Citation Codes

Equivalent Citations

citation codes

Case Number

O.P No. 997 of 1980-B

Judges

K.S Paripoornan, J.

Acts

CENTRAL EXCISE ACT
rule 9(b).

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Smart Summary

Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

The petitioner is a firm manufacturing commercial plywood and had been paying excise duty under the Central Excise Act. The petitioner contends that its plywood falls under tariff item 16-B (commercial plywood) and is taxable at 20%. The tariff explanation excludes certain items from item 16-B, including "structural plywood" under clause (iv), which the Revenue contends applies to the petitioner's product and attracts a 30% ad valorem duty.

The respondents (Union of India, the Collector of Customs and Central Excise, and related officers) issued communications and show cause notices (Exts. P11, P12, P14, P15, P16) between 1979 and 1980 proposing re-classification as structural plywood and alleging a short levy totalling Rs. 5,39,406.21 for the period 1-11-1974 to 30-10-1979. The petitioner filed objections and then filed this writ petition seeking to quash the impugned communications and to obtain a writ of mandamus restraining the respondents from acting on them, among other reliefs.

The respondents filed counter affidavits, and additional affidavits were exchanged; the petitioner filed an amendment alleging discrimination and violation of Article 14. The matter was argued before the court.

Legal Issues Presented

Whether the plywood manufactured and marketed by the petitioner is "commercial plywood" (plywood simplicitor) falling under tariff item 16-B and taxable at 20%, or "structural plywood" falling under the excluded clause and taxable at 30%.
Whether the writ petition is maintainable at this stage, given the contention by the Revenue that classification is essentially a question of fact requiring detailed investigation and that the petition is premature.

Arguments of the Parties

Petitioner's Arguments

The petitioner's plywood is "commercial plywood" under tariff item 16-B and should be taxed at 20%, as it was consistently treated and assessed in the past under notifications (Nos. 15/68, 16/68, 69/68 & 14/70).
The petitioner objected to the re-classification and disputed the Revenue's show cause notices (Exts. P12, P14, P16), filing formal objections (e.g., Ext. P13, Ext. P17).
By amendment the petitioner alleged the threatened levy is discriminatory and violates Article 14 of the Constitution.
The petitioner pointed to similar treatment of another manufacturer (Messrs Travancore Plywood Industries Ltd.) as evidence that its treatment should be no less favourable.

Respondents' (Revenue) Arguments

The Revenue contends the petitioner's product is "structural plywood" and therefore attracts a higher ad valorem duty of 30%, as reflected in trade notices and departmental communications (Ext. P11 and related correspondence).
The Revenue took administrative steps requesting revised classification lists, production of sale invoices, and issued show cause notices alleging a short levy of duty for a specified historical period.
In the counter affidavit the respondents argued that classification of the product is essentially a question of fact requiring detailed investigation and that the writ petition filed by the petitioner is premature and not maintainable.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
State of West Bengal v. Washi, 39 S.T.C. 378 (SC)	To support the principle that if a word used in an entry is one of everyday use it must be construed in its common parlance sense; the meaning given should be that which people conversant with the subject matter would attribute to it.	The court relied on this principle to explain that classification requires considering how the term is understood in common parlance or trade, reinforcing that classification is a mixed question of law and fact requiring factual material.
Unwin v. Hanson, (1891) 2 QB 115 (per Lord Esher M.R.)	To support the principle that where an Act relates to a particular trade and uses words that have a special meaning in that trade, those words must be construed in their trade-specific sense even if it differs from ordinary meaning.	The court applied this rule to emphasize that the meaning of "plywood" for tariff purposes may be the commercial/trade meaning, reinforcing the need for evidence from trade experts, market understanding and other factual material before classification.

Court's Reasoning and Analysis

The court began by identifying the central classification question: whether the petitioner's plywood is "commercial" or "structural" plywood, which determines whether the applicable duty is 20% or 30% ad valorem.

The court observed that the question of whether an entry applies to a particular article is at least a mixed question of law and fact. To resolve such classification issues the court explained the relevant principles of statutory interpretation:

If a word in a tariff entry is of everyday use, it should be understood in its common parlance meaning (citing State of West Bengal v. Washi).
However, if the statute is passed with reference to a particular trade and the words have a special meaning in that trade, those words should be construed in that trade-specific sense (citing Unwin v. Hanson).
The court restated the commercial test (as articulated in a treatise by Taraporevala & Parikh) that goods liable under a tariff item are those "known by the description in the market" and must be shown to be so known to consumers and the commercial community; fiscal statute meanings should reflect market and trade usage.

