DUNLOP INDIA LTD.versusUNION OF INDIA AND ORS.

                           DUNLOP INDIA LTD.
A
                                        v.
                       UNION OF INDIA AND ORS.

                             DECEMBER I, 1989

B           [S. RANGANATHAN AND M.M. PUNCHHI, JJ.]

          Central Excises and Salt Act, 1944: Sections 4 and 3~Tariff
    Item No. 16A(2)-Notifications Nos. 71of1968 and 27of 1973-Tread
    repair compound, cushion repair compound and cover compound-
    Use to which these are put-Levy of excise duty-Whether exempted.
c         The 1appellant-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 tyTes. Though
    normally these goods are dutiable under tariff item No. 16A(2), the
D   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 resol-
    ing or retreading of tyres and rejected the claim. The assessee preferred
€   a revision to the Central Govt. The Central Govt. while rejecting the
    Revision Petition, referred to the fact that the notification specifically
    excluded cushion compound, cushion gum and tread gum. As regards
    cover cushion compound, it observed that the composition was such
    that its nse for repair of conveyor belts was indistinguishable from the
    other use ofresoling of tyres.
F
          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 retreading of tyres, ttiat was not the use to which
    the articles manufactured by the assessee were put. Since the fact that
G   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,

H         HELD: 1. The notification of 1978 only reproduces with some

                                       370
                       DUNLOP INDIA v. U .0.1.                      371

modifications the notification of 1964. The broad purport of both the
notifications is to exempt rubber products other than those which are A
commonly sold under certain descriptions and are used for the resoling
or re~reading of tyres. The circular of 1966, which can be considered 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 B
used. merely for repair purposes. The notification of 1973 was orie in
which various amendments were carried out to. a series ofnotifications
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 prospec-
tive amendment of the previous notification. [375A-CJ

      2. I The fact that the appellant is using or marketing the products   c
for nse, only for reparing tyres and conveyor belts is not controverted.
Hence the appellant assessee was entitled to exemption under the notifi-
cation. 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       D
product marketed by it has not the physical dimensions or technical
properties to be capable of use for retreadiug or resoling. Also, the
notification talks of products "used for" resoling and retreading of
tyres; and it is not so in the instant case. [37SC-EJ

      2.2 The notification imports a limitation on the exclusion from       E
the exemption specified in the paranthetical clause of the notification.
That exclusion is only in respect of compounds used for resoling or
retreading. [375EJ

      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 469
of 1975.                                                                    F

     From the Order dated 31.5.1974 of the Government of India,
Ministry of Finance, Department of Revenue and Insurance, New
Delhi, in Order No. 615 of 1974 on Central Excise Revision
Application.
                                                                            G
      Dr. Y.S. Chitale, Ms. M. Ray and H.K. Dutt for the Appellant.

     V.C. Mahajan, (N.P.), P. Parmeshwaran and.R.P. Srivastava for
the Respondents.

      K.R N ambiar for the Intervener.                                      H
      372          SUPREME COURT REPORTS                [1989] Supp. 2 S.C.R.

A           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, according to the
B     assessee, are used to mend.injured and defective s~ctions of tyres and
      are not meant to be used either in the resoling or in retreading of
      tyres. Under the Central Excise & Salt Act, 1944, ('the Act'), the
      above goods were normally dutiable under tariff item No. 15A (2).
      However, the assessee claimed exemption from duty under notifica-
      tion No. 71 of 1968 dated l.4. !9ffl, By this notification under section 8
      of the Act, the Central Govemnient exempted "all rubber products, in
c     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 rubber, camel back,
D     cushion compound, cushion gum, tread gum and tread packing strips)
      falling under sub-item (2) of this item, from the whole of the duty of
      excise leviable thereon". The Superinteridant of Central Excise having
      rejected the claim for exemption and charged the goods in question to
      duty at 20% (basic) under the tariff item above mentioned, the asses-
      see preforred an appeal to the Collector of Central Excise, West
E     Bengal. The Collector also rejected the claim observing thai 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
F     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 errone-
      ous to hold that these repair materials could be used in place of tread
      rubber or camel back which only have the necessary physical dimen-
      sions and technical properties to serve as retreading and resoling mate-
G     rial. 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 intended use was to repair conveyor belts. The
      Central Government, however, dismissed the revision petition by its
J:1   order dated 21.5.1974. The Government referred· to the fact that the
             J?UNLOP INDIA v. U.0.I. [RANGANATHAN, J.]               373

notification of exemption specifically excluded cushion compound,          A
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        B
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 rubber, cushion compound and tread gum
are all items used for resoling or retreading of tyres, that was not the
                                                                           c
use to which the articles ma!1llfactured by the assessee were put. The
statement of the assessee that the goods manufactured by it were
employd 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   J)
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, notification 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 ot retread-
ing of tyres". This amendment was not effective for the period with
which we are concerned and it is therefore argued that the compoun~s
used for repairing as against resoling or retreading will not be covered
by the exclusion in the exemption notification. The second circum-
stances relied upon by the leatned 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 commonly
known as tread rubber or camel back including cushion compound,
cushion gum, tread gum, and tread packing strips were ~ubjected 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
t'toducts 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 follows:                                                 H
    374       SUPREME COURT REPORTS                  [ 1989] Supp. 2 S.C.R.

              "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 notification. While the
B             scope of the levy on the rubber products thus gets very
              much restricted, 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.
c
               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 explicit therein that 'item is ... fairly comprehensive
               as to wording but the intention ... is to subject only 'latex
D              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 classif\able as
               'all other products' and therefore exempt from whole of the
E              duty leviable thereon under S. No. 3 of the Table to the
               above cited notification.

              4. It is possible that some of the rubber products are
              capable of being used for retreading or resoling of tyres.
              Mere capacity does not, however, attract duty in the
F             absence of normal usage in that manner being established 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
G             duty.

              6. Pending cases regarding assessment of rubber products
              may be finalised accordingly".

  Learned counsel submits that the above interpretation is equally ap-
H plicable in the context of notification No. 71 of 1968.
             DUNLOP INDIA v. U.0.1. [RANGANATHAN, J.]                375

       We are of opinion that the appellant's contention is well             A
founded: The notification of 1978 only reproduces with some modifi-
cations 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 certain descriptions and are used for the
resoling or retreading of tyres. The circular of 1966, which can be
considered as a contemporaneous exposition of the understanding of           B
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    c
be given and not a prospspective amentment of the previous notifica- .
ti on. 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 notifi-
cation. In one sense, any rubber compound has a composition which            D
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 if 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    E
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            F
Central Excise. Act as well as the orders of the subordinate authorities
and hold that the assessee is entitled to the exemption prayed for. The
concerned assessment will be modified accordingly. We however make
no order as to costs.

G.N.                                                    Appeal allowed.