1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION FIRST APPEAL NO.2597 OF 2005 1. The Jam Shri Ranjitsinghji Spg. & Wvg. Mills Co. Ltd., Rajesh Mansion, 140 Maharshi Karve Road, Bombay 400 020. 2. Shree Ratan Gandhi, 140, Maharshi Karve Road, Bombay - 400 020. .. Appellants. V/s. 1. Union of India (Notice to be served on the Secretary, Ministry of Finance, Department of Revenue, New Delhi. 2. The Collector of Central Excise, P.M.C. Commercial Bldg., Hirabaug, Tilak Road, Poona 3. The Assistant Collector of Central Excise, Solapur Division, Indra-Prastha, 25, Rly. Lines, Solapur. 4. The Superintendent Central Excise, L.V. Range, Station Road, Solapur. 5. Central Board of Excise & Customs, New Delhi. .. Respondents. Mr.M.H. Patil with Mr.M.L. Patil, Ms.Aparna Hindargi, Mr.T. Chandran Nair & Ms.Poornima Patil for the appellants. Smt.N.V. Masurkar with Mr.V.S. Masurkar, Mr.P.S. Jetly & Mr.R.C. Master for the respondent - Union of India. CORAM : F.I. REBELLO & J.P. DEVADHAR, JJ. JUDGMENT RESERVED ON : 1ST AUGUST, 2007. 2 JUDGMENT PRONOUNCED ON : 7th SEPTEMBER, 2007. ORAL JUDGMENT : (Per J.P. Devadhar, J.) ORAL JUDGMENT : (Per J.P. Devadhar, J.) ORAL JUDGMENT : (Per J.P. Devadhar, J.) 1. This Excise Appeal (wrongly numbered as First Appeal) was admitted on 29th June, 2006 on a substantial question of law which on being reframed by us reads as follows : "Whether on the facts and in the circumstances of the case, the CESTAT was justified in holding that the yarn manufactured and cleared by the appellant for captive consumption during the period from May, 1981 to May, 1984 under the self removal procedure was under provisional assessment as contemplated under Rule 9B of the Central Excise Rules, 1944, even though there was no dispute about the classification or valuation of the yarn cleared for captive consumption ?" 2. The appellants were engaged in the manufacture of cotton and manmade yarn as well as manufacture of fabrics covered under various tariff items of the Central Excise Tariff. Yarn manufactured by the appellants were either sold to the customers or were captively consumed in the manufacture of fabrics. 3 3. It is not in dispute that the classification list as well as the price list filed by the appellant in respect of the yarn manufactured by them were approved by the excise authorities and the appellant used to clear the yarn for captive consumption within the factory or clear the same outside the factory on payment of appropriate excise duty. 4. On 16th October, 1980, the Delhi High Court delivered a judgment in the case of J.K. Cotton Spg. Wvg. Mills (8 E.L.T. 837) holding that under Rule 9 & 49 of the Central Excise Rules, 1944 (‘1944 Rules for short) excise duty is not leviable on the yarn manufactured and cleared for captive consumption in a continuous uninterrupted and integrated process of manufacture. 5. In the light of the said judgment, the appellant filed a Writ Petition bearing No.1063 of 1981 in the Delhi High Court seeking a declaration that excise duty is not leviable on the yarn manufactured and cleared by them for captive consumption within their factory premises. On 8th May, 1981, the Delhi High Court passed an interim order in the said Writ Petition to the effect that till the disposal of the petition no excise duty 4 shall be recovered from the appellant on the yarn cleared for captive consumption, subject to the appellant furnishing a bond for the disputed duty and a bank guarantee for 50% of the disputed duty. 6. Accordingly, from May, 1981 the appellant cleared the yarn manufactured by them for captive consumption within the factory without payment of excise duty by executing a bond in form B-13 applicable to the provisionally assessed goods and on furnishing a bank guarantee for 50% of the disputed excise duty. In the B-13 Bond executed by the appellant, it was specifically stated that the yarn is cleared under provisional assessment pending final assessment and that on finalisation of the provisional assessment, the duty determined would be paid into the Government Treasury by the appellant within 10 days of the demand. 7. In the meantime, with a view to overcome the decision of the Delhi High court in the case of J.K. Cotton Mills (supra), the Central Government amended Rule 9 and 49 of the 1944 Rules by Finance Act, 1982 with retrospective effect from 28th February, 1944 by inserting an Explanation in each rule. By the said explanation it was provided that the excisable goods consumed or utilised in the manufacture of any other commodity in a continuous process or otherwise 5 shall be deemed to have been removed from such place immediately before such consumption or utilisation. The purpose of the said amendment was to validate the liability to pay excise duty on the goods cleared and consumed or utilised in the manufacture of any other commodity in a continuous process or otherwise with retrospective effect from 28th February, 1944. The appellant amended the writ petition pending before the Delhi High Court to challenge the validity of the retrospective amendment to Rule 9 and 49 of the 1944 Rules. 