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Shri Vijaysinh Virchand v. S.K. Bhardwaj, Asstt. Collector Of Central Excise And Ors.
Structured Summary of the Opinion — Excise Liability of "Heat Sealing Tape"
Factual and Procedural Background
The petitioner is M/s. Deepak and Company, manufacturing "Heat Sealing Tape" at a factory in Wagle Industrial Estate, Thane. The tape is extruded from flexible polyvinyl chloride (PVC) and is used mainly for insulation from heat and electricity. The petitioner is registered as a small scale industry (capital investment not more than Rs. 7.5 lakhs).
A dispute arose in or about 1970 as to whether the petitioner's product was liable to central excise duty under Tariff item No. 15-A(2) (articles made of plastics). The Superintendent of Central Excise, Range No. 6, Thana, by order dated 18 July 1970 held the product liable under item 15-A(2). The petitioner appealed; the Deputy Collector of Central Excise, Bombay dismissed the appeal by order dated 31 March 1971.
The opinion states that an additional tariff item No. 59 ("ELECTRIC INSULATING TAPES", in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power) was introduced "By 1971" and that it "came into force from May 28, 1979" (as the opinion records the item and its commencement). The petitioner wrote on 12 July 1971 claiming benefit of item No. 59; the Superintendent replied on 22 July 1971 that item No. 59 covered cotton insulating tape and not plastic tape, and therefore the petitioner would not be entitled to claim item No. 59.
The Central Government issued Notification No. 39/73 dated 1 March 1973, exempting certain products falling under sub-item (2) of item No. 15-A (including polyvinyl layflat tubings produced by extrusion by independent small units with capital investment not more than Rs. 7.5 lakhs) from the whole of excise duty. Relying on that notification, the petitioner sought exemption and, by letter dated 17 November 1973, the Assistant Collector of Central Excise, Bombay informed the petitioner that the petitioner was entitled to exemption for PVC Heat Sealing Tapes under item No. 15-A(2).
Despite the Assistant Collector's letter, the Superintendent called for samples and by order dated 16 July 1974 directed the petitioner not to manufacture or clear the PVC Heat Sealing Tapes without a valid licence under tariff item No. 59. The petitioner challenged the Superintendent's action by filing proceedings under Article 226 of the Constitution.
Legal Issues Presented
- Whether the petitioner's product "Heat Sealing Tape" manufactured from PVC is liable to excise duty under item No. 15-A(2) of the Central Excise Act.
- Whether the product is liable to excise duty under item No. 59 ("Electric Insulating Tapes") of the Central Excise Act.
- Whether, in light of Notification No. 39/73 (exempting certain small-scale production under item 15-A(2)), the petitioner is entitled to exemption from excise duty.
- Whether the Superintendent of Central Excise was justified in directing the petitioner not to manufacture or clear the tape without a licence under item No. 59, and whether that action can be set aside in proceedings under Article 226.
Arguments of the Parties
Petitioner's Arguments
- The Superintendent's assumption that the petitioner's product attracts item No. 59 was misconceived.
- From 1970 onwards the excise authorities had consistently treated the product as liable under item 15-A(2); the Assistant Collector later granted exemption under the relevant notification based on that classification.
- The Superintendent acted irregularly and without basis in proceeding on the basis that the product falls under item No. 59 despite prior treatment and the Assistant Collector's exemption decision.
- The petitioner had earlier been informed (in 1971) that its product would not fall under item No. 59; thereafter exemption was granted under item 15-A(2).
Department's Arguments (Respondent / Revenue)
- Counsel for the department (Mr. Shah) contended the product falls specifically under item No. 59 because Heat Sealing Tapes are primarily used for insulation from heat and electricity and therefore should be termed Electric Insulating Tapes.
- Item No. 15-A(2) is a general item; where a specific tariff item (item No. 59) was subsequently provided (the opinion records this as May 18/28, 1971 in different places), the later specific item should govern and the petitioner would be liable under item No. 59 notwithstanding earlier decisions.
- The Assistant Collector's letter of 17 November 1973 is at best an opinion and is not binding on the Government; if that opinion were erroneous it would not bind the Department.
