of Central Excise, Hyderabad Vs. M/S. Vazir Sultan Tobacco Company Limited,
Hyderabad  INSC 337 (28 February 1996)
Reddy, B.P. (J) Jeevan Reddy, B.P. (J) Sen, S.C. (J) Nanavati G.T. (J) B.P. Jeevan
1996 SCC (3) 434 JT 1996 (3) 112 1996 SCALE (2)603
J U D
E M E N T
(1) of Section 37 of the Finance Act, 1978, levied a special duty of excise
equal to five percent of the amount of excise duty chargeable on goods. The
levy came into effect on and from March 1, 1978 and was to remain in force till March 31, 1979. Sub-section (3) provided that the said levy shall be in
addition to the duties of excise chargeable on such goods under the law in
force. Sub-section (4) provided that the provisions of the Central Excise Act
and the rules made there under shall apply, as far as may be, in relation to
the levy and collection of the special duties of excise levied under the said
section. The question in this batch of appeals is whether the goods manufactured
prior to March 1, 1978 but removed on or after March 1, 1978 are liable to pay the special duty
of excise. Section 37 reads as follows:
In the case of goods chargeable with duty of excise under the Central Excise
Act as amended from time to time, read with any notification for the time being
in force issued by the Central Government in relation to the duty so chargeable
there shall be levied and collected a special duty of excise equal to five
percent of the amount so chargeable on such goods.
Sub-section (1) shall cease to have effect after the 31st day of March, 1979,
except as respects things done or omitted to be done before such case and
section 6 of the General Clauses Act, 1897 (10 of 1897) shall apply upon such
case as if the said sub-section had then been repeated by a Central Act.
The special duty of excise referred to in sub-section (1) shall be in addition
to any duties of excise chargeable on such goods under the Central Excise Act
or any other law for the time being in force.
The provisions of the Central Excise Act and the rules made there under,
including those relating to refunds and exemptions from duties shall as far as
may be apply in relation to the levy and collection of the special duties of
excise leviable under this section, in respect of any soods as they apply in
relation to the levy and collection of the duties of excise on such goods under
that Act or those rules as the case may be."
not necessary to refer to the facts to the several appeals before us. It would
be enough if we state the facts in Civil Appeal No.3199 of 1986. The
respondents M/s. Vazir sultan Tobacco Company Limited, is engaged in the
manufacture of cigarettes. The appeal relates to the levy of special excise
duty on cigarettes removed by the respondent between March 1, 1978 and March 12, 1978. The respondent's case was and is that though cleared an or
after March 1, 1978, they were manufactured prior to
the said date. It contended that inasmuch as the special duty of excise like
any other duties of excise is upon the manufacture or production of excisable
articles and not upon removal, no duty is leviable upon the said cigarettes.
The authorities rejected the contention and levied the duty. Subsequently, the
respondent filed an application for refund agitating the very same issue, which
too was rejected by the Assistant Collector. An appeal before the Collector
(Appeals) proved fruitless. The respondent then carried the matter by way of
further appeal to the Tribunal. The matter was heard by the Special Bench of
the Tribunal. They allowed the appeal under the impugned order upholding the
contention of the respondent.
Joseph Vellapally, learned counsel for the Revenue, assailed the correctness of
the view taken by the Tribunal on several grounds. He submitted that Section 37
evolved a simple formula, viz., wherever central excise duty is payable on
certain goods, special excise duty shall also be payable at the rate of five
percent of the central excise duty. Counsel submitted that the levy and
collection of the central excise duties is governed by Section 3 of the Central
Excise and Salt Act, 1944 read with Rules 9, 9A and 9B of the Central Excise
Rules. According to these Rules, the levy and collection is at the stage of
clearance of the goods from the factory or warehouse, as the case may be.
for the purpose of rate and valuation, one has to look to the date of removal
and it is the said date which determined the levy, the rate and the valuation.
