British India Corporation Ltd. Vs.
Collector of Central Excise [1962] INSC 231 (20 August 1962)
20/08/1962 HIDAYATULLAH, M.
HIDAYATULLAH, M.
DAS, S.K.
KAPUR, J.L.
SARKAR, A.K.
DAYAL, RAGHUBAR
CITATION: 1963 AIR 104 1963 SCR (3) 642
CITATOR INFO :
RF 1963 SC1237 (8)
ACT:
Excise Duty-Footwear-Levied on factories
employing fifty or more workmen and using power exceeding 2 H.P.-If Discriminatory-Central
Excises and Salt Act, 1944(1 of 1944), Schedule Item No. 17 Constitution of
India, Art. 14.
HEADNOTE:
Under item No.17 of the Schedule to the Central
Excises and Salt Act, 1944, excise duty was levied on footwear produced in any
factory employing 50 or more workmen and using power exceeding 2 H.P. The
petitioner contended that the imposition of duty on larger manufacturers only
was discriminatory and there was no reasonable basis for differentiating
between manufacturers on the basis of number of workers or the employment of
power above 2 H.P. and that the imposition of the heavy duty gave rise to a
competition sufficient to put the big manufacturers out of business.
Held, that item 17 of the Schedule is based
upon a reasonable classification and is validly enacted.
Manufacturers who employed 50 or more workers
form a well defined class, so also manufacturers who. use power exceeding 2
H.P. In imposing the excise duty there is a definite desire to make an
exemption in favoui of the small manufacturer who is unable to pay the duty as
easily, if at all, as the big manufacturer, Such a classification in the
interests of co-operative societies cottage industries and small 'manufacturers
has often the made to give an impetus to them and save them from annihilation
in competition with large industry.
Orient Weaving Mills (P) Ltd. v. Union of
India, (1962) Supp. 3 S.C.R . 481 referred to.
ORIGINAL JURISDICTION: Petition No. 94-of
1955.
Petition under Art. 32 of the Constitution of
India for the enforcement of Fundamental Rights.
643 Bishan Narain, Rameshwarnath, S. N. Andley
and P. L. Vohra, for the petitioner.
H. N. Sanyal, Additional Solicitor General of
India, N. S. Bindra and P. D. Menon, for the col respondents.
1962. August 20. The Judgment of the Court
was delivered by HIDAYATULLAH, J.-This is a petition under Art. 32 of the
Constitution challenging the imposition of Excise Duty on the petitioner by
virtue of item No. 17 "Footwear" of the First Schedule to the Central
Excises and Salt Act, 1944 (1 of 1944) with effect from February 28, 1954, and
the calculation of the duty advaloram by including in the price, charges for
freight, packing and distribution. The petitioner, the British India
corporation Ltd. is a public limited company which was formed to take-over
other companies and to amalgamate them. Among the companies which the
petitioner took-over were Cooper Allan & Company Ltd., and the North West
Tannery Company Ltd., b )that Kanpur.
These two Companies manufature shoes and
other leather goods and operate as a single unit manufacturing the well-known
brand of "F L E X" shoes. As a result of the financial proposals of
the Central Government for the financial year 1952-55, a bill (No. 9 of 1954)
was introduced in parliament on February 27,1954. Under el. 8 of the Bill
foot-wear were proposed to be taxed at 10% advaloram if produced in any factory
as defined in the factories Act, 1948 (63 of 1948).
