1. This petition was filed on November 11, 1963 under Articles 226 and 227 of the Constitution to set aside the order dated August 22, 1963 passed in revision by the Central Government refusing to interfere with the order of the Excise Authorities rejecting the claim of Amar Dye Chem. Limited, the first petitioners (hereinafter referred to as 'the petitioners') for the refund of Rs. 1,31,550.80 paid by them as excise duty under protest in respect of 47068.5 kgs. of dyes prepared in their factory, and raises the question whether the said dyes were 'manufactured' before the night of 28th February/1st March, 1961 so as to be excisable under the Finance Bill of 1961.
2. By its judgment and order dated January 18, 1965 the Division Bench (Chainani, C.J. and Gokhale, J.) allowed the petition in part and ordered refund of excise duty to the extent of Rs. 47,747.02 ps. levied on 15,109.6 kgs. but rejected the petitioners' claim for refund of the balance of excise duty of Rs. 90,803.78. Against the said order rejecting their claim the petitioners filed an appeal, being Civil Appeal No. 1218 of 1967, to the Supreme Court after obtaining a certificate under Article 133(1)(a) and (b). By its judgment and order dated December 8, 1972, the Supreme Court remanded the matter to rehear and dispose of the same after enabling both the parties to produce evidence on disputed questions.
3. The facts leading to the filing of the petition are fully set out in the judgment of the Division Bench. The petitioners are manufacturers of dyes derived from coal tar and coal tar derivatives and have their factory at Shahad, near Kalyan, Thana District since 1956. Prior to 1st March, 1961 the dyes so manufactured were not subject to central excise duty. By the Finance Bill of 1961 such dyes were inserted in First Schedule to the Central Excises and Salt Act as Item 14-D and the Provisional Collection of Taxes Act, 1931, was made applicable with the result that the said dyes manufactured after the midnight of 28th February, 1961 became liable to pay ad valorem excise duty of 15 percent. On 1st March, 1961, the petitioners were having in their plant at their factory 47068.50 kgs. of 8 different kinds of dyes as follows :-
1. Amarthol AS DO 2,341.6 kgs. 2. Amarthol AS TR 1,783.0 kgs. 3. Amarthol AS SW 17,053.7 kgs. 4. Amarthol AS G 386.2 kgs. 5. Fast Scarlet R.C. Base 12,760.0 kgs. 6. Fast Red CB Base 88.0 kgs. 7. Fast R Base X' IA 7,556.0 kgs. 8. Fast Carnet GBC Base 5,100.0 kgs.
4. These products may be divided into lots, namely (i) 15,109 kgs. as follows :-
(a) 12,656 kgs. of Items Nos. (7) and (8) and which required no further processing of any nature and which had come out of the drier prior to the said midnight of the 28th February, 1961/1st March 1961. They were in fact sold in the same condition in which they were when they came out of the drier.
(b) 88 kgs. of Item No. (6) was sent to the plants from the drier for sieving to get rid of lumps formed on storage. The said product was manufactured about six months prior to March, 1961.
(c) 1,979.4 kgs. out of Item No. (3) (Lots 28 and 29) ware made before the midnight of 28th February, 1961/1st March, 1961.
(d) 386.2 kgs. of Item No. (4) was packed and ready for delivery to store, (see para 7 of the petition), and
(ii) 31,958 kgs. which were subjected by the petitioners after 28th February, 1961 to the processing of blending and/or pulverising for purposes of standardisation.
