# N. B. SANJANA v. ELPHINSTONE MILLS (Vaidia/ingam, J.) 507

- **Citation:** [1971] 3 S.C.R. 506
- **Court:** Supreme Court of India
- **Decided:** 1971
- **Case number:** Civil Appeal No. 1467 of 1967
- **Bench:** J.M. Shelat, C. A. Vaid!Al!Ngam
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/n-b-sanjana-v-elphinstone-mills-vaidia-ingam-j-507-5176
- **Pages:** 16

## Headnote

Centrul Excise Rules, 1944, rr. 9, IO und JOA-Scope of.
·'Lev)", 'Short .f,.evy' 'paid' in r. 10, meuni1111 of.
Under r. 8 of the Central Excise Rule;, 1944, made under ihe Central
:Excise and Salt Act, 1944, the Central Government issued a rrotific.ation
.exempting cotton fabrics from excise duty.
The. respondents owned a
.textile mill and factory.
They manufactured grey cloth which
was
remoVed_ from the mill and kept_ in a go<lown anJ later removed to the
factory for being processecj into leather cloth which was stored in another
_godown .. in the factory, from where it was taken out as finished product.
:rbe. removat at each stage was done after filling the prescribed forms
.and· with the permission of the Excise .Inspector lncharge.
In each of
.the forms filled by the respondents upto July 30. 1960. the Excise Jnspcc-
·tof ,had made an assessment shOwing the rate of duty and the amount
·Of total duty payable as 'nil'.
Later, the excise authorities thought the
·gOOds )Vere not _of the description exempted under the notification an<l
·Oft . NOventber 3, 1961, two notices were issued, calting upon the respon-
-dea(s to make certain payments, one under r. 1 OA and the other under
·r. 9· Of \he Rules.
The respondents protested and filed a writ petition in
the Higb COurt.
The High Court held that the proper rule applicable
wl:(s r. tO· bti.t that as the demand notices were not issued within 3 months
a" required by that rule, tlle notices were illegal and void.
In appeal to this Court.
·
HELD : ( 1) R ;tie I OA cannot apply when a short levy . is made
ttit~ugh crro'r or misconstruc'tion on the part of an officer as such a cas~
is spcF,ifically provided lop by 'r. 10, because, r. JOA deals with residuary
powers and docs not apply;.wlien specific provision for collection of duty
is provided for by other rules: J516 H; 517 A; 521 DJ
(2) The proper provision undet w~ich uction should have been taken,
if at all, is r .. JO. Under r. IO. when duties or charges have been "'"'''"
Jevied through inadvertence. error, collusion or misconstruction on the
part of an officer, the person chargeable with the duty or charge shall
pay the deficiency on written demand being made within three months·
from the date on which the duty or charge was paid.
Though the words
used are 'shert-levied' and 'paid', in order to attract r. JO it is not _necessary that ~me amount of luty should have been assessed and that 'h~
said amount should also 11ave been actually paid.
Jt will apply
cv'~n
10- cases where there has been' a nil assessment. in \.\'hich case. the entire
duty later on assessed must be consiJcrc<l to be the duty originally
short-levied. [519 F-G; 520 E-F; 521 D-E]
(a) The cxpFession 'levy' is not used in the Act or the Roles as
meaning actual collection. because. s. 3 (I) of the Act uses both the
expilcsSJons 'levied' and 'collected'. [514 G-H]
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N. B. SANJANA v. ELPH!NSTONE MILLS (Vaidia/ingam, J.) 507
( b) The expression 'paid' in r. IO should not be read in a vacuum
and it will not be right to construe it literally as 'actually paid'.
The
word will have to be understood and interpreted in the context in whi~h
it appears. If the literal const.ruction is accepted, then in a case where
an assessee, in collusion, manages to have a very petty amount of duty
assessed, he ·can, if he paid the amount, effectively plead limitation of
three months, but, when no duty has been levied there would be no
period of limitation, a result which would be anomalous. Therefore, the
proper interpretation to be placed on the expression 'paid' is 'sought to
have been paid.'
(c) This interpretation will not cause any difficulty in calculatin11 the
period of three months. The Act and the Rules provide very elabora·
to:Jy the staae and the time when the duty is to oe paid and that must
t,;; considered to be the sta1e or time when the duty 'ought to have been
p.Ud', and the period of three months will be counted from that μme.
(

## Text

_Characters 0–39,779 of 43,912. This is a partial read: ask again with offset=39779 for what follows._

506
.N. B. SANJANA, ASSIST ANT COLLECTOR OF CENTRAL
A
EXCISE, BOMBAY & ORS.
\',
:ELPHINSTONE SPINNING & WEAVING MILLS CO. LTD,
J miuary 22, 1971
(J.M. SHELAT AND C. A. VAID!AL!NGAM, JJ.J
Centrul Excise Rules, 1944, rr. 9, IO und JOA-Scope of.
·'Lev)", 'Short .f,.evy' 'paid' in r. 10, meuni1111 of.
