Holding

Goods manufactured before 28 February 1988 and cleared after 1 March 1988 are deemed cleared on 28 February 1988 and are exempt from the special excise duty levied under the Finance Act 1988; Rule 9A does not apply.

Summary

M/s. Ponds India Ltd. challenged the collection of special excise duty on goods that were manufactured before 28 February 1988 but cleared after 1 March 1988. The Revenue argued that Rule 9A of the Central Excise Rules, 1944 made the goods liable to the duty levied under the Finance Act 1988. The Court held that special excise duty is an annual levy that ceases at the end of the financial year and that goods not cleared before the levy’s expiry are deemed to have been cleared on the last day of that levy, i.e., 28 February 1988, when an exemption notification was in force. Consequently, the goods were exempt from the 1988 duty and Rule 9A did not apply. The Court set aside the Tribunal’s order and allowed the appeal.

Issues considered

Whether goods manufactured before 28‑Feb‑1988 and cleared after 1‑Mar‑1988 are liable to special excise duty under the Finance Act 1988.
Whether Rule 9A of the Central Excise Rules, 1944 applies to such goods.
Interpretation of the annual nature of special excise duty and the effect of exemption notifications.

Legislation cited

Central Excise Acts. Section 2(d)
Central Excise Rules, 1944s. Rule 8, s. Rule 9, s. Rule 9A
Finance Act, 1987
Finance Act, 1988
General Clause Act, 1897

Subjects

special excise dutyexemption notificationRule 9Aannual levyclearance datemanufacture dateCentral ExciseFinance Act 1988appeal

Judgment

M/S. PONDS INDIA LTD. A
v.
COLLECTOR OF CENTRAL EXCISE, MADRAS

.JANUARY 27 1997

(S.P. BHARUCHA AND FAIZAN UDDIN, JJ.) B

Finance Act, 1987

Special Excise Duty-Levy of on excisable goods manufactured prior to
28.2.1987 and cleared after 1.3.198~Notification issued under Rule 8 of C
Central Excise Rules, 1944 with simultaneous effect exempting the goods from
levy-Special excise duty levied under Finance Act 1988-No exemption
notification issued for the period-Held, special excise duty. being an annual
levy, will cease to have effect at the close of the financial year--By reason of
exemption notification, manufacturers are not liable to pay special excise duty
on goods manufactured prior to 28.2.1987 and cleared after l.3.198~T7te D
said goods must be deemed to have been cleared on 28.i. J98~entral
Excise Rules, 1944-Rules 8 and 9.

Special excise duty, a levy imposed annually under the provisions of
the Finance Acts on excisable goods, was levied under the Finance Act, E
1987 for the period 1.3.1987 until 28.2.1988. But during this period, by
virtue of a notification issued under Rule 8 of the Central Excise Rules,
1944, there was a total exemption from the levy. In the following year,
special excise duty was again levied by Finance Act, 1988 and it was
payable, as there was no exemption notification for the relevant period.
F
The Customs, Excise and Gold (Control) Appellate Tribunal, allow-
ing the appeals filed by the Revenue against a number of the assessees,
held that the collection of special excise duty on clearance on or after
1.3.1988, of .goods which had been manufactured prior to that date was
valid. Aggrieved, two of the assessees filed the present appeal. G
!twas contended for the appellants that on the principle enunciated
by this Court in Vazir Sultan Tobbacco Co. Ltd. *the goods manufactured
by the appellants prior to 28.2.1988 and cleared after 1.3.1988 were not
liable to the fresh special excise duty levied under the Finance Act, 1988.
For the Revenue it was contended that by reason of Rule 9A of the Central H
541
542 SUPREME COlIRT REPORTS [1997] 1 S.C.R.

