TaxTMI 
TaxTMI 
1991 (9) TMI 86
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....ted that: (i) Package tea is not a different product of the tea and there is no difference between package tea and tea of all varieties. For having package tea no manufacturing process as defined under Section 2(f) of the Act is involved. (ii) As per charging Section 3, the excise duty can be levied on the goods which are manufactured in India but it cannot be levied only on the basis of packing because packing or blending of tea does not involve a manufacturing process. (iii) Duty of excise on process not amounting to manufacture is beyond the legislative competence of the Parliament and recourse cannot be taken to Entry 97 of List 1 of the Seventh Schedule to the Constitution of India to justify such a levy. (iv) In any set of circumstances, as there is no difference between the package tea and tea falling within the Tariff Item 3(1) the levy of higher rate of duty of excise on package tea is discriminatory and is violative of Article 14 of the Constitution of India. 3. As against this, in affidavit in reply, it has been pointed out and contended by the respondents as under: (i) The process of conversion of original tea into package tea is a manufacturing process withi....
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....ly below limited quantity of tea. Keeping in view the demand of the trade the packing upto 27 kgs. is considered as Package Tea. The petitioners themselves are enjoying facility of duty free removal of tea packed in container containing more than 27 kgs. of tea. (iv) Lastly, it has been stated that for a long period of 30 years, that is, since 1953, the duty has been paid by the petitioners on the basis of Tariff Item 3(2) which indicates that Package Tea is known as different variety of tea in the market. For a long period of 30 years the petitioners have not raised the contention that Package Tea cannot be considered as different product of tea which indicates that it is known to the petitioners and in the market as different product of tea. 4. For considering the aforesaid contentions it is necessary to consider Tariff Entry 3, which defines the word 'tea' and prescribes different rates of duty for three different varieties of tea. Tariff Item 3 reads as under: Item No. 3 - Tea Rate of duty Item number Tariff Description Basic Duty Cess 1 2 3 4 3 Tea 'Tea' includes all varieties of the product known ....
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.... the same plant, though various regions generally specialize in one type. Most stages of processing are generally common to the three types of tea. First, the fresh leaves are withered by exposure to the sun or by heating in trays until pliable (usually 18-24 hours). Next the leaves are rolled by hand or machine in order to break the leaf cells and liberate the juices and enzymes. This rolling process may last upto three hours. Finally, the leaves are completely dried either by further exposure to the sun, over fires, or in a current of hot air, usually for 30- 40 minutes. In making black tea, the leaves, after being rolled are fermented in baskets or on glass shelves or cement floors under damp clothes, usually for 1½ to 4½ hours, followed by the usual drying process until the leaves are black and crisp. The process of fermentation, or oxidation reduces the stringency of the leaf and changes its colour and flavour. Green tea is made by steaming without fermentation in a perforated cylinder or boiler, thus retaining some of the green colour. The leaves are lightly rolled before drying. Oolong teas, which have some of the characteristics of both black and green t....
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....there cannot be any doubt that package tea can be classified as a different variety of tea from instant tea or remaining varieties of tea. On different varieties of the same product the duty of excise at different rates can be levied. Tariff Item 3 provides for it. The different rate of duty of excise is fixed for instant tea, package tea and remaining tea of all varieties including green tea. Different rates of duty of excise are fixed on the basis that they are of different varieties of tea and not on the basis that they are different products. Therefore, the main contention of the petitioners that package tea is not a different product than other tea and that no manufacturing process as defined under Section 2(f) of the Act is required for having package tea and, therefore, Tariff Item 3(2) is illegal is misconceived. As stated earlier, it is the say of the petitioners that the petitioners purchased tea in bulk from various auction centres in India. After its purchase impurities are removed and different varieties of tea are blended and sold in the market under different brand names such as Red Label, Red Special, Taj Mahal, etc. in different sizes of packets. Therefore, after r....
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....27 kgs.) net of tea, the rate of duty of excise was four annas per lb. The rate of duty of excise on other tea was one anna per lb. If before being packed excise duty of one anna per lb. is paid, then the excise duty on package tea was reduced to that extent. Therefore, on a package tea containing not more than 60 lbs. of tea, higher excise duty was levied and on loose tea or on other tea, lower excise duty was levied. Therefore, the main contention of the petitioners that the Parliament is not competent to levy a different rate of duty of excise on package tea because the petitioners are not manufacturing or producing the package tea and, therefore, Tariff Item 3(2) is beyond the legislative competence of the Parliament, is devoid of substance. Hence, considering the aforesaid Tariff Item 3(1), (2) and (3) by which tea is classified into three different varieties, it would not be necessary for our purpose to decide whether process of package tea involves a manufacturing process as defined in Section 2(f) of the Act. In this view of the matter, it is not necessary to discuss various judgments of the Supreme Court including the decisions in the case of Bhor Industries Ltd. v. Collec....
