1. Interpretation of a notification dated 14th July 1978 issued
by the Central Government in exercise of its power conferred upon it by
Rule 8 of the Central Excise Rules, 1944 is in question in this writ
petition.
2. The petitioner is a company incorporated under the
Companies Act. It carries on the business of manufacture and sale of tyres
and tubes. On or about 30th March 1979, a notification was issued under
Rule 8 of Central Excise Rules for the purpose of granting of an incentive
to smaller tyre companies in terms whereof factories whose annual
capacity did not exceed five lakh number of tyres and five lakh number of
tubes were entitled to the benefit of remission of duty as specified therein.
However, exemption of 25% of the duty leviable was given in respect of
smaller units which were new units and commenced production after 1st
April 1976. Furthermore, concessional rate of duty not exceeding 75% of
the licensed capacity of the factory for the financial year 1978-79 was also
to be given subject to the fulfilllment of the eligibility criteria thereof
wherefor it was required to determine the licensed capacity as certified by
the Development Officer of the Directorate General of Technical
Development.
3. The petitioner applied for grant of a license in terms of
Section 11 of the Industries (Development and Regulation) Act, 1951 and
Rule 15(2) of the Registration and Licensing of Industrial Undertaking
Rules, 1952 which was granted subject to the following conditions:
"1. The industrial undertaking
shall have an installed capacity as mentioned
below against each item of manufacture on
the basis of the maximum utilization of the
Plant and Machinery. No Section of the
industrial undertaking should have, except
with the prior approval of the Government
of India, capacity substantially in excess of
that specified below :-
4. The petitioner has asserted, and which has not been denied
or disputed that all such industries were permitted to raise their production
by 25%. The assertion of the petitioner in this writ petition is that having
regard to the fact that it had an installed capacity of 4 lakh number of tyres
and tubes and further in view of the afore-mentioned general permission to
manufacture quantities 25% in excess of the installed capacity, the
petitioner had been manufacturing 5 lakh number of tyres and tubes and in
that view of the matter in the year 1978-79, its licensed capacity became 5
lakh tyres and tubes.
5. It is also not in dispute that the petitioner had applied for
substantial expansion in its capacity from 4 lakh to 5,75,000 in relation
whereto, a letter dated 10th October 1979 was issued by the Assistant
Development Officer to the Commissioner, Tax Research, Ministry of
Finance, which is in the following terms:
"Sub:- Central Excise - Exemption
of tyres and tubes in units
with annual licensed capacity
not exceeding 5 lakh Nos. of
tyres and tubes.
Ref:- Copy of letter from Central
Excise Collectorate, Kanpur
C.No. V-16 (17) 41 -- VC /
79 dated 24.5.1979
Sir,
Kindly refer to a letter of Central
Excise Collector, Kanpur referred above
in connection with Central Excise
exemption on tyres and tubes for the unit
M/s. Modi Rubber Ltd., Modipuram of
which a copy was endorsed to Rubber Dtd.,
DGTD with a request to review the licensed
capacity of M/s. Modi Rubber Ltd.
It is confirmed that M/s. Modi
Rubber Ltd.'s licensed capacity is 4 lakh
nos. of tyres and tubes each per annum and
they can produce up to 5 lakh nos. of tyres
and tubes each per year within the ambit of
present regulation.
M/s. Modi Rubber Ltd. have applied
to the Ministry of Industry for substantial
expansion in their capacity from 4 lakhs nos.
to 5,75,000 nos. of auto tyres and tubes
each. This is still under examination of
Ministry of Industry."
6. It is not in dispute that the petitioner had taken clearance of
3,75,000 tyres and tubes. According to the respondents, having regard to
the fact that they were only entitled to exemption of duty in relation to
75% of the tyres, clearance wherefor had been taken in terms of the
provisions of the said notification, they could have claimed the benefit in
terms thereof only in relation to 3 lakh tyres and tubes and thus they have
taken clearance of 75,000 tyres and tubes in excess of the eligible quantity
of concessional rates of duty which was not admissible, which is liable to
be refunded.
7. On the said ground a notice to show cause had been issued
to the petitioner as to why they should not be required to pay duty
amounting to Rs. 77,38,663.31P in terms of the Rule 9 of the Central
Excise Rules.
In the afore-mentioned premise, this writ petition has been
field.
8. Mr. Ravinder Narain, the learned counsel appearing on
behalf of the petitioner would submit that the expression 'licensed
capacity' having not been defined, the same should be given the dictionary
meaning.
