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PETITIONER: UNION OF INDIA

       Vs.

RESPONDENT: STATE OF MYSORE

DATE OF JUDGMENT19/10/1976

BENCH: SHINGAL, P.N. BENCH: SHINGAL, P.N. RAY, A.N. (CJ) BEG, M. HAMEEDULLAH

CITATION:  1977 AIR  127            1977 SCR  (1) 842  1976 SCC  (4) 531  CITATOR INFO :             1984 SC1675  (8,9)

ACT:             Constitution  of  India--Article  131--Disputes  between         State  and   Union-Jurisdiction of  High  Court---Charge  of         Excise Duty---Condition of--Whether an article  manufactured         or produced before the levy is imposed is excisable.

HEADNOTE:             The  respondent  State  of  Mysore  runs  an  implements         Factory.  The first schedule to the Central Excises and Salt         Act, 1944, was amended whereby item No. 26AA was inserted by         Finance Act, 1962.  On the date when the said amendment came         into  force  the respondent had in his stock,  certain  iron         rods and bars.  After ,the amendment, however, the rods  and         bars  were put through a further manufacturing  process  and         were  converted into shovels, spades and other  agricultural         implements  which  were not  covered  by  schedule  1.   The         Central  Excise Inspector issued a demand notice in  respect         of  the said rods and the bars on the ground that they  were         excisable.  The respondent contended that no excise duty was         payable on the said articles because when the amendment came         into force, they were already in the stock of the respondent         and that they were not manufactured after the amendment came         into force.  The contention of the respondent was  negatived         by the authorities under the Act. The Writ Petition filed by         the respondent under Article 226, was allowed.         Dismissing the appeal by Special Leave,             HELD:  1. Under Section 3 of the Act the excise duty  is         payable on articles produced or manufactured. It was  admit-         ted in the counter affidavit of the appellant that the  rods         and bars were not produced or manufactured in the implements         factory of the respondent.  The goods which were made out of         the rods and bars were admittedly not excisable goods.   The         appeal was dismissed as the goods were not liable to  excise         duty. [844 E-H]             2.  The  contention that the High Court could  not  have         decided the matter in view of the provisions of Article  131         of  the Constitution was negatived on the ground that  there         was  nothing  on regard to show that there was  any  dispute         between the Central and the State Governments.  The Union of

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       India  was made a party merely because it had dismissed  the         revision  application of  the  State Government. [845 A-B]

JUDGMENT:             CIVIL  APPELLATE JURISDICTION: Civil Appeal   No.   1695         of 1968.             Appeal  by  Special Leave from the  Judgment  and  Order         dated 4/5-9-67 of the Mysore High Court in W.P. No. 1416/65.             V.P.  Raman,  Addl. Sol. Genl., S.K.  Mehta  and  Girish         Chandra for the Appellant.         H.R. Datar and N. Nettar, for the Respondent.         The Judgment of the Court was delivered by             SHINGHAL,  J.--This appeal by special leave is  directed         against  the  judgment  of the High Court  of  Mysore  dated         September  4/5, 1967. The High Court was moved by the  State         of Mysore under article 226 of the Constitution for quashing         the demand notice dated July 21,         843         1962  issued  by  the Inspector of Central  Excise  for  the         payment  of  Rs.  2,465.91 as excise duty  on  the  products         despatched  by the State’s Implements Factory.   The  demand         was  made with reference to the newly inserted item 26AA  in         the  First  Schedule to the Central Excises  and  Salt  Act,         1944,  hereinafter  referred to as the Act.  That  item  was         added to the Schedule by the Finance Act of 1962, and it was         claimed  by the Central Excise Department that, on the  date         of the amendment, the State Government was in possession  of         some  stock  of  iron and  steel  products,  namely,  flats,         squares  and  rods in its factory, which had  been  obtained         from their manufacturers when they were not excisable  arti-         cles.  The precise claim of the Excise authorities was  that         the  duty became payable on those articles by virtue of  the         newly inserted item 26AA because the aforesaid stock of iron         and steel products was used for the manufacture of  agricul-         tural  implements like ’mamties, pickaxes, ’sledge  hammers,         shovels   and   ploughs.    The   Assistant   Collector   of         Central .Excise explained in his letter dated June 19, 1962,         that the agricultural implements which were manufactured  in         the  State’s Implements Factory fell within the  purview  of         item 26AA as they were forged or extruded during the process         of  manufacturing the agricultural implements.  It was  con-         tended  that the demand was justified because the  aforesaid         iron  and  ’steel products, out of  which  the  agricultural         implements were manufactured, had not borne any excise  duty         at all. An appeal was preferred to the Collector of  Central         Excise  against the demand, but without success. A  revision         was taken to the Central Government under the provisions  of         the  Act, but it was also dismissed. That was why the  State         Government applied to the High Court for quashing the demand         and  for setting aside the appellate order of the  Collector         and the revisional order of the Central Government.             The Central Government traversed the claim of the  State         Government  on the  ground that as the rods and bars,  which         were  held in stock by the State’s Implements Factory,  were         "pre-excise stock", and as they were put to further  process         by forging them into shovels, spades and other  agricultural         implements,  they  became liable to duty . until  the  "pre-         excise  stock"  held by the factory on April 24,  1962,  was         utilised  and  converted  into  forged  implements  and  was         cleared  from the factory. It was also urged that the  peti-         tion  was not maintainable in the High Court as it raised  a         dispute  between the Government of India and the State  Gov-         ernment  within the meaning of article 131 of the  Constitu-

