Full Judgment Text
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CASE NO.:
Appeal (civil) 2029-31 of 1995
PETITIONER:
Metal Forgings & Anr.
RESPONDENT:
Union of India & Ors.
DATE OF JUDGMENT: 22/11/2002
BENCH:
N Santosh Hegde & B P Singh.
JUDGMENT:
J U D G M E N T
SANTOSH HEGDE, J.
The appellants herein are the manufacturers of forged
steel products which was assessable to central excise duty under
Tariff Item 26AA(ia). On the introduction of Tariff Item 68 in
the first Schedule to the Central Excises & Salt Act, 1944 (the
Act) w.e.f. 1.3.1985, a question arose whether the said product
manufactured by the appellants by forging became liable for
further duty under Tariff Item 68 because after the forging, the
appellants are said to have subjected this product to certain
other manufacturing processes like polishing and trimming to
make the product suitable for its ultimate use. This dispute
between the appellant and the Revenue had a chequered career
going through the process of appeals, revision, writ petition
before the Delhi High Court, then a remand, another round of
appeal before the authorities and then ultimately another appeal
to the Central Excise & Gold (Control) Appellate Tribunal (’the
tribunal’) which was by then constituted, and from there to this
Court by way of this statutory appeal. Thus, this litigation
which started by virtue of an order made by the Assistant
Collector on 21.1.1976 is now before us in the year 2002.
Before the tribunal, two questions arose for
consideration. They are: whether the products manufactured by
the appellants are classifiable under Tariff Item 68 ? If so, the
demand made by the revenue for collection of duty under that
head was within the period of limitation. A Bench of the
tribunal which heard the appeal, could not come to a unanimous
decision on these questions. The Judicial Member came to the
conclusion that the Department was right in classifying the
goods under Tariff Item 68 while the Technical Member was of
the opinion that the matter should be remanded to the lower
appellate authority for deciding the classification of the
products after taking into account the entire material brought on
record by the appellants before the appellate authority and not
by merely relying on the judgment of Delhi High Court.
In regard to the question of limitation, the Judicial
Member held that even though the order of the Assistant
Collector dated 22.1.1976 was not provisional but final, even
then certain letters and orders issued or made during the course
of the proceedings could be treated as required show cause
notice, hence, the Department could determine the amount of
duty payable by the party at least from 25.1.1985 till the end of
1985 hence partly allowed the claim of the revenue, while the
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Technical Member came to the conclusion that the clearances
made by the appellants for the relevant period should be treated
as provisional clearance which does not require issuance of
show cause notice and also because of the interim order made
by the High Court of Delhi on 19.2.1981, the Department was
restrained from issuing the required show cause notice,
therefore, the bar of limitation cannot be put against the
revenue. On that basis the contention of the appellants of lack
of show cause notice and bar of limitation came to be rejected.
Thus, upholding the demand made by the revenue in its
entirety.
The matter was then referred to a third member of the
tribunal who interestingly agreed with the Judicial Member on
the question of classification and came to the conclusion that
the goods manufactured by the appellants are classifiable under
Item 68, while on the question of limitation, he agreed with the
Technical Member that the clearance of the goods by the
appellant was made on a provisional basis, therefore, the
question of limitation does not arise.
Consequently, the case of the appellants both in regard to
classification as also limitation failed before the tribunal
because of the majority view.
Hence, the appellants are in these appeals before us.
Mr. S Ganesh, learned senior counsel for the appellants,
contended that the activities like removal of superfluous extra
skin of forging or polishing and trimming the forged products
cannot be construed as the processes involved in the
manufacture of any new product. He placed strong reliance on
the judgment of this Court in Tata Iron & Steel Co. Ltd. v.
Union of India & Ors. [1988 (35) ELT 605] which according to
the learned counsel, concludes this question of classification in
favour of the appellants both on facts and in law. He further
contended that since the burden of proof that the forgings
manufactured by the appellants do fall under Item 68 being
heavily on the revenue and the revenue having not placed any
material in support of its case, the conclusion arrived at by the
majority members of the tribunal that the products
manufactured by the appellants fall under Tariff Item 68 cannot
be sustained.
