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Batala Co-Operative Sugar Mills Ltd. v. Assistant Collector, Central Excise
Structured Summary of the Opinion (M. Tandon, J.)
Factual and Procedural Background
This order disposes of two Letters Patent Appeals (Nos. 835 and 854 of 1980) raising a common question of fact and law. The appellants are sugar manufacturers. It is admitted that the appellants did not produce any sugar in April 1973; the appellant in LPA No. 835/80 also did not produce sugar in May 1973.
The Government of India issued Notification No. 189/73-Central Excises dated October 4, 1973, which granted an excise duty exemption (referred to in the opinion as a sugar incentive rebate) subject to a proviso that exemptions at serial numbers 1 to 4 would not be admissible to a factory which did not work during the "base period" (defined as 1 October 1972 to 30 September 1973). That notification was later amended by a notification dated April 20, 1974, which substituted certain entries (notably items relied upon by the appellants).
Facts specific to each appeal:
- In LPA No. 835/80: The appellant produced sugar in April and May 1974 in quantities exceeding 180% of the corresponding months in 1973 (production in April and May 1973 being nil) and claimed a rebate under items 2B and 3A of the April 20, 1974 notification; the rebate amounted to Rs. 4,67,570/-. The rebate was initially paid but later subject to recovery by show cause notice; authorities P4, P6 and P8 disallowed the claim. The appellant's Civil Writ Petition No. 1034 of 1978 was dismissed by the Single Judge on September 9, 1980, leading to the present Letters Patent Appeal.
- In LPA No. 854/80: The appellant produced sugar in April 1974 exceeding 180% of April 1973 (April 1973 production being nil) and claimed rebate under Item 2B of the April 20, 1974 notification; the claimed rebate amounted to Rs. 5,80,500/-. The claim was denied by authorities, the appellant's Civil Writ Petition No. 4092 of 1977 was dismissed by the Single Judge (consolidated order dated September 9, 1980), and the appellant filed the Letters Patent Appeal.
Legal Issues Presented
- Whether a manufacturer who did not produce any sugar in the corresponding months of the base year (April and/or May 1973) is nevertheless entitled to claim the sugar incentive rebate under the amended notification dated April 20, 1974 for sugar produced in the corresponding months of 1974.
- Whether the proviso excluding exemptions for a factory "which did not work during the base period" operates to deny rebate to a factory that did not produce in particular corresponding months but did work during the base period as a whole.
Arguments of the Parties
Appellants' Arguments
- The appellants contended that their production for April and May 1973 should be taken as nil for the purpose of computing excess production in April and May 1974, and that the rebate should therefore be available.
- They argued that the object of the sugar incentive rebate is to induce production in lean months (when production is uneconomic), and that the rebate is granted in the larger national interest rather than solely for the benefit of individual mills.
- The appellants submitted that denying rebate to mills that produced nil in the corresponding months would contradict the object of the incentive and amount to an incorrect interpretation of the notification.
Union of India’s Arguments
- The Union's contention was that the notification requires that some sugar must have been produced in the corresponding months of 1973 for a manufacturer to be eligible for rebate in 1974; the phrasing "sugar-cane produced during the months of . . . 1973" was said to presuppose some production.
- The Union argued that if the notification had intended to treat nil production as the base (i.e., count nil as a baseline), it would have expressly so provided.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Etikoppaka Cooperative Agricultural Society Ltd. v. The Union of India and Anr., Andhra Pradesh High Court (unreported judgment dated February 3, 1978) — reported as 1979 E.L.T. (J) 533 (as cited in the opinion) | Held that if no sugar was produced during the relevant period in the previous year, the production in that period is to be taken as nil and the excess production in the current year should be calculated on that basis; rejected the Central Government's contention that some prior production was necessary. | The Court relied on and expressly adopted the Andhra Pradesh High Court's reasoning, holding that the appellants are entitled to the sugar incentive rebate even though they produced no sugar in the corresponding months of 1973. |
| Patna High Court, Civil Writ Petition No. 865 of 1966 (as noticed in the Andhra Pradesh judgment and in this opinion) | Referred to in the opinion as taking a contrary view to the Andhra Pradesh judgment; the opinion reproduces a passage (quoted) which the Andhra Pradesh judgment addressed. | This court noted the Patna High Court view as contrary to the Andhra Pradesh decision and declined to follow that contrary approach, aligning instead with the Andhra Pradesh reasoning. |
Court's Reasoning and Analysis
The court's analysis proceeded as follows (based strictly on the text):
- Identification of the short point: whether appellants who produced no sugar in April and May 1973 are entitled to the sugar incentive rebate under the amended notification dated April 20, 1974 for sugar produced in April and May 1974.
