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2. The contention. that the High Court could not have decided the matter in
'<icw of the provisions of Article 131 of the Constitution was negati'1cd on the
ground that thern was nothing on record to show that there was any dispute
between the Central and the State Governments. The, Union of India: was made
a party merely because it had dismL~scd the revision application of the State
Government. [845 A-Bl
CIVIL APPELLATE JuRISDlCTJON : Civil Appeal No. 1695 of
1968.
Appeal by Special Leave from the Judgment and Order dated
4/5-9-67 of the Mysore High Court in W.P. No. 1416/65.
_V._ _P._ _Raman, Addi._ _Sol._ _Genl.,_ _S._ _K._ _Mehtcl"_ and _Girish Chandra,_
for the Appellant.
_H._ _R._ _Datar_ and _N._ _Netli1r,_ for th'" Respondent.
The Judgment of the _Court_ was delivered by
SHINGHAL, J.-This appeal by special leave is directed against the
judgment of the High Court of Mysore dated September **4/5,** 1967.
The Hig!i Court was moved by the State of Mysore under article 226
of the Constitution for quashing the demand notice dated July 21,
UNION OF INDIA
_v._
STATE OF MYSORE
_October_ 19, 1976
[A. N. RAY, C.J., M. H. BEG AND P. N. SHJNGHAL. JJ.]
_Constitutfrm_ _of_ _lmiia-Article_ _131-Disputes_ _between State and_ _Unio11-_
_J//risdiction_ _of_ _High Court--Clwrgc_ _of_ _Excise_ _Duty-Condition_ _of-Wlierl!<!r_ _a11_
_artfc/e mm111factllred_ _or_ _produced before the_ _lery_ _is imposed_ _is_ _excisable._
The respondent State of Mysore runs an implements Factory. •the first
•chedule to the Central Excises and Salt Act, 1944, was aD)ended whereby item
No. 26AA was inse1ted by Finance Act, 1962. On the date when the said
amendment came into force the respondent. had in his stock, ccrt~n iron rods
and bars. After the amendment, however, the rods and bars were put through
a further manufacturing process and were converted intq shovels, spades and
other agricultural implements which were not covered by schedule I. The
Central Excise Inspector issued a demand notice in respect or the said rods and
the bars on the .ground that they were excisable. The r~spondcnt contended
that no excise duty was payable o~ the said articles because when the amendment came into force, they were already in the stock of the respondent and that
they were not manufactured after the amendment came into force. The contention of the respondent was negatived by the authorities und.or the Act. The
Writ Petition filed by the respondent under Article 226, was allowc<l.
Dismissing the appeal by Special Leave,
HELD : 1. Under .Section 3 of the Act the excise duty is payable on articles
produced or manufactured. It was admitted in the counter affidavit of the appellant that the rods and bars were not produced or manufactured in the implements factory of the respondent. The goods which were made out of the rods
and bars were admittedly not excisable goods. The appeal was dismissed as the
goods were not liable to excise duty. [844 E-HJ
##### ·
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UNION _v._ STATE OF MYSORE _(Shinghal,_ _J.)_ 843
1962 issued by the Inspector of Central Excise for the payment of
Rs. 2,465.91. as excise duty on tine products despatched by the State's
Implements Factory. The demand wa·s made with reference to the
newly inserted item 26AA in the First Schedule to the Central Excises
and Salt Act, 1944, hereinafter referred ~o as the, Act. That item
was added to the Schedule by the Finance Act of 1962, and it was
claimed by the Central Excise Department that, on the date of the
amendment, the State Government was in possession of some stock
of iron and steel products, namely, flats, squares and rods in its
factor~ which had been obtained from their manufacturers when they
were not excisable articles. The precise claim of the Excise authorities
was that the duty became payable on t,hose articles by virtue of the
newly i~erted item 26AA because the aforesaid stock of iron and
steel products was used for the manufacture of agricultural implements
like 'mamties~ pickaxes, sledge hammers, shovels and ploughs. The
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Assistan~ Collector of Central Excise explained in his letter dated June
19, 1962, that the agricultural implements which were manufactured in
the State's Implements Factory fell within the purview of item 26AA
as they were forged or extruded during the process of manufacturing
the agricultural implements. It was contended that the demand was
justified because the aforesaid iron and 'steel products, out of which
the agricultural implements were manufactured, had not borne any
excise duty at all. An appea! was preferred to the Collector of Central
Excise against_ the demand, but without success. A revision was taken
to the Cent~al Government under the provisions of the Act, but it was
also dismis'sed. That was why the State Government applied to the
High Court for quashing the demand and for setting aside the appellate order of the Collectm and the revisional order of the Central·
Government. .
