PETITIONER: <ORG>, ETC. Vs. RESPONDENT: UNION OF INDIA & ORS. DATE OF JUDGMENT: 05/02/1968 BENCH: <NAME>, J.M. BENCH: <NAME>, J.M. WANCHOO, K.N. (CJ) BACHAWAT, R.S. VAIDYIALINGAM, C.A. CITATION: 1968 AIR 922 1968 SCR (3) 21 CITATOR INFO : D 1971 SC2333 (5,6) R 1973 SC 425 (8) R 1977 SC 597 (34) R 1980 SC 86 (6) R 1982 SC 127 (8) R 1984 SC 420 (13) RF 1985 SC 746 (14) D 1986 SC 281 (8) RF 1986 SC1097 (6) R 1988 SC1164 (4) R 1988 SC2176 (4) R 1989 SC 603 (8) F 1989 SC 622 (4) F 1989 SC1153 (6,7) R 1990 SC 59 (3) R 1990 SC1676 (11) E 1990 SC1893 (4) ACT: Central Excise & Salt Act , 1944 Schedule 1, item 14A--Appellants manufacturing mixture of gases containing carbon dioxide by burning limestone with coke in lime--Using only the carbon dioxide from the mixture for refining sugarcane juice and for producing soda ash by solvay ammonia soda process--Whether the mixture of gases was kiln gas or compressed carbon dioxide covered by Item 14-H. HEADNOTE: The appellant companies manufactured sugar by carbonation process. land paid excise duty on sugar manufactured by them under item 1 of Sch. 1 to the Central Excise and Salt Act , 1944. According to an affidavit filed on behalf of the respondents, these manufacturers employed a process of burning lime-stone with coke in a lime kiln with a regulated amount of air whereby a mixture of gases was generated consisting of carbon dioxide, nitrogen, oxygen and a small quantity of carbon monoxide. The gas thus produced was thereafter compressed so as to achieve pressure exceeding atmospheric pressure and then passed through a tank containing sugarcane juice so as to remove impurities from it and to refine the juice. For this process of refining it was only the carbon dioxide in the gas which was used and the other gases i.e. nitrogen, oxygen and carbon monoxide escaped into the atmosphere by a vent provided for the purpose. The carbon dioxide content in this mixture of gases ranged from 27 to 36.5%. Similarly, another company manufactured soda ash by solvay ammonia soda process for which also carbon dioxide is required and this was produced by the petitioner by burning lime-stone with coke in a kiln in the same manner as the appellant 'sugar manufacturing companies employing the carbonation process. The respondents regarded all the companies as manufacturers of compressed carbon dioxide and levied excise duty on them under Item 14-H in Sch. 1 to the Act. The appellants filed writ petitions in <ORG> challenging the validity of this excise duty but these petitions were dismissed. It was contended, inter alia, on behalf- of the appellants that the lime kiln was maintained to generate a mixture of gases and not carbon dioxide and at no stage in the process of generating this mixture and passing it through the sugarcane juice was carbon dioxide-which formed one of the contents of the mixture--either compressed, liquidified or solidified. The mixture of gases so generated was not carbon dioxide as known to the market nor was it according to the specifications laid down by <ORG> which required the carbon dioxide content to be at least 99%. Therefore the excise duty sought to be recovered on the content of carbon dioxide in the mixture of gases could not fall under Item 14-H. Furthermore the duty being on goods it could be charged only on goods known as carbon dioxide in the trade and marketable as such. 22 HELD : The gas generated by the appellant companies was kiln gas and not carbon dioxide as known to the trade, i.e., to those who deal in it or who use' it. The kiln gas in question. therefore is neither carbon. dioxide nor compressed carbon dioxide known as such to the commercial community and therefore cannot attract Item 14-H in the First Schedule. It was not correct to say that because the sugar manufacturer wants carbon dioxide for carbonation purposes and sets up a kiln for it that he produces carbon dioxide and not kiln gas. In fact what he produces is a mixture known both to trade and science as kiln gas one of the constituents of which-is, no doubt, carbon dioxide. The kiln gas which is generated in these is admittedly never liquified nor solidified and is therefore neither liquified nor solidified carbon dioxide, assuming that it can be termed carbon dioxide. It cannot be called compressed carbon dioxide as understood in the market among those who deal in compressed carbon dioxide. Compressed carbon dioxide is understood generally as carbon dioxide compressed in cylinders with pressure ranging from 1,000 to 1,800 lbs. per sq. inch. The mere fact that at one stage or the other kiln gas is pressed at 40 to 45 lbs. per sq. inch by a pump or otherwise cannot mean that it is compressed carbon dioxide. At the same time the duty being on manufacture and not on sale the mere fact that kiln gas generated by these is not actually sold would not make any difference if what they generate and use in their manufacturing processes is carbon dioxide. The fact that the gas so generated has carbon dioxide below 99% and does, not conform to the specifications of <ORG> also would not matter for the gas may be sub-standard, provided what is produced is carbon dioxide. [32 D-H] Union of India v, <ORG>  Supp. I S.C.R. 586, referred to. JUDGMENT:

CIVIL APPELLATE/ORIGINAL JURISDICTION: Civil Appeals Nos.. 289 to 311 of 1965 and 999 to 1001 of 1967.

Appeals from the judgments, and orders dated July 13, 1964 Of <ORG> in Civil Writs Nos. 587-D, 590-D, 592 595-D, 643-D, 851-D, 852-D, 1163, 1164, 1167 and 1196 of 1963, 45 D of 1964, and 994, 588-D, 589-D, 591-D,593-D,594- D, 1165, 1166, 1168, 1169, 1197, 1240, 1216 and 1155 of 1963 respectively and writ Petition No. 212 of 1966. Petition under Art. 32 of the Constitution of India for the enforcement of fundamental rights.

<NAME>, <NAME> and <NAME>, for the appellants (in C.As. Nos. 289 to 311 of 1965). <NAME> and <NAME>, for the appellants (in C.A. No. 999 of 1967).

<ORG> <NAME> and <NAME>, for the appellants (in C. A. No. 1000 of 1967).

<NAME> and <NAME>, for the appellants (in C.A. No. 1001 of, 1967);.

N, <NAME>, <NAME>, <NAME> and <NAME>, for the 'petitioner (in W.P. No, 212 Of 1966).

<NAME>, Attorney-General, <NAME>, <NAME> <NAME>, for the respondents (in W. P. No. 212 of 1966) and the respondents (in, C.A. Nos,. 289 to 311 of 1965). <NAME>, Attorney-General, and <NAME> for the respondents (in C.As. Nos. 999, 1000 and 1001 of 1967). <NAME>, <NAME> and <NAME>, <NAME>, for the intervener (in- C.As. Nos. 289 to 311 of'1965). The Judgment of the Court *as delivered by <NAME>, J. These appeals, by certificate, are against the common judgment of <ORG> which dismissed, the writ petitions filed by the appellant companies challenging the legality of excise duty levied against them, under Item 14-H in-' Sch. 1 to the Central Excise and Salt Act , 1 of 1944.. Writ Petition 212 of 1966 by <ORG> also raises die same. question. As both the appeals and the writ petition raise a common question of law they were heard together and are disposed of by this common judgment.

The appellant companies manufacture sugar by carbonation process as against sulphitation process employed by some other manufacturers of sugar and pay excise duty on the sugar manufactured by them under Item 1 of Sch. 1 to the Apt. According to the affidavit of <NAME>, Deputy Chief Chemist of <ORG>, these manufacturers bum limestone with coke in a lime kiln with a regulated amount of air and generate a mixture of gases consisting of carbon dioxide, nitrogen, oxygen and a small quantity of carbon monoxide. Most of the oxygen from the air is used up by the coke in the process of burning itself. The coke so burnt supplies the heat which decomposes the limestone so as to generate carbon dioxide. The gas thus produced is sucked,by a pump through a pipe which connects the kiln with the inlet side of the pump. The gas enters the chamber of the pump and is then immediately compressed by means of the compression stroke of the pump. At this stage the gas is forced into a narrower space and as a result of the compression stroke it acquires pressure exceeding the atmospheric pressure. The gas so compressed is let into the delivery pipe, which connects the outlet side of the pump with the tank containing the sugarcane juice and enters. the sugarcane juice with the acquired pressure behind it. But for the compression resulting in pressure the gas would not bubble in the sugarcane juice. In the tank there, is besides the sugarcane juice milk of lime which is mixed so as to remove the impurity in and refine the juice. Thus, it is carbon dioxide which reacts on the lime and what is produced is an insoluble content known as calcium carbonate. The other gases viz., nitrogen, 'oxygen, carbon monoxide do not contribute in the process of clarification of the sugarcane juice. These are innocuous so far as the process of clarification of sugarcane juice is concerned and escape into the atmosphere by a vent provided in' the sugarcane juice tank. Along with these gases a certain amount of carbon dioxide which remains unabsorbed also escapes. The carbon dioxide content in the mixture of gases ranges from 27 to 36.5%. Thus, the process involves the forcing of impure carbon dioxide into a narrower space within the chamber of the pump where it is compressed and pushed first into the delivery pipe and then into the, tank containing the juice. The respondents' case therefore was that the process employed by the appellant companies involves compressing carbon dioxide with the pressure achieved pushing it through sugarcane juice. The 'appellant companies therefore produced carbon dioxide through the lime kiln which was taken first to the Co2 pump and there compressed and then pushed into the tank.

