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PETITIONER: BRITISH INDIA CORPORATION LTD.

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE

DATE OF JUDGMENT: 20/08/1962

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. DAS, S.K. KAPUR, J.L. SARKAR, A.K. DAYAL, RAGHUBAR

CITATION:  1963 AIR  104            1963 SCR  (3) 642  CITATOR INFO :  RF         1963 SC1237  (8)

ACT: Excise Duty-Footwear-Levied on factories employing fifty  or more  workmen and using power exceeding 2 H.P.-If  Discrimi- natory-Central  Excises  and  Salt  Act,  1944(1  of  1944), Schedule Item No. 17 Constitution of India, Art. 14.

HEADNOTE: Under item No.17 of the Schedule to the Central Excises  and Salt Act, 1944, excise duty was levied on footwear  produced in any factory employing 50 or more workmen and using  power exceeding   2  H.P.  The  petitioner  contended   that   the imposition  of  duty on larger manufacturers only  was  dis- criminatory   and   there  was  no  reasonable   basis   for differentiating between manufacturers on the basis of number of workers or the employment of power above 2 H.P. and  that the  im.  position  of  the  heavy  duty  gave  rise  to   a competition  sufficient to put the big manufacturers out  of business. Held,  that  item  17  of  the  Schedule  is  based  upon  a reasonable   classification   and   is   validly    enacted. Manufacturers  who employed 50 or more workers form  a  well defined   class,  so  also  manufacturers  who.  use   power exceeding  2  H.P. In imposing the excise duty  there  is  a definite desire to make an exemption in favoui of the  small manufacturer who is unable to pay the duty as easily, if  at all,  as the big manufacturer, Such a classification in  the interests  of co-operative societies cottage industries  and small  ’manufacturers has often the made to give an  impetus to them and save them from annihilation in competition  with large industry. Orient  Weaving  Mills (P) Ltd. v. Union  of  India,  (1962) Supp. 3 S.C.R . 481 referred to.

JUDGMENT: ORIGINAL JURISDICTION:  Petition No. 94-of 1955.

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Petition under Art. 32 of the Constitution of India for  the enforcement of Fundamental Rights.                             643 Bishan Narain, Rameshwarnath, S. N. Andley and P. L.  Vohra, for the petitioner. H.   N. Sanyal, Additional Solicitor General of India, N. S. Bindra and P. D. Menon, for the col respondents. 1962.   August 20.  The Judgment of the Court was  delivered by HIDAYATULLAH,  J.-This  is a petition under Art. 32  of  the Constitution  challenging the imposition of Excise  Duty  on the  petitioner by virtue of item No. 17 "Footwear"  of  the First Schedule to the Central Excises and Salt Act, 1944  (1 of  1944)  with  effect  from February  28,  1954,  and  the calculation of the duty advaloram by including in the price, charges for freight, packing and distribution.- The  petitioner,  the British India corporation  Ltd.  is  a public  limited company which was formed to take-over  other companies and to amalgamate them.  Among the companies which the  petitioner took-over were Cooper Allan & Company  Ltd., and  the  North West Tannery Company Ltd., b  )that  Kanpur. These two Companies manufature shoes and other leather goods and  operate as a single unit manufacturing  the  well-known brand  of  "F L E X" shoes.  As a result  of  the  financial proposals  of the Central Government for the financial  year 1952-55, a bill (No. 9 of 1954) was introduced in parliament on February 27,1954.  Under el. 8 of the Bill foot-wear were proposed  to be taxed at 10%  advaloram if produced  in  any factory as defined in the factories Act, 1948 (63 of  1948). When  the  Finance Act, 1954 (17 of 1954) was  enacted,  the Central  Excises  and  Salt Act, 1954, was  amended  by  the inclusion  of item 17 in the Schedule, though in a  slightly different  form.   The  item  as  finally  enacted  read  as follows:- 644 "17.   FOOTWEAR,  produced  in  any  factory  including  the precints  thereof whereon fifty or more workers are  working or were working on any day, of the preceding twelve  months, and  in  any part of which manufacturing  process  is  being carried on with the aid of power or is ordinarily so carried on, the total equivalent of such power exceeding two  horse- power. "Footwear" includes all varieties of footwear,whether known boots shoes, sandals, chappals, or by any other name." {Ten percent "advalorem"} Under the provisions of the Provisional Collection of  Taxes Act, 1931, (XVIof 1931), the duty was leviable from February 28,  1954,  by virtue of a declaration in the Bill  to  that effect.  On the preceding day the Superintendent of  Central Excise.,  Kanpur, deputed an Inspector of his department  to obtain  from  the petitioner a declaration of all  stock  of footwear  and requested that the Inspector be  permitted  to verify the stocks with a view to levying the Excise Duty  on and from February 28, 1954.  As a’ result of the position of Excise  Duty on footwear the petitioner was required to  pay during  the  remaining  ten months of 1954  a  sum  of  RE;. 9,47,630/-  as Excise Duty.  The petitioner produces in  the two  units above-named, footwear for sale to the public  and for  supplies to the Government for the use of the Army  and the Police.  The petitioner contends that though the  Excise Duty  paid  by  it was capable of being  passed  on  to  the consumer,  it  could not include it in the  price  at  which shoes  were sold to the public because of heavy  competition by  those  free from such duty-, though it did  include  the Excise  Duty  in  the  price of  the  footwear  supplied  to Government.   Thus  Rs.  2  lacs  odd  were  passed  on   to

