Union Carbide India Limited Vs. Union of
India & Ors [1986] INSC 63 (4 April 1986)
PATHAK, R.S. PATHAK, R.S. SEN, A.P. (J)
MADON, D.P.
CITATION: 1986 AIR 1097 1986 SCR (2) 162 1986
SCC (2) 547 JT 1986 453 1986 SCALE (1)530
CITATOR INFO:
F 1989 SC1153 (7) R 1990 SC 59 (6) R 1990
SC1893 (4)
ACT:
Central Excise and Salt Act, 1944, s. 3 and
Entry 27 of First Schedule - Aluminium cans for torch bodies - Whether
excisable goods.
Words & Phrases - "Excisable
goods" - Meaning of.
HEADNOTE:
The appellant, a public limited company,
carries on the business of the manufacture and sale of flashlights (torches).
It used to purchase aluminium slugs and produce aluminium cans or torch bodies
at its factory by a process of extrusion. The Superintendent of Central Excise
required the appellant to submit a price list in respect of the aluminium cans
for the purpose of levying excise duty under section 4 of the Act. The
appellant, anxious to avoid coercive action, filed a price declaration in which
the price of aluminium cans was calculated at the cost of production plus a
margin of profit of 5% of the cost.
However, it contended before the Excise
Authority (i) that aluminium cans cannot be described as "goods" for
the purposes of excise duty inasmuch as they are not marketable and are
prepared for the flashlights manufactured by it; and (ii) that the preparation
of aluminium cans out of aluminium slugs did not amount to manufacture, and
that aluminium cans were merely an intermediate product in the manufacture of
flashlights. These contentions before the Excise Authority having failed, it
filed a writ petition in the High Court. A Single Judge allowed the writ
petition but a Division Bench of the High Court allowed the appeal of the
respondent holding that the production of aluminium cans from aluminium slugs
amounted to manufacture and that the aluminium cans could be described as
"goods" for the purposes of the Act.
Allowing the appeal, 163 ^
HELD: 1. The aluminium cans produced by the
appellant are not capable of sale to a consumer. They cannot be described as
excisable goods and, therefore, do not fall within the terms of section 3 of
the Central Excises and Salt Act, 1944 read with Entry 27 of the First Schedule
thereto. [167 G]
2. The excise duty is an indirect tax in
which the burden of the imposition is passed on to the ultimate consumer. In
that context, the expression "goods manufactured or produced" must
refer to articles which are capable of being sold to a consumer. [166 B-C]
Union of India v. Delhi Cloth & General Mills, [1963] Supp. 1 S.C.R. 586
and South Bihar Sugar Mills Ltd. etc. v. Union of India & Ors., [1968] 3
S.C.R. 21, relied upon.
In the instant case, the aluminium cans
prepared by the appellant are employed entirely by it in the manufacture of
flashlights, and are not sold as aluminium cans in the market. The record
discloses that the aluminium cans, at the point at which excise duty has been
levied, exist in a crude and elementary form incapable of being employed at
that state as a component in a flashlight. The cans have sharp uneven edges and
in order to use them as a component in making flashlight cases the cans have to
undergo various processes such as trimming, threading and redrawing. After the
cans are trimmed, threaded and redrawn they are reeded, beaded and anodised or
painted. It is at that point only that they become a distinct and complete component,
capable of being used as a flashlight case for housing battery cells and having
a bulb fitted to the case. Therefore, it is difficult to believe that the
elementary and unfinished form in which they exist immediately after extrusion
suffices to attract a market. No satisfactory material to the contrary has been
placed by the respondents. The record discloses that whatever aluminium cans
are produced by the appellant are subsequently developed by it into a completed
and perfected component for being employed as flashlight cases. [166 E-H; 167
A-C;]
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
1103 of 1972.
From the Judgment and Order dated 22nd
February, 1972 of the Allahabad High Court in Special Appeal No. 307 of 1971.
