Supreme Court of India
M/S OSWAL PETROCHEMICALS LTD.versusCOMMISSIONER OF CENTRAL EXCISE, MUMBAI - II
- Citation
- 2025 INSC 578
- Decided
- 28 April 2025
- Disposal
- Appeal(s) allowed
- Bench
- ABHAY S OKA
Holding
The Supreme Court held that re‑classification without furnishing the full test reports violates natural justice and Rule 56, and that assessments cannot be deemed provisional without a proper Rule 9B order and bond; therefore the appeals were allowed and CESTAT’s order set aside.
Summary
M/s Oswal Petrochemicals Ltd. had classified its benzene and toluene products under chapter 29 (sub‑heading 2902.00) and obtained approval in 1990. The Excise Department later sampled the products, obtained test reports showing purity below 96%, and re‑classified them under chapter 27 (sub‑headings 2707.10 and 2707.20), demanding differential duty. The department only communicated the gist of the test reports, not the full reports, violating Rule 56 and the principles of natural justice. CESTAT upheld the re‑classification and treated assessments for January‑February 1993 as provisional despite the absence of a Rule 9B order or a bond. The Supreme Court held that the re‑classification was unsustainable without furnishing the full test reports and that the assessments could not be deemed provisional without complying with Rule 9B, setting aside CESTAT’s order and allowing the appeals. Consequently, the differential duty demands were quashed and the orders of the Assistant Commissioner and Commissioner (Appeals) were set aside.
Issues considered
- Whether a duty demand based on re‑classification of benzene and toluene from chapter 29 to chapter 27 is sustainable when the re‑classification relies on test reports whose only gist was provided to the appellant.
- Whether the test reports can legally form the basis for re‑classification of the products manufactured and cleared during 1991‑1992.
- Whether CESTAT was justified in treating the assessments for benzene and toluene for January and February 1993 as provisional in the absence of an order under Rule 9B of the Central Excise Rules and without execution of a B‑13 bond.
Legislation cited
- Central Excise Act, 1944s. 35L(b)
- Central Excise Rules, 1944s. 173B, s. 56, s. 9B
- Central Excise Tariff Act, 1985
Headnote
Issue for Consideration (i) Whether a duty demand based on reclassification of the products Benzene and Toluene from chapter 29 to chapter 27 is sustainable when such re-classification is based on test reports of which only a gist was provided to the appellant by the CESTAT was justified in treating the assessments provisional for the two products Benzene and Toluene for the months of January and February, 1993 in the absence of any order passed under Rule 9B of the Central Excise Rules, 1944 and without executing any B-13 bond. Headnotes† Central
Subjects
Customs, Excise and Service Tax Appellate Tribunal (CESTAT)Differential duty demandBenzene and TolueneTest reportsTariff classificationProvisional assessmentsSub‑heading 2902.00Heading 2707.10 and 2707.20Re‑classification of the productsRemand orderPrinciples of natural justice
Judgment
[2025] 4 S.C.R. 1792 : 2025 INSC 578
M/s Oswal Petrochemicals Ltd.
v.
Commissioner of Central Excise, Mumbai - II
(Civil Appeal No(s). 129-130 of 2011)
28 April 2025
[Abhay S. Oka and Ujjal Bhuyan,* JJ.]
Issue for Consideration
(i) Whether a duty demand based on reclassification of the products
Benzene and Toluene from chapter 29 to chapter 27 is sustainable
when such re-classification is based on test reports of which only a
gist was provided to the appellant by the respondent; (ii) whether
CESTAT was justified in treating the assessments provisional for
the two products Benzene and Toluene for the months of January
and February, 1993 in the absence of any order passed under
Rule 9B of the Central Excise Rules, 1944 and without executing
any B-13 bond.
Headnotes†
Central Excise Tariff Act, 1985 – Central Excise Act, 1944 –
s.35L(b) – Central Excise Rules, 1944 – rr.9B, 56, 173B –
Appellant filed the classification list, including two products
of Benzene and Toluene which was approved by the Assistant
Collector – Products of Benzene and Toluene were classified
under chapter sub-heading 2902.00 – Approval was challenged
on the basis of the subsequent test reports which revealed
that purity of the two products were less than 96 percent,
thus warranting re-classification under chapter sub-heading
2707.10 and 2707.20 respectively – Copies of test reports were
not furnished to the appellant – The test reports formed the
sub-stratum of higher duty demand – Later, Assistant Collector
passed an order directing provisional assessment of certain
products, including products of the appellant – CESTAT in
appeal upheld the demand of duty and treated the assessments
provisional for the two products Benzene and Toluene for the
months of January and February, 1993 – Challenge to:
Held: Principles of natural justice required that copies of such test
reports ought to have been furnished to the appellant – Informing
* Author
[2025] 4 S.C.R. 1793
M/s Oswal Petrochemicals Ltd. v.
Commissioner of Central Excise, Mumbai - II
the appellant only the gist of the test reports cannot be said to
be in compliance with the principles of natural justice as the test
reports formed the sub-stratum of higher duty demand raised by
the department thus entailing adverse civil consequences on the
appellant – With respect to R.56 of the Central Excise Rules, use of
the word shall in sub-rule (2) is indicative of the mandatory nature
of the provision – Officer who has taken the samples for testing
has to communicate the result of such test to the manufacturer –
On the other hand, sub-rule (4) contemplates that upon receipt of
the test result if a manufacturer is aggrieved by the same, he may
within 90 days of the date on which the result of the test is received
by him, request the Assistant Commissioner that the samples be
re-tested – Unless a copy of the test report is furnished to the
manufacturer, he would not be in a position to seek re-test within
the specified period – Therefore, a copy of the test report has to be
furnished to the manufacturer – In such circumstances, extracting
the gist of the test reports, that too in the show-cause notices, would
clearly be in breach of r.56(2) and r.56(4) of the Central Excise
Rules – Belated sampling and test reports casts shadow of doubt
on the entire procedure adopted by the respondent – Therefore,
orders re-classifying the products Benzene and Toluene under
chapter sub-heading 2707.10 and 2707.20 respectively and levying
consequential differential duty demand cannot be sustained in
law – With respect to order of provisional assessment, r.9B is the
relevant provision – In the instance case, essential requirements
of r.9B were not complied with – There is no order of the proper
officer u/r.9B directing that assessments for the months of January
and February, 1993 for the two products Benzene and Toluene
were provisional – Neither any bond in proper format was directed
nor executed by the appellant – Thus, the order of CESTAT is
set-aside. [Paras 37, 39, 40, 44.1, 48, 50]
Central Excise Rules, 1944 – r.9B – Essential requirements:
Held: First and foremost, requirement of r.9B is that it is the
assessee who has to request in writing the proper officer for
provisional assessment in the event the assessee is unable to
determine the value of excisable goods or the correct classification
of goods – The second requirement is that the proper officer
competent to make provisional assessment may direct after
making necessary inquiry that duty leviable on such goods shall
be assessed provisionally – Such directions the proper officer can
1794 [2025] 4 S.C.R.
