BRITISH INDIA CORPORATION LTD. versus COLLECTOR OF CENTRAL EXCISE

· A»gud 20.

BRITISH INDIA COhPORATION LTD. v.

COLLECTOR OF CENTRAL EXCISE

(S. K. DAS, J. L. KAPUR, A. K. SARKAR, M. H:rn&YATULLAH and R.&GHUBAR DAY.ll., JJ.)

E.:cise Duty-Footwear-Levied on factorieB employing fifty or more workmen and using power exeeding 2 H.P.-If Discrimi-natory-Central Excises and Salt Act, 1944(1 ~( 1944), Scherlule Item No 17 Constitution of Inaia, Ari. 14.

Under item No.17 of the Schedule to the Central Exeises and Salt Act, 1944. excise duty was levied on footwear pro-duced in any factory employing 50 or more workmen and using power exceeding 2 H.P. The petitioner conten.ded that the imposition of duty on larger manufacturers only was dis. criminatory and there was no reasonable basis for differentiat~ ing between manufacturers on the basis of number of workers or the employment of power above 2 H.P. and that the im. posit.ion of the heavy duty gave rise to Competition sufficient to put the big manufacturers out of business.

Bela, that item 17 of the Schedule is based upon rt;asonable classification and is validly enac.ted. Manufacturers who employed 50 or more workers form well defined class, so aiso manufacturers who use power exceeding 2 H.P. In imposing the excise duty there is 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 classification in the interests of co-operative societies, ccttage industries and small manufacturers has often t'l be made to give an impetus to them and save them from annihilation in competition with large industry.

· Orient Weaving Mills (P) Ltrl. v. Union of Iurlia, (1962) Supp. 3 S.C.R. 481 referred to.

ORIGINAL JURISDICTION : Petition "No. 94 of 1955.

Petition under Art. 32 of the Constitution of lnd¥i- for t4e eqforoement of :f'unelamental Rights.

3S.C.R: SUPREME COURT REPORTS

Bishan Narain, Rameshwar Nath, 8. N. Andley and P. L. Vohra, for the petitioner.

H. N. Banyal, Additional Solicitor General· of ·India, N. 8. Bind·ra and P. D. Menon, for th!'l respondents.

1962. August 20. The Judgment of the Court was delivered by

HrnAYA.TULLAH, J.-This is petition under Art.

32 of the Constitution challenging the imposition of Excise Duty on the petitioner by virtue of item No. l '1 "Footwear" of the First Schedule to the Centr-al Excises and Sa.It Act, 1944 (l of 1944) with effect from February 28, 1954, and the calculation of the duty advaloram by including in the price, charges for freight, packing and distribution.

The petitioner, the British India corporation

Ltd. is public limited company which was formed to take-over other companies and to amalgamate them. Among the companies which the petitioner took over were Cooper Allan & Company Ltd., and the North West Tannery Company Ltd., b1th at Kanpur. These two Companies manufature shoes and other leather goods and operate as single unit manufacturing the well-known brand of "F L X'' shoes. As result of the financial proposals of the Central Government for the financial ·year 11:152-55, bill (No. 9 of 1954) was introduced in parliament on February 27,1954. Under cl. 8 of the Bill foot-wear were proposed to be taxed at 10% adva.loram if produced in any fatory as defined in the factories Act, 1948 (63 of 1948). When the Finance Act, 1954 (l 7 of 1954) was enacted, the Central Excises and Salt Act, 1954, was amended by the inclui.ion of item 17 in the Schedule, though in slightly different form. The item as finally ~Hacte~ ~eaq as follows ;-

1902 --Brit i•h. tndia. Oorporotioti 1Ltd Collector" . " of .. Central ' · ·Excise ·. Hidayat~!lalt J.

