Full Judgment Text
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PETITIONER:
DR. KOHLI AND ORS.
Vs.
RESPONDENT:
ATUL PRODUCTS LTD.
DATE OF JUDGMENT12/02/1985
BENCH:
VENKATARAMIAH, E.S. (J)
BENCH:
VENKATARAMIAH, E.S. (J)
REDDY, O. CHINNAPPA (J)
MUKHARJI, SABYASACHI (J)
CITATION:
1985 AIR 537 1985 SCR (2) 832
1985 SCC (2) 77 1985 SCALE (1)266
CITATOR INFO :
F 1986 SC 964 (8)
E 1989 SC1829 (17)
ACT:
Central Excise and Salt Act 1944, First Schedule Item
84D and Ministry of Finance Notification No. 180/61 dated
November 23 1961.
Synthetic organic dyestuffs and synthetic organic
derivatives used in dyeing process-Exemption of dyes from
excise duty if and only if such dyes had been manufactured
from other dyes on which excise duty had been paid-Benefit
of exemption whether can be claimed if the dyes when
manufactured were not liable for excise duty.
Central Excise Rules 1944, Rule 10 and 10A; Rule 52
and 52A-Scope of and difference between Calculation of
period of limitation for recovery of deficit duty-Starting
point-When arises.
Indian Evidence Act
Promissory Estoppel-Doctrine of - Notification
regarding exemption from payment of excise duty in regard to
dyestuffs Manufacturer not having done anything Prejudicial
to his interest relying upon representation of department -
Voluntary payment of excise duty-Plea of promissory
estoppel-Whether permissible.
Words and Phrases:
‘Paid’-Meaning of-Central Excise Rules 1944,Rule 10.
HEADNOTE:
The respondent was the owner of a factory carrying on
the business of manufacturing dyes, chemicals and
pharmaceuticals from a number of years. By the Finance Act
of 1961 ’synthetic organic dyestuffs (including pigment
dyestuffs) and synthetic organic derivatives used in any
dyeing pro -
833
cess’ were added as Item 14D in the First schedule to the
Central Excise and Salt Act, 1944 with effect from March
1,1961, and consequently the respondent became liable to pay
excise duty imposed by the Act on two of its products known
as cibanogenes which were being manufactured.
On November 23, 1961, the Central Government issued a
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notification under Rule 8(1) of the Central Excise Rules,
1944 exempting the dyes specified in the Schedule annexed
thereto from the whole of the excise duty leviable thereon
if and only if such dyes had been manufactured from any
other dye on which excise duty or countervailing customs
duty had already been paid.
Cibagenes and cibanogenes which were being
manufactured by the respondent belonged to the class of dyes
referred to in the Schedule annexed to the said
notification.
In pursuance to the correspondence exchanged between
the respondent and the Superintendent of Central Excise, the
Deputy Superintendent was instructed to receive duty on such
fast colour bases which went into the production of
Cibagenes or cibanogenes (processed dyes) by the respondent,
and the respondent accordingly paid the duty and was
exempted from payment of duty on cibanogenes manufactured by
it.
The departmental audit party, later on noticed that
the concession shown to the respondent was not in order,
since it was only when duty had been paid on the basic dyes
at the time of their manufacture when they were chargeable
to duty and they had been purchased by the respondent there
after, the respondent would get exemption from the duty
payable on the products manufactured by it by employing such
basic dyes. It was further of the view that there was short
levy of excise duty on account of the above mistake since
the respondent had paid excise duty on the basic dyes at 30
% ad valorem whereas it was liable to pay duty at 30% ad
valorem on the products manufactured by it which were
costlier than the basic dyes.
In pursuance to the aforesaid objection, the Assistant
Collector issued five notices under Rule 10-A of the Central
Excise Rules to the respondent calling upon it to show cause
as to why the deficit amount of excise duty should not be
recovered
The respondent, denied its liability and contended
that it had cleared the products manufactured by it in
accordance with the Rules and pleaded that there was no
justification to conclude that it was required to pay excise
duty on the fast colour bases used by it in manufacturing
the said goods voluntarily and that Rule 10-A of the Rules
was not applicable to the case and so demand could be made.
