Annapurna Match Industries, Cuddapah v. The Union Of India And Another

Madhava Reddy, J.:— The petitioner applied for a licence to manufacture safety matches on 2-1-1965 and was granted the same on 10-2-1965 by the Superintendent of Central Excise, Cuddapah. The production of matches however commenced in the month of October, 1966 and the first clearance was effected on 29-12-66 after paying Excise Duty. The petitioner produced nearly 900 gross match boxes. Under item 38 of Schedule 1 to the Central Excises and Salt Act, 1944 read with Section 3 of the Said Act matches are excisable to duty at a maximum rate of Rs. 0-65 p. per thousand matches. Under section 3(3) the Government is empowered to fix different tariff values for different classes or descriptions of the same article. Rule 8(1) of Central Excise Rules, 1944 framed under the Central Excises Act empowers the Central Government to exempt any excisable goods from the whole or any part of the duty leviable op such goods. The Central Government in exercise of powers conferred by Rule 8(1) of the Central Excise Rules and in supersession of Notification No. 97/64 Central Excise dated 17-4-1966 issued Notification No. 75 dated 30-4-1966 re-classifying the manufacturers of matches and fixing different rates of duty for matches cleared by different categories of factories. The said notification in so far as it is relevant for our purpose reads as follows:

Government of India.

Ministry of Finance (Dept. of Revenue and Insurance)

Notification No. 75, dated 30th April, 1966.

In exercise of the powers conferred by Sub-Rule (1) of Rule 8 of the Central Excise Rules, 1944 and in supersession of the Notification of the Government of India in the Department of Revenue and Company Law in the Ministry of Finance No. 97/64 Central Excises, dated the 17th April, 1964, the Central Government hereby exempts matches specified in Column.(2) of the Table 1 below, falling under item No. 38 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) and cleared by any manufacturer for home consumption during any financial year, from so much of the duty of excise leviable thereon as is in excess of the rate specified in the corresponding entry in column (3) of the said table:

TABLE-I

Category Specification of matches. Rates (1) (2) (3) A. Matches cleared for home-consumption from a factory the ontpnt of winch in the financial year 1964.65 exceeded 4, 000 million matches. Rs. 4.60 B. Matches cleared for home-consumption from a factory the output of which in the financial year 1964.65 exceeded 500 million matches, but did not exceed 4, 000 million matches: (i) on the first 4, 000 million matches cleared; Rs. 4.40 (ii) on matches cleared in excess of 4, 000 million and upto 8, 000 million matches. 4.50 C. Matches cleared for home consnmption from a factory the output of which in the financial year 194.65 exceeded 75 million matches but did not exceed 500 million matches: (i) on the first 00 million matches cleared: 4.10 (ii) on matches cleared in excess of 500 million and upto 750 million matches. 4.25 D. Matches cleared for home-consumption from a factory the output of which in the financial year 1964.65 did not exceed 75 million matches: (i) on the first 75 million matches cleared; 3.75 (ii) on matches cleared in excess of 75 million and upto 100 million matches. 3.00 Provided that: (1) ……. ********* ** ** (1)(a)(b) ********* (2) and (3) *********

(4) The category of the factory for the first financial year of production in respect of which the manufacturer applied or applies for a licence or after the 1st April 1964. shall he determined on the basis of the estinated production in factory calculated pro rata for the whole financial year: and if the production for the finaicial year so estimated doesnot exceed 4,000 million matches and if the matches to be manufactured are those, the splints of which are not to be made of bam or the boxes of which are not to be made of cardboard of bamboo, veneers, the manufacturers shall pay duty on such matches at the rates set out in Table—II below:—

TABLE-II.

Description. Category. Bate of duty. (1) (2) (3) *** *** *** Factory whose estimated production during financial year does not exceed 75 million matches. D Rs. 4.10 on the Clearance upto 75 million matches.

If the actual output of such factories in category B or category C or category D of the said Table II exceeds in a financial year 4,000 million, 500 million or 75 million as the case may be, the duty on the entire quantity of matches cleared for home consumption in that financial year, shall be paid at the rate set out in Table III.

