4 89

SIEMENS ENGINEERING & MANUFACTURING CO. OF INDIA A •

LIMITED

UNION OF INDIA & ANR.

April 30, 1976

[P. N. BHAGWATI, A. C. GUPTA AND S. MURTAZA FAZAL ALI, JJ.]

Customs Tariff-Item 72cJ)-Scope of.

lnterprctation-"_Not otherwise specified" occurring in "n1achinery and not otherwise specified"-Meaning of.

Administrative law-Reasoned order by Tribunals esselitial.

Under item 72(3) of the First Schedule to the Indian Customs Tariff, component parts of machinery as defined in item nos. 72, 72(1) and 72(2) and not otherwise specified are chargeable to customs duty. Item 73(21) comprises of "electric motors, all sorts, and parts thereof".

On the strenth of a licence for importing "complete continuous filament Rayon Plant-with spares and accessories". certairi spinning frames excluding pot motors were imported from Japan but not motors were imported from Germany by the appellants.

The customs authorities accepted the claim of the appe1lants that the consigntnent of pot motors fell within item 72(3) and charged import duty accordingly.

Son1etime later. the Assistant Collector of Customs, claiming that customs duty on pot motors was shoit levied as they fell within item 73(21) called upon the appellants to pay the difference, against which the appellants made a representation to the Assistant Collector. But the Assistant Collector held against the appellants without giving any reasons. The appellants thereafter filed a repre.se.ntation to the CoHecto.r but he held that since the spi, np.ing frames and the pot motors Were imported under''sep'arjlte contracts from se'parate countries the two consignments could not be treated as one article and hence rejected the representation. The appellants thereupon applied to the Govern ment of India in revision but the revision application was also rejected.

AllowinR the appeal to this Court.

HEW: (1) (i) Item 72(3) is a specific item covering pot motors as

against item 73(21) which is a general item. Pot motors were, therefore, F

asses~:1h1e under the former and not under the latter. The original assessment of the A':ic; tant Collector was correct and the subsequent demand of differential duty which \Vas confirmed by the Collector and the Government of Jndia was unlustified.

(ii) Pot motors fell within the description given in iteD). 72(3).

They were specially rlesigned f9r use in spinning machines for manufacturing ravon thrl!ad. and thy. were indubitably essential for the working of the rayon spinning machines and were incapable of being used for any other purpose.

They were, therefore~ clearly component parts of the r3yon spinning G machines. [495-D, 494Al

(2) The argument of the respondents that if any component parts of 1nachinerv were specifically dealt with in any other item, they would go out -of item 72(3) and since pot motors were electric motors \Vithin item 72(21) they were not cov.ered by item 72(3) Wai. clf, arly unsustainable. As a matte, r

of both gram1nar ap.d language the words "not otherwise specified" cannot 'be read as qualifying "component parts". They qualify "machinery". Otherwise the coniunction "and" would have no meaning. The Sentence \voulJ. become H ungrammatical if the words "iiot otherwise specified" \\'ere read to govern "component par.ts".

The description of the component parts which follows the words "not otherwise specified" starts with the words "namely" which shows that it is intended to be a complete description of the component parts covered

A by this item and that would also not actually fit in with component parts- "not otherwise specified".

Therefore, pot motors could not be held to fall outside that item because they were otherwise specified in ilem 73(21). [494HJ (3)(a) Where an authority makes an order in exercise of a quasi-judicial function it must record its reruiom in support of the order it makes.

Every quasi-judicial order must be supported by reasons. [4950] M. M. Desai v. The Testee/s Ltd. & Anr. CA 245 of 1976, decided on 17th B Pee, 1975, referred to.

(b) If courts of law were to be replaced by administrative authorities and tribunals and with the proliferation of administrative law, they may helve to be so replaced, it is essential that adrninistrative authorities and tribunals should accord fair and proper hearing to the persons sought to be affected by their orders and give sufficiently clear and explicit reasons in support of the orders made by them.

The rule requiring reasons to be given in support of an order is lite the principal of audi alteram partem, a basic principle of naturaf justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law.

[496B-DJ In the instant case the Assistant Collector did not give any reasons in SUPPort of his order which was in. plain disregard of the requirernent of law.

The reao,; on given by the Collector was hardly satisfctory.

His order could have been a little more explicit and articulate so as to lend assurance that the case had been pa>perly considered by him. The Government of India too failed to give any reasons in support of its order rejecting the revision application. [496-HJ

I •

[The Court expressed the view that it would be desirable that in cases arising under customs and excise laws an independent quasi-judicial tribunal is set up which would finally dispose of the appeals and revision applications under these laws instead of leaving the determination of such appeals to the Government of India.

An independent quasi-judicial tribunal would inspire .., greater confidence in the public mind.]

[496F] E CML APPELLATE JURISDICTION: Civil Appeal 1277 of 1968.

(Appeal by special leave from the order No. 2674 of 1967 of the • Ministry of Finance, Government of India) • Hardev Singh, lshwar Chand Jain and R. S. Sodhi; for the Appellant.

S. N. Prasad and S. P. Nayar, for respondents.

The Judgment of the Court was delivered by

BHAGWATI, J. This appeal by special leave raises a short question as to what is the correct amount of import duty chargeable on pot motors when imported separately from Rayon Spinning frames : do they fall within Item 72(3) or Item 73(21) of the First Schedule to the Indian Customs Tariff?

The facts giving rise to the appeal are few and may be briefly stated as follows: Some time in 1956 a licence for setting up a plant for manufacture of Rayon was granted to one Kesoram Industres & Cotton Mills Ltd. under the Industries Development and Regulat10n Act, 1951.

Smee the machinery and equipment required for setting up the plant were not available in India Kesoram Industries and Cotton Mills Ltd. applied for an import licence and on. the asis" of this appli?ation, import licence was granted to them for 1mportmg complete contmu?us

filament Rayon plant-with spares and accessories" ?f the CIF Vlue of Rs. 5 .50 crores from general currency area excluding South Afnca.

... • J

It appears that Kesoram Industries & Cotton Mills Ltd. imported, on A the strength of this import licence, Rayon Spinning frames, excluding pot motors, from Japan, but so far as pot motors were concerned, they authorised the appellants to import from .Germany 4000 of these motors for initial installation of the Spinning frames.

Pursuant to the authority so given, the appellants placed orders for 4000 pot motors with manufacturers in Germany and imported the same in seven different consignments under the Import licence of Kesoram B Industries & Cotton Mills Ltd.

These seven consignments arrived at Calcutta port between September and December 1961.

The appellatnts claimed before the Customs authorities at the time of assessment of import duty on these seven consignments that pot motors imported by them fall within Item 72(3) of the First Schedule to the Indian Customs Tariff and were chargeable to import duty under that item at the rate of 15 percent of their accepted value.

This claim C was accepted by the Customs authorities and these seven consignments were allowed to be cleared on payment of import duty under Item 72(3).

However, within a short time thereafter, the Assistant Collector of Customs issued seven separate notices of demand in respect of these seven consignments claiming that customs duty at the rate of 15 per cent had been short levied, because pot motors were \!Ssessable at the rate of 20 per cent and requiring the appellants to I> pay up the difference within 15 days from the date of demand under s. 39 of the Sea Coustoms Act, I 878.

The appellants sent representations against these notices pointing out that-and we are quoting here from the representation dated 8t'h December, 1961 which is :

"These pot motors are vital component pan of the Rayon Spinning machines already imported and are not in excess of the quantity required for the first installatieln of the said plant.

The pot motors are required for 24 Spinning frames having 2 sides each.

On each side of these frames, 66 motors are connected.

Hence total initial requirement of pot motors for running 24 frames is 3168.

In view of general experience with this type of plant approximately 25 % additional motors are required for trial runs and commissioning 4000 Nos. of not motors should, therefore, be supplied for first. installation of the Rayon plant.

These pot motors are of very high speed and are specially designed for use in spinning frames for manufacturing rayon thread.

They run at 7700 RPM and are designed for 11 rated voltage of 130 V. at 130 cycles per second for use in circuits of less than 10 amps. As such, these motors can in no circumstances be used for any other purpose excepting as stated above.

The accessories of these motors are specially designed to suit particular size of spinning pots as well as spinning chambers.

The smooth running of these' motors is achieved after a great research by using flexible elastic and hollow shaft, special rubber bushings for support as well as specially designed bearings, to take care of severe stresses,

which are normally encountered by these motors during operation.

Hence, it is inevitable that au1y deviation in the design of the above component parts would mean defeatina the purpose for which these motors are meant. "'

In view of the above, these motors callllot be classified other tl:Pan an integral part of the Rayon Spinning plant.

We, therefore, claimed as assessment of duty under .... proviso 72(3) at the tinle of clearing." 1 •

C The appellants did not receive any reply from the Assistant Collector in regard 'to these represe1'1tations for a period of about three years and hence they thought that their representations had been accepted and the demand for differential duty had been dropped.

This, however, turned out to be a vain hope, for seven communications dated 19th January, 1965 were received by the appellants from the Assistant Collector stating that the demand for differential duty in n respect of each of the seven consignments was confirmed and would be enforced in due course if the differential duty was not paid by the appellants.

Each of those seven communications contained an intimation that "an appeal against this decision lies to tihe Appellate Collector within three months hereof''.

The appellants, however, did not prefer an appeal to the Collector and instead tried to persuade the Assistant Collector to change his opinion by pointing ou'. the E relevant facts.

