Techno Chemical Industries Vs. Collector of Central Excise - Court Judgment

Excerpt:
1.this is an appeal against the order of the collector of central excise (appeals) who has upheld the levy of duty in respect of p or p foods and soaps manufactured by the appllants denying the benefit of notification no. 80/80 on the ground that the clearances of the excisable goods made by the appellants in the preceding year, i.e., 1980-81, were more than 20 lakhs. the assistant collector held that for the purpose of notification no. 80/80 as amended by the notification no. 73/81, the aggregate value of the clearances during the preceding year 1980-81 should be reckoned after taking into account the goods falling under item no. 68 even though exempted under various notifications. the appellants were manufacturing soap and p or p foods and other items falling under item 68 apart from the spice powders which are exempted. the aggregate value of the goods cleared by them during 1980-81, other than the spice powders, was rs. 19,73,254.85. the value of the spice powders cleared was rs. 2,30,436.83. the appellants' plea is that once the goods had been exempted under a notification, these cease to be excisable goods and should not be included in the value of the excisable goods cleared by the appellants and have cited the judgments of the high courts in support of their plea. they have cited the following judgments : (i) allahabad high court (divisional bench) presided by d.m. chandrasekhar and umesh chandra srivastava, jj., in the case of nagar at paints v. union of india 1978 tax l.r. noc 45; (ii) supreme court of india, in the case of state of tamil nadv v. m.k. kandaswamy ; (iii) madhya pradesh high court, in the case of tata exports limited v. union of india .the appellants are aware of a judgment of madras high court which is in favour of interpretation placed by the revenue in the notification. it has been pleaded that where there is doubt in the matter of taxation, interpretation favourable to the subject should be preferred. it has been pleaded, excisable goods as ordinarily understood are those which are subject to the payment of duty.2. smt. j.k. chander, the learned jdr, pleaded that benefit of notification 80/80 was not available to' the appellants inasmuch as the aggregate value of the clearances in 1980-81 was over 20 lakhs. she pleaded that even the exempted spice powders were required to be included for the purpose of arriving at total value of clearances of excisable goods in 1980-81 as they were goods falling under 68. she cited a reported case in support of her plea: 1983 elt 2265 (delhi high court): vishal andhra industries v. union of india. she drew our attention to the observations of the hon'ble judges as under: 'excisable goods' is defined to mean goods specified in the 1st schedule to the central excises act as being subject to excise duty and rule 8 of the central excise rules permits exemption from payment of the whole or any part of duty leviable on such goods. therefore, if exemption was given on payment of full or part of duty it cannot be said that the goods in question have ceased to be excisable goods. the contention that by issue of exemption notification under rule 8 the goods should be treated to have been taken out of the first schedule and therefore ceased to be 'excisable goods', was not sustainable in law (1978 elt 525 overruled).3. the appellants' representative also submitted a written note at the time of hearing before us. in the written submission is cited the supreme court judgment in the case of tamil nadu v. m.k. kandaswamy . we find, so far as the high court judgments on the point in dispute are concerned, there is divergence of views expressed by the different high courts in the judgments cited before us. we find that the hon'ble supreme court, in the case cited, have amplified the scope of taxable goods in the context of the scope of section 7-a of madras general sales tax act 1959. section 7-a, as reported in the judgment, is set out as under: every dealer who in the course of his business purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this act) in circumstances in which no tax is payable under sections 3, 4 or 5, as the case may be, and either,-- (a) consumes such goods in the manufacture of other goods for sale or otherwise; or (b) disposes of such goods in any manner other than by way of sale in the state; or (c) despatches them to a place outside the state except as a direct result of sale or purchase in the course of inter-state trade or commerce, shall pay tax on the turnover relating to the purchase aforesaid at the rate mentioned in section 3, 4 or 5, as the case may be, whatever be the quantum of such turnover in a year: provided that a dealer (other than a casual trader or agent of a non-resident dealer) purchasing goods (the sale of which is liable to tax under sub-section (1) of section 3) shall not be liable to pay tax under this sub-section if, his total turnover for a year is less than twenty-five thousand rupees....the hon'ble court was examining the levy of purchase tax under this section in respect of goods on which no tax was payable under sections 3, 4 or 5, as the case may be, of the tngsa 1959. the hon'ble court observed that section 7-a contains the following ingredients: (3) such purchase is either from a registered dealer or from any other person; (4) the goods purchased are "goods, the sale or purchase of which is liable to tax under this act; (5) such purchase is "in circumstances in which no tax is payable under sections 3, 4 or 5, as the case may be; and (a) consumes such goods in the manufacture of other goods for sale of otherwise or (b) despatches all such goods in any manner other than by by way of sale in the state or (c) despatches them to a place outside the state except as a direct result of sale or purchase in the course of inter-state trade or commerce. difficulty in interpretation has been experienced only with regard to that part of the sub-section which relates to ingredients (4) and (5). the high court has taken the view that the expression 'goods, the sale or purchase of which is liable to tax under this act' and the phrase 'purchases...in circumstances in which no tax is payable under section 3, 4 or 5/ are a 'contradiction in term'. we are unable to accept this interpretation which would render section 7-a(1) wholly nugatory. with due respect, it seems to us that in arriving at this erroneous interpretation, the learned judges mixed up the concept of goods liable to tax with the transactions liable to tax under the act. the scheme of the act involves three inter-related but distinct concepts which may conveniently be described as 'taxable person', 'taxable goods' and 'taxable event'. all the three must be satisfied before a person can be saddled with liability under the act. nevertheless, the distinction between them, if overlooked, may lead to serious error in the construction and application of the act.while analysing the issue in the context of this section, the court made the following observations: the words, 'the sale or purchase of which is liable to tax under the act' qualify the term 'goods' and exclude by necessary implication goods, the sale or purchase of which is totally exempted from tax at all points under section 8 or section 17(1) of the act. the goods so exempted--not being 'taxable goods'--cannot be brought to charge under section 7-a.it is this last observation of the hon'ble supreme court which has been relied upon by the hon'ble madhya pradesh high court while arriving at the conclusion that the value of the totally exempted goods from payment of duty are not to be taken into account for the purpose of notification 80/80 for, because of total exemption granted, these ceased to be excisable goods. with due respect, we observe that the observations of the supreme court relied upon were in the context of section 7-a(1) of the tngsa 1959. this section was introduced with a view to plug the loopholes as an anti-evasion measure to levy tax by way of purchase tax in respect of transactions in respect of goods, the sales or purchase of which were liable to tax under that act and in the circumstances in which no tax was payable under section 3, 4 or 5, as the case may be, of the said act. the hon'ble supreme court felt that such of those goods which are exempted under section 8 or section 17(1) of the tngst act, 1959 could not be brought within the mischief of section 7-a. these observations of the supreme court were only relevant in interpreting section 7-a and scope of that section and the goods which will fall within the mischief of that section. in the context of that section court held that goods which were exempted by virtue of other provisions of the tngsa 1959 could not be held to be taxable goods in terms of section 7-a(1). this judgment of hon'ble supreme court is distinguishable from the facts of this case and the ratio of the decision cannot be applied to interpreting the general words "excisable goods" used in the central excise law. in this context hon'ble high court of karnataka in the case of karnataka cement pipe factory industrial estate v. superintendent of central excise and anr. have examined the scope of the term excisable goods and after taking into account the definition of excisable goods and scope of exemption as given under rule 8(1) of the rules have clearly held that excisable goods do not become non-excisable merely by reason of exemption given under a notification and that excisable goods get exemption from payment of duty by virtue of a notification under which the government chooses to give exemption from the whole or part of the duty. hon'ble high court also held that the character of product of excisable goods does not depend upon the actual levy of duty as per description of excisable goods as contained in the act. the hon'ble high court noted with approval the decision of the allahabad, andhra pradesh and madras high courts wherein the hon'ble high courts have held that even though the excisable goods are exempted from excise duty by virtue of a notification issued by the central government, these do not cease to be excisable goods. taking into account the views of the different high courts, we, with respect, are in agreement with the decision taken by majority of the high courts in this regard and are in agreement with the rationale of the decision as set out in the judgment of the karnataka high court supra. we therefore hold that the inclusion of the value of the goods exempted under relevent notification for arriving at the total clearances of the excisable goods for the year 1980-81 is correct in law and the levy of duty as demanded and held by lower authority is maintainable in law. we, therefore, reject the appeal.though i do not subscribe to the observations and reasoning of brother gulati in para. 3 of his order with reference to to the supreme court judgment in state of tamil nadu v. v.k. kandaswamy and madya pradesh high court judgment in tata exports ltd. v. union of india, i agree with the main conclusion that excisable goods do not become non-excisable merely by reason of exemption given under a notification.the reason for doing so is that besides delhi high court in vishal andhra industries v. union of india 1983 elt 2265 other high courts have also taken this view and these decisions are referred to in the karnataka high court judgment in karnataka cement pipe factory's case . with these observations i concur with the order.

