Calcutta High Court
Shalimar Paints Ltd. vs Collector Of Central Excise on 18 August, 1993
Equivalent citations: 1994(70)ELT567(CAL)
Author: Ruma Pal
Bench: Ruma Pal
JUDGMENT Ruma Pal, J.
1. The petitioner manufactures paints, varnishes and other allied products. Prior to 1986, for the purpose of Central Excise the goods produced by the petitioner were classified under Tariff Item No. 14 of the First Schedule of the Central Excises & Salt Act, 1944. Tariff Item No. 14 in so far as it is relevant read :
"14. Pigments, colours, paints, enamels, varnishes, blacks and cellulose lacquers -
II. Varnishes and blacks -
(i) Varnishes
(ii) Bituminous and Coal-tar blacks ..."
2. Subsequent to the introduction of Central Excise Tax Tariff Act, 1985 which came into force from 28th February 1986, the petitioner filed classification lists contending that the products manufactured by the petitioner were "cut back bitumen", and as such classifiable under Tariff Heading No. 27.15 of the Schedule to the 1985 Act.
3. Before the classification list was accepted by the Central Excise Authorities, samples were drawn from the petitioner's products. The samples were submitted to the Chemical Examiner, Customs House, Calcutta. The Chemical Examiner submitted 4 (four) test Memos in respect of four of the petitioner's products. The Test Memos read as follows :
"(1) Test Memo No. 3/PV/SHM/86 dated 30-7-1987 (Air Drying Black Insulating Varnish - 70/38/07).
"The sample is black coloured free flowing liquid compound of bituminous matter and volatile organic solvents. Percentage of Nonvolatile Residue = 46.0 by wt. It gives a tack-free transparent adhered coating. The laboratory is not equipped to test the electrical insulation properties or varieties."
Sd/- Illegible, 16-10-1986 Chemical Examiner Customs House, Cal.
(2) Test Memo No. 57/SPL/27(l)/87, dated 29-4-1987 (IMC Bitugard Black 20/38/38) "The sample is black coloured free flowing liquid compound of bitumen in volatile organic solvents. It gives tack-free transparent adherent coating."
Sd/- Illegible, 10-9-1987 Chemical Examiner Customs House, Cal.
(3) Test Memo No. 58/SPL/27(2)/87, dated 5-5-1987 (Black Japan 73/38/86) "The sample is a black solution of bituminous matter in volatile organic solvent. It gives tack-free, transparent, adherent coating."
Sd/- Illegible, 26-8-1987 Chemical Examiner, Customs House, Cal.
(4) Test Memo No. 59/SPL/27(3)/87, dated 5-5-1987 (Black Tube Protective Coating-73/38/39).
"The sample is a black solution of bituminous matter in volatile organic solvent. It gives tack-free transparent, adherent coating."
Sd/- Illegible, 26-8-1987 Chemical Examiner, Customs House, Cal..."
4. On 16th May 1988 a notice to show cause was issued by the Assistant Collector, Central Excise to the petitioner. The period covered by the show cause notice was 1-3-1986 and 1-3-1988. According to the Respondent Authorities the petitioner's products were classifiable under Chapter 32 of the Schedule to the 1985 Act under Heading No. 32.10 and sub-heading 3210.90. The bases for this classification as stated in the show cause notice briefly enumerated were:
(a) The difference in the nature and use of 'cut-back bitumen' and "bituminous paints and varnishes";
(b) The test reports of the Chemical Examiner;
(c) The explanatory notes below Heading No. 32.10 of the Harmonised Commodity Description and coding system;
(d) The fact that the products had been classified by the petitioner all along prior to the introduction of the 1985 Act as bituminous paints and varnishes although cut-back bitumen was available as Tariff Heading being Item No. 11(4) of the erstwhile Tariff; and
(e) The petitioner itself declared the products manufactured by it in its price list as 'Bituminous paints and varnishes'.
5. On 11th August 1988 the petitioner wrote to the Assistant Collector of Central Excise acknowledging the receipt of the show cause notice stating :-
"On perusal of the test results we are very much aggrieved firstly because the report is incomplete and secondly it observed that the sample contains liquid compound of bitumen but gives tack-free transparent adherent coating. We feel that solution of bituminous matter cannot give transparent adherent coating and as such we are not in a position to accept the test report as reflected in the impugned purported notice.
