Rajasthan High Court - Jaipur
Sutlej Cotton Mills Ltd. vs Union Of India (Uoi) And Ors. on 10 December, 1992
Equivalent citations: 1993(42)ECC114
ORDER G.S. Singhvi, J.
1. Petitioner has challenged the order dated 10.10.79 passed by the Assistant Collector, Central Excise, Kota and the order dated 25.2.80 passed by the Appellate Collector, Central Excise, New Delhi. It has also prayed that demand for recovery of a sum of Rs. 4,17,472.19 and Rs. 70,035.68 raised by the Central Excise Department may be quashed and the goods manufactured by the petitioner may be ordered to be classified under tariff item Nos. 18 and 18-E.
2. Petitioner has stated that it is manufacturing single yarn of viscose and polyester and their blends and also cotton yarn. The petitioner purchases rayon filament yarn (duty-paid), which is used for obtaining certain type of fancy yarn. The fancy yarn does not result in manufacture of any distinct commercial commodity and no manufacturing process is involved. According to the petitioner, since no manufacturing process is involved, it is not liable to pay any duty on the fancy yarn. According to the petitioner, this commodity is covered by tariff item Nos. 18 and 18-E. Petitioner (sic) had been classified under tariff items Nos. 18 and 18-E and, therefore, no duty was payable on fancy yarn. By a communication dated 1.4.79 the petitioner was informed that fancy yarn is classifiable under tariff item No. 68 of Ist Schedule of the Central Excises and Salt Act, 1944. A reply dated 10.4.79 was submitted by the petitioner. Thereafter, the Assistant Collector vide his letter dated 17.4.79 (Annexure-3) informed the petitioner that the Collector, Central Excise has ordered that the duty should be levied on fancy yarn under tariff item No. 68. The Superintendent, Central Excise issued a demand notice dated 16.7.79 to the petitioner and asked to deposit a sum of Rs. 4,17,792.19 as duty on fancy yarn. In his communication, the Superintendent stated that the Assistant Collector has by his order dated 2.7.79 finalised the classification. Certified copy of order dated 2.7.79 was not made available to the petitioner. Petitioner made a representation to the Collector, Central Excise, Jaipur but he was informed that by letter dated 17.4.79 of the Assistant Collector the classification has already been intimated. Petitioner was asked to point out whether it wanted personal hearing. On 17.7.79 the petitioner requested to the Collector to give personal hearing. The Assistant Collector called the petitioner on 14.7.79 (sic). He thereafter passed an order dated 10.10.79 and confirmed the demand raised by the Superintendent, Central Excise. An appeal was preferred by the petitioner against the order dated 10.10.79. This appeal has been decided by the appellate authority vide its order dated 25.2.80 and the appeal has been dismissed.
3. In challenging the impugned orders, the petitioner has asserted that both these orders have been passed in clear disregard of the provisions of the Central Excises and Salt Act, 1944 and the principles of natural justice. The fancy yarn had already been classified as the one falling under tariff item Nos. 18 and 18-E. Reclassification could not have been done without giving opportunity of hearing to the petitioner and without compliance of the principles of natural justice. However, neither notice was given to the petitioner nor any opportunity of hearing was given to it. The Assistant Collector had acted under the instructions of the Collector, Central Excise as is clear from his letter dated 16.4.79. The Collector, Central Excise had no jurisdiction to give any direction to the Assistant Collector because the functions discharged by the Assistant Collector while issuing classification list is quasi-judicial in nature and in such matters the quasi-judicial authority must decide the matter in its own discretion wholly uninfluenced by any direction of its superior authority. Petitioner has also urged that the court should hold that fancy yarn obtained by the petitioner does not fall under tariff item No. 68. The appellate order has also been assailed on the ground of non-application of mind and absence of reasons in support of the order.
