ORDER
P.C. Jain, Member (T)
1. Facts in brief are as follow :-Consequent to revision of duty structure on cigarettes in 1987, the appellants felt that a certain brand of theirs (Golden Flair FTK 106) could not stand the highly competitive market and its manufacture was stopped. Stock of 4428 million cigarettes were lying in stock. They got this brand cancelled from Director (Audit), the authority competent to approve brands of cigarettes. Later they filed, in the first instance, on 3.8.87 with the Collector Central Excise (the respondent herein) an application to seek permission to rip open the cigarettes and reuse the tobacco for a different brand of cigarettes. They had reminded the Collector vide their letters 7.10.87 & 1.2.88 to give his approval expeditiously. The appellants claim that the Collector had been duly apprised of the deteriorating condition of the cigarettes and the perishable nature of the commodity. Since no approval came, the appellants allege, they applied on 23.4.88 for destruction of the cigarettes under the provisions of Rule 49 of the Central Excise Rules because they considered the cigarettes unfit for marketing or for consumption. The Collector, without affording any opportunity of hearing or without a notice to the applicants rejected the appellant’s application for destruction but permitted them to rip open the cigarettes and reuse the tobacco subject to certain conditions.
2. The appellants’ learned advocate has urged that the procedure adopted by the respondent Collector is contrary to principles of natural justice. Had they been given any opportunity, they would have adduced sufficient evidence to his satisfaction that the cigarettes were not fit for marketing or for consumption.
3. The respondent Collector in his cross-objection to the appeal has urged that it is not incumbent upon him to give any opportunity of hearing or to show cause in this matter The power conferred on the Collector under Rule 49 is discretionary and not quasi-judicial. Heard learned SDR as well.
4. I have carefully considered the pleas advanced on both sides. I am unable to accept the reasoning advanced by the respondent Collector. If a manufacturer claims any goods as unfit for marketing or for consumption and seeks destruction of the goods to avoid liability of excise duty, I am of the view that there is not much for the concerned authority to probe into such a claim. Generally, the position will be that the goods are genuinely unfit for consumption and they are so sub-standard that no customer is forthcoming for the goods or that their lowest possible price is such that no customer is available at that price. The last mentioned situation may arise in the case of goods where specific rate of duty rather than on the basis of value of the goods has been imposed so that the price cannot be lower than that element of duty. In these circumstances, to refuse permission to destroy the goods is clearly untenable. Excise duty is an indirect tax whose incidence generally falls on the consumers of the goods. Though strictly speaking, the even of excise duty occurs at the time of manufacturer of the goods, it is a tax on consumption of the goods within the country of production. That is the well-known and well-accepted concept of excise duty in fact as well as in law in this country. This is how Gwyer C.J. of the Federal Court of India in ‘Re:-Central Provinces and Berar Act No. XIV of 1938″ [Excise and Customs Reporter Compilation First Edition 1982 – page 15 – para 76 at page 34] has expounded :-
“But its (Excise duty) primary and fundamental meaning in English is still that of a tax on articles produced or manufactured in the taxing country and intended for home consumption. I am satisfied that that is also its primary and fundamental meaning in India, and no one has suggested that it has any other meaning in entry No. 45 (of list I of 7th Schedule of the Constitution Act).”
5. There may be another situation. The goods may not be of such a quality as being unfit for marketing or for consumption in the absolute sense. In other words, there may be some customers available for the product. We see so many goods of ‘seconds’ or sub-standard quality. Normally any businessman or manufacturer would like to get whatever price he can get rather than completely destroy the goods and incur total loss of the cost of production of those goods. Yet there may be some manufacturers, who for reasons of their reputation in selling high quality goods may like to destroy even slightly sub-standard goods lest their reputation be affected. Even in such a case, I am doubtful whether the Collector can refuse permission for destruction. He may put more stringent conditions for destruction in such a case so that there is no leakage of duty is a different matter. It is for this reason, I am tentatively of the view, that the words “claimed by the manufacturer” have been advisedly used in the 2nd proviso to Rule 49(1). In other words, it is the ‘claim’ of the manufacturer that these are unfit for marketing or for consumption (and therefore consequent destruction) which would entitle him to nonliability of duty. If this view is not acceptable, the second proviso to Rule 49(1) would have been to the effect :-
“Provided further that the proper officer may not demand duty due on any goods which are unfit for consumption or for marketing subject to such conditions as may be imposed by the Collector by order in writing.”
rather than what it is, as reproduced below :-
“Provided further that the proper officer may not demand duty on any goods claimed by the manufacturer as unfit for consumption or for marketing subject to such conditions as may be imposed by the Collector by order in writing.”
6. Be that as it may, the assertion of the appellants is that the goods under consideration are unfit for marketing or for consumption. Collector ought to have given them the opportunity to prove it. It appears from the impugned order that he has not caused any enquiry himself that it is not so. The learned Collector is under an erroneous impression that it is not a quasi-judicial matter when his refusal saddles the manufacturer with a huge pecuniary liability by way of duty. The fact that such proceedings are quasi-judicial in nature is settled by the Supreme Court in Behari Lal v. I.T.O. (AIR 1981 S.C. 1585). Under Clause (vi) of Section 226(3) of the Income Tax Act, an Income Tax Officer takes a statement on oath from a person (garnishee) that he does not have any money due to an income tax assessee and if such I.T.O. discovers the statement of the garnishee to be false in any material particular, he may impose upon the garnishee a liability to the extent of his (garnishee’s) liability to the assessee, or to the extent of assessee’s liability for any sum due under the Income Tax Act, whichever is less. Question arose before the Supreme Court whether the I.T.O. could impose liability on such garnishee on mere discovery of the statement being false in any material particular, without causing any quasi-judicial enquiry involving observance of principles of natural justice. The Supreme Court observed as follows :-
“Now it is obvious that under Clause (vi), the discovery by the Income Tax Officer that the statement on oath made on behalf of the garnishee is false in any material particular has the consequence of imposing personal liability for payment on the garnishee and it must therefore be a quasi-judicial decision preceded by a quasi-judicial enquiry involving observance of the principles of natural justice.”
(emphasis supplied)
Here also, the appellant has stated that goods for which he seeks permission to destroy are unfit for consumption or marketing Collector’s refusal disentitles the appellant to non-liability of any duty under second proviso to Rule 49(1). In other words, he incurs the duty liability on such goods. Collector’s decision therefore, is a quasi-judicial decision which should have preceded by a quasi-judicial enquiry involving principles of natural justice.
7. Accordingly, I hold that there has been a miscarriage of natural justice. Therefore, I remand the case to the Collector with a direction that he should readjudicate the case in accordance with the principles of natural justice. I also accept the learned advocate’s plea for early readjudication on the ground of the appellants godowns are full by non-marketable goods. Accordingly, the Collector shall readjudicate the case within one month of the receipt of this order.
8. Operative part of the order announced in the open court.