IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 23-12-2008 CORAM THE HONOURABLE MR.JUSTICE M.JAICHANDREN Writ Petition No.3081 of 2001 M/s.Bakelite Hylam Ltd., 7-2-1669, Sanathnagar, Hyderabad-500 018, Rep. by Manager-Taxation. .. Petitioner. Versus 1.The Customs, Excise and Gold (Control) Appellate Tribunal, Chennai. 2.The Commissioner of Central Excise, Hyderabad. .. Respondents. Prayer: This petition has been filed seeking for a writ of Certiorari, calling for the records of the first respondent culminating in its Final Order No.485/2000, dated 18.4.2000, and quash the same. For Petitioners : Mr.R.Sashidaran For Respondents : Mr.S.M.Deenadayalan (C.G.S.C.) (R2) O R D E R Heard the learned counsel appearing for the petitioner and the learned counsel appearing for the second respondent. 2. It is stated that the petitioner is a public Limited Company incorporated under the Companies Act, 1956, having its registered office and manufacturing Unit at Sanathnagar, Hyderabad. The petitioner is engaged, inter alia, in the manufacture of Alkyd Resins and various other products. It has been further stated that Section 3 of the Central Excise Act, 1944, is the charging Section in terms of which duties specified, under the Schedule to the Central Excise Tariff Act, 1985, is levied on various excisable goods manufactured in India at the rates set forth in the Schedule to the Central Excise Tariff Act, 1985. The Central Excise Rules, 1944, prescribe a detailed procedure to be followed by the assessee. https://hcservices.ecourts.gov.in/hcservices/ According to Rule 173B, as it stood before its amendment, on 16.3.95, all assessees were required to file, with the Proper Officer, a Classification List giving the full description of the excisable goods produced or manufactured or to be produced or manufactured by them, the chapter heading and the sub-heading of the Tariff Act under which such goods would fall, the rate of duty leviable on them and all other particulars as may be required by the Collector. Under Rule 173B(2) the Proper Officer, after such enquiry as he deems fit, approve the list with such modifications as are considered necessary. The assessee is required to determine the duty payable on the goods intended to be removed in terms of such approved classification list. Rule 173B had been amended, on 16.3.95. After the amendment, the assessee was required to file a declaration giving all the details, as previously required under the said Rule. However, after the said amendment, the prior approval of the classification list had been done away with. 3. Under Section 11A of the Central Excise Act, 1944, it has been stated that where any duty of excise has not been levied or paid, or has been short-levied or short-paid, or erroneously refunded, a Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause as to why he should not pay the amount specified in the notice. The proviso to Section 11A provides that where any duty of excise has not been levied or paid, or has been short-levied or short paid, or erroneously refunded by reason of fraud, collusion, or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made therein, with intent to evade payment of duty, by such person or his agent, a demand could be made, within a period of five years from the relevant date, by the concerned authority. The classification of the goods has to be determined in terms of the Central Excise Tariff Act, 1985, which provides the rate of duty applicable to the excisable goods. As such, the petitioner had filed the Classification Lists, classifying the various goods manufactured by the petitioner company and the said Classification Lists were approved from time to time. With the amendment of Rule 173B, the petitioner has been filing declarations, as required thereunder. The petitioner had filed a Classification List in the year, 1988, claiming classification of Alkyd Resins under Chapter sub-heading 3907.50 of the Central Excise Tariff Act, 1985. The said classification was approved by the Assistant Commissioner, after due verification. Subsequently, the Classification List was again approved in the year, 1989. The petitioner has been clearing the goods in terms of the Approved Classification Lists and it has been paying the duty. Accordingly, all the necessary details were being provided by the petitioner Company as and when they were required by https://hcservices.ecourts.gov.in/hcservices/ the authorities concerned. Further, the composition of the goods had been within the knowledge of the department, through Modvat declarations for the various inputs used in the manufacture of the final product. 