Under r. 8 of the Central Excise Rule;, 1944, made under ihe Central
:Excise and Salt Act, 1944, the Central Government issued a rrotific.ation
.exempting cotton fabrics from excise duty.
The. respondents owned a
.textile mill and factory.
They manufactured grey cloth which
was
remoVed_ from the mill and kept_ in a go<lown anJ later removed to the
factory for being processecj into leather cloth which was stored in another
_godown .. in the factory, from where it was taken out as finished product.
:rbe. removat at each stage was done after filling the prescribed forms
.and· with the permission of the Excise .Inspector lncharge.
In each of
.the forms filled by the respondents upto July 30. 1960. the Excise Jnspcc-
·tof ,had made an assessment shOwing the rate of duty and the amount
·Of total duty payable as 'nil'.
Later, the excise authorities thought the
·gOOds )Vere not _of the description exempted under the notification an<l
·Oft . NOventber 3, 1961, two notices were issued, calting upon the respon-
-dea(s to make certain payments, one under r. 1 OA and the other under
·r. 9· Of \he Rules.
The respondents protested and filed a writ petition in
the Higb COurt.
The High Court held that the proper rule applicable
wl:(s r. tO· bti.t that as the demand notices were not issued within 3 months
a" required by that rule, tlle notices were illegal and void.
In appeal to this Court.
·
HELD : ( 1) R ;tie I OA cannot apply when a short levy . is made
ttit~ugh crro'r or misconstruc'tion on the part of an officer as such a cas~
is spcF,ifically provided lop by 'r. 10, because, r. JOA deals with residuary
powers and docs not apply;.wlien specific provision for collection of duty
is provided for by other rules: J516 H; 517 A; 521 DJ
(2) The proper provision undet w~ich uction should have been taken,
if at all, is r .. JO. Under r. IO. when duties or charges have been "'"'''"
Jevied through inadvertence. error, collusion or misconstruction on the
part of an officer, the person chargeable with the duty or charge shall
pay the deficiency on written demand being made within three months·
from the date on which the duty or charge was paid.
Though the words
used are 'shert-levied' and 'paid', in order to attract r. JO it is not _necessary that ~me amount of luty should have been assessed and that 'h~
said amount should also 11ave been actually paid.
Jt will apply
cv'~n
10- cases where there has been' a nil assessment. in \.\'hich case. the entire
duty later on assessed must be consiJcrc<l to be the duty originally
short-levied. [519 F-G; 520 E-F; 521 D-E]
(a) The cxpFession 'levy' is not used in the Act or the Roles as
meaning actual collection. because. s. 3 (I) of the Act uses both the
expilcsSJons 'levied' and 'collected'. [514 G-H]
B
c
D
E
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c
D
E
F
G
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N. B. SANJANA v. ELPH!NSTONE MILLS (Vaidia/ingam, J.) 507
( b) The expression 'paid' in r. IO should not be read in a vacuum
and it will not be right to construe it literally as 'actually paid'.
The
word will have to be understood and interpreted in the context in whi~h
it appears. If the literal const.ruction is accepted, then in a case where
an assessee, in collusion, manages to have a very petty amount of duty
assessed, he ·can, if he paid the amount, effectively plead limitation of
three months, but, when no duty has been levied there would be no
period of limitation, a result which would be anomalous. Therefore, the
proper interpretation to be placed on the expression 'paid' is 'sought to
have been paid.'
(c) This interpretation will not cause any difficulty in calculatin11 the
period of three months. The Act and the Rules provide very elabora·
to:Jy the staae and the time when the duty is to oe paid and that must
t,;; considered to be the sta1e or time when the duty 'ought to have been
p.Ud', and the period of three months will be counted from that μme.
(519 G-Hl
Gursahai SaiKal v. C.I.T. Punjab, [1963) 3 S.C.R. 893 followed,
Allen v. Thorfl Electrical lndu.•tries Ltd. (1968) 1 Q.B. 487, referred
to.
(3) Rule 9 does not also apply to the facts of the case.
Rule 9(0
provides for the time and manner Of payment of duty. To attract r. 9(2}
the goods should have been removed in contravention of sub-r. ( 1), IJhat
is, clandestinely and without assessment; but in this case there. is no such
dandestine removal without assessment. Moreover, sub·r. (2) is a ·penal
provision applicable where there is evasion of payment of duty, since the
party is a1'o made liable to a penalty and confiscation. (520 G-H; 52 ! /\.CJ
J. K. Steel v. Union. [1969) 2 S.C.R. 481, followed.
Therefore, the demands having been made long after the expiry, of
the period of three months referred to in r. 10. the demonds are not valid.
CIVIL APPELLATE JuRISDICTION : Civil Appeal No. 1467 of
1967.
Appeal from the judgment and order dated July 1, 2, 1965 of
the Bombay High Court in Appeal No. 69 of 1963.
V. A. $eyid Muhammad and S. P. Nayar, for the appellants.
C. K. Daphtary, Ani/ B. Diwan, Suresh A. Shroff, Ravinder
Narain and 0. C. Mathur, for the respondent.
