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PETITIONER: DUNLOP INDIA LTD.

       Vs.

RESPONDENT: UNION OF INDIA AND ORS.

DATE OF JUDGMENT01/12/1989

BENCH: RANGNATHAN, S. BENCH: RANGNATHAN, S. PUNCHHI, M.M.

CITATION:  1990 AIR  439            1989 SCR  Supl. (2) 370  1989 SCC  Supl.  (2) 699 JT 1989 (4)   431  1989 SCALE  (2)1294

ACT:      Central  Excises  and Salt Act, 1944.. Sections  4  and 36--Tariff  Item No. 16A(2)--Notifications Nos. 71  of  1968 and  27 of 1973  Tread repair compound, cushion repair  com- pound and cover compound-Use to which these are put--Levy of excise duty--Whether exempted.

HEADNOTE:     The  appellant-assessee has been  manufacturing  cushion repair  compoud, tread repair compound and  cover  compound. According  to the assessee, these were not meant either  for resoling or retreading of tyres, but for mending injured and defective sections of tyres. Though normally these goods are dutiable under tariff item No. 16A(2), the assessee  claimed exemption from duty under Notification No. 71 of 1968  dated 1.4.68. The Superintendent rejected the claim.     On  appeal by the assessee, the Collector observed  that there was no evidence that the goods in question should  not be used for the resoling or retreading of tyres and rejected the claim. The assessee preferred a revision to the  Central Govt.  The Central Govt. while rejecting the Revision  Peti- tion, referred to the fact that the notification specifical- ly excluded cushion compound, cushion gum and tread gum.  As regards cover cushion compound, it observed that the  compo- sition  was such that its use for repair of  conveyor  belts was  indistinguishable  from the other use  of  resoling  of tyres.     This  appeal  has been filed against the  order  of  the Central  Govt. The appellant contended that  the  Government had  overlooked  the fact that while tread  repair,  cushion compound  and tread gum are items used for resoling  or  re- treading  of tyres, that was not the use to which the  arti- cles  manufactured by the assessee were put. Since the  fact that  the  goods manufactured by it were employed  only  for repairing  tyres and conveyor belts was not disbelieved,  it was  argued,  the assessee was eligible  for  the  exemption claimed by it. Allowing the appeal, this court, HELD: 1. The notification of 1978 only reproduces with some 371 modifications the notification of 1964. The broad purport of

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both  the notifications is to exempt rubber  products  other than  those which are commonly sold under  certain  descrip- tions and are used for the resoling or retreading of  tyres. The circular of 1966, which can be considered as a contempo- raneous  exposition of the understanding of  the  Government while  issuing the exemption notification of 1964, makes  it clear that at that time, it was not intended to deny  exemp- tion to rubber products used merely for repair purposes. The notification  of  1973 was one in which  various  amendments were  carried out to a series of notifications  relating  to various items and does not contain anything to suggest  that it  was only a clarification that was intended to  be  given and  not a prospective amendment of the  previous  notifica- tion. [375A-C]     2.1  The fact that the appellant is using  or  marketing the products for use, only for repearing tyres and  conveyor belts is not controverted. Hence the appellant assessee  was entitled to exemption under the notification. In one  sense, any  rubber compound has a composition  which  theoretically permits  it  to be used either for repair  purposes  or  for resoling or retreading of tyres. But the assessee’s claim is that the product marketed by it has not the physical  dimen- sions  or  technical  properties to be capable  of  use  for retreading  or  resoling. Also, the  notification  talks  of products "used for" resoling and retreading of tyres; and it is not so in the instant case. [375C-E]     2.2 The notification imports a limitation on the  exclu- sion  from  the  exemption specified  in  the  paranthetical clause  of the notification. That exclusion is only  in  re- spect of compounds used for resoling or retreading. [375E]

