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Judgment
V. Ramaswami, J.—The petitioner is a registered firm of partnership with four partners. The business of the partnership is manufacture and
sale of tea. The admitted facts are these: The petitioner purchased green leaves to the extent of more than two-third of their manufactured tea from
about 622 growers. But these purchases included purchases from two of the partners from their proprietary tea estates. The extent of purchases
from these two partners to the total purchases was 3.63% and 3.66% respectively. If these purchases from the two individual partners were taken
out of account, then the total purchases of green leaves would not amount to two-third of the total manufactured tea.
From the year 1963-64 onwards, the petitioner claimed exemption from special excise duty on teas produced by them relying on Government
of India, Ministry of Finance, notification dated 4th June 1967. As the question involved in this case depends on the interpretation of this
notification, we may usefully not out the entire notification here below:
In exercise of the powers conferred by sub-R.(1) of R.8 of the Central Excise Rules, 1944, read with sub-Cl.(4) of Cl.41 of the Finance (No. 2)
Bill, 1967, which clause has by virtue of a declaration under the Provisional Collection of Taxes Act 1931 (16 of 1931) the force of law, and in
suppression of Notification of the Government of India in the Ministry of Finance (Dept. of Revenue and Insurance) No. 102-67 Central Excise, d.
26th May 1967, the Central Government hereby exempts all varieties of tea except package tea falling under sub item (1) of item No. 3 of the first
Schedule to the Central Excise and Salt Act, 1944 (I of 1944) produced by a bought leaf factory, from the whole of the special duty of excise
leviable thereon under sub-Cl.(1) of the said Cl.41.
Explanation: For the purpose of this notification, the expression ''bought leaf factory'' means a tea factory which had purchased cot less than two-
thirds of its green leaf from outside sellers during the year 1963-64 and in the financial year preceding that in which the duty is levied.
The claim of exemption was originally rejected by the Superintendent of Central Excise. The petitioner was not also successful before Assistant
Collector of Central Excise, and Collector of Central Excise to whom he filed appeals later on. He was also not successful in a revision filed to the
Government of India. All these authorities were of the view that a partner is not an outsider of the firm, and therefore, the purchase made by the
firm from the individual partners should not be taken into account for the purpose of calculating the two-third of green leaves purchased by the Unit
from outside sellers within the meaning of the notification. This writ petition has bees filed for the issue of a writ of certiorari to quash these orders.
Learned counsel for the appellant submitted that the green leaves purchased from the two individual partners were from their individual estates
and not a partnership estate and that therefore, these purchases should be deemed to be from outside sellers. On the other hand, the learned
counsel for the Revenue contended that any purchase from individual partners of the firm could not be treated as an outside sale and purchase and
what was contemplated under the notification was only purchases from persons totally unconnected with the partnership firm.
We have carefully considered these two rival contentions. It seems to us that the intention of the notification was to exempt factories which
manufacture tea substantially from purchases from outside sellers, though they may also be producing green leaves themselves. Therefore, they
have prescribed a margin of two-third of purchases from outside in order to get the benefit of the exemption. The distinction is between a producer
of green leaves who manufactures tea and a manufacturer of tea alone. If this object is kept in view, we think, that there will not be any difficulty in
understanding the notification. The main part of the notification in fact uses the expression ''produced by a bought leaf factory''. Therefore, unless
the factory produces tea to the extent of more than one third of its manufactured tea it shall be treated as bought leaf factory. Learned counsel for
the Revenue contended that the firm has no legal entity, that the property of the partnership is the property of the partners, the credits and liabilities
of the partnership are also the credits and liabilities of the partners and that therefore, a sale by the partner to the petitioner in this case shall not be
treated as outside purchase or the partner as an outside seller. According to the learned counsel the words ''outside seller'' means sellers who are
not partners or the partnership firm. We are unable to agree with the learned counsel that the notification in any way has made the purchases from
partners not to be taken into account for the purpose of calculating the two-third referred to therein. As we have already pointed out, the intention
appears to be to make a distinction between the producer manufacturer and a manufacturer who substantially purchases green leaves from others.
There could be no doubt that a partner could sell his individual tea to the partnership and the partnership could purchase it. Subject to certain
limitations, a partner could also be a creditor in respect of the sales made by him. In fact, learned counsel for the Revenue could not dispute that so
far as the green leaves purchased from the two individual partners, they are entitled to be paid and the green leaf is not the partnership property.
Though the notification is not happily worded we have no doubt that the intention was not to exclude the purchases from individual partners in the
calculation of the two-thirds of green leaf purchased by the firm referred to in the notification. Even if the intention was otherwise, the wording of
the notification does not warrant any such interpretation. As held by the Supreme Court in Hansraj Gordhandas Vs. H.H. Dave, Assistant
Collector of Central Excise and Customs, Surat and Others, the operation of the notification has to be judged not by the supposed intentions but
by the words employed in the notification itself. We are of the opinion, therefore, that the purchases made from the two individual partners should
also be included for the purpose of finding out the two-third of green leaves purchased by the firm in order to apply the notification. The writ
petition is, therefore, allowed. The assessments to excise duty made by the authorities are quashed, and the rule nisi made absolute. There will be
no order as to costs.