Judgment · High Court · 2006

- 11th October,2006. HON'BLE THE CHIEF JUSTICE SHRI S.N.JHA HON'BLE JUSTICE SHRI MOHAMMAD RAFIQ REPORTABLE Mr. Rajendra Mehta, Advocate for appellant. Mr. Vineet Kumar Mathur, Assistant Solicitor General for Union of India. BY THE COURT:-(PER HON'BLE MOHAMMAD RAFIQ),J. This special appeal is directed against the judgment dated 4th October,1995 passed by the learned Single Judge dismissing the writ petition of the appellant. The appellant in its writ petition had impugned the order dated 9th June, 1983 passed by the Collector, Central Excise, Jaipur, order dated 28th December, 1983 passed by the Customs, Excise & Gold(Control) Appellate Tribunal, New Delhi (in short “the Tribunal”) and the letter/notice dated 24.3.1984 issued by the Superintendent, Central Excise Range, Jodhpur. Additionally, a 2 declaration was sought that the appellant was not liable to pay any differential duty pursuant to the aforesaid impugned orders/notice and the respondents be restrained from realising the amount mentioned therein.

Factual matrix of the case as unfolded in the memo of writ petition is that the appellant was registered as Small Scale Industries unit with the Directorate of Industries . It had obtained a license from the Central Excise Department, Jodhpur in July, 1976 for manufacturing stainless steel products covered by item no. 26 AA of the first schedule of tariff appended to the Central Excise & Salt Act, 1944(in short “the Act of 1944”). The appellant had purchased duty paid stainless steel flats/plates/patas/bars etc. and had also purchased fresh unused re-rollable scrap known as `pata' from the open market as well as from prime producers for re-rolling them. The appellant submitted a classification list (No.219/80) before the Superintendent, Central Excise, Range, Jodhpur for the period effective from 1.8.1980. It was submitted therein that hot as well as cold rolled sheets manufactured from “fresh unused un- 3 rollable scrap-namely; plate pieces, flat pieces, pata pieces etc. purchased or received on job basis were entitled to exemption from duty of central excise to the extent of Rs.330/- per M.T. in terms of notification No.76/72 dated 17.3.1972.

Assistant Collector, Central Excise, Jodhpur after proper enquiry approved the classification list submitted by the appellant and permitted the appellant to clear its products in accordance with such approved list without any objection. While the said classification list was still in force, Collector, Central Excise, Jaipur issued a notice to the appellant on 4.7.1981 requiring it to show cause within 30 days as to why the approved classification list was not revised. Even before the appellant could file reply to the show cause notice, the Assistant Collector, Jodhpur by order dated 6th July, 1981 directed the appellant not to take the benefit of exemption to the extent of Rs.330/- per M.T. under the aforesaid notification while clearing

its manufactured products . Feeling aggrieved by the notice of the Collector dated 4th July, 1981 and that of the Assistant Collector dated 6th July, 1981, the appellant filed a writ petition before this Court being S.B.C.Writ Petition No. 1164/81. During 4 pendency of the writ petition however a compromise was arrived at between the parties and on that basis, this Court quashed the notice of the Assistant Collector dated 6th July, 1981 by its judgment dated 12.8.1981. On 18th August, 1981 the appellant sent reply to the notice of the Collector dated 4th July, 1981. In the reply it was stated that pieces of raw material used by the appellant for manufacturing of their end product by the process of re-rolling were `fresh unused re- rollable scrap' and therefore the notification no. 76/72 dated

17.3.1972 was attracted. Collector however issued an addendum to the said show cause notice on 28th May, 1982. Appellant sent reply to the said addendum on 13th July, 1982 stating interalia therein that both the show cause notices and the addendum were illegal and without jurisdiction. Collector, Central Excise, Jaipur by his final order dated 9th June, 1983 while setting aside classification list (No.219/80) approved by the Assistant Collector directed the appellant to revise the said classification list. The Collector also imposed penalty of Rs.5000/- on the appellant on the ground 5 that this was a wilful mis-declaration in the classification list within an intent to evade proper excise duty. The appellant preferred an appeal against the said order before the Appellate Tribunal. The Tribunal by its order dated 28.12.1983 held that goods manufactured by the appellant namely stainless steel patties/patas were not entitled to exemption under notification No.76/72 as the inputs used by it were not `scrap' within the meaning of said notification.