9. A 'license' in terms of the provisions of the said Act and
the Rules framed there under, as generally understood, the learned counsel
would urge, would include permission, having regard to the undisputed
fact that a general circular had been issued to the effect that all the
manufacturers can manufacture 25% more of their installed capacity, the
petitioner must be held to have the license/permission to manufacture 5
lakh tyres and tubes and as a logical corollary thereof, it would be entitled
to the benefit of the said notification.
10. Mr. Maninder Singh, learned counsel appearing on behalf
of the respondents, on the other hand, would contend that the petitioner
could not have claimed the benefit of the said notification as it did not
fulfil the criteria therefore. The learned counsel, drawing our attention to
the afore-mentioned letter dated 10th October 1979 submitted that the
petitioner itself considered that its licensed capacity was 4 lakhs which it
intended to increase to 5,75,000. Had the petitioner understood, as is now
sought to be contended, that its licensed capacity was 5 lakhs, Mr.
Maninder Singh would argue, in its application for substantial expansion,
it would have mentioned that its licensed capacity was 5 lakhs. The words
'licensed capacity' and 'installed capacity' the learned counsel would
contend, are not synonymous and thus, having regard to the factual matrix,
as noticed hereinbefore, the show cause notice has rightly been issued.
11. The Industries (Development and Regulation) Act, 1951
(hereinafter called and referred for the sake of brevity as 'the said Act')
was enacted to provide for the development of certain industries.
'Industrial undertaking' has been defined in Section 2(d) to mean any
undertaking pertaining to a scheduled industry carried on in one or more
factories by any person or authority, including Government.
12. Section 11 provides for licensing of new industrial
undertakings in terms whereof, after commencement of the said Act, no
person or authority other than the Central Government is entitled to
establish a new industrial undertaking except under and in accordance
with a license issued in that behalf by the Central Government. Sub-section (2) of Section 11 is in the following terms:
11. Licensing of new industrial undertaking.--(1)... ...
(2) A license or permission under
Sub-section (1) may contain such conditions
including, in particular, conditions as to the
location of the undertaking and the
minimum standards in respect of size to be
provided therein as the Central Government
may deem fit to impose in accordance with
the rules, if any, made under Section 30."
Section 13 of the said Act provides for further expansion of
licensing of industrial undertakings in special cases. Section 13(1)(d) is in
the following terms:
13. Further provision for licensing of
industrial undertaking in special cases.-
(1) No owner of an industrial
undertaking, other than the Central
Government, shall -
(a) to (c) ... ... ...
(d) effect any substantial expansion of
an industrial undertaking which has been
registered or in respect of which a license or
permission has been issued, or"
13. An explanation has been appended thereto for defining the
meaning of substantial expansion for the purpose of the said Section
which reads thus:
Explanation: -- For the purposes of
this section, 'substantial expansion' means
the expansion of an existing industrial
undertaking which substantially increases
the productive capacity of the undertaking
or which is of a such a nature as to amount
virtually to a new industrial undertaking, but
does not include any such expansion as is
normal to the undertaking having regard to
its nature and the circumstances relating to
such expansion."
Section 14 provides for grant of license or permission.
Section 24 is a penal provision, the relevant portion of
which is in the following terms:
"24. Penalties. --(1) If any person
contravenes or attempts to contravene or
abets the contravention of-
(i) the provisions of Sub-section (1) or
Sub-section (4) of Section 10 or of Sub-section
(1), of Section 11 or Section 11A or
of Sub-section (1) of Section 13 or of Sub-section
(2), (2A), (2D), (2F) and (2G) of
Section 29 29B, or
(ii) any direction issued under Section 16
or Sub-section (3) of Section 18B, or
(iii) any order made under Section 18B,
or
(iv) any rule the contravention of which
is made punishable under this section,
he shall be punishable with
imprisonment which may extend to six
months, or with fine which may extend to
five thousand rupees, or with both, and, in
the case of a continuing contravention, with
an additional fine which may extend to five
hundred rupees for every day during which
such contravention continues after
conviction for the first such contravention.
(2) to (3) ... ... ..."
14. In exercise of its power conferred upon it under Section 30,
the Central Government made Rules known as "Registration and
Licensing Industrial Undertakings Rules, 1952. Rules 15 and 16 of the
said Rules read thus:
"15. Grant of license or
permission. --(1) The Ministry of Industrial
Development shall consider the report
submitted to it under Rule 11, and where it
decides that a license or permission, as the
case may be, should be granted it shall
inform the applicant accordingly, not later
than three months from the date of receipt of
the application, or the date on which
additional information under Rule 9 is
furnished, whichever is later.
