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PETITIONER: AHURA CHEMICAL PRODUCTS PVT. LTD.

       Vs.

RESPONDENT: UNION OF INDIA

DATE OF JUDGMENT03/09/1981

BENCH: ERADI, V. BALAKRISHNA (J) BENCH: ERADI, V. BALAKRISHNA (J) BHAGWATI, P.N.

CITATION:  1981 AIR 1782            1982 SCR  (1) 621  1981 SCC  (4) 277        1981 SCALE  (3)1365

ACT:      Central Excise  and Salt  Act  1944,  Notification-Word "open market"-Meaning of.

HEADNOTE:      The  appellant  company  manufactured  various  process chemicals required  for the  Textile Industry.  The  process chemicals so  manufactured by  them are  substances known as emulsifiers and  wetting out agents and they fall within the scope of  tariff item  15AA of  the first  schedule  to  the Central Excise  and Salt  Act 1944.  The appellant purchased 164500 kgs.  Of  organic  surface  active  agents  from  the "Industrial General Products Pvt. Ltd.". The organic surface active agents  sold  to  the  appellant  by  the  Industrial General Products  Pvt. Ltd.  had not  been subjected  to the levy of  excise duty in as much as the said supplier company was eligible  for exemption  from payment  of Excise Duty on account of  the fact  that the goods were manufactured by it without the aid of power.      Emulsifiers/wetting out agents etc. intended for use in any industrial  process were  exempted from the levy of duty under entry  15AA, by  a notification dated 20.1.1968 issued by the Government of India, subject to the condition that if in respect  of surface active agents used in the manufacture of such  emulsifiers, wetting out agents, softners and other like preparations  the appropriate  amount of  the  duty  of excise or the additional duty under section 2A of the Indian Tariff Act 1934 (32 of 1934), has already been paid or where such surface  active agents  are  purchased  from  the  open market on or after the 20th day of January, 1968. F      It is  common ground  that the  organic surface  active agents  used  by  the  appellant  as  raw-material  for  the manufacture of emulsifiers/wetting out agents were purchased by it  subsequent to  the 20th  day of  January,  1968.  The Central   Excise    authorities   originally   treated   the manufactured product,  namely the emulsifiers etc. as exempt from levy  of duty  by  virtue  of  the  Notification  dated January 20,  1968. But,  subsequently by a notice dt. August 6, 1974  issued by the superintendent of Central Excise, the appellant was directed to show cause why an amount of Rs. 1, 21,709.57 should  not be recovered from the appellant by way of excise  duty in  respect of  the period  August  1973  to

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February 1974 on the ground that the said amount represented escaped duty  in  respect  of  the  emulsifiers/wetting  out agents manufactured  by the  appellant during  the aforesaid period.  The  appellant  in  reply  contended  that  it  was entitled to  the benefit  of exemption  from levy of duty in respect of  the manufactured products under the notification dated  20.1.1968.   This  contention  was  rejected  by  the Assistant 622 Collector and  his order  was  confirmed  by  the  appellate collector of central excise.      A revision  petition filed  by the appellant before the respondents (union  of India)  was rejected  by order  dated August 3.  1978 wherein the Central Government took the view that "purchases  made from  a particular  manufacturer,  the production from  whose factory  is exempt  from  payment  of duty, being manufactured without the aid of power, cannot be treated at par with purchases made from the open market". In the appeal filed by special leave, it was contended that the condition that  the surface  active agents  should have been purchased from the ’open market’ on or after the 20th day of January 1968  was fully  satisfied in  the present case, and hence the  appellant was  entitled to  the  benefit  of  the exemption granted by the Notification.      Allowing the appeal, ^      HELD: 1.  The appellant  Company  is  entitled  to  the benefit of  the exemption  granted by the Notification dated January 20,  1968 in respect of the emulsifiers, wetting out agents, softners  etc. manufactured  by the  Company for use during the  relevant period  (August 1973 to February 1974). [628 G]      2. In  determining the  eligibility of a person for the benefit of  the exemption  conferred by  the Notification on the  basis   of  the   fulfillment  of  the  second  of  the aforementioned  conditions,   it  is  wholly  irrelevant  to enquire whether  duty of  excise had  already been  paid  in respect of  the surface active agents purchased and utilised as   raw    material   for    the   manufacture    of    the emulsifiers/wetting out agents. [627 A-B]      3. Having  due regard  to  the  context  in  which  the expression ’open  market" has been used in the Notification, it would  be wholly  wrong to understand the said expression "open market"  as connoting  only a  market-yard, bazar or a shopping  complex   where  goods   are  offered   for  sale. Industrial Chemicals  (which have to be ordinarily purchased in bulk  for use  as  raw-material  in  the  manufacture  of secondary products)  are not  commodities that  are  usually exposed for sale in bazars and shops. Such bulk purchases of chemicals etc.,  are effected  by placing  orders  with  the concerned manufacturing units. [627 E-G]      4.  If  the  transactions  of  sale  and  purchase  are effected under  conditions enabling every person desirous of purchasing the  goods in  question to place orders with such manufacturing unit and obtain supplies, they will constitute Purchases "from the open market". [627 G-H, 628 A]      Inland Revenue Commissioners v. Clay, [1914] 3 K.B. 466 referred to.      5. In  the present  case, it  was open  to every person desirous of  purchasing the  surface active  agents to place orders with the manufacturing company, namely MIS Industrial General Products  Private Limited,  and obtain the supply on payment of  the price  at the  prevailing rate. The sales by the said  Company were  not to  a limited class only. Hence, the purchases  of the  surface active agents effected by the

