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PETITIONER: ORIENT PAPER MILLS LTD.

       Vs.

RESPONDENT: UNION OF INDIA

DATE OF JUDGMENT: 16/03/1967

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. SIKRI, S.M. VAIDYIALINGAM, C.A.

CITATION:  1967 AIR 1564            1967 SCR  (3) 205

ACT: Central Excise Act, s. 4 and Central Excise Rules 1944 r.  9 and r. 9A-Goods removed from factory after payment of  duty- Change  in  rate of duty--crucial time for changed  rate  to apply, whether payment of duty or removal of goods.

HEADNOTE: The appellant company carried on in the State of Orissa  the business of manufacturing and selling paper and boards.   It held  a licence in Form L.4 under the Central Excise Act  is prescribed   by  the  Central  Excise  Rules.,  1944.    The company’s factory and its premises were demarcated under the said  Rules.  The Factory enjoyed the benefit of  a  private railway  siding in the factory area.  In 1960 a  new  siding was  constructed outside the original factory premises;  the company’s  request  to the Excise authorities to  amend  its licence  so  as  to include the new railway  siding  in  the factory  area was refused.  On February 27 and 28, 1961  the company   loaded  some  wagons  of  paper  after   effecting clearance of these goods by payment of excise duty under  r. 52  of  the Excise Rules.  The wagons then passed  into  the hands  of railway administration but as a pilot  engine  was not  available  they were shunted into the new  siding.   On March  1, 1961 new rates of excise duty came into force  and the  Deputy Superintendent of Central Excise demanded  extra duty on the wagons loaded on February 27 and 28, 1961 on the ground  that they we’re found in the factory  premises  till 9.45 a.m. on March 1, 1961.  The company relying on r. 9A of the Excise Rules submitted that the duty was payable at  the rate  in  force on the date on which the duty  was  actually paid.  In the alternative it submitted that the goods having been  cleared and removed from the factory premises  before, the midnight of February 28, 1961, could not be made  liable for  the enhanced duty which came. into force. on  March  1, 1961.   The  contentions  were not accepted  by  the  Deputy Superintendent.    Higher  departmental   authorities   also rejected  them.  The company then filed an  application  for revision  before  the Government of India  This  also  being rejected  the  company appealed by special  leave  to.  this Court. HELD  : (i) In the case of manufactured goods, according  to

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the  provisos  to  r. 9, the payment of  the  duty  and  the clearance  of goods maybe synchronous or the payment may  be postponed although the goods may be removed.  In the  latter case,  under  the  second part of r. 9A  the  critical  time becomes  the  removal  of  the goods  from  the  factory  or warehouse;  but  if the payment of duty is made  before  the removal,,  then under the first part of r. 9A  the  critical time is the payment of duty. [213 C] It  cannot be said That the first part of r-. 9A relates  to unmanufactured  goods  and the second part  to  manufactured goods. [212 F] (ii) In the present case the payment of duty was synchronous with the clearance of the goods because the gate pass  under r.  52 can only be issued when the goods have actually  been cleared for removal.  The payment of duty and the removal of the  goods bad both been effected before the change  in  the rate  of  duty.   The recovery of  enhanced  duty  from  the appellant company was therefore erroneous. [213 D, G] 206 (iii)     The  Excise authorities had themselves refused  to recognise the new railway siding as part of the factory  and it could not therefore be said that the wagons being in  the new siding must be treated as still in the factory. [213 F]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 30 of 1966. Appeal by special leave from the order dated June 7, 8, 1963 of the Government of India, Ministry of Finance  (Department of  Revenue) in Central Excise Revision Application No.  463 of 1963. B.   Sen,  Bishan  Narain  and B.  P.  Maheshwari,  for  the appellant. S.   V. Gupte, Solicitor-General, S. G. Patwardhan, R. N. Saththey, and S. P. Nayyar, for ’the respondent. The Judgment of the Court was delivered by Hidayatullah,  J. The appellant is a public limited  company which  carries on the business of manufacturing and  selling wholesale, paper and boards at Brajrajnagar in the State  of Orissa.   The  appellant company holds a licence  under  the Central  Excise  Act in Form L-4 prescribed by  the  Central Excise Rules, 1944.  The appellant company’s factory and its premises  and precincts have been demarcated under the  said Rules.   The Factory is traversed by railway lines,  because the  appellant  company  enjoys the  benefit  of  a  private siding.   In 1960, the appellant Company constructed  a  new railway  siding outside the original factory premises  where bamboos and other raw materials were stored and  constructed a  platform for loading and unloading.  This  extension  has not  been  included  in  the  factory  or  its  premises  or precincts   for  purposes  of  the  Excise  Rules.   It   is presumably  so,  because to reach the new siding,  a  public road  has  to be traversed which is not  enclosed  and  from which  public  cannot be excluded.  It is in  evidence  that after this new siding was constructed, the appellant company requested  the  Excise authorities to amend the  licence  to include the new railway siding; but this was refused. On February 27, 1961, the appellant company loaded 20 wagons of paper after effecting clearance of these goods by payment of  the  excise duty under r. 52 of the  Excise  Rules.   On February  28,  1961, the appellant company  loaded  13  more wagons  and cleared them.  These wagons were sealed  by  the railway  administration and railway receipts were issued  to

