1. Challenge to Excise Duty on footwear under the Central Excises and Salt Act, 1944, concerning manufacturer classification and ad valorem duty calculation. (Para 1 , 2 )
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1962 Supreme(SC) 265
SUPREME COURT OF INDIA
A.K.Sarkar : J.L.Kapur : M.Hidayatullah : Raghubar Dayal : S.R.Dass
British India Corporation Limited
Versus
Collector Of Central Excise, Allahabad
Case No. : 94 of 1955
Date of Decision : 8/20/62
Advocates Appeared: Andley S.N. : Bindra N.S. : Menon P.D. : Narain Bishan : Narain Rajindar : Nath Rameshwar : Sanyal H.N. : Vohra P.L.
Advocates:
BISHAN NARAIN, H.N.SANYAL, N.S.BINDRA, P.D.MENON, P.L.VOHRA, RAJINDAR NARAIN, RAMESHWAR NATH ROY, S.N.ANDLEY
BISHAN NARAIN, H.N.SANYAL, N.S.BINDRA, P.D.MENON, P.L.VOHRA, RAJINDAR NARAIN, RAMESHWAR NATH ROY, S.N.ANDLEY
Classification of manufacturers based on the number of workers or power employed for excise duty is reasonable and constitutional, as it protects small-scale industries from the competitive advantages of mass production and economies of scale enjoyed by larger manufacturers.
Headnote:(A) Central Excises and Salt Act, 1944 - First Schedule, Item 17 - Constitution of India - Articles 14, 19(1)(f), 19(1)(g) and 31 - Imposition of Excise Duty on footwear - Classification of manufacturers based on number of workers or power employed - Whether such classification is discriminatory - A classification based on the number of workers (50 or more) or the use of power exceeding 2 H.P. is reasonable and constitutes a well-defined class - Large manufacturers benefit from economies of scale and mass production, whereas small manufacturers require protection to prevent annihilation in competition - Such classification is valid and does not violate Article 14. (Para 12)
(B) Excise Duty - Nature - It is a duty on production - The fact that the duty may or may not be passed on to the consumer does not change its character as a duty of excise. (Para 8)
(C) Writ Jurisdiction - Article 32 - Disputes regarding the calculation of ad valorem duty, such as the inclusion of freight, packing, and distribution charges, are matters for the authorities constituted under the relevant Act and are not suitable for direct consideration under Article 32 of the Constitution. (Para 10)
Facts of the case:
A manufacturer of footwear challenged the imposition of excise duty under a schedule that applied the tax only to factories employing 50 or more workers or using power exceeding 2 H.P. The petitioner contended that this created an unfair competitive disadvantage against smaller manufacturers who were exempt, thereby violating fundamental rights. Additionally, the petitioner challenged the calculation of ad valorem duty which included freight, packing, and distribution charges, and questioned the legality of duty collection prior to the presidential assent of the relevant Finance Act.
Findings of Court:
The court found that the classification of manufacturers based on size and power was reasonable to protect small-scale industries. It held that the nature of excise duty is independent of whether it is passed to the consumer and that disputes regarding the calculation of duty must be addressed through the statutory appeals and revision process provided under the Act rather than through a writ petition under Article 32.
Issues: Whether the classification of footwear manufacturers based on the number of workers or power used is discriminatory under Article 14; whether the levy violates Articles 19 and 31; and whether the calculation of ad valorem duty including distribution costs can be challenged under Article 32.
Ratio Decidendi: Classification based on the scale of operation, such as the number of workers or horsepower, is a recognized method of creating well-defined classes in legislation. Such distinctions are reasonable when intended to provide an impetus to cottage industries and small manufacturers, saving them from annihilation in competition with large industries that benefit from mass production and economies of scale.
Result: Petition dismissed with costs.
Legal Category Hierarchy
- constitutional law
- tax law
-
administrative law
- writ jurisdiction (Para 10)
Table of Contents
2. Classification of manufacturers by worker count or power usage is discriminatory under Article 14 and violates Articles 19 and 31. (Para 4 , 5 , 6 , 7 )
3. Excise duty is a production tax regardless of consumer pass-through; classification by manufacturer size is a reasonable legislative distinction to protect small industries. (Para 8 , 12 )
4. Classification of manufacturers based on worker count or power usage is reasonable to protect small-scale industries from competition with mass production. (Para 12 )
5. Petition dismissed with costs. (Para 13 )
6. Does the inability of a manufacturer to pass excise duty to the consumer change the nature of the tax?
No. Excise duty is a duty on production. While it is an indirect tax capable of being passed to the consumer, the mere passing on of the duty is not its essential characteristic. (Para 8 )
7. Is the classification of manufacturers based on the number of workers or power used for excise duty purposes constitutional?
