Holding

The amendment to Section 11A is a valid curative statute, the short‑levy limitation period cannot be invoked without proof of fraud, and the Tribunal erred by not deciding the limitation question, warranting remand for fresh adjudication.

Summary

ITW Signode India Ltd., a manufacturer of box‑strappings from duty‑paid cold‑rolled steel strips, claimed that the product fell under tariff item 26AA(iii) and no further excise duty was payable. The Revenue argued that the product should be re‑classified under tariff item 68/7308.90 and that a short‑levy of duty could be recovered under the amended Section 11A of the Central Excise Act, 1944. The Supreme Court held that the amendment to Section 11A is a valid, retrospective, curative statute and that the term “such” in the provision covers short‑levy or non‑levy arising from any approval, not only those excluded in Cotspun. However, the extended five‑year limitation period can be invoked only where fraud, collusion or wilful mis‑statement is proved; none was found. Consequently, the Tribunal’s failure to decide the jurisdictional limitation question was a manifest error. The Court set aside the Tribunal’s order and remitted the matter for fresh consideration, allowing the appeal in part.

Issues considered

The constitutional validity and retrospective effect of the amendment to Section 11A of the Central Excise Act, 1944.
Whether levy on the basis of an approved classification list constitutes a short‑levy under Section 11A.
Whether the extended five‑year limitation period under Section 11A can be invoked absent fraud, collusion or wilful mis‑statement.
Whether the appellant is entitled to claim MODVAT credit for duty paid on input cold‑rolled steel strips.
Whether the processes undertaken amount to ‘manufacture’ affecting the correct tariff classification of the product.
The correctness of the Tribunal’s omission to determine the jurisdictional limitation issue.

Legislation cited

Central Excise Act, 1944s. 11A
Central Excise Rules, 1944s. 10, s. 1738, s. 9(2)
Central Excise Tariff Act, 1985s. 26AA(iii), s. 68, s. 7308.90
Finance Act, 2000s. Clause 110, s. Section 11A amendment
Limitation Act, 1963

Subjects

central exciseshort levySection 11Avalidation statuteretrospective legislationtariff classificationMODVAT creditlimitation periodmanufacturejurisdictional fact

Judgment

A
ITW SIGNODE INDIA LTD.
v.
COLLECTOR OF CENTRAL EXCISE

NOVEMBER 19,2003 B
[V.N. KHARE, CJ., S.B. SINHA AND DR. AR. LAKSHMANAN, JJ.]

Central Excises and Salt Act, 1944; S.JJ-A and amendments made
thereunder/Central Excise Tari.ff Act, 1985; Tari.ff Items 26AA(iiij, 68, 72II.31, C
7308.90/Central Excise Rules, 1944; Rules 9(2) and Amendments made
thereunder and 1738:

Manufacture of box strappings from duty paid cold rolled steel strips
as input-Resultant product-Classification of-Assistant Collector held that
since resultant product is being manufactured by doing painting/waxing on D
input material, description offinal product does not change-No further duty
liability arises-Amendment in Section I IA of the Act-Affirmed by the
Appellate Authority-Reversed by the Tribunal-On appeal, Held: Amended
provisions of Law facilitate Revenue authorities to determine correctness of
classification of the product by re-opening of approved classification list- E
A legal fiction created for recovery of short levy/non-levy-Hence, amended
provision of Law, a valid piece of legislation.

Extended period of /imitation for short levy-Invoking of-Held, It
could be invoked only on discovery of positive acts of fraud on the part of
assessee-Limitation involves question of jurisdiction-To be determined F
having regard to both facts and law-In absence ofany act offraud, extended
period of limitation could not have been invoked-Even if short levy, assessee
could adjust the same from MODVATcredit on duty paid on input material-
Matter remitted to Tribunal for consideration afresh in accordance with
law-Limitation Act, 1963-/nterpretation of Statutes.
G
Curative and Validating Statutes-Operation of-Held: Retrospect:ve
effect could be given-However, scope of validating Act varies from case to
case.

Words and Phrases:
751 H
752 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A 'Such '-Meaning of in the context of Section I IA of the Central Excise
Act.

Appellant-Assessee, a manufacturer, deals in manufacturing of box
strappings from duty paid cold rolled steel strips as input raw material.
Assessee informed the Revenue authorities concerned that the product falls
B under tariff item No.26AA(iii) of the Central Excise Tariff Act and no excise
duty was Ieviable. The authority·responded that the product would be
classifiable under Tariff Item No.68 and not under Tariff Item No.26AA (iii)
of the Act. However, Assistant Collector held that the assessee had discharged
its duty/liability by paying duty for cold rolled steel strips, the input material
C under Tariff Item No. 26AA (iii) and since the resultant product continues to
be same, no further duty liability arose thereon.

In the meanwhile, assessee had filed a classification list disclosing
processes used in the manufacture of the product. The list was approved by
the concerned authority. But the Revenue issued a show cause notice to the
D assessee for levy and recovery of differential amount of duty on the product
as the product fall under Tariff Item No.68 of the Act. In appeal, the Collector
and the Appellate Authority affirmed the order of Assistant Collector. In
appeal, Tribunal reversed the order. Hence the present appeal.

On the issue of 'short levy of excise duty', Constitution Bench of
E Supreme Court in the matter of Collector of Central Excise, Baroda v.
Cotspun Ltd., (1999) 7 SCC 633 overruled its earlier decision in Ballarpur
Industries Ltd. v. A.C. ofC.C.E., (1995] Supp. 3 SCC 429 upholding the law
laid down by the Court in Rainbow Industries (P) Ltd v. CCE, Vadodra, (1994)
6 SCC 563 as correct law. Parliament accordingly made certain amendment
F under Section llA of the Central Excise Act, 1944 and the same was given
retrospective effect. Assessee, in the present case, challenged the said
amendment and the question was considered by this Court in Easland
Combines, Coimbtore v. CCE, Coimbatore, (2003) 3 SCC 410. The Court
upheld the amendment.

G When the present matter was placed before the Division Bench, the
Bench did not agree with the view taken by the Court in 'Easland Combines'
case and directed to refer the matter to a Bench of 3 Judges. Hence the matter
came before the present Bench.

It was contended for the appellant-assessee that the basis of the decision
H in Cotspun case was not taken away by introducing amendment in Section 11
ITW SIGNODE INDIA LTD. v. C.C.E. 753

A of the Act; that levy of excise duty on the basis of an approved list would not A
be construed as short levy, thus, differential duty could not be recovered and
Section 11-A, would have no application; that the process undertaken on cold
rolled strips to get the final product, do not amount to 'manufacture' of the
final product, since the product would not attain a new and distinct character;
that box strappings, the final product, could appropriately be classified under
the heading 7211.31 as cold rolling strips only and not under heading No. B
7308.90; that extended period of limitation as prescribed under Section 1lA
of the Act would have no application since there was no short levy occasioned
on account offraud/collusion/wilful suppression of facts with an intent to evade
duty; and that in case the final product is held to be dutiable, the assessee
should have been allowed to avail MODVAT credit on duty paid on input C
material

On behalf of the respondent, it was submitted that the basis of judgment
of the Supreme Court in Cotspun case had been removed by making necessary
amendment in Section llA of the Central Excise Act; that as per amended
provisions of the Act, even the correctness of approved classification list could D
be challenged/questioned; and that since several processes had been
undertaken on input steel strips to get the final product, the same amounts to
manufacture.

