Citation Codes

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citation codes

Case Number

Civil Rule No. 166 of 1953

Judges

Deep Narayan Sinha, J.

Acts

Central Excise Rules, the precise Rules application being Rules 192
Section 14 of the Central Excises and Salt Act. That Section
Section 14 nor Rule 9,

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The petitioner is a public limited company engaged in the manufacture of chemical goods, and since 1947 has manufactured caffeine from tea-waste obtained from tea gardens. Tea-waste is excisable and duty is normally payable at the tea garden, but an exception permits removal without duty if used for making caffeine. The petitioner obtained licences (and executed a bond) from excise authorities to obtain tea-waste duty-free, stating that caffeine would be manufactured at its Calcutta factory using chemical extraction, concentration and in-vacuo evaporation, and that solvents would be used. The petitioner also held a licence under the Drug Control Order and represented that it would manufacture caffeine to British Pharmacopoeia standards.

Respondents (excise authorities) received information alleging that the petitioner had been using large quantities of duty-free tea-waste but selling them as edible tea instead of manufacturing caffeine, and that many alleged sales investigated were fictitious. The authorities sought to investigate and requested production of company books and documents; some books were not produced (the company attributed loss of books to labour trouble). Returns filed under the excise rules (R.G.16) showed discrepancies and indicated production of "solid extract of tea" rather than caffeine.

On 16 December 1952 the Superintendent, Central Excise & Land Customs, issued a notice in the nature of a summons under Section 14 of the Central Excises and Salt Act calling the petitioner (through its manager or authorised agent) to appear on 26 December 1952 to answer questions and to produce a specified list of documents and written statements. The schedule attached included accounts of caffeine produced and disposed, bills, vouchers, challans, and specifically item No. 4: books showing dates, descriptions and prices of the caffeine manufacturing plant purchased during 1947–1952. A heading in the requested statement required "Quantities of different kinds of ingredients used itemwise."

The petitioner challenged the summons by invoking the court's jurisdiction: this opinion records a Rule to show cause why the books should not be returned, why a writ in the nature of mandamus or prohibition should not issue restraining action under the summons, and why the summons should not be quashed or otherwise dealt with.

Legal Issues Presented

Whether the summons issued under Section 14 of the Central Excises and Salt Act was within the jurisdiction of the excise officers in the circumstances of this case.
Whether Rule 9 (and the provisions of Chapter 10, Rules 192–197 of the Central Excise Rules) exclude or displace the use of Section 14 powers in respect of the subject-matter of the enquiry.
Whether the authorities were entitled to require production of the petitioner's books and documents (including potentially sensitive information about ingredients, processes and machinery) in aid of the excise investigation.
Whether retention by the authorities of books taken in the course of investigation (pending the inquiry) was reasonable and within their powers.

Arguments of the Parties

Petitioner's Arguments (as advanced by Mr. Roy)

The summons issued under Section 14 is wholly without jurisdiction and inapplicable to the facts.
Neither Section 14 nor Rule 9 apply to the case; tea-waste dealt with by the petitioner was not produced, cured or manufactured at the petitioner's premises, so Rule 9 (which restricts removal of excisable goods) is inapplicable.
The proper legal framework is Chapter 10 of the Central Excise Rules (specifically Rules 192–197) governing remission and licensed use of excisable goods, with attendant returns, inspections and tests; the petitioner complied by filing R.G.16 returns and thus there was no scope for further enquiry or Section 14 summons.
The summons improperly seeks disclosure of material which could disclose a secret industrial process and therefore overreaches.