The Assistant Collector overruled the
834
objections or the respondent and directed it to pay the
amount which had been demanded in the notices by issuing
appropriate notices of demand.
Aggrieved by the demand notices, the respondent filed
a writ petition questioning their correctness, and for an
order directing the excise authorities not to recover the
amounts. The High Court, allowed the writ petition and held
that the respondent was entitled to the benefit of the
exemption under the notification in respect of the goods
manufactured by it, as excise duty had been paid on the dyes
used in the manufacture of the said goods, and directed the
excise authorities not to recover the sums mentioned in the
Demand notices.
In the appeals to this Court, on the questions (i)
Whether the respondent was entitled to the benefit of the
exemption notification dated November 23, 1961 when the dyes
said to have been used by the respondent in the manufacture
of other dyes were not liable for payment of excise duty
when they were manufactured and (ii) Whether the demands
fell within the scope of Rule 10-A or under Rule 10 of the
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Central Excise Rules 1944.
Allowing the Appeal,
^
HELD: 1. (i) The exemption notification dated November
23. 1961 specifically states that if and only if the dyes
are manufactured from any other dye on Which excise duty or
counter- vailing customs duty has already been paid, the
exemption can be availed of by the manufacturer of such
dyes. [ 843B; E]
(ii) Payment of excise duty on dyes was possible
only if they had been manufactured after the introduction of
Item 14D into the First Schedule to the Act. [843F]
In the instant case, the dyes which were used by the
respondent had been manufactured prior to that date. [843F]
Innamuri Gopalan & Ors. v. State of Andhra Pradesh,
[1964] 2 S.C.R. 888, distinguished.
Hansraj Gordhandas v. H. H. Dave, Assistant
Collector of Central Excise & Customs, Surat & two Ors.
[1969] 2 S.C.R. 253, inapplicable.
(iii) A voluntary payment of excise duty on dyes
which were not liable for such payment would not earn any
exemption under the notification. [845F]
IN the instant case, the principle of promissory
estoppel cannot be pleaded. The respondent had not done
anything prejudicial to its interest relying upon any
representation made on behalf of the department. It is
835
not the case of the respondent, that it would not have
manufactured the dyes but for the advice given by the
Department. The respondent, had before it the exemption
notification which alone could be the basis for its actions
The Department was not expected to tender legal advice to
the respondent on a matter of this nature. [845C-D.]
2. (a) The points of difference between Rule 10 and
10-A of the Rules are that: (i) Rule 10 applies to cases of
short levy through inadvertence, error, collusion or mis-
construction on the part of an officer, or through mis-
statement as to the quantity, description or value of the
excisable goods on the part of the owner. Rule 10-A a
residuary clause applies to those cases not covered by Rule
10, and (ii) Under Rule 10, the deficit amount could not be
collected after the expiry of three months from the date on
which the duty or charge was paid or adjusted in the owners
account current or from the date of making the refund, Rule
10-A does not contain any such period of limitation. [846P-
H]
(b) In calculating the period of limitation, the
expression ‘paid’ in Rule 10 should not be literally
construed as ‘actually paid’ but as ‘ought to have been
paid’ in order to prevent a person who had not paid any
excise duty at all which be should have paid from escaping,
from the act of Rule 10 of the Rules. [847B-C]
N.B. Sanjana Assistant Collector of Central Excise,
Bombay & Ors. v. Elphinstone Spinning & Weaving Mills Co.
Ltd. [1971] 3 S.C.R. 506, Assistant Collector of Central
Excise, CALCUTTA Division v. National Tobacco Co. Of India
Ltd., [1913] 1 S.C.R. 822 and Gursahai Saigal v.
Commissioner of Income tax, Punjab, [1963] 3 S.C R. 893
referred to.
In the instant case, there has been no assessment of
the manufactured goods at all as contemplated by Rule 52 of
the Rules and the delivery of the goods has taken place
contrary to Rule 52A of the Rules. The Department was
virtually inveigled into a trap by the respondent suggesting
that it was too eager to pay excise duty on certain goods
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which to the knowledge of the respondent were hot liable for
excise duty with the object of getting the benefit of the
right to clear its products which were liable for higher
excise duty because of their increased value without paying
any duty at all. Rule 10 of the Rules deals with four kinds
of mistakes on the part of an officer which bring a case
within its sweep. Of them ‘inadvertence’, ‘error’ and ‘mis-
construction’ are mistakes which can be committed
unilaterally by the officer himself. ‘Collusion’ involves
pact between two or more persons to defraud the Government.
