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Paper Products Ltd. v. Commissioner Of Central Excise .
Factual and Procedural Background
The appellant manufactures three kinds of printed polyester films—backed respectively with paper, polythene, and aluminium foil—used as labels, pouches, or wrappers. Between 23-7-1986 and 15-1-1989, Central Board of Excise & Customs (the “Board”) Circular No. 4/1985 (23-7-1986) and its clarification (7-8-1987) classified such goods under Chapter 49 of the Central Excise Tariff Act, 1985, treating them as products of the printing industry and attracting duty exemptions under Notifications 122/1975 and 234/1982.
With Circular No. 6/1989 dated 16-1-1989, the Board reclassified the same goods under Chapter 39 as packaging materials. The appellant accepted this reclassification prospectively but disputed show-cause-cum-demand notices that sought to apply Chapter 39 for the earlier period. CEGAT, by orders dated 21-10-1997 and 16-7-1997, rejected the appellant’s challenge. The present Supreme Court appeals arise from those CEGAT orders.
Legal Issues Presented
- Whether circulars issued by the Central Board of Excise & Customs under Section 37-B of the Central Excise Act, 1944 are binding on departmental authorities to the extent that the Department cannot act contrary to them or question their correctness.
- Consequently, whether the appellant’s products manufactured prior to 16-1-1989 must be classified under Chapter 49 (printing industry) and enjoy the accompanying duty exemptions, rendering the impugned show-cause-cum-demand notices illegal.
Arguments of the Parties
Appellant's Arguments
- Circular No. 4/1985 (23-7-1986) and the clarificatory circular (7-8-1987) mandated classification of its products under Chapter 49 with exemption benefits; these circulars were binding on the Department for the period before 16-1-1989.
- Circular No. 6/1989 changed the classification only prospectively; the appellant has complied with it from 16-1-1989 onward.
- Because the Department’s show-cause-cum-demand notices contradict the circulars in force during the earlier period, they are void ab initio and must be quashed.
Respondent (Union of India) Arguments
- Circulars, though binding on departmental officers, are not binding on adjudicating authorities such as CEGAT; therefore, the Tribunal could independently determine the correct classification.
- The later Circular No. 6/1989 and this Court’s decision in Rollatainers Ltd. v. Union of India supported classification of the goods under Chapter 39, justifying dismissal of the appellant’s claim.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Rollatainers Ltd. v. Union of India, 1994 Supp (3) SCC 293 | Classification of similar laminated materials under the tariff. | Cited by the respondent; the Court did not rely on it to override binding circulars. |
| Collector of Central Excise, Patna v. Usha Martin Industries, (1997) 7 SCC 47 | Circulars issued under Section 37-B are binding on the Department. | Relied upon to affirm that departmental authorities cannot act contrary to Board circulars. |
| Ranadey Micronutrients v. Collector of Central Excise, (1996) 10 SCC 387 | Purpose of circulars is to ensure uniform practice; Revenue cannot repudiate them even if allegedly inconsistent with statute. | Used to stress that consistency and discipline outweigh winning litigation; Department is bound by the circulars. |
| Collector of Central Excise, Bombay v. Jayant Dalal (P) Ltd., (1997) 10 SCC 402 | Revenue cannot challenge or appeal against the binding nature of Board circulars. | Quoted to bar the Department from contesting the circulars’ validity. |
| CCE v. Kores (India) Ltd., (1997) 10 SCC 338 | Same proposition: Department is bound by Board circulars. | Further reinforced the binding effect of the circulars on departmental action. |
Court's Reasoning and Analysis
The Court began by noting that the central issue—legal effect of Board circulars under Section 37-B—had been settled by multiple Supreme Court decisions. Those authorities establish three propositions:
- Board circulars are binding on departmental officials.
- The Department cannot dispute, ignore, or appeal against circulars, even on the ground that a circular conflicts with statutory provisions.
- Uniformity and administrative discipline take precedence over revenue considerations.
Applying these principles, the Court observed:
- Between 23-7-1986 and 15-1-1989, two Board circulars expressly classified the appellant’s products under Chapter 49. The Department was obliged to follow them.
- Circular No. 6/1989 first altered this position and, by a subsequent Circular No. 29/1989 (5-5-1989), the Board itself declared the change to be prospective.
- Therefore, any show-cause or demand notice attempting to apply the new classification retrospectively conflicted with the binding circulars then in force and was legally unsustainable.
The Tribunal’s contrary conclusion rested on a view it was not entitled to adopt because adjudicating authorities within the Department are equally bound by Section 37-B circulars.
Holding and Implications
Appeals Allowed; Tribunal’s orders dated 21-10-1997 and 16-7-1997 set aside. The impugned show-cause-cum-demand notices are quashed, bank guarantees discharged, and the appellant entitled to all consequential benefits.
Implications: The decision reiterates and strengthens the doctrine that CBEC circulars issued under Section 37-B are unassailable by departmental authorities and must be applied until formally withdrawn or modified. It affords the appellant monetary relief but sets no new legal precedent beyond reinforcing existing jurisprudence on the binding nature of such circulars.
N. Santosh Hegde, J.— These appeals are preferred against two orders of the Customs, Excise and Gold (Control) Appellate Tribunal (for short “CEGAT”) dated 21-10-1997 made in Appeal No. E/4412/95-SB(WR) and an order dated 16-7-1997 made by CEGAT refusing to review/clarify its earlier order dated 21-10-1997. Both the appeals arise out of the same dispute.