<ORG> manufactures among other products soda ash by solvay ammonia soda process. The solvay process as described by the said <ORG> is as follows First common salt is dissolved in water and ammonia gas is passed through such dissolved salt called brine. The ammonia gas gets absorbed in the brine. The solution so formed is called AB solution, that is, ammoniated brine. The AB solution is introduced at the top of a carbonating tower and passed from section to section. from the top to the bottom of the tower. At the bottom of the tower compressed carbon dioxide is forced through at a pressure of 40 to 50 pounds per square inch and is bubbled through the liquid in all the sections of the tower. The chemical reactions involved in the tower are: (i) Ammonia Gas plus,

(ii) Carbon dioxide plus, (iii) water of the brine solution. These react together to form ammonium bicarbonate which reacts with salt in brine to produce sodium bicarbonate and ammonium chloride. The sodium bicarbonate thus formed being much less soluble in the liquid is precipitated and is then taken out from the bottom of the tower. It is then filtered and the sodium bicarbonate in moist condition is left on the bed of the filter and the solution which is mostly of ammonium chloride is pumped to ammonia reaction tower where ammonia is produced. Moist sodium bicarbonate is then washed and is heated in a calciner at 200' centigrade., The sodium bicarbonate, gets decomposed to give soda ash, water and carbon dioxide. Carbon dioxide thus produced is reutilised in the cycle of manufacture of soda ash. It contains 85% pure carbon dioxide (according to the <ORG>'s expert 50 to 60%) and is mixed with carbon dioxide sucked by the compressor from the lime kiln. The whole mixture, which contains about 60% of pure carbon dioxide is compressed in the compressor to a pressure of 40 to 45 lbs. per inch Thus carbon dioxide is essential in the production of soda ash and is produced by burning limestone with coke in a kiln in the same manner as by the, sugar manufacturing concerns which employ carbonation process. The carbon dioxide so produced in the kiln is first compressed in the compressor during the compression stroke, and thereafter the piston compresses the. gas in the said cylinder at pressure of more than 40 to 50 pounds per square inch. The gas so compressed is compressed carbon dioxide which comes out of another valve in the cylinder and comes into the delivery side of the compressor admixed with carbon dioxide from the calciner. This gas is throughout at a pressure of 40 to 45 lbs. per sq. inch. This gas so manufactured is independent of soda ash. The compressed carbon dioxide so produced does not lose its identity of being compressed carbon dioxide. Pure compressed carbon dioxide is isolated from the admixture of gases in the carbonating tower where chemical reaction takes place and is used in the manufacture of soda ash. According to the <ORG> the processes employed by the appellant companies and by <ORG> thus involve produc- tion of compressed carbon dioxide which is amenable to excise duty.

Item 14-H of Sch. I reads as follows "14-H. Compressed, liquefied or solidified gases, the following

(iv) Carbon acid Fifty per cent Fifty per cent (carbon dioxide) ad valorem By a notification dated March 2, 1963 issued under r. 8 (1 ) of the Central Excises Rules, 1944 <ORG> exempted as from April 24, 1962 carbonic acid utilised in manufacture of sugar within the factory of production for clarifying and bleachin sugarcane juice or syrup from so much of the excess of Rs. 25/- per metric tonne. The contentions raised on behalf of the appellant companies and <ORG> may be summarised as follows :- (1) that the lime kiln is maintained to generate a mixture of gases and not carbon dioxide; 4Sup.C.I./168-3 (2) that at no stage in the process of generating this mixture and sucking it into the sugarcane juice for refining, carbon dioxide which forms one of the contents of the said mixture is either compressed, liquidified or solidified;

(3) that the mixture of gases so generated is not carbon dioxide as known to the market;

(4) that according to the specifications laid down by <ORG> carbon dioxide content has to be at least 99%;

(5) that the mixture of gases so generated has no other use except for processing sugarcane juice;

(6) that the said mixture is neither sold nor is marketable nor known to the trade;

(7) that the excise duty sought to be recovered on the con- tent of carbon dioxide in the said mixture of gases cannot fall under Item 14-H;

(8) that these concerns are not manufacturers of carbon dioxide as carbon dioxide is not separated from the said mixture of gases by any process nor is the carbon dioxide content in the said mixture compressed, liquefied or solidified;

(9) that the mere fact that the said mixture of gases is passed through a conduit pipe by a process of suction cannot mean that carbon dioxide becomes compressed carbon dioxide at that or any other stage;

(10) that the term "compressed" in Item 14-H contemplates the form in which the article sought to be levied is manufactured. There is no separation of carbon dioxide from the said mixture at any stage nor is it compressed or stored as carbon dioxide in cylinders; and lastly (11) that the duty being, on goods it can be charged only on goods known as carbon dioxide in the trade and marketable as such.

The contentions of the <ORG>, on the other hand, were (1) that the mixture of gases generated as aforesaid is nothing but impure carbon dioxide in the sense that during the process of burning limestone with coke a small quantity of carbon monoxide is released by the burning of coke, the other gases in the mixture being nitrogen and oxygen derived from the' air which is let into the kiln to aid combustion;

(2) that these concerns require carbon dioxide for refining sugarcane juice and manufacture it out of limestone and coke. The other gases which get mixed up are unavoidable on account of the process employed by them;

(3) that these extraneous gases can be separated and the manufacturers would separate them if what they require is pure carbon dioxide. They do not do so because carbon dioxide mixed with other gases produces the same effect in the process of refining as without them;

(4) that the fact that in the process Of its manufacture carbon dioxide gets mixed up with other gases does not mean that carbon dioxide which is intended to be and is in fact produced loses its characteristics as such. The gas thus produced contains 30 to 35% carbon dioxide; (5) that the specifications laid down by <ORG> are not relevant as they are for cylindered carbon dioxide bought and sold in the market as pure carbon dioxide;

(6) that carbon dioxide produced by these concerns can be sold in the condition in which it is produced and used by other sugar mills and by factories manufacturing soda ash by solvay process.

In support of their contentions the appellant companies as also <ORG> relied on the specifications laid down by <ORG> and the several affidavits made by concerns using carbon dioxide for the manufacture of their respective goods. As most of them are identical, it is sufficient to take the affidavit of one <NAME> as typical. The deponent there asserts that the company of which he is the senior chemist uses carbon dioxide in considerable quantity in manufacturing aerated waters, that carbon dioxide so used contains 99.5% of pure carbon dioxide, that compressed liquidified or solidified carbon dioxide as known to the trade or sold in the market contains a minimum of 99% carbon dioxide conforming to the specifications of <ORG>, that such carbon dioxide is contained in steel cylinders under a pressure of minimum of 1000 lbs. per sq. inch and that kiln or calciner gas is not known to the trade as carbon dioxide nor is it marketed as such. Dr. <NAME> whose affidavit was produced by <ORG> states that for the purpose of manufacturing carbon dioxide an elaborate plant shown in the annexure to his affidavit would have to be set up separate from the plant and equipment used in the manufacture of soda ash and refutes the statement of the said <ORG> that compressed carbon dioxide is forced through at a pressure of 40 to 45 lbs. per sq. inch or that at the bottom of the said carbonating tower pure compressed carbon dioxide is or can be isolated from the mixture of gases in that tower where chemical reaction takes place. He also refutes the statement that the process of generating kiln gas is independent of the manufacture of soda ash and states that the process of manufacture of soda ash is a continuous and integrated process wherein a certain quantity of kiln gas is released which is directly utilised without removal or storage in the manufacture of soda ash. According to him, kiln gas released during the manufacture of soda ash is never known as carbon dioxide in the market. To, obtain marketable carbon dioxide from kiln gas an elaborate plant would be required for separation and purification and it is such carbon dioxide which becomes marketable after it is compressed at a pressure of 1000 to 1800 lbs. per sq. inch in cylinders of the specifications laid down by <ORG> under Rule II of the Gas Cylinder Rules, 1940.

Notwithstanding the divergence of opinion between the two experts one thing is clear and that is that in the case of both sugar and soda ash the manufacturer does require carbon dioxide for the purpose of producing the two articles and sets up lime kiln for that purpose. The question is whether what he actually produces by combusting limestone with coke is carbon dioxide and if so whetheris compressed carbon dioxide as contemplated by Item 14-H.

In the Courseof their arguments counsel referred to certain works on Chemistry in general and sugarcane industry in particular. There are observations in some of them which. might throw some light on the question before us. The Handbook of Cane Sugar Engineering by <NAME> (1960 ed.) at pp. 286 to 289 states that carbon dioxide necessary for the carbonation process is produced at the same time as lime in a lime kiln adjacent to the sugar factory. The combustion of limestone with coke produces kiln gases consisting of carbon dioxide, carbon monoxide, oxygen, nitrogen and a certain amount of moisture. The proportion of carbon dioxide in these kiln gases varies from 25 to 33% averaging about 30%. The carbon dioxide leaving the washer is at a temperature of 60'C. Its pressure at the suction of the pump varies from 1.6 to 5 in of mercury and the delivery pressure varies from 4 to 10 lbs. per sq. inch. It is also stated that the,pumps known as Co2 pumps are fully analogous to air pumps. (see also Cane Sugar' Handbook by <NAME> and <NAME>, p. 138). The carbonation process according to <NAME> is one of the cheapest, cleanest *id most reliable process in the sugarcane industry ensuring standard quality of sugar. <ORG>, (6th ed.) p. 415 in the chapter dealing with "Alkali and Chlorine production" states thus "The kilns used in the process are built and operated with special precautions to produce as high a concentration of Co., as possible. In practice 41 to 43 per cent of Co2 is.

obtained in kiln gases with very little Co or 02, the rest of the gas being N15/2."

