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Union Of India And Others v. Deccan Sugar And Abkari Company Ltd., Madras
Structured Summary of the Opinion — M.N. Chandurkar, C.J.
Factual and Procedural Background
This judgment disposes of writ appeal Nos. 313 and 310 of 1980 arising out of orders in Writ Petitions Nos. 551 of 1977 and 1625 of 1978. The petitioners are sugar manufacturers (Aruna Sugars Ltd. and Deccan Sugar & Abkari Co. Ltd.). The central issue concerns Item 1 of a notification dated 12-10-1974 issued by the Central Government under sub-rule (1) of rule 8 of the Central Excise Rules, 1944, which provided excise duty rebate for sugar produced in the period 1-10-1974 to 30-11-1974 in excess of the average production of the corresponding period of the preceding five sugar years and specified different rebate rates under sub-clauses (a) and (b).
Procedurally: in W.P. 551 of 1977 the petitioner (Deccan Sugar Co.) had no production during October and November 1974 but was initially granted an excise duty rebate (credited to PLA). The Inspector later sought refund of Rs. 4,23,800 on the ground of no production during corresponding months of the preceding five years. In W.P. 1625 of 1978 a similar rebate was granted but the department issued a notice seeking repayment of an excess amount; that demand was confirmed on appeal by the Collector of Central Excise. The petitioners challenged these demands by writ petitions. The Single Judge held for the petitioners on construction of the notification and on limitation; these writ appeals challenge that result.
Legal Issues Presented
- Whether, for the purpose of computing "average production of the corresponding period of the preceding five sugar years" in Item 1 of the notification dated 12-10-1974, a year in which production during the corresponding period is nil should be treated as nil production (thereby making the average zero), or whether such nil years preclude any rebate claim under Clause 1 because the concept of "average production" presupposes some production.
- Whether Clause 4 of the notification (which provides that where production in one or more sugar years among five sugar years was nil, the production in such year or sugar years shall be ignored and the average shall be of the remaining years) applies to or affects the computation of average production in the petitioners' cases, and how Clause 4 interacts with the Explanation and Clause 1.
- Whether the department's demands for repayment are barred by limitation, specifically whether such demands constitute cases of short-levy governed by Rule 10 of the Excise Rules (as opposed to other rules), thereby attracting limitation bar.
- (Ancillary) Whether the principle of promissory estoppel (based on correspondence and clarifications by the Central Board/Government) prevents the respondents from denying the rebate where representations/clarifications were made to sugar industry bodies.
Arguments of the Parties
Petitioners' Arguments
- The petitioners contended that a year with no production in the corresponding period should be treated as a period of nil production, and consequently the average production for the five-year period would be nil — entitling them to rebate on the full quantity produced in Oct–Nov 1974.
- The petitioners relied on prior judicial decisions (as cited by the Single Judge) construing similar provisions to treat nil production as nil average and hence allow rebate.
- The petitioners relied on correspondence between the Indian Sugar Mills Association and the Government (a clarification letter dated 1-11-1972) to show that established factories would be entitled to full rebate even if production in the corresponding prior period was nil; this support was used to raise the estoppel argument.
- On limitation, the petitioners contended that demands were barred by rule 10 read with Rule 173J (i.e., the department's demands related to short-levy and thus were time-barred if beyond one year).
Respondents' (Department's) Arguments
- The department argued that where there was no production at all in the corresponding period of the preceding five sugar years, the petitioner was not entitled to any rebate under Clause 1 of the notification because "average production" presupposed some production and the excess over average could not be established.
- In the case of W.P. 1625 of 1978 the department argued that average production should be computed only by dividing the relevant total by the number of years in which production occurred (in that case, by 2), rather than by five — i.e., the department suggested a different method of calculating the average.