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....or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience. Whether in a particular case the tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to exist, is to be decided on fair construction of the provisions of a particular Act." Therefore, assuming for the time being that the petitioners' product which is package tea is not different from other varieties of tea, yet additional duty of excise can be levied and collected when loose tea is packed and thereafter sold in different packages with different labels. It can be said that additional duty of excise....
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....ed their affairs on the basis that the payment of duty on the aforesaid basis was in accordance with law, is a circumstance which cannot be brushed aside in a cavalier fashion. The following factors must be flashed on the mental screen in this context: (1) The annual budget of the Central Government has been moulded on the assumption that this duty can be lawfully levied for more than 30 years, not to speak of the formulation of the budget by the appropriate Government prior to the enforcement of the Constitution of India upon the attainment of Independence. (2) Income tax must have been collected from tens of thousands of assessees on this footing. (3) The importer must have marketed the goods on this premise. (4) The Consumer must have been made to pay the price on this assumption. (5) And while the real losers, the consumers, cannot be identified and compensated, the importers will be enabled to make windfall profits and unjust enrichment. (6) The Central Budget will have to bear an unanticipated outflow which will have to be passed on to the tax-payer, and (7) the consumer, the original and real sufferer, will again have to suffer as the burden will have to be again borne by hi....
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....different product for a period of 30 years and subsequently the Parliament by deeming provision provided that package tea is a different product then it would be just and proper to hold that package tea was considered to be a different product by all growers who were and are concerned in the tea market. Still, however, as we have arrived at the conclusion that the Parliament has levied higher duty of excise on package tea on the basis that it is of different variety and not a different product, therefore, as stated earlier, it is not necessary for us to deal further with this aspect. 11. Lastly, we would deal with the contention that Tariff Item 3(2) is violative of Article 14 of the Constitution of India. By Tariff Item 3(2) there is classification between (a) package tea and unpacked tea and (b) package tea packed in any kind of container containing not more than 27 kgs. net of tea and package tea in a container containing more than 27 kgs. of tea. This classification was introduced for the first time by Act 15 of 1953. The object is to afford the relief directly to the tea growers and the consumers of unpacked tea. In the affidavit in reply, it has been pointed out that so far ....
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....ssification in the background of fiscal policy of the State. This is established by numerous decisions of the Supreme Court. The mere fact that duty of excise is more some category of package tea is not by itself a ground to render the law invalid. While dealing with the similar contention in the case of Dunlop (I) Limited v. Union of India, AIR 1977 Supreme Court 597, the Supreme Court observed as under: "36. We are, however, unable to accept the submission. It is clear that meanings given to articles in a fiscal statute must be as people in trade and commerce, conversant with the subject, generally treat and understand them in the usual course. But once an article is classified and put under a distinct entry, the basis of the classification is not open to question. Technical and scientific tests offer guidance only within limits. Once the articles are in circulation and come to be described and known in common parlance, we then see no difficulty for statutory classification under a particular entry." 14. Further in the case of Kerala Hotel and Restaurant Assn. v. State of Kerala, 1990 (2) Supreme Court Cases 502, the Supreme Court has extensively dealt with the contention of a....
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....nd evolve a fiscal policy it thinks is best suited to the felt needs. The complexity of economic matters and the pragmatic solutions to be found for them defy and go beyond conceptual mental modes. Social and economic problems of a policy do not accord with preconceived stereotypes so as to be amenable to predetermined solutions...' 'The lack of perfection in a legislative measure does not necessarily imply its un-constitutionality. It is rightly said that no economic measure has yet been devised which is free from all discriminatory impact and that in such a complex arena in which no perfect alternatives exist, the court does well not to impose too rigorous a standard of criticism, under the equal protection clause, reviewing fiscal services. In G.K. Krishnan v. State of Tamil Nadu this Court referred to, with approval, the majority view in Sanantonio Independent School District v. Rodriguz Speaking through Justice Stewart: (SCC p. 389 para 38): 'No scheme of taxation, whether the tax is imposed on property, income or purchases of goods and services, has yet been devised which is free of all discriminatory impact. In such a complex arena in which no perfect alterna....