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PETITIONER: COLLECTOR OF CENTRAL EXCISE, BARODA

       Vs.

RESPONDENT: M/S COTSPUN LTD.

DATE OF JUDGMENT:       23/09/1999

BENCH: S.S.Mohammed Quadri, V.N.Khare, S.P.Bharucha, B.N.Kirpal

JUDGMENT:

Bharucha, J.

     This  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 issue.

     Briefly    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. The  reason for so doing was that the NES yarn ought to have been correctly classified under old Tariff Item 19- I(2)(F). A  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. It  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.

     The Excise authorities are in appeal against the order

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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 assisting us.

     Rule 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 :

     10.   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.

     A  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.

     Rule  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:

     (2)  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.

     Provision  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. Sub-rule  (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.

     It  is  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.

     In  support  of the case of the Excise authorities  is

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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  first thereto.

     In  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:

     (O)nce  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.

     In the 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. There  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. But  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.

     The  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. That   judgment   (1990  (47)  ELT   449)   says,   that   a

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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.

     Reference,  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 operate.

     Rule  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 classification list.

     Rule  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.

     The  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.

     The  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 short  levy. Rule 10 has then no application.

     We 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  over-ruled. The  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.

     We  are 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.

     The  appeal  is dismissed.  Having regard to the  fact

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that  the assessee does not appear, there shall be no  order as to costs.