Respondents' Case (as summarized by the Court)

Secret information indicated that the petitioner had been diverting duty-free tea-waste by selling it as edible tea instead of manufacturing caffeine, and fictitious sales were discovered on investigation.
Authorities needed access to books and documents to determine whether the petitioner complied with the licence and Rules and whether revenue had been deprived.
An Assistant Chemical Examiner inspected the works in November 1952 and reported that the chief chemist and manager were not frank, described a crude, disconnected process and equipment not suitable to produce caffeine to British Pharmacopoeia (B.P.) standard; he recommended that information be sought about chemicals used and plants/machinery.
The summons under Section 14 sought production of specified documents and written statements relevant to the enquiry (including detailed accounts and plant purchase records) and the authorities offered to return seized books after the investigation and to allow inspection when required.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court proceeded by assessing the legal scope of Section 14 of the Central Excises and Salt Act, the applicability of Rule 9, and whether the summons and document requests were a proper exercise of statutory power. The reasoning and steps were as follows:

The court accepted the factual premise that tea-waste is normally excisable at the tea garden but that a licence can permit removal without duty for manufacture of caffeine; the petitioner had obtained such licences and filed R.G.16 returns.
The court rejected the petitioner's submission that Section 14 and Rule 9 have no application. It recognized that the provisions of Chapter 10 (Rules 192–197) are applicable to licensed remission of excisable goods, but held that neither Rule 9 nor Section 14 is excluded by those rules. Section 14 was characterised as a general investigatory power exercisable by authorised excise officers for any enquiry under the Act or the Rules.
On the particular contention that tea-waste was not produced at the petitioner's premises so Rule 9 did not apply, the court observed that the petitioner had removed excisable goods from the tea gardens duty-free on the representation that they would be used to manufacture caffeine; if that undertaking failed, there would be a violation of Rule 9 (i.e., removal without payment of duty at the proper time and place).
Regarding the nature of the summons, the court emphasised that it is a notice for compliance with directions under Section 14, not a pleading that must set out a cause of action in detail. The court found the authorities were entitled to seek documents relevant to their enquiry, including profit books and other documents, provided they were relevant to the investigation.
The court considered the concern about disclosure of a secret industrial process. While initially cautious that the authorities might be overreaching, the court concluded from the materials (including the Assistant Chemical Examiner's report and the R.G.16 returns indicating "crude caffeine" or "solid extract of tea") that there was no allegation that the petitioner manufactured caffeine by a process unknown to others such that disclosure would prejudice the company. Thus the enquiries about ingredients, machinery and processes were relevant and not an improper probe into trade secrets.
The court noted factual indicators that justified investigation: absence of production records for 1948, admissions of discrepancies between stock and book records, and the chemical examiner's finding of crude equipment incapable of producing B.P.-standard caffeine.
On retention of books, the court found it reasonable for the authorities to retain books while the investigation proceeded. They had also offered inspection and promised to return books after the investigation; the court stated that intervention would only be appropriate if the authorities retained books unreasonably or after the investigation was complete.
The court clarified it was not deciding disputed factual questions of guilt or the correctness of charges; the focus was on whether the summons was a lawful exercise of statutory power and whether the steps taken were justified to enable proper investigation.

Holding and Implications

Holding: The court held that the summons issued under Section 14 of the Central Excises and Salt Act was a proper exercise of statutory power, the respondents were competent to issue it, and the petitioner and its officers were legally bound to comply. Consequently, the petitioner's application to set aside the summons failed and the Rule was discharged; all interim orders were vacated. The court made no order as to costs because the application involved interpretation of Rules on which there was no authoritative decision.

Direct implications for the parties:

The petitioner must comply with the summons and produce the documents and statements required, subject to the authorities' undertaking to return books after the investigation and to allow inspection.
The authorities are entitled to retain the books during the pendency of the investigation; retention beyond the investigation or for an unconscionable time would be a ground for later interference.
No costs were awarded against the petitioner.
Although the application failed, the court granted the petitioner an ad interim injunction continuation for a fortnight to allow time for the petitioner to prefer an appeal; this extends the injunction for two weeks from the date of the order as prayed.

