1995 Supreme(Guj) 96

Gujarat High Court
Judgename :A.P.RAVANI, J.N.Bhatt
TILOK TEXTILE MILLS LIMITED - Appellant
Versus
UNION OF INDIA - Respondent
S.C.A. 492 of 1988
Decided On : 02/09/1995

Headnote:(a) Constitution of India, 1950 - Arts. 14 & 19 (1)(g) and Central Excise & Salt Act, 1944 - Secs. 3, 42, 37 and Central Excise Rules, 1944 - Rules 8(ii), and 9A and Central Excise Tariff Act, 1985 - Schedule I Item 22 and Additional Duty of Excise (Goods of Special Importance) Act, 1957 - Sec. 3(3) - 4 Notifications - Validity of - Criterion of width of fabric not irrational - Criterion of capacity to pay of consumer should be basis for granting exemption - Nothing to show that Revenue exercised powers unreasonably or arbitrarily - Held, there is nothing on record to show that Notifications are illegal or arbitrary.

       In order to invalidate the impugned Notifications, the criteria of the width of the fabrics can not be said to be improper or irrational criteria. It is also not, successfully, shown that the criteria of capacity to pay of the consumer should always be the basis for the exercise of statutory powers for granting exemptions. Nothing has been shown as to how the revenue has exercised statutory powers, unreasonable, and arbitrarily. Assuming that the criteria of capacity to pay of the consumer and the flat rates irrespective of quality is adopted for granting certain exemptions, then also, it could not be said that those criterias are illegal or arbitrary or unreasonable in the circumstances of the case. In order to succeed in challenge and to invalidate the statutory powers and the provisions, it is for the petitioners to show as to how the impugned Notifications are illelgal or irrational or arbitrary. There is nothing on record to show that the impugned Notifications are, in any manner, assailable on the basis of the provisions of Arts. 14 and 19(1)(g) of the Constitution.

       [Para 22]

       (b) Constitution of India, 1950 - Arts. 14 & 19(1)(g) and Central Excise & Salt Act, 1944 - Secs. 34 & 37 and Central Excise Rules, 1944 - Rules 8(1) & 9A and Central Excise Tariff Act, 1985 - Schedule I Item 22 and Additional Duty of Excise (Goods of Special Importance) Act, 1957 - Sec. 3(3) and 4 Notifications - Classification - Validity of - Classification must be rational - Characteristics must have reasonable relationship to object of legislation - Two conditions to pass test - Held, exercise of discretion for fixing criteria and basis for levy of duty are not violative of Art. 14.

       The classical test as judicially enunciated requires the fulfilment of two conditions, namely:

       (1) The classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others;

       (2) The differentia must have a rational relation to the object sought to be achieved by the law or the provisions under challenge. It is a settled proposition of law that the equality clause contained in, Art. 14, requires that all persons subjected to any legislation should be treated alike under the like circumstances and conditions. No doubt, it is true that the classification must not be arbitrary but it must be rational that is to say, it must not only be based on some qualities or characteristics which are to be found in some persons grouped together and not in others who are left out but those qualities or characteristics must have reasonable relation to the object of the legislation. It is also very well settled that in order to pass the test, following two conditions ought to be established :

       (i)

       that the classification must be based on intelligible differentia which distinguishes those that or grouped together from the others; and

       (ii)

       that the differentia must have a rational relation to the objects sought to be achieved by the Act, while the classification may be founded on different basis or criteria. What is required and significant, is that there must be a nexus between the basis of classification and the objects of the impugned provisions under consideration. The differentia and criteria which is the basis of classification and the object of the impugned Notifications and the provisions of 1944 Rules have nexus with the object of the relevant Central Excise Law. It cannot be said even for a moment that the equals have been treated unequally or that the unequals are sought to be treated equally. Under Article 14 in clear terms does not forbid classification for the purpose of advancing the object and the cause of the Act and the right of equality. Since the impugned Notification and the differentia and criterias adopted and followed in the impugned Notifications could not be said to be unreasonable in the factual back ground discussed, hereinbefore, on the point, it is found that the aforesaid two material conditions are established so as to hold the impugned Notifications as legal and valid. The exercise of discretion under the statutory provisions while fixing criteria and the basis for levy of duty and also for the purpose of exemption are not at all violative of the provisions of Article 14.

       [Paras 25 & 26]

       (c) Constitution of India, 1950 - Arts. 14 & 19(1)(g) and Central Excise & Salt Act, 1944 - Secs. 34 & 37 and Central Excise Rules, 1944 - Rules 8(1), and 9A and Central Excise Tariff Act, 1985 - Schedule I Item 22 and Additional Duty of Excise (Goods of Special Importance) Act, 1957 - Sec. 3(3) - 4 Notifications - Validity of - Impact of provisions incidental, indirect & remote - Dependent on factors which may or may not come into play - Held, there is nothing that provisions are violative of Art. 19(1)(g).

