1981 (8) TMI 72 - HC - Central Excise

Court exempts detergent powder from excise duty, rules against unjust seizure. Return of bank guarantee ordered.

The court allowed the petition, ruling that the detergent powder was exempt from excise duty under Notification No. 101/66. The petitioners were not ... Exemption under Notification No. 101/66 - process carried on with the aid of power - in or in relation to the manufacture - definition of 'manufacture' and judicial meaning of 'process' - exemption from licensing under Notification No. 111/78 - seizure and confiscation for non-payment of excise duty - alternative remedy and maintainability of writ reliefExemption under Notification No. 101/66 - process carried on with the aid of power - in or in relation to the manufacture - definition of 'manufacture' and judicial meaning of 'process' - Detergent powder manufactured by the petitioners is covered by Notification No. 101/66 and is not liable to excise duty because no process in or in relation to its manufacture is ordinarily carried on with the aid of power. - HELD THAT: - The Court applied the Supreme Court's authorities on the distinction between 'manufacture' and 'process' and held that 'manufacture' means bringing into existence a new article known to the market, whereas 'process' denotes an operation which effects a change in the commodity. On the admitted facts the use of power is confined to transferring raw liquids from tankers to storage tanks; no change in the raw materials occurs until they are introduced into the reaction vessels, where processes are manually operated. The intervening measurement tanks negate any effect of gravitational acceleration on the manufacturing process. Consequently, insofar as 'in or in relation to the manufacture' is concerned, no process ordinarily carried on with the aid of power was shown to exist and the notification's exemption applies. [Paras 18, 19, 20, 21, 24]Notification No. 101/66 applies; the detergent powder is not excisable.Exemption from licensing under Notification No. 111/78 - exemption under Notification No. 101/66 - Because the detergent powder is totally exempt from excise duty under Notification No. 101/66, the petitioners are also exempt from licensing requirements under Notification No. 111/78 (and its replacement Notification No. 2/81). - HELD THAT: - The Court held that total exemption from excise duty under the relevant notification renders the petitioners eligible for the separate notification exempting such manufacturing units from licencing control. Having found the goods non-excisable, the licensing exemption follows as a consequence. [Paras 24, 25]Notification No. 111/78 (and Notification No. 2/81 to like effect) exempts the petitioners from licence requirements.Seizure and confiscation for non-payment of excise duty - seizure and release - The seizures effected by the excise authorities are quashed and set aside. - HELD THAT: - Seizure was premised on the Department's contention that the goods were excisable and liable to confiscation for non-payment of duty. Having held that the goods are exempt under the notification, the Court quashed the seizure recorded in the panchnamas, ordered return of the bank guarantee and directed respondents to bear costs related to the bank guarantee. [Paras 4, 22, 26]Seizure is quashed; goods to be released and bank guarantee returned; respondents to pay related costs.Alternative remedy and maintainability of writ - existence of disputed questions of fact - The writ petition was maintainable despite the availability of departmental adjudicatory remedies and there were no disputed material facts precluding judicial determination. - HELD THAT: - On the admitted factual matrix (process description and use of power confined to transfer to storage tanks) the Court found no substantial disputed question of fact requiring exclusive departmental adjudication. The Court relied on precedent that availability of alternative remedies does not bar writ relief where the issue involves interpretation of exemption notifications or where the demand is effectively ultra vires or pre-determined by higher departmental opinion. Given the Board's expressed view and the absence of material dispute, the Court proceeded to decide the matter itself. [Paras 6, 9, 10, 22]Writ petition maintainable; alternative departmental remedy is not a bar in the circumstances.Leave to appeal to Supreme Court - stay of operation - Leave to appeal to the Supreme Court was refused; operation of the judgment is stayed for six weeks from availability of certified copy. - HELD THAT: - The Court rejected the application for leave to appeal under article 133(1), observing that the decision applies established Supreme Court principles and did not warrant further reference. However, to afford respondents time, the Court stayed the operation of its order for six weeks from issuance of the certified copy. [Paras 28, 29]No leave to appeal; operation of judgment stayed for six weeks.Final Conclusion: The High Court held that on the admitted facts the manufacture of detergent powder by the petitioners is exempt from excise duty under Notification No. 101/66, that the units are correspondingly exempt from licensing under Notification No. 111/78 (replaced by No. 2/81), quashed the seizures, found the writ maintainable despite alternative departmental remedies, refused leave to appeal to the Supreme Court and stayed the operation of its order for six weeks. Issues Involved:1. Excise duty applicability on detergent powder.2. Exemption under Notification No. 101/66.3. Requirement of a manufacturing license under Notification No. 111/78.4. Validity of the seizure of goods by the Excise Department.5. Maintainability of the petition due to alternative remedies.Detailed Analysis:1. Excise Duty Applicability on Detergent Powder:The petitioners, who manufacture detergent powder, claimed that their product was exempt from excise duty under Notification No. 101/66. The Excise Department contended that the manufacturing process involved the use of power, thereby making the product liable for excise duty under Item No. 15AA of the Central Excises and Salt Act, 1944.2. Exemption Under Notification No. 101/66:The core issue was whether the use of power in transferring raw materials (alkyd benzene and sulphuric acid) from tankers to storage tanks disqualified the petitioners from the exemption. The petitioners argued that the use of power was limited to transferring raw materials and did not constitute a part of the manufacturing process. The court found that no process of manufacture involving power occurred until the raw materials reached the reaction vessel. The court concluded that the detergent powder was indeed exempt from excise duty as per Notification No. 101/66.3. Requirement of a Manufacturing License Under Notification No. 111/78:Since the detergent powder was exempt from excise duty, the petitioners claimed they were also exempt from obtaining a manufacturing license under Notification No. 111/78. The court upheld this claim, stating that the exemption from excise duty under Notification No. 101/66 automatically applied to the licensing requirement under Notification No. 111/78.4. Validity of the Seizure of Goods by the Excise Department:The Excise Department had seized the petitioners' goods on the ground that excise duty was not paid. The court found that the seizure was unjustified since the goods were exempt from excise duty. The seizure was quashed, and the court ordered the return of the bank guarantee furnished by the petitioners for the release of the seized goods.5. Maintainability of the Petition Due to Alternative Remedies:The respondents argued that the petition should be dismissed due to the availability of alternative remedies through departmental adjudication. The court dismissed this argument, stating that the facts were not in dispute and that the issue could be resolved without further departmental adjudication. The court also noted that the existence of an alternative remedy does not bar the maintainability of the petition, especially when the seizure was based on an incorrect interpretation of the exemption notification.Conclusion:The court allowed the petition, holding that the detergent powder manufactured by the petitioners was exempt from excise duty under Notification No. 101/66 and that the petitioners were not required to obtain a manufacturing license under Notification No. 111/78. The seizure of goods was quashed, and the respondents were ordered to return the bank guarantee and cover the costs incurred by the petitioners. The court also rejected the respondents' application for leave to appeal to the Supreme Court, stating that the judgment merely applied established principles laid down by the Supreme Court.