PETITIONER: <ORG>. Vs. RESPONDENT: STATE OF WEST BENGAL AND OTHERS DATE OF JUDGMENT12/05/1989 BENCH: <NAME>, R.S. (CJ) BENCH: <NAME>, R.S. (CJ) KANIA, M.H. CITATION: 1989 AIR 2015 1989 SCR (3) 293 1989 SCC (3) 211 JT 1989 (2) 571 1989 SCALE (1)1321 CITATOR INFO : D 1991 SC1676 (30) ACT: West Bengal Rural Employment and Production Act , 1976: ss. 4(2)(aa) & 4(4)--Rural employment cess--Levy of in respect of tea estates on despatches of tea grown therein--Constitutional validity of--Whether beyond legisla- tive competence. Constitution of India: Articles 301, 304(b) & Seventh Schedule List II Entry 49--West Bengal Rural Employment and Production Act , 1976--Whether constitutionally valid. Statutory Interpretation: True nature of legislation imposing levy--Determination of. HEADNOTE: Section 4(1) of the West Bengal Rural Employment. and Production Act , 1976 provided for levy of rural employment cess on immovable properties. Clause (aa) of s. 4(2) as amended by s. 7(b) of the West Bengal Taxation Laws (Amend- ment) Act, 1981 provided for levy of rural employment cess in respect of tea estates on the despatches of tea grown therein. The first proviso thereto provided for exclusion of despatches of tea for sale made at recognised centres. The second proviso thereto empowered <ORG> 10 fix different rates of cess on despatches of different classes of tea. Sub-section (4) of the amended s. 4 provided for exemption of certain categories of despatches from the liability to pay the whole or part of the cess or to reduce the rate of the cess payable thereon. The first proviso to s. 4(2)(aa) was. however, omitted by the West Bengal Taxa- tion Laws (Amendment) Act , 1982. Article 304(b) of the Constitution permits the legislature of a State to impose reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State provided the Bill or amendment for that purpose is introduced with the previous sanction of the President. It was contended for the petitioners that the levy of the cess under s. 4(1) read with s. 4(2)(aa) of the Act, as amended in 1981 and 1982. was violative of the freedom guaranteed by Article 301 of the Constitu- 294 tion and also lay outside the legislative competence of <ORG>. Allowing the writ petitions. HELD: 1.1 If the levy of a tax on goods has direct and immediate effect of impeding the movement of goods through- out the territory of India, there is a violation of Article 301 of the Constitution. If, however, the impact of the levy is indirect or remote, no valid complaint can be made in relation to Article 301. There is also no violation of Article 301 if the case fails under Article 304(b) and its proviso. [299F, 300D-E] 1.2 Therefore, if the legislature of a State enacts a law which imposes such reasonable restrictions on the free- dom of trade, commerce or intercourse with or within that State as may be required in the public interest and further that the Bill or amendment for the purposes of clause (b) has been introduced or moved in the <ORG> of a State with the previous sanction of the President, such enactment will not offend Article 301. The rural employment cess in the instant case was a tax. [300F, 299F] <CITATION> ..  1 S.C.R. 809; <CITATION> .,  1 S.C.R. 491; Firm A.T.B. Mehtab Majid and Company v. State of Madras & Anr.,  Suppl. 2 S.C.R. 435; <ORG> v. TIre State of Orissa & Ors.,  1 S.C.R. 865; <CITATION> ,  2 S.C.R. 361 and <ORG> etc. v. State of Andhra Pradesh & Ors.,  1 S.C.R. 705, referred to. 2.1 To determine whether the levy was in respect of tea estates, and, therefore, of land thus making an indirect impact or was a levy on despatches of tea thereby directly impeding movement of goods, the substance of the legislation must be ascertained from the relevant provisions of the statute. [301B] 2.2 The subject of the levy, the nature of which de- fines the quality of the levy, however, must not be confused with the measure of liability, that is to say, the quantum of the tax. Furthermore, the standards laid down for measur- ing the liability under the levy must bear a relationship to the nature of levy. [301B-C, 302D-E] 295 <CITATION> :

2.3 If the levy is regarded as one in respect of tea estates and the measure of the liability is defined in terms of the weight of tea despatched from the tea estate there must be a nexus between the two indicating a relationship between the levy on the tea estate and the criteria for determining the measure of liability. If there is no nexus at all it can conceivably be inferred that the levy is not what it purports to be. [301H, 302A] 2.4 In the instant case, the nexus with the tea estate is lost altogether in the provisions for exemption or reduc- tion of the levy and throughout the nexus is confined to despatches of tea rather than related to the tea estate. There is nothing to suggest that a particular tea estate produces only one class of tea, and when reference is made to a certain class of tea the reference identifies a certain class of tea estates. [302E-F] 2.5 While there must always be a nexus between the subject of the levy and the measure of the levy that nexus extends into different dimensions. Variations considered appropriate for the purpose of determining the measure must correspond to variations in the subject of the levy. If the measure of levy is to vary with the despatches of different classes of tea, there must be something in the class of tea concerned which points to a reason located in the particular tea estate or classes of tea estates which are made the subject of the levy. So also, if the measure varies with the centre of sale of tea, the variation must relate to a reason to be found in the nature of the tea estate concerned. Ultimately, the benefit of exemption or reduced levy must be related to the need for exempting the tea estate from that levy or relieving it from part of the normal levy. [302F, 303A] 2.6 In the instant case the relevant statutory provi- sions, including s. 4(2)(aa) and s. 4(4) , indicate no such relationship or nexus between the tea estate and the varied treatment accorded in respect of the despatch of different kinds of tea. The levy of rural employment cess was, there- fore, a levy in respect of despatches of tea and not in respect of tea estates. It must, thus, be regarded as con- stituting a direct and immediate restriction on the flow of trade and commerce in tea throughout the territory of India. [303B-C] 2.7 Such a levy could avoid the injunction declared in Article 301  only if it satisfied the provisions of Article 304(b) and the proviso thereto. The amendments made to the West Bengal Act in 1981 and 1982 had not been moved in <ORG> State with the previous sanction of the President. The provisions brought into the Act by the said amendments were, therefore, unconstitutional and void and could not be given effect to. [303C-D, F, G]

3. Under the Tea Act , 1953 <ORG> had assumed con- trol of the tea industry including the tea trade and control of tea prices. Under s. 25 of that Act a cess on tea pro- duced in India had also been imposed. The State legislation imposing a cess on despatches of tea was, therefore, also void for want of legislative competence as it pertained to a covered field. [304B]

4. The petitioners are entitled to the refund of cess paid by them. [304D] & CIVIL ORIGINAL JURISDICTION: Writ Petitions Nos. 2687, 5822 of 1983 etc. (Under Article 32 of the Constitution of India). Dr. <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME> and <NAME> for the petitioners. <NAME>, <NAME>, <NAME>, <NAME>, <NAME> and <NAME> for the respondents. The judgment of the Court was delivered by <NAME>, CJ. By these writ petitions and transferred cases the petitioners challenge the validity of the levy of cess in respect of tea estates under the West Bengal Rural Employment and Production Act , 1976.

The West Bengal Rural Employment and Production Act , 1976, (shortly referred to as the " West Bengal Act ") is intended to provide the additional resources for the promo- tion of employment in rural areas and for implementing rural production programmes. The additional resources are sought to be raised from two sources, a surcharge on land revenue under s. 3 of the Act and a rural employment cess under s. 4 of the Act. We are concerned here with the levy of the rural employment cess.

Originally s. 4 of the West Bengal Act provided as follows:

"4.(1) On and from the commencement of this Act, all immovable properties on which road and public work cesses are assessed according to the provisions of the Cess Act , 1880, shall be liable to the payment of rural employment cess:

Provided that no raiyat who is exempted from paying revenue in respect of his holding under clause (a) of subsection (1) of section 23B of the West Bengal Land Reforms Act, 1955, shall be liable to pay rural em- ployment cess.

(2) The rural employment cess shall be levied annually--

(a) in respect of lands, at the rate of six paise on each rupee of development value thereof;

(b) in respect of coal mines, at the rate of fifty paise on each tonne of coal on the annual dispatches therefrom;

(c) in respect of mines other than coal mines and quarries, at the rate of six paise on each rupee of annual net profits thereof."

The West Bengal Taxation Laws (Amendment) Act, 1982 amended the West Bengal Act and by s. 7(b) thereof amend- ments were made in s. 4(2) of the West Bengal Act with effect from 1 April, 1981. As a result, as from that date, s. 4(2) in so far as it is material read as follows:

4(2). The rural employment cess shall be levied annually--

(a) in respect of lands, other than a tea estate, at the rate of six paise on each rupee of development value thereof; (aa) in respect of a tea estate at such rate, not exceeding rupees six on each kilogram of tea on the dispatches from such tea estate of tea grown therein, as <ORG> may, by notification in <ORG>, fix in this behalf:

Provided that in calculating the dispatches of tea for the purpose of levy of rural employment cess, such dispatches for sale made at such tea auction centres as may be recognised by the State Government by notification in the Official Gazette shall be excluded.

Provided further that the State Government may fix different rates on des- patches of different classes of tea. Explanation--For the purpose of this section, "tea" means the plant Camellia Sinen- sis (L) O. Kuntze as well as all varieties of the product known commercially as tea made from the leaves of the plant Camellia Sinensis (L) O. Kuntze, including green tea and green tea leaves, processed or unprocessed;" Section 4 was also amended further by the insertion of sub-s. (4) which provided: "(4) The State Government may, if it considers necessary so to do, by notification in the Official Gazette, exempt such categories of despatches or such percentage of despatches from the liability to pay the whole or any part of the rural employment cess, or reduce the rate of the rural employment cess payable thereon, under clause (aa) of sub-section (2), on such terms and conditions as may be speci- fied in the notification.

