Gujarat High Court
Bhor Industries Limited vs Union Of India on 1 January, 1800
Equivalent citations: 1980(6)ELT752(GUJ), (1980)2GLR452
JUDGMENT S H. Sheth, J.
1. The petitioners are manufacturing floor tiles which are called Marblex Asbestos Vinyl Floor Tiles. They have their factory at Baroda. Prior to October 1975, they were not classified under Item 15A (2) in the first Schedule to the Central Excises and salt Act, 1944. When the parliament inserted inserted Item 68- residuary item in the First Schedule to the Central Excises and Salt Act, 1944. When the parliament inserted Item 68- residuary item in the First Schedule to the Act- the petitioner started classifying their product under that item. The central excise authorities disputed that classification. There they issued notice to the petitioners to show cause why it should not be classified under Item 15 A (2). THe petitioners replied to that notice. After hearing the petitioners, the Assistant Collector of Central Excise, Baroda, made order on 30th March, 1978. By that order, he classified the said tiles as falling under Item 15A(2) and called upon the petitioners to pay excise duty there under. It is that order which is challenged by petitioners in this petition.
2. The only contention which we are required to decide is whether the said tiles attract excise duty under Item15A (2). Item 15A in so far as it is relevant for the present purpose reads as follows:
"Artificial or Synthetic Resins and Plastic Materials, and Articles there of -
(2) Articles made of plastic all sorts, including tubes, rods, sheets, foils, sticks other rectangular or profile shapes whether laminated or not, and whether rigid or flexible, including lay flat tubings, and polyvinyl chloride sheets, not otherwise specified."
There is the Explanation appended to item 15A. It reads as follows :
"For the purpose of sub-item (2),, "plastics" means the various artificial or synthetic resips or plastic material included in Sub- item (1)."
In case, therefore, to understand the exact connotation of the expression articles made of plastics" used in sub-item (2) of Item 15A, it is necessary to have a look at sub-item (1). Sub- item (1) consists of three parts. It is not in dispute that parts (i) and (iii) are not attracted to the instant case. Part (ii) reads as follows :
"Polymerisation and Copolymerisation products including Polyethylene and Polyterahaloethylene, Polyisobutylene, Polystyrene, Polyvinylchloride, Polyvinyl acetate, and Polyvinyl drivatives, Polyacrylic and Polymethacrylic derivatives and Coumarone-Indene resins."
Out of several materials which have been specified in the second part of sub-item (1), Polyvinyl chloride is the only plastic substance which is used in the manufacture of the said tiles.
Now, the impugned order, Inter alia, states as follows :
"the composition of process of manufacture of the said tiles was found to be as follows. The ingredients of "Marblex asbestos Vinyl-flooring files" are as under :
Lime stone 45%, asbestos 26%, Co-polymer resin plasticiser 10% Pigments 3.6%, di-octylphalat 3.6%, chlorined paraffin 2.6%, Apeolyn (Binder) 1.5% Gelled castor oil 1% and lead salilylate 0.7%."
3. These ingrediants made clear beyond any doubt that the said tiles which the petitioners have been manufacturing contain lime stone as its biggest component and it is 45%. The next biggest component is asbestos and it is 26%. co-polymer resin plasticiser which is a plastic material, forms a component part only to the extent of 10%. It has been averred by the petitioners in the petition that this plastic material is used to the extent of 10 to 15% in the manufacture of the said tiles because it operates as a binding agent or, in other words, it operates to integrate all other material into the finished product.
On this material, can it be said that the said tiles which the petitioners have been manufacturing are "article made of plastics" within the meaning of Item ISA(1). This demands the evolution of an appropriate test to determine the real character of these excisable goods. As we shall presently show from the record, the respondents contend that the said plastic material is the most commercial material and that the other material are merely fillers.
