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TMI Blog1985 (7) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... financial year of 1982 the company had paid more than 350 crores as Central Excise Duty. It has been averred that the petitioner-company manufacture two distinctly different categories of tobacco products from unmanufactured tobacco, namely, factory-made cigarettes on the one hand and smoking mixture for pipes and hand-rolled cigarettes on the other. It is their case that the smoking mixture for pipes and hand-rolled cigarettes is essentially different in its raw material, the process of manufacture and its character and content from the Contents of machine-made factory cigarette. In paragraph 8 and in particular sub-paragraphs (a) to (n) thereof the distinctive features of the content and the process of manufacture of smoking mixture for pipes and hand-rolled cigarettes are detailed seriatim to highlight their contrast with the content and process of manufacture of the machine-made cigarettes spelt out in sub-paragraphs (a) to (g) of paragraph 9. It is the case that the unmanufactured tobacco, i.e., in-process material used for the manufacture of machine-made cigarettes, is referred to and commercially known as cut tobacco and is not a finished product which is capable of being m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribing the said product as manufactured tobacco mixture for the years 1978-79 to October, 1982. 4. It is the petitioner company's stand that because of the oppressive nature of the demand, the company had no alternative but to close down their production in the factory at Munger because it was impossible to continue the manufacture of their products by paying excise duty at the rate of 300 per cent before the completion of the manufacture of cigarettes and also to pay duty at the rates ranging from 372 to 413 per cent on the same cigarettes when so manufactured. Facing grave financial loss, the petitioner company preferred an appeal under Section 35B of the Central Excises and Salt Act, 1944 (hereinafter to be referred to as the 'Act') to the Tribunal and sought relief by way of an interim stay which, however, could not be secured. The petitioner company's efforts to secure any other interim relief from the respondents also met with the same fate and (vide Annexure A) the respondents reiterated their stand and requested the petitioner company to submit the price list for the alleged smoking mixture used in the rolling of the cigarettes in the factory which, according to them, were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., Jhansi v. The Excise Commissioner, U.P. and Others (A.I.R. 1971 S.C. 378) - "Coming to the medicinal preparations with which we are concerned in this case, it was urged that if the view taken by the High Court is correct then, first the tincture used became dutiable and hereafter the medicinal preparations in which tincture was used became dutiable. It was said that that could not be the intention of the Parliament. We are unable to appreciate this contention. Multi-point taxation is not unknown to us." It was again observed in Avinder Singh and Others v. State of Punjab and Others - (1979) Supreme Court Cases 137 - that there was no constitutional bar against double taxation. There is thus no manner of doubt that the legislature, if so minded, can levy multi-point excise duty on unmanufactured or manufactured tobacco as well. The question here is not at all one of the power or competence of the legislature to do so which is not at all in dispute. It is plainly one of interpretation only. The issue herein is whether on fair construction of the language of the tariff item from the legislature has clearly mandated a multi-point excise levy firstly at the stage of cut tobacco in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moking mixtures for pipes and cigarettes; Forty Rupees - do - (3) if flue-cured and not otherwise specified; Twenty Rupees - do- (4) if other than flue-cured and used for the manufacture of (a) cigarettes or (b) smoking mixtures for pipes and cigarettes; Twenty Rupees - do- (5) if other than flue-cured and not actually used for the manufacture of - (a) cigarettes or (b) smoking mixtures and cigarettes or (c) biris - stems of tobacco larger than 6.35 millimetres in (i) size, (ii) dust of tobacco, (ii) (iii)x x x (iv) tobacco cured in whole leaf form and packed or tied in bundles, hanks or bunches or in form of twists or coils; Three Rupees - do - if other than flue-cured and not otherwise (6) specified; Four Rupees - do - if used for agricultural purposes; (7) (8) Stalks. One Rupees & Ninety Paise -do - II Manufactured tobacco - (1) Cigars and Cheroots One Hundred & Seventy per cent ad valorem -do- (2) Cigarettes Two Hundred and Sixty Rupees per thousand or One Hundred and Seventy-five per cent ad valorem, plus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. It would thus appear that the clear legislative intent is that for purposes of excise levy manufactured tobacco and unmanufactured tobacco are not to overlap with regard to each of the sub-items. 