This case does not involve any unilateral mistake on the
part of an officer or collusion nor where through mis-
statement as to quantity, description or value of goods on
the part of the owner short levy has occasioned. Further,
the error in this case has not taken place at the time of
the assessment or at the time when assessment ought to have
been made under Rule 52. [848H; 849F-H]
836
In the instant case, the discussion and correspondence
between the assessee and the officers had taken place on
December 20, 1961, December 22, 1961 and January 4/6, 1962
without reference to the actual goods. The goods were
actually manufactured and cleared afterwards. The reply of
the Superintendent of Central Excise dated January 4/6, 1962
was in the nature of advice and not an assessment as
contemplated under Rule 52. This case is not therefore
covered by Rule 10 at all. Rule 10-A which is a residuary
provision is, therefore, necessarily attracted. The plea of
limitation raised on the basis of Rule 10 of the Rules does
not therefor survive. [850A-B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2377 of
1970.
On appeal by certificate from the Judgment and Order
dated 9/10.7.69 of the Gujarat High Court in Special Civil
Application No. 624 of 1964.
D.K. Sen, V.C. Mahajan and R.N. Poddar for the
appellants.
K.K. Venugopal, D.N Misra, T M Ansari and P.K. Rana
for the respondent.
The Judgment of the Court was delivered by
VENKATARAMIAH, J, This appeal by certificate under
Article 133(1) (a) of the Constitution is filed against the
judgment and order dated July 9/10,1969 in Special Civil
Application No. 624 of 1964 on the file of the High Court of
Gujarat filed under Article 226 of the Constitution by M/s.
The Atul Products Ltd., the respondent in this appeal.
The respondent is the owner of a factory at Atul in
the State of Gujarat in which it has been carrying on the
business of manufacturing dyes, chemicals and
pharmaceuticals from a number
of years. By the Finance Act of 1961‘synthetic organic
dyestuffs (including pigment dyestuffs) and synthetic
organic derivatives used in any dyeing process’ were added
as Item 14D in the First Schedule to the Central Excise and
Salt Act, 1944 (hereinafter referred to as ‘the Act’ with
effect from March 1, 1961 and consequently the respondent
became liable to pay excise duty imposed by the Act on two
of its products known as cibagenes and cibanogenes which
were being
837
manufactured by it by virtue of section 3 of the Act which
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provided that excise duty prescribed by the Act was
leviable on all excisable goods specified in the First
Schedule to the Act. Item 14D in the First Schedule during
the relevant period read thus:
"14D, Synthetic organic dyestuffs (including
pigment dye stuffs) and synthetic organic derivatives
used in any dyeing Thirty per cent process. ad valorem.
But on November 23, 1961, the Central Government
issued a notification under Rule 8(1) of the Central Excise
Rules, 1944 (hereinafter referred to as ’the Rules’)
exempting the dyes specified in the Schedule annexed thereto
from the whole of the excise duty leviable thereon if and
only if such dyes had been manufactured from any other dye
on which excise duty or countervailing customs duty had
already been paid. The notification read thus: D
"Government of India
Ministry of Finance (Department of Revenue)
New Delhi, dated the 23rd November
1961 the 2nd Agrahayana, 1813 S.E.
NOTIFICATION
Central Excise
GSR. In exercise of the powers conferred by
sub-rule (1) of Rule 8 of the Central Excise Rules,
1944, as in force in India, and as applied to the State
of Pondicherry, the Central Government hereby exempts
the dyes specified in the schedule annexed hereto,
falling under Item No. 14D of the First Schedule to the
Central Excises and Salt Act, 1644 (1 of 1944) from the
whole of the excise duty leviable thereon if and only
if, such dyes are manufactured from any other dye on
which excise duty or countervailing customs duty has
already been paid.