A Excise Rules 1944, the goods were liable to the levy.
~ -
Allowing the appeal, this Court

Held : 1.1. Under the terms of the Finance Acts, special excise duty
is so levied as to cease to have effect at the close of the financial year. It
B is an annual levy. It may or may not be levied in the following year. [547-E]

1.2. The appellants were not liable to pay any special excise duty on
>:
clearance on or after l.3.1988 of goods manufactured by them prior to
that date. The said goods must be deemed to have been cleared on that
last date of the levy of the special excise duty that was in force when
c they were manufactured; that is to say, they must be deemed to have
been cleared on 28.2.1988. On that day the said goods were; by reason
of the exemption notification, wholly exempt from special excise duty.
It cannot be said that the said goods would be liable to bear special
excise duty as levied after 1.3.1988, for the reason that the special excise
D duty that operated subsequent to 1.3.1988 was a new levy under a >-
_,./ ~-
different statute and distinct from that which operated during the
period l.3.1987 until 28.2.1988. Rule 9A of the Central Excise Rules,
1944 does not operate in such circumstances. [547-H, C, 546-G-, B)

1.3. The judgment in Vazir Sultan Tobbacco Ltd. *is to the effect that
E the date of manufacture is the date on which the levy attaches to the goods;
the date of payment is deferred to the date of clearance, the rate being the
rate which is effective on the date of clearance. Where goods have been
manufactured while the levy of special excise duty is operative and have
not been cleared until the last date of that levy,Jhe goods must be deemed
F to have been removed on that last date. [547-F]

·*Collector of Central Excise, Hyderabad v. Vazir Sultan Tobacco Co.
Ltd., (1996) 83 E.L.T. 3 explained and relied on.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4411 of
G 1990.

From the Judgment and Order dated 6.4.90 of the Customs, Excise
and Gold (Control), Appellate Tribunal, New Delhi in A. No. E/4113/89- )...

C) (Order No. 363/90-C to 409/90-C).

H WITH
MIS PONDS INDIAv. C.C.E. [S.P. BHARUCHA,J.] 543

Civil Appeal No. 4667-73 of 1996. A

From the Judgment and Order dated 16.11.95 of the Customs Excise
and Gold (Control) Appellate Tribunal, Eastern Bench, Calcutta, i.n A.No.
E/112 to 118 of 1990 (Order No. A 1159-65/CAL/95).

Ravinder Narain, Ms. Amrita Mitra, Amit Bansal and Sajan Narain B
for the Appellants.

Joseph Vellapally, Dr. R.R. Mishra, S.D. Sharma and V.K. Verma
for the Respondent.

The Judgment of the Court was delivered by
c
BHARUCHA, J. These appeals challenge the correctness of a judg-
ment and order of the Customs, Excise & Gold (Control) Appellate
Tribunal. The Tribunal had before it the Revenue's appeals against orders
of the Collectors (Appeals) iri the cases of a number of assessees, of which D
the appellants were two. The Tribunal reversed the orders of the Collectors
and held that the collection of special excise duty on clearances on or after
1st March, 1988, of goods which had been manufactured prior to that date
was valid.
E
Special excise duty is levied under the provisions of the Finance Acts.
There was no levy for a long period of time of special excise duty until it
was levied with effect from lst March, 1978, under the provisions of Section
37 of the Finance Act, 1978, which read thus :

"(1) ln the case of goods chargeah!t; with duty of excise under the
Central Excise Act as amended from time to time, read with any
nolificalion for lhe time being in force issued by the Central
Government in relation to the duty so chargeable there shall be
levied anti collected a special duty of excise equal to five per cent
of the amount so chargeable on such goods.
G
(2) Sub-section (l) shall cease to have effect" after the 31 day of
March, 1979, except as respects things done or omitted to be done
before such cesscr and Section 6 of the General Clause Act, 1897
(10 of 1897) shall apply upon such cesscr as if the said sub-section,
had then been (repealed) by a Central Act. H
544 SUPREME COURT REPORTS [1997] 1 S.C.R.

A (3) The special duty of excise referred to in sub- section (1) shall
be in addition to any duties of excise chargeable on such goods
under the Central Excise Act or any other law for the time being
in force.

(4) The provisions of the Central Excise Act and the rules made
B thereunder, including those relating to refunds and exemptions
from duties shall, as far as may be, apply in relation to the levy
and collection of the special duties of excise leviable under this
section in respect of any goods as they apply in relation to the levy
and collection of the duties of excise on such goods under that Act
c or those rules, as the case may be."

