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Case Laws

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1992 (1) TMI 358 - INDORECentral Excise

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Issues: (i) whether the clearances of the three cooler manufacturing units could be clubbed on the footing that two of them were dummy concerns of the first unit and whether the benefit of exemption under Notification No. 175/86-CE was unavailable; (ii) whether the demand was barred by limitation in the absence of suppression of facts.

Issue (i): whether the clearances of the three cooler manufacturing units could be clubbed on the footing that two of them were dummy concerns of the first unit and whether the benefit of exemption under Notification No. 175/86-CE was unavailable.

Analysis: The units were separately registered as small-scale industries and were independently registered and assessed under the sales tax and income tax laws. The record did not disclose convincing evidence of sham existence, common funding, financial flow back, or other clinching material to show that the units were mere creations to evade duty. The finding of common premises, common brand, related proprietors, or assistance in procurement and marketing was held insufficient, by itself, to establish that the clearances were of one composite unit.

Conclusion: The units were held to be separate and independent entities and their clearances could not be clubbed. The allegation of dummy concerns failed and the exemption issue was decided in favour of the assessees.

Issue (ii): whether the demand was barred by limitation in the absence of suppression of facts.

Analysis: The departmental records showed that the manufacturing activity of the units was already known to the excise department, earlier inspections had been carried out, and declarations had been filed for availing exemption. In these circumstances, suppression of facts was not established and the extended period was held inapplicable. The demand covering a period beyond the normal limitation was therefore time-barred.

Conclusion: The demand was held to be barred by limitation and the extended period could not be invoked. This issue was decided in favour of the assessees.

Final Conclusion: The show cause notice was unsustainable, as the units were found to be independent and the duty demand was time-barred for want of suppression.

Ratio Decidendi: Clubbing of clearances requires clear evidence that separate units are mere dummy or camouflaged concerns, supported by material showing common funding or financial flow back; absent such proof, and where the department was already aware of the activity, the extended period of limitation cannot be invoked.

Clubbing of clearances requires proof of dummy units; absent suppression, the extended limitation period cannot be invoked.
Separate excise clearances of three cooler manufacturing units could not be clubbed because the record did not show sham existence, common funding, financial flow back, or other clinching evidence that two units were dummy concerns of the first. Common premises, shared brand, related proprietors, and assistance in procurement or marketing were treated as insufficient by themselves, so exemption under Notification No. 175/86-CE remained available. The demand was also held to be time-barred because the department already knew of the manufacturing activity, had carried out inspections, and had received exemption declarations; suppression of facts was not established and the extended limitation period could not be invoked.