Partly allowing the appeal, the Court
E
HELD: I.I. Section llA of the Central Excise Act deals with a case when
inter a/ia 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 say that the word "such" indicates only such short- F
levy which has been held to be non-existent in Cotspun case having regard to
Rule 1738 of the Central Excise Rules, 1944 . 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; that any approval made in terms
of Rule 10 of the Act, in the event, any mistake therein if detected, would also
come within the purview of the expression "such short-levy or short-payment". G
(779-1)..E-F)

Collector ofCentral Excise, Baroda v. Cotspun Ltd., 11999) 7 SCC 633,
referred to.

l.2. It is a well-settled principle of law that in case of a conflict between H
754 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A a substantive Act and delegated legislation, the former shall prevail inasmuch
as delegated legislation must be read in the context of the primary/legislative
Act and not the vice-versa. [779-CI

1.3. The procedure laid down under Rule 1738 of the Rules has
specifically been included in the Act. Furthermore, by reason of the amended
B Act a provision has been made for reopening the approved classification lists.
It is a procedural provision in terms whereof statutory authorities are required
to determine as to whether the earlier classification was correctly done or
not. The authority upon giving an opportunity of hearing the parties, may come
to the conclusion that decision on the approval granted need not be reopened
C and even if the same is reopened, the reasons therefor have to be stated.
(779-H; 780-A-B)

1.4. Parliament, by making an amendment, had merely provided that an
approval on the basis of a classification list inter alia in case of a short-levy
can be recovered if a finding is arrived at that the goods had undergone a
D short-levy. For the said purpose, clause 110 of the Finance Act, validating
actions taken under Section llA can be taken into consideration whereby
and whereunder a legal fiction is created. Cotspun case was decided when the
matters relating to classification, approval thereof as also short-levy or upon
detection of a mistake were governed by the Central Excise Rules. Rule 10
E and Rule 173 8 of the Rules were to be read in conjunction with each other
and the Constitution Bench in the said matter merely followed the principle
of interpretation of statute. A different situation has arisen now having regard
to the fact that not only the substantive provision dealing with the consequence
of non-levy, non-payment or short levy or short-payment or erroneous refund
but also has laid down the procedure therefor. [780-8-C; F)
F
Collector ofCentral Excise, Baroda v. Cotspun Ltd, [1999) 7 SCC 633,
followed.

Bhavnagar -University v. Palitana Sugar Mill Pvt. Ltd. and Ors., (2003)
2 SCC 111; State of Karnataka v. Vishwabharathi House Building Coop.
G Society and Ors., (2003) 2 SCC 412; High Court ofJudicature for Rajasthan
v. P.P. Singh and Anr., (2003) 4 SCC 239 and Dipak Chandra Ruhidas v.
Chandan Kumar Sarkar, (2003) 7 SCC 66, relied on.

1.5. A statute, it is trite, must be read as a whole. A statutory Act may
be enacted prospectively or retrospectively. A retrospective effect indisputably
H can be given in case of curative and validating statute. In fact curative statutes
ITW SIGNODE INDIA LTD. v. C.C.E. [S.B. SINHA, J.] 755
by their very nature are intended to operate upon and affect past transaction A
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. Hence,
Section I IA of the Act as amended is a valid piece of legislation.
[780-G-H; 781-A)

2.1. This Court in the peculiar facts and circumstances of the present B
case need not go into the question as to whether the processes undertaken by
the assessee would amount to manufacture or whether the classification of
goods under sub-heading 7308.90 is correct, since the question as regards
limitation and availability of MODYAT had not been considered. The question
of limitation involves a question of jurisdiction. The findings of fact on the C
question of jurisdiction would be a jurisdictional fact. Such a jurisdictional
question is to be determined having regard to both fact and law involved therein.
The Tribunal committed a manifest error in not determining the said question,
particularly, when in the absence ofany finding offact that such short-levy of
excise duty related to any positive act on the part of the appellant by way of
fraud, collusion, wilful mis-statement or suppression of facts, the extended D
period of limitation could not have been invoked and in that view of the matter
no show cause notice in terms of Rule I 0 of the Rules could have been issued.
Even if the short-levy, if any, is to be recovered, the appellant was entitled to
raise a question that he was entitled to adjust the duty upon taking MODVAT
credit of the duty paid on cold rolled steel strips. These aspects of the matter E
are required to be gone into by the Tribunal. Hence, the impugned judgment
cannot be sustained and is set aside and the matter is remitted to the Tribunal
for consideration thereof afresh in accordance with law. ·
(781-B-C; 782-G-H; 783-A-B-C)
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7868of1995.
F
From the Judgment and Order dated 6.4.95 of the Central Excise Customs
and Gold Control Appellate Tribunal, New Delhi in F.0.No.E/180 of 1995-BI.
V. Lakshmikumaran, Alok Yadav and V. Balachandran for the Appellant.
Dhruv Mehta, Ms.Vibha Dutta Makhija and B.K. Prasad for the
Respondent. G
The Judgment of the Court was delivered by
S.8. SINHA, J. The primal question involved in this appeal which arises
out a judgment and order of the Customs, Excise & Gold (Control) Appellate
Tribunal dated 6.4.1995 revolves round the effect of a validating statute.
H
756 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.

A BACKGROUNDFACTS:
The appellant manufactures and deals in box strappings. For the said
purpose they receive duty paid cold rolled steel strips. Several processes are
undertaken for manufacturing the end product.

B The appellant allegedly infonned the Superintendent of Central Excise
about the processes undertaken by them contending that the resultant product
falls under Tariff Item No. 26AA(iii) and no further excise duty is leviable
thereupon. The Assistant Collector by a letter dated 25.6.1983 stated that the
box strappings made out of the duty paid cold rolled steel strips would be
C classifiable under Tariff Item 68 and not under Tariff Item 26AA(iii). The
appellant protested thereagainst by a letter dated 2. 7.1983 inter alia contending
that having regard to the ISi specifications and certain judicia! pronouncements,
Tariff Item 68 would not be applicable. The Assistant Collector by an order
dated 11. 7.1983 held:

D "Considering all aspects, the cold rolled strips known as box strappings
continue to be cold rolled strips under Tariff item 26AA (iii). The
painting and waxing on the product does not change the classification
of the product.
As the raw material, cold rolled strips has discharged its duty
E liability under T.I. 26AA(iii) and the resultant product continues to be
cold rolled strips under T.I. 26AA (iii), no further duty liability arises."

The said order is said to have become final. Thereafter on or about
4.2. 1986 a classification list was filed by the appellant effective from 1.3.1986
stating that box strappings are made by cutting duty paid steel strips under
F the column "particulars of other goods produced or manufactured and intended
to be removed by the assessee". Reference in this behalf was also made to
the order of the Assistant Collector dated 11.7.1983. The said classification
list filed by the appellant was approved by the Assistant Collector. However,
by a notice dated 8.4.1987, the Collector, Central Excise called upon the
Appellant herein to explain as to why processes undertaken by them would
G not amount to manufacture with immediate effect and why an amount of Rs.
I, 13,82,247 should not be levied on the basis that the goods should be
classified under chapter sub-heading 7308.90 of the Central Excise Tariff Act,
1985 upon invoking Rule 9(2) of the Central Excise Rules, 1944 read with the
provisions of Section 11 A of the Central Excise Rules.
H
ITW SIGNODE INDIA LTD. v. C.C.E. [S.B. SINHA, J.] 757

The appellants contend that the issue as regard classification was A
raised with the Department even in 1983, whereupon the Assistant Collector
vide his letter dated 11. 7.83 held that the process carried out by the appellants
does not amount to manufacture since the product continues to be a strip and
accordingly there was no change in the classification, i.e., it will fall under
Tariff Item 26AA(iii). This order has not been challenged by the department B
and thus it has become final and conclusive. Thereafter, all along the appellants
have filed classification lists right from 1986 claiming the classification as
strips under Tariff Item 26AA under the old Tariff according to the order
passed by the Assistant Collector. All the classification lists described the
process manufacture adopted by the appellants. This was finally approved
by the department without any modification in favour of the appellants. This C
classification continued even for the period effective from March 1987. Thus,
no demand could have been raised against the appellant under Section 11 A
for the past period since there was no short levy and in any event no
suppression can be attributed to the appellants.

A reply to the show cause was flied by the appellant highlighting the D
processes undertaken. The Collector by his order dated 24.9.1987 held that
the processes undertaken by the appellant do not amount to manufacture and
as such their product is classifiable under Chapter 72 only. An appeal
thereagainst was filed by the respondents before the Appellate Tribunal.