He submitted that the question at issue in these appeals is concluded by the
decision of this Court in Wallace Flour Mills Company v. Collector of Central
Excise [1989 (44) E.L.T.590]. The fact that duties of excise are levied upon
the production or manufacture of goods, the learned counsel contended, does not
detract from the clear position emerging from the provisions of the Act and the
J.Sorabjee, learned counsel appearing for respondents, supported the reasoning
and conclusion of the Tribunal. He submitted that the duties of excise are leviable
only upon the manufacture or production of the goods as contemplated by Entry
84 of List-I of the Seventh Schedule to the Constitution. The mere fact that,
for the sake of convenience, the duty is collected at the stage of removal cannot
and does not change the character pf the tax.
upon the manufacture or production of goods and not on any other basis. The
special excise duty is a separate and distinct levy from the Central Excise
duties. It is levied for the first time by Section 37 of the Finance Act, 1978
on and with effect from March
1, 1978. Counsel
submitted that when the goods in question were manufactured, there was no levy
of special excise duty. If there is no levy of special excise duty on the date
of their manufacture or production, it cannot attach at the stage of removal.
Saying otherwise, the learned counsel contended, would detract from the very
concept of duties of excise. Learned counsel also relied upon certain decisions
both of this Court and High Courts in support of his submission.
inclined to agree with Sri Sorabjee. Entry 84 of List-I of the Seventh Schedule
to the constitution empowers the Parliament to make a law providing for levy of
duties of excise on tobacco and other goods manufactured or produced in India [except, of course, certain goods
mentioned therein]. Indisputably, the special excise duty is an excise duty and
is relatable to Entry 84. If so, the levy must be on the manufacture or
production of goads. That is how the words "goods manufactured or produced
in India" in Entry 84 have been understood by this Court throughout. Once
the levy is not there at the time when the goods are manufactured or produced
in India, it cannot be levied at the stage of removal of the said goods. The idea
of collection at the stage of removal is devised for the sake of convenience.
It is not as if the levy is at the stage of removal; it is only the collection
that is done at the stage of removal.
the special excise duty is an independent duty of excise separate and distinct
from the duties of excise levied by the Central Excise and Salt Act, 1944. This
levy came into effect only on and from March 1, 1978 which means that the goods
produced prior to that date were not subject to such levy. If that is so, the
levy cannot attach nor can it be realized because such goods are removed on or
after March 1, 1978. The provisions of the Central Excise Act and the Rules, in
our opinion, do not say otherwise.
3(1) of the Central Excise Act says:
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, or imported by land into, any part of India as, and at the
rates, set forth in the First Schedule." The expression
"prescribed" is defined in clause (g) of Section 2 to mean prescribed
by Rules made under the Act.
evident that the words "in such manner as may be prescribed" qualify
the word "collected" and not the word "levied". While the
levy is created by Section 3 itself, the collection of the duty is left to be
regulated by the Rules made under the Act.
9 and 9-A are relevant for our purpose. Rule 9(1) provides that:
excisable goods shall be removed from any place where they are produced, cured
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 places until the excise duty leviable
thereon 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." Rule 9 says that "no excisable goods"
should be removed from the place of their manufacture until excise duty leviable
thereon has been paid "at such place and in such manner" as is
prescribed in these Rules. It is relevant to notice that the Rule specifically
uses tho expression "excisable goods" - and not "goods" -
and for good reason.
expression "excisable goods" has been defined in clause (d) of
Section 2 to mean "goods specified in the First Schedule as being subject
to a duty of excise and includes salt." The goods removed must be
excisable goods first - which means that the goods were subject to the levy of
duty before their removal Rule 9-A is to the same effect. Sub-rules (1) to
(3-A) of Rule 9-A may he set out in their entirety in view of the reliance placed
by both the counsel upon them. They read:
The rate of duty and tariff valuation, if any, applicable to any excisable
goods shall be the rate and valuation in force.
the case of goods removed from the premises of a cure on payment of duties on
the date on which the duty is assessed; and (ii) the case of goods removed from
a factory or a warehouse subject to sub-rules (2), (3) and (3)(a), on the date
of the actual removal of such goods from such factory or warehouse.
the goods have previously been removed from a warehouse to be rewarehoused, and
the duty is paid on such goods without their being rewarehoused the rate and
valuations if any, applicable thereto shall be the rate and valuation, if any,
in force on the date on which duty is paid or, if the duty is paid through an
account-current maintained with the Collector under rule 9, on the date on
which an application in the proper form is delivered to the officer-in-charge
of the warehouse from which the goods were removed.
