PETITIONER:
UNION OF INDIA AND OTHERS
Vs.
RESPONDENT:
GARWARE NYLONS LTD. ETC.
DATE OF JUDGMENT: 09/09/1996
BENCH:
S.P. BHARUCHA, K.S. PARIPOORNAN
ACT
HEADNOTE
JUDGMENT
WITH
CIVIL APPEAL NO. 11644 OF 1996
(Arising out of S.L.P. (C) Nos. 11008 of 1988
AND
CIVIL APPEAL NO. 7564 OF 1996
JUDGMENT PARIPOORNAN, J.
Special leave granted in S.L.P. (C) No. 11008 of 1988. 2. The above three appeals involve a common question of law, namely, whether "Nylon Twine" can be considered as "Nylon Yarn" so as to be covered by Item 18 of the First Schedule to the Central Excises and Salt Act, 1944 (hereinafter referred to as "the Act") as it stood prior to the Amendment of 1977.
"18 RAYON AND SYNTHETIC FIBRES AND YARN ------------------------------------------------------------ Tariff Item Description of goods Rate of duty Basic ------------------------------------------------------------ 18. RAYON AND SYNTHETIC FIBRES AND
YARN INCLUDING TEXTURED YARN, IN
OR IN RELATION TO THE MANUFACTURE
OF WHICH ANY PROCESS IS ORDINARILY
CARRIED ON WITH THE AID OF POWER:-
(i) Fibres and Yarn other than Rs. 85.00 per kg.
Textured Yarn.
(ii) Textured Yarn produced out of The duty for
Base Yarn. the time being
leviable on the
base yarn, if
not already paid
plus Rs. 20/-
per kg.
(iii) Other Textured Yarn Rs. 105.00 per
kg. Explanation-I "Fibres and Yarn, other than Textured yarn", shall be deemed to include -
(i) man-made fibres;
(ii) man-made metallic yarn;
(iii) spun (discontinuous yarn
containing not less than
ninety per cent by weight
of man-made fibres
calculated on the total
fibre content; and
(iv) man-made filament (continuous)
yarn that has not been
processed to introduce crimps,
coils, loops or curls along
the length of the filaments, but
does not include bulked yarn and
stretch yarn. Explanation-II "Textured Yarn means yarn that has been processed to introduce crimps, coils, loops or curls along the length of the filaments and shall include bulked yarn and stretch yarn. Explanation-III "Base Yarn" means yarn falling under sub-item (i) of the this Item from which the Textured Yarn has been produced. Explanation-IV - This item does not include mineral fibres and yarn." 3. It will be useful to note that from 1st March, 1977 a new item i.e. Item 68 was introduced to the first schedule to the Act which is to the following effect. " ----------------------------------------------------------- Tariff Item Description of goods Rate of duty Basic ------------------------------------------------------------ 68. ALL OTHER GOODS, NOT ELSEW HERE 1% Adv.