The Tribunal further observed that the appellant did not apply the procedure under Rule 56-A of the Central Excise Rules, 1944(in short “the Rules of 1944). The Tribunal however held that the declaration by the appellant in the classification list was not deliberate or willful as it was not based on any concealment or omission of fact. The Tribunal therefore set aside the penalty and upheld the order of the Collector in other respect. Superintendent, Central Excise, Range, Jodhpur after the judgment of the Tribunal required the appellant by a notice dated 24.3.1984 to pay differential amount duty and threatened to realise the same by coercive process. It was on 6 these premises that the aforesaid petition was filed by the appellant with the prayers extracted above. The aforesaid writ petition was contested by the respondents by filing a reply. It was denied that the appellant had been purchasing `fresh unused un-rerollable scrap' known as 'pata'.

Number of documents which the appellants have received with the raw material from other units of re-rolling declared such material as S.S.Flats, S.S. Plates or S.S. Plate . Nowhere this material has been described as `fresh unused re- rollable scrap'. Such raw material used for manufacturing of hot as well as cold rolled sheets was plat pieces, flat pieces and patta pieces which do not come within the purview of fresh unused re-rollable scrap. The appellant was thus not entitled to exemption from the duty under notification no. 76/72 dated

17.3.1972 as claimed in their classification List no. 219/80. Collector was perfectly justified in disapproving the said classification list which order has since been upheld by the learned Tribunal as well. In fact, raw material used for manufacturing the end product of the appellant were cut to 7 size pieces of flats/plates/pattas which by no stretch of imagination can come within the definition of `scrap'. The appellant had been purchasing/acquiring flats/plates/patas as per their invoices or challans which were further cut to size for re-rolling according to the requirement. The same therefore cannot be termed as `fresh unused re-rollable scrap'. It was denied that the show cause notice and addendum were without jurisdiction. Collector has rightly held that scrap as universally understood term and especially fresh unused re-rollable scrap would generally cover only left over of iron and steel products manufactured by the primary producers provided that such left over are capable of being re-rolled without having to be re- malted. The appellant was entitled to set off of duty till

31.7.1980 and for the period subsequent thereto i.e. from

1.8.1980 by compensation procedure laid down under Rule 56- A of the Rules of 1944 in accordance with notification No.109 dated 19th July, 1980. Since the appellant did not follow the procedure under Rule 56-A and failed to prove that the raw material purchased by them was duty paid, they were not entitled to any set off for the duty paid on the inputs used for 8 manufacturing of end product. Further more since manufactured goods were not made out of scrap, the appellant was not entitled for exemption under Notification No.76/72. The description of raw material given by the appellant in their classification list was incorrect and misleading . The appellant has been wrongly availing the benefit of duty paid on raw material under Notification No.75/67 as per their earlier classification list which granted benefit of exemption of duty equivalent to duty paid on the material of iron and steel products falling under T.I. 26 AA provided these were made from articles falling under the same tariff item.

Subsequently, when the said notification was rescinded the appellant in order to avail the benefit of set off under Notification No.76/72 declared the raw material as fresh unused re-rollable scrap to suit the wordings of the Notification no. 76/72 although there was no change in raw material used in either under the old Notification no. 75/67 or under the new Notification No.76/67. It was therefore prayed that the writ petition filed by the appellant be dismissed. 9 Learned Single Judge by his order dated 4th October, 1985 dismissed the writ petition and held that when subsequent to dis-approval of the classification list No.219/80 by Collector, a revised classification list was issued by the Assistant Collector pursuant to directions given by order dated 9th June, 1983, the appellant ought to have challenged the revised classification list. It was therefore held that since according to order of the Collector the appellant was entitled to relief of input duty on the raw material used by them for manufacturing of finished product provided the procedure set out in rule 56-A of the Rules of 1944 was followed, therefore no actual loss would be caused to the appellant by the impugned orders.