Provided that <ORG> may, at any time, add to, amend, vary of rescind any such notification."

Thereafter the West Bengal Taxation Laws (Amendment) Act, 1982 was enacted with effect from 1 October, 1982. S. 4(2) of the West Bengal Act was amended and under clause (aa) thereof the first proviso was omitted.

Pursuant to the amendments in the West Bengal Act in 1981 and 1982, various notifications were issued by <ORG>, which for our purpose broadly cover these different periods:

(a) First Period: 1 April, 1981 to 30 Septem- ber, 1982--

Rural employment cess was levied at the rate of Rs.5 per Kg. on all despatches of tea, but in respect of despatches to two tea auction centres within West Bengal the rate of duty was nil, and in respect of tea sold in West Bengal through registered dealers otherwise than through the two tea auction centres the rate of tax was Rs.2.50 per Kg.

(b) Second Period: 1 October, 1982 to 28 March, 1984--

Rural employment cess was levied at the rate of Rs. 1.50 per Kg. on all despatches of tea except that for despatches to the said two tea auction centres the rate of levy was 30 paise per Kg.

(c) Third Period: 29 March, 1984 onwards-- Rural employment cess was levied at the rate of Rs.3 per Kg. on all despatches of tea except that for despatches to the said two tea auction centres in West Bengal the rate of tax was only 30 paise per Kg.

Learned counsel for the petitioners contend that the levy of the cess under s. 4(1) read with s. 4(2)(aa) of the West Bengal Act as amended in 1981 and 1982 is ultra vires inasmuch as the statutory provisions violate Article 14 and Article 301 of the Constitution and also lie outside the legislative competence of <ORG>. It seems to us that these cases can be disposed of on the short ground based on Article 301 of the Constitution and want of legis- lative competence.

There can be no dispute that the rural employment cess is a tax. cannot also be disputed that if the levy of a tax on goods has the direct and immediate effect of impeding the movement of goods throughout the territory of India, there is a violation of Article 301 of the Constitution. If, however, the impact of the levy is indirect or remote, no valid complaint can be made in relation to Article 301.  <CITATION> ,  1 S.C.R. 809, <NAME>, J (as he then was) speaking for the majority in that case held that tax laws would effect trade and commerce and could be violative of the freedom guaranteed by Article 30 1 , provided they di- rectly or immediately affect the freedom of trade and com- merce and not indirectly or in a remote manner. This princi- ple was affirmed by this Court in <CITATION> ,  1 S.C.R. 491 and again in Firm A.T.B. Mehtab Majid and Company v. State of Madras and Another,  Suppl. 2 S.C.R. 435. But the declaration in Article 301 that trade, commerce and intercourse throughout the territory of India shall be free is subject to Article 304(b) which provides:

"304. Restrictions on trade, commerce and intercourse among States. Notwithstanding anything in Article 301 or Article 303 , the Legislature of a State may by law-- ( a ) .

(b) impose such reasonable restrictions on the freedom of trade, commerce or inter- course with or within that State as may be required in the public interest. Provided that no Bill or amendment for the purposes of clause (b) shall be intro- duced or moved in the Legislature of a State without the previous sanction of the Presi- dent."

Therefore, there is no violation of Article 30 1 if the case falls under Article 304(b) and its proviso. <CITATION> ,  1 S.C.R. 865 this Court held that a restriction on the freedom of trade and commerce which is guaranteed by Article 301 cannot be justified unless the procedure provided in Article 304 is followed. That was also the view taken in <CITATION> ,  2 S.C.R. 361 and <ORG> & <ORG> v. State of Andhra Pradesh & Ors.,  1 S.C.R.

705. In other words, if <ORG> enacts a law which imposes such reasonable restrictions on the free- dom of trade, commerce or intercourse with or within that State as may be required in the public interest and further that the Bill or amendment for the purposes of clause (b) has been introduced or moved in <ORG> with the previous sanction of the President, such enactment will not offend the Article 301.

The question then is whether the impugned levy impedes the free flow of trade and commerce throughout the territory of India, and if it does, whether it fails within the excep- tion carved out in Article 304(b). If the levy imposes a cess in respect of tea estates, it may well De said that even though the free flow of tea is impeded in its movement throughout the territory of India it is in consequence of an indirect or remote effect of the levy and that it cannot be said that Article 301 is contravened. The contention of the petition- ers is, however, that it is ostensibly only in respect of tea estates but in fact it is a levy on despatches of tea. If that contention is sound, there can be no doubt that it constitutes a violation of Article 301 unless the legisla- tion is brought within the scope of Article 304(b). To determine whether the levy is in respect of tea estates or is a levy on despatches of tea, the substance of the legis- lation must be ascertained from the relevant provisions of the statute. It cannot be disputed that the subject of the levy, the nature of which defines the quality of the levy, must not be confused with the measure of liability, that is to say, the quantum of the tax. There is a plenitude of case law supporting that principle, among the cases being <CITATION> ,  1 S.C.R. 347.

But what is the position here? The statute speaks of a levy "in respect of a tea estate", and it says that the levy will not exceed Rs.6 on each Kilogram of tea on the des- patches from such tea estate of tea grown therein. The statute also provides that in calculating the despatches of tea for the purpose of levy of rural employment cess, the despatches for sale made at such tea auction centres as may be recognised by <ORG> shall be excluded. And there is a proviso which empowers <ORG> to fix different rates on despatches of different classes of tea. There is also s. 4(4) which empowers <ORG> to exempt such categories of despatches or such per- centage of despatches from the liability to pay the whole or any part of the rural employment cess, or to reduce the rate of the rural employment cess payable thereon under clause (aa) of sub-s. (2) on such terms and conditions as it may specify by notification. As from 1 October, 1982 the posi- tion remained the same except that the first proviso to s. 4(2)(aa) excluding the despatches for sale made at recog- nised tea auction centres was deleted. The remaining provi- sions continued as before. Now, for determining the true nature of the legislation, whether it is a legislation in respect of tea estates. and therefore of land, or in respect of despatches of tea, we must, as we have said, take all the relevant provisions of the legislation into account and ascertain the essential substance of it. It seems to us that although the impugned provisions speak of a levy of cess in respect of tea estates, what is really contemplated is a levy on despatches of tea instead. The entire structure of the levy points to that conclusion. If the levy is regarded as one in respect of tea estates and the measure of the liability is defined in terms of the weight of tea des- patched from the tea estate there must be a nexus between the two indicating a relationship between the levy on the tea estate and the criteria for determining the measure of liability. If there is no nexus at all it can conceivably be inferred that the levy iS not what it purports to be. The statutory provisions for measuring the liability on account of the levy throws light on the general character of the tax as observed by <ORG> in Re: A Reference under the Government of Ireland Act, 1920 and Section 3 of the Finance Act (Northern Ireland), 1934, [1936] 2 All E.R. 111. <CITATION> .,  3 S.C.R. 1, this Court observed that the standard on which the tax is levied was a relevant consideration for determining the nature of the tax, although it could not be regarded as conclusive in the matter. Again in <ORG> and Others. v. The State of Orissa and Others,  2 S.C.R. 537, this Court observed that the method of determining the rate of levy would be relevant in consider- ing the character of the levy. All these cases were referred to in <ORG> (supra) where in the discussion on the point at page 367 this Court said:

"Any standard which maintains a nexus with the essential character of the levy can be regard- ed as a valid basis for assessing the measure of the levy."

It is apparent that the standards laid down for measur-

ing the liability under the levy must bear a relationship to the nature of the levy. In the case before us, however, we find that the nexus with the tea estate is lost altogether in the provisions for exemption or reduction of the levy and that throughout the nexus is confined to despatches of tea rather than related to the tea estate. There is nothing to suggest that a particular tea estate produces only one class of tea, and when reference is made to a certain class of tea the reference identifies a certain class of tea estates. We may presume that a tea estate produces different classes of tea and not one class of tea only. While there must always be a nexus between the subject of the levy and the measure of the levy that nexus extends into different dimensions. Variations considered appropriate for the purpose of deter- mining the measure must correspond to variations in the subject of the levy. If the measure of levy is to vary with the despatches of different classes of tea there must be something in the class of tea concerned which points to a reason located in the particular tea estate or classes of tea estates which are made the subject of the levy. So also if the measure varies with the centre of sale of tea, the variation must relate to a reason to be found in the nature of the tea estate or classes of tea estates. In other words, there must be a reason why one class of tea is treated differently from another class of tea when deciding upon the rate to be applied to different classes of tea and that reason must be found in the nature of the tea estate con- cerned. Ultimately the benefit of exemption or reduced levy must be related to the need for exempting the tea estate from that levy or relieving it from part of the normal levy. When the provisions before us are examined in their totali- ty, we find no such relationship or nexus between the tea estate and the varied treatment accorded in respect of despatches of different kinds of tea. It seems to us that having regard to all the relevant provisions of the statute, including s. 4(2)(aa) and s. 4(4) , in substance the impugned levy is a levy in respect of despatches of tea and not in respect of tea estates.

Treating it as a levy on despatches of tea it is evident that the levy must be regarded as constituting a direct and immediate restriction on the flow of trade and commerce in tea throughout the territory of India, and the levy can avoid the injunction declared in Article 301 only if it satisfies the provisions of Article 304(b) and the proviso thereto. For bringing the legislation within the saving provisions of Article 304(b) it is necessary that the Bill or amendment should have been introduced or moved in the Legislature of the State with the previous sanction of the President. It is not disputed that the amendments to the West Bengal Act made in 198 1 and 1982 did not satisfy that requirement. Indeed, it appears that the West Bengal Govern- ment had sent an earlier Bill to the President with the object of levying a tax on the income from tea but the Presidential assent was not granted. It appears further that the Finance Minister of <ORG> made a statement in <ORG> on 27 February, 1981 stating that he would introduce the rural employment cess on despatches of tea. He referred to a Bill for amending the West Bengal Marketing (Regulation) Act, 1972 having been sent to the President and the President not having signified his consent to the amendment.

