SASWAD MALI SAHAKARI SAKHAR KARKHANA LTD.versusUNION OF INDIA AND ANR.

A         SASWAD MALI SAHAKARI SAKHAR KARKHANA LTD.
                              v.
                   UNION OF INDIA AND ANR.

                             NOVEMBER II, 1994

B         [KULOIP SINGH, R.M. SAHAI AND B.L. HANSARIA, JJ.]

        Central Excise Rules, 1944-Notification No. 146174 dated 12.10.1994
    issued by the Department of Revenue and Insurance, Ministry of Finance-
    Scope of-Whether percentage mentioned in sub-clauses (a) to (e) of Table
    to Notification are to be calculated on excess production or average
c   production of sugar of the preceding five sugar years-Held, rebate being
    made rebatable on excess production, it is this production (beyond
    average) which has to be looked into.

        The matter is relatable to the interpretation of the Notification No.
    146n4 dated 12.10.74 issued by the Department of Revenue and
D   Insurance, Ministry of Finance, in exercise of powers conferred by Rule
    8 (I) of the Central Excise Rules, 1944, whereby sugar described in
    column (2) of the Table to the Notification was exempted from so much
    of the duty of excise leviable thereon as is specified in the
    corresponding entry in columns (3) and (4) of the Table. The dispute is
    on the question as to whether the percentage mentioned in sub-clauses
E   (a) to (e) are to be calculated on the excess production or average
    production of the preceding five sugar years. An earlier Bench in
    Collector of Central Excise v. Neoli Sugar Factory, JT (1993) 2 SC 587,
    held that the percentage would not apply to the excess production, but
    would it be to the average production. This interpretation put on the
    Notification has been questioned by the factory owners.
F
        According to the appellants, the sub-.clauses of the Notification
    having mentfoned about 'excess production', the percentage has to be
    calculated not on the average production but on the excess production.
    As against this, the respondents submitted that the concept of excess ·     ,..
    production being intimately related with average production because of
G   what has been stated in the main part of column (2), the view taken in
    Neoli Sugar Factory Case is correct and sound. According to the
    respondents, the ascending percentage of rebate was offered to the
    manufacturers to induce them to produce more and more and if the
    interpretation put by appellants were to be accepted, the object behind
H   granting rebate would not be realised.

                                       460
       S. M. S. SAK.HAR KARKHANA LTD. v. U.0.1 [HANSARIA, J.]       461

    Allowing the appeal, this Court                                       A

     HELD : On the language of the Notification No. 146n4 dated
12.10.1974, rebate being made relatable on the excess production, it is
this production (beyond the average) which has to be looked into. This
reading of the Notification would not defeat the object of granting of    B
rebate. The quantum of rebate would increase with the rate of excess
production going higher and higher. So, the manufacturer would have
the impetus to produce more and more, as higher the percentage of
excess, more would be quantum of rebate. (463-H, 464-A-B)

    Collector of Centra~ Excise v. Neo/i Sugar Factory, JT (1993) 2 SC C
587, overruled to this extent.

    CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 488-93 of
1979.

    From the Order dated 4.10.78 and 6.10.78 of the Government oflndia,   D
Ministry of Finance, Deptt. of Revenue, New Delhi in Order Nos. 1127,
1125178, 1129 and 1132of1979.

   G.L. Sanghi, and S.B. Wad, Manoj Wad and Mrs. J.S. Wad for the
Appellants.                                                       E

    K.T.S. Tulsi, Additional Solicitor General, M. Gauri Shankar, T.V.
Ratnam, V.K. Verma and Rajiv Sharma, for C.V.S. Rao, for the
Respondents.

    The Judgment of the Court was delivered by                            F
    HANSARIA, J. The short point which needs to be decided by us, on
the matter being required to come before a larger Bench, is relatable to
Notification No. 146/74 dated 12.10.74 issued by the Department of
Revenue and Insurance, Ministry of Finance, in exercise of powers
conferred by Rule 8 (1) of the Central Excise Rules, 1944, whereby sugar G
described in column (2) of the Table to the Notification was exempted from
so much of the duty of excise leviable thereon as is specified in the
corresponding entry in columns (3) and (4) of the Table.

    2. The relevant portion of the Notification reads as below:-          H
    462                      SUPREME COURT REPORTS            (1994) SUPP. 5 S.C.R.

A                                       TABLE

          SI. Description of sugar                       Duty of excise
          No.                                            Free sale sugar .    Levy
                                                                              sugar

B         1.   xxxx

          2. Sugar produced in a factory during the period commencing on the
               lst day of December, 1974 and ending with the 30th day of
               September, 1975, which is in excess of the average production of
               the corresponding period of the preceding five sugar years, that is:-
c         (a) on excess production upto 7 .5% ~· 20      Rs. 5 per quintal

          (b) on excess production on the next l 0%      Rs. 40 Rs. IO per quintal

          (c) on excess production on the next l 0%      Rs. 5 Rs. 14 per quintal
D         (d) on excess production on the next l 0%      Rs. 60 Rs. 18 per quintal

