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Judgment
Ramanujam, J.—The petitioner is the same in all the above writ petitions and it is a company engaged in the manufacture of different varieties
of paper from the year 1962.
With a view to encourage investment in new equity shares and to stimulate industrial output, the Government of India introduced certain special
provisions in Chapter XXII-B of the Income Tax Act, 1961, for the grant'' of tax credit certificates. Section 280ZD coming under that Chapter
provides for the grant of tax credit certificate by way of incentive for the increased production of goods. With a view to carry out the purposes of
this section the Government of India framed a scheme called ""Tax Credit Certificate (Excise Duty on Excess Clearance) Scheme, 1965"",
hereinafter referred to as the scheme. Under the provisions of the said scheme the amount of tax credit to which a manufacturer in paper is entitled
is calculated at the rate of 15 per cent, of the excise duty payable on the quantity of excess production during the financial year as compared to the
production in the base year. Financial year 1964-65 is defined as the base year in relation to an existing undertaking.
With reference to the excess clearance of goods during each of the financial year commencing from April 1, 1965, to March 31, 1970, over and
above the quantity cleared in the base year, 1964-65, the company made an application for the grant of tax credit certificate u/s 280ZD of the
Income Tax Act, 1961, to the Deputy Director of Central Excise, New Delhi, the Central authority, under the said Scheme. The said Central
authority determined the amount of tax credit for which the company is entitled to after disallowing a substantial portion of the claim of the
company. The amounts claimed as tax credit and the amount sanctioned by the Central authority for each of the said years have been set out
below :
W.P. No. Year Amount claimed Amount sanctioned Date of order
Rs. Rs.
2593/73 1965-66 95,680.12 85,315 17-5-72
2586/73 1966-67 2,05,832.23 1,51,621 21-3-68
2596/73 1967-68 85,977.35 71,735 14-10-68
2595/73 1968-69 3,35,098.78 1,75,634 30-5-69
2597/73 1969-70 7,19,435.49 3,10,139 27-6-72
The company thereafter filed appeals against the orders passed by the Central authority to the Director of Inspection, Customs and Central
Excise, New Delhi, the appellate authority under the Scheme. The appellate authority agreed with the interpretation placed on Section 280ZD by
the Central authority. It, however, accepted the claim of the company that there has been mistakes in calculating the excess clearance and, there
fore, directed the Central authority to rectify the mistakes and modify the tax credit certificates accordingly. The company has now challenged the
validity of the orders passed by respondents Nos. 1 and 2 on the ground that Section 280ZD of the Income Tax Act and the provisions of the
Scheme have not been properly construed, and that they have erred in disallowing a substantial portion of the claim of the petitioner-company for
the grant of tax credit certificate. The four contentions that were urged by the company before us are:
(1) The tax credit certificates should be for the amount of excise duty payable in respect of the goods manufactured by the petitioner and not
actually paid,
(2) The tax credit certificates should also cover the special excise duty payable by the company u/s 27(4) of the Finance Act, 1973,
(3) The amount of tax credit certificate to which the company is entitled should be determined item-war and not with reference to the aggregate
quantity of goods produced, and
(4) The duplex board which is manufactured by the petitioner, though an excluded item under the excise tariff, should also be taken for the purpose
of determining the amount for which tax credit certificate is to be given.
Before dealing with the above four contentions it is necessary to set out the relevant provisions of the Act touching the dispute. Section 280ZD
provides for the issue of tax credit certificates in relation to increased production of certain goods. Sub-section (1) of that section is as follows:
Subject to the provisions of this section, a person, who during any financial year commencing on the 1st day of April, 1965, or any subsequent
financial year (not being a year commencing on the 1st day of April, 1970, or any financial year thereafter) manufactures or produces any goods,
shall be granted a tax credit certificate for an amount calculated at a rate not exceeding twenty-five per cent, of the amount of the duty of excise
payable by him on that quantum of the goods cleared by him during the relevant financial year which exceeds the quantum of the goods cleared by
him during the base year, whether the clearance in either case is for home consumption or export.
