The Hindu Business Line : Confusion now hath made his masterpiece

SHAKESPEARE wrote in King John, "Vast confusion waits, as doth a raven on a sick-fall'n beast." So too, vast confusion lay waiting in a tax case that occupied the apex court recently — Vinay Solvent Extraction Industries P Ltd vs Commissioner of Central Excise, Gujarat, decided on April 20.

The story began in July 1988, when Vijay Oil Mill, Junagadh wrote to the Central Excise Superintendent that it had entered into a lease agreement with Vinay Solvent Extraction. It informed that Vijay supplied oil cakes to Vinay's factory; and that Vinay held a valid Central Excise Licence, and undertook manufacturing activities for and on behalf of Vijay.

The letter mentioned that Vijay was "accordingly filing a declaration under Notification No. 305/77". This Notification permits a manufacturer, who gets his goods manufactured from some other person, to authorise that other person (who actually manufactures the goods), to comply with procedural formalities and discharge liabilities under the excise law.

When Vinay filed a classification list and sought the benefit of an excise notification (262/86-CE dated April 24, 1986), the Department issued show-cause notices denying the benefit in the absence of certificates required for the purpose. Vinay then produced certificates from the Directorate of Vanaspati, Vegetable Oils and Fats stating that vegetable oil made by Vijay was manufactured "from fixed vegetable oil extracted by solvent method". When the Assistant Collector of Central Excise dropped the show-cause notices on the production of certificates, the Department went on appeal; and the Collector (Appeals) held that Vinay was not eligible for excise exemption as claimed.

Vinay approached the Tribunal, where a difference of opinion arose between the Technical Member and the Judicial Member, on the eligibility of Vinay to get exemption. The Third Member agreed with the `negative' view and said that Vinay was not entitled to the benefit. And the case found its way to the apex court, therefore.

Vinay-Vijay tangle

The notification in question spoke of exemption for fixed vegetable oils extracted by the solvent extraction method, and insisted that the manufacturer should maintain record regarding manufacture of the said processed fixed vegetable oils and their clearance.

The court observed that it was Vinay who had to produce the required certificate, showing that the processed fixed vegetable oils manufactured by it was as per the specified method. To get such a certificate Vinay would have to be registered with the Directorate of Vansapati, Vegetable Oils and Fats, which admittedly Vinay wasn't. "Realising that this condition could not be fulfilled by them, the Appellants (Vinay) produced certificates certifying that Vijay Oil Mills had manufactured such oil. As the Appellants are manufacturers, such a certificate was of no help," reads the judgment of Justices S. N. Variava, AR. Lakshmanan and S. H. Kapadia. "Thus before all the lower authorities, including the Tribunal, it was contended that Vijay Oil Mills were the manufacturers. This was a case contrary to facts and the authorisation and declaration."

The Supreme Court said that the Collector (Appeals) had rightly held that Vijay was getting the manufacturing done by engaging Vinay as job workers. The court mentioned that even in the Appeal Memo it had been contended that Vijay is the manufacturer. Initially, Vinay's counsel Lakshmikumaran had argued on the footing that Vijay was the manufacturer. However, when the correct facts were noted, he admitted that the record did not depict Vijay as the manufacturer. However, he argued that the requirement of the certificate was only about the use of solvent extraction method; he said that Vinay was not disentitled merely because the certificates mentioned that vegetable oil was manufactured by Vijay.

"We see no substance in this submission," ruled the court, and added: "The required certificate must necessarily show that the oil manufactured by the manufacturer (in this case the Appellants) had been manufactured from fixed vegetable oils extracted by the solvent extraction method. The manufacturer producing a certificate that some other party had manufactured processed oil from fixed vegetable oils extracted by solvent extraction method is obviously not sufficient."

Lakshmikumaran drew attention to `a categorical finding' of the Tribunal as follows: "In the instant case, it is nobody's contention that Vinay Oil hired Vijay Oil to manufacture on the former's account. On the contrary, the entire factory was leased to Vijay Oil by an agreement, which is on principal-to-principal basis. Except for receiving the lease fees, there is no other flow back of profits and so on to Vinay Oil shown before me.

"Therefore clearly, from the date of the lease, Vinay Oil ceases to be the manufacturer and Vijay Oil becomes the manufacturer under law. The undertaking given to ACCE that Vinay Oil would undertake to follow all excise procedures was misplaced in law, as there is no legal provision shown to me to prescribe this." So, Lakshmikumaran submitted that the benefit of the notification could not be denied.

For the Department, it was Doabia who said, "Confusion has been purposely created by the Appellants." He added that the case sought to be built up was contrary to the documents on record. When Vinay was the actual manufacturer, a certificate in the name of Vijay would not entitle Vinay to get the benefit, Doabia contended.

`Confusing' request

Then comes an interesting twist. Lakshmikumaran submitted that as the facts were confusing, the matter should be remanded back to the Assessing Officer so that correct facts could be ascertained. The Bard has this line in The Merchant of Venice to suit the occasion: "I will try confusions with him." And this too: "There is such confusion in my powers." Or yet another, from Macbeth, "Confusion now hath made his masterpiece!"

But the court declined the counsel's `confusing' request. The court pointed out that Vinay was complying with the formalities under the Central Excise Act, maintaining the requisite records, and clearing the goods. "It can hardly now lie in the mouth of the Appellants to claim that Vijay Oil Mills were the real manufacturers. Further, as stated above, even if Vijay Oil Mills were the manufacturer they would not be entitled to the benefit of the Notification as they hold no licence nor comply with formalities under the Central Excise Act. They do not even pay excise duty. Thus no question arises of Vijay Oil Mills claiming benefit of the said Notification," reads the judgment.

One is only reminded of a quote from King Henry VI: "Heaping confusion on their own heads thereby!" Thus, the decision brought a logical end to confusion, though one may rue that parties who don't do their homework properly waste the apex court's time.

Tailpiece

"I hired the best tax consultant for saving on taxes!"

"Oh!"

"But I need an advisor to make income!"

Detaxification@TheHindu.co.in

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