COMMISSIONER OF CENTRAL EXCISE, DELHIversusM/S. PEARL DRINKS LTD.

                         [2010) 7 S.C.R. 808


A        COMMISSIONER OF CENTRAL EXCISE, DELHI
                               v.
                   M/S. PEARL DRINKS LTD.
            (Civil Appeal Nos. 2059-2060 of 2003)
                            JULY 6, 2010
B
                [D.K. JAIN AND T.S. THAKUR, JJ.]

          Central Excises Act, 1944 - s. 4 - Levy of excise duty -
    Claim of deductions under eight heads - Disallowed under
C   two heads and allowed under the remaining six heads -
    Appeal by assessee - Order disallowing deductions under two
    heads upheld by tribunal and Supreme Court - Appeal by
    Revenue challenging deductions under the six heads -
    Tribunal holding that order under challenge had merged in
D   the earlier order passed by tribunal in company's appeal
    whereby disallowance of two of the eight deductions had been
    upheld - Sustainability of - Held: Not sustainable - Doctrine
    of merger not applicable - Subject matter of appeal by
    assessee against adjudicating authority's order in original was
E   limited to disal/owance of two out of eight deductions claimed
    by assessee - Tribunal had no occasion to examine
    admissibility of deductions under the remaining six heads
    because assessee did not question the same - Admissibility
    of the said deductions could have been raised only by
F   Revenue who had lost its case qua those deductions before
    adjudicating authority and tribunal failed to notice this -
    Doctrines.

        Doctrines - Doctrine of Merger - Applicability of -
    Explained.

        The respondent-company is engaged in the
    manufacture and sale of aerated water. It claimed
    deductions under eight heads before arriving at the
    assessable value u/s. 4 of the Central Excises and Salt
                                 808
 COMMISSIONER OF CENTRAL EXCISE, DELHI v.               809
            PEARL DRINKS LTD.
Act, 1944. The Commissioner of Central Excise A
disallowed deductions under the two heads and allowed
deductions under the remaining six heads. The
respondent company filed an appeal. The tribunal
dismissed the same holding that the disallowance of
deductions under the two heads was in order. The B
Supreme Court also dismissed the appeal. Thereafter, the
Central Board of Excise and Customs reviewed the order
of the Commissioner and held that the deductions under
the six heads was not justified. The Commissioner 'OL ·
Central Excise filed an appeal. The tribunal dismissed the c
appeal holding that the order under challenge had
merged in the earlier order passed by the tribunal In the
company's appeal whereby disallowance of two of the
eight deductions had been upheld. Hence the appeals.

    Allowing the appeals, the Court                             D

    HELD: 1.1 The order passed by the tribunal
dismissing the appeal by the Revenue on the doctrine of
merger is erroneous and unsustainable. The order
passed by the tribunal is set aside and the matter is           E
remanded back to the tribunal for a fresh disposa: in
accordance with law. [Para 15] (819-F]

    1.2 The doctrine of merger has its origin in common
law. It has its application not only in the realm of judicial
                                                                F
orders but also in the realm of estates. In its application
two orders passed by judicial and quasi-judicial courts
and authorities it implies that the order passed by a lower
authority would lose its finality and efficacy in favour of
an order passed by a higher authority before whom
correctness of such an order may have been assailed in          G
appeal or revision. The doctrine applies ragardless
whether the higher court or authority affirms or modifies
the order passed by the lower court or authority. [Para
11) [816-F-G]
                                                                H
    810      SUPREME COURT REPORTS               [2010] 7 S.C.R.


A      Commissioner of Income Tax, Bombay v. Amritlal
  Bhogifal and Co. AIR 1958 SC 868; State of Madras v.
  Madurai Mills Co. Ltd. AIR 1967 SC 681; Gojer Bros. (Pvt.)
  Ltd. v. Ratan Lal Singh (1974) 2 SCC 453; S.S. Rathore v.
  State of Madhya Pradesh (1989) 4 SCC 582; Kunhayammed
B and Ors. v. State of Kera/a and Anr. (2000) 6 sec 359;
  Mauria Udyog Ltd. v. Commissioner of Central Excise, Delhi
  II (2003) 9 SCC 139 - relied on.