At pp. 415 to 417 of the said work, the Solvay process is described in the same terms as in the affidavit in support of the, petition of <ORG> <NAME> in his General Chemistry (4th ed.), p. 470 states that commercial carbon dioxide can be obtained as a bye-product of certain industries, e.g., flue gases R. <NAME> in his Chemical Process Industries, (3rd ed.) states that there are three important processes for commercial production of carbon dioxide, viz., flue gases by burning carbonacious material, bye-product from fermentation industries through dextrose breakdown into, alcohol and carbon dioxide and bye- product of lime kiln operation. He also states that an absorption system is used for concentrating C02 gas obtained from sources 1 and 3 to over 99%, and that in all cases the almost pure carbon dioxide must be given various chemical treatments for the removal of minor impurities which contaminate the gas. Similarly, <NAME> in the Encyclopedia of Chemical Technology, (2nd ed.) Vol. 1, p. 722 observe as follows :--

"The carbon dioxide evolved consists of both that generated by the decomposing limestone and' that resulting from combustion of the carbon in the coke. The kiln gases are considerably diluted with nitrogen from the air used to burn the coke; they usually con- tain 37% to 42% carbon dioxide together with stone dust, coke ash, particles and gaseous impurities. The gas is cooled to some extent in the kiln itself by the upper layers of stone; it is further cooled and purified in water scrubbers until it is absolutely free from dust and tarry matters, and then, in the more modern plants which make a very pure soda ash, the gas is finally purified electrostatically."

<NAME> and <NAME>, in their Condensed Chemical Dic- tionary, (7th ed.) p. 178 divide commercial carbon dioxide into two grades, both of them having at least 99% carbon dioxide. Such carbon dioxide when solidified is packed in 50 lbs. blocks 'in insulated boxes and is at a temperature of 109' below zero. When liquified it is packed in steel cylinders. The uses of solidified or liquefied carbon dioxide are refrigeration of foods, carbonated beverages, industrial refrigeration, fire extinguishers, welding etc. These extracts show that commercial carbon dioxide as brought to the market for being bought or sold and used for the purposes enumerated above has content of at least 99% of carbon dioxide and is either compressed and packed in steel cylinders or liquefied or solidified.

As the <ORG> argued these concerns undoubtedly require carbon dioxide in the processes employed by them while manu- facturing sugar and soda ash and to meet, their requirement they have set up lime kilns by which they produce kiln gas which includes carbon dioxide to the extent of about 30 to 35%, which they in fact use after compressing it through a pump or otherwise, at one stage or the other in their manufacturing processes. Nonetheless, is it possible to say that the lime kilns set up for the aforesaid purpose produce carbon dioxide and even if it be so, that at one stage or the other, through the pump or otherwise, the carbon dioxide so produced becomes compressed carbon dioxide as envisaged by the legislature when it decided to introduce Item 14-H in the First Schedule ? It cannot be gain said that by burning limestone with coke in the kiln the manufacturer actually produces kiln gas of which one of the constituents undoubtedly is carbon dioxide and which he utilises while producing his ultimate excisable goods. But if it is possible to say that what he produces is carbon dioxide during the process which Mr. <NAME> termed as an integrated and continuous manufacturing process or separately as the <ORG> insisted, it is equally possible to say that the combustion of limestone with coke results in the manufacture of nitrogen, whose content in the kiln gas is about 53%. As the text-books produced before us and the affidavits show, the correct picture is that what is produced is kiln gas which consists of several gases, viz., carbon dioxide, carbon monoxide, oxygen and nitrogen, the last one being in a larger quantity than carbon dioxide. The mixture of gases so generated is known as kiln gas in the trade, i.e. to those who manufacture sugar and soda ash. The affidavits of concerns which use carbon dioxide definitely assert that kiln gas is never known in the market as carbon dioxide nor is it a marketable article in the sense that it is loose and is not transportable nor is it brought to the market for being bought and sold unless carbon dioxide is extracted out of it. Such extraction requires an elaborate plant. After extraction it would have to be compressed in cylinders of certain specifications or liquefied or solidified before it can become a marketable article.

It is true as the <ORG> contended that the gas produce through the kiln can be made marketable in the sense that it car be sold in the very same condition in which it is produced to concerns interested in the carbonation process through" for example, pipes. But, apart from such a method of disposal being uneconomic and hardly likely to be employed by the trade, though it is possible in theory, what would be transported is that which is produced through the kiln, viz., the kiln gas containing among other things a certain quantity of carbon dioxide. As one of the text-books points out carbonation process is employed by manufacturers of sugar because it is one of the cheapest methods to ensure production of sugar of standard quality. The fact is that in employing carbonation process the manufacturer who requires carbon dioxide produces kiln gas and as that mixture of gases contains carbon dioxide he pumps through a pipe that mixture of gases and not carbon dioxide alone ex- tracted from it. Therefore, in truth and in fact what he uses is the kiln gas produced by him in the lime kiln. Even assuming that this gas is compressed either through a narrow pipe what is compressed is the kiln gas and it is that kiln gas containing no doubt a certain percentage of carbon dioxide which is inducted in the sugarcane juice for refining. The same must also be said of the solvay process used in the production of soda ash though in that case the percentage of carbon dioxide is larger than in the case of refining sugarcane juice.

The Act charges duty on manufacture of goods. The word "manufacture" implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use. The duty is levied on goods. As the Act does not define goods, the legislature must be taken ,to have used that word in its ordinary, dictionary meaning. The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market. That it would be such an article which would attract the Act was brought out in <CITATION> .(1) The contention there was that in the course of manufacture of vanaspati, a vegetable product from groundnut and til oil, the respondents brought into existence at an intermediate stage of manufacturing refined oil which fell within the description of "vegetable nonessential oil, all sorts," in Item 23 of the First Schedule. The contention would seem to assume that the goods subjected to duty must be goods known as such in the market. The contention was that the respondents, after they bought raw oil with all its impurities, manufactured, by application of certain processes of refinement, refined oil which was the same as refined Oil available in the market and that it was "refined oil" which became after further processes the ultimate, vegetable product. It was argued that the fact that the vegetable product was the ultimate (1)  Supp. 1 S.C.R. 586.

product and was chargeable to duty did not alter the position that at an earlier stage, the respondents manufactured "refined oil" as known to the market and that the fact that they did not put this "refined oil" in the market but used it to produce the finished product did not affect their liability. This Court held that if a new substance was brought into existence from raw materials and that substance was the same as "refined oil" as known to the market it would be subject to duty. The question, therefore, was, was the substance sought to be charged "refined oil" known to the market ? The affidavits showed- that deodorization was necessary before the product could be called "refined oil". It was not in dispute that that process was employed after hydrogenation and not at the stage when what was called "refined oil" came into existence at an intermediate stage. No evidence was produced by <ORG> of refined oil being brought to the market without deodorization. It was held that raw oil purchased by the respondents for the purpose of manufacturing vanaspati did not become at any stage "refined oil" as known to the consumers and the commercial community.

The affidavits filed in the instant cases and the scientific works referred to above show that the mixture of gases produced from the kiln is known both in trade and in science as kiln gas and not as carbon dioxide. 'The <ORG> has not produced any affidavit of persons dealing in carbon dioxide to show that kiln .gas is known to the market as carbon dioxide. The aforesaid affidavits show that carbon dioxide known to and brought in the market for being bought and sold for its diverse uses is carbon dioxide compressed, liquefied or solidified as Item 14-H describes it. The analogy given by the learned Attorney-General of a manufacturer of cotton cloth also producing at an intermediate stage cotton yarn and such cotton yarn being liable to excise duty would not help the <ORG> as cotton yarn obtained by such a manufac- turer is known as such in the commercial community and brought to the market for being bought and sold. That cannot be said of kiln gas. If kiln gas were to be offered in discharge of a contract to supply carbon dioxide it would certainly be rejected on the ground that it is no+, carbon dioxide but is kiln gas. It is also not correct to say that because the sugar manufacturer wants carbon dioxide for carbonation purpose and sets up a kiln for it that he produces carbon dioxide and not kiln gas. In fact what he produces is a mixture known both to trade and,, science as kiln gas, one of the constituents of which is, no doubt, carbon dioxide. The kiln gas which is generated in these cases is admittedly never liquefied nor solidified and is therefore neither liquefied nor solidified carbon dioxide, assuming that it can be termed carbon dioxide. It cannot be called compressed carbon dioxide as understood in the market among those who deal in compressed carbon dioxide. Compressed carbon dioxide is understood generally as carbon dioxide compressed in cylinders with pressure ranging from 1000 to 1800 lbs. per sq. inch. The mere fact that at one stage or the other kiln gas is pressed at 40 to 45 lbs. per sq. inch by a pump or otherwise cannot mean that it is compressed carbon dioxide. At the same time the duty being on manufacture and not on sale the mere fact that kiln gas generated by these concerns is not actually sold would not make any difference if what they generate and use in their manufacturing processes is carbon dioxide. The fact that the gas so generated has carbon dioxide below 99% and does not conform to the specifications of <ORG> also would not matter for the gas may be sub-standard, provided what is produced is carbon dioxide.

In our view, the gas generated by these concerns is kiln gas and not carbon dioxide as known to the trade i.e., to those who deal in 'it or who use it. The kiln gas in question therefore is neither carbon dioxide nor compressed carbon dioxide known as such to the commercial community and therefore cannot attract Item 14-H in the First Schedule. In this view it is not necessary for us to consider certain other contentions raised by the appellants and the petitioners in the writ petition.

In the result, the appeals and the writ petition must allowed and the orders passed by <ORG> in the appeals must be set aside. We hold that the demand notices served on these concerns are illegal and must be quashed. The respondents in these appeals as also in the writ petition will pay costs to the appellants and the petitioner in the writ petition. The costs will be one hearing fee for the appeals and a separate set of costs in respect of the writ petition.

R.K.P.S. Appeals and Petition allowed.


<NAME>, J.

1. This is an appeal from a judgment of <ORG>, dated February 27, 1933, whereby the <ORG> answered adversely to the appellants two questions of law, which had been referred to the <ORG> by the Commissioner of Income-tax, Bombay Presidency, on his own motion, under Section 66 (1) of the Indian Income-tax Act (XI of 1922).

2. The appellants are a mutual life insurance company, whose head office is in Melbourne, Australia. They have branches all over the world, and in India they have two branches, one of which is in Bombay and the other in Calcutta. The questions of law arise out of a dispute as to the method of computation of the income, profits or gains of the appellant company in the business of its Indian branch offices for the purpose of its assessment to income-tax for the financial year ending on March 31, 1932.

