M/S. RAINBOW INDUSTRIES (P) LTD.

A v.

THE COLLECTOR OF CENTRAL EXCISE, VADODARA

OCTOBER 4, 1994

[R.M. SAHAI AND M.K. MUKHERJEE, JJ.] B

Central Excise Rules, 1944:

Rule 173(2}-Sales to related persons-Price list in prescribed proforma submitted by assessee-Department accepting and acting upon it--Reclas- C sification by Department-consequent revision of price and show cause notice for levy of difference--Held: Reclassification is valid but effective from date of show cause notice and not earlier.

The appellant, a manufacturer of dye-stuff, filed a price list in the prescribed proforma as applicable for sales to related persons, showing D various includible and excludible expenses as well as assessable value. This was approved by the department on 6th December 1975 and the approval was to be effective from 1st October 1975. After about a year the Assistant Collector issued a show cause notice requiring the appellant to show cause as to why the net assessable value should not be revised and differential E duty recovered from the appellant. The reply of the appellant was not accepted by the Assistant Collector or by the Appellate Collector. The Tribunal also did not accept the same.

In the appeal, it was contended that the classification and the price list submitted by .the appellant having been accepted and acted upon under F Rule 173 (2) of the Central Excise Rules, 1944 the Department was estopped from claiming that the appellant was guilty of suppression of facts; and that law does not comptemplate issuing of any notice merely because the Department felt that a particular Item was dutiable in another entry.

Alternatively it was contended that if the calculation resorted to by the G Department is held to be correet it should apply from the date of issue of notice and not from the date when the price list was submitted.

Allowing the appeal, this Court

HELD : 1. Since the appellant did not dispute the method adopted li

'i .i

I r

: 136

SUPREME COURT REPORTS (1994} SUPP. 4 S.C.R.

A for calculation or the duty by the Department, the question or lack or

jurisdiction to lnltlaie proceedings Is not necessary to be decided as the power to Issue show-cause notice vests even If the duty was shortlevled as a result or erroneous application of law. [137-G]

z. However, once the Department accepted the price list, acted upon B It and the goods were cleared with the knowledge of the department, then in the absence of any amendment io law or judicial pronouncement or Intention to evade duty, the reclassification should be effective from the date the Dep11rtment Issued the sho~ cause notice. [137-H, 138-A}

C Collector of Central Excise, CalcUtta v. Indian Oxygen Ltd., Kluvdah, [1990] 48 E.L. T. AZ4 referred to. ·

CIVIL APPELLATE JURISDICTION Civil Appeal No. 3148(NM) of 1985.

D From the Judgment and Order dated 21.11.84 of the Central Customs Excise and Gold (Control) AppeUate Tribunal, New Delhi io 0. No.

759/84A."

S. Ganesh and Ms. Poonam Madam for the Appellant

E A.K Ganguli, AK. Srivas1ava, V.K Verma and Ms. Sushma Suri for the Respondent •. .

The Judgment of the Court w~ delhrered by

R.M. SAHAI, J. The short question of law that arises for considera- F lion in this appeal directed against the judgment and order of the Customs Excise & Gold (Control) AppeUate Tribunal, New Delhi, is whether th: . classification and the price list accepted by the Department and acted ~~ upon, found ubsequently to be erroneous, is to be applied prospectively or retrospeCtively.

G The appellant, a manufacturer of dye-stuff, ftled a price list in Part IV profor~ as. appli:able for sales to related persons. The price Jist showed vaous mcludible and excludible expenses as weU as assessable value as cl:umed by the appellant. This was approved by the Department on 6th December 1975 and the assessable value as declared was accepted H The approval was to be effective from 1st October 1975. After nearly a yea;

RAINBOW v. COLLECTOR OF C. EXCISE [R.M. SAHAI, J.] 137

the Assistant Collector issued a show cause notice requiring the appellant A to show cause as to why the net assessable value as per the method shown in the annexure should not be revised and differential duty recovered from the appellant. The reply of the appellant was not accepted either by the Assistant Collector or by the appellate Collector or the Tribunal. In fact before the Tribunal it was conceded on behalf of the appellant that the B method for determining the assessable value in the price list submitted by the appellant was not correct.

The order of the Tribunal was challenged and it was urged that the classification and the price list submitted by the appellant having been accepted and acted upon under Rule 173(2) of the Central Excise Rules, C 1944 the Department precluded the appellant from challenging it and, therefore, it is estopped from claiming that the appellant was guilty of suppression of facts. The learned counsel urged that the classification and the price list having been accepted and acted upon, the Department was not justified in taking proceedings under Section 11A of the Central D Excises & Salt Act, 1944. It was also urged that the Department could not have changed its opinion and the law does not contemplate issuing of any notice only because the Department felt that a particular item was dutiable in another entry. In the alternative the learned counsel submitted that where the Department has been acting upon the price list submitted by the appellant worked out in one manner but the Department claims that it E should be calculated in a different manner then even if the calculation resorted to by the Department is held to be correct it should apply from the date of issue of notice and not from the date when the price list was submitted. Reliance for it was placed on the order passed by this Court in Civil Appeal Nos. 1960-61 of.-1988 in the case of Collector of Central F Excises, Calcutta v. Indian Oxygen Ltd., Kh01dah, Decided on 17th March,

1989-1990 ( 48) E.L.T. A 24.

Since the appellant did not dispute that the method of calculation of the duty by the department was correct, th.e submission of the learned counsel on lack ofjurisdiction to initiate proceedings is not necessary to G be decided as the power to issue show-cause notice vests even if the duty was shortlevied as a result of erroneous application of law. However, once the Department accepted the price list, acted upon it and the goods were cleared with the knowledge of the Department, then in absence of any amendment in law or judicial pronouncement the reclassification should be H

138 SUPREME c; ouRT REPORTS [1994) SUPP. 4 S.C.R.

A effective from the date the Department issued the show-cause notice. The reason for it is clearance with the knowledge of the Department and no intentiun to evade payment of duty.

In the result, this appeal succeeds and is allowed in part. The appellant is held liable to pay duty on the dye-stuffs manufactured by it in B the manner calculated by the Department from 16th October, 1976, the date the show-cause notice was issued to the appellant.

Parties shall bear their own costs.

G.N.

Appeal allowed.