Full Judgment Text
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CASE NO.:
Appeal (civil) 3556 of 1984
PETITIONER:
NOVOPAN INDIA LTD., HYDERABAD
RESPONDENT:
COLLECTOR OF CENTRAL EXCISE AND CUSTOMS, HYDERABAD
DATE OF JUDGMENT: 14/09/1994
BENCH:
B.P. JEEVAN REDDY & SUHAS C. SEN & K.S. PARIPOORNAN
JUDGMENT:
JUDGMENT
1994 SUPPL. (3) SCR 549
The Judgment of the Court was delivered by
B.P. JEEVAN RKDDY, J. This appeal is preferred against the judgment and
order of the Customs, Excise and Gold (Control) Appellate Tribunal, New
Delhi dismissing the appeal preferred by the appellant- manufacturer.
The appellant is engaged in the manufacture of particle boards. It
commenced the production in the year 1979. The first clearances were made
in the March of that year. The appellant sought to take advantage of the
Exemption Notification No. 55 of 1979 issued by the Central Government
under Rule 8(1) of the Central Excise Rules, 1944. This Notification
exempted "plywood and boards specified in column (2) of the table hereto
annexed and falling under Item No. 16-B of the First Schedule to the
Central Excise and Salt Act, 1944 (1 of 1944) from so much of the duty of
excise leviable thereon as is in excess of the duty specified against the
corresponding entry in column (3) of the said table." The table appended to
the said Notification reads as follows:
TABLE
S.No. (1) Description (2) Rate of Duty (3)
1. Commercial plywood Twenty per cent ad valorem.
2. Batten boards and block boards (including flush doors) having both
faces of commercial plywood and veneered shocks and panels made up of
strips of woods flued between two outer veneers. Twenty per cent ad
valorem.
3. Insulation boards and hard boards. Ten per cent ad valorem.
4. Marine plywood and aircraft plywood. Ten per cent ad valorem.
5. Veneered particle boards excluding particle boards with decorative
veneers on one or both faces. Twenty per cent ad valorem.
6. Unveneered particle boards. Nil
7. (Omitted as unnecessary)’
The appellant’s case was that the particle boards manufactured by it are
’unveneered particle boards’ within the meaning of Item No. 6 of the
aforesaid table and, therefore, totally exempt from duty. This case was
accepted by the department. A few months later, the appellant started
manufacturing what are described as "melamine faced particle boards". The
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appellant claimed the benefit of the aforesaid Exemption Notification with
respect to melamine faced particle boards as well, to which the authorities
did not agree. According to them, the product fell and was dutiable under
Tariff Item-68. The appellant accepted the said position and accordingly a
classification list was filed and approved on January 9, 1980. On June 17,
1980, the Collection of Central Excise issued a notice under Section 35-A
of the Act proposing to revise the order to the Assistant Collector dated
January 9, 1980. According to him, the melamine faced particle boards
(M.F.P.Bs.) were classifiable under Tariff Item 16-B but were not entitled
to the benefit of exemption provided by the Notification No. 55 of 1979
aforesaid - with the result that the said boards became liable to a duty
higher than the one prescribed under Tariff Item-68. The appellant showed
cause whereupon the Collector dropped the proceedings. He held that the
MFPBs fell under Tariff Item 68 and not under Tariff Item 16-B. On this
occasion, however, the appellant questioned the order to the Collector by
filing a revision before the Central Government wherein he put forward a
composite claim. According to it, MFPBs were no doubt classifiable under
Tariff Item 16-B but at the same time, they were entitled to the benefit of
the Exemption Notification No.55 of 1979 aforesaid. The idea evidently was
to obtain total exemption from tax in this manner. The Tribunal examined
the said claim but rejected it. The Tribunal agreed with the Collector that
MFPBs were properly classifiable and dutiable under Tariff Item-68.
The short question in this appeal is whether MFPBs can be called
’unveneered particle boards’ within the meaning of, Item-6 of the table
appended to Notification No. 55 of 1979? The process of manufacture of
particle boards is set out in the order of the Tribunal in the following
words:
The manner of manufacture of particle boards by the petitioner is as
follows :-
(i) Wood is received in the form of logs of approximately 1 mtr. length.
