TMI Blog1967 (1) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... t under Act XIX of 1961, issued demands against the petitioners for payment of excise duty calculated ad valorem at 10 per cent of the value on the patent or proprietary medicines manufactured by them subsequent to 1st June, 1961. 2. The first contention of the petitioners in these cases, for challenging the correctness and validity of the above demand, was that under the Schedule to Act XVI of 1955, in item 1, under which the proposed levy of excise duty had been made, only preparations containing alcohol are liable to excise duty; but in the case of the preparations manufactured by the petitioners, except a single item called Selviue (manufactured by the petitioner in W. P. No. 1139 of 1964) alcohol in its free state had not been used; but they had used spirits, Chloroform or other tinctures containing alcohol in small quantities only as preservatives. In such circumstances, bearing in mind the definition of alcohol given in Section 2(a) of the Act and also the general scope of the Act and the Rules the petitioners contend that it is illegal to consider that their preparations contain alcohol, and therefore, liable to pay excise duty. 3. In addition to this main plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther solution in the medicines prepared by the petitioners. In other words, alcohol though it might not have been directly added, is present in the medicines in a state of solution. It has not undergone a chemical change into some other substance. It is present in a liquid form and the medicines thus prepared will reveal all the properties of alcohol, whether of smell or taste or capacity to vaporise, dependent of course, upon the quantity present. A solution of sugar in water retains the properties of sugar including taste, a solution of salt in water retains the properties of salt including taste, and a solution containing coloured substance or substances having smell, retains the colour and smell, the going of a substance into the solution will still make it an ingredient present in the solution importing all its characteristics to the solution. Therefore, the fact that alcohol went into solution !n these preparations as tinctures or spirits and was not directly added will not make any difference to the resultant position about the presence of alcohol as alcohol in the product. In fact the position of alcohol in relation to the pharmaceutical products of the petitioners, as an I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees Seventeen and anna weight per gallon of the strength of London proof spirit. 2. Medicinal and toilet preparations not otherwise specified containing alcohol: - (i) Ayurvedic preparations containing self-generated alcohol which are not capable of being consumed as ordinary alcoholic beverages. Nil (ii) Ayurvedic preparations containing self generated alcohol which are capable of being consumed as ordinary alcoholic beverages. Rupees three per gallon. (iii) All others... Rupees five per gallon of the strength of London proof spirit. 6. Medicinal and toilet preparations, not containing alcohol, but containing opium, Indian hemp, 0% other narcotic drug or narcotic. Nil 8. After the amendment in 1961 the Schedule was recast thus:- Item No. Description of dutiable goods. Rate of duty. 1 2 3 Medicinal preparations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain quantity. According to the learned Counsel, these provisions also would show that the Act contemplated the use of alcohol directly in the course of manufacture for purposes of bringing the medicinal preparations within the scope of its levy, but it was not intended to levy excise duty on preparations in whose manufacture alcohol did not directly enter in its pure form but only as tinctures or spirits. Reference was also made in this connection to the Preamble to the Act which states that it was intended to provide for the levy and collection of excise on medicinal and toilet preparations containing alcohol, opium etc. It is urged that under the broad scheme of the Act thus expressed in the provision of the Act, the Rules thereunder as well as in the Preamble, the Act was intended to tax only preparations in whose manufacture alcohol directly was used, and not alcohol contained in tinctures or in spirits. 10. I am unable to accept this line of reasoning. Section 3(2)(b) of the Act, dealing with manufacture outside bond, is sufficiently general, to include the preparations in the present cases. The provision contained for manufacture outside bond in Rule 20 and also in Clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other preparations, which are potable as beverages are liable to excise duty according to the alcoholic content calculated at ₹ 3.85 per litre. Learned Counsel also lays stress on the fact that in the Schedule to the old Act before the amendment there was no provision for such a duty levied ad valorem but only upon the alcoholic content by volume and this would be more in consonance with the purpose of the Act namely, levy of excise duty on preparations containing alcohol. Learned counsel also urges that the distinction on the basis of potability for levying ad valorem duty, is a distinction based on caprice without any reasonable basis to the object of the legislation. He referred to the following observation found at page 596 of Willis Constitutional Law:-- Another classification for taxation frequently used is one according to objects. The Legislature has a wide discretion in this respect. It may levy a tax on all houses, excluding barns, and on all horses, excluding sheep and cows. However, any such classification must have some basis other than mere caprice. A tax on white horses would be an illustration of a classification without basis. He also referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a nominal sense, they were being bought up and consumed in large quantities by addicts to alcohol, valuing them exclusively for their alcoholic content. Customers of this kind will not care to buy medicines which contain only a trace of alcohol used as a preservative because such preparations would not readily help them to achieve their object of getting inebriated. It was therefore, considered to be a proper method to levy excise duty on preparations which contain alcohol and which are potable in the sense of their being fitted for consumption as ordinary alcoholic beverages on a rate calculated upon the volumetric content of alcohol. This appears to be a perfectly rational basis for drawing a distinction between item 1 and item 2 of the Schedule based upon their suitability or non-suitability for being used as ordinary alcoholic beverages. In item 1, stress is laid not so much on the value of alcoholic content as on the value of the medicines that go into their preparations. In item 2, the value of the medicines that go into the preparations may be little, when compared with the value of the higher alcoholic content that went into the preparation, and that has necessitated the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h goods may be deposited without payment of duty in a warehouse or may be exported out of India under bond as provided in Rule 97: Provided further that the Excise Commissioner may, if he