Full Judgment Text
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PETITIONER:
N.B. SANJANA, ASSISTANT COLLECTOR OF CENTRAL EXCISE, BOMBAY
Vs.
RESPONDENT:
ELPHINSTONE SPINNING & WEAVING MILLS CO. LTD.
DATE OF JUDGMENT22/01/1971
BENCH:
VAIDYIALINGAM, C.A.
BENCH:
VAIDYIALINGAM, C.A.
SHELAT, J.M.
CITATION:
1971 AIR 2039 1971 SCR (3) 506
CITATOR INFO :
R 1991 SC 456 (5)
ACT:
Central Excise Rules, 1944, rr. 9, 10 and 10A-Scope of.
’Levy’, ’Short Levy’ ’paid’ in r. 10, meaning of.
HEADNOTE:
Under r. 8 of the Central Excise Rules, 1944, made under the
Central Excise and Salt Act, 1944 the Central Government
issued a notification exempting cotton fabrics from excise
duty. The respondents owned a textile mill and factory.
They manufactured grey cloth which- was removed from the
mill and kept in a godown and later removed to the factory
for being processed into leather cloth which was stored in
another godown in the factory, from where it was taken Out
as finished product. The removal at each stage was done
after filling the prescribed forms and with the permission
of the Excise Inspector Incharge. In each of the forms
filled by the respondents upto July 30, 1960. the Excise
Inspector had made an assessment showing the rate of duty
and the amount of total duty payable as ’nil’. Later, the
excise authorities thought the goods were not of the
description exempted under the notification and on November
3, 1961, two notices were issued calling upon the respon-
dents to make certain payments, one under r. 10A and the
other under r. 9 of the Rules. The respondents protested
and filed a writ petition in the High Court. The High Court
held that the proper rule applicable was r. 10 but that as
the demand notices were not issued within 3 months .Is
required by that rule, the notices were illegal and void.
In appeal to this Court,
HELD : (1) Rule 10A cannot apply when a short levy is made
,through error or misconstruction on the part of an officer
as such a case is specifically provided for by r. 10,
because, r. 10A deals with residuary powers and does not
apply when specific provision for collection of duty is
provided or by other rules. [516 H; 517 A: 521 D]
(2) The proper provision under which action should have
been taken, if at all, is r. 10. Under r. 10, when duties
or charges have been shortlevied through inadvertence,
error, collusion or Misconstruction on the part of an
officer, the person chargeable with the duty or charge shall
pay the deficiency on written demand being made within three
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month from the date on which the duty or charge was
paid. Though the words used are ’short-levied’ and paid,
in order to attract r. 10 it is not necessary that some
amount of duty Should have been assessed and that the said
amount should also have been actually paid. It
will apply even duty later on assessed must be considered to
be the duty originally short-levied. 1519 F-G; 520 E-F; 521
D-E]
(a) The expression ’levy’ is not used in the Act or the
Rules as meaning actual collection, because, s. 3(1) of’
the Act use.,,, both the ’levied’ and ’collected’. 1514 G-H]
507
(b) The expression ’paid’ in r. 10 should not be read in a
vacuum and it will not be right to construe it literally as
’actually paid’. The word will have to be understood and
interpreted in the context in which it appears. If the
literal construction is accepted, then in a case where an
assessee, in collusion, manages to have a very petty amount
of duty assessed, he can, if he paid the amount, effectively
plead limitation of three months, but, when no duty has been
levied there would, be no period of limitation, a result
which would be anomalous. Therefore, the proper
interpretation to be placed on the expression ’paid’ is
’sought to have been paid.’
(c) This interpretation will not cause any difficulty in
calculating the period of three months. The Act and the
Rules provide very elaborately the stage and the time when
the duty is to ’be paid and that must be considered to be
the stage,or time when the duty ’ought to have been paid’,
and the period of three months will be counted from that
time. [519 G-H]
Gursahai Saigal v. C.I.T. Punjab, [1963] 3 S.C.R. 893
followed,
Allen v. Thorn Electrical Industries Ltd. (1968) 1 Q.B. 487,
referred to.
(3) Rule 9 does not also apply to the facts of the case.
Rule 9(1) provides for the time and manner of payment of
duty. To attract r. 9(2) the goods should have been removed
in contravention of sub-r. (1), that is, clandestinely and
without assessment; but in this case there is no such
clandestine removal without assessment. Moreover, sub-r.