4. Respondents have contested the writ petition and have in the first instance urged that the petitioner has failed to avail alternative remedy available to it under Section 36 [Section 35?] of 1944 Act. It has also been stated that the claim of refund of excise duty cannot be entertained in a writ petition filed under Articles 226 and 227 of the Constitution of India. It has then been stated that the fancy yarn obtained by twisting the duty-paid polyester and viscose yarn is a distinct commercial commodity and it is obtained by a manufacturing process. It has been denied that no inquiry was held regarding classification of fancy yarn. Initially the classification list of fancy yarn was approved provisionally under tariff item Nos. 18 and 18-E. After making proper inquiry, the fancy yarn was classified under tariff item No. 68. The Assistant Collector had given opportunity of personal hearing and then held that classification of fancy yarn under tariff item No. 68 was valid. As to the assertion of the petitioner that Assistant Collector, Central Excise, Kota had passed an order under dictates of the Collector, Central Excise, it has been stated that it is merely a coincidence that Assistant Collector, Central Excise, Kota also held the same view about classification of fancy yarn as held by the Collector, Central Excise. It has also been stated that the Assistant Collector is empowered to make modifications in the rate of duty as per Rules 173(B)(2) and 173(B)(5) of the Central Excise Rules. The modification letter was issued on 2.7.79 calling upon the petitioner to pay duty of fancy yarn under tariff item No. 68. Notice of demand was thereafter issued to the petitioner. The respondents have denied the allegation of violation of the principles of natural justice on different counts which have been specified in the writ petition.
5. Shri Kuhad, learned Counsel for the petitioner has argued that demand raised by the respondents suffers from violation of the principles of natural justice inasmuch as no notice was given to the petitioner. No inquiry was made by the respondents in which the petitioner had an opportunity to present his side of the case. The order of classification which had become final was modified by the respondents without hearing him. Shri Kuhad argued that the demand comes into existence only after a notice is given. He referred to the contents of paras 5 and 6 of the writ petition and paras 6 and 7 of the reply and submitted that in fact no hearing was given to the petitioner. Shri Kuhad argued that the proceedings under Rule 173 of the Central Excise Rules, 1944 are quasi-judicial in nature and, therefore, before any action was taken by the respondents under that rule, an opportunity of hearing ought to have been given. Shri Kuhad argued that the post-decisional hearing given to the petitioner by the Assistant Collector is no hearing in the eye of law. Shri Kuhad then argued that the Assistant Collector had abdicated his functions and had acted under the dictates of the Collector. By inviting Court's attention to the language of Annexure-3 dated 16.4.79 Shri Kuhad argued that the Assistant Collector had clearly acted under the dictates of the Collector and had followed the order passed by the Collector. Thus, the Assistant Collector did not exercise his discretion independently. Shri Kuhad argued that levying and collection of tax are two different steps and before any final decision was taken in the matter, a show cause notice ought to have been given to the petitioner. Shri Kuhad submitted that the provisions of Rule 10 will apply to the cases of non-payment and even in those cases where the assessment has not been finalised', a demand must be raised by the Department. Shri Kuhad placed reliance on the decisions of the Supreme Court in Gokak Patel Volkart Ltd. v. Collector, Central Excise , Nat Steel Equipment Pvt. Ltd. v. Collector of Central Excise Union of India and Ors. v. Madhumilan Syntex Pvt. Ltd. and Anr. , Serai Kella Glass Workers Pvt. Ltd. v. Collector of Central Excise, , Lilli Foam Industries (P) Ltd. v. Collector, Central Excise, , Comet Paints Ltd. v. Collector of Central Excise, and Vipul Dyes Chemicals (P) Ltd. v. Collector, Central Excise, .