          1.3. The doctrine of merger will depend largely on the
C nature of the jurisdiction exercised by the superior court
  and the content or the subject matter of challenge laid or
  capable of being laid before it. Applying the said test to
  the instant case, the doctrine would have no application
  for the plain and simple reason that the subject matter of
  the appeal filed by the assessee against the adjudicating
D authority's order in original was limited to disallowance
  of two out of eight deductions claimed by the assessee.
  [Para 13 & 14] [818-C-E]

       1.4. The tribunal was in that appeal concerned only
E with the question whether the adjudicating authority was
  justified in disallowing deductions under the said two
  heads. It had no occasion to examine the admissibility of
  the deductions under the remaining six heads obviously
  because the assessee's appeal did not question the
F grant of such deductions. Admissibility of the said
  deductions could have been raised only by the Revenue
  who had lost its case qua those deductions before the
  adjudicating authority. Dismissal of the appeal filed by the
  assessee could consequently bring finality only to the
G question of admissibility of deductions under the two
  heads regarding which the appeal was filed. The said
  order could not be understood to mean that the tribunal
  had expressed any opinion regarding the admissibility of
  deductions under the remaining six heads which were
H not the subject matter of scrutiny before the tribunal. That
 COMMISSIONER OF CENTRAL EXCISE, DELHI v.             811
            PEARL QRINKS LTD.
being so, the proceedings instituted by the A
Commissioner, Central Excise pursuant to the order
passed by the Central Board of Excise and Customs
brought up a subject matter which was distinctively
different from that which had been examined and
determined in the assessee's appeal no matter against the B
same order, especially when the decision was not
rendered on a principle of law that could foreclose the
Revenue's case. The tribunal obviously failed to notice
this distinction and proceeded to apply the doctrine of
merger rather mechanic'l.lly. It failed to take into c
consideration a situation where an order may be partly
in favour and partly against a party in which event the part
that goes in favour of the party can be separately
assailed by them in appeal filed before the appellate Court
or authority but dismissal on merits or otherwise of any D
such appeal against a part only of the order will not
foreclose the right of the party who is aggrieved of the
other part of this order. If the doctrine of merger were to
be applied in a pedantic or wooden manner it would lead
to anomalous results inasmuch as a party who has lost
in part can by getting his appeal dismissed claim that the E
opposite party who may be aggrieved of another part of
the very same order cannot assail its correctness no
matter the appeal earlier disposed of by the court or
authority had not examined the correctness of that part
of the order. [Para 14] [818-E-H; 819-A-E]                   F

                    Case Law Reference:
    AIR 1958 SC 868         Relied on.          Para 11
    AIR 1967 SC 681         Relied on.          Para 12     G
    (1974) 2 sec 453        Relied on.          Para 12
    (1989) 4 sec 582        Relied on.          Para 12
    c2000) 6 sec 359        Relied on.          Para 12
                                                            H
    812      SUPREME COURT REPORTS                [2010] 7 S.C.R.


A         (2003) g sec 139        Relied on.            Para 12
        CIVI._ APPELLATE JURISDICTION : Civil Appeal No(s)
    2059-2060 of 2003.

        From the Judgment & Order dated 22.07.2002 of the
B   Customs, Excise and Gold (Control) Appellate Tribunal, New
    Delhi in Misc. Order No. 51 of 2002-A and Final Order No. 316
    of 2002-A.

        Gourab Banerjee, ASG, K, Swami, Sunita Rani Singh, 8.K.
c   Prasad, Anil Katiyar for the Appellant.

          Radha Rangaswamy, Rahul Gupta for the Respondent.

          The Judgment of the Court was delivered by

D      T.S. THAKUR, J. 1. These appeals have been filed under
  Section 35(L)(b) of the Central Excise Act, 1944. They are
  directed against an order dated 22nd July, 2002 passed by the
  Customs, Excise and Gold (Control) Appellate Tribunal,
  whereby an appeal preferred by the Revenue against an order
E passed by the Commissioner of Central Excise has been
  dismissed on the principle of merger. The Tribunal has held that
  the order passed by the Excis~ Commissioner had merged in
  that passed by the former in an earlier appeal filed by the
  assessee against the very same order. The fact that the said
  appeal was limited to only two of the eight deductions that
F formed the subject matter of controversy between the parties,
  according to the Tribunal made no difference.