838
Schedule
1. Solubilised Vats,
2. Rapid fast colours,
3. Rapidogenes,
4. Fast Colour Salts.
(180/61)
sd/- (B.N. Banerji)"
It may be stated here that cibagenes and cibanogenes
which were being manufactured by the respondent belong to
the class of dyes referred to in the Schedule annexed to the
above said notification. After the above notification was
issued, the respondent wrote a letter dated December 22,
1961 to the Superintendent of Excise, Bulsar Division,
Bulsar which read as follows:
"Dear Sir,
You are aware that under the Notification No.
180/61 of
the 23rd November, 1961 issued by the Government of India,
Min. Of Finance (Dept. of Revenue), Rapidogenes/Rapid fasts
colour bases are exempted from the excise duty provided
dyes are manufactured from other dyes on which excise duty
or countervailing customs duty has already been paid.
During the course of discussions we had on the
20th December, 1961 with the Collector of Central
Excise and yourself, we pointed that we purchase Fast
Colour Bases, required in the production of
Rapidogenes/Rapid fasts either from the manufacturer in
Bombay or from the open market. The material which the
local manufacturer has offered us was produced before,
the imposition of excise duty on dyes. He is,
therefore, willing to sell us the material without the
recovery of excise duty. We now propose to pay the
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excise duty on the fast colour bases which we will
purchase from the local manufacturer so that we do not
have to pay
839
excise duty on the final products produced viz. Rapidogenes/
Rapid fasts.
Similarly we propose to purchase some quantity
of imported fast colour bases from the open market. We
will present the materials thus purchased to you for
the recovery of excise duty @15%.
We have now to request you to advise your
Inspector at ATUL to accept the excise duty on the fast
colour Bases, which we will purchase either from the
local manufacturer or from the open market.
Thanking you in meanwhile, we remain.
Yours faithfully,
for the ATUL PRODUCTS LTD.
(S. K Soman)"
The Superintendent of Central Excise, Bulsar Division,
Bulsar sent a reply dated January 4/6, 1962 to the above
letter stating that there was no objection to the payment of
excise duty on fast colour bases purchased by the respondent
and that if evidence of payment of excise duty on fast
colour bases was produced the dyes manufactured by using
those fast colour bases would not be liable to duty under
the notification referred to above. He also instructed the
Deputy Superintendent of Central Excise to receive duty on
such fast colour bases which went into the production of
cibagenes or cibanogenes (processed dyes) by the respondent.
The respondent accordingly paid the duty and was exempted
from payment of duty on cibagenes and cibanogenes
manufactured by it. The departmental audit party later on
noticed that the concession shown to the respondent was not
in order since it was only when duty had been paid on the
basic dyes at the time of their manufacture when they were
chargeable to duty and they had been purchased by the
respondent would get exemption from the duty payable on the
products manufactured by it by employing such basic dyes.
The audit party was of the view that the respondent which
had purchased the basic dyes at the time when duty was
leviable on them could not claim exemption from payment of
excise duty on the final products manufactured by it by
using such basic dyes, by voluntarily paying duty on the
basic dyes after March 1, 1961 in accordance with law in
force then. The audit party was further of the view that
there was short levy of excise duty on account of the above
mistake since
840
the respondent had paid excise duty on the basic dyes at 30%
ad valorem whereas it was liable to pay duty at 30 % ad
valorem on the products manufactured by it which were
costlier than the basic dyes. The Assistant Collector of
Central Excise at Surat there fore issued five notices under
Rule 10-A of the Rules to the respondent all on May 20, 1964
calling upon it to show cause as to way the deficit amount
of excise duty should not be recovered in respect of the
excisable goods manufactured by it at different periods
before that date. We reproduce below one of such notices,
the contents of which were more or less the same except with
regard to the amount claimed and the number of the relevant
demand notice:
"INTEGRATED DIVISIONAL OFFICE:
CUSTOMS & CENTRAL EXCISE, SURAT
No. VI (RR) 21-13/62/II/(iv) Surat, the 20th May 1964
NOTICE
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Whereas it has been reported that M/s Atul
Products Limited, Atul have manufactured Synthetic
Organic Dyes namely Cibagenes and Cibanogenes from
basic dyes Lying in stock as on 28-2-61 / 1-3-61 with
them purchased from the market and having voluntarily
paid duty on all such basic dyes in stock/purchased
from the market as referred to above manufactured and
cleared from 23-11-61 onwards the processed dyes (final
product) without payment of duty at the time of
clearance from their factory,
2. The Deputy Superintendent, Central Excise,
Atul has raised demand No- 10175 dated 6-1-64 for the
amount of Rs. 2,930,22 for the recovery of duty as a
result of the assessment of the final processed dyes;
because the processed dyes were not eligible for
exemption from duty only on the ground that the duty
was voluntarily paid on the basic dyes which were in
stock/purchased from the market as on 28-2-61 when such
payment of duty on the stock of basic dyes as on 28-2-
61 was not warranted.