TABLE-III.

Category according to Table II. Rate of duty (per gross boxes of 50 matches). Condition. (1) (2) (3) B. Rs. 4.60 If clearances exceed 4, 000 million matchea C. 4.50 If clearnces exced 500 million but do not exceed 4000 million matches. D. 4.40 If clearances exceed 100 million but do not exceed 500 million matches. 4.25 If clearances exceed 75 million but do not exceed 100 million matchea

(5) *********

(6) Any manufacturer who applied or applies on or after the 1st April 1964, for a licence to manufacturer matches in his factory and the rate of duty applicable for the first financial year of pro ??? ion has been determined in the manner laid down in Clause (4) shall in any subsequent financial year pay duty at the respective rates shown in Table IV below:—

TABLE—IV.

Description. Bate of duty (Rs per gross boxes of 50 matches. (1) (2) Where the output in the relevant preceding financial year— (i) did not xceed 100 million matches: Rs. 4.10 (ii) exceeded 100 trillion but did not exceed 750 million matches; 4.40 (iii) exceeded 750 million matches but did not exceed 4, 000 million matches. 4.50

(7) In respect of a factory from which no patches are cleared during a financial year for which it had a licence, notwithstanding anything hereinbefore contained, the manufacturer shall pay at the rate appropriate to a B category factory referred to in Table I on matches cleared therefrom for home consumption during the following financial year:

(8) to (10) *** ***

2. The output of the petitioner did not exceed 75 million matches per year and the production itself commenced only in October, 1966. Under Table I of the Notification such of the Manufacturers whose output in 1964–65 did not exceed 75 million matches are made to pay the lowest rate of Rs. 3-75 per gross. But the manufacturers who have not cleared any goods during the financial year for which they had licence have to pay at the rate of Rs. 4-40 per gross as per clause 7 of the proviso of that Notification. In view of clauses 4 and 6 of the proviso the manufacturers who applied for licence on or after 1-4-1966 are liable to pay at the rate of Rs. 4-10 per gross while the manufacturers who applied for licence before 1-4-1966 and cleared matches during the financial year are liable to pay only Rs. 3-75 per gross. The Range Officer, Central Excise, Cuddapah Circle, 2nd respondent herein applying CI. 7 of the Notification levied Excise duty on the petitioner at the rate of Rs. 4-40 per gross which is the rate applicable to category mentioned in Table No. 1 of the Notification rejecting the petitioner's plea that it belonged to category ‘D’ thereof in view of the fact that there was no clearance in the year 1964–65. The petitioner also states that on and from 1-4-1967 the respondent is likely to apply CI. (4) of the said Notification and collect Rs. 4-10 per gross towards Excise Duty from him. In this Writ Petition it is contended that Claudes 4, 6 and 7 of the Proviso of the Notification are arbitrary and unreasonable and make hostile discrimination which is violative of Article 14 of the Constitution of India. It is also contended that these clauses infringe the fundamental rights guaranteed to the petitioners under Article 19(1)(f) and (g) of the Constitution. Under Rule 52, unless the duty is paid in accordance with the said Notification the goods are not allowed to be cleared. Therefore the petitioner has been paying the duty and has been clearing the goods. It is contended that though the petitioner has a right of appeal and revision under sections 35 and 36 of the Act against the assessment orders, those alternative remedies are not effective as the Departmental Authorities created under the Act cannot go into the Constitutional validity of the provisions of the Act or Rule or the Notification made thereunder, and has therefore invoked the jurisdiction of this Court for declaring Clauses 4, 6 and 7 of the Notification No. 75 Central Excise