Broader implications: The opinion does not purport to lay down a binding authoritative interpretation beyond the circumstances of the case; the court expressly made no order as to costs because the matter involved interpretation of rules lacking authoritative decisions. No new precedent was cited or established in the opinion.

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Mira Chemical Indus. Ltd. v. D.P Anand, Collr. Of C. Ex., Calcutta

1. The petitioner is a Public Limited Company, and carries on inter alia the business of manufacture of chemical goods, it appears that since 1947 the petitioner company has been manufacturing caffeine from tea-waste. Tea-waste is manufactured at the tea gardens. To be accurate, it is the waste material that remains after edible tea has been manufactured. Tea-waste is an excisable material, and normally the duty is payable at the tea garden, where it is manufactured. An exception, however, is made if the tea-waste is removed from the tea garden for the purpose of manufacturing Caffeine. In 1947, and thereafter on various occasions, the petitioner company applied to the Excise authority for a licence to obtain tea-waste without payment of the Central Excise duty leviable thereon. In the applications it was stated that the petitioner would manufacture Caffeine at their factory at 11A, Prince Anwar Shah Road, Calcutta, and that tea-waste will only be used for the manufacture of the aforesaid commodity and in the manner set out in the Schedule appended to the application. In the Schedule it was stated that the process of manufacture would be chemical extraction and then concentration and in-vacuo evaporation. It was also stated that solvents will be used in the process. It was expressly mentioned in the applications that the petitioner company was a licensee for manufacture of drugs and chemicals of the standard prevailing under the British Pharmacopoeia. Such licence is granted by the West Bengal Government under the Drug Control Order. A licence was issued to the petitioner for manufacturing Caffeine from tea-waste and the petitioner company also executed a bond. This licence was renewed from time to time. The case of the respondents is that secret information was received to the effect that for several years past the petitioner company had been utilising enormous amounts of duty-free tea-waste, by selling them as edible tea, and not manufacturing Caffeine as stipulated in the licence, thus earning large profits without payment of Government duty. The authorities followed up alleged sales to various parties and discovered that a great many of them were entirely fictitious. The authorities naturally wished to investigate the matter thoroughly and wanted access to the Books of the Company. All the books were, however, not forthcoming. The company alleges that owing to labour trouble books for a considerable period have been lost. Under the Central Excises and Salt Act and the rules made thereunder Returns have to be made, and it appears from the Returns themselves that the company has not satisfactorily accounted for all the commodities that they have utilised. It is very necessary therefore that a thorough investigation should be made as to whether the petitioner, company has utilised all duty-free tea-waste for manufacturing Caffeine or has made surreptitious profit by disposing of the duty-free tea-waste as edible tea, in violation of the terms of the licence granted by the Excise Authorities. It appears that the Assistant Chemical Examiner of the Calcutta Customs House visited the company sometime in November, 1952 and he has given a note, a copy of which is annexed to the Affidavit in opposition. According to his report, the Chief Chemist and the Manager of the Company were not very frank in the information they gave about the process of manufacture. They mentioned some vague items of Chemicals being used, and described some irregular disconnected process of crude Alkaloid manufacture. According to the Assistant Chemical Examiner, the Company were not following the standard scientific method for preparing Caffeine and the equipment that was shown to him was of a very crude type, there being no proper equipment for preparing Caffeine of the B.P standard. He therefore recommended that certain information should be asked for viz. what chemicals and other ingredients were being used in the process of preparing Caffeine and what were the plants and machinery used. In this connection I might mention that in the forms that were filed as returns under the Excise Rules (called R.G 16 forms), it is found that for a long period what was being prepared was solid extract of tea, which it is stated, is not the same thing as Caffeine. In reply to this/it is said that this was crude Caffeine and this kind of return was made because the Company was told by some Officers to describe the products in this fashion. It is stated that the crude Caffeine was subsequently refined. It is also admitted that there are some discrepancies between the actual stock and what appears in the books. On these facts, I think that the authorities are quite justified in launching a thorough investigation into the matter and using all their available resources for determining whether the petitioner company has complied with the Excise Acts and Rules and whether Government has been deprived of any revenue. The immediate cause which has given rise to this application is a notice issued by the Superintendent Central Excise Land Customs, Central Preventive Circle Calcutta, dated the 16th December, 1952, to the petitioner, under Section 14 of the Central Excises and Salt Act. That Section empowers Excise officers mentioned therein, to summon any person whose attendance they consider necessary either to give evidence, or to produce a document or any other thing, in any inquiry which such officers are making, for any of the purposes of the Act. A summons to produce document and other things may be for the production of certain specified documents and things or for the production of certain description in the possession or under the control of the persons summoned, it is further laid down that all persons so summoned shall be bound to attend either in person or by an authorised agent as such officer may direct, and all persons so summoned shall be bound to state the truth upon any subject in respect of which they are examined or make statements and produce such documents and other things as may be required. The notice, which is in the nature of a summons under Section 14, calls upon the petitioner to do the following things. It requires the manager of the petitioner company to appear personally or by an authorised agent before the Superintendent, C.E & L. Customs on the 26th December, 1952 and