(2) Where the Ministry of Industrial
Development considers that certain
conditions shall be attached to the license or
permission, or that the license or permission
should be refused, it shall not later than
three months from the date of receipt of the
application or the date on which additional
information under Rule 9 is furnished,
whichever is later, give an opportunity to the
applicant to state his case, before reaching a
decision.
(3) Where a license or permission has been
refused the applicant shall be informed of
the reasons for such refusal.
(4) licenses or permissions shall be in Form
F appended to these rules.
"16. Variation or amendment of
licenses. --(1) Any owner of an Industrial
undertaking in respect of which a license
has been granted, who desires any variation
or amendment in his license shall apply to
the Ministry of Industrial Development
giving the reasons for the variation of
amendment.
(2) The Ministry of Industrial Development
after carrying out such investigation, as it
may consider necessary, may vary or amend
the license. The Ministry of Commerce and
Industry may also consult the Licensing
Committee before coming to a decision."
15. It is not in dispute that the expression 'licensed capacity'
has not been defined in the said Act. As noticed hereinbefore, in the
license granted to the petitioner dated 4th March 1972, it was required to
have an installed capacity against each item of manufacture on the basis of
maximum utilisation of plant and machinery to the extent of 4 lakh
automobile tyres and 4 lakh automobile tubes. However, in terms of the
said conditions, industrial undertaking could not have installed capacity
substantially in excess of what was specified therefore except with the prior
approval of the Government of India.
"What would be the meaning of the licensed capacity?" is
thus the core question involved in this writ petition.
'license' has been defined to mean as per Stroud's
Judicial Dictionary of Words and Phrases, Fifth Edition as under:
(2) A license "is an authority to do
something which would otherwise be
wrongful or illegal or inoperative" (per
Latham C.J., in Federal Commissioner of
Taxation v. United Aircraft Corporation (68
C.L.R. 525)
According to Webster's Third New International
Dictionary of the English Language, Unabridged, it means as under:
b. to permit or authorize especially be
formal license (patented processes were
freely licensed in a general effort to do
everything and anything to help win the war
--Marquis James)
Black's Law Dictionary, Fifth Edition gives it the
meaning as:
License: The permission
by competent authority to do an act which,
without such permission, would be illegal, a
trespass, or a tort. People v. Henderson, 391
Mich. 612, 218, N.W. 2d 2, 4. Certificate or
the document itself which gives permission.
Leave to do thing which licensor could
prevent. Western Electric Co. v. Pacent
Reproducer Corporation, C.C.A. N.Y., 42 F.
2d. 116, 118. Permission to do a particular
thing, to exercise a certain privilege or to
carry on a particular business or to pursue a
certain occupation. Blatz Brewing Co. v.
Collins, 88 Cal. App. 2d. 438, 160 p.2d 37,
39, 40. Permission to do something which
without the license would not be allowable.
Great Atlantic & Pacific Tea Co. v. City
of Lexington, 256 Ky. 595, 76 S.W. 2d. 894,
896. Privilege from state or sovereign. M.
Itzkowitz & Sons v. Gerahty, 139 Misc. 163,
247 N.Y.S. 703, 704; Alabama Power Co. v.
Federal Power Commission, 75 U.S. App.
D.C. 315, 128 F.2d. 280, 289) .
A permit, granted by an appropriate
governmental body, generally for a
consideration, to a person, firm, or
corporation to pursue some occupation or to
carry on some business subject to regulation
under the police power. A license is not a
contract between the state and the licensee,
but is a mere personal permit. Rosenblatt v.
California State Board of Pharmacy, 69 Cal.
App. 2d 69, 158 P.2d. 199, 203). Neither is
it property or a property right. American
States Water Service Co. of California v.
Johnson, 31 Cal. App. 2d. 606, 88 P.2d 770,
774; Asbury Hospital v. Cass County, 72
N.D. 359, 7 N.W. 2d 438, 452).
License with respect to real property
is a privilege to go on premises for a certain
purpose, but does not operate to confer on,
or vest in, licensee any title, interest, or
estate in such property. Timmons v.
Cropper, 40 Del. Ch. 29, 172 A.2d. 757,
759).
license in terms of the provisions of the 'said Act' and the
'Rules' is granted in Form 'F',
"Any prospectus or other document
by which the public is invited to subscribe
capital for this undertaking shall contain the
following statement:
A license/Permission has been
obtained from the Central Government for...
... ... ... ... ...of which a copy is open to
public inspection at the Head Office of the
Company. It must be distinctly understood
that in granting this.... license /
permission... ... ...the Government of
India do not take any responsibility of the
financial soundness of this undertaking or
for the correctness of any of the statements
made or opinions expressed in regard to.