4. In the case of the petitioners themselves, a similar question had arisen as early as in 1973. The Assistant Collector, Central Excise, Baroda, had classified these tiles under Item 15A(2). The petitioners challenged that order before the Collector of Central Excise, Bombay. The appellate order made by the Collector set aside the order made by the Assistant Collector, Central Excise, and held as follows :
"Having regard to the facts and circumstances of the case, I hold that Asbestos Vinyl Tiles manufactured by M/s Bhor Industries Limited, Maneja, Baroda, are not liable to duty under Item 15A of the First Schedule to the Central Excises and Salt Act, 1944. The order of the Assistant Collector of Central Excise, Baroda II Division, referred to above, is, therefore, set aside and the appeal is allowed. Consequential relief, if any, shall be granted to the appellants."
The said appellate order which was a quasi-judicial order clearly recorded the finding that the said tiles manufactured by the petitioners did not fall under ITem 15A(2). The central excise authorities did not get rid of that order and reopened the proceedings by issuing a fresh show cause notice.
5. In a way, Mr. Andhyarujina who appears on behalf of the petitioners is justified in commenting that unless the earlier order made by the Appellate Collector in the case of the petitioners themselves in respect of the same excisable goods was got rid of, the central excise authorities in fairness could not have issued the fresh show cause notice, Indeed, he has told us that no principle of res judicata operate in case of such decisions but that justice and fair play require that as long quasi-judicial decision stands, what has been decided therein cannot be reopened by issuing a fresh show cause notice.
6. In support of his contention, he has invited our attention to the decision of a learned single Judge of the Calcutta High Court in Mercantile Express Co. Ltd. v. Assistant Collector of Customs and others, AIR 1956 Calcutta 930=1978 E.L.T. (J 52). In that case, he excisable goods were assessed earlier under Item 62. However, the customs authorities contended that they were not bound by the previous decisions. Answering that contention, the learned single Judge of the Calcutta High Court has observed as follows:
"Whether the doctrine or precedents applies in its full rigour to Administrative Agencies and cracers, and whether a reasonable latitude should be given to them or administrative tribunals to correct or modify their previous decisions may still remain a debatable controversy in the world of law; nevertheless I am clearly of the opinion that neither the Appraiser nor the Collector of Customs can change his mind from time to time in respect of the same article by assessing them in the case of one importer under one section and the assessing them for another importer under different section. To allow the customs to do so will lead to utter confusion in the very basis and principle of taxation and grave uncertainty in business and assign trade of India. Its more serious result will be the most unfair discrimination of taxes in respect of the same goods with regard to different importers. That cannot be permitted by the Constitution which insists on the equality of law as one of its fundamental guarantees. I am therefore inclined to hold that the Customs are bound by their own precedents in administering taxing statutes involving the very basis of taxation in respect of a particular article and not leave it to them to modify their own previous decisions but to leave it to them to apply to Courts or Parliament or Legislature as the case may be to put the Law beyond doubt."
7. In our opinion the observations which the learned single Judge of Calcutta High Court his made are very apposite. The central excise authorities cannot go on the changing their mind from time to time and cannot be allowed to create uncertainty in the period of taxation. However, we are not resting our decision on what the Appeal of Collector found in 1973. We propose to interpret the item itself.
8. Therefore, can we say that in the manufacture of which 10% of plastic material is used are "articles of plastic"? The Court has got to bear in mind the part which plastic manufacture such a case plays. There is no doubt about the fact that the plastic material only as a binding agent and is not the principal ingredient of the such manufactured by the petitioners. What operated only as a binding against determine the basic character of the product. The read character of the determined, in a case of this type, by materials which are predominantly therein. The only predominant material which is used by the petitioners in the is lime-stone. It forms 45% of the total quantity of a tile. The next in instance is asbestos which forms 26%. The rest of the materials are incidents in order to transform those two raw materials, by the process of manufacture into tiles.
9. Mr. Mehta has argued that mere quantity of a particular ingredient does not prove the character of the excisable goods. It may be so in the other cases. In this case, we are unable to say that tiles into the manufacture of which lime-stone to the extent of 45% and asbestos to the extent of 26% enter is an article made of plastics even though the plastic material forms 10% of the total quantity and operates merely as a binding agent.