Having set out the interpretive tests, the court examined the record and found the available material to be scanty. Both parties had asserted positions, but there was no adequate tangible material to determine how the disputed product is understood in common parlance or in trade circles, nor to decide whether it falls within the excluded category of structural plywood.

The respondents' contention that the writ was premature because classification is a question of fact was noted. The court accepted that a proper and fair adjudication required detailed examination and investigation: including affidavits, examination of persons conversant with the subject, evidence from trade participants, technical expert opinion, or opinions in standard books — depending on the facts of the case.

Exercising caution about intervening by writ under Article 226 where facts are disputed and material is lacking, the court directed the departmental authority (the 3rd respondent) to conduct an enquiry to investigate under which customs tariff entry the petitioner's plywood falls. The court required that any material relied upon by the department be disclosed to the petitioner, and that the petitioner be given an effective opportunity to lead evidence and to contradict the Revenue's material.

Procedurally the court ordered that the petitioner file detailed objections within six weeks, reserved rights to lead evidence (affidavits, witness examination, summons), and stayed recovery of any amounts in pursuance of Ext. P16 dated 15-3-1980 until final orders are passed by the relevant departmental authority (the 2nd respondent). The court also continued an earlier interim order (C.M.P No. 4382 of 1980) allowing the petitioner to take advantage of rule 9(b) in respect of subsequent assessments until final orders are passed.

Holding and Implications

Core Ruling: The writ petition is disposed of with directions that the appropriate departmental authority conduct a full enquiry into the proper tariff classification of the petitioner's plywood, with disclosure of material to the petitioner and an opportunity for the petitioner to lead and rebut evidence; recovery under the show cause notice (Ext. P16 dated 15-3-1980) is stayed until final departmental orders are passed. The interim directions regarding rule 9(b) continue.

Implications for the parties:

The department (3rd respondent) must investigate and determine the correct classification on the basis of tangible material and must disclose the material it intends to rely on to the petitioner.
The petitioner must file detailed objections within six weeks and will have the right to lead evidence, including affidavits and witness testimony, and to summon witnesses if necessary.
No recovery of the disputed duty under Ext. P16 will be effected until the departmental adjudication is completed; the petitioner retains protections under the interim order and rule 9(b) for subsequent assessments until final departmental orders.

The court did not announce any broader legal precedent beyond applying settled principles of statutory construction for classification and directing a fact-finding administrative process. There is no order as to costs.

Carbon copies of the judgment were directed to be issued to counsel for the petitioner and counsel for the Revenue on usual terms.

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Purushotham Gokuldas Plywood Co. v. Union Of India And Others

