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PETITIONER: MADHUMILAN SYNTEX (P) LTD.

       Vs.

RESPONDENT: UNION OF INDIA & ORS.

DATE OF JUDGMENT:       04/03/1997

BENCH: S.C. AGRAWAL, S.C. SEN

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T 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

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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

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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

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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

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    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

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    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

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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.