In our opinion, the impugned provisions brought into the West Bengal Act by the amendments in 1981 and 1982 so far as they purport to relate to tea estates are unconstitutional and void and cannot be given effect to.

Another aspect of the matter may be considered, and that relates to legislative competence. If the impugned legisla- tion were to be regarded as a levy in respect of tea es- tates, it would be referable to Entry 49 in List II of the Seventh Schedule of the Constitution which speaks of "taxes on lands and buildings". But if the legislation is in sub- stance legislation in respect of despatches of tea, legisla- tive authority must be found for it with reference to some other Entry. We have not been shown any Entry in List II or in List III of the Sev- enth Schedule which would be pertinent. It may be noted that <ORG> had made a declaration in s. 2 of the Tea Act, 1953 that it was expedient in the public interest that the <ORG> should take under its control the tea industry. Under the Tea Act , <ORG> has assumed control of the tea industry including the tea trade and control of tea prices. Under s. 25 of the Act a cess on tea produced in India has also been imposed. It appears to us that the impugned legis- lation is also void for want of legislative competence as it pertains to a covered field.

We do not consider it necessary to express our opinion on the other points raised between the parties in this case. In the result, the writ petitions filed in this Court and the petitions in the Transferred Cases are allowed, the impugned amendments effected in the West Bengal Rural Em- ployment and Production Act , 1976 by the amending Acts of 1981 and 1982 so far as they purport to relate to tea es- tates are declared void and the petitioners are held enti- tled to the refund of cess paid by them under the impugned statutory provisions. The petitioners are entitled to their costs.

P.S.S. Petitions allowed.


<CITATION> )

1. This is an appeal against the order of <ORG> (Appeals), Madras. Brief facts of the case are that the appellants manufacture a product described as Halls Icemint Tablets and claim the assessment of the same under Tariff sub-heading 3003.30 as Ayurvedic medicine chargeable to nil rate of duty. These tablets contain the following ingredients:

"1. Sucrose I.P.

2. Liquid Glucose

3. Menthol I.P. (mentioned on the label by the assessee as pudina)

4. Euclyptus oil IP rectified (mentioned as Nilgirei Tailam on label)

5. Glycerin

6. Spearmint Oil

7. <ORG>

8. Brilliant Blue

9. Water potable"

2. Earlier, the appellants had also filed a classification list of another product described as Halls Mentholyptus Tablets claiming assessment of the same under Tariff sub-heading 3003.19 chargeable @ 15%. The ingredients of the Halls Icemint Tablets and Mentholyptus Tablets appear to differ in respect of only colouring, material and flavouring, agents.

3. The respondents, before the lower authorities, pleaded that they were manufacturing a product <ORG> Icemint Tablets under a licence issued to them by the Director, <ORG> and claimed that taking into account the nature of the ingredients used, the same was correctly assessable as Ayurvedic medicine at nil rate of duty.

4. The Assistant Collector, however, held the goods to be assessable under 3003.19 chargeable @ 15%. The Collector (Appeals), however, on appeal by the respondents, allowed their plea for assessment of the goods as Ayurvedic medicine under Tariff sub-heading 3003.30. His findings in this regard are as under:

"The point for determination is whether "Halls ICE Mint" Tablets are Ayurvedic medicine or P.P. Medicine. In the order, the Assistant Collector has stated that Director Indian Medicine and Homeopathy has issued licence for manufacture of the "Halls Ice Mint Tablets" but there is no evidence that the same are being used or marketed .as Ayurvedic medicine. The appellants produced the packing for the said tablets, on which, it is clearly stated, that the contents of the tablet contains "Ayurvedic medicine". Further, they also produced a certificate from Dr. <NAME>, Project Officer, <ORG> (Ayurveda), <ORG> (Government of India), Hyderabad, that the tablets are Ayurvedic medicine. Therefore, there is no doubt, that the Medicaments are used in Ayurvedic system, and accordingly, the clas-sification claimed under Tariff sub-heading 3003.30 in correct and approved. The appeal is allowed for the above reason."

5. The revenue has appeal against this order of the Collector and have claimed that the said goods were neither the P.P. medicines nor Ayurvedic medicines falling under heading 17.04. The grounds of appeal are set out as under:

"(1) The Collector of Central Excise (Appeals), Madras had erred in classifying HALLS ICE MINT TABLETS as an Ayurvedic Medicine falling under Chapter sub-heading 3003.30 of Central Excise Tariff Act , 1985 whereas the CORRECT classification would be under Tariff heading 17.04.

(2) the composition of the product is furnished as : (1) Sucrose I.P. (2) Liquid Glucose (3) Menthol I.P. (mentioned on the label by the assessee as pudina) (4) Euclyptus Oil IP rectified (mentioned as Nilagiri Tailam on the label) (5) Glycerin (6) Suearmint Oil (7) Tartrazine ISI (8) Brilliant Blue (9) Water Potable. The ingredients are of common usage with no specific medicinal properties or therapeutic value.

(3) The product does not possess any medicinal or curative properties and is commonly used as mouth fresher or of the throat.

(4) Although menthol and euclyptus are mentioned in the Ayurveda, the mere usage of these ingredients in a product does not render it as an Ayurvedic Medicine. ( <CITATION> , 1985 (22) ELT 175 (Tribunal).

(5) The licence issued by Director, <ORG> or the certificate issued by the Project Officer, <ORG> (a Central Counsel for Research in Ayurveda and Siddha) Govt. of India: Hyderabad are not sufficient to establish that the product is an Ayurvedic medicine.

(6) The manufacture of the product under a licence issued under the Drugs and Cosmetics Act , 1940 does not 'ipso facto' render the product classifiable as an Ayurvedic product under the Central Excise Tariff Act , 1985. Even otherwise there indication to show that the product is being manufactured terms of the formulae described in the authoritative by Ayurvedic system of medicine specified in the 1st stage of the Drugs and Cosmetics Act , 1940. Also this product mentioned as in any of the authoritative books or...."

(7) The product is freely sold by all general merchants without insistance on a physicians' prescription. The label affixed on the product does not indicate any dosage/period of usage, toxicity, side effects, etc., which are essential for a drug. The product is used as an item of confectionery.

(8) The respondent has not furnished any proof that the product is a medicine. Mere advertisement as an Ayurvedic Medicine could not make it as an Ayurvedic product.

(9) The produce is manufactured by <ORG>, which is a multi-national Company with its base in U.S.A. and it is inconceivable that an Ayurvedic Medicine would be manufactured by them as they are not established manufacturers of these medicines.

(10) The onus of establishing that the product is an Ayurvedic Medicine is on the respondent which has not been discharged by them properly."

6. The learned <NAME>, for the department, pleaded that the issue before the lower authority was as to whether the goods were assessable to duty under Tariff subheading 3003.30 as Ayurvedic medicine exempt from payment of duty or under 3003.19 chargeable @ 15% and before the Collector (<ORG>), the issue was decided in the context of these competing entries. He pleaded that before the <ORG> the Collector has pleaded for the assessment of the goods under 17.04 at 12%. These three Tariff headings, for convenience of reference, are reproduced below:

"3003 - MEDICAMENTS (INCLUDING VETERINARY MEDICAMENTS) Patent or proprietary medicaments; other than those medicaments which are exclusively Ayurvedic, Unani, Siddha, Homoeopathic or Biochemic x x x x x x x x x x x x x x x x 3003.19 -- Other 15% X X X X 3003.30 - Medicaments, including those used in Ayurvedic, Unani, Siddha, Homoeopathic or Biochemic systems Nil "17.04 - SUGAR CONFECTIONERY (INCLUDING WHITE CHOCOLATE) NOT CONTAINING COCOA X X X X X X X X 1704.90 - Other 12%

7. He pleaded that so far as Halls Mentholyptus Tablets are concerned, they were assessed at 3003.19 and the classificstion of the same has not been disputed. He pleaded that merely because the appellants have been issued a license for the manufacture of Ayurvedic medicine by the concerned authorities does not automatically make the product to be 'Ayurvedic' medicine. He pleaded there is nothing on record to show that the produce has been manufactured exactly on Ayurvedic Siddha Unani systems of medicines. He pleaded that the Collector (Appeals) had merely gone by the certificate of Dr. <NAME>, Project Officer, <ORG>Ayurvedia), <ORG>, Government of India, Hyderabad produced by the respondents and the fact that the products are described as Ayurvedic medicine. He pleaded that he had not examined the issue in depth and the decision was not based on the analysis of any issue involved. He pleaded that the menthol in the tablets which is being described as active ingredient as an Ayurvedic medicine was not made out according to the Ayurvedic principles and in fact this was of I.P. grade. He pleaded that the certificate of Dr. <NAME> states that the product was prepared as per Ayurvedic principles and nothing has been spelt out as to what he means by Ayurvedic principle and the certificate is in very general terms. He pleaded that the certificate of Dr. <NAME>, produced before the Collector (Appeals) gives the purposes for which Icemint Throat Tablets were being used and sets out the various conditions it is said to treat without giving any basis.