In regard to the question of limitation, learned counsel
urged that it is an admitted fact that no show cause notice as
required in law was ever issued by the appellants, therefore, in
the absence of any show-cause notice, there could not be any
demand at all under Section 11A of the Act. He submitted that
the Judicial Member was correct in coming to the conclusion
that the order of the Assistant Collector dated 22.1.1976 being a
final order, a show cause notice ought to have been issued as
required in law within the period of limitation which not having
been done, there cannot be a demand. He also contended that
the majority members were wrong in coming to the conclusion
that the order of the Assistant Collector dated 22.1.1976 was a
provisional order or that certain letters and orders issued during
the course of the proceedings at different stages could be
construed as show cause notices. Learned counsel further
submitted that there was no interim order issued by the High
Court or any other authority whereby the revenue was ever
prevented from issuing a show cause notice, therefore, the
finding of the majority members of the tribunal that by virtue of
Explanation to Section 11-A, the period of limitation gets
extended, is also erroneous. He argued that the reliance placed
on the decision of this Court in Samrat International (P) Ltd. v.
Collector of Central Excise [1992 (58) ELT 561] was erroneous
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inasmuch as the said case was decided on the facts of that case
which facts are not available in the present appeals to come to
the conclusion that there was any provisional assessment. He
pointed out that the case of Samrat International (supra) has
since been explained by another judgment of this Court in the
case of Coastal Gases & Chemicals Pvt. Ltd. v. Asstt. C.C.E.,
Visakhapatnam [1997 (92) ELT 460] which has held that the
decision in Samrat International (supra) was based on the
peculiar facts of that case.
Mr. N K Bajpai, learned counsel appearing for the
revenue, supported the finding of the majority members of the
tribunal both on the question of classification as also on the
question of limitation. He submitted that the question of
classification being basically a question of fact and the tribunal
being a final authority on facts and there being no
unreasonableness in such finding of the tribunal, the said
finding does not call for any interference in these appeals. In
regard to the question of limitation also, he supported the
findings of the majority members contending that the order of
the Assistant Collector dated 26.1.1976 is only a provisional
order. There was no question of limitation being involved until
final classification was made. He also contended that there
being an interim order of the High Court dated 19.2.1981, the
authorities could not have issued any show cause notice during
the pendency of the said interim order. He also submitted that
the show cause notice being only a notice informing the
assessee of his liability to pay the duty, the said information
having been made known to the assessee by way of various
letters and orders, it should be held that there was substantial
compliance of the requirement of the said notice. Learned
counsel also argued that in view of the fact that the question of
classification was still not finally adjudicated, it was not
possible for the Department to issue a show cause notice
because of the pendency of the proceedings, therefore, if the
requirement of issuance of notice is to be strictly construed in
the manner pleaded by the appellants then in many a case where
classification dispute is pending, it would become impossible
for the revenue to issue a proper notice. Therefore, the
requirement of issuance of a notice should be liberally
construed.
From the above arguments, the very same two questions
that arose for consideration before the tribunal also arise for our
consideration. They are (a) Do products manufactured by the
appellants fall under Tariff Item 68 ? (b) Whether the demand
of the revenue is barred by limitation ?
Though elaborate arguments have been addressed by
both the parties in regard to the question of classification, we
intend taking up the second question as to the limitation first for
our consideration since a decision on this question would render
our examination of the first question redundant.
It is an admitted fact that a show cause notice as required
in law has not been issued by the revenue. The first contention
of the revenue in this regard is that since the necessary
information required to be given in the show cause notice was
made available to the appellants in the form of various letters
and orders, issuance of such demand notice in a specified
manner is not required in law. We do think that we cannot
accede to this argument of the learned counsel for the revenue.