The matter was heard by three members of the Tribunal who constituted E
the Bench. Three separate orders in the matter were passed on 6.4.1995. The
Member (Judicial) in his order proposed to remit the matter to the Collector
for a de nova consideration on the merit; whereas the Vice-President and the
Member (Technical) decided the merit of the matter against the appellant. The
majority of the Appellant Tribunal classified the box strappings in running p
length and in coil under heading 73.08 as articles of iron or steel. However,
none of the members took into consideration the question as to whether the
demand made by revenue was barred by limitation. Aggrieved thereby and
dissatisfied therewith the appellant is in appeal before us.

REFERENCE TO CONSTITUTION BENCH AS REGARD SHORT-LEVY: G
Having regard to the conflict of decision in Ballarpur Industries ltd.
sec 429 and
V. Asstt. Collector of Customs & Central Excise, [I 995] Supp. 3
Rainbow Industries (P) ltd. v. Collector o/Central Excise, Vadodara, [I994]
6 SCC 563 the question was referred to a Constitution Bench. This Court in
H
758 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A Collector of Central Excise, Baroda v. Cotspun Ltd., [1999] 7 SCC 633
(wherein one of us V.N. Khare, CJ! was a member) overruled the decision of
this Court in Ballarpur Industries (supra) and held that the Rainbow Industries
(supra) has correctly laid down the law.

AMENDMENT IN SEC. I IA:
B
The Parliament thereafter amended Section 11 A of the Central Excise
Act, 1944 by Act No. 10 of2000 which was published in the Gazette oflndia
on 12.5 .2000 and the same was given a retrospective effect and retroactive
operation from 27.12.1985.

C REFERENCE TO THIS BENCH REGARDING VALIDATING ACT:
The appellants herein thereafter questioned the vires of the said
provision. It is also not in dispute that the said question came up for
consideration before a two-Judge Bench of this Court in Easland Combines,
D Coimbatore v. Collector of Central Excise, Coimbatore, [2003] 3 SCC 410
wherein the validity of the Amendment was upheld.

However, when this matter was placed before another Division Bench
it referred the matter to a three-Judge Bench by an order dated 20th February,
2003 opining:
E "Earlier this appeal was adjourned awaiting the judgment of this Court
in C.A. No. 2693 of2000, Easland Combines v. Collector of Central
Excise, Coimbatore, (2003) 152 E.L.T. 39 (S.C.). When this appeal is
taken up for hearing today, Mr. Bajpai, the learned Counsel appearing
for the Revenue, invited our attention to the judgment in Easland
F Combines (supra) and submitted that the point involved in this appeal
is covered by the said judgment.

In Collector ofCentral Excise, Baroda v. Cotspun Ltd., [1999] 7 SCC
633], a Constitution Bench of this Court laid down as follows :
"14. The levy ,of excise duty on the basis of an approved
G 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 ceased to be such.
H
ITW SIGNODE INDIA LTD. v. C.C.E. [S.B. SINHA, J.] 759

15. The levy of excise duty on the basis of an approved A
classification list is not a short levy. Differential duty cannot be
recovered on the ground that it is a short levy. Rule I 0 has then
no application."

The Parliament has amended Section I IA of the Central Excise Act,
1944 by Finance Act, 2000 (10 of2000) with effect from November 17, B
1980 with a view to change the basis of the judgment in the afore-
mentioned case. The question whether the amendment has changed
the basis of the judgment in Cotspun 's case (supra), is the question
that arises in this case. The same question came up for consideration
of this Court in Eas/and Combines (supra). A bench of two learned C
Judges took the view that the amendment which conferred power to
correct the errors or mistakes in approval, acceptance or assessment
relating to the rate of duty on or valuation of excisable goods cannot
be said to be unreasonable. It was further held that with retrospective
effect, the legislature has empowered the Central Excise Officer to set
at naught the erroneous approval of classification list or acceptance D
of price list or assessment order, and, on that premise, it was laid
down,

"Hence, it is held that in view of the amendment of Section
11A(l), the decision rendered by this Court in Cotspun's case
(supra) would not be a good law. Show cause notice for correcting E
errors or mistakes in approval, acceptance or assessment relating
to the rate of duty on or valuation of excisable goods under the
provisions of the Act or the Rules made thereunder could be
issued within the prescribed period."

Having gone through the judgment carefully and given our anxious F
consideration to the said judgment in Easland Combines (supra), we
are unable to agree with the view taken by the bench of two learned
Judges in regard to either the import of the amendment or the effect
thereof and, in our view, the amendment does not alter the basis of
the judgment in Cotspun 's case (supra).
G
We, therefore, consider it appropriate to refer the appeal to a bench
of three learned Judges.

The Registry is directed to obtain the orders of Hon'ble the Chief
Justice for listing the case before a bench of three learned Judges."
H
760 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A That is how the matter is before us.

SUBMISSIONS:

Mr. V. Lakshmikumaran, the learned counsel appearing on behalf of the
appellant would submit that by reason of the amendment made in Section I IA
B of the Act, the basis of the decision in Cotspun (supra) had not been taken
away. The learned counsel would urge that in Cotspun (supra) it has
categorically been held that Rule 10 which was in pari materia with Section
11 A of the Act as unamended did not deal with classification lists or related
to the reopening of the draft classification lists which having been exclusively
C provided for Rule 173 B, by amending Section 11 A the basis of the said
judgment cannot said to have been removed.

The learned counsel would argue that in Cotspun (supra) it has not
only been held that Sub-Rule (5) of Rule 1738 deals with classification lists
but therein the question as regard different stages for correct levy had been
D laid down.

Mr. Lakshmikumaran would contend that levy of excise duty on the
basis of an approved classification list would not be a short levy and as such
differential duty could not be recovered on the said premise and in that view
of the matter Section 11 A of the Act will have no application.
E
Submission of the learned counsel is that Section 11 A of the Act as
amended only provides that even if the short levy is based on the approved
classification list, show cause notice can be issued, but the same cannot be
said to be sufficient to get over the basis of the judgment/Constitution Bench
in Cotspun (supra). Once it is held in Cotspun (supra), Mr. Lakshmikumaran
F would argue, that the levy based on the approved classification list is not
short levy, the entry point in Section 11 A must be held to have been closed.
According to the learned counsel, by reason of the amendment as also the
retrospective effect given thereto the short levy having been redefined for the
purpose of Section I IA contrary to what had been held in Cotspun (supra),
G it must be held that even now there is no short levy of duty.
The learned counsel further submitted that the Tribunal misdirected
itself in holding that the processes undertaken by the appellants on the duty
paid cold rolled steel strappings amounts to manufacture in terms of Section
2(t) of the Central Excise Act, 1944.
H
ITW SIGNODE INDIA LTD. v. C.C.E. [S.B. SINHA, J.] 761
According to the learned counsel, having regard to the processes A
undergone the resultant product would not attain any new and distinct
character so as to warrant fresh levy of duty. In other words, Mr.
Lakshmikumaran would contend, that the characteristics of cold rolled strip
which is the starting material are retained in the box strappings. Relying on
the decision of Gujarat Steel Tubes ltd v. State ofKera/a, ( 1989) 42 ELT 513 B
it was urged that galvanization of pipes undertaken for the purpose of making
them weather proof would not bring into existence a new commodity and even
by a circular dated 9.2.1994 the Board of Excise and Customs has clarified that
the process of galvanization does not amount to manufacture.