5. Correspondence ensued between the petitioners and Excise Authorities regarding the chargeability of the entire quantity of 47068.50 kgs. to excise duty and ultimately during the period from 23rd March up to 1st August, 1961 the petitioners from time to time paid under protest as excise duty Rs. 40,747.02 in respect of the said 15,109.6 kgs. and Rs. 90,803.78 in respect of 31,958 kgs. Excise duty on the said 15109 kgs. was levied on the ground that the same was not in packed condition. The petitioners contended that the said 47068.50 kgs. were not liable to pay excise duty as they were manufactured prior to the mid-night of 28th February, 1961 and claimed refund of the said two sums aggregating to Rs. 1,31,000/-. By his order dated September, 4, 1961 the Assistant Collector, Central Excise, Nasik rejected petitioners' claim and their appeal to the Collector of Central Excise, Poona, also met with the same fate on October, 16, 1961. Petitioners' Revision Application to the Central Government was also rejected on August, 22, 1963. The petitioners, therefore, filed on November 11, 1963 the present petition for quashing the said orders and for refund of the said sum of Rs. 1,31,000/-. The Division Bench referred to the relevant provisions of the Central Excises and Salt Act, 1944 and the case law and held that 'the completion of the Chemical Process' in respect of 31,952.9 kgs. did not by itself result in the production of a new substance as known to the mercantile community and the consumers and that the statement made by the petitioners themselves namely, (to the effect that) the entire lot of 31,958.9 kgs. was blended and pulverised and sold after standardisation amounted to an admission by petitioners that blending is resorted to in order to obtain standardised commercial products of uniform purity while pulverising is done in order to obtain the product in the form in which it is known to the trade and the consumers. The Division Bench, therefore, held that the excise duty was properly levied on the second lot of 31,958.9 kgs. but it took a different view in respect of the other lot of 15,109.6 kgs. and held that the said goods were fully manufactured before the midnight of 28th February, 1961, and consequently were not liable to duty. In the result, the petitioners got relief in respect of Rs. 47,747.02 only. The petitioners filed Appeal No. 1218 of 1967 to the Supreme Court as mentioned above but the respondents, however, did not file an appeal against that part of judgment and order whereby the petitioners' claim for the refund of Rs. 41,000/- was allowed. The said appeal came up for hearing before the Supreme Court on December, 8, 1972. Mr. Justice Algiriswami, who delivered the Judgment, observed -
'There was no material on record to support the view of the High Court, viz., the completion of the chemical process does not by itself result in the production of the new substance as known to the mercantile community and the consumers and that there was no material on record as to what sort of blending was done by the petitioners and there was no material on record sufficient to enable the Court to come to a conclusion one way or the other. In this case the High Court took the view that the completion of a chemical process does not by itself result in the production of new substance as known to the mercantile community and the consumers. However, we find no material on record to support this conclusion. Nor do we have any material as to what sort of blending was done by the appellants. The material on record is not sufficient to enable us to come to the conclusion one way or the other';
and remanded the matter to this Court to enable both the parties to produce evidence on the disputed questions and to dispose of the petition accordingly.
6. After remand, the petitioners filed affidavits of one S. V. Desai, who is an employee of the first petitioner and of one R. R. Parekh, Secretary of the petitioners and of three dealers, viz. H. M. Vora, Sitaram Fakirchand Khetan and Jawaharlal Cangaram Vayala. The respondents filed an affidavit in reply of one Maharana Pratap, Assistant Chemical Examiner and S. N. Busi, Assistant Collector of Central Excise. Busi filed a further affidavit-in-reply dated October, 18, 1973 in reply. Parekh also filed an affidavit-in-rejoinder dated October 29, 1973. The affidavits filed by the petitioners stated that they have sold dyes derived from coal tar and coal tar derivatives in lumps and without pulverising or blending the same and relied on 15 invoices (being Exhibit 'A' collectively) in support of their contention. These 15, invoices relate to the following two varieties of dyes (i) Fast Carnet GBC BASE (Crystals), (ii) Fast Scarlet RC Base (Crystals). Further the petitioners relied upon 5 specimen invoices in respect of subsequent sales by them in 1962 and 1963 of the following varieties of dyes; (i) Fast Red R. Base (ii) Malachite Green (Crystals) and (iii) Brilliant green (Crystals). The petitioners have stated that all the said dyes were stored in the same conditions in which they were produced and were known in the market as dyes and no further process of manufacture was required in relation thereto. The affidavits of Desai and Parekh also indicate that if for the purpose of standardisation pulverising and/or blending is required to be done it is done only for uniform physical appearance and partly of the products. The affidavit evidence of the three dealers also support the petitioners' contention that the petitioners have sold to their firms various dyes in lumps crystal form during the last several years and that their firms had also sold dyes in the market in lump or crystal form. Besides the above affidavit evidence the learned counsel for the petitioners also sought support from the following material, namely (i) a letter of the Deputy Supdt. of Excise dated March 2/4, 61 to show that the entire quantity of 47,058.5 kgs. was identified as dyes by the Deputy Superintendent himself, (ii) practice of the petitioners of reporting their production as dyes in their letters addressed to the Dyes and Explosives Department Central Government, (iii) Dr. Tilak's report; and (iv) also from the order of the Collector of Central Excise Baroda in respect of similar production in lumps and/or crystals of one M/s. K.C.A. Pvt. Ltd. This latter material, however, was available before the Supreme Court and having regard to its observations on the point of evidence regarding the products being known in the market, it seems the said material is not of much help in determining the question whether the products are known in the market.
