Full Judgment Text
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PETITIONER:
Commissioner of Central Excise, Chandigarh-II
Commissioner of Central Excise, Chandigarh-II
Commissioner of Central Excise, Delhi
RESPONDENT:
M/s. Steel Strips Ltd.
M/s. Steel Strips Ltd.
M/s. Perfect Strips & others
DATE OF JUDGMENT: 22/04/2003
BENCH:
S.N. VARIAVA & B.P. SINGH.
JUDGMENT:
J U D G M E N T
B.P. SINGH, J.
This batch of appeals involve common questions and,
therefore, they have been heard together and are being disposed of
by a common judgment.
The revenue is the appellant in all the appeals impugning the
order passed by the Customs, Excise and Gold (Control) Appellate
Tribunal in the appeals preferred by the respective respondents.
In C.A. No. 7165 of 2000 the Commissioner of Central
Excise, Chandigarh-II, has impugned the order of the Customs,
Excise and Gold (Control) Appellate Tribunal (hereinafter referred
to as the Tribunal) dated 29th June, 2000 whereby the Tribunal
while upholding the plea of the respondent that the process of cold
rolling of steel strips from hot rolled strips does not amount to
manufacture of a new excisable commodity, remitted the matter to
the Assistant Commissioner so that the respondent may be able to
satisfy the Assistant Commissioner on the question whether they
had not passed on the burden of duty to their customers.
In C.A. Nos. 7706-7711 of 2002 in which the respondent is
the same as in C.A. No. 7165 of 2000, the Tribunal following its
earlier decision dated 29th June, 2000 (which is impugned in C.A.
No.7165 of 2000) allowed the appeal preferred by the respondent
and held that the revenue had failed to discharge the burden of
showing that the manufacture had taken place by the process of
cold rolling of steel strips from hot rolled strips. However, it
remitted the matter to the Assistant Commissioner to decide the
question as to whether it had not passed on the incidence of duty to
the customers.
In C.A. Nos.439-442 of 2000 the Tribunal following its
earlier decision in the case of Steel Strips Ltd. (impugned in C.A.
No. 7165 of 2000) held that cold rolled strips produced out of duty
paid hot rolled steel strips do not undergo a process of manufacture
and hence are not chargeable to excise duty.
We may at the threshold observe that while in C.A. No.
7165 of 2000 and C.A. Nos. 7706-7711 of 2002 the dispute arose
when the respondent filed applications for refund of excess excise
duty paid, in C.A. Nos. 439-442 of 2002 the question arose in the
context of a show cause notice issued to the respondent alleging
clandestine removal of cold rolled steel strips produced out of duty
paid hot rolled steel strips without payment of duty. The
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Commissioner found that there had been clandestine removal of
cold rolled strips without payment of excise duty and, therefore,
ordered recovery of duty, interest, penalty etc. The Tribunal on
appeal set aside the order of the Commissioner, Central Excise
(Adjudication), Delhi holding that since no duty was payable on
cold rolled strips, there was no evasion of excise duty.
The representative facts may be taken from C.A. No. 7165
of 2000.
M/s. Steel Strips Ltd., respondent herein, held Central
Excise Registration for the manufacture of cold rolled steel strips.
It had paid central excise duty on cold rolled steel strips made from
hot rolled steel strips between the period 19.6.1996 to 29.6.1996
amounting to Rs.42,07,977/-. It filed an application for refund of
the excise duty so paid on cold rolled steel strips relying upon the
decision of this Court in its own case reported in 1995 (77) E.L.T.
248 (S.C. ) : Collector of Central Excise, Chandigarh vs. Steel
Strips Ltd. According to the respondent this Court held in the
aforesaid decision that hot rolled strips upon which excise duty had
admittedly been paid did not undergo the process of manufacture at
the hands of the assessee which resulted in the production of cold
rolled strips and, therefore, no excise duty was payable on such
cold rolled strips. Consequently it claimed refund of the excise
duty paid on cold rolled strips. The application for refund was
examined by the department and ultimately a show cause notice
was issued by the Assistant Commissioner, Central Excise
Division, Patiala, on August 14, 1996 calling upon the respondent
to show cause why the refund application should not be rejected
for the reasons stated in the notice. In the show cause notice it was
stated that the judgment of the Supreme Court referred to in the
application for refund related to the period prior to 28th February,
1986 when the old Central Excise Tariff was applicable which
classified under Tariff Item 26AA all kinds of strips without
making any distinction between cold rolled and hot rolled strips.