11. To complete the legislative background, it deserves mention that in the year 1973 Mr. Y.V. Chavan, the then Finance Minister, moved the Finance Bill, which was subsequently enacted, to significantly enhance the excise levy on machine-made cigarettes. He also introduced a levy separately on smoking mixtures for pipes and hand-rolled cigarettes in order to bring this class also within the net. The purpose and object of these changes was well elaborated by the Finance Minister whilst moving the Finance Bill and in view of some obscurity and intricacy of interpretation involved it would become necessary to make some detailed reference to this aspect hereinafter. 12. Against the aforesaid background, one may now turn to the specific language of sub-item (4), category II. This would bear repetition and is plainly couched in the words - "smoking mixtures for pipes and cigarettes". It is significant to note that the legislature herein is not employing any scientific pharaseology or any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... International Industries v. Commissioner of Sales Tax (A.I.R. 1981 S.C. 1079). 13. Now once it is told - as it must be - that the smoking mixtures for pipes and cigarettes should be construed as understood in common parlance or in the commercial parlance of the market yard, the matter becomes somewhat easy sailing for the petitioners. The firm stand taken on behalf of the writ petitioners has been that in the tobacco trade and equally in the commercial parlance of the consumers the smoking mixtures for pipes and hand-rolled cigarettes, which is directly used by the consumers, is radically different from the cut tobacco which is in-process for the manufacture of machine-made cigarettes in a factory. In paragraphs 8 and 9 of the writ petition the glaring difference betwixt the raw material, the process of manufacture, the methodology of packing and marketing, the end product of smoking mixture for pipes and cigarettes on the one hand and those of making machine made cigarettes in the factory on the other have been highlighted in great detail and with particularity it is pointed out that smoking mixture for pipes and cigarettes is the end finished product fit for handing over the sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urs are prominent both in tobacco and smoke and desirable for pipe smoking. 6. APPLICATION OF FLAVOUR Sometimes applied on specific part of the blend with casing and sometimes on cut tobacco after drying to 13-14%M.C. Always carried out mechanically through sprays. The total blend re-eives the flavours manually on layered tobacco with a whisk brush. 7. BULKING TIME 3-4 hours before cutting. Minimum 48 hours to allow absorption of high level of casing and flavour. 8. PRE-CUTTING No special treatment reqd. as the fluffy character of tobacco has to be maintained. Kept' under heavy pressure to allow caking for which 48 hours period of holding the tobacco under pressure is necessary. 9. CUTTING 40-50 cuts per inch at 13-20% moisture content. 20-30 cuts per inch for flake, for pipe smoking, 60 cuts per inch for roll your own tobacco at 16% moisture content. 10. STEMS Separately processed added here. NIL 11. DRYING The cut tobacco at 10-20% M.C. is dried to 13-15%M.C. and cooled to ambient conditions. Process ended at cutting. 12. STORAGE Cut tobacco is held for 24 hours in skips of 20 kg. each in special room in which the temperature and relative humidity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled by hand into a cigarette because of the lack of moisture and breakability, it would drop out of the paper forthwith. On the other hand, smoking mixtures for pipes and cigarettes, if attempted to be rolled in a machine, would jam the mechanism because of the moisture and their sticky and non-fluffy content. 14. No pleading worth the name or rebuttal material has been brought on the record by the respondents to repel the clear cut stand of the writ petitioners in this context. In any event, if it was the stand of the respondents that cut tobacco in the process of manufacture of machine made cigarettes is commonly known as smoking mixture, the burden of proof would squarely lie on them. The respondents have failed to discharge this onus. Indeed, no averment has been made far from there being any credible evidence produced to show that in common or commercial parlance and in the tobacco trade circles inevitably the in-process raw material for the manufacture of the machine made factory cigarette is known or accepted as the smoking mixture for pipes or smoking mixture for cigarettes. 15. To sum up on this aspect, it must be held that on the authoritative common or commercial parl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olling out machine-made cigarettes by the billion. This seems to be the more so when this item is further sub-divided as it must be. So done, it will read as follows : (i) Smoking mixtures for pipes. (ii) Smoking mixtures for cigarettes. Even the learned Advocate-General had no option but to concede that so far as the smoking mixtures for pipes were concerned, they are obviously and patently an end consumer product. The smoking mixture is packed in pouches and sold and passed to the consumer for stuffing into his pipe and smoking it without any further intervening process. Would this identical smoking mixture, if stuffed and rolled into the cigarette of the connoisseur who chooses to hand-roll his own change the basic character of the product? To my mind, it certainly would not end, therefore, both smoking mixture for pipes and smoking mixture for cigarettes must remain