1985 (7) TMI 105 - HC - Central Excise

Court rules cut tobacco in cigarette manufacturing process not subject to excise duty as smoking mixture

The court held that cut tobacco in the continuous manufacturing process of factory-made cigarettes is not independently leviable to excise duty as a ... Tobacco - Dutiability - Classification of goods - Interpretation of Taxing Statute Issues Involved:1. Whether cut tobacco in the continuous manufacturing process of factory-made cigarettes is independently leviable to excise duty as 'smoking mixture for pipes and cigarettes' under tariff item 4 category II clause (iv) of Schedule I of the Central Excises and Salt Act, 1944.2. Interpretation of the relevant tariff entry 4 in the Schedule.3. Relevance of rules 9 and 49 of the Central Excise Rules, 1944.4. The distinction between unmanufactured and manufactured tobacco.5. Legislative intent behind the categorization of tobacco products.6. The application of the common or commercial parlance test.7. The significance of the Finance Minister's budget speech.8. The doctrine of noscitur a sociis.9. The principle of no estoppel against the statute.Detailed Analysis:1. Levy of Excise Duty on Cut Tobacco:The primary issue was whether cut tobacco in the manufacturing process of factory-made cigarettes is independently leviable to excise duty as a 'smoking mixture for pipes and cigarettes.' The court held that cut tobacco in the continuous manufacturing process of factory-made cigarettes is not leviable to excise duty under tariff item 4 category II clause (iv). The court emphasized that the smoking mixture for pipes and cigarettes is a product radically different from cut tobacco in the manufacturing process of machine-made factory cigarettes.2. Interpretation of Tariff Entry 4:The court analyzed the language of tariff entry 4 and concluded that the legislature did not mandate a multi-point excise levy on cut tobacco in the manufacturing process of factory-made cigarettes and the finished product. The court stated that the entries in the Schedule of a taxing statute must be understood in common or commercial parlance, not scientifically or with undue technicality.3. Relevance of Rules 9 and 49:The court found that rules 9 and 49 of the Central Excise Rules, 1944, and their amendments had no direct or indirect bearing on the issue. The liability to duty or the taxing event is not dependent on these rules, which only lay down the procedural aspect of when such duty is to be paid.4. Distinction Between Unmanufactured and Manufactured Tobacco:The court highlighted the clear legislative intent to separate unmanufactured tobacco from manufactured tobacco for excise levy purposes. The framers divided them into two distinct categories, each with specific sub-items and varying rates of duty. This distinction was crucial in determining that cut tobacco in the manufacturing process does not fall under the same category as smoking mixtures for pipes and cigarettes.5. Legislative Intent:The court referred to the Finance Minister's budget speech in 1973, which introduced a separate levy on smoking mixtures for pipes and hand-rolled cigarettes. The speech clarified that the levy was intended for end consumer products, not intermediary products like cut tobacco in the manufacturing process of factory-made cigarettes.6. Common or Commercial Parlance Test:The court applied the common or commercial parlance test, concluding that smoking mixtures for pipes and cigarettes are understood in the market as end products, distinct from cut tobacco used in manufacturing factory-made cigarettes. The court noted the significant differences in raw materials, manufacturing processes, and final products between smoking mixtures and cut tobacco.7. Finance Minister's Budget Speech:The court found the Finance Minister's budget speech to be a crucial aid in interpreting the legislative intent. The speech distinguished between machine-made cigarette smokers and those who roll their own cigarettes, supporting the view that the levy on smoking mixtures was intended for end products.8. Doctrine of Noscitur a Sociis:The court applied the doctrine of noscitur a sociis, which means that a word is known by the company it keeps. This doctrine supported the interpretation that sub-item 4 of category II, like other sub-items, pertains to end consumer products, not intermediary products.9. No Estoppel Against the Statute:The court rejected the respondents' argument that there can be no estoppel against the statute. The court found that the revenue's failure to apply sub-item 4 to machine-made cigarettes for nearly a decade indicated a consistent interpretation that cut tobacco in the manufacturing process was not subject to this levy.Conclusion:The court concluded that cut tobacco in the continuous manufacturing process of factory-made cigarettes is not leviable to excise duty under tariff item 4 category II clause (iv). Consequently, the demands raised against the petitioners were unsustainable, and the relevant orders and demands were quashed. The writ petition was allowed with costs.