Orient Paper Mills Ltd. v. Union of India.

Judgment

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 30 of 1966. Appeal by special leave from the order dated June 7, 8, 1963 of the Government of India, Ministry of Finance (Department of Revenue) in Central Excise Revision Application No. 463 of 1963. B. Sen, Bishan Narain and B. P. Maheshwari, for the appellant. S. V. Gupte, Solicitor-Genera/, S. G. Patwardhan, R. N. Saththey, and S. P. Nayyar, for the respondent. The Judgment of the Court was delivered by Hidayatullah, J. The appellant is a public limited company which carries on the business of manufacturing and selling wholesale, paper and boards at Brajrajnagar in the State of Orissa. The appellant company holds a licence under the Central Excise Act in Form L-4 prescribed by the Central Excise Rules, 1944. The appellant company's factory and its premises and precincts have been demarcated under th~ said Rules. The Factory is traversed qy railway lines, because the appellant company enjoys the benefit of a private siding.

In 1960, the appellant Company constructed a new railway siding outside the original factory premises where bamboos and other raw materials were stored and constructed a . platform for loading and unloading. This extension has not been included in the factory or its premises or precincts for purposes of the Excise Rules. It is presumably so, because. to reach the new siding, a public road has to be traversed which is not enclosed .and from which public cannot be excluded. It is in evidence that after this new siding was constructed, the appellant company requested the Excise authorities to amend the licence to include the new railway siding;· but this was refused. On February 27, 1961, the appellant company loaded 20 wagons of paper after effecting clearance of these goods by payment of the excise duty under r. 52 of the Excise Rules. On February 28, 1961, the appellant company loaded 13 more wagons and cleared them.

These wagons were sealed by the railway administration and railway receipts were issued to the appellant company. The company also obtained gate pass. The wagons then passed into the control of the railway administration., but as a pilot engine was not available, the wagons were shunted mto the new siding. . The exit from th~ new siding is only through the factory premises because the railway track comes to a dead-end nn the other side. ORIENT PAPER MILL.S v. UNION (Hidayatu/lah, /.) The Deputy Superintendent of Central Excise wrote to the ~ppellant company on March 1, 1961 that the wagons loaded on February 27 and 28, 1961 were found inside the factory premises till 9-45 A.M. on March 1, 1961 and the goods were therefore liable to be assessed at the higher rates of excise duty current from Mareh 1, 1961.

The appellant company contended before the Deputy Superintendent that the wagons were duly sealed after the completion of loading in his presence, were taken out of the factory premises and were not. in the factory when the new rates came into force. The appellant company relying upon r. 9A of the Central Excise Rules, 1944 submitted that duty was payable at the rate in force on the date on which the duty was actually paid. In the alternative, the appellant company submitted that the goods having been cleared or removed from the factory premises before the midnight of February 28, 1961, could not be made liable for the enhanced duty which came into force from March 1, 1961. These contentions were not accepted by the Deputy Superintendent who demanded payment of Rs. 45,475.83, from the appellant company as differential excise duty. The amount was paid under protest and without prejudice to the rights of appeal and representation to the proper authorities under the Excise Act.

The matter was then placed by the appellant company before the Assistant Collector, C_entral Excise, Cuttack and the company It requested that the differential duty be refunded as it had been illegally collected. The Assistant Collector rejected the claim and confirmed the collection of differential duty. The appellant company appealed to the Collector of Central Excise, Calc\llta and Orissa but the appeal was dismissed on March 12, 1962. The appellant company then filed an application for revision against the order of the Collector of Central Excise, Calcutta and Orissa before the Government of India (Central Excise Revision Application No. 473 of 1963). The application for revision was rejected by the Government of India on June 7 /18, 1963. No reason was given in the order communicated to the appellant company. The present appeal has been filed by special leave against the last order.

The first contention in this appeal is that the order of the Deputy Superintendent confirmed by the Assistant Collector, the Collector of Excise and the Central Government was illegal and contrary to the provisions and intendment of the Central 'Excise Act and the rules framed thereunder, because under r. 9A, first part, these goods were cleared by payment of excise duty and could not be reassessed to the enhanced duty. It is further submitted alternatively that the goods were removed from the factory proper before the midnight of February 28, 1961 and therefore could SIJPJ.BMB COIJJ.T J.BPOll.TS 11967) 3 s.c.11.. not be assessed to the enhanced duty even if the latter part of rule 9A applied. A third contention that the order of the Central Government was bad because it gave no reason for the rejection of the application for revision was not pressed seriously. We shall examine the first two arguments only. The duty of excise on paper and boards was increased by s.