8. He pleaded that the goods were assessable under Tariff Item 704.90 and in this connection, he drew our attention to the Explanatory Note (Vol. I) at p.133 Note (v) of the harmonized system of nomenclature on which the Central Excise Tariff is based and pleaded that throat pastilles or cough drops are covered under sub-heading 1704.90. The said Note (v) is reproduced, for convenience of reference as under:

"17.04 - SUGAR CONFECTIONERY (INCLUDING WHITE CHOCO-LATE NOT CONTAINING COCOA * * * 1704.90 - Other (v) Preparations put up as throat pastilles or cough drops, consisting essentially of sugars (whether or not with other foodstuffs such as starch or flour) and flavouring agents (including such substances as benzy) alcohol, menthol, euclyptol and tolu balsam). However, whenever a flavouring agent could also have medicinal properties and its proportion in each pastile or drop is such that the preparation is thereby given therapeutic or prophylactic uses, the pastilles or drops fall in Chapter 30%.

9. He also drew our attention to Explanatory Note under Chapter 30 of the said nomenclature at page 438 under which the pastilles of specific variety are excluded. His plea is that the appellants' goods fall in the category set out under Note (v) of Chapter 17 under sub-heading 1704.90 as Were is nothing to show that these are of a variety which fall under Chapter 30.

10. The learned Advocate for the respondents pleaded that the 'Ayurvedic' medicines are covered under a specific heading and that the decision of the <ORG> in the case of <CITATION> 1985 (22) ELT 844 covers the case in his favour and drew our attention to paras 105,110, 111, 116,117 and 119. His plea is that in the trade parlence, the goods are understood as 'Ayurvedic' medicine and as held by the <ORG> in that case, the goods should be considered so for the purpose of assessment. He pleaded that the certificate produced by Dr. <NAME> clearly shows that the goods are Ayurvedic medicines and this certificate has not been challenged hi the grounds of appeal. He pleaded that the goods have been manufactured under a licence issued under the Drugs Act and they have clearly stated before the lower authorities that the product had a curative effect. On a query from the Bench, to show as to whether the ingredients in the tablets were such or in such quantity as would be required for the tablets to act as medicine, he pleaded that he does not have any information as to what is the quantum that would be required to treat the condition of the throat. He was specifically asked as to what was the basis on which Dr. <NAME> had given the certificate and whether any clinical tests were done to establish the medicinal character of the tablets and also whether the appellants have claimed in their literature as to what conditions the tablets treat.

11. The learned Advocate could not throw any light in this regard. So far as the literature is concerned, he drew the attention of the Bench to the packing in which the tablets are sold. The packing describes the goods as Halls Icemint throat tablets with the following wordings:

"Cools and Soothes the Throat - Refreshes the Mouth."

On the wrapper of the, tablet, the following additional information is furnished:

"Podina 33 mg., Nilgiri Tailam 2.45 mg. approved colours Ayurvedic Medicine."

On the carton in which tablets are sold, the following, further, endorsement is made:

"Halls Icemint combines time tested ingredients to provide cooling, soothing, refreshing feeling to the throat and mouth."

12. He could not show from any one of their literatures or even from the claims made on the individual wrapper or the carton in which the Icemint Tablets are packed as to which condition of the throat the Icemint Tablets were intended to treat.

13. He pleaded that they had evidence from the Physicians and also certificates from the consumers and also from the retailers regarding the tablets being Ayurvedic and that they had appended the same in the proceedings before the Collector (Appeals) but the same find no mention in the order. On a query from the Bench, they stated that they have not filed the documents in the appeal before us nor did they make any plea for taking any additional evidence in this regard on record other than what has been filed in the paper book. The only evidence, therefore, before us is the certificate from Dr. <NAME>.

14. The learned J.D.R. for the <ORG> referred to the <ORG>'s decision in the case of <NAME> 1985 (22) ELT 844 and drew our attention to Paras 86,116 and 117. He pleaded that as there is no evidence on record to show that the goods manufactured by the appellants are Ayurvedic medicines. Both the sides were given opportunity to file the, extracts from the authentic literature to show that the ingredients used were Ayurvedic in nature. The learned J.D.R. however, pleaded that even if the ingredients find mention in the Ayurvedic literature, it cannot be taken to mean that the goods are Ayurvedic medicines as held by the <ORG> in the case of <NAME> referred to supra in Para 86.

15. Both the sides filed the extracts from the literature on Ayurvedic and the case was again heard to enable both the sides to make any submissions based on the literature filed by both the sides. The learned Advocate for the respondents pleaded that the Pudina is covered in the extracts produced by the <ORG> regarding the Ayurvedic ingredients. The <ORG> pleaded that the relevant extracts from the book Indian Materia Medica by Dr. <NAME> describes Pudina under the heading as Mentha Arvensis Podina. In this literature, different types of podina have been described. The herbs of mint have been described as aromatic, carminative, stimulant, antispasmodic, stomachic and emmenagogue and are shown to be used in chutneys and also decoction or vapour of its tea is largely used with lemongrass as a febrifuge and it is also shown that the oil and menthol have the same properties. The oil is shown as an anti-neuralgic.

16. The respondents also have produced extracts from Krishna Gopal Gran-damal Ka Pratham Ratna showing the use of podina (menthol) (Peppen ient ke Phool) in various preparations for treating different conditions. Podina with campher, cardamom, clove and Nutmag have been shown to be used in the preparation of <NAME> for disorder of the stomach and asthema. For the preparation of Shoolan-tak Balm, the following ingredients have been found to be used:

WINTER GREEN OIL (Methyl Salicylate) 50 Parts Pudina (Menthol)(Pepperment Ke Phool) 10 Parts Euclyptus Oil (Nilgiri Tailam) 2-1/2 Parts Kajuputi Tel 2-112 Parts White Bees Wax (Saphed Mom) 20 Parts Lancline (Oon Ki Charbi) 25 Parts

17. He referred to the judgment of <ORG> in the case of <ORG> 1988 (36) ELT 369. He pointed out that ratio of this decision has a bearing on this case so far as the application of the common parlance criteria is concerned inasmuch as the issue has been decided in that case in this context after taking note of the ingredients used.

18. The points that fall for consideration in these proceedings are whether un-product manufactured by the appellants are a medicine and if so whether it is assessable as a patent and proprietary medicine chargeable to duty @ 15% or as an 'Ayurvedic' medicine chargeable to nil rate of duty. In case the same is not a medicine whether the same can be considered as an item falling under Tariff heading 17.04.

19. We observe the respondent's claim is that the respondent's goods are an 'Ayurvedic' medicine and their claim is primarily based on the fact that the same contains menthol which has been described by them in the sales packet as Pudina and also euclyptus oil as active ingredients. There claim is that both these ingredients are 'Ayurvedic' medicinal ingredients and by virute of this, the tablets containing the same with other ingredients should be considered as 'Ayurvedic' medicine. They have described the tablets as 'Ayurvedic' medicine on the wrapper of the individual tablet and the claim made on the same is that it cools and soothes the throat and refreshes the mouth. The certificate of one Dr. <NAME> has been produced. He is an ENT Surgeon and the Head of <ORG> in Hyderabad. He is certifying the appellant's product as 'Ayurvedic' medicine taking into consideration that it has active ingredients mentioned in the authoritative 'Ayurvedic' books. He has then gone into and described the medicinal properties of Pudina. He has described that Pudina, Nilgiri Tailam and Pahari Pudina Tailam have powerful anti-septic and anti-....He has certified that the Halls Icemint Tablets help in treating throat, cough, cold and bad breath and that it is an 'Ayurvedic' medicine.

20. It is seen from the last para of the certificate that his opinion is based on the information provided by one Dr. <NAME>. It has not been clarified by the respondents nor in the certificate as to who Dr. <NAME> is and what was the information supplied by him to Dr. <NAME> on which he has based his certificate. Obviously, the Certificate of Dr. <NAME> is not based on his first hand information. There is no mention in the certificate that the information is based on the analysis of the tablets done by Dr. <NAME> or any clinical trials that he may have carried out. In fact during the hearing, a specific question was asked by the Bench as to whether Dr. <NAME> had carried out any clinical trials before he gave his information on the medicinal nature of the tablets.

21. The respondents pleaded that they had no such information. The hearing was held on more than one occasion and the appellants failed to come up with the information as to whether the claim for medicinal use as made was on the basis on any clinical trial done. This information, we may mention, is necessary as the appellants' product is not formulated according to the formulations set out in any 'Ayurvedic' Formulary or in any standard works recognised by <ORG> or the Drugs Control Act . Apart from the fact that the certificate given by Dr. <NAME> is not based on first hand informaton and that the appellants could not furnish any information as to the competence of Dr. <NAME> to give a certificate. It is seen that Dr. <NAME> is a Professor of Surgery of ENT and he cannot be considered as a specialist in the field of medicine. The certificate which could be taken note of is the one issued by the competent authority which in this case could be only DGHS of <ORG>.

22. We observe that for any formulation to be considered as medicine, the same should be either recognised so in a standard Ayurvedic work or should be so proved by clinical trials or should be recognised so by an authority like <ORG>. We observe that both sides have produced literature showing that in the standard recognised books of <ORG> various formulations containing Pudina and Euclyptus oil for various purposes have been mentioned. The appellants' case for considering the goods as medicine is only based on one fact that the active ingredients, namely, Pudina which in fact is menthol and Euclyptus oil, are 'Ayurvedic' in nature and these have medicinal properties. The question for consideration is can the mere presence of some quantity of medicinally active ingredients irrespective of the quantity make a particular formulation a medicine.

