TaxTMI 
TaxTMI 
TaxTMI 
1967 (1) TMI 91
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....dment to the aforesaid Act was brought about under Act XIX of 1961, issued demands against the petitioners for payment of excise duty calculated ad valorem at 10 per cent of the value on the patent or proprietary medicines manufactured by them subsequent to 1st June, 1961. 2. The first contention of the petitioners in these cases, for challenging the correctness and validity of the above demand, was that under the Schedule to Act XVI of 1955, in item 1, under which the proposed levy of excise duty had been made, only preparations containing alcohol are liable to excise duty; but in the case of the preparations manufactured by the petitioners, except a single item called "Selviue" (manufactured by the petitioner in W. P. No. 1139 of 1964) alcohol in its free state had not been used; but they had used "spirits," "Chloroform" or other tinctures containing alcohol in small quantities only as preservatives. In such circumstances, bearing in mind the definition of alcohol given in Section 2(a) of the Act and also the general scope of the Act and the Rules the petitioners contend that it is illegal to consider that their preparations contain alcohol, and the....
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....ion. Therefore, alcohol which has functioned as a solvent in the tinctures and spirits, has gone into state of further solution in the medicines prepared by the petitioners. In other words, alcohol though it might not have been directly added, is present in the medicines in a state of solution. It has not undergone a chemical change into some other substance. It is present in a liquid form and the medicines thus prepared will reveal all the properties of alcohol, whether of smell or taste or capacity to vaporise, dependent of course, upon the quantity present. A solution of sugar in water retains the properties of sugar including taste, a solution of salt in water retains the properties of salt including taste, and a solution containing coloured substance or substances having smell, retains the colour and smell, the going of a substance into the solution will still make it an ingredient present in the solution importing all its characteristics to the solution. Therefore, the fact that alcohol went into solution !n these preparations as tinctures or spirits and was not directly added will not make any difference to the resultant position about the presence of alcohol as alcohol in t....
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.... per gallon of the strength of London proof spirit. 2. Medicinal and toilet preparations not otherwise specified containing alcohol: - (i) Ayurvedic preparations containing self-generated alcohol which are not capable of being consumed as ordinary alcoholic beverages. Nil (ii) Ayurvedic preparations containing self generated alcohol which are capable of being consumed as ordinary alcoholic beverages. Rupees three per gallon. (iii) All others... Rupees five per gallon of the strength of London proof spirit. 6. Medicinal and toilet preparations, not containing alcohol, but containing opium, Indian hemp, 0% other narcotic drug or narcotic. Nil 8. After the amendment in 1961 the Schedule was recast thus:- Item No. Description of dutiable goods. Rate of duty. 1 2 3 Medicinal preparations : 1. Medicinal preparations, being patent or proprietary medicines, containing alcohol and which are not capable of being consumed as ordinary alcoholic beverages. Ten per cent ad valorem. 2. Medicinal preparations, containing alcohol which are prepared by distillation or to which alcohol has been added, and which are capable of being consumed as ordinary alcoholic beverages. Rup....
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....It is urged that under the broad scheme of the Act thus expressed in the provision of the Act, the Rules thereunder as well as in the Preamble, the Act was intended to tax only preparations in whose manufacture alcohol directly was used, and not alcohol contained in tinctures or in spirits. 10. I am unable to accept this line of reasoning. Section 3(2)(b) of the Act, dealing with manufacture outside bond, is sufficiently general, to include the preparations in the present cases. The provision contained for manufacture outside bond in Rule 20 and also in Clause (3) of L-2 licence are not exhaustive. They deal with safeguards where spirit as such is used, but they are not authority for the conclusion that a preparation containing alcohol comes into existence, only if alcohol in its free condition had been used but not as tincture or spirits. The aforesaid rules are intended to safeguard the case of manufacture outside bond where alcohol in unmixed form is used. But they will have no application where alcohol in tinctures or spirits is used in a preparation; the preparation will come within the category of preparations containing alcohol for the levy of excise duty on which the Act a....
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....n caprice without any reasonable basis to the object of the legislation. He referred to the following observation found at page 596 of Willis Constitutional Law:-- "Another classification for taxation frequently used is one according to objects. The Legislature has a wide discretion in this respect. It may levy a tax on all houses, excluding barns, and on all horses, excluding sheep and cows. However, any such classification must have some basis other than mere caprice. A tax on white horses would be an illustration of a classification without basis." He also referred to the amendment of the Schedule in 1963 and a further amendment in 1964 whereby uniformity as against item 1 and item 2, 10 per cent ad valorem or the rate based upon alcoholic content of the preparation whichever is higher, had been introduced. By these amendments. It was urged, both items 1 and 2 were brought into a state of uniformity but in the amendment of 1961 which governs the present case, that uniformity had not been attained, and there was discrimination in the method adopted for levying duty between items 1 and 2. 13. As against this argument, the learned Government Pleader submits that under....
