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High Court Of Calcutta
S. C. Sen
S.S.JAIN - Appellant
Versus
STATE OF WEST BENGAL - Respondent
. . Of .
Decided On : 05/02/1986
CENTRAL EXCISE - LEVY OF EXCISE DUTY ON GOODS AND MATERIALS OBTAINED BY BREAKING UP OF SHIPS, BOATS AND OTHER FLOATING STRUCTURES - WHETHER LEVY VALID - CENTRAL EXCISE ACT, 1944, SECTIONS 2(F), 3, 72.03, 72.06, 72.07, 72.08, 72.09, 72.10, 72.11, 72.12, 72.13, 72.15, 73.03, 73.04, 73.05, 73.06, 73.07, 73.08, 73.09 - CENTRAL EXCISE TARIFF ACT, 1985, CHAPTER 72, CHAPTER 73.
Fact of the Case:
The petitioners, who were ship breakers, challenged the vires of levy of excise duty on goods and materials obtained by breaking up of ships, boats and other floating structures. They contended that the dismantling of old ships and vessels did not involve any manufacturing at all and that they had already paid customs duty and countervailing duty on the imported ships.
Finding of the Court:
The court held that the levy of excise duty on waste and scrap obtained by breaking up of ships under Tariff Item 72.03 was valid, but that Tariff Items 72.15 and 73.09 were ultra vires the provisions of the Central Excises and Salt Act, 1944 insofar as duty was sought to be imposed on goods under Tariff Item Nos. 72.06, 72.07, 72.08, 72.09, 72.10, 72.11, 72.12 and 72.13 and also goods and materials of Heading Nos. 73.03, 73.04, 73.05, 73.06, 73.07 and 73.08.
Issues: 1. Whether the dismantling of old ships and vessels involves any manufacturing at all? 2. Whether the petitioners had already paid customs duty and countervailing duty on the imported ships? 3. Whether the levy of excise duty on waste and scrap obtained by breaking up of ships under Tariff Item 72.03 was valid? 4. Whether Tariff Items 72.15 and 73.09 were ultra vires the provisions of the Central Excises and Salt Act, 1944 insofar as duty was sought to be imposed on goods under Tariff Item Nos. 72.06, 72.07, 72.08, 72.09, 72.10, 72.11, 72.12 and 72.13 and also goods and materials of Heading Nos. 73.03, 73.04, 73.05, 73.06, 73.07 and 73.08?
Ratio Decidendi: 1. The court held that the dismantling of old ships and vessels did not involve any manufacturing at all. It observed that the definition of "manufacture" in Section 2(f) of the Central Excise Act, 1944 was an inclusive definition and that certain activities which might not otherwise be regarded as manufacture had been specifically included in the definition. However, the court found that the activity of dismantling a ship was not one of the activities that had been specifically included in the definition. 2. The court also held that the petitioners had already paid customs duty and countervailing duty on the imported ships. It observed that the petitioners had to pay customs duty at the rate prevailing at the time of first importation of the vessels and that, in addition to basic duty of customs, countervailing duty by way of additional duty equal to excise duty had been levied and imposed upon the imported old ships and vessels under Section 3 of the Customs Tariff Act, 1975. 3. The court further held that the levy of excise duty on waste and scrap obtained by breaking up of ships under Tariff Item 72.03 was valid. It observed that the goods described in Tariff Item No. 72.03 were excisable goods and that when these goods were manufactured by Steel Plants, taxes were levied on manufacture of such goods. The court found that when ships, boats or other floating structures were dismantled, goods like angles, hoops, stripe etc. may be separated from the composite whole, but that this process did not result in the creation of new excisable goods. 4. Finally, the court held that Tariff Items 72.15 and 73.09 were ultra vires the provisions of the Central Excises and Salt Act, 1944 insofar as duty was sought to be imposed on goods under Tariff Item Nos. 72.06, 72.07, 72.08, 72.09, 72.10, 72.11, 72.12 and 72.13 and also goods and materials of Heading Nos. 73.03, 73.04, 73.05, 73.06, 73.07 and 73.08. It observed that the activity of dismantling a ship had not been specified in Chapter Notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture.
Final Decision: The writ petition was disposed of by the following directions: (1) It will be lawful for the Central Excise authority to levy and collect excise duty on waste and scrap (Heading No. 72.03) obtained by breaking up ships. (2) But the Central Excise authority will not be entitled to levy and collect any duty on any goods obtained by breaking ships falling under Tariff Item Nos. 72.06, 72.07, 72.08, 72.09, 72.10, 72.11, 72.12 and 72.13 and also goods and materials of Heading Nos. 73.03, 73.04, 73.05, 73.06, 73.07 and 73.08.
( 1 ) A series of writ petitions have been filed challenging the vires of levy of excise duty on goods and materials obtained by breaking up of ships, boats and other floating structures. The case of the petitioners is that the petitioner purchases old ships and vessels for breaking up these old ships and vessels imported by the petitioner after due observance of all formalities including payment of customs duty. After the dismantling of the ships and vessels, the dismantled portions are sold to different purchasers. It has been argued on behalf of the petitioners that the dismantling of old ships and vessels does not involve any manufacturing at all.
( 2 ) IT has been stated on behalf of the petitioners that the petitioners have to pay customs duty at the rate prevailing at the time of first importation of the vessels. In addition to basic duty of customs, countervailing duty by way of additional duty equal to excise duty had been levied and imposed upon the imported old ships and vessels under Section 3 of the Customs Tariff Act, 1975.
( 3 ) THE petitioners' grievance is that the Central Excise authorities without having regard to the levy of customs duty and countervailing duty on the ships imported by the petitioner have taken a decision to levy Central Excise Duty on goods and materials obtained by breaking up of the imported ships. It has been contended that the petitioners have been required to take out a licence and pay Central Excise Duty on goods of foreign manufacture.
( 4 ) IT has been contended on behalf of the petitioners that Section 3 is the charging section of the Central Excise Act, by which a duty can be levied on all excisable goods first sold which are "produced or manufactured in India". The phrase "produced or manufactured in India" has received judicial interpretation in a number of cases. Dismantling of an imported ship will not come within the phrase "produced or manufactured in India". My attention was drawn, to the definition of "manufacture" and it was argued that even the extended definition will not take in its ambit dismantling of a ship. The definition of "manufacture" as amended, now stands thus :-"2 (f) Manufacture includes any process - (i) incidental or ancillary to the completion of a manufactured product; (ii) which is a specified in relation to any goods in the section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985, as amounting to manufacture; and the word 'manufacture' shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods but also any person who engages in their production or manufacture on his own account. "
( 5 ) SECTION 3 which is the charging section of the Central Excise Act, levies duty on all excisable goods which are "produced or manufactured in India". The question that has to be decided in this case is whether dismantling of a ship comes within the phrase "produced or manufactured in India".
( 6 ) IT is to be noted that the definition of "manufacture" given in Section 2 (f) is an inclusive definition. Certain activities which might not otherwise be regarded as manufacture has been specifically included in the definition of "manufacture".
( 7 ) AN argument was made on behalf of the Central Excise Department that the second part of the definition has specifically provided that process relating to "any goods in the section or notes of the Schedule to the Central Excise Tariff Act, 1985" will have to be regarded as "manufacture".
( 8 ) THIS contention, in my judgment, is without any substance. Section 2 (f) (ii) provides that any process which is specified in relation to any goods in the section or chapter notes or schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture will be regarded as 'manufacture'. In other words, if in the chapter notes or in the section itself, an activity has been regarded as 'manufacture', then there
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