1. In this petition filed under Article 226 of the Constitution of India, the question which requires determination is whether the article 'phenolic moulding powder' manufactured by the petitioners is entitled to claim exemption from payment of excise duty as provided by Notification dated June 1, 1971 issued by the Central Government.
2. The 1st petitioners are a Private Limited Company, while petitioners Nos. 2 and 3 are the Directors of the Company. The petitioner No. 1 own a factory at Quarry Road, Malad (East), Bombay and inter alia manufacture 'Phenol Formal Dehyde Synthetic Resin'. The said article is manufactured in various forms, viz. lump, solid, liquid and moulding powder. The basic ingredients of phenolic resin are Phenol and Formaldehyde. The Phenolic Resin is the result of Phenol and Formaldehyde being reacted with each other. The Phenolic Moulding Powder is manufactured by processing phenol formaldehyde synthetic resin along with other ingredients like fillers, colouring matter, etc. While manufacturing phenolic moulding powder, the phenolic resin is not blended with any other artificial or synthetic resins.
3. Prior to June 1, 1971, the phenolic resin was assessed for the purposes of excise duty under Item No. 15-A of the First Schedule to the Central Excise and Salt Act, 1944 (hereinafter referred to as the 'Act') read with Notification dated September 23, 1965. The relevant portion of the said Item No. 15-A is as under :-
'15-A. Artificial or Synthetic Resins and Forty per centPlastic Materials and Articles thereof. - Ad valorem.
(1) Artificial or synthetic resins and plastic materials in any form, whether solid, liquid, or pasty, or as powder, granules or flakes, or in the form of moulding powder, the following, namely.
(i) Products, whether or not modified or polymerised, including Phenoplasts, Aminoplasts, Alkyds, Polyurethane, Polyeasters and other unsaturated Polyesters;
(ii) Polymerisation and copolymerisation products including polyethelene and polytetrabalocthylene, poly-isobutylene, polystyrene, polyvinyl chloride, polyvinyl acetate, polyvinyl chloroacetate and other polyvinyl derivatives, polyamides, polyacrylic and polymethacryclic derivatives, and coumarone indene resins; and
(iii) Cellulose acetate (including diortriacetate), Cellulose acetate butyrate and Cellulose propionate, Cellulose acetate propionate, Ethyl cellulose and Benzyl cellulose, whether plasticised or not, and Plasticised Cellulose nitrate.
(2) x x x x x
Explanation : x x x
(3) x x x x x
(4) x x x x x
4. The Central Government in exercise of the powers conferred by sub-rule 1 of Rule 8 of the Central Excise Rules, 1944, published a Notification dated June 1, 1971 superseding the earlier Notification dated September 23, 1965 and exempting artificial or synthetic resins specified in Column (2) of the Table from so much of the duty of excise leviable thereon as is in excess of the rate specified in the corresponding entry in column (3) of the Table. As the entire controversy in the petition centres round upon the expression 'phenolic resin' in this Notification, it is desirable to set out the relevant portion :-
'In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 156/65-CE, dated 23rd September 1965, the Central Government hereby exempts artificial or synthetic resins specified in Column (2) of the Table below under Item No. 15-A of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) from so much of the duty of excise leviable thereon as is in excess of the rate specified in the corresponding entry in Column (3) of the said Table.
TABLE------------------------------------------------------------------------Sr. No. Description Rate1 2 3------------------------------------------------------------------------1 x x x x x x x x x x x x2 x x x x x x x x x x x x3 Phenolic Resins. Fifteen percent advalorem.------------------------------------------------------------------------ Explanation : For the purpose of this notification.
(1) x x x x x
(2) x x x x x
(3) The expression 'Phenolic Resins' means synthetic resins manufactured by reacting any of the phenole with analdehyde and includes chemically modified phenolic resins and liquid phenolic resins but does not include blends of the phenolic resins with other artificial or synthetic resins'.
5. The petitioners claim that the phenolic moulding powder manufactured by the petitioners falls within Item 3 read with Explanation III of the Notification. The petitioners claim that the phenolic moulding powder is phenolic resin in the form of moulding powder. The petitioners further claim that though the petitioners were entitled to exemption in respect of payment of excise duty on the manufacture of phenolic moulding powder, the Excise Department wrongfully and illegally levied and recovered from the petitioners a sum of Rs. 74,96,740.80 from June 1, 1971 till August 24, 1974. The petitioners by their letter dated August 24, 1974 made an application for refund of the excise duty recovered by the respondents for the period from August 25, 1973 to August 24, 1974. The petitioners also made an application for refund of excise duty for the period from June 1, 1971 till August 24, 1973. The Excise Department thereafter drew sample of phenolic moulding powder manufactured by the petitioners for examination of the Deputy Chief Chemist, Bombay Customs. The Personnel of Excise Department including the Deputy Chief Chemist visited the factory to find out the details of the manufacturing process. The petitioners also by their letter dated September 5, 1974 submitted the classification list in respect of phenolic moulding powder. The petitioners also furnished to the respondents the opinion of Prof. Dr. S. P. Potnis and Dr. R. T. Thampy, the Director of Shri Ram Institute for Industrial Research.
6. The respondent No. 2 by his order dated December 23, 1974 informed the petitioner that the Deputy Chief Chemist has found that the phenolic moulding powder is not entitled to the concessional rate provided by the notification and the request of the petitioners in that connection is rejected. The order dated December 23, 1974 was passed on the basis of report made by the Deputy Chief Chemist, a copy of which was annexed to the order. By letter dated October 5, 1974, the petitioners were informed by the Superintendent of the Central Excise that the classification list filed by the petitioners stands rejected by the Assistant Collector. The petitioners requested the respondent No. 2 to pass an appellate order but the respondent No. 2 by letter dated February 6, 1975 informed the petitioners that the classification of the product has been mainly based on a chemical composition and not on legal or administrative basis and as such no appeal would lie to the Appellate Collector. The petitioners thereafter filed the present petition in this Court on March 31, 1975. The petitioners claim that the order passed by respondent No. 2 on December 23, 1974 be quashed and the respondents be prohibited from levying excise duty on phenolic moulding powder under Item No. 15-A of the First Schedule to the Central Excises and Salt Act and directing the respondents to levy excise duty under Notification dated June 1, 1971. The petitioners also sought a refund of Rs. 74,96,740.80 and all further amounts that might be recovered by the respondents after the date of the petition.
7. In answer to the petition, Shri V. N. Kullarwar, Assistant Collector of Central Excise, Bombay Division, filed a return sworn on April 25, 1979. By this return, it was contended that the phenolic moulding powder is neither a phenolic resin in pure form, nor a chemically modified resin but is a physically modified compound of phenolic resin with other materials like fillers, colouring matter etc. It was claimed that the petitioners are not entitled to the advantage of the Notification dated June 1, 1971. The respondents also filed on Affidavit of Shri T. R. S. Krishnan, Deputy Chief Chemist, Central Excise Laboratory, Bombay, sworn on April 25, 1979. Dr. Krishnan claimed that phenolic moulding powder is a plastic material and, in any event, is not a chemically modified phenolic resin but is a physically modified phenolic resin. In paragraph 13 of this affidavit, Krishnan gave his opinion that the product is not a pure 'Straight' phenolic resin. The petitioners filed joint affidavit-in-rejoinder of petitioner No. 2, and Dr. S. P. Petnis and Dr. R. M. Thakkar. The affidavit sworn on July 16, 1979 reiterates that phenolic moulding powder is a phenolic resin and/or a chemically modified phenolic resin. In the affidavit-in-rejoinder, it is further claimed that phenolic moulding powder is known or recognised in trade as phenolic resin.
8. The petition was posted for hearing before me on September 11, 1979 and after hearing the counsel for some time, I felt that the question involved requires decision on consideration of certain specialised report and contents of scientific books which were produced before me by both the sides at the time of hearing. On behalf of the respondents, it was suggested that it would be desirable that if the Excise Authorities are directed to make report after the expert of the Department takes samples of the articles, examines the process adopted by the petitioners and thereafter makes his report. Accordingly. I passed an order on September 11, 1979 giving directions to the Department to send further report after complying with the steps set out in the order.
9. In pursuance of the direction, the Deputy Collector, Central Excise, advised Mr. Krishnan to take the requisite samples from the product manufactured by the petitioners and after test and analysis to report as to whether the product is a synthetic resin manufactured by reacting any of the phenols with an aldehyde. The Deputy Chief Chemist was further directed to find out whether the product is a chemically modified phenolic resin or whether the product is blend of phenolic resins with other artificial or synthetic resins. Finally, the Chemist was advised to give his opinion as to what is the product if it does not fall in either of the three categories mentioned earlier. The Deputy Chief Chemist Krishnan thereafter visited the factory of the petitioners and drew sample of the phenolic resin, 'A' stage and phenolic material in the form of powder. Mr. Krishnan thereafter made his report on September 18, 1979 whereby it was opined that the 'phenolic moulding powder' is not a straight resin manufactured by reacting any of the phenols with an aldehyde. The material is an intimate mixture of phenolic resin with fillers, pigments, additives, plasticizers, hexamine, accelerators etc. Shri Krishnan further mentions that the phenolic resin is intimately combined in the uncured or partially cured condition with fillers, etc. and the product is not a blend of phenolic resin with other artificial or synthetic resin. After the receipt of the report by the Collector of Central Excise, the petitioners by letter dated October 14, 1977 informed the Assistant Collector that the report is not accurate and the view of Shri Krishnan is clearly erroneous. In support of the contention that the product is chemically modified phenolic resin, the research carried out by the Department of Chemical Technology, University of Bombay was relied upon. The petitioners also requested that Shri Krishnan should be tendered for cross-examination to establish that his report was not accurate. Accordingly, Shri Krishnan was cross-examined at length by the petitioners before the Assistant Collector and Dr. Potnis was tendered in support of the claim that the phenolic moulding powder is entitled to exemption given under the Notification. The Assistant Collector of Central Excise thereafter gave his further report on September 3, 1979. The petition is posted thereafter before me for further hearing.
