TMI Blog1986 (5) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is the charging section, in so far as is relevant for our present purposes, reads thus: 3(1) there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than Salt which are produced or manufactured in India .... as, and at the rates; set forth in the First Schedule." 3. Excisable goods is defined by Section 2(d) to mean goods specified in the First Schedule as being subject to a duty of excise . The First Schedule sets out a list of excisable goods and the rate of duty leviable in respect of each. A perusal of the First Schedule shows that the rate of excise duty is made to depend, sometimes on the weight of the goods, sometimes on their number, sometimes on the volume and sometimes on the value (ad valorem). Cigarettes is one of the items in regard to which the levy of duty is ad valorem. Item 4 in this Schedule deals with Tobacco and consists of two sub-items: (I) un manufactured tobacco; and (II) manufactured tobacco. The second sub-item includes a number of commodities of which cigarettes is No. (2). The excise duty chargeable at the relevant time, on cigarettes, as mentioned in the last column of the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .... the trade discount .... allowed ....... 5. To summarise again the effect of this provision for our present purposes, it says that where the wholesale price is a cum-duty price, the excise duty is to be levied on the sale price less the duty payable included therein. It will at once be seen that the computation of the value for purposes of excise duty involves a process of working back from the wholesale price. It may be convenient to give a simple example. Suppose, the rate of excise duty payable as per the schedule on a particular commodity is 20%, then, if the manufacturing costs and profits thereon come to Rs. 100/-, the manufacturer, taking the excise duty also into account, will fix the wholesale selling price at Rs. 120/-. Per contra, if the sale price is, say, Rs. 180/-, the value for purposes of excise duty calculation will be Rs. 180 x 100/120 or Rs. 150/-. Thus, where the wholesale selling price and the ad valorem rate of duty are known, it is quite easy to calculate the value on which the excise duty is to be charged. 6. A complication has, however, been introduced in the above situation because of the provisions of Rule 8 of the Central Excise Rules, 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mill board which is Item 17(2) in the First Schedule. It exempted the aggregate manufacture of these two commodities cleared for horn consumption. The exemption was from so much of the duty of excise leviable thereon as is in excess of 15% ad valorem in respect of the first 500 metric tonnes and 25% on the next 500 metric tonnes. Notification No. 24/75, dated 1-3-1975, as subsequently amended on various dates up to 1984 exempted soaps and certain other commodities falling under Item 15 of the First Schedule from so much of the duty of excise leviable thereon as is equivalent to the amount of duty calculated at twenty two rupees and fifty paise per metric tonne of soap subject to certain conditions. Notification No. 198/76, dated 16-6-1976 gave an exemption where a manufacturer of certain specified commodities - one of which was tyres and tubes falling under Item 16 of the First Schedule - was able to clear from his factories, in the aggregate, goods in excess of certain base clearances (i.e. similar clearances during, a prescribed base period). The notification was a very involved one and dealt with a number of commodities the rate of excise duty on which was based on weight, vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aise per thousand. Provided that the duty so levied shall be apportioned in the ratio of 72.5 : 27.5 between the duty leviable under the Central Excises Act and the Additional Duties of Excise Act, respectively. 7. Another Notification No. 33/79 was also issued on 1-3-1979 in respect of smoking mixtures for pipes and cigarettes also covered by Item 4. This exempted these commodities from so much of the duty of excise and additional excise as is in excess of three hundred per cent ad valorem. 8. One would have thought that the scheme of the Act was fairly clear regarding the combined impact of Sections 3 and 4 of the Act and Rule 8 of the Rules in regard to any particular item of excisable goods. One had to compute the duty payable or leviable (these terms being understood to be synonymous) on the value of the goods as computed backwards from the wholesale selling price with reference to the rate of duty prescribed in Schedule I. The duty, thus, computed was, however, restricted to the amount specified, if any, in any notification issued under Rule 8 in respect of the particular item in question, the amount in excess thereof being exempt under the notification. Let us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to above. The Court by its judgment dated 8-2-1978 negatived the department s contention. It was pointed out that the notification did not stipulate anywhere that the grant of the exemption granted by it was conditional on its being passed on to the consumer and that administrative instructions could not travel beyond this and deny a relief granted by the notification. On the first argument, the Court pointed out that the assessable value had already been determined at Rs. 100/- on the basis of the selling price with reference to the rate of duty prescribed in the First Schedule and the department s contention involved a computation of this assessable value once again after giving effect to the notification. Said the learned Judges: It is erroneous to suggest, as is done by the Government, that assessable value will have to be again determined after taking into consideration the relief and exemption granted under the notification dated 16th June, 1976. It is neither intended by the Notification nor is it practicable that the assessable value should be determined after giving effect to the relief and the exemption contemplated under the said notification. This in effect w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n relating to papers, aluminium/soap and steel furniture respectively. 