Judgment:
1.This is an appeal against the order of the Collector of Central Excise (Appeals) who has upheld the levy of duty in respect of P or P foods and soaps manufactured by the appllants denying the benefit of notification No. 80/80 on the ground that the clearances of the excisable goods made by the appellants in the preceding year, i.e., 1980-81, were more than 20 lakhs. The Assistant Collector held that for the purpose of notification No. 80/80 as amended by the notification No. 73/81, the aggregate value of the clearances during the preceding year 1980-81 should be reckoned after taking into account the goods falling under item No. 68 even though exempted under various notifications. The appellants were manufacturing soap and P or P Foods and other items falling under item 68 apart from the spice powders which are exempted. The aggregate value of the goods cleared by them during 1980-81, other than the spice powders, was Rs. 19,73,254.85. The value of the spice powders cleared was Rs. 2,30,436.83. The appellants' plea is that once the goods had been exempted under a notification, these cease to be excisable goods and should not be included in the value of the excisable goods cleared by the appellants and have cited the judgments of the High Courts in support of their plea. They have cited the following judgments : (i) Allahabad High Court (Divisional Bench) presided by D.M. Chandrasekhar and Umesh Chandra Srivastava, JJ., in the case of Nagar at Paints v. Union of India 1978 Tax L.R. NOC 45; (ii) Supreme Court of India, in the case of State of Tamil Nadv v. M.K. Kandaswamy ; (iii) Madhya Pradesh High Court, in the case of Tata Exports Limited v. Union of India .