It appears that in the meantime the Assistant collector recovered the aggregate amou11t of the differential duty from the deposit account of the appellants.

The appellants once again made a representation to the Assistant Collector and requested him to refund the amount of differential duty collected by hinl but the representation did not meet with any favourable response from the Assistant Collector.

The appellants ultimately filed a representation F to the Collector on 15th July, 1965 setting out their case in regard to the assessment of customs duty and pointing out that the original assessment of customs duty made under Item 72 ( 3) was correct and that the differential duty had been 'lvrongly recovered from them.

This representation was treated by the Collector as a revision application against the orders of the Assistant Collector and on this application, the Collector made an order which was conveyed to the appel- G !ants by the Assistant Collector by his letter dated 23rd December,

1965.

The Assistant Collector pointed out that the Collector had

"-examined the merits of the case in question llild it is his consideration that the duty was correctly chargeable because the Spinning Machinery excluding the pot motors were being imported under one contract from Japan and the pot motors were being imported under another contract from Germany.

Separate importation under a separate contract from a separate country would not justify treatment of the two consignments as one article, when the goods are not specified

, JI

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in the Tariff as one article.

Therefore, he does not see any A reason to revise the Assistant Collector's order concerning the demands."

The appellants thereupou preferred a revision application to the Government of India, but by a short and pithy order dated 23rd September, 1967, the Government of India rejected the revision application stating that they had carefnlly considered the revision application Be but saw no reason to interfere with the order Jl"'ISSed by the Collector.

This led to the filing of the present appeal against the order of the Government of fadia with special leave obtained from this Court.

Though the appellants, initially, when the hearing of the appeal commenced, raised two or three contentions against the validity of the order of the Government of India confirming the demand for differenc tial duty, they ultimately pressed oiaJy one contention and that related to the category in which the pot motors imported by the appellants fell.

The Assistant Collector originally assessed these pot motors to customs duty at the rate of 15 per cent of their accepted V"alue under Item 72(3), but later, demanded differential duty from the appellants on the footing that these pot motors were really asse>ssable

at the rate of 20 per .cent of their accepted value under ltem 73 (21) D and'this demand was confirmed by the Collector in revision and on further revision, by the Government of India.

The appellant disputed :he correctness of these orders and contended that the original asse.sment made by the Assistant Collector was proper and the demand for differential duty was unjustified, because the correct item under which these pot motors were assessable was Item 72 (3), and not Item 73 (21), Item 72 (3), as it stood at the material time. was in the E foll owing terms :

"72(3) Component parts of machinery as defined 'in Item Nos. 72, 72(1) and 72(2) and not otherwise specified, essential for the working of the machine or apparatus and have been given for that purpose some -special shape or quality which would not be essential for their use for any other purpose but excludiag small tools like twist drills and reamers, F dies and taps, gear cutters and hacksaw blades :

provided tlrat articles which do not satisfy this condition shall also be deemed to be component parts of the machine to which they belong if they are essential to its operation and are imported with it in such quantities as may appear to the Collector of Cnstoms to be reasonable.", G

while Item 73(21) comprised "Electric motors, all sorts, and parts thereof." The competition was between these two Items and the question is which of them covered pot motors imported by the appellant.

Now, pot motors imported by the appellants were clearly compo- ,,.,.. nent parts of Rayon Spinning machines and this was not am! indeed H could not be disputed on behalf of the respondents.

Since Rayon Spinning machines were admittedly textile machinery as defined in Item 72 ( l), these pot motors were covered by the opening part of

Item 72(3), namely, "component parts of machinery as defined in Item Nos. ---72(1)---".

Moreover, these pot motors were clearly and indubitably essential for the working of the Rayon Spinning machines and, as pointed out by the appellants in their representation dated 8th December, 1961, they were "specially designed for use in spinning frames for manufacturing rayon thread" and for the purpose, they were given special shape and quality which was not only not essential for their use for any other purpose but actually rendered them incapable of being used for any other purpose.

This position, as pointed out by the appellants in their representation dated 8th December, 1961, was not disputed either by the Assistant Collector in his communication dated 19th January, 1965 or by the Collector in his order dated 23rd December, 1965 rejecting the representation of the appellants and the Government of India also did not controvert this position in its order dated 23rd September, 1967.

If the Assistant Collector or the Collector or the Government of India did not accept the facts set ont in the representation of the appellants dated 8th December, 1961, we should have expected a clear statement to that effect in the orders of these authorities.

The Assistant Collector maintained sphinx like silence and preferred not to give any reasons for confirming the demand for differential duty.

The Collector was a little Jess reticent.

He briefly gave a reason for confirming the orders of the Assistant Collector. but that reason had nothing tel do with the nature, quality or condition of the pot motors.

What it said was this, namely, that the pot motors were imported under a separate contract from Germany while the Spinning machinery excluding pot motors were imported from Japan and that did not "justify the treatment of two consignments as one article." The Government of India also did not articulate its reasons while rejecting the revision application of the appellants, but since it confirmed the order of the Collector, we may presume that the same reason which prevailed with the Collector appealed to the Government of India.

It will, therefore, be seen that at no stage was the factual position in regard to the pot motors, as set out in the representation of the appellants dated 8th December, 1971, disputed by the Assistant Collector of Customs or the Collector or the Government of India.

The pot motors, therefore, clearly fell within the description given in Item 72(3),

The respondents, however, leaned heavily on the words "not otherwise spcified" in item 72(3) and cO'ntended that even if the pot motors were component parts of Rayon Spinning machines, they were not covered by Item 72(3), since they were otherwise specified in item 73 (21).

The argument of the respondents was that if any component parts of machinery were specifically dealt with in any other item, they would go out of Item 72(3) and since pot motors were electric motors within Item 73(21), they were not covered by Item 72(3). This argument is clearly unsustainable.

It seeks to read the words "not otherwise specified" as qualifying "component parts" but that is plainly incorrect as a matter of both grammar and language.

Structurally, the conjunction 'and' joins the two clauses "as defined in Item Nos. 72, 72(1) and 72(2)" and "not otherwise specified" and since the former qualifies 'machinery', the latter also must be read as

.... . ,

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doing the same duty.

What Item 72(3) contemplates are component parts of that machinery which is defined in Item Nos. 72, 72 ( 1) and 72(2) and which is not otherwise specified.

The words 'not otherwise specified' do not qualify "component parts" : they qualify machinery'.

Otherwise, the conjunction 'and' would have no meaning.

In fact, the sentence would become ungrammatical if the words "not otherwise specified" were read to govern "component parts".

This construction also receives support from the description of the component parts which follows the words 'not otherwise specified'.

This description starts with the word 'namely', which shows that it is intended to be a complete description of the component parts covered by this item and that would not contextually fit in with

"component parts --- not otherwise specified".

There can be no doubt that on a plain grammatical construction, the words "not otherwise specified" qualify "machinery" and not "component parts" and, therefore, the pot motors imported by the appellants, which satisfied the other requirements of Item 72(3) could not be held to fall outside that Item, because they were otherwise specified in Item 73 (21).

Item 72(3) is a specific Item '-':hich covers these pot motors as against Item 73 (21) which is a general item and hence it must be held that these pot motors were assessable under Item 72 (3) and not under Item 73 (21).

The original assessment of these pot motors made by the Assistant Collector was, in the circumstances, correct and the subsequent, demand of differential duty made by the Assistant Collector and confirmed by the Collector in revision and by the Government of India on further revision, was unjustified.

The orders made by the Assistant Collector, the Collector and the Government of India confirming the demand for differential duty would, therefore, have to be quashed and set aside and the amount of differential duty recovered from the appellants pursuant to these orders would have to be refunded to the appellants .

Before we part with this appeal, we must express our regret at the manner in which the Assistant Collector, the Collector and the Government of India disposed of the proceedings before them.

It is incontrovertible that the proceedings before the Assistant Collector arising from the_ notices demanding differential duty were quasijudicial proceedings and so also were the proceedings in revision before the Collector and the Government of India.

Indeed, this was not disputed by the learned counsel appearing on behalf of the respondents.

It is now settled law that where an authority makes an order in exercise of a quasi-judicial function it must record its reasons in support of the order it makes.

Every quasi-judicial order must be supported by reasons.

That has been laid down by a long line f decisions of this Court ending with N. M. Desai v. The Testeels Ltd. & Anr. (') But, unfortunately, the Assistant Collector did not choose to give any reasons in support of the order made by him confirming the demand for differential duty.

This was in plain disregard of the requirement of law.

The Collector in revision did give some sort of reason but it was hardly satisfactory. He did not deal in his order with the arguments advanced by the appellants in their representa-

(1) C. A. 245 of 1970 decided on 17th December, 1975.

A tion dated 8th December, 1961 which were repeated in the subsequent representation dated 4th June, 1965.

It is not suggested that the Collector should have made an elaborate order discussing the arguments of the appellants in the manner of a court of law.

But the order of the Collector could have been a little more explicit and articulate so as to lend assurance that the case of the appellants had been proper! y considered by him. If courts of law are to be replaced B by administrative authorities and tribunals, as indeed, in some kinds of cases, with the proliferation of Administrative Jaw, they may have to be so replaced, it is essential that administrative authorities and tribunals should accord fair and proper hearing to the pcfsons sought to be affected by their orders and give sufficiently clear and explicit reasons in support of the orders made by them.