Sub-section (2) says that the goods in respect of which tax credit certificate shall be granted under sub-section (1) and the rate at which amount
of such certificate shall be calculated shall be as specified in the Scheme. Sub-section (3) enables the Central Government to specify the goods and
the rates for purposes of Sub-section (1), having regard to the following factors, namely
(a) the need for stimulating industrial output;
(b) the need for financial assistance to industrial undertakings engaged in the manufacture or production of such goods ; and
(c) any other relevant factor.
The expressions ""base year"" and ""duty of excise"" occurring in Sub-section (1) extracted above have been defined in Sub-section (6). ""Base
year"" has been defined in relation to an existing undertaking, as the financial year commencing oh the first day of April, 1964, and, in relation to any
other undertaking, the financial year in which such undertaking begins to manufacture or produce such goods referred to in Sub-section (1). ""Duty
of excise"" has been defined as the duty of excise leviable under the Central Excises and Salt Act, 1944. Section 280ZE enables the Central
Government to frame one or more tax credit certificate scheme or schemes in relation to tax credit certificates to be granted under Chapter XXII-
B. In exercise of the powers conferred u/s 280ZE read with Section 280ZD Tax Credit Certificate (Excise Duty on Excess Clearance) Scheme,
1965, has been framed by a Notification No. G.S.R. 1636 dated 5th November, 1965 (See [1965] 58 ITR 65. Clause 3 of that Scheme provides
for the grant of a tax credit certificate in respect of any class of goods specified in column (2) of Schedule I of the Scheme falling under the item
specified in the corresponding entry in column (3) thereof for the amount calculated at the rate specified in the corresponding entry in column (4) of
the said Schedule. Clause 5 contemplates an application being made for the issue of a tax credit certificate by a person eligible for such a certificate
in respect of any class of goods to the Deputy Director of Inspection, Customs and Central Excise, New Delhi, who has been designated as the
Central authority in Form A in respect of each financial year for which he is so eligible and that such an application shall be accompanied by a
declaration in Form B of the goods cleared in the base year and the goods cleared in the relevant financial year. Schedule I of the Scheme gives the
percentage of tax credit to be given on the duty of excise payable on the quantum of goods cleared in the relevant financial year in excess of the
quantum cleared in the base year.
In this case, there is no dispute that the company is an existing undertaking and, therefore, the base year is the financial year commencing from
the first day of April, 1964, for the purpose of the said tax credit scheme. There is also no dispute as regards the quantum of goods cleared in the
base year, and as to the quantum of goods cleared in the relevant financial years commencing from April 1, 1965, to March 31, 1970. The dispute
between the parties is as to how the excess quantum cleared has to be determined and how the percentage of duty of excise payable on that
excess has to be determined or quantified. As already stated, in this case, the company is a manufacturer of paper which is one of the items of
goods covered by Schedule I to the Scheme. Paper falls under item 17 of Schedule I to the Central Excises and Salt Act, 1944, which prescribes
the different rates of excise duty for different kinds of paper based on its weight. Column (4) of Schedule I of the Scheme says that 15 per cent, of
the excise duty payable on the excess of the quantum cleared under the Central Excises and Salt Act, 1944, will be the amount for which the
company will be entitled to tax credit certificate. If the rate of excise duty payable on paper under the Central Excises and Salt Act had remained
constant or uniform no difficulty would have arisen as regards the interpretation of the provisions of the Scheme. However, as a result of certain
statutory notifications issued under the provisions of the Central Excises and Salt Act, Central excise duty payable thereunder had been exempted
or a concessional rate of duty has been levied in certain cases instead of the normal rate of levy. Apart from this, the rate of excise duty provided
for in the said Act has also been increased or supplemented by additional levies made under the various Finance Acts.