Further more, the learned Single Judge refused to determine the issue on the merits on the premise that since recovery of the differential amount of duty was stayed by this Court factually therefore the appellant has made use of this amount for more than ten years and therefore @ 10% per year simple interest has earned money equal to the amount in question. In these circumstances, if the appellant was now required to pay the duty without any interest, no factual injury 10 would be caused to it. Thus holding, the learned Single Judge dismissed the writ petition. It may be noted that recovery of the said amount has remained stayed even during the pendency of the present appeal. We have heard Mr.Rajendra Mehta, learned counsel for the appellant and Mr.Vineet Kumar Mathur, learned Assistant Solicitor General for the respondents and perused the record. Mr.Rajendra Mehta, learned counsel for the appellant argued that the impugned judgment passed by the learned Single Judge suffers from legal infirmities inasmuch as none of the issues raised in the writ petition was decided on merits.

Pursuant to the order of Collector dated 9th June, 1983, the Superintendent, Central Excise raised demand for the differential amount of duty by notice dated 24.3.1984 and this was because of the order of Collector had been upheld by the Tribunal. The Superintendent therefore had no option but to raise the demand in compliance of the order of the Collector 11 and therefore the basic orders with which the appellant was aggrieved were that of Collector and the Tribunal. The learned Single Judge was not justified in dismissing the writ petition just because the appellant did not challenge the re- classification/revised classification list made by the Superintendent in compliance of the order passed by the Collector. Mr.Rajednra Mehta, learned counsel for the appellant further argued that when the orders of the Tribunal and the Collector were both under challenge in the writ petition, the learned Single Jude should have decided the petition on merits.

Merely because an interim order was passed in the writ petition and such an order has remained in force more than ten years, that by itself would not justify non-decision of the petition on merits on analogy of the money retained by the appellant having earned further money by way of interest @ 10% per annum. No party can be made to suffer for acts or omissions on the part of the Court and if the writ petition was not decided for more than ten years, that cannot afford a reason for not deciding it on merits. 12 On merits of the case, Mr.Rajendra Mehta, learned counsel for the appellant argued that the raw material used by the appellant namely pieces of SS flats/plates/pattas were fresh unused re-rollable and therefore finding to the contrary recorded in the impugned order was absolutely wrong and wholly unsustainable. Collector was not competent to revise the classification list. Exemption notification referring to scrap which could only be pieces of the products which are re- rollable.

Hence scrap of fresh unused re-rollable flats/sheets/plats/pattas could only be usable pieces of these products. The left over of the products manufactured by the primary producers which are not usable/re-rollable cannot be treated as scrap. It was aruged that left over scrap could not be used without being melted and consequently such left over would not be `scrap' in terms of the notification. Assumption to the contrary made by the Collector is fundamentally wrong. If the alleged left over can be re-rolled without being melted then they are pieces i.e. scrap and not left overs. It was further argued that there was no mis-declaration of the raw material by the appellant for availing the benefit of exemption and the 13 Tribunal by its order dated 28.12.1983 has clearly held in favour of the appellant on this aspect that there was neither any deliberate nor wilful mis-declaration and consequently it has set aside the penalty.

