Oudh Sugar Mills Ltd. v. Union of India and Another

[Order per : Chandurkar, J.]. - The decision of this petition which raised a question as to the liability of the Union of India to refund excise duty collected on vegetable non-essential oil manufactured by the petitioner, turns upon a proper construction mainly of the provisions of Rules 9 and 49 of the Central Excise Rules, 1944 hereinafter referred to as the Rules. Some facts need to be stated before we come to the construction of the relevant rules.

2. The petitioner admittedly is a manufacturer of hydrogenated vegetable oil commonly known as vanaspati. The petitioner’s case is that the hydrogenated vegetable oil is the end product of a manufacturing process which is carried out in a composite hydrogenation plant which consists of two sections, namely, the crushing section and the hydrogenation section. The process of manufacture, according to the petitioner, begins with the feeding of ground nut into the elevator, which forms a part of the crushing section of the plant and the end product is received at the filling point of the hydrogenation plant as a result of the continuous uninterrupted process. The petitioner has referred to the details of the manufacturing process in the petition and has stated that the oil expelled from the expeller is directly utilised without removal ar storage in the continuous process of manufacture of vanaspati. The petitioner has now filed along with an additionnal affidavit the graphical sketch of the vegetable oil refining and hydrogenation process plant. The correctness of this sketch has not been disputed on behalf of the respondent Union. There is no dispute that originally with effect from 1st March 1956 duty payable on vegetable non-essential oils, which was item 23 in the First Schedule to the Central Excises and Salt Act, 1944 hereinafter referred to as the Act, was payable at Rs. 70 per tonne. The Finance Act of 1957 raised the rate of duty on the vegetable non-essential oils to Rs. 112/- per tonne. Admittedly the duty was paid by the petitioner on the quality of oil which was manufactured in the crushing section of the plant for the period 1st March 1956 to 28th February 1963, after the duty was first demanded by the Superintendent of Central Excise by his letter dated 14th March, 1956. It is not disputed that the duty was paid under protest as will be clear from the petitioner’s letter of the same date, Annexture B to the petition, by which the petitioner has communicated to the Collector, Central Excise, Nagpur that since Central Excise duty on the final product of hydrogenated groundnut oil was being paid by the petitioner, it was not required to pay any central excise duty at any intermediate stage of the product in that process. The department, however, did not agree with the petitioner that the duty was not so payable, because, according to the Department the fact that vegetable oil was manufactured in the same premises where the factory was situated was immaterial. The petitioner was directed by the Collector, Central Excise, Nagpur, to approach the Central Board of Revenue, in case the petitioner felt aggrieved by the aforesaid decision of the Collector. The petitioner then took up the matter to the Central Board of Revenue before whom the petitioner took the same stand that duty was payable only in respect of the final produce and that no duty was payable in respect of a product which came into being at an intermediate stage of the composite process of manufacture. This contention was negatived by the Central Board of Revenue by their order dated 25th January, 1961. The Central Board of Revenue took the view that excise duty has to be paid by a manufacturer of non-essential oil even if such oil is used in the manufacture of vegetable product within the same factory premises. The petitioner then took up the matter to the Government of India by way of a revision application under Section 36 of the Act. The Government of India by an order dated 27th March, 1963 made by the Secretary, Ministry of Finance (Department of Revenue) accepted the case of the petitioner allowed the revision application directed that the duty received from the petitioner should be refunded. Surprisingly after this order was made on 27th March, the less than a month the same Secretary, who had earlier passed the order of refund, cancelled his earlier order on 24th April, 1963. Admittedly this order was passed behind the back of the petitioner in whose favour a substantial benefit had accrued as a consequence of refund being ordered by the earlier order dated 27th March, 1963.

