Bombay Conductors and Electricals (Pvt.) Ltd. vs Union of India

J. B. Mehta, J.—The petitioner company challenges in this petition the order of the Assistant Collector at Annex. D, dated February 25, 1974 as Confirmed by the appellate order on February 25, 1975 holding that the petitioner was not entitled to have under the exemption notification No. 91 of 1972, dated March 17, 1972, lower rate of 4% ad valorem value instead of 5% ad valorem value on the goods in question falling under item No. 33(B)(ii) of the Central Excises & Salt Act, 1944, hereinafter referred to as ''the Act''. The petitioner industrial unit was established in 1964 and had commenced production on February 31, 1964. Entry 33B provides for levy of excise duty on ''Electric wires and cables, All sorts, not otherwise specified''. The petitioner produced aluminium conductors and paid excise duty at the rate of 5% ad valorem under the original exemption notification of September 14, 1968. The petitioner did not get any relief because it was applicable to industrial undertakings to which Industrial (Development & Regulations) Act, 1951 did not apply. However, by the notification No. 91/1972 dated March 17, 1972 exemption was provided as under :

"(a) All electric wires and cables falling under Item No. 33B(ii) of these said First Schedule manufactured by an Industrial Unit in respect of which an officer not below the rank of an Assistant Collector of Central Excise is satisfied that the capital investment on plant and machinery only installed therein as on the date of initial installation of the plant and machinery is not more than Rs. 7.5 lakhs but excluding -

(i) uninsulated copper wires (whether single or stranded or bunched); and

(ii) winding wires made on copper, 4% ad valorem

(b) All others, ..... ..... 5% ad valorem."

The petitioner learnt of this notification in January 1973 and therefore, by the application, dated January 8, 1973 the petitioner pointed out to the authorities that as the capital investment of the petitioner on plant and machinery as on the original date of initial installation of the plant and machinery i.e. December 31, 1964, was below Rs. 7.5 lakhs, the petitioner was entitled to the concessional rate of 4% ad valorem excise duty. The petitioner had annexed the certificate of the Chartered Accountant saying that the value of plant and machinery and electrical installation on the initial date of installation December 31, 1964, as per company''s record was Rs. 7,36,121.31 P. The petitioner had produced the company''s balance-sheet and profit and loss account of the relevant year dated October 24, 1965. As the authority required the petitioner to produce the certificate of Director of Industries, Gujarat State for availing of this partial exemption, even the said certificate was produced by the petitioner company at Annex. D, which stated that the initial investment in plant and machinery was Rs. 7,36,121.31 on the date of initial installation as per chartered accountant''s certificate and the investment in plant and machinery of the unit at present i.e. on November 6, 1972, was Rs. 21,20,632.58 as verified by the Chartered Accountant. The joint Director of the State further stated that according to the industrial policy this unit was not eligible for special assistance given to Small Scale Industries. In view of this certificate of the Joint Director the Assistant Collector refused to hold that the petitioner had to pay duty at the concessional rate of 4% on the goods in question. This order having been confirmed in appeal, the petitioner has filed this petition.

Mr. Desai is right in his contention that the Assistant Collector should have construed the exemption notification as it stands uninfluenced by the Joint Director''s certificate of December 11, 1972, at Annex. D where he has stated that even though the initial investment in plant and machinery of this concern on the date of this initial installation was Rs. 7,36,121.31, as the investment on plant and machinery as on November 6, 197 was Rs. 21,20,632.58 as verified by the chartered accountant, as per the industrial policy that unit was not eligible for special assistance given to small scale industries. That consideration is wholly extraneous as, the rate of excise duty would have to be adjudged on the basis of the statutory notification in question and not on the footing as to whether the petitioner was entitled to special assistance given to small scale industries as per the industrial policy of the State. Even so far as the appellate order is concerned Mr. Desai pointed out that the reasons given for discarding the certificate of the chartered accountant were not justified when the company has produced all the relevant books and the chartered accountant had duly certified the capital investment as on the date of initial installation on December 31, 1964. There is also justification on his grievance that the appellate authority also erred in assuming that the commercial rate was not applicable to this concern which was governed by the Industrial (Development & Regulation) Act, 1951, because that would be the conditions under the earlier notification No. 173 of 1968. Therefore, Mr. Desai was emphatic in his grievance that the statutory authorities had never cared to apply their mind to the statutory language for incorporating this exemption notification in question. He, therefore, challenged this order as a patently perverse order.