Then alone administrative authorities and tribunals exercising quasi-judicial c function will be able to justify their existence and carry credibility with the people by inspiring confidence in the adjudicatory process.

The rule requiring reasons to be given in support of an order is, like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-.iudicial process and this rule must be observed in its proper spirit llnd mere pretence of compliance with it would not satisfy the requirement of law. The Government D of India also failed to give any reasons in support of its order rejecting the revision application.

But we may presume that in rejecting the revision application, it adopted the same reason which prevailed with the Collector.

The reason given by the Collector was, as already pointed out, hardly satisfactory and it would, therefore, have been better if the Government of India had given proper and adequate reasons dealing \vith the arguments advanced on bchllf of the nppcl- E !ants while rejec:ing the revision application.

We hope and trnst that in future the Customs authorities will be more careful in adjudicating upon the proceedings which come before them and pass properly reasoned orders, so that those who are affected by such orders are assured that their case has received proper consideration at the hands of the Customs authorities and the validity of the ad indication made by the Customs authorities can also be satisfactorily tested in a F superior tribunal or court.

In fact, it would be desirable that in cases arising under Customs and Excise laws an independent quasi-jHdicial tribunal, like the Income-tax Appellate Tribunal or the Fore:gn Exchange Regulation Appellate Board, is set up which would finally dispose of appeals and revision applications under these laws instead of leaving the determination of such appeals and revision applications to the Government of India.

An independent quasi-judicial tribunal G would definitely inspire greater confidence in the public mind.

• We accordingly allow the appeal, set aside the orders passed by the Assistant Collector, the Collector and the Government of India demanding differential duty from the appellants and direct the Government of India to refund to the appellants the amount of differential duty recovered from the appellants in respect of the seven consignments of 4000 pot motors imported by them.

The respondent will pay the costs of the appeal to the appellant.

P.B.R.

Appeal allowed.

' ., I •

SIEMENS ENGINEERING & MANUFACTURING CO. OF INDIA LIMITED

UNION OF INDIA & ANR

P. N. BHAGWATI

A. C. GUPTA

S. MURTAZA FAZAL ALI, JJ.

First Schedule

First Schedule

First Schedule

s. 39


• >

' . .

DELHI CLOTH & GENERAL MILLS CO. LTD. & ORS.

A v .

R.R. GUPTA, COMMERCIAL TAX OFFICER, JAIPUR & ANR.

May 3, 1976

(A. N. RAY, C.J., M. H. BEG AND JASWANT SINGH, JJ.]

Raiastlwn Sales Tax Act, 1954-Statutory re1nedies provided under the Act not exhausted-No error apparent on the face of the record-If petition under Art. 226 lay .

Co11.stitution of India, 1950-Art. 32-Absence of jurisdiction to assess not shown-If remedy lies under Art. 32.

c Rayon tyre cord fabric which is a textile consisting of rayon threads in the warp and cotton threads in the weft is manufactured on weaving looms in the same manner as any other ordinary textil~. The tyre manufactureni, to whom the product is supplied, impregnate the fabric with rubber and weave it into fabric. Under Entry 18 of Schedule of the Rajasthan Sales Tax Act, 1954, rayon fabric& were exempt from sales tax.

When the Commercial Tax Ollkcr rejected the petitioners' objections to sales tax being leviro on rayon tyre cerd fabric, the petitioners filed a petition under Article 32 of the Constitution alleging D breach Of Fundamental Rights.

Tn respect of certain earlier assessment years, however, the view of the Commercial Tax Officer was that the gocxls were not the end prOOuct; when, the matter was taken to the High Court, it held that, until the statntory remedies had been exhausted, no case for interference under Art. 226 arose. It did not find any error apparent on the face of the record. Hence, the appeals by !YlJCCial leave-.

In the writ petition as well as in the appeals it was contended that the goods constituted the end-Product which the petitioners sell in the market and, therefore, were exempt; fr<>m sales tax.

Di1missing the pe.tition and appeals,

HELD : (I ){a) It is difficult to find fault with the view of the High, Court that there was no error apparent on the face of the record and that the taxing authorities should be left lo determine whether the tyre cord fabric is more correctly capable of being described as a fabric or as merely cord passing of as a textile fabric. This is really a technical question.

In any case, it is: a question on which two vie~ may be. possible.

[503C]

(b) The fact that the tyre co.rd fabric manufactured by the petitioners i9 G \VOVOll by its purchases into a fabric in the same way as is being done by the petitioners means that the tyre cord fabric serves also as raw material fOr another fabric which ultimately emerges by .subjecting the goods to a process of impreg~

nating it whh rubber. The essential question to determine is the stage at which the J¥)Ods under consideration beco1ne textile fabrics if they do become that at all. [S02C; 503Al

(2) This Court cannot interfere under Art. 32 with the decisioh of the H Commercial Tax Officer, because no Fundamental Right is -shown to be affected by a mere determination of the question.

There was no absence of jurisdiction of !be taxing authorities who had th! power to decide the question either rightly , or wrongly, [S03El , 34-833 Sup Cl/76

ARGUMENTS

For the vetitioners

Respondent No. 1 did not produce or get any evidence fro111 the commercj<tl community deali.tig with rayon tyre yarn and cord and rayon tyre fabnc for the purpose of conuoverting the conclusive evidenc..-e produced by the pc•1uor"

to the elfect that in the commercial community dea1ing with the said goods the.be goods were different both fr6m the, point of view of' manufacture and abo from the point of view of ultimate endproduct and are considered to b~ different by the commercial community, \Vhich treats rayon tyre cord fabric as fabric.

There was no evidence on the contrary to coine to the conclusion that the rayon tyre fabric was not fabric. The High Court wrongly relied on 25 STC 407 which had no application in the present case, ignoring the decision :r1 22 SIC 470 and zg STC 431. It was therefore not a case of disputed question of fact, but a case of admitted fact by the commercial community against which there was no evidence before the respondent.

The respondent committed an error apparent on the face of the record aIJLl proceeded on irrelevant and extraneous considerations.

In any event the tyre cord fabric is sold by the petitioners as an end-product to cus1omers. To what use the customers put such commodity is no concern of the appellan'.

Suh error can be corrected by way of writ petition under arts. 226 and 227 of the Constitution.

'The alternative remedy of appeal is not at all efficacious in the facts and circumstances of the present case inasmuch as the Commissioner and the State Government having already made up their mind to le\ry tax, no relief could be expected by the appellants from him and the High Court should have interfered under arts. 226 and 227.

Further in this case there was no question of disputed fact;. 'The sample was admitted.

There was uncontradicted evidence that the product of the petitioners is known as rayon cord fabric by the commercial community and by common parlance. The case isi a misdirection of law on the part of the assessing authority.

For the respondent~

There was no error of Ia.w apparent on the, face of the record as. contendd by the petitioners.

The High Court rightly rejected the writ petitions on the ground that there were disputed facts ahd there are alternative remedies and full and adequate machinery under the Act itself.

The assessee mills, when paying excise duty, _paid it only as on yarn under F entry 18 of the First Schedule to the Central Excise and Salt Act. The mills did not pay additional duty under the Additional Duties of Exc:se (GOOds of Special Importance) Act 1956 on the ground that the material was not fabric.

V/hen it suited the mills the material was said to be yarn and in case of sales tax it contended that it was fabric.

This fact itself was a strong indication that this was a disputed question of fact.

ORIGINAL JURISDICTION/CML

APPELLATE JURISDICTION : Writ G Petition No. 49 of 1973.

Under Article 32 of the Constitution and

Civil Appeals Nos. 43 arid 44 of 1973

Appeals by Special Leave from the Judgment and order dated the 27th October 1972 of the Rajasthan High Court in D. B. Civil Writ Petittion Nos. 398/72 and 1885/71 respectively.

A. K Sen, B. Sen and H. K. Puri for the Appellants . • S. T. Desai, S. M. lain and S. K. lain for the Respondents.

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D. C. M. V. c. T. O. (Beg, J.) 499

The Judgment of the Court was delivered by A

BEG. J.-We have before us a petition under Article 32 of the Constitution and two appeals by Special leave from the judgment of the High Court of Rajasthan between the same parties.

The three cases before us raise the same question of law.

It is: Do the goods B called "Rayon tyre Cord Fabric" sold by the Delhi Cloth & General Mills Co. Ltd. to manufacturers of tyres, who use it for the purpose of impregnating it with rubber, fall under entry 18 of the Schedule of the Rajastban Salee Tax Act, 1954 (hereinafter referred to as 'the Act')'?

The schedule mentioned above gives a list of goods on the sale or purchase of which no tax is payable under the Act. "The rele vant entry 18, which was omitted in 1973, reads as follows :

"18. All cotton fabrics, rayon or artificial silk fabrics, woollen fabrics, sugar and tobacco, as defined in the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (Central Act 58 of 1957)".

Section 2(C) of the Additional Duties of Excise (Goods of Special

Importance). Act, 1957, lays down: E

"2 ( C) the words and expressions 'sugar', 'tobacco', 'cotton fabrics', 'silk fabrics', 'woollen fabrics' and rayon or artificial silk fabrics' shall have the meanings respectively assigned to them in Items Nos. 1, 4, 19, 20, 21 and 22 of the First Schedule to the Central Excise and Salt Act, 1944".

The Writ Petition of the Delhi Cloth and General Mills Co. Ltd. states that "rayon tyre cord fabric" is "manufactured out of rayon yarn and cord".

