Holding

Plywood becomes liable to excise duty at the panel stage under Item 16B, making the notices valid, but the Court's relief applies only prospectively.

Summary

M/s Oriental Timber Industries, a manufacturer of plywood circles for packing, was previously assessed excise duty on the finished circles. After an audit objection, the Central Excise authorities issued notices demanding assessment on the plywood at the panel (block) stage under Item 16B of the First Schedule of the Central Excise & Salt Act, 1944. The Kerala High Court quashed the notices, but the Union of India appealed. The Supreme Court held that plywood becomes liable to excise duty as soon as it emerges from the press, irrespective of trimming or sanding, and that the notices were valid. However, the Court limited the effect of its decision to prospective assessment, refusing retrospective levy for past years. Consequently, the appeal was allowed and the High Court's order set aside.

Issues considered

Whether plywood circles are dutiable at the panel (block) stage under Item 16B of the First Schedule.
Whether the process of cutting circles constitutes a part of the manufacture of plywood.
Whether the notices issued by the Collector and Range Officer were valid under the Central Excise & Salt Act, 1944.
Whether retrospective assessment of excise duty for past years is permissible.

Legislation cited

Central Excise Ruless. Rule 49(1), s. Rule 9
Central Excise & Salt Act, 1944s. S.2(g), s. S.3

Subjects

excise dutyplywoodItem 16Bmanufactureassessment stageretrospective taxCentral Excise Act

Judgment

.. t 47S
A
COLLECTOR OF CUSTOMS & CENTRAL EXCISE & ANR. ·

v,

M/S. ORIENTAL TIMBER INDUSTRIES B

March 26, 1985.

(D.A. DESAI AND AMARENDRA NATH SEN, JJ.)

Central Excise ~ Salt Act 1944 First Schedule Item 16B. Plywood
circles-Manufacture of-Assessment to duty-Determination of.

The respondent firm is a manufacturer of plywood circles to be used as
com.ponent part of packing materials for wire and cables. The firm used to be 'D
assessed to duty under the Central Excise and Silt Act, 1944. On thC basis of
the Total area of the circles manufactured and the duty to be collected when
the circles were issued out of the factory premises. An audit objection was
taken to this mode of assessment on the ground that the process of cuttiQg out
circles and punching of holes cannot be considcr~d as incidental or anciH3.ry to
the. coinplction of the manufacture of plywood, that the levy of excise duty
P,ust be on the total area of blocks or panels of plywood that come out of the E
pfess aftd not on the area of the circles made out of the blocks or · panels and
tho,t by plywood- it was meant only plywood which had a general market and
pot plywood circles sf)ccially _manufactured for~ particular purpose or a
particular customer. Pursuant to the audit objection, the Central Excise Range
bffieer issued a notice ca1ling upon the firm to furni~h firea of the plywood
tnanufacture~ Jlt the panel stage for -taking clearance. of the plywood circl~s.
lt was also mentioned that the assesement of the plywood circles would be
jllade at.the panel stage and not on the finished circles and directed the firm to
r
file ARI accordingly. The firm sent reply through an Advocate and wanted
. the order or the - Collector referred to in the notice, but the same was not
furnished and instead the Range Officer issued another notice reiterating the
earlier stand and directed that duty paid on plywood panels cleared outside
the factory could not be brought back for .further process of cutting circles
With prior permission.
a·
The firm challenged the' validity of the two notices under ArticIC 226 of
the Constitution. A Single Judge of the High Court disPosing of the Writ
petition directed the CoUCctor to issue a copy of the order refei-red to iri the
nritice of the Range Officer dated 22-2-67 within a month and On feceipt of
that order the firm .mi8h\ Seek ·appropriate remedie&. b)' W"f Of appe1J Upl)~f
the it~tute, · , H
476' SUPREME COURT REPORTS. !1985) 3 S.C.R.
A\ The Division Bench. however, ailowed the appeal of the firm and quashed
the said two notices. It held that the real dispute was _as to what stage the
cxcisC:'dUty became- :teviabJe. on ,.the ·goods.- and_ that the blocks or panels from
which the firm· cuts out circles are all unfinished products, because they will
become furnished products only wPen they are trimmed and their edges are
sanded.

In the ~PPe~t by the R:e~enUe t~ 'this: C~~ri ii was conte~ded -that the ' •.
plywood as and wheri it cOmes out of the press in blocks or panels is a manu-
. factured product known in the market as plywood and is exigible to duty, that
the blocks or panels so manufactuf(d _do not CeaS~ to be plywood Under item
16B merely because they are not trimmed and their edges are not sanded, that
the cutting of the blocks does not form a part of the manufacture of the ply-
wood, that the'clrCtes Which are made b)r thC cuttini of ~he blocks'Md punching '
holes into blocks 3.nd panels, do not result in the manufacture of any different
product for the. purpose . of_ assessment _to, duty and that the plywood e<i.rlier
nlanu'ral.1:urcid' in bl.eeks and PaiieI~ when _it came 'out o~ the Press I can . i,e said
to constitute. materials for the purpose of manufacture of circles and becomes
exigible to duty under Item 16B.
·- ''
Q: · ' · 'Allowiiig 'the ;Appeal,
•. -J_ ... . - "! '
-: ::, ' : ~' ·_,: _., '·',j '. .