8. Thereafter, the Delhi High Court by its Judgment and Order dated 11th January, 1983, passed in the case of J.K. Cotton Spg. & Wvg. Mills and others reported in 1983(12) E.L.T. 239 upheld the retrospective amendment to Rule 9 and 49 and while dismissing a group of writ petitions held that the recoveries or refund, if any, arising on account of the retrospective amendment to Rule 9 & 49 would be subject to the limitation prescribed under Section 11-A and 11-B of the Central Excise Act, 1944 (‘1944 Act’ for short). 9. Following the above decision rendered in the case of J.K.Cotton Mills, the Delhi High Court on 17th April, 1984 dismissed the Writ Petition filed by the appellant as well as several other textile 6 mills by holding that the amendments to Rule 9 & 49 are valid and constitutional and recoveries for the past period would be subject to the provisions of section 11A of the 1994 Act. 10. Challenging the decision of the Delhi High Court dated 17th April, 1984, the appellant filed a Special Leave Petition before the Apex Court. In the said Special leave petition, the Apex Court passed an interim order on 4th May, 1984 to the effect that there will be no stay in respect of future clearances and as regards the past dues, the Apex Court directed the appellant to pay 50% of the disputed duty by 31st August, 1984 and for the balance 50% of the disputed duty, directed the appellant to give a bank guarantee and bond to the satisfaction of the Registrar of the Apex Court. Accordingly, the appellant paid 50% of excise duty in respect of the yarn cleared during the period from May, 1981 to May, 1984 and furnished bank guarantee for the balance amount. 11. On 30th October, 1987, the Apex Court finally disposed of a batch of Civil Appeals, the lead matter being the case of J.K. Spg. & Wvg. Mills and others reported in 1987 (32) E.L.T. 234. By the said decision, the Apex Court while upholding the constitutionality of the retrospective amendment 7 to Rule 9 and 49 of the 1944 Rules by Finance Act, 1982, held that the recovery of excise duty on account of retrospective amendment shall be subject to the limitation prescribed under Section 11-A of the 1944 Act. 12. Similar orders were passed by the Apex Court in the case of Rohit Mills Limited and others reported in 1988 (18) E.C.R. 17. The Civil Appeal filed by the appellant and other textile mills including the appeal filed by Morarji Gokuldas Mills Ltd. were dismissed by the Apex Court on 17th January, 1995 reported in 83 E.L.T. 259. The said order reads thus :- O R D E R " In this group of cases common questions arise for determination. They are covered by the decision of this Court in M/s. J.K.Cotton Spinning & Weaving Mills Ltd. and Anr. Vs. Union of India and others 1987 (Suppl) SCC 350 = AIR 1988 SC 1940. By the said decision this Court upheld as legal and valid the amendments made to Rules 9 and 49. It was argued that if the amendments are given retrospective effect from the date the Rules were framed i.e. from February 28, 1944, the assesses would be required to pay an enormous amount of duty. This Court appreciated the contention that if the duty has to be paid with retrospective effect from 1944 it would undoubtedly cause great hardship to the assessees but concluded that in view of Section 11-A of the Act such an apprehension was misplaced. Pointing to clause (1) of section 11-A it held that it engrafts a rule of limitation of six months and since the proviso to section 11-A is not applicable the demand though it may include even a 8 demand for more than six months must be made within a period of six months from the date of the amendment. Having considered the facts in this group of cases, in our view, in the light of the observation in J.K. Cotton Spinning & Weaving Mills it would be appropriate to direct that in cases where notices under Section 11-A of the Act have been served and the claims are raised within a period of six months from the relevant date, the Revenue would be entitled to realise the dues. In case of dispute as to whether the notice under Section 11-A had been served or not the Assistant Collector will decide the issue. However, in cases where the notices have not been served as yet the Revenue would be entitled to do so within the time limit prescribed by Section 11-A of the Act. In either of the aforesaid eventualities orders will not be passed by the authorities without giving an opportunity to the assessee to make representations against the proposed orders. If notices have already been served for the aforesaid purpose the assessees would have eight weeks time from today to reply or to make a representation. The Bank guarantees furnished by the assessees shall be made available for realisation of dues, if any, by the Revenue. The interim orders shall stand modified as above. The appeals will stand disposed of accordingly, with no order as to costs". 