TMI Blog1963 (10) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... metric tons. Some of the units are producing less than the installed or licensed capacity and the total production of strawboard in the year 1962 is stated to be 61,500 tons which roughly represents the requirements of the country for this commodity. Under section 3 of the Central Excises and Salt Act, 1944 (hereinafter called the Act), excise duties are levied on products manufactured in India at rates specified in First Schedule, the 17th item of which relates to paper, and different varieties of it are taxed at varying rates. The 5th sub-item under the 17th item relating to paper is concerned with strawboard, other than corrugated board" and the duty mentioned in the First Schedule is 11 Naye paise per kilogram. This rate before the Finance Act of 1963 was 15 Naye paise per kilogram and currently under the Finance Act of 1963 the excise duty on straw board is 35 Naye paise per kilogram with a surcharge of 20 per cent, the aggregate duty being 42 Naye paise per kilogram. Sub-item (8) relates to corrugated board while the 10th one relates to "paper and paperboard, all sorts, not otherwise specified". 3. While under sub-section (1) of section 37 of the Act the Central Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gram. Thus, for a unit producing between 125 and 500 metric tons the duty is reduced to 9 naye paise per kilogram. For units producing up to 1500 metric tons, the duty would be 15 naye paise per kilogram, while for units producing 3000 metric tons, the duty would be 21 naye paise per kilogram. The abatement of the levy is reduced progressively as the production becomes higher and higher. The exemption is not to apply to any unit which produces more than 5000 metric tons of "paper and paperboards, including strawboards, all sorts, in any of the immediately preceding three complete financial years". 5. It is the case of the petitioners that the second proviso is discriminatory as it creates a classification which has no just and reasonable relationship with the object of the notification which ostensibly is to help a small-scale manufacturer of strawboard to maintain the national requirements for the commodity. It is further submitted that the difference between the two categories created by the proviso is not real and substantial but arbitrary there being no criterion or test to fix the boundary-line between the exempted and the non-exempted units. The notification, according to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in the sense in which the term is ordinarily used. It is the gist of the petitioners complaint that the extent of advantage per ton conferred by the impugned notification on the small units is so substantial that the big ones would be driven out of the market altogether. The following figures have been brought in the forefront of all the petitions :- Quantity Manufactured Extent of advantage due to exemption per ton Rs. Up to 125 tons 420 Up to 500 tons 330 Up to 1500 tons 273 Up to 3000 tons 220 Up to 5000 tons 133 8. The Union of India, represented by the Solicitor-General has opposed these petitions on the ground that the notification has been issued in the interest of maintaining both large and small-scale producers of strawboard with the object of keeping up the requirements of this commodity of this country at its proper level. The notification is designed primarily to give protection to smaller producers "from unreasonable competition by bigger producers". It is asserted that there is a difference both in price and quality of strawboard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on such major items are about the same, it would go up in proportion in the case of small units. In the affidavit filed as a rejoinder sworn by Shri Harbans Lal, it is admitted in one of the sub-paragraphs of paragraph 18 that "it is possible in certain circumstances smaller units may be given exemption so as to set-off the effect of disadvantages and handicaps under which they are working due to their small size" and we do not think that the failure of the respondent to give figures in this respect is in any way fatal to their case. Indeed, the figures furnished by the petitioners themselves in their rejoinder bring home the point which has been made on behalf of the Union of India that the cost of production is not a constant element and must vary with each unit. The costs of production of the four petitioners respectively are stated in the statement underneath and the profits made by them are also shown separately : Sl. No. Name of Company Cost of Production per ton Profit per ton Rs. Rs. 1. Jaswant Sugar Mills Ltd. 409.84 88.3 2. Straw Products Ltd. 442.39 92.82 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nable differentia, according to the learned counsel, in the classification which has been created between different manufacturers of strawboard. The exemption is not made applicable to units which had been producing paper in addition to strawboard of an aggregate weight of more than 5000 metric tons. The obvious answer to this line of approach is that the benefit to be conferred is on small-scale manufacturers with the object of maintaining at a proper level the production of strawboard. There would not be much point in giving advantage to large scale producers of paper and allied products producing more than 5000 metric tons of paper and strawboard. When a unit produces both paper and strawboard, it is reasonable to conclude that the manufacturing unit as a whole is a large scale producer when the aggregate production is more than 5000 metric tons. The aforesaid illustrations do not, in our view, establish that the impugned notification lacks the foundation of an intelligible differentia or that it has no rational or reasonable connection with the object to be achieved. 