S. J. Sorabjee and 0. C. Mathur, for the intervener.
The Judgment of the Court was delivered by
Valdiallngam, J. This appeal by certificate is directed against
the judgment and order of the Division Bench of the. Bombay
High Court dat~ July 1/2, 1965 confirming the decision dated
August 617, 1963 of the learned Single Judge in Miscellaneous
petition No. 20 of 1962 quashing the two notices of demand
dated November 3, 1961 issued by the second appellant as also
the notice dated December 2, 1961 issued by the first appellant
for payment of the amount covered by the said two notices.
The circumstances leading up to tile filing of the writ petition
may be mentioned. The respondents own a textile mill at
3-918 Sup. C.1./71
508
SUPREME COURT REPORTS
[1971] 3 S.C.R.
Elphinstone Road, Pare!, Bombay where tiley manutactui·~, inter
alia, grey cloth. They also have a factory situated at Tulsi Pipe
Lane Road, Bombay for processing grey cloth into various other
goods like leath.~r cloth, book binding cloth and other coated
fabrics. Under s. 3 of the Central Excise and Salt Act, 1944
(hereinafter to be referred as the Act) duty is imposed on all
excisable goods produced or manufactured in India at the rates
set forth in the First ScheduLe to the Act. Item 19 of the First
Schedule includes cotton fabrics.
Section 3 of the Act provides
that excise duty 's to be collected in such manner as may be prescribed by rules made under the Act. On cotton fabrics additional
excise duty called handloom c.-..ss is also imposed under the addition.al Duties of Excise
(Goods of Special Importance) Act,
1957 and Khadi and other Handloom Industries Development
(Additional Excise Duty on Cloth) Act, 1953, respectively. Under
s. 37 of the Act, the Central Government has made rules called
the Central Excise Rules, 1944 (hereinafter to be referred as the
Rules). Rule 8 gives power to the Central Government to exempt
by notification subject to such conditions as may be specifietltherein any excisable goods from whole or any part of duty leviable on
such goods. Accordingly the Central Government issued a notification Ex. A dated January 5, 1957 exmpting cotton fabrics
mentioned therein wholly from excise duty. Hem No. 2, related
to 'leather cloth and inferior or imitation leather cloth ordinarily
used in book binding'. The exemption granted in respect of this
item and another item was withdrawn by the Central Government
with effect from July 30, 1960 by notification Ex. D dated July
29, 1960.
There does not appear to have been any controversy before the
High Court that the two notices dated November 3, 1961 and the
notice dated December 2, 1961 related only to goods falling under
item No. 2. of the notification Ex. A. The respondents between
July 4, 1958 and July 30, 1960 manufactured grey cloth in the
textile mill and sent some of those items to their factory for being processed and manufactured into leather cloth and imitation
leather cloth.
During the material period the company used to
manufacture grey cloth and
used to store
them in a bonded
godown. Periodically they used to send to the factory such quantities of grey cloth as were required after filling in the necessary
forms prescribed by the rules and after obtaining the necessary
permission in the manner prescribed by the rules from the Excise
Inspector Incharge of the textile mill. The respondents had,
however, not obtained the requisite licence and so they paid excise
duty on grey-cloth manufactured in their mi!l during the period
July 4, 1958 and July 30, 1960 manufactured gmy cloth in the
manufaccturing leather cloth and imitation cloth.
The respondents la tr.r on obtained the necessary licencei with the result that
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N. B. SANJANA v. ELPH!NSTONE MILLS (Vaidialingam, J.) 509
they became entitled to remove the grey-clot~ man.ufactured at
their textile mill to their factory without paymg excise duty on
the grey-cloth at the time when the goods were removed. The
grey-cloth so removed after September 30, 1959 and before July
30 1960 used to be kept in the bonded godown. Those goods
we~e removed to the factory after filling up the nec~ssary forms
and obtaining the permission of the Excise Inspector Incharge
of the factory. The grey-cloth after it was processed and made
into leather cloth or imitation leather cloth was again stored in another bonded godown in the factory and they were remov~d by
the company as finished products after filling in form AR.I. pres·
cribed by the rules. There is again no dispute that in each of
these A.RI. forms the company had shown and made a declara·
tion that the excise duty payable on the goods governed by the
forms was 'nil'. Under the heading 'Assessment Memorandum'
in the said form the particulars regarding rate of duty and amount
of total duty payable on the goods referred to in the form had to
be filled up and signed by the Excise Inspector. There is no
controversy that in each of the A.0.1. forms filed by the respon•
dents during the period July 4, 1958 and July 30, 1960, the Ex•
cise Inspector Incharge, Leather Cloth Division has made an
assessment in the appropriate portion of those forms showing the
rate of duty and the amount of total duty payable as 'nil'. and has
affixed bis signature under such 'Assessment Memorandum'.
Therefore, it will be seen that all the goods removed by the respondents during the said period were shown by them as not liable
to pay any excise dtlty and were also assessed by the Excise Inspector as not liable to pay any duty.
