Customs, Excise and Gold Tribunal - Tamil Nadu
Foods, Fats And Fertilizers Ltd. vs Collector Of Central Excise on 27 May, 1987
Equivalent citations: 1987(14)ECC345, 1987(12)ECR700(TRI.-CHENNAI), 1987(30)ELT538(TRI-CHENNAI)
ORDER S. Kalyanam, Member (J)
1. This appeal is directed against the order of the Collector of Central Excise (Appeals), Madras dated 11-8-1986. On 19-8-1985 the Superintendent of Central Excise, Anti-Evasion, Guntur visited the appellant's factory and noticed that 140.200 M.Ts. of Acid Oil manufactured by the appellant had been cleared without payment of duty. On enquiries it was ascertained that the acid oil manufactured by the appellant was captively consumed and was classified under Item 68 of the Central Excise Tariff and therefore, was not assessable to any duty. The Special Bench of the Tribunal by judgment dated 13-11-1984 in Appeal No. 732/81-C in the case of 'M/s. Kusum Products, Calcutta', 1985 (19) ELT 479 (Trib.) held that acid oil is classifiable under Item 12 of the C.E.T. and not under T.I. No. 68 and on the basis of this ruling a show cause notice Under-Section 11A was issued on 29-8-1985 directing the appellant to show cause to the Asstt. Collector of Central Excise, Eluru as to why duty of Rs. 14,020/-should not be demanded under Section 11A of the Central Excises and Salt Act, 1944 (the Act for short) on the quantity of the said 140.200 M.Ts. of acid oil cleared by the appellant during the period February 1985 to July 1985. The proceedings ultimately resulted in the present impugned order.
2. Shri Somayajalu, Assistant Executive Officer of the appellant-company appearing for the appellant submits that the reasoning of the first appellate authority under the impugned order that a change in the classification list which was approved earlier need not be proceeded by the issue of a show cause notice in terms of Rule 173B of the Central Excise Rules, 1944 and proceedings could be instituted on grounds of short levy or non-levy under Section 11A of the Act, is not legally sustainable. Shri Bhatia, the learned SDR fairly conceded that an approved classification list can be revised only in terms of Rule 173B Sub-clause (v) of the Central Excise Rules, 1944 by giving a show cause notice in conformity with the principles of natural justice. In the present case admittedly the classification list of the appellant classifying the product under Item 68 of the C.E.T. has been approved by the department and the department cannot initiate proceedings under Section 11A of the Act on grounds of short-levy or non-levy without change of classification in terms of Rule 173B Sub-clause (v) of the Central Excise Rules,
3. I have carefully considered the submissions urged before me. It is admitted before me that the original classification was under Item 68 CET which had the blessings of the Department as it were. Even in such circumstances like the ruling of the Special Bench, CEGAT warranting change in the classification the same could be done only in a manner known to law. As rightly conceded by the learned S.D.R. Rule 173B Sub-clause (v) provides that when the dispute about the rate of duty has been finalised or for any other reason a modification of the rate is necessitated, the proper officer shall make such modification and inform the assessee accordingly. When on the basis of the ruling of a Court or a Tribunal that a modification or change in the classification becomes necessary, particularly to the detriment of the party like the appellant in conformity with the principles of natural justice, the Department should issue a show cause notice and hear the party concerned. In the present case admittedly no show cause notice was issued to the appellant in respect of the change in the modification of the classification and without the appellant being heard, the Department suo motu effected a change in the classification to the detriment of the appellant and on such basis the Department issued a show cause notice in terms of Section 11A of the Act seeking recovery of the amount payable by reason of such suo motu revised classification. In my opinion, such a course is not permissible. As a matter of fact Section IIA permits recovery of duty not levied or short-levied and when the question relating to classification on the basis of which the duty payable by a party has not been decided as per law, notice of demand to the party seeking recourse to Section 11A would not arise. I am fortified in this view by the ratio of the Special Bench ruling in the case of 'Steel Authority of India Ltd., Durgapur v. Collector of Central Excise, West Bengal, Calcutta', reported in 1985(22) ELT 487, wherein it has been held that where a classification list has been approved by the Department, any demand of duty is enforceable only prospectively from the date of the show cause notice. The order regarding classification is also an appealable order and therefore, a finding with reference to a question of classification against the party cannot be arrived at by a different authority .unilaterally suo motu without putting the other party on notice of the same and without affording him an opportunity of being heard in that regard. It is one of the faces of principles of natural justice that an appealable order cannot be passed by a quasi-judicial authority without conforming to the basic legal requirement of giving a show cause notice to the aggrieved party. At this stage it is relevant to extract the observations of the Bench of this Tribunal in the case of 'Mettur Chemical and Industrial Corpn. Ltd. v. Collector of Central Excise, Coimbatore' [reported in 1986(26) ELT 756]. -
"Ordinarily, in the scheme of the Act and the Rules an assessment by a proper officer precedes the removal of manufactured goods from the place of manufacture - something expressly provided for under Rule 9. Can it be said that the provisions of Chapter VII-A have modified the general directive under Rule 9? An assessment requires a determination of the quantum of duty due on an excisable product in accordance with the rates prescribed in the First Schedule to the Act. In the scheme of Self Assessment what has been done is to initiate the process of assessment by proper officer; approve the classification and price lists and leave it to the assessee to do the mechanical or clerical job of calculating the quantum of duty. It has been held that where an assessee does not agree with the classification approved by the proper officer, he has a right of appeal. A similar position applies in respect of valuation list approved by the proper officer. Hence approval of classification list and price list are formal decisions made under the Act and are crucial ones in the process of assessment of manufactured goods. When in accordance with the formal rates of duty and unit values approved by the Department, a certain sum is debited to the PL A and goods removed, the process of assessment and levy is complete. What follows by way of submission of a monthly return and its verification by officers of the Department is a second check on the act of assessment already made by the officers of the Department with the help of assessees themselves."
The principle and ratio enunciated by the Bombay High Court in the case of 'Swan Mills Ltd. and Anr. v. H.R. Amarnani and Ors., reported in 1982 ELT 445 (Bom.), would be relevant for consideration of the question arising in the present case. The Bombay High Court in that case held that, "It would not be just and fair for the Excise authorities to decide the classification of a product merely by placing reliance on rulings of Division Bench. Justice requires that the Excise authorities must have material and evidence before them on the basis of which the said authorities may themselves come to a conclusion."
Therefore, though the proper officer has been invested with the power to modify an approved classification list, if he thinks that classification list was wrongly approved, he can make such modification with prospective effect only after giving an opportunity to the assessee to show cause why the classification should not be changed. Since the burden of proof is primarily on the Excise authorities to establish whether a particular product falls under one item or the other, the manufacturer must be given a full-fledged opportunity to satisfy the authorities regarding the classification of their product. I, therefore, hold that the revision of the classification by the authorities suo motu on the basis of the ruling of the Tribunal referred to supra without putting the affected party on notice thereof is not legally tenable, so consequently a demand in terms of Section 11A of the Act, is not sustainable in law. The impugned order is therefore, set aside and the appeal is allowed.