Supreme Court Reports
issue only by passing a written order and not otherwise – Thirdly,
the assessee must execute a bond in the proper form binding the
assessee to pay the differential amount of duty as provisionally
assessed and as may be finally assessed – However, r.9B also
provides for an exception – If the proper officer is satisfied that
the self-assessment made by the assessee is not in order, he
may direct the assessee to resort to provisional assessment – In
any event, for an assessment to be provisional in terms of r.9B,
an order is required to be passed. [Para 45]
Central Excise Rules, 1944 – r.173B – Approval of classification
list is not an empty formality – Discussed. [Para 40]
Case Law Cited
Coastal Gases and Chemicals Pvt. Ltd v. Assistant Collector
of Central Excise, Visakhapatnam (1997) 7 SCC 223; Metal
Forgings v. Union of India (2003) 2 SCC 36; Commissioner of
Central Excise, Calcutta v. Hindustan National Glass & Industries
Ltd [2005] 2 SCR 744 : (2005) 3 SCC 489 – referred to.
List of Acts
Central Excise Act, 1944; Central Excise Rules, 1944; Central
Excise Tariff Act, 1985.
List of Keywords
Customs, Excise and Service Tax Appellate Tribunal (CESTAT);
Differential duty demand; Benzene and Toluene; Test reports; Tariff
classification; Provisional assessments; Sub-heading 2902.00;
Heading 2707.10 and 2707.20; Re- classification of the products;
Remand order; Principles of natural justice.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 129-130
of 2011
From the Judgment and Order dated 21.05.2010 of the Customs,
Excise and Service Tax Appellate Tribunal, West Zonal Bench at
Mumbai in Appeal Nos. E/2380/06-MUM and E/3816/03-MUM
With
Civil Appeal No. 131 of 2011
[2025] 4 S.C.R. 1795
M/s Oswal Petrochemicals Ltd. v.
Commissioner of Central Excise, Mumbai - II
Appearances for Parties
Advs. for the Appellant:
A.K. Prasad, Ms. Surabhi Sinha, Ms. Pankhuri Shrivastava,
Ms. Neelam Sharma.
Advs. for the Respondent:
Arijit Prasad, Sr. Adv., Mukesh Kumar Maroria, Ms. B. Sunita Rao,
Udai Khanna, Sarthak Karol, Ms. Neelakshi Bhaduria, Gunmaya
S. Mann.
Judgment / Order of the Supreme Court
Judgment
Ujjal Bhuyan, J.
The above three appeals have been filed by the appellant under
Section 35L(b) of the Central Excise Act, 1944.
2. Since the three appeals arise out of the common order dated
21.05.2010 passed by the Customs, Excise and Service Tax Appellate
Tribunal, West Zonal Bench at Mumbai and are inter-related with
parties being the same, those were heard together and are being
disposed of by this common judgment and order.
3. Be it stated that by the judgment and order dated 21.05.2010
(impugned order), Customs, Excise and Service Tax Appellate
Tribunal, West Zonal Bench at Mumbai (‘CESTAT’ hereinafter)
disposed of appeal Nos. E/2380/06-MUM, E/3816/03-MUM and
E/40/02-NB-C. It may be mentioned that appeal No. E/2380/06-MUM
was filed by the respondent whereas the other two appeals were
filed by the appellant.
4. By the impugned order dated 21.05.2010, CESTAT dismissed the
appeals filed by the appellant and partly allowed the appeal filed
by the respondent. The differential duty demand in respect of the
two products Benzene and Toluene for the period September, 1990
to December, 1992 amounting to Rs. 1,97,17,015.00 and for the
period January and February, 1993 of Rs. 18,16,304.00 have been
upheld. In respect of the aforesaid two products, CESTAT has also
held that contents of the test reports on the basis of which tariff
classification of the above two products were changed leading to
1796 [2025] 4 S.C.R.
Supreme Court Reports
higher duty and hence differential duty were duly communicated to
the appellant. CESTAT has also held that the assessments covering
the said period were not provisional except for the months of January
and February, 1993.
5. This Court vide the order dated 03.01.2011 had condoned the delay
in filing of the appeals and had issued notice.
6. Relevant facts may be briefly noted.
7. Appellant is a manufacturer of excisable goods falling under Chapters
27, 28, 29, 32, 38 and 39 of the Central Excise Tariff Act, 1985 (briefly
‘the Tariff Act’ hereinafter)
8. Appellant had filed classification list bearing No. 1/89-90 effective
from 03.11.1989 for various excisable products manufactured by it
in terms of Rule 173B of the Central Excise Rules, 1944 (referred
to hereinafter as ‘the Central Excise Rules’)
8.1. In the said classification list, appellant had classified the various
products manufactured by it as under:
(i) Dripolene ‘C’ - chapter sub-heading 2713.90 and
claimed concessional rate of duty under Notification
No. 75/84.
(ii) Cyclo Hydro Carbons viz. (a) BTX and (b) BVR -
chapter sub-heading 2902.00
(iii) Benzene and Toluene - chapter sub-heading 2902.00
claiming exemption under various notifications
(iv) Ethylene and Propylene - chapter sub-heading 2901.90
claiming exemption under various notifications.