It goes .on to explain that this fabric is "a textile consisting of rayon threads in the warp and cotton threads in the weft and is manufactured on weaving looms in the same manner as in other ordinary textile".

It is also stated there :

"The fabric consists of more than 60% by weight of rayon and is unprocessed. The weft threads are not used merely for tying the warp threads together !or the purpose of convenient transport or storage but form an integral part of the whole fabric".

500 SUPREME COURl REPORIS I 197Cl[ SL'l'PIE~!FNl,\l(Y

The petitioners state that the manufacturers of tyros to whom the fabric is supplied "impregnate the fabric with rubber and weave it into a fabric in the same way as is being done by the first petitioner".

Thus, the petitioners allege that they manufacture "a textile" and also that it serves as part of raw material for what ultimately also goes into the manufacture of a fabric.

After indicaling the manner in which and the substance out o[ which "rayon tyre cord fabric" is made and its composition, the petition sets out ilcm 22 of the first schedule of the Central Excises and Salt Act, 1944, as the applicable entry covering the goods manufactured by the petitioner.

This item reads as follows :

"Rayon or artificial silk fabrics 'means all varieties of fabrics manufactured either wholly or partly from rJyon or artificial silk and includes embroidery in the piece, in strips or in the motifs and fabrics impregnated or derivatives or of other artificial plastic materials, but docs not include any such fabrics :--

(i) If it contains 40% or more by weight of wo<1l.

(ii) If it contains 40% or more by weight of silk.

(iii) If it contains cotton and less than 60% by weight of rayon or artificial silk; or

(iv) If it contains no cotton and less than 40% by weight of wool and less than 40% by weight of rayon or artificial silk".

The petitioners assert that, from years 1966 to 1969, the respondent Commercial Tax Officer was not subjecting the goods of this description to sales mx and accepted the case of the petitioners that they were exempt from taxation.

The reasoning of the Commercial Tax Officer, in exempting these goods, is also mentioned.

It is then stated that, as some questions were put itt the Rajasthan State Legislative Assembly, on or about 20th April, 1971, asking for the reason why this particular type of goods of the petitioners were exempted from Sales tax, the Commissioner of Commercial Tax issued a letter to the Commercial Tax Officer to levy Sales tax on the "rayon cord fabric" manufactured by the petitioner.

Thereafter, notices under the proviso to S. 12(1) of the Act were issued for the years 1965 to 1969 with a view to reopening the assessments on the ground that the sales of_ these goods had ':"r?ngly escaped assessment, but these were dropped due to some preltmmary

' .

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+ I'

D. C. M. v. C.T.O. (Beg, J.) 501

-Objections.

Fresh notices were then issued and proccet!iugs for subsequent assessment years were also taken.

By orders passed on various dates, the Commercial Tax Officer rejected the petitioners' objections to Sales tax on "rayon tyre cord fabric".

The petitioners have, however, come up to this Court directly against the order and provisional assessment dated 21st November, 1972. It also appears from the writ petition that proceedings for the assessment year 1972-73 are still pending before the Commercial Tax Officer.

Civil Appeals Nos. 43 of 1973 and 44 of 1973 by special leave are directed against a common judgment of a Division Bench of the High Court of Rajasthan, given on 27.10.1972, dismissing the appellants' Writ Petitions against the assessment order dated 26th March, 1971, for the years 1968-69 and 1969-70 made by the Commercial Tax Officer.

The view of the Commercial Tax Officer, questioned by U1e petitioners, was that the goods now sought to be taxed are not the "end product".

The Hih Court did not go into the merits cf the case.

It accepted the preliminary objection of the State of Rajasthan that the petitioner should first resort to alternative remedies providc<l under the Act so that the appellate authority under Section 13 of the Act may go into the whole ev'dence and decide disouted questions of fact.

TI1ere is also provision for revision by the Board of Revenue under Section 14 when moved by the assessing authority. Tue High Court did not find any error "apparent upon the face of the record"

The taxing authorities have the jurisdiction to decide the question before them either rightly or wrongly. In any case, its view was that, until thB statuto1y remedies had not been exhausted, leaving some

"error apparent on the face of the record" still to be rectified by the High Court, a case for interference under Article 226 of the Constitution will not arise.

It is urged on behalf of the Delhi Cloth Mills that no disputed question of fact arises.

It is submitted that, on admitted facts, it

could be decided whether the "tyre cord fabric" is an exempted "fabric" G or not. We think tliat this view over-looks several matters, indicated below, including the admission on he ha If of the Delhi Cloth Mills that, in the case before us, the "tyre cord fabric" manufactured by it is woven by its purchasers "into a fabric in the same way as is being done by the first petitioner". This certainly means that the tyre cord fabric serves as raw material for another fabric which ulumately . H emerges by subjecting the goods manufactured by Delhi Cloth Mills to a process of impregnating with rubber.

A sampk of the tyre cord fabric was actually produced before us. It is said that the "fabric" is manufactured in the same way ac doth is woven on looms.

It consists of cords which could be said to constitute warps, running length-wise, and wefts, running brcadthwise.

But, the spaces left between them are so wide, presumably for purposes of impregnation with rubber, that it may not pass for an ordinary "fabric" like one of those mentioned in entry l 9 of the first scl1cJulc to he Central Excises and Salt Act, 1944, such as ''tussors", "corduroy", "gaberdine", "deniin'', Indeed, if the "tyre cord fabric" is so well established a category of rayon "fabric'', it could . have found mention specifically in item 22 in the same way as the numerous varieties of cotton fabrics are mentioned in item 19. In answer to this argument, it could be urged that, for some reason, entry No. 22 does not enumerate rayon and silk fabrics in the same fashion as the cotton fabrics are specified by name in item 19.

It is certainly a question which appertains to the knowledge of teclmical aspects of textile weaving and production to determine at what stage threads or cords forming warps and wefts really amount to a "fabric". It is true that the term fabric has a wide meaning. Its first meaning given in the Oxford English Dictionary is : "A product of skilled workmanship".

The first example of such a product is : "An edifice, a buildina". The fourth example of the first meanino is:

"a manufactured material; now only a 'textile fabric', a woven stuff".

We think that we are necessarily concerned here only with "textiles" as fabrics.

This is clear from entries 19 to 22(0) of the first Schedule of the Central Excises and Salt Act, 1944. Entry 22AA f is "textile fabrics not elsewhere specified".

This residuary entry and the descriptions in preceding entries seem to us to make it abundantly clear that we are dealing here only with "textile fabrics".

The case of the Delhi Clo!l1 Mills also is that the product is a "textile". Therefore, the essential question to determine is the stage at which the goods under consideration become a 'textile fabric".

The meaning of the G term "textile'', given in the Oxford Dictionary, is : "A woven fabric; any kind of cloth". It must acquire a body and a texture.

Pr.esumably it is not just the skeleton of a textile.

Apparently, it is more than that. But, against pushing this point of view too far it may be urged that in the technical and commercial parlance we are dealirig \vi th a "fabric".

It is, therefore, difficult to find fault with the view of the High Court that there is no error apparent on the faee of the record and

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D. c. M. v. c.T.O. (Beg, J.)

that the taxing authorities should be left to determine whether the "tyre cord fabric" is more correctly capable of being described as a fabric or as merely cord pretending to pass off as a textile fabric.

This is really a tehnical question. In any case, it is a question on which two views seem possible on apparent facts.

And, neither of the two views can be rejected outright as untenable. It requires careful consideration of the technical processes of manufacturing, of the composition of the "tyre cord fabric", and an evaluation of opinions of experts on tile subject, to be able to decide the question satisfactorily. It may also require some examination of commercial usage and terminology or the language of the market in goods of this type.

We, therefore, think that the High Court was right fo not interfering with the decisions of tl1e taxing authorities at this stage.

We also think that for the same reason we could not interfere under Article 32 with the decision of the Commercial Tax Officer. Indeed, no fundamental right is shown to be affected by a mere determination

of the question indicated above.

There is no absence of jurisdiction I> of the taxing authorities who had the power to decide the question either rightly or wrongly.

It has been ur!!:ed, on behalf of the Deihl Cloth Mills that the High Court should have interfered as the question whether the !)Te cord fabr; c is the end product or not in the final manufacture of another fabric was q:iite irrelevant. It was submitted that, 'o far as the Delhi Cloth Mills is concerned, the goods under conideration constitute the "end product" which they sell in the market. The example given was that of cloth which is the "end product" for the mills which manufacture cloth, but, it becomes the raw material for tailors and for those who make ready-made clothes to sell them. This argument overlooks that it is not so much the point of manufacture at which the Mills sell their own product which determines the nature of goods which are entitled to exemption, but it is the stage reached by this product, in the process of manufacture of fabrication of a "textile", which should decide the question. As we have already in' dicated, the context in which the entry occurs show5 that it is meant for "texfle" fabrics and nn• for any kind of fabric. Therefore. even

if the tyre cord fabric may be the end product for the Delhi Clotl1 Mills, the crucial question is : Does this product constitute a fabric which is a textile?

A textile fabric does not cover everything which could be made into a fabric.

Mere cord does not become a textile fabric just because it requires some skill to make it.

The rather wide dictionary meanings of the term "fabric'' do not appear to us to give the exact meaning of the term "fabric" as

used in the relevant entries entitled to exemption.

In tho entries, it evidently means a fabric which is also a textile.