3. The facts are set out in the letter of reference and may be summarised as follows :-The company is limited by guarantee and has no share capital, the liability of each member being limited to the nominal sum of £1. Every person who insures his life with the company under a participating policy is deemed to have agreed to become a member of the company. There are no shareholders and all the surplus profit is divided amongst the members, who are the persons who take out participating policies. The company also does business in annuities, loans on the security of policies, etc.

4. Under Article 85 of the articles of association a triennial actuarial valuation is made by the actuary of the company for all its business, and the surplus profit for the three years thus ascertained is distributed amongst the participating policy-holders. As originally framed, this article provided for a separate valuation for each branch or class of the company's business, but this has now been altered and only a consolidated valuation report is drawn up including all the company's business. The articles do not provide for a separate valuation of the business of branch offices, and it is not stated whether in fact such separate valuations have been made.

5. From the documents submitted along with the letter of reference it appears that approximately 98 per cent, of the company's total business is done with its members, the participating policy-holders. Before the Board, it was accepted throughout by both parties that the principles laid down in the English case of <ORG> v. <NAME> (1889) 14 App. Cas. 381 apply in India; this was decided by <ORG> in a case between the parties to this appeal, Commissioner of Income-tax, Bombay Presidency V. <ORG> (1931) I.L.R. 55 Bom. 637 : s.c. 33 Bom. L.R. 807, and, while not meaning thereby to imply any doubts, their Lordships need not and do not express any opinion on this matter.

6. The following are the material provisions of the Indian Income-tax Act , 1922, and the statutory rules made thereunder :-

3. Where any Act of <ORG> enacts that income-tax shall be , charged for any year at any rate or rates applicable to the total income of an assessee, tax at the rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of all income, profits and gains of the previous year of every individual, Hindu undivided family, company, firm and , other association of individuals.

4. (2) Save as hereinafter provided, this Act shall apply to all income, profits or gains, as described or comprised in section 6 , from whatever source derived, accruing or arising, or received in British India or deemed under the provisions of this Act to accrue, or arise, or to be received in British India.

(2) Profits and gains of a business accruing or arising without British India to a person resident in British India shall, if they are received in or brought into British India, be deemed to have accrued or arisen in British India and to be profits and gains of the year in which they are so received or brought, notwithstanding the fact that they did not so accrue or arise in that year, provided that they are so received or brought in within three years of the end of the year in which they accrued or arose.

10. (1) The tax shall be payable by an assessee under the head "Business" in respect of the profits or gains of any business carried on by him.

13. Income, profits and gains shall be computed, for the purposes of Sections 10 , 11 and 12 in accordance with the method of accounting regularly employed by the assessee : Provided that, if no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine.

22. (1) The principal officer of every company shall prepare, and, on or before the fifteenth day of June in each year, furnish to the Income-tax Officer a return, in the prescribed form and verified in the prescribed manner, of the total income of the company during the previous year : Provided that the Income-tax Officer may, in his discretion, extend the date for the delivery of the return in the case of any company or class of companies.

(4) The Income-tax Officer may serve on the principal officer of any company or on any person upon whom a notice has been served under sub-section (2) a notice requiring him, on a date to be therein specified, to produce, or cause to be produced, such accounts or documents as the Income-tax Officer may require : Provided that the Income-tax Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year.

23. (1) If the Income-tax Officer is satisfied that a return made under Section 22 is correct and complete, he shall assess the total income of the assessee, and shall determine the sum payable by him on the basis of such return.

(2) If the Income-tax Officer has reason to believe that a return made under Section 22 is incorrect or incomplete, he shall serve on the person who made the return a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officer's office or to produce, or to cause to be there produced, any evidence on which such person may rely in support of the return.

(3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, the Income-tax Officer, after hearing such evidence as such person may produce and such other evidence as the Income-tax Officer may require, j on specified points, shall, by an order in writing, assess the total income of the assessee, and determine the sum payable by him on the basis of such assessment.

(4) If the principal officer of any company or any other person fails to make a return under sub-section (1) or sub-section (2) of Section 22 , as the case may be, or fails to comply with all the terms of a notice issued under sub-section (4) of the same section or, having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of this section, the Income-tax Officer shall make the 1 assessment to the best of his judgment and, in the case of a registered firm, may cancel its registration.

Provided that the registration of a firm shall not be cancelled until fourteen days have elapsed from the issue of a notice by the Income-tax Officer to the firm intimating his intention to cancel its registration.

59. (1) <ORG> may, subject to the control of the Governor General in Council, make rules for carrying out the purposes of this Act and for the ascertainment and determination of any class of income. Such rules may be made for the whole of British India or for such part thereof as may be specified.

(2) Without-prejudice to the generality of the foregoing power, such rules may- (a) prescribe the manner in which, and the procedure by which, the income, profits and gains shall be arrived at in the case of:-

(ii) insurance companies;

(3) In cases coming under Clause (a) of sub-section (2), where the income, profits arid gains liable to tax cannot be definitely ascertained or can be ascertained only with an amount of trouble and expense to the assessee which, in the opinion of <ORG>, is unreasonable, the rules made under that sub-section may-

(a) prescribe methods by which an estimate of such income, profits and gains may be made, and

(b) in cases coming under sub-clause (i) of Clause (a) of sub-section (2), prescribe the proportion of the income which shall be deemed to be income, profits and gains liable to tax, and an assessment based on such estimate or proportion shall be deemed to be duly made in accordance with the provisions of this Act.

Rule 25. In the case of <ORG> incorporated in British India whose profits are periodically ascertained by actuarial valuation, the income, profits and gains of the Life Assurance Business shall be the average annual net profits disclosed by the last preceding valuation, provided that any deductions made from the gross income in arriving at the actuarial valuation which are not admissible for the purpose of income-tax assessment, and any Indian income-tax deducted from or paid on income derived from investments before such income is received, shall be added to the net profits disclosed by the valuation.

Rule 26. Rule 25 shall apply also to the determination of the income, profits and gains derived from the annuity and capital redemption business of life assurance companies, the profits of which can be ascertained from the results of an actuarial valuation Rule 27. If the Indian income-tax deducted from interest on the investments of a company exceeds the tax on the income, profits and gains thus calculated, a refund may be permitted of the amount by which the deduction from interest on investments exceeds the tax payable on such income, profits and gains.

Rule 35. The total income of the Indian branches of non-resident insurance companies (<ORG>, <ORG>, Fire, Accident, Burglary, <ORG>, etc.), in the absence of more reliable data, may be deemed to be the proportion of the total income, profits or gains, of the companies, corresponding to the proportion which their Indian premium income bears to their total premium income. On July 22, 1931, the appellant company made a return of its total income, 'E profits or gains from its business in India, based on the year ending September 30, 1930, as the year of account, at a sum of £3,241 14s. 8d. Along with the return a revenue account and balance sheet for that year was submitted. In the course of meetings with the Income-tax Officer, certain further information was submitted, which did not satisfy the latter, and, on December 1, 1931, he issued the assessment order which is now in question, " by which he computed the income, profits or gains of the Indian business under Rule 35 at the sum of £38,038, or Rs. 5,14,020. The company appealed against this assessment to the Assistant Commissioner of Income-tax, who confirmed the assessment, and they then requested the Commissioner of Income-tax to refer the matter to <ORG> under Section 66(2) of the Act. The Commissioner took the view that the company's return had not been in the prescribed form, and that, accordingly they had failed to make a return, with the result that the assessment was made by the Income-tax Officer under Sub-section (4) of Section 23 , and the appeal to the Assistant Commissioner was incompetent. Accordingly, as the matter was of importance, he made the reference on his own motion under Section 66 (1). While the point does not directly concern the questions of law referred, their Lordships feel some doubt as to the Commissioner's view that the company had failed to make a return within the meaning of Section 22 (4).

7. The two questions of law referred to the <ORG> are as follows :-

(1) Whether the Income-tax Officer, Companies Circle, Bombay, was justified in law in resorting to Rule 35 of the Income-tax Rules for the purpose of assessing the company to income-tax for the year 1931-32 having regard to the data furnished by it to that Officer.

(2) Whether the assessment of the company to income-tax for the year 1931-32 is a legal assessment and binding upon it in view of the opinion expressed by this Honourable Court in Civil Reference No. 5 of 1928.

The first question involves the appellant company's challenge of the Income-tax Officer's right to have recourse to rule 35, while the second question concerns the validity of his application of the rule.

8. The Income-tax Officer is only authorised to have recourse to the method of computation provided by Rule 35 " in the absence of more reliable data ". In the opinion of their Lordships, this requires (a) a scrutiny of the data which in fact had been made available to the Income-tax Officer, irrespective of any question as to the validity or correctness of the return made under Section 22 (1), and (ft) a consideration of the reliability of those data for the purpose of a proper computation of the income, profits or gains of the company in accordance with Section 13 of the Act.

9. The appellant company maintains that the Income-tax Officer had more reliable data available (1) in the return made by the company and the revenue account and balance sheet of the Indian business which accompanied it, or, if that view was unsound, (2) in the said documents, supplemented by the triennial valuation report of the whole business for the triennial period ending on September 30, 1928, and the balance sheet and revenue account of the entire business for the year ended September 30, 1930, in both of which the average rate of interest earned by the invested funds of the company appears.

10. The method of computation under these contentions was as follows :- Under (1) the total premium income of the Indian business from non-participating policy-holders amounting to £90 for the year of account, and interest on investments in India and fees received in India to the amount of £3,151, making a total income of £3,241, no claim in fact being made for deduction of the small proportion of the expenses referable to that part of the business. Under (2) it was proposed to add a sum to represent what might be called the share of the Indian business in the interest earned by the total investments of the company held in Australia, by taking the proportion of that interest arrived at on the ratio borne by the total amount of the transfers from the Indian branches to the head office from their inception, shown in the revenue account and balance sheet of the Indian business as at September 30, 1930, to the total of the company's investments at the same date in the company's balance sheet and revenue account, the interest being calculated at the average rate above mentioned.

