1. In this petition under Article 226 of the Constitution, the petitioner has prayed for issue of a writ in the nature of certiorari for quashing the order of the Collector, Central Excise, dated 2-5-1970 (Annexure 'E' to the petition) and the order of the Central Government dated 29-1-1972 (Annexure 'F' to the petition) made in revision. The petitioner has also prayed for a direction to the Central Excise authorities not to include certain products manufactured by it (the petitioner) for computing the quantum of excisable goods for determining the slab for the purpose of applying the rate of Excise duty.
2. The petitioner is a manufacturer of various types of paints and compounds. One of such products manufactured by it (the petitioner) is called 'Paint P.U.F. Marking Black and White'. The petitioner had paid Excise duty on this product but subsequently applied for refund of Excise duty. The Excise authorities granted such refund. Thereafter, the petitioner claimed refund of a further sum of Rs. 965.66 P. on the ground that the quantity of this product manufactured by it (the petitioner) had been wrongly included for determining the slab for the purpose of rates of Excise duty on other products manufactured by it during the year 1967-68. But this claim for the refund of Rs. 965.66 P. was rejected by the Assistant Collector of Central Excise whose decision was affirmed in appeal by the Collector, Central Excise, Kanpur, and in revision by the Central Government.
3. The petitioner's case is briefly as follows : The product, paint P.U.F. Black and White, is manufactured for the requirement of the Defence Department. Though it is called paint, it is not a paint, but is only liquid stencilling ink composed of Pigment Extenders Resin, Oil and Solvent. It leaves a tack - free protective coating when applied over a surface and it is used by the Defence Department for the purpose of stamping and marking on cloth and bags. This product does not come within the ambit of the word paints' occurring in Item No. 14 of the First Schedule to the Central Excises and Salt Act, 1944, (hereinafter referred to as the Act) and hence is not liable to Excise duty under the Act. The quantity of this product manufactured by it (the petitioner) could not be included in computing the quantity of paints manufactured by it (the petitioner) even for determining the slab of the rate of Excise duty leviable on it (the petitioner).
4. On the other hand, the case of the Central Excise authorities is briefly as follows: The product, P.U.F. Marking Black and White, is a species of paint coming within the ambit of Item No. 14 of the First Schedule to the Act. It is composed of Bitumen, Solvent, Pigment and Extenders and is not liquid stencilling ink. However, under Notification No. 168/65-C.E., dated 16-10-1965, issued under Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, (hereinafter referred to as the Rules), the Central Government has exempted from Excise duty sealing compounds and sack printing inks (falling under Item No. 14 of the First Schedule to the Act) supplied to bona fide consumers subject to certain conditions specified in that Notification. In other words, this product comes within the ambit of the word 'Paints' occurring in Item No. 14 of the First Schedule to the Act, but has been exempt under Rule 8(1) of the Rules from Excise duty' subject to certain conditions specified in that notification. Excise duty on paints is levied on the basis of slab system of. rates. On the first 750 Metric Tonnes of paints manufactured by any person the rate of Excise duty is 50 paise per litre as basic duty plus a special duty of 20 per cent. The aggregate rate of duty is 60 paise per litre. If the production exceeds 750 Metric Tonnes per annum but does not exceed 3000 Metric Tonnes, the aggregate rate of duty is 78 paise per litre for the next slab above 750 Metric Tonnes. Though this product was exempted from Excise duty, the quantity of this product manufactured by a person has to be included in the aggregate quantity of paints manufactured by him for the purpose of determining the slab of rates of Excise duty applicable to paints manufactured by him.
5. Shri S.C. Khare, learned counsel for the petitioner, contended that whether this product is treated as a non-excisable article or as exempt from Excise duty, the quantity of this product manufactured by a person cannot be taken into account for determining the slab of rates of Excise duty applicable to him.
6. On the other hand the learned Standing Counsel for the Central Government contended that though this product was exempt from Excise duty, the quantity of the product had to be included for determining such slab of rates.
7. The short question that arises for determination in this petition is whether the Central Excise authorities were justified in including the quantity of this product manufactured by the petitioner in the first slab of 750 Metric Tonnes of paints manufactured by the petitioner during the year 1967-68.
8. For the purpose of this petition we do not consider it necessary to go into the question whether or not this product comes within the ambit of the term 'Paints' occurring in Item No. 14 of the First Schedule to the Act. We shall proceed on the basis that it comes within the ambit of the term 'Paints', but has been exempted from Excise duty under Rule 8(1) of the Rules. Even so, can the quantity of this exempted product be included in the first slab of 750 Metric Tonnes of paints manufactured by an assessee in any year? The answer to this question must depend upon the language of the relevant provisions of the Act. In the Income Tax Act there are several categories of incomes which are exempt from Income-tax but have to be included in. the total income of an assessee for the purpose of determining the appropriate slab of rates of Income-tax on such total income. Likewise, in-the Sales Tax Law there may be several categories of turnovers which are exempt from sales tax, but have to be included in the aggregate turnover of an assessee for the purpose of determining whether such turnover is or is not below the exemption limit of turnover for the purpose of determining the appropriate rate of tax where such rate varies with the aggregate turnover of an assessee.
9. There is nothing in the language of Section 3 or Item No. 14 to the First Schedule to the Act from which it can be inferred that the quantity of any exempted category of paints should be included for the purpose of computing the slab of rates applicable to the aggregate quantity of paints manufactured by any person.
10. In Kailash Nath v. State of U.P. [A.I.R. 1957 S.C. 790], the Supreme Court observed that where a notification granting exempting has been made in accordance with the powers conferred by the statute, such notification has the same statutory force and validity as if such notification is contained in the Act itself.
11. In J.K. Steel Ltd. v. Union of India - A.I.R. 1970 S.C. 1173, Hegde J.. observed as follows :
"In the case of fiscal statute it may not be inappropriate to take into consideration the exemptions granted in interpreting the nature and the scope of the impost... the levy and exemption are parts of the same scheme of taxation. The two together carry into effect the purpose of the legislation. For finding out the true scheme of a taxing measure we have to take into consideration not merely the levy but also the exemptions granted."
12. Following the aforesaid observations of the Supreme Court, the High Court of Delhi observed in Sulekh Ram and Sons v. Union of India - 1972 Tax Law Reports 1771, that if the Central Excises and Salt Act and the notification are read together, the effect is that goods exempted from Excise duty are taken out of the First Schedule to the Act and, therefore, such goods cease to be excisable goods within the meaning of Section 2(d) of the Act. We are in respectful agreement with this view. In the present case also, once this product was exempted from Excise duty, the quantity of such product manufactured by the petitioner could not be taken into account even for computing the aggregate quantity of excisable paints manufactured by it for the purpose of determining the appropriate slab rate of Excise duty. Hence, the petitioner's claim that the quantity of paint P.U.F. Marking Black and White manufactured by it should not have been included by the Central Excise authorities in determining the total quantity of paints manufactured by it, should be upheld.
13. In the result, we allow this petition, quash the impugned orders of the Assistant Collector, the Collector of Central Excise and the Central Government. We issue a mandamus directing the Central Excise authorities to refund to the petitioner Rs. 965.66 P.
14. In the circumstances of the case, we direct the parties to bear their own costs.