- The department challenged the Single Judge's limitation finding, arguing that the demand was not a short-levy (or otherwise that Rule 10 did not apply), and thus was not time-barred as held below.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Etikopakka Co-operative Agricultural Society Ltd. v. Union of India, 1979 E.L.T. (J) 533 : 1970 A.W.R. 106 | Construing a similar provision: held that if no sugar was produced during the relevant corresponding period, the production in that period is nil and excess in the subsequent year should be calculated on that basis. | The Single Judge relied on this decision to treat nil production in the corresponding period as nil average; the present Court noted this reliance and considered the same principle when construing the notification. |
| New Horizon Sugar Mills (P) Ltd. v. Asstt. Collector of Central Excise, Customs House, Pondicherry, W.P. 7257 of 1975 — (1979 E.L.T. (J) 75) (Mad.) (Gokulakrishnan, J.) | Interpreted the same notification: held that average for Clause 1 must be determined by dividing the total production in the corresponding period by five (i.e., include years with nil production in divisor), not by the actual number of years when production occurred. | The Single Judge referred to this decision; the present Court expressly noted Gokulakrishnan J.'s view and relied on the Division Bench confirmation (see next entry) in approaching computation of average production for cases lacking production in some years. |
| Asstt. Collector of Central Excise, Customs House, Pondicherry v. New Horizon Sugar Mills (P) Ltd., Pondicherry — Division Bench, 1980 E.L.T. 10 | Confirmed the view in New Horizon (single judge) that average must be computed by dividing total production by five (i.e., the five-year divisor), supporting a particular method of computing average notwithstanding nil-production years. | The present Court recorded that the single-judge decision was confirmed by a Division Bench and used that confirmation as persuasive support for the construction of the notification concerning computation of average production. |
Court's Reasoning and Analysis
The Court proceeded by textual construction of the notification dated 12-10-1974 and its parts (Clause 1, sub-clauses (a) and (b), Clause 4 and the Explanation). The Court's analysis can be broken down as follows:
- Identification of mechanism: The Court first identified that Clause 1's main part determines the quantity of sugar qualifying for rebate — "sugar produced ... in excess of the average production of the corresponding period of the preceding five sugar years." To determine the excess, two figures are required: (i) production in Oct–Nov 1974 and (ii) the average production in the corresponding period of the preceding five sugar years.
- Meaning of "average production": The Court examined the Explanation which provides that for factories that went into production in or before 1967–68, "average production" means the simple average production during the corresponding period of the preceding five sugar years. The Court concluded that "simple average" indicates dividing the production by five (i.e., a divisor of five), and that clause (a) of the Explanation was intended to operate in calculating the main part of Clause 1.
- Purpose and effect of Clause 4: The Court reproduced Clause 4 which states that where production in one or more sugar years among five sugar years was nil, those years shall be ignored and the average shall be of the remaining years. The Court observed that Clause 4 shows the notification's draftsmen envisaged nil-production contingencies and provided a specific regime for ignoring years with nil production where desired.
- Interpretive tension and resolution: The Court identified the department's contention that if production is nil in corresponding years, the manufacturer cannot show "excess" and therefore is not entitled to rebate at all. The Court rejected that submission for two related reasons:
- Because the notification itself contemplates nil-production years via Clause 4, and because absence of production can be treated as nil production for the purpose of computing the "average," the main part of Clause 1 should be construed to permit an average of nil where appropriate; and
- Absent a clear indication in the notification that nil production in the corresponding period precludes rebate, it would be difficult to accept the department's restrictive construction which would deny rebate solely because prior corresponding-period production was nil.
- Application to petitioners: On this textual basis, the Court held that where the production during the corresponding period in the preceding years is nil, the average production must be considered to be nil and therefore the sugar produced in Oct–Nov 1974 qualifies as "in excess of the average" and is eligible for the rebate, subject to the differential rates under sub-clauses (a) and (b) depending on overall yearly production.
- On the related New Horizon line of authority: The Court accepted the reasoning of Gokulakrishnan, J. and its confirmation by a Division Bench that the computation of average must be done by reference to the five-year concept in the Explanation (and that inclusion or treatment of nil years is governed by Clause 4 where applicable). The Court therefore did not accept the department's alternate method of dividing by the number of years in which production actually occurred unless Clause 4 specifically directed ignoring nil years.