Later on, the excise authorities appear to have entertained
some doubt whether the goods covered by these AR.I. forms
were of the description exempted under item No. 2 of the notifi·
cation Ex. A
Some correspondence took place between the
department. and the respondents. On November 3, 1961, the
second appellant issued two notices marked Ex. G. The first
notice issued under rule 1 OA required the respondents to pay a
sum of Rs. 1,07,146,39. In the particulars of demand it was
stated that the amount represented duty on leather cloth manufac·
tured out .of (i) non-duty paid cloth and (ii) duty paid cloth
cleared without payment of duty from October 1, 1959 to March
31, 1960.
The second notice of the same day issued under rule 9 called
upon the respon~ents to pay a sum of Rs. 1,502,24 representing
the extr~ processmg duty on leather cloth manufactured out of
duty paid cloth from July 4, 1958 to September 30, 1959.
.
'.fhese two notices were followed by the first appellant ·b
1ssumg a letter of demand dated December 2, 1961, Ex. H, callin~
510
SUPREME COURT REPORTS
[1971 J 3 S.C.R.
upon the respondents to pay up the amount as per the notice
A
issued by the second appellant. The respondents were advised
that if they are aggrieved with the decision they may go up in
appeal to the Collector of Central Excise, Bombay. The respondents sent a reply dated December 28, 1961 Ex. I, contesting
validity of the notices dated November 3, 1961 and December 2,
1961. They objected to the demand on the ground that the
B
notices were illeg~l : •d neither rule 9 nor rule 1 OA gave power
to the authorities to .. .e such notices.
They further contended
that the demands were barred by time. The respondents also
addressed a letter on the same lines to the Central Board of
Revenue.
As there was no favourable response from the appellants they
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filed the writ petition, out of which these proceedings arise, in the
High Court to quash Exhibits G and H.
The respondents contended before the High Court that neither
rule 9 nor rule 1 OA gave power to the appellants to issue the
demand notices. Their stand was that if at all it was rule 10 that
applied and as the demands have been made long after the period
of three months prescribed in the said rule, the notices were
illegal and void.
D
On behalf of the appellants it was urged that rule 10 has no
application as that rule will apply only when duties and charges
have been 'short-levied'. As initially no amount has been levied
E
in this case, rule 10 has no application. According to the appellants the rule applicable was rule 1<>A. Alternatively it was contended that if rule 1 OA did not apply, the demands made by them
were amply covered by rule 9 ( 2).
The learned Single Judge accepted the contention of the respondents and held that rule 10 .•applied and as the demand notices
had been issued long after the expiry of three months, Ex. G and
H, the notices, were illegal and void. In this view the learned
Single Judge quashed the said notices.
On appeal the Division
Bench confirmed the order of the learned Single Judge.
This is a convenient stage to refer to the relevant rules. They
are rules 7, 9, 10, JOA, 52 and 52A(l). We have already
referred to the fact that the rules have been made by the Central
Government under s. 37 of the Act. Those rules, referred to
above, are as follows :
"(7) Recovery of Duty :-Every person who produces, cures, or manufactures any excisable goods, or
who stores such goods in a warehous.e,
shall pay the
duty or duties leviable on such goods, at such time and
place and to such person as may be designated, in or
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N. B. SANJANA v. ELPHINSTONE MILLS (Vaidia/ingam, J.) 511
under the authority of these Rules, whether the payment of such duty or duties is secured by bond or
otherwise.
(9) Time and manner of payment of duty:-
( 1) No excisable goods shall be removed from any
place where they are produced, cured or manufactured
or any premises appurtenant thereto, which may be
specified by the Collector in this behalf, whether for
consumption, export, or manufacture of any other commodity in or outside such place, until the excise duty
leviable thereon has been paid at such place and in such
manner as is prescribed in these Rules or as the Collector may require and except on presentation of an appli·
cation in the proper form and on obtaining the permission of the proper officer on the form;
Provided that such goods may be deposited without
payment of duty in a store-room or other place of storage approved by the Collector under rule 27 or rule 47
or in a warehouse appointed or licensed under rule 140
or may be exported under bond as provided in rule 13;
Provided further that such goods may be removed
on part-payment of duty leviable thereon if the Central
Government, by notification in the
Official Gazette,
allow the goods to be so removed under rule 49;
Provided also that the Collector may, if he thinks
fit instead of requiring payment of duty in respect of
each separate consignment of goods removed from the
place or premises specified in this behalf, or· from a
store-room or wareh6use duly approved, appointed or
licensed by him keep with any person dealing in such
goods an account-current -0f the duties payable thereon
and such account shall be settled at internal, not exceeding one month aLd the account-holder shall periodically
make deposit therein sufficient in the opinion of the
Collector to cover the duty due on the goods intended
to be removed from the place of production, curing,
manufacture or storage.