10. Shri Sorabjee, the learned counsel appearing in support of the petition, submitted that the product manufactured by the petitioners is (a) synthetic resin manufactured by reacting any of the phenols with an aldehyde and (b) chemically modified phenolic resin. Shri Sorabjee submitted that the report of Shri Krishnan suffers from various infirmities and his oral testimony would disclose that the report was not accurate. Shri Sorabjee submits that the report of the Assistant Collector dated September 3, 1979 is totally incorrect and the Assistant Collector has relied on certain material which was secured behind the back of the petitioners. It was also urged on behalf of the petitioners that material produced on record would establish that the 'phenolic moulding powder' can never be described as a plastic material and in trade circles also the article is known as phenolic resin. It was further urged that the manufacturing process of the article would establish that it was 'chemically modified phenolic resin'.
11. Shri Dhanuka, the learned counsel appearing on behalf of the respondents, on the other hand, submitted that the Department has rightly come to the conclusion that the petitioners are not entitled to claim exemption under the notification in respect of the manufacture of their product 'phenolic moulding powder'. Shri Dhanuka relied upon the Legislative history of the tariff item and claimed that the Legislative intention is clear that what is exempted is 'phenolic resin' and not the 'plastic material'. According to Shri Dhanuka, the article manufactured by the petitioners is in the first instance a plastic material and, in any event, not a chemically modified phenolic resin. The learned counsel also submitted that the terms should not be construed in its etymological or scientific sense, but in the sense as understood by the trade and industrial circles dealing with plastic materials. It was finally claimed that if two views are possible as to whether the product is a phenolic resin or the plastic material, then the view taken by the Department should not be disturbed in exercise of writ jurisdiction under Article 226 of the Constitution of India.
12. In view of these rival submissions, two clear-cut questions fall for my determination in this petition. The first question is whether the phenolic moulding powder is synthetic resin manufactured by reacting any of the phenols with an aldehyde or is only a plastic material. The second question is whether the phenolic moulding powder is chemically modified phenolic resin. The answer to the two questions would depend upon the interpretation of the expression 'phenolic resins' given in Explanation (3) to the Notification. It would be appropriate to quote the Explanation (3) once again to appreciate the submissions made by both the counsel in support of their claims :
'For the purpose of this Notification :
(1) x x x x x
(2) x x x x x
(3) the expression 'phenolic resins' means synthetic resins manufactured by reacting any of the phenols with an aldehyde and includes chemically modified phenolic resins and liquid phenolic resins but does not include blends of the phenolic resins with other artificial or synthetic resin'.
The expression 'phenolic resins given in Explanation can be advantageously divided into three parts : (1) synthetic resins manufactured by reacting any of the phenols with an aldehyde and includes (2) chemically modified phenolic resins and (3) liquid phenolic resins, but does not include blends of the phenolic resigns with other artificial or synthetic resins. The latter portion of Explanation (3) excluding blending with artificial or synthetic resin is not applicable to the facts of the present case. Both Shri Kullarwar and Shri Krishanan who filed affidavits in answer to the petition have admitted in clear terms that the article manufactured by the petitioners is not a phenolic resin mixed with any artificial or synthetic resin.
13. In view of this position, the question which was agitated on behalf of the petitioners was that the phenolic moulding powder falls in Part I and Part II of the expression 'phenolic resins' contained in Explanation (3).
Thursday, the 16th April, 1981
14. Shri Sorabjee contended that the 'phenolic moulding powder' is nothing but a synthetic resin manufactured by reacting phenolic aldehyde and not plastic material as claimed by the Department. To appreciate the contention, it is necessary first to make reference to the ingredients used in the manufacture of phenolic resin in the form of moulding powder. The list of ingredients is annexed as Exhibit 'A' to the petition. Phenols are reacted with formaldehyde and thereafter mixed with catalysts like Oxalic Acid, Hydrochloric Acid, Sulphuric Acid, etc. The other ingredients used are hardeners, neutralizer, accellerator, colouring matter, lubricants, fillers and plasticizers. The manufacturing process of phenolic moulding powder is set out in Ex. 'B' annexed to the petition. Phenol and Formaldehyde are charged along with the catalyst, like Oxalic acid in Reactors. After the required extent of reaction, water is removed by distillation. In order to prepare various suitable types of Phenolic resins in form of moulding powders, depending upon various end applications, this finally ground resin is intimately combined with ingredients like fillers, colouring matters, hardeners in Ball Mills. Since the expressions 'plastics' or 'Plastic materials' or 'phenolic moulding powder' have not been defined by the Act, nor by any Rules framed thereunder, it will be necessary to refer to some standard works and Dictionary meaning of these expressions. In Chambers Dictionary (1959 edition) the expression 'plastic' is explained thus :
'Plastics - generic name for certain natural and synthetic substances which under heat and pressure become plastic and can then be shaped or cast'.
In Webster's Third New International Dictionary the meaning of 'Plastic' has been given as follows :
'Plastic - (1) a substance that at some stage in its manufacture or processing can be shaped by flow (as by application of heat or pressure) with or without fillers, plasticizers reinforcing agents, or other compound ingredients and that can retain the new solid often rigid shape under conditions of use.
(2) any of a large group of materials of high molecular weight that use, contain as the essential ingredient a synthetic or semi-synthetic organic substance made by polymerization or condensation (as polystyrene or a phenol-formaldehyde resin) or derived from a natural material by chemical treatment (as nitrocellulose from cellulose), that are moulded, cast, extruded, drawn, or laminated under various conditions (as by heat in the case of thermoplastic materials, by chemical condensation in the case of thermosetting materials or polyesters or by casting during polymerization of monomers) into object of all sizes and shapes including films and filaments'.
In Encyclopaedia Britannica, Volume 18, the following passage appears regarding 'plastics' :
'PLASTIC' - The term 'plastic', derived from the Greek plastics, appears to have been used first as a suffix implying growing, developing and forming. Later it was used as an adjective meaning capable of being formed. The manufacture of pottery and earthenware depends on the plastic qualities of the clay; the making of glass and plastics and the use of putty, asphalt and cement are all dependent upon the plasticity of the product. Properly speaking, all these products should be considered in any description of plastics and the plastics industry, but the terms 'plastics' is much more highly restricted, although no unchallenged definition can be made of the word. It is used to describe a product of synthetic origin which is capable of being shaped by flow in some stage of manufacture and which is not rubber, wood, leather or metal.....
While the designation 'plastic' is broader generically than the word 'resin', both terms are used indiscriminately with respect to synthetic products. It is worthy of note, however, that general usage refers to cellulose derivatives as plastics and not as resins; and conversely, the synthetic resinous products, particularly those entering into the surface-coating field, are referred to as resins and not plastics. Doubtlessly, this distinction is again based on usage, since products of the resin class were primarily employed in the surface-coating field and the plastic characteristics were achieved by solution rather than by heat. The articles called plastics generally require shaping by heat during their fabrication by moulding or extrusion. Since the newer synthetic products can frequently be used inter-changeable as coatings or as moulding, the distinction between resins and plastics becomes less pronounced. Moreover, modern technology shows that the materials which are designated as rubber, fibres, resins and plastics are of a similar molecular structure, and by appropriate chemical and physical treatment it is possible to inter-convert any one of these materials. It follows that certain structural features are common to all these products, and, being common, they relate to similarity in physical properties between materials which are not necessarily chemically related'.
In Polymers and Resins, by Brage Golding, 1959 Edition, published by Dr. Van Nostrand Company, New Jersey; plastic is defined as under :-
'A Plastic has been defined in a limited sense as any of a large group of organic substance, whether natural or synthetic, which can be moulded (Plastics - fit for moulding). The noun 'Plastic' is usually applied to all polymers which are not considered to be clastomers or fibres; i.e. which exhibit neither the long range elasticity or clastomers nor the very high crystalline of most fibres. In the engineering sense, however, a plastic is a mixture containing one or more resins compounded with fillers, plasticizers, lubricants, dyes, etc. which has been subsequently fabricated'.
The Expression 'moulding powder' has been defined in the book 'The Condensed Dictionary (9th Edition) Revised by Gesener G. Hawley as under :
'Plastic material in varying stages of granulation and comprising resin, fillers, pigments, plastic and other ingredients, ready for use in the said operation'.
15. Though large number of references from the standard books and dictionaries were pointed out by both the sides in respect of the words 'plastic', 'resins' and 'moulding powder', no definition in regard to the 'phenolic moulding powder' was available. In Encyclopaedia Britannica, Volume 18, dealing with 'Plastics' to 'Resin' under the heading of 'Plastics' and sub-heading of 'Phenol-Formaldehyde Resins', the following passage appears :-
'When Leo H. Backeland patented a phenol-formaldehyde resin in 1909, nitrocellulose plastics were being used extensively in the U.S. Yet this new material found a ready market because, unlike the nitrocellulose product, the phenol-formaldehyde resin could be made insoluble and infusible. Moreover, the thermosetting phenolic condensation product would tolerate considerable amounts of inert ingredients and thus could be modified through the incorporation of various fillers.
In making phenolic moulding powders, phenol and formaldehyde are heated in the presence of suitable catalysts, generally acids, and the condensation is conducted to the stage where the water separates. The viscous phenolic condensation product, on cooling to room temperature, becomes hard and brittle. The resin at this stage can be dissolved in various organic liquids; such solutions are employed for laminating and impregnating purposes. The structure can be represented schematically as follows :
To make the moulding compound, the resin is ground and mixed with the appropriate filler, lubricants and dyes. To render the combination as homogeneous as possible, the mixture is milled and then ground. For general use, wood flour is the preferred filler, but where heat resistance, impact strength, or electrical characteristics are involved, other fillers such as cotton flock, asbestos and chopped fabric are used. The resin, because of its excellent insulating characteristics, is used in manufacturing radio parts such as sockets, binding parts, knobs, and dials and in the electrical system of automobiles'.
