1974 (11) TMI 40 - SC - Central Excise

Levy of excise duty on matches: date-based concession cutoff upheld to prevent fragmentation, denying late applicants concessional rate.

Validity of a date-based classification for concessional excise treatment is examined as a measure to prevent fragmentation and circumvention; the ... Levy of excise duty match factories - SSI exemption - benefit of the concessional rate of duty - Validity of clause (b) of notification of the Government of India, Ministry of Finance (No. 205/67-C.E. - Violative of the fundamental right - Classification between beneficiaries and non-beneficiaries on the basis of a particular date - imposes excise duty on manufacture - HELD THAT:- It may be noted that it was by the proviso in the notification dated July 21, 1967, that it was made necessary that a declaration should be filed by a manufacturer that the total clearance from the factory during a financial year is not estimated to exceed 75 million matches in order to earn the concessional rate of duty by filing the declaration. All small manufacturers whose estimated clearance was less that 75 millon matches would have availed themselves of the opportunity by making the declaration as early as possible as they would become entitled to the concessional rate of duty on their clearance from time to time. It is difficult to imagine that any manufacturer whose estimated total clearance during the financial year did not exceed 75 million matches would have failed to avail of the concessional rate on their clearance by filing the declaration at the earliest possible date. The whole object of the notification dated September 4, 1967, was to prevent further fragmentation of the bigger units into smaller ones in order to get the concessional rate of duty intended for the smaller units and thus defeat the purpose which the Government had in view. In other words the purpose of the notification was to prevent the larger units who were producing and clearing more than 100 million matches in the financial year 1967-68 and who could not have made the declaration, from splitting up into smaller units in order to avail of the concessional rate of duty by making the declaration subsequently. To achieve that purpose, the Government chose 4-9-1967 as the date before which the declaration should be filed. There can be no doubt that any date chosen for the purpose would, to a certain extent, be arbitrary. The concessional rate of duty can be availed of only by those who satisfy the conditions which have been laid down under the notification. The respondent was not a manufacturer before September 4, 1967, as it had appled for licence only on September 5, 1967 and it could not have made a declaration before September 4, 1964, that its total clearance for the financial year 1967-68 is not estimated to exceed 75 million matches. In the matter of granting concession are exemption from tax, the Government has a wide latitude of discretion. It need not give exemption or concession to everyone in order that it may grant the same to some. As we said, the object of granting the concessional rate of duty was to protect the smaller units in the industry from the competition by the larger ones and that object would have been frustrated if, by adopting the device of fragmentation the larger units could become the ultimate beneficiaries of the bounty. When it is seen that a line or a point there must be and there is no mathematical or logical way of fixing it precisely the decision of the legislature or its delegate must be accepted unless we can say that it is very wide of any reasonable mark. We set aside the orders of the High Court, dismiss the writ petition and allow the appeals with costs. Issues:Validity of clause (b) of notification of the Government of India, Ministry of Finance under Article 14 - Classification of match factories for levy of excise duty - Challenge against the classification based on date of declaration - Interpretation of notification dated July 21, 1967, and subsequent amendments - Application of Rule 8 of the Central Excise Rules, 1944 - Reasonableness of classification based on date - Protection of smaller units in the industry.Detailed Analysis:1. Validity of Clause (b) of Notification: The respondent challenged the validity of clause (b) of a notification issued by the Government of India, Ministry of Finance, under Article 14. The notification imposed excise duty on match factories based on their classification as mechanised or non-mechanised units, with varying rates of duty. The respondent contended that the classification was discriminatory and violated their fundamental rights.2. Classification of Match Factories: The Central Excises and Salt Act, 1944, imposed excise duty on match factories based on their production capacity. Initially, factories were classified based on production levels, but in 1967, they were classified as mechanised and non-mechanised units. Subsequent notifications prescribed different rates of duty for these units, with a concessional rate for small manufacturers certified by specific bodies.3. Challenge Against Classification: The respondent, a new entrant in the industry, applied for a license after the date specified in the notification. They argued that being denied the concessional rate of duty based on the date of application was discriminatory. The High Court held that the classification based on the date lacked nexus with the object of the Act as all manufacturers with estimated production below a certain limit should be treated equally.4. Interpretation of Notifications: The Court examined the purpose of the notifications and the rationale behind the classification based on dates. It noted that the intent was to prevent larger units from splitting into smaller ones to avail the concessional rate meant for small manufacturers. The classification based on the date of declaration aimed to protect the smaller units from unfair competition by larger units.5. Application of Central Excise Rules: Rule 8 of the Central Excise Rules, 1944, empowered the government to grant exemptions or concessions subject to specified conditions. The Court emphasized that the government had discretion in granting concessions and could set conditions to achieve the intended purpose, which in this case was to safeguard smaller units in the industry.6. Reasonableness of Classification: The Court rejected the contention that the classification based on the date was arbitrary. It cited previous judgments to support the view that a classification based on a specific date could be reasonable if it served a legitimate purpose. The Court upheld the classification as it aimed to prevent the misuse of concessional rates by larger units through fragmentation.7. Protection of Smaller Units: The Court concluded that the classification based on the date of declaration was reasonable and served the objective of protecting smaller units in the industry. It set aside the High Court's orders, dismissed the writ petition, and allowed the appeals with costs.In conclusion, the judgment upheld the validity of the classification based on the date of declaration in the notification, emphasizing the government's discretion in setting conditions for concessional rates to protect smaller manufacturers in the industry.