10. The ratio of the above decision was clear. On their interpretation, Section 4 of the Act and the notification had to be given effect to separately, one after the other. First, under Section 4, the excise duty payable or leviable had first to be determined with reference to the rates of duty prescribed in the Schedule. This process necessarily involved a determination of the assessable value as a first step in the determination of duty. After this, as a second step, the notification of exemption was to be applied which directed that a part of the excise duty so computed as payable or leviable should be exempted. The ultimate effect of this, no doubt, was that the effective duty payable becomes less and if the assessable value were to be recomputed on the basis of such effective duty, it will be larger than the assessable value taken at the first stage of computation. But there was nothing in the statute or notification which spelt out or justified a repetition of this process of determination of the assessable value (which had already been gone through) after the notification has been given effect to. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances in which the amendment came to be made as well as the terms of the amendment in some detail. 13. Since the amendments were initially proposed in Clause 47 of the Finance Bill, 1982, though subsequently enacted into the Finance Act, 1982 we may refer to the provisions of the Finance Bill here. The amendment proposed by Clause 47 was the insertion of an Explanation to sub-clause (ii) of Clause (d) in section 4(4) of the Act and this was to be with retrospective effect from 1-10-1975. This, as already mentioned, was the date from which the present Section 4 has been substituted (for the section as it stood earlier) by the Amendment Act of 1973. In other words, the new section, ever since its insertion with effect from 1-10-1975, has to be read as if the proposed explanation had formed part of it from the very beginning. The proposed explanation is in these terms: For the purposes of this sub-clause, the amount of the duty of excise payable on any excisable goods shall be the sum total of - (a) the effective duty of excise payable on such goods under this Act, and (b) the aggregate of the effective duties of excise payable under other Central Acts, if any, providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch have been collected but which would not have been so collected if the amendment made by sub-section (1) had been in force at all material times; (d) recovery shall be made of all such duties of excise which have not been collected or, as the case may be, which have been refunded but which would have been collected, or as the case may be, would not have been refunded, if the amendment made by sub-section (1) had been in force at all material times. Explanation - For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if this section had not come into force. 15. The Statement of objects and reasons accompanying the Bill explained the object of this amendment thus : Clause 47 seeks to insert an explanation to sub-section 4(4)(d)(ii) of the Central Excises Act, to make it clear that in computing the amount of duty of excise deductible from the cum-duty price, the effective amount of duty of excise payable on the goods under assessment shall alone be taken into account. This Explanation is being given effect to retrospectively from 1st October, 1975. 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Andhra Pradesh High Court dated 1st August, 1985 in a batch of writ appeals in the cases of Andhra Pradesh Paper Mills Ltd., Sirpur Paper Mills Ltd., and Suryachandra Paper Mills Ltd. (WA Nos. 181/80, 5807/80 and 6371/83) reversing the judgment of the single Judge of that Court reported in 1980 E.L.T. 210. The question to be considered now is, which of these two contentions is correct? 18. It is quite common practice for the legislature to intervene and clarify the legislative intent when it finds that judicial decisions have given a statutory provisions an interpretation or effect that was not intended. Such legislations have been considered and interpreted in a number of decisions. The learned Attorney General, on the basis of the decisions in Raj Ramakrishna v. State (AIR 1963 S.C. 1667); Arora v. State (AIR 1964 S.C. 1230); Krishnamurthy Co. v. State (AIR 1972 S.C. 2455); Hira Lal Rattan Lal v. Sto (AIR 1973 S.C. 1034); Dora v. Annamanaidu (AIR 1974 S.C. 1069); Government of Andhra Pradesh v. Hindustan Machine Tools (AIR 1975 S.C. 2037); and Shetkkari Sahakari Sakhar Kharkhana v. Collector AIR 1979 S.C. 1972), formulated four primary characteristics of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or depart from the general system of law without expressing its intention with irresistible clearness. 20. This principle has been approved by the Judicial Committee in Murugiah v. Jainudden (1954-3 WLR 682 at page 687). In National Assistance Board v. Wilkinson (1962-2 QB 648) Lord Goddard endorsed this principle, observing : A statute is not to be taken as effecting a fundamental alteration in the general law unless it uses words unmistakably pointing to that conclusion . It was put in slightly different words by Sir John Romilly, M.R. in Minet v. Lemon (1885 - 20 Beav 269) : ..... the general words of the act are not to be so construed as to alter the previous policy of the law, unless no sense or meaning can be applied to those words consistently with the intention of preserving the existing policy untouched. Referring to the same principle, the Supreme Court in Empress Mills v. Municipal Committee (AIR 1958 S.C. 341 at page 348) observed : It is a recognised principle of construction that general words and phrases, however, wide and comprehensive must usually be construed as being limited to the actual objects of the Act. (3) Addressing himself to the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its structure or difficulties in its interpretation had come to light that needed remedial action on the part of the legislature. As we see it, and insofar as is relevant for purposes of our present discussion, atleast three ambiguities in the definition of value in Sections 4(4)(d)(ii) were highlighted by judicial decisions: (a) Does excise duty payable and leviable refer only to the excise duty payable under the First Schedule or does it also include additional and special and other excise duties that may be payable under other Acts? (b) What is the scope of the expression excise duty payable in the sub-clause? Normally, of course, it means the duty payable at the rates specified in the First Schedule but what is the position where there is an exemption granted by a notification under Rule 8? (c) Where a notification for exemption is issued under Rule 8, is it permissible for the department to contend that the exemption will be available only in cases where the manufacturer passes on the benefit of the exemption to the consumer? 