The respondents Department failed to bring any fresh material for evidence warranting review of the already approved classification list. It is settled proposition of law that classification once approved cannot be reviewed without fresh material or evidence warranting such review. It was argued that the Department itself accepted that the product of the appellant should be classified under Tariff Item No. 26AA(ia) . In view of this classification also no demand could have been raised and the impugned orders could not have been allowed to stand. When the appellant's inputs were covered by exemption notification, there was no question of following the procedure of Rule 56-A of the Rules of 1944 and this was because the raw material which the appellant used were presumed to be duty paid in accordance with instructions issued by the Central Board of Revenue way back on 22.9.1962 and 22.4.1966. Mr.Rajendra Mehta further argued that the pieces of SS flats/plates/pattas could not come in the market 14 unless a duty had been paid on them.

Circumstance that these pieces were further cut into smaller pieces cannot change their character of being paid duty. There was thus no question of following the procedure contained in Rule 56-A. Lastly it was argued that learned Single Judge was not justified in observing that since re-classification was ordered by the Collector, it would be open to the appellant to follow the procedure under Rule 56-A of the Rules of 1944 therefore no loss would be caused to the petitioner in any manner. It was therefore prayed that the judgment passed by the learned Single Judge be set aside and the appeal be allowed. On the other hand, Mr. Vineet Kumar Mathur, learned Assistant Solicitor General for Union of India supported the order/judgment passed by the Collector and the Tribunal and the judgment passed by the learned Single Judge. He argued that there was sufficient material with the Collector to hold that raw material used by the appellant did not fall within the purview of fresh unused un-rollable scrap.

The documents under which such raw material was received by the appellant 15 clearly proved their description as SS flats/plates/pattas. Nowhere were they described as fresh unused un-rollable scrap. All this was proved from copies/invoices/challans which the Superintendent, Central Excise, Jaipur seized from the factory premises of the appellant. According to him, raw material used by them were cut to size pieces of flats/plates/pattas which cannot be described as scrap. Since the appellant had been purchasing/acquiring flats/plates/pattas and then cutting them to size for re-rolling according to their requirement, such material cannot be classified as fresh unused un-rollable scrap. So far as the instructions of the Board dated

22.9.1962 and 22.4.1966 are concerned it was argued that they were mainly executive instructions and cannot be construed as government orders. Now that provisions of Rule 56-A have been extended to iron and steel products from the year 1967, the earlier instructions of the Board would have to give away to the rule and cannot be pressed into service for the purpose of allowing proforma credit under Rules 56-A of the Rules of 1944. There was no legal infirmity in the reasonings given by the learned Single Judge while dismissing the writ 16 petition. It was therefore prayed that the present special appeal be dismissed and the judgment passed by the learned Single Judge be upheld. We have given our thoughtful consideration to the arguments advanced by both the learned counsels and perused the record. What we find from perusal of the judgment passed by the learned Single Judge is that basically three reasons have been assigned by the learned Single Judge for dismissal of the writ petition.

First reason that weighed with the learned Single Judge for dismissing the writ petition was that even though the appellant has challenged the order dated 9th June, 1983 by which Collector disapproved the classification list No.219/80 but no challenge has been made to fresh/revised classification made by the Assistant Collector in obedience to the directions given by the Collector by order dated 9th June, 1983. Second reason is that as per the order of the Collector dated 9th June, 1983, the appellant would be entitled to relief of input duty on 17 raw material used by them for manufacturing of finished products provided the procedure set out in Rule 56-A of the Rules of 1944 was followed and therefore factually no loss would be caused to the appellant by the impugned orders. Third and the last reason assigned for dismissing the writ petition is that demand of differential amount of the duty has remained stayed for last more than ten years and even @ 10% p.a. the appellant by now would have earned the similar amount by way of interest.

Even if the appellant is now required to pay the duty without interest, no factual injury would be caused to them. In so deciding the writ petition however the learned Single Judge has not addressed himself to merits of the case. The appellant is mainly claiming benefit of Notification No.76/72 dated 17.3.1972 which was issued by the Central Government in exercise of their powers conferred by sub Rule (1) of Rule 8 of the Rules of 1944. In this Notification the Central Government exempted

iron and steel products falling under Item No. 26 AA of the First Schedule of tariff 18 appended to the Rules of 1944 and made from old and used re- rollable scrap without undergoing the process of melting or from fresh unused re-rollable scrap on which appropriate amount of duty has already been paid, from so much of the duty of excise leviable on such products as is equivalent to the duty of excise leviable on semi-finished steel falling under sub- item (i) of the aforesaid item

.

