Judgment

SHINGHAL, J. :- This appeal by special leave is directed against the judgment of the High Court of Mysore dated September 4/5, 1967. The High Court was moved by the State of Mysore under Article 226 of the Constitution for quashing the demand notice dated July 21, 1962 issued by the Inspector of Central Excise for the payment of Rs. 2,465.91 as excise duty on the products despatched by the States Implements Factory. The demand was made with reference to the newly inserted item 26AA in the First Schedule to the Central Excises and Salt Act, 1944, hereinafter referred to as the Act. That item was added to the Schedule by the Finance Act of 1962, and it was claimed by the Central Excise Department that, on the date of the amendment, the State Government was in possession of some stock of iron and steel product, namely, flats, squares and rods in its factory, which had been obtained from their manufacturers when they were not excisable articles. The precise claim of the Excise authorities was that the duty became payable on those articles by virtue of the newly inserted item 26AA because the aforesaid stock of iron and steel products was used for the manufacture of agricultural implements like mamties, pickaxes, sledge hammers, shovels and ploughes. The Assistant Collector of Central Excise explained in his letter dated June 19, 1962, that the agricultural implements which were manufactured in the States Implements Factory fell within the preview of item 26AA as they were forged or extruded during the process of manufacturing the agricultural implements. It was contended that the demand was justified because the aforesaid iron and steel products, out of which the agricultural implements were manufactured, had not borne any excise duty at all. An appeal was preferred to the Collector of Central Excise against the demand, but without success. A revision was taken to the Central Government under the provisions of the Act, but it was also dismissed. That was why the State Government applied to the High Court for quashing the demand and forsetting aside the appellate order of the Collector and the revisional order of the Central Government.

2. The Central Government traversed the claim of the State Government on the ground that as the rods and bars, which were held in stock by the States Implements Factory, were "pre-excise stock", and as they were put to further process by forging them into shovels, spades and other agricultural implements, they became liable to duty until the "pre-excise stock" held by the factory on April 24, 1962 was utilised and converted into forged implements and was cleared from the factory. It was also urged that the petition was not maintainable in the High Court as it raised a dispute between the Government of India and the State Government within the meaning of Article of the Constitution.

3. The High Court rejected both the contentions of the Central Government and quashed the impugned demand notice and the appellate and the revisional orders. That is why the Union of India has preferred the present appeal.

4. It is not in controversy that the claim for the levy of excise duty was based on sub-sections (1) and (1A) of Section 3 of the Act which read as follows, --

"3(1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the First Schedule.

(1A) The provisions of sub-section (1) shall apply in respect of all excisable goods other than salt which are produced or manufactured in India by, or on behalf of, Government, as they apply in respect of goods which are not produced or manufactured by Government."

It is therefore quite clear, and is not in dispute before us, that the claim for the levy of excise duty in question could be justified only if it could be shown that excisab