23. We observe as it is pudina and euclyptus oil have some medicinal properties for certain purposes but the same have to be presented in such quantities as can produce a desired medicinal effect for treating specified coditions as seen from the formulations set out in the extracts of standard books produced before us. As it is, there is no claim made by the respondents that the (sic) tion of the throat or alleviating the suffering caused by certain infections of the throat or are prophylactic in nature.Their claim is only that the tablets are for creating cooling, soothing effect in the throat and it also refreshes the mouth. The medicines are not prescribed for these effects claimed to be produced by them. Even water when taken produces cooling and soothing effect on the throat most of the time and even mere rinsing of the mouth creates the refreshing effect. The claim made by the respondents does not show that the tablets have been formulated as a medicine for treating any specified condition or alleviation of any suffering caused by some pathatogenic conditionof the throat. No evidence has been produced before us to show that the quantity hi which the ingredients are present is such that these have certain medicinal effects as shown in the Ayurveda literature regarding Pudina, etc. All that can be said is that the tablets produce an aromatic effect and cooling effect in the mouth and the throat.

24. The appellants have claimed on the wrapper that the tablets contain Pudina which itself is not a correct declaration. What is used is menthol which can be an oil obtained from the Pudina leaves or of synthetic origin. This oil used is of I.P. grade. No literature has been produced before us regarding the euclyptus oil which has been described as Nilgiri Tailam. In any case no claim has been made before us nor any evidence produced that the euclyptus oil by itself or in combination with menthol in the quantities used in the tablets for is treating any condition of the throat.

25. We may observe that in case any product is marketed as medicine and is accepted as such then apart from the medicinal effect, it is supposed to have its dosage also prescribed. We find that no dosage has been prescribed for the medicine on the packings of the tablets nor any product literature has been produced before us in this regard./The appellants were specifically asked in case they were selling the product as medicine, whether they had any product literature in this regard. They could not produce any such literature. The appellants have not produced any evidence from any practising physician as to whether they have recommended Icemint Tablets as a medicine for any condition of the throat. They have not produced any evidence from the trade to show that these tablets have been marketed and accepted as medicine.

26. Both the sides cited the decision of this Tribunal in the case of <CITATION> . 1985 (22) E.L.T. 844.

27. The learned JDR pointed that the <ORG> took note of the fact that merely because some ingredients, which may have medicinal properties are there in a formulation, this does not, by itself, make the product a medicine unless it is so understood in the trade or unless the same finds a mention in the authoritative Ayurvedic books. He pointed out that the appellants' product does not figure in any one of the authoritative books. He referred to Paras 72-104 and 116 of the said judgment. He pointed out that the definition of the product given in the Drugs and Cosmetics Act , 1940 was held to be not applicable for the purpose of classifying a product under Central Excise Tariff.

28. The learned Advocate referred to Paras 105-110, 111, 116,117 and 119 of the said judgment and pointed out that even if some allopathic ingredients were used in a product so long as in the trade the same is known as Ayurvedic medicine, it would qualify to be considered as Ayurvedic medicine. He pleaded that the certificate of Dr. <NAME>, referred to supra, goes to show that the product is understood as an Ayurvedic medicine in the trade.

29. We observe that we have held in the earlier paragraphs that the evidence of Dr. <NAME> is not acceptable and the product does not pass the muster of Ayurvedic medicine. The facts of the present case are, therefore, distinguishable from the facts cited in <ORG> case so far as pleas made by the respondents are concerned.

30. In view of the foregoing, we hold that the appellants' claim that Icemint (sic) by them are a medicine is not established before us.

31. We observe that in the proceedings before the original authority and the appellate authority, the issue was considered in the context of only two competing items 3003.19 and 3003.30 i.e. whether the goods were patent and proprietary medicines or 'Ayurvedic' medicines. In the view, we have held above, inasmuch as, the tablets cannot be considered as medicine, the question of assessment of goods under anyone of the two headings, therefore, does not arise. The next point for consideration is, therefore, which will be appropriate heading for the purpose of levy of <ORG> duty.

32. We observe that the <ORG> have claimed that the goods are assessable under Tariff Heading 17.04. The plea that even if these are throat lozenges these stand covered by this entry and excluded from ambit of Tariff sub-heading 3003.

33. The <ORG> have pressed the Chapter Notes under Harmonised System of Nomenclature in support of this plea.

34. We observe that the Central Excise Tariff of 1986-87 is not based on the Harmonised System as cited by the <ORG> and the goods will have to be assessed with reference to the provisions of the law as contained under the relevant Central Excise Tariff.

35. We observe that Chapter 17, specifically, excludes from its purview the products of Chapter 30. We have already held above that the appellants' product is not a medicine falling under Chapter 30. Tariff Entry 17.04 covers sugar confectionary. The question is whether the product can be considered as confectionary as such. We observe that Icemint Tablets are claimed to be for refreshing the mouth and also for cooling and soothing the throat. These have aromatic or property of flavour imparted to these by menthol and euclyptus oil and the major content of the same is sugar apart from the colouring matter and other items as preservative. Like pepperment tablets which are sold as confectionery item, these tablets can be, therefore, considered to have the attributes of confectionary. However, even if the items are not strictly considered as confectionary for any reason, the matter will have to be re-examined with reference to interpretative rules as applicable to the Central Excise Tariff.

36. We observe that both sides have not adduced any detailed arguments as to why these tablets can be considered as confectionary item or otherwise although a plea is there from the Collector in the grounds of appeal that the goods are assessable under Tariff 1704.

37. We observe that once the tablets are held to be not a medicament falling under Chapter 30, the next item which falls for consideration is 1704.90. We observe from the interpretative rules for interpretation of the Central Excise Schedule, which are statutory in nature that under the interpretative Rule 4, the tablets will fall within the ambit of interpretative Rule 4. The said rule, for convenience of reference is reproduced below:

"Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin."

38. In view of the above, we allow the appeal of the <ORG> in the above terms. Any recovery to be made will have to be in terms of the assessment of the goods in terms Tariff heading 1704.90 subject to the other provisions of the law.


PETITIONER: <ORG>, RAIPUR Vs. RESPONDENT: <NAME> MISRA DATE OF JUDGMENT16/04/1991 BENCH: RAMASWAMY, K. BENCH: RAMASWAMY, K. KASLIWAL, N.M. (J) CITATION: 1991 AIR 1402 1991 SCR (2) 320 1991 SCC (3) 325 JT 1991 (2) 599 1991 SCALE (1)753 ACT: Madhya Pradesh Government Servants' Central Conditions of Service Rules, 1961: Rule 8 - Probationer - Expiry of prescribed period of probation - Termination of service - Whether Valid - Whether entitled to right to deemed confirmation - Madhya Pradesh Civil Services Classification. Control and Appeal Rules, 1966: Rule 9A and Municipal Officers' and Servants' Recruitment Rules: Rule 14- Whether applicable. HEADNOTE: The respondent was appointed in the appellant <ORG> and put on probation for a period of two years. About three month's after the completion of two years' period he was served with one month's notice for termination of his service. Challenging the termination order the respondent filed a suit for declaration that the termination without enquiry and opportunity of being heard was violative of Rule 9A of the Madhya Pradesh Civil Services Classification, Control and Appeal Rules 1966 and that he became a permanent employee of the <ORG> with continuity of service and arrears of salary. The trail court dismissed the suit, and appeal, it was confirmed. <ORG> allowed the respondent's second appeal and decreed the suit. In the appeal, by special leave, before this Court, on behalf of the appellant-<ORG> it was contended that the respondent being a probationer, would acquire permanent status only on confirmation, that <ORG> had committed manifest error in law in holding that on the expiry of two years' period of probation, the respondent must be deemed to have been confirmed under Rule 14 of the Municipal Officers' and Servants' Recruitment Rules, which were no longer in force, and that Rule 8 of the Madhya Pradesh Government Servants' General Conditions of Service expressly proved confirmation of probation as a condition precedent and since notice terminating respondent's service was issued, in terms of the rules, before confirmation, it was valid in law. On behalf of the respondent, it was contended that by operation of the resolution passed by the Municipal <ORG> under Section 25 of 321 the Central Provinces and Bearer Municipality Act, 1922, the Municipal Officers and Servants was governed by recruitment rules thereunder, that since no action was taken by the appellant <ORG> to dispense with the respondent's service, on the expiry of the period of two years, as envisaged in Rule 14 of the Municipal Officers' and Servants' Recruitment Rules, the respondent must be deemed to have been confirmed, and consequently, the only power the <ORG> had was to terminate the respondent's service in accordance with the classification, Control and Appeal Rules, after conducting an enquiry and giving him reasonable opportunity, that too for misconduct, but since no such procedure was adopted, the notice was illegal and <ORG> was justified in granting the decree. Allowing the appeal, this Court, HELD: 1.1 Under the Note to sub-rule (2) of Rule 8 of the Madhya Pradesh Govt. Servant's, General Conditions of Service Rules, 1961 if the probationer is neither confirmed nor discharged from service at the end of the period of probation, he should be deemed to have been continued in service as probationer subject to the condition of his service being terminated on the expiry of a notice of one calendar month, given in writing by either side. As per sub- rule (6) on passing the prescribed departmental examination and on successful completion of the period of probation, the probationer should be confirmed in the service or post to which he has been appointed. Then he becomes an approved probationer. Therefore, after the expiry of the period of probation and before its confirmation, he would be deemed to have been continued in service as probationer. [375F-H] 1.2 Confirmation of probation would be subject to satisfactory completion of the probation and pass in the prescribed examinations. Expiry of the period of probation, therefore, does not entitle him with a right to deemed confirmation. The rule contemplates to pass an express order of confirmation in that regard. By issue of notice of one calendar month in writing by either side, the tenure could be put to an end. [326A-B] 1.3 If the rules do not empower the appointing authority to extend the period of probation beyond the prescribed period, or where the rules are absent about confirmation or passing of the prescribed test for confirmation of probation, inaction for a very long time may lead to an indication of the satisfactory completion of probation. [327D-E] 322 1.4 Rule 8 expressly postulates otherwise. Hence mere expiry of the initial period of probation which is subject to extension for another period of one year does not automatically have the effect of deemed confirmation, and the status of a deemed confirmation of the probation. An express order in that regard on fulfillment of the conditions stipulated in the Rule only confers the status of approved probation.[327E- <CITATION>  3 SCR 1; <CITATION> .  Suppl.SCC 95; <CITATION> ., Suppl. SCC 643 and <CITATION> .,  3 SCR 1091, distinguished. 1.5 Note to sub- rule (2) read with sub-rule (6) of Rule 8 manifest she legislative intent that confirmation of the probation of the respondent would be made only on successful completion of the probation and the passing of the prescribed examinations. The respondent shall, therefore, be deemed to be continued an probation. Before confirmation the appointing authority is empowered to terminate the service of the probationer by issuing one calendar month's notice in writing and on expiry thereof the service stands terminated without any further notice. Within three months from the date of expiry of original two years period of probation and within th extendable period of one year the order of termination was made. Hence, the question of conducting an inquiry under the Classification, Control and Appeal Rules after giving an opportunity and that too for specific charges does not arise. [327G-H, 328A] In the circumstances <ORG>, committed manifest error of law in decreeing the suit. [328B] 2. By virtue of the resolution passed by <ORG>, which subsequently became Municipal <ORG>, making a draft bye-law , exercising power under section 173(2) of the Madhya Pradesh Municipal Act, 1922 and confirmed under Section 25(1) of the Act, adopting Government rules to regulate the conditions of service of officers and servants of <ORG>, the Fundamental Rules, Civil Service Regulations, Government Servants' Conduct Rules, and General Book Circulars of the State Government, as amended from time to time, etc. would apply to the officers of <ORG> and the previous rules were superseded and were no longer in force. Hence the reliance placed by <ORG> on Rule 14 of the Municipal Officers' and Servants' Rules is wrong. [324D- E, G-H] 323 JUDGMENT:

CIVIL APPELLANT JURISDICTION: Civil Appeal No. 722 of 1978.

From the Judgment and Decree dated 11.4.1977 of <ORG> in Second Appeal No. 315 of 1970.

<NAME> for the Appellant.

<NAME> for the Respondent .

The Judgment of the Court was delivered by <NAME>,J. The facts in this appeal would lie in a short compass. The appellant appointed the respondent as <ORG> Clerk on September 22, 1966 and put him on probation for a period of two years which expired on September 21, 1968. On December 9, 1968, the appellant served him with one month's notice terminating the services with effect from January 9, 1969. Calling in question the order of termination, the respondent laid the suit for declaration that the termination without enquiry and an opportunity of being heard was violative of Rule 9A of the Madhya Pradesh Civil Service Classification Control & Appeal (Rules), 1966 with consequential declaration that he became a permanent employee of the corporation with cotiuity of service and arrears of salary. <ORG> dismissed the suit and on appeal it was confirmed. <ORG> in Second Appeal No. 315/70 by judgment and decree dated April 11, 1977 allowed the appeal and decreed the suit as prayed for. On leave under Art. 136 the Appellant filed this appeal.

<NAME>Gambhir, learned counsel for the appellant contended that the respondent being a probationer, acquires permanent status only on confirmation. Before confirmation the appellant had exercised its power, in terms of the rules, and terminated the respondent's service. <ORG> committed manifest error of law in its finding that on expiry of two years period of probation the respondent must be deemed to have been confirmed under Rule 14 of the Municipal Officers and Servants Recruitment Rules which no longer were in force. He further contended that rule 8 of the Madhya Pradesh Government Servants' General Conditions of Service Rules, 1961 for short 'the Rules' expressly provides confirmation of probation as a condition precedent. Notice was issued terminating the service before confirmation and so it is valid in law. <NAME>, learned counsel for the respondent contended that by operation of the resolution passed by <ORG> under s. 25 of the Central Provinces and Berar Municipality Act 1922 the Municipal Officers and Servants are governed by recruitment rules thereunder. Rule 14 thereof, relied on by <ORG> expressly provided to put an employee on probation for a period of two years subject to being confirmed. At the end of the probationary period, if the probationer was found unfit, <ORG> shall, if he was a direct recruit, to dispense with his service and if he has been recruited by tranfer, to revert to his original post. On expiry of the period of two years, no action was taken by <ORG>. Therefore, the respondent must be deemed to have been confirmed. Thereafter the only power which the <ORG> had was to terminate the service of the respondednt in accordance with Classification Control and Appeal Rules after conducting an enquiry and giving him reasonable opportunity that too for misconduct. No such procedure was adopted. Therefore, the impugned notice was illegal and <ORG> was justified in granting the decree.

The first question is, which are the relevant rules that would be applicable to the respondent? Admittedly, <ORG> became a Municipal Corporation on or after August 26, 1967. A resolution was passed making a draft bye- law by <ORG> on November 11, 1960, exercising the power under s. 178(3) of the Madhya Pradesh Municipal Act, 1922 and confirmed the same under s. 25 (1) of the said Act, adopting Government Rules to regulate the conditions of service of officers and servants of <ORG> which provides thus:

"The fundamental rules and the Civil Service regulations as amended from time to time in their applications to M.P., the M.P.Government Servants Conduct Rules 1959, as amended from time to time and the General Book Circulars of the Govt. of M.P. as in force for the time being shall apply to the officers and servants of the <ORG> in the same way as they apply to Govt. Servants".

Thus, it is clear that the Fundamental Rules, Civil Service Regulations, <ORG>, Servants Conduct Rules and the General Book Circulars of the Government of Madhya Pradesh as amended from time to time, etc. shall apply to the officers and servants of <ORG>. The Previous rules were thus superseded and were no longer in force. Reliance on Rule 14 referred to above made by <ORG> is, therefore, wrong. Rule 8 of the Rules reads thus:

"Probation-(1) A person appointed to a service or post by direct recruitment shall ordinarily be placed on probation for such period as may be prescribed.

(2) The appointing authority may, for sufficient reasons, extend the period of probation by a further period not exceeding one year. Note - A probationer whose period of probation is not extended under this Sub-Rule but who has neither been confirmed nor discharged from service at the end of the period of probation shall be deemed to have been continued in service, subject to the condition of his service being terminable on the expiry of a notice of one calender month given in writing by either side.

(3) A probationer shall undergo such training and pass such departmental examinations during the period of his probation as may be prescribed. (4) and (5) are not relevant, hence omitted. (6) On the successful completion of probation and the passing of the prescribed departmental examinations, the probationer shall be confirmed in the services or post to which he has been appointed."

Thus, it is clear from Rule 8 of the Rules that the procedure to place a direct recruit on probation for a prescribed period was provided. The appointing authority would be entitled to place a direct recruit on probation for a specified period and for sufficient reasons may extend the period of probation to a further period not exceeding one year. Under the note to sub-rule (2) if the probationer is neither confirmed nor discharged from service at the end of the period of probation, he shall be deemed to have been continued in service as probationer subject to the condition of his service being terminated on the expiry of a notice of one calender month given in writing by either side. As per sub-rule (6) on passing the prescribed departmental examination and on successful completion of the period of probation, the probationer shall be confirmed in the service or post to which he has been appointed. Then he becomes an approved probationer. Therefore, after the expiry of the period of probation and before its confirmation, he would be deemed to have been continued in service as probationer. Confirmation of probation would be subject to satisfactory completion of the probation and to pass in the prescribed examinations. Expiry of the period of probation, therefore, does not entitle him with a right to a deemed confirmation. The rule contemplate to pass an express order of confirmation in that regard. By issue of notice of one calender month in writing by either side, the tenure could be put to an end, which was done in this case. <CITATION> ,  3 SCR 1 considering the effect of continuing a probationer in service after the period of probation was completed, <ORG> held that there was no rule for the extension of probation after October 1, 1960 and it was not possible to presume the competent authority extended it beyond October 1, 1960.Thus in the above case there was no power to extend the probation in the rules beyond the specified period. It was held that:

"The initial period of probation of the respondents ended on October 1, 1958. By allowing the respondents to continue in their posts thereafter without any express order of confirmation, the competent authority must be taken to have extended the period of probation upto October 1, 1960 by implication. But under the proviso to Rule 6(3), the probationary period could not extend beyond October 1, 1960. In view of the proviso to Rule 6(3), it is not possible to presume that the competent authority extended the probationary period after October 1, 1960, or that there after the respondents continued to hold their posts as probationers".

Accordingly it was held that the respondent therein was deemed to have been confirmed.

<CITATION> .  Suppl. SCC 95 this Court held that U.P. Co-op. Sugar Factories Federation Service Rules, 1976 made under the U.P. Co-op. Societies Act were in force. Regulations 17 of 1975 Regulations does not permit continuance of an employee for a period of more than two years. One year normally was the period of probation and further being extended to a period of one more year. Rule 5 of 1976 Rules does not prescribe any limit on the extension of the probationary period. In the light of the operation of those rules when the probationary period was prescribed on promotion to the post of Commercial Officers with a condition that his probationary period may be extended and he could be reverted to the post of Office Superinten-

dent without any notice, this Court held that the stipulation for extension of probationary period in the appointment order must be considered in accordance with the proviso to regulation 17(1) which means that the probationary period could be extended for a period of one year more and the probationary period was further extended to one year during which period the service of the appellant was neither terminated nor was he reverted to his substantive post, instead he was allowed to continue. On those facts this Court held that "since under those regulations' appellant's probationary period could not be extended beyond the maximum period of two years, he stood confirmed on the expiry of maximum probationary period and there after he could not be reverted to lower post treating him on probation". <CITATION> .,  Suppl. SCC 643 and in <CITATION> .  3 SCR 1091 this Court reiterated the same view.