There was however an exception to the said exemption Notification that this benefit would not be available to manufacturer who avails of the special procedure prescribed under Rule 56A in respect of the duty paid on the said scrap. The appellant submitted classification list No.219/80 to the Superintendent, Central Excise, Range, Jodhpur effective from 1st August, 1980. It was claimed that hot as well as cold rolled sheets manufactured from `fresh unused un-rollable scrap' namely; plate pieces, flat pieces, pata pieces etc. purchased or received on job basis were entitled to exemption from duty of central excise to the extent of Rs.330/- per M.T. in terms of aforesaid notification. This classification list was approved by the Assistant Collector. The Collector, Excise however after notice to the appellant 19 disapproved the said classification list holding that cutting of plates into smaller sizes to suit, re-rollable machine of the appellant would not convert such raw material into scrap.

Scrap is universally understood term and fresh unused re-rollable scrap would generally cover only the left over of iron and steel products manufactured by the primary producers provided that such left over products are capable of being re-rolled without having to be re-malted. According to the Collector, the raw material used by the appellant was only cut pieces flats and according to the shape/finished of these cut to size of pieces, they cannot be described as scrap. When the appellant in the earlier classification list declared his raw material as S.S. rounds/flats/plats etc. purchased from prime manufacturer with the proof of payment of duty and availed the benefit of duty paid on raw material under Notification No.75/67 dated

20.5.1967 simply because the Notification No.75/67 was rescinded the appellant in order to avail the benefit of set off under Notification No.76/72, could not be allowed to declare the very same raw material as `fresh unused un-rollable scrap' to suit the wordings of the Notification No.76/72. 20 Now we are required to determine as to whether the appellant could have claimed exemption on the raw material used by them under the Notification no. 76/72 even though they did not claim such exemption when they submitted earlier classification list. There is no manner of doubt that the raw material which the appellant received for re-rolling on job basis was described as S.S. plates/flats/pattas. They were thereupon cut into pieces of varying sizes as per requirement to suit their re-rolling machine. The case of the revenue is that when the assessee is receiving the bigger flats/plates/pattas and cutting them into smaller size pieces to suit their re-rolling machine, they cannot be described as `fresh unused re-rollable scrap'.

The assessee however insist that even after cutting bigger pieces into small once, the character of the raw material does not undergo any change, for it continues to remain `fresh unused re-rollable scrap'. In our view, when the re-rolling machine of the appellant is capable of re-rolling only the small pieces of semi finished steel plates/flats/pattas which the appellant procured form cutting of the S.S. plates/flats/pattas into small and different sizes as per requirement to suit their 21 re-rollable machine, it cannot be accepted that the raw material siezed to remain `fresh unused re-rollable scrap'. The very significance of the words `fresh unused and re-rollable' should qualify the meaning of the word `scrap'. In that meaning this would be a scrap of kind which consist of fresh unused re- rollable sheets with whatever names called namely; plates/flats/pattas. Such smaller pieces are essentially procured from the regular size sheets which are already duty paid and therefore attract ability of the said notification no.

76/72 is dependent on the condition that only such iron and steel products falling under sub-items(ii) and (iii) of Item No. 26 AA of the First Schedule to the Rules of 1944 would be exempted which are made from `fresh unused un-rollable scrap' on which appropriate amount of duty has already been paid. Whether the appellant procure such raw material from the prime manufactures or from the open market but the fact remains that they are procured from the market where regular sheets are cut for regular use and their remnants are further cut into pieces of varying sizes described as small size(S.S.)plates/flats/pattas would show that no dispute about 22 their being scrap in the meaning of phraseology employed in Notification no. 76/72 can be made. A scrap by the very nature of the things means small piece, a fragment , a detached incomplete piece or waste material. When it cannot be denied that the raw material which the appellant was receiving were small size flats/plates/pattas and further that they were fresh unused re-rollable cut pieces of the sheets in veriying sizes, they would broadly fall within the category of `fresh unused re-rollable scrap'.