When the Finance Act, 1954 (17 of 1954) was
enacted, the Central Excises and Salt Act, 1954, was amended by the inclusion
of item 17 in the Schedule, though in a slightly different form. The item as
finally enacted read as follows:644 "17. FOOTWEAR, produced in any factory
including the precints thereof whereon fifty or more workers are working or
were working on any day, of the preceding twelve months, and in any part of
which manufacturing process is being carried on with the aid of power or is
ordinarily so carried on, the total equivalent of such power exceeding two
horsepower. "Footwear" includes all varieties of footwear, whether
known boots shoes, sandals, chappals, or by any other name." {Ten percent
"advalorem"} Under the provisions of the Provisional Collection of
Taxes Act, 1931, (XVIof 1931), the duty was leviable from February 28, 1954, by
virtue of a declaration in the Bill to that effect. On the preceding day the
Superintendent of Central Excise., Kanpur, deputed an Inspector of his
department to obtain from the petitioner a declaration of all stock of footwear
and requested that the Inspector be permitted to verify the stocks with a view
to levying the Excise Duty on and from February 28, 1954. As a' result of the
position of Excise Duty on footwear the petitioner was required to pay during the
remaining ten months of 1954 a sum of RE;. 9,47,630/as Excise Duty. The
petitioner produces in the two units above-named, footwear for sale to the
public and for supplies to the Government for the use of the Army and the
Police. The petitioner contends that though the Excise Duty paid by it was
capable of being passed on to the consumer, it could not include it in the
price at which shoes were sold to the public because of heavy competition by
those free from such duty-, though it did include the Excise Duty in the price
of the footwear supplied to Government. Thus Rs. 2 lacs odd were passed on to
Government but Rs. 7 lacs odd were born 645 by the Company itself. The
petitioner contended before the Collector of Central Excise, Allahabad, that
the calculation of the duty advalorem should not be, based on price including
freight, packing and distribution charges paid to it, by its distributors in
the outlying parts of India.
This contention of the petitioner was not
accepted by the Collector. The petitioner then took an appeal to the Central
Board of Revenue but before the appeal could be disposed of, the petitioner
filed this petition under Art, 32 of the Constitution praying for writ or writs
to quash the order of the Collector of Central Excise, Allahabad, and writ or
writs to prohibit Union Government. The Central Board of Revenue and the
Collector and Superintendent of Central Excise from enforcing the provisions of
item 17 against petitioner and collecting the Excise Duty therein levied.
According to the petitioner, a distinction
has been made in Item 17 above-quoted between manufacturers of footwear
employing more than 50 workers .or carrying on the manufacturing process with
the aid of power exceeding 2 H.P. and other manufacturers. According to the
petitioner this amounts to discrimination because there is no reasonable basis
for differentiating between manufacturers on the basis of number of workers or
the employment of power above 2 H.P.
The petitioner contends that the essentials
of the manufacture of footwear are the same whether one employs 50 or more
workers or less. The larger number of workers is merely needed because the
out-turn has to be greater but the number does not change the nature of the
operations or the method of production. Similarly, the need for than 2 H.P.
arises if a larger number of mechanical units
have to be worked and there is no essential difference between a large
manufacturer 646 and a small manufacturer by reason of the employment of more
power or less. It is, therefore, contended that the imposition of Excise Duty
on bigger manufacturers creates a discrimination in the trade which is neither
just nor discernible and amounts to a violation of Art. 14 of the Constitution.
The levy of the Excise Duty in such circumstances is said to be both illegal
and unconstitutional.
As a corrolary to this it is contended that
the petitioner, which was already carrying on its business at a loss in view of
the competition, is now further handicapped by having to bear a heavy Excise Duty
which it cannot pass on to the consumer due to competition by those not paying
the duty and is likely to go out of its business and that the levy of the
Excise Duty in these circumstances amounts to a breach also of Art-. 19 (1) (f)
and (g) and 31 of the Constitution.
It is further contended that the duty
advalorem ought to be calculated on the ex-factory price and not on the price
charged to the distributors which includes within itself the cost of packing
and charges for freight and distribution commission. It is contended that this
is an error apparent on the face of the order of the Collector of Excise and
the order deserves to be quashed by the issue of' writ of certiorari or other
appropriate writ.
Lastly, it is contended that the Finance Act,
1954 received the assent of the president on April 27, 1954, and must be deemed
to have become law ,from that date. The collection of Excise Duty from March,
1954, before the Finance Bill became law, is said to be illegal. We shall deal
only briefly with these arguments as most of them have by now been considered
and decided in other cases of this Court.
647 The contention that this duty does not
amount to a duty of excise because it cannot be passed on by the petitioner to
the consumer was not raised before us. It was mentioned in the petition. An
Excise Duty is a duty on production and though according to the economists, it
is an indirect tax capable of being passed on to the consumer as part of the
price yet the mere passing on of the duty is not its essential Even if borne. by
the producer characteristic. or manufacturer it does not cease to be a duty of
excise. The nature of such a duty was explained in the very first case of the
Federal Court and subsequently in others of the Federal Court, the Privy Council
and this Court, but this ground continues to be taken and we are surprised that
it was raised again.