3. M/s. Atul Products Ltd. Atul have represented
this dispute vide their letter No. SL/437/9581
dated 25-3-64 against Demand No. 10175 dated 6-1-64.
841
4.M /s.Atul Products Ltd. Atul should show cause to
the undersigned as to way the demand referred to above
issued by the Deputy Superintendent,Central Excise,Atul
should not be confirmed.
5. Atul Products Ltd. Atul are further directed to
produce at the time of showing cause all the evidence
upon which they intend to rely in support of their
defence.
6 M/s. Atul Products Ltd. Atul should also
indicate in the written explanation whether they wish
to be heard in person before the assessment dispute is
finalised.
7. If no cause is shown against the action
proposed to be taken within ten days of the receipt of
this notice or they do not appear before the
undersigned when the case is posted for hearing the
case will be decided ex parte.
sd/-
H. H. Dave
20-5-64
Assistant Collector.
" The particulars of the demand notices and the amounts
claimed in the said five notices were as follows:
Demand Notice No. Date Amount Period of
Rs. clearance
1. 10163 24.10.63 18,349,21 1.1.62 to 31-5-63
2. 10166 11.11.63 8,142,06 3.8.63 to 13.11.63
3. 10174 6.1.64 1,80,593.47 30-12-61 to 30-5-62
4. 10175 6.1.64 2,930.22 Supplementary to
10163 and 10166
5. 10179 25.2.64 8,349.00 24.12.64
-----------
2,18,363.96
The respondent sent a common reply to the above
notices on June 19, 1964. The respondent contended that it
had cleared the
842
products manufactured by it namely cibagenes and cibanogenes
in accordance with the Rules. It pleaded that there was no
justification to conclude that it had paid excise duty on
fast colour bases used by it in manufacturing the said goods
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voluntarily as the Superintendent, Central Excise, Bulsar
had confirmed that according to Government of India’s
notification dated November 23, 1961 it was required to pay
excise duty on the fast colour bases before they were used
in the production of the said processed dyes and also had
written that the Dy. Superintendent of Central Excise, Atul
was being instructed to recover duty on the said fast colour
bases. The respondent also pleaded that Rule 10-A of the
Rules was not applicable to the case and hence no demand
could be made. After considering the representations made by
the respondent to the above notices, the Assistant Collector
overruled the objections of the respondent by his orders
dated July 20,1964 and directed it to pay the amounts which
had been demanded in the notices by issuing appropriate
notices f demand. Aggrieved by the said orders passed by
the Assistant Collector of Central Excise and the notices of
demand the respondent filed a writ petition under Article
226 of the Constitution before the High Court of Gujarat
questioning their correctness and praying for an order
directing the excise authorities not to recover the amounts
claimed in the notices from the respondent. The High Court
held that the respondent was entitled to the exemption under
the notification in respect of the goods manufactured by it
as excise duty had been paid on the dyes used in the
manufacture of the said goods. The High Court, therefore,
allowed the writ petition quashing the orders of the
Assistant Collector and the notices of demand impugned in
the writ petition and directing the
y excise authorities not to recover the sums mentioned
therein by its judgment dated July 9/10, 1969. This appeal
is filed by the Union of India against the Judgment of the
High Court.
The two principal questions which arise for
consideration before us in this appeal are: (i) whether the
respondent was entitled to the benefit of the exemption
notification dated November 23, 1961 when the dyes said to
have been used by the respondent in the manufacture of other
dyes were not liable for payment of excise duty when they
were manufactured, that is, before the introduction of Item
14D into the First Schedule to the Act even though duty may
have been paid on them after the introduction of item 14D
and (ii) whether the demands made in this case fall within
the scope of Rule 10-A of the Rules or under Rule 10
thereof.
