JUDGMENT

B.P. Jeevan Reddy, J.

1. Tariff Item 38 of the First Schedule to the Central Excises and Salt Act, 1944 levied duty upon matches. With a view to encourage the production of matches in the non-mechanised sector, the Government of India have been issuing exemption notifications from time to time. Under Notification No. 162 of 1967 dated 27-7-1967, a distinction was made even among the non-mechanised units, with reference to their output. Smaller units were given a more beneficial rate of duty. In 1975 another notification (No. 154 of 1975) was issued broadly reiterating the aforesaid scheme and providing some additional concession to smaller units.

2. On 19-6-1980, two notifications were issued being Notification No. 98 of 1980 and Notification No. 99 of 1980. Notification No. 98 of 1980 levied duty on matches produced in the mechanised sector at Rs 7.20p while in the case of matches produced in non-mechanised sector the duty was Rs 4.50p. By Notification No. 99 of 1980, a further distinction was made among the units in non-mechanised sector. Factories "recommended by the Khadi and Village Industries Commission for exemption under this notification as a bona fide cottage unit" or which was a member of a cooperative society was held entitled to pay duty at the rate of Rs 1.60p per gross. There were, however, two other conditions which these factories had to satisfy, viz., (i) their matches are sold through KVIC or a cooperative society and (ii) their matches are cleared under the labels prescribed by the KVIC and approved by the appropriate officer of the Excise Department. (Vide Provisos 1 to 3 appended to the said Notification No. 99 of 1980). It would be appropriate to read the notification, insofar as it is relevant:

"In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts matches, in or in relation to the manufacture of which no process is ordinarily carried on with the aid of power, falling under Item No. 38 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), from so much of the duty of excise leviable thereon as is in excess of Rs 1.60 per gross boxes of 50 matches each;

Provided that the matches are cleared for home consumption by a manufacturer from a factory which is recommended by the Khadi and Village Industries Commission for exemption under this notification as a bona fide Cottage Unit, or which is a member of a cooperative society (including a marketing or service industrial cooperative society but excluding a cooperative bank) registered under any law relating to cooperative societies for the time being in force and assisting exclusively manufacturers of such matches:

Provided further that the matches are sold or marketed through the Khadi and Village Industries Commission or a cooperative society (including a marketing or service industrial cooperative society but excluding a cooperative bank) aforesaid or an agency established by a State Government:

Provided also that where the matches are produced by a factory recommended by the Khadi and Village Industries Commission as bona fide Cottage Unit aforesaid, the matches shall be cleared only under the labels prescribed by the said Commission and approved by an officer not below the rank of an Assistant Collector of Central Excise."

3. Certain manufacturers in non-mechanised sector challenged the validity of the first and the second provisos by way of writ petitions in the Madras High Court. Their grievance was that even though they applied for issuance of a certificate to the KVIC as a bona fide cottage unit, expressing their willingness to abide by the conditions prescribed by the Commission, it declined to register them on grounds not relevant in law. They also complained of discrimination as between themselves and cottage units/members of a cooperative society. The writ petitions were allowed by a Bench of Madras High Court in Devi Match Factory v. Superinte