The logs are fed into a chipping machine where they are cut into small
particles or flakes. These flakes are dried and rifted into the fractions
of definite dimension, one forming the core layer and the other for the two
face layers. The two fractions of wood particles are independently mixed
with U.F. resin and additives in specially designed gluing machines. The
glued particles are then spread into a form of mat, forming two face layers
and one Central core. The mat thus formed is conveyed to the Hydraulic
press where it is subjected to heat and pressure. The boards remain in the
press for a predetermined time after which they are taken out and cooled at
room temperature. The surface of the board is then sanded in sanding
machine, which also calibrates the board to the required thickness."
The Tribunal has pointed out that the very same process is set out in the
two affidavits of ’experts’ filed by and relied upon by the appellant. The
Tribunal then referred to the process of manufacture of MFPBs as described
in brochure Exh.-II, According to the brochure, the appellant was carrying
on "a unique process where the resin impregnation takes place in an
integrated process and this melamine facing is a part of this process, and
not what could be a simple gluing of a material subsequently". The said
process was described in the brochure as "pre-lamination which implies that
lamination takes place before fully manufactured particle board, in its
marketable condition, conies into existence".
The learned counsel for the appellant also placed before us pieces of
particle board, veneered particle board, melamine faced particle board and
commercial plywood. This has indeed assisted us in deciding the issue.
To decide whether MFPBs. can be called ’unveneerd particle boards’ within
the meaning of Item (6) of the table appended to Notification No, 55 of
1979, the test is whether MFPBs. are understood and dealt with as
unveneered particle boards in the relevant commercial circles and in common
parlance. In Plasmac Machine Manufacturing Co, Pvt. Ltd. v. Collector of
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Central Excise, Bombay, [1991] Suppl. 1 S.C.C, 57, it was held by this
Court :
"It is an accepted principle of classification that the goods should be
classified according to their popular meaning or as they are understood in
their commercial sense and not as per the scientific or technical meaning.
Indo International Industries v. CST, [1981] 2 SCC 528 and Dunlop India
Ltd. v. Union of India, [1976] 2 SCC 241 have settled this proposition. How
is the product identified by the class or section of people dealing with or
using the product is also a test when the statute itself does not contain
any definition and commercial parlance would assume importance when the
goods are marketable as was held in Anul Glass Industrial (Pvt.) Ltd. v.
CCE, [1986] 3 SCC 480 and Indian Aluminium Cables Ltd. v. Union of India,
[1985] 3 SCC 284. In Asian Paints India Ltd. v. CCE, [1988] 2 SCC 470 which
was a case of emulsion paint, at para 8, it was said :
"It is well settled that the commercial meaning has to be given to the
expressions in tariff items. Where definition of a word has not been given,
it must be construed in its popular sense. Popular sense means that sense
which people conversant with the subject matter with which the statute is
dealing, would attribute lo it."
There is no dispute about the above proposition.
We have already set out the process of manufacture of particle boards and
the MFPBs. It is difficult to say from the said process that MFPBs are
unveneered particle boards. Actually, veneered particle boards mean
particle boards on both sides of which plywood is pasted. Un-veneered
particle boards is, what we may call, raw particle board. The melamine
facing gives it a smooth polished surface. It looks as if the particle
board had been laminated on both sides. (We are told by the lamed counsel
for the appellant that in same cases the melamine facing is done only on
one side and not on both the sides.) It is thus difficult to say that the
melamine faced particle boards can be described as ’unveneered particle
boards’. Nobody in the trade circles or in the market would consider both
the products as one and the same. From whichever way one looks at them,
they appear to be different products. As stated hereinbefore, even the
process of manufacturing is different. It is not a case of mere processing
of particle boards for giving it strength. It is a case of manufacturing an
altogether different product.
Learned counsel for the appellant relied upon the following passage
occurring under the heading "Particle Boards’ at page 175 of Encyclopedia
Britannica (15th Edn.) Vol. 9:
"Particle board, construction material consisting of flakes, shavings, or
splinters of wood glued together in the form of sheets. The particles are
mixed with resin, water repellants, and mildew in-hibitors, formed into
mats, hot-pressed, trimmed to the appropriate size and shape, and finally
sanded. Particleboard was developed in the 1940s, when suitable synthetic
resins became available; it has made possible the use of residues from
lumber production and logging. Particleboard is usually manufactured in
thicknesses of 6-25 mm (1/5-1 inch) and in three grades of density. It may
be covered with resinimpregnated paper, plastics, or other finishes."