From the above passages, it is clear that though the expression 'plastic' is generically broader than the expression 'resin', both terms are used indiscriminately with respect to synthetic products and the modern technology has shown that the materials which are designated as rubber, fibres, resins and plastics are of the similar molecular structure, and by appropriate chemical and physical treatment it is possible to inter-convert any of these materials. It is also clear that though etymologically and scientifically products of clay, glass or rubber could be properly considered to be plastics these are never regarded as such and the term 'plastics' is much more highly restricted and used to describe a product of synthetic origin which is capable of being shaped by flow in some stage of manufacture.
16. Shri Dhanuka submits that once the phenol resin undergoes reaction by mixing with various ingredients, then the end product ceases to be phenolic resin and becomes a plastic material. I enquired from Shri Dhanuka as to whether his submission is supported by any passage from any other Text Book and the learned counsel was unable to answer in the affirmative. Shri Dhanuka strongly relied upon the fact that 'phenolic resin' with the chemical properties of formaldehyde resins are considerably influenced by the moisture contained and that fact applies still more to plastic made from the resins by combination of fillers, plasticizers and other ingredients. It was urged that the basic component of phenolic moulding powder though is a phenolic resin by addition of other materials like plasticizers, fillers, wood flour etc., the end product ceases to be the phenolic resin but becomes a plastic material. Shri Sorabjee did not dispute that the end product 'moulding powder' is the result of the mixing of phenolic resin with other ingredients but submitted that mixing of such ingredients does not change the basic character of phenolic resin. The submission of Shri Sorabjee is supported by a passage on page 676 of the Condensed Chemical Dictionary by Aurther R. Ross, a copy of which is annexed at page 229(i) in the compilation. The relevant portion reads as under :-
'Thus, the properties of the resins depend largely on the starting materials and processing conditions used. The properties are further modified by the addition of fillers, plasticizers, and other monomers of polymers'.
Another extract, a copy of which is annexed at page 229(J) of the compilation from the book 'Plastics Technology' by Robert v. Milby, page 32, reads as under :-
'A pure phenolic resin is rarely moulded without modification to overcome limitations imposed by the moulding process and end use requirements. Without alteration, phenolic resins are brittle and have high shrinkage caused by polymerization and elimination of water dimensions are difficult to control and parts stick badly to hot mould surfaces, making ejection difficult in order to overcome these problems, resin manufacturers resort to the use of additives to produce a compound'.
17. From these passages, it is obvious that ingredients are mixed with phenolic resin to make it more useful. Shri Dhanuka was unable to point out anything to establish that by the mixing of ingredients in phenolic resin, the character of phenolic resin ceases and the end product becomes a plastic material. Shri Dhanuka relied upon certain observations at page 5 and 6 of the book Modern Plastics by Harry Barron, Second Edition, published by Champan and Hall Ltd. The passage at page 5 reads as under :
'Often it is the plasticisers rather than the resin components which become the determining factor in the availability of the final plastic. Another controlling factor is the equipment required to manufacture the various items'.
Passage at page 6 reads as under :-
'When these (resins) are mixed with modifying agents such as plasticisers, fillers, or the like, the resulting product is usually called a plastic material after it is formed to shape. The term 'plastic material' is usually reserved for the end product of the process, even though there may only be a plastic intermediate stage'.
Shri Dhanuka submits that it is recognised by the Author that the additional plasticizers really determine whether the material is to be 'plastic' and that if admittedly plasticizer is used in the manufacture of phenolic moulding powder, the product should be treated as 'plastic material'. It is not possible to accept this submission because what the Author has observed on page 6 is that the product is called plastic material after it is formed to shape and the words 'after it is formed to shape' are very crucial. The phenolic resin can be obtained either in liquid form or in powder form. 'Phenolic moulding powder' cannot be termed as plastic material as long as powder is not used to form an article to shape. Mere powder has no shape and what the Author has observed on page 6 is that the product is called plastic material only after it is formed to shape. In my judgment, the submission that the phenolic moulding powder should be termed as plastic material is not correct. The book Encyclopaedia of Chemical Technology, Second Edition - 1968 Volume 15, defines 'Phenolic Resins' in the following terms :-
'Phenolic resin' is a term that describes a wide variety of products resulting from the reaction of phenols with aldehydes. The Phenol aldehyde reaction product may be a liquid or a solution, a solid or a powder, and it may be pure resin or modified with fillers or polymeric compounds. Most phenolic resins are heat-hard enable or thermosetting'.
Shri Dhanuka submits that the expression 'phenolic resin' must be restricted to pure resin and once such resin is modified with fillers or polymeric compounds, it should be treated as plastic material. It is not possible to accept this submission. The modification of pure resin does not necessarily lead to a product which ceases to have characteristics of resin. Shri Dhanuka in support of his submission that the phenolic resin which is entitled to the advantage of notification must be a pure (straight) phenolic resin relied upon the definition of 'moulding powder' given in the book 'PLASTICS', Fifth Edition, by J. Harry Dubeis and Fredrick W. John at page 468 under Glossary. 'Moulding Powder' is defined as plastic material in varying stages of granulation and comprising resin, filler, pigments, plasticizers and other ingredients ready for use in the moulding operation. It is difficult to appreciate how this definition would lead to the conclusion that the phenolic moulding powder ceases to be a phenolic resin and becomes a plastic material.
18. Shri Dhanuka then submits that the petitioners have not disputed the fact that the phenolic moulding powder is a plastic material. In support of this submission, reliance is placed on the Joint Affidavit-in-Rejoinder filed by the petitioners. In paragraph 29 of the said affidavit while dealing with the contention in paragraph 4 of the affidavit-in-reply of Shri Krishnan where it is claimed that the phenolic moulding powder is a plastic material, Dr. Potnis replied as follows :
'The statement made in paragraph 4 viz. 'Phenolic Resin is a synthetic resin whereas Phenolic Moulding Powder is a plastic material's is made out of context and creates a misleading impression. I say that all synthetic resins have plasticity and are, therefore, described as plastic materials in technical reference books'.
Dr. Potnis has further stated in paragraph 29(c) of the Affidavit-in-rejoinder as follows :-
'I say that the definition of 'Moulding Powder' as given in paragraph 4 of the said affidavit does not support the misleading statement that 'Phenolic Resin' is synthetic resin whereas Phenolic Moulding Powder is a 'plastic material'. I say that merely because Phenolic Moulding Powder is a plastic material, it does not ceases to be Phenolic Resin. I say that the terms 'Phenolic Resin', 'Phenolics' and Phenoplast' are synonymous us and connote Synthetic Resin in variety of forms, which are manufactured by chemically reacting a Phenol with an aldehyde, including Phenolic Moulding Powders. I crave leave to refer to and rely upon the relevant references from the Standard Text Books in support of the above statements.
Relying upon these averments made in paragraph 29(a) and (c) of the Affidavit-in-rejoinder, Shri Dhanuka claims that the petitioners have admitted that phenolic moulding powder is known or described as a plastic material. The submission is not correct for more than one reason. In the first instance, Dr. Potnis has nowhere admitted that phenolic moulding powder is a plastic material but what Dr. Potnis stated is that in technical reference books, the material is described as plastic material and the term 'phenolic resin' is synonymous and connotes synthetic resin in variety of forms. If the relevant paragraphs are read in its proper context, it is obvious that the petitioners or Dr. Potnis has nowhere admitted that the phenolic resin powder is a plastic material.
19. In this connection, Shri Sorabjee relied upon the letter dated October, 14, 1979 addressed by the petitioners to the Assistant Collector after Shri Krishnan made his report in pursuance of the order of this Court. In this letter, it was made cleat that merely because the material falls within the category of plastic material, it does not cease to be a synthetic resin. It was further pointed out that the phenolic resin is manufactured in variety of forms which would fall under broad category of synthetic resin which in terms falls in broader category of plastics and polymer. The petitioners have throughout maintained that the phenolic moulding powder was a phenolic resin and not a plastic material merely because it falls under a broader category of plastics and polymer.
20. Shri Sorabjee also relied upon the fact that in the report, a copy of which is annexed as Ex. H to the petition, made by the Chemical Examiner, Bombay to the Superintendent of Central Excise on November 30, 1974 'phenolic moulding powder' of the petitioner was described as composed of phenol formaldehyde synthetic resin with added colouring matter, fillers etc., and not as plastic material. Shri Sorabjee also invited my attention to the fact that the test report given by Shri Krishnan on September 15, 1979 indicates that the sample obtained from the petitioners' factory was a phenolic resin and was described as phenolic resin in the form of moulding powder and not as plastic material. Shri Sorabjee submits that a new case has been made out by the Department for the first time by claiming that the phenolic moulding powder is a plastic material and the Department should not be permitted to raise such a contention. As the contention was urged in the Affidavit-in-reply filed by Kullarwar, I am not inclined to deny the Department the opportunity to resist the petition on this count, but I find that the contention urged on behalf of the Department has no merit.
21. In this connection, it would be also advantageous to make reference to the cross-examination of Shri Krishnan. Shri Krishnan in his report dated September 18, 1979, a copy of which is annexed at page 8 of the compilation, has nowhere described the 'phenolic moulding powder' as plastic material. It would be proper to set out the queries made by the Deputy Collector to Shri Krishnan and his replied thereto :
Query (a) : Whether the product is a synthetic resin manufactured by reacting any of the phenols with an aldehyde ?
Answer : Tipcolite phenolic Material described as phenolic moulding powder is not a straight resin manufactured by reacting any of the phenols with an aldehyde.
Query (b) : Whether the product is a chemically modified phenolic resin ?
Answer : Material is an intimate mixture of phenolic resin which is registered hereunder No. 713 and described by the party as phenolic resin, 'A Stage' with fillers, pigments, additives, plasticizers, hexamine, accelerators etc.