As regard question of classification , the learned counsel would submit C
that box strappings is classifiable under 7211.31 as strip only and not under
7308.90. Heading 7308, it was contended, covers other articles of iron or steel
and in that view of the matter, the box strappings can be called as article of
steel. Even after the processes undertaken for the end product, the box
strappings remain as strips. It was argued that in any event having regard
to the fact that heading 7308 covers other articles of iron and steel covering D
articles of steel in individual pieces like bottom steel, nails, rivets, ranges etc,
it cannot be equated with the product in question, i.e., box strappings which
are in running length in coil form and not individual pieces. In any view of
the matter, box strappings being covered as cold rolled strips i.e. IS: 5872-
1973, the same is not classifiable under 7308.90.
E
The learned counsel would contend that in the instant case, the proviso
appended to Section I IA of the Act is not attracted inasmuch as the extended
time period specified thereunder would have application only when the short
levy is occasioned on account of fraud, collusion, willful mis-statement or
suppression of facts with an intent to evade payment of duty. In that view p
of the matter the period of limitation for issuing a show cause notice would
be six months and not five years. In support of the aforementioned contention,
reliance has been placed on Padmini Products Ltd v. CCE, (1989)43 ELT 195,
P&B Pharmaceuticals ltd. v. CCE, (2003) 153 ELT 14 and Pushpam
Pharmaceuticals ltd v. CCE, (1995) 78 ELT 401.
G
In this connection, the learned counsel has drawn our attention to the
fact that the issue of classification had been raised by the appellant since
1983 and the same had been approved and even received the seal of approval
by the Collector.

H
762 SUPREME COURT RE ORTS (2003) SUPP. 5 S.C.R.

A The learned counsel would lastly C'· mtend that even if the product in
question is held to be dutiable the appeliant should be allowed to take the
Modvat credit of the duty paid on the cold rolled steel strips.

Mr. Dhruv Mehta, learned counsel appearing on behalf of the
respondent, on the other hand, would submit that by reason of amendment
B carried out in Section I I A of the Central Excise Act by Act No. I0 of 2000,
the basis of judgment in Cotspun has been removed inasmuch as the words
"erroneously refunded" in the unamended Act had been supplemented by
"whether or not such non-levy or non-payment, short-levy or short-payment
or erroneous refund, as the case may be, was on the basis of any approval,
C acceptance or assessment relating to the rate of duty on or valuation of
excisable goods under any other provisions of this Act or the rules made
thereunder''. According to the learned counsel, what was exclusively provided
for by Rule 1738 has now specifically been included in Section I IA of the
Act.

D Mr. Mehta would urge that Section I IA, as it now stands, provides for
reopening of approved classification lists and by reason ·of a show cause
notice issued in terms thereof, the correctness of approval itself can be
questioned and in that view of the matter the ratio of the judgment as laid
down in paragraph 13 of the Cotspun (supra) has been removed.

E Relying heavily on Mis. Easland Combines (supra), the learned counsel
would argue that the Cotspun (supra) could not have been rendered if the
amended provisions of Section 11 A of the Act had been in existence at the
time of the said decision.

As regard the question as to whether the processes undertaken by the
F appellant for obtaining the end product known as box strappings would
amount to manufacture or not, the learned counsel would submit that the
several stages of processes which are undertaken by the appellant is a clear
pointer to the fact that the same amounts to manufacturing. The learned
counsel would contend that this Court should not interfere with such a
G finding of fact.

Reliance in this behalf has been placed on Aditya Mills Ltd v. Union
oflndia, [1988]4SCC315.

On the question of classification, the learned counsel would submit that
H the judgment and order of the Tribunal does not suffer from any misdirection
ITW SIGNODE INDIA LTD. v. C.C.E. (S.B. SINHA,].) 763
in law inasmuch as once it is held that the processes undertaken by the A
appellants lead to the manufacture of a distinct and identifiable product
known in the marked as box strappings having regard to the fact that there
is no substantial heading for box strappings and as such the product has
rightly been classified as sub-heading 7308.90.

As regard the question of limitation and MODYAT, the learned counsel B
would submit that as the said question had not been raised before the
Tribunal we should not permit the appellant to do the same before this Court
for the first time.

VALIDATING STATUTE:
c
Relevant Statutory Provisions:

Rule 10 of the Central Excise Rules, 1944, as it stood, read as under:

"10. Recovery of duties n9t levied or not paid or short-levied or not
paid in full or erroneously refunded.- D
(I) When 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 E
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:

Provided that:
F
(a) where any duty has not been levied or paid or has been short-
levied or has not been paid in full by reason of fraud, collusion
or any wilful mis-statement or suppression of facts by such
person or his agent, or
(b) where any person or his agent, contravenes any of the provisions G
of these rules with intent to evade payment of duty and has not
paid the duty in full, or
(c) where any duty has been erroneously refunded by reason of
collusion or any wilful mis-statement or suppression of facts by
such person or his agent, the provisions of this sub-section H
764 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A shall, in any of the cases referred to above, have effect as if, for
the words "six months", the words "five years" were substituted:
Explanation : Where the service of the notice is stayed by an order
of a Court, the period of such stay shall be excluded in computing the
period of six months or five years, as the case may be.
B
(2) The Assistant Collector of Central Excise shall, after considering
the representation, if any, made by the person on whom notice is
served under sub-rule (I), determine the amount of duty due from
such person (not being in excess of the amount specified in the
notice) and thereupon such person shall pay the amount so determined.
c (3) For the purposes of this rule,-
(i) "refund", includes rebate referred to in rules 12 and 12A;
(ii) "relevant date" means,-
(a) in the case of excisable goods on which duty of excise has
D
not been levied or paid or on which duty has been short levied
or has not been paid in full, the date on which the duty was
required to be paid under these rules;
(b) in the case of excisable goods on which the value or the rate
of duty has been provisionally determined under these rules, the
E date on which the duty is adjusted after final determination of the
value or the rate of duty, as the case may be;
(c) in the case of excisable goods on which duty has been
erroneously refunded the date of such refund."

F Rules 173 B and l 73C of the Central Excise Rules read as under:
"1738 ASSESSEE TO FILE LIST OF GOODS PRODUCED FOR
APPROVAL OF THE PROPER OFFICER
(I) Every assessee, shall file with the proper officer for approval a list
in such form as the Collector may direct (in quintuplicate) showing,-
G
(a) the full description of -
(i) all excisable goods produced or manufactured by him,

(ii) all other goods produced or manufactured by him and intended to
H be removed from his factory, and
ITW SIGNODE INDIA LTD. v. C.C.E. [S.B. SINHA,J.) 765
(iii) all the excisable goods already deposited or likely to be deposited A
from time to time without payment of duty in his warehouse;

(b) the Chapter, heading No. and sub-heading No., if any, of the
Schedule to the Central Excise Tariff Act, 1985 (5of1986) under which
each goods fall;
B
(c), the rate of duty leviable on each such goods; and

(d) such other particulars as tlie Co Hector may direct,

(2) The proper officer shall, after such inquiry as he deems fit, approve
the list with such modifications as are considered necessary and
return one copy of the approved list to the assessee who shall, unless C
otherwise directed by the proper officer, determine the duly payable
on the goods intended to be removed in accordance with such list.

(2A)All clearances shall, subject to the provisions of rule 173 CC, be
made only after the approval of the list by the proper officer. If the
proper officer is of the opinion that on account of any inquiry to be D
made, in the matter or for any other reason to be recorded in writing,
there is likely to be delay in according the approval, he shall, either
on a written request made by the assessee or on his own accord, allow
such assessee to avail himself of the procedure prescribed under rule
98 for provisional assessment of the goods. E
(3) Where the assessee disputes the rate of duty approved by the
proper officer in respect of any goods, he may, after giving an intimation
to that effect to such officer, pay duty under protest at the rate
approved by such officer.
F
(4) If in the list approved by the proper officer under sub-rule (2) any
alteration becomes necessary because of-
(a) the assessee commencing production, manufacture or
warehousing of goods not mentioned in that list, or
·(t) the assessee intending to remove from his factory any non- G
excisable goods not mentioned in that list, or
(c) a change in the rate or rates of duty in respect of the goods
mentioned in that list or, by reason of any amendment to the
Schedule to the Central Excise Tariff Act, I985 (5 of I986) change
in the Chapter, Heading No. and Sub-heading No. H
766 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A the assessee shall likewise file a fresh list or an amendment
of the list already filed for the approval of such officer in the
same manner as is provided in sub-rule (I)
(5) When the dispute about the rate of duty has been finalized or for
any other reasons affecting rate or rates of duty a modification of the
B rate or rates of duty is necessitated, the proper Officer shall make
such modification and inform the assessee accordingly.