843
It is not disputed that the dyes in respect of which
duty had A been paid in this case had been manufactured at a
time when no duty was leviable on them. This case actually
began with the letter written by the respondent on December
22, 1961 within one month after the exemption notification
dated November 23, 1961 was issued. In the said letter the
respondent no doubt stated ’the material which the local
manufacturer has offered us was produced before the
imposition of excise duty on dyes’. But it was followed by
the sentence ’We now propose to pay the excise duty on the
Fast Colour bases ....... ’. In that letter there was a
request made to the superintendent of Central Excise to
accept excise duty on the fast colour bases which the
respondent would purchase either from the local manufacturer
or from the open market. The letter did not contain any
particulars about the quantity of such dyes which the
respondent wished to purchase or its value . The
Superintendent of Central excise in his reply stated that
there was no objection to the to the payment of excise duty
on fast colour bases purchased by the respondent and that if
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evidence of payment of exercise duty on fast colour bases
was produced, the dyes manufactured by using those fast
colour bases would not be liable to duty under notification.
The above reply was intended to convey in effect what the
notification stated. It was perhaps assumed that payment of
excise duty would arise only when it was payable Under law.
The language of the notification left no room for doubt at
all. It stated that if and only if such dyes were
manufactured from any other dye on which excise duty or
countervailing customs duty had already been paid, they
would be exempted from duty Payment of excise duty on dyes
was possible only if they had been manufactured after the
introduction of Item 14D into the First Schedule to the Act.
Admittedly in this case the dyes which were used by the
respondent had been manufactured prior to that date. -
In reaching its decision the High Court, however,
relied on the decision of this Court in Innamuri Gopalan &
Ors. v State of Andhra Pradesh & Anr.(1) In that case the
Court had to construe a notification issued by the
Government of Andhra Pradesh granting exemption to textile
goods from the levy of sales tax under the Andhra Pradesh
General Sales Tax Act, 1957 (A P. 6 of 1957). But it,
however, contained a proviso that in the case of any class
of such goods in respect of which additional duties are
leviable by the Central Government under clause 3 of the
Additional Duties
(1) [1964] 2 S.C.R. 888.
844
of Excise (Levy and Distribution) Bill, 1957 read with
Section 4 of the Provisional Collection of Taxes Act, 1931
(Central Act XVI of 1931) the exemption would be subject to
the dealer proving to the satisfaction of the assessing
authority that additional duties of excise had been so
levied and collected on such goods by the Central
Government. In the above said case certain dealers who had
sold textile goods which were not subject to additional
duties of excise claimed that they were entitled to the
exemption even though they had not paid such additional
excise duty. The State Government pleaded that the dealers
would be entitled to claim exemption if and only if such
additional excise duty had been levied and collected and
since the goods in question were not liable to such
additional excise duty, they were not entitled to claim the
exemption. This Court rejected the contention of the State
Government and held that on a plain reading of the
notification relied on in that case all varieties of textile
goods had been generally exempted from payment of sales tax
but where any
additional excise duty had been levied in respect of any
kind of textile goods then the dealer had to show proof of
levy and payment of such duty. Accordingly the case of the
dealers was upheld. In the case before us, the notification
relied on by the respondent is couched in a different
language. It specifically states that if and only if the
dyes are manufactured from any other on which excise duty or
countervailing customs duty has already been paid, the
exemption can be availed of by the manufacturer of such
dyes. The above decision of this Court is, therefore,
clearly distinguishable from the present case. With great
respect to the High Court it should be stated that the
distinction pointed out above was not noticed by it.
The decision in Hansraj Gordhandas v. H. H. Dave,
Assistant Collector of Central Excise & Customs, Surat & two
Ors (1) does not also have any bearing on this case. There
the Court was concerned with the meaning of the notification
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in question which had granted exemption from payment of
excise duty on cotton fabrics manufactured on powerlooms
owned by cooperative societies registered prior to March 31
1961. The appellant had produced with his own hired labour
cotton fabrics on the powerlooms owned by a cooperative
society under a contract. Still the Court found that the
appellant was entitled to the benefit of exemption since he
had manufactured the goods on the powerlooms owned by a
cooperative
(1) [1969] 2 S.C.R. 253.
