Madhumilan
Syntex (P) Ltd. Vs. Union of India & Ors [1997] INSC 246 (4 March 1997)
S.C. AGRAWAL, S.C. SEN
ACT:
HEADNOTE:
S.C.
AGRAWAL, J.
Madhumilan
Syntex (P) Ltd., appellant No. 1 (hereinafter referred to as ' the appellant
company') owns a factory wherein they manufacture spun yarn. At the relevant
time in Tariff Item No. 18-III of the First Schedule to the Central Excises
& Salt Act, 1944 (hereinafter referred to as the Act') it was prescribed
that cellulosic spun yarn, in which man-made fibre of cellulosic origin
predominates in weight, made by a manufacturer with the aid of power would fall
within Tariff Item No. 18-III(ii), if it contained man- made fibres of non-cellulosic
origin and it would fall within Tariff item No. 18-III(i), whereunder duty was leviable
at a lower rate, if it did not contain any man-made fibres of non-cellulosic
origin. Claiming that it was manufacturing spun yarn by blending and processing
cellulosic fibre and non-cellulosic waste the appellant company, on July 7,
1983, filled a classification list under the provisions of Rule 173(2) of the
Central Excise Rules in respect of the spun yarn manufactured by them showing
the same as covered by Tariff Item No. 18-III(i). The said classification list
submitted by the appellant company was approved by the Assistant Collector
[Central Excise], Ujjain on July 13, 1983. A supplementary classification list was submitted by the
appellant company on September
25, 1983. It appellant
company were taken and were sent for chemical analysis and after receiving the
test repots of the samples the Superintendent of Central Excise issued a demand
notice dated February 7, 1984 for a sum of Rs. 26,47,749.39p as differential
amount of duty on the ground that on the man- made yarn that was being manufactured
by the appellant company excise duty was payable under Tariff Item No. 18-
III(ii) and not under Tariff Item No. 18-III(i). Feeling aggrieved by the said
notice of demand the appellant company filed a Writ Petition [M.P.No. 104/84]
in the said Writ Petition the High Court on February 9, 1984 passed an interim
order directing that no recovery would be made from the demand and that excise
duty would be continued to be charged as was being charge till that date. On
February 9, 1984 the Assistant Collector [Central Excise], passed an order
wherein it was stated that the yearns claimed to be cellulosic spun yarn of
which the samples were sent contain man-made fibres of non-cellulosic origin
and as per the Central Excise Tariff Schedule the same would be classifiable
under Tariff Item No. 18-III(ii) and not under Tariff Item No. 18-III(i) and
that in the light of the fresh material placed before him all the products
mentioned in the Annexure-I to the said order have been reclassified as falling
under Tariff Item No. 18-III(ii) and that the said modified approval would be
effective right from the date of production of these goods, i.e., from July,
1983 onwards, In the said order it was further stated that in the interest of
natural justice the modified approval in respect of tariff classification and
rates of duties payable was provisional and the appellant company were being
accorded an opportunity to submit to him their representation, if any , against
the modified approval with in a week's time and that if noting was heard from
them the provisional approval would be finalised. By another order dated
February 9/10, 1984, the Superintendent, Central Excise, Range III, Ujjain,
issued a show cause notice wherein reference was made to the order dated
February 9, 1984 passed by the Assistant Collector whereby the approval of the
classification lists had been modified and the appellant company were required
to show cause to the Assistant Collector as to why short levies of Rs. 26,47,749.39p
should not be recovered from them under Section 11-A of the Act. After receipt
of the said notice, the appellant company should time before the Assistant
Collector on the ground that the Writ Petition filed by them was pending before
the High Court but the said request was not acceded to and on March 5, 1984, the Assistant Collector passed tow
orders. In one order the Assistant Collector, in view of the revised
classification of the products, confirmed the short levy of Rs. 26,47,749.39p
for the period from August 15, 1983 to February 6, 1984 under Section 11-A of
the Act but observed that in view of the stay order dated February 9, 1984
passed by the Madhya Pradesh High Court the said recoveries would not be
enforced till the stay order remains in force. In the other order the Assistant
Collector held that there was no basis for accepting the classification of the
yarn manufactured by the appellant company under Tariff Item No. 18-III(i) and
that the modified approval as mentioned in the show cause dated February 9,
1984 which was kept provisional pending consideration of defence by the party
was now made final and the classification list effective from September, 1983
was being finally classified as falling under Tariff Item No. 18-III(ii) and
that the said classification and rate of duty would apply right from the date
the party manufactured such yarns. The appellant company amended the Writ
Petition which was pending in the High Court to challenge the validity of both
these order dated March 5, 1984 passed by the Assistant Collector. The
appellant company also filed and appeal against those orders before the
Collector [Appeals], Customs and Excise, New Delhi.