7. On the other hand, the Revenue has relied upon an affidavit of the Assistant Collector of Excise Mr. Busi and the Assistant Chemical Examiner who is attached to the Customs House at Bombay. The department has also relied on an expert opinion, i.e. an extract from a book entitled 'Fundamental Processes of Dye Chemistry' by Feirs, David and Blangey which is reproduced in paragraph 6 of the affidavit of Maharana Pratap dated 9th August, 1973. The Government, however, has not produced an affidavit of any dealer or consumer to show that none of the four varieties of dyes in question either in lump or crystals is known in the market and/or that the same are known and understood in the market as dyes only after they are blended and/or pulverised or standardised though in his later affidavit dated 18th October, 1973, Busi, has made for the first time a bold statement to the latter effect (see para 6) by way of improving Revenue's case.
8. Mr. Andhyarujini, the learned counsel for the respondents, contends that the evidence of sale transaction by the petitioners is totally irrelevant in determining the question whether the four specific varieties of products i.e. 31958.9 kgs. is known in the market or not. He points out that neither the petitioners nor any of the said three dealers has relied on any single transaction of sale or purchase in respect of any of the said 4 varieties of products. Petitioners on the other hand contend that the respondents have raised this point for the first time in their argument before us and that their case even as set out in the affidavits in reply filed on their behalf after remand has been that dyes generally are sold in the market after blending and pulverising and not that the specific varieties in question are sold in the market only after they are pulverised and blended.
9. The petitioners next contend that as the excise duty is levied on manufacture and not on sale the mere fact that the petitioners themselves did not sell the products in question but blended and pulverised them for standardisation does not render them less identifiable as products known in the market or to the users thereof even if their said products were sub-standard and relied on South Bihar Sugar Mills Ltd. and Another etc. v. Union of India and Another etc. : 1973ECR9(SC) . Lastly the petitioners argue that assuming that their above evidence that the dyes in lumps and/or crystals is known in the market is not enough to prove that the specific varieties are not liable to pay excise duty, the burden of proving that they are so liable is on them and as they have not produced any single transaction to establish that the specific varieties are not known in the market or to the users till after they are pulverised and blended for standardisation, the excise duty was wrongfully collected from them.
10. Now it appears from the record that after excise duty was levied the revenue was guided by the Trade Notice dated 6/15 March, 1961 (page 144 of the appeal Paper Book) which simply said 'Goods will not be considered as fully manufactured unless at midnight of 28th February/1st March 1961 they are ready for delivery.' Thus the criteria applied by Revenue for levying excise duty was goods being ready for delivery and this meant according to them packing of the goods also required for delivery thereof by any particular manufacturer; Thus Items No. 7 and 8 mentioned above were charged excise duty even though they were sold by the petitioners in lumps. Further it will be remembered that though the High Court held that the said goods being part of 15109.6 kgs. were not liable to duty, the Revenue did not appeal to the Supreme Court against the said order.
11. Coming next to the affidavit evidence of the respondents, it is stated in the affidavit-in-reply of Busi that the Govt. does not dispute the transactions of sales relied upon by the petitioners. In paragraph 3 of his affidavit dated August 8, 1973 Busi contended that such sales of petitioners' products in lump or crystal form is totally irrelevant as the disputed quantity of 31,958.9 kgs. does not include a single item which has been sold by them in Lump and/or crystal form but are admittedly products which have been pulverised and blended before the same were sold out in market. Here, Busi does not allege that no such variety was known in the market or to the users. Further the fact that besides 31,958.9 kgs. the petitioners sold such varieties of their products after blending and pulverising for standardisation does not by itself establish that no such variety of product is known as dye in the market. It may be mentioned that prior to the remand of this matter both in the correspondence between the petitioners and the Excise Authorities as also in the proceedings taken by the petitioners for getting refund of the excise duty, the question was whether petitioners' products were fully manufactured and ready for delivery as dyes envisaged by the Trade Notice dated 6/15-3-1961 and at no stage was the question raised whether any specific variety of their products as distinguished from products - dyes generally was to be considered as fully manufactured or ready for delivery as dye. Next it may be noticed that even in his affidavit dated 9th August, 1973 Maharana Pratap has stated -
'I say the fact that the petitioners or any other dye-house has been able to sell products without any standardisation that is without blending and pulverising does not imply that dyes generally used in dyeing processes are not pulverised and/or blended to obtain standardisation ........'