Mr. Mehta, however, pointed out that the order of the Assistant Collector was not happily worded but really be proceeded on the proper interpretation of this exemption notification as the exemption was never intended for the benefit of such industrial units which had on different dates a total capital investment on plant and machinery installed therein but the initial value of which was far in excess of Rs. 7.5 lakhs. In fact, the petitioner had admittedly produced the certificate that though at the date of initial installation on December 31, 1964, the initial investment in plant and machinery was Rs. 7,36,121.31 as per chartered accountant''s certificate, the capital investment in plant and machinery of this industrial unit as on November 6, 1972 at this relevant period was Rs. 21,20,632.58 as verified by the company''s chartered accountant himself. That is why the claim of exemption had been negatived. Therefore the short question which we have to examine is as to the true meaning of the statutory language of the relevant exemption notification and while interpreting this notification we must bear in mind that the object being one of granting exemption, such an interpretation must be put which does not defeat the whole purpose of the exemption clause. The exemption is intended for the benefit of smaller concerns as the yardstick which is used in the relevant notification is that the competent authority must be satisfied that the capital investment on plant and machinery only installed in such an industrial unit, manufacturing goods in question falling under item No. 33B(ii), as on the date of initial installation of the plant and machinery was not more than Rs. 7.5 lakhs. But if this capital investment was more than Rs. 7.5 lakhs, obviously higher rate of 5% ad valorem duty was attracted. A pure literal construction suggested by Mr. Desai would lead to an obsurd result, that such concerns like the petitioner''s which had admittedly on different dates of installation such large plant and machinery so that the total capital investment was to the tune of Rs. 21 lakhs and more would be entitled to get benefit of lower rate of 4% while those concerns which had merely a plant of only Rs. 8,00,000 would have to pay higher rate of duty at 50% ad valorem. The only reply of Mr. Desai was that such abnormal consequence or absurdities would not justify any departure from the settled principle of stick interpretation of taking statutes.

The principles for interpretation especially in the context of such exemption are well settled. Even in the latest decision in Customs and Excise Commissioner v. Thdrn. 1975 (3) All E.R. B81 at page 891, Lord Kilbrandon in his speech in terms pointed out the modern approach. In earlier days fine balance of arguments might have called for a decision in favour of the tax payer but now such a traditional doctrine was never adopted. It was considered out of date as referring to the old days when the Crown in its taxing capacity was regarded as a public enemy. A modern Hampden would in many quarters be pilleried as a tax-evader. Even Lord Morris pointed out at page 890 that an ambiguity is not created merely because an unsuccessful argument as to the meaning of words has been skillfully presented. Their Lordships had to interpret in the context of value added tax the relevant expression goods are supplied for consideration payable periodically and it was held that the hiring of a TV set was not a ''once for all'' transaction. Lord Simon at page 884 beautifully pointed out the test of ambiguity in the following words :

"It is not an ambiguity if a term (T) means X in relation to A and Y in relation to B, both A and B being expressed or implied in the proposition. It is only an ambiguity if T means either X or Y in relation to either A or B. To use T to mean X in relation to A and Y in relation to B is not an ambiguity (unless T is the middle term of a syllogism, when it is called an equivocation), but, technically, a syllepsis."

Their Lordships pointed out that Syllepsis is desirably to be avoided in drafting even in the interest of economy of words, though in normal a statutory language it is the sort of a point which is only likely to become apparent when the text is subjected to close forensic scrutiny. Therefore, the words "are supplied" were not held to be ambiguous as in this context they clearly meant "are being supplied", and, therefore, tax could not be sought to be evaded on the ground that it was a tax on ambiguity. The same approach has been adopted by their Lordships in J.K. Steel Ltd. Vs. Union of India (UOI), in the context of excise entry exemption itself. Their Lordships pointed out that the taxing item formula was no doubt intratistically formulated. However, when the contention was raised that the item should be strictly construed, being a taxing enactment, their Lordships in terms observed that no rule or principle of construction required that close reasoning should not be employed to arrive at the true meaning of a badly drafted entry in an Excise Act. Therefore, it was held that it was not stretching the language of the entry against the subject, if in the context of the scheme of the Excise Act this was the only reasonable construction to give to the entry in question.

