TMI Blog1971 (1) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... . The High Court was justified in striking down the notices dated November 3, 1961 Ex. G. as well as the demand dated December 2, 1961 under Ex. H. Appeal dismissed. - 1467 of 1967 - - - Dated:- 22-1-1971 - J.M. Shelat and C.A. Vaidialingam JJ. [Judgment per : Vaidialingam, J.]. - This appeal by certificate is directed against the judgment and order of the Division Bench of the Bombay High Court dated July 1/2, 1965 confirming the decision dated August 6/7, 1963 of the learned single Judge in Miscellaneous petition No. 20 of 1962 quashing the two notices of demand dated November 3, 1961 issued by the second appellant as also the notice dated December 2, 1961 issued by the first appellant for payment of the amount covered by the said two notices. 2. The circumstances leading up to the filing of the writ petition may be mentioned. The respondents own a textile mill at Elphinstone Road, Parel, Bombay where they manufacture inter alia, grey cloth. They also have a factory situated at Tulsi Pipe Land Road, Bombay for processing grey cloth into various other goods like leather cloth, book binding cloth and other coated fabrics. Under Section 3 of the Central Excises and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the period July 4, 1958 to September 30, 1959 although it was utilised for manufacturing leather cloth and imitation cloth. The respondents lateron obtained the necessary licence with the result that they became entitled to remove the grey-cloth manufactured at their textile mill to their factory without paying excise duty on the grey-cloth at the time when the goods were removed. The grey-cloth so removed after September 30, 1959 and before July 30, 1960 used to be kept in the bonded godown. Those goods were removed to the factory after filling up the necessary forms and obtaining the permission of the Excise Inspector Incharge of the factory. The grey-cloth after it was processed and made into leather cloth or imitation leather cloth was again stored in another bonded godown, in the factory and they were removed by the company as finished products after filling in form A.R.I, prescribed by the rules. There is again no dispute that in each of these A.R.I forms, the company had shown and made a declaration that the excise duty payable on the goods governed by the forms was 'nil'. Under the heading 'Assessment Memorandum' in the Said form the particulars regarding rate of duty a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts also addressed a letter on the same lines to the Central Board of Revenue. 7. As there was no favourable response from the appellants they filed the writ petition, out of which these proceedings arise, in the High Court to quash Exhibits G and H. 8. The respondents contended before the High Court that neither Rule 9 nor Rule 10-A gave power to the appellants to issue the demand notices. Their stand was that if at all it was Rule 10 that applied and as the demands have been made long after the period of three months prescribed in the said Rule, the notices were illegal and void. 9. On behalf of the appellants it was urged that Rule 10 has no application as that Rule will apply only when duties and charges have been 'short levied'. As initially no amount has been levied in this case, Rule 10 has no application. According to the appellants the rule applicable was Rule 10-A. Alternatively it was contended that if Rule 10-A did not apply, the demands made by them were amply covered by Rule 9 (2). 10. The learned single Judge accepted the contention of the respondents and held that Rule 10 applied and as the demand notices had been issued long; after the expiry of three months ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otes that full duty has not been collected. He also urged that Rule 10-A covers all cases of levy or non-levy for any reason whatsoever and the notices issued by the appellants in this case are legal and valid. He finally urged that even if it is held that Rule 10-A does not apply the notices could be sustained under Rule 9 (2) inasmuch as the respondents have removed the goods without payment of duty in contravention of Rule 9(1). The mere fact that one of the notices issued on November 3, 1961 refers to Rule 10-A is not on that ground invalid when the authorities have ample power to issue under Rule 9 (2). 13. Mr. Daphtary, learned Counsel for the respondents and Mr. Sorabjee, learned Counsel for an intervener have both contended that the notices issued by the appellants squarely come under Rule 10 and as they have been issued beyond the period of three months they have been rightly held to be invalid and illegal. Though the words used in Rule 10 are "duty or charge so paid" reading the rule as a whole it is clear that the rule does not contemplate that any amount should have been paid. The word "paid" has only been used to provide a starting point of limitation of three months ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legitimate source, the fact that the same was purported to have been exercised under different power does not vitiate the exercise of the power in question. This is a well settled proposition of law. In this connection reference may usefully be made to the decisions of this court in B. Balakotaiah v. Union of India, (1958) SCR 1052 = (AIR 1958 SC 232) ; and Afzal Ullah v. State of U.P., (1964) 4 SCR 1991 - (AIR 1964 SC 264)." 15. In this case, the officer who issued the two notices is competent to make demands under both Rule 9 (2) and Rule 10-A. But in order to sustain the validity of the demand either under Rule 9 (2) or Rule 10-A, the appellants will have to go further and establish that the demands can be justified under either of the rules. 