The appellants are aware of a judgment of Madras High Court which is in favour of interpretation placed by the revenue in the notification. It has been pleaded that where there is doubt in the matter of taxation, interpretation favourable to the subject should be preferred. It has been pleaded, excisable goods as ordinarily understood are those which are subject to the payment of duty.

2. Smt. J.K. Chander, the learned JDR, pleaded that benefit of notification 80/80 was not available to' the appellants inasmuch as the aggregate value of the clearances in 1980-81 was over 20 lakhs. She pleaded that even the exempted spice powders were required to be included for the purpose of arriving at total value of clearances of excisable goods in 1980-81 as they were goods falling under 68. She cited a reported case in support of her plea: 1983 ELT 2265 (Delhi High Court): Vishal Andhra Industries v. Union of India. She drew our attention to the observations of the Hon'ble Judges as under: 'Excisable goods' is defined to mean goods specified in the 1st Schedule to the Central Excises Act as being subject to excise duty and Rule 8 of the Central Excise Rules permits exemption from payment of the whole or any part of duty leviable on such goods.

Therefore, if exemption was given on payment of full or part of duty it cannot be said that the goods in question have ceased to be excisable goods. The contention that by issue of exemption notification under Rule 8 the goods should be treated to have been taken out of the First Schedule and therefore ceased to be 'excisable goods', was not sustainable in law (1978 ELT 525 overruled).

3. The appellants' representative also submitted a written note at the time of hearing before us. In the written submission is cited the Supreme Court judgment in the case of Tamil Nadu v. M.K. Kandaswamy . We find, so far as the High Court judgments on the point in dispute are concerned, there is divergence of views expressed by the different High Courts in the judgments cited before us. We find that the Hon'ble Supreme Court, in the case cited, have amplified the scope of taxable goods in the context of the scope of Section 7-A of Madras General Sales Tax Act 1959. Section 7-A, as reported in the judgment, is set out as under: Every dealer who in the course of his business purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this Act) in circumstances in which no tax is payable under Sections 3, 4 or 5, as the case may be, and either,-- (a) consumes such goods in the manufacture of other goods for sale or otherwise; or (b) disposes of such goods in any manner other than by way of sale in the state; or (c) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall pay tax on the turnover relating to the purchase aforesaid at the rate mentioned in Section 3, 4 or 5, as the case may be, whatever be the quantum of such turnover in a year: Provided that a dealer (other than a casual trader or agent of a non-resident dealer) purchasing goods (the sale of which is liable to tax under Sub-section (1) of Section 3) shall not be liable to pay tax under this Sub-section if, his total turnover for a year is less than twenty-five thousand rupees....

The Hon'ble Court was examining the levy of purchase tax under this section in respect of goods on which no tax was payable under Sections 3, 4 or 5, as the case may be, of the TNGSA 1959. The Hon'ble Court observed that Section 7-A contains the following ingredients: (3) Such purchase is either from a registered dealer or from any other person; (4) The goods purchased are "goods, the sale or purchase of which is liable to tax under this Act; (5) Such purchase is "in circumstances in which no tax is payable under Sections 3, 4 or 5, as the case may be; and (a) consumes such goods in the manufacture of other goods for sale of otherwise or (b) despatches all such goods in any manner other than by by way of sale in the State or (c) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce.

