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Union Of India And Others v. Delhi Cloth & General Mills Company Ltd.
Structured Summary of the Opinion (H.N. Seth, J.)
Factual and Procedural Background
The Union of India appealed against a judgment of a learned Single Judge dated 27-3-1974 which had allowed Writ Petition No. 192 of 1972 and quashed a notice of demand dated 18/19 April 1961 together with certain appellate/revisional orders passed by revenue authorities.
The petitioner is a sugar manufacturer that maintained a current account with the Collector of Central Excise, Meerut for payment of excise duty. On 25-6-1960 the Central Government issued Notification G.S.R. No. 706 under rule 8(1) of the Central Excise Rules, 1944, granting an exemption for sugar produced in the 1959-60 season (1-11-1959 to 31-10-1960) beyond a specified amount (beyond Rs. 5.63 per Cwt) where production exceeded the average of the preceding two years.
The petitioner produced an excess quantity (expressed in the opinion variously as approximately 86,661 Mds. and parts thereof). The petitioner claimed the exemption under G.S.R. No. 706 for its excess production and entries reflecting the concession were made in its current account. Subsequently, the department asserted that a portion of that excess sugar had been reprocessed after the close of the 1959-60 season and therefore the concessional rate was not available in respect of that portion.
A demand dated 18/19 April 1961 for Rs. 52,573.90 was raised and debited to the petitioner's account on 22 June 1961. The petitioner applied for refund on 3 June 1961; the Assistant Collector (order dated 27 July 1961), the Collector (order dated either 27 November 1961 or 22/27-11-1961 as the opinion records) and the Union Government (dates recorded variably in the opinion — see note below) rejected the petitioner's claims. Civil courts were held to lack jurisdiction, and the petitioner filed the writ petition in this court on 12 January 1972.
Note on inconsistencies in the provided opinion text: the opinion text refers at different places to differing figures and dates for the reprocessed sugar and some appellate/revisional order dates (e.g., the reprocessed quantity is stated in one place as "1,272 Mds." and elsewhere as "12,724 Mds."; appellate/revisional dates are recorded variably). This summary reproduces the factual material as it appears in the provided opinion without reconciling those internal inconsistencies.
Legal Issues Presented
- Whether the petitioner was entitled to the benefit of the concessional rate of duty under Notification G.S.R. No. 706 dated 25-6-1960 in respect of the quantity of sugar produced during the 1959-60 season but subsequently reprocessed after 31 October 1960 (the opinion identifies the core contested quantity variously as "1,272 Mds." and "12,724 Mds.").
- Whether excise duty on sugar is to be regarded as leviable by reference to the event of production (the production of sugar by the manufacturer) or by reference to removal from the factory — in particular, whether liability arises only upon removal so as to make sugar removed after the season ineligible for the season-specific concession.
Arguments of the Parties
Appellant (Union of India) — arguments presented through its counsel
- Sri N.N. Sapru (Standing Counsel for Union) submitted that under the rule framed under the Central Excise Act excise duty becomes leviable when sugar is removed from the factory. Because the sugar in question was reprocessed and removed after the close of the 1959-60 season (after 31 October 1960), duty would be leviable in the subsequent year and the season-specific concession (G.S.R. No. 706) would not apply to that quantity.
- Sri B.N. Sapru contended that sugar reprocessed after 31 October 1960 could not be treated as production of the 1959-60 season; instead it was production of the year in which reprocessing occurred. He relied on paragraph 7 of a trade notice dated 26 June 1960 issued by the Collector, Central Excise (which stated that sugar recovered by reprocessing would not be eligible for exemption) and on a subsequent amendment to that trade notice (31 January 1961) which qualified the Collector's position in respect of reprocessing done before 31 October 1960.
Respondent (Petitioner) — arguments as reflected in the opinion
- The petitioner maintained that it produced the excess sugar during the 1959-60 season and that the exemption under G.S.R. No. 706 applied to sugar produced in that season irrespective of whether some of that sugar was later reprocessed or removed after the season's close. The department had initially accepted this position and made corresponding entries in the petitioner's current account.