11. The view taken by the Income-tax Officer, which was concurred in by the Assistant Commissioner, and is maintained in this case, was that in the case of a life insurance company, the only reliable data to arrive at its profits was by a valuation report, and he asked for a separate valuation report of the Indian business for a triennial period. The company declined to give this, but offered-though stating that they were under no obligation to do so-to send him a separate valuation of their Indian business as at September 30, 1930. A single valuation report as at the end of the year of account would obviously not have been sufficient for the ascertainment of profits; it would be necessary to have a valuation as at the terminus a quo, and this would be afforded either by a valuation as at September 30, 1929, or, in accordance with the practice of the company, a valuation for a triennial period, under which the ascertained profit might be divided equally between the three years. If a valuation report as at September 30, 1930, can be compiled, there can be no obstacle, as counsel for the company admitted, to the compilation of a similar valuation report as at an earlier date. A valuation report over a triennial period is clearly the more convenient course.

12. While <NAME> CJ. expressed himself as inclined to accept the contentions of the appellants as above stated, both the learned Judges decided the case adversely to the appellants on an argument submitted to them for the first time by the Advocate General that income earned in Australia on monies remitted by the Indian branches and invested in Australia was liable to tax under Section 42 of the Act. In their Lordships' opinion, any claim as to liability to tax under Section 42 is a matter outside the letter of reference and is irrelevant to the questions submitted. It is an altogether different matter that, in making a valuation of the Indian business, it is necessary to consider the reserves held against the liability on the Indian policies, which in fact are held and invested by the head office. Their Lordships are not concerned in the present case with any possible liability of the company to tax under Section 42 , and they express no opinion on the matter.

13. In the opinion of their Lordships, the Income-tax Officer was entitled to take the view that the income, profits or gains of the Indian business could not properly be deduced from the data supplied by the company with the return. Only a small proportion of the premiums received could be said to represent income, profits or gains, and that would have to be taken on an 1 average basis, as there will be losses on individual policies. As regards the appellants' second contention, their Lordships are of opinion that the Income-tax Officer rightly took the view that the information submitted by the appellants did not afford more reliable data for computation of the income) profits or gains of the Indian business than the method prescribed by Rule 35, which is based on the total income, profits or gains of the company, the proportion attributable to the Indian business being calculated on the ratio of the Indian premium income to their total premium income. There can be no doubt that the total income, profits or gains of the company would fall to be computed on the basis of their triennial valuation reports, which, in their Lordships' opinion, is the most reliable method of computation in the case of a life insurance company. It is the method applied under Rule 25 in the case of companies incorporated in India. The amount of interest earned on investments, though it is an element in the ascertainment of the income, profits or gains, is not by itself a reliable datum for such ascertainment.

14. Their Lordships are therefore of opinion that the Income-tax Officer was justified in resorting to Rule 35.

15. Applying Rule 35, the Income-tax Officer assessed the company as follows :-

£ (1) Premiums of the company as a whole for the year ended September 30, 1930 .. 3,244,476 (2) Premiums of the company in British India for the same period .. .. .. 87,942 (3) Net assessable profit of the company as a whole based on a triennial investigations as at September 30, 1928 .. .. 1,405,027 Proportionately profit of British India 38,083 or, at 1s. 5 25|32d. = Rs. 5,14,020 As regards (1) and (2) if their Lordships assume without deciding that under Rule 35 in its application to the present case " premium income " should include the premiums received in respect of participating policies, it will still remain that as regards (3) the principle of <ORG>'s case (supra) has been altogether ignored.

16. The " total income, profits or gains, of the companies " referred to in Rule 35, is the income, profits or gains as they would be ascertained for the purposes of the Act.

17. In the assessment order the following attempt is made to meet this manifest objection-apparently by showing that the figure of £1,405,027 being less than the average receipts (excluding premiums) for a year is not excessive:-

According to the <ORG> decision the surplus profit arising out of contributions from the participating policy-holders is not liable to tax. From the valuation report of the company as a whole for the triennium ended 30|9|28, it will be seen that the income from sources other than participating and non-participating premiums is £4,404,140, i.e., average income for one year is £1,468,047 (about). The surplus for the year ended September 30, 1930, based on the above said triennial investigations as intimated is £1,405,027 which is less than the average income of £1,468,047. For the purposes of assessment, it is regarded that the expenditure incurred by the company is first set off against the participating and non-participating premium income and the balance of expenditure against income from other ] sources. Thus the surplus is regarded as wholly out of income from other sources liable to tax.

18. This argument cannot be accepted : indeed it is quite inconsistent with the reasons for rejection of the appellants' two contentions on the first question. The Income-tax Officer has entirely ignored the non-participating premiums received, and, on the other hand, has included the whole amount of consideration received in respect of annuities. Further, he has deducted nothing in respect of the liabilities of the company, or for the expenses relative to the non-participating business. It is impossible to regard this figure as a proper ascertainment of the income, profits or gains of the company.

19. Their Lordships are therefore of opinion that the assessment was not a valid or legal assessment under Rule 35.

20. Their Lordships, accordingly, are of opinion that the first question in the letter of reference should be answered in the affirmative, and that the second question should be answered in the negative. They will humbly advise His Majesty that the appeal should be allowed, that the judgment of <ORG> should be set aside and that the questions should be answered as above stated. The respondent will pay to the appellants their costs of this appeal and in the <ORG> in India.


ORDER <NAME>, Member (T)

1. This appeal is directed against the order dated 31-5-1988 passed by the Additional Collector of <ORG>, Mangalore by which he had ordered assessment of the second hand stone edge cutting machine imported by the appellants herein for purposes of assessment of <ORG> duty at enhanced value under Section 14(1)(b) of the <ORG> Act, 1962 and also further held that the import against the licence produced was unauthorised, ordering confiscation of the goods imported under Section 111(d) and 111(m) of the <ORG> Act, 1962 levying a fine in lieu of confiscation of Rs. 1,00,000/-. A penalty of Rs. 25,000/- was also imposed on the appellants under Section 112 of the <ORG> Act, 1962. The facts in brief are that the appellants imported in September, 1987, one unit second hand stone edge cutting machine for which they declared CIF value of Rs. 35,000/- and also produced a <ORG> Clearance Permit over the same amount. They also made a further declaration that the machine had been supplied to them from Japan for use by the appellants and the granite stones after edge cutting and sculpturing were to be exported to Japan to the very same suppliers of the second hand machine to the appellants. The appellants were doing the job work for the foreign suppliers of the machine. The department, however, found on enquiry with regard to the valuation of similar machines from Japan that the price for similar goods were for Japan 9,108,000/-. The department also considered that the transaction for the import of the machine by the appellants was not at arm's length and held the suppliers of the appellants to be related persons. The department thereafter added the value of certain accessories giving depreciation @ 4% per quarter for the first year, 3% per quarter for the second year, 2.5% per quarter for the third year and 2% per quarter for subsequent years. The price of the machine imported was determined in this manner by the department as Rs. 4,07,873/- but they found that the appellants had declared only Rs. 35,165/- in the Bill of Entry. Therefore, there was a differential value of Rs. 3,72,873/- indicating undervaluation. Proceedings were instituted for such under-valuation and mis-declaration against the appellants which resulted in the impugned order of the Additional Collector, against which the present appeal has been filed.

2. <NAME>, the learned counsel appeared for the appellants alongwith <NAME>, the learned counsel. He submitted that the department has gone wrong in comparing the second hand edge cutting machine imported by them with a circular saw machine with sophisticated electric control system produced by a different manufacturer of Japan. He also questioned the mode of allowing depreciation. He further pointed out that no expert opinion of any technician has been obtained to say that the machines whose values have been by the department have, in fact, comparable. He further submitted that the appellants have furnished evidence of the first sale of the machine by the original manufacturer to a stone factory in Japan and also documentary evidence of the purchase of this second hand machine by the present suppliers, namely, <ORG>, Japan. They had further furnished a Chartered Engineer's certificate certifying the re-conditioning of the machine and giving its CIF value if imported new. The learned counsel further contended that the department had ignored the evidence of the amount of freight paid in the Bill of Lading while determining the assessable value. In fact, this amount has been recognised in the Show Cause Notice and yet the impugned order adopts a total different amount, which is illegal. The learned counsel further submitted that the suppliers of the machine were a famous temple authorities in Japan and there were no mala fides in the import of the machine by the appellants because the temple authorities have made it abundantly clear that they are supplying the machine for purposes of expediting the work of supplying and exporting to Japan the carved and sculptural granite articles for installation at the temple.

3. <NAME>, the learned SDR appearing for the department contended that at the time of original assessment, the invoice was not made available and even accepting that it was genuine, there is nothing to definitely link the particulars found in the invoice with the machine importer. The Chartered Engineer Certificate also, while giving the condition of the machine, does not reveal any ground as to how he could certify the value of a new machine. It was also an admitted fact that the machine was being supplied to the appellants by the Japan supplier on special consideration and hence, the lower value declared for the machine was deliberate. The learned SDR also contended that the comparison of the value was rightly made with machines having similar functional design and was, therefore, valid. In reply, the learned counsel pointed out that the genuineness of the invoice was never questioned by the department. The learned counsel further referred to the affidavit of the Priest of the temple and submitted further that all particulars have been disclosed by them to the licensing authorities while obtaining the Customs Clearance Permit.