(6) The Collector may exempt by a general order any class of assesses
who manufacture wholly goods which, for the time being, are exempt
from paying duty, from filing the list under sub-rule (I):
c Provided that as and when duty exemption is withdrawn or modified
or no longer applicable, the assessee shall comply with the provisions
of sub-rule (4) as if he had filed a list earlier and the list had been
approved with 'nil' rate of duty.

D J73C ASSESSEE TO FILE PRICE-LIST OF GOODS ASSESSABLE AD
VALORFM

(I) Every assessee who produces, manufactures or warehouses goods
which are chargeable with duty at a rate dependent on the value of
the goods, shall file with the proper officer a price-list, in such form
E and at such manner and in such intervals as the Collector may require,
showing the price of each of such goods and the trade discount, if
any, allowed in respect thereof to the buyers along with such other
particulars as the Central Board of Excise and Customs or the Collector
may specify.:
F (2) Prior approval by the proper officer of the price-list filed by an
assessee under sub-rule (1) shall be necessary only, where the
assessee-
(i) sells goods to or through related person as defined in section 4
of the Act; or .
G
(ii) uses such goods for manufacture or production of other goods in
his factory; or
(iii) clears such goods for free distribution; or

(iv) clears such goods in any other manner which does not involve
H
ITW SIGNODE INDIA LTD. v. C.C.E. [S.B. SINHA, J.] 767
sale to a non-related person; or A
(v) clears the goods of the same kind and quality from his factories
located in the jurisdiction of different Collectors of Central Excise or
Assistant Collectors of Central Excise or

(vi) submits a fresh price-list or an amendment of the price-list already B
filed with the proper officer and which has the effect of lowering the
existing value of the goods.

••• •••
(5) Subject to the provisions of rule l 73CC, an assessee specified in C
sub-rule (2) shall not clear any goods from a factory, warehouse or
other approved place of storage unless the price-list has been approved
by the proper officer. In case the proper officer is of the opinion that
on account of any enquiry to be made in the matter or for any other
reasons to be recorded in writing, there is likely to be delay in according
approval, he shall either on a written request made by the assessee D
or of his own accord allow such assessee to avail himself of the
procedure prescribed under rule 98 for provisional assessment of the
goods."

Section I IA of the Central Excise Act, 1944 introduced from 15.11.1980
reads as follows: E
"11A. Recovery of duties not levied or not paid or short-levied or short-
paid or erroneously refunded.-

(I) When any duty of excise has not been levied or paid or has been
short-levied or short-paid or erroneously refunded, a Central Excise ·p
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 short-paid or to whom the refund
has erroneously been made, requiring him to show cause why he
should not pay the amount specified in the notice :
G
Provided that where any duty of excise hl!s not beeq levied or paid
or has been short-levied or short-paid or erroneously refunded by
reason of fraud, collusion or any wilful mis-statement or suppression
of facts, or contravention of any of the provisions of this Act or of
the rules made thereunder with intent to evade payment of duty, by H
768 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A such person or his agent, the provisions of this sub-section shall
have effect as if, for the words Central Excise Officer the words
"Collector of Central Excise and for the words "six months" the words
"five years" were substituted :

Explanation : Where the service of the notice is stayed by an order
B of a Court, the period of such stay shall be excluded in computing the
aforesaid period of six months or five years, as the case may be."

Clause 97 of the Finance Act provided that in Sub-Section (I) of Section
I IA of the Act following shall be added:-

c "(a) in the opening portion, for the words "erroneously refunded", the
words "erroneously refunded, whether or not such non-levy or non-
payment, short-levy or short payment or erroneous refund, as the
case may be was on the basis of any approval, acceptance or
assessment relating to the rate of duty on or valuation of excisable
goods under any other provisions of this Act or the rules made
D thereunder", shall be substituted and shall be deemed to have been
substituted on and from the 17th day of November, 1980; (b) for the
words "six months'', wherever they occur, the words "one year" shall
be substituted;

(c) after the proviso and before the Explanation the following provisos
E shall be inserted, namely:-

"Provided further that where the amount of duty which has not been
levied or paid or has been short- levied or short-paid or erroneously
refunded is one crore rupees or less a notice under this sub-Section
shall be served by the Commissioner of Central Excise or with his prior
F
approval by any officer subordinate to him:
Provided also that where the amount of duty which has not been
levied or paid or has been short-levied or short-paid or erroneously
refunded is more than one crore rupees, no notice under this sub-
section shall be served without the prior approval of the Chief
G
Commissioner of Central Excise".

Section 11 A after amendment by Section 110 of the Finance Act, 2000
reads as under:

"11 A. Recovery of duties not levied or not paid or short-levied or
H
ITW SIGNODE INDIA LTD. v. C.C.E. [S.B. SINHA, J.] 769
short-paid or erroneously refunded.- A
(I) When any duty of excise has not been levied or paid or has been
short-levied or short-paid or erroneously refunded, whether or not
such non-levy or non-payment, short-levy or short payment or
erroneous refund, as the case may be, was on the basis of any
approval, acceptance or assessment relating to the rate of duty on or B
valuation of excisable goods under any other provisions of this Act
or the rules made thereunder a Central Excise Officer may, within one
year 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 short-paid or to whom the refund has erroneously C
been made, requiring him to show cause why he should not pay the
amount specified in the notice :

Provided that where any duty of excise has not been levied or paid
or has been short-levied or short-paid or erroneously refunded by
reason of fraud, collusion or any wilful mis-statement or suppression D
of facts, or contravention of any of the provisions of this Act or of
the rules made thereunder with an intent to evade payment of duty,
by such person or his agent, the provisions of this sub-section shall
have effect as if, for the words "one year'', the words "five years"
were substituted :
E
Explanation : Where the service of the notice is stayed by an order
of a Court, the period of such stay shall be excluded in computing the
aforesaid period of one year or five years, as the case may be."

COTSPUN:

In Cotspun (supra) classification lists were filed in terms of Rule 173 8
F
of the Central Excise Rules and the same had been approved by Revenue.
The approval classified the NES yard under old Tariff Item 19-1(2)(a)(2)(e). A
notice to reopen the assessment was issued on 28th September, 1977 in
respect of the period February, 1977 to May, 1977 inter alia on the ground that
the NES yam ought to have been correctly classified under old Tariff Item 19- G
1(2)(F). Another notice was issued for a subsequent period. The contention
of the assessee was that the approved classification list could not be reopened
and, therefore, the demand for differential duty could not be enforced. The
_, Assistant Collector upheld the assessee' s contention whereas the Appellate
-1 Collector reversed the same. The Tribunal held that the revised assessment H
770 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.
A 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. An appeal was filed thereagainst by the Revenue. This
Court noticed that in terms of Rule 1738 which deals with self-removal
procedure, an assessee is required to file before the proper Excise officer or
B approval a list of the goods that he proposes to clear containing a description
of the goods produced or manufactured by him, the goods that he intends
to remove and all excisable goods already deposited or likely to be deposited
without payment of duty in ·his ware house and to indicate the tariff entry
under which he intends to fall, rate of duty leviable thereon and such other
particulars as may be required. In terms of Sub-rule (2) of Rule 173 B the
C proper officer was required to determine the duty payable on the goods upon
making an enquiry in that regard. Pro' ision for a dispute as to the approved
rate of duty was made in Clause (3). Sub-rule (5) of Rule 1738 reads as under:

"(5} When the dispute about the rate of duty has been finalized or for
any other reasons affecting rate or rates of duty a modification of the
D rate or rates of duty is necessitated, the proper Officer shall make
such modification and inform the assessee accordingly."

In Rainbow Industries (supra}, it was held:

"Once the Department accepted the price list, acted upon it and the
E 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 I
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."
F
The reason for arriving at the aforementioned conclusion, thus, was
that clearance had been made with the knowledge of the Department and
there had been no intention to evade payment of duty.