13 of the Finance Act, 1961 (Act XIV of 1961) read with item 17 of the Schedule. Under the Provisional Collection of Central Taxes Act (XVI of 1931) this duty became payable from the .1st day of March, 1961. The question, therefore, arises whether the 11oods are to bear the old duty or the· new. This question depends upon the tlme at which the quty was payable on tbe goods in this c11111. That In Its tum depends U!)On the true construction of r. !IA of the Central Excise Rules, 1944. The rule consists of two 1ub·l'llles, but we are concerned with the first 1ub·rule and first provl10 to . that sub·rule. The relevant portion of the rule mny be read even at thl1 1ta11e: "9A. ( 1) Alteration of duty or tarltf v11l11111lcm.- The rate of duty 11nd the tral! valuation (If 1111y) llP· pllcable to 11ood8 cleared on payment of duty 1h11!1 be tlie rate nnd valuation (If 11ny)

In force on the date on which duty ls pald, or If the 11ood1 are cleared from a f11ctory or a warehoue, on the date of the actual removal of Ruch 11oods from such factory or warehouse: Provided that If tho aoodl have previously been removed from w11rehouMe under bond to be , rewnre· hou8ed, 1111d the duty 11 pllld on 1uch SQOd8 without their belo11 rewnrehcm1ed, the nte 11nd v11luatloo (If 11ny) oppl!c11bl11 thereto 1h11!1 be the rl\te 1111d vlllm1tlon (If 11ny) In force on the date on which duty 18 pllld or I! duty 11 p11ld 1hrou1h 11n 11ccount-eurren1 mlllnt11lo;i with thll Colleetor uniler Rule 9, on tho d111e on whleh 11n 11pplle11!1on In the proper form 18 delivered to the omcer·ltt·eliorse ot the w11rehou81.1 from whleh the 11ood8 wore removed: To u11demnnd thl1 rule nnd lt1 lmpllcll!lon1 80met111na mu1t be Mllid flr11 about the 1eheme of tho Ceotr11! Bxe!J11 nod lla1t Act, 1944 11nd the Centrnl B!iel1e Rule1, 1944. The Ceotrnl Excise Act del\nu 'exclHble go0d1'

10 menn 11ood1 1peclfled In It• Finl Schedule and 1ubjeot to 11 duty of excl111. The Act fllrther deftnH It 'ffteto~' 10 m111111 any preml1e1 Including the preclnct1 wherein exelH\;le sood1 11r11 m11nuf11cmred, or wlloreln or In 1111y p11rt of whleh 11ny mnnufneturlng proe111 connected with the proiluctlon ORIBNT PAPBR MILLS v. UNION (H/dayatu/lah, /,) A of tbee goods Is being carried on Dr ls ordinarily carried on. 'Manufacture' ls defined to lncludo any procosa ldontlcal or ancll· lary to tbo completion of a manufactured product, and certain processes in relation to tobacco and 1alt aro included in manufucture, but with tbeso wo aro not concerned. It also defines 'curing' as including any process for rendering an unmanufac· a turecl product fit for marketing or manufacture.

Section 3 of tbe Act lays down inter alla that there shall be lovled and collected in such a manner as may be prescribed duties of excise· on all excisable goods which are produced or manufactured in India at the ratea setforth in tbe Flr1t Schedule. Section 4, wblch is, heuded ''Determination. of. valuo for tho purposes of duty", pro· c vides ·that where any article Is charpable with duty at ntes do· pendent on tbe valuo of auch article auch valuo lhal1 be .deemed to be the whole 11le ca1h price for which an article of like: kind and quality la aold or II capable of belna aold at the time. of tho removal of the article charpablo with duty from tbe factory or any other prem1111 Of manufacture or production for delivery, etc. The emph11!1 In 1. 4 11 on the time Of removal of the article D chnr1eable with duty from the factory, Thl1 l1 tho only 1uldance which the Act fum11he1. We may now turn to the llulea. Under the Rulea, duty mOIDI duty payable under 1. 3· of the Act above-mentioned.

Rule 2 (xv) deftnea 'warehouie' u any plliCll or preml1ea · appointed or licenaed under rule 140. We I now come to Chapter Ill which deal1 with levy and refund of 111d .•~emption from duty. Rule 7 provld11 that every penon who prod11Cea, cures or manufactures any nolaable lo0d1 or who 11or11 111ck aood• In 11 wmho1111 1hall pay the cfuty or .dutlel levl1bl1 on 111eh good1 11 1ueh time and pl1c1 and to 111ch ~ llN m11y be dHl1n111ecl In or under the nuthorlty of the •::i: r wbelher the p11ym1111 of 1ueh duty or dutl111 11 11cul'ld by Q or otherwl111. Rule 9 l11y1 down the time and m1nner of pnym1nt of duty, The r11!1 m11y be rud hart: "9. Time Md manner of p1yment of duty.- ( I )

