Case: J.K. Steel Ltd Vs. Union Of India

The appellant is a Company having a factory at Rishara in the State of West Bengal. It manufactures, among other items, Iron and Steel Products such as Jute Bailing Hoops, Wire Ropes, Cold Rolled Strips, Chain Pulley Blocks. Electric Hoists etc. Between December 1961 and January 1962 the appellant received various consignments of imported High Carbon Steel Wire Rods. Its opening stock of imported High Carbon Steel Wire Rods on April 24, 1962 was 2788.401 metric tons. As before, the appellant manufactured wires from those steel rods even after April 24, 1962.Finance (No. 2) Act 1962 (Act No. 20 of 1962) imposed for the first time excise duty on the Iron and Steel Products; and by sub-clause (s) of sub-s. (2) of Section 16 of the Said Act and amendment was made to the first Schedule of the Central Excise and Salt Act, 1944 (hereinafter referred to as the Act) incorporating after item 26A, item 26AA. The relevant portion of that entry readsor Steel Products.The followingrods, coils, wires, joists, girders, angles, channels, tees, flats, beams, zeds, trough, piling and all other rolled, forged or extruded shapes and section not otherwise specified.5% ad valorem plus the excise duty for the time bring leviable on pig Iron and Steel Ingots as the case mayIron and Steel Ingots were already subject to excise duty under Items Nos. 25 and 26 in the First Schedule of the Act. The rate of duty in the case of the former at the material time was Rs. 10 per metric tonne and that of the latter Rs. 39/35 per metric tonne. The newly imposed duty under Item 26AA came into force on April 24, 1962. The Collector of Central Excise, West Bengal, Calcutta by a Trade Notice, Central Excise No. 32-Iron and Steel Products 2/62 dated Calcutta the 16th May, 1962 notified the procedure to be followed.By notification No. 70/62 dated April 24, 1962 issued in exercise of the powers conferred by the Rule 8 (1) of the rules framed under the Act (to the hereinafter referred to as the rules), the Central Government exempted Iron and Steel Products falling under Item 26AA, if made from Pig Iron or Steel Ingots on which the appropriate amount of exercise duty has already been paid, form so much of the duty exercise leviable thereon as is equivalent to the duty leviable under Item 25 or 26 as the case may be.On the same day as per Notification No. 77 of 1962 the Central Government exempted Iron and Steel Products falling under sub-items (2), (3), (4) and (5) of Item 26AA, if made from articles which have already paid the appropriate duty of excise under sub-item (1) of the said Item, from so much of the duty of excise as is equivalent to the duty payable under the sub-item (1). Finance (Act No. 2) of 1962 by section15 amended the First Schedule of the Tariff Act by adding Item No. 63 (36) which deals with imported Iron and Steel Products. The second column of that entry mentions the various Iron and Steel Products included therein. The items included therein are the very items set out in Item 26AA of the First Schedule to the Act. The third column of that Item which specifies the levy readsexcise duty for the time being leviable on like articles if produced or manufactured in India, and where such duty is leviable at different rates the highest duty so leviable shall be in addition to the duty which would have been levied if this entry had not beenmay 10, 1962, the Government issued a fresh Notification (No. 89 of 1962) under Rule 8 (1) of the rules in super-session of the Notification No. 77/62 dated April 24, 1962. By that Notification, the Government exempted with effect from April 24, 1962, Iron and Steel Products falling under Item 26AA if made from another article falling under the said Item and having already paid the appropriate amount of duty from so much of the duty of excise as is equivalent to the duty payable on the said article.On the same day namely May 10, 1962, the Government issued yet another Notification (Notification No. 90 of 1962) under Rule 8 (1) under which it exempted Iron and Steel Products falling under Item 26AA specified in column 2 of the table annexed to the Notification if made from Pig Iron or Steel Ingots on which appropriate amount of excise duty has already been paid, from so much of the duty of excise leviable on such products as in excess of the duty corresponding entry in column 3 of the said table. (Wire) the product with which we are concerned in this case is also included in the table. That Notification contains a proviso whichthat if the products are made from pig iron and steel ingots on which appropriate amount of duty has not been paid the excise duty for the time being leviable on pig iron or steel ingots as the case may be shall be payable in addition to the duties specified in the appropriate entry in column 3 of theDecember 29, 1962 the Government issued yet another Notification under Rule 8 (1) amending the Notification No. 89 of 1962 issued on May 10, 1962. In the place of words "if made from another article falling under the said item and having already paid the appropriate amount of duty from so much of the duty of excise as is equivalent to the duty payable on the said article," the following wasmade