IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL Writ Petition (M/S ) No. 446 of 2008 M/s Dujodwala Resins and Terpenes Ltd. 1206, Vijaya Building, 17 Barakhamba Raod, New Delhi and another ………..Petitioners. Versus State of Uttarakhand and others …Respondents. Present: Mr. Ajit Kumar Sinha, Senior Advocate assisted by Mr. Alok Mehra, Advocate for the petitioners. Mr. N.P. Sah, Standing Counsel for the State of Uttarakhand/respondent nos. 1 and 2. Mr. Shobhit Saharia, Advocate for respondent nos. 3 and 4. With Writ Petition (M/S ) No. 478 of 2008 Anil Kumar Sud ………..Petitioner. Versus State of Uttaranchal and others …Respondents. Present: Mr. Ajit Kumar Sinha, Senior Advocate assisted by Mr. Alok Mehra, Advocate for the petitioners. Mr. N.P. Sah, Standing Counsel for the State of Uttarakhand. With Writ Petition (M/S ) No. 479 of 2008 Ms. Sud Pines Pvt. Limited ………..Petitioner. Versus State of Uttaranchal and others …Respondents. Present: Mr. Ajit Kumar Sinha, Senior Advocate assisted by Mr. Alok Mehra, Advocate for the petitioners. Mr. N.P. Sah, Standing Counsel for the State of Uttarakhand. With Writ Petition (M/S ) No. 480 of 2008 Raksh Pal Shastri ………..Petitioner. Versus State of Uttaranchal and others …Respondents. Present: Mr. Ajit Kumar Sinha, Senior Advocate assisted by Mr. Alok Mehra, Advocate for the petitioners. Mr. N.P. Sah, Standing Counsel for the State of Uttarakhand. With 2 Writ Petition (M/S ) No. 482 of 2008 Pooran Chandra Dalakoti ………..Petitioner. Versus State of Uttaranchal and others …Respondents. Present: Mr. Ajit Kumar Sinha, Senior Advocate assisted by Mr. Alok Mehra, Advocate for the petitioners. Mr. N.P. Sah, Standing Counsel for the State of Uttarakhand. Hon’ble Sudhanshu Dhulia, J.(Oral) Heard Mr. Ajit Kumar Sinha, Senior Advocate assisted by Mr. Alok Mehra, Advocate for the petitioners, Mr. N.P. Sah, Standing Counsel for the State of Uttarakhand and Mr. Shobhit Saharia, Advocate for the Central Excise Department. The petitioners in these writ petitions are either companies incorporated under the Companies Act or are individuals trading in a product known as “resin” or “oleo pine resin”. The leading case on which arguments were advanced by Senior Advocate Mr. Ajit Kumar Sinha for the petitioners and for the respondent by Mr. Shobhit Saharia, Advocate is M/s Dujodwala Resins and Terpenes Ltd. and another vs. State of Uttarakhand and others being Writ Petition (M/S) 446 of 2008. These arguments though would be applicable in the rest of the cases as well. Many of the present petitioners such as the petitioner in Writ Petition No. 478 of 2008 as well as others had initially filed writ petitions before this Court challenging the demand notices issued to them under the Central Excise Act for recovery of excise duty on “resin”. These writ petitions were dismissed by a Division Bench of this Court on 18.9.2006 with the following observations : 3 “Thus, as per the definition of the manufacture process applied for collecting and storage of resin for auction, is a manufacture, therefore, we do not find any substance in the submission of the learned counsel for the petitioners that the demand notices issued to the petitioners, which are impugned in the writ petitions, can be said to be without jurisdiction. Therefore, we do not find any merit in the writ petitions. The writ petitions are dismissed. No order as to costs.” In other words, a Division Bench of this Court had earlier upheld the imposition and the consequent demand on resin. The order of this Court dated 18.9.2006 was challenged by the petitioners by way of an S.L.P. being No. 18409 of 2006 where the Hon’ble Apex Court after granting leave to the petitioners passed the following orders : “Leave granted. Heard learned counsel for the parties. In the facts and circumstances of the case, both the parties agree and we are also of the view that the matter should be remitted to the High Court for considering the entire matter afresh. Accordingly, the appeals are allowed, impugned orders are set aside and the matter is remitted to the High Court to dispose of the writ petitions afresh in accordance with law after giving opportunity of hearing to the parties. Writ Petition (C) No. 262/2007 Heard learned counsel for the parties. 4 After some arguments, learned counsel appearing on behalf of the petitioners is permitted to withdraw this petition with liberty to the petitioners to file appropriate writ application before the High Court. The writ petition is accordingly disposed of.” Thus the Hon’ble Apex Court remanded the matter back to this Court for fresh adjudication. Consequent to the said order of the Hon’ble Apex Court, these writ petitions were renumbered and are being presently adjudicated upon. The writ petitioner i.e. Dujodwala Resins and Terpenes Ltd., in view of the order of the Hon’ble Apex Court has also filed the present writ petition (Writ Petition (M/S) No. 446 of 2008) which is also being heard along with other petitions, as it has already been referred above, in the beginning of this order. The petitioner i.e. Dujodwala Resins and Terpenes Ltd., is a company doing business in what is known as “resin”. Resin is a fluid which is recovered by tapping pine trees. This resin is collected in cups which are kept with the pine trees and thereafter unloaded into large cans by the Forest Department and sold by way of auction to the interested parties. The fact of the matter is that the present petitioners had made a successful bid in an auction conducted by the Forest Department of Uttarakhand for this resin. They were, however, not permitted to lift the resin as the Forest Department placed a restriction stating that an excise duty is liable to be given and unless and until the petitioners pay the excise duty to the Forest Department they will not be permitted to lift the resin. Hence the writ petition. 