This process consists of intimate mixture of phenolic resin with fillers, hardeners, neutralisers, lubricants, colouring matter, plasticizers to improve the physical properties of moulded articles. Such phenolic moulding powder can be considered as compounded or at best physical modified phenolic resin.
This is phenolic resin modification intimately combined in the uncured or partially cured condition with fillers, pigments and dyes to obtain the properties desired.
Query (c) : Whether the product is a blend of phenolic resins with other artificial or synthetic resin ?
Answer : The product is not a blend of phenolic resin with other artificial or synthetic resin.
Query (d) : Whether the products fall in a category other than (a), (b), and (c) above, if so what is the product ?
Answer : The product does not fall in the category of A, B & C mentioned in your above cited letter. As pointed out under 'B' these moulding powders are plastic material that is phenolic resin modified, containing ingredients such as fillers, pigments and other additives to help to vary the physical properties of the plastic material.
22. From the answers given by Shri Krishnan, it is nowhere stated that the phenolic moulding powder is known as plastic material. Shri Krishnan was cross-examined on this aspect and it would be advantageous to quote Question Nos. 269 to 288, and the answers given thereto :
Query 269 : Do you agree that plastic material is a generic term and that phenolic resin and phenolic moulding powder are included in the term plastic material ?
Answer : Plastics and Synthetic resins are two separate identities according to Condensed Chemical Dictionary.
Query 270 : Would you kindly show that definition ?
Answer : The definition at page 2690 and 749 of the Condensed Chemical dictionary - shown. The definitions are of plastics and Resins Synthetics.
Query 271 : The question asked was whether the term plastics material was not a generic term and included phenolic resin and phenolic moulding powder ?
Answer : No. According to this book.
Query 272 : Would you see the definition of plastics at item 2 at page 690 and tell us whether the distinction made holds goods ?
Answer : Yes. This is because in the definition of resins synthetic it is stated in addition to many application in plastics, textiles, and paints special type of synthetic resins are useful as analysing media. So the synthetic resin is an application plastics and the plastics itself is not treated as synthetic resins.
Query 273 : (Shown Encyclopaedia on Polymer Science and Technology Vol. 12 page 66).
'In Industrial Terminology the un-fabricated material is often called a resin and the material of fabricated articles are Plastics (1.2)'. Do you agree with this statement ?
Answer : This is different from the dictionary meaning, the one on which you have been relying on my examination.
Query 274 : You have in support of your report relied upon this encyclopaedia is it correct ?
Answer : Yes. And also on condensed Chemical Dictionary.
Query 275 : You were posed four queries by the Deputy Collector in his letter dated 17-9-1979 which you have answered by your letter addressed to the Assistant Collector and dated 18-9-1979. In item '8' you have at various stages used the word 'mixture', 'Compounded', 'combined'. In respect of the ingredients forming part of the moulding powder. Can you explain why different terms have been used ?
Answer : The correct term would be mixture, the word compounded has become because the ingredients added are called compounding ingredients and the elastimers and plastimers technology. The masticated product is referred to as compound. So I used the word compound. The word combined has been used with idea just like water and milk when mixed together is called combined. I have used from that point because it is an homogenous mixture and not a hetrogenous mixture.
Query 276 : In para 3 of item 'B' you have described the moulding powder as plastic material. Can you explain why ?
Answer : Because it is told in the technology as plastics material.
Query 277 : Are you now going by the definition of plastic as found in the Chemical Dictionary or in Encyclopaedia ?
Answer : Based on Chemical Dictionary.
Query 278 : According to you phenolic resin is not a plastic material ?
Answer : No.
Query 279 : According to you phenolic resin may become a plastics material by reason of its mixing with certain other ingredients ?
Answer : Yes.
Query 280 : And this according to you is so even though there is no change in the chemical properties of phenolic resins ?
Answer : Yes.
Query 281 : Are P.V.C. and Polyethelene according to you are plastic materials ?
Answer : Yes.
Query 282 : Are P.V.C. and Polyethelene synthetic resin ?
Answer : P.V.C. in pure resin form is called as resin but not polyethelene. In this connection I want to point out I am not a Polymer Chemist and I am not equipped with literature to answer questions on other type of plastics and resins.
Query 283 : Your above statement applies equally to phenolic resins and plastic material ?
Answer : No. As far as Phenolic resin and phenolic moulding powder, I have gone through sufficient literature and I am in a position to answer the questions.
Query 284 : What you stated earlier when you were asked question in respect of phenolic resin viz. that you were not a polymer chemist. Was that incorrect therefore ?
Answer : I stated this in connection with entreaties of the reaction involved but not to differentiate between phenolic resin on the one hand, phenolic moulding powder on the other hand which does not require a research or study of chemistry.
Query 285 : Would you agree that phenolic resin 'A' stage is thermoplastics resin and stage 'B' phenolic resin as the thermosetting resin ?
Answer : The resin part is so.
Query 286 : In the letter dated 18th September, 1979, you have stated that there is an intimate mixture of phenolic resin with fillers, hardeners, utilisers, lubricants, colouring matter and plasticisers. How did you arrive at this conclusion ?
Answer : Based on the study of the process.
Query 287 : What were the ingredients which were in the moulding powder What independent means you had for coming to that conclusion ?
Answer : Since I wanted only one of the important components to be separated out. I did not further do any work on it because I have been asked to base my conclusion by the study of the process.
Query 288 : I put it to you that study of the process at the factory could not tell you the individual ingredients or the present ingredients thereof which went into the moulding powder ?
Answer : I have not gone to the percentage aspects. Nor I have given in the report. Whatever the factory showed that they were adding is corroborated with the Technology and I did not have any doubt whatsoever and hence I have incorporated in the report.
Shri Sorabjee submitted that the answers given by Shri Krishnan clearly indicate that the witness relies solely upon the contents of Chemical Dictionary. Shri Sorabjee complains that the witness conceded that he was not a polymer chemist and he had not applied any test to find out the percentage of ingredients mixed with phenolic resin and, therefore, it is difficult to conclude that by adding certain ingredients, the characteristic of phenolic resin was lost and the end product became a plastic material. I find considerable merit in the submission of the learned counsel. From the cross-examination of Shri Krishnan, it is clear that the witness was unable to sustain his claim that phenolic moulding powder was a plastic material.
23. In this connection, it would be also advantageous to refer to the testimony of Dr. Potnis an expert examined on behalf of the petitioners before the Assistant Collector. Dr. Potnis is a Senior Professor of Polymer Technology and Head of the Plastics and Paints Division in the Department of Chemical Technology of the Bombay University. Dr. Potnis visited West Germany for specialised studies in Polymer Technology and is a consultant in the International Fair in Plastics and Rubber and also a Fellow of Plastics and Rubber Institute (London) and Fellow of Institute of Chemists (India) and an Associate Member of the Indian Institute of Chemical Engineers. Dr. Potnis has written a large number of research publications in different journals and also handled a number of research and Industrial schemes and several Industrial consultancy projects. Dr. Potnis has teaching experience of about 20 years and has directed research work in the field of polymers including phenolic resins and moulding powders. Dr. Potnis was asked a specific question as to whether the phenolic moulding powder is a plastic material or a synthetic resin and the answer is a follows :
'It is a plastic material as well as Synthetic resin. Just because a material is termed as plastic material it cannot cease to be a Synthetic resin. Phenolic resin in form of moulding powder is certainly synthetic resin and is also known as moulding resin. 'Encyclopaedia of Chemical Technology' Volume 15, page 176 describes various forms of phenolic resin including modified form with fillers. In 'Plastics Materials' by J. A. Brydaon, page 50 it is clearly mentioned that phenolic resins are used as moulding powder. 'Dictionary of Tech. Terms' by Prederic Crisping on page 305 describes moulding powders as phenolic resins, moulding. 'Condensed Chemical Dictionary' by Arthur and Elizabeth page 876 has described Phenolic Resins, mentioning that it is used for moulded articles. In 'Plastics Technology' by R. J. Milby on page 32 there is a reference to Phenolic Moulding Powder as Phenolic Moulding Resin. In 'Phenolic Resin' by A. K. Whitehouse on page 119, it is mentioned that application of Phenolic resin is in the field of Moulding.'
24. After carefully perusing the evidence of Shri Krishnan and Dr. Potnis, it is obvious that the phenolic moulding powder cannot be termed or described as a plastic material. The Assistant Collector of Central Excise in his report made in pursuance of the order of this Court has observed in paragraph 23 that the term 'synthetic resin' and 'plastics' is overlapping from the academic and research point of view but common parlance, moulding powder is a plastic material and not phenolic resin. The Assistant Collector has relied upon an extract from Condensed Chemical Dictionary by J. G. Hawley in support of this conclusion. The extract has already been quoted hereinabove and in my judgment, the Assistant Collector did not properly appreciate the exact connotation of the extract and has erroneously assumed that phenolic moulding powder is a plastic material. On the material produced on record both by the petitioners and the respondents, it is not possible to conclude that the phenolic moulding powder is a plastic material and is, therefore, excluded from the advantage of the notification.
25. Shri Dhanuka, in this connection, invited my attention to the Evolution of Tariff Item No. 15-A and submitted that it would be appropriate to take into consideration the Legislative history in interpreting the nature and scope of the Notification dated June 1, 1971. In support of the submission, the learned counsel relied upon the decision of the Supreme Court in the case of J.K. Steel Ltd. v. Union of India and others reported in : 1978(2)ELT355(SC) , Shri Justice Hegde observed;
'In the case of fiscal statutes, it may not be inappropriate to take into consideration the exemptions granted in interpreting the nature and scope of the impost. Hence for finding out the scope of a particular levy, notifications issued by the executive Government providing for exemption from that levy can be looked into and they disclose the overall scheme.'
Shri Dhanuka submitted that Tariff Item No. 15-A was first introduced by the Finance Act, 1961 and the tariff description reads as under :-
'15-A PLASTIC, ALL SORTS namely :-
(i) Moulding powders granules and flakes (thermosetting and thermoplastic).