The question, therefore, to be determined by the Tax authorities themselves is whether the product for which the Delhi Cloth Mill claims exemption is a textile fabric and not any other kind of fabric.

Having indicated the nature of the enquiry which must be undertaken by the taxing authorities, we find that there is no suflicient reason for overriding and discarding the High Court's view that, on what appeared to the High Court to be a question of fact, it should not decide whether the product under consideration constitutes a fabric entitled to exemption.

There was no appeal by the State of Rajasthan. It does not, therefore, seem proper for us to finally decide, on merits, the question argued before us in the appeals by the Delhi Cloth Mills which are before us unless we could have decided the matter in favour of the D appellant.

We could have only done that if we were of opinion that the taxing authorities had committed error apparent on the face of the record.

But, as already indicated above, we are not of this opinion.

I •

For all the reasons given above, we think that the Writ Petition ' as well as the appeals by special leave are liable to be dismissed, and, we hereby dismiss them with one set of costs.

P. B. R. .4 ppe(I/ dismissed.

A. N. RAY, C.J.

M. H. BEG

JASWANT SINGH, JJ.

Raiastlwn Sales Tax Act, 1954

Art. 226

Art. 32

Art. 32

Article 32

Art. 226

Art. 32

arts. 226 and 227

arts. 226 and 227

First Schedule

Article 32

Article 32

Section 2(C)

Central Excises and Salt Act, 1944

S. 12(1)

Section 13

Section 14

Article 226

Article 32


• I

M/S. GAURI SHANKAR, CHANDRABHAN

\'.

C.I.T., U.P., LUCKNOW

May 3, 1976

[A. C. GUPTA AND JASWANT SINGH, JJ.J

AsseJ.rn1ent jurisdiction of Income Tax Officerurisdiction to continue to assess u undivided, despite partition under personal law. a HindU family whicll

has hitherto been assessed in that status-Interpretation and scope of s. 25A(3) r<ad 1>ith s. 25A(I) of the Income Tax Act-Penalty imposed under s. 28(l)(c) of the Act for concealment of income by the Hindu Undivided Family prior to the actual date of recording of an order accepting the disruption of the Hindu

Vfldivided Family is proper.

In response to a show cause notice dated March 15, 1957, under s. 28(l)(c) of the Income Tax Act, before imposing a penalty for deliberate concealment of its income, the appellant, through ; ts authorised representni.:e, voluntarily agreed to a sum of Rs. 15,000/- being treated as income of I-Iindu Un<li, iJed Family. The Income Tax Officer, by his order dated March 20, 1958, added a sum of Rs. 68,550/ ... to the income of the appellant and imposed on it a penalty of R.. 26,000/- which on appeal was reduced to Rs. 15,000/-. Mean while, on March 19, 19157, the appellant filed an application under s. 25A of

.iie Act for an order recording partition of joint family property in definite D portions from June 22, 1956, claimin~ that date to be the date of partition. The Income Tax Officer, after due enquiries., accepted the disruption of the Hindu Un&vided Family as claimed by his order dated March 26, 1962. This led the appellaat to contend that, in view or the orders dated March 26, 1962, of the Incooie Tax Officer, the imposition of the penalty by him on March 20, 1958, was bad in law and could not be sustained.

T1le Tribunal upheld the contentions of the appellant resulting jn a reference under s. 66( 1) of the Act to the Hi~ Court of Allahabad (Lucknow Bench), which reversed the decision of the Tribnna1.

Ho"WCver, the High Court granted a certificat~ of Atne"s for E J appeal to this Court.

r . •

Dismissing the appeals the Court,

HELD: Sub--section (3) of s. 25A of the Income Tax Act en1bodies a legal fiction according to which a Hindu family which has been previously assessed as ''undivided" is to be continued to be treated as "undivided'' till the passing of the order under sub-s. (I) of s. 25A. So long as no order under s. 2S(A)(l) of the Act is recorded, the jurisdiction of .the Income Tax Officer to continue to

asess as undivided desplte a partition under personal law, a Hindu family which has hitherto been asses.sed in that status, remain unaffected.

[5080-H]

Additional lnconte Tax Officer, Quddapah v. A. Thim1nayya & Anr. SS I.T.R. 666; /dint Family of Udayan Chinubhai etc. v. Co1nmissioner of Income Tax, Gujarat (1967) 63 I.T.R. 416, applied.

CommiMioner of Income Tax v. Sl>l11char Snh Bhim Salt (1957) 27 I.T.R.

G 307; S. A. Raiu Chattiar & Ors. v. Collector of Madras & Anr. (1956) 29 I.T.R. 241; Mahankali Subba Rao Mahankllli Naeeswara.i Rao & Anr. v. Commissioner of Income Tax., Hyderabad (1957) 31 I.T.R. 867 and Comn1issioner of Incom~ Tax, Punjab v. Mathu Ram Prem Chand (1967) 66 I.T.R. 638, not applicable.

HELD FURTIIER: In the instant case, there was not a whisper of the application under s. 25A (I) of the Act by the appellant on March 15, 1957, when H the penalty proceedings ""re initiated against it.

EV<n on March 20, 1958, when the penalty was imposed, there was no order under s. 25A(l) of the Act. It was on1y on March 26, 1962, that the partition was recognised and order

506 SUPREME COURT REPORTS (1976] SUPI'LliMENTARY

A under s. 27A(l) of the Act was passed.

There was, thus, no bar to lhe imposiw tion of the impugned penalty. [509Ef'J

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 886 of 197.1.

(From the judgment and order dated the 18.9.1969 of the Allahabad High Court in L T. R. Misc. Case No. 836 of 1963.)

G. C. Sharma, V. N. Ganpule, D. K. Jain, Anup Shanna and P. C.

Kapur, for the appellant.

B. Sen and S. P. Nayar, for the respondent

The Judgment of the Court was delivered by

JASWA)IT SINGH, J. This is an appeal by certificate of fitness granted by the High Court of Judicature at Allahabad under section 66- A(2) of the Indian Income-tax Act, 1922 (hereinafter referred to as 'the Act') from its judgment dated September 18, 1969 in I.T.R. Misc.

Case No. 836 of 1963.

The facts giving rise to this appeal are : The appellant, a Hindu undivided family consisted of Gauri Shankar, the father, and his three sons viz. Chandrabhan, Bengali Lal ai,1d Brij Kishan.

Gauri Shankar, the karta of the family who was incharge of the affairs of the family during the relevant year which extended from April 13, 1945 to April 12, 1946, the assessment year being 1946-47, died on April 2, 1946.

He was succeeded by his son, Chandrabhan as Karla of the family.

The appellant had, in the first instance, filed a retur,1 showing an income ot Rs. 9,701/-. On scrutiny of the relevant material, the Income Tax Oflicer found a number of discrcpencies in the accounts of the appellant and also noted the existence of cash credits to the appellant's accmmt in the books of another firm viz. M/s. Tilyani Glass Works and a certain sum deposited in an account styled as Abdul Wahid Khan & Suns.

He thereupon issued a notice dated March 15, 1957, calling upon the appellant to explain the discrepencies in the accounts as also in the cash credits and to show cause why a penalty under section 28- ( l ) ( c) of the Act be not imposed upon it. In response to the notice, a representative of the appellant appeared before the Income Tax Officer and volontarily agreed to a sum of Rs. 15,000/- being treated as its income. After hearing the Appellant's representative, the J>,1come Tax Officer felt satisfied that the nppella'.lt had deliberately concealed its income and furnished an inaccurate return. Accordingly, by his order dated March 20, 1958, he added a sum of Rs. 68,550/- to the income of the appellant and imposed on it a penalty of Rs. 26,000/-.

Mea, awhilc, on March 19, 1957; an application under section 25-A of the Act was made to the Income Tax Officer for an order recording partition of joint family property in definite portions, which according to the application had taken place amongst the members of the Hindu undivided family on June 22, 1956. The Income Tax Officer on bei'ng satisfied after making enquiries that a complete partition of the joint family property has taken place, recorded an order under section 25- A ( 1) of the Act on March 26, 1962, accpting the partition with effect

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!rum June 22, 1956, as claimed. Against the pe.ialty of Rs. 26,000/-

imposed by the Income Tax Oflicer by his order dated March 20, 1958, the appellant preferred an appeal to the Appellate Assistant Commissiouer, who reduced the penalty to Rs. 15,000/-. Not satisfied with this reduction, the appellant went up in further appeal to the Inc<;>metax Appellate Tribunal and raised before it a number of connt1cms.

Among.; t other things, it was urged before the Tnbunal that smce the Hindu undivided family hact disrupted on June 22, 1956, as accepted bv the Income Tex Officer in his aforesaid order dated March 26,

1962, passed under section 25-A(l) of the Act, the imposition of the pe"rnlty by the Income-Tax Officer on March 20, 1958, after the disruption of the family was bad in law and could not be sustained. While rejecting the other contentions raised on behalf of the appellant, the Tribunal upheld this contcnti011 by its order dated March 6, 1963.

Thereupon the Commissioner of Income-tax, U.P. made a',1 application before the Income-tax Appellate Tribunal under section 66( 1) of the Act reqaesting that the following question of law arising from its decisi<'l1 be referred to the High Court:-

"Whether in the facts und circumstances of the case the imposition of penalty under sectida 2E (1) ( c) on the Hindu undivided family after it had disrupted within the meaning of section 25-A is bad in law''.