The judgment of this Court in the case of Collector of Central Excise,
Hyderabad v. Vazir Sultan Tobacco Co. Ltd., (1996) 83 E.L.T. 3, dealt with
a case were goods had been manufactured prior to 1st March, 1978, and
cleared thereafter. The judgment, in paragraphs 9, 10 and 15, read thus :
D
"9. Rules 9 says that "no excisable goods" should be removed from
the place of their manufacture until excise duty leviable thereon
has been paid "at such place and in such manner" as is prescribed
in these Rules. It is relevant to notice that the Rule specifically
E uses the expression "excisable goods" - and not "goods" - and for
good reason. The expression "excisable goods" has been defined
in clause (d) of Section 2 to mean "goods specified in the First
Schedule as being subject to a duty of excise and includes salt."
The goods removed must be excisable goods first - which means
that the goods were subject to the levy of duty before their removal.
F Rule 9A is to the same effect. Sub- rules (1) to (3A) of Rule 9 A
may be set out in their entirety in view of th.e reliance placed by
both the counsel upon them. They read :

"(1) The rate of duty and tariff valuation, if and, applicable to any
excisable goods shall be the rate of valuation in force .
.G
(i) in the case of goods removed from the premises of a curer on
payment of duty, on the date on which the duty is assessed: and

(ii) in the case of goods removed from a factory or a warehouse
H subject to sub-rules (2), (3) and (3A), on the date of the actual
MIS PONDS INDIAv. C.C.E. [S.P. BHARUCHA, J.] 545

removal of such goods from such factory or warehouse. A
(2) If the goods have previously been removed from a warehouse
to be re-warehoused, and the duty is paid on such goods without
their being re-warehoused, 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 the duty is paid through an account- B
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 we,e
removed.

(3) Where any person who has removed excisable goods for export
c
in bond fails to export or to furnish proof of such export to the .
satisfaction of the Collector or diverts the goods for home con-
sumption, the rate of duty leviable and the tariff valuation, if any,
in respect of such goods shall be the rate and valuation in force
on the <late on which the duty is paid. D

(3A) Where duty becomes chargeable on any material or com-
ponent parts in respect of which credit of duty had been allowed
under rule 56A, the rate of duty leviable and the tariff valuation,
if any, in respect of such material or component parts shall be the E
rate and valuation in force on the <late on which the duty is paid."

According to sub-rule (1) of Rule 9A, the rate of duty (apart from
tariff valuation) apPlicable to any "excisable goods" shall be the
rate in force on the date of actual removal of such goods from the
--'. factory or the warehouse, as the case may be. This is the general F
rule. Sub-rules (2), (3) and (3A) provide certain exceptional situa-
tions which are not relevant for the purpose of these appeals. It is
the general rule contained in sub-rule (1) - and in particular clause
(ii) of sub-rule ( 1) - that is relevant here. In other words, the rate
of duty as well as the valuation of goods shall be the rate and the G
valuation as on the date of actual "removal". This rule too opens
with the expression "excisable goods".

10. Sri Vellapally contended that if the above interpretation is ·
adopted, it may lead to an enigmatic situation. He explains his
apprehension thus : the special excise duty is levied only for the H
546 SUPREME COURT REPORTS [1997] 1 S.C.R.

A period March 1, 1978 to February 28, 1979. Take a case, where
;he goods are manufactured on or before February 28, 1979 are
removed on or after March 1, 1979, what would be the rate of duty
(and which would be relevant da~e for valuation purposes); the
assesse may say that on the date of removal, neither the levy is in
force nor are Rules 9 and 9A and, hence, he need not pay any
B
special excise duty on such goods. We do not see any valid basis
for this apprehension. In the situation contemplated by Sri Vel-
lapally, the date of removal has to be taken as February 28, 1979.
It cannot be otherwise. If Rules 9 and 9A are held inapplicable, it
would logically follow that the moment the goods are manufac-
c tured, the levy becomes payable and, in the circumstances, the last
date of levy can reasonably be taken to be the date of removal. Of
course, an absurd consequence would follow if it is held that in
the above situation, no special excise duty is payable if the removal
is on or after March 1, 1979. Such an absurd consequence could
not be presumed to have been intended by the Parliament.
D
xxx xxx xxx