8.2. The said classification list filed by the appellant was approved
by the Assistant Collector of Central Excise, Division-I, Mumbai
II Collectorate (‘Assistant Collector’ hereinafter) on 26.04.1990.
9. On 04.10.1990, department drew samples of Benzene and Toluene
from the appellant for chemical testing. The chemical analysis as
indicated vide the Deputy Chief Chemist’s letter dated 29.01.1991
reportedly revealed that purity of the two products was less than 96
percent, thus, warranting classification under heading 2707.10 and
2707.20 respectively.
[2025] 4 S.C.R. 1797
M/s Oswal Petrochemicals Ltd. v.
Commissioner of Central Excise, Mumbai - II
10. Collector of Central Excise, Mumbai II then directed the Assistant
Collector to file an appeal before the Collector of Central Excise
(Appeals), Mumbai (for short ‘Collector (Appeals)’ hereinafter)
against the approval granted on 26.04.1990. Accordingly, department
challenged the approval of the classification list by filing an appeal
before the Collector (Appeals), Mumbai on the ground that appellant
had wrongly classified its products.
11. Collector (Appeals) vide the order dated 28.10.1991 allowed the
appeal filed by the department and remanded the matter back to
the Assistant Collector for re-determination of the classification of
the subject goods after obtaining necessary material evidence to
establish the essential chemical characteristics of the said goods.
12. In the meanwhile, despite the fact that appellant had cleared the
two products Benzene and Toluene under the tariff heading which
was approved by the Assistant Collector, a show-cause notice dated
26.03.1991 was issued to the appellant by the Superintendent of
Central Excise in respect of Benzene and Toluene cleared during
the period September, 1990 to January, 1991 seeking to re-classify
the two products under chapter sub-heading 2707.10 and 2707.20
respectively and proposing to recover differential excise duty alongwith
penalty and interest. It was acknowledged in the show-cause
notice that if the purity of Benzene and Toluene was 96 percent or
more, those two products would be classifiable under chapter 29
as declared by the appellant but if the two products had purity of
less than 96 percent, those would be classifiable under the heading
2707 resulting in higher excise duty leading to demand of differential
excise duty i.e. actual duty leviable less the duty paid. Thereafter,
similarly worded show-cause notices were issued covering the period
from February, 1991 to December, 1992 proposing a total excise
duty of Rs. 1,75,30,861.00 alongwith penalty and interest for wrong
classification of the two products Benzene and Toluene.
13. Appellant filed replies to the show-cause notices. Contention of the
appellant was that the issue of classification was already decided in
its favour by the Assistant Collector on 26.04.1990 while accepting
the classification of Benzene and Toluene under chapter sub-heading
2902.00. Further contention of the appellant was that it was not
supplied with copies of the test reports relied upon in the show-cause
notices to re-classify the two products.
1798 [2025] 4 S.C.R.
Supreme Court Reports
14. Reverting back to the remand order dated 28.10.1991 passed by
the Collector (Appeals), it appears that the Assistant Collector had
passed an order dated 18.10.1993 directing provisional assessments
of certain products mentioned in Annexure-A to the said order for the
years 1990-91, 1991-92, 1992-93 and 1993-94. This included the
products of the appellant. The aforesaid order directed the appellant
to execute a bond and to furnish a bank guarantee equivalent to 25
percent of the differential duty.
15. Aggrieved by the remand order dated 28.10.1991, appellant filed
an appeal before the then Customs and Excise and Gold (Control)
Appellate Tribunal. Primary contention of the appellant was that the
appeal was heard and decided by the Collector of Central Excise
(Judicial) who was not the competent authority under Section 35E
of the Central Excise Act, 1944 (briefly ‘the Central Excise Act’
hereinafter). That apart, it was also contended that the appellate
proceedings were barred by time as the time limit of one year
provided under Section 35E of the Central Excise Act had expired.
16. The Customs, Excise and Gold (Control) Appellate Tribunal vide order
dated 04.08.1997 allowed the appeal of the appellant and remanded
the matter back to the Commissioner of Central Excise (Appeals) as
in the meanwhile, the Office of Collector (Appeals) was renamed as
Commissioner of Central Excise (Appeals) (for short, ‘Commissioner
(Appeals), hereinafter) to decide afresh the issue of limitation.
17. Reverting back to the show-cause notices issued by the respondent
to the appellant for the products Benzene and Toluene, it appears
that there was a personal hearing in which a specific contention was
raised on behalf of the appellant that copies of the test reports relied
upon in the show-cause notices were not provided to the appellant,
thus violating provisions of Rule 56(2) of the Central Excise Rules
as well as the principles of natural justice. It was also contended that
no samples were drawn by the department for any of the periods
covered by the show-cause notices and that appellant had upgraded
its manufacturing process in the meanwhile. Appellant also placed
on record copies of test reports of the two products for the period
from September, 1990 to November, 1990 which indicated that purity
of the two products was above 96 percent.
18. All the show-cause notices were adjudicated by the Assistant
Commissioner. Vide the order dated 27.02.2001, Assistant
[2025] 4 S.C.R. 1799
M/s Oswal Petrochemicals Ltd. v.
Commissioner of Central Excise, Mumbai - II
Commissioner held that the two products Benzene and Toluene
manufactured by the appellant were indeed classifiable under chapter
sub-heading 2707.10 and 2707.20 respectively and consequently
levied duty demand of Rs. 1,97,17,015.00 alongwith equivalent
amount of penalty. While so adjudicating, Assistant Commissioner
relied upon the test reports in respect of the samples drawn on
04.10.1990 and report of the Deputy Chief Chemist dated 17.01.1991
but declined to rely upon the test reports of the sample test done in
the laboratory of the appellant.
19. Aggrieved by the aforesaid order, appellant filed an appeal before
the Commissioner (Appeals) which was dismissed by order dated
28.09.2001. Thereafter, appellant filed further appeal before the
CESTAT which was registered as appeal No. E/40/02-NB-C.