1. The petitioner is a firm. It is manufacturing commercial plywood. It was paying excise duty under Central Excise Act. According to the petitioner, commercial plywood manufactured and marketed by it will come under Central Excise Tariff 16-B. It is said that commercial plywood is taxable at 20%. The explanation to tariff item 16-B states that eight items mentioned therein will not be commercial plywood. One of the items excluded from the main tariff item 16-B, is “structural plywood” coming under clause (iv) of the explanation. The petitioner states that in view of notification that existed from time to time, and in particular notification Nos. 15/68, 16/68, then 69/68 & 14/70 and until recently, the petitioner was paying excise duty at 20% for the plywood munufactured by it as “commercial plywood” and not at the rate payable to “structural plywood”. The respondents to this Original Petition are the Union of India, Collector of Customs and Central Excise, Cochin, the Assistant Collector of Central Excise, Kozhi???ode Division, and the Superintendent of Central Excise Baliapattom Range, Talap, Cannanore. It seems the respondents took the view that the commercial plywood manufactured by the petitioner is structural plywood coming under the tariff notifications and will attract the higher ad valorem duty at 30%. A communication dared 2-11-1979 evidenced by Ext. P12 was addressed by the Superintendent of Central Excise, Cannanore (4th respondent herein) to the petitioner to that effect. The petitioner was asked to submit the revised classification list. The petitioner filed an objection thereto evidenced by Ext. P13 dated 18-2-1980. Notwithstanding that, by Ext. P14 communication dated 7-3-1980 the Assistant Collector of Central Excise, Kozhikode Division presumably placing reliance on trade notice No. 229/79, dated 30-10-1979 of the Collector of Customs and Central Excise, Cochin (Ext. P11), directed the petitioner to show cause as to why the classification should not be re-classified at structural plywood falling under item 16-B (2) attracting Central Excise duty at 30% ad valorem. The Superintendent of Central Excise on 15-3-1980 asked the petitioner to produce all sale invoices of shuttering plywood for the period from 1-11-1974 to 30-10-1979. Again the 4th respondent, the Superintendent of Central Excise sent a show cause notice dated 15-3-1980 evidenced by Ext. P16 to the petitioner stating that there is a short levy for the period from 1-11-1974 to 30-10-1979 of a sum of Rs. 5,39,406/21 and asked the petitioner to show cause as to why action cannot be taken in that regard. The petitioner filed his objections evidenced by Ext. P17, dated 22nd March, 1980. The petitioner has filed this writ petition praying that this Court may be pleased to quash Exts. P11, P12, P14, P15 and P16 and also for the issue of a writ of mandamus directing the respondents to withdraw or forbear from acting in furtherance to Exts. P11, P12, P14, P15 and P16 and for other reliefs. Various grounds are taken in the O.P assailing the action of the respondents. The respondents have filed counter affidavits. The petitioner has also filed an amendment petition, C.M.P No. 29350 of 1982, raising additional grounds, 20A and 20B, wherein it is stated that the threatened levy is also discriminatory and violative of Article 14 of the Constitution. A detailed affidavit has been filed on behalf of the respondents dated 18th January, 1983. An additional affidavit by the Additional Collector of Central Excise dated 11th of February, 1983 has also been filed. The petitioner has filed a reply affidavit dated 13th of April, 1983.

2. The main question that will fall for consideration in this case is whether the plywood manufactured and marketed by the petitioner is commercial plywood as contended by it or structural plywood as asserted by the Revenue.

3. If the contention of the petitioner is accepted, the goods are to be taxed at the rate of 20% ad valorem duty whereas if the contention of the Revenue is accepted, it has to be taxed at 30% ad valorem. For determining as to whether the goods manufactured by the petititoner will fall within plywood simplicitor (commercial plywood) or structural plywood it requires investigation and appraisal of a large number of material and application of the relevant law to the case on hand. Whether an entry applies to a given article is, at least, a mixed question of law and fact. In these proceedings, what is available before court is only certain averments made by the petitioner and against it those made by the respondents. The materials before court are scanty. As to whether a particular item falls within a particular entry or not or as to whether it is covered by a particular entry to be taxed at a particular rate, the authorities have to find out, on the basis of relevant facts, how it is understood in “common parlance” or “in the commercial world” or in “trade circles”. If the word used in the relevant entry is one of everyday use, it must be construed as understood in common parlance and it must be given its popular sense meaning “that sense which people conversant with the subject-matter with which the statute is dealing would attribute to it”. [see State of West Bengal v. Washi, 39 S.T.C 378 (SC.)] But, “if the Act is one passed with reference to a particular trade, business, or transaction, and words are used which everybody conversant with that trade, business or transaction knows and understand to have a particular meaning in it, there the words are to be construed as having that particular meaning, though it may differ from the common or ordinary meaning of the words”. [Lord Ezhar M.R in Unwin v. Hanson, (1891) 2 QB 115 at 119]. The test of commercial meaning has been aptly stated by V.J Taraporevala and S.N Parikh, in their book, the Law of Central Excise, (1979 Edn.) at page 117 as follows:—

“The proper test for classification of goods under appropriate specific entries and sub-entries is now judicially well settled. Goods which can be subjected to excise duty under a particular item or sub-item, are those which are known by the description in the market for a manufactured article, to fall under a particular item, it should be shown to be known by that description to the consumers and the commercial community. It is clear that meanings given to article in a fiscal statute must be as people in trade and commerce, conversant with the subject, generally treat and understand them in the usual course. The test of being known in the market must be satisfied when excise is sought to be levied.”

