1996 (2) TMI 138 - SC - Central Excise

Goods made before March 1, 1978 removed after that date not subject to special excise duty; no refunds allowed

SC held that goods manufactured before March 1, 1978 but removed on or after March 1, 1978 are not exigible to the special excise duty. Goods manufactured ... Duty of excise on manufacture or production - levy distinct from collection; collection at removal - special duty of excise under Finance Act, 1978 - Rule 9A - rate and valuation determined on date of removal for excisable goods - Entry 84, List I, Seventh Schedule - Parliament's power to levy excise on goods manufactured or produced - presumption of passing on incidence of duty to buyerSpecial duty of excise under Finance Act, 1978 - duty of excise on manufacture or production - Entry 84, List I, Seventh Schedule - Parliament's power to levy excise on goods manufactured or produced - Liability to special excise duty of goods manufactured before March 1, 1978 but removed on or after that date - HELD THAT: - The special duty instituted by Section 37 is an excise duty relatable to Entry 84 and therefore is a levy on manufacture or production. The statutory scheme distinguishes levy (created by law at the point of manufacture/production) from collection (which may be effected at removal for administrative convenience). Where goods were manufactured prior to the commencement of the special duty (March 1, 1978), no levy existed at the time of manufacture, and that levy cannot attach subsequently merely because collection is effected at removal. Consequently goods produced before March 1, 1978 and cleared thereafter are not exigible to the special excise duty imposed from that date. [Paras 5, 11]Goods manufactured before March 1, 1978 and removed on or after that date are not liable to the special excise duty levied by Section 37 of the Finance Act, 1978.Rule 9A - rate and valuation determined on date of removal for excisable goods - levy distinct from collection; collection at removal - duty of excise on manufacture or production - Effect of Rule 9A and the decision in Wallace Flour Mills on goods manufactured before a change in levy or rate - HELD THAT: - Rule 9A prescribes that for 'excisable goods' the rate and tariff valuation applicable are those in force on the date of actual removal; it regulates collection and not the existence of a levy. Wallace Flour Mills dealt with goods that were excisable (albeit at a nil rate by exemption) prior to a rate change and held that Rule 9A permitted application of the rate in force on removal. That ratio does not support treating a fresh imposition of a new levy (i.e. where no levy existed at manufacture) as covered by Rule 9A. Thus Rule 9A cannot be read so as to convert removal into the taxable event where no levy existed at manufacture. [Paras 9, 12]Rule 9A governs postponement of payment and the rate/valuation on removal for goods that are already excisable; it does not render liable to a newly created excise duty goods manufactured before the levy came into existence. Wallace Flour Mills is not contrary.Presumption of passing on incidence of duty to buyer - avoidance of multiplicity of proceedings - Relief and consequences in respect of amounts collected as special excise duty on goods manufactured prior to March 1, 1978 - HELD THAT: - Although the Court held that such pre-March 1, 1978 manufacture is not exigible to the special duty, it recognised practical and policy considerations: the duty was levied and collected in the relevant years and litigation has been protracted. In view of continuity of the levy in subsequent years and the legislative presumption (recognised in Section 12B) that incidence of duty is passed on to buyers, the Court directed that assessees shall not be entitled to refunds of amounts collected from them on or after March 1, 1978 in respect of goods manufactured prior to that date. To avoid discrimination, sums still due may be recovered according to law. The Court framed this direction to give finality and to prevent multiplicity of proceedings. [Paras 15, 16]No refund shall be granted for special excise duty collected on or after March 1, 1978 in respect of goods manufactured prior to that date; amounts still due may be recovered according to law.Final Conclusion: The appeals by the Revenue are dismissed and the appeals by the assessees are allowed insofar as goods manufactured prior to March 1, 1978 are not exigible to the special excise duty imposed from that date; however, the Court directed no refunds of amounts collected on or after March 1, 1978 in respect of such goods and permitted recovery of any amounts still due in law. Issues Involved:1. Applicability of special duty of excise on goods manufactured before March 1, 1978 but removed after that date.2. Interpretation of Section 37 of the Finance Act, 1978.3. Relevance of the Central Excise Act and Rules in the context of special excise duty.4. Application of the decision in Wallace Flour Mills Company v. Collector of Central Excise.5. Refund entitlement for special excise duty paid on goods manufactured before March 1, 1978 but removed after that date.Issue-wise Detailed Analysis:1. Applicability of Special Duty of Excise on Goods Manufactured Before March 1, 1978 but Removed After That Date:The core issue was whether goods manufactured before March 1, 1978 but removed on or after that date are liable for the special duty of excise levied by Section 37 of the Finance Act, 1978. The respondent argued that since the special duty of excise is levied on manufacture or production, goods manufactured before March 1, 1978 should not be subject to this duty even if removed after this date. The Tribunal upheld this view, stating that the levy is on manufacture, not removal.2. Interpretation of Section 37 of the Finance Act, 1978:Section 37(1) of the Finance Act, 1978, imposed a special duty of excise equal to five percent of the central excise duty on goods. This levy was effective from March 1, 1978, to March 31, 1979. Sub-section (3) stated that this levy was in addition to other excise duties, and sub-section (4) applied the provisions of the Central Excise Act and rules to the levy and collection of this special duty. The court concluded that the special excise duty is an independent duty of excise, and its levy must be on the manufacture or production of goods, not on their removal.3. Relevance of the Central Excise Act and Rules in the Context of Special Excise Duty:The court analyzed the provisions of the Central Excise Act, particularly Section 3 and Rules 9 and 9A, which govern the levy and collection of excise duties. It was noted that while the levy is created by Section 3, the collection is regulated by the rules. The court emphasized that the levy remains upon manufacture or production, and the collection at the stage of removal is for administrative convenience. The goods must be 'excisable goods' before their removal, meaning they must be subject to duty at the time of manufacture.4. Application of the Decision in Wallace Flour Mills Company v. Collector of Central Excise:The court distinguished the present case from the Wallace Flour Mills decision. In Wallace Flour Mills, the goods were excisable before March 1, 1987, even though the duty rate was nil due to an exemption. The court in Wallace Flour Mills held that the goods attracted duty at the rate prevailing on the date of removal. However, in the present case, the special excise duty was not in existence at the time of manufacture, and hence, the goods could not be subject to this duty upon their removal after March 1, 1978.5. Refund Entitlement for Special Excise Duty Paid on Goods Manufactured Before March 1, 1978 but Removed After That Date:The court directed that assessees are not entitled to a refund of any amount collected as special excise duty on or after March 1, 1978, for goods manufactured before that date. This decision was influenced by the principle behind Section 12B of the Central Excise Act, which presumes that the incidence of duty has been passed on to the buyer. The court aimed to avoid multiplicity of proceedings and provide a final resolution to the controversy.Conclusion:The appeals filed by the appellant-State were dismissed, and the appeals filed by the respondents-assessees were allowed, subject to the direction that no refunds would be granted for special excise duty collected on goods manufactured before March 1, 1978, but removed after that date. The court's decision clarified that the levy of special excise duty is on manufacture or production, not on removal, and that the provisions of the Central Excise Act and rules apply to the collection, not the levy, of this duty.