The contentions that the duty could not be
collected before the passing of the Finance Act, 1954, has been the subject of
an elaborate discussion in the recently decided case of this Court, M/s. Chotabhai
Jethabhai Patel and Co. vs. Union of India (1). It is conceded that in view of
the above decision the point is no longer open.
It is also conceded that the question whether
in calculating the duty advalorem, the Collector of Excise was justified in
including in the price the cost of packing, charges for freight and commission
for distribution, or not, is a matter for the decision of the authorities
constituted under the Act subject to such appeals and revisions as might lie
but not a matter for consideration directly under Art. 32 of the constitution,
in view of the recent decision of this Court in Smt. Ujjam Bai vs. State of
U.P. (Civil Misc. Petition No. 79 of 1959) decided on April 10, 1962. It may be
pointed out that the present petition was filed at a time when the appeal
before the (1) (1962) Supp. 2 S.C.R. 1.
648 Board of Revenue was pending and there
was a further right of revision to the Central Government.
This leaves over for consideration true
challenge under Art.
14, 19 and 31 of the constitution. The
argument under each of these Articles is based on precisely the same facts
viewed from different angles. It is. contended that there is a discrimination
between big manufacturers of footwear and small manufacturers which is not
based on any differential. This discrimination, it is said, leads to the
imposition of a heavy tax on the big manufacturers with a corresponding
exemption in favour of the small manufacturers giving rise to a competition
sufficient to put the big manufacturers out of the market. The tax being
illegal the levy amounts to a confiscation of the property of the petitioner. It
will thus be seen that the imposition of the duty is first challenged Art. 14
as a discrimination, next it is challenged under Article 19 as a deprivation of
the right to acquire, hold and dispose of property or to carry on a business or
trade and lastly the collection' of duty is characterised as a confiscation of
property without the authority of law under Art. 31.
The argument suffers from a fundamental
fallacy in that it assumes that there can be no classification of manufacturers
on the basis of the number of workers or the employment of power above a
particular horse-power. Manufacturers who employ 50 or more workers can be said
to form a well-defined class. Manufacturers whose manufacturing process is
being carried on with the aid of power exceeding 2 H.P. are also a well-defined
class. Legislation of this type depending upon the number of workers or the
extent of power employed, is frequently to be found. The most obvious example
is the Factories Act which defines a factory with reference to the employment
of a certain number of 649 workers or the employment of power. The contention
that size makes no difference is not valid. It is well-known that the bigger
manufacturers are able to effect economics in their manufacturing process and
their out-turn being both large and rapid they are able to undersell am-all
manufacturers. If this were not so mass production would lose all its
advantages. No doubt the manufacturers are now required to bear burdens which
previously did not exist, like bonus, expenses on labour welfare etc. but still
the manufacturers, provided the business is well ran, can by mass production
offer the same commodity at a competitive price as against small' manufacturers
and bear the burden as well. Therefore, in imposing the Excise Duty, there was
a definite desire to make an exemption in favour of the small manufacturer who
is unable to pay the duty as easily, if at all, as the big manufacturer. Such a
classification in the interests of co-operative societies, cottage industries
and small manufacturers has often to be made to give an Impetus to them and
save them from annihilation in competition with large industry. It has never
been successfully assailed on the ground of discrimination. Recently, this
Court in the Orient Weaving Mills (P) Ltd. v. The Union of India(1) considered
a similar argument in relation to an exemption granted to societies working a
few looms on co-operative basis as against big companies working hundreds of
looms.
The. exemption was held to be constitutional
and the classification of co-operative societies was held to be reasonable. A
similar consideration applies in the present case, where the exemption operates
in respect of very small manufacturers employing not more than 50 workers and
carrying on their manufacturing process with power not in excess of 2 H.P. This
affords a protection to small concerns who, if they were made to pay the duty,
would have to go out of business.
(1) (1962) Supp. 3 S.C.R. 481.
650 In our judgment the Schedule which is
characterised as discriminative is based upon a reasonable classification and
is validly enacted. If the law is held to be valid the attack under Arts. 19
and 31 must also fail.
In view of what we have said above the
petition must fail.
It will be dismissed with costs.
Petition dismissed.
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