COLLECTOR OF CENTRAL EXCISE, BARODAversusM/S. COTSPUN LTD.

A              COLLECTOR OF CENTRAL EXCISE, BARODA
                                          v.
                                                                                 .   _,
                              MIS. COTSPUN LTD.

                              SEPTEMBER 23, 1999

B              (S.P. BHARUCHA, B.N. KIRPAL, V.N. KHARE,
         S.S. MOHAMMED QUADRI AND D.P. MOHAPATRA, JJ.]

          Excise Laws :

C         Central Excise Rules, 1944 :

         Rules JO and 173~Excise duty-Levy of-Classification of goods--
  Classification list approved by Central Excise authorities-Subsequent reclas-
  sification-Demand for differential duty retrospectively-Validity of-Held,
  levy of duty on the basis of approved classification list is not short levy and
D differential duty cannot be recovered-Levy of duty on the basis of approved
  classification list is co"ect levy until show cause notice is issued questioning
  the co"ectness of approval-Only when the co"ectness of the approval is
  challenged, the approved classification ceases as such.

E        Respondent-assessee, engaged in the manufacture of NES yarn, filed
  classification lists which were approved under the provisions of Rule
  173-B of the Central Excise Rules 1944. Subsequently, the excise
  authorities issued show cause notices for reopening the assessment. A
  demand for differential duty was made. Respondent-assessee contended
  that the goods correctly classified and approved could not be reopened
F and therefore demand for differential duty could not be raised. The said
  contention was upheld by the Assistant Collector. However, on appeal, the
  Appellate Collector upheld the reclassification and confirmed the
  demands for differential duty. Tribunal quashed the demands holding
  that revised assessment could be made affective only prospecti1'ely from
G the date of show cause notices; not with reference to earlier removals
  made under approved classification lists. Hence the present appeal which
  has been referred to the Constitution Bench since there are two conflicting
  three-Judge Bench decisions on the issue involved.

           On behalf of the Revenue it was contended that by reason of Rule
H 10, the reclassification of the NES yarn would operate retrospectively and
                                          184
                              C.C.E. v. COTSPUN LTD.                           185

     that, therefore, the assessee was liable to pay excise duty on the basis of      A
     the modified classification list for the period that commenced six months
     before the date on which the reclassification was made.

             Dismissing the. appeal, the Court

            HELD .: 1.1. Levy of excise duty on the basis of an approved clas-        B
     sification list is not a short levy and differential duty cannot be recovered.
     Thus, Rule 10 of the Central Excise Rules, 1944, providing for recovery
     of amount short levied and not dealing with classification lists or re-open-
     ing of approved Classification lists; has no application. [187-B; 190-E]

            1.2. Levy of excise duty on the basis of an approved classification       c
     list is the correct levy, at least until such time as to the correctness of
     the approval is questioned by the issuance 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. [190-D]
                                                                                      D
           Rainbow Industries (P) Ltd. v. Collector of Central Excise, Vadodara, ·
     [1994] 6 sec 563, affirmed.

           Ballarpur Industries Ltd. v. Asstt. Collector of Customs and Central
     Excise & Ors., [1995] Suppl. 3 SCC 429, overruled.
                                                                                      E
          Collector of Central Excise v. Indian Oxygen Ltd., (1991) 51 ELT A36
     and Collector of Central Excise, New Delhi v. Bhiwani Textile Mills, [1996]
     88 ELT 639, referred to.

             CIVIL APPELLATE JURISDICTION : Civil Apeal No. 3304 of
     1988.                                                                            F

           From the Judgment and Order dated 15.3.88 of the Central Excise
     and Gold (Control) Appellate Tribunal, New Delhi in A. No. E-2611 of
     1987.
I

'1        C.S. Vaidyanathan, Additional Solicitor General, T.L.V. Iyer,               G
     (Joseph Vellapally), (A.C.) Dileep Tandon, Shivram, T.A. Khan, P.
     Parmeswaran, A.R. Madhav Rao, Kotni Srinivas, Tarun Gulati, V.
     Balachandran, and (V. Sridharan), (A.G.) for the appearing parties.

             The following Judgment/Order of the Court was delivered :                H
    186                  SUPREME COURT REPORTS [1999) SUPP. 3 S.C.R.

A         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
                                                                                 -
B 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
C 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
D 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 tci 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
E classification lists could not be re-opened and, therefore, the demands for
  differential duty could not be enforced. The Assistant Collector upheld the
  assessee's 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
p authorities, reclassified the NES yarn an? 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.·
                                                                                  [
G Accordingly, the demands were quashed. r •

                                                                                   ,,
        The 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,
H and we are beholden to them for assisting us.
               C.C.E. v. COTSPUN LTD. [BHARUCHA,J.]                      187

     Rule 10 of the Central Excise Rules, as it read at the relevant time       A
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 fu1! 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     B
        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          c
        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   D
with the self- removal procedure. It requires an assessee to file before the
proper Excise Officer for approval of 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 pay-        E
ment 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     F·
        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
                                                                                G
(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    H
    188                   SUPREME COURT REPORTS (1999) SUPP. 3 S.C.R.

A           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
B   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 the judgment of
C   this Court in Ballarpur Industries Ltd. v. Asstt. Collector of Customs and
    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.

D         In Rainbow Industries (P) Ltd. v. 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
E   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
F   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
G            and the goods· were cleared with the knowledge of the Department,
             then, in absence of any amendment in law or judicial pronounce-
             ment, 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
H            to evade payment of duty."
               C.C.E. v. COTSPUN LTD. [BHARUCHA, J.]                      189

       In the case of Ballarpur Industries (supra) decided by a Bench of         A
three learned Judges, the observations in the judgment in Rainbow In-
dustries 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 llA, the show cause notice "which could be issued within the time
limit prescribed under the relevant provision could only be in relation to
                                                                                 B
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-          C
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            D
that contention."

       The order of reference cites the decision of a Bench of three learned
Judges in Collector of Central Excise v. Indian Oxygen Ltd., (1991) 51 ELT
A36. By that brief order the appeal of the Excise authorities against a
decision of the Trilmnal was dismissed because the Bench was of the              E
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 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.         F

      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 v. Bhiwani Textile Mills, (1996) 88 ELT 639. This Court
held that until the proposal for modification of the classification was          G
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 H
    190                   SUPREME COURT REPORTS (1999] SUPP. 3 S.C.R.

A 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
B   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. RulelO does not deal with classification lists or relates to the
C   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
D   approval is questioned by the issuance to the assessee pf 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
E   that it i; 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
F 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.
G Nothing that we have said in this judgment shall ipso facto apply thereto.
         The appeal is dismissed. Having regard to the fact that the assessee
    does not appear, there shall be no order as to costs.

    S.V.K.                                                     Appeal dismissed.
             '.