845
society as per the notification. The crucial question in all
such A cases is whether the case falls within the scope of
the law granting exemption or not and there can be no
dispute about that principle. The difficulty arises only
when the said principle is to be applied to the facts of a
given case. As mentioned earlier, in this case of the
respondent did not fall under the notification granting
exemption since the basic dyes used by it in producing other
processed dyes were not subject to levy of excise duty when
they were manufactured and cleared.
We do not agree that in this case the principle of
promissory estoppel can be pleaded as a bar against the
contention of the Department. The respondent had not done
anything prejudicial to its interest relying upon any
representation made on behalf of the Department. It is not
the case of the respondent that it would not have
manufactured the dyes but for the advice given by the
Department. On the other hand it is obvious that the
respondent had before it the exemption notification which
alone could be the basis for its actions. The Department was
not also expected to tender legal advice to the respondent
on a matter of this nature.
After giving our earnest consideration to the case
before us we are of the view that under the notification
exemption could be claimed only where the dyes used in the
manufacture of other dyes were liable to, payment of excise
duty when they were manufactured and such duty had been
paid. A voluntary payment of excise duty on dyes which were
not liable for such payment would not earn any exemption
under the notification. The finding re
p73 corded by the High Court on
the above question is, therefore, liable to be set aside.
The next question relates to the appropriate provision
of law under which action could have been taken in this case
by the Central Excise authorities. This question was not
decided by the High Court in view of its finding on the
liability of the respondent to pay excise duty on the
products manufactured by it. Since we have not agreed with
the decision of the High Court on this point, it has become
necessary for us to decide this question in this appeal.
While the Department asserts that it was open to it to
proceed under Rule 10-A of the Rules, the respondent
contends that even if there was any short levy, the proper
Rule applicable to its case was Role 10 and not Rule 10-A.
Rule 10 and Rule 10-A of the Rules during the relevant
period ran as follows:-
846
10 Recovery of duties or charges short-levied, or
erroneously refunded-
When duties or charges have been short-levied through
inadvertence, error, collusion or misconstruction on the
part of an officer, or through mis-statement 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
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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."
The points of difference between the above two Rules
were that (i) whereas Rule 10 applied to cases of short levy
through inadvertence, error, collusion or mis-construction
on the part of an officer, or through mis-statement as to
the quantity, description or value of the excisable goods on
the part of the owner, Rule 10-A which was a residuary
clause applied to those cases which were not covered by Rule
10 and that (ii) whereas under Rule 10, the deficit amount
could not be collected after the expiry of three months
from the date on which the duty or charge was paid or
adjusted in the owners account-current or from the date of
making the refund, Rule 10-A did not contain any such period
of limitation. The scope of these two Rules has been
considered by this Court in two decisions i.e. N. B.
Sanjana. Assistant Collector
847
Of Central Excise, Bombay & Ors. v. Elphinstone Spinning &
Weaving Mills Co. Ltd.(1) and Assistant Collector of Central
Excise, CALCUTTA Division v. National Tobacco Co. Of India
Ltd.(2) In addition to the above two points of distinction
between Rule 10 and 10-A of the Rules, this Court further
held in Sanjana’s case (supra) following the decision in
Gursahai Saigal v. Commissioner of Income-tax, Punjab(3)
that in calculating the period of limitation, the expression
’paid’ in Rule 10 should not be literally construed as
’actually paid’ but as ’ought to have been paid’ in order to
prevent a person, who had not paid any excise duty at all
which he should have paid from escaping, from the net of
Rule 10 of the Rules. In National Tobacco Co’ s. case
(supra) this Court observed at pages 836-837 thus:
Rules 10 and 10A, placed side by side, do raise
difficulties of interpretation. Rule 10 seems to be widely
worded as to cover any" inadvertence, error, collusion or
mis-construction on the part of an Officer", as well as any"
mis-statement as to the quantity, description or value of
such goods on the part of the owner" as causes of short
levy. Rule 10-A would appear to cover any "deficiency in
duty if the duty has for any reason been short-levied"
except that it would be outside the purview of Rule 10-A if
its collection is expressly provided for by any Rule. Both
the rules, as they stood at the relevant time dealt with
collection and not with assessment. They have to be
harmonised. In N. B. Sanjana’s case (supra) this Court
harmonised them by indicating that Rule 10-A which was
residuary in character, would be inapplicable if a case fell
within a specified category of case mentioned in Rule 10.