- The petitioner sought refund of the amount debited following the demand, asserting that the department's contrary view (that reprocessed sugar lost the seasonal character) was erroneous.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The court's analysis proceeded by addressing the principal contentions raised on behalf of the Union and by construing the legal effect of Notification G.S.R. No. 706 in the context of the statutory scheme.
- The court rejected the contention that liability for excise duty is to be understood for all purposes as arising only upon removal from the factory. The court accepted that the rules might provide for realisation (i.e., the mechanical collection) of duty at the time of removal, but held that the event which attracts liability is the production of sugar by the manufacturer. In short: excise duty is leviable on production, not on removal, as the operative event for creating the liability.
- Given that G.S.R. No. 706 expressly granted an exemption in respect of sugar "produced during the 1959-60 season," the court held that the concession was referable to production during that season and was therefore applicable to sugar produced in that season even if the physical removal from the factory occurred later. Thus the timing of removal did not defeat the concession where the qualifying event (production in 1959-60) had occurred.
- The court addressed the reliance placed by the Union on the Collector's trade notices. It noted that those trade notices reflected the Collector's interpretation of the notification but could not alter the legal effect of a statutory notification issued by the Central Government under rule 8(1) of the Central Excise Rules. The court also pointed out internal inconsistencies within the Collector's trade notice (for example, how reprocessed sugar had been treated for purposes of computing averages) which undermined the proposition that the trade notice supplied a definitive rule contrary to the plain language and effect of the notification.
- The court treated as undisputed the factual allegation that the sugar in question had been produced during the 1959-60 season. The court concluded that damage followed by reprocessing did not negate the fact of production during that season. Consequently, the sugar remained part of the 1959-60 production and fell within the exemption conferred by G.S.R. No. 706.
- On these bases the court found the learned Single Judge correct in quashing the departmental demand and the impugned orders rejecting the petitioner's claims.
Holding and Implications
Holding: The court affirmed the decision of the learned Single Judge and concluded that the petitioner was entitled to the benefit of the concessional rate under Notification G.S.R. No. 706 in respect of the quantity of sugar produced during the 1959-60 season even though some of that sugar had been damaged and reprocessed after the close of the season.
APPEAL DISMISSED
Direct consequences and implications:
- The demand dated 18/19 April 1961 for Rs. 52,573.90 and the impugned orders of the Assistant Collector, Collector and Union Government (as identified in the opinion) were quashed in favour of the petitioner.
- The petitioner retains the benefit of the season-specific exemption under G.S.R. No. 706 for the sugar produced during the 1959-60 season as found by the court.
- The opinion does not claim to establish a broader novel legal principle beyond the immediate application of the notification to the facts; in other words, the decision resolves the parties' dispute by construing the notification and the statutory scheme and applies it to the facts before the court, rather than announcing a new precedent-distinguishing rule. The court dismissed the appeal with costs.
End of summary — all content in this document is drawn exclusively from the provided opinion and does not add or infer facts beyond those contained in that opinion.
H.N Seth, J.:— Union of India has filed this appeal against the Judgment of a learned Single Judge of this court dated 27-3-1974 allowing Writ Petition No. 192 of 1972 and quashing a notice of demand dated 18/19th April, 1961 along with the appellate and revisional orders dated 27th of July 1961, 22/27-11-1961 and 7th of January 1962 passed by the Assistant Collector, Central Excise, Collector, Central Excise, and the Union Government respectively.