“(1) to be prepared to answer truthfully and to the best of your knowledge or belief, all questions which may be put to you regarding the enquiry mentioned above and (2) to bring with you (a) the documents as per list attached to this summons and (b) to furnish statements and information in writing on the matters shown in the said list”.

2. A schedule annexed to the notice sets out a list of documents, and consists of accounts of Caffeine produced, account of Caffeine disposal. Bill Books, Vouchers, challans, etc. He is also required to make certain statements in writing with regard to the books, the item to which the greatest objection has been levelled is item No. 4 which runs as follows:—

“(4) Books showing the date, description and price of the Caffeine manufacturing plant and parts thereof purchased by them from time to time during the period 1947 to 1952”.

3. The heading in the statement required to be furnished, which is objected to, runs as follows:—

“Quantities of different kinds of ingredients used itemwise.”

4. This Rule was issued on the 19th January, 1953 by Bose, J. calling upon the respondents opposite parties to show cause why the books mentioned in the petition should not be returned to the petitioner or why a Writ in the nature of Mandamus should not issue to the opposite parties directing them to forbear from acting under the summons dated the 16th December, 1952, complained of in the petition, or why a writ in the nature of Prohibition should not issue prohibiting the opposite parties from taking any steps under the said summons and also why the said summons should not be cancelled, quashed and/or otherwise dealt with or why such other or further order or orders or directions should not be made or given as this Court may seem fit and proper.

5. Mr. Roy appearing on behalf of the petitioner argues that the summons under Section 14 is wholly without jurisdiction. He says that neither Section 14 nor Rule 9, mentioned in the summons issued Under Section 14, has any application to the facts of the present case. Under Rule 9, “no excisable goods shall be removed from any place where they are produced, cured or manufactured………”. He says that tea-waste which was dealt with by the petitioner company was neither, produced, cured or manufactured at the place where the petitioner carried on business. He says that the proper Rules to be applied are to be found in Chapter 10 of the Central Excise Rules, the precise Rules application being Rules 192 to 197. He points out that in case where excisable goods are to be used in an industrial process, any person wishing to obtain remission of duty must make an application to the Excise Authority and then licence is given and there are many restrictions as to storage, keeping of accounts, etc. Access has to be given to authorised officers to inspect and test the accuracy of any return submitted under the Rules, or to-inform themselves for any purpose under the Act or the Rule. He says that his client duly and continuously filed the proper returns called R.G 16 returns, which have been duly looked into by the Excise authorities and there is no further scope of any enquiry or investigation or issue of summons under Section 14 of the Act. I am unable to accept this argument. It is true that the provisions contained in Rules 192 to 197 in Chapter 10 of the Rules are applicable to the facts of this case, but I do not see how either Rule 9 or Section 14 of the Act is excluded. The petitioner has removed excisable goods from the tea-gardens to his works or factory, duty-free on the representation that it was going to manufacture Caffeine and that it would not utilise tea-waste in any other manner or form.

