1. Dispute regarding the levy of cess on captively consumed intermediate products under the Industries (Development and Regulation) Act, 1951. (Para 1 , 2 , 11 , 12 )
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1991 Supreme(SC) 684
SUPREME COURT OF INDIA
B.P.Jeevan Reddy : P.B.Sawant
Barnagore Jute Factory Company
Versus
Inspector Of Central Excise
Case No. : 2714 , 2716 of 1981
Date of Decision : 12/3/91
Cess under the Industries (Development and Regulation) Act is an excise duty applicable to all goods manufactured in a scheduled industry, including captively consumed intermediate products. Such levy may be based on weight, provided it does not exceed the value-based ceiling prescribed by the statute.
Headnote:(A) Industries (Development and Regulation) Act, 1951 - Section 9 - Jute Manufactures Cess Rules, 1976 - Rule 3 - Central Excises and Salt Act, 1944 - Levy of cess on intermediate products - Goods manufactured or produced in a scheduled industry include intermediate products known to the market, even if captively consumed within the same factory for the manufacture of end products - Such products are liable to cess as they fall within the expression "goods manufactured or produced" (Paras 16 and 17).
(B) Jute Manufactures Cess Rules, 1976 - Rule 3 - Legislation by reference vs. Mere reference - Where a rule provides that the provisions of another Act shall apply in relation to the levy and collection of a tax, and the language indicates continuing applicability, it is a case of mere reference and not legislation by reference - Consequently, subsequent amendments to the referred Act or Rules are applicable and are not frozen at the date of the rule's inception (Para 18).
(C) Industries (Development and Regulation) Act, 1951 - Section 9(1) - Basis of levy - The main limb of Section 9(1) does not restrict the basis of levy to ad valorem - A levy based on weight is permissible provided it does not exceed the ceiling prescribed in the proviso, which is calculated as a percentage of the value of the goods (Para 19).
Facts of the case:
Manufacturers of jute textiles produced jute yarn and twine as intermediate products which were captively consumed within their own units to manufacture finished jute textiles. The government levied a cess on these intermediate products. The manufacturers challenged the levy on the grounds that jute yarn was not specifically mentioned in the First Schedule of the Act, intermediate products should be exempt, the levy by weight was unauthorized under Section 9(1), and retrospective amendments to the Central Excise Rules were inapplicable due to the nature of the reference in the Cess Rules.
Findings of Court:
Jute yarn is a product of the scheduled industry and is considered "goods manufactured or produced" regardless of captive consumption. Rule 3 of the Cess Rules implies a dynamic reference to the Central Excise Act, meaning subsequent amendments apply. The levy by weight is valid as long as it does not violate the value-based ceiling set by the proviso to Section 9(1).
Issues: Whether jute yarn is a scheduled product; whether captively consumed intermediate products are liable for cess; whether the levy can be based on weight instead of value; and whether Rule 3 of the Cess Rules incorporates the Central Excise Act statically or dynamically.
Ratio Decidendi: The court held that the term "goods manufactured or produced" encompasses intermediate products known to the market, and captive consumption does not exempt them from excise-based cess. It further ruled that Rule 3 of the Cess Rules creates a continuing application of the Central Excise Act. Finally, it determined that the proviso in Section 9(1) establishes a maximum limit but does not mandate that the levy must be ad valorem.
Result: Civil appeals (except one) and writ petitions dismissed; Special Leave Petition allowed.
Legal Category Hierarchy
Table of Contents
2. Whether jute yarn is a scheduled product, if cess applies to captively consumed intermediate goods, and if levy by weight is permissible under Section 9. (Para 13 , 14 , 15 )
3. Jute yarn is a manufactured good in a scheduled industry; captive consumption does not exempt it from cess; Rule 3 allows continuing applicability of Excise laws. (Para 16 , 17 , 18 , 19 , 20 )
4. Cess under Section 9 applies to all goods manufactured in a scheduled industry, including captively consumed intermediate products, and may be levied by weight. (Para 16 , 17 , 19 )
5. Civil appeals and writ petitions dismissed; Special Leave Petition No. 5466 of 1980 allowed. (Para 21 )
6. Does cess under Section 9 of the Industries (Development and Regulation) Act, 1951 apply to intermediate products captively consumed within the same factory?