3. Under the said Notification for the puspose of levy of Excise Duty matches produced by various Factories are categorised on the basis of the output of the Factory during the financial year 1964–65. Category “A” comprises of matches cleared for home consumption from a factory, the output of which in the Financial year 1964–65 exceeded 4,000 million matches. The exigible duty leviable on such matches is Rs. 4-60 per gross boxes of 50 matches. Category ‘B’ comprises of matches cleared from a Factory whose output exceeded 500 million matches but did not exceed 4,000 million matches. On the matches cleared in excess of 4,000 and up to 8,000 million matches, it is Rs. 4.50 per gross. Category ‘C’ comprises of matches cleared from a factory whose output exceeded 75 million matches but did not exceed 500 millions. The duty payable by such factories on the first 500 million matches cleared is Rs. 4-10 while on the matches cleared in excess of 500 million and upto 750 million matches is Rs. 4-25 per gross. Category ‘D’ is of matches cleared from factories whose output did not exceed 75 million matches during the financial year. On the first 75 million matches cleared a duty of Rs. 3.75 per gross is required to be paid while on matches in excess of 75 million and upto 100 million matches a duty of Rupees 3-00 per gross is payable.

4. In view of the above classification, a factory like that of the petitioner whose production during 1964–65 did not exceed 75 millions of matches falls under Category ‘D’ It was therefore, liable to pay at the rate of Rs. 3-75 per gross on the first 75 million matches cleared by it. Clause (7) of the proviso lays down however that in respect of a factory from which no matches are cleared during a financial year for which it had a licence, notwithstanding anything in the said Notification, the manufacturer shall pay at the rate appropriate to a category referred to in Table No. 1 on matches cleared therefrom for home consumption during the financial year. As already stated the petitioner factory although it had a licence during the financial year 1964–65 did not commence production till October, 1966. Therefore, it was a factory from which no article was cleared during the financial year 1964–65. Therefore, it was placed under an obligation to pay the rate appropriate applicable to a ‘B’ Category factory referred to in Table I, i.e at the rate of Rs. 4-40 per gross on the first 4.00Q million matches cleared, on matches cleared by it for home consumption during the following financial year i.e 1965–66.

5. In the counter affidavit nothing further is stated to justify this discrimination than that all manufacturers that fall under clause (7) of the proviso to the said Notification are treated alike and the rate prescribed has a reasonable nexus to the object sought to be achieved. We are unable to agree. The factories which fall within category ‘D’ in view of their output during the financial year 1964–65 constitute a single class even according to the notification. Once the categorisation of factories for the purpose of levying excise duty on matches produced by them is made on the basis of their output, it is rather difficult to understand the basis of discrimination made by clause (7) of the proviso. As a result of that clause Factories similarly placed are made liable to pay higher duty merely because during the financial year 1964–65 such factory similarly placed, did not clear any matches. If the categorisation is intended to levy duty commensurate with the capacity of production and higher excise duty is leviable on matches produced by bigger factories, then the levy of a higher duty on a factory which has not been able to produce any matches during financial year 1964–65 and the duty leviable should have been even less and not more (sic).

6. The authorisation of levy duty on factories of category ‘D’ at the higher rate applicable to factories of category ‘B’ is absolutely unreasonable and arbitrary. This levy has no reasonable nexus to the object sought to be achieved by the Act. It is utterly unrelated to the scheme of levy of Excise duty based on the output of a particular factors. In fact it runs counter to the object of the categorisation of the factories based on their output. Any such imposition of a higher duty on factories which fall within category ‘D’ but which have not cleared any matches during the financial year 1964–65 would actually amount to the levy of a penalty for non-production of the matches which is not the object of the Act or even the Notification. The Notification merely contemplates imposition of duty based on the output during the Financial year 1964–65 and does not contemplate the lew of any penalty. But in actual working the factories which did not clear any matches during the Financial year 1964–65 though belonging to category ‘D’ would have to pay a higher duty than the other factories falling under the same category: they have to pay Rs. 4-40 per gross as against Rs. 3-75 per gross. This discrimination between the factories similarly placed is Violative of Article 14 of the Constitution of India and must therefore be struck down as void.