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....beverages on a rate calculated upon the volumetric content of alcohol. This appears to be a perfectly rational basis for drawing a distinction between item 1 and item 2 of the Schedule based upon their suitability or non-suitability for being used as ordinary alcoholic beverages. In item 1, stress is laid not so much on the value of alcoholic content as on the value of the medicines that go into their preparations. In item 2, the value of the medicines that go into the preparations may be little, when compared with the value of the higher alcoholic content that went into the preparation, and that has necessitated the levy on item 2 on the basis of the alcoholic content. From this point of view there appears to be a valid basis of distinction between items 1 and 2. Again, when by the amendments in 1963 and 1964 ad valorem duty as an alternative to the duty based on the value of the alcoholic content was used for taxing both items 1 and 2 preparations, apparently a certain uniformity was introduced where such uniformity did not exist before, but still the provision even after such amendment, for the levy of the higher duty out of two alternative rates might have helped to lay stress ....
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....ly deposit a sum therein sufficient in the opinion of the Excise Commissioner to cover the duty on the goods intended to be removed from the place of manufacture or storage. (2) If any dutiable goods are, in contravention of Sub-rule (1) deposited in, or removed from, any place specified therein the manufacturer thereof shall pay the duty leviable on such goods upon written demand made by the proper officer, whether such demand is delivered personally to him or is left at the manufactory or his dwelling house, and he shall also be liable to a penalty to be determined by the Excise Commissioner which may extend to two thousand rupees, and such goods shall also be liable to confiscation. 11. Recovery of duties or charges short-levied or erroneously refunded:-- When duties or charges have been short-levied through inadvertence, error, collusion or misconstruction on the part of an Excise Officer, or through misstatement as to the quantity or description of such goods on the part of the owner, or when any such duty or charge, after having been levied, has been, owing to any such cause, erroneously refunded the person chargeable with the duty or charge, so short-levied, or to whom s....
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....ners, though they had manufactured dutiable goods containing alcohol as found above, never cared to take a licence as required under Section 6(1) of the Act, with the consequence that all the restrictions and safeguards regarding manufacture of the products contained in Rules 46 to 58 had been avoided by them in this case. There was, therefore, no scope for levy of the duty either as provided under Rule 9 or under Rule 9 (2). Rule 11 which I have extracted above, deals with a limited set of contingencies as mentioned therein. The first contingency is where there has been a short-levy because of inadvertence, error, collusion or misconstruction on the part of the Excise Officer; the second contingency arises where there is a misstatement on the part of the owner as to the quantity or description of such goods. There is a third contingency under Rule 11, of erroneous refund: but we are not concerned with this. Obviously in the present case there is no question of short-levy due to any of the acts or omissions attributed to the Excise Officer under the first contingency; nor is there a question of short-levy due to misstatement as to the quantity or description by the owner under the ....
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....provision under the Central Excise Act) could be levied. Thus in the Supreme Court decision in MANU/SC/0224/1961 : AIR1962SC1006 an additional duty was leviable under a later enactment which was directed to have retrospective effect and therefore, the levy could not be made under Rule 9 or the other provisions of the Rules and the residuary provision under Rule 10-A under the Central Excise Act was held to be applicable. Before Srinivasan, J., in W, P. Nos. 125 & 126 of 1961 (Mad), it was discovered as a result of a subsequent finding arrived at by the department, that the two mills, though they were normally in the names of different persons, really belonged to single manufacturer and this required a further payment of excise duty for which a demand was made under the residual provision in Rule 10-A of the Central Excise Act. The learned Judge held that Rule 10-A would cover such a case. In AIR 1955 Raj 114, by reason of the retrospective operation of an Act, additional duty was found payable in respect of goods which had been already cleared without payment of duty in the ordinary way at the time of clearance, it was held that the residual provision in Rule 10-A would apply. Lear....
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....ion as a restricted preparation, if so advised by the said Committee and thereupon include the said preparation in the Schedule. (3) Medicinal preparations other than official allopathic preparations and toilet preparations which are manufactured in India for the first time on and subsequent to 1st April, 1957 shall be presumed to be restricted preparations unless declared to the contrary by the Central Government on the advice of the Standing Committee. Any manufacturer intending to produce a new alcoholic preparation other than an official allopathic preparation, shall submit two samples of such preparation with the recipe to the State Government. The State Government shall forward such request with recipe to the Central Government for a decision. The Central Government shall refer the matter to the Standing Committee and in accordance with the advice tendered by it declare the category in which the preparation should be placed. The decision of the Central Government shall be communicated to all State Governments. In case the preparation is declared to be a restricted preparation it shall be included in the Schedule. The advice of the Standing Committee shall be communicated ....
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....d Rule 60 (3) lays down is only a presumption, that such presumption can be rebutted by contra evidence, and that if the petitioners want to take advantage of the presumption thus claimed, the department also should be given an opportunity to afford contra evidence to rebut the presumption and also to establish that the preparations in question are not really capable of being consumed as ordinary alcoholic beverages. But no decision can be given by this Court on these rival contentions while dealing with the matter in a proceeding for the Issue of a writ under Article 226 of the Constitution, because such decision requires an analysis of data and also taking evidence, if necessary. These necessary steps before a decision can be arrived at should necessarily be delegated to the authorities who are charged with the duty of considering the representations by the manufacturers and passing appropriate orders on those representations in the light of the law. It is also mentioned by the learned Government Pleader that against the decisions of the assessing authorities, appeals are provided under the Act and the Rules, to higher tribunals or departmental authorities and the petitioners can....