from another article falling under the said Item or Item No. 63 (36) of the First Schedule to the Indian Tariff Act 1934 (32 of 1934) and having already paid the appropriate amount of excise or countervailing custom duty as the case may be from so much of the duty of excise as is equivalent to the excise or countervailing custom duty payable on the saidIndian Tariff (Amendment Act 1963) (Act No. 3/63) effective from the 25th January 1963, the Indian Tariff Act 1934 was amended and after Section 2, the following section was insertedAny article which is imported into India shall be liable to custom duty equal to the excise duty for the time being leviable on a like article if produced or manufactured in India.Explanation: In this sub-section the expression "the excise duty for the time being leviable on a like article if produced or manufactured in India" means the excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India or if a like article is not so produced or manufactured, which would be leviable on the class or description of articles to which the imported article belongs and where such duty is leviable at different rates, the highest duty.(2) The customs duty referred to in sub-section (i) shall be in addition to any duty imposed under this Act or under any other law for the time being inor after April 24, 1962, the appellants cleared from their warehouse wires produced from the aforementioned imported Steel Rods after obtaining the required permission from the excise authorities and after paying the duty assessed. On these wires, duty was assessed without taking into consideration "the excise duty for the time being leviable on Pig Iron and Steel Ingots as the case may be." At that time the Central Excise authorities proceeded on the basis that on the stock of wire in question only ad valorem duty had to be levied and not "excise duty for the time being leviable on Pig Iron or Steel Ingots as the case may be." On March 21, 1963, the Inspector of Central Excise attached to M/s. J. K. Steel Ltd., Rishara issued the followingOF CENTRAL EXCISEWEST BENGALNo. 6 Range RIS. I.Date : 21-3-63 Circle-CGR.Notice of Demand for the duty under rule 9 (2) of C. E. Rules, 1944.To,M/s. J. K. Steel Ltd., Rishara,Hooghly.Take notice that on behalf of the Central Government, I hereby demand payment by you of the sum of Rs. 4,18,801/30 NP (Rupees four lacs eighteen thousand eight hundred one and paise thirty only) within ten days from date hereof.Particulars of DemandsSteel Ingot Duty on HoopsQuantity Rate of dutyAmount of duty involved6932.964 M.T.Rs. 39.86 NP per M.T.Rs. 272,812/13-do- Strips921.937 M.T.-do-Rs. 36,278/22-do- Wire2788.00-do-Rs. 1,09,710/95TotalRs. 4,18,801-30.VI/5A/I and S/JKS/CE/63/183 dt. 21-3-63.Sd/-Inspector I/C Central ExciseM/s. J. K. Steel Ltd., Rishara.The appellant objected to the demand in question as per their letter of March 24, 1963. They contended that they had not contravened R. 9 (2) of the rules nor was there any short levy. As per his letter of August 26, 1963, the Assistant Collector of Central Excise Calcutta 4th Division confined the demand to that made under serial No. 3 of the notice. The appellants paid the same under protest and thereafter took up the matter in appeal to the collector of Central Excise who dismissed their appeal as per his order of March 19, 1964, with thesecrucial point of this appeal is whether countervailing import duty was paid by the appellants on the imported steel rods from which steel wires were manufactured. The appellants could not produce any documents in support of their arguments that either import duty or countervailing duty equivalent to steel ingot rate was paid by them on the iron rods from which steel wires were drawn. Such duty leviable on steel rods under traffic item No. 26AA. As no such duty on steel rods was paid by the appellants, countervailing duty equivalent to steel ingot duty has, therefore, to beagainst the order of the Collector, the appellants went up in revision to the Central Government. The Central Government allowed the revision petition to some extent. This is what the Central GovernmentGovernment of India have carefully considered all the points raised by the petitioners but see no reason to interfere with the Collectors stated (sic-statement?) that the Steel Wires manufactured out of steel wire rods imported prior to 24-4-1962 on which no countervailing duty was paid, and cleared during the period, from 24-4-1962 to 10-8-1963 were subject to full duty as then leviable under Item 26AA (1) of Central Excise Tariff.However the demand for differential duty initially made on 2-3-1963 and subsequently amended vide the Asstt. Collectors order dated 26-8-1963 shall be restricted to the clearance effected during the 3 months period prior to the initial service of demand on 21-3-1963 that is to say, upto 21-12-1962 only as per the provisions of Rule 10 of Central Excise Rules, 1944 which was applicable to this case. The demand in respect of clearances effected prior to 21-12-1962 is hereby set aside and consequential refund shall be granted to the petitioners.Subject to the above modifications, the revision application is otherwiseby that order, the appellants have brought this appeal.