(ii) Polythelene films, layflat tubings and P.V.C. sheets (that is to say Polyvinyl chloride sheets).'
By Finance Act (No. 23 of 1962), Item 15-A was substituted as follows : '15-A PLASTIC ALL SORTS
(i) Moulding powders granules and flakes (thermosetting and thermoplastic).
(ii) Polythelene films, layflat tubings, and P.V.C. (that is to say Polyvinyl Chloride sheets).
(iii) Not otherwise specified.'
By Finance Act, 1964 dated February 29, 1964, the item was again substituted by the following entry :
'15-A Artificial or Synthetic Resins and Plastic Materials and Articles thereof.
(1) Artificial or synthetic resins and plastic materials in any form whether solid, liquid or pasty or as powder, granules or flakes or in the form of moulding powders, the following, namely :-
(i) Condensation, Polycondensation and Polyaddition products, whether or not modified or polymerised, including phynoplasts, aminoplasts, alkyds, polyurethane, polyeasters and other unsaturated polyesters.
(ii) Polymerisation and Copolymerisation products including polyathylene and polytetrahalecthylene, polysodutylene, polyvinyl chloroacetate and other polyvinyl derivatives, polyamides, polyacrylic and polymethacrylic derivatives and Coumarene-Indone resins; and
(iii) Cellulose acetate (including dior tri-acetate) Cellulose acetate butyrate and Cellulose propionate Cellulose acetate-propionate Ethyl cellulose and Benzyl cellulose, whether plasticised or not and plasticised Cellulose nitrate.
(2) Articles made of plastics, all sorts, including tubes, rods, sheets, foils sticks, other rectangular or profile shapes whether laminated or not, and whether rigid or flexible, including layflat tubings and Polyvinyl chloride sheets.
Explanation. - For the purpose of sub-item (2) 'plastics' means the various artificial or synthetic resins or plastic material included in sub-item (1).
The existing Item No. 15-A was substituted by Finance Act No. 2 (Bill) of 1971. Shri Dhanuka submits that from 1961 till 1964, the expression 'moulding powder' was included in the term 'Plastic', while after 1964 the terms 'Artificial or Synthetic Resins' and 'Plastic Materials' were split up. Shri Dhanuka submits that on September 23, 1965, the Central Government in exercise of powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 issued a notification giving exemption to artificial and synthetic resins as specified in the Notification and one of the time was phenolic resin.
26. Shri Dhanuka submits that in spite of grant of exemption in payment of duty from September 23, 1965, the petitioner never made any claim for exemption because the petitioners never treated phenolic moulding powder as phenolic resin. The learned counsel submitted that not only the petitioner but the Department and the Legislature understood all throughout that moulding powder was nothing but plastic material and that is clear from Tariff Item No. 15-A as was available prior to February 1964. It is difficult to appreciate how the Item No. 15-A prevalent prior to February 1964 would lead to the conclusion that phenolic moulding powder was treated as plastic material. It is obvious from reading all the entries that moulding powders, layflat tubings and polyvinyl chloride sheets were covered under the broader term 'plastic' for the purpose of excise duty under Item No. 15-A. As mentioned hereinabove, even Artificial or synthetic resins are members of the family of 'plastic' and the word 'plastic' is used in a broader sense in technical and scientific books. Shri Dhanuka submits that the scope of general word will have to be restricted because of the specific provisions elsewhere by applying rules of harmonious construction. It was urged that though the term 'plastic' is generic term and the expression 'phenolic resin' is species, still whenever specified item is to be treated separately each item so specified forms a separate species. Shri Dhanuka also submitted that the etymological meaning of the term 'plastic' is different from the meaning understood by the trade and commercial circles.
27. Shri Dhanuka, in this connection, relied upon the decision of this Court in the case of Nirlon Synthetic Fibres and Chemicals Limited v. Shri R. K. Audim, Assistant Collector and others (Miscellaneous Petition No. 491 of 1964) decided on April 30, 1970. The question which required consideration in that case was whether 'Polymer Chips' - otherwise called 'Nylon 6 Chips' - are liable to Excise Duty under Item No. 15-A in Schedule I to the Central Excises and Salt Act, 1944. The Department was claiming that the item was liable to excise duty because polymer chips are plastic. On behalf of the Nirlon Company, it was claimed that the object of Central Excise Act is to raise revenue and for the purpose to classify substances according to general usage and known denomination of the trade and subsequently the correct principle of interpretation of item would be that the time should not be construed in the technical or scientific or laboratory sense, but in the sense which people dealing with or commercially conversant would attribute. Shri Justice Tulzapurkar, as he then was, accepted the contention of the Company and held that the polymer chips are not plastic and while interpreting the meaning of the item in the Act, the meaning should be given according to the general usage as known to persons dealing with or commercially conversant with these items.
28. Shri Dhanuka also relied upon the decision of the Delhi High Court in the case of J.K. Synthetics Ltd., Kota (Rajasthan) v. The High of Central Excise, Delhi (Civil Writ No. 115-D/63) decided on August 28, 1970 where an identical question as involved in Nirlon's case was considered and answered in favour of the Company. The decision in Nirlon's case was cited before the Delhi High Court and was approved. Shri Dhanuka submits that in trade circles, 'phenolic resin' and 'plastic' are treated as two different articles. It was further urged that moulding powder was never considered as plastic in the trade circles and the petitioners even did not consider so right till 1974 when the first refund application was filed even though the exemption Notification in respect of phenolic resin was available from the year 1965 onwards. Shri Dhanuka urges that the Assistant Collector has correctly recorded Finding No. 1 in his report dated September 3, 1979 that phenolic resins and phenolic moulding powder are two different articles understood in the trade.
29. Shri Sorabjee, on the other hand, complains that though the principle enunciated in the case of Nirlon Synthetic by this Court and in the case of J.K. Synthetics Ltd. by the Delhi High Court is correct, still the submission of Shri Dhanuka that the two articles are understood in the trade circles as different articles is not correct. Shri Sorabjee complains that the finding recorded by the Assistant Collector is not only without any material but, on the other hand, contrary to the positive evidence led by the petitioners. Shri Sorabjee first relied upon the contents of paragraph 43 of the joint Affidavit-in-reply filed by the petitioners. Dr. Thakkar, who is the General Manager of M/s. Industrial and Allied Chemicals carrying on business as dealers in Synthetic Resins and its allied products, has stated in paragraph 43 as follows :
'I say that in trade circle Phenol Formaldehyde resins in powdered form, for the purpose of moulding are called Phenol Formaldehyde Moulding Powders'.
30. Shri Sorabjee then relied upon certain contracts entered into by the petitioners and other Companies dealing with phenolic moulding powder. On page 155 of the compilation is the letter dated May 7, 1976 addressed by the Charge d, Affairs of Indian Embassy in Lima-Peru to the petitioner Company wherein reference is made to the petitioners' letter regarding market in Peru for the export of phenolic synthetic moulding resins. On page 156 is the letter dated January 17, 1977 addressed to the petitioner by Vagale Electrical Industries in respect of booking of order for moulding resin. There are also other letters and orders from various other institutions wherein the phenolic moulding powder manufactured by the petitioners is described as moulding resins. Shri Sorabjee also relied on Exs. 'B' and 'C' annexed to the Affidavit-in-rejoinder in Companion Petition No. 539 of 1975. Ex. 'B' is the letter dated September 16, 1978 addressed by Hitachi Limited to the Sales Executive of Indian Plastics Limited where the quotations are called for phenolic moulding resin. Ex. 'C' also supports the claim of the petitioners that the product is known in the trade circle as phenolic moulding powder.
31. It was urged on behalf of the petitioners that in spite of this positive evidence led by the petitioners to establish that the phenolic moulding powder is known in the trade and commercial circles as phenolic resin, the Assistant Collector in his report has made no reference to the same but has made an observation that phenolic resin and phenolic moulding powders are two different articles known in the trade. The grievance of Shri Sorabjee seems to be justified. The Assistant Collector in his report dated September 3, 1979 has made no reference to the evidence led by the petitioners and has recorded a finding without any evidence on behalf of the Department.
32. Shri Dhanuka made a faint attempt to submit that it should be held that in the trade circles, phenolic moulding powder is not known as phenolic resin but as plastic material for two reasons. First, as the petitioners themselves have not sought the exemption though available from September 23, 1965 till August 1974. Non-action on the part of the petitioners, submits Shri Dhanuka, is a tell-tale circumstance to establish that in the trade circle 'phenolic resin' and 'phenolic moulding powders' are two different articles. Shri Sorabjee urged that simply because the petitioner Company paid the excise duty, it cannot mean that in the trade circles phenolic moulding powder is not known as phenolic resin, nor can the petitioners be taxed on the basis of estoppel or any other equitable doctrine. It was urged that it is significant that not a single instance has been pointed out by the Department where the phenolic moulding powder has been described as plastic material. The submission of Shri Sorabjee is correct. The mere fact that the petitioners have not claimed the exemption from 1965 onwards is not conclusive to hold that in the trade circles phenolic moulding powder is not known as phenolic resin but is plastic material.