(2) is a penal provision applicable where there is evasion
of payment of duty, since the party is also made liable to a
penalty and confiscation. [520 G-H; 521 A-C]
J. K. Steel v. Union. [1969] 2 S.C.R. 481, followed.
Therefore, the demands having been made long after the
expiry of the period of three months referred to in r. 10,
the demands are not valid,
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1467 of 1967.
Appeal from the judgment and order dated July 1, 2, 1965 of
the Bombay High Court in Appeal No. 69 of 1963.
V. A. Seyid Muhammad and S. P. Nayar, for the appellants.
C. K. Daphtary, Anil B. Diwan, Suresh A. Shroff, Ravinder
Narain and O. C. Mathur, for the respondent.
S. J. Sorabjee and O. C. Mathur, for the intervener.
The Judgment of the Court was delivered by
Vaidialingam, J This appeal by certificate is directed
against the judgment and order of the Division Bench of the
Bombay High Court dated July 1/2, 1965 confirming the
decision dated August 6/7, 1963 of the learned Single Judge
in Miscellaneous petition No. 20 of 1962 quashing the two
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notices of demand dated November 3, 1961 issued by the
second appellant as also the notice dated December 2, 1961
issued by the first appellant for payment of the amount
covered by the said two notices.
The circumstances leading up to the filing of the writ
petition may be mentioned.’, The respondents own a textile
mill at
508
Elphinstone Road, Parel, Bombay where they manufacture,
inter alia, grey cloth. They also have a factory situated
at Tulsi Pipe Lane Road, Bombay for processing grey cloth
into various other .goods like leather cloth, book binding
cloth and other coated fabrics. Under s. 3 of the Central
Excise and Salt Act, 1944 (hereinafter to be referred as the
Act) duty is Imposed on all ,excisable goods produced or
manufactured in India at the rates set forth in the First
Schedule to the Act. Item 19 of the First Schedule includes
cotton fabrics. Section 3 of the Act provides that excise
duty is to be collected in such manner as may be prescribed
by rules made under the Act. On cotton fabrics additional
excise duty called handloom cess is also imposed under the
additional Duties of Excise (Goods of Special Importance)
Act, 1957 and Khadi and other Handloom Industries
Development (Additional Excise Duty on Cloth) Act, 1953,
respectively. Under :S. 37 of the Act, the Central
Government has made rules called the Central Excise Rules,
1944 (hereinafter to be referred as the ,Rules). Rule 8
gives power to the Central Government to exempt by
notification subject to such conditions as may be specified
therein any excisable goods from whole or any part of duty
leviable on such goods. Accordingly the Central Government
issued a notification Ex. A dated January 5, 1957 exempting
cotton fabrics mentioned therein wholly from excise duty.
hem No. 2, related to ’leather cloth and inferior or
imitation leather cloth ordinarily .Used in book binding’.
The exemption granted in respect of this item and another
item was withdrawn by the Central Government with effect
from July 30, 1960 by notification Ex. D dated July 29,
1960.
There does not appear to have been any controversy before
the High Court that the two notices dated November 3, 1961
and the notice dated December 2, 1961 related only to goods
falling under item No. 2. of the notification Ex. A. The
respondents between July 4, 1958 and July 30, 1960
manufactured grey cloth in the textile mill and sent some of
those items to their factory for being processed and
manufactured into leather cloth and imitation leather cloth.
During the material period the company used to manufacture
grey, cloth and used to store them in a bonded godown.
Periodically they used to send to the factory such quan-
tities of grey cloth as were required after filling in the
necessary forms prescribed by the rules and after obtaining
the necessary permission in the manner prescribed by the
rules from the Excise Inspector Incharge of the textile
mill. The respondents had, however, not obtained the
requisite licence and so they paid excise duty on grey-cloth
manufactured in their mill during the period July 4, 1958
and July 30, 1960 manufactured grey cloth in the
manufacturing leather cloth and imitation cloth. The
respondents later on obtained the necessary licence with the
result that
509
they became entitled to remove the grey-cloth manufactured
at their textile mill to their factory without paying excise
duty on the grey-cloth at the time when the goods were
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removed. The grey-cloth so removed after September 30, 1959
and before July 30, 1960 used to be kept in the bonded
godown. Those goods were removed to the factory after
filling up the necessary forms and obtaining the permission
of the Excise Inspector Incharge of the factory. The grey-
cloth after it was processed and made into leather cloth or
imitation leather cloth was again stored in another bonded
godown in the factory and they were removed by the company
as finished products after filling in form A.R.I. prescribed
by the rules. There is again no dispute that in each of
these A.R.I. forms the company had shown and made a declara-
tion that the excise duty payable on the goods governed by
the forms was ’nil’. Under the heading ’Assessment
Memorandum.’ in the said form the particulars regarding rate
of duty and amount of total duty payable on the goods
referred to in the form had to be filled up and signed by
the Excise Inspector. There is no controversy that in each
of the A.O.1. forms filed by the respondents during the
period July 4, 1958 and July 30, 1960, the Excise Inspector
Incharge, Leather Cloth Division has made an assessment in
the appropriate portion of those forms showing the rate of
duty and the amount of total duty payable as "nil’ and has
affixed his signature under such ’Assessment Memorandum’.