The tariff had undergone a change and the Central Excise Tariff as
applicable after 28th February, 1986 classified hot rolled strips and
cold rolled strips separately as they were distinguishable from each
other. Separate sub-headings have been provided and while hot
rolled strips come under sub-heading 7211.52 cold rolled strips
come under sub-heading 7211.51. The notice further stated that
the respondent had passed on the burden of the excise duty to the
buyers and, therefore, under Section 11-B of the Central Excise
and Salt Act, 1944, (hereinafter referred to as the Act) the
respondent was required to prove beyond doubt that the burden of
excise duty had not been passed on to the buyers so as to entitle it
to claim refund.
In its reply dated 24th August, 1996 the respondent denied
that the excise duty had been correctly paid and, therefore, they
were not entitled to claim refund. They reiterated their claim for
refund and prayed for further time to furnish a detailed
explanation. However, it appears from the order of the Assistant
Commissioner that no further explanation was furnished by the
respondent.
The Assistant Commissioner by order dated 10th January,
1997 rejected the claim of the respondent following an order
passed by the Assistant Commissioner, Central Excise Division,
Patiala in a case of the respondent. A similar claim for refund on
the same ground was rejected after considering the judgment of the
Supreme Court on which reliance was placed by the respondent.
The order of the Assistant Commissioner on which reliance had
been placed has been annexed as Annexure P-III. He held that on
account of the amendment of the Central Excise Tariff with effect
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from 28th February, 1986, hot rolled strips and cold rolled strips
must be treated as two separate items which have been dealt with
separately in the tariff. Under the old tariff all strips were
classified under tariff item No. 26AA, but that the legal position
having changed after the amendment of the tariff, the two
manufactured commodities were distinguishable and different from
each other being covered by two separate sub-headings and,
therefore, excise duty was payable on the cold rolled strips as well
as on hot rolled strips. It was further held in the facts of that case
that since the claimant had passed on the burden of excise duty to
the buyers, it was not entitled to claim refund under Section 11-B
of the Act. The Assistant Commissioner, therefore, held that the
judgment of the Supreme Court, which was in respect of period
prior to 28th February, 1986 was not applicable to the claim for
refund which pertained to the period after the amendment of the
tariff. In the said order the Assistant Commissioner also observed
that cold rolled strips are a different product from hot rolled strips.
There is difference in price on account of the fact that properties of
the material completely gets changed after cold rolling. It
observed
"It is evident from the examination of manufacturing
process of cold rolled strips and their use. Cold rolled
strips are being manufactured out of hot rolled strips
by the process as mentioned below."
The Assistant Commissioner then went on to describe the
process of manufacture and the use to which cold rolled strips are
put. He came to the conclusion that cold rolled strips are entirely
different commodity from hot rolled strips and that is why different
sub-headings were provided in the Central Excise Tariff for hot
rolled strips and cold rolled strips.
It is not clear from the order of the Assistant Commissioner
whether any evidence was produced by the respondent in that case
regarding the process of manufacturing undertaken by the
claimant, or whether the observations made in the order were
based on authoritative publications or on his personal knowledge.
The respondent preferred an appeal before the
Commissioner of Excise (Appeals). The said appeal was
dismissed by the Commissioner who fully agreed with the
reasoning of the Assistant Commissioner and also held that the
judgment of the Supreme Court referred to in the claim application
was not relevant in view of the introduction of the new tariff which
classified separately hot rolled and cold rolled strips. It also agreed
with the finding of the Assistant Commissioner that the application
for refund deserved to be rejected also on the ground of unjust
enrichment as the burden of duty had been passed on to the buyers.
We may observe that though the Commissioner of Excise
(Appeals) rejected the claim also on the ground of the respondent
having passed on the burden of duty to the buyers, the Assistant
Commissioner did not record any finding in this case on that
question, having regard to the provision of Section 11-B of the
Act.
The respondent preferred an appeal before the Tribunal
impugning the order passed by the Commissioner of Excise
(Appeals). Relying upon the judgment of this Court in 1995 (77)
E.L.T. 248 (S.C. ) : Collector of Central Excise, Chandigarh Vs.
Steel Strips Ltd. (supra). The Tribunal held that the department
was required to adduce evidence that the process undertaken by the
respondent resulting in the production of cold rolled steel strips
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from hot rolled strips amounted to manufacture. No evidence had
been brought on record to show that such process amounted to
manufacture giving rise to duty liability. It further held that the
mere fact that hot rolled steel strips and cold rolled strips fall under
two different sub-headings under the same chapter was not
sufficient to conclude that the process of cold rolling from hot
rolled strips amounted to manufacture. The burden was cast upon
the revenue to show that the manufacture had taken place but the
department had failed to discharge that burden. On these findings
the Tribunal held that the refund claim was admissible on merits.