In this case, the first contention urged by the petitioner is that in determining the duty of excise payable on the excess quantum of goods cleared
the concessions or the exemptions given by the competent authorities under the, Central Excises and Salt Act shall be ignored and that the basic
rate of excise duty provided for in that Act in respect of paper should alone be taken into account for the purpose of determining the amount for
which the company is entitled to a tax credit certificate. According to the petitioner, the Scheme contemplates only one tax credit being given for
the amount of excise duty payable under the Act without reference to the concessions and exemptions granted thereunder, that the exemptions and
concessions are given for a different object and for a different purpose, and that as such they cannot be taken into account to reduce the benefit
which the company will be entitled to get under the Scheme which is intended for a different purpose, viz., to encourage a higher production of
particular class of goods. The petitioner says that the word ""payable"" occurring in column (4) of Schedule I to the Scheme cannot be understood
as ""paid"", that having regard to the definition of ""duty of excise"" in Sub-section (6}(b) of Section 280ZD, the amount of excise duty leviable under
the Act alone has to be taken as the basis and that the exemption or concessional notifications have relevance in finding out the duty of excise
payable under the Act. It is not possible to agree with the contention of the learned counsel for the petitioner. The duty (c)f excise leviable under
the Central Excises and Salt Act cannot always refer to the basic rate of duty set out in Schedule I to that Act. If by statutory notifications the basic
duty set out in Schedule I to the Central Excises Act is either completely exempted or reduced, the duty of excise leviable under the Act cannot be
determined without reference to the said statutory notifications. The expression ""duty of excise leviable under the Act"" occurring in Sub-section (6)
of ""Section 280ZD will always take in the statutory notifications which modi''fy the rate of duty referred to in column (4) of Schedule I to the Act.
The statutory notifications issued under the Act modifying the rate of excise duty cannot be divorced from the Act while ''determining the amount of
excise duty payable by a particular manufacturer. Apart from this Section 38 of the Central Excises and Salt Act, 1944, before its amendment in
1973, clearly says that all notifications issued under the Act shall, on its publication in the Official Gazette, have effect as if included in the Act. That
means that all the exemption and concession notifications have to be treated as being part of the Act and as automatically altering the basic rate of
excise duty referred to in column (4) of the First Schedule to that Act. Similarly, the word ""payable"" occurring in column (4) of Schedule I to the
Scheme has also to be understood with reference to the notifications giving exemption or concession in the duty leviable under the Act. Any other
interpretation will not only lead to an anomalous situation but will also defeat the purpose for which the tax credit certificate scheme was brought
into force. Take a case where the entire excise duty payable under the Act has been exempted in respect of manufacturers of a particular class of
goods. By virtue of that notification the manufacturers of those goods would not have paid any excise duty in respect of the goods cleared in the
base year or the financial year in which the tax credit certificate is claimed. If the petitioner''s contention were to be accepted and the exemption
notifications were to be ignored, the petitioner will get a tax credit certificate for an amount which he never paid to the excise department, which
means that he will get a credit for an amount which in fact he had not paid as excise duty. That will be doing violence to the expression ""tax credit"".
The learned counsel for the petitioner would submit that the Scheme cannot be understood as providing for reimbursement of any part of the excise
duty paid by the manufacturer, that the scheme is only an inducement for producing more goods and that as such any benefit that the manufacturer
gets under the Scheme need not depend upon the amount of excise duty actually paid by him. As already stated, even assuming that the Scheme
cannot be treated as one for reimbursement of the excise duty paid by the manufacturer, still the scope of the provisions of the tax credit scheme
cannot be so interpreted as conferring a benefit on the manufacturers without reference to the excise duty paid by them.
In (1938) 6 ITR 616 the scope of the word ""payable"" occurring in Section 28 of the Indian Income Tax Act, 1922, was considered by the
Lahore High Court. It was held therein that the word ""payable"" has to be understood as meaning ""to which he has been assessed"", whether the
amount has teen paid or not. This decision seems to proceed on the basis that the tax payable by a particular person has to be taken to be the
amount to which he has been assessed. In Assistant Collector of Central Excise, Calcutta Division Vs. National Tobacco Co. of India Ltd., , it
was held that the term ""levy"" is wider in its import than the term ""assessment"", that it may include both imposition of a tax as well as assessment.
Therefore, we are of the view that the term ""payable"" or ""leviable"" has to be understood as assessed. If so understood, the petitioner in this case
could not have been assessed to excise duty under the Central Excises and Salt Act without reference to the statutory notifications either exempting
from duty or granting concession in the rate of tax. We have to, therefore, reject the petitioner''s contention that the amount for which the petitioner
is entitled to a tax credit certificate should be determined without reference to the various exemption or concession notifications issued under the
Central Excises Act.
