National Board of Reve­nue, Government of Bangladesh and another Vs. M/S. Bata Shoe Compa­ny (BD) Ltd., 42 DLR (AD) (1990) 195

Case No: Civil Appeal No. 5 of 1988

Judge: MH Rahman ,

Court: Appellate Division ,,

Advocate: Mr. B. Hossain,Mr. Asrarul Hossain,,

Citation: 42 DLR (AD) (1990) 195

Case Year: 1990

Appellant: National Board of Reve­nue

Respondent: M/S. Bata Shoe Compa­ny (BD) Ltd.

Subject: Interpretation of Statute, Fiscal Law,

Delivery Date: 1990-4-18

 
Supreme Court
Appellate Division
(Civil)
 
Present:
Shahabuddin Ahmed, CJ.
MH Rahman, J.
ATM Afzal, J.
Mustafa Kamal, J.
Latifur Rah­man, J.
 
National Board of Reve­nue, Government of Bangladesh and another
………….......................Appellants
Vs.
M/S. Bata Shoe Compa­ny (Bangladesh) Limited
 ...........………………...Respondent
 
Judgment
April 18, 1990.
 
The Excise & Salt Act (I of 1944)
Section 12(A)(1)
The basis of the exemption from payment of excise duty is the manufacture of footwears without the aid of any machinery or equipment operated by power, steam or gas. The exemption cannot be denied by giving a strained meaning to the term "manufacture" and directing the respondent to pay the excise duty on footwears not mechanically produced and purchased by the respondent for its trading purpose only because they were sold under the respondent's insignia, printing and packing when the respondent asserted that the fixing of its trade name, the embossing of price and the packing were all done by mechanical process. The Excise and Salt Act, 1944, like any other fiscal statute imposing a burden on the subject, is to be strictly construed. Where there is doubt an interpretation favourable to the subject should be preferred……………… (15 & 16)
 
Lawyers Involved:
B. Hossain, Advocate-on-Record. — For the Appellants.
Asrarul Hossain, Senior Advocate, instructed by Md. Aftab Hossain, Advocate-on-Record.—For the Respondent.
 
Civil Appeal No. 5 of 1988.
(From the judgment and order dated 1st Septem­ber, 1986 passed by the High Court Division in Writ Petition No. 235 of 1985).
 
JUDGMENT
MH Rahman J.
 
1. This appeal by special leave, at the instance of the Revenue, is directed against the judgment and order of the High Court Division, Dhaka, passed in the respondent's Writ Petition No. 235 of 1985.
 
2. The respondent, M/s. Bata Shoe Company (Bangladesh) Limited, manufactures different types and categories of footwear in its factory at Tongi and sells its products through its shops, agents and de­pots in the whole of Bangladesh. The company pur­chases several categories of footwear manufactured locally by cottage industries without the aid of any machinery operated by power, steam of gas, and sells them to its customers under its trade mark and trade name. This is done, it is claimed, in order to associate cottage industries, to assist and involve small manufacturers in the development of shoe business and to offer to the customers good quality footwears of given specifications.
 
3. The respondent's case is that according to the provisions of Notification No. SRO-225-L/83/94-Excise dated 30.6.83 the Ministry of Finance and Planning, Internal Resources Division issued under section 12(A)(1) of the Excise and Salt Act, 1944 (Act 1 of 1944) excise duty to the extent of 10% of the retail price had to be paid on all footwear manufactured mechanically, the retail price of which was above Tk.100/-. An additional 2% regulatory duty was also imposed by the Finance Act of 1984. Earli­er, according to the provisions of SRO 17-L/83/86-Excise dated 9.1.83, excise duty was payable @-10% of the retail price of footwear of all sorts the retail price of which was legibly, prominently and indeli­bly printed or embossed on each pair. By the subse­quent SRO dated 30.6.83 footwear mechanically manufactured were made excisable but footwear’s manufactured on cottage industry basis, or non-mechanically, i.e. without the aid of any machinery or equipment operated by power, steam or natural gas, were, however, exempted from payment of any excise duty.
 
4. The respondent claimed exemption for pay­ment of excise duty on the footwear’s purchased by them for trading purpose from the small manufactur­ers on the basis of the aforesaid two SROs issued by the Ministry of Finance and Planning.
 
5. In its writ petition the respondent company alleged that on 2.6.83 some personnel of the Cus­toms and Excise Department seized 300 pairs of the non-mechanically manufactured footwear’s, brought by the manufacturers to the Company's distribution centre at 6, Bangabandhu Avenue, Dhaka on the allegation that those footwear’s were brought there for sale without paying the excise duty. The Excise De­partment also seized 120 pairs of footwear made non-mechanically by one of the suppliers of the respon­dent, namely, Salim Sandal Industries.
 