Therefore, it will be seen that all the goods removed by
the, respondents during the said period were shown by them
as not liable to pay any excise duty and were also assessed
by the Excise Inspector as not liable to pay any duty.
Later on, the excise authorities appear to have entertained
some doubt whether the goods covered by these A.R.I. forms
were of the description exempted under item No. 2 of the
notification Ex. A. Some correspondence took place between
the department and the respondents. On November 3, 1961,
the second appellant issued two notices marked Ex. G. The
first notice- issued under rule 10A required the respondents
to pay a sum of Rs. 1,07,146,39. In the particulars of
demand it was stated that the amount represented duty on
leather cloth manufactured out of (i) non-duty paid cloth
and (ii) duty paid cloth cleared without payment of duty
from October 1, 1959 to March 31, 1960.
The second notice of the same day issued under rule 9 called
upon the respondents to pay a sum of Rs. 1,502,24
representing the extra processing duty on leather cloth
manufactured out of duty paid cloth from July 4, 1958 to
September 30, 1959.
These two notices were followed by the first appellant by
issuing a letter of demand dated December 2, 1961, Ex. H,
calling
510
upon the respondents to pay up the amount as per the notice
issued by the second appellant. The respondents were
advised that if they are aggrieved with the decision they
may go up in appeal to the Collector of Central Excise,
Bombay. The respondents sent a reply dated December 28,
1961 Ex. I, contesting validity of the notices dated
November 3, 1961 and December 2, 1961. They objected to the
demand on the ground that the notices were illegal and
neither rule 9 nor rule 10A gave power to the authorities to
issue such notices. They further contended that the demands
were barred by time. The respondents also addressed a
letter on the same lines to the Central Board of Revenue.
As there was no favourable response from the appellants
they, filed the writ petition, out of which these
proceedings arise, in the High Court to quash Exhibits G and
H.
The respondents contended before the High Court that neither
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rule 9 nor rule 10A gave power to the appellants to issue
the demand notices. Their stand was that if at all it was
rule 10 that applied and as the demands have been made long
after the period of three months prescribed in the said
rule, the notices were illegal and void.
On behalf of the appellants it was urged that rule 10 has no
application as that rule will apply only when duties and
charges have been ’short levied’. As initially no amount
has been levied in this case, rule 10 has no application.
According to the appellants the rule applicable was rule
10A. Alternatively it was contended that if rule I OA did
not apply, the demands made by them were amply covered by
rule 9(2).
The learned Single Judge accepted the contention of the res-
pondents and held that rule 10 applied and as the demand
notices had been issued long after the expiry of three
months, Ex. G and H, the notices, were illegal and void.
In this view the learned Single Judge quashed the said
notices. On appeal the Division Bench confirmed the order
of the learned Single Judge.
This is a convenient stage to refer to the relevant rules.
They are rules 7, 9, 10, 10A, 52 and 52A(1). We have
already referred to the fact that the rules have been made
by the Central Government under S. 37 of the Act. Those
rules, referred to above, are as follows :
"(7) Recovery of Duty :-Every person who produces, cures, or
manufactures any excisable goods, or who stores, such goods
in a warehouse, shall pay the duty or duties leviable on
such goods, at such time and place and to such person as may
be designated, in or
511
under the authority of these Rules whether the payment of
such duty or duties is secured by bond or otherwise.
(9) Time and manner of payment of duty:-
(1) 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 permission of the proper officer on the form;
Provided that such goods may be deposited without payment of
duty in a store-room or other place of storage approved by
the Collector under rule 27 or rule 47 or in a warehouse
appointed or licensed under rule 140 or may be exported
under bond as provided in rule 13;
Provided further that such ’goods may be removed on part-
payment of duty leviable thereon if the Central Government,
by notification in the Official Gazette, allow the goods to
be so removed under rule 49;
Provided also that the Collector may, if he fit instead of
requiring payment of duty in respect of each separate
consignment of goods removed from the place or premises
specified in this behalf, or from a store-room or warehouse
duly approved, appointed or licensed by him keep with any
person dealing in such goods an account-current of the
duties payable thereon and such account shall be settled at
internal, not exceeding one month and the account-holder
shall periodically make deposit therein sufficient in the
opinion of the Collector to cover the duty due on the goods
intended to be removed from the place of production, curing,
manufacture or storage.