5 According to the petitioners no excise duty is liable to be put on resin and the demand of the same is unjustified and illegal. Since excise duty is actually levied by the Central Excise Department, they have been made a party and they are now the principal opponent in the present matter being represented by Sri Shobhit Saharia, Advocate. The only question for determination by this Court is whether excise duty is liable to be imposed on “resin” or “oleo pine resin” (these are two different nomenclatures referring to the same product, and therefore wherever “Resin” word is used it would be deemed to be a reference to oleo pine resin as well). According to the petitioners no excise duty is liable to be levied on resin as there is no “manufacture” or “production” involved in resin and therefore it is not an excisable item. Learned Senior Counsel relied upon Item No. 84 of list I to the 7th Schedule of the Constitution of India which reads as under :- “84. Duties of excise on tobacco and other goods manufactured or produced in India except – (a) alcoholic liquors for human consumption. (b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.” What has been stressed by the learned Senior Counsel is the phrase “goods manufactured or produced in India” and it is submitted that excise duty can only be levied on the goods which are either manufactured or produced in India. The senior counsel has further taken this Court to Section 3 (1) (a) of the Central Excise Act. 6 Section 3 (1) (a) of the Central Excise Act reads as under :- “3. Duties specified in the Schedule to the Central Excise Tariff Act, 1985 to be levied. – (1) [There shall be levied and collected in such manner as may be prescribed, - (a) [ a duty of excise, to be called the Central Value Added Tax (CENVAT) on all excisable goods [(excluding goods produced or manufactured in special economic zones] which are produced or manufactured in India as,] and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1996); (b)…..” Much stress has been raised on the phrase “goods manufactured or produced in India” and again the argument raised that excise duty is only leviable on something which is either manufactured or produced in India. It is submitted that resin is something which is neither manufactured or produced, it is only “collected” from a tree, and does not involve a process of either production or manufacture. Resin is a product in its pure original form, and hence not liable to be levied excise duty. Learned counsel appearing for the Revenue Sri Shobhit Saharia on the other hand would argue that definitely resin is not something which involves a “manufacturing process” as what is “manufacture” is by now settled, he nevertheless submits that resin is “produced” and therefore an excise duty is liable to be given on it. He would argue that the definition of “produce” or “production” is much wider and would include the “process” of taking out “resin” from the tree. Much therefore depends upon the meaning of “manufacture” or “produce” and how these words have 7 been defined under Excise and other fiscal laws by the Apex Court and other High Courts. The counsel for the petitioners had initially also argued that even the Central Excise Department is not sure as to under what head of the first Schedule (to Central Excise Tariff Act, 1985), should the excise duty be levied. All the same, this argument was abandoned later as the counsel focused his argument on the aspect that the duty is not leviable for the reason that resin is neither produced nor manufactured. Under the Central Excise Act, the words “manufacture” and “produce” have been used in juxtaposition to each other. The learned Senior Counsel for the petitioner Sri Ajit Kumar Sinha submitted that irrespective of whether we call a process “manufacture” or “production”, for a product undergoing this process must come out as a “new product” before an excise duty can be levied on it. There is one case which is relied upon by both the petitioner as well as the respondents i.e. Commissioner of Income Tax, Orissa and Ors. Vs. N.C. Budharaja and Company and Ors. AIR 1993 SC 2529. Though the issue before the Apex Court in the said case was different and it pertains to elaboration of phrase “manufactured or produced articles” which occurs in Section 80-HH and Section 84 of the Income Tax Act and what had to be seen was whether a construction of a dam amounts to either manufacture or production. The Apex Court held that it did not. But while doing so, it elaborated the two words, viz. “manufacture” and “production”. What was said by the Apex Court was that the word “production” has a wider connotation than the word “manufacture” and while every manufacture can be categorized as production every production need not 8 amount to manufacture. But what was common in both the cases (of either manufacture or production) is that either after manufacture or production what should come out is an entirely new product. A number of case laws were cited by the counsel for the petitioners in order to prove his argument that resin is neither “produced” nor “manufactured”. Most of the rulings cited by the counsel though relate to “Manufacture” and “Produce”. One of the rulings is Commissioner of Income Tax, Orissa and Ors. Vs. N.C. Budharaja and Company and Ors. AIR 1993 SC 2529, which has already been referred above. The other ruling is Commissioner of Central Excise, Chennai II Commissionerate Vs. Tarpaulin International (2010) 9 SCC 103. The question before the Apex Court in the said case was whether the tarpaulin made-ups which are prepared after cutting and stitching the tarpaulin fabric and fixing the eyelets