( 2) If any excisable goods are, in contravention of
sub-rule ( i) deposited in, or remo~d from any place
specified therein, the producer or manufact~rer thereof
shall pay the duty leviable on such goods upon written
demand made by the proper officer, whether such demand is delivered personally to him, or is left at his
dwelling house, and shall also be liable to a penalty which
512
SUPREME COURT REPORTS
[ 1971] 3 S.C.R.
may extend to two thousand rupees, and such goods
shall be liable to confiscation.
(10) Recovery of duties or charges short-levied, or
erroneously refundedWhen duties or charges have been short-levied
through ina:dvertance, error, collusion. or mis-construction on the part of an officer, or through mis-statement
as to the quantity, description or value of such goods on
the part of the ownP-r, or when any such duty or charge,
after having been levied, has been owing to any such
cause, erroneously refunded, the person chargeable with
the duty or charge, so short-levied, or to whom such
refund has been erroneously made, shall pay the deficiency or pay the amount paid to him in excess, as the
case may be, on written demand by the proper officer
being made within three months from the
ciate on
which the duty or charge was paid or adjusted in the
owners account-current, if any, or from •the date of
making the refund.
(10-A) Residuary powers for recovery of sums due
to GovernmentWhere these Rules do not make any specific provision for the collection of any duty, or of any deficiency
in duty if the duty has for any reason been short levied,
or of any other sum of any kind payable to the Central
Government under the Act or these Rules, such duty,
deficiency in duty or sum shall, on a written demand
made by the proper officer, be paid to such person and
at such time and place, as the proper officer may
specify.
( 52) Clearance on payment dutyWhen the manufacturer desires to remove goods on
payment of duty, either from tl1e place or a premise
specified .under rule 9 or from a store-room or other
place of storage approved by the Collector under rule
47, he shall make application in triplicate (unless otherwise by rule or order required) to the proper officer in
the prop~r Form and shall deliver it to the officer at
least twelve hours (or such other period as may be
elsewher-.. prescribed or as the Collector may in
any
particular case require or allow) before it is intended to
remove the goods.
The officer,
shall, thereupon,
assess the amount
of duty due on the goods and on production of evidence
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N. B. SANJANA v. ELPH!NSTONE MILLS (Vaidialingam. J.) 513
that this sum has been paid into the Treasury or paid
in the account of the Collector in the Reserve Bank
of India or the State Bank of India, or has , been des-
. patched to the Treasury by money-order shall allow the
goods to be cleared.
52A-( I) Goods to be delivered on a GatepassNo excisable goods shall 'be delivered from a factory except under a gatepass in the proper Form or in
such other form as the Collector may in any particular
case or class of cases prescribe signed by the owner
of the factory and countersigned by the proper officer."
Dr. Syed Mohammad, learned counsd for the appellants urged
that going by a plain reading of rule 10, it is clear thaMhe said
rule will apply only to cases : ( 1) when an assessment has been
made
that
same amount
is
due
as
duty
and
(2)
when
the
said
amount
so
assessed
has
been
paid
by the party
c-Ollcerned. In
this
case,
he
pointed
out, there has been, no doubt, a11 order of assessment passed when
the goods were cleared by the party, but that order of assessment
was not one making the party liable to pay any duty, on the other
hand, it was an order of 'nil ,assessment' under which the party
was to pay no duty whatsoever. In consequence of such assessment, no duty having been paid, it cannot be stated that theroe
has been a short levy for any of the reasons mentioned in rule 10.
According to the learned counsel rule 10 will apply only when
there has been an assessment making the party liable to pay some
duty and that amount so assessed has also been actually paid
or adjusted by the party, as the case may be.
When later on
it is found that the amount so levied and paid falls short of the
correct amount that ought to have been levied and paid by the
party, rule 10 will stand attracted. In this connection he placed
very great reliance on the concluding part of rule I 0 where a
period of three months by way of limitation has been provided for·
calling upon the party to pay the deficiency an:! the period of
three munths is to be calculated "from the da~~ on which the duty
or charge was paid .... " He stressed that the use of the expression "paid" clearly indicates that som~ duty must have
been
actually paid by a party on a particular date and if that were not
so, it would be difficult to calculate the period of three months with·
in which a party can be called upon to make good the deficiency.
The counsel also urged that the word 'levy' in rule I 0 means actual
collection and that short levy, therefore, denotes that full duty
has not been collected. He also urged 'that rule IOA covers all
cases of short levy or non-levy for any reason whatsoever and the
notices issued by the appellants in this case are legal and valid.
He finally urged that even if it is held that rule 1 OA does not
514
SUPREME COURT REPORTS
[1971] 3 S.C.R.
apply, the notices could be sustained under rule 9(2) inasmuch
A
as the respondents have removed the goods without payment of
duty in contravention of rule 9 (1). The mere fact that one of the
notices issued on November 3, 1961 refers to rule lOA is not
on tha~ ground invalid when the authorities have ample power
to issu.e such notices under rule 9(2).
Mr. Daphtary, learned counsel for the respondents and Mr.
Sorabjee, learned counsel for an intervener, have both contended
that the notices issued by the appellants squarely come under rule
10 and as they have been issued beyond the period of
three
months, they have been rightly held to be invalid and illegal.