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the appellant company.  The company also obtained gate pass. The  wagons  then  passed into the control  of  the  railway administration,  but as pilot engine was not available,  the wagons were shunted into the new siding.  The exit from  the new siding is only through the factory premises because  the railway track comes to a dead-end on the other side. 207 The  Deputy  Superintendent of Central Excise wrote  to  the appellant company on March 1, 1961 that the wagons loaded on February 27 and 28, 1961 were found inside the factory  pre- mises  till  9-45 A.M. on March 1, 1961 and the  goods  were therefore  liable  to  be assessed at the  higher  rates  of excise  duty  current  from March 1,  1961.   The  appellant company contended before the Deputy Superintendent that the, wagons  were duly sealed after the completion of loading  in his  presence,  were taken out of the factory  premises  and were not in the factory when the new rates came into  force. The  appellant  company relying upon r. 9A  of  the  Central Excise  Rules, 1944 submitted that duty was payable  at  the rate in force on the date on which the duty was actually  1- ,.)aid. In the alternative, the appellant company  submitted that  the  goods  having been cleared or  removed  from  the factory  premises before the midnight of February 28,  1961, could  not be made liable for the enhanced duty  which  came into  force from March 1, 1961, These contentions  were  not accepted  by the Deputy Superintendent who demanded  payment of Rs. 45,475.83, from the appellant company as differential excise duty.  The amount was paid under protest and  without prejudice to the rights of appeal and representation to  the proper authorities under the Excise Act. The  matter was then placed by the appellant company  before the  Assistant  Collector, Central Excise, Cuttack  and  the company requested that the differential duty be refunded  as it  had  been illegally collected. The  Assistant  Collector rejected   the  claim  and  confirmed  the   collection   of differential  duty.   The  appellant  company  appealed  the Collector  of  Central Excise, Calcutta and Orissa  but  the appeal  was  dismissed on March 12,  1962.   ’the  appellant company  then filed an application for revision against  the order  of  the  Collector of Central  Excise,  Calcutta  and Orissa  before  the  Government  of  India  (Central  Excise Revision Application No. 473 of 1963).  The application  for revision  was  rejected by the Government of India  on  June 7/18,  1963.  No reason was given in the order  communicated to the appellant company.  The present appeal has been filed by special leave against the last order. The first contention in this appeal is that the order of the Deputy Superintendent confirmed by the Assistant  Collector, the  Collector  of  Excise and the  Central  Government  was illegal and contrary to the provisions and intendment of the Central Excise Act and the rules framed thereunder,  because under r. 9A, first part, these goods were cleared by payment of excise duty ’and could not be reassessed to the  enhanced duty.  It is further submitted alternatively that the  goods were removed from the factory proper before the midnight  of February 28, 1961 and therefore could 20 8 not be assessed to the enhanced duty even if the latter part of  rule 9A applied.  A third contention that the  order  of the Central Government was bad because it gave no reason for the  rejection  of  the application  for  revision  was  not pressed seriously.. We shall examine the first two arguments only. ’The duty of excise on paper and boards was increased by s.. 13 of the Finance Act, 1961 (Act XIV of 1961) read with item