20. In the meanwhile, pursuant to the remand order dated 04.08.1997
passed by the Customs, Excise and Gold (Control) Appellate Tribunal,
Commissioner (Appeals) passed an order dated 29.08.2003 holding
that its earlier order was passed within the stipulated period of one
year from the date of approval of the classification list as the appellant
could not place on record any material evidence to the contrary.
Commissioner (Appeals) also decided the issue of classification in
favour of the department.
21. Aggrieved by the aforesaid order dated 29.08.2003, appellant
preferred appeal before the CESTAT, which was registered as appeal
No. E/3816/03-MUM.
22. In the meanwhile, the Deputy Commissioner took up the matter
regarding finalization of the provisional assessments. It is contended
that before adjudication, no show-cause notice was issued. Deputy
Commissioner vide his order-in-original dated 03.03.2004 decided
the issue of classification in favour of the department further
holding that the assessments for the period subsequent to filing of
classification list bearing No. 1/89-90 with effect from 03.11.1989
upto 1998-99 were provisional. Vide the aforesaid order-in-original
dated 03.03.2004, Deputy Commissioner calculated the differential
duty as under i.e. (i) Benzene, Toluene, Ethylene and Propylene –
Rs. 5,40,50,427.00 and (ii) Dripolene ‘C’ – Rs. 8,92,86,214.00, thus,
totalling Rs. 14,33,36,641.00 under Rule 9B of the Central Excise
Rules as it then existed
1800 [2025] 4 S.C.R.
Supreme Court Reports
23. Aggrieved by the said order-in-original dated 03.03.2004, appellant
challenged the same before the Commissioner (Appeals). Contention
of the appellant was that the order-in-original was passed without
issuance of any show-cause notice; the said order covered even
prior periods; and that there was double demand of duty to the
extent of Rs. 2,72,56,175.63. Commissioner (Appeals) vide the
order-in-appeal dated 31.01.2005 partially allowed the appeal by
reducing the demand of duty to Rs. 11,60,80,465.37 on the ground
of duplication of demand.
24. Appellant filed further appeal against the aforesaid order in appeal
dated 31.01.2005 before the CESTAT. By order dated 31.05.2005,
CESTAT allowed the appeal and remanded the matter back to
the Commissioner (Appeals) for considering afresh the issue of
provisionality of assessments after furnishing to the appellant, copies
of re-classification and RT-12 returns for the disputed period.
25. On remand, Commissioner (Appeals) allowed the appeal filed by the
appellant vide the order-in-appeal dated 31.03.2006 holding that the
disputed products were not under provisional assessment during the
period of dispute i.e. 1989-90 to1998-99.
26. This order in appeal dated 31.03.2006 came to be challenged by
the department before the CESTAT by filing an appeal which was
registered as appeal No. E/2380/06-MUM.
27. As noted above, all the three appeals were heard together by
the CESTAT and were disposed of vide the common order dated
21.05.2010. While the CESTAT dismissed the two appeals filed by
the appellant, it partially allowed the appeal filed by the department.
The demand of duty for the period September, 1990 to December,
1992 (Rs. 1,97,17,015.00) and January and February, 1993 (Rs.
18,16,304.00) were upheld. CESTAT further held that the contents
of the test reports relating to the two products Benzene and Toluene
were intimated to the appellant. That apart, the assessments carried
out were not provisional during the disputed period except for the
months of January and February, 1993.
27.1. Regarding classification of Cyclo Hydro Carbons viz. (a) BTX
and (b) BVR, CESTAT confirmed the order of Commissioner
(Appeals). Contention of the appellant that confirmation of
demand of differential duty of the two products on the ground
[2025] 4 S.C.R. 1801
M/s Oswal Petrochemicals Ltd. v.
Commissioner of Central Excise, Mumbai - II
that the classification was wrong, was held not sustainable. As
regards Ethylene and Propylene, CESTAT declined to consider
the classification issue as there was no revenue implication.
28. Learned counsel for the appellant submits that CESTAT has committed
a manifest error in upholding the order of Commissioner (Appeals)
whereby the latter had confirmed the re-classification of Benzene
and Toluene on the basis of test reports, the samples of which
were drawn subsequent to the approval of the classification list
bearing No.1/89-90. He submits that the said classification list was
made effective from 03.11.1989 and was approved by the Assistant
Collector on 26.04.1990. It was much thereafter that the purported
samples were drawn in October, 1990. The test reports are dated
29.01.1991 which allegedly revealed that purity of the two products
was less than 96 percent. It was on the basis of such test reports that
Benzene and Toluene were re-classified under the heading 2707.10
and 2707.20 as against the approved classification of 2902.00, thus
warranting higher levy of duty resulting in differential duty demand.
28.1. Learned counsel submits that once the classification of the
above two products under chapter sub-heading 2902 was
approved, the same could not have been erroneously and
arbitrarily unsettled by the Collector (Appeals).
28.2. It is submitted that the test reports of the samples of the two
products drawn in October, 1990 were never communicated
to the appellant. Thus appellant was deprived of challenging
the same and invoking its right for a re-test.
28.3. Referring to the impugned order, learned counsel submits that
even CESTAT admitted that copies of the test reports were
not communicated. But ironically, CESTAT placed the burden
on the appellant by holding that no claim was made in any
of the letters written by the appellant that the results of the
chemical tests which were intimated to the appellant were
incorrect. CESTAT endorsed the view of the department that
by intimating the results of the chemical tests, department
had fulfilled the obligation cast on it to communicate the
results of the tests. This approach of the CESTAT is wholly
incorrect. Learned counsel further submits that CESTAT
was not at all justified to brush aside the contention of the
appellant that because of non-communication of the test
1802 [2025] 4 S.C.R.
Supreme Court Reports
reports, appellant was denied the right to demand re-test.
On the contrary, CESTAT put the burden on the appellant
by posing the question as to why appellant did not ask for a
re-test. Thereafter, CESTAT erroneously held that appellant
was not deprived of its right to re-test as per Rule 56 of the
Central Excise Rules as no such request was made. Further,
CESTAT wondered as to why appellant did not seek re-test
when it claimed that it had upgraded the facilities and its
own test reports indicated that the two products had purity
of more than 96 percent.