The
Writ Petition [M.P. No. 104/84] of the appellant company was disposed of by a
Division Bench of the High Court [P.D. Mulye and V.D. Gyani JJ.] by judgment
dated November 24, 1984. The main judgment was delivered by
only J. with which Gyani J. agreed but Gyani J. also appended a separate
explanatory note. Mulye j. also appended a separate explanatory note. Mulye J.
in the judgment rendered on behalf of himself and Gyani J., quashed the demand
for recovery of Rs. 26,47,749.39p for the period from August 15, 1983 to February 6, 1984. The learned judges did not accept the contention urged on
behalf of the appellant company that once the classification was made and
approved it was only the Collector of Central Excise who had the jurisdiction suo
motu to revise the same. The learned judges also took not of the fact that the
appellant company had already filed and appeal before the Collector [Appeals],
after considering the facts and circumstances of the case, to give adequate
opportunity of hearing to the appellant company including an opportunity of
adducing evidence and decide the appeal on merits.
The
Union of India a filed an appeal [C.A.
No. 1110(NT) of 1986] in this Court against the said decision of the Division
Bench of the High Court. The said appeal of the Union of India was dismissed by
this court by its judgment in Union of India & Ors. vs. Madhumilan Syntex
Pvt. Ltd. & Anr. reported in 1988 (3) SCR 838.
During
the pendency of the said appeal before this Court the Collector [Appeals]
considered the appeal of the appellant company and disposed of the said appeal
by order date May 27,
1985. The Collector
[Appeals] held that in view of the fact the order passed by the Assistant
Collector relating to the demand of the duty for the period August 15, 1983 to
February 6, 1984 had been quashed by the High court the only appeal which was
required to be decided on merits was against the order dated March 5, 1984
passed by the Assistant Collector modifying the approval of the classification
lists. The Collector held that the spun yarn produced by the appellant company
fell under Tariff Item No. 18-III(ii) and not under Tariff Item No. 18-III(i)
of the Schedule to the Act and therefore, he dismissed the appeal and affirmed
the order dated March 5, 1984 passed by the Assistant Collector modifying the
approval of the classification lists. Feeling aggrieved by the said order
dated. May 27, 1985 passed by the Collector [Appeals], The
appellant company filed a second Writ Petition [M.P.No. 478/85] in the Madhya
Pradesh High Court. It was urged tat the order of the Collector dated May 27, 1985 was passed in violation of the
direction given by the High Court in the Judgment dated November 24, 1984 in M.P. No. 104/84. It was
submitted that the High Court had quashed the order of the Assistant Collector
dated March 5, 1984 along with the notice dated February 9, 1984 preceding that order requiring the appellant
company to show cause why the classification lists be not modified. During the pendency
of the said Writ Petition, the Assistant Collector issued a notice dated June 6, 1985 demanding differential duty for the
period from March 1984 to April 1985. The appellant company amended the Writ
Petition to incorporate a challenge to the said notice dated June 6, 1985. The Writ Petition was disposed of
by a Division Bench of the High Court [G.G. Sohoni and R.K. Verma JJ.] by the
impugned judgment dated April
21, 1986. The High
Court has upheld the order dated May 27, 1985 passed by the Collector [Appeals]
dismissing the appeal of the appellant company against the order of the
Assistant Collector dated Mach 5, 1984 modifying the approval of the
classification lists. The High Court has held that in its judgment dated November 24, 1984 in M.P. No. 104/84 the High Court
had not quashed the notice dated February 7, 1984 and the order dated March 5, 1984 passed by the Assistant Collector.
