T.S Cycles Of India, Ambattur, Madras v. Union Of India And Another

Venugopal, J.:— The appellant-writ petitioner is a manufacturer of cycles. Item 35 in the First Schedule to the Central Excises and Salt Act, 1944 (hereinafter to be referred to as the Act) reads as follows—

“T.I 35 Cycles, Parts of cycles other than Motor Cycles, namely

(i) Free wheels … Rs. 2 each (ii) Rims … Rs. 4 each.”

2. By Finance Act, 1975, Item 68 was introduced in the First Schedule to the Act with effect from 1-3-1975 and it reads as follows:

“T.I 68 All other goods, not elsewhere specified.

3. All other goods, not elsewhere specified, manufactured in a factory but excluding—

(a) 1% ad valorem.”

4. By Finance Act of 1976, while retaining Item 68, the word ‘cycles’ in item 35 was deleted and it was as under:

“T.I 35 Cycle parts

Parts of cycles other than motor cycle, namely—

(i) Free wheels … Rs. 2 each (ii) Rims … Rs. 4 each.”

Till the introduction of item 68 on 1-3-1975, there was no levy of excise duty on cycles cleared from the factory; in fully assembled condition, or cycles cleared in unassembled condition known to the trade as ‘completely’ knocked down condition (hereinafter to be referred as CKD condition). After the introduction of the residuary item 68, the Excise department took the stand that in respect of cycles cleared from the factory in CKD condition, free wheels and rims will be charged to excise duty under item 35, and the other parts of the cycle under the residuary item No. 68. The cycle manufacturers represented to the Government that the term ‘cycle’ in item 35 would include cycles already cleared in CKD condition and in respect of such cycles, only free wheels and rims are liable to excise duty, and that entry applies to manufacturers of cycles, clearing and despatching them in CKD condition. It was further pointed out that in the subsequent year the position has been clarified by deleting the word ‘cycle’ in item 35 and making it clear that only parts of cycles like free wheels and rims alone are liable for excise duty and hence cycles despatched in CKD condition (i.e, in unassembled condition) should also be taken as ‘cycles’ for purposes of item 35 and excise duty levied on free wheels and rims and there is absolutely no scope for invoking the residuary item 68 to levy excise duty on other cycle parts. Not accepting the representations made by the trade, the Department issued a Trade Notice (Central Excise) No. 21/76, dated 5-2-1976, stating ‘The Trade is advised that supplies of cycles in unassembled condition is basically supplies of different parts of a cycle and so except for rims and free wheels which are classified under item 35 of the First Schedule to the Act.’ Aggrieved by the Trade Notice and demand made for payment of excise duty under item 68, the appellants filed a writ petition for a writ of mandamus restraining the respondents from giving effect to the Trade Notice, or demanding or collecting excise duty in pursuance of the Trade Notice. Inter alia contending:

1. Traditionally and for many years cycles have been sold by the manufacturer/importer and bought by the wholesaler/retailer only in CKD condition and the word ‘cycle’ has been understood by the trade as ‘cycle in CKD condition’. A cycle despatched in CKD condition is nevertheless a cycle, falling within the ambit of item 35 of the First Schedule to the Act, and item 68 has no application to cycles despatched in CKD condition.

2. The appellant-writ petitioner is a manufacturer of cycles and not parts of cycles, and if the cycles are cleared in unassembled condition i.e, CKD condition, they would fall only under item 35, viz., ‘cycles’.

3. Brussels Trade Nomenclature treats the goods manufactured and despatched in CKD condition as if they are complete or finished articles.

5. The writ petition was resisted by the department on the ground that entry 35 is unambiguous and clear and it refers only to ‘cycles’ and in ordinary sense, it can never mean unassembled cycles, and should necessarily mean ‘cycle ready to be used as a means of transport.’ A learned single Judge of this Court, who heard the writ petition held—

(a) Cycle would normally mean cycle as understood in the ordinary and popular sense and not in the narrow technical sense and this would, therefore, connote assembled cycle which is a means of transport;

(b) as the accent concerning the excise duty is on cycles, it would undoubtedly mean a fully assembled cycle and not one in CKD condition; and

(c) as there is no ambiguity in interpreting item 35, Brussels Trade Nomenclature cannot be pressed into service.