...... "HELD': I.~,- ThC High cOurt was ·in-~rf~r in quashing ihe·· two notic~s,'
They-are· ·vaud 'ind' IaWrut. Item l6B 'makCS it dear· that plyw0od.iri shCets,·
blOck-s; bOards '~r the like attracts e'Xcise duty. ·A sPeci3.t prOvision by way 'of
eXception·is 'made only in ·the ca.Se Or ptyWood for tea-chests when cut' td size
E3 iti Pa.nCls Or- shocks and packed in sets. The provision ·in Item. 16B that p]y.·
~OOd in. sheets, blocks and board or the like, ·which attr2.cts duty is in very·
broad ·terms · aD.d the Cxpressioll "like' includes circles. There is nothing to
llidicate in thi~ item that plywood must , be trimmed or scanded PlywoOd · is .
nlanofaciufed. as soon as it comes . out 'or the press, though the same ln:iy
not bC:'tiiffimCd or.sanded oUt Or which cifctes are to. be produced: .ThCir iS.
nOthinS: io. indicite that plyWoOd in panel stage not trimmed and n~t sa'nded.
~ ,.. . "- iS D.oi known in the market as plywood. Plywood when it cowCs out ··or· the'
· Press: at . ihC ~Panel stage, .. therefore, clearly faJJs · within Ite·m. 16B of the, First' •
Schedule and the authorities ~ere justified in Seeking to levy duty · on j,Iywopd
.at the panel stage. .
'. .-~ _l '. • \ '
[488H ; 489A-B)
I •

' ,·
? :'._,:. ~
G ·
·-·
2. ··-The facts ind circumstances go to indic3.te that the respondent_ firm •
.-
,,...__# is a small scale industry and carried on business on small scale. Prior to the
impugned notification9 thC assessment of the excise duty was made on the ply-.
wood ·circles: after· the same had been produced ·and not on· plywood as and
. _'when the· 5alne camC orit of the. press; This was the mOde Of assessmfnt 3.tiop~
ted by the Excise· Authorities and there was no default on -the part of the firm.
..
-. It was· only_ in the year 1967 the" Excise Authoritfes sought to changC ihe mode ~
.'OriisseS~meDt tecause Of audit ~b}ection. The resrondent assessee succeeded
in' the· 1"Iigh-C9µrt. The presept flpfe!il "-?~ ipstit}itc~ ip 1971 ~Fd t~is is ~eip'f

L
i CENTRAL EXCISE v. ORIENTAL TIMBER INDUSTRIAL (A. N. Sen, j) ,477
I

disposed of in the year 1985. If the respondent firm is saddled with. a11 the !A
~ccummulated liabilily on .acCOunt or ·excess amount of excise duty payable f0r
au these years. the firm will be very seriously prejudiced and it inay be difficult
to meet this liability. On the other hand, so far as the Union of India is
concerned even without this excess amount, it had managed without any serious
prejudice or inconvenience. The excess amount is not likely to be a very
Substantial sum from the point o-f view of Union's financial po~ition and Will
not be of any' material gain but may very likely· spell doom for the respondent B
firm. Apart from this aspect, no assessment rbr all these years on the basis i-'
of the said notices has been made or could have been made. To make fresh
assessment for imposition of duty for so many years after such a long lapse of
time may require a prolonged exercise which may not ultimately be worth the
trouble and is bound to cause ~ great deal of hardship and· harrassment to the
firm. Jn these circumstances, the ends of justice require that there should be
no levy of excise duty on the basis of the said notices for th~ years which have ,C
already passed. [489D·H ; 490A-Bl

CivIL APPELLATE JURISDICTION ; Civil Appeal No. 21 of 1971
·- From the Judgment & order dated 21.1.1970 of the Kerala
High Court in W.A. No. 820 of 1969 D
V.C. Mahajan, N.S. Das Bahl and , R.N: Poddar for the
Appellants:
P.K. Pillai and A.G. Pudissery for the Respondents.
The Judgment of the Court was delivered by
E
AMARENDRA NATH SEN, J. The, question for ~onsideration in
this appeal by Special Leave is whether the plywood manufactured
by the Respondent and utilised by the respondent in manufacturing
plywood circles to be used as component parts of packing material
for wire and cables is exigible to exicse duty under the Central Excise
and Salt Act, 1944. · F