4. It has been further stated that the petitioner had adopted the above classification, based on Note 3 to Chapter 32 in terms of which a solution consisting of any of the products specified under heading 39.01 to 39.13 in Volatile Organic Solvent, when the weight of the solvent exceeds 50% of the weight of the solution, should be classified under Chapter-32. Since the goods in question did not satisfy the said condition the petitioner classified them under the heading 3907.50 and such a classification had been duly approved by the Assistant Collector of Central Excise for the years 1988 and 1989. However, in the year 1993, the Department, after a detailed technical investigation, had taken the stand that the subject goods were classifiable under heading 3208.40. In such circumstances, the petitioner, in order to establish its bonafides, based on the request of the department, had paid the differential duty, suo motu, to the tune of Rs.17,41,328.65, on 4.9.93, `under protest', towards clearances made between June, 1988 to February, 1993. While so, a show cause notice bearing O.R.No.63/93-Adjn., dated 24.11.93, had been issued calling upon the petitioner to show cause as to why the duty of Rs.17,41,328.65, being allegedly duty short-paid on insulating varnish, cleared between 1.6.88 to 28.2.93, should not be confirmed, under Rule 9(2) read with Section 11A of the Central Excise Act, 1944 and as to why a penalty should not be imposed on the petitioner, under Rules 9(2), 173Q and 226 of the Central Excise Rules, 1944. On receipt of the said show cause notice, the petitioner had filed a detailed reply, vide letter, dated 15.3.94, and had also appeared for a personal hearing, submitting among other things, that the department had not made out a case for invoking the extended period of limitation and hence, the demand was time barred. However, the second respondent had passed an order being the Order- in-Original No.C.Ex.84/97, bearing O.R.No.63/93 Adjn., dated 6.11.97, received by the petitioner, on 27.11.97, confirming the demand in the show cause notice, on untenable grounds and imposing a penalty, under Rules 9(2), 173Q and 226 of the Central Excise Rules, 1944, to the tune of Rs.10 lakhs, on the petitioner. 5. It has also been stated that Section 35-B of the Central Excise and Salt Act provides for an appeal against the orders of the second respondent before the first respondent Tribunal. Accordingly, the petitioner had preferred an appeal before the first respondent Tribunal, which had heard the appeal on various dates, effectively, from 25.1.99 to 31.3.2000. Thereafter, the appeal was reserved for orders. At the time of the commencement of the arguments during the early part of the year 1999, the petitioner had filed a brief note containing the list of citations and judgments. Thereafter, a Full https://hcservices.ecourts.gov.in/hcservices/ Bench of the Supreme Court had delivered a judgment in the case of Collector of Central Excise, Baroda Vs. Cotspun Ltd. (1999(7) SCC 633). In the said case the Supreme Court had held that the differential duty cannot be recovered on the ground of short levy when the duty has been paid in terms of the Approved Classification List and reclassification of goods and the consequent demand can only be effective, prospectively, from the date of issue of the show cause notice. Therefore, after the said judgment had been reported in the month of November, 1999, one of the main grounds taken on behalf of the petitioner company was that the Classification List claiming classification under the heading 3907.50, was approved by the department, from 31.3.88 onwards and since the goods had been cleared only in terms of an Approved Classification List, there cannot be a short-levy, as held by the Supreme Court in Collector of Central Excise, Baroda Vs. Cotspun Ltd. (1999(7) SCC 633) and therefore, the demand was unsustainable. 6. However, it was pointed, at the time of the arguments before the Tribunal, that the judgment of the Supreme Court held the field as on that date. It was further contended that irrespective of the merits of the case, with regard to the dispute in classification, there was no question of short-levy and the consequential demand of the duty and the penalty was not sustainable. However, the amendments introduced by the Finance Bill, 2000, made substantial changes in Section 11A of the Central Excise Act, 1944, practically, undoing the judgment of Collector of Central Excise, Baroda Vs. Cotspun Ltd. (1999(7) SCC 633). Even according to the Finance Bill, 2000, there can be no question of levying penalty since it had been categorically clarified, by way of an explanation in the amendments sought to be brought about by the Finance Bill. After arguments had been closed, on 31.3.2000, the first respondent Tribunal had reserved orders. Thereafter, the petitioner had received a Final Order No.485/2000, dated 18.4.2000, on 12.5.2000. The first respondent Tribunal had dismissed the appeal, as it had upheld the order of the second respondent, while restricting the demand to five years. The order of the first respondent Tribunal did not record the arguments made on behalf of the petitioner, especially, with