2. The Petitioner company manufactures sugar and maintains a current account with the Collector of Central Excise, Meerut for the Payment of Excise duty on sugar manufactured by it. In order to provide an incentive for more production of sugar during the year 1959-60, the Central Government, on 25-6-1960 issued a Notification No. G.S.R 706, under rule 8(1) of the Central Excise Rules, 1944, providing that a sugar factory would be exempt for payment of excise duty leviable on sugar, beyond Rs. 5.63 per Cwt, on the quality of sugar produced by it during the 1959-60 season i.e between 1-11-1959 and 31-10-1960, in excess of the average of quantity of sugar produced during the preceding two years. During the year in question, the petitioner produced approximately 86,661 Mds. of sugar in excess of its average production of the immediately preceding two years. It claimed that on this excess production it was liable to pay duty only in accordance with the exemption granted under Notification G.S.R No. 706. The claim of the Petitioner was accepted and necessary entries in its current account, maintained with the Collector Central Excise, Meerut, were made. Subsequently it was found that from put of the aforesaid excess quantity of sugar, the petitioner had reprocessed 1,272 Mds. of sugar after 31st December, 1960. According to the respondents, the petitioner was not entitled to the concessional rate of duty as provided in G.S.R No. 706, in respect of 1,272 Mds. of sugar which it had reprocessed after 31st October, 1960.
3. Accordingly a demand dated 18/19th April, 1961, for an additional amount of Rs. 52,573.90 was raised and the aforesaid amount was debited to the account of the petitioner on 22nd June, 1961. The Petitioner moved an application dated 3rd June, 1961 for the refund of the excess amount realised from it, claiming that the Department was wrong in its view that in respect of 1,272 Mds. of sugar produced by it during the 1959-60 season and reprocessed after 31-10-1960 it was not entitled to the benefit of Notification G.S.R No. ???6. The Asstt. Collector, Central Excise, by his order dated 27th July, 1961 rejected the prayer made by the petitioner. The Petitioner then went up in appeal and revision before the Collector Central Excise Allahabad and the Union Government, who rejected the same by orders dated 27th November, 1961 and 14th January, 1963. Thereafter, the petitioner moved Civil Courts for appropriate relief, but ultimately it was held that Civil Courts had no jurisdiction to deal with the controversy raised by the petitioner. Accordingly, on 12th January, 1972 the Petitioner moved this Court for obtaining appropriate relief under Art. 226 of the Constitution.
4. The learned Single Judge, after repelling the objection raised on behalf of the present appellants that the petitioner deserved to be rejected on the ground of delay and leches, held that the petitioner was entitled to the benefit of the concessional rate of duty under Notification G.S.R No. 706, dated 25-6-1960, in respect of 1,272 Mds. of sugar produced during the year 1959-60 but reprocessed after 31-10-1960. In the result he allowed the writ petition and quashed the demand dated 18/19th April, 1961 along with the orders dated 27th July, 1961, 22nd November, 1961 and 14th January, 1963 passed by the Assistant Collector, Central Excise, Collector, Central Excise and the Union Government. The Union Government has now come up???n appeal and the only point urged on its behalf is that the learned Single Judge was wrong in holding that in regard to the aforesaid 1,272 Mds. of reprocessed sugar, the petitioner company was entitled to the benefit of the concessional rate of duty in accordance with G.S.R No. 706. Relevant portion of G.S.R No. 706 reads thus:—
5. In the case before us it is not denied that during the year 1959-60, season commencing on 1st November, 1959, the petitioner company did produce 86,661 Mds. of sugar fn excess of its average production of the preceding two years. Out of these 86,661 Mds. of sugar, 12,724 Mds. of sugar was damaged and accordingly it was reprocessed in the subsequent season. Sri N.N Sapru, learned Standing Counsel for the Union of India, urged that according to the Rule framed under the Central Excise Act, excise duty on the production of sugar becomes leviable when the sugar is removed from the factory. Since out of 86,661 Mds. of sugar, 12,724 Mds. of sugar reprocessed after 31st October, 1960, was removed after the close of that season, excise duty thereon became leviable in the subsequent year. Accordingly G.S.R No. 706, which was intended to give concession in respect of excise duty on sugar in the 1959-60 season, was not available in respect of those 12,724 Mds. of sugar, we are unable to accept this submission. Excise duty is leviable on the sugar produced by the manufacturer. It is hot a duty on the sale or removal of sugar from the factory. Even if the rules provide for the realisation of duty at the time when sugar is removed from the factory, the even which attracts the liability for duty continues to be the production of sugar. By Notification G.S.R No. 706 the Union Government had granted an exemption from duty in respect of sugar produced during the 1959-60 season. This concession was admissible in respect of such sugar, irrespective of the point of time when it was removed from the factory premises. The concession mentioned in the notification is available in respect of sugar produced during 1959-60 season. It is not referable to the sugar removed from the factory during that particular season. The petitioner, therefore, could not be denied the concession under Notification G.S.R No. 706 merely on the ground that out of 86,661 Mds. of sugar 12,724 Mds. of sugar were actually removed from the factory after 31st October, 1960.