33. Shri Dhanuka then submits that the second factor which requires to be noted is that the Legislature while enacting the tariff items takes into consideration the meaning of the words as is known in the trade circles. It was claimed that when the expression 'moulding powder' is included in the 'plastic' till 1964, it should be presumed that in the trade circles moulding powder of any nature whatsoever is known as plastic material. It was further urged that Explanation to Item No. 15-A provides that for the purpose of sub-item (2) 'plastics' means the various artificial or synthetic resins or plastic materials or Cellulose esters and others, included in sub-item (1), and that indicates that synthetic resin or phenolic resin can also be termed as plastic material. It is not possible to accept this submission. The explanation to Item No. 15-A, as substituted in the year 1964, was restricted to the expression in sub-item (2) only. The explanation would not advance the case of the Department to any extent in establishing that the Legislature had also taken into consideration the meaning of expression 'plastics' as understood in the trade circles while enacting the tariff item. In these circumstances, it is not possible to accept the submission of Shri Dhanuka that although there is no positive evidence to substantiate the contention that in trade circle, phenolic moulding powder is known as plastic material, still the same should be gathered from circumstances like intention of the Legislature and the non-action on the part of the petitioners to claim exemption. In my judgment the petitioners have established that in the trade circle, the phenolic moulding powder manufactured by the petitioners is known as synthetic resin and the conclusion of the Assistant Collector that synthetic resin and moulding powder are two different articles known to the trade is incorrect.
34. In this connection, it would be appropriate to make reference to the decisions of the Supreme Court in the case of Hansraj Gordhandas v. H. H. Dave, Assistant Collector of Central Excise and Customs, Surat and others reported in : [1969]2SCR253 and in Innamuri Gopalan and others v. State of Andhra Pradesh and another reported in : [1964]2SCR888 . In Hansraj Gordhandas's case reported in : [1969]2SCR253 the Supreme Court was considering the question as to the scope and ambit of exemption notification in respect of duty for cotton fabrics produced on powerlooms owned by Co-operative Society, Shri Justice Ramaswami, speaking for the Court, observed :
'It is well established that in a taxing statute there is not room for any intendment but regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the notification. If the tax-payer is within the plain terms of the exemption it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority. If such intention can be gathered from the construction of the words of the notification or by necessary implication therefrom, the matter is different but that is not the case here. In this connection, we may refer to the observations of Lord Watson in Saleman v. Saloman and Co., 1897 AC 22 :
'Intention of the legislature is a common but very slippery phrase, which, popularly understood may signify anything from intention embodied in positive enactment to speculative opinion as to what the legislature probably would have meant, although there has been an omission to enact it. In a Court of Law or Equity, what the Legislature intended to be done or not to be done can only be legitimately ascertained from that which it has chosen to enact, either in express words or by reasonable and necessary implication.' It is an application of this principle that a statutory notification may not be extended so as to meet a casus omissus. As appears in the judgment of the Privy Council in Crawford v. Spooner, (1946) 6 Moo PC 1 :
'.........we cannot aid the legislature's defective phrasing of the Act, we cannot add, and mend, and, by construction, make up deficiencies which are left there.' Learned Counsel for the respondents is possibly right in his submission that the object behind the two notifications is to encourage the actual manufacturers of handloom cloth to switch over to power-looms by constituting themselves into Co-operative Societies. But the operation of the notifications has to be judged not by the object which the rule making authority had in mind but by the words which it has employed to effectuate the legislative intent.'
The principle enunciated in this case was followed in the latter decision also. Shri Dhanuka then submits that the expression 'phenolic resin' in Explanation to the Notification dated June 1, 1971 means only pure phenolic resin i.e., phenol reacted with formaldehyde. It was urged that this is the basic material and the phenolic moulding powder cannot be described as phenolic resin as it is not removed from the factory at the stage the item is phenolic resin. It was urged that the pure phenolic resin is compounded further with adding several ingredients and the end product takes different shapes having different identity and different use. It is claimed that once, the phenolic resin undergoes modification, it ceases to be pure phenolic resin and becomes a plastic material. It is not possible to accept this submission because it is not established by the Department that the end product 'phenolic moulding powder' loses the character of phenolic resin and becomes plastic material. Shri Dhanuka was unable to suggest the characteristics of phenolic moulding powder which are different from that of phenolic resin. In my judgment, the petitioners have succeeded in establishing that they are entitled to the advantage of exemption notification as the phenolic moulding powder is nothing but the phenolic resin manufactured by reacting of the phenols with an aldehyde.
35. Before concluding discussion on this point, reference must be made to the submission of Shri Dhanuka that where two views are possible as regards the meaning and interpretation of entry in the Act, the Court should not disturb the view taken by the Department. In support of this submission reliance is placed on the two decisions of the Supreme Court in the case of V. V. Iyer of Bombay v. Jasjit Singh, Collector of Customs and another reported in : AIR1973SC194 and in Smt. Ujjam Bai v. State of Uttar Pradesh and another reported in A.I.R. 1962 S C 1621. In my judgment, the principle urged by Shri Dhanuka has no application to the facts of the present case because on the facts and circumstances of the case, two views are not possible and the only conclusion which can be recorded is that phenolic moulding powder is not a plastic material but merely a form of phenolic resin.
36. Shri Sorabjee submitted that the petitioners are entitled to take advantage of the exemption Notification dated June 1, 1971 because phenolic moulding powder is nothing but a chemically modified phenolic resin and squarely falls in the expression as defined in clause 3 of the notification. Shri Dhanuka, on the other hand, submits that the phenolic moulding powder is not chemically modified phenolic resin but is merely physically modified compound and does not fall within the expression 'phenolic resin' as defined in Explanation (3) of the notification. To appreciate the submission, it is first necessary to make reference to the material available on record on this count. The petitioners refer to an extract in the petition from ASTMD which reads as under :
'These specifications cover hot-moulding thermosetting, compounds consisting of essentially a phenol-formaldehyde resin or modifications thereof intimately combined in the uncured or partially cured condition with fillers, pigments and dyes, as required, to obtain the properties desired. The moulding compounds shall consist of essentially a phenol formaldehyde resin or modifications thereof of such characteristics and combined in the uncured or partially cured state in such proportion and in such manner with the filler as to flow under heat pressure to fill the mould completely and to harden so as to hold metal insets firmly.'
The petitioners also relied upon a letter dated December 5, 1974 addressed by Dr. Potnis to the Manager of the petitioner Company. Dr. Potnis has opined that the phenolic moulding powder is defined as chemically modified phenolic resin. The letter is annexed as Ex. F (Collectively) to the petition. The petitioners also relied upon the letter dated March 5, 1975 addressed by Dr. R. T. Thampy to the petitioners in regard to their product of moulding powder. Dr. Thampy has mentioned in the letter, a copy of which is annexed as Ex. 'G' to the petition, that moulding powder of the petitioners is mainly phenolic resin and it is obtained by chemically modified resins with ingredients like hexamine, lime, Mg-oxide and wood flour etc. In answer to the petition, Shri Kullarwar in his affidavit-in-reply has stated that phenolic moulding powder is a substance compounded consisting manly of Phenol Formaldehyde Resin intimately combined with fillers, colouring matter, lubricants and plasticisers and this intimately mixed substance is a physically modified compound as distinguished from a chemically modified Phenolic resin. Shri Krishnan, in his affidavit-in-reply to the petition has reiterated the statements of Shri Kullarwar in paragraphs 4 and 8 of the affidavit. Shri Krishnan has further stated that in a chemical compound one cannot separate the ingredients by simple physical process whereas in a physically compounded articles, the ingredients can be separated by simple physical means. In the affidavit-in-rejoinder filed on behalf of the petitioners, it is reiterated that the product of the petitioners is chemically modified phenolic resin and it is further claimed that even assuming that it is only physically modified, still it is entitled to the exemption under the notification because notification nowhere makes any distinction between chemically modified and physically modified resins. In the Affidavit-in-rejoinder, Dr. Potnis has stated in detail the process adopted by the petitioners to chemically modify phenolic resin. Dr. Thakkar has also supported the claim of the petitioners in the Affidavit-in-rejoinder and has stated that for the manufacture of phenol formaldehyde resin in the form of moulding powder, phenol is made to reach with formaldehyde and in order to give necessary properties, various chemicals are added. The petitioners also annexed to their Affidavit-in-rejoinder a letter dated April 1, 1975 addressed by the Head of Division of Polymer Chemistry, National Chemical Laboratory, Poona. The letter, inter-alia, recites the process which required to be carried out for manufacture of moulding powder.
37. After passing of the interim order by this Court, Shri Krishnan has secured the samples of the moulding powder from the petitioners' Company and has also visited the factory to inspect the manufacturing process. The Deputy Collector, Central Excise, posed a specific query to Shri Krishnan as to whether the product is a chemically modified phenolic resin and the answer given by Shri Krishnan to query (b) is set out hereinabove. Shri Krishnan, inter-alia, stated that the product is phenolic resin modification intimately combined in the uncured or partially cured condition with fillers, pigments, etc. After the receipt of the report, the petitioners addressed a letter to the Deputy Collector on October 14, 1979 and complained that the report of Shri Krishnan fails to give clear opinion to the questions put by the Deputy Collector. The petitioners reiterated their stand that the phenolic moulding powder is a chemically modified phenolic resin and in support of the claim relied upon the report dated October 5, 1979 of Department of Chemical Technology, University of Bombay, which carried out the test on the sample of phenolic moulding powder and concluded that it is a chemical compound. The report further recites that the Department was unable to separate phenolic moulding powder into its individual components. Shri Krishnan was cross-examined before the Deputy Collector on the issue and it would be interesting to set out question and answers in this connection :
Query 139 : Phenolic Moulding Powder is a chemical compound Answer : No.
Query 140 : Have you got any book to show that phenolic moulding powder is not a chemical compound ?
Answer : Yes, there is a book, 'Plastics Materials' by Brydson III Edition Page 520.
Query 141 : Point out from this book where has it been stated that Moulding Powder is not a Chemical Compound ?
Answer : It is not so stated.
Query 142 : Are there any other books ?
Answer : Polymers & Resins by Golding, page 261.
Query 143 : Where in the passage it is stated that Phenolic Moulding Powder is not a Chemical Compound ?
Answer : Nowhere it is stated that Phenolic Moulding Powder is a Chemical Compound and nowhere it is stated that it is not a Chemical Compound.
Query 144 : Merely because it is not stated in the books that it is not a chemical compound nor that it is a Chemical Compound, you have come to the conclusion that it is not a chemical compound ?