3. The petitioner took up the matter by a writ petition in the Punjab High Court challenging the order of cancellation of the earlier order. The matter was finally dealt with by the High Court of Delhi in Civil Writ No. 587-10/1963, and the order of the Secretary in the Ministry of Finance dated 24th April 1963 came to be quashed and the earlier order of refund was restored. The petitioner has placed on record a copy of the petition filed in the High Court. A pointed reference was made to this by Mr. Manchar appearing on behalf of the petitioner, in order to contend that even the Union of India had admitted the fact that the process of manufacture of hydrogenated vegetable oil was by a composite hydrogenated plant and that it was a continuous uninterrupted process. The relevant averments in that petition are as follows :-

“For the purpose of manufacturing vanaspati the petitioners are operating a composite hydrogenation plant consisting of a hydrogenation and a crushing section. Ground-nuts purchased by the petitioners are converted into oil in the crushing section and the oil thus processed is directly utilised, without removal or stored, in the continuous process of manufacture of vanaspati in the hydrogenation section. Save as aforesaid the petitioners do not manufacture any vegetable oil”

An affidavit filed on behalf of the Union of India in reply to the aforesaid petition by the Under Secretary, Ministry of Finance (Department of Revenue) is also produced and that affidavit shows that with regard to the averments reproduced above the statement made in the affidavit in reply was that para 1 of the petitioner is substantially correct, but the petitioner being a limited company are not admitted to have a locus standi to file this petition.

4. When the matter was dealt with by the Delhi High Court, the High Court did not think it necessary to go into the merits of the controversy, namely, whether in law no excise duty was payable by the petitioner company as it was not manufacturing oil separately, because the manufacturing process of hydrogenated oil was one continuous integrated process. The decision of the petition before the High Court, therefore, turned mainly on the question whether it was competent for the Central Government to review its earlier order dated 27th March, 1963. The High Court took the view that the order dated 24th April, 1963 by which the earlier order dated 27th March, 1963 was purported to be cancelled was ultra vires and without any authority of law and it was therefore liable to be quashed. The effect of the order of the Delhi High Court was that the earlier order of the Government of India directing refund to be paid was restored. Admittedly the refund directed to be paid was only in respect of the tax received for the period 1st March, 1956 to 10th July, 1961, the latter date being the date on which the revision application came to be filed before the Government of India. The petitioner’s claim in respect of excise duty paid for the period 11th July, 1961 to 28th February, 1963 amounting to Rs. 87.777.21 thus remained to be disposed of and, therefore, the petitioner relying on the earlier decision of the Delhi High Court and the Government of India, claimed that the amount of excise duty recovered in respect of the period 11th July, 1961 to 28th February, 1963 amounting to Rs. 87,777.21 thus remained to be disposed of and, therefore, the petitioner relying on the earlier decision of the Delhi High Court and the Government of India claimed that the amount of excise duty recovered in respect of the period 11th July, 1961 to 28th February, 1963 should be refunded. This letter is dated 7th August, 1973. A further request dated 2nd October, 1973 was made, consequent on which the matter was fixed for personal hearing by the Assistant Collector of Central Excise for 15th January, 1974. The petitioner seems to have been heard by the Assistant Collector on 21st January, 1974 but no decision having been taken by the Assistant Collector even as late as December, 1974, the petitioner filed the present petit,on in March 1974, then, it is not in dispute that to this date the authorities concerned have not given any decision on the claim of the petitioner for refund in respect of the period from 11th July, 1961 to 28th February 1963.