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       tion.             The  High  Court rejected both the  contentions  of  the         Central  Government and quashed the impugned  demand  notice         and  the appellate and the revisional orders.  That  is  why         the Union of India has preferred the present appeal.             It is not in controversy that the claim for the levy  of         excise  duty was based on sub-sections (1) and (1A) of  sec-         tion 3 of the Act which read as follows,--                          "3(1)  There shall be levied and  collected                       in  such  manner as may be  prescribed  duties                       of  excise on all excisable goods  other  than                       salt which are produced                       4---1338SCI/76                       844                       or  manufactured in India and a duty  on  salt                       manufactured in, or imported by land into, any                       part  of  India  as, and at  the   rates,  set                       forth in the  First Schedule.                        (1A) The provisions of sub-section (i)  shall                       apply in respect of all excisable goods  other                       than  salt which are produced or  manufactured                       in  India by, or on behalf of, Government,  as                       they apply in respect of good’s which are  not                       produced or manufactured by Government."         It  is therefore quite clear, and is not in  dispute  before         us,  that the claim for the levy of excise duty in  question         could be justified only    if it could be shown that excisa-         ble goods (other than salt) were produced or manufactured in         the  Implements  Factory of the State  Government.   It  was         however  admitted  in the counter-affidavit  of  the  Senior         Superintendent of Central Excise as follows,--                             "In  the case of the  petitioner,  since                       the rods and bars held in stock by the  Imple-                       ments. Factory were pre-excise stock and since                       those rods and bars were put to further  proc-                       ess  by forging the same into shovels,  spades                       and  other agriCultural implements etc.,  they                       became liable to duty and therefore, duty  was                       demanded  on such forged articles  during  the                       period  that  is till such quantities  of  the                       bars and rods as were in stock with the facto-                       ry on 24-4-62 were utilised and converted into                       forged implements and cleared from the  facto-                       ry."         This makes it quite clear that the rods and bars in question         were  not  "produced or manufactured" in the  State  Govern-         ment’s  implements  Factory.  They could  not  therefore  be         subjected  to the levy of excise duty.  It is true that  the         rods and bars were utilised for the manufacture of  agricul-         tural implements like shovels and spades; but those agricul-         tural  implements were not of the description  specified  in         item 26AA of the First Schedule with reference to section  3         of the Act.             It is admitted by Mr. Raman that agricultural implements         were not included in the First Schedule to the Act and  were         not excisable articles.   This appears to be so because they         are the basic tools of trade by which a vast majority of the         citizens of the country earn their livelihood.  There  could         therefore  be  no  question of levying any  excise  duty  on         shovels and spades or other agricultural instruments  ’manu-         factured  by the Implements Factory of the State  Government         and,  as has been shown, the rods and bars which formed  the         pre-excise stock    of the factory had not been manufactured         by  the Implements Factory. Section 3 of the Act  could  not         therefore  be  invoked  to levy excise duty  merely  on  the

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       ground  that  the "pre-excise stock" of rods  and  bars  was         utilised  for  the  purpose  of  manufacturing  agricultural         instruments.  There is therefore nothing wrong with the view         which has prevailed with the High Court in this respect.         845             Mr.  Raman tried to argue that the High Court  erred  in         not applying article 131 of the Constitution  to the contro-         versy  even  though the writ petition was barred  thereunder         as it fell exclusively within the jurisdiction of this Court         under  article 131 of the Constitution as a dispute  between         the  Government of India and the State of Mysore. The  argu-         ment  is  however  futile because there is  nothing  on  the         record  to show that there was any such dispute between  the         Central  and the State Governments.  As the High  Court  has         pointed out, the Union of India was made a party to the writ         petition merely because it had dismissed the revision appli-         cation of the State Government.         There  is thus no merit in this appeal anti it is  dismissed         with costs.         M.R.                                            Appeal  dis-         missed.         846