       Nothing of this sort has been shown from the record to convince us that the impugned Notifications and the provisions of Rule 9-A are in any way violative of Art. 19(1)(g). We may make it clear that even if the impact of the impugned provisions is merely incidental, indirect remote or collateral as is dependent upon the factor which may or may not come into play and, therefore, envil of Art. 19 should not be pressed into service for faulting its legality and validity. The petitioners have failed to show from the record that the impugned provisions are, in any way, violative of the provisions or such principles of Article 19(1)(g) of the Constitution.

       [Para 29]

       (d) Constitution of India, 1950 - Arts. 14 & 19(1)(g) and Central Excise & Salt Act, 1944 - Secs. 34 & 37 and Central Excise Rules, 1944 - Rules 8(1) and 9A and Central Excise Tariff Act, 1985 - Schedule I Item 22 and Additional Duty of Excise (Goods of Special Importance) Act, 1957 - Sec. 3(3) and 4 Notifications - Excise duty - Exemption & enhancement - Held, Central Government is empowered to vary exemption - It has powers to enhance duty within statutory limits.

       The Central Government is empowered to vary the exemptions so long as the duty falls short as the basic duty. Therefore, the challenge against the impugned notifications adopting different criterias while exercising powers under Rule 8(1) cannot be accepted. The Central Government is empowered to grant exemption from the duty of excise. It cannot, therefore, be contended that it has no power to enhance the duty within the statutory limits adopting different criterias, and therefore such a contention would be without any substance, on merits.

       [Para 39]

       (e) Constitution of India, 1950 - Arts. 14 & 19(1)(g) and Central Excise & Salt Act, 1944 - Secs. 34 & 37 and Central Excise Rules, 1944 - Rules 8(1) and 9A and Central Excise Tariff Act, 1985 - Schedule I Item 22 and Additional Duty of Excise (Goods of Special Importance) Act, 1957 - Sec. 3(3) and 4 Notifications - Excise Duty - Government can change basis of exemption not exceeding basic duty - No increase in basic additional duty - Held, it is not illegal or invalid.

       It is open to the Government to change basis of exemption so long as the duty does not exceed the basic duty as it is clearly permissible under Rule 8(3) read with explanation, thereto. When there is no increase in the basic additional duty levied under section 3(1) of the 1957-Act, by the impugned notification No. 254/87, it cannot be said to be illegal or invalid.

       [Para 40]

       (f) Constitution of India, 1950 - Arts. 14 & 19(1)(g) and Central Excise & Salt Act, 1944 - Secs. 34 & 37 and Central Excise Rules, 1944 - Rules 8(1), and 9A and Central Excise Tariff Act, 1985 - Schedule I Item 22 and Additional Duty of Excise (Goods of Special Importance) Act, 1957 - Sec. 3(3) and 4 Notifications - Goods unconditionally exempted from duty of manufacturing but dutiable on date of removal - Held, Revenue is competent to levy duty at rates prevalent on date of removal of goods.

       When the goods were unconditionally exempted from the duty of manufacturing but were dutiable on the date of their removal, they would be liable to the duty on the basis of Rule 9A of the 1944-Rules. Therefore, the revenue is entitled and within their statutory competence to apply the rates prevailent on the date of removal, of the goods even though produced or manufactured was completed at a point of time when the goods were as such, exempted from the payment of duty.

       [Para 44]

       (g) Constitution of India, 1950 - Arts. 14 & 19(1)(g) and Central Excise & Salt Act, 1944 - Secs. 34 & 37 and Central Excise Rules, 1944 - Rules 8(1), and 9A and Central Excise Tariff Act, 1985 - Schedule I Item 22 and Additional Duty of Excise (Goods of Special Importance) Act, 1957 - Sec. 3(3) and 4 Notifications - Date of rate of duty and tariff evaluation is date of removal of goods - Not inconsistent with provisions - Held, it cannot be said that provisions are ultra vires.

       The date of rate of duty and tariff evaluation being the removal of the goods as prescribed in Rule 9A cannot be said to be inconsistent with the provisions of Sec. 3(1) of the 1944-Act or section 3(1) of the 1957-Act or the 1944-Rules. It is quite, as such, compatible and in consonance with the taxation policy relating to the imposition of duty. It, therefore, cannot be contended that the said provisions are in any manner ultra-vires the charging sections of the said two statutes or any one of them or rules made thereunder.

       [Para 46]

       (h) Constitution of India, 1950 - Arts. 14 & 19(1)(g) and Central Excise & Salt Act, 1944 - Secs. 34 & 37 and Central Excise Rules, 1944 - Rules 8(1), and 9A and Central Excise Tariff Act, 1985 - Schedule I Item 22 and Additional Duty of Excise (Goods of Special Importance) Act, 1957 - Sec. 3(3) and 4 Notifications - Excise duty related to manufacturing of goods - Duty not charged on date of manufacturing - Held, it would not ceased to be excise duty - Duty will be at rate set forth in First Schedule.

       Thus, duty of excise is clearly related to the production or manufacturing of the goods but it does not matter if the levy is not made at the time of production or manufacturing, but at a later stage and that if the duty is collected from the retailer, it would not necessarily be ceased, to be the excise duty. Section 3 of the 1944-Act, imposes excise duty on all excisable goods which are produced or manufactured in India. It clearly provides that this duty will be at the rates set forth in the First Schedule to the Act.