- Consideration of the parties' competing interpretations:
- The appellants' interpretation treats nil production in the corresponding months of the previous year as the baseline (i.e., zero), so that any production in 1974 in excess of the nil baseline qualifies for the incentive; this interpretation aligns with the stated object of the rebate to induce production in lean months and serve the national interest.
- The Union's interpretation required some positive production in the corresponding months of 1973 and contended that the notification's language presupposes such production; the Union argued that an intention to treat nil as baseline would have been expressly stated.
- Reliance on authority: The court examined the Andhra Pradesh High Court judgment (Etikoppaka case) which had considered the same question and rejected the Central Government's contention, holding that nil production in the prior period should be treated as nil and excess in the current year should be calculated accordingly. The Andhra Pradesh Court also observed that the proviso excluding exemptions for a factory which "did not work during the base period" referred to a factory not working during the whole base period (1 October 1972 to 30 September 1973) and did not operate to deny exemptions where the factory merely had nil production in particular corresponding months.
- Practical/avoidance-of-absurdity rationale: The Andhra Pradesh judgment and this court both noted that accepting the Union's interpretation would produce an absurd and arbitrary result: a manufacturer who produced one ounce in the prior period would qualify for rebate, whereas a manufacturer who produced nothing (nil) would be denied rebate even if he later increased production substantially. The court found such a result inconsistent with the object of incentivising increased production.
- Conclusion of interpretation: The court agreed with the Andhra Pradesh view and held that the appellants' interpretation is correct. The court also clarified the limited scope of this ruling by noting the distinct situation where a factory had not worked during the entire base period (1 October 1972 to 30 September 1973), in which case the position would differ because of the proviso.
Holding and Implications
Holding: The court accepted both Letters Patent Appeals (Nos. 835 and 854 of 1980), set aside the consolidated order of the learned Single Judge dated September 9, 1980, and allowed Civil Writ Petitions Nos. 1034 of 1978 and 4092 of 1977. The appeals were allowed with no order as to costs.
Implications and direct effect:
- Direct effect on the parties: The appellants are entitled to the sugar incentive rebate under the amended notification dated April 20, 1974 for the sugar they produced in April and May 1974, notwithstanding that they did not produce sugar in the corresponding months of 1973.
- Limitation noted by the court: The court expressly recorded that its conclusion would be different if a factory had not produced any sugar during the entire base period (1 October 1972 to 30 September 1973), since the proviso to the notification excludes exemptions for factories that did not work during the base period as a whole.
- Broader precedent effect: The court followed and applied the reasoning in the Andhra Pradesh High Court decision cited in the opinion and declined to follow the contrary view referenced from the Patna High Court. The opinion does not purport to create any further broader rule beyond the resolution of the specific interpretive dispute in these appeals.
End of summary. This summary contains only information explicitly stated in the provided opinion.
M. Tandon, J.
1. This order will dispose of two Letters Patent Appeals Nos. 835 and 854 of 1980, wherein common question of fact and law are involved.
2. The appellants in both the appeals are engaged in the manufacture and sale of sugar. It is admitted that the appellants did not produce any sugar in the month of April, 1973. The appellant in Letters Patent Appeal No. 835 of 1980 did not produce any sugar in the month of May, 1973 as well.