From the above passage it would appear that it is the contention of the revenue that the process of blending and pulverising are necessary to obtain standardisation and that dyes are generally pulverised and/or blended to obtain standardisation and that in the absence of such standardisation, satisfactory dyeing process cannot be undertaken. It is to be observed that the deponent has been dealing with the dyes generally and does not differentiate between the sale of some other varieties or types of dyes and four varieties of the dyes, on which the excise was levied.
12. Further in paragraph 7 of the said Affidavit-in-reply, Maharana Pratap says -
'It may be that non-standardised dyes in lump and/or crystal form are sold to individual customers for their own individual requirements but that would be the sale of dyes which have yet not been fully manufactured for the purposes of use in any dyeing process. The petitioners predominantly manufacture dyes after standardisation specifying the strength of the dye on the each product .........'
Now, first, it is to be observed that the statement about individual requirements is rather vague. It is significant however, to notice that the deponent does not suggest that individual requirement is for a purpose, other than using the same in a dyeing process. Further in this connection it is to be borne in mind that the Item 14A contains the words 'all sorts' which emphasises the dyes to be in kind or nature, that is used in a dyeing process. Secondly the above statements implies an admission that certain products in lump or crystals is sold in market and is sold to customers as dyes used for dyeing processes. The above statement also implies a contention that in manufacturing dyes there emerge two separate processes at two different stages, namely, an intermediate dye in the form of lumps or crystals and the other end-product. According to the contention, intermediate product would not attract excise duty but the duty would be levied at the next stage when after blending or pulverisation the end-product comes into existence, that being the stage when the process of 'manufacture' is complete. Since it appears to be conceded that non-standardised dyes are sold to individual customers, the revenue is expected to collect excise duty from the latter when they blend or pulverise such dyes (which are in lump or crystal form) into standardised dyes. Revenue, however, has not cited a single instance of its having levied excise from such 'individual customer'. It may also be noticed that if the dyes in lump or crystal form are sold in the market and since they are not of standardised dyes, and are treated with the process of blending and pulverisingfor making them conform to certain standards of purity or strength, that fact as such only would indicate that the dyes sold in the market in the form of lumps or crystals are sub-standard and may not, therefore, yield satisfactory result in dyeing but that is quite different from saying that such dyes in lump or crystal form is not known in the market, and therefore, are not manufactured as contemplated by Section 2(f) of the Central Excises and Salt Act, 1944 (see Supreme Court Case of South Bihar Sugar Mills Ltd. and Another v. Union of India (supra). In that case it was argued that the proportion of carbon dioxide in the coal gases varied from 25 to 33% averaging about 30 per cent whereas carbon dioxide is sold in cylinder as per standardised form would have very much higher percentage. The Supreme Court dealing with this aspect observed as follows :-
'The fact that gas was so generated as carbon dioxide below 99% and does not conform to the specifications of the Indian Standard Institution also would not matter for the gas may be sub-standard, provided what is produced is carbon dioxide.'
13. Next in support of his contention that the products are not known to the market the learned counsel for respondents relied upon certain statements made by the petitioners in their correspondence with the excise authorities and also before the Asstt. Collector of Central Excise, Poona. It is contended that the said statements amount to an admission on the part of the petitioners that none of the four varieties of products is known in the market before they are pulverised and blended for the purpose of standardisation. In their letter dated 23rd March 1961 addressed to the Collector of Central Excise, Poona, the petitioners wrote :-
'Dyestuff trade caters to the requirements of the consumers. Very rarely it is sold in the state it comes out of the drier, although it is fully manufactured as far as the 'manufacturer is concerned.'