· The respondent . is a manufacturer of plywood circles to be
used as component parts ·of packing materials for wire and cables.
The Respondent used to be assessed to duty under the Central
Excise and Salt Act, 1944 (hereinafter referred to as the Act) on the
G
basis of the total area of the circles manufactured and the duty used
to be collected when the circles were issued out of the factory
premises. On 13.2.1967 an audit objection was taken to this mode
of assessment of excise duty on the ground that the process of
cutting out circles and punching of holes cannot be considered
as incidental or ancillary to the completion of the manufacture of ff
plywood. The audit objection pointed out that the levy of excise
1
SUPREME COURT REPORTS [1985] 3 S.C.ll. \

d~ty must be on the total area of blocks or panels of plywood that
came out. of the press and not on the area of the circles made out
of the blocks or panels. It was further indicated that by plywood
it ·was meant only plywood which had a general market and not .
plywood circles specially manufactured for a particular purpose or a
particular customer. In consequence oftbe audit objection, the Range
B Officer, Central Excise, Irinjalakuda, the appellant No. 2 herein,
issued a notice on 22.2.1967 to M/s. Oriental Timber Industries,
tirnrespondent in the appeal, calling upon the respondent to furnish
area of the plywood manufactured at the panel stage for taking
clearance of the plywood circles. By this notice the Range Officer
also inentioned that the assessment of the plywood circles would be
c ma'de at the panel stage and not o·n the finished cirdes and direc-
ted . M/s. Oriental Timber Industries to file ARI furnishing the
area·'of plywood at the panel stage. In the notice dated 22.2.1967
issued. by the Range Officer, the Range Officer bad also mentioned

"
D
that the said notice was issued as the Collector of Customs had
ordered that the assessment of plywood circles would be made at
the panel stage and not ?n the finished circles.
-
;

For the sake of convenience we shall describe the _Range
Officer, Central Excise, Irinjalakuda who happens to be second •
appellant before us as the Range Officer and we shall refer to the
•E Collector of Customs and Central Excise, Cochin, the first appellant
before us, as the Collector and M/s. Or:cntal Timber Industries, the
writ petitioner before the High Court and the resppndept before us in
this. appeal, will be described as the firm,

, .. " The firm sent a reply to this notice on 23-2,1961 through tho
h1wyer asking for a copy Of the order of the Collector referred to
F
In the notice of the Range Officer. It further appears that tho
Advocate, of the firm had also addressed a letter on 24-2-1967 to
the Collector, requesting the Collector· for, a copy of the order.
No copy of the order was furnished to the fir!\] or the Advocate
and instead the Range Officer on 24·2·1967 issued a further notice
to the firm reiterating the stand earlier taken in the notice dated
22 2'1967 and this notice dated 24-2-1967 further directed that duty
paid. on plywood panels cleared outside the factory could not be
b~ought back for further process of cutting circles without obtain-
ing prior permission.

On 28.2.1967 the firm filed a writ petition in the High
Court in wllich tile validity of \he ~foresai\I notjc~ wa~ challen~e~
•
' ' eh~taAl llll:C!S~ v. 6iufo-ihl fIMBtll. INDUSTRIAL. iA.N. Sen, 1.) -,117~
.
and ·obtained an order of stay of the operation of the aforesaid notices.
The writ petition came up for final hearing on 27.3:1969 .. A !ear•
ned Single Judge ofihe High Court passed an order to. the effect
that the Collector of Customs would issue a copy of the ord_er refer·
red to in_ the notice of the Range qfficer dated 22.2.1967 within a
month from that date and on receipt of that order the firm
might seek appropriate remedies by way of appeal under the statute.
The writ petition was accordingly disposed of on the basis of the said
order. · ·
,, .
Against the said order of the learned Single Judge, the firm
preferred an appeal to the Division. Bench of' the High.Court. For
reasons recorded in the judgment delivered on 21.7.1670, the Divi·
son Bench of the High Court allowed the appeal and quashed the
said two notices.

The correctness of the jndgment of the Division Bench has
been questioned in this appeal by special leave granted by this
Court. The Division B.ench noted that the real dispute was as to
at what stage the excise duty becomes leviable on the goods. The
contention of the Excise Authorities was that plywood became
dutiable or excisable at the panel stage, that is at the stage it came
out of the press, whereas the contention of the firm was that excise
· duiy would only be attracted when the plywood left the factory
premises in the shape of circles, cut, trimmed and sanded. The
Division Bench referred to S.3 of the Act, which is the charging
section and also item l 6B in the First Schedule. The Division
Bench also considered Rule 49(1) of the Central Excise Rules framed
under the Act.
/ ·~ •,