5. The main contention which is raised on behalf of the petitioner in this petition is that vegetable oil in respect of which duty has been collected was merely an intermediate product in the manufacture of hydrogenated vegetable oil or vanaspati and, therefore, the petitioner was not liable to pay any excise duty in respect of such goods. It is further contended that even if the vegetable oil which is manufactured in the crushing section attracts excise duty, since it is not removed from the premises and is directly utilised in production of the end product, there is no liability to pay excise duty. It is averred in the petition that the vegetable oil which is manufactured is not removed from the tanks and that it is not being put to any other use except as a component of the final product which goes out from the composite plant. The averments made by the petitioner that it is operating a composite hydrogenation plant consisting of a hydrogenation and crushing sections are also admitted in the return filed on behalf of the respondents in reply to the present petition. The affidavit has been sworn by the Assistant Collector of Central Excise, Division Amaravati, and he has stated that it is admitted that for the purposes of manufacture of vanaspati the petitioner is operating a composite hydrogenation plant consisting of crushing and hydrogenation sections. The respondents have, however, taken a stand that it was not true that the said oil was directly utilised without removal or storage in the continuous process of manufacture of vanaspati in the hydrogenation section. It is averred in the return that on a survey which was carried on by the officer of the Central Excise, Nagpur, it was revealed that when the oil is extracted it is pumped to a storage tank and then later on it is pumped to the hydrogenation Section. It is further stated that the storage also contains oil purchased from outside the factory and which is not extracted in the factory itself. Thus according to the respondents, after the oil is extracted from the ground-nut it is stored in tanks and later on from the storage tanks it is pumped to the hydrogenation section. The respondents have also denied that the entire process of manufacture of vanaspati beginning with the puning of groundnut into the elevator and ending with the filling of the final produce at the filling point is a continuous un-interrupted process. It is at this stage necessary to point out that it is difficult to reconcile the averments in paragraph 3 of the return to the effect that the process of manufacture is not a continuous un-interrupted process with the positive admission made earlier in the return in the same paragraph that the petitioner is operating a composite hydrogenation plant consisting of crushing and hydrogenation sections. Possibly the case which is sought to be made out is that the pumping of the oil from the storage tank is a separate process. It has also been denied by the respondents that the oil expelled from the expellers is directly utilised without removal or storage in the said continuous process of manufacture of vanaspati.

6. Now the main stay of arguments of the petitioner is that the process of manufacture is a continuous un-interrupted process in a composite plant and before we proceed to consider the effect of rules 9 and 49 of the Rules it is necessary for us first to decide whether the averments made in the petition that the manufacture of hydrogenated vegetable oil is as a result of a composite un-interrupted process or it has not been controverted. We have referred in extense to the averments made by the petitioner not only in the present petition but also in the petition filed by it before the High Court of Punjab. We have also referred to the admission made on behalf of the Union of India in the return filed in the Punjab High Court that the process of manufacture of hydrogenated vegetable oil is a composite un-interrupted integrated process. To the same effect is the admission in the earlier part of the return in paragraph No. 3. The latter averments in paragraph 3, however, we do not disclose as to who had carried out the survey. Admittedly the Assistant Collector who has sworn the affidavit does not claim to have seen either the plant or the manufacturing process. The person who is said to have made the survey has not filed any independent affidavit which could well have been done on behalf of the Union of India. The information received by the Assistant Collector on the basis of which he has made the statement is said to have been received from the official record and believed to be true by him. The statements with regard to the nature of the manufacturing process or the nature of the plant cannot, therefore, be said to have been made on any personal knowledge by the Assistant Collector. The averments made in the petition with regard to the existence of the composite plant and to the effect and fact that the process was a continuous un-interrupted integrated process of manufacture cannot, therefore, be said to have been effectively traversed on behalf of the respondents. It is important to remember that in the affidavit filed in the Punjab High Court the averments of the petitioner with regard to the nature of the plantand the process of manufacture have been positively admitted to be correct. We must, therefore, proceed to decide this petition on the footing that the plant of the petitioner is a composite plant consisting of the crushing and hydrogenation sections and that at no stage these two sections are treated as separate and when the vegetable oil manufactured in the crushing section is taken or passed over to the hydrogenating section, it is only as a part of the continuous process of manufacture and that the oil which is manufactured in the crushing part of the process of the composite process of manufacture in the composite plant.

7. The question which, therefore, now falls for consideration is whether, having regard to the provisions of Rules 9 and 49 of the Rules, excise duty was payable by the petitioner on the quantity of oil which admittedly comes to be stored at the end of the stages of the manufacturing process, a part of which takes place in the crushing section of the plant. It has been vehemently contended by Mr. Palshikar and Mr. Deshpande, appearing on behalf of the Respondents, that the vegetable oil as such is an article which is in fact produced and that it is stored in a place from where it can be easily removed. The argument is that the vegetable oil is an item in the tariff liable to excise duty and that such an article having been produced it was liable to payment of excise duty. It is also contended that even if the plant is a composite plant, since vegetable oil is removed from one section of the plant to another, such transfer of oil would be covered by Rule 9 and would amount to removal from a place as contemplated by the provisions of Rule 9 of the Excise Duty Rules.