6. Shri Sudhir Gupta, learned Counsel for the respondents on the other hand argued that demand has been raised against the petitioner under Rule 9-B(5) and no notice was required to be given before raising such demand. The petitioner's case was classified under item No. 18(1). What has now been done is to classify it under item No. 68. In such proceedings no notice was necessary. Only adjustment was required to be made. Shri Gupta argued that Section 11A was not in existence at the relevant time. Only Rule 10 was in force. Provisions of Rule 10 are not attracted in the present case. Shri Gupta submitted that the question of issue of notice arises only after finalisation of the classification list. He further argued that Rule 173 does not speak of giving of any notice or opportunity of hearing. He submitted that under Rule 173-B, proper officer is empowered to make assessment. Shri Gupta further argued that the issue of classification list already stands finalised in view of the verdict of the Supreme Court and giving of notice to the petitioner would have been an empty formality. He further submitted that letter Annexure-3 is merely a document communicating the views of the Collector. The Assistant Collector was not influenced or guided by the views of the Collector and, therefore, it cannot be said that the Assistant Collector had acted under the dictates of the Collector. Shri Gupta lastly argued that even if hearing had been given to the petitioner, it would not have made any difference because even this Court has declared that the goods like the one manufactured by the petitioner come under tariff item No. 68. He placed reliance on the order dated 27.10.90 passed in D.B. Civil Writ Petition No. 483/82 M/s. Modern Syntex (I) Ltd. and Anr v. Union of India and Anr.
7. A perusal of Annexure-3 read with Annexure-5 clearly show that even before the Assistant Collector has initiated the action against the petitioner vide notice Annexure-1, the Collector of Customs had taken a decision that all types of yarns known as fancy yarns, manufactured out of duty-paid yarns, should be tariffed under item No. 68. The Assistant Collector had clearly written to the petitioner that such a decision had been taken by the Collector. Annexure-5 also confirms this fact because in that communication the Assistant Collector had referred to the order of the Collector. The Assistant Collector had the authority, if any, to determine the classification of the goods manufactured by the petitioner and he was required to apply his own discretion in order to make a determination. However, in the present case the Assistant Collector was simply guided by the decision of the Collector. He has abdicated his discretion and had been guided by the orders passed by the Collector of Customs. It must, therefore, be held that the Assistant Collector had not applied his mind objectively and had acted under the dictates of a higher authority. His decision cannot, therefore, be treated as an objective decision.
8. Although Shri Gupta, learned Counsel for respondents, is correct that Section 11A was not in existence when the Assistant Collector had taken a decision to finalise the classification and only Rule 10 was applicable, I find sufficient justification in the argument of Shri Kuhad that even under Rule 10 read with Rule 173 it was incumbent upon the Assistant Collector to have given a notice to the petitioner before finalising the classification and to have made an inquiry after such notice. The very nature of the power exercised by the competent authority under Rule 173 warrants a quasi-judicial approach in which an opportunity of hearing is required to be given to the affected party. That has admittedly not been done by the competent authority. The notice given to the petitioner only related to the finalisation of the assessment and not in respect of the levy of duty under tariff item No. 68. In Gokak Patel's case (supra), their Lordships of the Supreme Court have clearly ruled that levy and collection of the duty are two distinct and separate steps and, therefore, the notice given to the petitioner for finalisation of the assessment cannot be treated as a notice preceding the classification under tariff item No. 68. In the absence of notice, the action taken by the Assistant Collector classifying the goods of the petitioner under tariff item No. 68, is liable to be declared as void. In Union of India v. Madhumilan Syntex (supra), though their Lordships of the Supreme Court were dealing with Section 11A, it was clearly held that in the absence of a show cause notice, demand raised by the authorities was liable to be declared as contrary to the principles of natural justice. The other decision on which Shri Kuhad has placed reliance also lays down the principle warranting issuance of notice and holding of an inquiry in such matters. For these reasons, the orders dated 10.10.79 and 26.2.80 as well as the appellate order dated 25.2.80 passed by the Appellate Collector are liable to be declared as void. The same are hereby quashed. This will not prevent the respondents from taking a fresh action against the petitioner, if any, in accordance with law.