> The Division &nch proceeded to hold :-
··F

"Item !6B itself, in our opinion throws considerable light
on tbis question. Plywood and other articles mentioned in
the body of the item may be in sheets, blocks: boards or
the like, which means that the plywood or other article
may be in the shape· of circles as Well. Moreover the ·~
articles are classed into two. Sub-item (I) makes p!y;ood
for tea-chests, When cut to size in panels or shooks and
packed in sets, exisable at I 0 per ~ent ad valorem; and
sub-item (ii) makes 'all others' du.Hable at 15 per cent ad
valorem; Evidently, the articles mentioned· in the body of ·,-. 18
Item 16B must be exhausted by these two classes under Sul}.'•
;
\

ti 98sJ 3s.e.tt.
A items (i) and (ii). If plywood is dutiable at the state when
it comes out of the press (hydraulic press or hand press).
Sub-item (i) becomes meaningless. This item indicates that
the plywood which comes out of the press can be cut to
size in panels or shooks suitable for making tea chests and
duty is leviable only such cut pieces. If so, the argument
B that the cutting of the panels into circles is not a process
in or part of manufacturing plywood loses all significance,
because the cutting of the bigger sheets emerging from the
press into smaller panels or shooks is equally not part of
the process of manufacture of plywood ·but is a part of
making tea-chests. Sub-item (ii) includes 'all others', which
c evidently means that all the rest excluding the cut panels
shooks suitable for making tea-chests mentioned in sub-item
(i): this means that all the rest of the plywood out into
any other shape or not cut."

The Division Bench further held :-
D
"Again, the blocks or panels from which the appellant cuts
out circles are all unfinished products, because they will
become finished products only when they re trimmed and
their edges are sanded. Therefore, the argument that the
manufacture of plywood is over the moment the product
E comes out of the press cannot be correct."

The Division Bench negatived the other contention raised on
behalf of the authorities that plywood for the purpose of assessment
is only that plywood which has a general market with the following
observations :-
F
''The second contention that plywood is only plywood
which has a aeneral market caanot also stand serious scru-
tiny. The panels or shooks cut to size.for making tea-
chests do not have a general market in that sense; so that
they stand on the sal!le position as the circles cut "Ut, fini-
shed and sent vut of the factory by the appellant. Moreover,
this line of rea~oning is not warranted by the Act or the
Rules."
The learned counsel appearing on behalf of the Collector and
the Range Officer, the appellants before us in this appeal, bas sub-
H mitted that the decision of the Division Bench is erroneous. It is
•· cfa1rRAL ioxccis •. oruiNTAL in.lst!a JNDtlSTruAL (A;N. Sen, J.) :,481
coiiiencl~d that Item .t6B on which the High Court banelied bas not ;,A
been properly construed.~. The contention. is that Iteni 16B provides
that plywood and other articles.:: mentioned . in the main body of the
rule may.be in.sheets; blocks, ·bouds or the like and are excisable to
duty as plywood at the rate of.15% ad valorem under: sub-item (2) of,
the said Rule; and sub-item (I) of 'the said rule ma.kes.an exception
in case of plywood for tea-chests when cut to size in panels or shooks ,,B
and packed in sets and provides. duty at the rate.of,10% ad yalorem.
The argument is, that . plywood _as and .·when it comes out of the
pr~s in blocks o~ panels - is a
maoufactured product known in the
• market as plywood and is exigible io duty£ and'tlle blocks or panels
so manufactured do not cease to be plywood under item I6B merely .. c
because they are not trimmed and their edges are not sanded: It has
been submitted that the cutting of the blocks do~s not form a part
of the manufacture of the plywood ; and the circles which are made
by the cutting of the -blocks and· .punching :holes into blocks and
panels, do not result in the manufacture of any different product for
the purpose of assessment to, duty and
the Circles so made form part
of the plywood. It is further argued that if the, making .of the circles
of the plywood blocks arid panels ~an be said \0 lnvolve''aiiy process
of manufacture and the plywood earlier maqufactu~ed iii blOcks and -
pands
•
when ii eame
- . - . . •
out -of ' the' press.•can
~ : •
be
.
said
-·
to'coiistihite
' '-l ' .• -
mate-
nals for the purpose of manufacture_ of c1rcles even then the plywood
in view of the provisfon of· Item'' 16B, becomes exlgiblO'to duty,
when is comes out of the press in panel or block. On behalf of the
.. respondent firm it has been submitted that the view expressed by the
High Court is correct and · the. Respondent firm adopts th~ reasons
stated by the High Court in the Judgment. -·· ' - , · · :::· ''' '.' ·
.. . -' ~. - -·. . .. , . . . ~~ ·~··· ~·~,.:...,',.)~ . . ,·,~·~::.:iil
I .·•:· l"..~;·:::f ,::~ .f. J,j
> ., The relevant provmons contained in S.3 of the Act which is F
·. indeed the charging Sections .
. reads as'follows :~ · ''. 1•'. 1 ·'l
~· .