SPECIFIED, MANUFACTURED IN A
FACTORY BUT EXCLUDING - a) alcohol all sorts including
alcoholic liquors for human
consumption;
................" Item 18 was also amended int he following manner: "II. Man-made filament yarns- (i) Non-cellulosic -
(a) other than textured
(b) textured
Explanation: "Textured Yarn" means yarn that has
been processed to introduce crimps, coils, loops
or curls along the length of the filaments and
shall include bulked yarn and stretch yarn. (ii) Cellulosic; (iii) Metallized." 4. We heard Counsel. 5. In this group, the main appeal is Civil Appeal No. 715/81. It is an appeal preferred by the Union of India (Revenue) against the judgment and order of the High Court of Bombay dated 9.4.1980 rendered in Special Civil Application No. 2974/78. In the other two cases, the judgment in special civil application No. 2974/78 was followed. The judgment in the said special civil application is reported in 1980 (6) E.L.T. 249 (Bom.). 6. The respondents-assessees manufacture "Nylon Yarn" and "Nylon Twine". They are doing so eversince 1962. Under first schedule, Item 18 of the Act excise duty is payable in respect of "Nylon Yarn" as specified therein. The notification issued under Rule 8 of the Excise Rules provided that "Nylon Yarn", which is meant for use int he manufacture of fishing nets and parachute cords is exempt from the payment of so much of excise duty leviable under Item 18 as is in excess of Rs.4/- per kg. The assessees contended that "Nylon Twine" manufactured by them is used for the purpose of making fishing nets. Prior to 1975 they were allowed to clear Nylon Twine manufactured by them on payment of excise duty as specified under the above exemption notification. Thereafter, when the new item, viz Item 68 (residuary entry) was introduced in the Act, it was contended by the Excise Authority that Nylon twine manufactured by the assessees was not covered by item 18. According to the Revenue Nylon twine and Nylon yarn are two different items and Item 18 takes within its fold Nylon yarn only and not Nylon twine. The authorities claimed excise duty on "Nylon twine" under Item 68. The assessees paid such duty under protest. Thereafter, the application filed by the assessees for refund before the Assistant Collector failed. He passed an order to that effect on 28.5.1976. The appeal filed was rejected by Appellate Collector on 28.9.1976. Similarly the Central Government rejected the revision by order dated 31.10.1979. It is thereafter the assessees approached the High Court of Bombay for refund of the amount paid under protest. A Division Bench of the High Court heard and disposed of the petition by judgment and order dated 9.4.1980. Sujata Manohar, J. delivered the leading judgment and Masodkar, J., though for different reasoning, agreed with the conclusion of Sujata Manohar, J. 7. Sujata Manohar, J., after referring to the following materials - viz. - Encyclopaedia Britennica, Vol.X (abridged version), the Indian Standards Indstitution Standard bearing No. AIS 332 of 1967 wherein the expressions "Twine and Yarn" were dealt with, the Indian Standards Institution Standard bearing No. IS 1402-767 relating to "netting for fishing", the Manual called "Netting Materials for Fishing Gear" the manual published by the Food and Agriculture Organisation of the United Nations, the orders received by the assessees from the Director of Fisheries, Madras, two affidavits, one from the Managing Director of Maharashtra Rajya Machimar Sekhari Sangh Limited and another from a Partner of Maharashtra Fishing Material Company, concluded thus, in paragraph 14 of the judgment:
"14. There is, however, sufficient
material on record which goes to
show that nylon twine manufactured
by the petitioners has been treated
as a kind of nylon yarn by the
people in the trade. It is commonly
considered as yarn. Hence it can be
classified under Item 18. The
respondents have failed to
establish that nylon twine must be
taxed under Item 68, as it is not
covered by Item 18 of the First
Schedule. The respondents are the
taxing authorities, and they must
show that the item in question is
taxable in the manner claimed by
them. the burden is on the taxing
authorities to show that the item
in question is taxable in the
manner claimed by them."
(Emphasis supplied)
The learned Judge, therefore, directed the Revenue to refund to the assessees the excess amount collected from them as Central Excise Duty on the basis that "Nylon Twine" falls under Item 68 of the First Schedule to the Act. 8. Sri P.A. Chaudhary, Senior Advocate, appearing for the Union of India - appellant, contended that Nylon Twine is different from Nylon Yarn, that Item 18 of the Act would cover only "Nylon Yarn" and not Nylon Twine; that a mere look of Nylon Twine will go to show that it is different from Nylon Yarn,; that in commercial different physical characteristics. He stressed that Nylon Twine -- the commodity involved int e instant case is not known as "Nylon Yarn" and so, the same is outside the purview of Item 18 of the Act. Certain decisions of general application were also cited. Counsel for the respondents - assessees contended that the Nylon Twine is nothing but Nylon Yarn, other than textured yarn and referred to the Encyclopaedia Britennica, Vol X (abridged version), and the literature issued by the Indian Standards Institution and others, the trade inquiries and the affidavits filed by persons in the particular trade, would conclusively show that Nylon Twine is considered as a kind of Nylon Yarn by the traders and persons dealing with the subject matter and the High Court had abundant material to substantiate the above proposition. 9. We do not think it is necessary, especially in this batch of cases, to refer in detail to the decisions cited by the Revenue or the text-books and the literature of the Indian Standards Institution and the Manual published by the Food and Agriculture Organisation, United Nations, as to what is meant by "Twine", "yarn", "netting twine" etc. referred by the High Court. In this case, clinching evidence is afforded to demonstrate that trade and industry which deals with the goods, consider "Nylon Twine" as a kind of "Nylon Yarn". 10. Thee are innumerable decisions of this Court which have laid down the test or the principles to be borne in mind in construing the Items or Entries in Fiscal Statutes. In recent decision in Indian Cable Company Ltd., Calcutta v. Collector of Central Excise, Calcutta and Others, [(1994) 6 SCC 610 - at page 615] a three-member Bench stated the law thus:
"........ in construing the
relevant item or entry, in fiscal
statutes, if it is one of every day
use, the authority concerned must
normally, construe it, as to how it
is understood in common parlance or
int he commercial world or trade
circles. It must be given its
popular meaning. The meaning given
in the dictionary must not prevail.
