1968 (10) TMI 45 - SC - Central Excise

Interpretation of Excise Duty Calculation on Imported Steel Wires

The majority judgment upheld the demand for excise duty on wires manufactured from imported steel rods, interpreting Entry 26AA to calculate duty based on ... Interpretation of a tariff entry - ad valorem duty plus specific excise component - measure of duty - subordinate legislation and notifications as interpretative aid - exemption notifications to avoid double taxation - limitation under Central Excise Rules (demand under Rule 9(2) versus Rule 10)Interpretation of a tariff entry - ad valorem duty plus specific excise component - measure of duty - Construction of Item 26AA of the First Schedule to the Central Excises and Salt Act, 1944 - meaning and effect of the phrase '5 per cent ad valorem plus the excise duty for the time being leviable on pig iron or steel ingots as the case may be'. - HELD THAT: - The majority construed column 3 of Item 26AA as prescribing a composite rate composed of an ad valorem element and an additional excise component measured by the excise duty leviable on pig iron or steel ingots 'for the time being'. The majority held the formula is a yardstick and is to be applied to the weight of the finished article (wires) by reference to the excise duty which would be leviable on a like quantity of pig iron or steel ingot if produced or removed at the same time; it is not confined to the particular ingot from which the article was actually made. The majority treated the phrase as fixing the measure/rate to be added and rejected the narrower construction that the second limb applies only where the specific pig iron or steel ingot used in manufacture was itself dutiable under the Act. Reliance was placed on the text of the entry read in its context and on notification practice which, in the majority's view, proceeded on the same interpretative basis. [Paras 4, 6, 7, 8, 11]Item 26AA must be read as imposing a duty consisting of 5% ad valorem plus an additional component measured by the excise duty then leviable on pig iron or steel ingots; the duty was levied correctly by the Central Government's order.Subordinate legislation and notifications as interpretative aid - exemption notifications to avoid double taxation - Whether notifications and other subordinate measures issued by the executive on or after April 24, 1962 may be considered in ascertaining the scope of Item 26AA. - HELD THAT: - The majority acknowledged that while departmental instructions are generally inadmissible for construing a statute, notifications issued under the rule-making power and the exemption scheme issued contemporaneously with the levy may be looked at for the limited purpose of disclosing the overall scheme and the practical treatment adopted to avoid double taxation. The notifications which exempted finished articles to the extent duty had been paid on raw materials were treated as confirming that the excise component in Item 26AA was to be understood in relation to the duty on the material used and as part of the scheme to prevent multiple excise on the same value. [Paras 8, 11]The notifications implementing the levy are admissible as interpretative aids to disclose the overall scheme and support the construction of Item 26AA adopted by the majority.Limitation under Central Excise Rules (demand under Rule 9(2) versus Rule 10) - Whether the demand for differential duty was barred by limitation because the original notice purported to be under Rule 9(2) and not under Rule 10 of the Central Excise Rules. - HELD THAT: - The majority agreed with the view that the assessing officer was competent to make demands under either Rule 9(2) or Rule 10 and that an exercise of power traceable to a legitimate source is not vitiated merely because it was purportedly invoked under an incorrect rule. A common pro forma for notices under both rules and the assessee's awareness of the nature of the demand from its reply meant that no prejudice resulted from the initial misdescription. Consequently the plea of limitation was rejected by the majority. [Paras 1]The limitation plea fails; the demand (as confined by the Government under Rule 10) is not barred.Final Conclusion: By majority (Sikri and Bachawat, JJ.) the appeal is dismissed with costs: the excise duty was held to have been correctly levied in accordance with the Central Government's order of November 2, 1967, and the plea of limitation was rejected. (Separate dissent by Hegde, J., recorded in the judgment.) Issues Involved:1. Scope and interpretation of Entry No. 26AA of the First Schedule to the Central Excises and Salt Act, 1944.2. Consideration of notifications issued by the Government in interpreting the scope of Entry 26AA.3. Limitation under Rule 10 of the Central Excise Rules, 1944.4. Validity of the demand for excise duty on wires manufactured from imported steel rods.Issue-wise Detailed Analysis:1. Scope and Interpretation of Entry No. 26AA:The primary issue revolves around the interpretation of Entry No. 26AA of the First Schedule to the Central Excises and Salt Act, 1944. The majority judgment held that the duty leviable on wires manufactured by the assessee out of imported steel rods should be calculated based on the formula provided in Item 26AA. The term 'plus' in the context indicates that the rate of duty consists of two parts: ad valorem duty and the excise duty calculated according to the formula. The formula 'the excise duty for the time being leviable on pig iron or steel ingots' is interpreted as the duty leviable on a hypothetical steel ingot if it had been manufactured or removed at the same time as the steel rods were manufactured or removed. The majority judgment emphasized that the formula is not concerned with the actual ingots used but with the hypothetical duty on ingots if they were manufactured at the same time as the final product.2. Consideration of Notifications Issued by the Government:The majority judgment considered the notifications issued by the Central Government to provide reliefs in interpreting the scope of Entry 26AA. Notifications such as No. 70/62 and No. 77/62 provided exemptions to manufacturers from paying the full duty if the raw materials had already paid the appropriate amount of duty. The notifications indicated that the intention was not to levy excise duty at various stages of manufacture but to provide reliefs to avoid double taxation. The majority judgment noted that these notifications support the interpretation that the duty leviable under Item 26AA should consider the duty already paid on the raw materials used.3. Limitation under Rule 10 of the Central Excise Rules, 1944:The issue of limitation was addressed by both the majority and dissenting judgments. The majority judgment found no force in the plea of limitation advanced by the assessee. The demand for differential duty was initially made under Rule 9(2) but was later confined to the period within the limitation prescribed under Rule 10. The majority judgment held that the incorrect reference to Rule 9(2) did not vitiate the demand as the officer had the authority to make demands under both rules. The demand was ultimately modified to comply with Rule 10, and the plea of limitation was dismissed.4. Validity of the Demand for Excise Duty on Wires:The majority judgment upheld the validity of the demand for excise duty on wires manufactured from imported steel rods. It concluded that the duty should be calculated based on the formula provided in Item 26AA, considering the hypothetical duty on steel ingots if they were manufactured at the same time as the final product. The dissenting judgment, however, argued that the duty leviable should be based on the actual materials used in the manufacture of the wires. It emphasized that the excise duty leviable should refer to the duty on pig iron or steel ingots used in the production of the final product. The dissenting judgment held that the demand for duty on wires manufactured from imported steel rods was not justified as the raw materials had already paid the appropriate duty.Conclusion:The majority judgment dismissed the appeal, upholding the demand for excise duty on wires manufactured from imported steel rods based on the interpretation of Entry 26AA and the supporting notifications. The dissenting judgment allowed the appeal, directing the Revenue to refund the excess duty paid under protest, based on the interpretation that the duty leviable should consider the actual materials used in the manufacture of the final product.