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No.  469  of 1975.     From  the  Order dated 31.5.1974 of  the  Government  of India, Ministry of Finance, Department of Revenue and Insur- ance, New Delhi, in Order No. 615 of  1974 on Central Excise Revision Application. Dr.  Y.S. Chitale, Ms. M. Ray and H.K. Dutt for  the  Appel- lant.     V.C. Mahajan, (N.P.), P. Parmeshwaran and R.P. Srivasta- va for the Respondents. K .R. Nambiar for the Intervener. 372        The Order of the Court was delivered by     RANGANATHAN   J. The   appellant-assessee   manufactures goods known in the market as cushion repair compound,  tread repair  compound and cover. compound. These  materials,  ac- cording to the assessee, are used to mend injured and defec- tive  sections of tyres and are not meant to be used  either in  the resoling or in retreading of tyres. Under the   Cen- tral  Excise & Salt Act, 1944, (’the Act’), the above  goods were normally dutiable under tariff item No. 15A (2). Howev- er, the assessee claimed exemption from duty under notifica- tion  No.  71 of 1968 dated 1.4.1968. By  this  notification under section 8 of the Act, the Central Government  exempted "all  rubber  products, in the form of  plates,  sheets  and strips  unhardened, whether vulcanised or not,  and  whether combined with any textile material or otherwise (other  than the  products  which  are made either wholly  or  partly  of rubber and which are used for the resoling or retreading  of tyres,  including the products commonly known as tread  rub- ber,  camel back, cushion compound, cushion gum,  tread  gum

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and tread packing strips) falling under sub-item (2) of this item,  from  the  whole  of  the  duty  of  excise  leviable thereon".  The Superintendant of Central Excise  having  re- jected  the  claim for exemption and charged  the  goods  in question to duty at 20% (basic) under the tariff item  above mentioned, the assessee preferred an appeal to the Collector of Central Excise, West Bengal. The Collector also  rejected the  claim  observing that there was no  evidence  that  the goods  in  question could not be used for  the  resoling  or retreading  of  tyres. The assessee  thereupon  preferred  a revision  to the Central Government under section 36 of  the Act  as  it  then stood. In the revision  petition,  it  was pointed  out that tread repair compound and  cushion  repair compound  were primarily meant for and also used  as  repair material  only with reference to the treads and cushions  of tyres and that since they were designed to serve the limited purpose  of  mending  small sections of tyres  it  would  be grossly erroneous to hold that these repair materials  could be  used in place of tread rubber or camel back  which  only have the necessary physical dimensions and technical proper- ties to serve as retreading and resoling material. Similarly cover  compound,  it was said, was material which  was  used only for repairing conveyor belting and was also marketed by the  assessee  solely for the purpose of  repairing  damaged sections  of the conveyor belting. It was not meant for  use in retreading and resoling of tyres since their sole intend- ed use was to repair conveyor belts. The Central Government, however, dismissed the revision petition by its order  dated 21.5.1974. The Government referred to the fact that the 373 notification  of  exemption  specifically  excluded  cushion compound,  cushion gum and tread gum and observed  that,  in view  of  this,  cushion repair compound  and  tread  repair compound  would  also be assessable to duty under  item  No. 16A. So far as cover compound was concerned, it was observed that  its  composition was such that its use for  repair  of conveyor  belts was indistinguishable from the other use  of resoling  of  tyres. The present appeal has  been  preferred from the order of the Central Government.     On  behalf of the appellant it is pointed out  that  the whole  purpose of the exemption notification was to  exclude products which were used for the resoling and retreading  of tyres.  The Government has overlooked that while tread  rub- ber,  cushion compound and tread gum are all items used  for resoling  or  retreading of tyres, that was not the  use  to which  the articles manufactured by the assessee  were  put. The statement of the assessee that the goods manufactured by it were employed only for repairing tyres and conveyor belts has not been disbelieved. It is therefore submitted that the Government  erred in holding that the goods produced by  the assessee are not eligible for the exemption in question.     In  support of his contention, learned counsel  for  the appellant relied on two important circumstances. One is that by  a notification No. 27 of 1973 dated 1.3.1973,  notifica- tion  No.  71 of 1968 was amended and the  words  "used  for resoling, retreading or repairing of tyres" was  substituted for  the  words "used for the resoling or  retread˜  ing  of tyres". This amendment was not effective for the period with which  we are concerned and it is therefore argued that  the compounds used for repairing as against resoling or retread- ing  will not be covered by the exclusion in  the  exemption notification.  The second circumstances relied upon  by  the learned  counsel for the appellant is this.  Earlier,  there was  a  notification  No. 31 of 1964 under  which  the  duty leviable in respect of latex foam sponge as well as products