.. ?".~ '• .
. "(I) There shall be levied and collected in such manner as
' ! ' - , may , be prescribed dutieS >o( excise -Ori ali' excisable

· goods other than salt which are produced or maimfac-
tured in· India and a duty on salt mamifactiired iti, or ·
imported by land int'l; any part'of India as; aiid'at the
' .... :.·:-' rates, set forth iii tlie First Schedule. ' ! : i' : i : ; : 't P
,\: r • ,. , ,','!

X'
,.} ".- '-:/'--
•
x r!~'.l x_-. ,·:;
48i !i ~ssi 3s.e k.
A (2) The Central Government may, by notification in the
official gazette, fix, for the purpose of levying the said
duties, tariff values of any articles enumerated, either
specifically or under general headings, in the First •
Schedule as chargeable with duty ad valorem and may
alter any tariff values for the time being in force .
• (3) Different tariff values may be fixed
(a) for different classes or description of the same
excisable goods ; or

(b) for excisable goods of the same class or descrip-
c .tion ;

(i) produced or manufactured by different classes
of producers of manufacturers ; .

(ii) sold to different class of buyers :
....
D
Provided that in fixing different tariff values in respect of
excisable goods falling under sub-clause (i) or sub-clause (ii),
regard shall be had to the sale prices charged by the diffe-' •
'rent classes of producers or manufacturers or, as the case
may, the normal practice of the wholesale trade in such
E
g~ods''.

The term 'manufacture' in so far as the same is relevant for
the present appeal is defined in S.2 (g) of the Act to mean : "manu-
facture' includes any process incidental or ancillary to the completion
of a manufactured product".
F
Item l 6B of the First Schedule as it read at the relevant time, •
was:-

"PLYWOOD, BLOCK BOARD. LAMINBOARD,
BATTEN BOARD, HARD OR SOFT WALL BOARDS
G
OR INSULATING BOARD, AND VENEERED PANELS,
WHETHER OR NOT CONTAINING ANY MATERIAL
OTHER THAN WOOD; CELLULAR WOOD PANELS;
BUILDING BOARDS OF WOOD PULP OR OF VEGE-
TABLE FIBRE, WHETHER OR NOT BONDED WITH
p NATURAL OR ARTIFICIAL RESINS OR WITH
SIMILAR BINDERS; AND ARTIFICIAL OR RECONS-
cilNtRAt. ellc1sll v. ~RI~NtAt ti!.!ililR 1Nb\JstR1~t (A.N. Sen, i) 4s3
- TITUTED WOOD BEING WOOD SHAVINGS WOOD- -
CHIPS, SAW DUST, WOOD FLOUR OR ' OTHER
LIONEOUS WASTE AGGLOMERATED WITH NAT U- 0

RAL OR ARTIFICIAL RESINS O_R QTHER (ORGANIC
BINDING SUBSTANCES, IN SHEETS, BLOCKS,
BOARDS OR THE LIKE) :" -

{i) plywood for tea-chests when cut in Ten per cent
panels. or shooks and packed in sets : ad valorem

(ii) all others ... fifteen per -
,-A cent, ad
,
.l- valore'm". c,
Rule 49 of the Central Excise Rules (hereinafter referred to as
the Rufos) referred to in the course of the arguments and also in the
judgment of the High Court does not in 'the facts and circumstances
of this case have a material bearing on the question in dispute.
Ruic 9, however, may be noticed and the relevant ·provisfon of Rule
9 read;as follows :-

"No excisable goods shall be removed from any place where
they. arc produced, cured or manufactured or any 'premises ·
appurtenant thereto, which may be specified by the Collector
in this behalf Whether for consumption, export, or manufac- E
ture of any other commodity in or outside such place, untH
the excise duty leviable thereon has been paid at such place
and in _such manner as is prescribed in these Rules or as the
Collector may require, and except on presentation of an
application in the proper form and on obtaining the per- ·
mission of the proper officer on t_he form". - F1
)

