1975 (11) TMI 47 - HC - Central Excise

Court rules Ultramarine Blue duty-free under tax law, grants relief to plaintiffs.

The court held that Ultramarine Blue is not chargeable with duty under Item 14 (1) (5) of the Central Excises and Salt Act, 1944, as it is primarily used ... Ultramarine Blue - Civil Court's jurisdiction in excise matters Issues Involved:1. Whether Ultramarine Blue is chargeable with duty under Item 14 (1) (5) of the First Schedule to the Central Excises and Salt Act, 1944.2. Whether the civil court or the High Court has jurisdiction to decide the question of levying duty under the Act.Detailed Analysis:1. Chargeability of Ultramarine Blue under Item 14 (1) (5):The primary issue was whether Ultramarine Blue is chargeable with duty under Item 14 (1) (5) of the First Schedule to the Act. The plaintiffs argued that their product, known commercially as Ultramarine Blue, is used mainly for heightening the whiteness of textiles and other materials and not for painting, coloring, or dyeing. The excise authorities based their decision to levy duty on the report of the chemical analyzer, which classified Ultramarine Blue as an inorganic pigment in powder form. However, the court noted that the affidavit filed by the respondents was defective and did not properly controvert the petitioners' allegations, leading to the conclusion that the product in question is identical to the product manufactured by M/s. C.M.C. India.The court emphasized that the burden of proof lies with the taxing authority to justify taxation, as established in the Supreme Court cases of Travancore Rubber and Tea Co. and South Bihar Sugar Mills Ltd. The evidence showed that Ultramarine Blue is known commercially only by that name and not as a pigment. The court concluded that Ultramarine Blue is not known as a pigment in common parlance and is used primarily for heightening whiteness, not as a coloring agent. Therefore, it cannot be classified under Item 14 (1) (5) of the First Schedule.2. Jurisdiction of Civil Court or High Court:The court addressed whether the civil court or the High Court has jurisdiction to decide the question of levying duty under the Act. The defendants argued that Sections 35 and 36 of the Act provide a complete code for adjudication of disputes under the Act, excluding the jurisdiction of civil courts. However, the court referred to the principles laid down by the Supreme Court in Dhulabhai v. State of Madhya Pradesh, which states that the exclusion of civil court jurisdiction must be explicitly expressed or clearly implied. The court found that the procedure adopted by the Central Excise authorities was arbitrary and not in conformity with fundamental principles of judicial procedure.The court held that the decision of the Central Excise authorities to levy duty on Ultramarine Blue was void, and therefore, it was not necessary for the manufacturers to exhaust departmental remedies. The civil court and the High Court had jurisdiction to hear the suits and the writ petition.Judgment:The court allowed First Appeal No. 970 of 1973, setting aside the trial court's decree in Civil Suit No. 75 of 1972 and declaring that Ultramarine Blue is not chargeable with duty under Item 14 (1) (5) of the First Schedule. The defendants were restrained from recovering any duty from the plaintiffs on this basis, and the Union of India was directed to refund the amount of Rs. 28,615.26 to the plaintiffs within three months, failing which interest at 6% per annum would apply.First Appeal No. 128 of 1972 was dismissed with costs.In Special Civil Application No. 97 of 1972, the court directed the Union of India to refund the duty recovered from the petitioners for the period of three years prior to the petition and from the date of the petition till the judgment date. The request for interest on the refunded amount was denied.The court granted certificates of fitness for appeal to the Supreme Court under Article 133 (1) of the Constitution of India, recognizing the substantial questions of law involved.