I.D.L. Chemicals Ltd. Vs. Union of India
& Ors  INSC 850 (24 July 1996)
S.P. (J) Bharucha S.P. (J) Thomas K.T. (J)
1996 SCALE (5)505
APPEAL NO. 1590 OF 1991 O R D E R The appellants manufacture explosives from
ammonium nitrate melt 80% at a plant in Rourkela, Orissa. The side ammonium nitrate is purchase form SAIL, which also
has a plant in Rourkela.
11th June, 1969 an Exemption Notification under the Central Excises and Salt
Act, 1944, (No. 164/1969) was issued by the Central Government exempting
ammonium nitrate from the whole of the exercise duty leaviable thereon if it
was intended to the use in the manufacture, inter alia, or explosives, provided
that the procedure set out in Chapter X of the Central Excise Rules, 1944, was
followed. The appellants applied for a licence under the said chapter x in
respect of the said ammonium nitrate for use in the before it could be market
as fertilizer. Hence, the said ammonium nitrate fell outside the purview of
tariff Item No. 14 HH.
being so, the question of exemption of duty under the said Exemption
Notification did not arise. Not being a fertilizer known in commercial trade
parlance, ammonium nitrate merited assessment under Tariff Item 68 and would be
liable to the appropriate duty thereon.
upon the said letter of the Central Board, the Superintendent, Central
Exercise, Rourkela wrote to SAIL and demanded excise
duty upon the said ammonium nitrate under Tariff Item 68 at the rare prevailing
from time to time with effect from Ist March, 1975. On 7th February, 1978, Sail, In turn, demanded payment of
the said amount of exercise duty from the appellants.
27th July, 1978, the Central Board issued a show- case notice to SAIL to review
the order of the Assistant Collector dated 10th August, 1977, Aforementioned.
The matter was contested by SAIL in reply dated 8th November, 1978 by an order
(No. 6/80 of 1980) made in November, 1980, the Central Board set aside the
order of the Assistant Collector dated 10th August, 1977, and reclassified the
said ammonium nitrate under Tariff item 68 with effect from 1st march, 1975. On
16th December, 1980 SAIL to the appellant demanding the
exercise duty on the said ammonium nitrate in accordance with the order of the
Central Board dated November, 1980, with effect from Ist March, 1975 to 23rd
January, in the sum of Rs. 34,52,919.23. On 2nd February, 1981 appellant filed writ petition (No.
183/1981) which challenged the order of the Central Board dated November, 1980
and the demand made pursuant thereto.
meantime, on 21st July,
1979, a notification
was issued whereby ammonium nitrate was excluded from Exemption Notification
No. 164/1969 with effect from 21st July, 1979.
notification was challenged by the appellants before the Orissa High Court in a
writ petition (No. 86/1980). In the alternative, it was prayed that, in any
event , upto the date of the notification, ammonium nitrate remained entitled
to the exemption refund of duty amounting to Rs. 50,14,202/- collected for the
period 24th January,1978 to 20th July, 1979, was sought.
On 5th February, 1990 the earlier writ petition
(No.86/1980) was dismissed on the around that the notification dated 21st July, 1979 was not unconstitutional. The
alternative prayer was not considered.
same date, the High Court passed an order in the later writ petition (No.
183/1981) referring the appellants to a civil suit to claim monies form SAIL
under Section 64A of the Sale of Goods Act.
Salve, learned counsel for the appellants has drawn out attention to the
Exemption Notification No. 164/1969 dated 11th June, 1969, which, as aforestated, exempts fertilisers
of the description stated in the Table therein from the whole of the excise
duty leviable thereon under Tariff item 14HH of the first schedule to the
Central Excise and Salt Act, 1944. The Table lists ammonium nitrate and
specifies that ammonium nitrate shall be entitled to such exemption if it is
intended to be used in the manufacture of explosives. The notification also
provides that no exemption thereunder would be admissible unless the procedure
set out in Chapter X of the Central Excise rules, 1944 was followed.