Yes. Such classification is reasonable as larger manufacturers benefit from economies of scale and mass production, whereas exemptions for small manufacturers protect cottage industries and small concerns from annihilation. (Para 12 )
8. Can the calculation of ad valorem duty be challenged directly under Article 32 of the Constitution?
No. Disputes regarding the calculation of ad valorem duty are matters for the authorities constituted under the relevant Act, subject to statutory appeals and revisions. (Para 10 )
HlDAYATULLAH M.,J.
(1) THIS is a petition under Art. 32 of the Constitution challenging the imposition of Excise Duty on the petitioner by virtue of item No. 17 `Footwear` of the First Schedule to the central Excises and Salt Act, 1944 (1 of 1944) with effect from 28/02/1954, and the calculation of the duty advaloram by including in the price, charges for freight, packing and distribution.
(2) THE petitioner, the British India corporation Ltd. is a public limited company which was formed to take-over other companies and to amalgamate them. Among the companies which the petitioner took-over were Cooper Allan & Company Ltd., and the North West Tannery Company Ltd., b )that Kanpur. These two Companies manufacture shoes and other leather goods and operate as a single unit manufacturing the well-known brand of `F L E X` shoes. As a result of the financial proposals of the central government for the financial year 1952-55, a bill (No. 9 of 1954) was introduced in parliament on 27/02/1954. Under el. 8 of the Bill foot-wear were proposed to be taxed at 10% advaloram if produced in any factory as defined in the factories Act, 1948 (63 of 1948). When the Finance Act, 1954 (17 of 1954) was enacted, the central Excises and Salt Act, 1954, was amended by the inclusion of item 17 in the Schedule, though in a slightly different form. The item as finally enacted read as follows:- `17. FOOTWEAR, produced in any factory including the precincts thereof whereon fifty or more workers are working or were working on any day, of the preceding twelve months, and in any part of which manufacturing process is being carried on with the aid of power or is ordinarily so carried on, the total equivalent of such power exceeding two horsepower. `Footwear` includes all varieties of footwear, whether known boots shoes, sandals, chappals, or by any other name.` {Ten percent `advalorem`}
(3) UNDER the provisions of the Provisional Collection of Taxes Act, 1931, (XVI of 1931), the duty was leviable from 28/02/1954, by virtue of a declaration in the Bill to that effect. On the preceding day the Superintendent of central Excise., Kanpur, deputed an Inspector of his department to obtain from the petitioner a declaration of all stock of footwear and requested that the Inspector be permitted to verify the stocks with a view to levying the Excise Duty on and from 28/02/1954. As a result of the position of Excise Duty on footwear the petitioner was required to pay during the remaining ten months of 1954 a sum of RE;. 9,47,630.00 as Excise Duty. The petitioner produces in the two units above-named, footwear for sale to the public and for supplies to the government for the use of the Army and the Police. The petitioner contends that though the Excise Duty paid by it was capable of being passed on to the consumer, it could not include it in the price at which shoes were sold to the public because of heavy competition by those free from such duty-, though it did include the Excise Duty in the price of the footwear supplied to government. Thus Rs. 2 lacs odd were passed on to government but Rs. 7 lacs odd were born by the Company itself. The petitioner contended before the Collector of central Excise, Allahabad, that the calculation of the duty advalorem should not be, based on price including freight, packing and distribution charges paid to it, by its distributors in the outlying parts of India. This contention of the petitioner was not accepted by the Collector. The petitioner then took an appeal to the central Board of Revenue but before the appeal could be disposed of, the petitioner filed this petition under Art, 32 of the Constitution praying for writ or writs to quash the order of the Collector of central Excise, Allahabad, and writ or writs to prohibit Union government. The central Board of Revenue and the Collector and Superintendent of central Excise from enforcing the provisions of item 17 against petitioner and collecting the Excise Duty
