Case: M/s. Dabur India Limited and Another Vs. State of Uttar Pradesh and Others

2. M/s. Dabur India Limited which is he petitioner in Special Leave Petition No. 1610 of 1989 arising out of judgment and order dated December 20, 1988 in Civil Miscellaneous Writ Petition No. Nil of 1988 connected with Civil Miscellaneous Writ Petition No. Nil of 1988 of the High Court of Allahabad, and also the petitioner in Writ Petition No. 426 of 1989, is a public limited company engaged in manufacture of Ayurvedic medicaments and Allopathic medicaments along with cosmetics. It has agreed to manufacture for and on behalf of M/s. Sharda Boiron Laboratories Ltd. (hereinafter called the company) - being the petitioner in Special Leave Petition Nos. 135-36 of 1989, used to manufacture and/or produce a Homeopathic toothpaste called Homeodent out of the raw materials supplied the company on job work basis. The petitioner states that it accordingly manufactured Homeodent during 1985 to 1988, duly paying duties of excise on Homeodent under the 1944 Act at appropriate leviable rates and recovered the same from the company. According to the petitioner, Homeodent did not contain alcohol but contained ingredients "mother tinctures" containing alcohol. It is stated that alcohol, due to various reasons, has a tendency to evaporate during the process of manufacture ofIt is further the case of the petitioner-company that during the period from 1979 to 1988 it also manufactured certain other medicinal products containing alcohol which were classifiable under the 1955 Act. The Petitioner-company held at all material times licence as required under the 1955 Act to manufacture these products. The State excise authorities enforcing the provisions of the Act had permanently posted an Inspector as also a peon in the factory of the petitioner where these dutiable products were manufactured. The bonded manufacture in which these products were manufactured was under lock and key of the said officers, according to the petitioner. The activities of the petitioner, the petitioner asserts, were clearly within the knowledge of the State excise authorities for over a considerably long period. During the period from 1985-88, the company supplied to the petitioner amongst other ingredients, "mother tinctures" under BM-9 forms, stating clearly that such mother tinctures were intended to be used in manufacture of Homeodent in the factory of the petitioner. These BM-9 forms, according to the petitioner, were filed with the State excise authorities regularly. Therefore, the petitioner asserts that the State excise authorities were aware of the manufacture of Homeodent by the petitioner and the activity of the company in getting the same manufactured in the factory of the petitioner out of Mother Tinctures. However, the State excise authorities did not object to the same nor did they call upon either the petitioner or he company to pay duty under the 1955On January 1, 1985, the petitioner states, the petitioner filed classification list classifying Homeodent under the Act of 1944, declaring therein he ingredients of Homeodent. On January 17, 1985, the classification list filed by the petitioner on January 1, 1985 was approved finally and Homeodent was held to be classifiable under the Act of 1944. On August 31, 1987 the Assistant Collector of Central Excise passed an order which was an appealable one classifying Homeodent under the Act of 1944. The petitioner assert that this order had subsequently been upheld by the Collector of Central Excise (Appeals), New Delhi, on an appeal filed by the company. However, on January 18, 1989 the Superintendent of State Excise, Bulandshahr visited the factory of the petitioner and after inspecting the same, enquired about Homeodent. It is the case of the petitioner that it had explained that Homeodent was classified under the Act of 1944 in view of the orders passed by the central excise authorities. However, it is stated that the Superintendent of State Excise, Bulandshahr called upon the petitioner to furnish details in respect of Homeodent including its ingredients an total value of clearances etc. On January 20, 1988 the petitioner addressed a detailed letter to the Superintendent of State Excise, Bulandshahr, explaining its stand, and that duty had been paid thereon. State excise authorities, thereafter, did not take any action against the petitioner nor did they take out samples of Homeodent toothpaste to get appropriate results as required under the Act of 1955 and the rules framed thereunder. However, on March 17, 1988 the Superintendent of State Excise, Bulandshahr passed a demand order directing the petitioner to deposit a sum of Rs. 68, 13, 334.20 being the alleged duty payable on Homeodent manufactured and cleared between January 1985 and January 1988. This order was passed without issuing any notice to show cause and, according to the petitioner, without affording the petitioner any opportunity of hearing. The petitioner on the same day sent a representation requesting for compliance with the principles of natural justice and disputing the claim for duty. On March 18, 1988 the Superintendent of State Excise, Bulandshahr, modified his earlier order and confirmed the demand of duty amounting to Rs. 46, 67 lakhs on provisional basis. Once again the petitioner was neither served with a show cause notice nor was afforded an opportunity of personal hearing, according to the petitioner. While passing either of the orders, no test result, it is asserted, was obtained to establish whether Homeodent contained alcohol or not. However, on March 18, 1988 the petitioner deposited a sum of Rs. 11.66 lakhs. The petitioners also executed a bank guarantee in favour of the District Magistrate, Ghaziabad, for a sum of Rs. 35On April 6, 1988 the petitioners filed an appeal before the Excise Commissioner, U.P. against the illegal orders