7. Clauses 4 and 6 of the proviso of that notification are also impugned as violative of Article 14 of the Constitution.

8. Under the said clauses factories falling within categories B’ ‘C’ and of Table I of the said notification are required to pay a higher rate of duty on the matches cleared by them if the manufacturer thereof had applied for licence on or after 1-4-1964 than what a factory of that category is required to pay under Table I. In view of Clause 4 above, so far as factories of category ‘D’ are concerned if it is a factory for which license was obtained on or after 1-4-64, for the first financial year, it has to pay at Rs. 4-10 per gross as provided in Table if and in view of clause 6 it has to pay in any subsequent financial vear at Rs. 4-10, Rs. 4-40 or Rs. 4-50 as the case may be as provided in Table IV depending on the total quantity of matches cleared. On the other hand factories of the same category clearing the same quantity of matches during the same period, if they had applied for a license earlier than i-4-64, they would be entitled to clear the matches by paying duty only at Rs. 3-75 or Rs. 3-00 per gross as provided in Table I. This difference in the duty payable by factories of the same categories for the same goods during the same period is made to depend solely on the fact whether licence for the factory was applied before or after 1-4-64. For this discrimination also there appears to be no reasonable basis.

9. All that is stated in the counter affidavit is that the year 1964–65, was adopted as the base year as the Tariff Commission had recommended the rates of duty mentioned in Table I of the Notification. That may be a justification for categorising the factories into “A, B, C and D” on the basis of their respective production in the year 1964–65.

10. This categorisation made in Table I Is not impugned in this petition as violative of Article 14. In fact that classification is accepted as valid and the exclusion of factories falling under Category ‘D’ of Table I from that category and not allowing them to pay the duty stipulated in table I for such factories and requiring them to pay higher duty specified in Tables II and IV as per clauses 4 and 6 of the proviso, merely on the fortuitous circumstance of the license for such factories being applied on or after 1-4-1964 is attacked as hostile, arbitrary and unwarranted discrimination having no nexus to the object sought to be achieved. The fact that Tariff Commission recommendations were made in 1964–65. or that rates of duty were fixed with reference to the quantity of production of that year can hardly be justification for excluding factories of Category ‘D’ that have applied for a licence after 1-4-64 from the benefit of paying lesser duty as provided in Table I. Neither any reasons are mentioned in the affidavit, nor is the report of the Tariff Commission placed before the Court to ascertain if there is any material to justify the fixation of 1-4-64 as the dividing line between factories of the same category. The learned standing counsel also has not been able to suggest any grounds to sustain this discrimination. We are also unable to discern any reasonable basis for not treating factories of the same category alike.

11. In Mayflower Farms, Inc. v. Peter G. Ten Eyck, (1935) 297 U.S 266 : 2781 80 L. Ed. 675, the Supreme Court of the United States dealing with a provision of a State Milk Control Law (The Milk Control Act of 1933 as amended and re-enacted in 1934) denying to persons embarking in the business of milk dealer after the date when the Act took effect, the benefit of a differential in the minimum price at which dealers may sell milk to stores, and stores may sell to consumers, in favour of milk dealers not having a well advertised trade name, held that it denied the equal protection of the laws where it is not shown to have any relation to public health, or welfare or to operate to discourage monopoly or to be aimed at any abuse cognizable by law in milk business. It also further held that in the absence of any such showing, the Court has no right to conjure up possible situations which might justify the discrimination. In that view the classification was held to be arbitrary and unreasonable and that it defied the equal protection of law. We find ourselves in respectful agreement with that view. Exposing the factories of the same category to a higher rate of excise duty on the mere circumstances of licence for such factory as having been applied for before or after 1-4-64, is wholly unrelated to the objects of the Act. It is not calculated to prevent the breach of any law or aimed at advancing public welfare. Clauses 4 and 6 of the proviso result in the imposition of higher duty on factories similarly placed and authorise the executive to treat them differently and thus deny the equal protection of laws guaranteed under Article 14 of the Constitution. They must therefore be struck down as void.

12. It may not be out of place to mention that this hostile discrimination was done away with subsequently by Notification No. 1315 dated 8-6-1967.

13. The imposition and collection of the duty under Clauses 4, 6 and 7 must therefore be held to be without jurisdiction and not authorised by law. The respondents cannot be allowed to appropriate the duty so collected. As the duty was collected under a void provision the petitioner is also entitled to an Order for refund of the duty collected from him by the respondents.

14. The writ Petition therefore succeeds and is accordingly allowed with costs. Advocate's fee Rs. 100/-.

15. Petition allowed.