28.4. Learned counsel vehemently submits that non-communication
of the test reports dated 29.01.1991 to the appellant is clearly
in violation of the principles of natural justice. The same has
vitiated the impugned order.
28.5. Learned counsel submits that the aforesaid test reports are
part of the proceedings as those were relied upon in the
show-cause notices. Therefore, non-furnishing of the same to
the appellant was in clear violation of Rule 56 of the Central
Excise Rules as well as of the principles of natural justice.
28.6. Learned counsel also submits that CESTAT failed to consider
the contention of the appellant that appellant had upgraded its
manufacturing process and thereby had achieved more than
96 percent purity.
28.7. On the question of preliminary assessments, learned counsel
submits that merely because some RT-12 returns were
marked as provisional, it cannot be said that the assessments
were provisional. CESTAT erroneously held that there were
provisional assessments only in respect of two products, i.e.
Benzene and Toluene for the months of January and February,
1993. Assessments cannot be provisional for one or two
products when the manufacturer is manufacturing a number
of other products.
28.8. Learned counsel after referring to the materials on record
submits that it was the department’s own case that
assessments of various products manufactured by the
appellant were not provisional at all. No order under Rule
9B of the Central Excise Rules was passed; that apart,
[2025] 4 S.C.R. 1803
M/s Oswal Petrochemicals Ltd. v.
Commissioner of Central Excise, Mumbai - II
appellant had also not executed any B-13 bond. Therefore,
the assessments could not be treated as provisional. Learned
counsel has referred to the provisional assessment order
dated 18.10.1993 passed by the Assistant Commissioner
giving retrospective effect. However, no bond was executed
by the appellant and hence the said assessments never
became provisional. If the assessments were provisional for
the months of January and February, 1993, there could not
have arisen any occasion for the Assistant Commissioner to
again pass provisional assessment order dated 18.10.1993
which also did not have any effect as the conditions necessary
for making the assessments provisional were not fulfilled. This
factum was acknowledged by the adjudicating authority in the
order-in-original dated 15.10.2003 wherein he had referred
to the provisional assessment order dated 18.10.1993 and
recorded a specific finding that the appellant had not resorted
to provisional assessments. CESTAT failed to consider the
above orders dated 18.10.1993 and 15.10.2003 though these
two orders were very much on record. As a matter of fact,
Commissioner (Appeals) had taken note of the aforesaid two
orders and in the order-in- appeal dated 31.03.2006 held that
the assessments were not provisional.
28.9. Learned counsel asserts that for an assessment to be a
provisional assessment, a provisional assessment order
under Rule 9B of the Central Excise Rules was required to be
passed; the assessee was required to execute a bond and to
follow the procedure for provisional assessment. The aforesaid
requirements were not at all complied with. Therefore, the
assessments could not be termed as provisional. In support
of the above contention, learned counsel for the appellant has
placed reliance on the following decisions:
1. Coastal Gases and Chemicals Pvt. Ltd Vs.
Assistant Collector of Central Excise,
Visakhapatnam1
2. Metal Forgings Vs. Union of India2
1 (1997) 7 SCC 223
2 (2003) 2 SCC 36
1804 [2025] 4 S.C.R.
Supreme Court Reports
3. Commissioner of Central Excise, Calcutta Vs.
Hindustan National Glass & Industries Ltd3
28.10. Adverting to the above decisions, learned counsel submits
that this Court has made it clear that in order to establish that
the clearances were on a provisional basis an order under
Rule 9B of Central Excise Rules and payment of duty on
provisional basis are mandatory requirements.
29. Learned counsel for the respondent on the other hand submits that
there is no bar to re-classification on the basis of fresh facts. In
the present case, after approval of the classification list, samples
were drawn and sent for test. By the time Commissioner (Appeals)
could pass the order-in-appeal, the test reports were available.
On 26.03.1991, department issued a show-cause notice followed
by similarly worded show-cause notices contending that the two
products Benzene and Toluene should have been classified under
chapter sub-heading 2707.10 and 2707.20 respectively on the basis
of the chemical tests conducted by the Deputy Chief Chemist which
indicated that purity of the two products was less than 96 percent.
29.1. Refuting the contention of learned counsel for the appellant
that the test reports were not communicated to the appellant,
learned counsel for the respondent submits that the concerned
Superintendent had communicated the gist of the test reports
to the appellant on 29.01.1991. Though appellant had made
several correspondences stating that test reports were not
communicated, appellant did not claim that the gist of the
test reports communicated to the appellant was not correct.
Appellant did not take the stand that communication of the
test result was inadequate and it also did not ask for a re-test.
Therefore, it cannot be said that appellant was deprived of the
right to challenge the test reports or seek re-test.
29.2. Learned counsel submits that appellant did not write a single
letter after receipt of the test reports that it had upgraded the
facility and that the test conducted in its laboratory indicated
that purity of Benzene and Toluene was more than 96 percent.
3 (2005) 3 SCC 489
[2025] 4 S.C.R. 1805
M/s Oswal Petrochemicals Ltd. v.
Commissioner of Central Excise, Mumbai - II
29.3. Adverting to the impugned order, learned counsel submits
that CESTAT had rightly observed that RT-12 returns were
assessed provisionally for the months of January, 1993 and
February, 1993 since from March, 1993 onwards there was no
endorsement by the Superintendent on such returns that the
assessments were provisional. Therefore, CESTAT was justified
in holding that the claim of the appellant that the assessments
were not provisional is not based on facts.
29.4. Appellant also did not challenge the endorsements made by
the Superintendent on the RT-12 returns that the assessments
were provisional.
29.5. Finally, learned counsel for the respondent submits that there
is no merit in the three appeals. Therefore, all the appeals
should be dismissed.
30. Submissions made by learned counsel for the parties have received
the due consideration of the Court.
31. Upon considering the materials on record and after hearing learned
counsel for the parties, the following two issues emerge for our
reconsideration:
1. Whether a duty demand based on re-classification of the
products Benzene and Toluene from chapter 29 to chapter
27 is sustainable when such re-classification is based
on test reports dated 29.01.1991 on samples drawn in
October, 1990 of which only a gist was provided to the
appellant by the respondent vide letter dated 29.01.1991?
