The petitioners six in number have prayed for quashing of
Circular No. 929/19/2010-CX dated 29th June, 2010, issued by
respondent No. 3, Central Board of Excise and Customs, Ministry of
Finance (Board, for short). It is alleged that the circular is patently
illegal and contrary to the ratio approved and held by the Customs,
Excise and Service Tax Appellate Tribunal (CESTAT, for short), Northern
Bench, New Delhi in the Commissioner of Central Excise, Kanpur vs.
G.P.L. Polyfils Ltd., reported in 2005(183) E.L.T. 27 (Tri. - Del.).
2. The contentions of the petitioners are three fold. The decision in
the case of GPL Polyfils Ltd. (supra) was accepted by the respondents
and was not challenged. The said decision, therefore, is binding on the
respondents in view of the principle of consistency and uniformity.
Reliance is placed on Union of India Vs. Kaumudini, (2001) 10 SCC 231;
Berger Paints India Ltd. vs. CTI, (2004) 12 SCC 42; Indian Oil
Corporation vs. CCE, Baroda, (2007) 13 SCC 803; Commissioner of
Central Excise, Bangalore vs. Bal Pharma Ltd., (2011) 2 SCC 620; and
Sunflag Iron & Steel C. Ltd. vs. Additional Collector of Central Excise,
Nagpur, 2003 (162) ELT 105 (Bom.). It is highlighted that the authorities
have been asked to ignore the decision of the tribunal in GPL Polyfils
Ltd. (supra). Secondly, the circular is contrary to the statute as Chapter
note I of Chapter 54 to the Central Excise Tariff has been ignored. The
Chapter Note is an integral and principal part of the statute as held by
the Supreme Court in Subhash Photographic vs. Union of India, 1993
Supp (3) SCC 323. Therefore, the circular which is contrary to the
statutory provisions has no existence in law (ref. Commissioner of
Central Excise, Bolpur vs. Ratan Melting & Wire Industries, (2008) 13
SCC 1). Lastly, on the merits also it is submitted that the activity
undertaken by the petitioners is not excisable and the impugned
circular is contrary to law.
3. The respondents have contested the aforesaid contentions. On
merits, it is submitted that the Chapter note I of Chapter 54, does not
help and support the contentions of petitioners. Reliance is placed on
the definition of the term 'manufacture' in the definition clause 2(f) of
the Central Excise Act, 1944 (Act, for short) to controvert the first
contention. To draw support, the respondents have referred to
Plasmac Machine Mfg. Co. Pvt. Ltd. vs. Collector of Central Excise,
1991(51) ELT 161 (SC); Elson Machines Pvt. Ltd. vs. CCE, 1998(38) E.L.T.
571 (SC); Faridabad CT Scan Centre Vs. D.G. Health Services, 1997(95)
ELT 161 (SC); B.J. Akkara, Col. (Retd.) vs. Govt. of India, 2007(207) ELT
3 (SC); Sharp Industries Ltd. vs. Commissioner of Central Excise, (2005)
7 SCC 676; Rajasthan State Electricity Board & Ors. vs. Laxman Lal &
Ors., 1991 Supp (2) SCC 531; State of Maharashtra vs. Digambar,
(1995) 4 SCC 683; Union of India vs. Delhi Cloth and General Mills Co.
Ltd., AIR 1963 SC 791; Sterling Foods vs. State of Karnataka, AIR 1986
SC 1809; Aditya Mills Ltd. vs. Union of India, 1988 (37) ELT 471 (SC) and
Collector of Central Excise, Bombay vs. K.W H Heliplastics, 1998 (97)
ELT 385 (SC). It is submitted that the order of the Tribunal in GPL
Polyfils Ltd. (supra), is per incuriam and cannot be treated as a
precedent. On the question of the circular and the right of the Board to
issue circulars, it is submitted that the same has been validly issued
under Section 37B of the Act.