However, in Bal/arpur Industries (supra), this Court had held that
G reclassification would operate retrospectively. In Ballarpur Industries (supra),
Rainbow Industries (supra) was distinguished stating that the observations
made therein were confined to the facts of that case. Placing reliance on Rule
I0 which was in pari materia with unamended Section 11 A, it was observed:

"The Bench placed reliance upon Rule I0 and held that, on a plain
H
ITW SIGNODE INDIA LTD. v. C.C.E. [S.B. SINHA, J.] 771
reading of that provision as also of Section 11-A, the show-cause A
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 B
as well as Section 11-A to which a reference is made in the case of
Rainbow Industries [1994] 6 SCC 563, 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, C
find it difficult to accept the contention that the ratio of the decision
in Rainbow Industries, [1994] 6 SCC 563 is that under Section 11-A
past dues cannot be demanded. We must, therefore, reject that
contention".

The controversy, thus, revolved round the question as to whether until D
the proposal for modification of the classification w~ mooted, the earlier
classification would operate or as to whether duty in accordance with law also
could be demanded.

The Constitution Bench analyzing the provisions of Rufe I0 and Rule
173B observed: E
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. F
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 I0 has then no application.

VALIDATION ACT: G
Section 11 A as amended by Finance Act, 2000 brings about absolutely
a different situation.

Statement of Objects and Reasons for amending Section I IA reads,
~s: H
772 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A "Clause I06 seeks to validate certain action taken under Section 11 A
of the Central Excise Act with retrospective effect from 17th November,
1980, so as to prescribe that the notices issued under the said section
for non-recovery or short-recovery or erroneous refund of duties for
a period of six months or five years in certain situations will prevail
notwithstanding any approval, acceptance or assessment of duty
B under the provisions of the Central Excise Rules. The clause also
seeks to validate actions taken in the past on this ba~is in conformity
with the legislative intention. This amendment has become necessary
to overcome certain judicial pronouncements."

C Further, Clause 110 of the Finance Act validating actions taken under
Section I IA provides as under:-

"110.( I) Any notice issued or served on any person under the
provisions of Section 11 A of the Central Excise Act during the period
commencing on and from the 17th day of November, 1980 and ending
D on the date on which the Finance Act, 2000 receives the assent of the
President (hereinafter referred to as the said period) demanding duty
on account of non-payment, short payment, non-le.vy, short-levy or
erroneous refund within a period of six months or five years, as the
case may be, from the relevant date as defined in Clause (ii) of Sub-
section (3) of that section shall be deemed to be and to always have
E been, for all purposes, validly and effectively issued or served under
that section, notwithstanding any approval, acceptance or assessment
relating to the rate of duty on or value of, the excisable goods by any
Central Excise Officer under any other provision of the Central Excise
Act or the rules made thereunder.
F (2) Any action taken or anything done or purporting to have been
taken or done under Section I IA of the Central Excise Act at any time
during the said period shall be deemed to be and to have always been,
for all purposes, as validly and effectively taken or done as if Sub-
section (I) had been in force at all material times and, accordingly,
G notwithstanding anything contained in any judgment, decree or order
of any court, tribunal or other authority,-
(a) all duties of excise levied, assessed or collected during the
period specified in Sub-section (I) on any excisable goods under
the Central Excise Act, shall be deemed to be and shall be
H deemed to always have been, as validly levied, assessed or
ITW SIGNODE INDIA LTD. 4 v. C.C.E. [S.B. SINHA, J.] 773
collected as if Sub-section (I) had been in force at all material A
times;

(b) no suit or other proceedings shall be maintained or continued
in any court, tribunal or other authority for the refund of, and
no enforcement shall be made by any court of any decree or
order directing the refund of any such duties of excise which B
have been collected and which would have been validly collected
if Sub-section (I) had been in force at all material times;
(c) recovery shall be made of all such duties of excise which
have not been collected or, as the case may be, which have been
refunded but which would have been collected or, as the case C
may be, would not have been refunded, if Sub-section (I) had
been in force at all material times.

Explanation.-"For the removal of doubts, it is hereby declared that
no act or omission on the part of any person shall be punishable as
an offence which would not have been so punishable if this section D
had not come into force."

THE LAW OPERATING IN THE FIELD:

A validation Act removes actual or possible voidness, disability or
other defect by confirming the validity of anything which is or may be invalid. E
In Shri Prithvi Cotton Mills Ltd. and Anr. v. Broach Borough
Municipality and Ors., [1969) 2 SCC 283, it was pointed out that a legislature
does possess the power to validate statutes and to pass retrospective laws.
The Court, however, laid down:
F
"When a Legislature sets out to validate a tax declared by a court to
be illegally collected under an ineffective or an invalid law, the cause
for ineffectiveness or invalidity must be removed before validation
can be said to take place effectively. The most important condition,
of course, is that the Legislature must possess the power to impose
the tax, for, if it does not, the action must ever remain ineffective and G
illegal. Granted legislative competence, it is not sufficient to declare
merely that the decision of the Court shall not bind for that is
tantamount to reversing the decision in exercise of judicial power
which the Legislature does not possess or exercise. A court's decision
must always bind unless the conditions on which it is based are so H
774 SUPREME COURT REPORTS (2003] SUPP. 5 S.C.R.

A fundamentally altered that the decision could not have been given in
the altered circumstances. Ordinarily, a court holds a tax to be invalidly
imposed because the power to tax is wanting or the statute or the
rules or both are invalid or do not sufficiently create the jurisdiction.
Validation of a tax so declared illegal may be done only if the grounds
of illegality or invalidity are capable of being removed and are in fact
B removed and the tax thus made legal. Sometimes this is done by
providing for jurisdiction where jurisdiction had not been properly
invested before. Sometimes this is done by re-enacting retrospectively
a valid and legal taxing provision and then by fiction making the tax
already collected to stand under the re-enacted law. Sometimes the
c Legislature gives its own meaning and interpretation of the law under
which the tax was collected and by legislative fiat makes the new
meaning binding upon courts. The Legislature may follow any one
method or all of them and while it does so it may neutralise the effect
of the earlier decision of the court which becomes ineffective after the
change of the law. Whichever method is adopted it must be within the
D competence of the legislature and legal and adequate to attain the
object of validation. If the Legislature has the power over the subject-
matter and competence to make a valid law, it can at any time make
such a valid law and make it retrospectively so as to bind even past
transactions. The validity of a Validating Law, therefore, depends
E upon whether the Legislature possesses the competence which it
claims over the subject-matter and whether in making the validation
it removes the defect which the courts had found in the existing law
and makes adequate provisions in the Validating Law for a valid
imposition of the tax."

F In Mis. Ujagar Prints and Others (II) v. Union ofIndia and Ors., [1989]
3 SCC 488 wherein after considering various decisions, this Court held thus:

"A competent legislature can always validate a law which has been
declared by courts to be invalid, provided the infirmities and vitiating
infactors noticed in the declaratory judgment are removed or cured.
G Such a validating law can also be made retrospective. If in the light
of such validating and curative exercise made by the legislature -
granting legislative competence - the earlier judgment becomes
irrelevant and unenforceable, that cannot be called an impermissible
legislative overruling of the judicial decision. All that the legislature
does is to usher in a valid law with retrospective effect in the light
H
ITW SIGNODE INDIA LTD. v. C.C.E. [S.B. SINHA, J.] 775
of which earlier judgment becomes irrelevant. (See Shri Prithvi Cotton A
Mills Ltd. Broach Borough Municipality, [1969] 2 SCC 283: [1970]
I SCR 388 [1971] 79 ITR 136).