1A. 1A. Corollary to the above question is the consequential
question as to whether such test reports can legally
form the basis for re-classification of the above products
manufactured and cleared during 1991 and 1992?
2. Whether CESTAT was justified in treating the assessments
provisional for the two products Benzene and Toluene for
the months of January and February, 1993 in the absence
of any order passed under Rule 9B of the Central Excise
Rules, 1944 and without executing any B-13 bond?
32. Let us take up the issue relating to re-classification first.
1806 [2025] 4 S.C.R.
Supreme Court Reports
33. As noted, the primary issue pertains to re-classification of the products
Benzene and Toluene cleared by the appellant during the years
1991 and 1992. Appellant had classified the two products under
chapter sub-heading 2902.00 whereas the department proposed re-
classification of the two products under chapter sub-heading 2707.10
and 2707.20 respectively.
34. It is an admitted position that classification list bearing No.1/89-90
effective from 03.11.1989 for various excisable products manufactured
by the appellant including Benzene and Toluene was filed by the
appellant in terms of Rule 173B of the Central Excise Rules. We have
already noted the classification of the various products manufactured
by the appellant. In respect of Benzene and Toluene, appellant had
classified the two products under chapter sub-heading 2902.00 and
claimed exemption under various notifications. This classification list
filed by the appellant was approved by the Assistant Collector on
26.04.1990. More than five months thereafter, the department drew
samples of Benzene and Toluene on 04.10.1990 for chemical testing.
The chemical analysis vide the Deputy Chief Chemist’s letter dated
29.01.1991 reportedly revealed that purity of the two products was
less than 96 percent, thus warranting re-classification under chapter
sub-heading 2707.10 and 2707.20 respectively.
35. The above test reports though formed the basis of the department’s
stand that the two products would warrant re-classification thereby
a higher duty demand, were not furnished to the appellant. On the
basis of such test reports department had issued identically worded
show-cause notices covering the period from September, 1990 to
December, 1992. The chemical test reports were neither annexed
to the show-cause notices nor were furnished to the appellant.
According to the department, gist of the test reports were mentioned
in the show-cause notices. In its replies to the show-cause notices
appellant stated that it was not supplied with copies of the test
reports relied upon in the show-cause notices to re-classify the two
products which prevented it from challenging the test reports and
to seek a re-test.
36. CESTAT brushed aside such contention holding that furnishing of
gist of the test reports amounted to substantial compliance to the
requirements of Rule 56 of the Central Excise Rules as well as
the principles of natural justice. That apart, according to CESTAT,
[2025] 4 S.C.R. 1807
M/s Oswal Petrochemicals Ltd. v.
Commissioner of Central Excise, Mumbai - II
appellant did not seek re-test. Therefore, CESTAT was of the opinion
that there was compliance to Rule 56 of the Central Excise Rules
and consequently the re-classification was justified.
37. We are afraid we cannot subscribe to such sweeping generalizations
made by CESTAT. There is no dispute that the test reports formed
the basis for re-classification of the two products Benzene and
Toluene. Department had entirely relied upon the test reports to alter
the classification from 2902.00 to 2707.10 and 2707.20, thereby
necessitating a higher duty demand resulting in levy of differential duty
demand. Therefore, principles of natural justice required that copies
of such test reports ought to have been furnished to the appellant.
Informing the appellant only the gist of the test reports cannot be
said to be in compliance with the principles of natural justice as the
test reports formed the sub-stratum of higher duty demand raised
by the department thus entailing adverse civil consequences on the
appellant. It is axiomatic that documents relied upon by the authority
to take a view different from the one existing and which would have
adverse civil consequences upon the affected party should be
furnished to the affected party. Otherwise, it will be a clear case of
breach of the principles of natural justice.
38. We may also refer to Rule 56 of the Central Excise Rules which
reads thus:
Rule 56. Taking of samples for excise purposes. –
(1) The manufacturer shall permit any officer to take
samples of any manufactured or partly manufactured
goods or of any intermediate or residual products
resulting from the manufacture thereof, in his factory.
(2) The officer referred to in sub-rule (1) shall conduct
the test from the samples taken under that sub-rule
and communicate to the manufacturer the result of
such test.
(3) (a) Where the officer is of the opinion that the samples
after completion of the test can be restored to the
manufacturer, the officer shall send a notice in writing
to the manufacturer requesting him to collect the
samples within such period as may be specified in
the notice.
1808 [2025] 4 S.C.R.
Supreme Court Reports
(b) If the manufacturer fails to take delivery of the
samples within the period specified in the notice
referred to in clause (a), the samples shall be disposed
of in such manner as the Commissioner of Central
Excise may direct.
(4) Where a manufacturer is aggrieved by the result of
the test, he may within ninety days of the date on
which the result of the test is received by him, request
the Assistant Commissioner of Central Excise that
the samples be re-tested.
38.1. Sub-rule (1) of Rule 56 says that the manufacturer is under
an obligation to permit any officer to take samples of any
product manufactured in his factory. Sub-rule (2) says that
such an officer shall conduct a test from the samples so taken
and communicate the result of such test to the manufacturer.
Sub-rule (3) is not relevant for the present discourse. However,
sub-rule (4) is relevant. According to sub-rule (4) where the
manufacturer is aggrieved by the result of the test, he may
within 90 days of the date on which the result of the test is
received by him, request the Assistant Commissioner that the
samples be re-tested.
39. The use of the word shall in sub-rule (2) is indicative of the mandatory
nature of the provision. The officer who has taken the samples for
testing has to communicate the result of such test to the manufacturer.