Then coming to the second contention that the said excise duty levied u/s 27(4} of the Finance Act has to be taken into account for the
purpose of determination of the amount for which the tax credit certificate should be given, the learned counsel for the petitioner relies on the
decision of the Supreme Court in Commissioner of Income Tax, Kerala Vs. K. Srinivasan, and submits that if the principle of that decision is to be
applied, the special excise duty levied u/s 27(4) of the Finance Act, 1973, has to be treated as part and parcel of the excise duty leviable under the
Central Excises and Salt Act, 1944. In that case, it was held that though Section 2 of the Finance Act, 1964, used merely the word ""income tax"",
that word should be taken to include surcharge, special surcharge and additional surcharge whenever payable under the various Finance Acts, as
the surcharge, special surcharge and the additional surcharge form part of the Income Tax and super-tax. The learned counsel for the respondent
would, however, refer to the subsequent decision of the Supreme Court in Madurai District Central Co-operative Bank Ltd. Vs. Third Income
Tax Officer, Madurai, and the decision of the Delhi High Court in ASSOCIATED CEMENT COMPANIES LTD. Vs. DIRECtor OF
INSPECTION, CUSTOMS AND CENTRAL EXCISE, NEW DELHI., in support of his submission that the special excise duty leviable under
the Finance Act, 1973, should be treated as an independent and separate charge and not as one leviable under the Central Excises Act.
In Madurai District Central Co-operative Bank Ltd. Vs. Third Income Tax Officer, Madurai, , the court has taken the view that both the
purpose and concept of the additional surcharge are different from those of Income Tax, that additional surcharge is leviable exclusively for the
purposes of the Union and as such it is to be treated as a distinct charge not dependent for its levlability on the assessee''s liability to pay Income
Tax or super-tax and that it is open to the legislature to exempt only Income Tax and not the surcharge or additional surcharge leviable under the
Finance Act. The reasoning given by the court in that case is that though the Income Tax Act is a permanent Act and the Finance Acts are passed
every year, and though the primary purpoae of the latter is to prescribe the rate at which the Income Tax is to be charged under the Income Tax
Act, that does not mean that a new and distinct charge cannot be introduced under the Finance Act and that, therefore, an exemption granted by
the Income Tax Act can be withdrawn by the Finance Act or the efficacy of that exemption may be reduced by the imposition of a charge. In this
view it was held that the exemption granted to the co-operative banks by Section 81{i)(a) in respect of Income Tax payable by them cannot
extend to the amount payable by them by way of additional surcharge. It is true that in this case the Supreme Court has treated the additional
surcharge as an independent tax while interpreting a provision for exemption.
ASSOCIATED CEMENT COMPANIES LTD. Vs. DIRECtor OF INSPECTION, CUSTOMS AND CENTRAL EXCISE, NEW
DELHI., directly dealt with the scope of Section 280ZD(6)(b) of the Income Tax Act and the provisions of the Tax Credit Certificate Scheme. In
that case, the manufacturer claimed that the special excise duty levied under the Finance Act of 1965 has to be taken into account for determining
the duty of excise payable by the manufacturer referred to in Section 280ZD(6)(b). After referring to the relevant provisions of the Tax Credit
Certificate Scheme, the court held that, having regard to the definition of ""duty of excise"" occurring in Sub-section(6}(b) of Section 280ZD, it is
not possible to include the special excise duty levied by Section 80 of the Finance Act of 1965 for the purpose of grant of a tax credit certificate
under that Scheme, and that the tax credit was to be given only in respect of the excise duty levied under the Central Excises and Salt Act on the
excess goods manufactured and cleared.
We are of the view that the principle laid down in the earlier decision of the Supreme Court in Commissioner of Income Tax, Kerala Vs. K.
Srinivasan, will be applicable to the facts of this case rather than the subsequent decision in Madurai District Central Co-operative Bank Ltd. Vs.