- Reliance was placed on the Supreme Court decision in Dunlop India Ltd. v. Union of India (AIR 1977 P. 597) for the proposition that where two views are possible, a court exercising jurisdiction under Article 226 should not disturb the orders passed by authorities below.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Dunlop India Limited and Ors. v. Union of India and Ors., AIR 1977 P. 597 | That mere existence of two possible views is a ground for not disturbing administrative orders when exercising jurisdiction under Article 226. | The court was urged to follow this principle and refrain from interfering. The court declined to apply the precedent on the facts here, distinguishing the case because the authorities themselves were not sure and the Superintendent's change of view lacked basis; therefore the court held the precedent inapplicable to these circumstances. |
Court's Reasoning and Analysis
The court proceeded by examining the factual chronology and the conduct of the excise authorities. Key steps in the court's analysis were:
- The court observed that from 1970 onwards the Central Excise Authorities consistently treated the petitioner's product as liable under item 15-A(2), and the Assistant Collector of Central Excise later granted an exemption under Notification No. 39/73 after reviewing documents and being satisfied that the conditions for exemption (small scale unit, capital investment limit) were met.
- The court noted that after the introduction of item No. 59 the Superintendent initially communicated (by letter dated 22 July 1971) that item No. 59 covered cotton insulating tape and not plastic tape; despite that, the Superintendent later took the view that the product came under item No. 59 and directed the petitioner not to manufacture/clear the product without a licence under that item (order dated 16 July 1974).
- The court emphasized that a mere change of opinion by an officer, without any basis, is not sufficient to impose liability upon a citizen who had earlier been treated differently by the authorities and who had obtained an exemption confirmed by a superior officer (Assistant Collector).
- The court addressed and rejected the department's contention that the Assistant Collector's letter was only an opinion and therefore not binding: the court held that the Assistant Collector had, after enquiry, been satisfied that the conditions of the exemption applied and that the Superintendent's contrary stance lacked basis and was irregular.
- In relation to the Dunlop precedent relied upon by the department, the court explained that it was not reversing the orders below merely because it preferred one classification over another; rather, it was interfering because the authorities themselves were not sure and the departmental change of opinion was without sufficient basis. Thus, the Dunlop principle (not to interfere when two views are possible) did not apply on these facts.
- The court concluded that where two views exist and the department is not sure, the benefit should go to the taxpayer; applying this principle and the facts (consistent prior treatment under item 15-A(2), the Assistant Collector's exemption), the Superintendent's orders treating the product under item No. 59 were held to be illegal and unjust.
Holding and Implications
Holding: The petition succeeds and the rule is made absolute in terms of prayers (a) and (b) of paragraph 25 of the petition (as recorded by the court). The court set aside the Superintendent's orders that treated the product as falling under item No. 59 and directed that there be no order as to costs.
Implications and direct consequences recorded in the opinion:
- No order as to costs was made.
- The bank guarantee furnished by the petitioner at the time of admission of the petition stands discharged pursuant to the judgment.
- The court treated the Superintendent's change of view as without basis and confirmed that where authorities are unsure, the benefit must go to the taxpayer; the opinion states that the court's decision does not rest merely on preference between two classifications but on the illegality and unjustness of the Superintendent's orders in the circumstances.
The opinion states the final remedy as in terms of the petition's prayers (a) and (b) in paragraph 25; the text of those prayers is not reproduced in the provided opinion extract and therefore is not restated here.