Therefore, the officer is under a positive mandate to communicate
to the manufacturer the result of such test. On the other hand, what
sub-rule (4) contemplates is that upon receipt of the test result if a
manufacturer is aggrieved by the same, he may within 90 days of
the date on which the result of the test is received by him, request
the Assistant Commissioner that the samples be re-tested. Unless
a copy of the test report is furnished to the manufacturer, he would
not be in a position to seek re-test within the specified period, if he
is aggrieved by the result of the test. Therefore, a copy of the test
report has to be furnished to the manufacturer. In such circumstances,
extracting the gist of the test reports, that too in the show-cause
notices, would clearly be in breach of Rule 56 (2) and Rule 56 (4)
of the Central Excise Rules. Such a procedure is not contemplated
under Rule 56. That apart, it will defeat the right of a manufacturer
[2025] 4 S.C.R. 1809
M/s Oswal Petrochemicals Ltd. v.
Commissioner of Central Excise, Mumbai - II
to seek re-test if he is aggrieved by the result of the test. CESTAT
has missed the point when it says that appellant was aware of the
test report as gist of the same was communicated to it through the
medium of the show-cause notices but it never sought for any re-
test. Even at the cost of repetition, we say that the manufacturer can
seek re-test within the stipulated period only if he is furnished with
a copy of the test report. View taken by the CESTAT is thus clearly
contrary to the mandate of Rule 56 of the Central Excise Rules. It
is also in violation of the principles of natural justice.
40. We may also mention that long after approval of the classification
list, department had taken samples of the two products. If at
all the department wanted to inquire into the correctness of the
classification submitted by the appellant, it could have taken
samples of the two products prior to the approval at the stage of
Rule 173B itself. Approval of classification list under Rule 173B is
not an empty formality. The proper officer has to apply his mind
and if he considers it necessary, he may conduct further inquiry to
ascertain the correctness of classification. Therefore, such belated
sampling and still further belated test reports cast a shadow of
doubt about the entire procedure adopted by the respondent.
This is further compounded by non-furnishing of the test reports
to the appellant. Therefore, we are of the considered opinion that
orders re-classifying the products Benzene and Toluene under
chapter sub-heading 2707.10 and 2707.20 respectively and levying
consequential differential duty demand cannot be sustained in law.
Impugned order of CESTAT justifying such re-classification cannot
also be sustained.
41. Questions Nos. 1 and 1A are thus answered accordingly.
42. Let us now deal with the second issue i.e. whether CESTAT was
justified in holding that assessments of the two products Benzene
and Toluene for the months of January and February, 1993 were
provisional.
43. This question is crucial in as much as the demand raised by the
Deputy Commissioner vide the order-in-original dated 03.03.2004
can only be sustained if the assessments covered by the said
order-in-original were provisional. Consequence of a provisional
assessment is that the period of limitation would not operate;
limitation stands frozen. On the other hand, if the assessments are
1810 [2025] 4 S.C.R.
Supreme Court Reports
held as regular, the demand raised vide the order-in-original dated
03.03.2004 would be barred by limitation. It may be mentioned
that the order-in-original dated 03.03.2004 covered the period from
03.11.1989 to 1998-99.
44. For proper appreciation Rule 9B of the Central Excise Rules, as
it then existed, may be examined. For easy reference Rule 9B is
extracted hereunder:
9B. Provisional assessment to duty
(1) Notwithstanding anything contained in these rules,-
(a) where the assessee is unable to determine the
value of excisable goods in terms of section 4 of the
Act on account of non-availability of any document
or any information; or
(b)where the assessee is unable to determine the
correct classification of the goods while filing the
declaration under rule 173B;
the said assessee may request the proper officer in writing
giving the reasons for provisional assessment to duty,
and the proper officer may direct after such inquiry as he
deems fit, that the duty leviable on such goods shall be
assessed provisionally at such rate or such value (which
may not necessarily be the rate or price declared by the
assessee) as may be indicated by him, if such assessee
executes a bond in the proper form with such surety or
sufficient security in such amount, or under such conditions
as the proper officer deems fit, binding himself for payment
of difference between the amount of duty as provisionally
assessed and as finally assessed;
Provided that all clearances in respect of excisable
goods covered under such request by the assessee
submitted with the proper officer under the dated
acknowledgement shall be deemed to be cleared
as provisionally assessed to duty at such rate or at
such value as declared by the assessee, till the date
when the direction of the proper officer is issued and
communicated to the assessee:
[2025] 4 S.C.R. 1811
M/s Oswal Petrochemicals Ltd. v.
Commissioner of Central Excise, Mumbai - II
Provided further that the proper officer where he
is satisfied that the self-assessment made by the
assessee is not in order, he may direct him to resort
to provisional assessment and on receipt of such
directions the assessee shall comply with such
directions.
(2) * * * * *
(3) The Commissioner may permit the assessee to enter
into a general bond in the proper form with such surety or
sufficient security in such amount or under such conditions
as the Commissioner approves for assessment of any
goods provisionally from time to time:
Provided that, in the event of death, insolvency or
insufficiency of the surety or where the amount of
the bond is inadequate, the Commissioner may, in
his discretion, demand a fresh bond and may, if the
security furnished for a bond is not adequate, demand
additional security.
(4) The goods provisionally assessed under sub-rule (1)
may be cleared for home consumption or export in the
same manner as the goods which are not so assessed.
(5) When the duty leviable on the goods is assessed finally
in accordance with the provisions of these rules, the duty
provisionally assessed shall be adjusted against the duty
finally assessed, and if the duty provisionally assessed
falls short of, or is in excess of the duty finally assessed,
the assessee shall pay the deficiency or be entitled to a
refund, as the case may be.
(6) Notwithstanding the provisions of self-assessment
in this rule, in case of provisional assessment, the final
assessment shall be made by the proper officer.
44.1. Rule 9B is the relevant provision dealing with provisional
assessment. As per sub-rule (1), where the assessee is unable
to determine the value of excisable goods or the correct
classification of the goods, he may request the proper officer
in writing giving reasons for provisional assessment to duty.
1812 [2025] 4 S.C.R.
Supreme Court Reports
The proper officer may direct after making such inquiry as may
be considered necessary that the duty leviable on such goods
shall be assessed provisionally at such rate or value as may
be indicated by him. Such provisional assessment is subject
to the assessee executing a bond in proper form binding the
assessee for payment of the differential amount of duty as
provisionally assessed and as may be finally assessed. The
goods provisionally assessed under sub-rule (1) may be cleared
for home consumption or for export in the same manner as the
goods which are not provisionally assessed. When the duty is
finally levied, the duty provisionally assessed shall be adjusted
against the duty finally assessed.