       2. The respondent-company is engaged in the manufacture
  and sale of aerated water falling under heading 22.01 and 22.02
G of Chapter 22 of the Schedule to the Central Excise Tariff Act,
  1985. In the course of scrutiny of records the excise authorities
  noticed that the respondent-company had not affected any sale
  of aerated water to any wholesale buyer at its factory gate. It
  had instead been clearing the manufactured product in glass
H
      I

  C~MMIS~)ONER OF CENTRAL EXCISE, DELHI v. 813
  1            PEA~L DRINKS LTD. [T.S. THAKUR, J.]
bottles after making payment of the duty and removing them to         A
a duty paid godown situated at B-42, Lawrence Road Industrial
Area, Delhi, adjacent to the factory. The duty paid stocks so
removed were then sent to the customers in lorries OWJled by
the respondent or taken on hire by them on long term basis from
other parties. The driver-cum-salesman employed for that              B
purpose would deliver the goods to the customers/dealers at
a higher price and issue cash memos to them, while unsold
stocks and empties were brought back to the company's duty
paid godown.

     3. In the declarations filed by the respondent-company from      C
time to time it had while disclosing the wholesale price/
assessable value for various sizes and flavours claimed
deductions towards excise duty, sales tax, transportation
charges, container service charges and other service charges
including trade discounts etc. before arriving at the assessable      D
value under Section 4 of the Central Excise & Salt Act, 1944.
Being of the view that such deductions were not legally
admissible, the adjudicating authority issued a notice dated 3rd
November, 1995 calling upon the respondents to show cause
why the deductions claimed under the following eight heads be         E
not denied to them:

          "1.     Mazdoor and cartage expenses on account of
                  bringing of breakdown vehicles.
                                                                      F
          2.      Service charges including handling.

          3.      Establishment cost of sale and Shipping
                  Department.

          4.      Shell Repair Cost.                                  G
          5.      Interest on Containers.

          6.      Deduction claimed on account of loss of beverages
                  in duty paid godown and transporting the goods
                  from the duty paid godown to the customers.         H
    814        SUPREME COURT REPORTS              [2010] 7 S.C.R.


A         7.    Trade discount given to the privilege9, customers.

          8.    Other trade discount by way of one or more bottles
                free of cost to customers."

       4. The respondent filed a reply to the notice
B aforementioned upon consideration whereof the Principal
  Commissioner of Central Excise, Delhi passed an order in
  original dated 14th March, 2001 disallowing deductions to the
  extent of Rs.13,42,924/- on account of loss of beverages in the
  duty paid godown and a sum of Rs.27,50,072/- on account of
C loss in transit from the said godown to the customers and
  discount made on account of free supply of bottles of aerated
  water. Insofar as the remaining six heads under which
  deductions were claimed by the company the order in original
  accepted the said claim. ~
D
       5. Aggrieved by the order aforementioned the respondent-
  company filed an appeal under Section 35(E)(1) of the Central
  Excise before the CEGAT who by a reasoned order dismissed
  the same, holding that the disallowance of deductions under the
E two heads referred to above was perfectly in order. A further
  appeal filed by the assessee before this Court was also
  dismissed on 23rd September, 2002 thereby finally settling in
  favour of the Revenue the controversy as regards the
  admissibility of deductions under the two heads referred to
  above are concerned.
F
       6. As regards the admissibility of deductions under the
  remaining six heads which the adjudicating authority allowed
  to the company, the Central Board of Excise and Customs (for
  short 'CBEC') appears to have reviewed the order of the
G Commissioner Excise under Section 35(E)(1) of the Central
  Excise Act and come to the conclusion that the grant of
  deductions under the said six heads was unjustified. The Board
  accordingly directed the Commissioner of Central Excise to
  approach the CEGAT for a correct determination of the
H following points:
   COMMISSIONER OF CENTRAL EXCISE, DELHI v.                   815
      PEARL DRINKS LTD. [T.S. THAKUR, J.]
        "(i)    Whether the Commissioner was right in allowing       A
                the deductions claimed by the party without first
                verifying whether these were included in the
                wholesale price and if so, whether the same were
                included as a part of transportation cost only as
                claimed by the party and allowed by them.            B

        (ii)    Whether the Commissioner was right in allowing
                the deduction of Rs.6975/-, Rs.24,00,000/-,
                Rs.62, 12,578/-, Rs.7,66,662, Rs.2,27,329/- and
                Rs.91,000/- from the wholesale price, which do not   C
                appear to be admissible.