In their further letter dated 14th April, 1961, the petitioners have referred to the said statements. Lastly before the Collector of Central Excise, Poona, the petitioners admitted that the process of pulverising and blending was carried out by them at the instance of any particular customers but on their own accord in normal course they obtain standard product for uniform purity and appearance. Apart from the fact that though this material was on record, the Supreme Court remanded the matter. It is to be observed that the petitioners said statements in the letter dated 23rd March 1961 do not amount to an admission of their liability to pay excise duty as the petitioners also stated that the product in the form of lump or crystal was manufactured before the mid-night of 28th February, 1961 when excise duty was imposed. Secondly in the same paragraph it is further stated :-
'The stuff is then reduced by many to make it cheaper either to meet competition or to suit the clients' pockets, its physical appearance is changed by treatment to satisfy the customer's eye or the shade is altered by mixing one or two dyestuffs to give a shade as desired by the consumers. This is known as 'processing AFTER MANUFACTURING'. This is done by thousands of dealers and users in the country when the stuff is received from manufactures'.
The last sentence clearly indicates that even apart from the manufacturers, dealers in the market also after purchasing the product from the manufacturers treat it with the process therein mentioned which clearly implied that the products as they come out from the drier are sold by manufacturers to dealers in the market. Thus the passage in the said letter read as a whole does not contain any admission as contended for by the Revenues. Moreover, the petitioners have relied upon instances of sales including those of the said two Items Nos. 7 and 8 by them of their products in lump and/or crystals, which are not disputed by the respondents. In our opinion, therefore, no weight can be attached to the alleged admissions.
14. It is also significant to notice that in their affidavit evidence, no difference in any characteristic trade or market condition is pointed out by the respondents to distinguish the four varieties of 31,958.9 kgs. from that of other varieties of dyes sold in lump or crystals by the petitioners in the market.
15. It is also urged by the respondents that the quantity of dyes in respect of which the petitioners have produced invoices is small and, therefore, in considering the question whether the said products in lump or crystals are known to the market no importance could be attached to these transactions. It is not possible to accept this contention. The instances do show that sales of dyes in lump or crystals are spread over different parts of countries though the quantities involved are small. However, once the dyes in lump or crystals are known to the market and users then the question of volume of business in such dyes is immaterial.
16. As regards the extract from the fundamental process of Dye Chemistry, relied upon by the respondents, it is worth noticing that the said passage refers generally to dyes and to the process of grinding and mixing to bring about a desired standard strength. It refers to the stage of packing of the dyes also.
17. On the other hand Mr. Diwan for the petitioners also relied upon the following passage in the said Treatise (See p. 90), 'The finished dye goes directly from the driers to the dye house where a small representative sample is tested against the standard .......'
18. Now merely because the process of grinding and mixing may be usually carried out in factories, it does not by itself mean that the process of manufacturing the dye as known in the market is not complete, without the said processes of grinding and mixing; just as the process of packing though it is usually done by a manufacturer is as described in the said passage is not necessary for manufacturer of a dye as known in the market or to an user. Similarly the said processes cannot be treated as necessary for such manufacture 'simply because they are carried out by a manufacturer'. It all depends on actual dealing in the market.
19. Further it would be seen that while of the standardised dye by process of grinding and mixing is described as finished dye the product described as dye emerges after the products are dried.
20. Thus there is force in the petitioners' contention namely that the approach and evidence of the respondents in affidavits in reply filed on their behalf do not advance respondent's contention that sale instances of other varieties of dyes relied upon by the petitioners are irrelevant. In our opinion these instances afford evidence to establish that the four varieties of products as they existed before the mid-night of 28th February, 1961 can be said to be known to the market and we find accordingly.