Answer : Yes. Witness Volunteers : My conclusion has been arrived at because I had to separate the fillers by simple physical process.
Query 145 : Polymer is a Thermoset ?
Answer : Yes.
Query 146 : Thermoset is a Polymer ?
Answer : Yes.
Query 147 : Cured Phenol Formaldehyde Resin can be considered a Chemical Compound or not ?
Answer : A fully cured one is a Chemical Compound.
Query 148 : Partially cured phenol formaldehyde resin is also a Chemical Compound or not ?
Answer : It is a mixture of cured resin, some free resin and some curing agents.
Query 149 : What do you mean by curing ?
Answer : A process by which it is capable of further Polymerising and adhere to the various fillers and when a plastic article is cast, it gives a sufficient physical, mechanical and electrical properties.
Query 150 : Does the process of curing involves any chemical reaction ?
Answer : There is a lot of controversy on the subject. Some say reaction may take place. Others are silent about it.
Query 151 : If some are of one view, and the others are silent, then there is no question of any controversy.
Answer : I cannot say as I am not a Polymer Chemist.
Query 152 : For this purpose you have not to be a Polymer Chemist. If one author gives one view and others are silent, there cannot be any controversy.
Answer : The author only doubts it that there may be reaction. So the controversy comes.
Query 153 : Earlier you have stated that an author has given particular view ?
Answer : It is a doubtful view and that is why controversy.
Query 154 : Do you agree that cured means changing the physical properties of the material by Chemical Reaction ?
Answer : No.
Query 155 : The Condensation, Polymerisation or vulcanisation are chemical reactions whereby physical properties of a material rechanged ?
Answer : Yes.
Query 156 : Will you admit that cure means to change the physical properties of a material by chemical react in which may be condensation, Polymerisation or vulcanisation, usually accomplished by reaction of which, alone or in combination with or without pressure ?
Answer : That definition is correct.
Query 157 : In cure there is chemical reaction ?
Answer : Curing for the purpose of chemistry, plastic, technology etc. does involve a chemical reaction.
Query 158 : In partial curing, you want to suggest that no chemical reaction takes place ?
Answer : Very slight chemical reaction may or may not take place.
Query 159 : For the purpose of partial curing the held of heat and catalyst may be taken ?
Answer : Yes.
Query 160 : In cure, you say that there is a chemical reaction. In partial cure it might be a partial chemical reaction ?
Answer : Yes.
Query 161 : In partial curing there would be partial chemical reaction ?
Answer : Yes.
Query 162 : You have seen the process at the factory of TIPCO. Had you an occasion to see the Affidavit-in-rejoinder made by Mr. Betai and Dr. Potnis and Dr. Thakkar ?
Answer : I have casually seen. I have not been given the same by the Government Advocate.
Query 163 : The process chart for manufacture of phenolic resin mentioned in that Affidavit-in-rejoinder is correct of not (Exhibit 'B').
Answer : It is correct.
Witness Volunteers : I agree with the process except the statement 'further chemical reaction between phenol formaldehyde hardner - plasticisers & fillers etc....' inasmuch as I could separate fillers by simple physical process. That is the only thing with which I do not agree.
Query 164 : Have you seen Rolling Mill and Ko-Kneader which are used for heating and all the ingredients put into ball mill and then heated through roll mill under heat and pressure ?
Answer : Yes.
Query 165 : That is partially curing ?
Answer : Yes.
Query 166 : By this partial curing, there is partial chemical reaction ?
Answer : Yes. But the fillers do not take part in this.
Query 167 : Have you got anything to show that wood flour do not chemically react with phenolic resin by showing reference to the text book ?
Answer : No.
Query 168 : By having your saying that you have separated the wood flour, there is nothing else to support your views ?
Answer : I have nothing categorically except the one which I have quoted.
Query 169 : What is un-categorically ?
Answer : It is neither this was nor that way. There is nothing categorical or otherwise on the subject barring my findings.
Query 170 : You have not produced your findings ?
Answer : I have not brought my laboratory notes.
Query 171 : According to you, you have been able to separate only one component and that component is filler, and that filler is wood flour. Have you carried out any test for the purpose of ascertaining that it is a wood flour or otherwise ?
Answer : Yes.
Query 172 : What test ?
Answer : Microscopic.
Query 173 : You carried out the test or somebody else ?
Answer : I have carried out myself, my assistant also carried out the same and have confirmed.
Query 174 : This test is only a visual test ?
Answer : Yes.
Query 175 : You have not carried out any chemical test ?
Answer : No.
Query 230 : Yesterday you told us that partial cure involves some chemical reaction. Would you be able to say whether this chemical reaction is permanent or reversible ?
Answer : I have already stated that I have only separated the fillers from other ingredients. I have not gone in the separation, isolation etc. of the curing agents and the phenolic resin. Hence I cannot say anything in this aspect. As far as I know, the curing of the phenolic moulding powder takes place at the time of moulding and at that time the reaction is irreversible. Just like the masticated rubber gets cured at the time of vulcanisation. There the reaction involved is irreversible and it is not possible to separate the rubber from the fillers etc. Similarly in a cured moulded product it will not be possible to physically separate resin from the fillers.
Dr. Potnis has also deposed on this issue and the following part of his evidence would be relevant :
Query 4 : Please define cure ?
Answer : Cure is a chemical reaction. This can be seen from 'Plastics' by Harry Dubois on page 450.
Query 5 : Is partial cure a chemical reaction ?
Answer : Yes, even partial cure is a chemical reaction.
Query 6 : Please define physical modification and chemical modification ?
Answer : In polymer Chemistry, there is no terminology as physical modifications. Normally physical modification signifies only change in physical shape such as solid lumps crushed to powder is physical modification. In polymer field and especially phenolic resins, modification means chemical modification, because such modification is brought about only by using chemicals, involving chemical process, through chemical reactions and both physical and chemical properties are modified. In 'Polymers and Resins' by Brage Golding on page 186, clear description of modification is given for Polymerise materials that even when only physical properties are modified, such modification is obtained through chemical treatment and change in physical properties is due to change in chemical nature.
After this evidence, comes the report of the Assistant Collector of Central Excise. In paragraphs 14, 15 and 16, the Assistant Collector accepted whatever has been claimed by the Department and has discarded the evidence of Dr. Potnis.
37. Shri Sorabjee submitted that the evidence produced by the petitioners and the cross-examination of Shri Krishnan would establish beyond any doubt that phenolic moulding powder chemically modified phenolic resin. I considerable merit in the submission of the learned counsel. The cross-examination of Shri Krishnan would indicate that the witness was obviously avoiding to give a straight answer and was forced to admit that he was not a Polymer Chemist. The witness had to concede that even in partial curing, there is partial chemical reaction. The fact that Shri Krishnan has not carried out any chemical examination, nor has cared to separate various ingredients which are mixed with phenolic resin makes it clear that Shri Krishnan is not right in his conclusion that the product manufactured by the petitioners is not chemically modified phenolic resin but is merely physically modified resin. Shri Sorabjee is right in his submission that the conclusion of Shri Krishnan that the product is a physically phenolic resin because he could separate wood flour by physical means is wholly incorrect and could not be accepted in view of the report made by the Department of Chemical Technology of Bombay University. The Department of Chemical Technology was unable to separate the various ingredients from the final product of the petitioners and it is difficult to appreciate how Shri Krishnan could do so by physical means. Shri Krishnan admitted that he had not performed any chemical test but by mere microscopic test was able to separate wood flour from the product and arrived at the conclusion that it is a physically modified phenolic resin. In the first instance, I am not satisfied that Shri Krishnan had really done so, but even assuming that what Shri Krishnan said is correct, still by mere separation of the wood flour from the end product, it cannot be concluded that it was a physically modified phenolic resin.
38. In Brydson's book on 'Plastic Material' at page 397, it is stated that wood flour is a fine sawdust preferably obtained from soft woods such as pine, spruce and poplar. There is a good adhesion between phenol formaldehyde resin and the wood flour and it is possible that some chemical bending may occur. It would be convenient to quote an extract from the Book 'Polymers and Resins' - 'Their and Chemical Engineering' by Brage Soliding, Ph.D. page 256-257.
'Wood flour is the most common filler and is used for general purpose moulding compounds. Wood-flour-filled resins flew easily in the mould and yield articles possessing excellent appearance. Poor to fair electrical properties, fair impact strength, good tensile strength and low heat conductivity characterise the moulding. For more severe impact requirements, cotton linters yield articles which are better in this respect, while chopped fabric, shredded textiles, sisal fibre, and long fibres wood pulp (kraft) give moulding objects of outstanding resistance to shock.'
It is obvious from this passage that wood flour is not an essential ingredient in the manufacture of moulding powder but is mixed for convenient easy flow in the mould and giving excellent appearance to the article. Even assuming that Shri Krishnan could separate wood flour from powder, it would not establish that the phenolic moulding powder has not undergone chemical modifications. The evidence of Dr. Potnis, in may judgment, positively establishes that the phenolic moulding powder is manufactured as a result of chemical modification of phenolic resin.
39. Faced with this voluminous evidence, Shri Dhanuka faintly submitted that the chemical modification means where separation of any ingredients is not possible. It is not possible to accept this submission. Even in cases of chemical modification, it may be possible to separate one of the ingredients which is added for the purpose of giving fine appearance or for smooth flow in the mould. The question whether the product is manufactured by chemical modification would depend upon the process adopted in the manufacture and could not be concluded merely because one of the ingredient could be separated. Shri Dhanuka then urged that chemically modified phenolic resin means that even after chemical modification the end product should retain the character of phenolic resin. The submission is that as the end product has lost the character of phenolic resin and has become a plastic material, it cannot be concluded that the exemption notification is applicable. The submission cannot be entertained as I have already concluded that the end product has not lost its character of phenolic resin and has acquired some other character to be described as plastic material.
