PETITIONER:
UNION OF INDIA
Vs.
RESPONDENT:
STATE OF MYSORE
DATE OF JUDGMENT19/10/1976
BENCH:
SHINGAL, P.N.
RAY, A.N. (CJ)
BEG, M. HAMEEDULLAH
CITATION:
1977 AIR 127 1977 SCR (1) 842
1976 SCC (4) 531
ACT
Constitution of India--Article 131--Disputes between
State and Union-Jurisdiction of High Court---Charge of
Excise Duty---Condition of--Whether an article manufactured
or produced before the levy is imposed is excisable.
HEADNOTE
The respondent State of Mysore runs an implements
Factory. The first schedule to the Central Excises and Salt
Act, 1944, was amended whereby item No. 26AA was inserted by
Finance Act, 1962. On the date when the said amendment came
into force the respondent had in his stock, certain iron
rods and bars. After ,the amendment, however, the rods and
bars were put through a further manufacturing process and
were converted into shovels, spades and other agricultural
implements which were not covered by schedule 1. The
Central Excise Inspector issued a demand notice in respect
of the said rods and the bars on the ground that they were
excisable. The respondent contended that no excise duty was
payable on the said articles because when the amendment came
into force, they were already in the stock of the respondent
and that they were not manufactured after the amendment came
into force. The contention of the respondent was negatived
by the authorities under the Act. The Writ Petition filed by
the respondent under Article 226, was allowed.
Dismissing the appeal by Special Leave,
HELD: 1. Under Section 3 of the Act the excise duty is
payable on articles produced or manufactured. It was admit-
ted in the counter affidavit of the appellant that the rods
and bars were not produced or manufactured in the implements
factory of the respondent. The goods which were made out of
the rods and bars were admittedly not excisable goods. The
appeal was dismissed as the goods were not liable to excise
duty. [844 E-H]
2. The contention that the High Court could not have
decided the matter in view of the provisions of Article 131
of the Constitution was negatived on the ground that there
was nothing on regard to show that there was any dispute
between the Central and the State Governments. The Union of
India was made a party merely because it had dismissed the
revision application of the State Government. [845 A-B]
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1695
of 1968.
Appeal by Special Leave from the Judgment and Order
dated 4/5-9-67 of the Mysore High Court in W.P. No. 1416/65.
V.P. Raman, Addl. Sol. Genl., S.K. Mehta and Girish
Chandra for the Appellant.
H.R. Datar and N. Nettar, for the Respondent.
The Judgment of the Court was delivered by
SHINGHAL, J.--This appeal by special leave is directed
against the judgment of the High Court of Mysore dated
September 4/5, 1967. The High Court was moved by the State
of Mysore under article 226 of the Constitution for quashing
the demand notice dated July 21,
843
1962 issued by the Inspector of Central Excise for the
payment of Rs. 2,465.91 as excise duty on the products
despatched by the State’s Implements Factory. The demand
was made with reference to the newly inserted item 26AA in
the First Schedule to the Central Excises and Salt Act,
1944, hereinafter referred to as the Act. That item was
added to the Schedule by the Finance Act of 1962, and it was
claimed by the Central Excise Department that, on the date
of the amendment, the State Government was in possession of
some stock of iron and steel products, namely, flats,
squares and rods in its factory, which had been obtained
from their manufacturers when they were not excisable arti-
cles. The precise claim of the Excise authorities was that
the duty became payable on those articles by virtue of the
newly inserted item 26AA because the aforesaid stock of iron
and steel products was used for the manufacture of agricul-
tural implements like ’mamties, pickaxes, ’sledge hammers,
shovels and ploughs. The Assistant Collector of
Central .Excise explained in his letter dated June 19, 1962,
that the agricultural implements which were manufactured in
the State’s Implements Factory fell within the purview of
item 26AA as they were forged or extruded during the process
of manufacturing the agricultural implements. It was con-
tended that the demand was justified because the aforesaid
iron and ’steel products, out of which the agricultural
implements were manufactured, had not borne any excise duty
at all. An appeal was preferred to the Collector of Central
Excise against the demand, but without success. A revision
was taken to the Central Government under the provisions of
the Act, but it was also dismissed. That was why the State
Government applied to the High Court for quashing the demand
and for setting aside the appellate order of the Collector
and the revisional order of the Central Government.