No exolHble aood1 1hllll be removed from Aft)' pl1ee wher1 they are J)roclueed, eured or manutaolllreil or •l!Y preml111 M1PUl'lln1nt. thereto, which may bl 1poolfted by the CO!leetor In thl1 behalf, whether for eon111mplion, export, or manufacture of any other eom· modl!Y In or out1lde 1uch pl11ee, until thi excl1e duty levlable thereon ha1 been pllld at 1uch place and In 111eh m11nner 11 11 prHcrlbid In th111 Rul11 or u tho Coll1etor may l'IClU11'1l, and aoept on ~ent1tlon of an 1ppl1011tlon In Ill• p~r fonn and on obtlllnln1 lilt penrilillon of the proper olllcer on the form: SUPIUIMB GOWT 0101.TS Provided that such goods may l?e deposited without payment of duty in a store-room or other place of stor· age approved by the Collector un.der rule 27 or rule 47 or in a warehouse appointed or licensed under rule 140 or may be exported under bond as provided in rule 13 :

Provided further that such goods may be removed on part payment of duty leviable thereon if the Central Government, by notification in the Official Gazette, allow the goods to be so removed under rule 49: Provided also that the Collector may, if he thinks fit instead of requiring payment of duty in respect of each separate consignment of goods removed from the place or premises specified in this behalf, or from a store-room or warehouse duly approved, appointed or licensed by him keep with any person dealing in such goods an account-current of the duties payable thereon and such account shall be settled at intervals not exceeding one month, and the account-holder shall periodically make deposit therein sufficient in the opinion of the Collector to cover the duty due on the goods in· tended to be removed from the place of production, curing manufacture or storage.

This rule prohibits the removal of goods from the factory or any premises appurtenant thereto until the excise duty leviable thereon has been paid. The factory and the premises appurtenant thereto has to be specified by the Collector. To this rule there are exceptions. One of them is that the goods may be deposited without payment of duty in a store-room or other place of storage approved by the Collector under rule 27 or under rule 4 7 any warehouse appointed or licensed under rule 140. Another exception is that the goods may be removed on part payment of duty leviable if the Government notifies and allows the goods to be so removed or the Collector if he thinks fit, approves the opening of .an account-current of the duty payable and the account-holder periodically makes. deposits sufficient in the opinion of the Collector to cover duty due on the goods intended to be removed from the place of manufacture or storage.

As we are not concerned with export under bond we may not refer to rule 13 but it is necessary to see rules 47 and 140. Rule 47 is headed "Goods may be stored without payment of duty" Under this rule a manufacturer has to' provide a store-room or other place of storage at his premises for depositing goods made on the same . premises without payment of duty. Duty-paid goods and good!> -other than excisable goods made in the factory must not be ORIENT PAPER MILLS \!. UNION (Hidaya1ullah, I.) deposited in such store-rooms or place. The store-room or place must be declared by the manufacturer and approved by the Collector. To this rule there is an exception and .it is that if the manufacturer undertakes to pay duty on all the manufactured goods and clears them immediately on completion of manufacture the Collector may exempt him from providing a store-room or other place of storage. Rule 140 deals among other matters with the appointment and licensing of warehouse.

Under this rule the Collector shall by order in writing from time to time approve and appoint a public warehouse and may in like manner license private warehouses for the stora&e of excisable goods on which duty has not been paid. The Rules make a distinction between manufactured and unmanufactured goods. The relevant rules may also be seen. Rule 25 provides for unmanufactured goods and rules 52 and 52A for manufactured goods. Rule 25 deals with clearance of unmanufactured products on payment of duty. This rule applies to a curer who may apply to an officer to get the goods weighed and duty assessed. If the duty so assessed is then paid the carer is granted a transport permit authorising him to remove the products to any destination named by him. Rule 52 deals with manu· factured goods. It deals with clearance on payment of duty. The rule reads as follows :- "52.

Clearance on payment of duty.- When the manufacturer desires to remove goods on payment of duty, either from the place or premises specified under rule 9 or from a store-room or other place of storage approved by the Collector under rule 4 7, he. shall make application in triplicate (unless otherw1~e by rule or order required) to the proper officer m the proper Form and shall deliver it to the officer at least twelve hours (or such other period a.~ ~ay be els~where prescribed or as the Collector may ~n any particular case require or allow) before it is mtended to remove the goods. The officer shall, thereupon, assess the amount of duty due on the goods and ?n production of evidence that this sum has been paid mto. the Treasury, or paid to the account of the Collector .m the Reserve Bank of India or the State Bank of lndta, or has been despatched to the Treasury by money. order shall allow the goods to be cleared."