of the District Excise Officer. The petitioners also appeared for personal hearing before the Excise Commissioner though their advocate on April 23, 1988. On May 5, 1988 the Excise Commissioner, U.P., passed an order dismissing the appeal of the petitioners. However, petitioner No. 1 states that copy of the order was not served upon it. Petitioner No. 1 further asserts that without serving a copy of the order on it and without intimating whether the order had been passed or not, the District Excise Officer approached M/s. Grindlays Bank for encashment of the bank guarantee of Rs. 35 lakhs and coerced, according to the petitioners, the bankers to encash the same forthwith. Thereafter, the petitioner moved the High Court of Allahabad against the illegal actions of the respondents. The High Court directed the authorities to serve a copy of the order and restrained the respondents from encashing the bank guarantee. It is stated that while the High Court of Allahabad was considering the writ petition of the petitioner and bad granted stay as aforesaid, the respondent District Excise Officer encashed the bank guarantee of Rs. 35 lakhs without even calling upon the petitioner first to pay the amount. On May 13, 1988 the High Court of Allahabad directed the petitioner to file a revision petition with the Central Government. A revision petition was filed along with stay application on May 28, 1988. Thereafter, the Central Government granted stay against recovery of the balance amount of Rs. 21.46 lakhs. On September 22, 1988 the Additional Secretary of the Government of India in exercise of his revisional powers allowed the revision of the petitioners and declared the orders of the District Excise Officer dated March 17 and 18, 1988 as upheld in appeal by the Excise Commissioner as null and void having been passed in violation of principles of natural justice. Thereupon it, the petitioners state, called upon the District Excise Officer and the District Magistrate to refund the amount of Rs. 46.67 lakhs recovered from it by way of cash payment and encashment of bank guarantee in view of the revision order. The case of the petitioner is that the State excise authorities failed to grant the petitioner refund as prayed for despite the order of the revisional authorities. On November 2, 1988 the District Excise Officer issued a show-cause notice requiring the petitioner to show cause as to why cause as to why an amount of Rs. 68.13 lakhs be not recovered from it in respect of Homeodent manufactured and cleared during January 1985 to January 1988. In December 1988 the petitioner moved the High Court of Allahabad under Article 226 of the Constitution of India, inter alia, praying for a writ of mandamus for quashing and setting aside the show cause notice dated November 2, 1988 and for refund of duty amounting to Rs. 46.67 lakhs. On December 20, 1988 the High Court of Allahabad dismissed the writ petition filed by the petitioner. It is stated that on January 10, 1989 this Court upon Special Leave Petitions No. 135-36 of 1989 filed by the company was pleased to issue notice and directed stay of operation the notice of demand. Thereafter, on January 30, 1989 the District Excise Officer directed the petitioner to appear for personal hearing in response to the show cause notice. The Petitioner appeared before the District Excise Officer without prejudice and submitted a detailed reply to the show cause notice and also contended during personal hearing that the notice was required to be withdrawn. In its reply the petitioner categorically stated that the reply was being submitted without prejudice to petitioners right to move this Court by way of a special leave petition. Thereafter, the petitioner moved this Court on January 21, 1989. It is, therefore, necessary to refer to the judgment and order dated December 20, 1988 in Civil Miscellaneous Writ Petition No. Nil of 1988 connected with civil Miscellaneous Writ Petition No. Nil of 1988 in the High Court ofIt appears that M/s. Dabur India Limited had filed the said writ petition in the High Court challenging the show cause notice dated November 2, 1988 by the District Excise Officer, Ghaziabad. Another writ petition being writ petition No. 1160 of 1988 which is the subject matter of Special Leave Petition Nos. 135-36 of 1989 was filed by M/s. Sharda (the company) for quashing the order of the Central Government dated June 3, 1988 which was Annexure 1 to the writ petition. These two were disposed of by the said judgment. The question that was mainly involved therein was that the contention of the petitioner that the Homeodent did not contain alcohol, though one of the ingredients of such preparation was Mother Tincture containing alcohol and the same was assessable under Item 14-FF of the 1944 Act. The Assistant Collector of Central Excise, Ghaziabad, had taken the view that the Homeodent was classifiable under sub-heading No. 3306-02 of Chapter 33 of the Central Excise Tariff Act, 1985 and on that duty @ 15 per cent ad valorem was leviable. This duty computed at the said rate by the Central excise authorities was paid, according to the petitioner, on the goods manufactured from January 1, 1986. On January 18, 1988 the District Excise Officer made a surprise inspection of the units of the Petitioner and when it was revealed that the Homeodent toothpaste manufactured by M/s. Dabur was toilet preparation containing alcohol within the meaning of Section 2(K), read with Item 4 of the Schedule, referred to in Section 3 of the 1955 Act, and was therefore assessable to duty @ 100 per cent ad valorem. The District Excise Officer, Ghaziabad, therefore had caused a common notice dated March 17, 1988 to be served on the petitioner requiring it to pay duty aggregating to Rs. 68, 13, 334.20 under he provisions of the 1955 Act on such goods manufactured January 1, 1985 till the date of notice. As