Though the words used in rule 10 "duty or charge so paid", reading the rule as a whole it is clear that the rule does not contem·
plate that any amount should have been levied as a duty and
that the said amount should have been paid. The word "paid"
has only been used to provide a starting point of limitation of three
months, Though the ordinary meaning of the expression "paid"
is that some amount should have been actually paid as such, both
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the counsel pointed, out, that the said word should be cons~d D
in the context in which it appears. So read, it is pointed out that
the proper interpretation to be pla<l".d on the word "paid" is that
it has been used to denote the stage or time when the duty or
· charge ought to have been paid. Such a reading will not do any
violence to the language of rule 10. It is further pointed out that
the expression "short levied" in rule 10 will cover cases not only
levy of smaller amount that what is due but also of malting the
party not liable to pay any duty. In one case the short-levy will
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be .the difference of the amount actually levied and the correct
amount due; and in the other case the short levy will be the entire
amount of duty that is found to be actually due by a party. The
counsel further pointed out that rule 1 OA will apply only to those F
cases where no specific provision for collection of duty or any deficiency in duty has been made by the rules and that will apply
also to any other sum of any other kind payable to the Central
Government under the Act or the Rules. In this case, as the
party admittedly has been assessed to 'nil duty' by the officers
concerned and allow».d to remove the goods, the specific provision
for recovery of any short-levy is specifically provided for by rule
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counsel urged, that the High Court was right in holding that rule
l 0 applies and that the notices having been issued beyond the
period of three months are illegal and invalid.
We are 'Ilot inclined to accept the contention of Dr. Syed
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Mohammad that the expression 'levy' in rule 10 means actual
collection of some amoynt. The charging provision section 3(i)
specifically says "There shall be levied and collected in such ·a
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N. B. SANJANA v. ELPHINSTONE MILLS (Vaidialingam, J.) 515
manner as may ·be prescribed the duty of excise .... " It is to be
noted that sub-section ( i) uses both the expressions "levied and
collected" and that clearly shows that the expression "levy" has
not been used in the Act or the Rules as meaning actual collection. Dr. Syed Mohammad is, no doubt, well founded in his
contention that if the appellants have power to issue notice either
under rule IOA or rule 9(2), the fact that the notice refers specifically to a particular rule, which may not be applicable, will not
make the notice invalid on that ground as has been held by this
Court in J. K. Steel Ltd. v. Union of lndia( 1) :
If the exercise. of a power can be traced to a legitimate source, the fact that the same was purported to
have been exercised under a different power· does not
vitiate the exercise of the power in question. This is a
well settled proposition of law. In this connection reference may usefully be made to the -Oecisions of this
Court in B. Balakotaiah v. The Union of India and
ors( 2 ) and Afzal Ullah v. State of U.P.(3 ) •
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In this case, the officer who issued the two notices is compeE
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tent to make demands under both rules 9(2) and rule 10-A. But
in order to sustain the validity of the demand either under rule
9(2) or rule 10-A, the appellants will have to go further and
establish that the demands can be justified under either of the
rules.
Before we deal with the contentions of the learned counsel we
may state that rule 10-A was incorporated because of the decision of the Nagpur High Court in Messrs Chhota~hai Jethabhai
Patel v. Union of India('). The assessees in that case were a
firm .of tobacco merchants and manufacturers of bidis holding
licence under the Central Excise Rules. On the introduction in
Parliament of Bill No. 13 of 1951 on February 28, 1951, the
assessees. paid the requisite duty on tobacco stored by them under
the declared provision read with f.l"..ctions 3 and 4 of the Provincial Collection of Taxes Act, 1931. · The assessees cleared tobacco
from the warehouse between March 1, 1951 and April 28, 1951,
after obtaining clearance certificates from
the Range Officer
Central Excise. The rate of duty payable on un-manufactured
tobacco was increased by ithe Finance Act of 1951. On June 4,
1951 a demand was made by the Range Officer, Central Excise at
ithe increased rate and the assessees therein were asked to pay the
said increase. The assessees challenged the demand before the
High Court under Art. 226 of the Constitution on various grounds.
The Nagpur High Court held that rule 10 did not apply and that
the demand was invalid.
(I) [1969] 2 S.C.R. 481.
(3) [1964] 4 S.C.R. 991.
f7l [1958] S.C.R 1052.
(4) • J.L.R. [1952] Nag., 156.
516
SUPREME COURT REPORTS
[1971] 3 S.C.R.
After the decision of the Nagpur High Court, the Central
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Government by a notification dated December 8, 1951 amended
the Central Excise Rules, 1944 by the addition of a new rule
10-A. On the basis of this rule in respect of the same assessees a
further and fresh demand was made for payment of duty as per
the Finance Act, 19 51. The assessees challenged the validity of
the demand on the same ground as before. The Full Bench of
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the Nagpur High Court rejected the assessees' contention and held
that rule 1 OA covers a case for increased levy on the basis of a
change of law. This decision was-sought to be challenged before
this Court but without any success. In fact this Court in Chhotabhai Jethabhai Patel and Co. v.