4. Apart from assertions made by both sides, there is no material on various matters in issue. The respondents have taken objection in paragraph 9 of the counter affidavit, that the classification of a particular product is a pure question of fact and the matter requires a detailed investigation after the receipt of objections from the petitioner to the various show cause notices issued by the authorities. This may not be an entirely tenable contention. As I said earlier, whether an entry applies to a given article, is at least, a mixed question of law and fact. According to the respondents the writ petition is pre-mature and so the Original Petition itself is not maintainable.

5. On going through the O.P, the counter affidavits and reply affidavit, I am of the view that for a proper and fair adjudication of the various issues involved in this O.P a detailed examination or investigation is necessary. As to whether the plywood called commercial plywood manufactured and marketed by the petitioner will be structural plywood is a matter to be adjudicated on the basis of tangible material. The revenue has also only asserted its case. But there seems to be no tangible material on record. In order to enable the authorities to come to a proper conclusion, it is necessary that there should be sufficient and proper material to find out, under what category the plywood manufactured by the petitioner will fall. Such material can be adduced by both the parties. Material or evidence can be in the form of affidavits or examination of persons who are conversant with the subject or of persons engaged in the trade or persons who are dealing with the subject-matter, competent persons who can speak about the subject, or the opinion of technical experts, or of opinions expressed in standard books on the subject. It may be in any one or more form and it depends upon the facts and circumstances of each case. The Department should inform the assessee the basis on which and the reasons why the Revenue is taking the view that the plywood manufactured by the assessee will be structural plywood. This is necessary because according to the petitioner the department was taking the view that the plywood manufactured by the assessee-petitioner is only “commercial plywood” and will not be structural plywood but it was changed later. The petitioner asserts that the tariff entry regarding “wood”, embraces within its fold commercial plywood excluding structural plywood, and the entry was there throughout the relevant period without any alteration. Counsel for the petitioner submits that there is no change or alteration in the relevant entry in the commercial tariff to warrant a different conclusion as to state that the plywood manufactured by the petitioner is structural plywood. The petitioner has also got a case that Messrs Travancore Plywood Industries Ltd., a Government of Kerala undertaking, is also manufacturing similar product and there is no reason why the treatment meted out to that concern is not meted out to the petitioner. All these and other questions will depend upon investigation of facts and other relevant materials. Till the relevant facts are investigated and analysed, it will be difficult to come to a fair or proper conclusion under which tariff or entry the plywood manufactured by the petitioner will fall.

6. In these state of affairs it is not possible for this court at this stage to investigate and evaluate the very many questions of fact—some of them disputed—satisfactorily to arrive at a proper decision. Indeed, the jurisdiction under Article 226 of the Constitution cannot ordinarily be exercised in such cases. So, in the interests of justice, I am of opinion, that the 3rd respondent should be directed to conduct an enquiry and investigate into the matter and decide under which customs tariff entry the plywood manufactured by the petitioner will fall. Any material or evidence gathered by the department and which it proposes to rely for coming to the conclusion, will be disclosed to the petitioner. The petitioner will also be given an effective and proper opportunity to lead its evidence to substantiate its case and if necessary to contradict the material adduced by the Revenue. The petitioner is directed to file detailed objections and the stand taken by it in the matter within six weeks from today. The petitioner will have the right to lead evidence by way of filing of affidavits, examination of persons or by filing petitions to summon proper persons for giving evidence in the matter and lead other relevant material. Till a proper investigation or adjudication is made and final orders are passed, there will be no recovery of any amount in pursuance to Ext. P16 dated 15-3-1980.

7. This court has in C.M.P No. 4382 of 1980 passed an interim order dated 27-3-1980 which was subsequently extended on 7-4-1980. According to that, regarding subsequent assessments the petitioner can take advantage of rule 9(b). The same direction will continue until final orders are passed in this proceedings by the 2nd respondent. The disputed duty which was stayed pending the O.P will not also be collectible till final orders are passed by the 2nd respondent. The O.P is disposed of as above. There will be no order as to costs.

8. Issue carbon copies of this judgment to the counsel for the petitioner and to the counsel for the Revenue on usual terms.

Purushotham Gokuldas Plywood Co. v. Union Of India And Others

Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

Respondents' (Revenue) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Purushotham Gokuldas Plywood Co. v. Union Of India And Others

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