mentioned hereinbefore, against this notice some representation was made by the petitioner to the District Excise Officer and thereupon the petitioner was directed to deposit provisionally the excise duty to the tune of Rs. 46, 55, 451.45 under the 1955 Act and the same was deposited by the petitioner. Such demand was challenged by M/s. Dabur in appeal before the Excise Commissioner. The Excise Commissioner affirmed the order of the District Excise Officer and dismissed the appeal. No appeal was filed by M/s. Sharda against the demand notice of excise duty under the 1955 Act. However, both the petitioners approached the Central Government in revision under Rule 128 of the 1956 Rules. The revision of M/s. Dabur was disposed of by the Central Government and the result was communicated by the Additional Secretary to the Government of India by the order dated September 22, 1988. The contention of M/s Dabur that the demand was raised on it without any opportunity of being heard and in violation of principles of natural justice, was accepted and a direction was given that the case be adjudicated upon de novo after giving a show cause notice and proper opportunity of being heard to the party. The revision filed by M/s. Sharda was also not entertained by the Central Government on the ground that a right of appeal was vested in M/s. Sharda which could have been exercised upto June 17, 1988 which was notHowever, pursuant to the order of the Central Government, the District Excise Officer issued the impugned show cause notice dated November 2, 1988 to the petitioners jointly, validity of which was challenged by them in the writ petition and the other writ petition has been filed by M/s. Sharda only to challenge the order of the Central Government refusing to entertain its revision. The learned Judges in the judgment under appeal noted that the petitioner did not advance any argument on the merits of the question; whether Homeodent toothpaste is assessable to duty under the 1944 Act or under the 1955 Act and rightly so because that involved a factual scrutiny which could hardly be gone into by the High Court. The High Court was of the opinion that the question, Whether Homeodent toothpaste is sans alcohol, cannot be adjudicated upon the extraordinary writ jurisdiction. On behalf of the petitioners before the High Court two contentions were raised. Firstly that the Central Government having set aside the order of District Excise officer, Ghaziabad, whereunder excise duty to the tune to Rs. 46, 66, 451.45 was paid, there was no justification for the respondents to retain that amount thereafter and a writ of mandamus be issued against the respondents directing them to refund this amount; and secondly, that under Rule 11 of the 1956 Rules when duties are short levied, a written demand by the proper officer being made within six months from the date on which the duty was paid, the shortfall could be recovered. The submission was that no duty can be recovered for the period anterior to six months to the reckoned from the date of payment of duty. It was, therefore, urged that the show cause notice was invalid inasmuch as the District Excise Officer, Ghaziabad, had exceeded the jurisdiction in having recovered the duty beyondThe High Court addressed itself to the question whether Article 226 of the Constitution of India was a proper remedy. We are not really concerned with this question. The High Court, however, came to the conclusion that both the 1944 & 1955 Acts operate in different fields and there is no overlapping between the two. If the Homeodent toothpaste is found to be assessable to duty under the 1955 Act then it will not amount to review of the order of the central excise authorities. It was emphasized before the High Court that adjudication by the central excise authorities does not stop the State excise authorities from considering the case under the provision of the 1955 Act. Both the Acts are mutually exclusive and the authorities thereunder are fully empowered to consider the assessability separately, according to the High Court. The High Court came to the conclusion that where the parties fully acquiesced with the matter and subjected themselves to the statutory procedure, no action should be allowed to be taken under Article 226 of the Constitution unless the case is patently without jurisdiction. The orders having been made under the Statutory provisions, the court should be loath to interfere under Article 226 of the Constitution of India. It was emphasised by the High Court that once the parties choose the statutory procedure they must go to the logical end. The Central Government had directed the State Excise authorities to adjudicate the case de novo and, therefore, the District Excise Officer, Ghaziabad, had no option but to issue show cause notice. So the show cause notice dated November 22, 1988 was jointly given to the petitioner pursuant to the direction of the Central Government much after the orders had been passed initially or in appeal. Therefore, the common show cause notice to the parties cannot, according to the High Court, be characterised as a speaking point and from the backdrop of the case stated above, it is amply clear that the excise authorities had not assumed jurisdiction to proceed against the petitioner for the first time by way of a show cause notice dated November 2, 1988 rather it had been issued at much subsequent stage pursuant to the direction of the Central Government. The High Court came to the conclusion that the show cause notice having been issued in accordance with the directions of the Central Government in the revisional jurisdiction which the petitioner itself subjected to, cannot be assailed under Article 226 of the Constitution. So this show cause notice dated November 2, 1988 cannot be equated with the show cause notice given at the initial stage to assume jurisdiction