AJIT MILLS LTD Vs. R P LAXPAT ASSTT COLLECTOR CENTRAL EXCISE AHMEDABAD

JUDGEMENT

(1.) These two petitions raise an interesting question of law which depends for its determination on the true construction of Rules 10 and 10A of the Central Excise Rules 1944 The facts giving rise to the petitions are almost identical save and except as to dates and amounts and it would therefore be convenient if we state the facts of only one petition namely Special Civil Application No. 810 of 1965. There are two petitioners in this petition. The first petitioners are owners of a textile mill situate in the City of Ahmedabad while the second petitioner is a partner of the Managing Agents of the first petitioners. The first petitioners manufacture cotton fabrics in the textile mill and since cotton fabrics are excisable goods the first petitioners hold a licence for manufacture of cotton fabrics duly issued under the Central Excise and Salt Act 1944 During the period 1st August 1961 to 30th November 1963 which is the period with which we are concerned in this petition the first petitioners manufactured diverse qualities of cotton fabrics which included Sorts Nos. 82352 56008 82352 3 and 56008 3/4. Out of these Sorts Nos. 82352 and 56008 were mercerised dyed Medium A cotton fabrics while Sorts Nos. 82352 3/4 and 56008 3/4 were mercerised printed Medium A cotton fabrics. Cotton fabrics were goods specified as Item No. 19 in the First Schedule of the Central Excise and Salt Act 1944 and they were therefore excisable goods on which excise duty was leviable at the rates set forth against item No. 19 relating to Cotton Fabrics. But there was a notification dated 1st March 1961 issued by the Central Government under Rule 8 which exempted certain kinds of cotton fabrics from excise duty leviable on them to the extent specified in the notification. The extent of the exemption varied according as the cotton fabrics were manufactured on automatic looms or ordinary looms. We are concerned in this petition only with the exemption in regard to cotton fabrics manufactured on ordinary looms since it was common ground between the parties that the first petitioners had only ordinary looms and not automatic looms. The notification dated 1st March 1961 provided that cotton fabrics of the following description shall be exempt from so much of the duty leviable thereon as is in excess of the duty specified against the respective kind of cotton fabrics:-

(2.) Some time in November 1963 the Excise Authorities drew samples of Cotton Fabrics of Sorts 56008 and 82352 from the textile mill of the first petitioners and sent them for examination and report by the Deputy Chief Chemist Bombay. The Deputy Chief Chemist was of the view that the cotton fabrics of which the samples were sent to him were shrink proofed cotton fabrics and were assessable to excise duty as such. The first petitioners did not agree with the view expressed by the Deputy Chief Chemist and insisted on new samples being taken but the result of examination of the new samples by the Deputy Chief Chemist was the same and the Deputy Chief Chemist adhered to his view that the cotton fabrics of Sorts Nos. 56008 and 82352 were liable to be classified as shrink-proofed fabrics. Consequent upon this report by the Deputy Chief Chemist four notices were issued by the Excise Inspector one dated 13th February 1964 two dated 24th February 1964 and the fourth dated 29th February 1964 demanding differential duty in respect of certain quantities of cotton fabrics of Sorts 56008 and 82352 56008 3 and 82352 3/4 cleared by the first petitioners from the mill premises during the period 20th November 1963 to 29th February 1964. The demand for differential duty was based on the ground that the first petitioners had declared the goods as mercerised and cleared them as mercerised goods though in fact the goods were shrink-proofed as found by the Deputy Chief Chemist. These notices were in respect of goods which were cleared and on which excise duty was adjusted in the Account Current within three months prior to the respective dates of the notices and they were therefore within the time prescribed by Rule 10. The first petitioners contested the demand made in these notices and we were told by the learned advocate appearing on behalf of the petitioners that the appellate proceedings arising out of these notices are pending before the Excise authorities - We are not concerned in the present case with these notices. It is sufficient to state that these notices were purported to be issued under Rule 10 and it was not the case of the Department that they were issued under any Rule other than Rule 10. Soon after these notices there came a group of further four notices two dated 13th October 1964 one dated 2nd January 1965 and the fourth dated 6 January 1965. These notices were purported to be issued by the Excise Inspector under Rule 10A. They demanded payment of differential duty in respect of cotton fabrics of Sorts Nos. 56008 82352 56008 3 and 82352 3/4 cleared-by the first petitioners from the mill premises during the period 1 August 1961 to 30th November 1963 on the ground that the first petitioners had cleared the goods by describing them as mercerised while in chemical test the goods were found to be shrink-proofed by the Deputy Chief Chemist as also by the Chief Chemist and there was therefore short levy of excise duty to the extent of 3 paise per square meter for the period 1st August 1961 to 23rd April 1962 and 10 paise per square meter for the period 24th April 1962 to 30th November 1963. The amounts of differential duty demanded by these notices were Rs. 25 985 Rs. 15 197 Rs. 1 17 394 and Rs. 2 41 41842 aggregating to Rs. 3 99 995 The first petitioners contested the validity of these notices and pointed out to the Assistant Collector Central Excise that Rule 10A had no application on the facts of the case and the deficiency on account of the short levy could if at all be recovered only under Rule 10 but since the demand contained in the notices was made in respect of a period more than three months prior to the respective dates of the notices the notices were beyond time and consequently without jurisdiction and void. The Assistant Collector was however not impressed by this contention of the first petitioners and threatened to proceed to recover the amounts of differential duty demanded under these notices. The petitioners thereupon filed Special Civil Application No. 810 of 1965 challenging the validity of these notices.