6. The respondent protested, made representa­tions and, finally, on July 1, 1985 wrote to the Member (Excise), National Board of Revenue for in­tercession. On 11.7.1985 the First Secretary (Excise-2), the National Board of Revenue wrote to the re­spondent:
 
"You are informed that according to the def­inition "Manufacture" and other provisions of the Excise and Salt Act 1944 and rules made thereunder footwear’s bearing the insignia of Bata on which the retail price is legibly, prominently and indelibly printed or embossed on each pair and packed in Bata packing are manufactured products of Bata, a mechanised industrial unit. As such these footwear’s are liable to payment of excise duty provided the retail price of such foot­wear exceeds Tk.100/- (Taka one hundred) per pair. You are, therefore, requested to make pay­ment of excise duty on such footwear including footwears manufactured and cleared previously. You are also requested not to manufacture such products outside your licensed premises."
 
This order was challenged before the High Court Division.
 
7. In their affidavit-in-opposition the appel­lants asserted that as the footwear products purchased by the respondent company from small manufactur­ers were manufactured as per the company's design and specification and as they bore the company's trade name and were packed in the company's pack­ing they became manufactured products of the com­pany and were liable to excise duty; that the term "Manufacture" has been defined widely in the Excise and Salt Act, 1944 to exclude fraudulent attempt at evasion of excise duty by big and mechanised com­panies; that the respondent company evaded a very large amount of excise duty over the last few years by selling its shoes and passing them off as the products of non-mechanised units manufactured on cottage industry basis; that the consignment of 300 pairs of footwears that was seized bore the seal of the company's retail price and there were no papers to prove that the excise duty was paid on those articles; that as those articles were manufactured in violation of Rule 174 of Excise and Salt Act, 1944 in premis­es not authorised/licensed for manufacture of the company's footwear they were seized as per Excise and Salt Act, 1944; that the company was previously charged in five cases for offences of identical na­ture and it was found manufacturing shoes outside its licensed premises and selling them without payment of duty; that after unsuccessfully moving an appeal and revision the company deposited on 31st July, 1985 a sum of Tk.24,66,088/45 paisa as outstanding dues and accepted the legal position as enunciated by the Board of Revenue without challenging the same before any Court of law; and by applying its trade mark on articles produced by other manufacturers the company abused its trade mark and violated the pro­visions of Trade Mark Act, 1944.
 
8. In its affidavit-in-reply the Company reiter­ated its statements made in the writ petition and fur­ther stated that there was no case of abuse of trade mark as the company's trade mark and trade names were applied to the products of non-mechanised cot­tage industries with its own consent and permission; that the company never engaged itself in any act or process incidental or ancillary to the completion of manufacture of the non-mechanically manufactured footwear nor did it engage in re-manufacture, remak­ing, re-conditioning, repair or in the process of pack­ing or repacking of such footwear; that all acts in­cluding the printing of the trade mark and the embossing of retail price and the packing of the non-mechanically manufactured footwears were done by the non-mechanical manufacturers; that the company did not violate any rule of the Excise and Salt Act, that the licence given to the company to manufacture footwear by mechanical process had no relationship with its business of sale of non-mechanically manu­factured shoes and other accessories related to the use of shoes and that the company had trade licence for each business and was authorised to do so under its Articles of Association; that the questioned articles were manufactured non-mechanically without the aid of steam, power or gas by the non-mechanical manu­facturers on cottage industry basis and were packed by the non-mechanical manufacturers in packages by them bearing the company's trade name with the fol­lowing printed label attached with each pair :
 
"Excise duty on footwear manufactured on a cottage industry basis is exempted as per SRO-225-L/83/94-Excise as per item—Footwear No. 12.03(a)".
 
It is further asserted that the company never ac­cepted the interpretation given in the impugned letter dated 11th July, 1985. It had to deposit the sum of Tk. 24,66,088/45 paisa as directed by the Board of Revenue. At that time the company could not chal­lenge the legality of the impugned order dated 11th July, 1985 because the writ jurisdiction of the High Court Division was in suspension due to Martial Law prevailing in the country.
 
9. The High Court Division in its judgment observed:
 
"In the affidavit-in-opposition it has not been stated anywhere that the footwears purchased by the petitioner outside their factory at their sale centres at Bangabandhu Avenue, Dhaka, are manufactured prod­ucts of the petitioner in their factory or mechanised industrial unit at Tongi. In terms of the aforesaid two notifications if footwears are manufactured by a cottage industry, or non-mechanically i.e. without the aid of any machinery or equipment operated by power, steam or gas, then no excise duty is payable even if the retail price of each pair exceeds Tk. 100/-and the insignia or label of Bata is attached to the footwear or packed in Bata packings. We have, there­fore, no hesitation to hold that the footwears which are not produced by the petitioner's mechanised unit or factory at Tongi but purchased from the cottage industry's owner or from manufacturers who manu­factured them non-mechanically without the aid of any power, steam or gas, are not liable to any levy or excise duty under the aforesaid notifications. This Rule must therefore succeed."
 