Reasoning:
29. For the purpose of interpreting the clause in question, reference may also be made to entry 63 (36) in the First Schedule to the Tariff Act. It may be remembered that that entry as well as entry 26AA in the First Schedule of the Act were enacted simultaneously under Finance (No. 2) Act, 1962. Both these entries came into force on the same day namely on 24th April 1962.The Act and the Tariff Act are cognate legislations. In other words they are legislations which are pari materia. They form one code. They must be taken together as forming one system and as interpreting and enforcing each other. It is proper to assume from the surrounding circumstances, that these two entries were introduced in pursuance of a common purpose, that purpose being that the articles listed in entry 26AA whether produced out of indigenous Pig Iron or Steel Ingot or made out of imported Pig Iron or Steel Ingot must bear the same amount of duty. If the interpretation placed on entry 26AA by the learned Counsel for the assessee is accepted then it would be seen that that entry by itself would not impose the duty contemplated by the second part of the clause in col. 3 of entry 26AA on imported Pig Iron or Steel Ingot. Evidently in order to equalise the duty on articles made out of indigenous material as well as imported material entry 63(36) of the First Schedule to the Tariff Act was enacted. In other words that entry imposes countervailing duty and not additional duty. It was conceded by the learned Counsel for the Revenue that the duty levied under entry 63 (36) of the First Schedule of the Tariff Act is only a countervailing duty. If that be so, that duty cannot be considered as an additional duty over and above the duty imposed under entry 26AA of the First Schedule of the Act. But it would be an additional duty if the interpretation of entry 26AA canvassed on behalf of the Revenue is accepted because according to the Revenue the rate prescribed in that entry is equally applicable to all articles mentioned therein whether manufactured from indigenous or imported material.If that be so the duty collected under duty 63(36) of the First Schedule under the Tariff Act will be an additional duty and not a countervailing duty.It is true that despite entry 26AA of the First Schedule to the Act and entry 63(36) of the First Schedule of the Tariff Act if pig iron or steel ingot imported before April 24, 1962 is used in the manufacture of an article dutiable under entry 26AA only the ad valorem duty prescribed under that entry can be levied on that article. It may be that the legislature intended it to be so or there is a lacuna in the provision. In either case the effect is the same.From the above decisions, it is clear that several judges in England have referred to the subordinate legislation made under a statute for the purpose of interpreting that statute though for the limited purpose of knowing how the department which was entrusted with the task of implementing that statute, had understood that statute. In the case of fiscal statutes it may not be inappropriate to take into consideration the exemption granted in interpreting the nature and the scope of the impost. In the matter of fiscal legislation the initiative is in the hands of the executive. Under Article 112 (1) of our Constitution the President shall in respect of every financial year cause to be laid before both the Houses of Parliament a statement of the estimated receipts and expenditure for that year. Under sub-article (3) of Article 110 no demand for a grant shall be made except on the recommendation of the President.In the matter of taxation very large powers are left in the hands of the executive. Generally speaking the question of exemption is left to the discretion of the Government. It ought to be so because the exercise of that power depends on various circumstances some of which cannot be anticipated in advance. But yet the levy and exemption are parts of the same scheme of taxation. The two together carry into effect the purpose of thedo not think it is necessary for me to decide in this case the general question whether subordinate legislation can be used for interpreting a provision in the parent Act. I am not unaware of the danger in accepting that it could be so done.But for the present purpose, it is sufficient to hold that for finding out the scope of a particular levy, notifications issued by the executive Government providing for exemption form that levy can be looked into as they disclose the overall scheme.38. Even according to the learned Counsel for the Revenue the notifications referred to earlier were issued with a view to avoid double taxation. If that is so, the exemption granted under those notifications provide a clue as to the scope of the levy made under Item 26AA.39. We have earlier seen that on the very day, the levy came into force the Government had issued two notifications i. e. Notifications Nos. 70 and 77 of 1962. Under Notification No. 70 it exempted Iron and Steel products falling under item 26AA if made from pig Iron or Steel Ingots on which the appropriate amount of duty has already been paid, from so much duty of the excise leviable thereon as is equivalent to the duty leviable under item 25 or as the case may be under Item 26. Under