Third Income Tax Officer, Madurai, . With respect we are also not inclined to agree with the view expressed in ASSOCIATED CEMENT
COMPANIES LTD. Vs. DIRECtor OF INSPECTION, CUSTOMS AND CENTRAL EXCISE, NEW DELHI., . For one thing though the
special excise duty is imposed u/s 27 of the Finance Act, 1973, it can be levied and collected only under the Central Excises and Salt Act in view
of the provisions of Sub-section (4) of that Section. Secondly, the special excise duty is treated as an addition to the duty of excise payable on
such goods under the Central Excises and Salt Act, by virtue of subSection (3) of Section 27. Therefore, though the charge of special excise duty
is brought in by the Finance Act, the same is leviable only under the Central Excises and Salt Act as contemplated by Sub-section (4) of Section
The special duty which is also to be levied under the Central Excises Act will also come under the definition of ""duty of excise"" occurring in
Section 280ZD(6)(b).
As regards the third contention that the quantum of excess goods cleared should be calculated item-war and not on the basis of the aggregate
production, the petitioner relied on the decision in Titaghur Paper Mills Co. Ltd. Vs. Union of India (UOI) and Others, , Sub-section (1) of
Section 280ZD uses the expression ""quantum of the goods cleared"". Sub-section (2) says that the goods in respect of which a tax credit certificate
shall be granted under Sub-section (1) and the rate at which the amount of such certificate shall be calculated shall be as may be provided in the
Scheme. Clause 3 of that Scheme says that a certificate shall be granted in respect of any class of goods specified in column (2) of Schedule I and
falling under the items specified in the corresponding entries in column (3) for the amount calculated at the rate specified in the corresponding entry
in column (4). Column (2) deals with the class of goods and column (4) deals with the rate at which the tax credit is to be given in relation to the
items of goods referred to in column (2). Column (4) of Schedule I indicates different rates of tax credit for each class of goods. Therefore, Clause
3 of the Scheme read with columns (2) and (4) of the First Schedule clearly indicates that the rate of tax credit should depend upon the excess
goods cleared in respect of each category of goods. It appears that in this case the excess quantity cleared has been calculated on an aggregate
basis and an average rate of tax credit has been adopted. But according to us this does not appear to be strictly in pursuance of the provisions of
the Scheme. In Titaghur Paper Mills Co. Ltd. Vs. Union of India (UOI) and Others, , where an assessee produced different varieties of paper in
three separate factories the question arose as to whether tax credit in relation to increased production u/s 280ZD was to be computed taking the
entire production of each variety of paper, and whether the production in each factory was to be considered separately. It was held that the tax
credit is to be computed separately in respect of each variety or quantity of paper which forms a distinct class of goods for the purpose of excise
duty and also for the purpose of Section 280ZE of the Act, and that the total quantity of the same class of goods manufactured or produced in all
the factories owned by the person should be taken into account together. With respect we are inclined to agree with the reasoning in that case that
each class of goods is a distinct variety and there is no reason why for the purpose of granting tax credit all varieties of paper with their separate
and distinct qualities should be lumped together for the purpose of giving tax credit certificate and that such an interpretation will run counter to the
object of Section 280ZD and the Scheme so introduced. We have to, therefore, agree with the petitioner''s contention that the tax credit has to be
ascertained taking the goods manufactured item-war.
The last contention of the petitioner is that the duplex board cleared should also have the benefit of the tax credit certificate scheme. We have
no hesitation in rejecting this contention of the petitioner. Schedule I to the Scheme gives under serial No. (3) the following class of goods:
Paper, all sorts, other than (i) newsprint, and (ii) boards, including paste-board, mill board, straw-board, pulp board, card coated board.
Having regard to the nature of the entry, paper of all sorts other than newsprint and boards will be entitled to the benefit of the tax credit
certificate under that Scheme. When boards are specifically excluded from the entry, we do not see how the petitioner can claim the benefit of tax
credit certificate in respect of duplex board manufactured by it. This contention has, therefore, to be rejected.
The writ petitions are, therefore, partly allowed to the extent indicated above and the quantum of tax credit for each of the years will be
calculated accordingly. There will, however, be no order as to costs.