1. Manufacture of fireworks — Claim for excise duty exemption — Illegal detention of goods — Withdrawal of exemption notification — Dispute over applicable duty rate. (Para 1 )
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1997 Supreme(SC) 1234
1997(8) Supreme 243
SUPREME COURT OF INDIA
(From Delhi High Court)
S.C. Agrawal, G.T. Nanavati, JJ.
Kuil Fireworks Industries -Appellant
versus
Collector of Central Excise & Anr. -Respondents
Civil Appeal No. 12873 of 1996
Decided on 7
Counsel for the Parties :
For the Appellant, S. Murlidhar, Ms. Neeru Vaid, Advocates.
For the Respondents, K.N. Bhatt, Additional Solicitor General,, M. Gaurishankar Murty, Sr. Advocate, R.S. Rana, V.K. Verma, Advocates.
Important Points
A taxpayer cannot be penalized for the illegal detention of goods by authorities. Where goods are illegally detained, the duty rate applicable at the time of detention applies, rather than the rate prevalent on the actual date of removal.
Subject
Tax Law - Central Excise Law
Act Referred
Headnote
Central Excise Tariff-Heading 3604.10-Notification No. 167/86 dated 1.3.1986-Exemption from excise duty granted in respect of various goods including goods falling under Heading 3604.10-Appellant claimed exemption in respect of fireworks manufactured by it on basis of notification-Claim made on ground that no process in relation to manufacture of said goods was ordinarily carried on with aid of power-On 2.9.1987, goods detained on ground that goods were not entitled to exemption-Writ petition-Interim order on 29.9.87 staying operation of order of detention of goods-Appellant permitted to clear goods for sale without payment of excise duty-Amendment of notification whereby exemption in respect of fireworks falling under chapter 36.04 was withdrawn-Show cause notice demanding duty on goods cleared by interim order-Challenged-Held, on facts, demand notice liable to be quashed-Appellant could not be made to suffer on account of illegal detention of goods. (Paras 4 and 5)
Legal Category Hierarchy
Table of Contents
2. Whether the rate of duty is determined by the date of removal versus illegal detention, and whether the use of power disqualified the appellant from exemption. (Para 2 )
3. Illegal detention by authorities prevents a party from suffering due to subsequent law changes; additionally, no evidence supported the claim that power was used in manufacture. (Para 2 , 3 , 4 )
4. A party cannot be penalized for the illegal act of authorities detaining goods; the duty rate applicable at the time of illegal detention prevails over subsequent increases. (Para 2 , 4 )
5. Appeal allowed — Tribunal judgment set aside — Excise duty demand quashed — Deposits refunded with interest and bank guarantee discharged. (Para 5 )
6. Does the rate of duty change if goods were illegally detained by authorities and subsequently released after an exemption was withdrawn?
No. A party cannot be made to suffer on account of the illegal act of detention by authorities. The principle that the rate of duty is determined by the date of removal does not apply when the delay in removal was caused by illegal detention. (Para 2 )
7. Can an exemption be denied based on a presumption that power was used in manufacture without evidence?
No. Conclusions based on presumption and suspicion, without evidence in the records to prove that power was used in the manufacture of goods, are insufficient to render a party ineligible for an exemption. (Para 3 , 4 )
JUDGMENT
S.C. Agrawal, J.-This appeal is directed against the judgment of the Customs Excise and Gold Control Appellate Tribunal (hereinafter referred to as the Tribunal ) dated July 2, 1976 in Appeal No. E/SB/1395/91/MAS. The appellant, Kuil Fireworks Industries, manufactures fireworks which fall under Heading 3604.10 of the Central Excise Tariff. By notification No. 167/86 dated March 1, 1986 exemption from excise duty was granted in respect of various goods including goods falling under Heading 3604.10 provided that no process in or in relation to the manufacture of the said goods is ordinarily carried on with the aid of power. The appellant claimed exemption in respect of fireworks manufactured by it on the basis of the said notification on the ground that no process in relation to the manufacture of the said goods was ordinarily carried on with the aid of power. On September 2, 1987 the excise authorities detained 6,222 wooden cases of fireworks valued at Rs. 39,83,698.50 and a sum of Rs. 5,97,555/- was demanded as excise duty payable on the said goods on the ground that the goods were not entitled to exemption from excise duty under the said notification. The appellant filed a writ petition in the Madras High Court against the said order for detention of the goods. In the said writ petition the High Court passed an interim order on September 29, 1987 staying the operation of the order of detention of the goods dated September 2, 1987 and permitting the appellant to clear the goods for sale without payment of excise duty. In the meanwhile, notification No. 167/86 dated March 1, 1986 was amended by notification No. 222/87 dated September 17, 1987 whereby exemption in respect of fireworks falling under Chapter 36.04 was withdrawn. Since the goods had been permitted to be cleared on the basis of the interim order dated September 29, 1987 passed by the Madras High Court, the Superintendent of Central Excise issued a show cause notice dated February 16, 1988 under Section 11A of the Central Excise Act demanding duty of Rs. 5,97,555/- being the duty on the goods detained on September 2, 1987 valued at Rs. 39,83,698.50 on the ground that the said goods were cleared after September 1, 1987 when the exemption from duty was not available. The appellant submitted their reply to the said show cause notice wherein it was submitted that the goods were detained by detention order dated September 2, 1987 by the department and could be cleared only in pursuance of the interim order dated September 29, 1987 passed by the High Court and that no duty was payable in respect of the said goods. The Assistant Collector of Central Excise by order dated December 18, 1990 confirmed the demand of duty of Rs. 5,97,555/- made in the show cause notice dated February 16, 1987 in view of the decision of this Court in Wallace Flour Mills Co. Ltd. v. Collector of Central Excise, Bombay Division II1, wherein it was decided that the rate of duty prevalent on the date of removal is only applicable. It was held that since the goods were removed after September 17, 1987 excise duty was payable on the same. The Assistant Collector did not go into the merits of the claim of the appellant that they were not using power for manufacture of fireworks. The said order of the Assistant Collector of Central Excise was affirmed in appeal by the Collector (Appeals) in his order dated August 1, 1991. Before the Tribunal reliance was placed by the appellant on the decision of the Calcutta High Court in Collector of Customs v. Priyanka Overseas (P) Ltd.2, and it was urged that as the goods were detained illegally by the customs authorities, the appellant could not be penalised for the illegal act of the authorities and that since the goods were manufactured prior to September 17, 1987 and in the normal course the goods would have been put in the market stream much before the withdrawal of the exemption notification, the duty applicable will be at the rate when the goods were d