No should the entry be understood
in any technical or botanical or
scientific sense. In the case or
technical words, it may call for a
different approach. The approach to
be made in such cases has been
stated by Lord Esher in Unwin v.
Hanson thus:
"If the Act is directed to dealing
with matters affecting everybody
generally, the words used have the
meaning attached to them in the
common and ordinary use of
language. If the Act is one passed
with reference to a particular
trade, business, or transaction,
and words are used which everybody
conversant with that trade,
business or transaction knows and
understands to have a particular
meaning in it then the words are to
be construed as having that
particular meaning, though it may
differ from the common or ordinary
meaning of the words."
We would only add that there should
be material to enter appropriate
finding in the case. The material
may be either oral or documentary
evidence."
(Emphasis supplied) 11. In a subsequent decision in Collector of Central Excise, Chandigarh v. Steel Strips Ltd., Sangrur, [(1935) 4 SCC 241 - at pages 243-24], another three-member Bench stated the law thus:
"............... We find no
evidence upon the record in regard
to what happens to hot-rolled steel
strips before cold-rolled steel
strips are produced."
It cannot be sufficiently
emphasised that when it is the case
of the Excise authorities that an
article is the result of a process
of manufacture and it is
commercially distinct and known as
such, it is for the Excise
authorities to lay evidence in this
behalf before the first
adjudicating authority regardless
of the fact that he is an officer
of the Excise Department. There
should, ordinarily, be article is
the result of a process of
manufacture; in the event of
difficulty, it would be open to the
Excise authorities to seek a
direction requiring the assessee to
set out in writing what it does to
obtain the article. Too often, as
our experience in this Court and in
the High Courts, before the
Tribunal was established, shows,
lack of evidence has led to the
failure of the case of the Excise
authorities and, consequently, to
the loss of revenue to the State.
Failure to lay the requisite
evidence cannot be made up by
reference to authoritative
publications unless the Excise
authorities inform the assessee
that they propose to rely upon the
same before the adjudicating
authority ........... Technical
evidence and authoritative
publications must, therefore, be
placed in the first instance before
the adjudicating authority and the
Tribunal. They have the requisite
technical expertise to evaluate the
same."
(Emphasis supplied) 12. The law on the point as laid down by this Court (in various decisions) has been summarised int he book "Principles of Statutory Interpretation" (Sixth Edition - 1996) by Justice G.P. Singh, at pages 67, 70, 72 and 73, thus:
"............ So in construing
entries of goods in Excise, Customs
or Sales Tax Acts resort should
normally be had not to the
scientific or technical meaning but
to their popular meaning viz. the
meaning attached to the expressions
by those dealing in them.
............... The popular meaning
int he context of a Sales Tax Act
is that meaning which is popular in
commercial circles for the Act
essentially, in its working, is
concerned with dealers who are
commercial men."