Acceding to the request of the Commissioner of Income Tax, the Tribunal referred the above mentioned question to the High Court which answered the same in the aegative.

The appellant thereupon applied to the High Court and obtained the aforesaid certificate of fitness for appeal to thLs Court. This is how the matter is before us.

Relying on Co1nniissioner of lnconie Tax v. Sanichar Salz Bhi111 Sah('), S. A. Raju Chattiar & Ors. v. Collector of Madras & Anr.(") Malwnkali Subba Rao, Mahankali Nageswara Rao & Anr. v. Comnnssioner of Income-tax, Hyderabad(') and Commissioner of Incometax, Punjab v. Mothu Ram Prem Chand(') counsel for the appellant has reiterated before us that since the Hindu undivided family had dis- F solved on June 22, 1956 as accepted by the Income Tax Officer vide his order dated March 26, 1962 passed under section 25-A of the Act and the Act did not provide any machinery for imposition of the penalty on the Hindu family after its disruption, the imposition of penalty on March 20, 1958 was had in law and could no~ be sustained .

Counsel appearing on behalf of the Revenue has, on the other ha!nd, urged that imposition of impugned penalty cannot be challenge& as in G view of section 25-A(3) of the Act, a Hindu undivided family must be deemed to have continued in existe'nce till the date of the passing of

th~ order under section 25-A( 1) of the Act.

Po: a proper determinatin of the question, it is necessary to refer to secuon 25-A of the Act which at the relevant time stood as under :-

"25-A. ( 1) Where, at the time of making an assessment H under section 23, it is claimed by or on behalf of a'ny member

0). (1957) 27 ( T. -R.J~

(2) (1956) 29 I.T. R. 241.

(1) (1957) 3t l.T R. 867.

(4) (1967) 66 l.T. R. GJR.

SUPREME COURT REPORTS [J976j SUPPLE!>!E1'iT"1lY

d a llindu family hitherto usscssed as undivided that a partition l1as taken place among the members of such family, the Income-tax Officer shall make such inquiry thereinto as he may think fit, and, if he is satisfied that the joint family property has been partitioned among the various members or groups of members in defr.1ite portions, he shall record an llrdcr to that effect :

Provided that no such. order shall be recorded until notices of the inqu'ry have been served on all the members of

the fa111iJy.

(2) Where such an order has been passcd 1 or where any per.sun has succeeded to a business: profession or vocation formerly carried on by a Hindu undivided family, whose joint family property has been partitioned on or after the last day on which it carried on such business, profession or vocation, the Incomctax Officer shall make an assessment of

i!ic total income received by or on behalf of the joint family as such, as if no partition had taken place, and each member or group of members shall, in addition to any income-tax for which he or it may be separately liable and notwithstanding <1ny!hing contained in sub-section (I) of section 14, be liable for a share of tile tax on the income so assessed according to the portion of the joint family property allotted to !1im or it; "ml the Income-tax Officer shall make assessments accordi1wly with the provisions of section 23.

Provided that all the members and groups of members whose joint family property has been partitioned shall be liable jointly and severally for the tax assessed on the total income received by or on behalf of the joint family as such.

(3) Where such a.n order has not been passed in respect of a Hindu family hitherto assessed as u'adividcd, such family shall be deemed, for the purposes of this Act, to continue to be a Hindu undivided family."

It will be noticed that sub-section (3) of the above quoted section embodies a legal fiction according to which a Hindu family which has been previously assessed as 'undivided' is to be continued to be treated as 'undivided' till the passing of the order under sub-scctida (I) of the section. This view gains strength from two decisions of this Court in Additional Income-tax Officer, Quddapah v. A. Thimmayya & Anr(') and Joillt Family of Udayan Chinubhai etc. v.

Commissioner of Income-tax, Gujarat(') where it was held that so long as 110 order under section 25-A (I) of the Act is recorded, the jurisdiction of the Income Tax Officer to continue to assess as undivided despite partition under personal law a Hindu family which has hitherto been asseesed in that status remains unaffected. It will be profitable in this co,1nection

(I) (1955) 55 I T. R. 666.

12) (1957) 6J I. T. R. 4!6.

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...

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to rckr to the following observation made in A. Thimmavya's case A

(supra) :-· • .• .

"The section makes two substantive provisions (i) that a Hiudu undivided family which has been assessed to tax shall

b~ deemed, for the pmposes of the Act, to continue to be treated as undivided and therefore liable to be taxed in that

statu> unless an order is passed in respect of that family recording partition of its property as contemplated by subsection (I); •and (ii) if at the time of mak:i.1g an assessment it is claimed by or on behalf of the members of the family that the property of the joint family has been partitioned

among: the members or groups of members in definite portions, i.e. a complete partition of the entire estate is made resulting in such physical division cf the estate as it is capabk of being made, the In, cmne-tax Officer shall hold an inquiry, and if he is satisfied that the partition had taken place .

he shall record an order to that effect. . . . . . . The Incometax Oftlccr may assess the income of the Hindu family hitherto asoesscd as undivided notwithsta,1ding partition, if no claim in that behalf has been made to him or if he is not satisfied about the truth of tho claim that 'the joint family property has been partitioned in definite portions, or if on account of some error or inadvertence he fails to dispose of the claim. In all these cases his jurisdiction to assess the income of the family hitherto assessed as undivided rem11in unaffected, for the pro- L'Cdtirc for n1aking asscssn1cnt of tax is statutory."

In face or the aforesaid decisions of this Court, it is not necessary

• to hurden the record hy discussing the decisions cited by counsel for the uppL'liant.

' •

Jn the present case, there was not a whisper of the application under section 25-A(l) of the Act by the appellant ci.:t March 15, 1957 whei; the penalty proceedings were initiated against it. Even on March F 2v, 1958, when the penalty was imposed, there was no order under section 25-A(l) of the Act. It was only on March 26, 1962, that the partition was recog; aised and order under section 25-A ( 1) of the Act was passed. There was thus no bar to the imposition of the impugned penalty. Accordingly, we find no force in the contention of counsel for the appellant and are of the opinion that the question was rightly a.1swercd in the negative by the High Court.

The appeal, therefore, fails and is dismissed but in the circumst1nccs of the case without any order as to costs.

S.R Appeal dismissed.

S. GAURI SHANKAR, CHANDRABHAN

A. C. GUPTA

JASWANT SINGH, JJ

s. 25A(3)

s. 25A(I)

s. 28(l)(c)

s. 28(l)(c)

s. 25A

s. 66( 1)

s. 25A

s. 25A

s. 2S(A)(l)

s. 25A

s. 25A(l)

s. 27A(l)

section 66

Indian Income-tax Act, 1922

section 28

section 25

section 25

section 25

section 66( 1)

section 25

section 25

section 25

section 25

section 23

section 14

section 23

section 25

section 25

section 25

section 25


MOHAN MEAKIN BREWERIES LTD.

EXCISE & TAXATION COMMER. CHANDIGARH & ORS.

May 4, 1976

(A. c. GUPTA AND JAswANT SINGll, JJ.]

Punjab Bonded Warehouse Rules, 1957, J?.ulcs 8 tuul 9 i111po•1itio11 of duty or regulatory provision, whether ultra vires the Finallcial Co111mis.rioner's powers countervailing duty, whether illiposs/blu oflly on liquor l'Xisting witl:i11 State territory.

The appellant company carried on the business ol' manufacture, storage and t; ale of liquors.

Bei..ween June, 1967 and April 1969, it uansported 't'arious C quantities of liquor from its dis:illeries in Uttar Pradesh to its bonded warehouse at Chandigarh. On arrival, the consignments were examined by the Ofliccr- .:nCharge of the warehouse, and a shortage was found, exceeding the wastage a!Jowance permissible under rule 8 of the Punjab Bonded Warehouse Rules.

1957. The Excise and Taxation Commissioner, exercising the powers of the Financial Commissioner, issued a show cause notice and then ordered the appellant to pay duty on the wastage in exess. The <:1PPellant's petit:ons to the Iligh Court under Articles 226 and 227 of the Constitution, \Vere dismissed.

D It was contended before this Court, firstly that Rules 8 nnd 9 of the 1957 Rules under which the duty was sought to be imposed, were ultra vires the ru11> making power of the Financial C"Ornmissioner, and seccmdly, that these rules were iiilvalid as they went beyond the scope of Ss. J 6, 23 and 31 and Entr~ 51, List IL 7th Schedule of the Constitution, by imposing excise duty or counter vailing duty on articles \vhich neither existed in the State. nor were removed fron1 the warehouse.

E Dismissing the appeals the Courl, ~

FJELD : ( 1) The. impugned rules do not in1pose any duties or prescribe the . rates thereof or create any liability in respect thereof.

They are in essence and

• • I ..

substance of a regulatory character meant to guard against perpetration of " fraud or deception on the revenue.

They provide for and regulate the storage and subsequently the t"emoval of liquor from the bonded warehouse, on pay nient or otherwise of the duty which is chargeable under the Fiscal Rules of 1937, issued hyl the State Government. The powers. exercised by the Financial F Commissioner were clearly available to him under sec1ions 59 and 22 of the

Act and he has not overstepped the same.

[5130-H; 514A]

(2) Accordin~ to Section 31 of the Act read with Entry 51 of List II ot' the Seventh Sched.ule to the Constitution, countervailing duty can b~ imposed on fquor n1eant for Consumption which is :pJanufactured or produced elsewhere in India. It is immaterial whether the liqiior of which permits were obtained, was consumed within the union territory of Chandigarh or was in existeneei in that territory or not.

