Case Note & Summary
The dispute concerned excise duty exemption for disinfectant fluids manufactured by the appellant, M/s Bombay Chemical Private Limited, under the Central Excises and Salt Act, 1944. The appeal before the Supreme Court was preferred under Section 35-L against an order of the Customs, Excise and Gold (Control) Appellate Tribunal which had denied the exemption. The exemption was claimed under Notification No. 55/75-CE dated 1 March 1975 as amended by Notification No. 62/78 dated 1 March 1978, which inserted Item 18 covering insecticides, pesticides, weedicides and fungicides. The Assistant Collector initially rejected the claim, holding that the disinfectant fluids did not possess the property of killing insects or pests. The appellate authority reversed this view, finding that the products were fungicides in common parlance. On further appeal by the revenue, the Tribunal by majority overturned the appellate order. The Tribunal accepted that the goods were excisable and classifiable under Tariff Item 68, and that they were marketed as disinfectants capable of killing bacteria and fungi. Nevertheless, it refused exemption on the ground that the notification was confined to specified categories with well-defined uses, and that disinfectants for general disinfection in bathrooms, gutters and floor cleaning could not be equated with pesticides or fungicides. The Tribunal also relied on the perfumed or deodorant nature of some products and the distinction between noxious insecticides and pleasant disinfectants. The Supreme Court examined definitions of disinfectant, pesticide and fungicide from dictionaries and technical literature. It noted that a disinfectant is also a killing agent, and that the appellant's products containing high boiling tar acid could kill bacteria in gutters and bathrooms. The Deputy Chief Chemist's report indicated that all 14 products were formulations with high boiling tar acid as principal active ingredient. The Court observed that pesticide includes substances that kill any form of pest, including insects, rodents and bacteria, and fungicide destroys fungi. It held that a disinfectant used for killing may broadly be covered in the word pesticide; those merely used to remove odour, such as lavender, may not. The Court laid down the principle that an exemption notification should be construed strictly at entry stage, but once a good satisfies the characteristic test and falls within a broad category, it cannot be excluded by narrow construction. It found that the goods produced by the appellant were capable of killing bacteria and fungi, which are pests, and therefore fell within the expressions pesticide and fungicide. Accordingly, the appeal was allowed, the Tribunal's order set aside, and the appellant was held entitled to exemption under Item 18 of the 1978 notification. Costs were awarded to the appellant.
Headnote
A) Central Excise - Exemption Notification - Classification of Excisable Goods - Central Excises and Salt Act, 1944, Section 35-L; Notification No. 55/75-CE as amended by Notification No. 62/78 - Disinfectant fluids containing high boiling tar acid capable of killing bacteria and fungi were held to fall within Item 18 covering insecticides, pesticides, weedicides and fungicides. The Court examined definitions of disinfectant, pesticide and fungicide and concluded that disinfectants used for killing may broadly be covered in the word pesticide, and those capable of destroying fungi are fungicides. Held that the appellant was entitled to exemption under Item 18 of the 1978 notification (Paras 5-9). B) Interpretation of Exemption Notification - Strict versus Broad Construction - Central Excises and Salt Act, 1944 - Strict construction of an exemption notification applies at the entry stage to determine whether a particular good falls within a category; once it is found to satisfy the characteristic test, the notification must be construed broadly and cannot be narrowed. The Tribunal erred in preferring the narrower meaning of expressions which are capable of broader and narrower meanings. Held that categories in exemption notification are broad and goods satisfying the test cannot be excluded by narrow construction (Paras 9). C) Common Parlance and Technical Meaning - Classification Principles - Central Excises and Salt Act, 1944 - Goods should be understood in trade circle or, if technical in nature, by technical classification. The broad and basic characteristic for exemption under the notification is that goods must have the property of killing germs, bacteria, insects or pest and should be understood in common parlance as being covered in one of the broad categories. Disinfectants from phenolic compounds and high boiling tar acid have the same characteristic as pesticide, while those merely used as deodorants or perfumes may not be covered. Held that the goods produced by the appellant were capable of killing bacteria which are pests and thus entitled to exemption (Paras 8-9).
Issue of Consideration
Whether disinfectant fluids manufactured by the appellant were entitled to exemption under Notification No. 55/75-CE dated 1.3.1975 as amended by Notification No. 62/78 dated 1.3.1978 adding Item 18 (Insecticides, Pesticides, Weedicides and Fungicides).
Final Decision
Appeal allowed; Tribunal order set aside; goods produced by the appellant from phenolic compounds and high boiling tar acid being disinfectant fluids capable of killing bacteria which are nothing but pests, appellant entitled to exemption under Item 18 of the notification issued in 1978; appellant entitled to costs.
Law Points
- Exemption notification to be strictly construed at entry but broadly once goods fall within category
- pesticides and fungicides include disinfectants capable of killing bacteria and fungi
- common parlance and technical meaning determine classification
- goods with property of killing germs and bacteria satisfy broad characteristic of exemption notification
- narrow construction cannot exclude goods once they satisfy test