Applying the aforesaid settled principles in the present case the relevant yardstick is the satisfaction of the competent authority that the capital investment in plant and machinery installed in such an industrial unit falling in item 33B(ii) as on the date of initial installation of plant and machinery was not more than Rs. 7.5 lakhs. The ''date'' of initial installation would as per the General Clauses Act, Section 13, cover even the ''dates'' of initial installation when the plant and machinery had been installed subsequently on different dates so as to increase such capital investment of plant and machinery in the industrial unit in question. Mr. Desai wanted us to confine the statutory language only to the initial installation with which the industrial unit commenced its production. That would be completely defeating the statutory purpose of this exemption notification and would lead to absurdities as pointed out by us. Even in the same industrial unit the plant and machinery with which it might have started might change from time to time and so long as the capital investment on the basis of such initial value did not exceed Rs. 7.5 lakhs the exemption was intended. But thereafter, exemption was surely intended to cease because any other view would lead to discrimination of other concerns giving an unequal treatment, and make the whole provision entirely unreasonable and obnoxious. The capital investment would be the total capital investment on plant and machinery which had been installed in the industrial unit. In such cases where the installation date of the plant and machinery changes even the other dates have to be taken into account to arrive at the total capital investment. Of course, on the basis of taking the initial value of the plant and machinery installed in the industrial unit from time to time. It is on that basis that this yardstick has to be applied to find and whether the total capital investment is not more than Rs. 7.5 lakhs or it exceeds this statutory limit, for deciding whether the lower rate was attracted or not.

Mr. Desai argued that the initial installation can be only once for all on an industrial unit. That is too literal a construction which can never be adopted as it defeats the plain purpose of the exemption notification and leads to such absurdity. The authority which issued but exemption has therefore used the relevant phrase as on the date of initial installation so that when there are further installations the initial value of inasmuch plant and machinery without taking into account any depreciation or development rebate would have to be added, to the total capital investment. Mr. Desai thereafter referred to the exemption notification dated April 30, 1975 which has been issued under rule 8(1) in respect of goods falling under Item 37A where it has been in terms clarified that those goods would be exempted from so much of the duty of excise leviable thereon as was in excess of 20% ad valorem, if an officer but below the rank of Assistant Collector of Central Excise was satisfied that the sum total of the value of the capital investment made from time to time on plant and machinery only, installed in the industrial unit in which such amplification devices, speakers or speaker-system were manufactured, was not more than Rs. 75 lakhs. The explanation had clarified that for the purpose of determining the value of any capital investment, only the face value of such investment at the time when such investment was made shall be taken into account. It may be that the rule making authority has now used appropriate language in the new notification issued on April 30, 1975, but because the exemption notification is badly drafted and inartistically worded, the Court cannot abdicate its function to give its reasonable meaning. That is why is the aforesaid decision of the House of Lords Lord Fraser had at page 895 aptly put this problem of statutory construction by pointing out that the consideration of the wider context does not offend against the well-known rule started by Rowlatt J. in Cape Brandy Syndicate v. Inland Revenue Commissioners (1921) 1 K.B. 64 at P. 71 :

"in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment ... Nothing it to be rent in, nothing is to be implied."

The learned Judge believed this rule to be in accordance with the duty of the Court which is "to give effect to the intention of the legislature as that intention is to be gathered from the language employed having regard to the context in connection with which it is employed", (vide Attorney General v. Carlton Bank (1899) 2 Ch. B 158 at p. 164 per X Lord Russel of Killowen). In Supdt. of Taxes, Dhubri and Others Vs. Onkarmal Nathmal Trust and Others, Rowlatt J.''s aforesaid rule was held as not meant to exhaust all principles of inter-pretation of construction of every type of provision in a taxing statute or to apply to every situation which may arise. It was in terms held that in a system, such as ours, where the constitutionality of all statutes including taxing statutes, can be subjected to judicial review, other principles also are not infrequently invoked. Therefore, looking at the context of the condition of exemption, we cannot give such a literal construction as Mr. Desai suggests, and it must be held that as the petitioner company had in the industrial unit at the relevant time installed plant and machinery whose capital investment at the initial value was to the extent of Rs. 21 lakhs as certified by the chartered accountant, the petitioner could hardly claim any concessional rate of 4% duty under the aforesaid exemption notification. Therefore, even though the Assistant Collector had not happily worded his order, his conclusion is right and it is that conclusion which is confirmed by the appellate order. In that view of the matter, this petition must fail and the rule is, therefore, discharged with no order as to costs in the circumstances of the case. Mr. Desai asked for a certificate under Article 133(1). The principles we have applied being well-settled, we do not find there is a question of wide public importance involved in this matter which, in our opinion, requires to be decided by the Supreme Court. The request is, therefore, rejected.