- Limitation/Rule 10 issue: The Court agreed with the Single Judge that when the department asserts that the petitioner is not entitled to rebate and seeks recovery of amounts already credited, that position constitutes a case of short-levy (i.e., excise duty was short-levied). Therefore, such demands are governed by Rule 10, and if credit had been given more than one year prior to the date of demand, the demand would be barred by limitation under Rule 10. The Court found no basis to overturn the Single Judge's finding that the case was one of short-levy and that Rule 10 applied.
- Promissory estoppel: Although the Single Judge invoked correspondence between industry bodies and the Government and applied promissory estoppel, the Court expressly stated that because it had decided the matter on the merits of construction of the notification in favour of the petitioners, it was unnecessary to decide the promissory estoppel point.
Holding and Implications
Holding: The Court dismissed both writ appeals (i.e., the appeals before it were dismissed). The Court ordered costs (one set) and awarded counsel's fee of Rs. 1,000. The Court also rejected the oral application for leave to appeal to the Supreme Court.
Implications:
- Direct effect on the parties: The Court's construction of the notification in favour of the petitioners means that where production in the corresponding period of the preceding five sugar years is nil, the average production can be treated accordingly so that sugar produced in 1-10-1974 to 30-11-1974 may qualify for rebate (subject to whether sub-clause (a) or (b) rates apply based on overall yearly production). As a consequence, the department's demands for repayment based on denial of rebate were not upheld by this Court on the merits.
- Limitation consequences: The Court confirmed that demands characterized as cases of short-levy fall under Rule 10; if more than one year had elapsed before the demand, such demands are barred by limitation as applied below.
- Promissory estoppel: The Court did not decide promissory estoppel because it resolved the case on statutory construction; accordingly, no definitive ruling on estoppel was necessary for the outcome.
- Broader precedent: The Court applied and relied on existing judicial authority (including the New Horizon decisions and Etikopakka) and on textual construction of the notification. The opinion does not state that it establishes a new principle beyond its construction of the particular notification and the application of Rule 10 to short-levy demands; the decision operates directly on the parties' claims rather than announcing a separate, broad new principle beyond that construction.
Disposition: Writ appeals dismissed with costs (one set); counsel fee Rs. 1,000; leave to appeal to the Supreme Court refused.
M.N Chandurkar, C.J:— This judgment will dispose of writ appeal Nos. 313 and 310 of 1980 which arise out of the orders in W.P Nos. 551 of 1977 (Aruna Sugars Ltd. by M. Srinivasan Executive Director, Pennadam— W.P 551/77—The Deccan Sugar and Abkari Co. Ltd. represented by its Mg. Director, S.N Lal v. The Union of India represented by the Collector of Central Excise, Madras and W.P 1625 of 1978 respectively. The petitioners in both the writ petitions are sugar manufacturers. We are concerned with Item 1 of a notification issued on 12-10-1974 by the Central Government in exercise of its powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944. The relevant portion of that notification reads as follows:
“In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts sugar described in column (2) of the table below and falling under sub-item (1) of Item No. 1 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) from so much of the duty of excise leviable thereon as is specified in the corresponding entry in-columns (3) and (4) of the Table.