The High Court has, However, quashed the demand notice dated June 6, 1985 for
the amount of the differential duty from March 1984 to April 1985 on the view
that it was not preceded by any notice as required by sub-section (i) of
Section 11-A of the Act. Feeling aggrieved by the said judgment of the High
Court the appellant company have filed this appeal.
Shri Harish
Salve, the learned senior counsel appearing for the appellant company, has
urged that in the impugned judgment the High Court was in error in construing
its earlier judgment dated November 24, 1984
in M.P.No. 104/84.
The
submission of shri Salve is that by the said judgment the High Court had held
that the order dated March 5, 1984 passed by the Assistant Collector modifying
the classification lists was bad in law and that this Court, while dealing with
the appeal of the respondents against the said judgment, has also construed the
said judgment of the High Court to mean that the order modifying the
classification lists that was served on the appellant company was bad in law
and the said order had been quashed.
We
find considerable force in the said submission of Shri Salve, Gyani j., In his
explanatory note, has clearly said :
"The
orders Annexures R-10 and R-11 are quashed ... The classification lists, filed
by the petitioners and the approvals granted therein shall remain intact so
long as a proper opportunity of showing cause is not afforded to the
petitioners and the same is not cancelled in accordance with law." By
order [Annexure R-11 dated March 5, 1984 the Assistant Collector had modified
the classification lists and had directed that the spun yarn that was being
manufactured by the appellant company should be classified as falling under
Tariff Item No. 18-III(ii) and not under Tariff Item No. 18-III(i).
Though
Mulye J., in the concluding part of his judgment rendered on behalf of himself
and Gyani J., has not expressly quashed the said order (Annexure R-11) but in
the main body of the judgment, after rejecting the contention urged on behalf
of the appellant company that once the classification was made, the Assistant
Collector had no jurisdiction to reconsider the matter on the basis of the new
facts and the materials subsequently mad available regarding the manufacturing
of the product, the learned judge has observed:
"But
it also cannot be disputed that the Superintendent of Central Excise, Ujjain
acted in a hasty manner by issuing the notice and that it is also now clear
that it is only after the filing the Writ Petition in which the stay order was
passed that the respondent No.3 though of giving show cause notice to the
petitioners and that without giving adequate opportunity to the petitioners
passed the impugned order. Natural justice requires that quasi judicial
authority must inform the person proceeded against, the material which it
proposed to use against him so that he may meed the inference likely to use
against him so that he may meet the inference likely to be raised from that
material. Even when the material used is within the knowledge of the person
proceeded against, he must tell that it would be used against him, for unless
he is so informed, he would have no opportunity of offering his explanation for
meeting the inference that the authority seeks to draw from it, In the present
case there is no material on record to indicate that right from 15.8.1983 the
petitioners have been manufacturing the yarn product which is covered by item
18-III(ii). Therefore, in our opinion, the excess duty on that basis from
15.6.83 to 7.2.84 could not be demanded retrospectively. But at best it could
be demanded prospectively from 7.2.1984, if after giving proper and adequate
chance of hearing to the petitioners it is found that at least some of the
product of yarn manufactured by the petitioners is covered by item 18- III(ii)
and that could have been manufacturing a product contrary to the classification
which was approved, the ingredients of which are not in conformity as
prescribed in item 18-III(i) as mentioned Rule 173B (4) of the Rules."
These observations clearly indicate that the High Court found that there was no
material on the basis of which the order dated March 5, 1984 modifying the
classification lists could be passed by the Assistant Collector of Central
Excise and according to the High Court excess duty under Tariff Item No.