1. The question which falls for determination in this petition is whether the articles "Heat Sealing Tape" manufactured by the petitioner is liable to excise duty under item No. 15-A(2) and under item No. 59 of the Central Excise Act. Few facts which have given rise to the present petition are as follows:
The petitioner carries on business in the name and style of M/s. Deepak and Company, and the factory is situated at Plot No. No/20, Wagle Industrial Estate, Thane. The factory is in the category of small scale industry i.e. a unit with capital investment of not more than Rs. 7.5 lakhs and is so registered with the Director of Industries, Government of Maharashtra. The petitioner manufactures "Heat Sealing Tape" and the said tape is extruded from flexible poly vinyl chloride (PVC) i.e. plastic. The tape is mainly used for the purpose of insulation from heat and electricity. In or about the year 1970, there was a dispute between the petitioner and Excise Department as to whether the product manufactured by the petitioner is liable to excise duty under Tariff item No. 15-A (2) which reads as under:
Artificial or synthetic Resins and Pharmaceuticals and articles therefrom. (2) Articles made of plastics, all sorts, including tubes, rods, sheets, foils, sticks, other rectangular or profile shapes, whether laminated or not, and whether rigid or flexible, including layflat tubings and polyvinyl chloride sheets not otherwise specified.
2. The Superintendent of Central Excise, Range No. 6, Thana, by his order dated 18th July 1970, held that the product is liable to central excise duty under tariff No, 15-A (2) and the petitioner was called upon to pay duty accordingly. The petitioner carried an appeal therefrom to the Deputy Collector of Central Excise, but the Deputy Collector of Central Excise, Bombay, by his order dated March 31st, 1971, dismissed the appeal.
3. By 1971, an additional tariff item No. 59 was introduced in the Central Excise Act and that came into force from May 28, 1979. Tariff item No. 59 reads as under:
ELECTRIC INSULATING TAPES", in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power.
It is required to be stated that the duty payable on articles falling within item No. 59 was 10% of ad valorem while those falling under tariff item No. 15-A (2) was 30% ad valorem. After tariff item No. 59 was introduced the petitioner addressed a letter to the Superintendent, Central Excise, on July 12, 1971, claiming that the petitioner should be given benefit of item No. 59 thereafter. In reply to this letter, the Superintendent, Central Excise, informed the petitioner on July 22, 197, that what was covered under item No. 59 was Cotton Insulating tape and not plastic tape and as such the petitioner would not be entitled to claim that the product manufactured by him falls under item No, 59,
4. The Central Government issued notification dated 1st March 1973, being Notification No. 39/73. By this notification it was provided that Polyvinil layflat tubings, falling under sub-item (2) of item No. 15-A, of the first Schedule to Central Excises and Salt Act, 1944 (1 of 1944) and produced by Extrusion process, by an independent Unit in respect of which an Officer not below the rank of an Assistant Collector of Central Excise is satisfied that the capital investment of the Plant and Machinery installed therein as on the date of initial installation of such plant and machinery is not more than 7.5 lacs was exempt from the whole of the duty of excise leviable thereon. This notification provides for total exemption from payment of excise duty in respect of products falling under item No. 15-A (2) provided those products manufactured by a unit whose installation of plant is not valued at more than 7,5 lacs. It is not in dispute that the plant of the petitioner is a small scale industry unit and the total capital investment is less than Rs. 7.5 lacs. Relying upon this notification, the petitioner requested the Assistant Collector, Central Excise, Bombay, to grant exemption from the levy of excise duty to the product manufactured by the petitioner. By a letter dated November 17, 1973, the Assistant Collector, Central Excise, Bombay, informed the petitioner that the petitioner is entitled to the exemption for his product PVC Heat Sealing Tapes under the notification. The letter which is annexed at Exhibit 'F' to the petition states that the Assistant Collector was satisfied after going through the documents that the conditions of the exemptions are fully satisfied in respect of the PVC Heat Sealing Tape falling under tariff item No. 15-A(2) manufactured in the petitioner's factory. Inspite of this exemption the Superintendent, Central Excise by his letter dated January 9, 1974, called upon the petitioner to attend the office along with samples of PVC tapes. The Superintendent felt that the product manufactured by the petitioner is liable to duty under tariff item No. 59. The petitioner protested against the claim made by the Superintendent and by correspondence pointed out that that the action initiated by the Superintendent is totally irregular in view of the order passed by the Assistant Collector of Central Excise. The protest of the petitioner was turned down and by an order dated 16th July, 1974, annexed at Exhibit 'L' to the petition, the Superintendent, Central Excise directed the petitioner not to manufacture or clear the P.V.C. Heat Sealing tapes without a valid licence under tariff item No. 59. The petitioner has filed the proceedings under Article 226 of the Constitution to challenge the validity and legality of the action of the Superintendent, Central Excise.
