Special excise duty and the taxable event: goods manufactured before commencement were not liable merely because clearance occurred later.

Special excise duty under Section 37 of the Finance Act, 1978 was treated as a distinct levy, and the operative question was whether it attached when manufacture was completed. The majority view was that excise is attracted by manufacture, so cigarettes manufactured before 1-3-1978 could not be subjected to a duty that was not in force at that time merely because they were cleared later. Liability to basic excise duty did not merge the special levy or make it recoverable on pre-existing stock. A dissenting view considered the duty payable on removal.

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Issues: (i) whether special excise duty introduced by Section 37 of the Finance Act, 1978 could be levied on cigarettes manufactured before 1-3-1978 but removed after that date; and (ii) whether the fact that the goods were already liable to basic excise duty at the time of manufacture made the special excise duty recoverable on such pre-existing stock.

Issue (i): whether special excise duty introduced by Section 37 of the Finance Act, 1978 could be levied on cigarettes manufactured before 1-3-1978 but removed after that date.

Analysis: The special excise duty was treated as a distinct levy, though it was a duty of excise. The majority held that the governing question was whether that particular duty was leviable when manufacture was completed. Applying the settled principle that excise is attracted by manufacture or production, the Court held that goods already manufactured before the levy came into force could not be subjected to a duty that was not in existence at the time of manufacture merely because they were removed later.

Conclusion: The levy was not sustainable on goods manufactured before 1-3-1978 and cleared thereafter.

Issue (ii): whether the fact that the goods were already liable to basic excise duty at the time of manufacture made the special excise duty recoverable on such pre-existing stock.

Analysis: The Court held that liability to basic excise duty did not merge the special excise duty with the basic levy. Section 37 of the Finance Act, 1978 created a separate charge and the incorporation of the Central Excise Act and Rules by reference did not alter the identity of the special duty. The relevant inquiry remained whether the special duty itself was in force when manufacture was completed. Since it was not, the pre-existing liability to basic duty did not authorise levy of special duty on the same goods.

Conclusion: The existing basic excise duty did not render the special excise duty leviable on the pre-1-3-1978 manufactured goods.

Final Conclusion: The appeal succeeded, and the assessees were held entitled to relief against the special excise duty collected on goods manufactured before the levy commenced.

Ratio Decidendi: A special excise duty cannot be levied on goods already manufactured before that duty came into force merely because the goods were removed after the levy commenced or were otherwise subject to a separate basic excise duty; the taxable event for that special levy remains manufacture unless the statute clearly provides otherwise.

Concurring Opinion

The majority view was substantially supported by another Member, who agreed that manufacture is the taxable event and that the special duty, being a separate levy, could not be fastened to goods manufactured before its commencement.

Dissenting Opinion

One Member dissented and held that the special excise duty was payable because Section 37 of the Finance Act, 1978 operated on goods chargeable with basic excise duty at the time of removal, irrespective of the date of manufacture.

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