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appellant  from  M/s  Industrial  General  Products  Private Limited have to 623 be treated  as purchases  made "from  the open  market". The denial to  the appellant  of the  benefit of  the  exemption provided for  by the  Notification was,  therefore,  clearly illegal. [628 D-F]

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 220 I of 1978.      From the  judgment and  order dated the 13th September, 1978 of  the Central  Govt., Ministry  of Finance Department ’of Revenue, New Delhi in order No. 819 of 1978.      V. J.  Taraporavala, J.  B. Dadachanji  and Shri Narain for the appellants.      N.C. Talukdar and R.N. Poddar for the Respondent.      The Judgment of the Court was delivered by      BALAKRISHNA ERADI,  J. This  appeal by special leave is directed against an order dated August 3, 1978 passed by the Government of  India under  Section 16 of the Central Excise and Salt  Act, 1944  (hereinafter referred  to as  the Act), rejecting a Revision Petition filed by the present appellant and confirming  the view taken by the Appellate Collector of Excise, Bombay, that the appellant herein is not entitled to the benefit  of the  exemption from duty of excise conferred by a Notification No. 4/68-CE dated January 20, 1968.      The appellant-Company  which has  its factories at Sion East  and   Andheri  East   in  Bombay  is  engaged  in  the manufacture of  various process  chemicals required  for the Textile  industry.   Amongst  the   process   chemicals   so manufactured by them are substances known as emulsifiers and wetting out  agents. These products fall within the scope of Tariff Item  15AA of  the First  Schedule to  the Act, which reads:           "Organic Surface  Active Agents (other than soap);      Surface Active  preparations and  washing preparations,      whether or not containing soap." For  use   as  raw-material   for  the  manufacture  of  the emulsifiers wetting  out agents,  the appellant-Company  had purchased a  total quantity  of  1,64,500  kgs.  Of  organic surface active  agents  from  another  company  called  ’The Industrial General Products Private 624 Limited’. The  aforesaid organic  surface active agents sold to the  appellant by the Industrial General Products Private Limited had  not been  subjected to  the levy of excise duty inasmuch as  the  said  supplier-Company  was  eligible  for exemption from payment of excise duty on account of the fact that the  goods were  manufactured by  it without the aid of power.      Emulsifiers/wetting out  agents, etc.  intended for use in any  industrial process  were exempted  from the  levy of duty under  Entry 15AA  of the  First Schedule  to the  Act, subject to  certain  conditions,  by  a  Notification  dated January 20,  1968 issued  by the  Government of  India.  The relevant part  of that  Notification  is  in  the  following terms:           "The Central Government has exempted the excisable      goods specified  in column  (2)  of  the  Table  hereto      annexed and  falling under  this Item from the whole of      the duty  of excise  leviable thereon  subject  to  the      conditions laid  down in  the corresponding  entries in