13. As the liability to pay the excise duty on the yarn cleared for captive consumption was finally upheld by the Apex Court, the Range Superintendent proposed to finalise the provisional assessment made in respect of the yarn cleared for captive consumption during the period from May, 1981 to May, 1984. The appellant objected to the finalisation of the provisional assessment inter alia on the ground 9 that in the absence of any show cause notice issued under Section 11-A of the 1944 Act within six months from the date of amendment of Rule 9 and 49 of the 1944 Rules, recovery of excise duty would be barred by limitation. 14. The Range Superintendent rejected the contention of the appellant and finalised the provisional assessments on 19th May, 1995 and determined the duty payable on the yarn cleared for captive consumption during the period from May, 1981 to May, 1984 at Rs.1,37,56,641.30 and after giving credit to the amount of Rs.68,78,320.65 already paid and after adjusting the sanctioned refund of Rs.5,21,217.89, the appellant was called upon to pay the balance excise duty amount of Rs.63,57,102.76 immediately. 15. The appellant thereupon filed Special Civil Suit No.249 of 1995 before the C.J.S.D., Solapur inter alia seeking permanent injunction restraining the excise authorities from enforcing the aforesaid demand. In the said suit, interim order was passed restraining the authorities from enforcing the demand confirmed on 19th May, 1995. Thereafter, by a judgment and order dated 24th July, 1995 the C.J.S.D., Solapur was pleased to dismiss the said Special Civil Suit No.249 of 1995. First Appeal 10 No.652 of 1995 filed by the appellant against the judgment dated 24th July, 1995 was also dismissed by this court on 22nd August, 1995 inter alia on the ground that the appellant has an alternate remedy of filing appeal before the appellate authority under the 1944 Act. 16. The appellant then filed an appeal before Commissioner of Central Excise (Appeals), Pune and sought waiver of predeposit of the demand raised on 19th May, 1995. By an order dated 28th September, 1995 the Commissioner (Appeals) rejected the application for waiver of predeposit. Writ Petition No.4763 of 1995 filed by the appellant against the order of the Commissioner (Appeals) was dismissed by this Court on 24th January, 1996. 17. Thereafter on merits, the Commissioner (Appeals) by his order dated 16th December, 1996 dismissed the appeal filed by the appellant inter alia on the ground that during the relevant period, the yarn was cleared for captive consumption on provisional assessment and, therefore, the revenue was entitled to finalise the provisional assessment and raise demand without issuing notice under Section 11-A of the 1944 Act. 18. Challenging the order passed by the 11 Commissioner (Appeals), the appellant filed further appeal before CESTAT. There was a difference of opinion between the two members of the CESTAT and, therefore, the matter was referred to a third member. In the light of the decision given by the third member, the Tribunal by its order dated 1st July, 2005 upheld the order of Commissioner (Appeals) and dismissed the appeal filed by the appellant. Challenging the order of the Tribunal dated 1st July, 2005, the present appeal is filed. 19. To complete the narration of facts, it may be noted that the revenue has already recovered the balance of excise duty determined as payable on finalisation of the provisional assessment on 19th May, 1995 by encashing the bank guarantees furnished by the appellant pursuant to the order passed by the Apex Court. 