6. On the above findings, the learned Judge held that cycles cleared by the appellant from its factory in CKD condition will not fall within the ambit of the term ‘cycle’ in item 35 of the First Schedule to the Act. Aggrieved against the order of the learned single Judge, the writ petitioner has filed the present appeal before this court.

7. The learned counsel for the appellant contended that the term ‘cycle’ has not been defined in the Act, and in the absence of any definition in the Act, the term ‘cycle’ has to be understood in popular and commercial parlance; and so understood, it would include a cycle despatched in CKD condition and fall within the ambit of item 35. In support of this contention, the learned counsel for the appellant relied on the following two decisions of the Supreme Court, viz., Dunlop India Ltd. v. Union of India, (1976) 2 SCC 241 : AIR 1977 SC 597 : 1981 E.L.T 565 and Indo International Industries v. Commissioner of Sales Tax U.P, (1981) 2 SCC 528 : AIR 1981 SC 1079 : 1981 E.L.T 325 (SC).

8. In Dunlop India Ltd. v. Union of India, (1976) 2 SCC 241 : AIR 1977 S.C 597, the appellant manufacturing automotive tyres imported V.P latex and contended before the authorities that it was classifiable as rubber raw under item 39 of the Tariff Act. Taking into account the ultimate use of the imported articles in the trade, the Government concluded that the V.P latex imported was ‘aqueous disperson of synthetic resin’ falling under item 82 of the Tariff Act. Negativing the contention of the Government, the Supreme Court held that any reasonable person could come to the conclusion that VP. latex would not come under ‘rubber raw’ and the end-use of the article was absolutely irrelevant. The Supreme Court ultimately held that meanings given to articles in a fiscal statute must be as people in trade and commerce, conversant with the subject, generally treat and understand them in usual course, and the items in the Tariff Act must be understood in that common parlance.

9. In Indo International Industries v. Commissioner of Sales Tax, U.P, (1981) 2 SCC 528 : AIR 1981 SC 1079 : 1981 E.L.T 325 (S.C), the Supreme Court held that Clinical syringes would fall under entry 44 of the First Schedule to U.P Sales tax Act (15 of 1948) and would not fall under ‘glassware’ Entry 39 of the First Schedule to the said Act. The Supreme Court held that in interpreting items in statutes like the Excise Tax Acts or Sales Tax Acts whose primary object is to raise revenue, resort should be had not to the scientific and technical meaning of the terms or expressions used, but to their popular meaning i.e, the meaning attached to them by those dealing in them, and in the absence of any definition being given in the enactment, the meaning of the term in common parlance or commercial parlance has to be adopted.

10. In Deputy Commissioner of Sales tax (Law) Board of Revenue (taxes) Ernakulam v. G.S Pai and Co., (1980) 1 SCC 142 : AIR 1980 (S.C) 611 it was pointed out that while interpreting the entries in Sales tax legislation, it should be borne in mind that the words used in the entries must be construed not in any technical sense, but as understood in common parlance, meaning ‘that sense which people conversant with the subject matter with which the statute is dealing would attribute to it’. The word in the entry must, therefore, be interpreted according to ordinary parlance, and must be given a meaning which people conversant with this commodity would ascribe to it.

11. In the decision reported in Swadeshi Mills Co. Ltd. v. Union of India, 1982 E.L.T 237 (Bombay) the question arose whether automobile windscreens fall under entry 23-A glass and glassware, or entry 34-A motor vehicle parts, tractors and trailers. The Bombay High Court held that in commercial parlance, windscreen is known as motor vehicle part for which there is a specific Tariff item No. 34-A and hence windscreens are not classified under Tariff item 23-A glass and glassware.