The Union of India and an·
other(11) specifically rejected the assessees' claim regarding nonc
applicability of rule lOA stating that it had been specifically
designed "for the enforcement of a demand like the one arising in
the circumstauces of the case". The decision of this Court is an
illustration of certain types of cases to which rule 10-A will
apply.
·
This now takes us to the question of proper interpretation to
be placed on the expression "short-levied" and "paid" in rule 10.
Does the expression "short'levi'ed" mean that some amount should
have been levied as duty as conrended by Dr. Syed Mohammad or ·
will that expression cover even cases where the assessment is of
'nil duty', as contended by Mr. Daphtary. What is the meaning
of the word "paid" in rule IO? It is contended on behalf of the
appellants that it means "actually paid", whereas, according to
the respondents, it means "ought to have been paid". Taken
litetally,. the word "paid" does mean actually paid in cash. That
means that a party or an assessee must have paid some amount of
duty wharever may be the quantum. If this literal interpretation
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is placed on the expression "paid" in rule it is needless to state
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that it will support in a large measure the contention of Dr. Syed
Mohammad that rule 10 contemplates a short-levy in the sense
that the amount which falls short of the correct amount has been
assessed and actually paid. In our opinion, the expression "paid"
should not be read in a vacuu111 and it will not be right to construe
the said word literally, which means actually paid. That word
will have to be understood and interpretted in the context in
which it appears in order to discover its appropriate meaning. If
this is appreciated and the context is considered it is apparent
that there is an ambiguity in the meaning of the word "paid". It
must be remembered that rule 10 deals with recovery of duties or
charges short levied or erroneously refunded.
The expression
"paid" has been used to denote the starting point of limitation of
three months for the issue of a written demand. The Act and the
(I) [1962] Supp. [2] S.C.R. 1.
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N. B. SANJANA v. ELPHINSTONE MILLS (Vaidialingam, J.) SIT
Rules provide in great detail the stage at which and the time w~n.
the excise duty is to be paid by a party. If the literal construcuon
tha( the amount should have been actually paid is accepted, then
in case like the present one on hand, when no duty has been
levied, the Department will not be able to take any acti?n under
rule 10. Rule 10-A cannot apply when a short-levy
IS made
through error or mis-construction on the part ilf an officer, as
such a case is specifically provided by rule 10. Therefore, in our
opinion, the proper interpretation to be placed on the expression
"paid" is "ought to have been paid". Such an interpretation has
been placed on the expression "paid" occuring in certain other
enactments as in Gursahai Saigal v. Commissioner of bicome-tax,
Punjab( 11 ) and in Allen v. Thorn Electrical Industries Ltd.(').
In Gursahai Saigal v. The Commissioner of Income-tax, Punjab(1), the question arose as follows : In certain assessment proceedings under the Indian Income-tax Act,
1922, an assessee
was charged with interest under sub-section ( S) of s. l 8A of that
Act.
Under that sub-section interest calculated in the manner
laid down in sub-section ( 6) of s. I SA was to be added to the
tax assessed. Sub-section 3 of s. I SA dealt with cases of a person
who has not been assessed before and he was required to make
his own estimate of the tax payable by him and pay accordingly.
Sub-section ( 3) of s. l 8A was applicable to the assessee in that
case. However, he neither submitted any estimate nor did he pay
any advance tax. Under sub-section (6) of s. ISA it was
provided:
"Where in any year an assessee has paid tax under
sub-section (2) or sub-section (3) on the basis of his
own estimate, and the tax so paid is less than eighty per
cent of the tax detennined on the basis of regular assessment simple interest at the rate of six per cent per annum
from the 1st day of January in the financial year in
which the tax was paid up to ~he date of the said regular
assessment shall be payable by the assessee upon the
amount by which the tax so paid falls short of the said
eighty per cent."
This sub-section is to apply to cases where tax has been paid
by an assessee according to his own estimate but that estimate was
on regular assessment found to be deficient. Further, interest has
to be calculated from 1st January of the Financial Year in which
tax mentioned therein was paid and calculation has to be made
on the sho~ fall between the amount paid and eighty per cent of
the tax which was found payable on regular assessment.
Sub--
section ( S) of s. l SA provided :
(I) [196313 S.C.R. 893.
(2) 1968 l.Q.B. 487.
518
SUPREME COURT REPORTS
[1971] 3 S.C.R
"where, on making the regular assessment the
Income-tax Officer firids that no payment of tax has
been made in accordance with the foregoing provisions
of this section, interest calculated in the manner laid
down in sub-section ( 6) shall be added to the tax as
determined on the basis of the regular assessment."
The assessee in that case did not dispute that sub-section ( 3)
of s. 1 SA applied to him and that he should have made an 1estimate and paid advance tax. He also admitted that he never
made an estimate nor did he pay any advance tax whatsoever.