        (iii)   Whether the Commissioner was right in not
                imposing the penalty as proposed in the SCN."

        7. It is noteworthy that the Board while passing the above   D
   order referred to the disallowance of similar deductions
   claimed by the respondent for the period immediately
   preceding the period relevant to the show cause notice in
   question. The Board noted that the CEGAT had by its order
 /dated 2nd March, 2001 (reported in (2002) 150 ELT 661)             E
· affirmed the said disallowance except for two items. The effect
   of the said disallowance had not according to the Board been
   taken into consideration by the adjudicating authority while
   granting the deductions claimed by the respondent-company.

       8. In compliance with the order passed by the CBEC the        F
  Commissioner of Central Excise preferred an appeal under
  Section 35E(4) of the Act which was dismissed by the CEGAT
  by its order dated 22nd of July, 2002 holding that the order
  under challenge had merged in the earlier order dated 24th
  January, 2002 passed by the Tribunal in the company's appeal       G
  whereby disallowance of two of the eight deductions in dispute
  had been upheld. The present appeal questions the correctness
  of the said order as noticed earlier.

       9. Appearing for the app~lant Mr. Gourab Banerjee,            H
    816     SUPREME COURT REPORTS                  [2010) 7 S.C.R.

A learned Additional Solicitor General argued that the Tribunal had
  fallen in a palpable error in applying the doctrine of merger and
  dismissing the appeal filed by the Revenue. It was submitted
  that the doctrine of merger had no application to a case like
  the one at hand where the content and the subject matter of
B challenge in the two proceedings, namely, the appeal filed by
  the assessee and that filed by the Revenue were totally
  different. Reliance in support was placed by the learned counsel
  upon the decision of this Court in Kunhayammed & Ors. v.
  State of Kera/a & Anr. (2000) 6 SCC 359. Reliance was also
c placed upon the decision of this Court in Mauria Udyog Ltd.
  v. Commissioner of Central Excise, Delhi II (2003) 9 SCC 139
  to contend that the doctrine of merger is not a doctrine of
  universal application and that the difference in the subject
  matter or the content of the proceedings could take a decision
  inter se parties out of the purview of the said doctrine.
0
       10. On behalf of the respondent-company it was per contra
  argued that the order passed by the adjudicating authority could
  not be split into two and that the doctrine of merger applied no
  matter the issue which arose for determination in the two
E appeals were distinctly different.

         11. The doctrine of merger has its origin in common law.
  It has its application not only in the realm of judicial orders but
  also in the realm of estates. In its application two orders
F passed by judicial & quasi-judicial courts and authorities it
  implies that the order passed by a lower authority would lose
  its finality and efficacy in favour of an order passed by a higher
  authority before whom correctness of such an order may have
  been assailed in appeal or revision. The doctrine applies
G regardless whether the higher court or authority affirms or
  modifies the order passed by the lower court or authority. The
  juristic basis of the doctrine has been examined by this Court
  in a long line of decisions. One of the earliest of the said
  decisions was rendered in Commissioner of Income Tax,
  Bombay v. Amritla/ Bhof}ila/ & Co. (AIR 1958 ..SC 868). The
H
 COMMISSIONER OF CENTRAL EXCISE, DELHI v.                 · 817
    PEARL DRINKS LTD. [T.S. THAKUR, J.]
Court in that case declared that as a result of the confirmation   A
or affirmation of the decision of the Tribunal by the Appellate
Authority, the original decision merges in appellate decision
whereupon it is only the appellate decision which subsists and
is operative and capable of enforcement.
                                                                   B
     12. In State of Madras v. Madurai Mills Co. Ltd. (AIR 1967
SC 681) this Court had another occasion to examine the true
scope and purport of the doctrine of merger. The court declared
that the doctrine of merger was not a doctrine of rigid and
universal application nor could it be said that where there are    C
two orders one by the inferior authority and the other by a
superior authority they must necessarily merge irrespective of
the subject matter of the appeal or the revision or the scope of
the proceedings in which such orders are passed. Subsequent
decisions of this Court in Gojer Bros. (Pvt.) Ltd. v. Ratan Lal
Singh (1974) 2 SCC 453 and S.S. Rathore v. State of Madhya         D
Pradesh (1989) 4 SCC 582 have reiterated and explained that
position. No reference to the pronouncements of this Court on
the subject can be complete without a reference to the decision
of this Court in Kunhayammed's case (supra) and Mauria's
case (supra). In Kunhayammed's case (supra) a three-Judge          E
Bench of this Court reviewed the decisions rendered on the
subject and summed up its conclusions in para 44 of this
decision. One of the said conclusions apposite to the case at
hand is in the following words:
                                                                   F
  / "44. To sum up, our conclusions are:



    (iii) The doctrine of merger is not a doctrine of universal
    or unlimited application. It will depend on the nature of      G
    jurisdiction exercised by the superior forum and the content
    or subject-matter of challenge laid or capable of being laid
    shall be determinative of the applica~ility of merger. The
    superior jurisdiction should be capable of reversing,
    modifying or affirming the order put in issue before it.       H
    818         SUPREME COURT REPORTS                [2010] 7 S.C.R.


A         Under Article 136 of the Constitution the Supreme Court
          may reverse, modify or affirm the judgment-decree or order
          appealed against while exercising its appellate jurisdiction
          and not while exercising the discretionary jurisdiction
          disposing of petition for special leave to appeal. The
a         doctrine of merger can therefore be applied to the former
          and not to the latter.

            "

       13. There is in the light of the above pronouncements no
C gainsaying that the doctrine of merger will depend largely on
  the nature of the jurisdiction exercised by the superior court and
  the content or the subject matter of challenge laid or capable
  of being laid before it.

0        14. Applying the above test to the case at hand the
    doctrine would have no application for the plain and simple
    reason that the subject matter of the appeal filed by the .
    assessee against the adjudicating authority's order in original
    was limited to disallowance of two out of eight deductions
E   claimed by the assessee. The Tribunal was in that appeal
    concerned only with the question whether the adjudicating
    authority was justified in disallowing deductions under the said
    two heads. It had no occasion to examine the admissibility of
    the deductions under the remaining six heads obviously
    because the assessee's appeal did not question the grant of
F   such deductions. Admissibility of the said deductions could
    have been raised only by the Revenue who had lost its case
    qua those deductions before the adjudicating authority.
    Dismissal of the appeal filed by the assessee could
    consequently bring finality only to the question of admissibility
G   of deductions under the two heads regarding which the appeal
    wa~; filed. The said order could not be understood to mean that
    the Tribunal had expressed any opinion regarding the
    admissibility of deductions under the remaining six heads which
    were not the subject matter of scrutiny before the Tribunal. That
H   being so, the proceedings instituted by the Commissioner,
   COMMISSIONER OF CENTRAL EXCISE, DELHI v.                    819
      PEARL DRINKS LTD. [T.S. THAKUR, J.]
  Central Excise pursuant to the order passed by the Central           A
  Board of Excise and Customs brought up a subject matter
  which was distinctively different from that which had been
  examined and determined in the assessee's appeal no matter
  against the same order, especially when the decision was not
  rendered on a principle of law that could foreclose the              B
  Revenue's case. The Tribunal obviously failed to notice this
  distinction and proceeded to apply the doctrine of merger rather
  mechanically. It failed to take into consideration a situation
  where an order may be partly in favour and partly against a party
  In Which event the part that goes in favour of the party can be      c
  separately assailed by them in appeal filed before the appellate
  Court or authority but dismissal on merits or otherwise of any
  such appeal against a part only of the order will not foreclose
  the right of the~ party who is aggrieved of the other part of this       ,.
  order. If the doctrine of rner~er were to be applied in a pedantic
  or wooden manner It would lead to anomalous results! inasmuch        D
  as a party who has lost in part can by getting ·his appeal
  dismissed claim that the opposite party who may be aggrieved
, of another part of the very same order cannot assail its
  correctness no matter the appeal earlier disposed of by the
  Court or authority had not examined the correctness of that part     E
  of the order.

      15. We have In the light of the above no hesitation in
 holding that the order passed by the Tribunal dismissing the
 appeal by the Revenue on the doctrine of merger is erroneous          F
 and unsustainable. We accordingly allow these appeals, set
 aside the impugned order and remand the matter back to the
 Tribunal for a fresh disposal in accordance with law. The parties
 to appear before the Tribunal on 6th September, 2010.
                                                                       G
 N.J.                                           Appeals allowed.