6. If it fails to carry out this undertaking/then obviously there has been a violation of Rule 9, because excisable goods' have been removed from one place to another, without payment of duty at the proper time and place. Section 14, in my opinion, is a general power which can be exercised by a duly authorised officer, for any kind of investigation under the Act or, the Rules. It is not restricted to any particular matter arising under the Act, nor is it excluded by reason of any circumstance such as has happened in the present case. I see no reason to hold that the Officers were not entitled to look into what is called the profit book or documents of the petitioner, provided that they are relevant to the enquiry that is being made. Mr. Roy criticised the document called the “summons” as if it was a sort of pleading in a legal action, wherein the cause of action has to be correctly set out. It is nothing of the sort. It is a mere notice to the party to comply with the directions which the officers are entitled to give under Section 14, in aid of an investigation or enquiry under the Act or the Rules. On the facts stated above, it is quite obvious that the authorities cannot successfully carry out the enquiry without looking into the books and documents such as are available. With regard to the particular objection of Mr. Roy as set out above, it appeared to me in the first flush that the authorities were going a little too far in asking the petitioner to disclose things which might result in a disclosure of a secret industrial process. I am however satisfied on the materials before me that there was no intention of probing into any secret industrial process, nor is the grievance of the petitioner a real one. What was found on inspection was that the petitioner was not manufacturing proper Caffeine which it undertook to do under the licence. For example, in the year 1948, no books or documents can be produced by the Company to show that any Caffeine at all was produced. In this application, I am not deciding the disputed questions of facts, and it is not possible for me to say whether the charges levelled against the petitioner company are justified or not. All I am concerned with, is to see whether the summons issued under Section 14 is in proper exercise of the statutory power. As regards the enquiry about the ingredients, it arises because of the report of the Assistant Chemical Examiner attached to the customs. It is an admitted fact that the R.G 16 returns for a long time shows that the petitioners were manufacturing something which is at best, crude Caffeine. This is certainly not what they undertook to do under their licence or bond. I think it relevant to find out as to whether they were really pursuing a scientific process of manufactrue and were manufacturing Caffeine at all, and if so to what extent the Chemical Examiner has said that the equipment shown to him were extremely crude and not capable of manufacturing Caffeine. I think it is relevant to enquire as to what kind of machinery the petitioner company possesses and when they purchased such equipment. It is nowhere stated that the petitioner company is manufacturing Caffiene by a process unknown to others and that it would be prejudiced by the disclosure of the process or the particulars of the machinery used in such process.

7. The only other point taken is with regard to the books. It appears that some of the books have been taken possession of by the authorities, which they propose to retain as long as, the investigation lasts and to return them thereafter. They have offered to give inspection at any time if required. I do not see how this is unreasonable or unjust. If the books have to be looked into, I do not see why the authorities cannot retain them pending the investigation. If, of course, they retain them after the investigation is over, or for an unconscionable time, that will be the time to interfere.

8. On these facts and circumstances, I am satisfied that the summons complained of is perfectly in order, and that the respondents were competent to issue it, and that the petitioner company and its officers are bound in law to comply with the said summons; The application consequently fails. The Rule is discharged. All interim orders are vacated. Inasmuch as the application involves the interpretation of the Rules upon which there is no authoritative decision, I make no order as to costs.

9. As the petitioner intends to prefer an appeal against this order the ad interim injunction will continue for a fortnight from date, as prayed for.

Mira Chemical Indus. Ltd. v. D.P Anand, Collr. Of C. Ex., Calcutta

Structured Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments (as advanced by Mr. Roy)

Respondents' Case (as summarized by the Court)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Mira Chemical Indus. Ltd. v. D.P Anand, Collr. Of C. Ex., Calcutta

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