The Central Government traversed the claim of the State Government on the ground that as the rods and bars, which were held in
stock by tll1e State's Implements· Factory, were "pre-excise stock",
and as they were put to further process by forging them into shovels,
spades and other agricultural implements, they became liable to duty
until the "pre-excise stock" held by the factory on April 24, 1962,
was utilised and converted into forged implements and was cleared
from the factory. It was also urged that the petition was not maintainable in the High Court as it raised 'a dispute between the Government
of India and the State Government within the meaning of article 131
of the Constitution .
The High Court rejected both the contentions of the Central Government and quashed the impugned demand notice and the appellate
and the revisional orders. That is why the Union of India has preferred the present appeal. It is not in controversy that the claim for the levy of excise duty
was based on sub-sections (1) and (lA) of section 3 of the Act
which read as follows,
"3 ( 1) There shall be levied and collected in such manner as may be prescribed duties of excise on all
excisable goods other than salt which are produced
4 -1338SCI/76
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844 SUPREME COURT REPORTS (1977] 1 S.C.R.
or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of
India as, and at the rates, set forth in the First
Schedule.
It is admitted by Mr. Raman that agriculturai implements were
not included in the First Schedule to the Act and were not excisable
articles. This appears to be so because they are the basic tools of
trade by which a vast majority of the citizens of the country earn their
livelihood. There could therefore be no question of levying any excise
duty on shovels and spades or other agricultural instruments manufactured by the Implernen~ Factory of the State Government and, as
has been shown, the rods and bars which formed the pre-excise stock
of the factory had not been manufactured by the Implements Factory.
Section 3 of the Act could not therefore be invoked to levy excise
duty merely on the ground that the "pre-exci~e stoc~" of roc!s and
bars was utilised for the purpose of manufacturmg agricultural mstru
ments. There is t!herefore nothing wrong with the view which has,
prevailed with the High Court in this respect.
(lA) The provisions of sub-section (i) shall apply in res
pect of all excisable goods other than salt which
are produced or manufactjured in India by, or QJI
behalf of, Government, as they apply in respect of
g9ods which are not produced or manufactured by
Government."
It is therefore quite clear, and is not in dispute before us, that the
claim for ~e levy of excise duty in question could be justified only
if it could be shown that excisable goods (other than salt) were produced or manufactured in the Implements Factory of the State Government. It was however admitted in the counter-affidavit of the Senior
~uperintendent of Central Excise as follows,
"In the case of the petitioner, since the rods and bars
held in stock by the Implements Factory were pre-excise
stock and since tJiose rods and bars were put to further process by forging the same into shovels, spades and other agricultural implements etc., they became liable to duty and
therefore, duty was demanded on such forged articles during
the period that is till such quantities of the bars and rods
as were in stock with the factory on 24-4-62 were utilised
and converted into forged implements and cleared from the
factory."
This makes it quite clear that! the rods and bars in question were not
"produced or manufactured" in the State Government's Implements
Factory. They could not therefore be subjected to the levy of excise
dutiy. It is true that the rods and bars were utilised for the manufacture of agricultural implements like shovels and spades, but those
agricultural implements were not of the description specifl~d in item
26AA of the First Schedule with reference to section 3 of the Act.
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UNION _v._ STATE OF MYSORE _(Shinghal,_ J.) 845
!'vlr. Raman tried to argue that the High Court erred in not apply·
ing article 131 of the Constitution to the controversy even though
the writ petition was barred thereunder as it fell exclusively within the
jurisdiction of this Court under article 131 of the Constitution as a
dispute between the Government of India and the State of Mysore.
The argument is however futile becau~e there is nothing on the record
to show that there was any such dispute between the Cenlrai and the
State Governments. As the High ·court has pointed out, the Union
of In~lia was made 11 party to the writ petition merely because it had
dismissed tlae revision application of the State Government.
## There • is thus no merit in this appeal and it is dismissed with costs.
M.R. _Appeal_ _dismissed._
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