reference to the decision of the Supreme Court in Collector of Central Excise, Baroda Vs. Cotspun Ltd. (1999(7) SCC 633). The order of the first respondent Tribunal, had not taken into account various other submissions made on behalf of the petitioner Company. Thus, there was an error apparent on the face of the record, in the order of the first respondent Tribunal, dated 18.4.2000. Therefore, the petitioner had moved the first respondent Tribunal seeking rectification of the mistake in the final order by filing a Miscellaneous Application. However, the first respondent Tribunal had dismissed the Miscellaneous Application by its Miscellaneous Order No.535/2000, dated 28.11.2000, on the ground that the order had been passed based on the written submissions which do not https://hcservices.ecourts.gov.in/hcservices/ contain any reference to the Collector of Central Excise, Baroda Vs. Cotspun Ltd. (1999(7) SCC 633) and that the grounds urged before the first respondent Tribunal for rectification of a mistake, which were in fact fresh grounds, had not been raised at the time of the passing of the final order, dated 18.4.2000. Since the order of the first respondent had been passed contrary to the judgment of the Supreme Court in the Collector of Central Excise, Baroda Vs. Cotspun Ltd. (1999(7) SCC 633) and the other relevant decisions of the Supreme Court, it is per incuriam and hence, it is without jurisdiction and without the authority of law. In such circumstances, the petitioner Company had preferred the present writ petition before this court, under Article 226 of the Constitution of India. 7. In the counter affidavit filed on behalf of the second respondent, it has been stated that the writ petition is liable to be dismissed as it has been filed before this Court without any cause of action taking place within its jurisdiction. Apart from raising the preliminary objection, with regard to the jurisdiction of this Court, it has also been stated that the petitioner is manufacturing various types of excisable goods such as decorative laminates, industrial laminates, resins etc., after filing classification lists/declarations with the Central Excise Department. In the classification list, the petitioner company had classified the impugned goods, namely, Alkyd Resins under Chapter Sub-heading No.3907.50, which was approved by the Assistant Collector. However, on certain information received through the intelligence to the effect that the petitioner company was clearing certain grades of insulating varnishes, classifiable under Sub- heading No.3208.40 of the Central Excise Tariff Act, 1985, in the guise of Alkyd Resins, classifiable under 3907.50 of the Central Excise Tariff Act, 1985, a detailed investigation had been taken up, along with the study of the Classification List filed by the petitioner Company, with reference to the actual manufacturing processing and the versatility of the products. All grades were manufactured by blending phenolic resins, or melamine resins or both with Alkyd Resins in varying proportions along with solvents and stabilizers. These grades are marketed for the purpose of using them as insulation varnishes as is clear from the technical data sheets and the admissions made by Basha, Assistant Manager (R&D), of the petitioner Company. Blending of Phenolic Resins or melamine resins, along with Alkyd Resins is made to get the desired characteristic suitable for electrical or mechanical application such as the desired film thickness and electrical insulation. Various grades of the impugned goods, namely, i.e. varnishes are marketed for the purpose of using them as insulating varnishes, a fact which emerges after going through the technical data sheets and the admissions made by R&D officials of the petitioner. https://hcservices.ecourts.gov.in/hcservices/ 8. It has also been stated that the said facts were never brought to the notice of the department at any stage. Even in the letter, dated 16.11.92, the petitioner had mentioned that Polyester based on alkyds are only modified by drying oil fatty acids. They did not disclose that the final product is the blend of alkyd resins. The relevant extract of Note to Chapter 34 states as follows: "Heading No.32.08 includes solutions (other than collection) consisting of any of the products specified in heading Nos.s39.13 in volatile organic solvents when the weight of the solvent exceeds 50 percent of the weight of the solution." Thus, it is evident that it is an inclusive note and it does not exclude other varnishes containing less than 50% of the solvent by weight. Since all these grades of resins are essentially used as insulating varnishes, as is evident from the technical data sheets and statements, for imparting electrical insulating properties, and mechanical strength such as surface production, they should have been classified as insulating varnishes, under 3208.40 of the Central