would involve the process of manufacture and, hence, would fall within the definition of “manufacture”? This question was answered by the Hon’ble Apex Court holding that “the process of stitching and fixing eyelets would not amount to manufacturing process, since tarpaulin after stitching and eyleting continues to be only cotton fabric. The purpose of fixing eyelets is not to change the fabric. Therefore, even if there is value addition the same is minimum. To attract duty there should be a manufacture to result in different goods and the goods sought to be subject to duty should be known in the market as such”. In other words, according to the Hon’ble Apex Court excise duty was not leviable on tarpaulin. The question before the Hon’ble Apex Court in Commr. Of C. Ex. & Cus., Bhubaneswar-I Vs. Tata Iron 9 and Steel Co. Ltd., 2003 (154) E.L.T. 343 (S.C.) was whether the respondent before the Supreme Court i.e. Tata Iron and Steel Co. Ltd. was liable to pay additional customs duty as provided in Section 3 of the Customs Tariff Act, 1975 on the imported low ash coking coal. The additional duty under the said provision was to be levied if an article is produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at the percentage of the value of the imported article. The question was answered by the Hon’ble Apex Court in negative. The Hon’ble Apex Court declined to accept the contention of the revenue department that “coal ash” goes through a process of “manufacture”; “In our view, this submission is also without any substance because washing of coal would not amount to production or manufacture of a new item. Section 4 of the Coal Act also provides that for the purpose of conservation of and for development of coal, the Central Government may require the agent or manager of all coal mines to take measures which may include washing of coal with a view to reducing the ash contents of the coal. Washing of coal or reducing the ash content of the coal was not considered by the Parliament as a manufacturing activity. Even if coal is washed and ash contents are reduced, Section 6 uses the phraseology (“of all coal raised”) and “on all coke manufactured and dispatched”, which would mean that coke is manufactured while coal is only raised. It is not manufactured. In this view of the matter, there is no substance in the argument raised by the learned Counsel of the appellant.” Primarily the Hon’ble Apex Court came to such a conclusion as the Hon’ble Apex Court was of the view that the making of low ash coking coal “would not amount to production or manufacture of a new item.” 10 An almost similar question arose before the Hon’ble Apex Court in Hyderabad Industries Ltd. Vs. Union of India 1999 (108) E.L.T. 321 (S.C.). Again the question before the Hon’ble Apex Court was that whether an additional duty was liable to be levied on imported asbestos fibre and after the matter was referred to the Constitution Bench, the majority decision given by the Constitution Bench held that since there is neither any “production” or “manufacture” involved in separation of imported asbestos fibre no excise duty can be levied on it. In Commissioner of Income Tax, Kerala Vs. Tara Agencies 2007 (214) E.L.T. 491 (S.C.), the Hon’ble Apex Court was dealing with the issue as to whether a duty is leviable on purchase of different qualities of tea which are blended for the purposes of export. The Hon’ble Apex Court was of the view that it is not, because in such an activity (i.e. blending of tea) there is neither any production or manufacture involved. What is involved is an activity which is “processing” and merely because it is “processing” it is not liable to be taxed. From the rulings cited before this Court it is clear that what goes to the root of the matter here is that the product on which an excise duty is to be levied is one which has emerged as a “new product”, out of a process which can be either called “manufacture” or “produced”. This Court is also of the view that the proper meaning of looking into the words “production” and “manufacture” is to first examine the context in which these two words have been used. The essential factor for a good to be levied for excise duty would be as to whether that good after the process of “manufacture” or “production” has come out as a new commodity or product. Only when a new commodity has come into 11 existence, is that commodity open for levying of excise duty – otherwise it is not. Words derive a meaning in their particular existence and setting. As it is so well said “words are not pebbles in alien juxtaposition”. What is therefore important is the context where these words have been used. In the present context therefore these two words would mean “bringing a new product into existence”. The legislature while putting these words in the Legislation meant that excise duty is liable only if a new product has come into existence. This is what goes to the core of the whole meaning of excise duty. Consequently, since “resin” or “oleo pine resin” does not come out as a new product but remains the same resin when it comes out from the tree, no excise duty is liable to be levied on it. It may still be open in law to put any other duty on this product but not an excise duty. This being the considered view of this Court, it holds that no excise duty is liable to be put on “resin” or “oleo pine resin”. Therefore it is declared that the imposition of central excise duty on raw pine resin collected and sold by the Uttarakhand Forest Department to the processing units is arbitrary and illegal. Consequently the respondents are restrained from demanding central excise duty. In view of the aforesaid, all the writ petitions are allowed. No order as to costs. (Sudhanshu Dhulia, J.) 02.08.2011 Avneet