However, it remitted the matter to the Assistant Commissioner to
enable the respondent to satisfy him that they had not passed on the
burden of duty to their customers as required by Section 11-B of
the Act.
In the connected appeals this order of the Tribunal has been
noticed and followed.
Learned counsel for the appellant submitted before us that
the fact that hot rolled strips and cold rolled strips were classified
under two distinct sub-headings under the amended tariff was itself
sufficient to hold that they were two distinct excisable
commodities. In any event, it was submitted, the Assistant
Commissioner considered the material on record and came to the
conclusion that the respondent undertook the process of
manufacture which resulted in the manufacture of cold rolled
strips, a new excisable commodity, from hot rolled strips, also an
excisable commodity. Therefore, the Tribunal erred in holding
that the department had failed to discharge the burden cast upon it
to establish that a new excisable commodity was the result of the
process of manufacture undertaken by the respondents.
On the other hand learned counsel for the respondents
submitted that there was no material whatsoever on record to
establish that the respondents undertook a process of manufacture,
which resulted in the manufacture of another excisable commodity.
The department had not produced any evidence in this regard and
the observations made by the Assistant Commissioner it its order
are based either upon his own knowledge or knowledge derived
from text-books or publications, which were not relevant. Relying
upon the earlier decision in Steel Strips (supra) it was submitted
that in a case where the excise authorities contend that an article is
the result of the process of manufacture and it is commercially
distinct and known as such, it is for the excise authorities to lay
evidence in this behalf before the first adjudicating authority
regardless of the fact that he is an officer of the excise department.
There should, ordinarily, be no difficulty in establishing that the
article is the result of a process of manufacture; in the event of
difficulty, it would be open to the excise authorities to seek a
direction requiring the assessee to set out in writing what it does to
obtain the article. Failure to lay the requisite evidence cannot be
made up by reference to authoritative publications.
In the instant case we find that while in the order of the
Assistant Commissioner there is a reference to a process of
manufacture undertaken by the respondents and there is also some
discussion about the manner in which the manufacture of cold
rolled strips takes place, but the order is not clear as to whether any
evidence was led by the department to satisfy the adjudicating
authority on this issue. The Tribunal on the other hand has
observed that no evidence has been brought on record to show that
such process amounted to manufacture so as to give rise to duty
liability. In this state of the record placed before us, it is not
possible for this Court to express its considered opinion on this
issue and it has, therefore, become necessary to remit this matter
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for fresh consideration on the basis of material on record.
Before us, it was also contended on behalf of the
respondents that the show cause notice issued to the respondents
was defective inasmuch as the show cause notice, apart from
referring to the fact that the two items were covered by two
separate and distinct sub-headings, did not state that the process
undertaken by the respondents resulted in the manufacture of a
new product. Since that was not stated in the show cause notice,
the department cannot be permitted to go beyond the facts stated in
the show cause notice. This aspect of the matter has also not been
considered by the authorities under the Act.
It was then contended by the respondents before us that
reliance upon two distinct sub-headings under the amended excise
tariff itself was not conclusive and good enough to hold that there
was manufacture of cold rolled strips by the respondents. Learned
counsel for the respondents placed reliance on the following
decisions :
Hyderabad Industries Ltd. Vs. Union of India : 1999 (108)
ELT 321 (S.C.) ,
Hyderabad Industries Ltd. Vs. Union of India : 1995 (78)
ELT 641 (S.C.).
Prabhat Sound Studios Vs. Additional Collector of Central
Excise : 1996 (88) ELT 635 (S.C.).
In view of these decisions it is submitted that the
observations made in Lal Woollen & Silk Mills (P) Ltd., Amritsar
Vs. Collector of Central Excise, Chandigarh : (1999) 4 SCC 466
towards the end of paragraph 1 in the said decision is neither
correct nor conclusive. This question is no longer res-integra, as
this Court has in Commissioner of Central Excise, Chandigarh-I
etc. etc. vs. M/s. Markfed Vanaspati & Allied Industries etc. etc.