12. The legal position emerging from the decisions of the Supreme Court and the Bombay High Court cited above can be stated as under:

The primary object of the Excise tax Act is to raise revenue on the manufacture and production of goods and for that purpose they classify diverse products, articles and commodities in the First Schedule to the Act. In the absence of any definition of any given item in the Schedule, the item has to be understood in its popular and commercial parlance and by those who are dealing in it. The meaning given to the term by those engaged in trade and commerce and how they generally treat and understand them in the usual course has to be adopted for purposes of interpreting the items in the Schedule. The term or the Entry in the schedule to the Act must, therefore, be construed in the sense in which it is understood in the trade by the dealer and the consumer for, they are those who are concerned with it and it is the sense in which they understood that constitutes the index of the legislative intention when the entry in the statute was enacted.

13. In the instant case, the term ‘cycle’ has not been defined in the Act. In the absence of any definition given in the Act, we have to see how the term ‘cycle’ is understood by those dealing in it. What then is the meaning given to the term ‘cycle’ by those engaged in trade and commerce? From the affidavit filed in support of the writ petition, it is seen that when the cycles were imported in this country, they came in CKD condition, that is to say, all components including the rims, freewheels, the frame, the handle bar and the tubes, cans packed in cases of 6 and 12 sets, and the same pattern was later followed by the manufacturers in India when they despatched the cycles to the wholesaler to retailer in CKD condition. The age old practice of despatching cycles in CKD condition to wholesaler or retailer was followed by the appellant-writ petitioner as it is convenient to pack the cycles in CKD condition and the package consumes less space and it is easy to transport and considerably reduces the chance of any part of the cycle being bent or damaged during transit and the paint work also is preserved. Assembling the cycle fully and then despatching it would increase the cost of packing, freight and transport and it is not, therefore, the practice in the trade to despatch the cycles in a fully assembled condition. Taking into account the exigencies of manufacture, package and transport and the common under standing of the trade and commercial community, a cycle despatched under CKD condition is also a cycle falling within the ambit of item 35 of the first Schedule to the Act.

14. In the decision reported in Calicut Refrigeration Co. v. Collector of Customs and Central Excise, Cochin, 1982 K.L.T 196 (Ker.) the question arose whether item 29-A of Schedule I to the Central Excises and Salt Act, 1944 is attracted in respect of an Icecream Combination Cooler sold by the petitioner. For purposes of easy transportation, the buyer bought the aforesaid cooler in parts and by means of nuts and bolts, he installed them in his premises and the court held that such a transaction would be covered by item 29-A of Schedule I to the Act and the seller is liable to excise duty. So, even if a manufacturer despatches an Ice-cream Combination Cooler in parts and the purchaser assembles and instals it in his premises, it is still a transaction falling under item 29-A. In the instant case, the appellant is a manufacturer of cycles and not a manufacturer of cycle spare parts. As such from the show cause notice issued to the appellants, it has been directed to furnish the total number of unassembled cycles cleared from 1-3-1975 onwards thereby implying that the appellant was despatching a complete and full set of cycles in an unassembled condition. In the instant case, the dealer purchased the cycles in CKD condition and then simply assembled them and offered them for sale. Instead of despatching the cycles in a ready and assembled condition, the appellant for the purpose of easy transport, and to avoid damage to the cycles, despatched them in an unassembled condition in accordance with the prevailing practice in the trade. The buyer merely reassembles them. No manufacturing process is involved in that operation. No new marketable commodity is produced or brought into existence when the cycle parts are assembled by the buyer. So the cycles cleared by the appellant and despatched to its dealers are merely cycles sent in CKD condition and hence they are cycles within the meaning of item 35.

