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CASE NO.: Appeal (civil)  1950 of 2006

PETITIONER: M/S. JAI FIBRES LTD

RESPONDENT: COMMISSIONER OF CENTRAL EXCISE, MUMBAI-III

DATE OF JUDGMENT: 15/11/2007

BENCH: S.B. SINHA & DALVEER BHANDARI

JUDGMENT: J U D G M E N T

CIVIL  APPEAL  NO.1950  OF 2006

S.B. Sinha, J. 1.      Delay condoned. 2.      Interpretation of a Circular dated 24.09.1992, which was published on 15.10.1992 in  the Trade Circular by the Central Board of Excise and Customs, is in question in this  appeal which arises out of a judgment and order dated 9.8.2005 passed by the Central  Excise and Service Tax Appellate Tribunal in Appeal No. E/3137/99 (Mumbai) and  E/CO/389/99 (Mumbai), whereby and whereunder an appeal preferred by the  respondent herein from a judgment and order dated 30th June, 1999 passed by the  Commissioner of Central Excise (Appeals), Mumbai, was allowed.  

3.      The basic fact of the matter is not in dispute. The appellant herein manufacture   HDPE bags. They used to classify the said bags for the purpose of payment of excise  duty under Chapter 63 of the Central Excise Tariff Act (hereinafter referred as ’the  Act’). The period for which the excise duty was payable is 1.4.1992 to 15.10.1992.   Excise duty was paid accordingly. It is also not in dispute that different High Courts  took different views as to whether the duty is payable under Chapter Heading 63.54  or Chapter heading 39 of the Act.   

4.      It is furthermore not in dispute that a Division Bench of the High Court of Madhya  Pradesh in  Raj Pack Well Ltd. vs. Union of India, [1990 (50) ELT 201], took  the view  that the HDPE bags should be classified under Chapter heading 39 of the Central  Excise Tariff Act, 1985 and not under Chapter heading 63 thereof. Indisputably,  again the Central Board of Excise and Customs upon noticing that the appeal against  the aforesaid decision of the Division Bench of the High Court is pending before this  Court for final decision, issued a circular on 24.9.1992, the relevant portion whereof is  as under:  "Now, therefore, in exercise of the powers conferred under Section  37-B of the Central Excises and Salt Act, 1944 (1 of 1944)  (henceforth referred to as the Act) and for the purpose of ensuring  uniformity in the classification of the said goods, the Central Board  of Excise and Customs hereby orders that HDPE strips and tapes of  a width not exceeding 5 mm shall be henceforth classified under sub- heading 3920.32 and sacks made therefrom under sub-heading  3923.90 of the Tariff."                 (Emphasis supplied)          5.      Relying on or on the basis of the said circular letter, a show cause notice was issu ed  upon the appellants herein by the respondents to pay the differential duty under  Chapter 39 for  the period 1.4.1992 to 15.10.1992.

6.      The cause having been shown, the Assistant Commissioner of Central Excise by an  order dated 21.10.1997 dropped the proceedings. Revenue being not satisfied  therewith preferred an appeal thereagainst before the Commissioner of Central

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Excise under Section 35E(4) of the Central Excise and Salt Act, 1944. By a judgment  and order dated 30th June, 1999 the said appeal was dismissed. Feeling aggrieved,  Revenue preferred an appeal before the Tribunal which, as noticed hereinbefore, has  been allowed by reason of the impugned judgment.

7.      The Tribunal in its judgment relied upon a three-Judge Bench decision of this Court  in ITW Signode India Ltd. vs. Collector of Central Excise, [2003 (158) E.L.T. 403  (SC)] for arriving at its decision that in view of the amendment of Section 11A of the  Central Excise Act, the validity whereof had been upheld, the revenue was within its  jurisdiction to get the differential duty which has not been recovered.  

8.      Mr. Madhav Rao, learned counsel appearing on behalf of the appellant would, in  support of its appeal, submit that the Tribunal went wrong in passing the impugned  judgment in so far as it failed to take into consideration a decision of this Court in  H.M. Bags Manufacturer vs. Collector of Central Excise, [1997 (94) E.L.T. 3 (SC)], in  its correct perspective, wherein it has clearly been opined that the word "henceforth"  used by the Board must lead to the conclusion that only prospective effect thereto  could be given and not a retrospective effect.

9.      Dr. Padia, learned senior counsel appearing on behalf of the revenue, on the other  hand, placed strong reliance on the judgment of this Court in ITW Signode India Ltd.  (supra). It was submitted by Dr. Padia that although at one point of time,  classification of excisable items might have been approved but if such approval was  based on a wrong premise, which was sought to be corrected, Section 11A which has  been amended with retrospective effect from 17.11.1980, could be brought into service  for the purpose of recovery of the differential amount of duty.  It was urged that for  the said purpose, neither penalty is leviable nor the period for which the duty can be  demanded exceeded six months and in view of  the fact that the notice issued by the  appellant herein was for a period of six months, the decision of this Court ITW  Signode (supra) is squarely applicable.

10.     Drawing our attention to the decision of the Madhya Pradesh High Court;  relying on or on the basis whereof, the Circular letter dated 24.10.1992 has been  issued,  it was contended that the validity of the said circular letter having not been  challenged by reason thereof, the mistake committed by the revenue in classifying  HDPE bags under Chapter heading 63 came to be known to them in terms of the said  judgment.  