Notification No. 77, it exempted Iron and Steel Products falling under sub-item Nos. 2, 3, 4 and 5 of Item 26AA,if made from articles which have already paid appropriate duty of excise under sub-item (1) of the said item from so much of the duty of exercise as is equivalent to the duty payable under the said sub-item (1). These Notifications clearly indicate that under Item 26AA, there was no intention to levy double excise duty on the same material. The intention appears to be that if one article is made out of another article both of which are subject to excise duty, the excise duty paid on the raw material should be deducted in computing the excise duty payable on the finished product. In addition these Notifications clearly show that the Pig Iron and Steel Ingot mentioned in Cl. 3 of entry 26AA are those used in the manufacture of the article on which duty is sought to be levied under that entry.40. In this connection we may also refer to Notification No. 89/62. Notification No. 77/62 referred merely to Iron and Steel Products falling under sub-items 2, 3, 4, and 5 of item 26AA manufactured out of articles falling under sub-item (1) thereof. That Notification by itself was not all comprehensive. It did not take in other articles made out of Pig Iron or Steel Ingot. It is for that reason Notification No. 89/62 was issued on May 10, 1962 under which exemption was given with effect from April 24, 1962 to all Iron and Steel Products falling under Item 26AA if made from another article falling under the said item and having already paid appropriate amount of duty from so much of the duty of excise as is equivalent to the duty payable on the said article. Notifications Nos. 70, 77 and 89 exempted payment of excise duty on an article to the extent duty had been paid on the law material used in the manufacture of the article dutiable under entry 26AA. All these Notifications proceeded on the basis that the second limb of the levy in column 3 of entry 26AA refers to the duty payable on the Pig Iron or Steel Ingot, as the case may be used in the manufacture of an article dutiable under 26AA.41. But the above notifications do not deal with the countervailing duty levied under Entry 63 (36) of the First Schedule to the Tariff Act. This was clearly an omission. To make good that omission the Government amended Notification No. 89/62 by its order dated December 29, 1962. The amended Notification in addition to the exemption already given under Notification No. 89/62 also exempted from the payment of duty any article falling within any of the sub-items in Items 26AA if made from an article on which countervailing duty has been paid under Item 63(36) of the First Schedule to the Tariff Act from so much of the duty of excise as is equivalent to the countervailing custom duty payable on the said article. This Notification clearly shows that the countervailing duty in question was levied on the basis that the excise duty contemplated by entry 26AA will not apply to articles made out of imported Pig Iron or Steel Ingot. Further if the legislature intended the duty under entry 63(36) to be an additional duty, the exemption granted would nullify the legislative mandate.42. To summarise the effect of the Finance (No. 2) Act of 1962 and the various Notifications issued for the purpose of implementing the scheme under that Act is that excise duty is leviable at the rate mentioned in column 3 of Item 26AA on pig iron or steel ingot used in the production of the article on which duty under entry 26AA is sought to be levied but to the extent any excise duty or countervailing custom duty had been paid on any of the material used in the manufacture of any of that article, the same is exempt. From this scheme it is clear that when Item 26AA speaks of "the excise duty for the time being leviable on Pig Iron or Steel Ingots as the case may be" it refers to the excise duty payable on the Pig Iron or Steel Ingots used in the production of the article dutiable under thatthe fact that the assessee challenged the validity of the demand made on him, both the Assistant Collector as well as the Collector ignored that contention; but when the matter was taken up to the Government it treated the demand in question as a demand under Rule 10. The Government confined the demand to clearance effected after December 21, 1962. The demand so modified is in conformity with Rule 10. But the contention of the assessee is that the demand having been under Rule 9 (2) and there being no indication in that demand that it was made under Rule 10, the Revenue cannot now change its position and justify the demand under R. 10; at any rate by the time the Government amended the demand, the duty claimed became barred even under Rule 10. We are unable to accept this contention as correct. There is no dispute that the officer who made the demand was competent to make demands both under Rule 9 (2) as well as under Rule 10. If the exercise of a power can be traced to a legitimate source, the fact that the same was purported to have been exercised under a different power does not vitiate the exercise of the power in question. This is a well-settled proposition of law.For the reasons mentioned above, this appeal is allowed and the Revenue is directed to refund the excess duty paid under protest.