8. In order to decide these contentions it is necessary to refer to certain relevant provisions of the Act and the Rules. The term “excisable goods’ is defined in Section 2(d) of the Act as meaning goods specified in the First Schedule as being subject to a duty of excise and includes salt. Vegetable non-essential oil is admittedly included in Item 13 of the First Schedule as it falls under the definition of “Vegetable product”, as the item stands today, the identical item at the material time being Item No. 23. Then we must refer to the provisions or section 3, sub-section (1), which is the only relevant provision. Sub-section (1) of Section 3 of the Act reads as follows :-

“3(1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India, as, and at the rates, set forth in the First Schedule”.

Section 3 is thus the charging provision, the effect of which is that when excisable goods are produced or manufactured, an excise duty comes to be levied and is required to be collected. The duty is determined on the basis of the value of the article as will be clear from Section 4. Section 4 deals with the determination of the value for the purposes of duty where any article is chargeable with duty at a rate dependent on the value of the articles.

Coming to the Rules it is necessery to reproduce relevant parts of rule 9 and 49 in the form in which they were at the material time :-

Relevant parts of rule 9 are as under :-

“9. Time and manner of payment of duty.- (1) No excisable goods shall be removed from any place where they are produced, or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf, whether for consumption, export, or manufacture of any other commodity in or outside such place, until the excise duty leviable thereto has been paid at such place and in such manner as is prescribed in these Rules or as the Collector may require and except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the form :

...   ...   ...   ...

(2) If any excisable goods are, in contravention of sub-rule (1) deposited in, or removed from any place specified thereon, the producer or manufacturer thereof shall pay the duty leviable on such goods upon written demand made by the proper officer, whether such demand is delivered personally to him, or is left at his dwelling house, and shall also be liable to a penalty which may extend to two thousand rupees, and such goods shall be liable to confiscation."

Relevant part of Rule 49 reads as under :-

“49. Duty chargeable only on removal of the goods from the factory premises or from the approved place of storage - (1) payment of duty shall not be required in respect of excisable goods made in factory until they are about to be issued out of the place or premises specified under Rule 9 or are about to be removed from a store room or other place of storage approved by the Collector under Rule 47.”

It is apparent on the wording of rule 9 that it operates as an injunction against removal of excisable goods from a place where they are produced, cured or manufactured from a place where or they are produced, cured or manufactured or any premises appurtenant thereto which may be specified by the Collector in this behalf, until the excise duty leviable thereon has been paid. Rule 9 by itself does not make any reference to the place or the manner at or in which the excise duty is to be paid, but it merely required that before the goods are removed excise duty should be paid at such place and in such manner as is prescribed under the rules or as the Collector may require. It also requires an application in the proper form to be presented before the excisable goods are removed and that the necessary permission of the proper officer on that form should be obtained. The places from where the excisable goods can be removed are described in rule 9 with reference to the production, with reference to the curing of the goods or with reference to the manufacturing of the goods. The provisions of the rule show that in regard to each one of these processes the rules and the Act contemplate grant of a licence in the appropriate form e.g. Form A.L. 4 deals with an application for licence under the Central Excise Rules to manufacture goods and Form L-4 prescribes the form of licence to manufacture goods. Form A.L. 1 is the form of an application for a licence to cure unmanufactured products liable to a Central duty of excise. If the application forms of the appropriate licence forms are carefully perused, they make provision for a description of the premises in respect of which the licence is granted and where either the products are to be cured or the goods are to be manufactured. It is obvious that when rule 9 refers to a place where the goods are produced, cured or manufactured, the reference is to the places in respect of which appropriate licences have been granted. Therefore, all that rule 9 does is that it prohibits removal of excisable goods from certain places whether such removal is for consumption, export or manufacture of any other commodity. Export of a commodity is bound to be out of the place where the goods are manufactured. Consumption of goods or manufacture of any other commodity may take place either in the same places where the excisable goods are manufactured or this may take place outside such place. The effect is that even where excisable goods are to be removed from a place for consumption in the same place or for manufacture of any other commodity in the same place there is a bar against such removal. In other words, if the purpose of removal of excisable goods is consumption in the same place where the excisable goods are manufactured or cured or if such excisable goods are used in the manufacture of any other goods in the same place this cannot be done without payment of excise duty at the place and in the manner prescribed. It is an this particular aspect of Rule 9 that heavy reliance is placed on behalf of the respondents. The contention appears to be that vegetable oil manufactured in the crushing section is used in the manufacture of another commodity in the same place, the same place being the other part of the composite plant, and, therefore, according to the respondents, excise duty was payable. We shall deal with this contention little later.