Clubbing of clearances - dummy concern / camouflaged unit - separate and distinct entity - exemption under Notification No. 175/86 - financial flow back / common funding - limitation and time-bar / extended period of limitationSeparate and distinct entity - dummy concern / camouflaged unit - financial flow back / common funding - Whether Noticee No. 1, 2 and 3 were separate independent units or dummy concerns whose clearances could be clubbed. - HELD THAT: - The adjudicating authority examined registrations, assessments and contemporaneous departmental knowledge and found that each unit was registered with the District Industries Centre and assessed separately for Income Tax, Sales Tax and Central Sales Tax. The units had been allotted raw material quotas and had filed separate declarations and returns with Central Excise. Earlier panchnama(s) and searches in 1988 and documentary material did not yield unimpeachable evidence of common funding or an irrefutable financial flow back from Noticee No. 2 and 3 to Noticee No. 1. Occasional sharing of premises, common telephone, common brand name and assistance in procurement or marketing, without evidence of financial flow back, were held insufficient to treat the units as one composite unit or to infer that Noticee No. 2 and 3 were dummies. The authority relied on precedents that common facilities or family connections alone do not establish manufacture for or on behalf of another where independent assessments and accounts exist. [Paras 3]Noticee No. 1, 2 and 3 are separate and independent entities and the allegation that Noticee No. 2 and 3 were dummy concerns of Noticee No. 1 fails.Clubbing of clearances - exemption under Notification No. 175/86 - Whether the clearances of the three noticees could be clubbed for denial of exemption under Notification No. 175/86. - HELD THAT: - Having held that the three units are distinct and there is no evidence of common funding or financial flow back, the authority concluded that their clearances could not be aggregated to deny exemption. The records showed that the Central Excise Department was aware of the manufacturing activities, the units had been filing declarations and had been accepted by the department for exemption in earlier dealings, and there was no convincing documentary basis to treat the clearances as one. [Paras 3]The clearances of products of Noticee No. 1, 2 and 3 cannot be clubbed together for charging central excise duty under the exemption scheme.Limitation and time-bar / extended period of limitation - Whether the demand in the show cause notice was time-barred and whether extended limitation applied. - HELD THAT: - The authority noted that the manufacturing activities and declarations of the three units were known to the Central Excise Department, including searches and panchnama(s) in 1988, and that there was no established suppression of facts. In absence of suppression or concealment, the extended period of limitation was not applicable. The show cause notice dated 1.6.1990 sought duty for the period 15.10.1986 to 31.3.1989, which the authority held to be beyond the statutory limitation period and therefore time-barred. [Paras 3]The demand for the period specified in the show cause notice is time-barred; extended limitation does not apply in absence of suppression.Final Conclusion: The adjudicating authority set aside the show cause notice, holding that the three units are separate independent entities, their clearances cannot be clubbed to deny exemption, and the demand in the show cause notice is time-barred in the absence of suppression.

1942 (3) TMI 20 - FEDERAL COURTCentral Excise

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Issues: (i) Whether the Provincial Legislature had competence under the legislative entry relating to intoxicating liquors and narcotic drugs to authorise prohibition by notification. (ii) Whether the amending provision was invalid for repugnancy to the constitutional restriction on prohibitory laws affecting import and export of goods. (iii) Whether the amending Act required previous sanction as an amendment of a Governor-General's Act.

Issue (i): Whether the Provincial Legislature had competence under the legislative entry relating to intoxicating liquors and narcotic drugs to authorise prohibition by notification.

Analysis: The legislative entry was construed as conferring power to legislate with respect to intoxicating liquors in a wide sense. The words describing production, manufacture, possession, transport, purchase and sale were treated as explanatory and illustrative rather than limiting. A power to legislate on the subject was held to include power to prohibit possession throughout the Province or in specified areas. The restriction drawn from authorities dealing with powers to regulate was held inapplicable because the entry did not use limiting language such as regulation.

Conclusion: The Provincial Legislature had competence to authorise prohibition, and the amending Act was valid on this ground.

Issue (ii): Whether the amending provision was invalid for repugnancy to the constitutional restriction on prohibitory laws affecting import and export of goods.

Analysis: The constitutional restriction was held to operate only in relation to the specified legislative entries dealing with trade and commerce within the Province and production, supply and distribution of commodities. It did not apply to legislation founded on the separate entry dealing with intoxicating liquors and narcotic drugs. Since the impugned law derived authority from that separate entry, the restriction could not be invoked to invalidate it.

Conclusion: The challenge based on repugnancy failed.

Issue (iii): Whether the amending Act required previous sanction as an amendment of a Governor-General's Act.

Analysis: The earlier excise enactment was not treated as a Governor-General's Act in the relevant sense merely because it had once received assent of the Governor-General. The expression was confined to an Act enacted by the Governor-General in the exercise of the special legislative power contemplated by the Constitution Act. Accepting the appellant's contention would have led to the unreasonable result that all pre-1937 enactments requiring assent would be so treated.

Conclusion: Previous sanction was not required and the amendment was not invalid on this ground.

Final Conclusion: The amending legislation was upheld as within legislative competence, and the conviction based on the notification issued under it was sustained.

