SULOCHANA ENTERPRISES PRIVATE LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) THE petitioners in all the writ petitions are manufacturers of aerated water and soft drinks under brand names. THE products are liable for excise duty under the Central Excises and Salt Act, 1944 (hereinafter called'the Act'). Prior to 1-3-1986, duty was leviable at the rates mentioned in the First Schedule of the Act itself and the subject goods fell under Item I (d) of the First Schedule, of Notification No. 201 of 1979 dated 4-6-1979 as amended from time to time, the Central Government exempted all excisable goods in so far as raw materials or component parts which went into the manufacture of such goods which had been assessed to excise duty, were concerned. In respect of the raw materials used for the manufacture of soft drinks, only synthetic essence fell under Item No. 68 of the First Schedule to the Act. Even this Notification No. 201/79 was rescinded on 1-3-1986.

(2.) TO alleviate the cascading effect of the levy of excise duty on the raw materials as well as the finished products, certain new measures were brought in from time to time. They were variously called set-off procedures or Proforma Credit schemes. Thereafter, what is known as the Value added Tax (VAT) system was sought to be introduced. A modified form in vogue in the western countries was introduced at the level of the manufacture and was called MODVAT Scheme. In December, 1985, the first respondent introduced a long term fiscal policy which for the first time included the proposal to introduce a modified system of value added tax or MODVAT as is popularly called. The sum and substance of this scheme is to alleviate the cascading effect of the excise duty on inputs by giving credit to the excise duty suffered by the inputs at the time of computing excise duty on the end products. The Central Excise tariff Act, 1985 contains a chapter with the heading "beverages, Vinegars and Spirits" being Chapter 22. Heading Nos. 22. 01 and 22. 02 covers the aerated waters, soft drinks, soda etc. In the Budget speech for the year 1986, it was announced that the MODVAT schemes were extended only to goods falling under 37 Chapters of the Schedule to the Central Excise Tariff. Chapter 22, relating to aerated waters, was not included in the notification under Rule 57-A of the MODVAT Rules. However, the MODVAT Rules were extended to other chapters with effect from 1-3-1987. However, textiles, tobacco and petroleum still remain out of the MODVAT Rules. Therefore, from 1-3-1987, the petitioners availed of the MODVAT Rules. With effect from 9-9-1987, the first respondent issued Notification No. 203/87 thereby excluding Heading 22. 01 and 22. 02 of the central Excise Tariff from the benefit of MODVAT Rules. The notification was made to take effect from 1-10-1987. The writ petitions challenge the validity of this Notification No. 203/87 dated 9-9-1987 and for a direction to continue the benefit of MODVAT Scheme in respect of the goods manufactured by the petitioners.