6. Sri B.N Sapru then contended that since 12,724 Mds. of sugar had been reprocessed by the petitioner after 31st October, 1960, it could not be treated as the production of the 1959-60 season. In fact it was the production of the year during which it was actually reprocessed. In this connection he relied upon paragraph 7 of a trade notice dated 26th June, 1960, issued by the Collector, Central Excise, which clarified that if the concessional rate sugar is not issued out of the factory but is reprocessed or is sent to another factory for reprocessing, the sugar recovered by such reprocessing will not be eligible for exemption, he also pointed out that subsequently an amendment was made in the aforementioned trade notice on 31st January, 1961 and it was provided that if the concessional rated sugar is not issued out Of the sugar factory but is reprocessed before the 31st October, 1960, the sugar recovered from such reprocessing shall be eligible for exemption. Aforementioned trade notices merely indicated the interpretation placed by the Collector, Central Excise on notification No 705. Such an interpretation will not have the effect of altering the legel effect of the notification issued by the Central Government in exercise of its powers under rule 8(1) of the Central Excise Rules. Moreover, there is basic inconsistency in the trade notice, dated 26th June, 1960 issued by the Collector, Central Excise. In paragraph 3 of that notice the Collector mentiond that for purposes of consideration the production of 1957-58 season, the sugar bagged in 1957-58 season minus any sugar recovered by refining damaged or effective sugar of 1956-57 seasons, shall be considered to be the quantity of sugar produced during 1957-58 season. For that purpose the sugar recovered from the material of 1956-57 season which had already been accounted for in that season shall not be treated as fresh production of 1957-58. It means that for purposes of determining the average quantity of produced during 1956-57 and 1957-58 season, lie sugar produced in the preceding year but reprocessed in a subsequent year was to be taken to be the production of the preceding year in which it was actually produced. If for the purposes of calculating the average quantity of sugar, produced in the preceding years reprocessed sugar is deemed to be production of the year during which it was produced and not of the year during which it was reprocessed, there is no reason why for purposes of determing the cess production, the reprocessed sugar should be considered to be the production of the year in which it was reprocessed and not of the year in which it was produced. We are therefore unable to interpret the Notification G.S.R No. 706 with the aid of the two trade notices relied upon, by the learned counsel.
7. The crucial question to be determined is whether 12,724 Mds. of sugar which subsequently got damaged and was reprocessed, could be considered to be sugar produced during the year 1956-57. The Union of India has not controverted the allegations made in the petition that the 12,724 Mds. of sugar had actually been produced by the petitioner factory during the 1959-60 season. Merely because it became damaged and was not immediately marketable and required reprocessing, it did not mean that that quantity of sugar was not produced in 1959-60 season. Sugar was, therefore, part of the production of 1959-60 season and the petitioner company was entitled to the benefit of the concession given by G.S.R No. 706 in respect of it. In our opinion the learned Single Judge was right in quashing the demand as also the various orders passed by the Asstt. Collector, Central Excise and the Union Government.
8. In the result the appeal fails and is dismissed with cost.
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