4. We have carefully considered the submissions made by both the sides. The machine imported in this case is admittedly second hand reconditioned one. The appellants produced the invoice for it in which it had been described as 1979 Model second hand stone edge cutting machine with 10" Diamond saw, one 10 H.P. motor, and two 1 H.P. motors, main spindle, pushing car with moving table, rail with base, speed charging equipment with accessories with repairing equipment and tools and the CIF value as Rs. 35,000/-. The appellants claim is that the machine is a gift from <ORG>, Japan to them and that the temple had gifted it in order to facilitate expeditious execution of the work of supply of carved and sculptural granite articles to the temple by the appellants and that it is that value that they had furnished to the import licensing authorities who had granted them the <ORG> Clearance Permit accordingly for the same value. They further urge that the relationship between the appellants and the donor was also indicated as of manufacturer and exporter and buyer of the appellant's goods as also the object of the donation of the machine. Hence they want the invoice value to be accepted for assessment of duty Section 14(1) of the <ORG> Act, 1962 also as there is no doubt about the genuineness of the transaction. However, we find that the genuineness of the transaction by itself is not sufficient for acceptance of the invoice value for purposes of Section 14 of the <ORG> Act, 1962 as the value under the section is a deemed value being the price at which such or like goods are ordinarily sold or offered for sale for delivery at the time and place of importation. It is with reference to the criteria in the Section as above that assessable value has to be determined. Hence the submission in this regard is unacceptable. The department has, on the other hand, sought to determine the value of the machine on the basis of Section 14(1)(b) as they found provisions of 14(1)(a) inapplicable to <ORG> Valuation Rules, 1963 under Rule 8 (latest judgement) and had taken the value of a grinding and circular saw machine Type GCR from Japan when imported as new and with due adjustment towards depreciation. We have to examine the question whether this machine is comparable with the one imported by the appellants, for it is seen that even for determination of value under Rule 3 of Valuation Rules, it is necessary to eliminate any arbitrariness. We find that the machine imported is described as stone edge cutting machine whereas the machine considered by the department is a grinding and circular saw machine which seems to be a combination machine and in the supplier's quotation for it available on record, it is supplied with 16" gear type grinding wheel for granite as well as 12" diamond blade for vertical; the diamond blade capacity of the imported machine is less at 10" and there is no indication that it is fitted with grinding wheel also. The two machines are not from the same manufacturer. And the fact also remains that the machine imported is of 1979 vintage whereas the machine considered by the department for comparison is more modern and sophisticated. Hence, we are of the view that the machines are not comparable even though both may have central control panel as stated in the order-inoriginal. On the other hand, it is seen that there are on record copies of invoice dated 25-9-1979 from <ORG> <ORG>, Japan issued to <ORG> selling one set of edge cutting machine for Japan Yen 25,00,000/-; copy of the certificate for manufacture and price confirming the above sale issued by the manufacturer <ORG> <ORG>; copy of the invoice dated April 1985 from <ORG> Matsuara to <ORG> showing resale at Japan Yen 500,000/- along with receipt for the amount dated 15-4-1985; copy of a certificate dated 10-11-1985 given by a Japanese Government approved Chartered Engineer which certifies that the machine manufactured in 1979 had been reconditioned at a cost of U.S. $ 300, has a residual life of 10 years and would be worth Rs. 1 lakh CIF in India if purchased new. There is also on record an affidavit by the Superintendent Priest of the donor <ORG> sworn on 10-11-1985 in Japan to the effect that the cost of the machine is U.S. $ 3180 in Japan. There is nothing on record questioning the authenticity of these documents. Therefore, we find that in respect of the value of the machine besides the value declared in the Bill of Entry, there are two other indications of value produced by the appellants themselves, namely, the value as certified by the Chartered Engineer, and also the value as sworn by the Superintendent Priest of the temple in this affidavit. In such a situation we observe the case of the appellants is parallel to the case decided by this <ORG> reported in 1988 (35) E.L.T. 386 (<ORG>) in the case of <CITATION> . In that case valuation of imported second hand computer against a <ORG> Clearance Permit was in dispute where the adjudicating authority had enhanced the declared value. The appellant therein had purchased in 1985 second hand computer of 1979 manufacture and after hot staging and testing it the Chartered Engineer certified the residual life as 8-10 years and value in May 1985 as £ 20,000/-. There was also value as available in Blue Book Computer Price Guide July 1985. But the department had based its assessment on the value of a new computer as given in <ORG>, giving 10% annual depreciation for 3 years. On a detailed consideration of the evidence on record, the <ORG> held in that case that it would be reasonable to adopt the highest of the three prices to which the amount of freight and insurance was to be added. The <ORG> in that case further held that since no foreign exchange remittance was involved, and since no case of deliberate undervaluation of the goods was made out, confiscation of the goods and imposition of fine would not be justified. We find, in the present case also, the ratio of the above decision of the <ORG> can be applied and the highest out of the three values can be adopted, namely, the declared value of Rs. 35,000/-, the value of Rs. 1 lakh as certified by the Chartered Engineer; and the value of U.S. $ 3180 as sworn by the Superintendent Priest of the temple. To this highest of value the amount of freight and insurance have to be added. In regard to the freight and insurance amount the same should be taken as already indicated in the Show Cause Notice to the appellants. Similarly, as in above cited case, since there has been no foreign exchange remittance and no case of deliberate under-invoicing has been made out on the basis of the evidence on record, the confiscation of the goods is not justified and the order of confiscation and fine on the goods is set aside, as also the penalty on the appellants, in the absence of any proven mala fides on their part. In the result, we order valuation of the goods for purposes of <ORG> duty in accordance with the highest price as indicated above. The appeal is disposed of in the above terms.


PETITIONER: STATE OF KERALA & ORS. Vs. RESPONDENT: <NAME> & ANR. DATE OF JUDGMENT: 05/05/1997 BENCH: K. RAMASWAMY, D.P. WADHWA ACT: HEADNOTE: JUDGMENT:

O R D E R Leave granted.

This appeal by special leave arises from the judgment of the Division Bench of <ORG>, made on July 24,1991 Writ Appeal No.86 of 1990.

The admitted position is that an extent of 1.94 acres of land was acquired way back in 1952 for construction of national highway. The construction was completed in 1955. out of the extent of 1.94 acres, 80 cents of land were used and the balance land remained unused. When respondent No.1 had applied for sale of the property by dated December 21,1979, the property was sought to be sold to him at the same rate at which compensation was awarded under Section 11, that was interdicted by way of writ petitions. The sheet-anchor of the <ORG> to sustain the action is the executive order issued by the <ORG> for permission for alienation of the land. <ORG> has declared the executive action as invalid in the light of the Kerala Land Assignment Act, 1960 (Act 30 of 1960) (for short, the `Act'). The high court has pointed out that the assignment is in contravention of the Act. Thus, this appeal by special leave.

In view of admitted section that the land in question was acquired under the Land Acquisition Act , it stood vested in the State free from all encumbrances. The question emerges: whether the <ORG> can assign the land to the erstwhile owners? It is settled law that land is acquired for a public purpose was achieved, the rest of the land could be used for any other purpose. In case there is no other public purpose for which the land is needed, then instead of disposal by way of sale to the erstwhile owner, the land should be put to public auction and the amount Fetched in the public auction can be better utilised for the public purpose envisaged in the Directive Principles of Constitution. In the present case, what we find is that the executive order is not in consonance with the provision of the Act and is, therefore, invalid. under these circumstances, <ORG> is well justified in declaring the executive order as invalid. whatever assignment is made, should be for a public purpose. otherwise, the land of the <ORG> should be sold only through the public actions so that the public also gets benefited by getting higher value.

The appeal is accordingly dismissed. No costs.


PETITIONER: <NAME> Vs. RESPONDENT: GOVERNMENT OF INDIA & ANR. DATE OF JUDGMENT24/01/1984 BENCH: VENKATARAMIAH, E.S. (J) BENCH: VENKATARAMIAH, E.S. (J) MISRA, R.B. (J) CITATION: 1984 AIR 636 1984 SCR (2) 453 1984 SCC (2) 369 1984 SCALE (1)105 CITATOR INFO : R 1984 SC1110 (6) RF 1986 SC1626 (28) R 1986 SC1790 (12) F 1987 SC1833 (2) F 1990 SC1368 (28) R 1991 SC1310 (9) RF 1991 SC1490 (3) D 1992 SC2093 (17) ACT: Constitution of India- Art. 311 (2)- Applicability of. Protection under Art. 311 (2) available if the order of discharge is found to be by way of punishment. To see whether an order of discharge is by way of punishment. form of the order is not decisive. <ORG> must go behind the form and ascertain the true character of the order. HEADNOTE: The appellant who had been selected for appointment in <ORG> was undergoing training as probationer in <ORG>. On June 22, 1981 due to rain the appellant as well other probationers reached late by a few minutes at the changed venue for conducting P. T. For this delay explanation was called from all the probationers. In his explanation the appellant sincerely regretted the lapse. The appellant was considered to be one of the ring-leaders who was responsible for the delay. The Director of the Academy without holding an enquiry into the alleged misconduct recommended to the <ORG> that the appellant should be discharged from service. On the basis of that recommendation the <ORG> by its order dated November 9, 1981 discharged the appellant from service. The <ORG> rejected the appellant's representation against the order discharging him. The appellant challenged the validity of the order under Art. 226 of the Constitution. <ORG> dismissed the petition at the admission stage. Hence this appeal. The appellant contended that the order discharging him was in reality an order terminating his services on the ground of misconduct and as such could not have been passed without holding an enquiry as contemplated under Art. 311 (2) of the Constitution and the relevant rules governing such an enquiry. Allowing the appeal, ^ HELD: The impugned order of discharge is set aside. Where the form of the order is merely a camouflage for an order of dismissal for misconduct it is always open to the <ORG> before which the order is challenged to go behind the form and ascertain the true character of the order. If the <ORG> holds that the order though in the form is merely a determination of employment is in reality a cloak for an order of punishment, the <ORG> would not be debarred, merely because of the form of the order, in giving effect to the rights conferred by law upon the employee. [563 <CITATION> ,  S. C. R. 828; <CITATION> ,  1 S.C.R,. 814; State of Punjab & Anr. 454 v. Shri Sukh Raj Bahadur,  3 S.C.C. 603; <CITATION> ,  2 S. C. R. 191; R.S. Sial v. The State of U. P. & Ors.,  3 S. C. R. 754; <CITATION> ,  1 S. C. R. 462; and <CITATION> ,  2 S. C. R. 496; referred to. In the instant case, on going through the record and taking into account all the attendant circumstances the <ORG> is satisfied that the alleged act of misconduct on June 22, 1981 was the real foundation for the action taken against the appellant and that the other instances stated in the course of the counter affidavit are mere allegations which are put forward only for purposes of strengthening the defence which is otherwise very weak. The case is one which attracted Article 311 (2) of the Constitution as the impugned order amounts to a termination of service by way of punishment and an enquiry should have been held in accordance with the said constitutional provision. That admittedly having not been done, the impugned order is liable to be struck down. [465 B-C] JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3040 of 1982, Appeal by Special leave from the Judgment and order dated the 30th August, '1982 of <ORG> in Writ Petition No, 1580 of 1982), <NAME> for the Appellant, <NAME> and <NAME> for the Respondent. The Judgment af the Court was delivered by : <NAME>, June 22, 1981 was really a bad day for the appellant <NAME> who having been selected by <ORG> for appointment in <ORG> was undergoing training as a probationer at <ORG>, Hyderabad along with other probationers. On that day all the probationers were expected to be present at 5,50 A.M. at the field where the ceremonial drill practice was to be conducted. Since it was raining at that time it appears that the venue was shifted to the Gymnasium Hall where it was proposed to, conduct P.T./unarmed combat practice and intimation was sent to the trainees at the Mess. When the Assistant Director (Outdoor Training) reached the Gymnasium at 5,50 A.M, none of the probationers had reached there. They all reached the place 22 minutes late i.e. by 6.15 A.M. when the rains had abated and the parade commenced at 6.15 A.M. It appears that earlier when a messenger sent by the Assistant Director had gone to call the probationers they had asked for a vehicle to go to the place as it was raining. This delay was considered as an incident which called for an enquiry. Explanation was called from all the probationers. The appellant was considered to be one of the ring leaders who was responsible for the delay. When the appellant was asked about the incident, he gave his explanation to the Director of <ORG> which read thus:

"To The Director, <ORG>, Hyderabad.

Dear Sir, In reply to your memo dated 22nd June, 1981 I humbly submit that as for my being late in P.T. by 10. mts., I sincerely regret the lapse . But the second charge that I instigated others, to do so is totally baseless and without a single iota of truth. I request you Sir to make a thorough enquiry into such an allegation. I never had nor have such plebian mentally. Thanking you, Yours sincerely, sd/-

<NAME>

It would appear that the Director without holding an enquiry into the alleged misconduct recommended to <ORG> that the appellant should be discharged from the service. On the basis of the above report, <ORG> passed the order of discharge dated November 5, 1981 and communicated it to the appellant. The material part of the order reads thus.

"No. 1-22011/9/81 Pers. III Government of India/Bharat Sarkar Ministry of Home Affairs/Grih Mantralaya New Delhi-110001, the 9 Nov. 1981 ORDER Whereas <ORG> is satisfied that <NAME>, appointed to <ORG> on pro-

bation on tho result of the Civil Service Examination held in the year 1979, is unsuitable for being a member of the said service, he is hereby discharged under clause (b) of Rule 12 of the Indian Police Service (Probation) Rules, 1954.

The order of discharge will take effect from the date of which it is served on the said <NAME>.

In the name of and on behalf of the President of India.

sd/-

(NARENDRA PRASAD) DIRECTOR"

On receipt of the above order of discharge, the appellant made a representation on November 14, 1981 to <ORG> to reconsider the matter. It appears that the Director of <ORG> on this occasion recommended that the appellant may be reinstated. That representation was rejected by <ORG> on April 8, 1982. Thereafter, he filed a petition under Article 226 of the Constitution before <ORG> contending that the order of discharge was violative of Article 311(2) and Article 14 of the Constitution. That, petition was dismissed by <ORG> at the stage of admission on August 30, 1982 after hearing the counsel for <ORG>. Against the judgment of <ORG>, the appellant has filed this appeal with special leave under Article 136 of the Constitution.

The main contention of the appellant before us is that the order discharging the petitioner though on the face of it appears to carry no stigma is in reality an order terminating his service on the ground of misconduct alleged to have been committed by him on June 22, 1981 in acting as one of the ring leaders who were responsible for the delay of about twenty-two minutes in the arrival of the probationers at the Gymnasium and that such an order could not have been passed without holding an enquiry as contemplated under Article 311(2) of the Constitution and the relevant rules governing such an enquiry. He has also contended that the order is based on conjunctures and surmises and by way of illustration he has referred us to paragraph 13 of the counter affidavit which reads thus:

"Para 13:

The petitioner did not conduct himself fully in accordance with the prescribed rules and regulations during his training period. On one occasion when he was sanctioned leave for 16 days in the month of May, 1981, he did not report himself for duty in time. He absented himself willfully on 1.6.1981 without applying for leave for the day. For this action, he was warned by the Director against recurrence of such conduct. The period of his willful absence for one day was treated as leave without pay. On two earlier occasions, the petitioner's conduct was found prejudicial to good order and discipline, on the first occasion he was verbally counselled by the Chief Drill Instructor and on the second occasion a Memo mas issued to him. There was no gradation maintained in the <ORG> about the attendance, in terms of which the petitioner had the record of being second (or may be third) highest in the <ORG>. However, this record in this respect was otherwise satisfactory." The reply of the appellant to the above allegation is found in paragraph 6 of the rejoinder affidavit filed by the appellant which reads.

"Re: Para 13: The avermentsma de in para 13 of the petition are reiterated and the contentions of the respondent to the contrary are denied as incorrect. It is reiterated that the petitioner conducted himself fully in accordance with rules and regulations. The allegation made by the respondent that I absented myself willfully on 1,6.1981 without applying for leave for the day is highly misleading. The correct fact is that I was sanctioned my Earned Leave on 15.5.81 for a period of 16 days, and I was to report back for duty on 1.6.81 before 12.00 noon. I made arrangement to reach Hyderabad before 8.00 a.m.. on 1.6.1981. However' on account of late running of train in which I was travelling and consequently missing the connecting train, I could reach Hyderabad only if, around noon and I report at 1,00 p.m. All these facts were duly explained to the Asstt. Director, <ORG>, and e permitted to attend the afternoon classes on 1.6.81 which I did. (However, at this suggestion, I applied for leave for the day and the leave was sanctioned without pay), It is incorrect to say that I was warned for this. All that the Director said was that on such situations, the proper course was to apply for a day's leave which I did as stated earlier. It is, therefore, very unreasonable to characterise the said incident as willful absence. The further allegation that on the earlier occasions, the petitioner's conduct was found prejudicial to good order and discipline, is very vague and without any particulars. Counselling by the Instructors concerned is a routine affair and, in fact, the, Instructors are meant to counsel. Even regarding the second occasion, when a memo was said to have issued, it is not stated as to what the offence was. It is significant to note that the respondent has not denied the allegation made by me that I was not the only one who received such memos and that without exception all the probationary officers had at some time or the other received such memos. I deny the rest of the allegations and reiterate the averments made in para 13 of the petition,"

The learned counsel for the parties have cited a number of decisions before us in support of their respective cases, on going through them we are of the view that there is not much divergence in them as to the true legal principles to be followed in matters of this nature but the real problem appears to be one of application of those principles in a given case in determining whether the particular action taken amounts to a punishment attracting Article 311(2) of the Constitution or a mere discharge simpliciter not requiring the holding of an enquiry as contemplated under Article 311(2). We shall now deal with two leading cases having a bearing or the question before us. In <NAME>. v. <ORG> this Court after an elaborate consideration of the relevant provisions of the Constitution and judicial decisions cited before them observed:

"The net result is that it is only in these cases there the Government intends to inflict those three forms of punishments that the Government servant must be given a reasonable opportunity of showing cause against the action proposed to he taken in regard to them. It follows, therefore, that if the termination of service is sought to be brought about otherwise than by way of punishment then the Government servant whose service is so terminate cannot claim the protection of Art. 311(2) and the decisions cited before us and referred to above, in so far as they lay down that principle, must be held to be rightly decided.

The foregoing conclusion, however, does not solve the entire problem, for it has yet to be ascertained as to when an order for the termination of service is inflicted as and by way of punishment and when it is not, ........

Where a person is appointed to a permanent post in a <ORG> service on probation, the termination of his service during or at the end of the period of probation will not ordinarily and by itself be a punishment, for the <ORG> servant, so appointed, has no right to continue to hold such a post any more than the servant employed on probation by a private employer is entitled to do. Such a termination does not operate as a forfeiture of any right of the servant to hold the post, for he has no such right and obviously cannot be a dismissal, removal or reduction in rank by way of punishment ................. It does not, however, follow that, except in the three cases mentioned above, in all other cases, termination of service of a <ORG> servant who has no right to his post, e.g,, where he was appointed to a post, temporary or permanent, either on probation or on an officiating basis and had not acquired a quasi- permanent status, the termination cannot in any circumstances, be a dismissal or removal from service by way of punishment, .............

In short, if the termination of service is founded on the right flowing from contract or the service rules then prima facie, the termination is not a punishment and carries with it no evil consequences and so Art. 311 is not attracted. But even if the Government has, by contract or under the rules, the right to terminate the employment without going through the procedure prescribed for inflicting the punishment of dismissal or removal or reduction in rank, the Government may, nevertheless, choose to punish the servant and if the termination of service is sought to be founded on misconduct, negligence, inefficiency or other disqualification, then it is a punishment and the requirements of Art. 311 must be complied with."