Ratio Decidendi: A legislative entry conferring power over a subject in general terms authorises prohibition where the language is wide enough, and a constitutional limitation directed to other entries cannot defeat legislation validly enacted under a separate entry.

Broad provincial power over intoxicating liquors upheld; prohibition by notification valid and constitutional objections rejected.
A provincial legislative entry covering intoxicating liquors and narcotic drugs was construed broadly enough to support prohibition by notification, because the words on production, manufacture, possession, transport, purchase and sale were illustrative and not restrictive. A constitutional limit on laws affecting import and export of goods did not invalidate the measure, because that restriction applied to trade-and-commerce entries, not to legislation grounded in the separate intoxicating liquors and narcotic drugs entry. Previous sanction was also unnecessary, since the earlier excise enactment was not a Governor-General's Act in the relevant constitutional sense. The amending legislation was therefore upheld, and the conviction under the notification sustained.

Provincial power to prohibit intoxicating liquors under entry No. 31 - Construction of 'with respect to' in legislative lists - Interpretation of explanatory words as illustrative not limiting - Repugnancy under constitutional restriction on entry or export of goods - Governor-General's Act and requirement of previous sanction - Use of retrospectively inserted preamble to ascertain prior legislative intentionProvincial power to prohibit intoxicating liquors under entry No. 31 - Construction of 'with respect to' in legislative lists - Interpretation of explanatory words as illustrative not limiting - Validity of the Bihar Excise (Amendment) Act, 1940 as within the legislative competence of the Province under entry No. 31 and Section 100(3) of the Constitution Act - HELD THAT: - The Court held that the general power to legislate 'with respect to intoxicating liquors and narcotic drugs' in entry No. 31, unless restricted by context, includes the power to prohibit intoxicating liquors throughout the Province or in specified areas. The words following the general phrase are explanatory or illustrative rather than restrictive, and therefore do not narrow the scope of the entry to exclude prohibition. English authorities on the distinction between 'regulation' and 'prohibition' were considered inapposite because entry No. 31 does not use the word 'regulate'. Having regard to the plenary nature of provincial legislative power within its sphere, the amendment conferring power to prohibit possession by all persons in specified areas falls within the legislative competence conferred by Section 100(3) and entry No. 31. For these reasons the Amending Act was held valid. [Paras 7, 8, 12, 16]The Bihar Excise (Amendment) Act, 1940 is within the legislative power conferred by Section 100(3) and entry No. 31 and is therefore valid.Repugnancy under constitutional restriction on entry or export of goods - Whether the amendment to Section 19(4) was repugnant to Section 297(1)(a) of the Constitution Act - HELD THAT: - The Court observed that Section 297(1)(a) pertains exclusively to entries in the Provincial Legislative List relating to trade and commerce within the Province and to production, supply and distribution of commodities (entries No. 27 and No. 29). It therefore has no application to legislation enacted under entry No. 31 (intoxicating liquors and narcotic drugs). Consequently the contention that the amending provision contravened Section 297(1)(a) was without substance. [Paras 9]Section 297(1)(a) does not render the amendment invalid; the objection is inapplicable and fails.Governor-General's Act and requirement of previous sanction - Whether the Amending Act required the prior sanction of the Governor-General because the 1915 Act had earlier received the Governor-General's assent - HELD THAT: - The Court rejected the argument that the earlier assent of the Governor-General to the 1915 Act converted it into a 'Governor-General's Act' for purposes of Section 108(2)(b) so as to require previous sanction for any subsequent amendment. The phrase 'Governor-General's Act' in Section 108 must be read as referring only to Acts which the Governor-General is empowered to enact under the Constitution itself; if every pre-constitution Act were so treated, it would absurdly fetter provincial legislative power. The suggestion that the omission of prior sanction was cured only by subsequent assent was thus unfounded. [Paras 10, 11]The Amending Act did not require the Governor-General's prior sanction by reason of the earlier Governor-General's assent to the 1915 Act; the objection fails.Use of retrospectively inserted preamble to ascertain prior legislative intention - Whether the retrospectively inserted paragraph in the preamble (1940) can be used to determine the original intention of the Legislature in 1915 - HELD THAT: - The Court held that a preamble inserted retrospectively cannot be used to impute to the earlier Legislature an intention it did not express at the time of enactment. Although the Court observed that there is reason to think the 1915 Act may have contemplated temperance measures (given the legislative history of the provision in other provinces), it declined to treat the 1940 insertion in the preamble as evidence of what the 1915 Legislature intended. [Paras 13, 14, 15]A preamble inserted in 1940 cannot be relied upon to establish the intention of the Legislature of 1915; the Court declined to ascribe to the earlier Legislature an intention on that basis.Final Conclusion: The appeal is dismissed; the Bihar Excise (Amendment) Act, 1940 is validly enacted within provincial competence and the constitutional challenges raised against it fail. No order as to costs.

