Holding

The reclassification imposed a duty on the appellants, giving them locus standi to challenge the order in a writ petition; the High Court erred in referring the petition to a civil suit, and both writ petitions must be restored for merits.

Summary

M/s IDL Chemicals Ltd. manufactures explosives using 80% ammonium nitrate melt purchased from SAIL. An exemption notification dated 11 June 1969 exempted such ammonium nitrate from excise duty under Tariff Item 14HH, provided the licence and bond were obtained. The Central Board later reclassified the nitrate under Tariff Item 68, effective from 1 March 1975, and demanded duty, which SAIL passed on to IDL. IDL filed writ petitions challenging the reclassification and a later 1979 notification that removed the exemption. The Orissa High Court dismissed the earlier petition on constitutional grounds and referred the later petition to a civil suit under Section 64A of the Sale of Goods Act. The Supreme Court held that the reclassification imposed a duty on IDL, giving it locus standi to challenge the order via a writ under Article 226, and that the High Court erred in diverting the petition to a civil suit. Both writ petitions were restored for consideration on merits and the appeals were allowed.

Issues considered

The reclassification of ammonium nitrate under Tariff Item 68 imposed an excise duty liability on the appellant, thereby granting it locus standi to challenge the order in a writ petition under Article 226.
Whether the High Court was correct in referring the writ petition to a civil suit under Section 64A of the Sale of Goods Act.
Whether the exemption under Notification No. 164/1969 remained effective until the later notification of 21 July 1979.

Legislation cited

Central Excise Rules, 1944s. Chapter X, s. Rule 192, s. Rule 8
Central Excises and Salt Act, 1944s. First Schedule – Tariff Item 14HH, s. First Schedule – Tariff Item 68
Sale of Goods Act, 1930s. Section 64A

Subjects

Excise dutyExemption notificationTariff reclassificationLocus standiWrit petitionArticle 226Sale of Goods ActAmmonium nitrateExplosivesCentral Board of Excise and Customs

Judgment

M/S. l.D.L. CHEMICALS LTD. A
v.
UNION OF INDIA AND ORS.

JULY 24, 1996

[S.P. BHARUCHA AND K.T. THOMAS, JJ.] B

' Central Excises and Salt Act, 1944: First Schedule-Tmiff Item 14HH
and 68.

Central Etcise Rules, 1944: Chapter X-Ru/es 8 and 192.
c
Sale of Goods Act, 1930 : Section 64A.

Excise duty-Exemption from-Appellant manufactwing C\)Jiosives
fron1 a1111noni11111 nitrate n1elt 80o/i~A111111onhun nitrate jJrltcitased fron1 Steel
Auth01ity of India (SAIL)-Amnwniwn Nitrate classified as a fenilizer under D
Tmiff Item 14HH-Exempli011 from whole of excise duty leviable on am-
moniwn nitrate under Notification No. 164/ 1969 dated 11th June, 1969-Ap-
]Jellant enjoying the benefit of the said exen1ption notification-Subsequently
said anunonilun nitrate reclassified under Tanff lten1 68 lvith effect fro111
1.3.1975-<:onsequently excise duty demanded from SAIL-SAIL in tum
demanding excise duty from appellant-Appellant filed a w1it challenging the E
den1and 111ad~High Cozat refen·ed the ap11ellant to a civil suit to c/ain1
monies from SAIL under Section 64-A of the Sale of Goods Act-Jn the
1neantin1e second notification issued whereby an11noniun1 nitrate was ex-
cluded from earlier exemption notification with effect from 21st July,
1979-Another writ filed by appellant challenging the second notifica- F
ti on-Said w1it dLimissed by High Cowt holding that it was nol nnconstin1-
tional-Appea/ before Supreme Cowt-Held as a result of reclassification of
anunoniunt nitrate appellants suffered adverse civil consequences-Conse-
quently they have locus standi to challenge the reclassification-There was no
fontm other than the High Cowt under A1ticle 226 to do so-Therefore High
Coult e1red in not entertaining the writ petition and refening the GjJpellant to
G
a civil Cowt-For the same reason the High Cowt should have dealt with the
contention of the appellants in another writ petition that anunonhan nitrate
ren1ained exe111pt fron1 excise duty by reason of the Exentption f'.lotiflcation
until 21st July, 1979, when anunoniran nitrate was ren1oved front the 1nuview
thereof H
881
882 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A Assistant General Manage1; Central Bank of India & 01'. v. Commis-
sione1; Municipal Corporation for the City of Ahmedabad and 01'·., [1995) 4
sec 696, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1589 of
1991 Etc.
B
From the J udgmenl and Order dated 5.2.90 of the Orissa High Court
in O.J.C. No. 183 of 1981.

H.N. Salve and Ms. Kum Kum Sen for the Appellants.

C J. Vellapally, R.A. Perumal, P. Parmeswaran and A.S. Bhasme for
the Respondents.