192 of Chapter X states that were that Central Government has by notification
under Rule 8 sanctioned the remission of duty on excisable goods used in a
specified industrial process, any person wishing to obtain remission of duty on
such goods shall make application to the Collector in the proper form stating
the estimated annual quantity of the excisable goods required and the purpose
for and the manner in which it is intended to use them and declaring that the
goods will be used for such purpose and in such manner. There to the user of
the goods in relation to the use for which the goods are intended. Mr. Salve
also drew out attention to the Bond which is required to be furnished by a
person licensed to obtain excisable goods to be used for specified industrial
purposes. It recites that the signatory has been permitted to purchase from
time to time goods of the stated quantity of the goods for use for the
manufacture commodities specified therein. It is one of the conditions of the
Bond that excise duty, should it be demanded on the goods should be paid within
ten days demand.
Salve submitted that, in the context, the burden of payment of excise duty
under Tariff Item 68 upon the said ammonium nitrate fell upon the appellants
and they were affected thereby. It was, therefore, permissible for them to
challenge the correctness of the order of the Central Hoard which directed the
said ammonium nitrate to be so classified Mr. Salve submitted that the High
Court was in error in not entertaining the later writ petition (No. 183/1981)
and relegating the appellants to a civil suit. Whereas Mr. Salve did not press
the prayer in the earlier writ petition (No.86/1980) challenging the
notification dated 21st July, 1979, which had been held by the High Court to be
constitutional, he was, he submitted, entitled to press the prayer that
ammonium nitrate should have been treated as entitled to exemption under the
Exception Notification until the new Notification came into effect on 21st
July, 1979, which prayer the High Court and not considered.
attention was drawn by Mr. Salve to the Judgment of this Court in Assistant
General Manager Central Bank of India & Ors. vs. Commissioner Municipal
Corporation for the City of Ahmedabad and Ors., 1995 (4) SCC 696. This held
that a tenant is entitled to impugn in an appeal an increase in property tax
because, under the relevant statute, the burden of such increase may be passed
by the landlord to the tenant and also because there was, in the case with
which it was concerned, and agreement between the landlord and the tenant whereunder
the obligation to discharge and pay the property tax was cast upon the tenant.
Mr. Salve submitted that the principle of the judgment would apply to the case
learned counsel for the Union India, very fairly and rightly, did not dispute
that the burden of the increase in excise duty, by reason of the
reclassification of the said ammonium nitrate, would fall upon the appellants,
and that, therefore, the appellants were entitled to agitate the validity of
such reclassification and this could not be done in the civil suit that was
contemplated by the High Court.
is, in our view, no doubt that the reclassification of ammonium nitrate by the
order of the Central Board dated November, 1980, fasts upon the appellants the
obligation to pay the excise duty that is leviable as a result. Such obligation
does not arise merely by reason of an agreement between SAIL. and the
appellants but also by virtue of the provisions of Chapter X of the Central
Excise Rules, 1944. the appellants suffer adverse civil consequences and have
therefore, the locus to challenge the reclassification. There is no form other
than the High Court under Article 226 where they can do so, and the High Court
was in error in not entertaining the later writ petition (No. 183/1981) and
referring the appellants to a civil suit. Insofar as the earlier writ petition
(NO.86/1980) is concerned, the High Court ought, for the same reason, toe have
dealt with the contention of the appellants that ammonium nitrate remained
except from excise duty by reason of the Exemption Notification until 21st
July, 1979, when ammonium nitrate was removed from the purview thereof.
the basis set out above, the judgments and orders of the High Court in appeal
must be set aside, Except insofar as the one judgment and order deals with the
constitutionality of notification No. 225/1979 dated 21st July, 1979. Both writ
petitions (Nos. 183/1981 and 86/1980) shall stand restored to the file of the
High Court for being considered on merits. Writ Petition No. 183/1981 is its
entirety and Writ petition No. 86/1980 insofar as it contends that ammonium
nitrate remained exempt from exercise duty until 21st July, 1979 and seeks
relief consequential thereon.
are allowed accordingly. No costs.