4. The first question which arises for consideration is what is the
effect of the respondents not challenging the decision of the CESTAT in
the case of GPL Polyfils Ltd. (supra). Counsel for the parties have relied
upon several decisions of the Supreme Court as well as one decision of
the Bombay High Court. We need not dwell deep into the said aspect as
this issue is no longer res integra and was settled by the Supreme Court
in C.K. Gangadharan and Anr. Vs. CIT, Cochin, (2008) 8 SCC 739. The
first paragraph of the said decision refers to an earlier order dated 13th
March, 2008, by which reference was made to a larger Bench to decide
the question to what extent, Revenue can be precluded from defending
itself or contesting an issue when an assessee relies upon a contrary
decision of a tribunal or High Court which has not been challenged;
Whether it is open to the Revenue to challenge correctness of a ratio or
a decision which has been accepted in case of one assessee, in cases of
other assessees. The larger Bench of the Supreme Court while deciding
the reference, has quoted paragraphs 20 and 22 from BSNL vs. Union of
India, (2006) 3 SCC 1, which read as under:-
"20. The decisions cited have uniformly held that res
judicata does not apply in matters pertaining to tax for
different assessment years because res judicata applies to
debar courts from entertaining issues on the same cause
of action whereas the cause of action for each assessment
year is distinct. The courts will generally adopt an earlier
pronouncement of the law or a conclusion of fact unless
there is a new ground urged or a material change in the
factual position. The reason why the courts have held
parties to the opinion expressed in a decision in one
assessment year to the same opinion in a subsequent year
is not because of any principle of res judicata but because
of the theory of precedent or the precedential value of the
earlier pronouncement. Where facts and law in a
subsequent assessment year are the same, no authority
whether quasi-judicial or judicial can generally be
permitted to take a different view. This mandate is subject
only to the usual gateways of distinguishing the earlier
decision or where the earlier decision is per incuriam.
However, these are fetters only on a coordinate Bench
which, failing the possibility of availing of either of these
gateways, may yet differ with the view expressed and
refer the matter to a Bench of superior strength or in some
cases to a Bench of superior jurisdiction.
* * *
22. A decision can be set aside in the same lis on a prayer
for review or an application for recall or under Article 32 in
the peculiar circumstances mentioned in Rupa Ashok
Hurra v. Ashok Hurra. As we have said, overruling of a
decision takes place in a subsequent lis where the
precedential value of the decision is called in question. No
one can dispute that in our judicial system it is open to a
court of superior jurisdiction or strength before which a
decision of a Bench of lower strength is cited as an
authority, to overrule it. This overruling would not operate
to upset the binding nature of the decision on the parties
to an earlier lis in that lis, for whom the principle of res
judicata would continue to operate. But in tax cases
relating to a subsequent year involving the same issue as
an earlier year, the court can differ from the view
expressed if the case is distinguishable or per incuriam.
The decision in State of U.P. v. Union of India related to
the year 1988. Admittedly, the present dispute relates to a
subsequent period. Here a coordinate Bench has referred
the matter to a larger Bench. This Bench being of superior
strength, we can, if we so find, declare that the earlier
decision does not represent the law. None of the decisions
cited by the State of U.P. are authorities for the
proposition that we cannot, in the circumstances of this
case, do so. This preliminary objection of the State of U.P.
is therefore rejected."
5. A paragraph of State of Maharashtra vs. Digambar, (1995) 4 SCC
683, was also quoted. The said paragraph reads as under:-
"16. We are unable to appreciate the objection raised
against the prosecution of this appeal by the appellant or
other SLPs filed in similar matters. Sometimes, as it was
stated on behalf of the State, the State Government may
not choose to file appeals against certain judgments of the
High Court rendered in writ petitions when they are
considered as stray cases and not worthwhile invoking the
discretionary jurisdiction of this Court under Article 136 of
the Constitution, for seeking redressal therefor. At other
times, it is also possible for the State, not to file appeals
before this Court in some matters on account of improper
advice or negligence or improper conduct of officers
concerned. It is further possible, that even where SLPs are
filed by the State against judgments of the High Court,
such SLPs may not be entertained by this Court in exercise
of its discretionary jurisdiction under Article 136 of the
Constitution either because they are considered as
individual cases or because they are considered as cases
not involving stakes which may adversely affect the
interest of the State. Therefore, the circumstance of the
non-filing of the appeals by the State in some similar
matters or the rejection of some SLPs in limine by this
Court in some other similar matters by itself, in our view,
cannot be held as a bar against the State in filing an SLP or
SLPs in other similar matter(s) where it is considered on
behalf of the State that non-filing of such SLP or SLPs and
pursuing them is likely to seriously jeopardise the interest
of the State or public interest."