Excise Tariff Act, 1985. However, the assessee had neither declared the correct classification of the product nor made the complete data available to the department to classify the product correctly. But for the extensive investigation undertaken by the officers the said facts could never have come to light. The non submission of the relevant information and the wrong description given to the product by the assessee had led the Department to classify the product under 3907.50 of the Act. It is also clear that even though the petitioner Company had conscious knowledge of the correct classification of the product, it had chosen to clear the goods as Alkyd Resins, with an intent to evade payment of appropriate duty of excise, by wilfully suppressing the vital facts. During the period June, 1988, to February, 1993, the petitioner company had manufactured and cleared a quantity of 3,06,368.11 litres of aforesaid grades as alkyd resins, instead of clearing them as insulating varnishes. The misclassification had resulted in short payment of Rs.16,20,604.85/- BED and Rs.1,20,723.80 SED, which is liable to be demanded under the proviso to Section 11A of the Central Excise and Salt Act, 1944, which envisages payment of duty short-paid for an extended period of five years. 9. It has also been stated that when the investigation was in progress, the assessee had reclassified the product under 3208.40 and the petitioner company had started paying the duty at the rate applicable to the heading 3208.40. The petitioner company, vide letter, dated 4.9.93, had intimated the department that the differential duty of Rs.17,41,428.65/- payable on the clearance made by them during June, 1988 to February, 1993, pertaining to this https://hcservices.ecourts.gov.in/hcservices/ had been paid. It has been stated that certain informations which were vital in deciding the classification of the product were not provided by the assessee. When the Department had come to know about the suppression of certain information a detailed investigation was undertaken by the Central Excise Department. After gathering the information through its intelligence that the assessee is clearing grades of insulating varnishes, classifiable under Sub-heading No.3208.40 of the Central Excise Tariff Act, 1985, in the guise of Alkyd Resins, classifiable under 3907.50 of the Central Excise Tariff Act, 1985, a detailed investigation was taken up and after registering a case, a show cause notice had been issued to the assessee, in accordance with law. Since the assessee had willfully suppressed the vital information, with an intention to evade the payment of duty, the department had to proceed against the petitioner company, under the proviso to Section 11A of the Central Excise Tariff Act, 1944. Therefore, the contention of the assessee that the demand is time barred cannot be sustained. 10. It has been further stated that the order of the first respondent Tribunal had been passed based on the written submissions of the assessee which did not contain any reference to Collector of Central Excise, Baroda Vs. Cotspun Ltd. (1999(7) SCC 633). The grounds urged before the first respondent Tribunal are therefore, grounds which were not raised at the time of the passing of the final order, dated 18.4.2000. As such, the contentions raised by the assessee, are not acceptable in law. All the submissions of the assessee had been taken into account while the final order had been passed by the first respondent Tribunal. The Classification Lists were proved only on the basis of the information furnished by the assessee. However, on investigation, the information furnished by the assessee were proved to be incorrect. The petitioner had not disclosed the fact that the final product is a blend of Alkyd Resins with other resins. Since the demand had been raised in the show cause notice, invoking the proviso to Section 11A of the Central Excise Act, 1944, the approval or otherwise of the Classification Lists has no significance. The assessee had never cited the Collector of Central Excise, Baroda Vs. Cotspun Ltd. (1999(7) SCC 633). Further, the other decisions of the Supreme Court, relied on by the petitioner company, are not applicable to the facts and circumstances of the present case. It is relevant to note that the petitioner company had voluntarily effected payment of duty for the period from June, 1988 to February, 1993, even while they were disputing the classification of the goods and their liability to pay the duty. Therefore, the duty demanded by the department, from the petitioner company had been upheld by the Commissioner, Central Excise, Hyderabad and also by the first respondent Tribunal. Thus, it is clear that the claims made by the petitioner company are without substance and devoid of merits. https://hcservices.ecourts.gov.in/hcservices/ 11. The learned counsel appearing for the petitioner had submitted that the