18-III(ii) could be demanded prospectively from February 7, 1984, if after
giving proper and adequate chance of hearing to the petitioners it was found
that at least some of the product of yearn manufactured by the appellant
company was covered by item 18-III(ii).
In Union of India vs.. Madhumilan
Syntex [supra] this Court, while referring to the said judgment of the High
Court, has said ;
"Mulye
J. held by his judgment that the Writ Petition was allowed to the extent that
the demand for recovery of Rs. 26,47,749.39p for the period August 15, 1983 to February 6, 1984, which was the period referred to in the demand notice was
quashed. However, the learned Judge directed the Collector, Central Excise
before whom the appeal filed by the Petitioners was pending to decide the
appeal in respect of the demand made by the excise authorities for the
subsequent period, Gyani J., the other learned Judge, in his concurring
judgment set aside the two orders issued by the Assistant Collector, Central
Excise, Ujjain Division both dated 5th March 1984 as set out Annexure R/10 and
R/11 respectively to the Writ petition.
Very
shortly put both the Judges held that the notice of demand and the orders
modifying he classification list served on the petitioners were bad in law and
ordered that the same be quashed. A perusal of the judgment also clearly
indicates that the Division Bench directed that the Collector, Central Excise
[Appeal] should hear the appeal of the petitioners on merits after giving the
petitioners and adequate opportunity to put their case and their evidence
before him in respect of the period from 7th February, 1984 onwards, Thus, the
Division Bench took the view that the show cause notice served on the
petitioners could be treated as valid and effective only respect of the period
from 7th February, 1984 onwards and not retrospectively from August 15, 1983 to
February 6, 1984 being the period from which the demand has already been made
in the demand notice dated 9th February, 1984 [emphasis supplied] (pp. 842-843)
The Court did not accept the contention urged by Shri Govind Das on behalf of
the Union of India that since the Collector [Appeals] had been directed to
examine the merits of the matters, viz., the modification of the classification
lists after allowing adequate opportunity to the appellant company to show case
in respect of the period from February 7, 1984 onwards, the notice to show case
dated February 9/10, 1984 should be treated as valid and effective notice in
respect of the period from August 15, 1983 to February 6, 1984 as well as the
period from February 7, 1984 onwards.
The
Court found merit in the contention urged by Dr. Chitale on behalf of the
appellant company that the said notice did not ask the appellant company to
show cause against the alteration in the classification lists. It was held:
"This
notice, therefore, cannot be regarded as a show cause notice against the
modification of the classification lists in respect of the aforesaid period. In
the circumstances, the show case notice is bad in law and of no legal effect as
far as the said earlier period was concerned. "[pp.845-846] This would
show that this court has construed the judgment of the High Court dated
November 24, 1984, in M.P. No. 104/84 to mean that both the judges have held
that the order of the Assistant Collector of Central Excise dated March 5, 1984
modifying the classification lists was bad in law and had ordered that the same
be quashed. In these circumstances, we are of the opinion that the High Court
was March 5, 1984 had not been quashed by the High
Court and that the Collector did not commit any error in dismissing the appeal
filed by the appellant company against those orders. In our opinion, the
Collector [Appeals] should have proceeded on the basis that the order dated
March 5, 1984 passed by the Assistant Collector modifying the classification
lists had been quashed by the High Court, By dismissing the appeal filed by the
appellant company against the order of the Assistant Collector, Central Excise
dated March 5, 1984 modifying the classification lists the Collector [Appeals]
has affirmed the modification of the classification lists with effect from the
date the appellant company manufactured such yard i.e. from July 1983 onwards,
which contrary to the earlier decision of the High Court in M.P.No. 104/84
Which has been affirmed by this Court in Union of India vs. Madhumilan Syntex
[supra].
The
appeal is, therefore, allowed, the impugned judgment of the High Court is set
aside and the order dated May 27, 1985 passed by the Collector [Appeals]
dismissing the appeal is set aside and it is held that the order dated March 5,
1984 passed by the Assistant Collector, Central Excise modifying the
classification lists stands quashed. No orders as to costs.
Back
Pages: 1 2