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    column (3) of the said Table.                            TABLE Sl.             Description                Conditions No. (1)                  (2)                       (3) 1.     ...            ...           ...          ... 2.     ...            ...           ...          ... 3.     ...            ...           ...          ... 4. Emulsifiers,  wetting out    If in respect of surface    agents, softness  and        active agents used in the    other  like   preparations   manufacture  of  such    intended for  use in  any    emulsifiers, wetting out    industrial process.          agents, softners and other                                 like preparations the                                 appropriate amount of the                                 duty of excise or the                                 additional duty under                                 section 2A of the Indian                                 Tariff Act 1934 (32 of                                 1934), has already been paid                                 or where such surface active                                 agents are purchased from                                  the open market on or after                                 the 20th day of January,                                 1968.") 625      It is  common ground  that the  organic surface  active agents A  used by  the appellant  as  raw-material  for  the manufacture of emulsifiers/wetting out agents were purchased by it.  subsequent to  the 20th  day of  January  1968.  The Central   Excise    authorities   originally   treated   the manufactured product,  namely the emulsifiers etc. as exempt from levy  of duty  by  virtue  of  the  Notification  dated January 20,  1968. But,  subsequently,  by  a  notice  dated August 6,  1974, issued  by the  Superintendent  of  Central Excise, Inspection  Group No.  1,  Bombay  Division  V,  the appellant-Company was  directed to  show cause why an amount of Rs.  1,21,709.57 should not be recovered from the Company by way  of excise  duty in respect of the period August 1973 to  February  1974  on  the  ground  that  the  said  amount represented escaped  duty in  respect  of  the  emulsifiers/ wetting out  agents manufactured  by the  petitioner-Company during the aforesaid period.      In reply  to the  said  notice,  the  appellant-Company objected to  the said demand contending that it was entitled to the  benefit of exemption from levy of duty in respect of the  manufactured  products  under  the  Notification  dated January 20,  1968 inasmuch  as surface active agents used in the manufacture  of the  emulsifiers/wetting out  agents had been purchased  by the  appellant from the open market after the 20th  day of  January 1968. This contention was rejected by the concerned Assistant Collector. He took the view that, in order  to attract  the  exemption  provided  for  in  the aforesaid Notification,  duty should actually have been paid in respect of the surface active agents used as raw-material and since  the appellant had purchased the raw-material from a manufacturing  unit which  was exempt  from  the  levy  of excise duty  for the reason that the manufacture was carried out  by   it  without  the  aid  of  power,  the  conditions prescribed in  the Notification were not fulfilled. The said - order  was confirmed by the Appellate Collector of Central Excise, Bombay, before whom the matter was carried in appeal by the  present appellant. While upholding the view taken by the Assistant  Collector that  the benefit  of the exemption granted by the Notification would be available only in cases

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where the  raw-material, namely,  the surface  active agents had been  subjected  to  duty  at  the  primary  stage,  the Appellate Collector  went further and held that the purchase of the aforesaid raw-material effected by the appellant from M/s. Industrial  General Products  Private Limited could not be regarded as "purchased from the open market" and that for this 626 additional reason  also, the  appellant  was  ineligible  to claim the benefit of the exemption.      A Revision  Petition filed  by the appellant before the Government of  India was  rejected by  the order  (Exh. ’A’) dated August  3, 1978,  wherein the  Central Government took the  view   that   "purchases   made   from   a   particular manufacturer, the  production from  whose factory  is exempt from payment  of duty, being manufactured without the aid of power, cannot be treated at par with purchases made from the open market".  It is against this order of the Government of India that the appellant has come up to this Court with this appeal.      The language  used in  Columns (2) and (3) of the Table appended to  the Notification  dated  January  20,  1968  is simple and  unambiguous. It  shows that  the benefit  of the exemption   will    be   available   in   respect   of   the emulsifiers/wetting out  agents provided  that either of the following two conditions is fulfilled:      (a)   Excise duty  (inclusive of  additional duty under           section 2A)  should  have  been  already  paid  in           respect of  the surface active agents used as raw-           material in  the manufacture  of the  emulsifiers,           wetting out agents, etc..      (b)  The surface active agents used as raw-material for           the manufacture  of  the  emulsifiers/wetting  out           agents should  have been  purchased from  the open           market on or after the 20th day of January, 1968.      The  first   of  the   aforementioned  conditions   was obviously not  satisfied  in  the  present  case  since  the surface active  agents  were  purchased  by  the  appellant- Company from  a manufacturer  who was exempt from payment of excise duty  on account  of the  fact that  the  process  of manufacture was  being carried out without the aid of power. The  appellant-Company  contends  that  the  second  of  the aforesaid conditions, namely, that the surface active agents should have  been purchased from the open market on or after the 20th  day of  January 1968  was fully  satisfied in  the present case,  and hence  it was  entitled to the benefit of the  exemption   granted  by   the  Notification,  That  the appellant had  purchased the  surface active  agents used in the  manufacture  of  the  emulisifiers/wetting  out  agents subsequent to  the 20th  day of January, 1968 is undisputed. The purchases  of the  raw-material had  been  made  by  the appellant from 627 the Industrial  General Products  Private Limited. The short question to  be considered is, whether those transactions of purchase effected  by  the  appellant  from  the  Industrial General  Products   Private  Limited   can  be  regarded  as purchases "from the open market"?      In determining  the eligibility  of a  person  for  the benefit of  the exemption  conferred by  the Notification on the  basis   of  the   fulfillment  of  the  second  of  the aforementioned  conditions,   it  is  wholly  irrelevant  to enquire whether  duty of  excise had  already been  paid  in respect of  the surface active agents purchased and utilised as   raw    material   for    the   manufacture    of    the