· Bril/ah llldia Corpor(Jeion Ltd. v. Coiled" of Cen11'!1 ExOIU

644 SUPREME COURT REPOH.TS (1963)

"17. FOOTWEAR, produced in any factory in,cluding the precints thereof whereon fifty or more workers are working or were working on any day of the preceding twelve mon£hs, and in any part of which. manufacturing process .is being carried on with the aid of power or is ordinarily so carried on, the total equivalent of such power exceeding two horse-power. "Footwear" includes all varie-1 Ten per-ties of footwear, whether known \_ cent as boots shoes. sandals, chap- r ''ad pals, or by any other name." J valorem"

Under the provisions of the Provisional Collection of Taxes Act, 193 l, (XVIof lll31 ), the duty was leviable from February 28, 1954, by virtue of declaration in the Bill to that effect. On the preceding day the Superintendent of Central Excise, Kanpur, deputed an Inspector of his department to obtain from the petitoner declaration of all stock of footwear and request-ed that the Inspector be permitted to verify the stocks with view to levying the Excise Duty on and from February 28, 1954. As result of the impo-sition of Excise Duty on footwear the petitioner was required to pay during the remaining ten months of 1954 sum of Rs. 9,47,630/-as Bxciae Duty. The petitioner produces in the two units above-named, footwear for sale to the public and for supplies to the Government for the use of the Army and the Police. The petitioner contends that though the Excise Duty paid by it was capable of being passed on to the consumer, it could not in-clude it in the price at which shoes were sold to the public because of heavy competition by those free from such duty, though it did include the Excise Duty in the price of the footwear supplied to Government. Thus Rs. 2 lacs o(ld were passed pn to Qoverl!merit bqt Rs. 7 lacs odd were borq~

3 S.O.R. SUPREME COURT. REi>ORTS

by the Companv itself. The petitioner contended before the Collector of Central Ex:cise, Allahabad. that the calculation of the duty advalorem should _not be based on price including freight, pa.eking and distribution charges paid to it by its distribu~ tors in the outlying parts of India. This contention of the petitioner was not accepted by'the Collector. The petitioner then took an appeal to the Central Board of Revenue but before the appeal could be disposed of, the petitioner filed this -petition under Art. 32 of the Constitution praying for writ or writs to quash the order of the Collector of Central Excise Allahabad, and writ or . writs to prohibit Union 'Government. The Central Board of Revenue and the Collector and Superintendent of Central Excise from enforcing the provisions of item 17 against petitioner and collecting the Excise Duty therein levied. · I , I According to the petitioner, distinction has been ·made in Item 17 above-quoted between mann-fa.ctur.ers of footwear employingmore than 50 workers or carrying on the manufacturing process with the aid of power exceeding 2 H.P. and other manufac-turers. According to the petitioner this amounts to discrimination because there is no reasonable basis for differentiating between manufacturers on the basis of number of workers or the employment of power above 2 H.P. The petitioner contends that the essentials of the manufacture of footwear are the same whether one employs 50 or more workers or less. The. larger number of workers is merely needed because the out-turn has to be greater but th€ number does not change the nature of the opera-tions or the method of production. Similarly, the need for than 2 H.P. arises if larger number of mecha.nioal units have to be worked and there is no essential difference between- large manufacturer

BrUiah IMia C11rjMation ~'• \lo <Jolkotor qf 0"""'11 E:tein EliilayattiJlilA ! .

-·-British India . Corpo1ati0n lid . . v. Coaeclo1: -ol C~ritral Exciu iday41ullah J ·

646 SUPREME OOURT REPORTS [1963j I

and small manufaoturer by reason of the employ, ment of more power or less. It is, therefore, conten-ded that . the imposition of 1!.xcise Duty on bigger manufacturers creats discriruination in the trade which is neither just nor discernible and amounts to violation of Art. 14 of the Constitution. The levy of the Exoise Duty in suoh circumstances is said to be both illegal and unconstitutional. ·

As corrolary to this it is contended that the petitioner, which was already carrying on its business at loss in view of the competition, is now further handicapped oy having to bear he~vy Ex-cise Duty which it cannot pass on to the consumer due to competition by. those not paying the duty and is likely to go otit of its businellB and that the levy .. of the Excise Duty in these circumstances amounts to breach also of Art. 19 (1) (f) rmd (g) and 31 of tlie Constitution. I 1 .