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commonly  known  as  tread rubber or  camel  back  including cushion compound, cushion gum, tread gum, and tread  packing strips  were subjected to a concessional rate of duty  while other rubber products falling under item 16A were granted an exemption  from  the levy of duty. In the  context  of  that notification, a question arose as to whether rubber products which  are capable of being used for retreading or  resoling of tyres but are only used for repairs would attract duty or not.  The  position was clarified by the  Central  Board  of Excise  and  Customs in its circular no. Rubber  1/66  dated 7.2.1966.  The relevant part of the circular reads  as  fol- lows: 374               "2. Those rubber products which are not ’latex               foam  sponge’ may be excisable under the  said               tariff  item  No. 16A but  would  not  attract               Central  Excise duty unless commonly known  as               per  description given in Column 2 against  S.               No. 2 of the table to the above cited  notifi-               cation.  While  the scope of the levy  on  the               rubber products thus gets very much  restrict-               ed,  it  may so happen  that  different  brand               names  are given by different manufactures  to               the same or similar product giving rise to the               question  whether or not a particular  product               can  be deemed to be commonly known as  ’tread               rubber’,  ’camel  back’,  ’cushion  compound’,               ’cushion gum’ etc., so as to attract duty.               3.  Doubts of the above nature should  not  in               fact  arise  in  view of para 6  to  the  1962               Budget instructions. It was made quite explic-               it therein that ’item is ... fairly comprehen-               sive as to wording but the intention ... is to               subject  only  ’latex  foam  sponge’  and  the               rubber  products  popularly  known  as  ’tread               rubber’  or camel back’ used for the  resoling               or retreading of tyres to duty. That being the               intention  a rubber product which  is  neither               ’latex foam sponge’ nor used for the  resoling               or retreading of tyres is classifiable as ’all               other  products’  and  therefore  exempt  from               whole  of the duty leviable thereon  under  S.               No. 3 of the Table to the above cited  notifi-               cation.               4.  It  is possible that some  of  the  rubber               products  are  capable of being used  for  re-               treading  or resoling of tyres. Mere  capacity               does not, however, attract duty in the absence               of  normal usage in that manner  being  estab-               lished  it  would not be appropriate  to  hold               that the products are dutiable.               5. Rubber products used for repair of tubes or               tyres  also, in view of what has  been  stated               above, does not attract duty.               6.  Pending  cases  regarding  assessment   of               rubber products may be finalised accordingly". Learned  counsel  submits that the above  interpretation  is equally applicable in the context of notification No. 71  of 1968. 375     We  are  of opinion that the appellant’s  contention  is well founded. The notification of 1978 only reproduces  with some  modifications the notification of 1964;  however,  the broad purport of both the notifications is to exempt  rubber products  other  than those which are  commonly  sold  under

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certain  descriptions and are used for the resoling  or  re- treading  of tyres. The circular of 1966, which can be  con- sidered as a contemporaneous exposition of the understanding of  the Government while issuing the exemption  notification of  1964,  makes  it clear that, at that time,  it  was  not intended  to deny exemption to rubber products  used  merely for  repair  purposes. The notification of 1973 was  one  in which  various  amendments were carried out to a  series  of notifications relating to various items and does not contain anything  to suggest that it was only a  clarification  that was  intended to be given and not a prospspective  amendment of the previous notification. As already mentioned, the fact that  the appellant is using or marketing the  products  for use,  only  for repairing tyres and conveyor  belts  is  not controverted. In these circumstances, we are of opinion that the  appellant assessee was entitled to exemption under  the notification. In one sense, any rubber compound has a compo- sition which theoretically permits it to be used either  for repair purposes or for resoling or retreading of tyres.  But the  assessee’s contention is that the product  marketed  by it’ has not the physical dimensions or technical  properties to  be capable of use for retreading or resoling. Also,  the notification  talks  of  products "used  for"  resoling  and retreading  of  tyres  and that is not the  case  here.  The notification thus imports a limitation on the exclusion from the  exemption specified in the paranthetical clause of  the notification. That exclusion is only in respect of  compound used for resoling or retreading.     For the reasons mentioned above we allow this appeal and set aside the order of the Central Government under  section 36  of the Central Excise Act as well as the orders  of  the subordinate authorities and hold that the assessee is  enti- tled  to the exemption prayed for. The concerned  assessment will be modified accordingly. We however make no order as to costs. G.N.                                                  Appeal allowed. 376