6. Thereafter, it has been observed by the Supreme Court as under:-
"6. In Govt. of W.B. v. Tarun K. Roy reference was made to
the judgment in Digambar case and State of Bihar v.
Ramdeo Yadav. It was noted as follows: (Tarun K. Roy case,
SCC p. 358, paras 28-29)
"28. In the aforementioned situation, the
Division Bench of the Calcutta High Court
manifestly erred in refusing to consider the
contentions of the appellants on their own
merit, particularly, when the question as regards
difference in the grant of scale of pay on the
ground of different educational qualification
stands concluded by a judgment of this Court in
Debdas Kumar. If the judgment of Debdas
Kumar is to be followed, a finding of fact was
required to be arrived at that they are similarly
situated to Debdas Kumar which in turn would
mean that they are also holders of diploma in
Engineering. They admittedly being not, the
contention of the appellants could not be
rejected. Non-filing of an appeal, in any event,
would not be a ground for refusing to consider a
matter on its own merits. (See State of
Maharashtra v. Digambar.)
29. In State of Bihar v. Ramdeo Yadav wherein
this Court noticed Debdas Kumar by holding:
(Ramdeo Yadav case, SCC p. 494, para 4)
'4. Shri B.B. Singh, the learned counsel
for the appellants, contended that
though an appeal against the earlier
order of the High Court has not been
filed, since larger public interest is
involved in the interpretation given by
the High Court following its earlier
judgment, the matter requires
consideration by this Court. We find
force in this contention. In the similar
circumstances, this Court in State of
Maharashtra v. Digambar and in State
of W.B. v. Debdas Kumar, had held that
though an appeal was not filed against
an earlier order, when public interest is
involved in interpretation of law, the
court is entitled to go into the question.'
"
7. In Ramdeo case reference was made to State of W.B. v.
Debdas Kumar wherein it was observed at para 5 as
follows: (SCC pp. 494-95)
"5. It is then contended that Sections 3(2) and
(3) make distinction between the employees
covered by those provisions and the employees
of the aided schools taken over under Section
3(2). Until the taking over by operation of
Section 3(4) recommendation is complete, they
do not become the employees of the
Government under Section 4 of the Act. The
Government in exercise of the power under
Section 8 constituted a committee and directed
to enquire and recommend the feasibility to
take over the schools. On the recommendation
made by them, the Government have taken
decision on 13-1-1981 by which date the
respondents were not duly appointed as the
employees of the taken over institution.
Therefore, the High Court cannot issue a
mandamus directing the Government to act in
violation of law."
8. In CCE v. Hira Cement at para 24 the position was
reiterated.
9. In Govt. of A.P. v. V.J. Cornelius it was observed that
equity is not the relevant factor for the purpose of
interpretation.
10. It will be relevant to note that in Karamchari Union v.
Union of India and Union of India v. Kaumudini Narayan
Dalal this Court observed that without a just cause
Revenue cannot file the appeal in one case while deciding
not to file appeal in another case. This position was also
noted in Commissioner Of Income Tax v. Shivsagar Estate.
11. The order of reference would go to show that same
was necessary because of certain observations in Berger Paints India Ltd. v. Commissioner Of Income Tax, Calcutta. The decision in Union of India v.
Kaumudini Narayan Dalal was explained in Hemalatha
Gargya v. CIT, at SCC para 14. It has been stated in the said
case that the fact that different High Courts have taken
different views and some of the High Courts are in favour
of the Revenue constituted "just cause" for the Revenue to
prefer an appeal. This Court took the view that having not
assailed the correctness of the order in one case, it would
normally not be permissible to do so in another case on
the logic that the Revenue cannot pick and choose. There
is also another aspect which is the certainty in law.
12. If the assessee takes the stand that the Revenue acted
mala fide in not preferring appeal in one case and filing the
appeal in other case, it has to establish mala fides. As a
matter of fact, as rightly contended by the learned counsel
for the Revenue, there may be certain cases where
because of the small amount of revenue involved, no
appeal is filed. Policy decisions have been taken not to
prefer appeal where the revenue involved is below a
certain amount. Similarly, where the effect of decision is
revenue neutral, there may not be any need for preferring
the appeal. All these certainly provide the foundation for
making a departure.
