of Central Excise, Baroda Vs. M/S Cotspun Ltd.  INSC
368 (23 September 1999)
Quadri, V.N.Khare, S.P.Bharucha, B.N.Kirpal Bharucha, J.
appeal has been referred to a Constitution Bench for the reason that there are
two conflicting three Judge Bench decisions of this Court on the point at
stated, the facts are : The assessee-respondent manufactures NES yarn. It had
filed classification lists with the Excise authorities, the appellants, which
had been approved under the provisions of Rule 173B of the Central Excise
Rules, 1944. The approval classified the NES yarn under old Tariff Item 19-I(2)(a)(2)(e).
On 28th September, 1977, a notice was issued by the Excise
authorities to the assessee to re-open the assessment for the period February,
1977 to May, 1977.
reason for so doing was that the NES yarn ought to have been correctly
classified under old Tariff Item 19- I(2)(F).
demand for differential duty was made. A second show cause notice was issued by
the Excise authorities to the assessee on 18th November, 1977 for the period 1st June, 1977 to 17th June, 1977. The assessment for this period was sought to be re-opened
for the same reason. Again, a demand for differential duty was made. These show
cause notices were amended by corrigenda dated 28th February, 1978 and 1st April, 1978.
The assessee replied to the show cause notices on 24th May, 1978. It contended that the count of the NES yarn was
determinable and it had been correctly classified.
also contended that the approved classification lists could not be re-opened
and, therefore, the demands for differential duty could not be enforced. The
Assistant Collector upheld the assessees contention that the duty liability
having been ascertained on the basis of an approved classification list, the
question of short levy of duty did not arise. The Appellate Collector allowed
the appeal of the Excise authorities, reclassified the NES yarn and confirmed
the demands for differential duty. The assessee approached the Tribunal in
appeal. The Tribunal held that the revised assessment could be made effective
only prospectively from the date of the show cause notices and not with
reference to earlier removals made under approved classification lists.
Accordingly, the demands were quashed.
Excise authorities are in appeal against the order of the Tribunal. The assessee
had not appeared at the stage when the matter was before a two and then a three
Judge Bench. Amicus Curiae were appointed, and we are beholden to them for
10 of the Central Excise Rules, as it read at the relevant time and so far as
it is relevant for our purposes, is set out :
Recovery of duties not levied or not paid, or short levied or not paid in full
or erroneously refunded.
(1) Where any duty has not been levied or paid or has been short-levied or
erroneously refunded or any duty assessed has not been paid in full, the proper
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 to whom the refund has erroneously been made, or which
has not been paid in full, requiring him to show cause why he should not pay
the amount specified in the notice.
proviso to the above increases the period of six months to five years where
there has been fraud or the like on the part of the assessee.
173B falls in the Chapter of the Central Excise Rules that deals with the self-
removal procedure. It requires an assessee to file before the proper Excise
Officer for approval a list of the goods that he proposes to clear. The list is
required to contain a description of the goods produced or manufactured by him,
the goods that he intends to remove and of excisable goods already deposited or
likely to be deposited without payment of duty in his warehouse, and to
indicate the tariff entry under which the goods that he intends to remove fall,
the rate of duty leviable thereon and such other particulars as may be
required. Sub-rule (2) reads thus:
The proper Officer shall, after such inquiry as he deems fit, approve the list
with such modification as are considered necessary and return one copy of the
approved list to the assessee who shall, unless otherwise directed by the
proper Officer, determine the duty payable on the goods intended to be removed
in accordance with such list.
for a dispute as to the approved rate of duty is made in Clause (3). Clause (4)
deals with any alterations that may become necessary in the approved list.
(5) needs to be set out in extenso. (5) When the dispute about the rate of duty
has been finalised or for any other reasons affecting rate or rates of duty a
modification of the rate or rates of duty is necessitated, the proper Officer
shall make such modification and inform the assessee accordingly.
the submission of the learned Additional Solicitor General that the Tribunal
was in error in the view that it took; that, by reason of Rule 10, the
reclassification of the NES yarn would operate retrospectively and that,
therefore, the assessee was liable to pay excise duty on the basis of the
modified classification list for the period that commenced six months before
the date on which the reclassification was made.
support of the case of the Excise authorities is the judgment of this Court in Ballarpur
Industries Ltd. vs. Asstt. Collector of Customs & Central Excise and Ors. (1995
Suppl (3) SCC 429). Since it makes reference to a judgment of a Bench of two
learned Judges that took a contrary view, we think it appropriate to refer
Rainbow Industries (P) Ltd. vs. Collector of Central Excise, Vadodara (1994 (6)
SCC 563) the appellant was a manufacturer of dyestuff. He had filed a price
list as required by Rule 173 C of the Central Excise Rules which was approved
by the Excise authorities with effect from 1st October, 1975. About a year thereafter, the
Assistant Collector issued a notice requiring the appellant to show cause why
the net assessable value should not be revised and differential duty recovered.