The Central Government traversed the claim of the State
Government on the ground that as the rods and bars, which
were held in stock by the State’s Implements Factory, were
"pre-excise stock", and as they were put to further process
by forging them into shovels, spades and other agricultural
implements, they became liable to duty . until the "pre-
excise stock" held by the factory on April 24, 1962, was
utilised and converted into forged implements and was
cleared from the factory. It was also urged that the peti-
tion was not maintainable in the High Court as it raised a
dispute between the Government of India and the State Gov-
ernment within the meaning of article 131 of the Constitu-
tion.
The High Court rejected both the contentions of the
Central Government and quashed the impugned demand notice
and the appellate and the revisional orders. That is why
the Union of India has preferred the present appeal.
It is not in controversy that the claim for the levy of
excise duty was based on sub-sections (1) and (1A) of sec-
tion 3 of the Act which read as follows,--
"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
4---1338SCI/76
844
or manufactured in India and a duty on salt
manufactured in, or imported by land into, any
part of India as, and at the rates, set
forth in the First Schedule.
(1A) The provisions of sub-section (i) shall
apply in respect of all excisable goods other
than salt which are produced or manufactured
in India by, or on behalf of, Government, as
they apply in respect of good’s which are not
produced or manufactured by Government."
It is therefore quite clear, and is not in dispute before
us, that the claim for the levy of excise duty in question
could be justified only if it could be shown that excisa-
ble goods (other than salt) were produced or manufactured in
the Implements Factory of the State Government. It was
however admitted in the counter-affidavit of the Senior
Superintendent of Central Excise as follows,--
"In the case of the petitioner, since
the rods and bars held in stock by the Imple-
ments. Factory were pre-excise stock and since
those rods and bars were put to further proc-
ess by forging the same into shovels, spades
and other agriCultural implements etc., they
became liable to duty and therefore, duty was
demanded on such forged articles during the
period that is till such quantities of the
bars and rods as were in stock with the facto-
ry on 24-4-62 were utilised and converted into
forged implements and cleared from the facto-
ry."
This makes it quite clear that the rods and bars in question
were not "produced or manufactured" in the State Govern-
ment’s implements Factory. They could not therefore be
subjected to the levy of excise duty. It is true that the
rods and bars were utilised for the manufacture of agricul-
tural implements like shovels and spades; but those agricul-
tural implements were not of the description specified in
item 26AA of the First Schedule with reference to section 3
of the Act.
It is admitted by Mr. Raman that agricultural implements
were not included in the First Schedule to the Act and were
not excisable articles. This appears to be so because they
are the basic tools of trade by which a vast majority of the
citizens of the country earn their livelihood. There could
therefore be no question of levying any excise duty on
shovels and spades or other agricultural instruments ’manu-
factured by the Implements Factory of the State Government
and, as has been shown, the rods and bars which formed the
pre-excise stock of the factory had not been manufactured
by the Implements Factory. Section 3 of the Act could not
therefore be invoked to levy excise duty merely on the
ground that the "pre-excise stock" of rods and bars was
utilised for the purpose of manufacturing agricultural
instruments. There is therefore nothing wrong with the view
which has prevailed with the High Court in this respect.
845
Mr. Raman tried to argue that the High Court erred in
not applying article 131 of the Constitution to the contro-
versy even though the writ petition was barred thereunder
as it fell exclusively within the jurisdiction of this Court
under article 131 of the Constitution as a dispute between
the Government of India and the State of Mysore. The argu-
ment is however futile because there is nothing on the
record to show that there was any such dispute between the
Central and the State Governments. As the High Court has
pointed out, the Union of India was made a party to the writ
petition merely because it had dismissed the revision appli-
cation of the State Government.
There is thus no merit in this appeal anti it is dismissed
with costs.
M.R. Appeal dis-
missed.
846