13. In answering the reference, we hold that merely
because in some cases the Revenue has not preferred
appeal that does not operate as a bar for the Revenue to
prefer an appeal in another case where there is just cause
for doing so or it is in public interest to do so or for a
pronouncement by the higher court when divergent views
are expressed by the Tribunals or the High Courts."
7. The aforesaid decision brings out the legal principle that while
continuity and consistency are conducive to the smooth evolution of
Rule of law yet hesitancy to correct a wrong or set forth or correct a
deviation for future can prevent/obstruct its growth. Rule of estoppel
applies to one and the same assessment and not to assessment of
different years/persons. The doctrine of "approbate and reprobate" is
only a specie of estoppel. It applies to the conduct of the parties. It
cannot operate against the provisions of a statute (see CIT vs.
V.Mr.P.Firm [1965] 56 ITR 67 (SC)).
8. We are not required to decide, whether a contrary stand in the
assessment/adjudication procedure can be taken by the
Revenue/authorities when the High Court having jurisdiction over the
authorities has decided the question. A decision of the High Court is a
binding precedent. In view of the reference decided by the Supreme
Court, it has to be held that the Revenue can prefer appeals or take a
contrary stand to what has been held by the tribunal even if they have
not preferred an appeal, when a "just cause" is established and can be
shown. Mere fact that the Revenue has not preferred an appeal or
challenged the same, does not bar the Revenue from preferring an
appeal or taking a different stand in another case where there is a just
cause or it is in public interest to do so or when a pronouncement of
the higher Court is different and/or divergent views are expressed by
the Tribunals or the High Courts (other than jurisdictional High court).
The first contention raised by the petitioner is answered accordingly.
9. This brings us to the second question relating to the validity of
the Circular. The aforesaid circular reads as under:-
"Circular No. 929/19/2010-CX
F.No. 55/1/2010-CS.1
Government of India
Ministry of Finance
Department of Revenue
New Delhi the, June 29th 2010
Order under section 37 B of Central Excise Act, 1944
Subject:- Classification of Polyester Staple Fibre
manufactured out of PET scrap and waste bottles.
In exercise of powers conferred under section 37B
of the Central Excise Act, 1944 Central Board of Excise &
Customs considers it necessary, for the purposes of
uniformity with respect to classification of "Polyester
Staple Fibre" manufactured out of PET scrap and waste
bottles, to issue the following instructions.
2. It has been brought to the notice of the Board that
divergent practices are being adopted in respect of
classification of the "Polyester Staple Fibre" manufactured
out of PET scrap and waste bottles. Whereas in some
jurisdictions the said product has been classified under the
Chapter 39 as article of plastic, in other jurisdictions the
same has been classified under Chapter Heading
55032000.
3. The matter has been examined. Polyester is "Long-
chain polymers chemically composed of at least 85 per
cent by weight of an ester and a dihydric alcohol and a
terephthalic acid." Federal Trade Commission defines
Polyester Fibre: A manufactured fibre in which the fibre
forming substance is any long-chain systhetic polymer
composed of at least 85% by weight of an ester of a
substituted aromatic carboxylic acid, including but not
restricted to substituted terephthalic units, p(-R-O-CO-
C6H4-O-)x.
4. Normally PSF is manufactured by using main inputs
like PTA & MEG. The name "polyester" refers to the
linkage of several monomers (esters) within the fiber.
Esters are formed when alcohol reacts with a carboxylic
acid. The momomer ester then is polymerized under
suitable conditions to obtain polyester.
5. The most common polyester for polyester staple
fibre purposes is poly (ethylene terephthalate), or simply
PET. This is also the polymer used for many soft drink
bottles and it is becoming increasingly common to recycle
them after use by re-melting the PET and extruding it as
fibre. To manufacture Polyester staple fibre, used PET
bottles are taken as inputs. They are crushed and
converted into PET flakes. These PET flakes are then
charged to extruders where they are melted and molten
polymer is passed through spinnerets to obtain TOW. The
tow is drawn and then cut into different lengths to obtain
PSF.