9. Now so far as rule 49 is concerned it clearly indicates that notwithstanding that excisable goods are produced and the provisions of Section 3, which is a charging provision, has fastened itself on such goods, the excise duty shall not be required in respect of excisable goods made in factory until they are about to be issued out of the place or premises specified under rule 9 or are about to be removed from a store-room or other place of storage approved by the Collector under Rule 47. We are not concerned with the removal of excisable goods either from a store room or from a place of storage approved by the Collector under rule 47. Rule 49 does refer back to rule 9 in so far as we have to ascertain the place from where there must be removal for the purposes of payment of excise duty. Rule 49 itself does not indicate the place of removal. It refers to excisable goods made in a factory but when we have to determine the question as to when duty becomes payable in respect of goods which are excisable and which are made in a factory, we must go back to rule 9 to ascertain whether the goods are being removed from the place which is referred to in rule 9. Therefore, the question as to whether the petitioner is liable to pay excise duty on a component of the final produce which is manufactured in the crushing section will really depend on whether the pumping of the vegetable oil from the storage tanks where it gets accumulated as a result of the production process in the crushing section will amount to removal from ‘e place referred to in Rule 9. The provision of Rule 9, in our view, contemplates that an item of excisable goods must be independently manufactured as such and removed from the plant and where the process of manufacture is for the purpose of manufacture of any other commodity whether in or outside the place of their manufacture. Where the plant of production is treated as a composite plant and where the process of manufacture is an integrated continuous un-interrupted process, a transfer of a produce which is a component of the final produce from one part of the plant to another does not, in our view, amount to removal as contemplated in rule 9. When the vegetable oil is transferred from the storage tanks to other part of the plant, it is merely transferred from one part of the plant to another. There can be no dispute, and it is fairly conceded on behalf of the petitioner, that if the vegetable oil is taken away from the storage tanks and removed therefrom and put to some other use, the vegetable oil will become liable to excise duty. But it appears to us that the place which is contemplated by rule 9 cannot be so construed as to mean a part of the composite plant. Rule 9 does not refer to a part of the plant or machinery and the storage tank in which oil is collected is nothing but part of the composite plant. It has no independent existence apart from being a component of the composite plant. If a product which is “excisable goods” is removed from the entire plant after the production process is completed; there can be no difficulty in holding that there is a removal of the product from the place of manufacture and in such a case the place will include the entire plant itself. Therefore, the scheme of rules 9 and 49, if it is properly considered, does not seem to contemplate that an article, which loses its identity and gets transformed into another article in a composite process of manufacture should be treated as excisable goods even though such an article, if it was removed from the plant before it became a part of the final product would have become “excisable goods” A process of onward movement of a component for being converted into a final product is not, in our view, covered by the concept of removal contemplated by the provisions of rule 9 of the Rules.

10. The question as to whether the manufacture of a component part in an integrated composite process of manufacture amounts to removal or not fall for consideration before this Court in Petition No. 491 of 1964 decided on 30th April, 1970 (Nirlon Synthetic Fibres and Chemicals Limited v. Shri B.K. Audim, Assistant Collector and Others). The question there was whether a product called Polymer Chips which was a product obtained at an intermediate stage during the process of manufacture of nylon yarn from Caprolactam Monomer was liable to excise duty. The Court had found that the entire process of manufacture of nylon yarn was a continuous and integrated process operating under highly controlled conditions in a sealed unit blanketed with an inert gas to avoid exidation. Briefly stated, the process was as follows :-