It is further contended that the duty advalorem

ought to be calculated on the ex.factory price and not on the price charged to the distributors which includes within itself the cost of packing and charges for freight and distribution commission. .It is contended that this is' an error apparent on the face of the order of the Co!leotor of Excise and the order deserves to be quashed by . the issue of writ of certiorari or other approprhite writ.

Lastly, it is contended that the Finance Aot, 1954, received the assent of the president on April 27, 1954, and must be deemed to have become law from that date. Th~ collection of Excise Duty from March, ! 954, before the Finance Bill beca.me law, is said to be illegal. We shall deal only brie-fly with these arguments as most of them have by now been considered and decided in other cases of this Court. ·I

3 S.O.R. SUPREME OOURT REPoRTs

The contention that this duty does not amount · to duty of excise because it cannot be pal'lsed on by the petitioner to the consumer was not raised before us. It was mentioned ir;i the petition. An Excise Duty is duty on production and though according to the economists, it is a.n indirect tax capable of be-ing pasl'led on to the consumer as part of the price yet the mere passing on of the duty is not its essential characteristic. Even if borne by the producer or manufacturer it does not cease to be duty of excise. The nature of such duty was explained in . the very first case of the Federal Court and suhse-quentl:v in others of the Federal Court, the Privy Council and this Court, but this ground continues to be taken and we are surprised that; it was . raised again.

The contentions that the duty could not be col-lected before the passing of the Finance Act, 1954, has been the subject of an elaborate discussion. in the recently decided case of this Court, M /s. Ohota-bhai Jethabhai Patel and Go. vs. Union of India ('). It is conceded that in view of the above decision the point is no longer open.

It is also conceded that the question whether in calculating the duty advalorem, the C0llector of Excise was justified in including in the prire the cost of packing, charges for freight and commission for distribution, or not, is matter for the decision of the authorities constituted under the Act subject to such appeals and revisions as might lie but not matter for consideration directly under Art. 32 of the constitution, in view of the recent decision of this Court in smt. Ujjam Bai vs. State of U.P. (Civil Misc. Petition No. 79 of 1959) decided on April 10, 1962. It may be pointed out that the present peti-tion was filed at time when the appeal Lefore 'the (1) (1962) Supp. 2 S.C.R. I.

Britisli Intlia Corporation Ltd. · .. Collector of Central lilxciee Hida,atullah J.,

Brili•h India' Corp... at ion Ltd. v, Col,,.lot of C•nlra/ Eii<ise

SUPREME COURT Rtl:PORTS [1963)

Board of Revenue was pending and there was fµrther right of revision to the Central Government.

. This leaves over for consideration tl:e challenge under Art. 14, 19 and 31 of the constitution. The argument under each of these Articles is based en pricisely the same facts viewed from different angles. It is contended that there is discrimination between big manufacturers of footwear and small manufacturers which is not based on any differential. This discrimination, it is said, leads to the impo-sition of heavy tax on the big manufacturers with corresponding exemption in favour of the small manufacturers giving rise to competition sufficient to put the big manufncturers out of the market. The tax being illegal the levy amounts to confiscation of the property of the petitioner. It will thus be seen that the imposition of the duty is first challen-ged Art, 14 as discrimination, next it is challenged under Article 19 as deprivation Of the right to ac-quire, hold and dispose of property or to carry on business or trade and lastly the collection of duty is characterised as confiscation of property with-out the authority of law under Art. 31. -