10. Leave was granted to the appellants for consideration of the following contentions: that as the questioned footwears were produced as per the re­spondent's designs and specifications and that the re­spondent used its trade mark, trade name and pack­ings in selling those products to its customers they come within the purview of the manufactured prod­ucts of the respondent according to the definition of "Manufacture" given in the Excise and Salt Act and other provisions of that Act; that the respondent, be­ing a mechanised industrial unit run by power, is not entitled to any exemption that is meant for only non-mechanically run footwear cottage industries; and that as the respondent did not disclose to the in­tended purchasers that the footwears bearing its in­signia were not really manufactured by it and were merely purchased from the owners of cottage indus­tries, the plea of exemption of excise duty on such footwears tantamounts to clear fraud on the statute and that the respondent should not be permitted to derive any pecuniary benefit from such practice of fraud.
 
11. The term "manufacture" has been defined in clause (f) of section 2 of the Excise and Salt Act 1944 (Act No. 1 of 1944) as follows:
 
"manufacture" includes any process inciden­tal or ancillary to the completion of manufactured product [and any process of re-manufacture, remarking, re-conditioning or repair] [and the process of packing or re-packing of such prod­uct].
 
12. The definition that stood at the commence­ment of the Act had been amended and amplified by the Finance Ordinances of 1969 and 1970. The term now expressly covers a wide range of ancillary or auxiliary process of manufacture including the pack­ing or repacking of a manufactured product.
 
13. In the writ petition the respondent only challenged the appellants' order dated 11th July, 1985. In the proceeding no case of seizure, evasion of payment of excise duty or imposition of excise duty came up for consideration. On the assertion and denials of the parties it was not also possible to draw any conclusion that the respondent evaded payment of excise duty on its own products by passing them off as the products not liable to pay excise duty. In this case we are only concerned with the legality of the order dated 11.7.1985. Let it be made clear that excise duty is not on the packing but on the mechanically manufactured footwear. By the two notifica­tions SRO17-L/83/86-Excisc dated 9.1.83 and SRO 225-L/83/94-Excise dated 30.6.83 issued by the Ministry of Finance and Planning excise duty was exempted with respect to footwears manufactured on cottage industry basis or non-mechanically that is, without the aid of any machinery or equipment oper­ated by power, steam or gas. The appellants did not deny that the respondent company purchased several categories of footwear manufactured locally by cot­tage industry as well as by other small manufacturers of footwears, manufactured non-mechanically i.e. without the aid of any machinery or equipment oper­ated by power, steam or gas, and sold them to its customers. The respondent company claimed exemp­tion from payment of excise duty on the footwears purchased by it for its trading purposes on the basis of the above-mentioned two notifications.
 
14. If the respondent company allows the foot­wears manufactured by others to carry its trade mark or trade name then it is doing so at its own peril and such act can hardly be called a violation of law of trade mark or termed as a fraud upon the statute. If, however, the respondent is found to be selling its duty-payable footwears manufactured in its factory as duty-free shoes being manufactured non-mechanically, then such act of the respondent will surely be an act of fraud and the respondent can be held liable for that.
 
15. It appears that the appellants, in their ap­prehension that the mechanical manufacturers like the respondent might evade payment of excise duty by surreptitiously taking out footwears from their licensed premises and pass them off as footwears ex­empted from excise duty under the two notifications of 1983, issued the impugned letter and gave a strained meaning to the term "manufacture". The ba­sis of the exemption from payment of excise duty is the manufacture of footwears without the aid of any machinery or equipment operated by power, steam or gas. The exemption cannot be denied by giving a strained meaning to the term "manufacture" and di­recting the respondent to pay the excise duty on foot­wears not mechanically produced and purchased by the respondent for its trading purpose only because they were sold under the respondent's insignia, print­ing and packing when the respondent asserted that the fixing of its trade name, the embossing of price and the packing were all done by non-mechanical process. The appellants' concern for prevention of evasion of excise duty cither calls for more vigilance on the part of the Revenue functionaries or the aboli­tion of the criterion for exemption from excise duty if its abuse cannot effectively be checked. We are in­formed that the distinction between the two kinds of footwear has recently been done away with.
 
16. The Excise and Salt Act, 1944, like any other fiscal statute imposing a burden on the subject, is to be strictly construed. Where there is doubt an interpretation favourable to the subject should be preferred. After considering the respective cases of the parties and construing the two notifications of 1983 the High Court Division correctly struck down the impugned letter dated 11.7.85 issued by appellant No. 2, the First Secretary (Excise-2), National Board of Revenue.
 
In the result, the appeal is dismissed, but there will be no order as to costs.
 
Ed.