66. Such legislative experience of validation of laws is of particular
significance and utility and is quite often applied, in taxing statues.
It is necessary that the legislature should be able to cure defects in B
statues. No individual can acquire a vested right from a defect in a
statute and seek a windfall from the legislature's mistakes. Validity of
legislations retroactively curing defects in taxing statues is well
recognised and courts, except under extraordinary circumstances, would
be reluctant to override the legislative judgment as to the need for and C
the wisdom of the retrospective legislation. In Empire Industries Ltd.
v. Union ofIndia, [1985] 3 SCC 314: [1985] SCC (Tax) 416: [1985]
Supp. I SCR 292), this Court observed :

.... not only because of the paramount governmental interest in
obtaining adequate revenues, but also because taxes are not in the D
nature of a penalty or a contractual obligation but rather a means of
apportioning the costs of government amongst those who benefit
from it.
In testing whether a retrospective imposition of a tax operates so
harshly as to violate fundamental rights under Article 19( I )(g), the E
factors considered relevant include the context in which retroactivity
was contemplated such as whether the law is one of validation of a
taxing statute struck down by courts for certain defects; the period
of such retroactivity, and the degree and extent of any unforeseen or
unforeseeable financial burden imposed for the past period etc. Having
regard to all the circumstances of the present case, this Court in F
Empire Industries case [1985] 3 SCC 314: [1985] SCC (Tax) 416: 1985
Supp I SCR 292) held that the retroactivity of the amending provisions
was not such as to incur any infirmity under Article 19(1 )(g)."

In Delhi Cloth & General Mills Co. Ltd and Anr. v. State of Rajasthan
and Ors., [1996] 2 sec 449 a question arose as to whether a village which G
was not held to have been included within the limits of a town municipality
as mandatory provisions in that part had not been followed could be so
included with retrospective effect by a Validating Act by seeking to set at
naught a full Bench decision of the Rajasthan High Court. Referring to Prithvi
Cotton Mills (supra) it was held: H
776 SUPREME COURT REPORTS [2003) SUPP. 5 S.C.R.

A "15. In the case of the village of Raipura there was a preliminary
notification calling for objections to the extension of the limits of the
Kota Municipality to include it, but it was not followed by a final
notification. In the case of the village of Ummedganj there was a
notification extending the limits of the Kota Municipality to include
it, but it had not been preceded by a notification inviting the objections
B of the public thereto. Later, another notification was published whereby
the village ofUmmedganj was excluded from the limits of the Kota
Municipality. The provisions of Sections 4 to 7 of the 1959 Act and
the earlier provisions of the 1951 Act in the same behalf were, therefore,
not met in .the case of either the village of Raipura or the village of
c Ummedganj. The Full Bench of the Rajasthan High Court has held that
these provisions were mandatory and that judgment has become final.

16. The Validating Act provides that, notwithstanding anything
contained in Sections 4 to 7 of 1959 Act or in any judgment, decree,
order or direction of any court, the villages ofRaipura and Ummedganj
D should be deemed always to have continued to exist and they continue
to exist within the limits of the Kota Municipality, to all intents and
for all purposes. This provision requires the deeming of the legal
position that the villages of Raipura and Ummedganj fall within the
limits of the Kota Municipality, not the deeming of facts from which
this legal consequence would flow. A legal consequence cannot be
E deemed nor, therefrom, can the events that should have preceded it.
Facts may be deemed and, therefrom, the legal consequences that
follow."

As Sections 4 to 7 of Rajasthan Municipalities Act, 1959 remained
F unamended which were mandatory, the defect was held to have not been
cured.

Yet again in K. Shankaran Nair (Dead) through LRs. v. Devaki Amma
Malathy Amma and Ors., [1996] I I SCC 428 this Court followed the
aforementioned as well as and other decisions of this Court. It was observed:
G "It becomes at once clear that once this Court struck down the rule
concerned permitting compulsory retirement of a government servant
the very basis of the earlier judgment upholding such an exercise got
knocked off and was totally obliterated from the Statute-Book.
Consequently the very foundation of the judgment vanished. Such a
H judgment would obviously become baseless lacking the very foundation
ITW SIGNODE INDIA LTD. v. C.C.E. [S.B. SINHA, J.] 777
on which it could operate. The very foundation of an earlier judgment A
can be displaced by either a competent legislature enacting a
retrospective provision for that purpose or by a competent court
deciding the legal provision concerned on which such judgment is
based as ultra vires and void. In either case the very foundation and
legal substitution of such judgment will vanish retrospectively. In B
such an eventuality the law could be said to have been totally displaced
from the very inception of enactment of such a law and consequently
any judgment based on such a non-existing law as found in retrospect
could obviously lack efficacy and consequential force ofres judicata."

In Bakhtawar Trust and Ors. v. MD. Narayan and Ors., [2003] 5 SCC C
298], one of us (Khare, CJI) speaking for the Bench upon noticing some of
the decisions referred to hereinbefore and other decisions observed that the
questions which were required to be posed and answered are:

(i) what was the basis of the earlier decision; and
(iI) what, if any, may be said to be removal of that basis? D
Upon considering the relevant provisions therein it was held that the
basis of the decision of the High Court had undergone a change having
regard to the change in the Zonal Planning Regulations which now changed
the law, which the High Court was bound to take the view in terms of the
changed law. This Court held: E
"It is well settled by the decisions of this Court that when a validity
of a particular statute is brought into question, a limited reference, but
not reliance, may be made to the Statement of Objects and Reasons.
The Statement of Objects and Reasons may, therefore, be employed
for the purposes of comprehending the factual background, the prior F
state of legal affairs, the surrounding circumstances in respect of the
statute and the evil which the statute has sought to remedy. It is
manifest that the Statement of Objects and Reasons cannot, therefore,
be the exclusive footing upon which a statute is made a nullity
through the decision of a Court of law." G
In Easland Combines (supra), this Court held:
"In our view, there is no substance in this submission. As stated
earlier, the relevant amended portion of Section I IA inter alia makes
it abundantly clear that when any duty of excise has been short levied H
778 SUPREME COURT REPORTS (2003) SUPP. 5 S.C.R.

A or short paid, whether or not such short levy or short payment was
on the basis of any approval, acceptance or assessment relating to the
rate of duty on or valuation of excisable goods under any other
provisions of the Act or the rules, the Central Excise Officer, can
within one year from the relevant date, serve notice on the person
chargeable with the duty, which has been short levied or short paid,
B requiring him to show cause why he should not pay the amount
specified in the notice. This amendment changes the entire basis or
foundation of the judgment rendered in Cotspun 's case (supra). The
entire discussion in the said case is based upon rule 1738 which dealt
with classification list and that assessee must determine the excise
c duty which is payable by him on the goods which he intends to
remove in accordance with approved classification list. The Court
based its reasoning by holding "Rule I 0 does not deal with
classification list or relate to reopening of approved classification
lists. That is exclusively provided by Rule 1738." The Court further
held that the levy of excise duty on the basis of approved classification
.D list is not short levy and the differential duty cannot be recovered on
the ground that it is a short levy and Rule I0 then has no application.
After the amendment of law, this reasoning of the judgment would no
longer survive. It is true that the levy of excise duty on the basis of
approved classification list or price-list or the assessment order is
E correct levy till such time as the correctness of the approved
classification list or price list or till the assessment order is set aside.
However, with retrospective effect, the legislature has empowered the
Central Excise Officer to set at naught the erroneous approval of
classification list or acceptance of price list or assessment order. What
was provided by Rule 1738 is now specifically provided by Section
F I IA."

We may notice that in Widia (India) Ltd and Ors. v. State ofKarnataka
and Ors., [2003] 8 SCC 22, this Court held:

"It is true that normally tax would not be levied with retrospective
G effect but at the same time to validate the tax which was levied, after
removing the defects pointed out by the previous decision, the State
Government could exercise its powers under Section 3(1) of the Act
and it cannot be said that it has acted beyond its jurisdiction. Therefore,
it cannot be held that notification dated 23rd September, 1998
empowering the authority to levy and collect tax w.e.f. 1.4.1994 to
H
ITW SIGNODE INDIA LTD. v. C.C.E. (S.B. SINHA, J.] 779

6.1.1998 is, in any way, illegal or erroneous. The defects pointed out A
in Avinyl Polymers 's case (supra) are removed and, therefore, it cannot
be said that the notification dated 23.9.1998 is, in any way, illegal. In
a situation like the present one where notifications levying tax were
held to be illegal, for validating such levy, the State Government has
issued the aforesaid notification. It is not pointed out that the said B
notification is discriminatory between the goods imported from other
States and similarly goods manufactured or produced within the State."