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(2) If any excisable goods are, in contravention of sub-
rule (i) deposited in, or removed from, any place specified
therein, the producer or manufacturer thereof shall pay the
duty leviable on such goods upon written demand made by the
proper officer, whether such demand is delivered personally
to him, or is left at his dwelling house, and shall also be
liable to a penalty which
512
may extend to two thousand rupees, and such goods shall be
liable to confiscation.
(10) Recovery of duties or charges short-levied, or
erroneously refunded-
When duties or charges have been short-levied through
inadvertence, error, collusion or mis-construction on the
part of an officer, or through misstatement as to the
quantity, description or value of such goods on the part of
the owner, or when any such duty or charge, after having
been levied, has been owing to any such cause, erroneously
refunded, the person chargeable with the duty or charge, so
short-levied, or to whom such refund has been erroneously
made, shall pay the deficiency or pay the amount paid to him
in excess, as the case may be, on written demand by the
proper officer being made within three months from the date
on which the duty or charge was paid or adjusted in the
owners account-current, if any, or from the date of making
the refund.
(10-A) Residuary powers for recovery of sums due to
Government-
Where these Rules do not make any specific provision for the
collection of any duty, or of any deficiency in duty if the
duty has for any reason been short levied, or of any other
sum of any kind payable to the Central Government under the
Act or these Rules, such duty, deficiency in duty or sum
shall, on a written demand made by the proper officer, be
paid to such person and at such time and place, as the
proper officer may specify.
(52) Clearance on payment duty-
When the manufacturer desires to remove goods on payment of
duty, either from the place or a premise specified under
rule 9 or from a store-room or other place of storage
approved by the Collector under rule 47, he shall make
application in triplicate (unless otherwise by rule or order
required) to the proper officer in the proper Form and shall
deliver it to the officer at least twelve hours (or such
other period as may be elsewhere prescribed or as the
Collector may in any particular case require or allow)
before it is intended to remove the goods.
The officer, shall, thereupon, assess the amount of duty
due on the goods and on production of evidence
513
that this sum has been paid into the Treasury or paid in the
account of the Collector in the Reserve Bank of India or the
State Bank of India, or has been despatched to the Treasury
by money-order shall allow the goods to be cleared.
52A-(1) Goods to be delivered on a Gatepass-
No excisable goods shall be delivered from a factory except
under a gatepass in the proper Form or in such other form as
the Collector may in any particular case or class of cases
prescribe signed by the owner of the factory and
countersigned by the proper officer.."
Dr. Syed Mohammad, learned counsel for the appellants urged
that going by a plain reading of rule 10, it is clear that
the said rule will apply only to cases : (1) when an
assessment has been made that same amount is due as duty
and(2) when the said amount so assessed has been paid by the
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party concerned. In this case, he pointed out, there has
been, no doubt, an order of assessment passed when the goods
were cleared by the party, but that order of assessment was
not one making the party liable to pay any duty, on the
other hand, it was an order of ’nil assessment’ under which
the party was to pay no duty whatsoever. In consequence of
such assessment, no duty having been paid, it cannot be
stated that there has been a short levy for any of the
reasons mentioned in rule 10. According to the learned
counsel rule 10 will apply only when there has been an
assessment making the party liable to pay some ,duty and
that amount so assessed has also been actually paid or
adjusted by the party, as the case may be. When later on it
is found that the amount so levied and paid falls short of
the correct amount that ought to have been levied and paid
by the ,party, rule 10 will stand attracted. In this
connection he placed very great reliance on the concluding
part of rule 10 where a period of three months by way of
limitation has been provided for calling upon the party to
pay the deficiency and the period of three months is to be
calculated "from the date on which the duty or charge was
paid...... He stressed that the use of the expression "paid"
clearly indicates that some duty must have been actually
paid by a party on a particular date and if that were not
so, it would be difficult to calculate the period of three
months within which a party can be called upon to make good
the deficiency. The counsel also urged that the word ’levy’
in rule 1 0 means actual collection and that short levy,
therefore, denotes that full duty has not been collected.
