Case Note & Summary
The Supreme Court considered a batch of appeals by the Revenue against orders of the Customs, Excise and Gold (Control) Appellate Tribunal in favour of manufacturers regarding levy of special excise duty under Section 37 of the Finance Act, 1978. The dispute concerned cigarettes manufactured before March 1, 1978 but cleared from the factory between March 1 and March 12, 1978. The assessee contended that special excise duty, being an excise duty, was leviable on manufacture or production under Entry 84 of List I of the Seventh Schedule to the Constitution, and since the goods were manufactured before the levy came into force, no duty was payable. Section 37(1) levied a special duty of excise equal to five per cent of the amount of central excise duty chargeable, effective from March 1, 1978 to March 31, 1979. Sub-section (3) made the special duty in addition to existing duties, and sub-section (4) applied the provisions of the Central Excise Act and rules. The respondent manufactured cigarettes before March 1, 1978 but removed them after that date. The authorities levied special duty; the respondent's refund application was rejected by the Assistant Collector, and an appeal to the Collector (Appeals) failed. The Special Bench of the Tribunal allowed the appeal, holding that no duty was leviable on goods manufactured before the levy date. The legal issues were whether goods manufactured before March 1, 1978 but removed after were liable to special duty; whether the taxable event for excise duty was manufacture or removal; and whether Rules 9 and 9A of the Central Excise Rules, 1944 created a levy at removal. The Revenue argued that Section 37 levied duty wherever central excise duty was payable; that Rules 9 and 9A governed levy and collection at clearance; that rate and valuation were determined by the date of removal; and that the issue was covered by Wallace Flour Mills Company v. Collector of Central Excise. The assessee argued that excise duty was on manufacture or production; that collection at removal was a matter of convenience; that special excise duty was a separate and distinct levy effective from March 1, 1978; and that goods manufactured earlier were not subject to that levy. The Court agreed with the assessee. It held that excise duty was a tax on manufacture or production under Entry 84, and the levy must exist at the time of manufacture. Collection at removal was only for convenience and did not shift the taxable event. Section 37 created a new independent levy from March 1, 1978; goods produced before that date were not subject to it. Section 3(1) of the Central Excise and Salt Act, 1944, while using the expression 'levied and collected in such manner as may be prescribed', the word 'prescribed' qualified only collection, not levy; the levy was created by the section itself. Rules 9 and 9A used the expression 'excisable goods', which under Section 2(d) meant goods specified in the First Schedule as subject to duty; therefore those rules applied only to goods already subject to duty. The Court rejected the Revenue's apprehension about goods manufactured before February 28, 1979 and removed after March 1, 1979 escaping duty; it stated that in such a situation the date of removal would be taken as February 28, 1979 and duty would be payable. The Supreme Court dismissed the appeals, affirmed the Tribunal's order, and held that goods manufactured prior to March 1, 1978 but removed after that date were not liable to pay the special duty of excise under Section 37 of the Finance Act, 1978.
Headnote
A) Constitutional Law - Duty of Excise - Excise levy on manufacture/production, not removal - Constitution of India, 1950, Entry 84 of List I of Seventh Schedule - The special excise duty was an excise duty relatable to Entry 84; the levy must be on the manufacture or production of goods. Collection at the stage of removal was devised for convenience and did not change the incidence of tax. Held that if no levy existed at the time of manufacture, duty could not attach merely because goods were removed later (Paras 4-6). B) Central Excise Law - Special Duty of Excise - Effective date and prospective levy - Finance Act, 1978, Section 37 - Section 37 levied a special duty of excise equal to five per cent of central excise duty effective from March 1, 1978. The court interpreted the levy as applying prospectively to goods manufactured or produced on or after that date. Held that goods manufactured prior to the commencement of the special duty were not subject to that duty despite removal after the effective date (Paras 1-3, 5). C) Central Excise Rules - Levy vs Collection - Rules 9, 9A Central Excise Rules, 1944 - Rules 9 and 9A regulated collection and determination of rate/valuation at the stage of removal, but applied only to excisable goods as defined in Section 2(d) of the Central Excise and Salt Act, 1944; they did not create a levy on goods not already subject to duty. Held that the rules could not extend the special duty to goods manufactured before the levy date; rate and valuation on removal applied only if goods were already excisable (Paras 5-6). D) Statutory Interpretation - Section 3 Central Excise and Salt Act, 1944 - Levy and collection distinction - Section 3(1) of Central Excise and Salt Act, 1944 - The words 'in such manner as may be prescribed' in Section 3 qualified only the collection of duty, not the levy; the levy was created by Section 3 itself. The court clarified that the statutory scheme maintained the levy at manufacture or production and left collection mechanism to rules, consistent with Entry 84. Held that Section 3 could not shift the taxable event from manufacture to removal (Paras 3-4).
Issue of Consideration
Whether goods manufactured prior to March 1, 1978 but removed on or after March 1, 1978 are liable to pay the special duty of excise levied under Section 37 of the Finance Act, 1978
Final Decision
Appeals dismissed. Special excise duty under Section 37 of Finance Act, 1978 is a levy on manufacture or production of goods, not on removal. Goods manufactured before March 1, 1978 but removed on or after that date are not liable to pay special excise duty. Tribunal's order upheld.
Law Points
- Excise duty is a tax on manufacture or production under Entry 84 of List I of the Seventh Schedule to the Constitution
- collection at removal is only for administrative convenience and does not shift the taxable event
- special excise duty under Section 37 of Finance Act
- 1978 is an independent levy effective from March 1
- 1978
- goods manufactured before the effective date of the levy are not subject to special duty even if removed after that date
- Section 3 of the Central Excise and Salt Act
- 1944 creates the levy while rules only regulate collection
- Rules 9 and 9A of the Central Excise Rules
- 1944 apply only to excisable goods already subject to duty and do not create a levy