The appellant replied to the show cause notice but his contentions were not
accepted upto the stage of the Tribunal. In the challenge before this Court to
the order of the Tribunal it was contended that the price list submitted by the
appellant having been accepted and acted upon, the Excise authorities were
precluded from challenging the same and, therefore, from claiming that the
appellant was liable to pay the differential duty. A bench of two learned Judges
of this Court said:
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 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 intention to evade
payment of duty.
case of Ballarpur Industries (supra) decided by a Bench of three learned
Judges, the observations in the judgment in Rainbow Industries were confined to
the facts of that case. The Bench placed reliance upon Rule 10 and held that,
on a plain reading of that provision as also of Section 11A, the show cause
notice which could be issued within the time limit prescribed under the
relevant provision could only be in relation to the duty of excise for a period
prior to the issuance of show cause notice.
could be no reason for the issuance of a show cause notice for the period
subsequent to the notice as in that case the necessary corrective action could
always be taken.
Rule 10 with which we are concerned as well as Section 11-A to which a
reference is made in the case of Rainbow Industries, the show cause notice
which must be issued within the time-frame prescribed in the said provisions
must relate to a period prior thereto as the purpose of the show cause notice
is recovery of duties or charges short-levied, etc. We, therefore, find it
difficult to accept the contention that the ratio of the decision in Rainbow
Industries is that under Section 11-A past dues cannot be demanded. We must,
therefore, reject that contention.
order of reference cites the decision of a Bench of three learned Judges in
Collector of Central Excise vs. Indian Oxygen Ltd. (1991 (51) ELT A36). By that
brief order the appeal of the Excise authorities against a decision of the
Tribunal was dismissed because the Bench was of the opinion that the decision
of the Tribunal was correct in the facts and circumstances set out in that
judgment (1990 (47) ELT 449) says, that a reclassification could take effect
only from the date of the show cause notice seeking to re-classify the product.
It cites with approval an earlier decision of the Tribunal (1985 (22) ELT 487)
to the same effect.
for the purposes of completeness, should also be made to the decision of a
Bench of two Judges of this Court (to which one of us, S.P. Bharucha, J. was a
party). This is the decision in Collector of Central Excise, New Delhi vs. Bhiwani Textile Mills (1996
(88) ELT 639). This Court held that until the proposal for the proper officer
of Excise of the classification was mooted, the earlier classification would
173 B deals with classification lists. It entitles the proper officer of Excise
to make such inquiry thereon as he deems fit and requires him to approve the
list only thereafter, and that with such modifications as are considered
necessary. The assessee must determine the excise duty that is payable by him
on the goods he intends to remove in accordance with the approved
classification list. Sub-rule (5) provides for modification of an approved
10 is a provision for recovery of duties that have not been levied or paid in
full or part. So far as is relevant for our purposes, it provides that where
any duty has been short-levied, the Excise officer may, within six months from
the relevant date, serve notice on the assessee requiring him to show cause why
he should not pay the amount that had been short-levied. Rule10 does not deal
with classification lists or relate to the re-opening of approved
classification lists. That is exclusively provided for by Rule173 B.
levy of excise duty on the basis of an approved classification list is the
correct levy, at least until such time as to the correctness of the approval is
questioned by the issuance to the assessee of a show cause notice. It is only
when the correctness of the approval is challenged that an approved
classification list ceases to be such.
levy of excise duty on the basis of an approved classification list is not a
short levy. Differential duty cannot be recovered on the ground that it is a
10 has then no application.
are, therefore, of the opinion that the judgment in Ballarpur Industries, which
did not advert to Rule 173B, does not lay down the law correctly and it is
decision in Rainbow Industries, on the other hand, correctly lays down the law.
It was delivered in the context of Rule 173C dealing with approved price lists
and the provisions of Rule 173C and 173B are analogous.
informed that the position in law has changed since the year 1995 or
thereabout. We have not considered these altered provisions. Nothing that we
have said in this judgment shall ipso facto apply thereto.
appeal is dismissed. Having regard to the fact that the assessee does not
appear, there shall be no order as to costs.