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It was pointed out in Sanjana s case (supra) that the
reason for the addition of the new Rule 10-A was a decision
of the Nagpur High Court in Chhotabhai Jethabhai Patel v.
Union of India (A. I- R 1952 Nag. 139) so that a fresh
demand may be made on a basis altered by law. The Excise
authorities had then made a fresh demand, under
(1) [1971] 3 S.C.R. 506.
(2) [1973] I S.C.R. 822.
(3) [1963] 3 S.C.R. 893.
848
the provisions of Rule 10-A, after the addition of that
Rule, the validity of which challenged but upheld by Full
Bench of the High Court of Nagpur. This Court in Chhotabhai
Jethabhai Patel & Co.
v. Union of India [1962] Supp. 2 S. C- R. 1. also rejected
the assessee’s claim that Rule 10-A was inapplicable after
pointing out that the new rule had been specifically
designed "for the enforcement of the demand like the one
arising in the circumstances of the case."
We think that Rule 10 should be confined to cases where he
demand is being made for a short levy caused wholly by one
of the reasons given in that Rule so that an assessment has
to be reopened."
This Court further observed at page 840:
"Although Rule 52 makes an assessment obligatory before
goods are removed by a manufacturer, yet, neither that rule
nor any other rule, as already indicated above, has
specified the detailed procedure for an assessment. There is
no express prohibition anywhere against an assessment at any
other time in the circumstances of a case like the one
before us whore no "assessment." as it is understood in law;
took place at all. On the other hand, Rule 10A indicates
that there are residuary powers of making a demand in
special circumstances not foreseen by the framers of the Act
or the rules. If the assessee disputes the correctness of
the demand an assessment becomes necessary to protect the
interests of the assessee. A case like the one before us
falls more properly within the residuary class of unforeseen
cases. We think that, from the provisions of section 4 of
the Act read with Rule 10A, an implied power to carry out or
complete an assessment, not specifically provided for by the
rules, can be inferred."
In the instant case there has been no assessment of
the manufactured goods at all as contemplated by Rule 52 of
the Rules and the delivery of the goods has taken place
contrary to Rule 52-A of the Rules. Rule 52 and Rule 52-A as
they stood at the relevant period are set out below:-
"52. Clearance on payment duty-
849
When the manufacturer desires to remove goods on A
payment of duty, either from the place or a premises
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 last 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 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.
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52-A (1) Goods to be delivered on a Gate pass-
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......."
The facts of this case indicate that the Department
was virtually inveigled into a trap by the respondent
suggesting that it was too eager to pay excise duty on
certain goods which to the knowledge of the respondent were
not liable for excise duty with the object of getting the
benefit of the right to clear its products which were liable
for higher excise duty because of their increased value
without paying any duty at all. Rule 10 of the Rules deals
with four kinds of mistakes on the part of an officer which
bring a case within its sweep. Of them ’inadvertence’
’error’ and’ mis-construction’ are mistakes which can be
committed unilaterally by the officer himself. ‘Collusion’
involves a pact between two or more persons to defraud the
Government- This case does not involve any such unilateral
mistake on the part of an officer or collusion as explained
above. Nor is this a case where through mis-statement as to
the quantity, description or value of such goods on the part
of the owner short levy has occasioned. Further the error in
this case has not taken place at the time of the assessment
or at the time
850
when assessment ought to have been made under Rule 52. The
discussion and correspondence between the assessee and the
officers concerned had taken place on December 20, 1961 and
January 416, 1962 was in the nature of an advice and not an
assessment as contemplated under Rule 52. Hence this case is
not covered by
Rule 10 of the Rules at all. Rule 10-A of the Rules which
is a residuary provision is, therefore, necessarily
attracted. Hence the plea of limitation raised on the basis
of Rule 10 of the Rules does not survive.
In the result we set aside the judgment of the High
Court and dismiss the writ petition filed by the respondent.
The Department may now proceed to recover the sums demanded
under the impugned notices issued to the respondent.
For the foregoing reasons, the appeal is accordingly
allowed with costs.
N. V. K. Appeal allowed.
851