164 Dr. Y.S. Chitale, T.M. Ansari, P.K. Ram
and D.N. Mishra for the Appellant.
R. Thyagarajan, A. Kumar and R.N. Poddar for
the Respondents.
The Judgment of the Court was delivered by
PATHAK, J. This appeal by certificate granted by the High Court of Allahabad
raises the question whether the manufacture of aluminium cans or torch bodies
is liable to excise duty under Entry 27(e) of the First Schedule to the Central
Excises and Salt Act, 1944.
The appellant, The Union Carbide India
Limited, is a public limited company and carries on the business of the
manufacture and sale of flashlights (torches), dry cell batteries, chemicals
and plastics. The flashlights are manufactured by one of its Divisions, the Eveready
Flashlight Campany, Lucknow. The appellant purchases aluminium slugs from the
manufacturers of aluminium in India and produces aluminium cans or torch bodies
at its factory by a process of extrusion. Before March 1, 1970 aluminium cans
were subjected to basic excise duty at 20 per cent ad valorem plus special duty
at 20 per cent of the basic duty on a value of Rs. 8,600 per metric tonne fixed
as the tariff value by the Government of India by a Notification dated January
21, 1969. By an amendment incorporated in the Finance Act 1970 with effect from
March 1, 1970 the basic duty was fixed at 25 per cent ad valorem plus special
duty at 20 per cent of the basic duty. By Notification No. 65/70 dated March 1,
1970 the Notification of January 21, 1969 was rescinded.
The appellant recceived a letter dated March
3, 1970 from the Superintendent of Central Excise, Lucknow stating that the
tariff rate of duty on extruded shapes and sections of aluminium had been
raised and that aluminium cans would be subjected to duty on ad valorem basis
on the value as determined under section 4 of the Act, and that the appellant
should send price lists for approval. The appellant, anxious to avoid coercive
action, filed price declarations in which the price of aluminium cans was
calculated as the cost of 165 production plus a margin of profit of 5 per cent
of the cost. The appellant, however, took the position that aluminium cans were
neither sold nor were capable of being sold in the market, and therefore could
not be described as 'goods' for the purposes of the Central Excises and Salt Act,
1944. It was also asserted that the preparation of aluminium cans out of
aluminium slugs did not amount to manufacture, and that aluminium cans were
merely an intermediate products in the manufacture of flashlights. The
contentions of the appellant did not find favour with the excise authorities.
The appellant filed a writ petition in the
High Court of Allahabad for a mandamus directing the excise authorities not to
levy and collect excise duty on aluminium cans, and to refund the excise duty
levied and collected from the appellant on aluminium cans from March 1, 1965. A
learned Single Judge of the High Court allowed the writ petition by his
judgment and order dated April 15, 1971, but on appeal by the Union of India a
Division Bench of the High Court reversed the judgment and order of the learned
Single Judge and dismissed the writ petition on February 22, 1972. Before the
learned Judges an attempt was made by the appellant to show that the process
employed in the preparation of the aluminium cans could not be described as a
process of "extrusion" but in fact should properly be described as a
process of "impact extrusion". The learned Judges were not impressed
by the distinction attempted by the appellant and held that the manufacture of
the aluminium cans fell under Entry 27(e) of the First Schedule to the Central
Excises and Salt Act, 1944, which refers to "extruded shapes and sections
including extruded pipes and tubes". The learned Judges pointed out
further that even otherwise the aluminium cans would fall under Entry 27(d)
which mentions "pipes and tubes other than extruded pipes and tubes",
and inasmuch as the rate of duty was the same the point raised by the appellant
was of no significance. The learned Judges also held that the production of
aluminium cans from aluminium slugs amounted to manufacture and that the
aluminium cans could be described as "goods" for the purposes of the Central
Excises and Salt Act, 1944.
The only contention urged by the appellant
before us is that the aluminium cans produced by the appellant cannot be 166
described as "goods" for the purposes of excise duty inasmuch as they
are not marketable and are prepared entirely by the appellant for the
flashlights manufactured by it.