The argument ~uffers from fundamental fal-lacy in that it assumes that there can be no classifi-cation of manufacturers on the basis of the number of workers or the employment of power above particular horse-power. Manufacturers who employ 50 or more workers can be said to form a. well-defi-ned class. Manufacturers whose manufacturing process is being carried on with the aid of power exceeding 2 H.P, are also well-defined class. Legis-lation of this type depending upon the number of workers or the extent of power employed, is fre-quently to be found. The most obvious example is the Factories Act which defines factory with refe-rence to the employment of certain number of

3 S.C.R. SUPREME OOURT REPORTS

--Brillsh India CtrJora•ion Lid. •• Citl.,1o, of C1ntral llJtci11

workers or the employment of power. The conten" tion that size makes no difference is not valid. It is well· known that the bigger manufacturers ar'3 able to effect economics in their manufacturing prnoese and their out-turn being both large and rapid they are able to undersell small manufacturers. If this were not ilO mass production would lose all its adva-nta~es. No doubt the manufacturers a.re now requ-ired to bear burdens which previously did not exist, like bonus, ~xpenses on la.hour welfare etc. but still the manufacturers, provided the business is well run, can by mass production offer the same commodity 8!t competitive price as against small manufactu-rers and bear the burden as well. Therefore, in · imposing the Excise Dutv, there was definite de-sire to make an exemption in favour of the small manufacturer who is unable .to pay the duty a.a easily, if at all, as the big manufacturer. Such classi-fication in the interests of co-oprative societies, cottage industries and small manufacturers has often to be made to give an impetus to. them and save them from annihilation in competition with large industry. It .has never been succes"fully assailed on the ground of discrimination. Recently, this Court in the Orient Weaving Mills (P) Ltd. v, The Union of India(') considered similar argument in relation to an exemption granted to societies working . few looms on co-operative basis as against big com-panies working hundreds of looms. The exemption was held to be constitutional and the classification of co-operative societies was held to be reasonable. similar consideration applies in the present case, where the exemption operates in respect of vny small manufacturers employing not more than 50 workers and carrying on their manufacturing process. with power not in excess of 2 H.P. This affords protection to small concerns who, if they were made to pay the duty. would have to go out of business.

llitla;otullall J.

(1) (1962) Supp. 8 S.C.R. 481.

Bril•rh lndi.J Oorptwation Ltl. v. CQ/leelo,. of Ctntt•l ixci••

In our judgment the Schedule which is characterised as discriminative is based upon reasonable classi-fication and is validly enacted. If the law is held to be valid the attack under Arts. 19 and 31 must also fail.

In view of what we have sairl above the peti-tion must fail. It will be dismissed with costs.

Petition dismissed .

THE PROVINCIAL TRANSPORT SERVICE v.

STATE INDUS:l'RIAL COURT

(P. B. GAJl!INDRAGADKAR and K. C. DAS GUPTA, JJ.)

Industrial Dispute- Dismissal of employee -Finding that no enquiry held by employer before dismissing -Finding per~erse -Appeal Court confi1ming finding -Writ Pelition before High Court -Interference by High Court -C. P. & Berar Industrial Disputes Settlement Act, 1~47(C. P. 23 of 1947), •. 16.

The appellant employed K as temporary motor dri-ver on the express condition that until such time as he was confirmed his services were liable to be terminated without notice or compensation and without assigning any reason. Sometime afterwards, the appellant served charge sheet upon K and aftet holding an enquiry dismissed him. K made an application before the Labour Commissioner under s. 16 C. P. & Berar Industrial Disputes Settlement Act, 1947, praying for reinstatement alleging that the dismissal was illegal as it was not preceded by an enquiry. The Labour Commissioner was doubtful whether any enquiry,·was held ·by the appellant but on the basis of evidence adduced before him he held the charges proved and accordingly dismissed the application. On appeal, the Industrial Court held that the Labour Commissioner had no jurisdiction to hold the en~ quiry and mad~ an order directin9 reinstatement of Kwit!\