20. Mr.Patil, learned counsel for the appellant submitted that the question raised in this appeal is squarely covered by the decision of this Court dated 17th February, 2005 in Central Excise Application No.2 of 2001 (CCE V/s. Morarji Gokuldas Spg. & Wvg. Mills Co. Ltd.). In that case, the revenue had conceded that in the light of the decisions of the Apex Court in the case of Metal Forgings V/s. Metal Forgings V/s. Metal Forgings V/s. Union of India Union of India Union of India reported in 146 E.L.T. 241 146 E.L.T. 241 146 E.L.T. 241 and in 12 the case of J.K. Cotton Spg. & Wvg. Mills Co. J.K. Cotton Spg. & Wvg. Mills Co. J.K. Cotton Spg. & Wvg. Mills Co. Ltd. V/s. Commissioner of Central Excise Ltd. V/s. Commissioner of Central Excise Ltd. V/s. Commissioner of Central Excise reported in 99 E.L.T. 8 99 E.L.T. 8 99 E.L.T. 8, excise duty on yarn cleared for captive consumption cannot be recovered without issuing a notice under section 11-A of the 1944 Act. Accordingly, Mr.Patil submitted that in the present case, admittedly, the revenue has not issued a notice under section 11-A of the 1944 Act and, therefore, the demand raised in respect of the yarn cleared for captive consumption during the period from May, 1981 to May,1984 is clearly time barred. 21. Mr.Patil further submitted that the authorities under the Excise Act were clearly in error in holding that the clearance of yarn for captive consumption during the relevant period was under provisional assessment. He submitted that under Rule 9B of the 1944 Rules provisional assessment is permissible under three circumstances, namely (one) where the proper officer is satisfied that the assessee is unable to produce any document or furnish information necessary for the assessment (two) where the proper officer deems it necessary to subject the excisable goods to any chemical or any other test for the purpose of assessment and (three) where, even after the assessee has produced all the documents and furnished full particulars, the proper officer deems it necessary to make further enquiry. 13 Similarly, under Rule 173B and 173C of the 1944 Rules provisional assessments may be made in cases where there is likelihood of delay in approving the classification list or the price list. In the present case, none of the exigencies set out in Rule 9B existed and, therefore, provisional assessment could not be made under Rule 9B. Similarly, the classification list and the price list being approved by the proper officer provisional assessment could not be made under Rule 173B or 173C of the 1994 Rules. The fact that the appellant at the instance of the excise authorities had executed a B-13 Bond at the time of clearance of the yarn would not make the assessments provisional especially when none of the grounds for making the provisional assessment under Rule 9B or 173B or 173C of the 1994 Rules existed. In this connection Mr.Patil relied upon a decision of the Madras High Court in the case of Chemicals & Plastics India Ltd. Chemicals & Plastics India Ltd. Chemicals & Plastics India Ltd. V/s. Union of India (74 E.L.T. 549) V/s. Union of India (74 E.L.T. 549) V/s. Union of India (74 E.L.T. 549). 22. Mr.Patil further submitted that provisional assessment can be resorted to before clearance of goods and not after clearance of the goods. In the present case, no provisional assessment order has been made under Rule 9B before clearance of the goods. It is only after the clearance of the yarn for captive consumption under the self removal 14 procedure when the appellant filed RT 12 returns at the end of the month, the excise authorities made endorsements on the RT 12 returns to the effect that the assessments were provisional. He submitted that in the absence of a provisional assessment order was passed before clearance of the yarn for captive consumption, it is not open to the revenue to contend on the basis of the endorsements made on the RT-12 returns that the assessments were provisional. This is because, RT-12 returns can be assessed provisionally only if there is a provisional assessment order passed under Rule 9-B before clearance of the goods. In the present case, no order is passed under Rule 9-B before clearance of the yarn and, therefore assessing the RT-12 returns provisionally under Rule 9-B(1) did not arise at all. In this connection, he relied on a decision of the Apex Court in the case of CCE V/s. Kosan Metal CCE V/s. Kosan Metal CCE V/s. Kosan Metal Products Ltd. (38 E.L.T. 573 Products Ltd. (38 E.L.T. 573 Products Ltd. (38 E.L.T. 573). 