UNION OF INDIA versus STATE OF MYSORE

UNION OF INDIA

STATE OF MYSORE

October 19, 1976

[A. N. RAY, C.J., M. H. BEG AND P. N. SHJNGHAL. JJ.]

Constitutfrm of lmiia-Article 131-Disputes between State and Unio11-J//risdiction of High Court--Clwrgc of Excise Duty-Condition of-Wlierl!<!r a11 artfc/e mm111factllred or produced before the lery is imposed is excisable.

The respondent State of Mysore runs an implements Factory. •the first •chedule to the Central Excises and Salt Act, 1944, was aD)ended whereby item No. 26AA was inse1ted by Finance Act, 1962. On the date when the said amendment came into force the respondent. had in his stock, ccrt~n iron rods and bars. After the amendment, however, the rods and bars were put through further manufacturing process and were converted intq shovels, spades and other agricultural implements which were not covered by schedule I. The Central Excise Inspector issued demand notice in respect or the said rods and the bars on the .ground that they were excisable. The r~spondcnt contended that no excise duty was payable o~ the said articles because when the amend-ment 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 con-tention of the respondent was negatived by the authorities und.or the Act. The Writ Petition filed by the respondent under Article 226, was allowc<l.

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 admitted in the counter affidavit of the appel-lant that the rods and bars were not produced or manufactured in the imple-ments 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-HJ

2. The contention. that the High Court could not have decided the matter in '<icw of the provisions of Article 131 of the Constitution was negati'1cd on the ground that thern was nothing on record to show that there was any dispute between the Central and the State Governments. The, Union of India: was made party merely because it had dismL~scd the revision application of the State Government. [845 A-Bl

CIVIL APPELLATE JuRISDlCTJON : 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, Addi. Sol. Genl., S. K. Mehtcl" and Girish Chandra, for the Appellant.

H. R. Datar and N. Netli1r, for th'" 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 Hig!i Court was moved by the State of Mysore under article 226 of the Constitution for quashing the demand notice dated July 21,

1962 issued by the Inspector of Central Excise for the payment of Rs. 2,465.91. as excise duty on tine products despatched by the State's Implements Factory. The demand wa·s made with reference to the newly inserted item 26AA in the First Schedule to the Central Excises and Salt Act, 1944, hereinafter referred ~o 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 factor~ which had been obtained from their manufacturers when they were not excisable articles. The precise claim of the Excise authorities was that the duty became payable on t,hose articles by virtue of the newly i~erted item 26AA because the aforesaid stock of iron and steel products was used for the manufacture of agricultural implements like 'mamties~ pickaxes, sledge hammers, shovels and ploughs. The Assistan~ 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 contended 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 appea! was preferred to the Collector of Central Excise against_ the demand, but without success. revision was taken to the Cent~al Government under the provisions of the Act, but it was also dismis'sed. That was why the State Government applied to the High Court for quashing the demand and for setting aside the appel-late order of the Collectm and the revisional order of the Central· Government. .

The Central Government traversed the claim of the State Govern-ment on the ground that as the rods and bars, which were held in stock by tll1e 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 petition was not maintain-able in the High Court as it raised 'a dispute between the Government of India and the State Government within the meaning of article 131 of the Constitution .

The High Court rejected both the contentions of the Central Gov-ernment and quashed the impugned demand notice and the appellate and the revisional orders. That is why the Union of India has pre-ferred the present appeal. ·

It is not in controversy that the claim for the levy of excise duty was based on sub-sections (1) and (lA) of section 3 of the Act which read as follows,-

"3 ( 1) There shall be levied and collected in such man-ner as may be prescribed duties of excise on all excisable goods other than salt which are produced

of excise on all

or manufactured in India and duty on salt manu-factured in, or imported by land into, any part of India as, and at the rates, set forth in the First Schedule.

(lA) The provisions of sub-section (i) shall apply in res-pect of all excisable goods other than salt which are produced or manufactjured in India by, or QJI behalf of, Government, as they apply in respect of g9ods which are not produced or manufactured by Government." •

It is therefore quite clear, and is not in dispute before us, that the claim for ~e levy of excise duty in question could be justified only if it could be shown that excisable goods (other than salt) were pro-duced or manufactured in the Implements Factory of the State Govern-ment. It was however admitted in the counter-affidavit of the Senior ~uperintendent of Central Excise as follows,-

"In the case of the petitioner, since the rods and bars held in stock by the Implements Factory were pre-excise stock and since tJiose rods and bars were put to further pro-cess by forging the same into shovels, spades and other agri-cultural 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 factory on 24-4-62 were utilised and converted into forged implements and cleared from the factory."

This makes it quite clear that! the rods and bars in question were not "produced or manufactured" in the State Government's Implements Factory. They could not therefore be subjected to the levy of excise dutiy. It is true that the rods and bars were utilised for the manu-facture of agricultural implements like shovels and spades, but those agricultural implements were not of the description specifl~d in item 26AA of the First Schedule with reference to section 3 of the Act.

It is admitted by Mr. Raman that agriculturai 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 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 Implernen~ 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-exci~e stoc~" of roc!s and bars was utilised for the purpose of manufacturmg agricultural mstru-ments. There is t!herefore nothing wrong with the view which has, prevailed with the High Court in this respect.

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!'vlr. Raman tried to argue that the High Court erred in not apply· ing article 131 of the Constitution to the controversy 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 dispute between the Government of India and the State of Mysore. The argument is however futile becau~e there is nothing on the record to show that there was any such dispute between the Cenlrai and the State Governments. As the High ·court has pointed out, the Union of In~lia was made 11 party to the writ petition merely because it had dismissed tlae revision application of the State Government.

• There is thus no merit in this appeal and it is dismissed with costs.

Appeal dismissed.