He also urged that rule 10A covers all cases of short levy
or non-levy for any reason whatsoever and the notices issued
by the appellants in this case are legal and valid. He
finally urged that even if it is held that rule 10A does not
514
apply , the notices could be sustained under rule 9(2) in
as much the respondents have removed the goods without
payment of duty in contravention of rule 9(1). The mere
fact that one of the notices issued on November 3, 1961
refers to rule 10A is not ,on that ground invalid when the
authorities have ample., power to issue, such notices under
rule 9(2).
Mr. Daphtary, learned Counsel for the respondents and Mr.
Sorabjee, learned counsel for an intervener, have both
contended that the notices issued by the appellants squarely
come under rule 10 and as they have been issued beyond the
period of three months, they have been rightly held to be
invalid and illegal. ’Though the words used in rule 10
"duty or charge so paid", reading the rule as a whole it is
clear that the rule does not contemplate that any amount
should have been levied as a duty and that the said amount
should have been paid. ’Me word "paid" has only been used
to provide a starting point of limitation of three months.
Though the ordinary meaning of the expression "paid" is that
some amount should have been actually paid as such, both the
counsel pointed out, that the said word should be construed
in the context in which it appears. So read, it is pointed
out that the proper interpretation to be placed on the word
"paid" is that it has been used to denote the stage or time
when the duty or ,charge ought to have been paid. Such a
reading will not do any violence to the language of rule
10. It is further pointed out that the expression "short
levied" in rule 10 will cover cases not only levy of smaller
amount that what is due but also of making the party not
liable to pay any duty. In one case the short-levy will ’be
the difference of the amount actually levied and the correct
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amount due; and in the other case the short levy will be the
entire amount of duty that is found to be actually due by a
party. Ile counsel further pointed out that rule 10A will
apply only to those ,cases where no specific provision for
collection of duty or any deficiency in duty has been made
by the rules and that will apply also to any other sum of.
any other kind payable to the Central Government under the
Act or the Rules. In this case, as the party admittedly has
been assessed to ’nil duty’ by the officers concerned and
allowed to remove the goods, the specific provision for
recovery of any short-levy is specifically provided for by
rule 10, which will exclude rule 10A. On these grounds,
both the ,counsel urged, that the High Court was right in
holding that rule 10 applies and that the notices having
been issued beyond the period of three months are illegal
and invalid.
We are not inclined to accept the contention of Dr. Syed
Mohammad that the expression ’levy’ in rule 10 means actual
collection of some amount. The charging provision section
3(i) specifically says "There shall be levied and collected
in such, a
515
manner as may be prescribed ’the duty of excise...... It is
to be noted that sub-section (i) uses both the expressions
,levied and collected" and that clearly show that the
expression "levy" has not been used in the Act or the Rules
as meaning actual collection. Dr. Syed.Mohammad is, no
doubt, well founded in his contention that if the appellants
have power to issue notice either under rule 10A or rule
9(2), the fact that the notice refers specifically to a
particular rule, which may not be applicable, will not make
the notice invalid on that ground as has be held by this
Court in J. K. Steel Ltd. v. Union of India(1) :
If the exercise of a power can be traced to a legitimate
source, the fact that the same was purported to have been
exercised under a different power does not vitiate the
exercise, of the power in question. This is a well settled
proposition of law. In this connection reference may
usefully be made to the decisions of this Court in B.
Balakotaiah v. The Union of India and ors (2 ) and Afzal
Ullah v. State of U.P.(3).
In this case, the officer who issued the two notices is
competent to make demands under both rules 9(2) and rule 10-
A. But in order to sustain the validity of the demand
either under rule 9(2) or rule 10-A, the appellants will
have to go further and establish that the demands can be
justified under either of the rules.
Before we deal with the contentions of the learned counsel
we may state that rule 10-A was incorporated because of the
decision of the Nagpur High Court in Messrs Chhotabhai
Jethabhai Patel v. Union of India(4). The assessees in that
case were a firm of tobacco merchants and manufacturers of
bidis holding licence under the Central Excise Rules. On
the introduction in Parliament of Bill No. 13 of 1951 on
February 28, 1951, the assessees paid the requisite duty on
tobacco stored by them under the declared provision read
with sections 3 and 4 of the Provincial Collection of Taxes
Act, 1931. The assessees cleared tobacco from the warehouse
between March 1, 1951 and April 28, 1951, after obtaining
clearance certificates from the Range Officer, Central
Excise. The rate of duty payable on un-manufactured tobacco
was increased by the Finance Act of 1951. On June 4, 1951 a
demand was made by the Range Officer, Central Excise at the
increased rate and the assessees therein were asked to pay
the said increase. The assessees challenged the demand
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before the High Court under Art. 226 of the Constitution on
various grounds. The Nagpur High Court held that rule 10
did not apply and that the demand was invalid.