This Rule makes it clear that no excisable goods even for con•-
sumption or manufacture of any other commodity can be removed'
excepJ on payment of excise duty. "'
./' .
G
Item 16-.B in the First Schedule which we have earlier set,0 ut
c0ntains"the"refovant provisions which, as the High Court rightly
pointed out, throw proper light on the question.' On a careful ·
consideration of the provisions contained in Item 16-B~ we find .it
difficult to agree with the view expressed by the High Court. The.
main" provision in Item 16-B indicates · that. plywood is liable to H
excise duty wheJher in Sheets, Blocks, Boards or the like. Sub•.item (i)
484 SUPREME cdi.JRt REPoRTS
A provides that plywood for tea-chests when cut to size in panels or
shooks and packed in sets will be charged duty at the rate of 10%
ad valorem and sub-item (2) provides that in all other cases duty will
be charged, at the rate of 15% ad valorem. A proper reading of
this Item indicates that plywood, except in case of tea chests, is
liable to be charged at the rate of 15~~ ad valorem whether in sheets,
B blocks, hoards or the like. In other words, this item makes it clear
that the excise duty is payable on plywood whether in sheets, blocks,
boards or the like at the rate of! 5% ad valorem, except is case of
plywood for tea-chests ; and, in case of plywood for tea-chests when
cut to size in panels or shooks and packed in sets, duty payable is
10% ad valorem. It is only in case of tea-chests, plywood, when cut
c to size in panels or shooks and packed in sets, is to b~ taken into
consideration and this item does. not indicate that i11 other cases
like making of circles, plywood in the form of circles can be taken
into account for assessment of duty. The exceptional provision
made in case of tea-chests and the general provision made in . a.ll
D other cases, makes it clear that plywood, whether in sheets, bloc!<:s,
boards or the like has to be assessed at the stage of plywo.od blocks
or panels before circles are made out of the same. Whether cutting
of plywood blocks or panels into circles constitutes a manufacturin~ ,
process and whether circles made out of the plywood blocks ,or panels
constitute a different product from the plywood may be debatable.
E There, can, however, be no doubt that plywood is manufactured as
soon ag the product comes out of the press and plywood in sheets,
blocks, boa1rds or the like come within Item l 6B, even if they are
not trimmed and their edges are not sanded, as the Item does not
speak of trimmed or sanded plywood. Even if plywood blocks or
panels manufactured by the firm can be said to constitute the raw
J!' material of the firm for producing plywood circles and not as the
finished product of the firm, the position, in view of the definition
of 'manufacture' as given in S. 2F of the Act, the provisions of Rule
9 and the provisions contained in Item l 6B in the First Schedule,
remains unaltered and unaffected ; and plywood manufactiited fot
producing circles becomes liable to duty at the block stage or panel.
G stage. No question of double taxation arises as duty is leviable only
once on the plywood as it comes out of the press in the panel or
block stage and no further duty is to be levied on the.circles which
are made out of the plywood blocks or panels.

H
The decision of this Co11rt in Union of India v. Hindu r!ndivide
1
.mmut. i!Xasil v. 0RrilNTAt. Tir.!AllR INDtiSTR!At. (A.N. Sen; J.) 4s5
.;;,,;fy
1:~iness Known ~; .Raml~i Man~~kh;~i.~Rewari and A~/:{i) A
,. lends support to the contention raised on, behalf of the .Exci.seAutho- J.•
. rities ihiit plywood as anJ when the sam' comes. out of th<:.Pre~s.~t
the panel stage, even though not trimmed and sanded, becol?es
liable to excise duty under Item 16B of the First. Schedule.· .In this
case the facts were briefly as follows:-.· · · ·.::.··,·;.:;:,
. .. B
The Hindu Joint Family Business known as Rainalal Mansu-
khrai used to carry on business of manufactut~ of Kansi and Brass
utensils. Kansi is prepared as an alloy of copper and tin'; and 'brass
as alloy of copper· and zinc. ·These alloys are prepared b;r melting
metals and mixing them· together. ·These alloys are then ·converted c
into billets. These billets were of two kinds viz. of Kansi and Brass.
These billets are then sent by the respondent joint family business to
their agents who had. a rolling mill an1 the rolling mills.relied the
billots into uncut circles.. Subsequently, .. these uncut circles are trim-
med and after further work on them, they are converted.into utensils
and sold as such in the market . by the respondents. ·· The Excise D
Authorities imposed Excise Duty at the stage when the rolling mills (J
prepared circles from ·the billets under item .. 2 .-A of the First
Schedule read with S. 3 of the Act. Item 26-A of the Fiist Schedule
as noted in the judgment reads as follows!- · ····· ;;::·:
l
E
"Description of goods ., Rat~. of, duty
Copper ~nd copper alloys containing· ~ot · '"
: 'less than Fifry 'per 'cent ·by weight of ···•
"copper·:- · .. '; . ·-1 ;.,.:.,., ..

; ,c ; ~I I -

(I) In any crude form. including J ingots, Three.. hund- F
bars, blocks, slabs, billets .. shots and ~, ~e_ci,,_·,;_!upees
. pallets.. ..
. . · · · . per metric
tonne. :

.·(2) . Manufactures, . the follo;.lng
. .•'
~amely;
/ .
· : ' Five hundred '
plates, sheets, circles, strips ·and· foils ' ' rupees' per G
·in any form or size. · ' metric tonne.

