IMPORTANT POINT
Goods manufactured/produced before March 1, 1978 but cleared on or after March 1, 1978 are not exigible to special excise duty.

Headnote:Finance Act, 1978-Section 37(1)-Central Excise and Salt Act, 1944-Section 3 r/w Rules 9, 9A and 9B of Central Excise Rules-Levy of special excise duty--Goods manufactured prior to March 1, 1978 but removed on or after March 1, 1978-Whether exigible to special excise duty?-(No)-Goods manufactured/produced on or before Fabruary 28, 1979 but cleared thereafter would be liable to pay said duty at the rate and valuation in force as on February 28, 1979.
       Held that Section 3 cannot be read as shifting the levy from the stage of manufacture or production of goods to the stage of removal. The levy is and remains upon the manufacture or production alone. Only the collection part of it is shifted to the stage of removal. Once this is so, the fact that the provisions of the Central Excise Act are applied in the matter of levy and collection of special excise duty cannot and does not mean that wherever the Central Excise duty is payable, the special excise duty is also payable automatically. That is so as an ordinary rule. But insofar as the goods manufactured or produced prior to March 1, 1978 are concerned, the said rule cannot apply for the reason that there was no levy of special excise duty on such goods at the stage and at the time of their manufacture/production. The removal of goods is not the taxable event is the manufacture or production of goods. (Para 9)
       Further held : The special excise duty was being levied from 1963 upto 1971 by various Finance Acts passed from time to time. It was discontinued from 1972 until 1978 when it was revived by the Finance Act, 1978. Thereafter, it was being levied from year to year by annual Finance Acts. The provisions of these Finance Acts, insofar as the levy of special excise duty is concerned, are identical. In the Finance Acts of 1987 and 1988, however, the rate of special excise duty was raised to ten percent but then notifications were issued exempting the duty on all goods in toto. In other words, with effect from March 1, 1986, there was, in efect, no special excise duty until February 28, 1988. With effect from March 1, 1988, the duty was again imposed @ 5%, while exempting certain essential commodities and other priority items from the said impost. We have held hereinabove that the goods manufactured, produced before March 1, 1978 but cleared on or after March 1, 1978 are not exigible to special excise duty. At the same time, we have also expressed the view that the goods manufactured/produced on or before February 28, 1979 but cleared thereafter would be liable to pay the said duty at the rate and valuation in force as on February 28, 1979. In the light of the fact that the duty was continued from 1978 to 1986, indeed upto February 28, 1989 and also in view of the principle behind the presumption incorporated in Section 12-B of the Central Excise Act inserted by the Central Excises and Customs Law (Amendment) Act, 1991 - which is but a legislative recognition of a widely accepted presumption - we think it appropriate to direct that the assessees shall not be entitled to refund of any amount collected from them by way of special excise duty on or after March 1, 1978 in respect of goods manufactured prior to the said date. (Para 13)

JUDGMENT

B.P. Jeevan Reddy, J.-- Sub-section (1) of Section 37 of the Finance Act, 1978, levied a special duty of excise equal to five percent of the amount of excise duty chargeable on goods. The levy came into effect on and from March 1, 1978 and was to remian in force till Marve 31, 1979. Sub-section (3) provided that the said levy shall be in addition to the duties of excise chargeable on such goods under the law in force. Sub-section (4) provided that the provisions of the Central Excise Act and the rules made thereunder shall apply, as far as may be, in relation to the levy and collection of the special duties of excise levied under the said section. The question in this batch of appeals is whether the goods manufactured prior to March 1, 1978 but removed on or after March 1, 1978 are liable to pay the special duty of excise. Section 37 reads as follows :

"(1) In the case of goods chargeable with duty of excise under the Central Excise Act as amended from time to time, read with any notification for the time being in force issued by the Central Government in relation to the duty so chargeable there shall be levied and collected a special duty of excise euqal to five percent of the amount so chargeable on such goods.

(2) Sub-section (1) shall cease to have effect after the 31st day of March, 1979, except as respects things done or omitted to be done before such cesser and section 6 of the General Clauses Act, 1897 (10 of 1897) shall apply upon such cesser as if the said sub-section had then been repeated by a Central Act.

(3) The special duty of excise referred to in sub-section (1) shall be in addition to any duties of excise chargeable on such goods under the Central Excise Act or any other law for the time being in force.

(4) The provisions of the Central Excise Act and the rules made thereunder, including those relating to refunds and exemptions from duties shall, as far as may be, apply in relation to the levy and collection of the special duties of excise leviable under this section in respect of any goods as they apply in relation to the levy and collection of the duties of excise on such goods under that Act or those rules, as the case may be."

2. It is not necessary to refer to the facts of the several appeals before us. It would be enough if we state the facts in Civil Appeal No. 3199 of 1986. The respondent, M/s. Vazir Sultan Tobacco Company Limited, is engaged in the manufacture of cigarettes. The appeal relates to the levy of special excise duty on cigarettes removed by the respondent between March 1, 1978 and March 12, 1978. The respondent s case was and is that though cleared on or after March 1, 1978, they were manufactured prior to the said date. It contended that inasmuch as the special duty of excise like any other duties of excise is upon the manufacture or production of excisable articles and not upon removal, on duty is leviable upon the said cigarettes. The authorities rejected the contention and levied the duty. Subsequently, the respondent filed an application for refund agitating the very same issue, which too was rejected by the Assistant Collector. An appeal before the Collector (Appeals) proved fruitless. The respondent then carried the matter by way of further appeal to the Tribunal. The matter was heard by the Special Bench of the Tribunal. They allowed the appeal under the impugned order upholding the contention of the respondent.

3. Sri Joseph Vellapally, learned counsel for the Revenue, assailed the correctness of the view taken by the Tribunal on several grounds. He submitted that Section 37 evolved a simple formula, viz., wherever central excise duty is payable on certain goods, special excise duty shall also be payable at the rate of five percent of the central excise duty. Counsel submitted that the levy and collection of the central excise duties is governed by Section 3 of the Central Excise and Salt Act, 1944 read with rules 9, 9A and 9B of the Central Excise Rules. According to these R

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1996 Supreme(SC) 493

IMPORTANT POINTGoods manufactured/produced before March 1, 1978 but cleared on or after March 1, 1978 are not exigible to special excise duty.

Cases Referred (3)

IMPORTANT POINT
Goods manufactured/produced before March 1, 1978 but cleared on or after March 1, 1978 are not exigible to special excise duty.