3. The Government of India issued notification No. 189/73-Central Excises, dated October 4, 1973, where sugar incentive rebate on the production during the incentive period detailed therein was allowed. The relevant part of this notification reads as under :-
"(b) Notification No. 189/73-Central Excises, dated 4th October, 1973.
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, 3 944 (1 of 1944), from so much of the duty of excise leviable thereon as is specified in the corresponding entry in column (3) of the said Table.
Provided that the exemption mentioned against serial numbers 1 to 4 of the said Table shall not be admissible to a factory which did not work during the base period.
In this notification the expression "base period" means the period commencing from the 1st day of October, 1972 and ending with the 30th day of September, 1973."
4. The notification 189/73 was later on amended by another notification dated April 20, 1974 and the entries at serial numbers 2, 3 and 4 in the earlier notification were substituted. The relevant part of the amending notification dated April 20, 1974 reads as under :-
"In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby makes the following amendments to the notification of the Government of India in the Ministry of Finance (Department of Revenue and Insurance) No. 189/73-Central Excises, dated the 4th October, 1973, namely :-
In the said notification-
(a) in the table-
(i) for serial Nos. 2, 3 and the entries relating thereto, the 4 and following shall be substituted namely-
5. The appellant in Letters Patent Appeal No. 835/80 produced sugar in the months of April and May, 1974 which was in excess of 180 percent of the corresponding months of the previous year (the production in April and May 1973 being nil) and claimed sugar incentive rebate at the rate of Rs. 30/- and Rs. 40/- per quintal under Items 2B and 3A respectively of the notification dated April 20, 1974. The total amount of rebate for these two months of 1974 admittedly comes to Rs. 4,67,570/-. The appellant got the rebate of this amount, but was later on issued a show cause notice why this amount be not realised on the ground that the appellant did not produce any sugar in the months of April and May 1973. The appellant resisted the show cause notice, but failed. The Assistant Collector Central Excise, Appellate Collector, Central Excise and Government of India vide their orders P4, P6 and P8 respectively disallowed the claim of rebate. The appellant consequently filed Civil Writ Petition No. 1034 of 1978 which was dismissed by the learned Single Judge vide order dated September 9, 1980. The appellant has now filed Letters Patent Appeal No. 835 of 1980.
6. The appellant in Letters Patent Appeal No. 854 of 1980 produced sugar in April 1974 which was in excess of 180 per cent of the sugar produced in April, 1973 (the production in April 1973 being nil) and claimed rebate at the rate of Rs. 30/- per quintal under Item 2B of the notification dated April 20, 1974. The total amount of rebate comes to Rs. 5,80,500/-. The claim of rebate having been denied by the various authorities, the appellant filed Civil Writ Petition No. 4092 of 1977 which was dismissed by the learned Single Judge vide consolidated order dated September 9, 1980. The appellant has filed Letters Patent Appeal No. 854 of 1980.
7. The short point for consideration in both the Letters Patent Appeals is whether the appellants having not produced any sugar in the months of April and May, 1973 are entitled to the sugar incentive rebate in terms of the amended notification dated April 20, 1974. The contention of the learned counsel for the appellants is that as the appellants did not produce any sugar in the months of April and May, 1973, their production for those months shall be taken as nil. The object of the sugar incentive rebate is to allure the sugar mills to produce sugar in the lean months when due to dryness in sugar-cane the production of sugar becomes uneconomical. The sugar incentive rebate is allowed in the larger national interest and not for the specific benefit of sugar manufacturing units. In this situation to hold that the sugar mills which did not produce sugar in April and May, 1973 were not entitled to sugar incentive rebate in terms of notification dated April 20, 1974 would not only be incorrect interpretation thereof but would also negate the very object for which it was issued. The contention of the learned counsel for the Union of India is that for the sugar incentive rebate under the notification it is necessary that in the corresponding months of 1973 some sugar was produced. The argument proceeds that the words "sugar-cane produced during the months of . .1973" presupposes that there was some production of sugar in the corresponding months of 1973. If the intention of the notification had been as interpreted by the learned counsel for the appellants then it would have been so clarified in the notification itself. In our opinion the contention of the learned counsel for the appellants must prevail.