40. A faint attempt was made to suggest that as the fillers are mixed with the phenolic resin, the end product should be deemed as a plastic compound and support was sought from the book 'Plastic' 5th Edition by J. Marry Dutois and Frederick John. On page 10 and 11 and under the heading 'Fillers', the following passage appears :-
'Fillers play a very important part in the manufacture of plastic compounds. They reduce cost, provide body, speed the cure or hardening, minimise shrinkage, reduce raxing, improve thermal endurance, add strength and provide special electrical, mechanical and chemical properties, Asbestos, for example, is widely used as a filler in compounds requiring high temperature and improved dimensional stability. Mica serves as a crack-stopper in glass bonded mica; it also improves the electrical and thermal properties of all compounds. Ferrates are added to produce magnetic materials. Glass Fibres produce very high strength compound.'
It is difficult to appreciate how mixing of fillers would make the final product a plastic material and would lead to the conclusion that the moulding powder was not chemically modified phenolic resin. The submission of Shri Dhanuka that the moulding powder was not a chemically modified but a physically modified phenolic resin deserves to be repelled.
41. But even assuming that Shri Dhanuka is right that the phenolic moulding powder is a physically modified phenolic resin, still, the petitioners would be entitled to claim advantage of the exemption notification dated June 1, 1971. A plain reading of the explanation (3) to the Notification would establish that the expression 'phenolic resin' means and includes chemically phenolic resin. The expression 'includes' take in its sweep not only chemically modified phenolic resin but also physically modified resin. Shri Sorabjee is right in his submission that the notification does not exclude physically modified resins and even assuming that Shri Krishnan is right in his conclusion, still the petitioners would be entitled to the advantage of the notification. In this connection, Shri Sorabjee relied upon the decision of the Andhra Pradesh High Court in the case of Sahu Mills and others v. State of Bihar reported in 1977 Excise Law Times, 88. While considering the ambit of expression 'Tobacco' in Item 4, schedule 1 to the Central Excise Act, it was observed in paragraph 10 as under :-
'It is a generally accepted principle that in the matter of taxation laws if a provision is wanting in clarity and no meaning is reasonably clear, that meaning which is more favorable to the subject should be taken as its meaning. The word 'tobacco', according to its ordinary dictionary meaning, is not merely any part of the tobacco plant like its leaves but the plant itself. Therefore, the expression 'tobacco' without any definition would include the entire tobacco plants. But by the definition in question the expression was intended to be given both some restricted and enlarged meaning. By its enlarged scope both cured and manufactured tobacco are brought into it and merely its natural state. By its restricted scope tobacco plant are any parts of it while the plant is attached to the earth were taken out of its purview. By giving an inclusive definition, it does not appear that the definition was intended to be restricted only to those parts of the tobacco plant mentioned therein.'
Shri Sorabjee is right in his submission that the definition in Explanation (3) is inclusive and was not intended to restrict only to chemically modified phenolic resin but to even physically modified phenolic resin. The petitioners, in my judgment, are entitled to claim exemption provided by the Notification on the ground that the phenolic moulding powder is chemically modified phenolic resin. The Assistant Collector was obviously in error in coming to the contrary conclusion. Shri Sorabjee made a grievance that the Assistant Collector obtained certain additional information privately from Shri Krishnan and behind the back of the petitioners to record its finding. The observation made by the Assistant Collector in paragraph 14 and paragraph 20 of his report does support the grievance of Shri Sorabjee that the Assistant Collector secured privately additional information from Shri Krishnan. It hardly requires to be stated that the Assistant Collector in exercise of his quasi-judicial function was not justified in obtaining information privately and behind the back of the petitioners. It is inappropriate for any authorities to base the conclusion on the information secured privately and in respect of which the party affected had no opportunity to give explanation. In my judgment, the duty of excise leviable on the phenolic moulding powder manufactured by the petitioners would be in accordance with Item No. 15-A read with notification dated June 1, 1971.
42. The brings me to the relief sought by the petitioners in this petition. The petitioners have sought the writ of certiorari for quashing the order dated December 23, 1971, passed by the Assistant Collector. The second relief sought is for a writ of prohibition restraining the respondents from levying excise duty on phenolic moulding powder under Item No. 15-A of the First Schedule and further directing to levy the duty under the notification dated June 1, 1971. The third relief claimed is for direction directing the respondents to refund to the 1st petitioners the sum of Rs. 74,96,740.80 and all further amounts that might be recovered by the respondents hereafter. Shri Dhanuka has no objection to the grant of relief of quashing the order as prayed in prayer (a) of the petition. As regards prayer (b), Shri Dhanuka submits that the direction can be given to the respondents to levy excise duty on phenolic moulding powder under Notification dated June 1, 1971 only till February 26, 1980. Shri Dhanuka points out that the Central Government has issued a fresh notification dated February 27, 1980 wherein phenolic formaldehyde mounding powder has been specifically included as one of the items in the table fixing certain rate of duty. In regard to the relief of refund of the amount made in prayer (c) of the petition, Shri Dhanuka has two-fold submissions to advance. The first submission is that the amount claimed by the petitioners is not found to be correct on computation by the Department and it would not be permissible to award that amount in this petition, but at the most a direction can be given to the Department to compute the same. There cannot be any dispute as regards this submission of Shri Dhanuka. It was was then urged by the learned counsel that while computing the amount as claimed by the petitioners, it would be necessary for the Department to consider whether the claim of refund made by the petitioners is within period of limitation as provided by Rule 11 of the Central Excise Rule, 1944. Shri Dhanuka submits that any person claiming refund of any duty can make an application for refund before the expiry of one year from the date of payment of duty. The submission of Shri Dhanuka is correct if old Rule 11 is read with Rule 173-J. Shri Dhanuka submits that the petitioners are seeking relief in respect of the duty paid by them for the period commencing from June 1, 1971 till August 24, 1971 for a sum of Rs. 74,96,740.80 as set out in paragraph 8 of the petition. The petitioners have also filed an application for refund on August 23, 1974 for the period from June 1, 1971 till August 24, 1973 and another refund application on August 24, 1974 for a period commencing from August 25, 1973 to August 24, 1974. Shri Dhanuka submits that the Department is entitled to consider whether the claim made by the petitioners is within period of limitation before computing the same and refunding the amount.
43. Shri Desai, the learned counsel appearing on behalf of the petitioners, on the other hand, points out that it is not open for the Department to decline to consider the claim of the petitioners for the relevant period on the ground that it is not in compliance with Rule 11 of the Central Excise Rules. The learned counsel pointed out that the provisions of Rule 11 are attracted only in cases where repayment is claimed in consequence of the same having been paid through inadvertence, error or misconstruction and that contingency is not present in the case in hand. Shri Desai submits that excess duty was recovered on the phenolic moulding powder though it was not permissible in law in view of the notification and, therefore, such a levy clearly amounts to exercise in excess of jurisdiction or acting without jurisdiction and cannot be held merely an error of jurisdiction. The learned counsel submitted that Rule 11 has no application whatsoever as the recovery made was illegal and the claim made for refund could be entertained within three years from the date of discovery of the mistake of law. The submission of Shri Desai deserves to be accepted as the Division Bench of this Court has accepted the proposition urged in the case of Associated Bearing Company Limited v. Union of India and another reported in 1980 E.L.T. 415. Shri Justice Chandurkar speaking for the Division Bench observed in paragraph 9 after considering the Supreme Court case of Union of India v. Mansingka Industries :-
'The effect of the decision in Mansingka's case, therefore, appears to be that excess duty recovered on the basis of the price which included an element of post-manufacturing cost has been held to be not merely an error in exercise of jurisdiction but it has been held to be an illegal recovery. The jurisdiction of the authorities under the Central Excise Act is to recover duty according to law. If any duty is recovered in such a manner that duty comes to be levied on price which is not permissible to law as in the case of including post-manufacturing expenses in the price of the dutiable article, the levy of duty clearly amounts either to acting in excess of jurisdiction or acting without jurisdiction. Such an act on the part of the departmental authorities cannot be considered as resulting from any error or misconstruction as contemplated by Rule 11 of the Act. In such a case there is also no question of any inadvertent demand. The very basis of computation of duty becomes wrong and to the extent the recovery is wholly unauthorised.'
44. Shri Dhanuka submits that in the petition, the petitioners have made no averment that they paid the amount under the mistake of law or that they discovered the mistake at any particular stage. It was urged that as the petition is totally silent on this count, the petitioner should not be permitted to argue a new case. In the first case, it is not correct that the petitioners have made no averment that the levy was wrongful or illegal. The averment to that effect can be found in paragraph 8 of the petition. It is true that the petitioners have not specifically stated as to when they discovered the mistake committed by them in payment of the duty, but in may judgment, looking to the facts and circumstances of the case, it is obvious that the mistake was discovered sometime on August 23, 1974 when the first refund application was lodged. Shri Desai relied upon the judgment of Shri Justice Lentin in the case of Ceat Tyres of India Limited v. Union of India and others reported in 1980 E L T 563 and claimed that the mistake of law can be presumed and as the petition was filed within period of three years from that discovery of mistake, the refund claimed is within time. In my judgment, the petitioners would be entitled to claim refund for the period three years immediately preceding August 23, 1974 because on that day, the refund application was filed obviously after discovery of mistake in payment of duty. The recovery of excise duty by the department was obviously illegal and contrary to law and the petitioners are entitled to refund of excess duty paid from August 23, 1971 onwards. The Department would compute the amount of excess duty paid and would refund the same.
45. Accordingly, the petition succeeds and the rule is made absolute in terms of prayer (a) of the petition. The respondents are further directed to levy excise duty on phenolic moulding powder manufactured by the petitioners under Notification dated June 1, 1971 till February 26, 1980. The respondents are also directed to compute the claim of the petitioners for excess duty paid from August 23, 1971 onwards and refund the excess amount recovered within a period of three months from today. In the circumstances of the case, there will be no order as to costs. The Bank guarantees furnished by the petitioners to continue for a further period of three months from today.