1908 (1) TMI 1 - SUPREME COURT OF THE UNITED STATESCentral Excise

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Manufacture requires transformation into a new and different article; treated imported corks remained corks and failed drawback qualification.
Imported corks subjected to cleaning, steaming, branding, chemical treatment and drying did not become a new and different manufactured article. The statutory concept of manufacture requires transformation into an article with a distinctive name, character or use, not merely change, treatment, labor or manipulation. Because the corks remained corks and were only prepared for use in bottling beer, they did not qualify as articles manufactured in the United States from imported materials for drawback purposes. The drawback claim was therefore not sustainable.

Manufacture - articles manufactured in the United States of imported materials - drawback on exportation - transformation into a new and different article - exportation of the manufactured article versus exportation of the productManufacture - transformation into a new and different article - Whether corks subjected to the claimant's selection, washing, steaming, drying, chemical bathing and other treatments became articles manufactured in the United States of imported materials within the meaning of 25 of the Act of October 1, 1890. - HELD THAT: - The Court held that the statutory concept of manufacture requires a transformation such that a new and different article, having a distinctive name, character, or use, emerges. While manufacture implies change, not every change or treatment is manufacture. Applying the test from Hartranft v. Wiegmann and the reasoning in Joseph Schlitz Brewing Co. v. United States, the Court found that the treated corks remained corks in substance and character. The processes described-selection, cleansing, steaming, drying, glycerin and alcohol bathing, and branding-though making the corks fit for export bottling and free from germs or taste imparting substances, did not effect the requisite transformation into a new article. Consequently, the corks were not articles "manufactured in the United States of imported materials" within the meaning of 25.The corks as treated did not become articles manufactured in the United States of imported materials; the statutory requirement of transformation was not satisfied.Drawback on exportation - exportation of the manufactured article versus exportation of the product - Whether the exportation was of the corks or bottles (as articles entitled to drawback) or of the beer (the product), and whether drawback was allowable on the corks or bottles used in export bottling. - HELD THAT: - The Court agreed with the court of claims that the exports in question were exports of beer bottled and corked for shipment, not exports of the corks or bottles as manufactured articles eligible for drawback under 25. Even accepting that special care and treatment of bottles and corks is necessary to preserve beer for foreign markets, that circumstance does not convert bottles or corks into the exported articles for drawback purposes. The Schlitz Brewing precedent was followed in holding that materials used to contain or preserve an exported product are not thereby transformed into the exported article entitled to drawback.The exportations were of beer and not of corks or bottles as articles entitled to drawback; drawback on the corks was not allowable.Final Conclusion: The judgment of the court of claims dismissing the petition for drawback was affirmed: the treated corks did not undergo the transformation necessary to be "articles manufactured in the United States of imported materials," and the exportations were of beer, not of the corks or bottles, so no drawback was due on the corks.

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