Difficulty in interpretation has been experienced only with regard to that part of the sub-section which relates to ingredients (4) and (5). The High Court has taken the view that the expression 'goods, the sale or purchase of which is liable to tax under this Act' and the phrase 'purchases...in circumstances in which no tax is payable under Section 3, 4 or 5/ are a 'contradiction in term'.

We are unable to accept this interpretation which would render Section 7-A(1) wholly nugatory. With due respect, it seems to us that in arriving at this erroneous interpretation, the learned Judges mixed up the concept of goods liable to tax with the transactions liable to tax under the Act. The scheme of the Act involves three inter-related but distinct concepts which may conveniently be described as 'taxable person', 'taxable goods' and 'taxable event'. All the three must be satisfied before a person can be saddled with liability under the Act. Nevertheless, the distinction between them, if overlooked, may lead to serious error in the construction and application of the Act.

While analysing the issue in the context of this section, the Court made the following observations: The words, 'the sale or purchase of which is liable to tax under the Act' qualify the term 'goods' and exclude by necessary implication goods, the sale or purchase of which is totally exempted from tax at all points under Section 8 or Section 17(1) of the Act. The goods so exempted--not being 'taxable goods'--cannot be brought to charge under Section 7-A.It is this last observation of the Hon'ble Supreme Court which has been relied upon by the Hon'ble Madhya Pradesh High Court while arriving at the conclusion that the value of the totally exempted goods from payment of duty are not to be taken into account for the purpose of notification 80/80 for, because of total exemption granted, these ceased to be excisable goods. With due respect, we observe that the observations of the Supreme Court relied upon were in the context of Section 7-A(1) of the TNGSA 1959. This section was introduced with a view to plug the loopholes as an anti-evasion measure to levy tax by way of purchase tax in respect of transactions in respect of goods, the sales or purchase of which were liable to tax under that Act and in the circumstances in which no tax was payable under Section 3, 4 or 5, as the case may be, of the said Act. The Hon'ble Supreme Court felt that such of those goods which are exempted under Section 8 or Section 17(1) of the TNGST Act, 1959 could not be brought within the mischief of Section 7-A. These observations of the Supreme Court were only relevant in interpreting Section 7-A and scope of that section and the goods which will fall within the mischief of that section. In the context of that section Court held that goods which were exempted by virtue of other provisions of the TNGSA 1959 could not be held to be taxable goods in terms of Section 7-A(1). This judgment of Hon'ble Supreme Court is distinguishable from the facts of this case and the ratio of the decision cannot be applied to interpreting the general words "excisable goods" used in the central excise law. In this context Hon'ble High Court of Karnataka in the case of Karnataka Cement Pipe Factory Industrial Estate v. Superintendent of Central Excise and Anr.

have examined the scope of the term excisable goods and after taking into account the definition of excisable goods and scope of exemption as given under Rule 8(1) of the Rules have clearly held that excisable goods do not become non-excisable merely by reason of exemption given under a notification and that excisable goods get exemption from payment of duty by virtue of a notification under which the Government chooses to give exemption from the whole or part of the duty. Hon'ble High Court also held that the character of product of excisable goods does not depend upon the actual levy of duty as per description of excisable goods as contained in the Act. The Hon'ble High Court noted with approval the decision of the Allahabad, Andhra Pradesh and Madras High Courts wherein the Hon'ble High Courts have held that even though the excisable goods are exempted from excise duty by virtue of a notification issued by the Central Government, these do not cease to be excisable goods. Taking into account the views of the different High Courts, we, with respect, are in agreement with the decision taken by majority of the High Courts in this regard and are in agreement with the rationale of the decision as set out in the judgment of the Karnataka High Court supra. We therefore hold that the inclusion of the value of the goods exempted under relevent notification for arriving at the total clearances of the excisable goods for the year 1980-81 is correct in law and the levy of duty as demanded and held by lower authority is maintainable in law. We, therefore, reject the appeal.

Though I do not subscribe to the observations and reasoning of Brother Gulati in Para. 3 of his order with reference to to the Supreme Court judgment in State of Tamil Nadu v. V.K. Kandaswamy and Madya Pradesh High Court judgment in Tata Exports Ltd. v. Union of India, I agree with the main conclusion that excisable goods do not become non-excisable merely by reason of exemption given under a notification.

The reason for doing so is that besides Delhi High Court in Vishal Andhra Industries v. Union of India 1983 ELT 2265 other High Courts have also taken this view and these decisions are referred to in the Karnataka High Court judgment in Karnataka Cement Pipe Factory's case . With these observations I concur with the order.