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17  of  the Schedule.  Under the Provisional  Collection  of Central  Taxes  Act (XVI of 1931) this duty  became  payable from  the 1st day of March, 1961.  The question,  therefore, arises  whether  the goods are to bear the old duty  or  the new.  This question depends upon the time at which the  duty was  payable  on the goods in this case.  That in  its  turn depends  upon the true construction of r. 9A of the  Central Excise Rules, 1944.  The rule consists of two sub-rules, but we  are concerned with the first sub-rule and first  proviso to  that sub-rule.  The relevant portion of the rule may  be read even at this stage:               "9A.   (1)  Alteration  of  duty   or   tariff               valuation.-               The rate of duty and the tariff valuation  (if               any) applicable to goods cleared on payment of               duty shall be the rate and valuation (if  any)               in force on the date on which duty is paid, or               if  the goods are cleared from a factory or  a               warehouse,  on the date of the actual  removal               of such goods from such factory or warehouse:               Provided  that  if the goods  have  previously               been  removed from warehouse under bond to  be               rewarehoused,  and  the duty is paid  on  such               goods  without their being  rewarehoused,  the               rate and valuation (if any) applicable thereto               shall  be the rate and valuation (if  any)  in               force on the date on which duty is paid or, if               duty   is  paid  through  an   account-current               maintained with the Collector under Rule 9, on               the date on which an application in the proper               form is delivered to the officer-in-charge  of               the  warehouse  from  which  the  goods   were               removed: To understand this rule and its implications something  must be  said  first about the scheme of the Central  Excise  and Salt  Act,  1944 and the Central Excise  Rules,  1944.   The Central  Excise Act defines ’excisable goods’ to mean  goods specified  in  its First Schedule and subject to a  duty  of excise.   The  Act  further defines ’factory’  to  mean  any premises including the precincts wherein excisable goods are manufactured,  or  wherein  or  in any  part  of  which  any manufacturing process connected with the production 209 of these goods is being carried on or is ordinarily  carried on..  ’Manufacture’  is  defined  to  include  any   process identical  or ancillary to the completion of a  manufactured product,  and certain processes in relation to  tobacco  and salt are included in manufacture, but with these we are  not concerned.   It  also  defines  ,curing’  as  including  any process  for  rendering an unmanufactured  product  fit  for marketing  or manufacture.  Section 3 of the Act  lays  down inter alia that there shall be levied and collected in  such a  manner  as  may be prescribed duties  of  excise  on  all excisable goods which are produced or manufactured in  India at  the  rates setforth in the First Schedule.   Section  4, which is headed "Determination of value for the purposes  of duty,  provides  that where any article is  chargeable  with duty  at rates dependent on the value of such  article  such value  shall be deemed to be the whole sale cash  price  for which  an  article of like kind and quality is  sold  or  is capable  of  being sold at the time of the  removal  of  the article  chargeable with duty from the factory or any  other premises  of  manufacture or production for  delivery,  etc. The  emphasis  in  s. 4 is on the time  of  removal  of  the article chargeable with duty from the factory.  This is  the

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only  guidance which the Act furnishes.  We may now turn  to the Rules. Under  the Rules, duty means duty payable under s. 3 of  the Act above-mentioned.  Rule 2(xv) defines ’warehouse’ as  any place or premises appointed or licensed under rule 140.   We now come to Chapter III which deals with levy and refund  of and exception from duty.  Rule 7 provides that every  person who   produces,   cures  or   manufactures   any   excisable goods or who stores such goods in a warehouse shall pay  the duty or duties leviable on such goods at such time and place and  to  such person as may be designated in  or  under  the authority of the Rules, whether the payment of such duty  or duties  is secured by bond or otherwise.  Rule 9  lays  down the  time  and manner of payment of duty.  The rule  may  be read here:               "9. Time and manner of payment of duty.-               ( 1) No excisable goods shall be removed  from               any  place where they are produced,  cured  or               manufactured   or  any  premises   appurtenant               thereto,   which  may  be  specified  by   the               Collector   in   this  behalf,   whether   for               consumption,  export,  or manufacture  of  any               other  commodity  in or  outside  such  place,               until  the  excise duty leviable  thereon  has               been paid at such place and in such manner  as               is  prescribed  in  these  Rules  or  as   the               Collector   may   require,   and   except   on               presentation  of an application in the  proper               form  and on obtaining the permission  of  the               proper officer on the form:               210               Provided  that  such goods  may  be  deposited               without  payment  of duty in a  store-room  or               other   place  of  storage  approved  by   the               Collector  under  rule 27 or rule 47 or  in  a               warehouse appointed or licensed under rule 140               or  may be exported under bond as provided  in               rule 13:               Provided  further  that  such  goods  may   be               removed  on  part  payment  of  duty  leviable               thereon   if   the  Central   Government,   by               notification  in the Official  Gazette,  allow               the goods to be so removed under rule 49:               Provided  also that the Collector may,  if  he               thinks  fit  instead of requiring  payment  of               duty  in respect of each separate  consignment               of  goods  removed  from  place  or   premises               specified in this behalf, or from storeroom or               warehouse duly approved, appointed or licensed               by  him keep with any person dealing  in  such               goods an account-current of the duties payable               thereon  and such account shall be settled  at               intervals  not  exceeding one month,  and  the               account-holder shall periodically make deposit               therein  sufficient  in  the  opinion  of  the               Collector  to cover the duty due on the  goods               intended  to  be  removed from  the  place  of               production, During manufacture or storage. This rule prohibits the removal of goods from the factory or any  premises  appurtenant  thereto until  the  excise  duty leviable  thereon  had  been  paid.   The  factory  and  the premises  appurtenant  thereto has to be  specified  by  the Collector.  To this rule there are exceptions.  One of  them is  that the goods may be deposited without payment of  duty in  a store-room or other place of storage approved  by  the