11.     It is beyond any pale of doubt that Section 11A of the Central Excise Act  was amended having regard to the Constitution Bench decision of this Court in  Collector of Central Excise, Baroda vs. Cotspun Limited, [1999 (113) E.L.T. 353  (SC)]. Amendment of Section 11A was found in ITW Signode (supra) as a validating  legislation, retrospective operation whereof, therefore, was held to be permissible.  In  arriving at the said decision, this Court noticed a large number of binding precedents  operating in the field to hold that as the basis for the decision rendered in Cotspun  Limited (supra) has been taken away by reason thereof, the Parliament was entitled to  give the same retrospective effect and retroactive operation.  While applying the said  law, this Court in ITW Signode (supra) opined:

"Section 11A deals with a case when inter alia excise duty has been  levied or has been, short-levied or short-paid. The word ’such’  occurring after the words ’whether or not’ refers to non-levy, non- payment, short-levy or short-payment or erroneous refund. It is,  therefore, not correct to contend that the word ’such’ indicates only  such short levy which has been held to be non-existent in Cotspun  having regard to Rule 173B. Such short-levy or non-levy may be on  the basis of any approval, acceptance or assessment relating to the  rate of duty on or valuation of excisable goods. Thus, any approval  made in terms of Rule 10, in the event, any mistake therein is  detected, would also come within the purview of the expression ’such  short-levy or short-payment’. Such notice is to be served on the  person chargeable with the duty which inter alia has been short-levy  or short-paid."

It was further held:

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      "Cotspun (supra) was decided when the matters relating to  classification, approval thereof as also short-levy or upon detection  of a mistake were governed by the rules.  Rule 10 and Rule 173B  were to be read in conjunction with each other and the Constitution  bench merely followed the said principle of interpretation of statute.  A different situation has arisen now having regard to the fact hat  not only the substantive provision dealing with the consequence of  non-levy, non-payment of short levy or short-payment or erroneous  refund but also has laid down the procedure therefor."

"A statute, it is trite, must be read as a whole. The plenary power of  legislation of the Parliament or the State Legislature in relation to  the legislative fields specified under Seventh Schedule of the  Constitution of India is not disputed. A statutory act may be enacted  prospectively or retrospectively. A retrospective effect indisputably  can be given in case of curative and validating statute. In fact  curative statutes by their very nature are intended to operate upon  and affect past transaction having regard to the fact that they  operate on conditions already existing. However, the scope of the  Validating Act may vary from case to case."      

12.     However, we are concerned with a different situation herein. Whereas  there cannot be any doubt that the revenue is entitled to rectify a mistake but  implementation thereof would depend upon the statutory provisions. Section 37B of  the Central Excise Act confers powers upon the Central Board of Excise and Customs  to issue such orders, instructions and directions as the Central Excise Officers may  deem fit, if it considers necessary or expedient to do so for the purpose of uniformity  of classification of goods in a case or with levies of duty of excise on such goods.  It  was, therefore, necessary for the Tribunal to construe the said circular dated  24.9.1992 in its proper perspective.  

13.     The circular refers to the fact that there had been lack of uniform  classification of the said goods as a result whereof disparity existed in the matter of  pricing of commodity by the manufacturer.  It is on the aforementioned premise that  the decision of the High Court of Madhya Pradesh was referred to and sought to be  acted upon. But the Court was not unmindful of the fact that only by reason of the  said judgment, the law cannot be said to have been settled as an appeal had been  preferred thereagainst the judgment of the Madhya Pradesh High Court had been  pending decision. It was in the aforementioned fact situation that the Board thought it  fit and expedient in the interest of administration of taxing statute to  bring out  uniformity in the assessment practice.  

14.     By reason of the said circular, proper classification was made for the first  time. It was done with the purpose of ensuring uniformity therein. It was expressly  directed to have prospective application. Although the decision of the Orissa High  Court was the basis for issuance of the said circular, it was to operate independent  thereof as it was clearly noticed that the same had not attained finality. The said  circular, so far as the Revenue is concerned, was, therefore, to operate irrespective of  the decision of the Orissa High Court.  

15.     Having said so, the Board was not unmindful of the consequences which  may flow therefrom. It in exercise of its statutory power, therefore, directed its  application from a future date.   

16.     H.M. Bags Manufacturer (supra) becomes relevant in view of the  terminology used by the Board in issuing the aforementioned circular. Therein this  Court clearly held that such a circular will have prospective effect, particularly when  the word "henceforth" has been used by the Board. H.M. Bags Manufacturer,  therefore, is a binding precedent. If the Board itself did not intend to classify HDPE  bags with retrospective effect, in our opinion, no demand for duty prior to issuance of  the said notice could be made.           17.     ITW Signode which was rendered in a different fact situation and dod not  deal with the proposition of law with which we are concerned herein, in our

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considered view, could not have been applied by the Tribunal for the purpose of  determining the issue in question.

18.     For the reasons aforementioned, we are of the opinion that the impugned  judgment cannot be sustained which is set aside accordingly. The appeal is allowed.  However, in the facts and circumstances of this case, there shall be no order as to  costs.