Sl. No. Description of sugar Duty of Excise free sale sugar Levy Sugar (1) (2) (3) (4) 1. Sugar produced in a factory during “the period commencing on the 1st day of October, 1974 and ending with the 30th day of November, 1974 in excess of the average production of the corresponding period of the preceding five sugar years in respect of which (a) the overall production of the factory for the entire sugar year does not equal the average production of the preceding five sugar years, Rs. 60 per quintal Rs. 16 per quintal (b) the overall production of the factory for the entire sugar year equals or exceeds the average production of the pre-ceding five sugar years. Rs. 82 per quintal Rs. 22 per quintal
2. In W.P 551 of 1977, the Deccan Sugar Co., is the petitioner. Though there was no production of sugar during October and November 1974, the petitioner was granted excise duty rebate for Rs. 4,23,800 under Item 1(a) of the notification reproduced above and credit was given to the petitioner in the PLA account. However, when a supplemental claim for additional rebate was made, the Inspector of Central Excise, Vridhachalam, by his letter dated 19-8-1975, asked the petitioner to refund the sum of Rs. 4,23,800, for which credit had already been given, on the ground that there was no production of sugar during the corresponding months of the previous five years. Similarly, in the case of the petitioner in W.P 1625 of 1978, who had also no production of sugar in the corresponding months of October and November during the years 1970–71 and 1971–72, excise duty rebate of Rs. 12,56,672.92 was granted to the petitioner under clause 1(a) of the notification reproduced above. Subsequently, the Assistant Collector of Central Excise, Trichi issued a notice dated 15th July, 1975 to the petitioner stating that the petitioner was entitled to a lesser sum by way of rebate on the notification and that a sum of Rs. 1,46,192.32 had been paid in excess erroneously and asked the petitioner to repay the said sum. This order was confirmed on appeal by the Collector of Central Excise, Madras, by his order dated 1-4-1979. When these demands were challenged by the petitioners in the writ petitions, the stand: taken by the department was that since there was no pro duction at all in the corresponding period from 1st October to 30th November of the preceding five sugar years, the petitioner in W.P No. 551 of 1977 was not entitled to any rebate at all. So far as the petitioner in W.P 1625 of 1978 was concerned, the average production according to the department ought to be found out only by dividing the total production of the corresponding period in the sugar years 1969–70 and 1971–72 by 2.
3. The learned Single Judge in an elaborate judgment took the view that the absence of production during the corresponding period of October and November must be treated as a period of nil production and therefore notwithstanding the fact that there was no production at all in the corresponding period, the petitioners were entitled to rebate on the footing that the average production was nil. The learned Judge also relied on the decision of the Andhra Pradesh High Court in Etikopakka Co-opetative Agricultural Society Ltd. v. Union of India, 1979 E.L.T (J 533) : 1970 A.W.R 106. In that decision, the learned Judge was construing a similar provision in which the excess quantity of sugar which qualified for rebate had to be determined with reference to the quantity of sugar produced during the corresponding period, 1st of October to 30th November, 1972. The learned Judge took the view that “if no sugar was produced during the relevant period in the year 1972–73, it must be said that the production of sugar during the relevant period was nil and the excess sugar produced in the year 1973–74 should be calculated on that basis.” The learned Judge also referred to the decision of Gokulakrishnan, J. (as he then was) in W.P 7257 of 1975—New Horizon Sugar Mills (P) Ltd., Pondicherry v. The Asstt. Collector of Central Excise, Customs House Pondicherry, 1979 E.L.T (J 75) (Mad.) in which the learned Judge was required to consider the very same notification with which we are concerned, and he took the view that even though during any of the corresponding period of the preceding five years there was no production of sugar and there was production in some of the years, the average for the purpose of clause 1 of the Notification dated 12-10-1974, has to be determined by dividing the total production in the corresponding period by five and not by the actual number of the corresponding periods during which there was production. It has been now pointed out to us that decision was confirmed by a Division Bench of this Court in Asstt. Collector of Central Excise, Customs House, Pondicherry v. New Horizon Sugar Mills (P) Ltd., Pondicherry, 1980 E.L.T 10. The learned Single Judge further referred to the fact that there was correspondence between the Indian Sugar Merchants' Association and the Union Government in respect of a similar notification issued on 13th October, 1971. A letter addressed by the Association to the Secretary, Central Board of Excise and Customs, dated 14-10-1972, and a reply to it given by the Government of India, dated 1st November, 1972 are produced before us. With reference to the notification dated 13th October, 1971, the letter from the Association stated as follows:
“On this notification, in response to an enquiry made by the Committee of the Association, the Board had clarified as per their letter No. F. 14-33-71- C. 1 dated 26th November, 1971 that a factory which had worked during the base period i.e, during the period commencing from 1st day of October, 1970 and ending with 30th day of September, 1971, though it had not worked during the period from 1st October, 1970 to 30th November, 1970 and the production during this period was nil, would be entitled to the excise rebate at the notified rate on its entire production achieved during the months of October and November 1971.”