In view of above we would request you to get the sample retested from Central Laboratory, New Delhi, as provided in Sub-rule (4) of Rule 56 of the Central Excise Rules, 1944 (hereinafter be referred as the rule) and communicate the result of retesting at an early date.
We are in receipt of the report of test on 14-7-1988 and as such this request is made within the prescribed period of time contemplated in the rules."
6. On 7th September 1988 the petitioner was informed by the Excise Authorities that its request for retesting of samples had been allowed. An endorsement on the letter dated 7-9-1988 shows that the samples were sent for retesting to the Central Laboratory, New Delhi under registered post on 10th December, 1988.
7. On 7th February 1990 the Central Revenue Control Laboratory (CRCL) wrote to the Assistant Collector giving the results of the chemical analysis of the samples sent. The analysis reads as follows :-
"CLR-428 - Bituguard, Black : The sample is in the form of black liquid. It is composed of Bitumen and volatile organic solvents. It gives transparent, tackfree, adherent coating. It has the characteristic of varnish.
CLR-429 - Black Japan : The sample is in the form of black liquid. It is composed of bitumen, epoxy resin and volatile organic solvents. It gives transparent tack-free adherent coating. It has the composition of bituminous varnish. It is the other than cut back asphalt.
CLR-430 - Black tube protective coating - The sample is in the form of black liquid. It is composed of bitumen, epoxy resin and volatile organic solvents. It gives tack-free transparent adherent coating. It has the composition of bituminous varnish. It is other than cut back asphalt."
8. On 20th March, 1990 a notice was issued by the Assistant Collector to the petitioner enclosing a copy of the test result of the CRCL and requesting the petitioner to appear for personal hearing on 29th March, 1990 failing which the case would be decided ex parte on the basis of available records.
9. By notice dated 2nd August, 1991, personal hearing was fixed on 19th August, 1991. The petitioner was present through its representative and Advocate. At the hearing the petitioner's representative insisted that they should be provided with the detailed test results without which it was not possible for them to submit any arguments.
10. On the same date 18/19th August, 1991 the petitioner wrote to the Assistant Collector stating that the test results of the CRCL were in conformity with the Chemical Examiner's report. It was however stated that the report did not contain the composition of the product and it was difficult for the petitioner to accept such report. It was stated that the additional solvents could not bring in the characteristics of varnish. As far as the 'Black Japan' was concerned, the petitioner said that it was surprised to find the presence of Epoxy Resin. It was contended that a tack-free coating did not necessarily mean that the product was varnish. The petitioner asked for the detailed composition of the product so that it could submit its detailed written reply. The letter concluded with the following prayers :-
"(a) the clarification lists submitted be approved as claimed;
(b) if further classification is considered necessary, necessary order in this regard may be made;
(c) an opportunity of being heard after consideration of our further detailed written reply to be submitted after getting the detailed analysis report from the Central Revenue Laboratory be granted with sufficient advance notice to enable our technical personnel to be present."
11. It is not clear when this letter was received by the Assistant Collector.
12. By an order dated 26th August, 1991 the prayers of the petitioner's representative as made at the hearing were rejected. There is no reference to the letter dated 18/19th August, 1991. The Assistant Collector said :-
"This is a very old case pertaining to the year 1988. The report of the above test result has been received on 20-2-1990. The test result is very conclusive in nature and it reflects the nature of the goods in details. The question of Composition as insisted upon by the assessee is nothing but a dilatory tactics on their part. Further reasonable opportunity was also given to the assessee to justify the classification of the subject goods under Chapter Heading 27 but they failed. As such I do not find any reason to make further delay by way of acceding to their request."
13. He accordingly confirmed the classification of the petitioner's products under sub-heading 3210.90 of the Schedule to the Central Excise Tariff Act, 1985.
