1. Exemption from excise duty on plastic sheets — Distinction between flexible and rigid sheets. (Para 1 , 3 , 4 )
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2000 Supreme(SC) 1129
SUPREME COURT OF INDIA
B.N.Kirpal : D.P.Mohapatra
Union Of India
Versus
Aflon Engineering Corporation
Case No. : 1274 of 1992
Date of Decision : 7/20/00
The government has discretionary power to grant and restrict tax exemptions. The authority to issue an exemption notification inherently includes the power to amend it, including inserting technical definitions to clarify eligibility, provided such amendments do not conflict with the parent tariff item.
Headnote:(A) Central Excise Rules, 1944 - Rule 8 - Central Excises and Salt Act, 1944 - First Schedule, item 15A - Indian Tariff Act, 1934 - Section 2A - Exemption from excise duty - Power to issue and amend exemption notifications - Definition of "flexible" and "rigid" plastic sheets - Whether the government can restrict the scope of exemption by inserting an explanation in the notification - Exemption is not a right but a discretionary relief granted by the government - Power to issue a notification inherently includes the power to amend the same under the General Clauses Act - Inserting a scientific definition to clarify a term for exemption purposes does not conflict with the parent tariff item. (Paras 9, 10, 11, 12)
Facts of the case:
A manufacturer of plastic sheets claimed total exemption from excise duty under a notification that exempted plastic articles except rigid plastic sheets. Following a dispute over the nature of the sheets, the government issued an amendment notification adding a scientific explanation to define "flexible" and "rigid" plastics based on the modulus of elasticity. Consequently, the sheets produced by the manufacturer were categorized as rigid, making them ineligible for the exemption. The High Court quashed the amendment, holding that the definitions were inconsistent with the true meaning of the words used in the relevant tariff item.
Findings of Court:
The government possesses the discretion to grant exemptions under Rule 8 of the Excise Rules and can restrict such exemptions to specific varieties of goods. The power to issue a notification inherently includes the power to amend it. Defining terms within an exemption notification to remove ambiguity does not amount to a conflict with the parent tariff item, as the categorization is intended only to determine eligibility for the exemption.
Issues: Whether the government has the power to amend an exemption notification by inserting an explanation to define terms, thereby restricting the scope of the exemption, and whether such a definition conflicts with the underlying tariff item.
Ratio Decidendi: Exemption from taxation is not a right but a relief granted at the discretion of the government. Under the General Clauses Act, the power to issue a notification includes the power to amend it. Technical definitions provided for the purpose of determining eligibility for an exemption do not conflict with the broader classification of the tariff item.
Result: Appeal allowed.
Legal Category Hierarchy
Table of Contents
2. Manufacturer claimed exemption for flexible sheets; Department contended sheets were rigid and leviable. (Para 4 , 5 )
3. Government has power under Rule 8 to define terms, including through amendment, without conflicting with tariff. (Para 9 , 11 , 12 )
4. Power to grant exemption includes inherent power to amend notification and restrict its operation. (Para 11 )
5. Appeal allowed; High Court judgment quashing definition notification set aside. (Para 13 )
6. Can the government amend an exemption notification to define terms like 'rigid' and 'flexible'?
Yes, the power under Rule 8 to issue notifications includes the inherent power to amend them. (Para 9 , 11 )
7. Does defining 'flexible' and 'rigid' in an exemption notification conflict with the tariff item?
No, such definitions merely restrict the scope of exemption and do not conflict with the tariff item. (Para 12 )
8. Does a manufacturer have a right to claim exemption from excise duty?
No, exemption is a discretionary relief granted by the government, not a right. (Para 10 , 11 )
9. What was the effect of the 1978 notification adding an explanation to the 1971 exemption?
It defined 'flexible' and 'rigid' plastic sheets, thereby restricting exemption to flexible sheets only. (Para 7 , 8 )
B.N.KIRPAL, J.
(1) UNDER tariff item 15A duty can be levied on artificial or synthetic resins and plastic materials. The rate of duty is specified under column 3 of the said tariff item.
(2) UNDER Rule 8 of the Central Excise Rules, 1944 the Central Government has the power to issue a notification exempting from payment of duty certain excisable articles as is provided in any of the tariff items.
(3) IT is in exercise of this power under Rule 8 that a notification No. 68/71-CE dated 29-5-71 was issued which reads as follow :
EXEMPTION TO ARTICLES MADE OF PLASTICS : In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts articles made of plastics, all sorts, falling under sub-item (2) of item 15A of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) except (i) rigid plastic boards, sheetings, sheets and films, whether or not; and (ii) flexible polyvinyl chloride sheetings, sheets, films and lay-flat tubings not containing and textile material, from the whole of the duty of excise leviable thereon;
PROVIDED THAT (a) such articles are produced out of the artificial resins and plastic materials or cellulose esters and others in any form falling under sub-item (1) of the said item, on which the duty of excise of the additional duty under Section 2A of the Indian Tariff Act, 1934 (32 of 1934) as the case may be, has already been paid; or (b) such articles are produced out of scrap of plastics.
(4) THE respondent is manufacturing plastic sheet. It claimed benefit of the said exemption notification on the ground that the plastic sheet manufactured by them was flexible, not rigid and, therefore, claimed total exemption from excise duty.
(5) ON 26-11-1975 show cause notice was issued to the respondent on the basis that the sheets manufactured by them were excisable and by an order dated 14-6-1976 it was held that the sheets manufactured by the respondent were liable to excise duty.
(6) RESPONDENT filed a writ petition challenging the said order and the same was dismissed on the ground that there was adequate alternative remedy by way of appeal. Against the said dismissal an appeal was filed before the Division Bench.
(7) DURING the pendency of this appeal a notification No. 198/78 was issued whereby an explanation was added to the said exemption notification of 1971. The explanation, which was added, reads as follows :
EXPLANATION ; For the purpose of this notification (i) the expression "flexible" in relation to an article made of plastic means the article which has a modulus of elasticity either in flexture or in tension or not over 700 kilograms per square centimeter at 23 degree centigrade and 50 per cent relative humidity when tested in accordance with the method of test for stiffness of plastics (ASTMO Designation D-474-63) for flexural properties of plastics (ASTM) Designation D-79063 for Tensile properties of plastics (ASTM Designation D-638-63- T) or for Tensile Properties of Thin Plastic Sheeting (ASTM) Designation D-882-64- T). (ii) the expression "rigid" in relation to an article made of plastic, means all articles other than "flexible" articles as defined in clause (i).
(8) AS a result of this explanation the sheets which were manufactured by the respondent fell within the category of being rigid and, therefore, not entitled to the benefit of the exemption notification. The respondent then filed another writ petition being SCA No. 1300/79 for quashing the amendment notification dated 25/11/1978 and also consequential trade notice dated 8/02/1979. By impugned judgment dated 17/01/1991, the writ petition was allowed and the impugned notification of 1978 whereby the explanation was inserted was quashed with the High Court observing that the said notification was not consistent with the tariff item No. 15A inasmuch as the definition of the two words by the impu