6. As per Chapter Note 1 to Chapter 54,
1. Throughout this Schedule, the term "man-made
fibres" means staple fibres and filaments of organic
polymers produced by manufacturing processes,
either:
(a) by polymerisation of organic monomers to
produce polymers such as polyamides, polyesters
polyolefins or polyurethanes, or by chemical
modification of polymers produced by this process
[for example, poly (vinyl alcohol) prepared by the
hydrolysis of poly (vinyl acetate)] ; or
(b) by dissolution or chemical treatment of
natural organic polymers (for example, cellulose) to
produce polymers such as cuprammonium rayon
(cupro) or viscose rayon, or by chemical
modification of natural organic polymers (for
example, cellulose, casein and other proteins, or
alginic acid), to produce polymers such as cellulose
acetate or alginates.
The terms "synthetics" and "artificial", used in
relation to fibres, mean: synthetic: fibres as defined
at (a); artificial: fibres as defined at (b). Strip and
the like of heading 5404 or 5405 are not
considered to be man-made fibres.
The term "man-made", "synthetic" and "artificial"
shall have the same meanings when used in
relation to "textile materials".
7. Thus manmade fibre can be obtained either
starting from monomers or from polymers itself. The
process of manufacture is not determinative of the
classification of the manufactured product. What is
essential for determining the classification is the nature of
the end product and the market understanding of the said
end product. In the present case there appears to be no
dispute with regard to the nature and commercial
understanding of the product viz. Polyester Staple Fibre.
8. As per technical literature uses of Polyester Fibre
are as follows
Apparel: Every form of clothing
Home Furnishings: Carpets, curtains,
draperies, sheets and pillow cases, wall
coverings, and upholstery
Other Uses: hoses, power belting, ropes
and nets, thread, tire cord, auto upholstery,
sails, floppy disk liners, and fiberfill for
various products including pillows and
furniture
9. From the above facts it is quite evident that the
product under consideration is nothing but a textile
material and hence will be classified as textile material
under Section XI and not as article of plastic in Chapter 39.
10. Tribunal decision in case of GPL Polyfils Ltd [2005
(183) ELT 27 (T)] would be relevant to the particular facts
as in the said case and hence cannot have binding
precedents in other matters.
11. To ensure uniformity in the manner of classification
of the Polyester Staple Fibre obtained from PET scrap and
waste bottles it is clarified that this product is correctly
classifiable under heading 55032000.
12. Based on the above clarification pending cases may
be disposed of.
13. Receipt of this order may please be acknowledged.
14. Hindi version will follow.
(Madan Mohan)
Under Secretary to the Government of India"
10. A reading of the said circular shows that the respondents have
referred to the technical process involved when "PET scrap and waste
bottles are converted". According to the stand taken by the Revenue
this is covered by Chapter note I to Chapter 54 read with Section 2(f) of
the Act. The circular also refers to the divergent stands as to the
classification adopted in different jurisdictions of the Central Excise. It
has been stated that the circular has been issued for the purposes of
uniformity of classification.
11. Right of the Central Boards to issue circulars and the effect
thereof under Section 119 of the Income Tax Act, 1961 or Section 37B
of the Act, Section 151 A of the Customs Act, 1962 etc. has been
examined and explained by the Supreme Court in several cases. In State
of Kerala v. Kurian Abraham (P) Ltd., (2008) 3 SCC 582, it has been held
as under:-
"23. Tax administration is a complex subject. It consists of several
aspects. The Government needs to strike a balance in the
imposition of tax between collection of revenue on one hand and
business-friendly approach on the other hand. Today,
Governments have realised that in matters of tax collection,
difficulties faced by the business have got to be taken into
account. Exemption, undoubtedly, is a matter of policy.
Interpretation of an entry is undoubtedly a quasi-judicial function
under the tax laws. Imposition of taxes consists of liability,
quantification of liability and collection of taxes. Policy decisions
have to be taken by the Government. However, the Government
has to work through its senior officers in the matter of difficulties
which the business may face, particularly in matters of tax
administration. That is where the role of the Board of Revenue
comes into play. The said Board takes administrative decisions,
which includes the authority to grant administrative reliefs. This is
the underlying reason for empowering the Board to issue orders,
instructions and directions to the officers under it.