Exercise of the power to extend the probation is hedged with the existence of the rule in that regard followed by positive act of either confirmation of the probation or discharge from service or reversion to the substantive post within a reasonable time after the expiry of the period of probation. If the rules do not empower the appointing authority to extend the probation beyond the prescribed period, or where the rules are absent about confirmation or passing of the prescribed test for confirmation of probation and inaction for a very long time may lead to an indication of the satisfactory completion of probation. But in this case Rule 8 expressly postulates otherwise. The period of probation is subject to extension by order in writing for another period of one year. Passing the prescribed examinations and successful completion of probation and to make an order of confirmation are condition precedent. Mere expiry of the initial period of probation does not automatically have the effect of deemed confirmation and the status of a deemed confirmation of the probation. An express order in that regard only confers the status of an approved probationer. We are of the view that note to sub-rule (2) read with sub-rule (6) of Rule 8 manifests the legislative intent that confirmation of the probation of the respondent would be made only on successful completion of the probation and the passing of the prescribed examinations. It is not the respondent's case that he passed all the examinations. He shall be deemed to be continued on probation. Before confirmation the appointing authority is empowered to terminate the service of the probationer by issuing on calender month's notice in writing and on expiry thereof the service stands terminated without any further notice. Within three months from the date of expiry of original two years period of probation and within one year's period, the order of termination was made. In this view the question of conducting an inquiry under the Classification Control and Appeal (Rules) after giving an opportunity and that too for specific charges does not arise. <ORG>, therefore, committed manifest error of law in decreeing the suit. By an interim order passed by this court, the respondent received a sum of Rs. 5,000 from the appellant. The appellant shall not recover the same from him. The appeal is accordingly allowed. The judgment and decree of <ORG> is set aside and that of <ORG> and <ORG> are confirmed. But in the circumstances parties are directed to bear their own costs.

N.P.V. Appeal allowed.


JUDGMENT <NAME>, C.J.

1. These tax revision cases arise out of orders of rectification passed by the Deputy Commissioner of Sales Tax under Section 35 of the Sales Tax Act, holding that the exemption from sales tax granted in respect of dyed yarn was unjustified and that the turnover from the same must also be brought to account for the purpose of sales tax. This view of the Deputy Commissioner was upset on further appeal by the assessee to <ORG>. The <ORG> took the view that cotton yarn dyed and coloured is nevertheless cotton yarn within the meaning of entry 4(ii) of the Second Schedule of the Kerala General Sales Tax Act, 1963 ; that no manufacturing process was involved in dyeing the yarn and that, as a result of dyeing, the yarn was not converted into a different article or commodity. In these circumstances, the <ORG> was of the view that the levy of sales tax was not attracted and that the Deputy Commissioner's order was unjustified and illegal. The <ORG> allowed the assessees' appeals in these three cases. The revisions have been preferred by the learned Government Pleader on behalf of the revenue.

2. Section 5 is the charging section under the Act. In so far as it is relevant, it provides:

5. Levy of tax on sale or purchase of goods.-(1) Every dealer (other than a casual trader or agent of a non-resident dealer) whose total turnover for a year is not less than (twenty-five thousand rupees) and every casual trader or agent of a non-resident dealer, whatever be his total turnover for the year, shall pay tax on his taxable turnover for that year,-

(i) in the case of goods specified in the First or Second Schedule, at the rates and only at the points specified against such goods in the said schedule; and

(ii) in the case of other goods, at the rate of four per cent at all points of sale.

(2) Every dealer other than a dealer referred to in Sub-section (1) whose total turnover for a year in respect of the goods specified in the First or Second Schedule is not less than two thousand five hundred rupees, shall pay tax at the rate and only at the point specified against the goods in the First or Second Schedule, as the case may be, on his taxable turnover in that year relating to such goods :

Provided that where a tax has been levied under Sub-section (1) or Sub-section (2) of this section or under Section 5A in respect of the sale or purchase of goods specified in the Second Schedule and such goods are sold in the course of inter-State trade or commerce, the tax so levied shall be refunded to such person in such manner and subject to such conditions as may be prescribed.

The relevant entry with which we are concerned is entry 4(ii) of the Second Schedule, which is as follows :

____________________________________________________________________ Sl. Description of the goods Point of levy Rate of No. tax ____________________________________________________________________ 4(i) Cotton, that is to say, At the point of first sale 4 per all kinds of cotton (in- in the State by a dealer cent. digenous or imported) who is liable to tax under in its unmanufactured Section 5 . state, whether ginned or unginned, baled, pressed or otherwise, but not in- cluding cotton waste. (ii) Cotton yarn spun yarn, cotton yarn, other than handbut not including waste. ___________________________________________________________________

The assessability to sales tax of cotton yarn dyed and coloured has got to be judged with respect to the provisions of Section 5 read with the above entry in Schedule II. The cases are not complicated by the applicability of any other provisions such as Section 5A of the Act, which was one of the complicating factors that arose for consideration in the recent decision in <CITATION> 1978 K.L.T. 279 (T. R. C. No. 2 of 1976). Concentrating our attention therefore on Section 5 and the entry in question, we are of the opinion that despite the process of dyeing and colouring, "cotton yarn" still remained cotton yarn, that is the commodity mentioned in the entry and does not undergo any process of transformation so as to make sales tax exigible separately on the said commodity after the process of dyeing and colouring. The authorities seem to support the conclusion that we arrived at on the construction of the statute and the entry in the schedule. <CITATION>  9 S.T.C. 530, <ORG> was called upon to pronounce whether sales tax is payable for dyeing yarn of the customers handed over to the assessee for the purpose of dyeing. Under Section 6(1) of the Central Provinces and Berar Sales Tax Act, 1947, no tax shall be payable on the sale of goods specified in the second column of Schedule II. Entry No. 20 in that schedule was : "Yarn excluding sewing and knitting thread." It was observed :

What the petitioners sell may be dyed yarn, but it is yarn all the same. No exception has been made in the case of dyed yarn in the sense that the yarn does not cease to be tax-free merely because it is dyed. In the circumstances, therefore, the petitioners' contention that their transactions in respect of the sales of dyed yarn are not taxable under the Act must be upheld.

<CITATION> .  8 S.T.C.358(S.C), <ORG> had occasion to consider the scope of an exemption notification issued under the provisions of the U. P. Sales Tax Act, 1948. The exemption was in respect of sales tax on cotton cloth or yarn manufactured in U. P., made on or after the 1st December, 1949, with a view to export such cloth or yarn outside the territories of India, on condition that the cloth or yarn was actually exported and proof of such actual export was furnished. The petitioners before <ORG> sold cotton cloth manufactured by them to their constituents who thereafter dyed and printed such cloth with hand-made apparatus and exported them overseas as hand-printed cloth. The question was whether the petitioners were entitled to exemption under the notification. It was observed:

...Mr. <NAME> contends that when the quantity of cloth sold by the petitioners is printed, coloured or dyed, it gets transformed into some other material and, therefore, what is exported is not the same cloth. By such printing and dyeing the original cloth gets metamorphosed into a different material with incidents not the same and appearance and colour changed. We are of the opinion that this argument is unsound. By using the word 'such' what the legislature has laid down is not that the identical thing should be exported in bulk and quantity or that any change in appearance would be crucial to alter it. Mr. <NAME> relied upon <CITATION>  S.C.R. 53, wherein this court held that where cashew-nuts were purchased, conditioned and processed for export abroad, the exported article is not the same as the one purchased and, therefore, the exemption under Article 286 would not apply. It seems to us that there is a vast difference between prepared cashew-nuts and printed cloth and the observations there can, by no stretch of imagination, have any application to this case. We are of the view that the words 'such cloth or yarn' would mean the cloth or yarn manufactured in U. P. and sold. It has nothing to do with the transformation by printing and designs on the cloth. The cloth exported is the same as the cloth sold with this variation or difference that the colour has changed by printing and processing. In the view which we take that the cloth exported is the same as the cloth sold by the petitioners, there can be no question about the exemption clause not applying to it and if the exemption applies, then the tax has been levied without jurisdiction.

Both on the construction of the provisions of the taxing statute as well as on the principle of the judicial decisions noticed above, the view taken by <ORG> is correct. We dismiss these tax revision cases, in the circumstances, without costs.