“Caprolactam Monomer is melted at about 70 degrees in a jaketed vessel by circulation of hot water through the jacket. After this, titanium dioxide and acetic acid are added in required quantity, the function of the titanium dioxide is to make the yarn dull and that of the acetic acid is to control the chain length of the polymer. The mixture after through mixing is transferred to a storage tank from where it is pumped continuously to Polymerisation tubes, also known as V.K. Tubes. In the V.K. Tubes, where the temperature of about 260 degrees centigrade is maintained chemical reaction takes place and about 90 per cent of the Caprolactam Monomer is converted to Polymer. This process is known as the process of Polymerisation. Once caprolactam is polymerised, it becomes nylon. Thereafter in the course of manufacture the said polymerised product (or nylon) is subjected to subsequent processing in order to change the form and to give it required properties. As a result of the said processing Polymer chips are obtained at an intermediate stage in the manufacture of nylon yarn, throughout the said process the chemical composition remains un-changed. The chips are obtained only for the purpose of removing the remnant monomer and inasmuch as it makes the subsequent processing more convenient. These Chips, otherwise called Nylon Chips, are then dried, melted and spun into continuous filament by the process of extrusion. The spun filament undergoes further process of stretching, coning, packing etc. in order to get the yarn in a salable form”.

The Polymer chips otherwise called ‘Nylon chips’ was said to fall under Item 15A to Schedule I of the Central Excises and Salt Act, 1944. The contention of the petitioner-company was that the polymer chips, which were obtained at the intermediate stage, were not removed nor did they go out of process of manufacture at any stage and were never sold or marketed, but were exclusvely used by the petitioner-company in the manufacture of Nylon yarn in its factory and, therefore, did not fall within either amended or unamended Item 15-A in Schedule of the Central Excises and Salt Act. the Court took the view that on a true construction of Entry 25A the polymer chips or nylon chips obtained by the petitioner-company for further manufacture of Nylon yarn do not fall within the expression ‘Plastics, all sorts’ nor within the expression ‘Artificial or synthetic resins and plastic materials’, and, therefore, do not attract any excise duty. The Court, however, took the view that the polymer chips were finished products or manufactured goods. Dealing with the provisions of rules 9, 47 and 49 and the question as to whether a continuous or integrated process of manufacture was contemplated by rule 9, the court made the following observations :-

“In my view, it is difficult to accept the submission of Mr. Bhabha on the point of true interpretation of the phrase ‘removal from the place or premises’ of manufacture occurring in Rule 49 read with rule 9 of the Excise Rules. Since there is ambiguity about the exact sense in which the expression ‘place or premises’ has been used in Rule 49 read with rule 9 the marginal note of Rule 49 can be taken into consideration which clearly shows that the removal must be from the factory premises. But that apart, it is clear that there are several Rules which use the expressions plant, vessel, tubes or pipe in contradistinction with the expression ‘place or premises’ which fact clearly shows that whenever rule making authority wanted to make use of the correct expression it has done so and in Rule 49 read with rule 9 the only expression that has been used is ‘place or premises’ of manufacture. If the rule making authority wanted to include removal of the excisable article occurring within the equipment, machinery or any part or parts thereof, such as vessel, tube or pipe it could have done so while framing Rule 49 and Rule 9.................. Besides, on a careful scrutiny of the scheme of the Act and Rules framed thereunder as obtaining prior to May, 1968, it is abundantly clear that a continuous or integrated process of manufacture was never within its contemplation.

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In my view, therefore, it is clear that a continuous or integrated process of manufacture was not within the contemplation of the scheme of the Act and Rules framed thereunder as obtaining up to May 1968."

The Learned Judge then observed : -

“Having regard to the aforesaid discussion I hold that on its true interpretation the expression ‘place or premises’ of manufacture occurring in Rule 49 read with rule 9 means factory premises and cannot be equated with equipment, plant, machinery or parts thereof, such as vessel, pipe or tubes and unless there is removal or issuing out of the articles from such factory premises excise duty is not attracted. Since in the present case it is an admitted position that polymer chins that are obtained by the petitioner-company never go out of manufacturing equipment until the final product of nylon yarn is manufactured, it must be held that no removal or issuing out of these polymer chips occurs within the meaning of Rule 49 read with rule 9 of the Excise Rules and as such they are not liable to levy of excise duty."