11. It may be that a rough and ready line has been drawn between units which are producing less or more than 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ality of the delegated legislation under which the exemptions have been granted, the attack in the arguments had been centred, within narrow bounds. It has been urged that section 38 of the Act requires all rules made and notifications issued under this Act to be published in the Official Gazette, and under the proviso, every such rule has to be laid, as soon as may be after it is made, before the Parliament while it is in session, for a total period of thirty days. It is pointed out that the impugned notification has not been laid before the Parliament. The official publication of the notification in the Official Gazette has not been denied. It is said that the notification in effect embodies a rule which empowers the Government to make an exemption under clause (xvii) of sub-section (2) of section 37 and should have been placed before the Parliament. In our view, there is no merit in this contention. There is the undoubted power to grant exemption under the Rules and rule 8 of the Central Excise Rules, 1944, authorises the Central Government by notification in the Official Gazette to grant exemption on excisable goods. We do not see that the combine operation of the Act and the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onomies of scale and mass production, it is said : "In many industrial processes, there is an increase in efficiency as their scale increases .... economies of mass production are often related to the following circumstances : (1) Use of power, steam, electricity etc.; (2) Automatic self-adjusting mechanisms; (3) Use of standardized, interchangeable parts; (4) Breakdown of complex processes into simple repetitive operations; (5) Specialization of function and division of labour; and many other technoligical factors; ......... Upon thought it will be evident that each of these economies or savings comes into full, play only if a large enough number of units is being produced to make it worth while to set up a fairly elaborate productive organisation.... Economies of scale are very important in explaining why so many of the goods we buy are produced by larger companies." 16. In the case of Orient Weaving Mills (P) Ltd. and Another v. Union of India and Others, 1978 (2) E.L.T. (J311) (S.C.) = A.I.R. 1963 S.C. 98, it was held that Rule 8 of the Central Excise Rules which confers upon the Central Government the power to exempt partly or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lector of Central Excise, 1978 (2) E.L.T. (J307) (S.C.) = A.I.R. 1963 S.C. 104, the petitioner, a manufacturer of Flex Shoes, moved under Article 32 to strike down imposition of excise duties on the ground that it created a discrimination in the trade as it was imposed on bigger manufacturers. The contention was repelled by Mr. Justice Hidayatullah, delivering the judgment of the Court, in these words : Manufacturers who employ 50 or more workers can be said to form a well defined class. Manufacturers whose manufacturing process is being carried on with the aid of power exceeding 2 H.P. are also a well defined class.... It is well known that the bigger manufacturers are able to effect economies in their manufacturing process and their out-turn being both large and rapid they are able to undersell small manufacturers. If this were not so mass production would lose all its advantages.... Therefore, in imposing the Excise Duty, there was a definite desire to make an exemption in favour of the small manufacturer who is unable to pay the duty as easily, if at all as the big manufacturer. Such a classification in the interests of cooperative societies, cottage industries, and small ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence on the various types of producers, cannot substitute its own judgment for that of the Executive. Mr. Desai contends that no limit could at all be fixed and the duty once levied cannot be exempted at all. This contention obviously has been urged to avoid the necessity of asking the Court to fix the limit itself. There must be some hardship involved some where when a limit is so fixed and we have already indicated that there may be found some case of hardship for the petitioners as compared with the units producing between 3000 to 5000 metric tons but there is nothing in the material which has been brought before us to justify a declaration that the exemption granted by the notification is discriminatory either in its form or operation Mr. Pathak has placed great reliance on behalf of the petitioners on a recent decision of the Supreme Court in Karimbil Kunhikoman v. State of Kerala, A.I.R. 1962 S.C. 723, where the constitutionality of the Kerala Agrarian Relations Bill and especially the scale of compensation granted had been assailed. The compensation which had become payable under the Act was reduced in progressive cuts as the amount of compensation increased and according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces which justify the conclusion that the statute is colourable and as such, amounts to a fraud", as observed by Mr. Justice Gajendragadkar at page 1572. 22. The learned Solicitor-General has contended, and in our opinion rightly, that a classification should be upheld even if some reasons could be conceived for its justification as stated by Willis on Constitutional Law. He has placed reliance on an American case of Madden v. Kentucky (United States Supreme Court Reports 84 Law, Ed. 590, at page 593), where it is stated in headnote 2 that : "The broad discretion as to classification possessed by a legislature in the field of taxation has long been recognised, .... the passage of time has only served to underscore the wisdom of that recognition of the larger area of discretion which is needed by a legislature in formulating sound tax policies. It has, because of this, been pointed out that in taxation, even more than in other fields, legislatures possess the greatest freedom in classification. Since the members of a legislature necessarily enjoy a familiarity with local conditions which this Court cannot have, the presumption of constitutionality can be overcome only by the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the land and consequently of its productive capacity. Under the Act, the charge has to be levied, whether or not any income has been derived from the land. The Legislature was so much in earnest about levying and realising the tax that it could not even wait for a regular survey of the lands to be assessed with a view to determining the extent and character of the land." 23. In the instant case the production capacity is the primary consideration in making the classification and the grounds which prevailed with their Lordships in declaring the legislation to be bad do not manifestly support the contention of the petitioners' counsel. Here, the exemption is made within well defined categories and its foundational basis is that the small producers deserve consideration from the hands of the Executive Government to enable them to withstand the competition of larger producers. 24. In our view, the petitions must fail as no case of discrimination under Article 14 has been made out, though we would repeat that there may be some hardship to the petitioners in respect of the exemptions granted to the units producing between 3000 to 5000 metric tons and beyond this observation the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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