(1) [1969] 2 S.C.R.481.
(3) [1964] 4 S.C.R. 991.
(2) [1958] S.C.R 1052.
(4) I.L.R. [1952] Nag., 156.
516
After the decision of the Nagpur High Court, the Central
Government by a notification dated December 8, 1951 amended
the Central Excise Rules, 1944 by the addition of a new rule
10-A. On the basis of this rule in respect of the same
assessees a further and fresh demand was made for payment of
duty as per’ the Finance Act, 1951. The assessees
challenged the validity of the demand on the same ground as
before. The Full Bench of the Nagpur High Court rejected
the assessees’ contention and held that rule 10A covers a
case for increased levy on the basis of a change of law.
This decision was sought to be challenged before this Court
but without any success. In fact this Court in Chhotabhai
Jethabhai Patel and Co. v. The Union of India and another(1)
specifically rejected the assessees’ claim regarding non-
applicability of rule 10A stating that it had been
specifically designed "for the enforcement of a demand like
the one arising in the circumstances of the case". The
decision of this Court is an illustration of certain types
of cases to which rule 10-A will apply.
This now takes us to the question of proper interpretation
to be placed on the expression "short-levied" and "paid" in
rule 10. Does the expression "short-levied" mean that some
amount should have been levied as duty as contended by Dr.
Syed Mohammad or will that expression cover even cases where
the assessment is of ’nil duty’, as contended by Mr.
Daphtary. What is the meaning of the word "paid" in rule 10
? It is contended on behalf of the appellants that it means
"actually paid", whereas, according to the respondents’, it
means "ought to have been paid". Taken literally, the word
"paid" does mean actually paid in cash. That means that a
party or an assessee must have paid some amount of duty
whatever may be the quantum. If this literal interpretation
is placed on the expression "paid" in rule it is needless to
state that it will support in a large measure the contention
of Dr. Syed Mohmmad that rule 10 contemplates a short-levy
in the sense ,that the amount which falls short of the
correct amount has been assessed and actually paid. In our
opinion, the expression "paid" should not be read in a
vacuum and it will not be right to construe the said word
literally, which means actually paid. That word will have
to be understood and interpretted in the context in which it
appears in order to discover its appropriate meaning. If
this is appreciated and the context is considered it is
apparent that there is an ambiguity in the meaning of the
word "paid". It must be remembered that rule 10 deals with
recovery of duties or charges short levied or erroneously
refunded. The expression "paid" has been used to denote the
starting point of limitation of three months for the issue
of a written demand. The Act and the
(1) [1962] Supp. [2] S.C.R. 1.
517
Rules provide in great detail the stage at which and the
time when the excise duty is to be paid by a party. If the
literal construction that the amount should have been
actually paid is accepted, then in case like the present one
on hand when no duty has been levied, the Department will
not be able to take any action under rule 10. Rule 10-A
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cannot apply when a short-levy is made. through error or
misconstruction on the part of an officer, as such a case is
specifically provided by rule 10, Therefore, in our opinion,
the proper interpretation to be placed on the expression
"’paid" is "ought to have been paid". Such an
interpretation has been placed on the expression "paid"
occuring in certain otherenactments as in Gursahai Saigal v.
Commissioner of Income-tax, Punjab(") and in Allen v. Thorn
Electrical Industries Ltd. (2 . In Gursahai Saigal v. The
Commissioner of Income-tax, Punjab(1), the question arose
as- follows : In certain assessment proceedings under the
Indian Income-tax Act, 1922, an assessee was charged with
interest under subsection (8) of s. 18A of that Act. Under
that sub-section interest calculated in the manner laid down
in sub-section (6) of s. 18A was to be added to the tax
assessed. Sub-section 3 of s. 18A dealt with cases of a
person who has not been assessed before and he was required
to make his own estimate of the tax payable by him and pay
accordingly. Sub-section (3) of s. 18A was applicable to
the assessee in that case. However, he neither submitted
any estimate nor did he pay any advance tax. Under sub-
section’ (6) of s. 18A it was provided :
"Where in any year an assessee has paid tax under sub-
section (2) or sub-section (3) on the basis of his own
estimate, and the tax so paid is less than eighty Per cent
of the tax determined on the basis of regular assessment
simple interest at the rate of six per cent per annum from
the 1st day of January in the financial year in’ which the
tax was paid up to the date of the said regular assessment
shall be payable by the assessee upon the amount by which
the tax so paid falls short of the said eighty per cent."