Herein we may also notice that the learned Technical Member
of the tribunal has rightly come to the conclusion that the
various documents and orders which were sought to be treated
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as show cause notices by the appellate authority are inadequate
to be treated as show cause notices contemplated under Rule 10
of the Rules or Section 11A of the Act. Even the Judicial
Member in his order has taken almost a similar view by holding
that letters either in the form of suggestion or advice or deemed
notice issued prior to the finalisation of the classification cannot
be taken note of as show cause notices for the recovery of
demand, and we are in agreement with the said findings of the
two Members of the tribunal. This is because of the fact that
issuance of a show cause notice in a particular format is a
mandatory requirement of law. The law requires the said notice
to be issued under a specific provision of law and not as a
correspondence or part of an order. The said notice must also
indicate the amount demanded and call upon the assessee to
show cause if he has any objection for such demand. The said
notice also will have to be served on the assessee within the
said period which is either 6 months or 5 years as the facts
demand. Therefore, it will be futile to contend that each and
every communication or order could be construed as a show
cause notice. For this reason the above argument of the revenue
must fail.
The next question for our consideration is whether the
order made by the Assistant Collector on 22.1.1976 could be
treated as a provisional classification so as to keep the period of
limitation frozen. The Judicial Member in this regard came to a
definite conclusion that the said order is a final order against
which appeals and revisions were taken recourse to. According
to the learned Member merely because there is a continuing
dispute in regard to the correctness of the said order of the
Assistant Collector by way of appeals and revisions, the same
does not make the order of the Assistant Collector anything
short of a final order, therefore, he rejected the contention of the
revenue on this count. While the Technical Member and the
third Member following the judgment of this Court in the case
of Samrat International (supra) came to the conclusion that the
order of the Assistant Collector could be treated as a
provisional order because there was correspondence regarding
the excisability and the classification list filed by the appellants.
From the above we notice that the majority of the members of
the tribunal based their finding that the clearances made by the
appellants during the relevant period was provisional in nature
mainly because of the finding of this Court in the case of
Samrat International (supra). A perusal of this judgment shows
that the said judgment was delivered on the peculiar facts of
that case and it does lay down a principle in law which enables
the revenue to treat every classification made by it or the goods
removed by virtue of said classification to be treated as the
provisional merely because some appeal or other proceeding is
pending, questioning the classification involved therein. As a
matter of fact, this Court in the case of Coastal Gases &
Chemicals Pvt. Ltd. v. Asstt. C.C.E., Visakhapatnam (supra)
while considering the judgment in Samrat International case
(supra) held thus :
"On the facts of that case, however, this
Court had held that the payment of duty
which was made by the appellants in that
case was provisional and the procedure
under Rule 9B had been followed. We have
not been shown any material on record to
indicate whether the appellants in the
present case had cleared carbon dioxide
manufactured by them by following the
procedure laid down in Rule 9B or that the
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payment of excise duty which the appellants
had made during the relevant period was
provisional."
From the above, it is clear that to establish that the
clearances were made on a provisional basis, there should be
first of all an order under Rule 9B of the Rules, and then
material to show that the goods were cleared on the basis of
said provisional basis, and payment of duty was also made on
the basis of said provisional classification. These facts in the
instant case are missing, therefore, in our opinion there is no
material in the instant case to establish the fact that either there
was a provisional classification or there was an order made
under Rule 9B empowering the clearance on the basis of such
provisional classification. In the absence of the same, we cannot
accept the argument of the revenue that in fact the order of the
Assistant Collected dated 21.1.1976 is a provisional order based
on which clearance was made by the appellants or that they
paid duty on that basis. On the contrary, as held by the Judicial
Member the said order of classification was a final order,
therefore, the Revenue cannot contend the limitation prescribed
under Section 11A does not apply.
The next ground urged on behalf of the revenue in regard
to the question of limitation is based on an interim order made
by the High Court dated 19.12.1981. It is to be noted that the
writ petition in which the said interim order was made, was
filed against the order made by the Govt. of India dated
2.8.1980 in a revision petition filed before it. In the said writ
petition, the High Court ordered :
" In the meantime, stay the operation of
the impugned order of the Central
Government dated 2.8.1980."