"The justification of the rule that
the words are to be understood in
their natural, ordinary or popular
sense is well expressed by JUSTICE
FRANKFURTER: "After all legislation
when not expressed in technical
terms is addressed to common run of
men and is therefore to be
understood according to sense of
the thing, as the ordinary man has
a right to rely on ordinary words
addressed." In determining,
therefore, whether a particular
import is included within the
ordinary meaning of a given word,
one may have regard to the answer
which everyone conversant with the
word and the subject - matter of
statute and to whom the legislation
is addressed, will give if the
problem were put to him."
xxxx xxx xxx xxx
"As a necessary consequence of the
principle that words are understood
in their ordinary or natural
meaning in relation to the subject-
matter, in legislation relating to
a particular trade, business,
profession, art or science, words
having a special meaning in that
context are understood in that
sense. Such a special meaning is
called the technical meaning to
distinguish it from the more common
meaning that the word may have.
................ The Supreme Court
"has consistently taken the view
that, in determining the meaning or
connotation of words and
expressions describing an article
in a tariff Schedule, one principle
which is fairly well settled is
that those words and expressions
should be construed in the sense in
which they are understood in the
trade by the dealer and the
consumer. The reason is that it is
they who are concerned with it,
and, it is the sense in which they
understand it which constitutes the
definitive index of legislative
intention". " 13. Stated briefly, we should understand, the expression occurring in Item 18 of the Act, in the sense, in which the persons who deal in such goods understand it normally. 14. In this case, apart from the meaning given to the words "Yarn", "Twine" etc., in the standard works referred to by the High Court, two items of evidence stand out prominent and clinch the issue. The first is, an order received by the assessee from the Director of Fisheries, Madras which goes to show that Nylon Twine is considered as a type of Nylon Yarn used for making fishing nets. The second is, two affidavits filed by the assessees before the authorities - one from the Managing Director of Maharashtra Rajya Machimar Sekhari Sangh Limited and another from a Partner of Maharashtra Fishing Material Company, wherein it is stated that "Twine" is a category of "Yarn"> What is more - the assessees made available the above persons who have sworn to the affidavits for cross-examination at the time of the hearing of the applications, but the Revenue did not crossexamine them. The trade inquiry received by the assessees and also the affidavits conclusively point out that Nylon Twine is considered as a kind of "Nylon Yarn" in the particular trade by persons conversant with the subjectmatter. The revenue has not let in any material to the contra. 15. In our view, the conclusion reached by the High Court is fully in accord with the decisions of this Court and the same is justified in law. The burden of proof is on the taxing authorities to show that the particular case or item in question, is taxable in the manner claimed by them. Mere assertion in that regard is of no avail. It has been held by this Court that there should be material to enter appropriate finding in that regard and the material may be either oral or documentary. It is for the taxing authority to lay evidence in that behalf even before the first adjudicating authority. Especially in a case a this, where the claim of the assessee is borne out by the trade inquiries received by them and also the affidavits filed by persons dealing with the subject matter, a heavy burden lay upon the revenue to disprove the said materials by adducing proper evidence. Unfortunately, no such attempt was made. As stated, the evidence led in this case conclusively goes to show that Nylon Twine manufactured by the assessees has been treated as a kind of Nylon Tarn by the people conversant with the trade. It is commonly considered as Nylon Yarn. Hence, it is to be classified under Item 18 of the Act. The Revenue has failed to establish the contrary. We would do well to remember the guidelines laid down by this Court in Dunlop India Ltd. v. Union of India (AIR 1977 SC 597 - at page 607), in such a situation, wherein it was stated:-
"......... When an article has, by
all standards, a reasonable claim
to be classified under an
enumerated item in the Tariff
Schedule, it will be against the
very principle of classification to
deny it the parentage and consign
it to an orphanage of the residuary
clause."
(Emphasis supplied) 16. We concur with the reasoning and conclusion of the High Court. There is no substance in these appeals. The judgment s appealed against in this batch of appeals are affirmed. The appeals are dismissed with costs, including Counsel’s fee of Rs.5,000/- in each case.