24. XXXX
25. One more aspect needs to be mentioned. Provisions of Section
3(1-A) are similar to the provisions of Section 119(1) of the Income
Tax Act, 1961 (the 1961 Act) inasmuch as both the sections have
used the expression "for the proper administration of this Act".
According to Law of Income Tax by Kanga and Palkhivala, the
Board is entrusted with the power to give effect to the provisions
of the Act and to provide "fair and just administration" in the
matter of imposition and collection of tax. This is where it
becomes the incumbent duty of the Board to grant administrative
relief in appropriate cases. In such exercise, incidentally the Board
has to consider the effect of the items enumerated in the entry.
Therefore, it is not open to the State Government to contend that
the Board in this case had entered into an area which is
earmarked for the legislature/executive. In our view, the said
circular grants administrative relief to the business. It was entitled
to do so. Therefore, it cannot be said that the Board had acted
beyond its authority in issuing the said circular. One more reason
needs to be stated. Whenever such binding circulars are issued by
the Board granting administrative relief(s) business arranges its
affairs relying on such circulars. Therefore, as long as the circular
remains in force, it is not open to the subordinate officers to
contend that the circular is erroneous and not binding on them.
26. In Union of India v. Azadi Bachao Andolan a circular was issued
by CBDT under Section 119 of the Income Tax Act, 1961. It was
challenged inter alia on the ground that it was ultra vires the
provisions of Section 119(1). The argument was rejected by this
Court in the following words: (SCC p. 32, para 47)
"47. It was contended successfully before the High
Court that the circular is ultra vires the provisions of
Section 119. Sub-section (1) of Section 119 is
deliberately worded in a general manner so that CBDT
is enabled to issue appropriate orders, instructions or
directions to the subordinate authorities 'as it may
deem fit for the proper administration of this Act'. As
long as the circular emanates from CBDT and contains
orders, instructions or directions pertaining to proper
administration of the Act, it is relatable to the source
of power under Section 119 irrespective of its
nomenclature. Apart from sub-section (1), sub-section
(2) of Section 119 also enables CBDT
'for the purpose of proper and efficient
management of the work of assessment and
collection of revenue, to issue appropriate orders,
general or special, in respect of any class of income
or class of cases, setting forth directions or
instructions (not being prejudicial to the assessees)
as to the guidelines, principles or procedures to be
followed by other Income Tax Authorities in the
work relating to assessment or collection of
revenue or the initiation of proceedings for the
imposition of penalties'.
In our view, the High Court was not justified in reading the
circular as not complying with the provisions of section 119.
The circular falls well within the parameters of the powers
exercisable by CBDT under Section 119 of the Act.
27. Lastly, the binding effect of the said Circular No. 16/98
needs to be kept in mind. As stated above, the said circular
was issued by the Board by exercising statutory powers
vested in it under section 3(1-a). As stated above, Section
3(1-A) provides for an enabling power of the Board which
was recognised as an authority under the 1963 Act. The said
power was to be exercised in special cases. As stated above,
granting of administrative reliefs by the Board came within
its authority. As stated above, the said circular was issued for
just and fair administration of the 1963 Act. As stated above,
section 3(1-a) is similar to Section 119(1) of the 1961 Act.
The circulars of this nature are issued by the Board
consisting of highest senior officers in the Revenue
Department. These circulars are to be respected by the
officers working under the supervision of the Board. These
circulars are binding on all the authorities administering the
Tax Department. The power of the Board to issue such
circular is traceable to section 3(1-a)(c) of the Act. The said
circular is statutory in nature. Therefore, it is binding on the
Department though not on the courts and the assessees...."
12. In Padinjarekkara Agencies Ltd. v. State Of Kerala, (2008) 3 SCC
59, the Supreme Court has relied upon the above mentioned case and
held as under :
"13. ....... It is no doubt true that the AO is bound by the
directions issued by the Commissioner even with regard to the
terms used in the exemption notification(s). However, as held in
our earlier judgment in Kurian Abraham (P) Ltd., circulars/orders
issued by the Commissioner are not binding on the assessee.
Therefore, dehors the directives given by the Commissioner, it is
open to the assessee to claim the benefit of
exemption/concession on the basis of various exemption
notification(s) issued by the Government from time to time. We
express no opinion on the interpretation of those notification(s).