45. Thus, the first and foremost requirement of Rule 9B is that it is
the assessee who has to request in writing the proper officer for
provisional assessment in the event the assessee is unable to
determine the value of excisable goods or the correct classification
of goods. This is the first requirement. The second requirement is
that the proper officer competent to make provisional assessment
may direct after making necessary inquiry that duty leviable on such
goods shall be assessed provisionally. Such directions the proper
officer can issue only by passing a written order and not otherwise.
Thirdly, the assessee must execute a bond in the proper form binding
the assessee to pay the differential amount of duty as provisionally
assessed and as may be finally assessed. However, Rule 9B also
provides for an exception. If the proper officer is satisfied that the
self-assessment made by the assessee is not in order, he may direct
the assessee to resort to provisional assessment. In any event, for
an assessment to be provisional in terms of Rule 9B, an order is
required to be passed.
46. This Court in Coastal Gases and Chemicals Pvt. Ltd. (supra) and
in Hindustan National Glass & Industries Ltd. (supra) held that in
order to establish that the clearances were of provisional basis, an
order under Rule 9B and payment of duty on provisional basis are
essential.
47. This view was endorsed and reiterated by this Court in Metal Forgings
(supra) in the following manner:
14. From the above, it is clear that to establish that the
clearances were made on a provisional basis, there should
[2025] 4 S.C.R. 1813
M/s Oswal Petrochemicals Ltd. v.
Commissioner of Central Excise, Mumbai - II
be first of all an order under Rule 9-B of the Rules, and
then material to show that the goods were cleared on
the basis of the said provisional basis, and payment of
duty was also made on the basis of the said provisional
classification. These facts in the instant case are missing,
therefore, in our opinion there is no material in the
instant case to establish the fact that either there was
a provisional classification or there was an order made
under Rule 9-B empowering the clearance on the basis
of such provisional classification. In the absence of the
same, we cannot accept the argument of the Revenue
that in fact the order of the Assistant Collector dated 22-
1-1976 is a provisional order based on which clearance
was made by the appellants or that they paid duty on that
basis. On the contrary, as held by the judicial member the
said order of classification was a final order, therefore,
the Revenue cannot contend that the limitation prescribed
under Section 11-A does not apply.
48. In the present case, appellant had filed the classification list under
Rule 173B effective from 03.11.1989 which was approved by the
Assistant Collector on 26.04.1990. In this classification list, the two
products of Benzene and Toluene were classified under chapter sub-
heading 2902.00. This approval was challenged by the department
before the Collector (Appeals) on the basis of the subsequent test
reports dated 29.01.1991. Vide order dated 28.10.1991, Collector
(Appeals) remanded the matter back to the Assistant Collector for
re-determination of the classification of the subject goods. Pursuant
to such remand order, Assistant Collector had passed an order dated
18.10.1993 directing provisional assessment of certain products
mentioned in Annexure-A to the said order including products
of the appellant for the years 1990-91, 1991-92, 1992-93 and
1993-94. By the aforesaid order, Assistant Collector had directed
the appellant to execute a bond and to furnish a bank guarantee
equivalent to 25 percent of the differential duty. No evidence could
be adduced by the department that such a bond was executed or
bank guarantee furnished by the appellant. That apart, the said
order dated 18.10.1993 could not render assessments prior thereto
i.e. from 1989-90 to 17.10.1993 provisional. In any case, there is
no basis for the CESTAT to hold that assessments in respect of
1814 [2025] 4 S.C.R.
Supreme Court Reports
the products Benzene and Toluene for the months of January and
February, 1993 were provisional. Only the order dated 18.10.1993
was available but it could not have had retrospective effect. Moreover,
the essential requirements of Rule 9B were not complied with.
There is no order of the proper officer under Rule 9B directing that
assessments for the months of January and February, 1993 for the
two products Benzene and Toluene were provisional. Neither any
bond in proper format was directed nor executed by the appellant.
Mere endorsement by the concerned Superintendent on two RT-12
returns cannot make an assessment provisional. On the contrary, the
department had issued a number of show cause notices covering
the period from September, 1990 to December, 1992. Appellant had
contested the show cause notices. All the show cause notices were
adjudicated upon by the Assistant Commissioner. It is implausible
that assessments which were regular till December, 1992 could
become provisional from January, 1993. CESTAT has rightly held
that assessments for the period from September, 1990 to December,
1992 were regular but inexplicably held that assessments for the
months of January and February, 1993 qua the products Benzene
and Toluene were provisional. Such findings of CESTAT cannot be
sustained.
49. Question No. 2 is thus answered accordingly.
50. We are, therefore, of the considered opinion that the appeals filed by
the appellant are liable to be allowed. Accordingly, the three appeals
are allowed in the following manner:
(i) Appeal No. E/40/02-NB-C and appeal No. E/3816/03-
MUM filed by the appellant before CESTAT are
allowed. Consequently, order of CESTAT dated
21.05.2010 in respect of the above two appeals are
hereby set aside.
(ii) Order of Assistant Commissioner dated 27.02.2001
and of Commissioner (Appeals) dated 28.09.2001
which were subject matter of appeal No. E/40/02-
NB-C before CESTAT are hereby set aside.
(iii) Order dated 29.08.2003 of Commissioner (Appeals)
which was the subject matter of appeal No. E/3816/03-
MUM before CESTAT is set aside.
[2025] 4 S.C.R. 1815
M/s Oswal Petrochemicals Ltd. v.
Commissioner of Central Excise, Mumbai - II
(iv) That portion of order dated 21.05.2010 of CESTAT
in respect of appeal No. E/2380/06-MUM holding
that assessment in respect of Benzene and Toluene
for the months of January and February, 1993 were
provisional, is set aside.
51. However, there shall be no order as to cost.
Result of the case: Appeals allowed.
†
Headnotes prepared by: Ankit Gyan
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