The following Order of the Court was delivered :

The appellants 1nanufacture explosives from ammoniu1n nitrate melt
D 80% at a plant in Rourkcla, Orissa. The said ammonium nitrate is pur-
chased from SAIL., which also has a plant in Rourkela.
·i

On 11th June, 1969 an Exemption Notification under the Central
Excises and Sall Act, 1944, (No. 164/1969) was issued by the Central
E Government exempting amn1oniun1 nitrate from the \Vhole of the excise
duty leviable thereon if it was intended to be used in the manufacture, inter
alia, of explosives, provided that the procedure set out in Chapter X of the
Central Excise Rules, 1944, was followed. The appellants applied for a
licence under the said Chapter X in respect of the said ammonium nitrate
for use in the manufacture of explosives. The licence having been granted,
F the appellants enjoined the benefit of the said Exemption Notification.

At all relevant times, an1monium nitrate \Vas classified as a fertiliser
under Tariff Item 14HH. ()n 16th April, 1977 a sho\v cause notice was
issued lo SAIL by the Superintendent in the Office of the Assistant
G Collector of Central Excise, Rourkela, to show cause why ammonium
nitrate should not be reclassified under Tariff Item No. 68. On 10th August,
1977, the Assistant Collector, having examined the case, came to the
conclusion that there was no need to so reclassify ammonium nitrate.

O.n 6th .T anuary, 1978, the Central Board of Excise and Customs
H wrote to the Collector, Central Excise, Bhubaneshwar, on the Subject of
l.D.L. CHEMICALS LTD. v. U.O.l. 883

ammonium nitrate melt 80% used in the manufacture of explosives and its A
classification as a fertiliser. The letter stated that the matter had been
examined in consultation with the Ministry of Chemicals and Fertilisers and
that Ministry had stated that ammonium nitrate was not classified as a
fertiliser in the Fertiliser Control Order and that in the event of ammonium
nitrate being accepted as a fertiliser without further processing, the item
B
would have to be included in the Fertiliser Control Order before it could
be marketed as a fertiliser. Hence, the said ammonium nitrate feJI outside
' the purview of Tariff Item No. l4HH. This being so, the question of
exemption of duty under the said Exemption Notification did not arise. Not
being a fertiliser kno\vn in con1mercial trade parlance) ammonium nitrate
merited assessment under Tariff Item 68 and would be liable to the C
appropriate duty thereon.

Based upon the said letter of the Central Board, the Superintendent,
Central Excise, Rourkeb, wrote to SAIL and demanded excise duty upon
the said ammonium nitrate under Tariff Item 68 at the rates prevailing from
D
time to time with effect from 1st March, 1975. On 7th February, 1978 SAIL,
in turn, demanded payment of the said amount of excise duty from the
appeJlants.

On 27th .July, 1978, the Central Board issued a show-cause notice
to SAIL to review the order of the Assistant Collector dated 10th August, E
1977, aforementioned. The matter was contested by SAIL in a reply dated
8th November, 1978. By an order (No. 6/80 of 1980) made in November,
1980, the Central Board set aside the order of the Assistant Collector dated
10th August, 1977, and reclassified the said ammonium nitrate under Tariff
Item 68 with effect from 1st March, 1975. On 16th December, 1980 SAIL F
\vrotc to the appellant demanding the excise duty on the said am1nonium
nitrate in accordance with the order of the Central Board dated November,
1980, with effect from 1st March, 1975, to 23rd January, 1978, in the sum
of R&. 34,52,919.23. On 2nd February, 1981 the appcJlant filcd a writ
petition (No. 183/1981) which chaJlenged the order of the Central Board
dated November, 1980 and the demand made pursuant thereto. G

In the meantime, on 21st July, 1979, a notification was issued whereby
ammonium nitrate was excluded from Exemption Notification No. 164/1969
with effect from 21st .July, 1979. This notification was challenged by the
appellants before the Orissa High Court in a writ petition (No. 86/1980). H
884 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A In the alternative, it was prayed that, in any event, upto the date of the
notification, ammonium nitrate remained entitled to the exemption refund
of duty amounting to Rs. 50,14,202 collected for the period 24th January,
1978 lo 20th July, 1979, was sought.

B On 5th February, 1990 the earlier writ petition (No. 86/1980) was
dismissed on the-ground that the notification dated 21st July, 1979 was not
unconstitutional. The alternative prayer was not considered.

On the same date, the High Court passed an order in the later writ
petition (No. 183/1981) referring the appellants to a civil suit to claim
C monies from SAIL under Section 64A of the Sale of Goods Act.