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Government but Rs. 7 lacs odd were born 645 by the Company itself.  The petitioner contended before  the Collector of Central Excise, Allahabad, that the calculation of  the  duty  advalorem  should  not  be,  based  on  price including freight, packing and distribution charges paid  to it,  by  its distributors in the outlying  parts  of  India. This  contention of the petitioner was not accepted  by  the Collector.   The  petitioner  then took  an  appeal  to  the Central  Board  of Revenue but before the  appeal  could  be disposed  of, the petitioner filed this petition under  Art, 32  of the Constitution praying for writ or writs  to  quash the order of the Collector of Central Excise, Allahabad, and writ  or  writs to prohibit Union Government.   The  Central Board  of  Revenue and the Collector and  Superintendent  of Central  Excise  from enforcing the provisions  of  item  17 against  petitioner and collecting the Excise  Duty  therein levied. According to the petitioner, a distinction has been made  in Item  17  above-quoted  between  manufacturers  of  footwear employing   more  than  50  workers  .or  carrying  on   the manufacturing process with the aid of power exceeding 2 H.P. and  other manufacturers.  According to the petitioner  this amounts  to  discrimination because there is  no  reasonable basis for differentiating between manufacturers on the basis of number of workers or the employment of power above 2 H.P. The   petitioner  contends  that  the  essentials   of   the manufacture of footwear are the same whether one employs  50 or  more workers or less.  The larger number of  workers  is merely needed because the out-turn has to be greater but the number  does not change the nature of the operations or  the method  of production.  Similarly, the need for than 2  H.P. arises  if  a larger number of mechanical units have  to  be worked and there is no essential difference between a  large manufacturer 646 and a small manufacturer by reason of the employment of more power  or  less.   It  is,  therefore,  contended  that  the imposition of Excise Duty on bigger manufacturers creates  a discrimination  in  the  trade which  is  neither  just  nor discernible  and  amounts to a violation of Art. 14  of  the Constitution.    The  levy  of  the  Excise  Duty  in   such circumstances    is   said   to   be   both   illegal    and unconstitutional. As a corrolary to this it is contended that the  petitioner, which was already carrying on its business at a loss in view of the competition, is now further handicapped by having  to bear  a  heavy Excise Duty which it cannot pass  on  to  the consumer due to competition by those not paying the duty and is likely to go out of its business and that the levy of the Excise Duty in these circumstances amounts to a breach  also of Art-. 19 (1) (f) and (g) and 31 of the Constitution. It is further contended that the duty advalorem ought to  be calculated  on  the ex-factory price and not  on  the  price charged to the distributors which includes within itself the cost  of  packing and charges for freight  and  distribution commission.  It is contended that this is an error  apparent on the face of the order of the Collector of Excise and  the order  deserves  to  be quashed by the  issue  of’  writ  of certiorari or other appropriate writ. Lastly, it is contended that the Finance Act, 1954  received the  assent of the president on April 27, 1954, and must  be deemed  to have become law ,from that date.  The  collection of  Excise  Duty from March, 1954, before the  Finance  Bill became law, is said to be illegal.  We shall deal only brie-