' - · ·(3) Pipes and tubes .., :". • Ten .Per cent
1
_ ad vat~rem."
. '·'
•
(I) (197012 s.c.c. 472 H
~-· .
r "

[t 9sSI 3s.c.i.
A The Respondent Hindu Joint family business filed la suit
challenging the imposition of excise duty on circles of Kansi and
-Brass prepared in the process of manufacturing utensils. The Trial
Court decreed the suit holding that the circles were not liable to
excise]duty. The Appellate Court in the first appeal and the High
Court in the second appeal confirmed the decree. The Union of
B India representing the Excise Authorities preferred an appeal to the
·supreme Court. Allowing the appeal filed by tbe Union of India,
-thiS Court held :-
"It appears to us that, on a plain reading of the provisions
of the Act and Item 26-A of the First Schedule, the conten· /-.._
c tion raised on behalf of the appellant must be accepted. J
Under Section 3, all excisable goods set forth in the First
Schedule, which are produced or manufactured in India, are
made liable to excise duty at the rates mentioned in the
Schedule. -Item 26-A(2) clearly mentions the manufactures,
amongst others, of circles in any form or size. There can
'D -be no dispute that what the rolling mills prepared by
rolling the billets are circles in some form or the other and
in -different sizes. The contention that the uncut circles
cannot be held to be circles mentioned in this item has, on
,
the face of it, no force at all. Brij Mohan, the Karta of the
respondent Hindu undivided family business, in his state-
E
ment himself admitted that the billets are sent to the rolling
mills and the same are converted into P-6 and P·7, i.e.,
circles or Penas. P-6 and P-7, according to him, are a kansi
circle and brass circle respectively. He added that the
rolling mills never become the owners of either the billets
or the circle11; It is true that, at some stages, he described !
these circles as uncut circles ; but he did not dispute that
P-6 and p. 7 are, in fact, circles as uncut circles ; but he did
not dispute that P-6 and P· 7 are, in fact, circles of kansi and
brass. The mere fact that they are uncut at the stage when
G they are prepared after rolling by the rolling mills cannot,
therefore, mean that they are not circles and are not cove·
red by that word as used in Item 26-A. No doubt, evidence
bas been given that subsequently, these uncut circles are
trimmed and then converted into utensils. The argument
of learned counsel that only trimmed circles can be treated
ll
as circles and as finished product for purposes of Item 26-A
..~TRAL EXCISE v. ORIENTAL TIMBER INDUSTRIAL (A .N. Sen, J.) 487
,_ ··t-

cannot be accepted because that item itself envisages excise
·.duty being levied on 'circle~ in any form or size'. We c~n
not understand how it can possibly be contended that unc!1t
circles are not circles in any form or size. .There is nothing
in the item from which an inference can be drawn that .the
intention of the Legislature was to tax trimmed circles and B
not uncut circles. If there bad been any such inten_tion, _the
Legislature would not have used the expression 'circles· in
any form'. Uncut circles are certainly one form ·of
circles".

It may be noted that in this decision the C.ourt considered the cl
case of Union of India v. Delhi Cloth and General Mi//sI:onwhich
reliance was placed by the counsel for the respondent and also the
case of Soul h Bihar Sugar Mi/ls Ltd. v. Union of India? Tl)is_ Court
observed;-

"In our opinion, neither of these cases supports t.he cOJ:1ten· D
J1
tion raised on behalf of the respondents, and it app~ars that
the ratio of these decisions has been misunderstood by the
High Court and the lower 'courts. In the case of Union of
India v. Delhi Cloth and Genera/Mi/ls (supra), the conten-
. tion on behalf of the Union of India was that, in the c.ourse
of l!lanufacture of Vana_spati, the vegetable product from
raw groundnut and 'ti!' oil, the respondents used to bring
into. existence at one stage, after carrying out some pro-
cesses with the aid of power, what is known to the market
as 'refined oil', and this 'refined oil' falls within the descrip-
tion of 'vegetable non essential oils, all sorts, in,or in relation
)
to the manufacture of . which any process is ordinarily
carried on with the aid of power.' and so.is liable to.excise
.duty under Item 12 of the First Schedule. The Court
examined the process . of manufacture of Vanaspati and
found that vegetable non essential oils as obtained by crush-
ing containing the impurities were first produced as raw
. '
vegetable as non-essential oils. They had then to undergo
..(_

.,(I) [1963] Supp I SCR, 5?6
J;I
, (~) [1968] 3 SCR ?J
,

•""
4gg SUPREME COURT REPORTS ,[1985) 3 S.C.ll.