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emulsifiers/wetting out  agents. The  sole  question  to  be examined is,  whether the  surface active agents used in the manufacture of the emulsifiers were purchased "from the open market" on or after the 20th day of January, 1968 ?      The  Assistant  Collector  as  well  as  the  Appellate Revisional  Authorities   have  taken   the  view  that  the exemption granted  by the  Notification will  get  attracted only if  the surface  active agents used as raw-material had been already subjected to levy of duty at the primary stage. In our  opinion, the  said view  is based  on  an  erroneous interpretation of  the provisions contained in item 4 of the Table appended  to the  Notification. The condition that the duty of  excise should  have already  been paid  on the raw- material (surface active agents) has no application to cases covered by the second part of Column (3) of Sl. No. 4 of the Table, namely,  cases where  the surface  active agents were purchased from  the open  market on or after the 20th day of January, 1968.      That brings  us  back  to  the  question,  whether  the purchases effected  by the  appellant from  M/s.  Industrial General Products  Private Limited  were purchases  "from the open market"?  Having due regard to the context in which the expression "open market’’ has been used in the Notification, it would  be wholly  wrong to understand the said expression "open market"  as connoting  only a  market-yard, bazar or a shopping  complex   where  goods   are  offered   for  sale. Industrial chemicals  (which have to he ordinarily purchased in bulk for use as raw-material in the manufacture of secon- dary products)  are not commodities that are usually exposed for sale  in  bazars  and  shops.  Such  bulk  purchases  of chemicals etc.,  are effected  by placing  orders  with  the concerned  manufacturing  units.  In  our  opinion,  if  the transactions  of  sale  and  purchases  are  effected  under conditions enabling  every person desirous of purchasing the goods in question to place orders with such manufac- 628 turing  unit  and  obtain  supplies,  they  will  constitute purchases "from  the open  market". We  may in  this context refer  with  advantage  to  the  following  observations  of Swinfen Eady, J. in Inland Revenue Commissioners v. Clay(l), where the  Court of  appeal had to consider the scope of the expression "open  market" occurring in section 25 (1) of the Finance Act, 1910 (10 Edw. 7, c. 8):           "The  market   is  to   be  the  open  market,  as      distinguished from  an offer  to a  limited class only,      such as  the members  of the  family. The market is not      necessarily an  auction sale.  The section  means  such      amount as  the land  might be  expected to  realize  if      offered under conditions enabling every person desirous      of purchasing  to come  in and  make an  offer, and  if      proper steps  were taken  to advertise the property and      let all  likely purchasers know that the land is in the      market for sale."      We fully agree with these observations.      In the  present case,  it  was  open  to  every  person desirous of  purchasing the  surface active  agents to place orders  with   the  manufacturing   Company,  namely,   M/s. Industrial General  Products Private Limited, and obtain the supply on  payment of  the price at the prevailing rate. The sales by  the said Company were not to a limited class only. Hence, the  purchases of  the surface active agents effected by the  appellant  from  M/s.  Industrial  General  Products Private Limited’  have to be treated as purchases made "from the open market." The denial to the appellant of the benefit of the  exemption provided  for  by  the  Notification  was,

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therefore, clearly illegal.      Accordingly, we allow this appeal, set aside the orders passed by  the Government of India, the Appellate Collector, Bombay  and  the  Assistant  Collector  of  Central  Excise, Bombay, and  declare that  the appellant-Company is entitled to the  benefit of the exemption granted by the Notification dated January  20,  1968  in  respect  of  the  emulsifiers, wetting out  agents,  softners  etc.,  manufactured  by  the Company for  use during  the relevant period (August 1973 to February 1974).  The  respondent  shall  pay  costs  to  the appellant Company in this appeal. N.K.A.                                 Appeal allowed. 629