This sub-section is to apply to cases where tax has been
paid’ by an assessee according to his own estimate but that
estimate was on regular assessment found to be deficient.
Further, interest has to be calculated from 1st January of
the Financial Year in which tax mentioned therein was paid
and calculation has to be made on the short fall between the
amount paid and eighty. per cent of’ the tax which was found
payable on regular assessment. Subsection (8) of s. 18A
provided :
(1) [1963] 3 S.C.R. 893. (2) 1968 1 .Q.B. 487.
518
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"where, on making the regular assessment the Income-tax
Officer finds that no payment of tax has been made in
accordance with the foregoing provisions of this section,
interest calculated in the manner laid down in sub-section
(6) shall be added to the tax as determined on the basis of
the regular assessment."
The assessee in that case did not dispute that sub-
section(3) ,of s. 18A applied to him and that he should have
made an estimate and paid advance tax. He also admitted
that he never made an estimate nor did he pay any advance
tax whatsoever. While admitting that sub-section (8) of s.
18-A applied to him, the assessee contended before this
Court that since he had not paid any tax at all, it is not
possible to calculate interest in the manner laid down in
sub-section (6). According to the assessee ’there was no
1st day of January of a financial year in which the tax was
paid and there was no question of a short fall between
eighty per cent of the tax payable on regular assessment and
the ,amount paid because he. had paid nothing. While
rejecting the said contention this Court held :
"The proper way to deal with such a provision is to give it
an interpretation which, to use the words of the Privy
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Council in Mahairam Kamjidas’s (case) (1) makes the
machinery workable utres valeat potius quam pereat". We,
therefore, think that we should read sub-section (6)
according to the provision of which interest has to be
calculated as provided in subsection (8) in a manner which
makes it workable and thereby prevent the clear intention of
sub-section (8) being defeated. Now, how is that best done?
As we have earlier said sub-section (6) deals with a case in
which tax has been paid and therefore it says that interest
would, be calculated "from the 1st day of January in the
financial year in which the tax was paid". This obviously
cannot literally be applied to a case where no tax has been
paid. If however the portion of subsection (6) which we
have quoted above is read as "from the 1 st day of January
in the financial year in which the tax ought to have beep
paid", the provision becomes workable. It would not be
doing too much violence to the words used to read them in
this way. The tax ought to have been paid on one or other
of the dates earlier mentioned. The intention was that
interest should be charged from January 1, of the financial
year in which the tax ought to have been paid. Those,
519
who paid the tax but a smaller amount and those who did not
pay tax at all would then be put in the same position
substantially which is obviously fair and was clearly
intended."
Regarding the further contention that there was no short
fall, as no tax has been paid it was observed :
"With regard to the other question about there being no
shortfall between eighty per cent of the amount of tax found
payable on the regular assessment and the amount of tax paid
in a case where no tax was paid, it seems to us the position
is much simpler. If no tax is paid, the amount of such
shortfall will naturally be the entire eighty per cent. We
also think that the case before us is very near to Allen’s
case.(1)"
The above decision establishes two propositions : (1) though
the expression used was "paid" it is open to read it as
"ought to have been paid" having regard to the context in
which it appears and to make the provision of law in which
that expression appears workable; and (2) the short fall
will be the entire eighty per cent referred to subsection
(6) of s. 18A.
Applying the above principles to the case on hand, the
expression "paid" in rule 10 can be reasonably read as
"ought to have been paid". Similarly even in cases where
there has been a nil assessment due to one or other of the
circumstances mentioned in, rule 10 and if subsequently it
is found that duty is payable, then the entire amount of
duty should be considered to have been short-levied. The
literal meaning of the expression "paid" as actually paid in
cash has again not been adopted by the Court of Appeal in
Allen v. Thorn Electrical Industries Ltd.(2). Having regard
to the context in which the said expression appeared in the
particular provision which came up for interpretation, the
Court of Appeal construed the expression to mean "contracted
to be paid". Therefore, the contention of Mr. Daphtary that
the expression "Paid" should be construed as "ought to have
been paid" and even when no duty has been assessed, the
entire duty when subsequently assessed will be a short-levy,
which is also supported by the decision of this Court in
Gursahai Saigal v. Commissioner of Income-tax, Puniab(3) has
to be accepted. It follows that in order to attract rule
10, it is not necessary that some amount of’ duty should
have been assessed and that the said amount should have also
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been actually paid. That provision will apply even to cases
where there has been a nil assessment in which case the
entire duty later on assessed must be considered to be the
duty
(1) 22 T.C. 15, 16, 17.