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Collector  under  rule  27 or under rule  47  any  warehouse appointed or licensed under rule 140.  Another exception  is that  the  goods  may be removed on  part  payment  of  duty reliable if the Government notifies and allows the goods  to be  so removed or the Collector if lie thinks fit,  approves the  opening of ,in account-current of the duty payable  and the account-holder periodically makes deposits sufficient in the opinion of the Collector to cover duty due on the  goods intended  to  be removed from the place  of  manufacture  or storage.  As we are not concerned with export under bond  we may not refer to rule 13 but it is necessary to see rules 47 and  140.   Rule 47 is headed "Goods may be  stored  without payment  of  duty".  Under this rule a manufacturer  has  to provide  a  storeroom  or  other place  of  storage  at  his premises  for  depositing goods made on  the  same  premises without  payment of duty.  Duty-paid goods and  goods  other than excisable goods made in the factory must not be 211 deposited  in such store-rooms or place.  The store-room  or place  must be declared by the manufacturer and approved  by the Collector.  To this rule there is an exception and it is that  if the manufacturer undertakes to pay duty on all  the manufactured goods and clears them immediately on completion of manufacture the Collector may exempt him from providing a store-room or other place of storage.  Rule 140 deals  among other   matters  with  the  appointment  and  licensing   of warehouse.  Under this rule the Collector shall by order  in writing  from  time  to time approve and  appoint  a  public warehouse and may in like manner license private  warehouses for  the  storage of excisable goods on which duty  has  not been paid. The  Rules  make  a distinction  ’between  manufactured  and unmanufactured goods.  The relevant rules may also be  seen. Rule  25 provides for unmanufactured goods and rules 52  and 52A for manufactured goods.  Rule 25 deals with clearance of unmanufactured  products  on  payment of  duty.   This  rule applies  to a curer who may apply to an officer to  get  the goods weighed and duty assessed.  If the duty so assessed is then   paid  the  curer  is  granted  a   transport   permit authorising  him to remove the products to  any  destination named  by him.  Rule 52 deals With manufactured  goods.   It deals with clearance on payment of duty.  The rule reads  as follows :-               "52.  Clearance on payment of duty.-               When the manufacturer desires to remove  goods               on  payment of duty, either from the place  or               premises  specified  under rule 9  or  from  a               store-room or other place of storage  approved               ’by the Collector under rule 47, he shall make               application in triplicate (unless otherwise by               rule or order required) to the proper  officer               in the proper Form and shall deliver it to the               officer  at least twelve hours (or such  other               period  as may be elsewhere prescribed  or  as               the  Collector  may  in  any  particular  case               require  or  allow) before it is  intended  to               remove  the goods.  The officer shall,  there-               upon,  assess  the amount of duty due  on  the               goods and on production of evidence that  this               sum  has been paid into the Treasury, or  paid               to the account of the Collector in the Reserve               Bank  of India or the State Bank of India,  or               has been despatched to the Treasury by  money-               order shall allow the goods to be cleared." We may also refer to rule 52A which provides for the  actual