16. Before we deal with the contentions of the learned Counsel we may state that Rule 10-A was incorporated because of the decision of the Nagpur High Court in Chhotabhai Jethabhai Patel v. Union of India, ILR (1952) Nag. 156 = (AIR 1952 Nag. 139). The assessees in that case were a firm of tobacco merchants and manufacturers of bidis holding licence under the Central Excise Rules. On the introduction in Parliament of Bill No. 13 of 1951 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns "actually paid", whereas, according to the respondents, it means "ought to have been paid". Taken literally the word "paid" does actually mean paid in cash. That means that a party or an assessees must have paid some amount of duty whatever may be the quantum. If this literal interpretation is placed on the expression "paid" in R. 10, it is needless to state that it will support in a large measure the contention of Dr. Syed Mohammad that R. 10 contemplates a short-levy in the sense that the amount which falls short of the correct amount has been assessed and actually paid. In our opinion, the expression "paid" should not be read in a vacuum and it will not be right to construe the said word literally, which means actually paid. That word will have to be understood and interpreted in the context in which it appears in order to discover its appropriate meaning. If this is appreciated and the context is considered it is apparent that there is an ambiguity in the meaning of the word "paid". It must be remembered that Rule 10 deals with recovery of duties or charges short levied or erroneously refunded. The expression "paid" has been used to denote the starting point of limitation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found to be deficient. Further interest has to be calculated from 1st January of the financial year in which tax mentioned therein was paid and calculation has to be made on the shortfall between the amount paid and eighty per cent of the tax which was found payable on regular assessment. Sub-section (8) of Section 18-A provided : "Where on making the regular assessment the Income-tax Officer finds that no payment of tax has been made in accordance with the foregoing provisions of this section, interest calculated in the manner laid down in sub-section (6) shall be added to the tax as determined on the basis of the regular assessment." 20. The assessee in that case did not dispute that sub-section (3) of Section 18-A applied to him and that he should have made an estimate and paid advance tax. He also admitted that he never made an estimate nor did he pay any advance tax whatsoever. While admitting that sub-section (8) of section 18-A applied to him, the assessee contended before this Court that since he had not paid any tax at all, it is not possible to calculate interest in the manner laid down in sub-section (6). According to the assessee there was no 1st day of January of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... propositions: (1) though the expression used was "paid" it is open to read as "ought to have been paid" having regard to the context in which it appears and to make the provision of law in which that expression appears workable, and (2) the short fall will be the entire eighty per cent referred to in sub-section (6) of Section 18-A. 23. Applying the above principles to the case on the hand, the expression "paid" in Rule 10 can be reasonably read as "ought to have been paid". Similarly even in cases where there has been a nil assessment due to one or other of the circumstances mentioned in Rule 10 and if subsequently it is found that duty is payable, then the entire amount of duty should be considered to have been short levied. The literal meaning of the expression "paid" as actually paid in cash has again not been adopted by the Court of Appeal in (1968) 1 QB 487. Having regard to the context in which the said expression appeared in the particular provision which came up for interpretation, the Court of Appeal construed the expression to mean "contracted" to be paid". Therefore, the contention of Mr. Daphtary that the expression "paid" should be construed as "ought to have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion again an order of nil assessment is passed in which case no duty would have been paid, according to the appellants Rule 10-A will apply. We do not see any reason to distinguish the above two cases one from the other. Both are cases of collusion and if an assessee in collusion manages to have a petty amount of duty assessed and paid he can effectively plead limitation of three months under Rule 10. Whereas in the same of collusion where no duty has been levied there will be no period of limitation. In our opinion, that will not be a proper interpretation to be placed on R. 10-A by us. By the interpretation placed by us on Rule 10, the position will be that an assessee who has been assessed to the smaller amount as well as an assessee who has been assessed to nil duty will all be put on par and that is what is intended by Rule 10. 26. The above reasoning leads to the conclusion that Rule 10-A does not apply to the case on hand. Then the question is whether the demands could be justified under Rule 9 (2). Even here we find considerable difficulty in sustaining the notice under this rule. Sub-rule (1) of Rule 9 provides for the time and the manner of payment of duty. In this cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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