(2) [1968] 1 Q.B. 487.
(3) [1963] 3 S.C. R. 893.
520
originally short-levied. There is also no difficulty in
calculating the period of three months. As pointed out
above, the Act and the Rules provide very elaborately the
stage and the time when the duty is to be paid and if that
is so that must be considered to be the stage or time when
the duty ought to have been paid and if so the period of
three months will run from the time when the duty ought to
have been paid.
Dr. Syed Mohammad referred us to certain decisions of the
High Courts where a demand has been sustained under rule 10
or rule 10A. We have considered those decisions. In some
of those decisions there has been a short-levy due to the
reasons mentioned in rule 10 and the demand also has been
issued within the period of three months and hence the
notice had been sustained under rule 10. In other cases, it
was specifically held that the demand covered by the notice
issued under rule 10A has not been specifically provided for
by any other rule and the demand therefore, was valid.
These decisions, in our opinion, do not in any manner
advance the case of the appellants and we do not think it
necessary to deal with them individually.
We may point out that if the contention of Dr. Syed Moham-
mad that in order to constitute short-Levy, some amount
should have been assessed as payable by way of duty so as to
make rule 10 applicable, is accented the result will be
rather anamolous. For instance if due to collusion (which
means collusion between a party and an officer of the
Department) a sum of Rs. 2/- is managed to be assessed by
way of duty when really more than thousand times that amount
is payable anD if the smaller amount of duty so assessed has
been paid, the Department will have to take action within
three months for payment of the proper amount of duty. On
the other hand, if due to collusion again an order of nil
assessment is passed, in which case no duty would have been
paid, according to the appellants rule 10A will apply. We
do not see any reason to distinguish the above two cases
one’ ’from the other. Both are cases of collusion and if an
assessee in collusion manages to have a petty amount of duty
assessed and paid he can effectively plead limitation of
three months under rule 10. Whereas in the same case of
collusion where no duty has been levied there will be no
period of limitation. In our opinion, that will not be a
proper interpretation to be placed on rule 10A by us. By
the interpretation placed by us on rule 10, the position
will be that an assessee who has been assessed to a smaller
amount as well as an assessee who has been assessed to nil
duty will all be put on a par and that is what is intended
by rule 10.
The above reasoning leads to the conclusion that rule 10A
,does not apply to the case on hand. Then the question is
whether
521
the demands could be justified under rule 9(2). Even here
we find considerable,- difficulty in sustaining the notice
under this rule. Sub-rule (1) of rule 9 provides for the
time and the manner of payment of duty. In this case there
is no controversy that whenever goods were cleared by the
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respondents, necessary applications had been made to the
officer concerned and the latter had passed orders of
assessment to nil duty. To attract sub-rule 2 of rule 9,
the goods should have been removed in contravention of sub-
rule (1). It is not the case of the appellants that the
respondents have not complied with the provisions of sub-
rule 1. We are of the opinion that in order to attract sub-
rule 2, the goods should have been removed clandestinely and
without assessment. In this case there is no such
clandestine removal without assessment. On the other hand,
goods had been removed with the express permission of the
Excise authorities and after order of assessment was made.
No doubt the duty payable under the assessment order was
nil. That, in our opinion, will not bring the case under
sub-rule (2). That sub-rule (2) is a penal provision is
shown from the fact that apart from the duty payable, the
party is also made liable to a penalty and he also incurs
the risk of the goods being confiscated. That rule 9(2)
applies only to cases where there has been an evasion from
payment of duty is clear from the decision of this Court in
J. K. Steel Ltd. v. Union of India(1). Though on certain
other aspects there was a difference of view amongst the
learned Judges, on this aspect the decision is unanimous.
There is absolutely no material placed before us by the
appellants which would justify the issue, of the notice
under rule 9(2).
To conclude rule 10A does not apply as the specific
provision for collection of duty to cases like the one
before us is specifically provided by rule 10 nor does rule
9(2) apply to the case on hand. The proper provision under
which action should have been taken if at all is rule 10.
The demands having admittedly been made long after the
expiry of the period of three months, referred to in the
said rule, it follows that the demands were not valid. The
High Court was justified in striking down the notices dated
November 3, 1961 Ex. G as well as the demand dated December
2, 1961 under Et. H.
The appeal fails and is dismissed with costs.
V.P.S. Appeal
dismissed.
(1) [1969] 2 S.C.R. 481.
522