14. Being aggrieved by this order the petitioner preferred an appeal before the Collector of Central Excise (Appeals).
15. The petitioner contended before the Collector that the request of the petitioner for detailed analysis was reasonable. It was further stated that the view of the Assistant Collector that the request was made only to delay the matter was not justified. It was stated that the order of the Assistant Collector had been passed in violation of the principles of natural justice. Submissions were also made on the merits of the case. Brief notes of the main submissions on behalf of the petitioner were submitted by the petitioner in writing to the Collector.
16. By an order dated 8th April, 1993 the Collector dismissed the petitioner's appeal. The Collector, relying upon several decisions of the Tribunal as well as the decisions of the Madras High Court and Bombay High Court held that as the samples were retested at the request of the petitioner, it was bound by the result of the test particularly when the results of both the tests were the same.
17. The petitioner then moved this writ application on 24th June, 1993 challenging the order of the Assistant Collector dated 26-8-1991 as well as the order of the Collector dated 8th April, 1993.
At the hearing the petitioner contended :-
18. Classification of products under a tariff heading was a quasi-judicial function which necessitated the compliance with rules of natural justice. If there is a breach of these rules the order was void and was not curable in appeal.
19. Secondly, it is contended that, in fact, there was a breach of natural justice in this case because of the failure on the part of the respondents to give the detailed analysis of the test report of the CRCL. Furthermore after rejecting the petitioner's prayer as made in the letter dated 18/19th August, 1991, an opportunity should have been given to the petitioner to adduce evidence instead of which the matter was decided on the basis of the test report by the Assistant Collector. It is said that the ground for refusal of adjournment was incorrect in the circumstances of the case as it was not the petitioner but the respondents who were guilty of delay. Much emphasis has been placed on paragraph 8 of the writ petition wherein it is said that the then Assistant Collector had been requested to examine the production records of the petitioner to satisfy himself that no epoxy resin was used in the petitioner's products. According to the petitioner, the then Assistant Collector said he would look into the matter but did nothing for a year.
20. It is then contended that the test report of CRCL was no test report at all because no break up by way of percentage of the components had been given. This was a vital factor taking into consideration the definition of cutback bitumen and bituminous paints given in the show cause notice itself. The test report has also been criticised on the ground of delay. It is stated that over one year had been taken in submitting the report by the CRCL. There was a possibility of the samples being mixed up. The test report of CRCL has also been criticised on the ground that a Chemical Examiner could not decide classification and the CRCL had exceeded its jurisdiction in saying that the petitioner's product was not 'cut back bitumen'.
21. Finally, it is contended by the petitioner that the Assistant Collector in his order had wrongly placed the onus on the petitioner to adduce evidence in respect of the case that the petitioner's products were cut-back bitumen. It is stated that the respondents wished to change the classification and as such the onus was on the respondents that the goods were classifiable as claimed by them.
22. The respondents have submitted that the writ petition was liable to be dismissed on the ground that the petitioner had suppressed that prior to the 1985 Act the petitioner has chosen to classify its products as paints and varnish even though cut-back bitumen was available as a tariff item. Under the old tariff the rate of tariff in respect of paints and varnish was lower than cut-back bitumen. After the 1985 Act came into force, it was the petitioner who sought to change the classification of its products from paints and varnish to cut-back bitumen because the duty payable in respect of cut-back bitumen became lower than paints and varnish under the new tariff.
23. Secondly it is submitted that the petitioner could not complain of the lack of details in the CRCL report. The report was given strictly in accordance with the request made by the petitioner in its letter dated 11-8-1988. No percentage had been asked for in that letter.
24. Thirdly, it is submitted that there was no question of violation of principles of natural justice which would justify this Court in interfering with the orders impugned. The disputes raised were questions of fact which could be agitated before the Tribunal.
25. It is contended that if the petitioner were aggrieved by the Assistant Collector's order it could have approached this Court immediately after the order was passed. It did not choose to do so but opted for the remedy under the statute and should not be permitted to invoke the Court's jurisdiction under Article 226 at this stage.
26. In my view, there is substance in the respondent's contentions and the writ application is liable to be dismissed. There has been no violation of the principles of natural justice in this case. The failure on the part of the respondents to give a detailed analysis may affect the merits of the test report or the merits of the factual finding of the respondent authorities but I fail to see how the non-giving of the detailed analysis of the chemical report can amount to a breach of the principles of natural justice. There may have been some substance in the petitioner's contention if the respondents had relied upon any evidence which was not given to the petitioner. But that is not the case.