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removal  of the goods from the factory.  The  rule  provides that  no excisable goods shall be delivered from  a  factory except under a gate pass signed by the owner of the  factory and counter signed by the proper officer., Such a gate  pass is made out in 212 triplicate  and must be presented to the proper officer  for countersignature at least one hour before the actual removal of  the goods from the factory.  In the present case a  gate pass had been obtained.  Rule 51A then provides that  except as  otherwise expressly provided for in the Rules, no  duty- paid  goods shall be allowed to re-enter or be retained  in, any  part or premises of factory.  We may now turn  to  rule 9A,  the  interpretation  of which has  given  rise  to  the present case. The dispute, shortly stated, is as to the application of the two  parts  of  Rule 9A.  According to Mr. B.  Sen  for  the appellant company, the first part applies where duty is paid and the goods cleared and in such a case the critical  point of time is the payment of duty and the point of time of  the removal  from  the factory is not relevant.  In  the  second part, according to him. the critical time is the removal  of the  goods  from a factory or warehouse without  payment  of duty  such  as  happens  when they  are  removed  under  the provisos to Rule 9A.  In this view of the matter he contends that  this case falls within the first part of Rule 9A.   On the  other hand, the learned Solicitor General on behalf  of the  Union  of India submits that the main rule  is  in  the first part and the second part of the rule is an  exception. He suggests that one part speaks of payment of duty and  the other  of  removal and the difference in point  of  time  is between  clearance  of duty in the  case  of  unmanufactured goods  and the actual removal of the goods from the  factory or  warehouse in the case of manufactured goods.   To  prove his  point he emphasises the separate  provisions  regarding manufactured goods in Chapter V Lind unmanufactured goods in Chapter IV of the Rules. In  our opinion Rule 9A cannot be read on the basis  of  the classification suggested by the Solicitor General.  No doubt rules   9   and  9A  apply  to  manufactured  as   well   as unmanufactured goods because rule 9 speaks in terms of  both and rule 9A mentions in on place goods without adverting  to the  source and in the other the factory or warehouse.   But the  distinction  in  the two parts of  rule  9A  cannot  be founded on the basis of a difference to be found in Chapters IV  and  V of the Rules.  Rule 25 allows  the  clearance  of unmanufactured products on payment of duty but rules 26  and 27  allow  such  products  to be  despatched  to  it  bonded warehouse or to be deposited in a curer’s bonded  storeroom. A special rule applies to the latter goods deposited in  the store-room.   They  must  be  cleared  on  payment  of  duty ordinarily  before  the 30th day of June (extended  to  31st December  under  certain conditions) of the  year  following that in which they are harvested or deposited.  On the other hand,  under  rule  49 payment of duty is  not  required  in respect  of goods made in a factory until they are about  to be issued out of the place or 213 premises  specified under rule 9 or are about to be  removed from a store-room or other place of storage approved by  the Collector.. The only exception to this is their removal to a licensed  warehouse.   Rule  52  then  says  that  when  the manufacturer  desires  to, remove goods on payment  of  duty from the factory or storeroom or other place of storage,  he can get the duty assessed, pay it and get a clearance and  a

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gate  pass.   He must then remove the goods and  such  goods must  not lie in the factory etc. or after removal  re-enter the premises (vide r. 51A). It will thus be seen that in the case of manufactured  goods the  payment  of  duty and the clearance  of  goods  may  be synchronous  or the payment may be postponed  although  ’the goods  may be removed (provisos to r. 9).  This  immediately sets up two kinds of cases in respect of manufactured goods. The critical time thus ’becomes the removal from the factory or  warehouse but if the payment of duty is made before  the removal  then the critical time is the payment of duty.   In the  present case the payment of duty was  synchronous  with the clearance of the goods because the gate pass can only be issued  when  the  goods  have  actually  been  cleared  for removal.   The above construction of the Rules  agrees  with the  construction  placed by the Board of’  Revenue  in  its ruling of 1957 when the effect of the sealing of the  wagons by  the  Railway after loading and the issuance  of  railway receipts  was considered.  The Board ruled that  such  goods would not be considered as lying in the stock in the factory premises.  When we add to it the fact in this case that duty was  paid on the goods and gate pass was also issued,  there remains little to argue except to say that the wagons  being in  the new siding must be treated as still in the  factory. Here the difficulty in the way of the Union of India is that the Excise authorities themselves refused to recognise  this portion as part of the factory. if the goods were put in the wagons  after payment of duty, and’ the wagons  were  sealed and  shunted out of the factory proper on a gate  pass,  not only  under  the  ruling  of  the  Board  but  also  on  the application  of  the  Rules as explained  here  these  goods became  free  of  the  enhanced  duty.   The  recovery   was accordingly erroneous.  The duty collected must,  therefore, be refunded and we order accordingly.  The appellant’s costs must be paid by the respondent. G. C.                                     Appeal allowed. 214