       [Para 47]

       (i) Constitution of India, 1950 - Arts. 14 & 19(1)(g) and Central Excise & Salt Act, 1944 - Secs. 34 & 37 and Central Excise Rules, 1944 - Rules 8(1), and 9A and Central Excise Tariff Act, 1985 - Schedule I Item 22 and Additional Duty of Excise (Goods of Special Importance) Act, 1957 - Sec. 3(3) and 4 Notifications - Fixing time & rate of excise duty - Held, Central Government is authorised to make Rules and fix time & rate of duty.

       The Central Government is empowered and authorised to make rules for fixing time with reference to which the rate of duty ought to be recovered or applied. Rule 9A provides that the rate prevailing on the date of actual removal of the goods from the factory or the ware-house and it is valued under section 37 as it carries out the purpose of the Act by prescribing the manner of levy of duty.

       [Para 47]

       (j) Constitution of India, 1950 - Arts. 14 & 19(1)(g) and Central Excise & Salt Act, 1944 - Secs. 34 & 37 and Central Excise Rules, 1944 - Rules 8(1), and 9A and Central Excise Tariff Act, 1985 - Schedule I Item 22 and Additional Duty of Excise (Goods of Special Importance) Act, 1957 - Sec. 3(3) - Validity of - Rule 9A consistent with Scheme of Taxation - Held, it is legal, valid and intra vires.

       The Rule 9A is intra-vires and in consistent with the Scheme of the Taxation envisaged in 1944 and 1957-Acts. The impugned Notifications are also issued under the aforesaid statutory provisions. They are quite legal and valid. The provisions of Rule 9A of the 1944-Rules is not, in any manner, shown to be inconsistent, with the provisions of 1944 and 1957 Acts. We are of the clear opinion that Rule 9A is intra-vires and not being in excess of the Rule making powers of the Government.

       [Paras 49 & 52]

       (k) Constitution of India, 1950 - Arts. 14 & 19(1)(g) and Central Excise & Salt Act, 1944 - Secs. 34 & 37 and Central Excise Rules, 1944 - Rules 8(1), and 9A and Central Excise Tariff Act, 1985 - Schedule I Item 22 and Additional Duty of Excise (Goods of Special Importance) Act, 1954 - Sec. 3(3) and 4 Notifications - Validity of - Alterations in exemption on different criteria - Increase not beyond duty prescribed - Held, Government is competent to revise & review exemptions - Notifications are legal & valid.

       The alterations in exemption on different criterias or basis may have resulted in increase on duty in certain cases but the same admittedly does not go beyond the basic duty prescribed under section 3(1) of the 1957-Act, and, therefore, impugned Notifications cannot be said to be illegal or unconstitutional. So long as duty payable under the challenged Notifications is less than the basic duty, the Government is competent to revise and review, duty or for that purpose exemptions under Rule 8(1). Such Notifications, therefore, are legal and valid.

       [Para 53]

       (l) Constitution of India, 1950 - Arts. 14 & 19(1)(g) and Central Excise & Salt Act, 1944 - Secs. 34 & 37 and Central Excise Rules, 1944 - Rules 8(1), and 9A and Central Excise Tariff Act, 1985 - Schedule I Item 22 and Additional Duty of Excise (Goods of Special Importance) Act, 1957 - Sec. 3(3) and 4 Notifications - Taxable event is manufacturing of goods - Payment of duty on removable of goods - Man-made fabrics manufactured prior to coming into force of exemption Notifications but removed after Notifications came into force - Held, it would be governed by relevant and not earlier Notifications.

       While the taxable event is the fact of manufacturing or production of an excisable goods, the payment of duty is related to the date of removal of such goods. Therefore, Man-made fabrics manufactured prior to coming into force of the impugned exemption Notifications, but, removed later on are obviously governed by the relevant said and such Notification and not earlier exemption Notifications.

       [Para 54]

       (m) Constitution of India, 1950 - Arts. 14 & 19(1)(g) and Central Excise & Salt Act, 1944 - Secs. 34 & 37 and Central Excise Rules, 1944 - Rules 8(1), and 9A and Central Excise Tariff Act, 1985 - Schedule I Item 22 and Additional Duty of Excise (Goods of Special Importance) Act, 1957 - Sec. 3(3) and 4 Notifications - Excise duty on manufacturing of goods but realisation on date of removal - Taxable event postpond to date of removal - Held, it is purpose, policy & philosophy of Rule 9A - Object & scope of Rule 9A is to determine date and imposition of duty and tariff valuation.

       The excise is a duty on production or manufacture. But the realisation of duty may be deferred to the date of removal of goods for the administrative convenience. The taxable event is manufacture. But the liability to pay the duty is postponed on the date of removal and that is the underlying purpose, policy and philoshophy under the provisions of Rule 9A. The Object and Scope of Rule 9A is to determine the date for imposition of duty and tariff valuation.

       [Para 54]