The case of <CITATION> decided by a Bench of seven Judges of this Court directly deals with the case of a probationer who is discharged from service without complying with Article 311(2) of the Constitution. In that case two Judicial Officers of <ORG> were involved. For purposes of the present appeal it is sufficient if we refer to the case pertaining to <NAME> who was at the material time serving as probationer in <ORG> (<ORG>). By an order dated December 15, 1969 his services were terminated, The said order did not contain any statement which would attach any stigma to the career of the officer concerned, It read as follows:

"On the recommendation of <ORG> and Haryana, the Governor of Punjab is pleased o dispense with the services of Shri <NAME>, P.C.S. (Judicial Branch), with immediate effect, under Rule 7(3) in Part 'D' of the Punjab Civil Services (Judicial Branch) Rules, 1951, as amended from time to time","

Rule 7(3) of the Punjab Civil service (Judicial Branch) Rules, 1951 relied on in the above order provided that on the completion of the period of probation of any member of the service, the Governor might on the recommendation of <ORG> confirm him in his appointment if he was working against a permanent vacancy, or if his were or conduct was reported by <ORG> to be unsatisfactory, dispense with his services or revert him to his former substantive post, if any, or extend his period of probation and thereafter pass such orders as he could have passed on the expiry of the first period of probation, In this case <NAME>, C.J. Observed in the course of his judgment-thus :

"No abstract proposition can be laid-down that where the services of a probationer are terminated 'without saying anything more in the order of termination than that the services are terminated it can never amount to a punishment in the facts and circumstances of the case. If a probationer is discharged on the ground of misconduct or inefficiency or for similar reason without a proper enquiry and without his getting a reasonable opportunity of showing cause against his discharge it may in a given case amount to removal from service within the meaning of Article 311(2) of the Con-

Before a probationer is confirmed the authority concerned, is under an obligation to consider whether the work of the probationer is satisfactory or whether he is suitable for the post, In the absence of any Rules governing a probationer in this respect. the authority may come to the conclusion that on account of inadequacy for the job for any temperamental or other object not involving moral turpitude the probationer is unsuitable for the job and hence must be discharged. No punishment is involved in this, The authority may in some cases be of the view that the conduct of the probationer may result in dismissal or removal on an inquiry. But in those cases the authority may not hold an inquiry and may simply discharge the. probationer with a view to giving him a chance to make good in other walks of life without a stigma at the time of termination of probation. If, on the other hand, the probationer is faced with an enquiry on charges of misconduct of inefficiency or corruption, and if his services are terminated without following the provisions of Article 311(2) he can claim protection."

Having said so, the learned Chief Justice proceeded to examine the facts of the case and found that an enquiry officer nominated by the Director of Vigilance had recorded statements of same Witnesses behind the back of the officer concerned in respect of certain allegations of misconduct and had on that basis made a report to <ORG> and that <ORG> had after accepting the said report, made a recommendation' to the Governor to the effect that the officer was not a suitable person to be retained in service. The order of termination was because of the recommendations in the report. The the learned Chief Justice observed.

"The order of termination of the services of <NAME> is clearly by way of punishment in the facts and circumstance of the case. <ORG> not only denied <NAME> the protection under Article 311 but also denied itself the dignified control over the subordinate judiciary. The form of the order is not decisive as to whether the order is by way of punishment. Even an innocuously worded order terminating the service may in the fact and circumstances of the case establish that an enquiry into allegations of serious and grave character of misconduct involving stigma has been made in infraction of the provision 311. In such a case the simplicity of the form of the order will not give any sancity. That is exactly what has happened in the case of <NAME>. The order of termination is illegal and must be set aside."

<NAME>, J. who agreed with the learned Chief Justice had at the end of this judgment this to say:

"Again, could it be that if you summarily pack off a probationer, the order is judicially unscrutable and immune ? If you conscientiously seek to satisfy yourself about allegations by some sort of enquiry you get caught in the coils of law, however harmlessly the order may be phrased ? And, so this sphinx-complex has had to give way in later cases. In some cases the rule of guidance has been stated to be 'the substance of the matter', and the 'foundation' of the order. . When does 'motive' trespass into 'foundation' ? When do we lift the veil of form to touch the 'substance' ? When the Court says so, These 'Freudian' frontiers obviously fail in the work-a-day world and Dr. <NAME>'s observations in this context are not without force. He says;

"As already explained, in a situation where the order of termination purports to be a mere order o f discharge without stating the stigmatizing results if the depart mental enquiry a search for the 'substance of the matter' will be indistinguishable from a search for the motive (real, unrevealed object) of the order. failure to appreciate this relationship between motive (the real, but unrevealed object) and from (the apparent, or officially revealed object) in the present context has led to an unreal interplay of words and phrases wherein symbols like 'motive', 'substance' 'form' or 'direct' parade in different combinations without communicating precise situations or entities in the world of facts." "

On behalf of <ORG> reliance has been placed on State of Punjab & Anr. v. Shri SukhRaj Bahadur, <CITATION> , <CITATION> .

<CITATION> . v. <CITATION> . We have gone through these decisions. Except the case of <NAME> supra) all other cases referred to above were decided prior to the decisions in <NAME> case (supra' which is a judgment delivered by a Bench of seven Judges. As pointed out by us in all these cases including the case of <NAME> (supra) the principle applied is the one enunciated by <NAME> case (supra) which we have referred to earlier. <ORG> is urged relying upon the observation in <NAME> case (supra) that it is only when there is a full scale Departmental enquiry envisaged by Article 311(2) of the Constitution i.e. an enquiry officer is appointed, a charge sheet submitted, explanation called for and considered, any termination made thereafter will, attract the operation of Article 311(2). It is significant that in the very same decision it is stated that the circumstances preceding or attendant on the order of termination of service have to be examined in each case, the motive behind it being immaterial. As observed by <NAME>, <NAME> in <NAME> case (supra) the form of the order is not decisive as to whether the order is by way of punishment and that even an innocuously worded order terminating the service may in the fact and circumstances of the case establish that an enquiry into allegations of serious and grave character of misconduct involving stigma has been made in infraction of the provision of Article. 311(2).

It is, therefore, now well settled that where the form of the order is merely a camouflage for an order of dismissal for misconduct it is always open to the <ORG> before which the order is challenged to go behind the form and ascertain the true character of the order. If the <ORG> holds that the order though in the form is merely a determination of employment is in reality a cloak for an order of punishment, the <ORG> would not be debarred, merely because of the form of the order, in giving effect to the rights conferred by law upon the employee.

In the instant case, the period of probation had not yet been over. The impugned order of discharge was passed in the middle of the probationary period. An explanation was called for from the appellant regarding the alleged act of indiscipline, namely, arriving late at the <ORG> acting as one of the ring leaders on the occasion and his explanation was obtained. Similar explanations were called for from other probationers and enquiries-were made behind the back of the appellant, only the case of the appellant was dealt with severely in the end. The cases of other probationers who were also considered to be ring leaders were not seriously taken note of. Even though the order of discharge may be non-committal, it cannot stand alone. Though the noting in the' file of the <ORG> may be irrelevant, the cause for the order cannot be ignored. The recommendation of the Director which is the basis or foundation for the order should be read along with the order for the purpose of determining its true character. If. On reading the two together the <ORG> reaches the conclusion that the alleged act of misconduct was the cause of the order and that but for that incident it would not have been passed then it is inevitable that the order of discharge should fall to the ground as the appellant has not been afforded a reasonable opportunity to defend himself as provided ill Article 311(2) of the Constitution.

<ORG> has placed before us all the relevant material including the recommendation of the Director of <ORG> that the appellant may be reinstated. In this case, as stated above, explanation was called for form the appellant and other probationers. Explanations were received and all the probationers including the appellant were individually interviewed in order to ascertain facts. Explanation submitted by him and the answers give by others had weighed with the Director before making the recommendation to <ORG> on the basis of which action was taken. The only ground which ultimately prevailed upon the Director was that the appellant had not shown any sign of repentance without informing him that his case would be dealt with leniently if he showed an sign of repentance. In fact in the very first reply he gave to the Director on being asked about the incident which took place on June 22 1981, the appellant stated I sincerely regret the lapse,' Neither in the letter which the Director first wrote to <ORG> nor in the counter affidavit filed in this <ORG>, due importance has been given to the said expression of regret and it is further seen that no additional lapse on the part of the appellant between June 22, 1981 and the date on which the Director wrote the letter to <ORG>, which would show that the appellant had not shown any sign of repentance is pointed out, although there is a reference to his reporting to duty late on an earlier date on June 1, 1981. On going through the above record before the <ORG> and taking into account all the attendant circumstances we are satisfied that the Director wished to make the case of the appellant an example for others including those other probationers who were similarly situated so that they may learn a lesson therefrom.

A narration of the facts of the case leaves no doubt that the alleged act of misconduct on June 22, 1981 was the real foundation for the action taken against the appellant and that the other instances stated in the course of the counter affidavit are mere allegations which are put forward' only for purposes of strengthening the defence which is otherwise very weak. The case is one which attracted Article 311(2) of the Constitution as the impugned order amounts to a termination of service by way of punishment and an enquiry should have been held in accordance with the said constitutional provision. hat admittedly having not been done, the impugned order is liable t be struck down. We accordingly set aside the judgment of <ORG> and the impugned order dated November 5, 1981 discharging the appellant from service. The appellant should now be reinstated in service with the same rank and seniority he was entitled to before the impugned order was passed as if it had not been passed at all. He is also entitled to all consequential benefits including the appropriate year of allotment and the arrears of salary and allowances upto the date of his reinstatement. The appeal is accordingly allowed.

The appellant had to face this case just at the commencement of his career. We have allowed his claim in the name of the Constitution. This should help him to regain his spirit and also encourage him to turn out to be a public servant in the true sense of that expression.

Having regard to the facts and circumstances of the case, we feel that the parties should be directed to bear their own costs.

H.S. K. Appeal allowed.