Where any person who has removed excisable goods for export in bond fails to
export or to furnish proof of such export to the satisfaction of the Collector
or diverts the goods for home consumptions the rate of duty leviable and the
tariff valuations if any in respect of such goods shall be the rate and
valuation in force on the date on which the duty is paid.
Where duty becomes chargeable an any material or component parts in respect of
which credit of duty had been allowed under rule 56A, the rate of duty leviable
and the tariff valuation, if any, in respect of such material or component
parts shall be the rate and valuation in force on the date on which the duty is
paid." According to sub-rule (1) of Rule 9-A, the rate of duty [apart from
tariff valuation] applicable to any "excisable goods" shall be the
rate in force on the date of actual removal of such goods from the factory or
the warehouses as the case may be. This is the general rule. Sub-rules (2), (3)
and (3A) provide certain exceptional situations which are not relevant for the
purpose of these appeals. It is the general rule contained in sub-rule (1) and
in particular clause (ii) of sub-rule (l) - that is relevant here. In other
words, the rate of duty as well as the valuation of goods shall be the rate and
the valuation as on the date of actual "removal". This rule too opens
with the expression "excisable goods".
contended that if the above interpretation is adopted, it may lead to an
enigmatic situation. He explains his apprehension thus: the special excise duty
is levied only for the period March 1, 1978 to February 28, 1979; Take a case,
where the goods are manufactured on or before February 28, 1979 are romoved on
or after March 17, 1979, what would be the rate of duty [and which would be
relevant date for valuation purposes]; the assessee may say that on the date of
removals neither the levy is in force nor are Rules 9 and 9A and, hence he need
not pay any special excise duty on such goods. We do not see any valid basis
for this apprehension. In the situation contemplated by Sri vellapally, the
date of removal has to be taken as February 28, 1979. It cannot be otherwise. If Rules 9
and 9A are held inapplicable, it would logically follow that the moment the
goods are manufactures the levy becomes payable and, in the circumstances, the
last date of levy can reasonably be taken to be the date of removal. Of course,
an absurd consequence would follow if it is held that in the above situation,
no special excise duty is payable if the removal is on or after March 1, 1979.
Such an absurd consequence could not be presumed to have been intended by the
of the opinion that Section 3 cannot be read as shifting the levy from the
stage of manufacture or production of goods to the stage of removal. The levy
is and remains upon the manufacture or production alone. Only the collection
part of it is shifted to the stage of removal.
this is so, the fact that the provisions of the Central Excise Act are applied
in the matter of levy and collection of special excise duty cannot and does not
mean that wherever the Central Excise duty is payable, the special excise duty
is also payable automatically. That is so as an ordinary rule. But insofar as
the goods manufactured or produced prior to March 1, 1978 are concerned, the
said rule cannot apply for the reason that there was no levy of special excise
duty on such goods at the stage and at the time of their
manufacture/production. The removal of goods is not the taxable event. Taxable
event is the manufacture or production of goods.