impugned order of the first respondent, dated 18.4.2000, is without jurisdiction and without the authority of law, being contrary to the decision of the Supreme Court, including the Collector of Central Excise, Baroda Vs. Cotspun Ltd. (1999(7) SCC 633). The impugned order had been passed by the first respondent Tribunal without taking into account the submissions made at the time of the hearing of the appeal. The order of the first respondent Tribunal is also contrary to the Central Excise Act, 1944, and the Rules made thereunder. The said order is contrary to the principles enshrined under Articles 14 and 19 of the Constitution of India. The first respondent Tribunal had not taken into consideration the principle laid down in Collector of Central Excise, Baroda Vs. Cotspun Ltd. (1999(7) SCC 633) even though it held the field when the matter was pending on the file of the first respondent Tribunal, as well as on the date of the passing of the final order. According to the said decision of the Supreme Court, when clearance had been made in terms of an approved classification or a price list there can be no short-levy. In its final order, dated 18.4.2000, the first respondent Tribunal has specifically given a finding that the classification lists filed during the period June, 1988 to February, 1993, were approved. When it was found that the classification lists for the disputed period had been approved, the decision of the Supreme Court in Collector of Central Excise, Baroda Vs. Cotspun Ltd. (1999(7) SCC 633) ought to have been applied. The miscellaneous application filed by the petitioner had been dismissed by the first respondent Tribunal, by its miscellaneous order, dated 28.11.2000, stating that the decision of the Supreme Court in Collector of Central Excise, Baroda Vs. Cotspun Ltd. (1999(7) SCC 633) had not been relied upon by the petitioner at the first instance. 12. The first respondent Tribunal had failed to note that in the written submissions filed on behalf of the petitioner, a specific issue had been raised, as decided in the Collector of Central Excise, Baroda Vs. Cotspun Ltd. (1999(7) SCC 633), that there can be no demand for differential duty when the classification lists had been approved. The first respondent Tribunal had overlooked this vital aspect, while passing the final order, dated 18.4.2000, in the appeal filed by the petitioner, in Appeal No.E/441/98. Thus, the order of the first respondent Tribunal is contrary to the decision of the Supreme Court in Collector of Central Excise, Baroda Vs. Cotspun Ltd. (1999(7) SCC 633) and therefore, it is per incuriam. 13. The learned counsel for the petitioner had also submitted that when the matter had been taken up by the first respondent Tribunal for final hearing, on 31.3.2000, the Finance Bill 2000, had already been introduced for being passed as a law. In terms of Clause 106 of the Finance Bill, 2000, all actions taken under https://hcservices.ecourts.gov.in/hcservices/ Section 11A of the Central Excise Act, 1944, were validated. When any duty of excise has not been levied or paid or has been short- levied or short-paid or erroneously refunded, a show cause notice could be issued, within six months, from the relevant date. However, the proviso to Section 11A of the Act would be applicable only where any duty of excise has not been levied or paid or were short-levied or short paid or erroneously refunded by reason of order or collection or any willful mis-statement or the suppression of facts or contravention of any of the provisions of the Act, or rules made thereunder, with intent to avoid payment of duty. In such circumstances of the case, a demand can be made for such payment, within a period of five years from the relevant date. Since there is nothing to show on the part of the department that the petitioner company had evaded payment of excise duty by fraud, collusion or willful mis-statement or suppression of facts, the extended period of five years from the relevant date would not be applicable to the present case. After the amendment of Rule 173-B of the Central Excise Rules, 1944, the petitioner has been filing declaration as required thereunder. The petitioner had filed a classification list in the year, 1988, claiming classification of Alkyd Resins under the changed Sub-heading 3907.50 of the Central Excise Tariff Act, 1985. The said classification was approved by the Assistant Commissioner after due verification. While so, it is not open to the department to invoke the proviso to Section 11A of the Central Excise and Salt Act, 1944. According to Clause 110 of the Finance Act, 2000, which came into effect on 12.3.2000, any notice issued or served on any person, under proviso to Section 11A of the Central Excise Act, 1944, during the period commencing on and from 17.11.1980 and ending on the date on which the Finance Act 2000, received the assent of the President, demanding duty