Yes. The court held that if a product is known to the market and manufactured in a scheduled industry, it is subject to cess regardless of whether it is captively consumed. (Para 17 )
7. Does a rule applying the provisions of another Act incorporate those provisions as they existed at the time or as amended?
If the language indicates continuing applicability, it is a mere reference, and subsequent amendments to the referred Act or Rules apply to the levy and collection. (Para 18 )
8. Can a cess be levied based on weight if the statute provides a maximum rate as a percentage of the value of the goods?
Yes. The proviso setting a value-based ceiling does not restrict the government from adopting other bases for levy, such as weight, provided the ceiling is not exceeded. (Para 19 )
9. Does the omission of a specific product from a sub-heading in the First Schedule exclude it from being a manufactured good of that industry?
No. If the product falls under the broader heading and is manufactured in that industry, it is considered a manufactured good subject to cess. (Para 16 )
JUDGMENT
B.P. JEEVAN REDDY, J.
(1) COMMON questions arise in this batch of civil appeals and the writ petition. All the appeals except one arise from the judgment of Calcutta High court dismissing the Writ Petitions filed by the appellants. Special Leave Petition No. 5466 of 1980 is preferred by the Inspector of Customs and central Excise (State) against the judgment of the Patna High court allowing the writ petition filed by the respondent, Rameshwar Jute Mills Limited. Writ Petition No. 9701 of 1982 is Filed under Article 32 of the Constitution by a jute mill questioning the notifications and notices issued by the respondents whereunder it was called upon to pay cess on jute yarn and twine. So are the other writ petitions. For the sake of convenience, we shall refer to the facts in Civil Appeal No. 2439 of 1979 and to the facts in Civilarising from Special Leave Petition No. 5466 of 1980. During the arguments before us, facts of these two cases alone were referred.
(2) THE appellant in civil no. 2439 of 1979, New central Jute Mills Company Ltd., is a company engaged in manufacture of jute products like jute twine, yarn, sacking, carpet backing etc. Jute twine and jute yarn, manufactured by them is used in their own establishment for manufacturing other (finished) products. In other words, jute twine and jute yarn are intermediate products which are captively consumed in the same unit for manufacturing the end products which fall within the expression jute textiles.
(3) JUTE Textile Industry is one of the industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (hereinafter referred to as the Act). The Act, as is well known, was enacted in 1951 to provide for the development and regulation of certain industries. S. 2 of the Act contains a declaration to the effect "that it is expedient in the public interest that the Union should take under its control the industries speciFied in the First Schedule". Heading No. 23 in the First Schedule reads as follows: "23. Textiles (including those dyed, printed or otherwise processed):
(1 made wholly or in part of cotton, including cotton yarn, hosiery and rope;
(2 made wholly or in part of jute, including jute twine and rope;
(3 made wholly or in part of wool, including wool tops, woollen yarn, hosiery, carpets and druggets;
(4 made wholly or in part of silk, including silk yarn and hosiery;
(5 made wholly or in part of synthetic, artificial (man-made) Fibres, including yam and hosiery of such fibres."
(emphasis added)
(4) S. 3 of the Act defines certain expressions. For our purpose, it is sufficient to notice the definitions of "Industrial undertaking" in clause (d) and of "Scheduled Industry" in clause (i). They read as follows:
"(D) industrial undertaking means any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including government; * * * (i) scheduled industry means any of the industries specified in the First Schedule."
(5) THE Act contains several provisions designed to promote and regulate the scheduled industries and their products. S. 6 provides for establishment and constitution of Development councils and their functions. It empowers the central government to establish a Development council for any scheduled industry or group of scheduled industries. Such Development council has to perform such functions of a kind specified in the second schedule as may be assigned to it by the Central government. S. 9 provides for levy of a cess which, after collection, is made over to the Development council established under Section 6. The Development council has to utilise the said fund for promoting scientific and industrial research with reference to such industry and take measures for promoting the interests of such industry. It will be g appropriate to set out S. 9 in its entirety: "9. Imposition of cess on schedul