It does seem to us that in order to attract
excise duty the article manufactured must be capable of sale to a consumer.
Entry 84 of List I of Schedule VII to the Constitution specifically speaks of
"duties of excise on tobacco and other goods manufactured or produced in
India...", and it is now well accepted that excise duty is an indirect
tax, in which the burden of the imposition is passed on to the ultimate
consumer. In that context, the expression "goods manufactured or
produced" must refer to articles which are capable of being sold to a
consumer. In Union of India v. Delhi Cloth & General Mills, [1963] Supp. 1
S.C.R. 586, this Court considered the meaning of the expression
"goods" for the purposes of the Central Excises and Salt Act, 1944
and observed that "to become 'goods' an article must be something which
can ordinarily come to the market to be brought and sold", a definition
which was reiterated by this Court in South Bihar Sugar Mills Ltd., Etc. v.
Union of India & Ors., [1968] 3 S.C.R. 21.
The question here is whether the aluminium
cans manufactured by the appellant are capable of sale to a consumer. It
appears on the facts before us that there are only two manufaturers of
flashlights in India, the appellant being one of them. It appears also that the
aluminium cans prepared by the appellant are employed entirely by it in the
manufacture of flashlights, and are not sold as aluminium cans in the market.
The record discloses that the aluminium cans, at the points at which excise
duty has been levied, exist in a crude and elementary form incapable of being
employed at that stage as a component in a flashlight. The cans have sharp
uneven edges and in order to use them as a component in making flashlight cases
the cans have to undergo various processes such as trimming, threading and
redrawing. After the cans are trimmed, threaded and redrawn they are reeded,
beaded and anodised or painted. It is at that point only that they become a
distinct and complete component, capable of being used as a flashlight case for
housing battery cells and having a bulb fitted to the case.
We find it difficult to believe that the
elementary and unfinished form in which they exist immediately 167 after
extrusion suffices to attract a market. The appellant has averred on affidavit
that aluminium cans in that form are unknown in the market. No satisfactory
material to the contrary has been placed by the respondents before us.
Reference has been made by respondents to the
instance when aluminium cans were ordered by the appellant from Messrs.
Krupp Group of Industries. This took place,
however, in 1966 as a solitary instance, and what happened was that aluminium
slugs were provided by the appellant to Messrs. Krupp Group of Industries for
extrusion into aluminium cans. The facts show that the transaction was a works
contract and nothing more. Apparently, the appellant made use of the requisite
machinery owned by that firm for extruding aluminium cans.
Not a single instance has been provided by
the respondents demonstrating that such aluminium can have a market. The record
discloses that whatever aluminium cans are produced by the appellant are
subsequently developed by it into a completed and perfected component for being
employed as flashlight cases.
Much emphasis has been laid by the
respondents on the circumstance that the appellant had in the past treated the
aluminium cans produced by it as excisable goods and had submitted price lists
to the excise authorities which included a margin of profit in the specified price.
It is clear that the appellant did so under the mistaken belief that the
aluminium cans attracted excise duty. The margin of profit included in the
price was arrived at notionally, in order merely to comply with the demand of
the excise authorities for the submission of price lists. The conduct of the
appellant in the past, having regard to the circumstances of the case, cannot
serve as evidence of the marketability of the aluminium cans. Indeed,
subsequent price lists were submitted under "protest" by the
appellant, who maintained that the article did not attract excise duty.
We are satisfied upon the material before us
that the aluminium cans produced by the appellant cannot be described as
excisable goods and therefore do not fall within the terms of s.3 of the Central
Excises and Salt Act, 1944 read with Entry 27 of the First Schedule thereto.
In the result, the appeal is allowed, the
judgment and order dated February 22, 1972 of the Division Bench of the 168
High Court of Allahabad are set aside and the judgment and order dated April
15, 1971 of the learned Single Judge of that High Court are restored. The
appellant is entitled to its costs of this appeal.
M.L.A. Appeal allowed.
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