10. It appears that the central excise authorities had tried to obtain the technical report on the component parts of these tiles. One report was obtained from National Test House at Alipore. the report which is annexed to the petition shows that Polyvinyl chloride was the plastic material used in the manufactured of these tiles and that its modulus of elasticity in flexure was 14,000 Kg/CM.2. The second test result which is noted in the same report also showed presence of Polyvinyl chloride. However, modulus of elasticity in flexure was noted in the following terms "8580 Kg./C.M. 2". These two tests were made in respect of two different qualities of tiles manufactured by the petitioners. In the opinion of the National fest House, the samples could be classified as "Rigid Plastic".
11. Mr. Andhyarujina has argued that the central excise authorities made a wrong approach to the National Test House, Alipore, when they requested the laboratory to find but the plastic content in the said tiles. According to him, they ought to have asked the laboratory whether the tiles which were sent for technical examination were "articles made of plastics". The comment made by Mr. Andhyarujina is well-founded. If the central excise authorities had asked the National Test House this basic question, the laboratory could have said whether they were "articles made of plastics". The National Test House classified it as "Rigid Plastic" and did not say that it was an "article made of plastics"
12. Opinions of the Chemical Examiner attached to the Central Excise Department at Baroda is also on record. It states as follows :
"The sample is in the of greenish pliable cut rectangular sheet. It is mainly composed of calcium carbonate, asbestos, synthetic resins, pigments binding agent and plasticizers. It is free from paper and textile materials."
The Chemical Examiner does not say that it is an "article made of plastics". The petitioners have produced the opinion of Dr. S.P. Potnis, Professor of Polymer Technology and Head of the Plastic and Paints Division, Department of Chemical Technology, Matunga, Bombay- 19. In his opinion, an article can be said to be made of plastics if it contains a major proportion of polymeric material. Since the tiles manufactured by the petitioners are based on asbestos and other inorganic fillers and contain only 10 to 15% of the polymeric material as a binder, it cannot be covered under the group of "articles made of plastics". He has cited instances to show that certain other materials even though they contain a larger quantity of polymeric materials are not known as "articles made of plastics". One of them is leather cloth which contains as high as 25-30% PVC polymer. The second is Ferro- asbestos sheets which contain 50% or more asbestos and 27% polymer. They are known as asbestos based sheets. The third is chid-board or particle-board which contains 7.8% of polymeric resin as a binder. It is classified as a wood based item.
13. Mr. Andhyarujina has invited our attention to the decision taken at the Conference of Central Excise Collectors held by the Central Board of Excise and Customers at New Delhi on 21st January, 1978. The relevant proceedings of the Conference which have been produced before us show that "Marblex asbestos vinyl floor tiles" have been classified as a rigid plastic material by National Test House, Alipore." They have further observed that "such tiles are essentially plastic tiles and the other materials are added only as fillers". The proceedings further record : "In the light of the above discussion, the Conference observed that marblex asbestos vinyl tiles will be classified under Item 15A(2)." The notice to show cause which was issued in the instant case to the petitioners reproduced the language used in the proceedings which took place at the Conference of Collectors of Central Excise. Mr. Andhyarujina has commented that the adjudication proceedings before the central excise authorities are quasi-judicial in character and that the Assistant Collector cannot blindly rely upon the decision recorded at the Conference of Collectors and abdicate his judicial function. There is some substance in the comment which Mr. Andhyarujina has made. In support of his contention, he has invited our attention to the two decision of the Supreme Court.
14. The first decision in Orient Paper Mills Ltd. v. Union of India, 1978 E.L.T. (J. 345) = AIR 1969 S.C. 48. The principle which has been laid down in that decision is that the Collector of Central Excise who hears an appeal is acting quasi-judicially. therefore, the directions issued by the Central Board or Revenue which are not under rule 233 cannot be binding upon him for the purpose of deciding the appeal. There is no dispute about the fact that the proceedings at the Collectors' Conference were not instructions issued by the Central Board of Revenue under rule 233.