8. A similar point in context of a similar notification arose in the unreported judgment dated February 3, 1978 of Andhra Pradesh High Court in Writ Petition No. 3672 of 1976 The Etikoppaka Cooperative Agricultural Society Ltd. v. The Union of India and Anr.-1979 E.L.T. (J 533). The argument of the Central Government in that case was that in order to entitle the manufacturer to the rebate of excise duty the manufacturing unit must have produced some sugar during the relevant periods in the base year and if no sugar was produced during the corresponding year of the previous year, the notification was inapplicable. This contention was repelled. It was held if no sugar was produced during the relevant period in the previous year it must be said that the production of sugar during the relevant period was nil and the excess sugar produced in the current year should be calculated on that basis. It was further held that if the interpretation as advanced on behalf of the Central Government was to be upheld it would lead to absurd results. It would mean that if a manufacturer produce even one ounce of sugar during the relevant period of the previous year, he would be entitled to rebate, but not if he produced nil sugar. The proviso to the notification that the exemption mentioned against serial numbers 1 to-4 of the notification shall not be admissible to a factory which did not work during the base period was also taken notice of. In the context it was held that the base period was defined in the explanation to the notification as the period from 1st October to 30th September of the previous year and according to the proviso the exemptions were inadmissible if the factory had not worked at all during the base period. In other words the proviso to the notification did not make exemptions inadmissible if the factory did not work during the corresponding periods in the base year. If the object of the notification was not to grant any exemption in respect of sugar produced during any one of the periods mentioned at serial numbers 1 to 4 if no sugar was produced during the corresponding periods in the base year then the proviso to the notification would have been worded differently. In this very judgment notice was also taken of the decision of the Patna High Court in Civil Writ Petition No. 865 of 1966 wherein taking a contrary view, it was held :
"For example if a factory produces 1000 quintals of sugar between January 1, 1964 and June 30, 1964, but produces only 900 quintals of sugar during the period January 1, 1965 to June 30, 1965 the factory would not be entitled to any rebate under the general provisions, and a factory which has no production during the period January 1, 1964 to June 30, 1964, but produces only 900 quintals of sugar during the relevant period, that is, January 1, 1965 to June 30, 1965 will be entitled to rebate over the entire quantity at the scale as indicated above. Such a result would be against the terms and spirit of the notification."
9. The Patna view was not approved in the Andhra Pradesh judgment. It was held that the object of the notification was to give an incentive to manufacturers to increase their production. If a manufacturer who was unable to produce any sugar during a certain period is induced to produce a large quantity of sugar during the corresponding period next year, it certainly, is a notable achievement, which well deserves the incentive. On the other hand, if a manufacturer producing 1000 quintals during a certain period in one year produces less during the corresponding period next year, he cannot claim to be entitled to any incentive as he has actually produced less than what he used to produce before.
10. We are in agreement with the view taken by the learned Judge of the Andhra Pradesh High Court. The points now argued by the learned counsel for the Union of India were raised in the Andhra Pradesh case and the learned Judge in his order dated February 3, 1978 fully met and rightly repelled them. We, therefore, hold that the appellants are entitled to sugar incentive rebate in terms of notification dated April 20, 1974 for the sugar produced by them in the months of April and May, 1974 irrespective of the fact that they did not produce any sugar in the corresponding months of 1973. It is understood that the position would have been different if the appellant had not produced any sugar during the entire base period of 1st October, 1972 to 30th September, 1973. The contrary finding of the learned Single Judge in the impugned order dated September 9, 1980 is reversed.
11. In view of the discussion above, we accept both the Letters Patent Appeals, set aside the consolidated order of the learned Single Judge dated September 9, 1980 and further allow Civil Writ Petitions Nos. 1034 of 1978 and 4092 of 1977 with no order as to costs throughout.
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