Mr. Salve, learned counsel for the appellants, has drawn our atten-
tion to the exemption Notification No. 164/1969 dated 11th June, 1969,
which, as aforestatcd, exempts fertilisers of the description stated in the
D Table therein from the whole of the excise duty leviahle thereon under
Tariff Item 14HH of the First Schedule lo the Central Excises and Salt
Act, 1944. The Table lists ammonium nitrate and specifies that ammonium
.,
.
nitrate shall he entitled to such exemption if it is intended to be used in
the manufacture of explosives. The notification also provides that no
exemption thereunder would be admissible unless the procedure set out in
E Chapter X of the Central Excise Rules, 1944 was followed. Rule 192 of
Chapter X states that where the Central Government has by notification
under Rule 8 sanctioned the remission of duty on excisable goods used in
a specified industrial process, any person wishing to obtain remission of
duty on such goods shall make application to the Collector in the proper
F form stating the estimated annual quantity of the excisable goods required
and the purpose for and the manner in which it is intended to use them
•
and declaring that the goods will he used for such purpose and in such
manner. There can be no doubt that the remission of duty is available to
the user of the goods in relation to the use for which the goods arc
intended. Mr. Salve also drew our attention to the Bond which is required
G to be furnished by a person licensed to obtain excisable goods to be used
for specified industrial purposes. It recites that the signatory has been
permitted to purchase from time to time goods of the stated quantity of
the g0 ods for use for the manufacture of the commodities specified therein.
It is one of the conditions of the Bond that excise duty, should it be
H demanded on the goods should be paid within ten days of demand. Mr.
l.D.L. CHEMICALS LTD. v. U.0.1. 885

Salve submitted that, in the conte0\1, the burden of payment of excise duty A
under Tariff Item 68 upon the said ammonium nitrate fell upon the
appellants and they were affected thereby. It was, therefore, permissible
for them to challenge the correctness of the order of the Central Board
which directed the said ammonium nitrate to be so classified. Mr. Salve
submitted that the High Court was in error in not entertaining the later
B
writ petition (No. l83/1981) and relegating the appellants to a civil suit.
Whereas, Mr. Salve did not press the prayer in the earlier writ petition
(No. 86/1980) challenging the notification dated 21st July, 1979, which had
been held by the High Court to be constiutional, he was, he submitted,
entitled to press the prayer that ammonium nitrate should have been
treated as entitled to exemption under the Exemption Notification until the c
new notification came into effect on 21st July, 1979, which prayer the High
Court had not considered.

Our attention was drawn by Mr. Salve to the judgment of this Court
in Assistant General l'tfanage1~ Central Bank of India & Ors. v. Conunis- D
sionei; Municipal C01poratio11 for the City of Ahmeda/Jad and Ors., [1995] 4
• SCC 696. This Court held that a tenant is entitled to impugn in an appeal
an increase in property tax because, under the relevant statute, the burden
of such increase may be passed by the landlord to the tenant and also
because there \Vas, in the case \Vith \vhich it was concerned, an agreement
between the landlord and the tenant whereunder the obligation to dis- E
charge and pay the property tax was cast upon the tenant. Mr. Salve
submitted that the principle of the judgment would apply to the case before
us.

Mr. Vcllapally, learned counsel for the respondent Union of India, F
very fairly and rightly, did not dispute that the burden of the increase in
excise duty, by reason of the reclassification of the said amn1onium nitrate,
would fall upon the appellants, and that, therefore, the appellants were
entitled to agitate the validity of such reclassification and this could not be
done in the civil suit that was contemplated by the High Court.
G
There is, in our view, no doubt that the reclassification of am·
monium nitrate by the order of the Central Board dated November, 1980,
casts upon the appellants the obligation lo pay the excise duty that is
lcviable as a result. Such obligation does not arise merely by reason of an
agreement between SAIL and the appellants but also by virtue of the H
886 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A provisions of Chapter X of the Central Excise Rules, 1944. The appellants
suffer adverse civil consequences and have, therefore, the locus to chal-
lenge the reclassification. There is no forum other than the High Court
under Article 226 were they can do sn, and the High Court was in error
in not entertaining the later writ'pctition (No. 183/1981) and referring the
B appellants to a civil suit. Insofar as the earlier writ petition (No. 86/1980)
is concerned, the High Court ought, for the same reason, to have dealt with
the contention of the appellants that ammonium nitrate remained exempt
from excise duty by reason of the Exemption Notification until 21st .July,
1979, when ammonium nitrate was removed from the purview thereof.

C Upon the basis set out above, the judgments and orders of the High
Court in appeal must be set aside, except insofar as the one judgment and
order deals with the constitutionality of notification No. 225/1979 dated
21st .July, 1979. Both writ petitions (Nos. 183/1981 and 86/1980) shall stand
restored to the file of the High Court for being considered on merits, Writ
Petition No. 183/1981 in its entirety and Writ Petition No. 86/1980 insofar
D as it contends that ammonium nitrate remained exempt fro1n excise duty
until 21st July, 1979 and seeks relief consequential thereon.
•
The appeals are allowed accordingly. No. costs.

T.N.A. Appeals allowed.