APPLICATION OF THE LAW:

The Statements of Objects and Reasons for enacting a statute can be
read for a limited purpose. In Cotspun (supra) this Court held that Rule JO C
does not deal with classification list _or relate to reopening of the approved
classification list. According to the Constitution Bench, the same is exclusively
provided by Rule 173B.

~ection I IA deals with a case when inter alia excise duty has been D
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 I 73B. Such short-levy or
non-levy may be on the basis of any approval, acceptance or assessment E
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.
F
It is true that Rule I 73B has not been amended. But even if the same
has not been done, it would not make a material difference as now a
comprehensive provision has been made in the primary Act, and, thus, a rule
framed thereunder even in case of conflict must give way to the substantive
statute. It is a well-settled principle of law that in case of a conflict between G
a substantive act and delegated legislation, the former shall prevail inasmuch
as delegated legislation must be read in the context of the primary/ legislative
act and not the vice'-versa.

The procedure laid down under Rule l 73B of the Rules has specifically
been included in the Act. Furthermore, by reason of the amended Act a H
780 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A provision has been made for reopening the approved classification lists. It is
a procedural provision in terms whereof statutory authorities are required to
determine as to whether the earlier classification was correctly done or not.
The said authority upon giving an opportunity of hearing the parties may
come to the conclusion that decision on the approval granted need not be
reopened and even if the same is reopened, the reasons therefor are to be
B stated. As the provision of Section 11 A is a recovery provision as regards
non-levy or non-paid or short-levy or short-paid or erroneously refunded
duties by reason of the said amendment the Parliament had merely provided
that an approval on the basis of a classification list inter alia in case of a
short-levy can be recovered if a finding is arrived at that the goods had
C undergone a short-levy. For the aforementioned purpose, Clause I IO of the
Finance Act, validating actions taken under Section 11 A can be taken into
consideration whereby and whereunder a legal fiction is created.

The effect of creating such legal fiction is well-known and need not be
reiterated. [See Bhavnagar University v. Pa/itana Sugar Mill Pvt. Ltd. and
D Ors., [2003] 2 SCC 111, State ofKarnataka v. Vishwabharathi House Building,
Coop. Soc. and Ors., [2003] 2 SCC 412, High Court ofJudicature for Rajasthan
v. P.P. Singh and Anr., [2003] 4 SCC 239 and Dipak Chandra Ruhidas v.
Chandan Kumar Sarkar, [2003] 7 SCC 66).

Before us, the constitutionality of Section I IA as amended in the year
E 2000 has not been questioned.

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 I0 and Rule 173 B were to be read in conjunction
F 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 that not only the substantive provision dealing with the
consequence of non-levy, non-payment or short levy or short-payment or
erroneous refund but also has laid down the procedure therefor.

G 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
H upon and affect past transaction having regard to the fact that they operate
ITW SIGNODE INDIA LTD. v. C.C.E. [S.B. SINHA, J.] 781
on conditions already existing. However, the scope of the validating act may A
vary from case to case.

For the reasons aforementioned, we are of the opinion that the Section
11 A of the Act as amended is a valid piece of legislation.

LIMITATION: B
Having answered the reference, we are of the opinion that this Court
in the peculiar facts and circumstances of this case at this stage need not go
into the question as to whether the processes undertaken by the appellant
would amount to manufacture or whether the classification of goods under
sub-heading 7308.90 is correct, in view of the fact that the question as regard C
limitation and availability of MODVAT had not been considered.

It is not in dispute that in terms of Section I IA a show cause notice
for short-levy could have been issued only within six months from the relevant
date. Only in the event, such short-levy was imposed on account of fraud,
collusion, willful mis-statement or suppression of facts with an intent to evade D
payment of duty on the part of the manufacturer, the extended period of
limitation of five years could be invoked.

The appellant herein in paragraph 15 of reply dated 2nd June, 1987
categorically stated that such classification has been made to the knowledge E
of the Department. It was contended:

"On the contrary all the processes were carried out openly and they
itself had come up for detailed consideration and eventually the
decision was taken under Assistant Collector's order dated 14.7.83
after due application of mind and it would, therefore, be incredible to F
allege as is sought to be done that the department was not in a
position to get first-hand knowledge of the various processes
adopted."

The appellant further had contended:
G
"We deny each and every allegation contained in the sl'iow cause
notice. We submit that from the legal point of view the classification
cannot be changed as proposed in the show cause notice, nor does
the factual position warrant modification of the classification. When
Heading/Sub-heading 7211.31 is specific (cold rolled strips), the goods
cannot be consigned to 7308. 90 which is not specific and is a residuary H
•

782 SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.

A item. As long as the subject goods were not classifiable under T.I 68
when it existed, they cannot attract the corresponding sub-heading
7308.90. We also submit that Rule 9(2) cited in the show cause notice
is not applicable since there was no clandestine clearances."

It is, therefore, evident that the contention of the appellant was that
B Rule 9(2) cited in the show cause notice was not applicable. But, unfortunately,
despite the same it had not been adverted to by the tribunal. We must notice
that the appellant herein succeeded before the Appellate Collector. The
Revenue went up in appeal. The Tribunal was, therefore, bound to take the
aforementioned question into consideration inasmuch a finding of fact was
C required to be arrived at that the period of limitation for issuing such notices
under Section 11 A of the Act would depend upon the question as to whether
such short-levy was due to any act of fraud, collusion, willful, mis-statement
or suppression of facts, the extended period of limitation of five years could
not have been invoked.

D Such an extended period of limitation can be invoked only on a positive
act of fraud etc. on the part of assessee is found. Such a positive act must
be in contradistinction to mere inaction like non-taking of licence etc. It has
to be pleaded and established. [See Padmini Products (supra), P&B
Pharmaceuticals Ltd. (supra) and Pushpam Pharmaceuticals Ltd., (supra)]

E- Even in Easland Combines (supra) this Court held:

"It is settled law that for invoking the extended period of limitation
duty should not have been paid, short levied or short paid or
erroneously refunded because of either fraud, collusion, wilful
misstatement, suppression of fact or contravention of any provision
F or rules. This Court has held that these ingredients postulate a positive
act and, therefore, mere failure to pay duty and/or take out a licence
which is not due to any fraud, collusion or willful misstatement or
suppression of fact or contravention of any provision is not sufficient
to attract the extended period of limitation."
G The question of limitation involves a question of jurisdiction. The
findings of fact on the question of jurisdiction would be a jurisdictional fact.
Such a jurisdictional question is to be determined having regard to both fact
and law involved therein. The Tribunal, in our opinion, committed a manifest
error in not determining the said question, particularly, when in the absence
H of any finding of fact that such short-levy of excise duty related to any
ITW SIGNODE INDIA LTD. v. C.C.E. [S.B. SINHA, J.] 783
positive act on the part of the appellant by way of fraud, collusion, willful mis- A
statement or suppression of facts, the extended period of llm'itation could not
have been invoked and in. that view of the matter no show cause notice in
terms of Rule I0 could have been issued.

Furthermore, even if the short-levy, if any, is to be recovered, the
appellant was entitled to raise a question that he is entitled to adjust the duty B
upon taking MODYAT credit of the duty paid on cold rolled steel strips.
These aspects of the matter, in our opinion, required to be gone into by the
Tribunal. '

CONCLUSION:
c
For the reasons aforementioned, the impugned judgment cannot be
sustained which is set aside and the matter is remitted to the Tribunal for
consideration thereof afresh in accordance with law and in the light of the
observations made herein. This appeal is allowed in part but without any
order as to costs.
D
S.K.S. Appeal partly allowed.