27. The refusal to adjourn the matter on 19th August, 1991 by the Assistant Collector cannot, also in the circumstances of the case be said to be arbitrary. The petitioner cannot complain that it was not given adequate opportunity of producing evidence in respect of its case. The show cause notice dated 16th May, 1988 itself called upon the petitioner to produce all evidence in respect of its contention that the products were classifiable in accordance with the classification claimed. The petitioner did not do so. The production of evidence by the petitioner in respect of its claim was not dependent upon the chemical examiner's report. The petitioner was at liberty to produce independent evidence of the composition of its products. The test report of the Chemical Examiner, Calcutta, was made available to the petitioner in 1988 itself. The report of CRCL was made available to the petitioner in March, 1990. The request for the detailed analysis was made for the first time in August, 1991 more than 1 year later on a date on which the hearing had been fixed by notice dated 2nd August, 1991. Although the letter is not referred to in the order of the Assistant Collector the oral submission of the petitioner's representative to the same effect have been noted in the order. There is no reason why the request could not have been made earlier.
28. The case made out in paragraph 8 of the writ petition that the writ petitioner had called upon the then Assistant Collector to scrutinize the records of the petitioner has not been referred to in the grounds of appeal before the Collector. Assuming that to be so, that failure on the part of the Assistant Collector to scrutinize the petitioner's records cannot amount to a denial of natural justice. The respondents had never placed any embargo on the petitioner in adducing evidence. If the petitioner wished to rely upon its records it could have produced the same before the respondents instead of calling upon the Assistant Collector to visit their factory, as they allege, to inspect the records.
29. The question of onus relates to the merits of the case and not to the question of natural justice. In any event I am unable to accept the submission of the petitioner that the onus was wrongly placed on the petitioner by the Assistant Collector. Prior to the 1985 Act cut-back bitumen featured under Tariff Item No. 11 (4) as under :-
"11. Coal (excluding lignite) and coke, all sorts, including calcined petroleum coke, asphalt, bitumen and tar - (4) Asphalt and bitumen (including cut-back bitumen and asphalt) natural or produced from petroleum or shale."
30. The petitioner did not include its products under 11(4) then. Then the petitioner had classified its products under the Tariff Item No. 14(11) which has already been quoted above, under the General Tariff Heading of Paints and Varnishes. The respondents are seeking to continue to classify the petitioner's products under approximately the same head under the new Tariff being Tariff Item No. 32.10 which reads as follows :-
"32.10 Other paints and varnishes (including enamels, lacquers and distempers), prepared water pigments of a kind used for finishing leather."
31. It is not the respondents who are seeking to change the classification of the petitioner's products but the petitioner itself. According to the petitioner, the products manufactured by it are classifiable under Tariff Heading No. 2715.10.
"27.15 Bituminous mixtures (including emulsions, suspensions and solutions) based on natural asphalt, on natural bitumen, on petroleum bitumen, on mineral tar or on mineral tar pitch (for example, bituminous mastics, cut backs) 2715.10 Cut-back bitumen or asphalt."
32. It may be so. But that is for the petitioner to establish. Assuming the onus was on the respondents, they have acted on some evidence in support of their contention. It is for the petitioner to rebut such evidence.
33. In the circumstances, it cannot be said that the respondents had acted in breach of any principle of natural justice justifying the Court in interfering in the matter under Article 226.
34. The petitioner's grievance regarding the correctness of the test report of CRCL relates to the petitioner's defence on merits. The petitioner can certainly assail the correctness of the test report on such basis as it may think proper before the Tribunal. I do not express any view regarding the weight to be attached to the test reports relied upon by the respondents.
35. No violation of natural justice being involved and the dispute being one which is purely one of fact, and the petitioner having already chosen its alternative remedy under the Act, the Court would be justified in relegating the petitioner to the alternative remedy so chosen by it under the Act.
36. For the reasons stated the writ application is dismissed. All interim orders are vacated. There will be no order as to costs.