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fly  with these arguments as most of them have by  now  been considered and decided in other cases of this Court.  647 The  contention that this duty does not amount to a duty  of excise  because it cannot be passed on by the petitioner  to the  consumer was not raised before us. It was mentioned  in the  petition.  An Excise Duty is a duty on  production  and though  according to the economists, it is an  indirect  tax capable  of being passed on to the consumer as part  of  the price  yet  the  mere  passing on of the  duty  is  not  its essential Even if borne. by the producer characteristic.  or manufacturer it does not cease to be a duty of excise.   The nature  of such a duty was explained in the very first  case of  the  Federal  Court and subsequently in  others  of  the Federal  Court, the Privy Council and this Court,  but  this ground  continues to be taken and we are surprised  that  it was raised again. The contentions that the duty could not be collected  before the  passing of the Finance Act, 1954, has been the  subject of  an elaborate discussion in the recently decided case  of this  Court,  M/s.  Chotabhai Jethabhai Patel  and  Co.  vs. Union  of  India (1).  It is conceded that in  view  of  the above decision the point is no longer open. It is also conceded that the question whether in calculating the duty advalorem, the Collector of Excise was justified in including  in  the price the cost of  packing,  charges  for freight and commission for distribution, or not, is a matter for  the decision of the authorities constituted  under  the Act  subject to such appeals and revisions as might lie  but not a matter for consideration directly under Art. 32 of the constitution,  in view of the recent decision of this  Court in Smt.  Ujjam Bai vs.  State of U.P. (Civil Misc.  Petition No.  79  of  1959) decided on April 10,  1962.   It  may  be pointed  out that the present petition was filed at  a  time when the appeal before the (1)  (1962) Supp. 2 S.C.R. 1. 648 Board  of Revenue was pending and there was a further  right of revision to the Central Government. This leaves over for consideration true challenge under Art. 14, 19 and 31 of the constitution.  The argument under  each of  these  Articles  is based on precisely  the  same  facts viewed  from different angles.  It is. contended that  there is  a discrimination between big manufacturers  of  footwear and   small  manufacturers  which  is  not  based   on   any differential.  This discrimination, it is said, leads to the imposition  of a heavy tax on the big manufacturers  with  a corresponding exemption in favour of the small manufacturers giving  rise  to  a competition sufficient to  put  the  big manufacturers out of the market.  The tax being illegal  the levy  amounts  to  a confiscation of  the  property  of  the petitioner.  It will thus be seen that the imposition of the duty  is first challenged Art. 14 as a discrimination,  next it  is challenged under Article 19 as a deprivation  of  the right  to acquire, hold and dispose of property or to  carry on a business or trade and lastly the collection’of duty  is characterised  as  a confiscation of  property  without  the authority of law under Art. 31. The  argument suffers from a fundamental fallacy in that  it assumes that there can be no classification of manufacturers on  the basis of the number of workers or the employment  of power  above  a particular horse-power.   Manufacturers  who employ 50 or more workers can be said to form a well-defined class.   Manufacturers whose manufacturing process is  being carried on with the aid of power exceeding 2 H.P. are also a

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well-defined class.  Legislation of this type depending upon the  number of workers or the extent of power  employed,  is frequently  to  be found.  The most obvious example  is  the Factories Act which defines a factory with reference to  the employment of a certain number of  649 workers  or  the employment of power.  The  contention  that size  makes  no difference is not valid.  It  is  well-known that  the bigger manufacturers are able to effect  economics in their manufacturing process and their out-turn being both large   and  rapid  they  are  able  to   undersell   am-all manufacturers.   If this were not so mass  production  would lose all its advantages.  No doubt the manufacturers are now required  to  bear burdens which previously did  not  exist, like  bonus, expenses on labour welfare etc. but  still  the manufacturers,  provided  the business is well ran,  can  by mass  production offer the same commodity at  a  competitive price as against small’ manufacturers and bear the burden as well.   Therefore, in imposing the Excise Duty, there was  a definite desire to make an exemption in favour of the  small manufacturer who is unable to pay the duty as easily, if  at all, as the big manufacturer.  Such a classification in  the interests of co-operative societies, cottage industries  and small manufacturers has often to be made to give an  Impetus to them and save them from annihilation in competition  with large industry.  It has never been successfully assailed  on the  ground of discrimination.  Recently, this Court in  the Orient  Weaving  Mills  (P) Ltd. v. The  Union  of  India(1) considered  a similar argument in relation to  an  exemption granted  to  societies working a few looms  on  co-operative basis  as against big companies working hundreds  of  looms. The.  exemption  was  held  to  be  constitutional  and  the classification  of  co-operative societies was  held  to  be reasonable.  A similar consideration applies in the  present case, where the exemption operates in respect of very  small manufacturers  employing  not  more  than  50  workers   and carrying  on their manufacturing process with power  not  in excess of 2 H.P. This affords a protection to small concerns who, if they were made to pay the duty, would have to go out of business. (1)  (1962) Supp. 3 S.C.R. 481. 650 In  our  judgment  the Schedule which  is  characterised  as discriminative is based upon a reasonable classification and is  validly  enacted.  If the law is held to  be  valid  the attack under Arts. 19 and 31 must also fail. In  view of what we have said above the petition must  fail. It will be dismissed with costs. Petition dismissed.