Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs New Shorrock Mills on 13 October, 1983
Equivalent citations: 1983(14)ELT2410(TRI-DEL)
ORDER
S. Venkatesan, Sr. Vice-President
1. This is a proceeding initiated by the Government of India under Section 36 (2) of the Central Excises and Salt Act, 1944, which under Section 35P ibid stands transferred to this Tribunal to be disposed of as if it were an appeal presented before the Tribunal.
2. The facts in brief are that the respondents were manufacturing two varieties of fabrics, which they called Sort Nos. 4004 and 1819. These were cleared under Item 22 of the Central Excise Tariff as "Art Silk Fabrics". Subsequently, it was observed by the Central Excise authorities that these varieties contained more than 40% of cotton and more than 30% of non-cellulosic fibre at the grey stage and in that stage were considered to be classifiable under Item 19 I (1A) of the Central Excise Tariff as in force at the material time, as cotton fabrics. However, these fabrics were subjected to a "Carbonise process of printing", and as a result the percentage of cotton fell below 40% and the percentage of non-cellulosic fibre became .60%, bringing them within the definition of "Art Silk Fabrics" classifiable under Item 22 CET, under which they were assessed to duty and cleared. The Superintendent of Central Excise accordingly issued a show-cause notice on 18/19-3-1974 to the respondents under Rule 10 of the Central Excise Rules, 1944, for the recovery of Rs. 25,462.38 (basic duty) and Rs. 112.47 (additional duty), being the difference between the duties paid under Item 22 CET and the duties which would have been payable under Item 19 CET, during the relevant period, viz. November 73 to January 74.
3. After considering the respondents' reply, the Assistant Collector held that since the fabrics in question before carbonisation contained more than 40% of cotton by weight they were classifiable under Item 19. He accordingly confirmed the demand for differential duty.
4. Against this order, the respondents appealed to the Appellate Collector, who held that since the goods were to be classified when completely manufactured and ready for sale, the classification should be done on the basis of the goods completely manufactured and ready for marketing. In effect, he upheld the respondents' contention and allowed their appeal.
5. Thereafter, the Government of India, as Revisional Authority, issued the show cause notice dated 16-5-1977, under Section 36 (2), Central Excises Salt Act, which is the subject matter of these proceedings. In the notice the tentative view was expressed that the Appellate Collector's order was not proper, legal and correct ; and that duty on the fabrics had to be levied at both the grey cotton fabric stage under Item 19 I (1A) and under Item 22 as "Rayon or Artificial Silk Fabrics" after processing. The Government of India therefore proposed to set aside the Appellate Collector's order and to restore the Assistant Collector's order, or to pass such order as they might deem fit after consideration of the submissions of the appellant. It is this show-cause notice which is now to be disposed of by us as if it were an appeal filed by the Collector.
6. The matter came up for hearing on 4-10-1983, when Shri K.D. Tayal represented the appellant Collector and Shri V.J. Trivedi, the respondents. As a preliminary observation we pointed out to Shri Tayal the original show cause notice, dated 18/19-3-1974 and the Assistant Collector's order were only to the effect that duty should be assessed under Item 19 1(1 A) instead of Item 22, and differential duty paid ; the Appellate Collector had held that Item 22 was the appropriate item ; but the show-cause notice under Section 36(2) proposed levy of duty twice, under both items. Thus Government's show-cause notice appeared to go beyond the scope of the orders of the authorities below and to propose an additional levy of duty, which prima facie did not appear to be permissible in a suo motu revision under Section 36 (2). Shri Tayal requested a short adjournment to consider this aspect, and this was agreed to.
7. The matter was again taken up on 6-10-1983. With reference to the point raised by the Bench, Shri Tayal sought to justify the levy of duty under both Item 19 I (1A) and item 22. He contended that in proceedings under Section 36 (2) it was open to the Revisional Authority to correct the orders of the authorities below, even if it meant going beyond the scope of the original and appellate orders. In this connection he relied upon the decision of the Supreme Court in the case of Swastic Oil Mills v. H.B. Munshi (AIR 1968 S.C. 843). In that case, which was a sales tax matter, the Supreme Court upheld the power of a revisional authority to hold an enquiry and admit further material. It observed that the proceedings for revision must not be based on conjecture, but once the revisional power had been properly invoked, there could be no bar to the revising authority holding a further enquiry.
8. Shri Tayal also cited the judgment of the Delhi High Court in the case of Associated Cement Companies Ltd. v. Union of India. In that case the Superintendent of Central Excise had demanded duty on 'pozzolana cement' at Rs. 91/- per tonne. In appeal, the Appellate Collector ordered that duty should be levied only at Rs. 82/- per tonne. The Government of India issued notices on the assessees to show cause why the orders of the Appellate Collector should not be set aside and the demands made by the Superintendent restored. The show cause notices were challenged by the assessees on the ground that they were time-barred by virtue of the third proviso to Section 36 (2). The High Court upheld this contention and quashed the show cause notices.
9. It was pointed out to Shri Tayal that the judgments relied upon by him did not get over the difficulty we had pointed out. The Supreme Court's judgment in the Swastic Mills case authorises the holding of a further enquiry. It does not say that the revisional authority can introduce a new issue or go beyond the scope of the original order. As regards the decision of the Delhi High Court in the case of Associated Cement Companies Ltd., seeing that the show-cause notices in that case were quashed by the High Court, it is not clear to us how Shri Tayal claims support from it. In any case it will be clear that the facts in that case were different, since what the Revisional Authority proposed in its show-cause notice was only to restore the Order-in-Original, and pot to go beyond its scope, as has been proposed in the present case-
10. It was further pointed out to Shri Tayal that the original show cause notice issued to the respondents under Rule 10 was specific and limited to the differential duty. To pass an order as proposed by the Government of India would mean that an amount of duly higher than, that specified in the original show-cause notice would have to be paid, which would not be permissible in terms of Rule 10. The time limit for the issue (or amendment) of a notice under Rule 10 had clearly expired much before the date of the show-cause notice under Section 36 (2).