The view taken by the learned Judge that where a manufactured article does not go out of the manufacturing equipment until the final product is manufactured, there cannot be any removal or remaining out within the meaning of Rule 49 read with rule 9, has our respectful concurrence.

11. We may also refer to a Division Bench Division of Delhi High Court in Caltex Oil Refinery (India) Limited v. Union of India - 1979 (4) E.L.T. (J 581) (Civil Writ No. 350 of 1970) where the provisions of Rules 9 and 49 were considered and a view similar to the one which we have taken was taken. Dealing with the question of removal contemplated by Rule 49 read with rule 9 of the Excise Rules, the Division Bench observed as follows :-

“Rule 9, which we have read earlier, in terms lays down that no excisable goods shall be removed from any place where they are produced or any specified premises appurtenant thereto, whether for consumption, export or manufacture of any other commodity in or outside such place until the excise duty leviable has been paid. The Rule thus contemplates the site of manufacture as the place from where removal has to take place whether for consumption, export or manufacture of any other commodity. It obviously makes no reference to the plant or equipment. But, where there are two distinct plants within the same factory premises removal can take place either outside the factory premises or within the factory premises if the product obtained by working of one plant is sent to another plant for obtaining another product. There can be no removal of a product within the plant itself so long as the product is in the process of manufacture.

There can be removal only if the product goes out of one stream of production into another stream of production or if the product is issued out of or taken out or consumed if no further processing of that product is to be done."

(underlining is ours)

We are thus of the considered opinion that where goods which may be excisable are manufactured as a component to be converted into a final product as a result of a continuous integrated process of manufacture in a composite plant they will not be liable to excise duty, because there is no removal as contemplated by rule 9 read with rule 49 of the Excise Rules. The mere fact that on some occasions additional vegetable oil has to be put in the storage tank from outside would not change the basis fact that vegetable oil manufactured in the crushing section continued to be a component of the end product which would come out at the end of the manufacturing process. It is therefore, clear to us that the vegetable oil manufactured in the crushing section, which is a part of the composite plant, was not liable to excise duty. The petitioner was, therefore, entitled to a refund of the excise duty collected from it for the period from 11th July, 1961 to 28th February, 1963.

12. Mr. Manchar, the learned counsel appearing on behalf of the petitioner, has argued that the amount recovered by the Government of India has been withheld wrongly and that the money should now be refunded along with interest. It is true that the amount has been withheld and was not paid to the petitioner who was deprived of the use of that amount. It, however, appears to us that the Government has changed its mind, and having made an earlier order holding that the petitioner was entitled to refund, they later on passed an order cancelling that order which was subsequently challenged and set aside by the Delhi High Court. The Delhi High Court itself did not go into the merits of the controversy and the order was set aside, it appears to us, on the ground that there is no jurisdiction to review. The very fact that the question has been argued before us for almost two days indicates that the question of the liability to refund was not free from difficulty and depended on the construction which could be placed on the provisions of Rules 9 and 49 of the Excise Rules. It cannot, therefore, be said that the Union of India has deliberately withheld the amount mala fide and we are, therefore, not inclined to grant any request for payment of interest on the said amount though there is no difficulty in holding, that the Court functioning under Article 226 of the Constitution of India would have the power in an appropriate case to award interest depending upon the facts and circumstances of each case. This, however, does not appear to us a case where such a discretion should be exercised.

13. In the result, the petition is allowed. The petitioner, is therefore, entitled to a mandamus directing respondent No. 2 to dispose of the refund applications of the petitioner and to pay such amounts as are liable to be refunded, having regard to the amount of excise duty recovered for the period from 1st March, 1961 to 28th February, 1963 and the amount already refunded to the petitioner. The matter has been pending for a long time and we have no doubt that the authorities will deal with the matter expeditiously.

The petitioner to get the costs from the respondents.