21. Next, it is contended for the respondents that the petitioners are a leading dye house and they have failed to prove even a single instance or transaction of sale of any one of the four varieties of dyes in lump or crystal form either by themselves or by any other dealer in the market and that if there was any such transaction evidence thereof was especially within the knowledge of the petitioners and the same was available to them and the absence of any evidence, whatsoever, of such sale combined with the admission of the petitioners as aforesaid and the affidavit evidence of Chemist Maharana Pratap go to establish that the said 4 categories of dyestuffs are known and understood in the market as dyes only after the same undergoes the process of pulverisation, blending and standardisation. We have already dealt with the weight to be attached to the petitioners' alleged admissions and the evidence of the chemist or the expert opinion of the Fundamental Processes of Dye Chemistry. It is true that so far as the petitioners are concerned they have not produced evidence of any transaction of dyes or any one of the said four varieties in lump or crystal form but that would not mean that the evidence regarding the said categories of dyes being known to the market would be within their special knowledge and available only to them. So far as their own products are concerned, no doubt, the petitioners can be said to be especially in the knowledge thereof but so far as transactions in respect of the said four categories in the market are concerned, the evidence cannot be said to be especially within the knowledge of the petitioners only and the same is also available to the revenue. Revenue has not produced any affidavit evidence that the said varieties in lump or crystal form is not at all sold in the market or is not known to the dealers or users. In the circumstances little weight can be attached to the circumstances that the petitioners have not cited any instance of sale of any of the said four varieties of dyes. From the foregoing discussion, it would be seen that there is evidence in support of the petitioners' contention that the dyes in lump and/or crystal are sold in the market and is known to the dealers and consumers. It could not, therefore, be said that the process of blending and/or pulverising was necessary to complete the manufacture of the said four varieties. In our view, the said varieties were manufactured before the midnight of 28th February, 1961.
22. Even assuming in favour of the Revenue that the petitioners have failed to adduce any sale instances in the market the said four varieties of products as they existed before the mid-night of 28th February, 1961, the question still arises whether the Revenue was entitled to levy excise on the said stuff. As already noticed, the respondents have also not produced any affidavit of any dealer or consumer to show that the said products in lump or crystal form were not capable of being used in any dyeing process before the same were blended and/or pulverised and standardised. The result is that there is no evidence on record to enable us to decide the point whether these four varieties of products are known in the market or to the consumer. The learned counsel for the petitioners urged that the burden of establishing that the products were liable to pay excise duty is on the revenue and if the Court were to come to the conclusion that there is no evidence on the point, the respondent failed to discharge the burden of proving that the products were excisable goods. In support of his contention he relied on the following observations in the Supreme Court case in Deputy Commissioner of Agricultural Income-tax and Sales-Tax Quilon v. Travancore Rubber & Tea Co. Sales Tax cases (1967 Vol. XX) 520, at page 527.
'...... In all cases of taxation the burden of proving necessary ingredient laid down by law to justify taxation is upon the taxing authority ...'
In our opinion, the argument is sound and, therefore, the burden is on the respondents to establish that the said four varieties were liable to pay excise duty as the same were manufactured after mid-night of 28th February 1961 inasmuch as the process of completing manufacture took place only after blending and pulverisation of the said products for the purpose of standardisation. Now in the present case, there is no dispute that the four varieties on which excise duty was levied were in existence prior to the mid-night of February 1961 and, therefore, the only question whether the said product can be said to be manufactured thereafter as contemplated by Section 2(f) of the said Act. For this purpose it was incumbent on the respondents to show that the processes of pulverisation and/or blending are necessary to complete the manufacture of such varieties of products. It is, however, argued for the Revenue that the burden to prove that the manufacture of the said products was complete before the mid-night of 28th Feb., 1961 was on the petitioners and in support of its contention, reliance is placed on a decision of the Supreme Court in M/s. Moosa S. Madha & Azam S. Madha v. Commissioner, Income-tax : [1973]89ITR65(SC) . In our opinion, this authority does not help the respondent. In that case the onus of proving whether the presence of an assessee in the taxable territories during certain period was an occasional or casual visit as contemplated by Section 4A(a)(iii) of the Income-Tax Act, 1922, was held to be on the assessee. It is, however, clear from the provisions of the said sub-clause (iii) of Section 4A(a) that the fact to be established by an assessee is by way of an exception and is one which could only be within the knowledge of the assessee himself. In our view, therefore, it was incumbent on the respondents to establish in the present case that the four varieties were manufactured after the midnight of 28th February, 1961 and they have failed to do so.
23. In the result, the petitioners succeed and we allow the petition and set aside the order dated 22nd August, 1955 so far as the lot of 31958 kgs. is concerned, the earlier two orders dated 21st April 1962 and 4th September, 1961 having merged therein and direct the respondents to refund to the petitioners the sum of Rs. 90,803.78 wrongly collected by them from the petitioners.
24. The respondents to pay to the petitioners the costs of this petition and the Civil Appeal No. 1218 of 1967 to the Supreme Court.