15. The learned counsel, for the respondents contended that Entry 35 refers to ‘cycle’ and so long as what is cleared is not cycle, but different parts of cycles, item 35 is not. attracted. The learned counsel further contended that convenience of the trade or trade practice are not relevant considerations in interpreting item 35, and item 35 is clear and unambiguous and cycles ready and fit to be used as such, alone can fall within the purview of that Entry. This argument proceeds on a too narrow and literal interpretation of the term ‘cycle’, completely ignoring the historical practice obtaining in the trade when the cycles were imported, and the prevailing practice when the manufacturer despatches the cycle to the whole-sale dealer or retailer in CKD condition. The argument of learned counsel completely overlooks the fact how the term ‘cycle’ is used in commercial parlance and understood by those engaged in that trade. Such a literal and mechanical interpretation of item 35 cannot be accepted, as it ignores the commercial realities of the transaction. Relying on the Privy Council decision in Ford Motor Co. of India v. Secretary of State for India, 65 I.A 32 at p. 41, the learned counsel for the respondents contended that to constitute ‘cycle’ within the meaning of item 35, it must be ready to be used as a means of transport, and unassembled cycles despatched in parts, cannot be readily used as a means of transport. The decision cited above does not help the case of the respondents, as the cars imported were undoubtedly in an unassembled condition which cannot be readily used as a means of transport.

16. The learned counsel for the appellant next contended that as an aid to the interpretation and to understand the meaning of the items in the First Schedule to the Act, one can refer to the Brussels Trade Nomenclature, according to which ‘cycle’ in an unassembled condition can be equated to a ‘cycle’ in an assembled condition. In support of this contention, learned counsel relied on the decision of the Bombay High Court reported in Tata Sons Ltd. v. Union of India, 1962 E.L.T 53 (Bombay). In that case, the question rose whether data processing machines can be regarded as. machines falling under item 72(b) or 72(3) of the Indian Tariff Act. Relying on Entry, 84, 53, in Brussels Trade Nomenclature, volume 3 at page 1346, the court held that the Data processing machine fall under the category of machines within the meaning of item 72 or item 75 of the Indian Tariff Act.

17. The above decision makes it clear that Brussels Trade Nomenclature can be pressed into service as an aid for interpreting and understanding the entries in the Indian Tariff Act. As the Central Excises and Salt Act, 1944 and the Tariff Act are cognate legislations which are inpari materia, it follows that Brussels Trade Nomenclature can be used as an aid for interpreting and understanding the terms and entries in the schedule to the Central Excise Act. According to Brussels Trade Nomenclature, a cycle in an unassembled condition, can be equated to a cycle in an assembled condition, and in this view, cycles despatched by the appellant-writ petitioner to the dealers in CKD condition would fall within the ambit of item 35.

18. Interpretative Rule 2(a) of the Customs Tariff Act 1975 provides that incomplete or unfinished vehicles, aircraft or other articles of this section are to be classified with the corresponding complete or finished vehicles or aircraft or other articles, provided they have the essential character of the latter. Complete vehicles and other articles of this section, or those considered as complete, imported unassembled or disassembled, are to be classified as if they were imported in the assembled state. Relying on the dissenting judgment of Hedge J. in the decision reported in J.K Steel Ltd. v. Union of India, AIR 1970 SC 1175 : 1978 E.L.T (J 355), the learned counsel contended that the Central Excises and Salt Act and the Tariff Act are cognate legislations which are inpari materia and on the analogy of Rule 2(a), the ‘cycle’ in item 35 should be classified and considered equivalent to a complete cycle in the unassembled state. Since the appellant has succeeded on the two contentions raised by it, it is unnecessary to give a finding whether the special Interpretative Rule 2(a) intended for the specific purpose, can be invoked for interpreting item 35 in the First Schedule to the Act.

19. In the result, the appeal is allowed with costs, and a writ of Mandamus will be issued restraining the respondents from giving effect to or demanding or collecting any excise duty pursuant to the Trade Notice No. 21/76, dated 5-2-1976. Counsel's fee Rs. 500/-