Suffice it to state that the assessee was not bound by the
orders/directions issued by the Commissioner to the AO,
therefore, on the scope and effect of each of the above exemption
notifications, the matter needs to be remitted to the AO for fresh
decision in accordance with law. In other words, if the assessee
satisfies the terms and conditions mentioned in the exemption
notification, the assessee would be entitled to the benefit
thereunder notwithstanding the circular issued by the
Board/Commissioner. This is on the principle mentioned
hereinabove that such circular does not bind the assessee if the
assessee demonstrates that it fulfils the conditions mentioned in
the exemption notification."
13. Paragraph 10 of the circular cannot be sustained. Paragraph 10
of the circular states that the decision of the Tribunal in GPL Polyfils
Ltd. (supra) would be relevant to the facts of that particular case and is
not a binding precedent in other matters. It stipulates that even if the
facts and the process are identical, other assessees cannot rely upon
the decision in GPL Polyfils Ltd. (supra) before the Revenue authorities.
In the written submissions and during the course of the argument, the
Revenue took a forthright and categorical stand that the said decision is
incorrect and per incuriam. Intention of the Revenue in paragraph 10
of the circular is apparent, Revenue authorities should not follow the
decision of the CESTAT in GPL Polyfils Ltd. (supra). Paragraph 10 of the
said circular is accordingly struck down.
14. The petitioners and the Revenue have taken divergent stand on
interpretation of Chapter note 1 to Chapter 54 and whether petitioners
are 'manufacturing' a taxable commodity, polyester stable fibre. As
noticed above, the respondents have also relied upon definition clause
2(f). The circular in question refers to the process by which the
purported 'manufacture' takes place. The stand of the petitioners is to
the contrary and they heavily rely upon the decision in GPL Polyfils Ltd.
(supra). In the said decision, it has been held by the CESTAT as under:-
"4. Chapter 54 of the Tariff, relates to man-made
Filaments and its Chapter note I defines man-made fibres,
as under:-
"Throughout the First Schedule, the term man-made
fibre" means staple fibres and filaments of organic
polymers produced by manufacturing processes,
either:
(a) By polymerization of organic monomers, such as
polyamides, polyesters, polyurethances or polyvinyl
derivatives; or
(b) By chemical transformation of natural organic
polymers (for example, celluclose, casein, proteins or
algae), such as viscose rayon, cellulose acetate, cupro
or alginates."
It remains undisputed that none of these processes, had
been undertaken by the assessee in respect of their fibre
so as to bring the same within the ambit of this Chapter 54
or even Chapter 55 which are part of the First Schedule.
The learned Commissioner (Appeals) has, in our view,
rightly dropped the duty demand against the assessees on
this ground.
5. ............... The Chapter Note 1, reproduced above, sets
out the definition of man-made fibres for the purpose of
bringing the same within the ambit of the First Schedule of
the CETA. It gives an exhaustive and self-contained/ self=
defined, definition and for bringing the "man-made fibres"
within the scope of the First Schedule of the CETA, the
processes detailed in this Chapter note, must be
undertaken by an assessee."
15. The actual process involved and the chemical reaction involved
etc. are technical and factual aspects and we do not see any reason why
we should go into the said disputed and debatable questions in the writ
petition. These aspects have to be gone into and examined by the
authorities under the Act, and if required by the CESTAT.
16. However, one difficulty remains as pointed out by the counsel for
the petitioners. It is stated that the hands of the authorities are bound
and tied because of the impugned circular. It is submitted that the
entire adjudication process would be a formality. It is further submitted
that even if paragraph 10 of the circular is struck down, the damage and
harm has been caused. There is merit in the contention of the
petitioners in this regard. The situation, we think, can be redeemed by
giving two directions. Firstly, the Revenue authorities will examine the
contentions raised by the petitioners without being influenced or
treating the circular as binding. The Revenue/adjudicatory authorities
will independently apply their mind and take into consideration the
decision of the Tribunal in GPL Polyfils Ltd. (supra). They will also
examine whether the said decision is applicable or state if they feel that
there are good grounds and reasons (i.e. just cause) why the said
decision should not be applied and questioned in appeal etc. The
circular will be read as a guideline and not a binding mandate. Secondly,
the petitioners can be protected by ensuring that in case the authorities
hold that the decision in GPL Polyfils Ltd. (supra) is not to be applied
even if facts are similar, then the demands should not be recovered by
adopting coercive measures till stay applications are decided by the
CESTAT. This direction is necessary, as a piquant situation has been
created by the Revenue. Equities have to be balanced. The earlier
decision of the CESTAT in GPL Polyfils Ltd. (supra) should be given due
regard if the petitioners are able to show that the same applies, unless
the same is set aside. (See judgment dated 6th July, 2011 in Civil Appeal
No. 5166/2003 titled M/s Gammon India Ltd. versus Commissioner of
Customs, Mumbai). Of course the stay of demand will be subject to the
order of the CESTAT. The petitioners if denied stay by the CESTAT and
aggrieved will be entitled to challenge the order of the CESTAT in
accordance with law.