On the basis of the last sentence in the above extract, the learned counsel
sought to contend that melamine faced particle board is the same as the
particle board and that merely covering the particle boards with resin-
impregnated paper, with a view to lend them strength and a smooth and
attractive surface do not make MFPBs a different product. We do not think
that the said description in Encyclopedia is of any assistance in the
matter of classification where the test is the one indicated hereinbefore,
viz., whether they are commercially different goods. The Tribunal has held
that they are not and no material has been brought to our notice to take a
different view.
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Learned counsel for the appellant sought to rely upon the affidavits of
experts filed by him before the Tribunal which according to him prove that,
commercially speaking, particle boards and MFPBs are one and the same
product. The tribunal has declined to place any reliance on these
affidavits for more than one reason. So far as Dr. Joseph, one of the
’experts’ is concerned, the Tribunal has pointed out, and rightly in our
opinion, that he has been associated with the appellant-company from the
beginning, as admitted by the said person himself. The other person Sri
A.C. Shekhar was also found to be associated with the appellant-company.
Both of them deposed before the Tribunal that they did not witness the
process of manufacture nor were they able to comment upon the process of
manufacture contained in the brochure referred to hereinabove. From a
reading of their affidavits, the Tribunal concluded that they are not
independent experts and that their affidavits were prepared with a view to
bolster the appellant’s case in these proceedings. The said experts, the
Tribunal observed, did not also try to support their opinions with
reference to any technical literature or authority on the subject. For all
the above reasons, the Tribunal declined to accept their bare assertion
that MFPBs can be described as ’unveneered particle boards’. We cannot say
that the reasons given by the Tribunal for rejecting the said affidavits
are either irrelevant or unsustainable. The said affidavits, therefore, do
not advance the appellant’s case in any manner.
The learned counsel for the appellant then contended that since there is an
ambiguity about the meaning and purport of item-6 of the table appended to
the Exemption Notification, the benefit of such ambiguity should go to the
assessee manufacturer and the entry must be construed as taking in the
MFPBs as well. It is not possible to agree with this submission.
In Mangalore Chemicals & Fertilizers Ltd.. v. Deputy Commissioner of
Commercial Taxes & Ors., [1992) Suppl. 1 S.C.C. 21, a Bench of this Court
comprising M.N. Venkatachaliah, J. (as the learned Chief Justice then was)
and S.C Agrawal, J. stated the relevant principle in the following words :
"Shri Narasimhamurty again relied on certain observations in CCE v. Parle
Exports (P) Ltd, [1989] 1 SCC 345, in support of strict construction of a
provision concerning exemptions. There is support of judicial opinion to
the view that exemptions from taxation have a tendency to increase the
burden on the other unexempted class of tax payers and should be construed
against the subject in case of ambiguity. It is an equally well known
principle that a person who claims an exemption has to establish his case.
Indeed, in the very case of Parle Exports (P) Ltd. relied upon by Shri
Narasim-hamurthy, it was observed :
"While interpreting an exemption clause, liberal interpretation should be
imparted to the language thereof, provided no violence is done to the
language employed. It must, however, be borne in mind that absurd results
of construction should be avoided."
The choice between a strict and a liberal construction arises only in case
of doubt in regard to the intention of the legislature manifest on the
statutory language. Indeed, the need to resort to any interpretative
process arises only where the meaning is not manifest on the plain words of
the statute. It the words are plain and clear and directly convey the
meaning, there is no need for any interpretation. It appears to us the true
rule of construction of a provision as to exemption is the one stated by
this Court in Union of India v. Wood Papers Ltd., [1990] 4 SCC 256 :
"....... Truly speaking liberal and strick construction of an exemption
provision are to be invoked at different stages of interpreting it. When
the question is whether a subject falls in the notification or in the
exemption clause then it being in nature of exception is to be construed
strictly and against the subject but once ambiguity or doubt about
applicability is lifted and the subject falls is the notification then full
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play should be given to it and it calls for a wider and liberal
construction....""
This was also the view expressed in The Commissioner of Inland Revenue v.
James Forrest, (1890) 15 A.C. 334 where Lord Halsbuty, L.C. observed: "all
exemptions from taxation to some extent increase the burden on other
members of the community.....," and in Littman v. Barron (Inspector of
Taxes, [1951] 2 A.E.R. 393, a decision of the Court of Appeal where Cohen,
LJ. said : "the principle that in case of ambiguity a taxing statute should
be construed in favour of a taxpayer does not apply to a provision giving a
taxpayer relief in certain cases from a section clearly imposing
liability".