on an identical footing. Construing it otherwise would be patently doing violence both to its language as also the larger scheme of tariff item 4 and its clear cut sub-division into two categories. If the argument on behalf of the respondents were to be accepted, it would lead to anomalous result that whilst all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the legislature would not have wasted its words repeatedly by drawing the clear cut distinction between the two in category I as well. 19. To sum up on this limited aspect, it has to be held that sub-item (4) in category II like its other sub-items (1) to (3) and (5) to (7) is also intended to apply to the end finished product for the immediate consumption of the limited and elitist class of consumers, smoking pipes or hand-rolling their own cigarettes only. It cannot be stretched or strained to cover any in-process or intermediary material without doing patent violence, to its language. 20. The learned Advocate-General with his usual perspicacity had contended that there was no warrant for construing the word 'cigarettes' in sub-item (4) of category II as hand-rolled cigarettes. The submission was that the legislature had used the word 'cigarettes' without any qualification and it cannot be permissible to interpose the word 'hand-rolled' therein. On that premise, it was contended that the word 'cigarettes' herein must be construed to include in its sweep both hand-rolled cigarettes and machine-made cigarettes. 21. The aforesaid argument, though it brings some credit to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Therein after referring to his proposal for steeply raising excise levies on factory made cigarettes, by which he hoped to raise rupees 32 crores in a full year, he expressly stated as follows : "I am afraid I cannot, while coming down on the cigarette smoker make things easier for the pipe smoker or the person who rolls his own cigarettes. I, therefore, propose to levy a duty on manufactured smoking mixtures for pipes and cigarettes, which will yield about Rs. 80 Lakhs of which Rs. 22 Lakhs will accrue to the States." It is plain from the above that the Finance Minister himself drew the sharp distinction betwixt the ordinary machine made cigarette smoker and the person who rolls his own cigarette. In line with the aforesaid speech, the excise levy was steeply raised on the factory made cigarettes and equally smoking mixtures for pipes and hand-rolled cigarettes were brought into the taxing net. At that time the rate of duty on both the machine-made cigarettes and the smoking mixtures for pipes and cigarettes was a relatively low figure of 200 per cent ad valorem and then later upward changes have been made in this rate. What, however, is of equal, if not more, significance is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garettes and become doubly leviable first under sub-item (4) and then under sub-item (2) of category II. It is common ground that neither any change in law had occurred since the insertion of sub-item (4) of category II in 1973 nor any binding statutory instruction at the national level for universal application has been issued to deviate from the stand and policy consistently adhered to for nearly 10 years, as in the present case it was only on the 7th of October, 1982 that the Additional Collector, Central Excise, made a visit to the factory of the petitioner at Munger. Within 16 days thereafter, unexplicably, on the 23rd of October, 1982 (vide Annexure 2) he seems to have come to the imperial conclusion that cut tobacco in the process of manufacture for the machine-made cigarettes in the said factory, according to him, had now become leviable to tariff item 4(II)(4) of the First Schedule additionally. 24. Faced with this somewhat inexplicable stand aforesaid, the learned Advocate-General's stand was that apparently the revenue was earlier in an error for nearly a decade in not applying this sub-item to machine-made cigarettes. This stand has not appeared to be very tenable and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner of Income-tax, Patiala v. M/s. Shahzada Nand and Sons and others (A.I.R. 1966 Supreme Court 1342), M/s. Baidyanath Ayurved Bhawan (Pvt.) Ltd., Jhansi v. The Excise Commissioner, U.P. and others (A.I.R. 1971 Supreme Court 378) and C.A. Abraham v. Income-tax Officer, Kottayam and another (A.I.R. 1961 Supreme Court 609). It is thus well-settled that any alleged hardship ensuing from a taxing statute is a consideration foreign to its validity or scope in a court of law. However, this rule cannot be stretched to the limit that even though a construction based on the language of a taxing statute leads to patently mischievous and anomalous results, the same should not be avoided. It was conceded before us that barring sub-item (4) all the other sub-items in category II are finished and products ready for the direct consumption of the ultimate consumer. No reason appears why sub-item (4) should not fall in the same class. Again, no other sub-item in category II of manufactured tobacco overlaps the other in the sense that it may be leviable to duty under more heads than one. Therefore, not the remotest reason appears why machine-made cigarettes may come under the ambit of bot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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