We ma? also refer to rule 52A which provides for the actual 1 emova_. of the goods from the factory. The rule provides that no excisable goods shall be delivered from a factory except ~nder a gate pass signed by the owner of the factory and countersigned by the proper officer. Such a gate pass is made out in SUPREME <;:OURT REPORTS triplicate and must be ·presented to the proper officer for countersignature at least one hour before the actual removal <>f .th:e goods from the factory. In the pre8ent case a gate pass had been obtained. Rule S 1 A then provides that except as otherwise expressly provided for in the Rules, no duty-paid goods shall be allowed to re-enter or be retained in, any part or premises of factory. We may now tum to rule 9A, the interpretation of which has given rise to the present case. The dispute, shortly stated, is as to the application of the two part~ of Rule 9A. According to Mr. B. Sen for the appellant company, the first part applies where duty is paid and the goods cleared and in such a case the critical point of time is the payment of· duty and the point of time of the removal from the factory is not relevant.

In the second part, according to him, the critical time is the removal of the goods from a factory or warehouse without payment of duty such as happens when they are removed under the provisos to Rule .9A. In this view of the matter he contends that this case falls within the first part of Rule 9A. On the other hand, the learned Solicitor General on behalf of the Union of India submits that the main rule is in the first part and the second part of the rule is an exception. He suggests that one part speaks of payment of duty and the other of removal and the difference in point of time is between clearance · of duty in the case of unmanufactured goods and the actual removal of the goods from the factory or warehouse ia the case of manufactured goods. To prove his point he. emphasises the separate provisions regarding manufactured goods in Chapter V and unmanufactured goods in Chapter IV of the Rules.

In our opinion Rule 9A cannot be read on the basis of the classification suggested by the Solicitor General. No doubt rules 9 and 9A apply to manufactured as well as unmanufactured goods because rule 9 speaks in terms of both and rule 9A mentions in one place goods without adverting to the source and in the other the factory or warehouse. But the distinction in the two parts of rule 9A cannot be founded on the basis. of a difference to be found in Chapters IV and V of the Rules. Rule 25 allows the clearance of unmanufactured products on payment of duty but rules 26 and 27 allow such products to be despatched to a bonded warehouse or to be deposited in a curer's bonded storeroom. A special rule applies to the latter goods deposited in the store-room. They must be cleared on payment of duty ordinarily before the 30th day of June (extend~ to 31st. Dece.mber under certain conditions) of the year followm_g that m which they are harvested or deposited.

On the other hand, under ru~e 49 payment of duty is not required in. respect of goods made m a factory until they are about to be issued out of the .place or ORIENT PAPER MILLS v. UNION (Hidayatu/lah, J.) 21S premises specified under rule 9 or are about to be removed from a store-room or other place of storage approved by the Collector. The only exception to this is their removal to a licensed warehouse. Rule 52 then says that when the manufacturer desires to remove goods on payment of duty from .the factory or store-roo~ or other place of storage, he can get the duty assessed, pay 11 and get a clearance and a gate pass. He must then remove the goods and such goods must not lie in che factory etc. or after removal re-enter the premises (vide r. 51A). It will thus be seen that in the case of manufactured goods the payment of duty and. the clearance of goods may be synchronous or the payment may be postponed although the goods may be removed (provisos to r. 9).

This immediately sets up two kinds of cases in respect of manufactured goods. The critical time thus becomes the removal from the factory or ware.house but if the payment of duty ·is made before the removal then the critical time is the payment of duty. In the present case the payment of duty was synchronous with the clearance of the goodS because the gate pass can only be issued when the goods have actually been cleared for removal. The above construction of the Rules agrees with the construction placed by the Board of Revenue in its ruling of 1957 when the effect of the sealing of the wagons by the Railway after loading and the issuance of railway receipts was considered. The Board ruled that such goods would not be considered as lying in the stock in the factory pcem.ises.

When we add to it the fact in this cast: that duty was paid on the goods and gate pass was also issued, there remains little to argue except to say that the wagons being in the new siding must be treated as still in the factory. Here the difficulty in the way of -the Union of India is that the Excise authorities themselves refused to recognise this portion as part of the factory. 1f !he goods were put in the wagons after payment of duty, and the wagons were sealed and shunted out of the factory proper on a gate pass, not only under the ruling of the Board but also on the application of the Rules as explained here these goods became free of the enhanced duty. The recovery was accordingly erroneous. The duty collected must, therefore, be refunded and we order accordingly. The appellant's costs must be paid by the respondent. G.C. Appeal a//oowetf_