticed above, the power under Section 11C is discretionary
and it is not mandatory for the Government to issue a notification
under Section 11C under all circumstances. As emerges from the
counter affidavit, the policy of the Government is to issue such a
notification only if it benefits a large section of the trade and not if it
benefits only a few assessees. As per the respondent, only two

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manufacturers would be affected by such a notification. The
Government has taken a decision not to issue such a notification as it
would benefit only two assessees and would also amount to overriding
the decision of the Supreme Court in the case of one of such
assessees. We do not find any fault with such a view and decision of
the Government. We are further of view that discretion is granted to
the Government to issue or not to issue such a notification and the
discretion has been exercised after conducting survey and resurvey
and on a justifiable ground, the said decision, in our view, does not
require any interference.
26. In view of the above, the decision of the Government not to
issue a notification under Section 11C cannot be faulted and, further,
no mandamus can be issued to the respondent to issue such a
notification.
27. In view of the above, we find no merit in the petition. The
petition is accordingly dismissed leaving the parties to bear their own
costs.
SANJEEV SACHDEVA, J

BADAR DURREZ AHMED, J
February 16, 2016
st

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