17. The aforesaid directions have been issued in view of the peculiar
facts of the present case. They find echo and resonance in the decision
of the Supreme Court in Varsha Plastics Private Limited v. Union of
India, (2009) 3 SCC 365 :
"30. The proviso to Section 151-A makes it abundantly clear
that the Customs Officer who has to make a particular
assessment is not bound by such orders or instructions or
directions of the Board. An assessing authority under the Act
being a quasi-judicial authority has to act independently in
exercise of his quasi-judicial powers and functions. Section 151-
A does not in any manner control or affect the independent
exercise of quasi-judicial functions by the assessing authority.
XXXX
32. The question now is whether the impugned Standing Order
in any manner interferes with the independent quasi-judicial
function to be discharged in the assessment of duty by the
assessing officer. Whatever be the language employed in the
Standing Order which may suggest that the said instructions are
in the nature of a mandate or command, the High Court has
read down the impugned Standing Order purely as instructions
or guidelines and not as a mandate or command for being
obeyed in each individual case of assessment before them.
33. The High Court further held that the Standing Order is to be
taken only as assistance in exercise of the quasi-judicial power
of determining value for the purpose of levying of customs
duty. We agree with the view of the High Court. As a matter of
fact, it is the case of the Department as well that the impugned
Standing Order is not binding; it is just in the nature of
guidelines to streamline the functioning of Customs Officers at
various field formations.
34. According to the Department, the impugned Standing Order
was issued for the smooth functioning of assessment and
examination work and to bring about uniformity in the work
and it prescribes only the pattern of assessment and in no way
interferes with the discretion of the assessment authority. In
view of the categorical stand of the Department that the
impugned Standing Order is just in the nature of guidelines and
it does not in any way interfere with the discretion of officers,
the impugned Standing Order has to be read and understood
accordingly.
XXXX
38. Para 7 of the impugned Standing Order which provides as to
how the classification of mixed waste material like floor
sweeping should be made also has to be read only as guidelines
to the assessing authority. The assessing authority in his quasi-
judicial function has to take an independent view in this regard
as well."
(emphasis supplied)
18. Section 37 B of the Act has a similar proviso. In this context we
may refer to proviso to Section 37 B of the Act which reads as under:
"37-B. Instructions to Central Excise Officers.--
X X X X
Provided that no such orders, instructions or
directions shall be issued--
(a) so as to require any Central Excise Officer to make
a particular assessment or to dispose of a
particular case in a particular manner; or
(b) so as to interfere with the discretion of the
Commissioner of Central Excise (Appeals) in the
exercise of his appellate functions."
19. Accordingly, the aforesaid writ petition is disposed of recording
as under:
(a) The first question is decided in terms of paragraph 8 above.
(b) Paragraph 10 of the impugned circular is struck down;
(c) The Assessing Officer and the authorities under the Act shall
independently apply their mind and consider the judgment of tribunal
in GPL Polyfills Ltd. (supra) and keep in mind the observations and ratio
of Supreme Court in C.K. Gangadharan & Anr. (supra). The Assessing
Officer/authorities will not be bound by the impugned circular. The
circular can be referred for guidance but not as a binding mandate.
(d) In case of an adverse decision, the demand will not be enforced
by adopting coercive method till the stay application is decided by
CESTAT.
19. There will be no order as to costs.
(SANJIV KHANNA)
JUDGE
( DIPAK MISRA )
CHIEF JUSTICE
September 30th, 2011
kkb