Even if the appellant in the earlier classification list has not declared the said raw material as `fresh unused re-rollable scrap' so as to claim the benefit of notification no. 76/72 ,that by itself would not preclude them from now claiming such benefit if they are otherwise able to satisfy the coverage of their raw material within the purview of said notification. According to reasonings given by the Collector in his order, `fresh unused re-rollable scrap' would only cover the left over of the iron and steel products manufactured by primary producers provided that such left over products are capable of being re-rolled without having to be re-malted. But this distinction pointed out by the Collector was indeed without 23 any difference. Even the raw material which the appellant used was left over of the iron and steel products and therefore described as small size plates/flats/pattas and such raw material was capable of being re-rolled without having to be re- melted.

Merely because such raw material did not always originate from primary producers and has been sometimes received even from open market would not make any difference as to the admissibility of the duty exemption because grant of exemption in the meaning of Notification No.76/72 would not be dependent on the source of the raw material or proof of the fact as to where from it has originated. In our considered view, the judgment passed by the learned Single Judge suffers from the infirmity of writ petition having not been decided on merits. All the three reasonings which the learned Single Judge has given in dismissing the writ petition have not led to any decision on merits of the case. Merely because the appellant did not challenge the revised classification list made by the Assistant Collector in pursuance of the order of the Collector dated 9th June, 1983, this could 24 not debar it from challenging the basic order of the Collector which was in fact subsequently upheld by the Tribunal and both those orders were under challenge in the writ petition.

The writ petition also could not be dismissed simply because the appellant could choose alternative method of claiming relief of input of duty by way of set off under Rule 56-A which was altogether different machemism and if the appellant had the option to claim benefit of partial exemption, it could not be asked to restrict to the regular mode of claiming set off . Yet another reason extended by the learned Single Judge in dismissing the writ petition was that demand of differential amount of duty having remained stayed for more than ten years, the appellant by now @ 10% p.a. would have earned the amount of interest equal to the differential amount, therefore, if now required to pay the duty without interest, no factual injury would be caused to the them. Logic of this reasoning is very difficult to understand and still more difficult to approve of. In this connection, it would be apposite to refer to the maxim of equity namely, actus coriae-neminem- 25 gravabit- an act of Court shall prejudice no man.

This principle is founded upon justice and good sense which serves a safe and certain guide for the administration of law. According to this principle no-one should be made to suffer for fault of the Court . If the writ petition remained pending for more than ten years, adjudication of the petition on merits could not be declined on that ground alone as that would amount to not deciding the validity or otherwise of the demand in question. Moreover, when a matter involving a demand from the revenue is brought before the Court and if the recovery of the demanded amount of revenue has remained stayed, eventual failure of the assessee in litigation would make him liable to not only pay the principal amount of demand but also interest as per the rules. There was no concession given by the revenue nor could any such concession be given contrary to the Rules that they would not claim interest on delayed payment of demand.

In our considered view therefore judgment passed by the learned Single Judge on all the three counts is not sustainable in law. 26 In view of what has been discussed above, this special appeal deserves to be allowed and is hereby allowed. The judgment passed by the learned Single Judge dated 4th October, 1995 is set aside and consequently the writ petition filed by the petitioner is allowed . The order of the Collector, Central Excise dated 9.6.1983 and the order of the Tribunal dated 28.12.1983 and consequential notice of Superintendent, Central Excise, Range, Jodhpur dated 24.2.1983 are quashed and set aside. In the facts of the case, however, we leave the parties to bear their own cost. (MOHAMMAD RAFIQ),J. (S.N.JHA),C.J. Aditya/-