11. Shri Tayal again argued that under Section 36 (2) as it stood at the material time, there was no requirement that no order levying or enhancing the duty could be made unless the person affected had been given notice within the time-limit specified in Rule 10, and therefore the Revisional Authority was empowered to pass an order holding duty to be leviable under Item 19 I(1A) as well as Item 22. He also pointed out that in some appeals relating to tariff classification, the Tribunal had held as applicable a classification different from what had been decided by the authorities below.
12. Shri Trivedi, with reference to this issue, submitted that the show-pause notice under Section 36 (2) proposed (1) setting aside the Appellate Collector's order, (2) restoring the Assistant Collector's order, or (3) passing such order as deemed fit. He submitted that the order proposed by the revisional authority would go beyond the scope of all the three proposals. According to him, "passing such order as deemed fit" would not authorise the Revisional Authority to travel beyond the scope of the order of the lower authorities.
13. We have given our careful consideration to the question whether the Government of India, as the Revisional Authority were competent, and whether we, in a transferred proceeding, are now competent, to pass an order which would clearly go beyond the scope of the orders of the Assistant Collector to and the Appellate Collector, and result in the levy of duty over and above the amount specified in the notice under Rule 10. In this context the following considerations are relevant: -
(a) The Appellate Collector, on an appeal from the respondents, could not have made such an order ;
(b) If the Appellate Collector could not do so, the Revisional Authority could not revise his order to that effect on the ground that the order passed by him was not a 'proper, legal and correct' order ;
(c) The third proviso to Section 36, as it stood after amendment in 1978, laid down that "no order levying or enhancing the duty...shall be made under this Section unless the person affected...is given notice...within the time-limit specified in Section 11 A" (emphasis added). It could be argued that, whatever might have been the position at the time the proceedings under Section 36 (2) were initiated, at the time an order came to be made under that section the requirements of the third proviso also had to be fulfilled ;
(d) It does not appear proper for the Revisional Authority acting under Section 36 (2) to exercise its powers under that section in such a way as to circumvent the time-limit contained in Rule 10;
(e) This is not a case of haying to indicate what the correct classification is, but of having to decide whether the order passed by the appellate authority called for modification on the ground that it was not correct, legal or proper. There was no obligation on Government to initiate proceedings under Section 36(2). And the nature of the proceeding does not radically change merely because it has been transferred to us.
We accordingly hold that it was not open to the Revisional Authority to make an order that duty should be charged under Item 19 I (1A) as well as under Item 22. At most it could have restored the Assistant Collector's order and the consequential demand, holding Item 19 I (IA) to be applicable.
14. On the merits of the assessment, Shri Tayal pointed out that the appellants had not disputed that at the grey stage the composition of the fabrics corresponded to the description under Item 22, and they were cleared in that condition. Therefore duty was correctly leviable under both items.
15. As against this, Shri Trivedi mainly relied on an unreported judgment of the Gujarat High Court in Special Civil Application No. 67 of 1968, delivered on 30-4-1970. The facts in that case, according to him, were on all fours with the facts in the present case. The Gujarat High Court had held that the fabrics attracted duty under Item 22, and restrained the Central Excise authorities from recovering duty under Item 19. In coming to its conclusion the High Court inter alia made the following observations :
(a) The excise authorities had never gone into the question whether the goods at the grey stage were independently marketable; without first resolving this material question of fact, the excise authorities could never assume that the product at the intermediate stage was independently marketable;
(b) If the processed fabric ceased to be cotton fabric and is transformed into rayon or artificial silk fabric it could never attract duty under the head of processed cotton fabric;
(c) There is neither principle nor logic involved in any such extreme contention (viz., that duty could be levied both at the intermediate stage and at the final stage) and even the excise authorities had never taken up any such absurd stand;
(d) The authorities were obviously in error in not looking at the actual finally manufactured substance which was transformed into a new substance.
16. Shri Trivedi submitted that the above decision of the Gujarat High Court squarely applied to this case. In further support of his stand he referred to the Tribunal's own decisions in two cases, reported in 1983 E.C.R. 662D : 1983 E.C.R. 430D. In the view which we propose to take, it is not necessary to refer to these decisions in detail.
17. Shri Tayal, in his reply to Shri Trivedi, submitted that a Special Leave Petition had been filed to the Supreme Court against the above mentioned decision of the Gujarat High Court. He also submitted that the above judgment had been delivered before the passing of the Central Excises and Salt and Additional Duties of Excise (Amendment) Act, 1980, under which the Tariff Item had been retrospectively amended so as to make textile fabrics again liable to duty after processing.
18. There is some force in Shri Tayal's arguments in so far as the question of levy of duty again after processing is concerned. But it does not answer the point that the excise authorities had not gone into the question whether the goods at the grey stage were independently marketable. The respondents in this case are in Gujarat, and the facts of this case are almost identical to those of the case covered by the judgment of the Gujarat High Court. We have already held that we cannot hold the goods to be leviable to duty under both Item 19 I (1A) and Item 22. If we have to choose between these two items, the appropriate item is obviously the one which is applicable to the goods at the stage at which they are cleared. In this view we consider that the Appellate Collector's order should be confirmed. We order accordingly.