15. Before we conclude, it is necessary to notice a few facts having
a bearing upon the relief to be granted in these matters. The special
E excise duty was being levied from 1963 upto 1971 by various
Finance Acts passed from time to time. It was discontinued from
1972 until 1978 when it was revived by the Finance Act, 1978.
Thereafter, it was being levied from year to year by annual Finance
Acts. The provisions of these Finance Acts, insofar as the levy of
F special excise duty is concerned are identical. In the Finance Acts
of 1987 and 1988, however, the rate of social excise duty was raised
to ten per cent but then notifications were issued exempting the
duty on all goods in toto. In other words, with effect from March
1, 1986, there was, in effect, no special excise duty until February
28, 1988. With effect from March 1, 1988, the duty was again
G imposed @ 5% while exempting certain essential commodities and
other priority items from the said impost. We have held
hereinabove that the goods manufactured/produced before March
1, 1978 but cleared on or after March 1, 1978 are not exigible to
special excise duty. At the same time, we have also expressed the
H view that the goods manufactured/produced on or before February
M/S PONDS INDIAv. C.C.E. [S.P. BHARUCHA, J.] 547

28, 1979 but cleared thereafter would be liable to pay the said duty A
at the rate and valuation in force as on February 28, 1979 ............. ".

For the period 1st March, 1987, until 28th February, 1988, special
excise duty had been levied under a provision in the Finance Act, 1987
similar to that quoted, but during this period, by reason of a notification
issued under the provisions of Rule 8 of the Central Excise Rules with B
simultaneous effect, there was a total exemption from the levy. By the
Finance Act, 1988, special excise duty was also levied; there was no
exemption notification, so that it was payable. The question in these
appeals is whether the goods which had been manufactured prior to 28th
February, 1988 and cleared after 1st March, 1988, ("the said goods"), were c
subject to the payment of special excise duty.

Counsel for the appellants submitted that, on the principle of the
judgment in the case of Vazir Sultan Tobacco Co. Ltd., the said goods
manufactured by the appellants prior to 28th February, 1988, and cleared
after 1st March, 1988, were not liable to the fresh special excise duty levied D
by the Finance Act, 1988. In the submission of learned counsel for the
Revenue, they were, for Rule 9A was applicable.

Under the terms of the Finance Acts, special excise duty is so levied
as to cease to have effect at the close of the financial year. It is an annual E
levy. It may or may not be levied in the following year.

As we understand the judgment in the case of Vazir Sultan Tobacco
Co. Ltd., this is the view taken : The date of manufacture is the date upon
which the levy attaches to the goods; the date of payment is deferred to
the date of clearance, the rate being the rate which is effective on the date F
of clearance. Whether goods have been manufactured while the levy of
special excise duty is operative and have not been cleared until the last
date of that levy, the goods must be deemed to have been removed on that
last date.

In the instant case, therefore, the said goods must be deemed to have G
been cleared on the last date of the levy of the special excise duty that was
in force when they manufactured; that is to say, they must be deemed to
have been cleared to 28th February, 1988. On that day the said goods were,
by reason of the exemption notification aforementioned, wholly exempt
from the special excise duty. The appellants were, therefore, not liable to H
,..,

548 SUPREME COURT REPORTS (1997) 1 S.C.R.

A pay any special excise duty upon the said goods.
It is not possible to accept the Revenue's contention that the said
goods would be liable to bear special excise duty as levied after 1st March,
1988, for the reason that the special excise duty that operated subsequent
to 1st March, 1988 was a new levy under a different statute and distinct
B from that which operated during the period 1st March, 1987 until 28th
February, 1988. Rule 9A does not operate in such circumstances.

The appeals are, accordingly, allowed and the judgment and order )• '
under appeal is set aside insofar as it relates to the two appellants.

No order as to costs.

R.P. Appeals are allowed.