23. Relying upon the Board’s Circulars dated 24/4/1989 and 25/5/1990 and the decisions of the Apex Court in the case of Samrat International (P) Samrat International (P) Samrat International (P) Ltd. V/s. CCE (58 E.L.T.561), J.K. Cotton Spg. & Ltd. V/s. CCE (58 E.L.T.561), J.K. Cotton Spg. & Ltd. V/s. CCE (58 E.L.T.561), J.K. Cotton Spg. & Wvg. Mills Co. Ltd. V/s. CCE (99 E.L.T.3), Wvg. Mills Co. Ltd. V/s. CCE (99 E.L.T.3), Wvg. Mills Co. Ltd. V/s. CCE (99 E.L.T.3), Coastal Gases & Chemicals Pvt. Ltd. V/s. ACCE (92 Coastal Gases & Chemicals Pvt. Ltd. V/s. ACCE (92 Coastal Gases & Chemicals Pvt. Ltd. V/s. ACCE (92 E.L.T.460), Metal Forgings V/s. Union of India (146 E.L.T.460), Metal Forgings V/s. Union of India (146 E.L.T.460), Metal Forgings V/s. Union of India (146 E.L.T 241) and CCE V/s. Hindustan National Glass & E.L.T 241) and CCE V/s. Hindustan National Glass & E.L.T 241) and CCE V/s. Hindustan National Glass & 15 Indus.Ltd. (182 E.L.T. 12)) Indus.Ltd. (182 E.L.T. 12)) Indus.Ltd. (182 E.L.T. 12)), Mr.Patil submitted that the assessments cannot be treated as provisional solely on the premise that the matter was subjudice or that the appellant had executed B-13 Bond and that endorsements have been on the RT-12 returns to the effect that the assessments are provisional. He submitted that there must be an order passed under Rule 9-B before clearance of the yarn and in the absence of such order the assessments could not be treated as provisional. 24. Mr.Patil further submitted that neither the Delhi High Court by its interim order had directed that clearance should be on provisional assessment basis, nor execution of B-13 Bond in implementation of the Delhi High Court order would make the assessments provisional because neither there were any circumstances for making provisional assessment nor in fact any provisional assessment order was made before clearance of the yarn for captive consumption. In this connection, he relied upon the decisions of the Tribunal in the case of Morarji Morarji Morarji Gokuldas Spg. & Wvg. Ltd. V/s. CCE (40 Gokuldas Spg. & Wvg. Ltd. V/s. CCE (40 Gokuldas Spg. & Wvg. Ltd. V/s. CCE (40 R.L.T.364), Modipan Ltd. V/s. CCE (62 (R.L.T.132) R.L.T.364), Modipan Ltd. V/s. CCE (62 (R.L.T.132) R.L.T.364), Modipan Ltd. V/s. CCE (62 (R.L.T.132) and Commissioner of Customs V/s. Surya Roshni Ltd. and Commissioner of Customs V/s. Surya Roshni Ltd. and Commissioner of Customs V/s. Surya Roshni Ltd. (112 E.L.T.398) (112 E.L.T.398) (112 E.L.T.398). 25. Relying on the decision of the Calcutta High 16 Court in the case of Asstt. Collector of Central Asstt. Collector of Central Asstt. Collector of Central Excise V/s. Shree Gobinda Glass (1972 CWN 137) Excise V/s. Shree Gobinda Glass (1972 CWN 137) Excise V/s. Shree Gobinda Glass (1972 CWN 137) and Shri Gobinddeo Glass Works Ltd. V/s. ACCE (126 Shri Gobinddeo Glass Works Ltd. V/s. ACCE (126 Shri Gobinddeo Glass Works Ltd. V/s. ACCE (126 E.L.T. 399) E.L.T. 399) E.L.T. 399), Mr.Patil submitted that even if the parties proceed on a mistaken notion that a provisional assessment could be made, it cannot be said that a provisional assessment has in fact been made. 26. Finally, Mr.Patil submitted that once it is established that during the relevant period the yarn was not cleared for captive consumption under provisional assessment, then, the excise duty recoverable under the amended Rule 9 and 49 as interpreted by the Apex Court in the case of J.K. J.K. J.K. Cotton Mills Ltd. Cotton Mills Ltd. Cotton Mills Ltd. reported in 99 E.L.T. 3 99 E.L.T. 3 99 E.L.T. 3 can be recovered only if a show cause notice has been issued within the period of limitation prescribed under Section 11-A of the 1944 Act. In the present case, admittedly no show cause notice is issued under section 11A of the 1944 Act. Assuming that there was provisional assessment, Mr.Patil submitted that no show cause notice has been issued before finalisation of the provisional assessment and no show cause notice has been issued within six months from the date of adjustment on finalisation of the provisional assessment as mandatorily required under Section 11(A)(3)(ii)(b) of the 1944 Act. In this 17 connection, Mr.Patil relied upon a decision of the Apex Court in the case of CCE V/s. ITC Limited reported in 203 ELT 532. Accordingly, Mr.Patil submitted that in the absence of a provisional assessment and in the absence of a notice under Section 11-A of the 1944 Act, the revenue could not have recovered the time-barred claim by encashing the bank guarantees furnished by the appellant. 27. Mrs.Masurkar, learned counsel appearing on behalf of the revenue, on the other hand, took us through the B-13 Bond executed by the appellant wherein it is categorically admitted by the appellant that the yarn is cleared on provisional assessment basis and that the appellant specifically agreed to pay the duty determined on finalisation of the provisional assessment within the stipulated time. B-13 Bond is executed only when there is provisional assessment. Therefore, having executed B-13 Bond, it is not open to the appellant to contend that the clearances during the relevant period were not on provisional assessment basis. 28. Mrs.Masurkar further referred to the provisional assessment order passed under Rule 9-B of the 1944 Rules on the RT-12 returns, which reads thus : 18 "Assessment Memorandum" 1. The assessee has paid duty on the