(C.A. Nos. 77-80 of 2001 etc. etc. decided on April 9, 2003)
upheld the contention urged on behalf of the respondents. In the
aforesaid judgment this Court, after noticing the observations in
Lal Woollen & Silk Mills (P) Ltd., Amritsar (supra) held :
" However, it appears to us that the observation
made in this authority are "per incuram". In so
observing, the decision of a larger Bench of this Court
in the case of Collector of Central Excise, Indore vs.
Universal Cable Ltd. Reported in 1995 Supp (2) SCC
465, has not been noted or considered. In this case an
argument that a good become excisable because it is
covered by Tariff Entry, has been negatived. In the
case of B.P.L. Pharmaceuticals Ltd. Vs. Collector of
Central Excise reported in 1995 Supp (3) SCC 1 it has
also been held that merely because there is a change
in the tariff Item the goods does not become
excisable. Subsequently in a judgment dated 13th
February, 2003 in Civil Appeal No. 6745 of 1999 it
has been held that merely because an item falls in a
Tariff Entry, it does not become excisable unless there
is manufacture and the goods is marketable. In Lal
Woolen & Silk Mills’ case (supra) it has not been held
that the twin test of manufacture and marketability is
not to apply. It is not possible to accept the
contention that merely because an item falls in a
Tariff Entry it must be deemed that there is
manufacture. The law still remains that the burden to
prove that there is manufacture and that what is
manufactured is marketable is on the revenue. In this
case no new evidence is placed to show that there is
manufacture. "Spent earth" was "earth" on which duty
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has been paid. It remains earth even after the
processing. Thus if duty was to be levied on it again,
it would amount to levying double duty on the same
product."
In the result these appeals are disposed of by remitting to the
Tribunal in Civil Appeal 7165 of 2000 and Civil Appeal Nos.
7706-7711 of 2002, and to the Commissioner of Excise (Appeals)
in Civil Appeal Nos. 439-442 of 2002 to consider and record
findings on the following questions and dispose of the matters
before them in accordance with law. The consideration of these
questions shall be on the basis of the material on record, and no
further evidence shall be allowed to be adduced.
1. Whether the excise authorities have led any evidence
before the first adjudicating authority on the question
as to whether cold rolled strips are the result of a
process of manufacture undertaken by the
respondents, or whether the material referred to in the
order of the Assistant Commissioner is based upon his
own personal knowledge or is based on authoritative
publications? The burden is on the department to
prove that the process of manufacture resulted in
emergence of a commercially distinct commodity.
2. Whether the show cause notice issued to the
respondents was defective inasmuch as it did not state,
apart from referring to the two sub-headings under the
amended Central Excise Tariff, that there was
manufacture of a new product, namely cold rolled
strips from hot rolled strips?
3. In Civil Appeal Nos. 7165 of 2000 and 7706-7711 of
2002 the question whether the respondent has passed
on the duty of excise to its buyers is remitted to the
Assistant Commissioner concerned for his
consideration and finding having regard to the
provision of Section 11-B of the Act.
In the Appeals in which we have remitted the matters to the
Assistant Commissioner to consider the question as to whether the
respondents have passed on the burden of duty of excise to their
buyers, which question has to be considered in the light of the
provisions of Section 11-B of the Act, it is only appropriate that
the Assistant Commissioner concerned should first record a finding
on that question. If the finding is against the respondents, their
claim applications shall have to be rejected. This, of course, is
subject to the order that may be passed in appeal by the appellate
authority and ultimately by the Tribunal. Only if it is ultimately
found that the respondents have not passed on the burden of excise
duty to their buyers, the other questions which we have remitted to
the Tribunal may require consideration. We, therefore, direct that
in the first instance those appeals shall stand remitted to the
concerned Assistant Commissioners to hear the parties and decide
only the question of unjust enrichment having regard to the
provisions of Section 11-B of the Act. It will be open to the
respondents to challenge the finding if it goes against them before
the appellate authority and/or before the Tribunal. If no appeal is
preferred against an adverse finding by the Assistant
Commissioner, that will be an end of the matter and no further
consideration by the Tribunal will be necessary. However, if it is
ultimately found that the respondents have not passed on the
burden of excise duty to their buyers then the Tribunal will
consider the other questions, which we have remitted to it for its
consideration and the Tribunal shall thereafter dispose of the
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matters in accordance with law. To enable the Tribunal/
Commissioner to pass fresh orders, we set aside the impugned
judgments and orders of the Tribunal in all the appeals, as also the
Order of the Commissioner in Civil Appeal Nos. 439-442 of 2002.
These appeals are disposed of accordingly. There shall be
no order as to costs.