TATA EXPORT LTD Vs. UNION OF INDIA

JUDGEMENT

(1.) IN this petition under Article 226 of the Constitution the petitioner is challenging levy of duty on pigment slurry and nitrocellulose lacquer under Central Excises and Salt Act, 1944, and also challenging Section 51 of the Finance Act, 1982 and Notification dated 20-2-1982 giving retrospective effect to Rules 9 and 49 of the Central Excise Rules, 1944, from the date of framing of the rules.

(2.) THE petitioner is a Company incorporated under the provisions of the Indian Companies Act, 1956. The petitioner has a factory at Dewas wherein it is manufacturing finished leather, garments and shoe uppers. These products are exempted from excise duty. For the completion of manufacturing of finished leather, the petitioner apply pigment slurry and nitrocellulose lacquer to the leather in the course of manufacture of finished leather. At the said factory, the petitioner has a Research and Development Cell in a separate building about 100 metres from the factory and within the same campus where amongst other activity, the petitioner mixes pigment powders like titanium dioxide with certain solvents. These pigment powders and solvents are obtained from the market and are products upon which the duty of excise has been paid. After adding preservatives, the mixture of pigment powder and solvents become slurry. This slurry is used directly by the petitioner in the tanning of leather and is part and parcel of the process to obtain finished leather. Similarly, in the case of nitrocellulose lacquer, certain chemicals such as nitrocellulose, alkydes etc. are combined with solvents with or without water, with or without pigments depending upon the end use. The resultant mixture is also used by the petitioner for manufacture of finished leather. The pigment slurry as well as nitrocellulose lacquer are used for captive consumption in the petitioner's factory. Under Notification No. 80/80, the Central Government exempted excisable goods specified therein from the whole of the duty of excise leviable thereon if the first clearances did not aggregate rupees 5 lacs in value provided that the clearances of all excisable goods manufactured should not exceed rupees 20 lacs in value. The total value of slurry and lacquer did not exceed 5 lacs of rupees in the year in question though the outturn of the finished product i. e. leather was much above 20 lacs in the relevant year. Section 3 of the said Act provides that 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 India at the rates set forth in the First Schedule to the Act. Under Section 2 (d) 'excisable goods' means goods specified in the First Schedule as being subject to a duty of excise and includes salt. In Section 2 (f) 'manufacture' includes any process incidental or ancillary to the completion of a manufectured product Rule 9 (1) of the said Rules prescribe the time and manner of payment of duty on excisable goods to be removed from one 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 place until excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these rules. Under Rule 49 (1) duty is chargeable only on removal of goods from the factory premises or from an approved place of storage. These rules, as they stand, were amended in 1982 but by Section 51 of the Finance Act, 1982 these rules were given retrospective effect from the date of framing of the rules i. e. 1944, as per Notification dated 20-2-1982. Under Item No. 14 I (2) (iii) in the First Schedule to the Act water pigment finishes for leather is chargeable to 10% of excise duty ad valorem and under Item No. 14 III (i) nitrocellulose lacquers, clear and pigmented and nitrocellulose ancillaries in liquid, semi-solid or pasty form is chargeable at the rate of 20% ad valorem. Here the question is whether excise duty is leviable on pigment slurry and nitrocellulose lacquer used by the petitioner under the aforesaid items, whether the goods so manufactured were exempted from excise duty under Notification No. 80/80 as their total value was less than 5 lacs though the turnover of the faetory was over 20 lacs and whether the Rules 9 and 49 can be given retrospective effect from the date of framing of the rules.

(3.) IN the month of October 1980 Officers of the Enforcement Branch of the Excise Department visited the factory and threatened to seize the existing stock of pigment slurry and nitrocellulose lacquer as they were manufacturing and clearing them without a vaild licence and without paying excise duty leviable thereon and the petitioner was made to apply for a licence on 29-10-1980 under Rule 176. However, the petitioner by their letter dated 10-11-1980 pointed out that it is not manufacturing water pigment finishes for leather but only mixing pigment with certain solvents with a view to convert pigment from dry form to slurry. Similarly, in case of nitrocellulose lacquer, certain chemicals are mixed with solvents and there is no manufacture. The products so mixed are used for completion of manufacture of finished leather. The said pigment slurry and nitrocellulose lacquer are used in the single stream of production of finished leather and do not ever leave the factory or the place of manufacturing nor are the same ever sold or supplied to the open market. The pigment slurry so produced is not a marketable product. So the classification list was being filed under protest. The Supsrintendent of Central Excise by letter dated 13-11-1980 pointed out that the slurry and the lacquer could not be cleared without payment of duty and Notification No. 80/80 was not applicable as value of clearances of the petitioner's factory of alt excisable goods exceeded rupees 20 lacs and, therefore, classification list submitted by the petitioner was returned and was directed to file revised classification list which was done on 24-11-1980 under protest pointing out that no excise duty is payable on slurry and lacquer. In spite of the protest, the respondents recovered duty on slurry and lacquer amounting to Rs. 20,051. 74 p. up to 31-12-1980 under Item No. 14 I (2) (iii) and 14 III (i) of the First Schedule. The petitioner thereafter filed the present petition at the Indore Bench of this Court on 16-1-1981. The respondents submitted their return on 22-6-81 denying the allegations made by the petitioner. On 16-9-81 the petitioner filed counter-affidavit to the return, of its Chief Accountant Mohanlal Jain. The respondents filed reply to the rejoinder on 11-1-1982. The petitioner then filed another counter-affidavit of its Chief Accountant on 19-3-1982 and in consequence the respondents filed affidavit of Assistant Collector Yadav Kholkute on 8-4-82 pointing out that the Rules 9 and 49 have been given retrospective effect under Finance Act of 1982. The petitioner, therefore, filed an application for amendment of the petition on 9-8-82 challenging Section 51 of the Finance Act and the Notification giving retrospective effect to these rules which was allowed and amendment incorporated. Additional return was filed by the respondents on 23-2-1983. The petitioner then filed rejoinder to the additional return on 5-3-1984 and the respondents filed reply to this rejoinder on 26-2-1985. Since validity of Rules 9 and 49 was under challenge, the case was sent to the main seat of this Court for hearing.