is a duty on manufacture or production. But the realization of the duty may be
postponed for administrative convenience to the date of removal of goods from
the factory. Rule 9A of the said rules merely does that. That is the scheme of
the Act. It does not in our opinions make removal be the taxable event. The
taxable event is the manufacture, But the liability to pay the duty is
postponed till the time of removal under Rule 9A of the said Rules. In this connections
reference may be made to the decision of the Karnataka High Court in Karnataka
Cement Pipe Factory v. Superintendent of Central Excise (1986 (23) E.L.T.313)
where it was decided that the words `as being subject to a duty of excise'
appearing in Section 2(d) of the Act are only descriptive of the goods and not
to the actual levy. 'Excisable goods it was helds do not become nonexcisable
goods merely by the reason of the exemption given under a notification. This
view was also taken by the Madras High Court in Tamil Nadu (Madras State)
Handloom Weavers Co-operative Society Ltd. v. Assistant Collector of Central
Excise (1978 (2) E.L.T. (J.57)). On the basis of Rule 9A of the said rules, the
Central Excise authorities were within the competence to apply the rate
prevailing on the date of removal.
of the opinion that even though the taxable event if the manufacture or the
production of an excisable article, the duty can be levied and collected at a
later date for administrative convenience." Sri Sorabjee relied strongly
upon the decision of this Court in D.R. Kohli & Ors. v. Atul Products Ltd.
[1985 (2) S.C.C. 77]. But that was a case which turned on its peculiar facts
and the main discussion in that case was with respect to the applicability of Rules
10 and 10-A as in force at the relevant time. The Court found that the Revenue
was virtually inveigled into a trap by the respondent suggesting that it was
too eager to pay excise duty on certain goods which to the knowledge of the
respondent were not liable for excise duty with the object of getting the
benefit of the right to clear its products which were liable for higher excise
duty [because of their increased value] without paying any duty at all. In
those facts, the question of applicability of Rule 10 and for that matter, Rule
10-A arose. It was held that while Rule 10 was not applicable, Rule 10-A was
also relied upon the decision of this Court in Union of India & Ors. v. Modi
Rubber Limited [1986 (4) S.C.C. 66] to emphasis his submission that the central
excise duties leviable under the Central Excise and Salt Act, 1944 are distinct
and different from the special duty, additional duty or any other duty of
excise levied under any other Parliament enactment. Since the aforesaid
proposition is not in dispute, it is not necessary to refer to the facts in the
we conclude, it is necessary to notice a few facts having a bearing upon the
relief to be granted in these matters. The special excise duty was being levied
from 1963 upto 1971 by various Finance Acts passed from time to time. It was
discontinued from 1972 until 1978 when it was revived by the Finance Act, 1978.
Thereafter, it was being levied from year to year by annual Finance Acts.The
provisions of these Finance Acts,insofar as the lecy of special excise duty is concerned,are
identical. In the Finance Acts of 1987 and 1988,however,the rate of special
excise duty was raised to ten percent but then notifications were issued
exempting the duty on all goods in toto. In other words,with effect from March 1,1986, there was,in effect,no special
excise duty until February
28,1988. With effect
from March 1,1988, the duty was again imposed @ 5%
while excepting certain essential commodities and other priority items from the
said impost. We have held hereinabove that the goods manufactured/produced
before March 1, 1978 but cleared on or after March 1, 1978 are not exciable to special excise
duty. At the same time, we have also expressed before February 28, 1979 but cleared thereafter would be
liable to pay the said duty at the rate and valuation in force as on February 28, 1979. In the light of the fact that the
duty was continued from 1978 to 1986, indeed upto February 28, 1989 and also in
view of the principle behind the presumption incorporated in Section 12- b of
the Central Excise Act inserted by the Central Excises and Customs Law
[Amendment] Act, 1991- which is not a legislative recognition of a widely
accepted presumption - we think it appropriate to correct that the assessees
shall not be entitled to refund of amount collected from them by way of special
excial excise duty on or after Match 1, 1978 in respect of goods manufactured
prior to the said date.
at from the standpoint of avoidance of multiplicity of proceedings and of
unending legal quibbling also, it is desirable to desirable to give a quietus
to his this controversy. To avoid any discriminatory consequences, it is
further directed that if any amounts are due and are yet to be recovered in respect
of such goods on account of special excise duty, the same can be recovered
according to law. for the above reasons, the appeals filed by the appellant-
state are dismissed and the appeals filed by the respondents-assessees are
allowed subject to the above directions. There shall be no order as to costs.