Decided on February 20,1979

UNION OF INDIA Respondents


S.H.SHETH, J. - (1.) CIBATUL Limited, a company registered under the Companies Act. 1956, is the petitioner (hereinafter referred to as 'the manufacture'). They are manufacturing U.P. Resins, M.F. Resins and Expoxy Resins. They are 'excisable goods' within the meaning of that expression given in Section 2(d) of the Central Excises and Salt Act, 1944 (I of 1944) (hereinafter referred to as 'the Excise Act'). Ciba Geigy of India Limited are their wholesale buyers. They are a company incorporated in India and are hereinafter referred to as 'the buyer'. Ciba Geigy Limited is a third company incorporated in Switzerland and is referred to hereinafter as 'the Swiss Company'. 65% of the share capital of the manufacturer is held by Atul Products Limited, 30% of its share capital is held by the Swiss company and the remaining 5% of its share capital is held by the buyer. So far as the buyer is concerned, 65% of its capital is held by the Swiss Company. The Swiss company has registered trade marks in respect of which licence has been granted by it to buyer to use them. Two agreements dated 24th March 1971 and 7th December 1971 were entered into between the manufacturer and the buyer. Agreement dated 24th March 1971 provided for the sale of certain manufactured goods to buyer. Agreement dated 7th March 1971 is a tripartite agreement between the manufacturer, the buyer and the Swiss company. Under this agreement, the manufacturer is permitted to affix a certain trade mark of the Swiss company on goods manufactured by the manufacturer and sold to the buyer under the agreement dated 24th March 1971. Two more agreements, similar in. character, dated 1st June 1973 and 1st December 1973, in respect of certain other goods manufactuted by the manufacturer were entered into.
(2.) THE manufacturer is required by Central excise authorises to pay excise duty not on the price which the manufacturer charges the buyer but which the buyer charges his buyer on the ground that the manufacturer and the buyer are' related persons'. Therefore the manufacturer has filed this petition in which, broadly speaking, it has raised the twofold challenge: I. The concept of 'related person' introduced by Parliament in amended Section 4 of the Excise Act is ultra vires the legislative competence of Parliament under Article 246 read with Entry 84 in List I in Seventh Schedule to the Constitution of India (hereinafter referred to as the 'Union List'). II. The manufacturer and the buyer arc not 'related person' within the meaning of that expression given in the Excise Act. The examination of the first contention necessarily involves the examination of the legislative competence of the Parliament in this behalf under Article 246 read with entry 84 in the Union List. Entry 84 reads thus: 84. Duties of Excise on tobacco and other goods manufactured or produced in India except - (a) Alcoholic liquors for human consumption ; (b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub -paragraph (b) of this entry. What is the width and amplitude of the expression 'Duties of excise' ? We may state that the Government of India Act, 1935 also contained a similar entry. It was entry 45 in List I in VII Schedule to that Act. For the sake of convenience, it may be reproduced here: 45. Duties of excise on tobacco and other goods manufactured or produced in India except (a) alcoholic liquors for human consumption (b) opium, Indian hemp and other narcotic drugs and narcotics; non -narcotic drugs: (c) medicinal and toilet preparations containing alcohol, or any substance included in sub -paragraph (b) of this entry. Comparison of these two entries makes it abundantly clear that they are part materia except that Entry 45 in the Federal legislative list excluded non -narcotic drugs. They are not excluded by Entry 84 in theUnion List. Secondly, while the federal legislative list excluded medicinal and toilet preparations specified in sub -paragraph (b) of that Entry, they are included in Entry 84 in Union list. These variations do not make any difference for the purpose of this case. We are concerned in the instant case with discovering the width and amplitude of the expression 'Duties of Excise'. The question, in our opinion, is not open to debate because it has been the subject matter of several decisions of the highest Court of this country. They are binding on us.
(3.) IN the matter of the Central Provinces and Berar Sales of Motor Spirit aud Lubricants Taxation Act, 1938 AIR 1939F.C.I, the Federal Court has laid down certain principles which may be noted. So far as the interpretation of legislative powers of the Federal Legislature and Provincial legislatures was concerned, the Federal Court observed that no narrow and technical construction should be placed upon them. Taking into account the magnitude of subjects dealt with by the Government of India, 1935, in a few words, a large and liberal interpretation should be given to them so that the Central Government, within certain fixed limits, may be mistress in her own house and the Provinces, to a great extent but again within certain fixed limits, are mistresses in their houses. So far as the width and amplitude of the duties of excise was concerned, Sir Maurice Gwyer C.J. stated that power to make laws with respect to duties of excise given to the Federal Legislature was power to impose duties of excise upon the manufacturer or producer of the excisable articles or at least at the stage of or in connection with manufacture or production and that it extends no further. Pointing out the distinction between excise duties and sales tax, the learned Chief Justice observed that they are two mutually exclusive spheres and that there is on overlapping between them. The Central Legislature may impose excise duties on excisable articles at the stage of manufacture or production before they become part of the general stock of the province while the Provincial Legislature will have an exclusive power to impose a tax on sales thereafter. Mr. Justice Sulaiman, in a concurringjudgment, observed that excise duties may be imposed by the Centre on manufacture or production of excisable articles at the place or in the Province of their origin while sales tax can be imposed on all retail sales of such goods within the Province, Mr. Justice Jaykar, in his concurring judgment, observed that as regards centrally excisable goods 'taxes on their sale within the province for the purposes pf consumption, when such. taxes are in no way connected with their production, manufacture etc. within the Province, but are imposed on their sale in the Province merely as existing articles of trade andcommerce,' are a sales -tax and that, all other duties on those goods, whether levied or collected at the stage of manufacture, production or any subsequent stage upto consumption will be duties of excise.;

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