A · the process of refining which consisted of adding an aqueous
of
solution an alkali which will combine with the free fatty
· acids ·to form a soap and settle down with it a large amount
of suspended and mucilaginous matter ; after settling the
·. ~]ear supernatant layer is drawn off and treated with an
. a~pr,opriate quantity of -bleaching earth and carbon is then
B
; filtered. In this process, the colouring matter is removed
·:._and the moisture that was originally present in the neutra-
lised oil will also be removed. It this stage, the oil is a
refined oil and is suitable for hydrogenation into vegetable
Ji ·product. ·What was sought to be taxed was the refined oil
c .';..
at this stage ; but that con ten ti on was rejected, because the
;·'' · Cout held that the oil produced at that stage is not known
,_ ··;as· fefined Oil to the consumers in the commercial com-
munity and be described as refined oil only after- deodo-
rization. Since the process of deodorization is not
irt
D - carried out before that stage, no refined. oil had come
itito existence and, consequently, the oil could not be
·taxed as such. that case has on applicability to the case
before us where the tax is to be imposed on circles in any •
·form. When the rolling mills have rolled the billets, what
comes into existence are circles known as such, even.though
: · tliey are in uncut form. The product at that stage fully
·. ·satisfies the description contained in Item 26-A (2).
Similarly, the decision in South Bihar Sugar Mills Ltd.
;:: iv. Union of India and Ors. (supra) is of no help on this point,
· · because, again·, the gas, which was subjected to excise duty,
: . •·was held by the Court not to be carbon dioxide, while only
": carbon dioxide was liable to duty. It was held that the pro-
• . ' ·-'ducts that came . into existence was a mixture of gases con-
: -raTning only a percentage of carbon dioxide and could not,
· therefore, be held to be carbon dioxide alone which could
·. be subjected to excise duty under Item 14-H of the First
" ·schedule".
Itelri- f6,B'make·s it. clear that plywood in sheets, blocks, boards or
the like attracts excise duty, A special provision by way of exception
is m_ade only in the case of plywood for tea chests when cut to size
in panels or shooks and packed in sets. The provision in Item 16•B
that plywoog in §heets, blo9ks and b9ard \H the like, which attracts
. ·CENTRAL ENCISE "·ORIENTAL TIMBER INDUSTRIES (A.N. Sen, J.) 489

duty. is indeed in very broad terms and the expression 'like' does A
necessarily include circles. There is nothing to indicate in this item
that plywood ·must be trimmed or. sanded. Plywood is manufactured.
as soon as it comes out of the press, though the same may not be.
trimmed or sanded out of which circles are to be produced. There is
nothing to indicate that plywood in panel stage, not trimmed and .
not sanded, is not known in the market as plywood. Plywood when B
it comes out of the press at the panel stage, therefore, clearly falls
within item 16-B of the First Schedule, and the authorities concerned
were therefore, justified in seeking to levy duty on plywood at the
I panel stage. We are, therefore, of the opinion that the High Court
~ was fo. error in allowing the writ petition and in quashing the said
'
.l '
two Notices.· We ·must, therefore, allow the appeal and set aside the c.>
judgment of the High Court holding that the two notices issued
which were quashed by the High Court, are valid and -lawful.
I Though this appeal has to be allowed, there is one aspect which
-~ caused us some anxiety. The facts ·and circumstances go to indicate
that the respondent firm is a small scale industry and carries on busi-
ness on small scale. Prior to the impugned notification, the assess-
ment of the excise duty was made on the plywood circles after the
same had been produced and not on plywood as and when the same
came out of the press. This was the mode of assessment adopted by
tb:e Excise Authorities and there was no default on the part of the
firm. It was ·only in the year ·1967 the Excise Authorities sought to E
change the mode of assessment because of audit objection. The
Respondent assessee succeeded in the High Court. The present appeal
was instituted in 1971 and this is being disposed of in the year 1985.
If the respondent firm be saddled with all tl)e accummulated liabi-
lity on account of excess amount of excise duty payable by
the respondent firm for all these years, the respondent firm
;)
will be very seriously prejudiced and it may indeed be diffi·
• cult for the respondent firm to meet this liability. On the other
hand, these years have all rolled by and so far as the Union of India
Is concerned even without this excess amount to which the Union of
India may be entitled from the respondent, the affairs of Union of
India had been managed without any serious prejudice or inconve- G
nience. The excess amount which the Union of India is likely to
recover from the respondent firm is not likely to be a very substantial
sum from the point of view of Union's financial position and will
not be of any material gain to the Union of India but may very
likely spell doom for the respondent firm. Apart from this aspect, H
it apl'~llr~ t~llH1P ~~~~ssment ·for au these years on the basis of the
490 SUPREME COURT REPORTS [1985) 3 s.c.R.

A said notices had been made or could have been made. To make
fresh assessment for imposition of duty for so many years after such
a·long lapse of time may require a prolonged exercise which may not·
tiliimately be worth the trouble, so far as the Union of India is con· le.
cerned and is bound to cause a great deal of hardship and harrass·
<
men! to the respondent firm. In these circumstances, we feel that
B the ends of justice require that there should be no levy of excise duty
on the basis of the sa.id notices for the years which have already
passed in view of our judgment and our judgment allowing the
appeal and holding the notices to be valid should be given effect to.
prospectively from now on and not retrospectively. We may observe
that counsel for the Union of India fairly agreed th.at this should be
tbe just course to adopt and the counsel fairly submitted that the
Union of India was not concerned with the collection of additional
duty for years already passed from the respondent firm but was
merely concerned with the question of law involved in this case. The
appeal is accordingly allowed to the extent and in the manner indi·
cated with no order as to costs.

..
A.P.J. Appeal allowed.

.. •,

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:'.l

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J l