16. The provisions of Sub-section (2) of Section 11, Rule 15,
Form 'F' as also the dictionary meanings of the word 'license', as noticed
hereinbefore, in no uncertain terms show that the words 'license' and
'permission' are inter-changeable.
17. By reason of the license dated 4th March 1972, the
petitioner herein became entitled to manufacture 4 lakh of automobile
tyres and 4 lakh automobile tubes. It also, having regard to the general
circular, became entitled to manufacture 25% in excess of its installed
capacity which has been accepted by the respondents in their counter-affidavit in the following terms:
7. Para 7 of the petition as stated above
is not admitted. In accordance with the
Government communication allowing
increase in the production of the articles for
which the industries are licensed or
registered by 25% without obtaining
substantial expansion of the license it is
submitted that this is only flexibility of
which undertakings can use all plant and
machine if they so like, but the licensed
capacity of the undertakings is not
automatically changed and it remains
unchanged unless specifically modification
in the license in made to this effect.
18. It has not been controverter that pursuant to the afore-mentioned
general permission granted to all the manufacturers to
manufacture 25% in excess of its licensed/installed capacity, no penal
action could be taken in the event the said circular had been acted upon.
Can it, in the afore-mentioned situation, be said that although it law the
petitioners were entitled to manufacture 5 lakh tyres and tubes wherefor
no prosecution would be maintainable, still then they would not have
licensed capacity to the extent of 5 lakhs? Answer to the said question
must be rendered in the negative.
19. It is one thing to say that for amendment in a license, an
application has to be filed in terms of Section 13 of the Act but it is
another thing to say that the factory did not have the licensed capacity of
producing 5 lakhs of tyres and tubes. In fact, the Assistant Development
Commissioner's letter dated 10th October 1979 categorically admitted that
the petitioner could produce up to 5 lakh number of tyres and tubes which
were within the ambit of present regulation.
20. The said notification in question is beneficent in nature.
Relevant portion of the notification reads thus:
"(b) Seventy five per cent of such
duty, if produced in any factory which
commenced production of the specified
goods for the first time on or after the 1st day
of April 1976.
Subject to the conditions that-
(i) where the specified goods are
produced in a factory whose annual licensed
capacity, or annual installed capacity is the
same, such licensed capacity or installed
capacity, as certified by the Development
Officer of the Directorate General of
Technical Development does not exceed
five lakh numbers of tyres and five lakh
numbers of tubes, or
(ii) where the specified gods are
produced in a factory whose annual licensed
capacity is different from the annual
installed capacity, whichever is lower, as
certified by the Development Officer of the
Directorate General of Technical
Development, does not exceed five lakh
numbers of tyres and five lakh numbers of
tubes:-
(b) Clearances of the specified goods for
home consumption not exceeding
seventy five per cent of the licensed
capacity for the financial year 1978-79
shall not be entitled for
exemption under this notification."
It is not in dispute that the petitioner has fulfillled the
eligibility criteria as contained in condition (a) thereof.
21. It is also not in dispute, as noticed hereinbefore, that the
petitioners have manufactured 5 lakhs of automobile tyres and tubes. In
the event of clearance of specified group for whom consumption not
exceeding 75% of the licensed capacity for the same year, they would be
entitled for the exemption as specified in the notification. If, thus, by
reason of a general permission, the petitioner had become entitled to
increase its manufacturing capacity to be extent of 25% higher than its
installed capacity, in our opinion, the petitioner must be held to have the
licensed capacity to manufacture 5 lakhs of tyres and tubes. An
exemption notification, as is well known, must be construed liberally.
22. We have arrived at the afore-mentioned conclusion
inasmuch as there does not exist any distinction between license and
permission.
23. The general license had been granted to the petitioner to
manufacture 4 lakh automobile tyres and tubes whereas 25% in excess
therefor had been permitted to be manufactured by reason of a general
circular. In view of the fact that the expressions 'license' and
'permission' are synonymous and are inter-changeable and having regard
to the provisions as noticed hereinbefore, we are of the opinion that the
petitioners would get the benefit of the afore-mentioned exemption
notification.
24. We cannot accept the submission of Mr. Maninder Singh to
the effect that although the petitioner could manufacture 5 lakh automobile
tyres without incurring the wrath of the penal provisions, it would be
deprived of the benefit of the afore-mentioned notification as in its license,
installed capacity had been mentioned at 4 lakh tyres and tubes.
25. For the reasons afore-mentioned, this writ petition is
allowed and the impugned show cause notice dated 28th August 1980 is set
aside.
26. No order as to costs.