Duty is sought to be charged on liquor which was actually manufactured and left Uttar Pradesh but was found short beyond the permissible limit and no reasonable explanation was tendered by tbe appellant in res pect thereof.

[5170-GJ

Kalyani Stores v. The State of Oriss,1 & Ors. [1966] 1 S.C.R. 865, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 582 of 1971.

•,, •

Appeal by Special Leave from the Judgment and Order dated -., ,._ the 29th July 1970 of the Punjab & Haryana High Court in Civil Wr:it No. 2376170 and

} . .

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MOHAN MEAKIN LTD. v. E. T. c. (laswant Singh,!.) 5 1 l

CIVIL APPEAL No. 1418 of 1970.

From the Judgment Order dated 4th December 1969 of the Punjab and Haryana High Court in C.W.No. 342 of 1969.

Tirath Singh Munjral, G. K. Arora, B. C. Das Gupta & Co. for the Appellant.

N. S. Das Behl and 0. P. Sharma for the respondent.

The Judgment of the Court was delivered by

JASWANT SINGH, J.-There two Civil Appeals Nos. 1418 of 1970 and 582 of 1971, the first by certificate of fitness granted under Article 133(J)(a) of the Constitution by the Punjab and Haryana High Court and the second by special leave granted by this Court which are directed against the Judgments and orders of the said High Court dated December 4, 1969, and July 29, 1970, rendered in Civil Writ Petitions No. 342 of 1969 and No. 2376 of 1970 respectively shall be disposed of by this Judgment as they arise out of identical proceedings and raise common questions of law.

The appellant, a public limited company incorporated under the Indian Companies Act, which carried on the business inter alia of manufacture, storage and sale of varous kinds of Indian made foreign liquors and had its plants for manufacture and production of beer and distillation and production of the said liquors at Solan (in Himachal Pradesh), at Mohan Nagar (in Uttar Pradesh), at Lucknow (in Uttar Pradesh) and at Kasauli (in Himachal Pradesh) held in the years 1967, 1968 and 1969 a licence in From B.W.H. 2 under section 22 of the Punjab Excise Act (I of 1914) (hereinaft€r referred to as 'the Act') read with Rule 2 of the Puniab Bonded Warehouse Rules, 1957 (hereinafter referred to as 'the 1957 Rules') which were framed by the Financial Commissioner under section 59 read with section 22 of the Act, permitting it to run on conditions specified therein a Bonded Warehouse at Chandigarh for storage of bottled and bulk liquor 'and issue thereof under bond or on payment of dnty to the licensees of Punjab, Haryana, Himachal Pradesh etc. One of these conditions required the appellant to observe the provisions of the Act as also the Rnles framed and instructions issued thereunder from time to time.

Rules 7 to 10 of 1957 Rules governing the appellant's licence ran thus :

"7. No liquor shall be received in the bonded warehouse unless accompanied by a pass from the Officer-in-charge of the distillery or bonded warehouse from which it has been imported or transported.

Immediately on arrival of a consignment at the bonded warehouse the officer-in-charge shall be informed and the consignment shall not be opened until the same has been examined and verified with the pass by the Officer-in-<; harge who shall also note the resu]!s in the register maintained for the purpose and also on the pass covering the consign-

5 12 SUPREME COURT REPORTS [1976] SUPPL'o~IENIAltY

A ment.

One copy of the pass with entries oE receipt shall be immediately returned to the Officer, who issued the pass and the other copy with entries thereon, shall be kept in the Warehouse.

8. A wastage allowance not exceeding 1 per cent shall be made for the actual loss in transit by leakage or breakage of vessels or bottles containing liquor.

The allowance shall be determined by deducting from the quantity despatched the quantity received at the destination, both quantities being stated in terms of proof litres of spirit contents or in case of beer in bulk litres.

9. If the report of the Ofliccr-in-chmge show, that the C wastage exceeds the prescribed limit, the licensee shall be liable to pay duty at the prescribed rate as if the wastage in excess of the prescribed limit had actually l>crn removed from the Warehouse.

Provided that each case of excessive wastage shall be reported to the Financial Commissioner for orders, who may in his discretion, on good cause being shown remit it whole or a part of the duty leviable on such wastage.

10. Liquor shall be imported/transported under bond in accordance with the Punjab Liquor Permit and Pass Rules at the sole risk and responsibility of the licensee. The bond in form L. 37 shall be discharged, after liquor has been duly checked and proved by the Officer-in-charge and deposited in the Ware-house."

Between June, 1967 and April, 1969, the appellant transported, for the purpose of bottling, vartous quantities of Indian made foreign liquors from its aforesaid distilleries in Uttar Pradesh and Himachal Pradesh to its Bonded Warehouse at Chandigarh.

This was done on the strength of the permits issued by the Excise and Taxation Officer, Chandigarh. Pursuant to Rule 7 of the 1957 Rules, the Officer-in-charge of the Warehouse examined the consignments on their arrival at their destination with a view to checking and vcrifyin~ the quantities thereof with those shown in the permits <•nd discovered !hat they suffered from shortage which exceeded the wastage allowance

of I per cent permissible under Rule 8 of the said Rules.

As a sequel to the detection of the aforesaid shortages, the Excise and Taxation Commissioner exercising the powers of Financial Commissioner, Chandigarh Administration, who is the first respondent herein, issued notices calling upon the appellant to show Cause why duty at the prescribed rate of Rs. 20/- per proof litre be not levied against it on the wastage in excsss of the prescribed limit "as if the same had been removed from its Bonded Warehouse at Chandigarh." In the written representation submitted on behalf of the appellant in reply to the notices, it was pleaded that the liquor evaporated during transit; that

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the Bonded Warehouse was in its initial stage and the method of meallRlllCllt of spirit was crude; thaU a~ the time of measurement, the tempcnture of spirit was not taken and that apart from evaporation, wastage occured by leakage of drums in transit.

By his detailed order& dated January 15, 1969 and February 10, 1970, the said respondent repelled all the pleas raised on behalf of the appellant and made the 11oticos absolute holding that there was no material on the record to show that anything peculiar had taken place in respect of the cnuignments in question which entitled the appellant to any remission in the duty leviable on the wastage.

The appellant thereupon prefencd to the High Court writ petitions Nos. 342 of 1969 and 2376 of 1970 under Articles 226 and 227 of the Constitution challenging tho aforesaid orders on various grounds.

While the first writ petition was dismissed by the High Court by an elaborate Judgment and ocder dated December 4, 1969, the second one was dismissed in lilwine vide order dated July 29, 1970. While the High Court granted, 111 already indicated, a certificate of fitness for appeal to this Court apinlt it& Judgment and order dated December 4, 1969, it refused to to so in respect of its order dated July 29, 1970.

TllOugh several contentions were raised by the appellant in the D •fOl'CQid two writ petitions filed by it in the High Court, counsel appearing on its behalf has assailed before us the correctness of the impugned orders passed by the first respondent on two grounds.

He hll.i in the first instance contended that Rules 8 and 9 of the 1957

Ruk:I uder which the duty is sought to be imposed are ultra vireo the rule making power of the Financial Commissioner.

Elaborating his mbmission, counsel has urged that since the State alone has, by E virtne of .Eeetion 31 of the Act, the power to impose duties mentioned • thecein, as also the exclusive power under section 58(1) of the Act to mate rules for the purpose of carrying out the provisions of the Act including those of section 31 or any other law for the time being in force relating to excise revenue and section 13 (a) of the Act prohibits the State Government to delegate the powers conferred on it by sectiollll 14, 21, 31, 56 and 58 of the Act, Rules 8 and 9 of the 1957 F Rulea are manifestly beyond the competence of the Financial Commisliioeer. This contention cannot, in our opinion be accepted as it proceeds on a misconception of the correct legal position.

It is, no doubt, true that it is the State Government alone which is empowered to imp<JIC excise duty or countervailing duty on any excisable article and to pl'escribe rates thereof as also to make rules for carrying out inter alia the purposes of section 31 of the Act, but it seems to be G overlooked that the impugned rules do not impose any one of the

afocesaid duties or prescribe the rates thereof or create any liability in rClpCCt thereof. They are in essence and substance of a regulatory character meant to guard against perpetration of fraud or deception on !he Revenue.

They provide for and regulate the storage of liquor in tho Bonded Warehouse without payment at the initial stage of the duty payable under the Act and subsequently the removal of the liquor H from the W!lrehouse on payment or otherwise of the duty which, as correctly potnte_d out by the Ingh Court, is chargeable under the Fiscal Rufe. d. 1937 issued by the State Government. The powers exercised

<5-833 !ICM6

A by the Financial Commissioner were clearly available to him under sections 59 and 22 of the Act and he has not, in our opinion, overstepped the same. The first contention raised on behalf of appellant is, therefore, overruled.

It is next contended by counsel for the appellant that Rules 8 and 9 of the 1957 Rules are also invalid as they go beyond the scope of sections 16, 23 and 31 and Entry 51 of List II of the Seventh Schedule to the Constitution.