thinks fit, instead of requiring payment of duty in respect of each separate consignment of goods removed from the place or premises specified in this behalf or from a warehouse keep with any person dealing in such goods an account-current of the duties payable thereon and such account shall be settled at intervals not exceeding three months, and the account-holder shall periodically deposit a sum therein sufficient in the opinion of the Excise Commissioner to cover the duty on the goods intended to be removed from the place of manufacture or storage. (2) If any dutiable goods are, in contravention of Sub-rule (1) deposited in, or removed from, any place specified therein the manufacturer thereof shall pay the duty leviable on such goods upon written demand made by the proper officer, whether such demand is delivered personally to him or is left at the manufactory or his dwelling house, and he shall also be liable to a penalty to be determined by the Excise Commissioner which may extend to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond. It is against the background of the requirements of Rules 46 to 58 that one has got to view the provision in Rule 9, extracted above that duty under the Act has to be ordinarily paid at the time of their removal from the place where they are manufactured or other premises as may be specified by the Excise Commissioner, for consumption, export etc. Rule 9 (2) provides for levy of duty where there is removal of the goods, in contravention of Rule 9 (1), from the place where they are deposited, with a penalty for such illegal removal. In the present case, the petitioners, though they had manufactured dutiable goods containing alcohol as found above, never cared to take a licence as required under Section 6(1) of the Act, with the consequence that all the restrictions and safeguards regarding manufacture of the products contained in Rules 46 to 58 had been avoided by them in this case. There was, therefore, no scope for levy of the duty either as provided under Rule 9 or under Rule 9 (2). Rule 11 which I have extracted above, deals with a limited set of contingencies as mentioned therein. The first contingency is where there has been a short-levy because of inadvertence, error, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Union of India, MANU/SC/0224/1961 : AIR1962SC1006 . Mewar Textile Mills Ltd. v. Union of India. AIR 1955 Raj 114, and the decision of Srinivasan, J., in A. Peria Nachimuthu Gowndar v. Assistant Collector of Central Excise, Coimbatore, W. P. Nos. 125 and 126 of 1961 (Mad). Each one of these cases deals with a particular situation where it was not possible to levy the appropriate duty on certain goods in the manner provided by the earlier provisions in the Rules, like Rules 9, 11 and so on and it was held that a levy under Rule 12 (or Rule 10-A which is the corresponding provision under the Central Excise Act) could be levied. Thus in the Supreme Court decision in MANU/SC/0224/1961 : AIR1962SC1006 an additional duty was leviable under a later enactment which was directed to have retrospective effect and therefore, the levy could not be made under Rule 9 or the other provisions of the Rules and the residuary provision under Rule 10-A under the Central Excise Act was held to be applicable. Before Srinivasan, J., in W, P. Nos. 125 126 of 1961 (Mad), it was discovered as a result of a subsequent finding arrived at by the department, that the two mills, though they were normally in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven in the Schedule. All other medicinal preparations being manufactured from a date prior to 1st April, 1957 shall be considered to be not capable of being misused as ordinary alcoholic beverages (hereinafter referred to as unrestricted preparations), (2) If, however, a preparation falling in the unrestricted category is found to be widely used as ordinary alcoholic beverage, the Central Government may on the request of a State Government or suo motu refer the matter to the Standing Committee referred to in Rule 68. The Central Government shall declare the preparation as a restricted preparation, if so advised by the said Committee and thereupon include the said preparation in the Schedule. (3) Medicinal preparations other than official allopathic preparations and toilet preparations which are manufactured in India for the first time on and subsequent to 1st April, 1957 shall be presumed to be restricted preparations unless declared to the contrary by the Central Government on the advice of the Standing Committee. Any manufacturer intending to produce a new alcoholic preparation other than an official allopathic preparation, shall submit two samples of such preparation with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecretary, Pharmaceutical, Chemical and Allied Manufacturers Association, on 6th October, 1964. These communications indicate that in the view of these authorities of the Revenue Department where particular manufacturers do not obtain a declaration to the contrary by the Central Government in respect of preparations manufactured after 1st April, 1957, there shall be a presumption about their being restricted, and with the consequent liability to pay excise duty under item 2. As against this, the learned Government Pleader contends that what the aforesaid Rule 60 (3) lays down is only a presumption, that such presumption can be rebutted by contra evidence, and that if the petitioners want to take advantage of the presumption thus claimed, the department also should be given an opportunity to afford contra evidence to rebut the presumption and also to establish that the preparations in question are not really capable of being consumed as ordinary alcoholic beverages. But no decision can be given by this Court on these rival contentions while dealing with the matter in a proceeding for the Issue of a writ under Article 226 of the Constitution, because such decision requires an analysis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y waiver of duty in these cases, because of the long delay in making the demand and also because the petitioners had long ago sold out their goods without adding the burden of the duty to the prices charged to the customers, and also bearing in mind the fact that the higher authorities of the Department had at one time taken a view which would imply that the products were to be treated as restricted preparations with a liability to pay duty under item 2 of the Schedule at ₹ 3.85 on the volumetric content of alcohol. In view of the above considerations I allow the Writ Petitions (other than W. P. Nos. 1093, 1095, 1098 and 1153 of 1964) and quash the orders making demands for the payment of the duty. It will be open to the authorities to call upon the petitioners to show cause against the levy of the duty, and proceed to make the proper levy after hearing their representations contra and in the light of the observations above-mentioned in this judgment. 18. The excepted writ petitions, W. P. Nos. 1093, 1095, 1098 and 1156 of 1964, are directed against the demand of the authorities against the petitioners asking them to take out L-2 licences on the ground that the preparation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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