Based on this interim order, learned counsel for the
revenue contended that the revenue could not have issued a
show cause notice during the currency of the said interim order,
therefore, by virtue of the Explanation to Section 11A, the
period of limitation gets frozen during the said stay order. We
cannot accept this argument either. It is a settled position in law
that unless and until there is a specific injunction/stay granted
by a competent court which restrains an authority from issuing
the required notice, merely because some interim order is made,
the authorities empowered to issue such notice cannot refrain
from issuing the required notice within the period of limitation
nor can they plead the existence of such interim order as a
defence against the plea of limitation. This Court in Gokak
Patel Volkart Ltd. v. Collector of Central Excise, Belgaum
[1987 (28) ELT 53] has held where by an interim order the
High Court merely stays the collection of excise duty which,
the benefit of Explanation to section 11A excludes the period of
stay order is not available to the revenue. The said judgment
also holds that the issuance of notice under Section 11A is a
condition precedent to issue a demand notice. In that case, the
interim order issued was in the following terms :
"Pending disposal of the aforesaid writ
petition, it is ordered by this Court that
collection of custom duty as a fabric be and
the same is hereby stayed. ".
The said stay order was made on 4.6.1976 and the writ
petition was dismissed on 16.2.1981. During the currency of the
said stay order, the revenue did not issue a show cause notice
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but the same was issued only on 20.5.1982. On the basis of the
above stay order, the revenue in that case claimed the benefit of
Explanation to Section 11A. Rejecting the said plea, this Court
held :
"In the instant case the order of stay passed
by the Karnataka High Court had only
stayed the collection of customs duty, which
is a stage following levy under the scheme
of the Act. Obviously, there was no interim
direction of the High Court in the matter of
issuance of notice for the purpose of levy of
duty. "
The Court in the said case further oberved :
"No notice seems to have been issued in this
case in regard to the period in question.
Instead thereof an outright demand had been
served. The provisions of Section 11A(1)
and (2) make it clear that the statutory
scheme is that in the situations covered by
the sub-section (1), a notice of show cause
has to be issued and sub-section (2) requires
that the cause shown by way of
representation has to be considered by the
prescribed authority and then only the
amount has to be determined. The Scheme is
in consonance with the rules of natural
justice. An opportunity to be heard is
intended to be afforded to the person who is
likely to be prejudiced when the order is
made before making the order thereof.
Notice is thus a condition precedent to a
demand under sub-section (2). In the instant
case, compliance with this statutory
requirement has not been made, and,
therefore, the demand is in contravention of
the statutory provision. Certain other
authorities have been cited at the hearing by
counsel for both sides. Reference to them,
we consider, is not necessary."
In our opinion the above judgment in Gokak Patel
Volkart’s case (supra) clearly goes against the argument of the
revenue with reference to the interim order made by the Delhi
High Court in this case. As notice above, what was stayed by
the High Court was the operation of the order of the Union of
India made in a revision filed by the appellants. That order did
not restrain the authorities from issuing a show cause notice as
required by law. Therefore, it is not open to the revenue to
contend that the period covered by the interim order of the High
Court is available to the revenue to avoid limitation. The above
view of ours is also supported by another judgment of this
Court in J.K. Cotton Mills’ case [supra] wherein also this Court
has held that the provision for extension of time limit for
issuance of notice by excluding the period of stay granted by an
order of court is to be construed strictly. In the said view of the
matter the above contention of the revenue should also fail.
For the reasons stated above, we are of the opinion that in
the absence of a show cause notice it is not open to the revenue
to make a demand on the appellants even assuming that the
contention of the revenue in regard to classification as held by
the tribunal is correct.
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In view of our finding on this question of limitation
which precludes the revenue from making a demand on the
appellants because of the bar of limitation, we think it
unnecessary to go to the first question as to the correctness of
the classification made by the tribunal in the impugned order.
For the reasons stated above, these appeals succeed and
the same are allowed. The impugned orders are set aside.