in the matter. The High Court also came to the conclusion that no writ can be issued in favor of the parties who remain sitting on the fence and took a chance of the proceeding taken up under the statutory provisions going in their favor. The High Court held the petitioner who had resorted to statutory remedies on its own could not be permitted to take recourse under Article 226 of the Constitution of India, in the event of their having become successful under theComing to Writ Petition No. 1160 of 1988 wherein the order of the Central Government refusing to entertain the revision had been challenged. The Central Government had refused on entertain the revision on the sole ground that the right of appeal that vested in M/s. Sharda could not be exercised thereby. The High Court, however, came to the conclusion that the case of M/s. Dabur was that it is manufacturing Homeodent toothpaste on job basis under the loan licence of M/s. Sharda as per the specifications and control and the raw material of the latter but factually both the petitioners are different entities under the law and therefore each petitioner had to pursue its own remedy. Therefore, on an analysis of the material, the High Court found that there was nothing in interfere with the order of the Central Government

Court's reasoning:
26. In this case, however, the case of the petitioner is that duty has been recovered under the 1944 Act; if any refund has to be made, it must be made in accordance with law. There is a question of limitation for claiming refund of this duty. The provisions are not clear. In such a situation, it appears to us that the justice requires that provisions should be made more clear and in the view of the facts and the circumstances that have happened, we would direct that if the petitioners are entitled to any refund of the duty already paid to the Central Government in view of the duty imposition now upheld against them in favour of the State Government such refund application should be entertained and considered in accordance with law. We are conscious in giving this direction, we are not strictly following the letter and the provision of the Act. But in a case of this nature, where there is some doubt as to whether duty was payable to the Central Government under the 1944 Act or whether the item was dutiable under the 1955 Act, it would be just an proper and in consonance with justice in fiscal administration that the Central Government should consider in the light of the facts found, if an application is made under Section 11-B of the 1944 Act and pass appropriate order. Such application should be made within four months from the date of the judgment. In the facts and the circumstances of this case, the limitation period under Section 11-B of the 1944 Act should not apply. This direction, in our opinion, must be confined in the facts and the circumstances of this caseOur attention was drawn to the observation of this Court in Union of India v. Bombay Tyre International Ltd. in respect of the valuation. But the point not having been taken at any stage before the authorities, it is not proper for us at this stage to go into this question. We will proceed in view of the facts and the circumstances of this case and to do justice between the parties on the basis that the duty has been correctly imposed. We have looked into the order of the District Excise Officer, Ghaziabad and we find that all relevant facts have been considered and no facts were brought before us contrary to the findings nor any contentions of substance raised which can induce us to hold to theReference may also be made to the observations of this Court in Mohanlal Maganlal Bhavsar v. Union of India for the test to determine whether an item of medicinal preparation falls under Item 1 of the Schedule to the 1955 Act. It has been determined by the authorities enjoined to enforce that Act and such finding has not been assailed on any cogent or reliable ground in any proper manner. If that is the position, then that order must be upheld but it must be upheld that Homeodent was dutiable and as such the impugned order was correctly passed by the District ExciseOur attention was drawn to the observation of this Court in N. B. Sanjana, Assistant Collector of Central Excise v. Elphinstone Spinning and Weaving Mills Co. Ltd. But in view of the facts on which the parties rested their case before the authorities, it is not necessary at this stage to go into thisIn the aforesaid view of the matter, we are of the opinion that the impugned order dated January 18, 1989 passed by the District Excise Officer, Ghaziabad, must be given effect to and thereafter the petitioners application for refund, if any, made before the authorities under Section 4 of the 1944 Act within the time indicated as before should be disposed of in the manner indicated above, ifBefore we part with this case, two aspects have to be adverted to - one was regarding the allegation of the petitioner that in order to compel the petitioners to pay which the petitioners contented that they were not liable to pay, the licence was not being renewed for a period and the petitioner were constantly kept under threat of closing down their business in order to coerce them to make the payment. This is unfortunate. We would not like to hear from a litigant in this country that the Government is coercing citizens of this country to make payment of duties which the litigant is contending not to be leviable. Government, of course, is entitled to enforce payment and for that purpose to take all legal steps but the government. Central or State, cannot be permitted to play dirty games with the citizens of this country to coerce them in making payments which the citizens were not legally obliged to make. If any money is due to the government, the government should take steps but not take extra-legal steps or manoeuvre.