5. On behalf of the petitioner, it was urged that the entire action of Superintendent, Central Excise, in assuming that the product manufactured by the petitioner attracts item No. 59 is mis-conceived. It was urged that right from the year 1970, it was all throughout held by the authorities that the product of the petitioner is liable to duty under item 15-A(2) and in fact after the enquiry the petitioner was given exemption by the Assistant Collector. The learned Counsel further urged that the Superintendent, Central Excise inspite of these facts being brought to his notice, proceeded on the basis that the product falls under tariff item No. 59 It was also contended that the tariff item No. 59 was introduced on May 28, 1971, and the petitioner was not only informed that his product would not fall under that item, but the exemption was given on the basis of notification on a finding that the product is liable to duty under item No. 15 A (2). I find considerable merit in the submission of the learned Counsel of the petitioner. The facts stated hereinabnve leave no manner of doubt that the Central Excise Authorities throughout treated that the product is liable to duty under item 15-A (2) and the change in the opinion of the Superintendent, Central Excise, is without any basis.
6. Mr. Shah the learned Counsel appearing on behalf of the department very strenuously contended that the product falls specifically under item No. 59. The learned Counsel contended that Heat Sealing Tapes are primarily used for the purpose of insulation from heat and electricity and therefore the product should be termed as Electric Insulation Tapes. Mr. Shah submitted that item No. 15-A (2) is a general item and if a specific item is provided subsequently on May 18,1971, whatever may be the earlier decision, the petitioner would be liable to pay duty under that item, namely item No. 59. It is not possible to accept the submission of the learned Counsel. The submission clearly overlooks that after the introduction of item No. 59, on May 28, 1971, the petitioner claimed that his products would be liable for duty under item No 59, but the Superintendent declined to accept that contention by a letter dated July 22, 1971, annexed at Exhibit 'D' to the petition. It cannot also be overlooked that the Assistant Collector, Central Excise, by letter dated November 17,1973, i.e. more than two years after the introduction of item No. 59, held that the product of the petitioner is liable to duty under item No 15-A (2) and is entitled to exemption under the notification. It is futile to submit that the Excise Authorities ignored the introduction of item No. 59, and proceeded on a wrong assumption that the product is liable to duty under item No. 15-A (2). Mr. Shah submitted that the letter dated November 17, 1973, would at the best be an opinion of Assistant Collector and the same being erroneous is not binding on the Government. The submission is without any merit, and must be repelled. Merely because the Superintendent thinks that the earlier decision of the Assistant Collector was erroneous, it is not possible to foist the citizen with the liability. It must be remembered that the mere change of opinion of an Officer without any basis is not sufficient to conclude that the earlier orders were incorrect. In fact if there are two views as to under which item a particular product falls and if the department is not sure of the decision, then the benefit must go to the tax-payer. In these circumstances, in my judgment, the orders issued by the Superintendent, Central Excise, holding that the product is liable to duty under item No. 59, is entirely illegal and unjust.
7. Mr. Shah placed reliance upon the decision of the Supreme Court reported in AIR 1977, P. 597, in Dunlop India Limited and Ors. v. Union of India and Ors. and submitted that merely because two views are possible I should not disturb the orders passed by the authorities below while exercising jurisdiction under Article 226 of the Constitution. I am not reversing the decision of the authorities below merely because I feel that the product of the petitioner falls under one or other item, but I am reversing the orders as in my judgment the authorities themselves were not sure as to under which item the article is liable to duty and in fact the superior officer, Superintendent, Central Excise, had decided that the product is liable to duty under item 15-A (2). In my judgment, the decision relied upon by the learned Counsel has no application to the facts and circumstances of the present case.
8. In the result, the petition succeeds and the rule is made absolute in terms of prayers (a) and (b) of paragraph 25 of the petition. In the circumstances of the case there will be no order as to costs.
9. The petitioner has furnished bank guarantee at the time of admission of the petition. In view of my judgment the bank guarantee stands discharged.
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