4. The letter then proceeds as follows:
“As the notification issued this year is also on similar lines, the Committee presume that the clarification given by the Board last year will apply to the notification issued this year also i.e, where a factory has worked in the base period (1st October, 1971 to 30th September, 1972) it will be entitled to the full rebate on its entire production during the various periods mentioned in the notification, although during the corresponding period in the last season, the production may be nil., The Committee shall be glad if you kindly confirm whether their above presumption is correct.”
5. A letter from the Government of India under the signature of the Under Secretary to the Government of India, Ministry of Finance, Department of Revenue and Insurance, addressed to the Secretary General, Indian Sugar Mills Association, New Delhi read as follows:
“I am directed to refer to your letter No. VP, dated 14-10-1972, on the above subject and to say that our presumption is confirmed in respect of established factories only (and not factories which had only a trial run during the base period).”
6. Admittedly, the factories of the petitioners are established factories. On the basis of these letters, the learned Judge held that the principle of promissory estoppel was attracted and that it is not open to the respondents to go back on their own representation and contend that the petitioners are not entitled to excise duty rebate merely because there was no production of sugar at all during the base period in the previous year or years.”
7. The petitioners also raised the question of limitation and according to them, the demands were barred by rule 10 of the Excise Rules read with Rule 173J. The learned Judge took the view that the demands for repayment of the amounts on the basis that they had been erroneously credited to the petitioners could only be on the basis that the excise duty had been short-levied and therefore rule 10 would apply to these cases and not the residuary rule 10A. Consequently, the learned Judge held that if credit had been given more than one year prior to the date of demand, the demand was barred by limitation.
8. As already pointed out, these two appeals are only concerned with the claim of the petitioners in W.P 551 of 1977 and 1625 of 1978. Admittedly, there was no production whatever so far as Aruna Sugars Ltd. is concerned (petitioner in W.P 551 of 1977 and the appellant in W.A 313 of 1980). We have reproduced the relevant part of the notification earlier. That notification will indicate that the main part of the Item 1 refers to the quantity of sugar which qualifies for the rebate of excise duty. The quantity of sugar which qualifies for refund of excise duty is “sugar produced in a factory during the period commencing on the 1st day of October, 1974 and ending with the 30th day of November, 1974 in excess of the average production of the corresponding period of the preceding five sugar years….” In order to find out the quantity of sugar which qualifies for the rebate, two figures have to be ascertained. One figure relates to the quantity of sugar produced during the period from 1-10-1974 to 30-11-1974. The other figure has to be arrived at by finding out the average production of the corresponding period of the preceding five sugar years. The sugar year is the period of twelve months beginning from the 1st day of October and ending with the 30th day of September next follows. There is an explanation, which becomes relevant, which reads as follows:
“In this notification average production in relation to sugar produced in a period by a factory which had gone into production for the first time in 1967–68 or earlier, means the simple average production during the corresponding period of the preceding five sugar years.”
9. There can be no doubt that clause (a) of the Explanation defining ‘average production’ was intended to work out the main part of clause 1 of the notification. The applicability of the concept of ‘average production’ was restricted to a factory which had gone into production for the first time in 1967–68 or earlier. The meaning of the phrase ‘average production’ indicates that you have to find out the production for the corresponding period during the preceding five years and then take a simple average, which means that the average has to be arrived at by dividing the production by five.
10. Now the dispute between the department and the petitioner is that when in a given corresponding year there is no production at all and this may happen in all the five years, is the quantity of sugar eligible for the rebate to be determined on the basis that the average production is ‘zero’ as contended by the respondent or as contended by the department, since the production is ‘zero’, the sugar manufacturer is not entitled to claim any rebate in terms of Clause 1 of the notification. In other words, the argument of the department is that the concept of ‘average production’ of the corresponding period of the preceding five years contemplates some production because it is only then that the production during the relevant period viz., 1-10-1974 to 30-11-1974 can be said to be in excess of the average production.