          (e) on excess production beyond 37.5%          Rs. 82 Rs. 22 per quintal

         3. It is· not for the first time that this Court has been called upon to
    decide the purport of the aforesaid Notification inasmuch as in Collector of
E   Central Excise v. Neoli Sugar Factory, JT (1993) 2 SC 587, a two-judge
    Bench had expressed its view on the same. On the appeals at hand,
    however, coming before another two-Judge Bench, it was felt that what was
    stated in Neoli Sugar Factory's case needed fresh look and it is because of
    this that the appeals have been placed before this Bench of three-Judges.
F        4. Let it first be seen as to what was held in Neoli Sugar Factory's
    case. In that case this Notification has been dealt in para 18 and 19 and the
    interpretation put by the counsel of the Union of India was accepted by the
    Court, inter alia, because none of the counsel of the factory owners had
    disputed the same. The factory ow:iers in these appeals have, however,
G   disputed the stand taken by the Union of India in that case, and the dispute
    is on the question as to whether the percentage mentioned in sub-clauses (a)
    to (e) are to be calculated on the excess production er average production of
    the preceding five sugar years. The earlier Bench held that the percentage
    would not apply to the excess production, but it would to the average
    production. This was illustrated in paragraph 19 by taking the hypothetical
H   case where the average proctuction of a factory during preceding five sugar
        S. M. S. SAKHAR KARKHANA LTD. v. U.0.I [HANSARIA, J.]          463

years is 1,000 quintals and that factory produces 2,500 quintals during A
December 1, 1974 to September 30, 1975. The Bench then stated that as
"the basis of these percentage is the average production of the previous five
years and not the excess production", what would be required to be done is
that from the production of 2,500 quintals, the average (l,000 quintals)
should be deducted first, which would mean that the excess production is
1,500 quintals. The next step is material and the same is that the percentage B
of 7.5% of which mention has been made in sub-clause (A) would be
relatable to the average, which is 1,000 quintals; and so, rebate as per sub-
clause (a) will be on 75 quintals (i.e. 7.5% of 1,000 quintals). The rebate
mentioned in sub-clause (b) would then be given to l 00 quintals which is
10% of the average; and so on.
                                                                             c
     5. The interpretation put on the Notification explained with the aid of
the aforesaid illustration has been questioned by Shri Sanghi, appearing for
the appellants. According to the learned counsel, the sub-clauses of the
Notification having mentioned about "excess production", the percentage
has to be calculated not on the average production but on the excess
production, which means that for the factory of the type mentioned in the D
illustration given above, 7.5% rebate would become available not on 75
_quintals (which is 7.5% of 1,000 quintals) but on 102.5 quintals, which is
7.5% of 1,500 quintals. On the next 10% of excess production, that is 150
quintals, the rebate would be as mentioned in sub-clause (b) and so on. This
may also be illustrated by stating that if the excess production be, say 100 E
quintals, rebate on first 7.5 quintals (7.5% of 100 quintals) would be as
mentioned in sub-clause (a); and on next 10 quintals (10% of 100 quintals)
as per sub-clause (b); and so on.

     6. As against the above contention, Addi. Solicitor General Shri Tulsi
submits that the concept of excess production being intimately related with F
average production because of what has been stated in the main part of
column (2), the view taken in the aforesaid decision is correct and sound.
He states that the ascending percentage of rebate was offered to the
manufacturers to induce them to produce more and more; and so, the
factory whose production is, say 7.5% in excess of average production,
should not gain so much as the one whose-excess is, say 37.5%. He urges G
that if the interpretation put by Shri Sanghi were to be accepted by us, the
object behind granting rebate would not be realised; indeed, get frustrated.

    7. We have duly considered the rival submissions. According to us, on
the language of the Notification, we have to agree with Shri Sanghi,
because rebate being made relatable on the excess production, it is this H
     464                    SUPREME COURT REPORTS           (1994) SUPP. 5 S.C.R.

A    production (beyond the average) which has to be looked into. This reading
     of the Notification would not defeat the object of granting of rebate, as the
     same would be Rs. 20 or Rs. per quintal, as the case may be, where the
     excess is only 7.5%; but on that slab of excess production which is beyond
     7.5% upto 17.5%, the rebate available would be Rs. 40 or Rs. 10, as the
     case may be; and so on. The quantum of rebate would thus increase with
B    the rate of excess production going higher and higher. So, the manufacturer
     would have impetus to produce more and more, as higher the percentage of
     excess, more would be the quantum of rebate.
                                                                                     I
          8. We, therefore, say with respect that the view taken in Neo/i Sugar          I
                                                                                         I
     Factory's case is not correct. May we adc! that in that case the Bench did
C    not apply its mind much on the controversy as both the sides had taken a
     common stand, which being not so here, we felt called upon to find out the
     true purport of the Notification.

          9. Before parting, it may be stated that though on 18.10.1994 a
     submission was made by Shri Tutsi that in case the contention of the
D    appellants would be accepted, the amount of rebate most probably would·be
     much more than the excise duty payable on the excess production; but
     when the cases were taken up for further hearing on 20.10.1994, it was
     stated on instruction that the submission made on 18.10.1994 was not
     correct.

.E       10. The rebate would, therefore, be calculated as stated and illustrated
     above. Appeals are disposed of accordingly. No orders as to the costs.

     A.G.                                                   Appeals disposed of.