23. The first of these issues came up for consideration by the Madras High Court in Government of India v. Madras Aluminium (1981) E.L.T. 892 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excise duty deductible from the market value: whether it is the amount of duty payable as specified in the tariff in the First Schedule or in the Central Act levying it or this amount as reduced after giving effect to an exemption notification (where one exists) in relation to the goods. The Explanation clarifies that the amount to be deducted is the effective duty payable and it proceeds to define this expression in the Second part of the Explanation. This part is in two sub-clauses. Sub-clause (i) deals with the situation where there is an exemption notification of a type that exists in the cases presently under consideration. In such cases it says the effective duty means. - The duty of excise computed with reference to the rate specified in such Act in respect of such goods as reduced so as to give full and complete effect to such exemption. In case, however, there is no such exemption the reduction will be to the extent of excise duty computed with reference to the rate specified in the Act or Central Act in respect of such goods. 26. The last few words of the second para of the Explanation which have been underlined above also took care of the third issue discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make any difference to the principle to be applied. For, as to the first point, it may be noted that in Modi Rubber and Ceat Tyres the controversy was not in respect of the entire production but only in respect of the goods produced in excess of the base clearance and thus in both cases the controversy arises in respect of the goods to which the notification applies. As to the second point, the distinction is of no relevance since the issue for decision turns on the meaning of the expression excise duty payable (or leviable) and the position will be the same whether the reduction in duty resulting from the exemption is expressed as a percentage of the tariff rate or as an amount to be calculated on the basis of a prescribed scale. We can, therefore, proceed on the basis that, had there been no statutory amendment, the decisions in Modi Rubber and Ceat Tyres would have been fully applicable in respect of the notification in this case. Now, to revert to the arguments put forward by the Councel for the petitioners. 29. Shri A.B. Diwan contends that the amendment proceeds on wrong lines inasmuch as instead of tackling the real issue by amending the terms of the notification issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R (S.C.) 165 at page 171, Kesoram Industries Cotton Mills Ltd. v. Commissioner of Wealth Tax (Central), Calcutta (1966) 59 ITR 767 at page 783 and H.M. Setu Parvati Bayi v. Commissioner of Wealth Tax, Kerala (1968) 69 ITR 864 (S.C.). 31. The learned Attorney General met this argument in two ways. He contended firstly, the amendment, though effected in the statute should also be treated as an amendment of the notification issued under the statute and he referred to the decision of the Supreme Court in Krishnamurthy v. State of Orissa (AIR 1964 S.C. 1581). We are unable to accept this argument. As pointed out rightly by the learned Councel for the petitioners, in Krishnamurthy s case (supra), an amendment had been made to the notification concerned and it was the scope of that amendment which was under consideration by the Supreme Court. We think that the learned Councel for the petitioners are correct in their contention that in this case no amendment has been effected in the notification under Rule 8 that the amendment effected is only to the language of Section 4(4)(d) and that the effect of the amendment has to be construed accordingly. On this aspect, the contention of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the arguments addressed in the earlier cases was that the terms of the notification had an impact on the interpretation of Section 4. This argument was rejected on the ground that Section 4 having been applied one earlier to determine the assessable value and the duty payable without considering the notification, there was no scope for a second recourse to Section 4. In other words, one of the points of decision was also based on the interpretation of Section 4 and the amendment of Section 4 removes the obstacle indicated in the earlier decision. It changes the meaning of the assessable value by reference to which the excise duty payable at the specified rates is to be calculated and against which the amount of exemption is to be given. To illustrate by means of the concrete instance given in the earlier decisions, under the old section the assessable value was Rs. 100/-, the excise duty payable Rs. 20/- and the exemption Rs. 5/-. But under the new section the assessable value would be Rs. 104.35, the duty payable Rs. 20.87 and the deduction therefrom Rs. 5.22, the sale price in either case being Rs. 120/-. The second part of the argument based on the income tax decisions and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appears to us clear that, the statute has, without any specific or direct reference to the earlier decisions, neutralised all the steps of logic on which the earlier judicial decisions were based and has effectively rendered those decisions no longer applicable. 