Dwelling on this contention, counsel has submitLed that as the taxing power of even the State Legislature is restuded to the imposition of excise duty or countervailing duty on an excisable article which, according to section 3 t 6) of the Act, means inter alia an alcoholic liquor for human consumption implying thereby an alcoholic liquor in. existence, the incorporation in Rule 9 of the 1957 Rules of the fiction -making the licensee liable to pay duty at the prescribed rate on wastage in excess of permissible hmit as if the said wastage had actually been removed from the Warehouse has the effect of imposing duty on an article which neither existed in the State nor was removed from the Bonded Warehouse thus violating the S(:ope and extent of the taxing power.

For a proper appreciation of the true legal position, it is necessary to advert to sections 3(6-b), 31, 32, 16 and 23 of the Act and Entry 51 of List II of the Seventh Schedule to the Constitution and the connotation of the term 'countervailing duty.'

"Section 3 ( 6-b). 'excise duty' and 'countervaling duty' mean any such excise duty or countervailing duty as the case may be, as is mentioned in Entry 51 of List II in the Seventh Schedule to the Constitution.

Section 31.

Duty on excisable articles.-An excise duty, ~

or a countervailing duty, as the case may be at such rate or rates as the State Government shall direct, may be imposed, either generally or for any special local area, on any excis able article-

(a) imported, exported or transported in accordance with the provisions of section 16, or

(b) manufactured or cultivated under any licence granted under section 20, or

( c) manufactured in any distillery established or any distillery or brewery licensed under section 21; "Provided as follows :-

(i) Duty shall not be so imposed on any article which has been imported into India and was liable on importation to duty under the India Tarrif Act, 1894, or the Sea Customs Act, 1878.

(ii) xx xx xx xx xx xx Explanation.-Duty may be imposed under this section at different rates according to the places to which

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any excisable article is to be rell!oved for consumption, or according to the varying strength and quality of such article."

"Section 32.

Manner in which duty may be levied.- subject to such rules regulating the time, place and manner as the Financial Commissioner may prescribe, such duty shall be levied rateably, on the quantity of excisable article imported, exported, transported, collected or manufactured in, or issued from, a distillery, brewery or warehouse;

Provided that duty may be levied-

(a) on intoxicating drugs by an acreage rate levied on the cultivation of the hemp plant, or by a rate charged on the quantity collected;

(b) on spirit or beer manufactured in any distillery established, or any distillery or brewery licensed, under this Act in accordance with such scale of equivalents calculated on the quantity of materials used, or by the degree of attenuation of the wash or wort, as the case may be, as the State Government may prescribe;

( c) on tari, by a tax on each tree from which the tari is drawn :

Provided further that, where payment is made upon issue of an excisable article for sale from a warehouse established or licensed under section 22 (a), it shall be made-

(a) if the state Government by notification so directs, at the rate of duty which was in force at the date of import of that article. or

(b) in the absence of such direction by the State Government, at the rate of duty which is in force on that article on the date when it is issued from a warehouse.*

"Section 16.

Import, export and transport of intoxicants-

No intoxicant shall be imported, exported or transported except-

(a) after payment of any duty to which it may be liable under this Act, or execution of a bond for such payment, and

(b) in compliance with such conditions _as the State

Government may inpose."

"Section. 23.

Removal of intoxicant from distilleryno intoxicant shall be removed from any distillery, brewery,

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SUPREME COURT REPORTS

(1976] SUPPLECMENTARY

warehouse or other place of storage established or licensed under this Act, unless the duty, if, any, payable under Chapter V has been paid or a bond has been executed for the payment thereof." ·

"Entry 51 of List II of the Seventh Schedule to the Constitution- Duties on excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India :-

(a) alcoholic liquors for human consumption

(b) opium, Indian hemp and other narcotic drugs and narcotics;

but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this Entry."

Tho expression 'countervailing duty' is not defined in the Act but its meaning has been made clear in the Judgment of this Court in Kalyani Stores v. The State of Orissa and Ors.(') where it was observed

"This brings us to the consideration of the meaning of the expression "countervailing duties" used in Entry 51.

List II of the Seventh Schedule to the Constitution.

The "expression "countervailing duties" has not been defined in the Constitution or the Bihar & Orissa Act 2 of 1915.

We have, therefore, to depend upon its etymological sense and the context in which it has been used in Entry 51.

In its etymological sense, it means to counterbalance; to avail against with equal force or. virtue; to compensate for something or serve as an equivalent of or substitute for : sec Black's Law Dictionary, 4th Edn. 421.

Thls would suggest that a countervailing duty is imposed for the purpose of counterbalancing or to avail against something with equal force or to compensate for something as an equivalent. Entry 51 in List II of the Seventh Schedule to the Constitution gives power to the State Legislature to impose duties of excise on alcoholic liquors for human consumption where the goods are manufactured or produced in the State.

It also gives power to levy countervailing duties at the same or lower rates on similar goods manufactured or produced elswherc in India.

The fact that countervailing duties may be imposed at the same or lower rates suggests that they are meant for counterbalance the duties of e)(cise imposed on goods manufactured in the State.

They may be imposed at the same rate as excise duties or at a lower rate, presumably to equalise the burden after taking into account the cost of transpo1t fro111 the pfacc of m111ufacturc to the taxin~' rt) fl966J 1 s.c.R. 865.

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MOltAN MEAKIN LTD. v. E.T. c. (Jaswant Singh, J.) 517

State.

It seems, therefore, that .countervailing duties are ment to equalise the burden on alcoholic liquors manufactured or produced in the State.

If no alcoholic liquors similar to those imported into the State are produced or manufactured, the right to impos(,' counterbalancing dutis of excise fovied on the goods manufactured in the State will not arise.

It may, therefore, be accepted that countervailing duties can only be levied if similar goods are actually produced or manufactured in the State on which excise duties are being levied."

• • It will be seen that section 31 of the Act read with Entry 51 of • List II of the Seventh Schedule to the Constitution permits imJ>05ition

of (i) excise duty by the State Government on any exisable article imported into or exported from or transported in accordance with the C provisions of section 16 of the Act which means after payment of any duty to which it may be liable under the Act or after execution of a bond for such payment and (ii) countervailing duty inter alia on alcoholic liquors for human consumption manufactured or produced elsewhere in India.

The contention advanced on behalf of appellant which seems to proceed on the assumption that the Chandigarh Administration can impose duty only if liquor is consumed in its territory is erroQeous as, according to section 31 of the Act read with the aforesaid Entry 51 of List II of the Seventh Schedule to the Constitution, countervailing duty can be imposed on liquor meant for consumption which is manu- • factured or produced elsewhere in India.

It is immaterial whether the liquor for which permits were obtained was consumed within the Union Territory of Chandigarh or was in existence in that territory or not.

What is material is whether permits were obtained for import from Uttar Pradesh of alcoholic Liquor meant for human consumption and the quantity shown in the permits left Uttar Pradesh.

In the present case, the liquor for which permits were obtained by the appellant was admittedly in existence and was meant for hnman consumption and did leave the appellant's distilleries in Uttar Pradesh for being transported to his Warehouse in Chandigarh at his own risk and responsibility. n is also not denied on behalf of the appellant that a portion of the liquor which exceeded the permissible limit of wastage did not reach the appellant's Warehouse and was not found therein

,> and the shortage remained unaccounted for. It is thus e¥ident that duty .. is not songht to be charged on an excisable article which wa~ not in

e.tistence, as contended on behalf of the appellant but is sought to be charged on liqnor which was actnally manufactured and left Uttar Pradesh but was found short beyond the permissible limit and no reasonabfo eplanation was tendered by the appellant in respect thereof.

There is accordingly no merit or substance in the second contention advanced on behalf of the appellant as well.

The decision of this Court in Bimal Chandra Banerjee v. State of H Madhya Pradesh(') which is strongly relied upon on behalf of the

appellant is not applicable to the present case. In that case, the condition introduced by the State Government in the purported exercise of its power under clause (d) and (h) of section 62(2) of the Madhya Pradesh Excise Act, 1915, in the appellants' licences prescribmg the minimum quantity of liquor to be purchased by them from the Government and enjoining them to make compulsory payment of excise duty on the quantity of liquor which they failed to take delivery of wa> held to be invalid as it went beyond the provisions of sections 25, 26, 27, 62(1) and clauses (d) and (h) of section 62(2) of the aforesaid Act. In the present case, however, the liquor was lifted by the appellant from its distilleries in Uttar Pradesh and a portion thereof remained unaccounted for, as already stated, on arrival of the consignments at their destination.

C For the foregoing reasons, the respondents were right in demanding the duty on the shortages.

In the result, the appeals fail and arc dismissed with costs, limited to one set.

M.R.

Appeals dismissed

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MOHAN MEAKIN BREWERIES LTD

A. c. GUPTA

Punjab Bonded Warehouse Rules, 1957

Articles 226 and 227

Section 31

[1966] 1 S.C.R. 865

Article 133(J)(a)

Companies Act

section 22

Puniab Bonded Warehouse Rules, 1957

section 59

section 22

Articles 226 and 227

section 58(1)

section 31

section 13

section 31

sections 59 and 22

sections 16, 23 and 31

Seventh Schedule

section 3

sections 3(6-b), 31, 32, 16 and 23

Seventh Schedule

Section 3

Seventh Schedule

Section 31

section 16

section 20

section 21

Sea Customs Act, 1878

Section 32

section 22

Section 16

Seventh Schedule

Seventh Schedule

Seventh Schedule

section 31

Seventh Schedule

section 16

section 31

Seventh Schedule

section 62(2)

Madhya Pradesh Excise Act, 1915

sections 25, 26, 27, 62(1)

section 62(2)