PETITIONER: <ORG> Vs. RESPONDENT: UNION OF INDIA AND ORS. DATE OF JUDGMENT04/04/1986 BENCH: <NAME>, R.S. BENCH: <NAME>, R.S. SEN, <NAME>, D.P. CITATION: 1986 AIR 1097 1986 SCR (2) 162 1986 SCC (2) 547 JT 1986 453 1986 SCALE (1)530 CITATOR INFO : F 1989 SC1153 (7) R 1990 SC 59 (6) R 1990 SC1893 (4) ACT: Central Excise and Salt Act , 1944, s. 3 and Entry 27 of First Schedule - Aluminium cans for torch bodies - Whether excisable goods. Words & Phrases - "Excisable goods" - Meaning of. HEADNOTE: The appellant, a public limited company, carries on the business of the manufacture and sale of flashlights (torches). It used to purchase aluminium slugs and produce aluminium cans or torch bodies at its factory by a process of extrusion. The Superintendent of Central Excise required the appellant to submit a price list in respect of the aluminium cans for the purpose of levying excise duty under section 4 of the Act. The appellant, anxious to avoid coercive action, filed a price declaration in which the price of aluminium cans was calculated at the cost of production plus a margin of profit of 5% of the cost. However, it contended before <ORG> (i) that aluminium cans cannot be described as "goods" for the purposes of excise duty inasmuch as they are not marketable and are prepared for the flashlights manufactured by it; and (ii) that the preparation of aluminium cans out of aluminium slugs did not amount to manufacture, and that aluminium cans were merely an intermediate product in the manufacture of flashlights. These contentions before <ORG> having failed, it filed a writ petition in <ORG>. A Single Judge allowed the writ petition but a Division Bench of <ORG> allowed the appeal of the respondent holding that the production of aluminium cans from aluminium slugs amounted to manufacture and that the aluminium cans could be described as "goods" for the purposes of the Act. Allowing the appeal, 163 ^ HELD: 1. The aluminium cans produced by the appellant are not capable of sale to a consumer. They cannot be described as excisable goods and, therefore, do not fall within the terms of section 3 of the Central Excises and Salt Act , 1944 read with Entry 27 of the First Schedule thereto. [167 G] 2. The excise duty is an indirect tax in which the burden of the imposition is passed on to the ultimate consumer. In that context, the expression "goods manufactured or produced" must refer to articles which are capable of being sold to a consumer. [166 <CITATION> ,  Supp. 1 S.C.R. 586 and <ORG> etc. v. <ORG>.,  3 S.C.R. 21, relied upon. In the instant case, the aluminium cans prepared by the appellant are employed entirely by it in the manufacture of flashlights, and are not sold as aluminium cans in the market. The record discloses that the aluminium cans, at the point at which excise duty has been levied, exist in a crude and elementary form incapable of being employed at that state as a component in a flashlight. The cans have sharp uneven edges and in order to use them as a component in making flashlight cases the cans have to undergo various processes such as trimming, threading and redrawing. After the cans are trimmed, threaded and redrawn they are reeded, beaded and anodised or painted. It is at that point only that they become a distinct and complete component, capable of being used as a flashlight case for housing battery cells and having a bulb fitted to the case. Therefore, it is difficult to believe that the elementary and unfinished form in which they exist immediately after extrusion suffices to attract a market. No satisfactory material to the contrary has been placed by the respondents. The record discloses that whatever aluminium cans are produced by the appellant are subsequently developed by it into a completed and perfected component for being employed as flashlight cases. [166 E-H; 167 A-C;] JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1103 of 1972.

From the Judgment and Order dated 22nd February, 1972 of <ORG> in Special Appeal No. 307 of 1971.

Dr. <NAME>, <NAME>, <NAME> and <NAME> for the Appellant.

<NAME>, <NAME> and <NAME> for the Respondents.

The Judgment of the Court was delivered by <NAME>, J. This appeal by certificate granted by <ORG> raises the question whether the manufacture of aluminium cans or torch bodies is liable to excise duty under Entry 27(e) of the First Schedule to the Central Excises and Salt Act , 1944.

The appellant, <ORG>, is a public limited company and carries on the business of the manufacture and sale of flashlights (torches), dry cell batteries, chemicals and plastics. The flashlights are manufactured by one of its <ORG>, the Eveready Flashlight Campany, Lucknow. The appellant purchases aluminium slugs from the manufacturers of aluminium in India and produces aluminium cans or torch bodies at its factory by a process of extrusion. Before March 1, 1970 aluminium cans were subjected to basic excise duty at 20 per cent ad valorem plus special duty at 20 per cent of the basic duty on a value of Rs. 8,600 per metric tonne fixed as the tariff value by <ORG> by a Notification dated January 21, 1969. By an amendment incorporated in the Finance Act 1970 with effect from March 1, 1970 the basic duty was fixed at 25 per cent ad valorem plus special duty at 20 per cent of the basic duty. By Notification No. 65/70 dated March 1, 1970 the Notification of January 21, 1969 was rescinded.

The appellant recceived a letter dated March 3, 1970 from the Superintendent of <ORG>, Lucknow stating that the tariff rate of duty on extruded shapes and sections of aluminium had been raised and that aluminium cans would be subjected to duty on ad valorem basis on the value as determined under section 4 of the Act, and that the appellant should send price lists for approval. The appellant, anxious to avoid coercive action, filed price declarations in which the price of aluminium cans was calculated as the cost of production plus a margin of profit of 5 per cent of the cost. The appellant, however, took the position that aluminium cans were neither sold nor were capable of being sold in the market, and therefore could not be described as 'goods' for the purposes of the <ORG>s and Salt Act , 1944. It was also asserted that the preparation of aluminium cans out of aluminium slugs did not amount to manufacture, and that aluminium cans were merely an intermediate products in the manufacture of flashlights. The contentions of the appellant did not find favour with the excise authorities.

The appellant filed a writ petition in <ORG> for a mandamus directing the excise authorities not to levy and collect excise duty on aluminium cans, and to refund the excise duty levied and collected from the appellant on aluminium cans from March 1, 1965. A learned Single Judge of <ORG> allowed the writ petition by his judgment and order dated April 15, 1971, but on appeal by <ORG> <ORG> of <ORG> reversed the judgment and order of the learned Single Judge and dismissed the writ petition on February 22, 1972. Before the learned Judges an attempt was made by the appellant to show that the process employed in the preparation of the aluminium cans could not be described as a process of "extrusion" but in fact should properly be described as a process of "impact extrusion". The learned Judges were not impressed by the distinction attempted by the appellant and held that the manufacture of the aluminium cans fell under Entry 27(e) of the First Schedule to the Central Excises and Salt Act , 1944, which refers to "extruded shapes and sections including extruded pipes and tubes". The learned Judges pointed out further that even otherwise the aluminium cans would fall under Entry 27(d) which mentions "pipes and tubes other than extruded pipes and tubes", and inasmuch as the rate of duty was the same the point raised by the appellant was of no significance. The learned Judges also held that the production of aluminium cans from aluminium slugs amounted to manufacture and that the aluminium cans could be described as "goods" for the purposes of the Central Excises and Salt Act , 1944.

The only contention urged by the appellant before us is that the aluminium cans produced by the appellant cannot be described as "goods" for the purposes of excise duty inasmuch as they are not marketable and are prepared entirely by the appellant for the flashlights manufactured by it.

It does seem to us that in order to attract excise duty the article manufactured must be capable of sale to a consumer. Entry 84 of List I of Schedule VII to the Constitution specifically speaks of "duties of excise on tobacco and other goods manufactured or produced in India...", and it is now well accepted that excise duty is an indirect tax, in which the burden of the imposition is passed on to the ultimate consumer. In that context, the expression "goods manufactured or produced" must refer to articles which are capable of being sold to a consumer. <CITATION> ,  Supp. 1 S.C.R. 586, this Court considered the meaning of the expression "goods" for the purposes of the Central Excises and Salt Act , 1944 and observed that "to become 'goods' an article must be something which can ordinarily come to the market to be brought and sold", a definition which was reiterated by this Court in <ORG>. v. <ORG>.,  3 S.C.R. 21.

The question here is whether the aluminium cans manufactured by the appellant are capable of sale to a consumer. It appears on the facts before us that there are only two manufaturers of flashlights in India, the appellant being one of them. It appears also that the aluminium cans prepared by the appellant are employed entirely by it in the manufacture of flashlights, and are not sold as aluminium cans in the market. The record discloses that the aluminium cans, at the points at which excise duty has been levied, exist in a crude and elementary form incapable of being employed at that stage as a component in a flashlight. The cans have sharp uneven edges and in order to use them as a component in making flashlight cases the cans have to undergo various processes such as trimming, threading and redrawing. After the cans are trimmed, threaded and redrawn they are reeded, beaded and anodised or painted. It is at that point only that they become a distinct and complete component, capable of being used as a flashlight case for housing battery cells and having a bulb fitted to the case. We find it difficult to believe that the elementary and unfinished form in which they exist immediately after extrusion suffices to attract a market. The appellant has averred on affidavit that aluminium cans in that form are unknown in the market. No satisfactory material to the contrary has been placed by the respondents before us. Reference has been made by respondents to the instance when aluminium cans were ordered by the appellant from Messrs. <ORG>. This took place, however, in 1966 as a solitary instance, and what happened was that aluminium slugs were provided by the appellant to Messrs. <ORG> for extrusion into aluminium cans. The facts show that the transaction was a works contract and nothing more. Apparently, the appellant made use of the requisite machinery owned by that firm for extruding aluminium cans. Not a single instance has been provided by the respondents demonstrating that such aluminium can have a market. The record discloses that whatever aluminium cans are produced by the appellant are subsequently developed by it into a completed and perfected component for being employed as flashlight cases.

Much emphasis has been laid by the respondents on the circumstance that the appellant had in the past treated the aluminium cans produced by it as excisable goods and had submitted price lists to the excise authorities which included a margin of profit in the specified price. It is clear that the appellant did so under the mistaken belief that the aluminium cans attracted excise duty. The margin of profit included in the price was arrived at notionally, in order merely to comply with the demand of the excise authorities for the submission of price lists. The conduct of the appellant in the past, having regard to the circumstances of the case, cannot serve as evidence of the marketability of the aluminium cans. Indeed, subsequent price lists were submitted under "protest" by the appellant, who maintained that the article did not attract excise duty.

We are satisfied upon the material before us that the aluminium cans produced by the appellant cannot be described as excisable goods and therefore do not fall within the terms of s.3 of the Central Excises and Salt Act , 1944 read with Entry 27 of the First Schedule thereto.

In the result, the appeal is allowed, the judgment and order dated February 22, 1972 of <ORG> of <ORG> are set aside and the judgment and order dated April 15, 1971 of the learned Single Judge of that High Court are restored. The appellant is entitled to its costs of this appeal.

M.L.A. Appeal allowed.