33. Shri Nariman, for one of the petitioners was prepared to concede that Section 4 had succeeded in dovetailing into itself the effect of a notification under Rule 8 but he contended that the effect of such incorporation was limited in scope and effect. He submitted that the purpose of including the reference to the notification in the definition of effective duty was only to neutralise the department s contention in earlier cases that the notification would be given effect to only in cases where the benefit thereof was extended to the consumer. By the amendment, he says, the statute has only affirmed the view of this Court that no such limitation could be read into the applicability of the notification. He says that his argument is reinforced by requiring that full and complete effect should be given to the exemption and also by the terms of Clause (c) of Section 47(2) of the Finance Act which envisages a possibili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. When the legislature enacts an amending legislation, it may not - and indeed may not be able to - assess all the repercussions of the retrospective amendment, all the questions that may arise thereon or all the possible interpretations that may be contended for or rendered thereon in future. It, therefore, enacts provisions to cover all possible contingencies and to provide for all eventualities that may follow on a retrospective legislation. The best that can be said is that, in an amendment of this type, Clause (c) may never be invoked. But we think it is not proper to interpret the clear words of the amendment restrictively to ensure that Clause (c) also becomes applicable. If, on the one hand, a strained interpretation of the language of the statute so as to read into it an effect which is not expressed in its words should be avoided, it is equally imperative, on the other hand, that the clear and intended meaning of the words used should not be denied their full play but interpreted in a narrow and restricted manner only because the former may not, possibly, lead to a situation in which Clause (c) could be applied. 35. We have dealt with the arguments on the proper inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oting that the duty is 20% instead of taking the effective duty. It is pointed out that the calculation, as per the department s formula is very simple. If the assessable value is x, the effective duty is ( x/5 - 22.50). The cum-duty sale price will then be x + x/5 - 22.50 or 6x/5 - 22.50. Reversing the process, if the cum-duty sale is Rs. 400/-, the formula is : = 352.08 On this assessable value the duty payable will be Rs. 70.42 - Rs. 22.50 or Rs. 47.92. Thus the assessable value will be Rs. 352.08, the duty payable Rs. 47.92 and the sale price cum-duty Rs. 400/-. There is, therefore, no difficulty or indefinite repetition involved in applying the formula contended for by the department. 36. The second difficulty pointed out is based on the notification which comes up for consideration in the present case. In order to appreciate it, it is necessary to set out in some detail an extract from the table of calculations placed before us. It may be mentioned that, in respect of cigarettes, the excise duty is split up into two portions (a basic duty and an additional duty) and then there is a special excise duty equal to 10% of the basic duty. Thus where the assessable value of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -duty price which is less than Rs. 48.88 or more than Rs. 208/-, or which falls within the ranges shown above, no assessable value can at all be worked out where it falls between two sets of ranges such as for e.g. between Rs. 48.88 and Rs. 49.98, between Rs. 52.67 and Rs. 53.88, between Rs. 56.67 and Rs. 57.99 and so on. As a concrete example, it is pointed out, the cum-duty selling price of scissors cigarettes is Rs. 104.27 which falls in between the cum-duty price ranges calculated for assessable values falling in ranges of Rs. 20.21 and Rs. 21.22. Its assessable value must, therefore, fall between Rs. 20/- and Rs. 22/-. If it is taken as falling in range of Rs. 20-21 and the assessable value worked out on the table applicable thereto, it comes to Rs. 21.507 which falls beyond this range. If, on the other hand, it is taken as falling in the range of Rs. 21.22 and worked back on the basis of the table for this range, it works out to Rs. 20.915 i.e., it now falls below this range. The cum-duty price worked out for assessable values of Rs. 20.915 and Rs. 20.07 are also Rs. 102.02 and Rs. 106.576 and not Rs. 104.27. In other words, the formula contended for by the department becom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nges as well. We think this point is well taken. We are not called upon, in these writ petitions, to decide how the assessable value should be worked out in the various ranges pointed out in the tabular statement filed before us and we express no opinion thereon. It is sufficient for our purpose to point out that the problem highlighted arises not due to any difficulties in giving effect to the construction contended for by the department but due to a failure in certain cases to provide for marginal adjustments where the excise duty is made to vary from range to range of the assessable value. 40 It only remains to make a reference to the Bata case (1985-3 S.C.C 97) referred to by Councel for the petitioners. That decision relates to excise duty on footwear and parts of footwear which was being levied at 10% and 15% respectively. An exemption notification was issued on 18-2-1965 exempting footwear the value of which did not exceed Rs. 5 per pair from the whole of the excise duty leviable thereon. During the years 1967 and 1968 the company was manufacturing certain footwear which was being sold at Rs. 6.25 per pair. The company contended that since the assessable value of such foot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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