It is true that in some decisions a contrary view appears to have been
expressed. In Caroline M. Armytage & Ors. v, Frederick Wilkinson, (1878) 3
A.C. 355, a decision of the Privy Council, it was observed :
"Their Lordships have now to consider whether the decision of Mr. Justice
Molesworth upon the merits of the application to him is correct.
They must begin by expressing their dissent from the principle which seems
to have influenced Mr. Justice Moleswarth in this and some of the earlier
cases, viz., that the provisions of the 24th section, because they
establish an exception to the general rule, are to be construed strictly
against those who invoke their benefit. That principle is opposed to the
rule expressed by Loard Ellenborough’s in Warrington v. Furbor, (8 East
242) and followed and confirmed in Hobson v. Neale, (17, Beav. 185). Lord
Ellenborough’s words are : - "I think that when the subject is to be
charged with a duty, the cases in which it is to attach ought to be fairly
marked out, and we should give a liberal construction to words of exception
confining the operation of the duty." It is only, however, in the event of
there being a real difficulty in ascertaining the meaning of a particular
enactment that the question of strict-ness or of liberality of construction
need arise."
To the same effect is the view expressed by Sir Raymond Evershed in
Routledge v. McKay & Ors., [1954] 1 A.E.R. 855. The learned Master of Rolls
observed : "on the authorities, that exemption, as I understand, should be
liberally interpreted."
We are, however, of the opinion that, on principle, the decision of the
Court in Mangalore Chemicals - and in Union of India v. Wood Papers,
referred to therein - represents the correct view of law. The principle
that in case of ambiguity, a taxing statute should be construed in favour
of the assessee - assuming that the said principle is good and sound - does
not apply to the construction of an exception or an exempting provision;
they have to be construed strictly. A person invoking an exception or an
exemption provision to relieve him of the tax liability must establish
clearly that he is covered by the said provision. In case of doubt or
ambiguity, benefit of it must go to the State. This is for the reason
explained in Mangalore Chemicals and other decisions, viz., each such
exception/exemption increases the tax burden on other members of the
community correspondingly. Once, of course, the provision is found
applicable to him, full effect must be given to it. As observed by a
Constitution Bench of this Court in Hansraj Gordhandas V.H.H, Dave, (1969)
2 S.C.R, 253 that such a Notification has to be interpreted in the light of
the words employed by it and not on any other basis. This was so held in
the context of the principle that in a taxing statute, there is no room for
any intendment, that regard must be had to the clear meaning of the words
and that the matter should be governed wholly by the language of the
notification, i.e., by the plain terms of the exemption.
Applying the above principles, we must hold that the words ’un-veneered
particle boards’ in Item-6 of the table appended to the Exemption
Notification cannot and do not take in melamine faced particle boards.
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Indeed, the learned counsel for the Revenue contends, and is our opinion
rightly, that the said entry does not admit of any doubt, that it is dear
and specific and that it covers only unveneered particle boards and nothing
else.
For the above reasons, the appeal fails and is dismissed with costs.
Advocate’s fee Rs. 10,000 consolidated.
It is brought to our notice that by an interim order dated July 30, 1986,
this Court directed stay of recovery of arrears of duty on condition that
the appellant deposits 50% of the demand within three months from the date
of the order and furnishes bank guarantee for the balance. The order reads
as follows :
"In the facts and circumstances of this particular case, we direct under
Article 142 of the Constitution that the recovery of the demand which is to
the tune of nearly a crore of rupees shall remain stayed on a condition
that the appellant deposits 50% of the demand within three months from
today and furnishes the bank guarantee for the balance within that time.
Dr. Chitale, learned counsel for the appellant states that the appellant
has already furnished bank guarantee for much larger amount. If that be so,
the existing bank guarantee may be cancelled and a fresh bank guarantee to
cover the remaining 50% of the demand shall be furnished. The bank
guarantee shall, however, be kept renewed from time to time till the
disposal of this appeal. The appellant will pay the interest @ 18% per
annum on 50% of the demand in the event of the appeal being dismissed. If
the appeal is allowed, the amount of 50% deposited by the appellant shall
be refunded with the same rate of interest.
The C.M.P. is disposed of accordingly."
It is obvious that on the dismissal of this appeal, the aforesaid order
comes to an end. The appellant has to pay the arrears of duty due according
to law. It shall also be open to the respondents to encash the bank
guarantees for the said purpose.