While admitting that sub-section (8) of s. 18-A applied to him,
the assessee contended before this Court that since he had not
paid any tax at all, it is not possible to calculate interest in the
manner laid down in sub-section ( 6). According to the assessee
there was no 1st day of January of a financial year in which the
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tax was paid and there was no question of a short fall between
eighty per cent of the tax payable on regular assessment and the
amount paid because he_ had paid nothing.
While rejecting .the
said contention this Court held :
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"The proper way to deill with such a provision is
to give it an interpretation which, to use the words of
the Privy. Council in Mahairam Kamjidas's (case )(1)
makes· the machinery workable utres
va/eat potius
quam pereat". We, therefore, think that we should
read sub•section ( 6) according to the provmon of
which interest has to be calculated as provided fa subsection (8) in a manner which makes it workable and
thereby prevent the clear intention of sub-sec.ion (8)
being defeated. Now, how is that best done? As we
have earlier said sub-section ( 6) deals with a case in
which tax has been paid and therefore it says that interest would be cali:ulated "from the 1st day of January
in the financial year in which the tax was paid". This
obviously c.annot literally be applied to a case where
no tax has been paid. If however· the portion of subsection (6) which we have quoted above iS tead as
"from the 1st day of January in the financial ·year in
which the tax ought to have been paid", the provision
becomes workable. It would not be doing too much
violenpe to the words used to read them in this way.
The tax ought to have been paid on one or other of the
dates earlier mentioned. The intention was that .intetest
should be charged from January 1, of the financial
year in which the tax ought to have been paid. Those
(I) 67 Indi•n Appeals 239.
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N. B. SANJANA v. ELPH!NSTONE MILLS (Vaidia/ingam, J.) 51 ~
who paid the tax but a smaller amount and thOl>e who
did not pay tax at all would then be ]lilt in the same
position substantially which is obviously fair and was
clearly intended."
Regarding the further contention that there was no short fall
as no tax has been paid it was observed :
"With regard to the other question about there be·
ing no shortfall between eighty per cent of the amount
of tax found payable on the regular assessment and the
amount of tax paid in a case where no--iax was paid, it
seems to us the position is much simpler. If no tax is
paid, the amount of such shortfall will naturally be the
entire eighty per cent. We also'tb).nk that the case before us is very near to Allen's case.(1 )"
The above . decision establishes two propositions :
( 1)
though the expression used was "paid" it is open to read it all
"ought to have been paid" having regard to the context in which
it appears and to make the provision of Jaw in which that expression appears workable; and (2) the short fall will be the entire
eighty per ce11t referred to sub-section (6) of s. 18A.
Applying the above principles to the case on hand, the expression "paid" in rule 10 can be reasonably read as "ought to have
been paid". Similarly even in cases where there has been a niI
assessment due to one or other of the circumstances mentioned in
rule 10 and if subsequently it is found <that duty is payable, then
the entire amount of duty should be considered to have been·
short-levied. The literal meaning of the expression "paid" as.
actually paid in cash has again not been adopted by the Court of
Appeal in Allen v. Thorn Electrical Industries Ltd. (2 ). Having
regard to the context in which the said expression appeared· in the
particular .provision which came up for interpretation, the Court
of Appeal construed the expression to mean "contracted to bepaid". Therefore, the contention of Mr. Daphtary that the expression "paid" should be construed as "ought to have been paid"
and even when no duty has been assessed, the entire duty when
subsequent!Y. assessed. will be ~ short-levy, which is ~
supported
by the dec1s1on of this Court m Gursahai Saigal v. Commissioner
of Income-tax, Punjab(") has to be accepted. It follows that in
order to attract rule 10, it is not necessary that some amount of
duty should have been. assessed and that the said amount should
have also been actually paid. That provision will apply even to
ca~ where there has been a nil assessment in which case t.'ie
entire duty later on assessed must be considered to be the duty
(I) 22 T.C. 15, 16, 17.
(2) [196811 Q.B. 487.
(3) [l 963] 3 S.C.R. 893.
520
SUPREME COURT REPORTS
(1971 J3 S.C.R.
originally short-levied.
There is also no difficulty in calculating
the period of three months. As pointed out above, the Act and
the Rules provide very elaborately the stage and the tiJ?le when the
duty is to be paid and if that is so that must be cons1?ered t? be
the stage or time when the duty ought to have been paid and 1f so
the period of three months will run from the time when th.e duty
ought to have been paid.
Dr. Syed Mohammad referred us to certain decisions of the
High Courts where· a demand has been sustained under rule 10 or
rule 1 OA. We have considered those decisions. In some of those
decisions there has been a short-levy due to the reasons mentioned
in rule l 0 and the demand also has been issued within the period
of three months and hence the notice had !:teen sustained under
rule 10. In other cases, it was specifically held that the demand
covered by the notice issued under rule 1 OA has not been specifically provided for by any other rule and the demand therefore,
was valid. These decisions, in our opinion, do not in any man·
ner advance the case of the appellants and we do not think it
necessary to deal with them individually.
We may point out that if the contention of Dr.