11. It becomes necessary in this context to reproduce Clause 4 of the notification. Clause 4 reads as follows:
“Where production in one or more sugar years among five sugar years was nil, the production in such year or sugar years shall be ignored and the average production shall be the average, of the production of the corresponding period of the remaining sugar years.”
12. Now we have no doubt that the purpose of including Clause 4 was to effectively work out sub-clauses (a) and (b) of Clause 1 of the notification. Those two sub-clauses indicate that the facts stated therein are relevant only for determining the rate at which the rebate is to be granted. Clause 1 of the notification is therefore in two parts. While the first part which is the main part is intended to enable the determination of the quantity of sugar which qualifies for the rebate, sub-clauses (a) and (b) refer to the different circumstances under which different rates for the purpose of rebate will be made applicable. Sub-clause (a) provides that if the overall production of the factory for the entire sugar year does not equal the average production of the preceding five sugar years, then the rate in respect of free sale sugar is Rs. 60 per quintal and in respect of levy sugar it is Rs. 16 per quintal. Sub-clause (b) of Clause 1 refers to a case where the overall production of the factory for the entire sugar year equals or exceeds the average production of the preceding five sugar years. In such a case, the rate is higher i.e Rs. 82 per quintal in the case of free sale sugar and Rs. 22 per quintal in respect of levy sugar. Sub-clauses (a) and (b) evince an intention that in order to claim higher rebate, there must be more production with reference to the average production of the preceding five sugar years. Now it is for the purpose of finding out how the five sugar years is to be computed, that Clause 4 has been incorporated in the notification. The effect of Clause 4 is simple. For finding out the average production, the year in which the production is nil has to be ignored and therefore the effect will be that if the production is nil in two years out of the five years, then the total production for the three years will have to be divided by three and not by five.
13. We have referred to Clause 4 to indicate that where the Government of India wanted to ignore the years in which there was no production at all, it has made a specific provision in Clause 4. The other purpose for which we referred to this clause is that the contingency of the production being nil is envisaged by the notification itself. Thereafter, unless there is clear indication in the notification itself that if there is no production in the corresponding period contemplated in the main part of Clause 1 the manufacturer will not be entitled to any rebate, it will be difficult to accept the contention of the department that merely because there was no production of sugar in the corresponding periods during the preceding five years, there is no excess in respect of which rebate can be claimed. It is important to point out that if the contingency of production being nil is well accepted in the notification itself and the fact that there can be no excess production with reference to production being nil because any figure of production will be in excess of nil production, the main part of Clause 1 of the notification will have to be so construed as to mean that even though during certain years or during all the relevant years, the production is nil, the average production must be considered to be nil with the result that the entire sugar produced during the period from 1st October 1974 to 30th November 1974 must be held to be entitled to the rebate depending upon whether the case falls within Sub-clause (a) or Sub-clause (b) of Clause 1. We are, therefore, unable to accept the contention of the learned counsel for the department that the petitioner in W.P 551 of 1977 was not entitled to any rebate at all. So far as the petitioner in W.P 1625 of 1978 is concerned, apart from the fact that there:is no provision analogous to clause 4 excluding the corresponding period in respect of which the production was nil for the purpose of computing the average, we do not see any reason to disagree with the view taken by Gokulkrishanan J (as he then was) and confirmed by the Division Bench of this Court.
14. In view of the fact that we have found on merits on the construction of the notification that the petitioners' claim cannot be denied by the respondents, we do not think it necessary to deal with the question of promissory estoppel. An argument was advanced before us on behalf of the department that the finding that the demand made by the department in respect of the petitioner in W.P 1625 of 1978 is barred by Rule 10 is incorrect and must be set aside. It is difficult for us to see how the finding recorded by the learned Judge that the case must be considered as one of short-levy can be said to be wrong. When the case of the department is that the petitioner is not entitled to rebate, it obviously means that the excise duty which is paid by the petitioner is less. It is clearly therefore a case of short-levy and in our view such a demand will be governed by Rule 10. In the view which we are taking, we must dismiss both the appeals. Accordingly, the writ appeals are dismissed with costs one set. Counsel's fee Rs. 1,000. Oral application for leave to appeal to Supreme Court is rejected.
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