(3.) The main ground on which the validity of the impugned notices was challenged on behalf of the petitioners was that though the impugned notices were issued under Rule 10A that Rule had no application since the circumstances in which the demand for differential duty was made attracted the applicability of Rule 10 and if Rule 10 covered the case Rule 10A could have no application. The petitioners pointed out that in A.R. 1 Forms presented by the first petitioners to the Excise Inspector for clearance of the goods the goods were described merely as mercerised dyed poplin or mercerised printed poplin and the tariff classification of the goods was given as M.A.C. which meant that they were assessable under Clause III(1)(c) for the first period and Clause 2(ii)(b) for the second period which could only be on the basis that they were neither shrink-proofed nor organdie processed. Now if the goods were in fact shrink-proofed as contended by the Department this was obviously a mis-statement of the description of the goods in A.R.I. Forms and it was on account of this mis-statement that the goods were assessed at lower rates namely 12 paise per square meter under clause III(1)(c) for the first period and 15 paise per square meter under clause 2(ii)(b) for the second period though being shrink-proofed they were really assessable at 15 Paise per square meter under clause III(1)(d) for the first period and at 25 paise per square meter under clause 2(iii) for the second period. The short levy said the petitioners was therefore on account of mis-statement of the description of the goods on the part of the first petitioners. It was also said in the alternative that in any event the short levy was through an error on the part of the Excise Inspector who assessed the excise duty leviable on the goods. The case was therefore covered by Rule 10 and no demand for differential duty could be made under Rule 10A and the impugned notices were bad in so far as they were based on Rule 10A. They could not also be justified under Rule 10 because they were issued more than three months after the dates of payment or adjustment of the short-levied excise duty on the goods in respect of which the demand for differential duty was made. The impugned notices were therefore without authority and void and could not be enforced against the first petitioners. Now the respondents could not dispute that if the case fell within Rule 10 the impugned notices would be time-barred and therefore the attempt of the respondents was to get out of Rule 10 and to bring the case under Rule 10A. The respondents contended that the short levy in the present case was not on account of any mis-statement of the description of the goods in A.R.I Forms. There was according to the respondents no wrong statement of the description of the goods. The description as given was correct but there was merely an omission to state in addition to the description already given that there was one further characteristic possessed by the goods namely that they were shrink proofed and this did not constitute mis-statement. The respondents also urged that since the material fact namely that the goods were shrink-proofed was not disclosed to the Excise Inspector it could not be said that there was any error on the part of the Excise Inspector in assessing the goods to excise duty which resulted in short-levy of excise duty on the goods. There being thus no mis-statement or error said the respondents Rule 10 was not attracted and the impugned notices were therefore rightly issued under the residuary Rule 10A.