15. The next decision to which he has invited our attention is in Orient Papers Mills Ltd. v. Union of India, 1978 E.L.T. (J. 382) = AIR 1970 S.C. 1498. The principle which has been laid down by the Supreme court in that decision is that the assessing authority of the Central Excises and Salt Act exercise quasi- judicial functions and there they have a duty cast on them to act in a judicial and independent manner. It has next been observed by the Supreme court that when the assessment to be mad by the Deputy Superintendent or the Assistant Collector, the Collector, to whom an appeal lies against his order of assessment, cannot control or fet his judgment in the manner of assessment. If the Collector issues directions by which the Deputy Superintendent or the Assistant Collector is bound no roomer left for the exercise of his own independent judgment. In such a case, an appeal to the Collector becomes an empty formality. The Supreme Court therefore, held in that case that the direction given by the Collector was invalid and therefore, the proceedings, before the Deputy Superintendent or the Assistant Collector were vitiated.
16. Mr. Mehta who appears on behalf of the central excise authorities has invited our attention to the decision of Supreme Court in V. V. Iyer v. Jasjit Singh, Collector of Customs, and another, (1973) I Supreme Court Cases 148. The principle which the Supreme court has load down in that case is that the High court should not interfere with the decision of the central excise authorities in the matter of classification unless decision is perverse or mala fide or is based upon a wrong test. It has been observed in that decision that the High court is not a Court of appeal against the orders of adjudication made by the central excise authorities.
17. In the instant case, the central excise authority have not only applied a wrong test but have ignored the earlier decision of trade appellate Collector recorded in respect of these very excisable goods and he acted upon the proceedings which took place of the Collectors' Conference in complete abdication of their judicial function. In our opinion, therefore this is a case in which interference by the High court is called for.
18. In our opinion, Marblex Asbestos Vinyl Floor Tiles manufactured by the petitioners are not "articles made of plastics" because and the plastic material constitutes only 10% to 15% of the total quantity of a tile and works only as a binding agent. It is not the principal ingredient in the said tiles. A blue paper is essentially a paper and not a blue colour merely because the latter has been used therein to impart a blue colour. A garment is essentially cloth and not thread which keeps its different parts together in the form of a garment. Therefore, the said tiles manufactured by the petitioner do not attract excise duty under Item 15A(2) in the First Schedule to the Central Excises and Salt Act, 1944. They are, therefore, not liable to pay excise duty in respect of the said excisable goods under the said item. The petitioners have been classifying these goods under Item 68- the residuary item. Mr. Mehta has argued that these excisable goods may as well fall under Item 22F in the First Schedule to the Act. The notice which was issued to the petitioners and which led to the present litigation called upon them to show cause why the said tiles manufactured by them should not be classified under Item 15A(2) or under Item 22F. Item 22F came into force on 16th March, 1976. Because the central excise authorities recorded a finding that the said titles manufactured by the petitioners fell under Item 15A(2), they could not record any finding in respect of the applicability of Item 22F because an excisable goods would not fall under two tariff items. Mr. Andhyarujina is, therefore, justified in arguing that the show cause notice which the central excise authorities issued to the petitioners and which has led to the present litigation has exhausted itself. However, if the central excise authorities intend to hold a fresh enquiry into the applicability of Item 22F, they may do so after issuing a fresh show cause notice to the petitioners.
19. In view of the finding which we have recorded the impugned order cannot be sustained because the excisable goods with which we are concerned in this petition do not attracted, for the purpose of excise duty, Item 15A(2).
20. Since we have decided this case in favour of the petitioners on merits, we have not dealt with the second contention which Mr. Andhyarujina has rained before us. According to him, the present case will be governed, it at all, by rule 10(1) (a) and not by rule 9(2) or rule 173A.
21. We, therefore, issue a writ of certiorari and quash the impugned order. Rule is made absolute with costs. In pursuance of the interim order made by this Court in this petition, the petitioners have furnished Bank guarantee to the respondents in respect of the amount in dispute. Since the petitioners have succeeded in this petition, the Bank guarantee furnished by them to the respondents is discharged.
22. Mr. H. M. Mehta who appears on behalf of the respondents applies for a certificate of fitness under Art. 133(1) of the Constitution in order to enable the respondents to appeal against this decision to the Supreme court. We find no substantial question of law in this petition which is required to be decided by the Supreme Court. The oral application made by Mr. Mehta is, therefore, rejected.