2. The appellant in the above appeals in manufacturing (a) printed polyester films backed with paper; (b) printed polyester films backed with polythene films; and (c) printed polyester films backed with aluminium foils; all of which are used either as labels, pouches or wrappers. It is the contention of the appellant that by virtue of the circulars issued by the Central Board of Excise & Customs (hereinafter referred to as “the Board”) dated 23-7-1986 and clarificatory circular issued by the Board dated 7-8-1987; the aforesaid products of the appellant are to be classified as the products of the printing industry subject to duty under Chapter 49 of the Schedule to the Central Excise Tariff Act, 1985. Consequently, the appellants contend that their products are entitled to the benefit of duty exemption available by virtue of Notifications Nos. 122 of 1975 and 234 of 1982 as applicable at the relevant time. It is the common case of the parties that the view taken by the Board in the above-mentioned circulars dated 23-7-1986 and 7-8-1987 was reviewed with effect from 16-1-1989 by virtue of Circular No. 6 of 1989 of the Board dated 16-1-1989. Consequently, the said products of the appellant are now to be classified as the products of the packaging industry coming within Chapter 39 of the Schedule to the Central Excise Tariff Act, 1985. The appellant also submits that with effect from the said date the appellant is classifying its products in terms of Circular No. 6 of 1989 dated 16-1-1989. However, it is contended that in view of the fact that prior to issuance of the said circular dated 16-1-1989, Circular No. 4 of 1985 being in force, the appellant's products are liable to be classified for duty under Chapter 49 of the Act. It was also contended that these circulars being binding on the Department, they are bound in law to comply with the same and the show-cause-cum-demand notices issued by the authorities being contrary to the relevant circulars in force, the said notices/demands are liable to be quashed. On behalf of the Union, it is contended that though the circulars in question are binding on the Department, they are not binding on the adjudicating authorities, therefore, it was open to the Tribunal to have independently considered the case and having done so correctly, the appellant's appeals before us are devoid of any merit.
3. It is not necessary to go into the facts of the case elaborately in view of certain admitted facts. The respondent does not dispute that by virtue of circular dated 23-7-1986 and as clarified by circular dated 7-8-1987, the products manufactured by the appellant will have to be classified under Chapter 49 of the Act at the relevant time but it contends that the circulars referred to above did not correctly reflect the correct classification and correct position as clarified by the subsequent circular of the Board dated 16-1-1989 and also in view of the judgment of this Court in the case of Rollatainers Ltd. v. Union of India 1994 Supp (3) SCC 293, (1994) 72 ELT 793 the Tribunal was justified in dismissing the appeal of the appellant.
4. The question for our consideration in these appeals is: what is the true nature and effect of the circulars issued by the Board in exercise of its power under Section 37-B of the Central Excise Act, 1944? This question is no more res integra in view of the various judgments of this Court. This Court in a catena of decisions has held that the circulars issued under Section 37-B of the said Act are binding on the Department and the Department cannot be permitted to take a stand contrary to the instructions issued by the Board. These judgments have also held that the position may be different with regard to an assessee who can contest the validity or legality of such instructions but so far as the Department is concerned, such right is not available. (See CCE v. Usha Martin Industries (1997) 7 SCC 47.) In the case of Ranadey Micronutrients v. CCE (1996) 10 SCC 387, (1996) 87 ELT 19 this Court held that the whole objective of such circulars is to adopt a uniform practice and to inform the trade as to how a particular product will be treated for the purposes of excise duty. The Court also held that it does not lie in the mouth of the Revenue to repudiate a circular issued by the Board on the basis that it is inconsistent with a statutory provision. (emphasis supplied) Consistency and discipline are, according to this Court, of far greater importance than the winning or losing of court proceedings. In the case of CCE v. Jayant Dalal (P) Ltd. (1997) 10 SCC 402 this Court has held that it is not open to the Revenue to advance an argument or even file an appeal against the correctness of the binding nature of the circulars issued by the Board. Similar is the view taken by this Court in the case of CCE v. Kores (India) Ltd. (1997) 10 SCC 338
5. It is clear from the abovesaid pronouncements of this Court that apart from the fact that the circulars issued by the Board are binding on the Department, the Department is precluded from challenging the correctness of the said circulars even on the ground of the same being inconsistent with the statutory provision. The ratio of the judgment of this Court further precludes the right of the Department to file an appeal against the correctness of the binding nature of the circulars. Therefore, it is clear that so far as the Department is concerned, whatever action it has to take, the same will have to be consistent with the circular which is in force at the relevant point of time.
6. As stated above, it is an admitted fact that by virtue of Circular No. 4 of 1985 dated 23-7-1986 as clarified by circular dated 7-8-1987, all the three products of the appellant are to be treated as products of the printing industry and not that of the packaging industry. A change in the said view of the Board occurred for the first time by virtue of its Circular No. 6 of 1989 dated 16-1-1989. Further, the Board itself by its subsequent Circular No. 29 of 1989 dated 5-5-1989 has made it abundantly clear that the change notified in Circular No. 6 of 1989 will be prospective from the date of issuance of Circular No. 6 of 1989, that is, from 16-1-1989. Therefore, it is clear that till the issuance of Circular No. 6 of 1989 which is dated 16-1-1989 the products of the appellant, by virtue of the two circulars dated 23-7-1986 and 7-8-1987, have to be classified under Chapter 49 of the Act as being products of the printing industry eligible for exemption of duty under Notifications Nos. 122 of 1975 and 234 of 1982 as applicable at the relevant time. The impugned show-cause notices and consequent demand being ab initio bad inasmuch as the same was contrary to the existing circulars of the Board, the same cannot be sustained.
7. That being the case, these appeals are liable to be allowed and the impugned orders of the Tribunal are set aside. The show-cause-cum-demand notices impugned in these proceedings are quashed. The appellant will be entitled to all consequential benefits flowing from this judgment. The bank guarantees stand discharged. No costs.
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