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Ascu Arch Timber Protection Ltd. v. Commissioner Of Central Excise, Calcutta .
Factual and Procedural Background
ASCU manufactures wood preservatives and also treats timber through an impregnation process. A dispute arose over whether this process results in the manufacture of “densified wood,” an excisable commodity. The Collector decided in favour of ASCU and two other assessees, holding that no “densified wood” came into existence. The Department appealed to the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT), which reversed the finding on manufacture but dismissed the Department’s demand as time-barred.
ASCU challenged the Tribunal’s finding on manufacture (Civil Appeal No. 5192 of 1998), while the Revenue challenged the limitation finding (Civil Appeals Nos. 3228-30 of 1999). ASCU also filed a rectification application; by majority, the Tribunal reviewed and set aside its own order. In CCE v. ASCU Ltd. (2003 9 SCC 230), the Supreme Court ruled that the Tribunal had no power to review, thereby reviving the original appeals now decided by the present order.
Legal Issues Presented
- Whether ASCU’s treatment of timber results in the manufacture of “densified wood” liable to excise duty.
- Whether the Department may invoke the extended period of limitation against ASCU and the two other assessees.
Arguments of the Parties
Appellant (ASCU)
- The Tribunal impermissibly relied on test reports and materials pertaining to other assessees to conclude that ASCU manufactures “densified wood.”
- Without those external materials, there is insufficient evidence to sustain the finding of manufacture.
Respondent (Revenue)
- Even discarding the impugned test reports, the Tribunal’s order contains adequate evidence to support the conclusion that ASCU produces “densified wood.”
- The Tribunal erred in holding the demand against the other two assessees time-barred; limitation should be decided separately on the record relating to each assessee.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CCE v. ASCU Ltd. (2003) 9 SCC 230 |
Tribunal lacks power to review its own final orders. | Explained the procedural history; this earlier judgment reinstated the present appeals after the Tribunal’s self-review was quashed. |
| Dhirajlal Girdharilal v. Commissioner of Income Tax, Bombay (1954) 26 ITR 736; AIR 1955 SC 271 |
When a fact-finding body relies on partly irrelevant or inadmissible material, the entire finding is vitiated. | Used to justify setting aside the Tribunal’s order because it relied on test reports of other assessees while deciding ASCU’s case. |
Court's Reasoning and Analysis
The Supreme Court observed that the Tribunal’s common order drew upon evidence—namely test reports and literature—belonging to two different assessees to reach an adverse finding against ASCU. Citing Dhirajlal Girdharilal, the Court held that a finding influenced by inadmissible material cannot stand because it is impossible to gauge the extent of taint. The Court rejected the Revenue’s submission that sufficient admissible material independently supported the Tribunal’s conclusion, reasoning that the Tribunal itself had previously recognised the error when it attempted to review its order. Consequently, a fresh determination by the Tribunal is necessary, confined strictly to the existing record. The Court also clarified that ASCU cannot raise a new argument—that no manufacture occurs even if the product is “densified wood”—because it had never been urged earlier.
Holding and Implications
ORDER SET ASIDE AND MATTER REMITTED. The Tribunal’s decision is annulled insofar as it concerns ASCU, and the case is remanded for reconsideration on the existing evidence. In the Revenue’s appeals, the Supreme Court allowed the Department’s challenge on limitation against Respondents 2 and 3, setting aside the Tribunal’s contrary finding. No order as to costs.
Implications: ASCU’s liability to excise duty on “densified wood” will be re-examined by the Tribunal without reliance on material from other parties. For the two other assessees, the Department’s demands are no longer barred by limitation. The ruling reinforces the principle that adjudicatory bodies must base findings solely on admissible, party-specific evidence.
Order
1. All these appeals can be disposed of by this common order.
2. Briefly stated, the facts are as follows:
The appellants in Civil Appeal No. 5192 of 1998 will hereinafter be referred to as ASCU. They manufacture preservatives for the purpose of preserving wood and timber against insects and other natural hazards. In respect of the preservatives there is no dispute. However, ASCU also put wood through a process and then impregnate it with their own preservatives. The question which arises is whether “densified wood” has come into existence by virtue of the process undertaken by them.
3. The Collector held in favour of the assessee and held that “densified wood” had not come into existence. The Collector also so held in favour of two other parties who are Respondents 2 and 3 in Civil Appeals Nos. 3228-30 of 1999. The Department filed three appeals before the Tribunal. The Tribunal took up all the appeals together and passed a common order. In passing a common order, the Tribunal relied on statements made by the Director of ASCU. It also relied upon the literature of ASCU and on two test reports which pertained to samples taken from the other two parties. Based on these materials, the Tribunal held that “densified wood” had been manufactured. The Tribunal, however, dismissed the appeal of the Department on the ground of limitation. It did so again only on the basis of correspondence exchanged between the Department and ASCU.
4. The other two parties have not challenged the Tribunal's order at all. ASCU filed Civil Appeal No. 5192 of 1998 challenging the finding that “densified wood” was manufactured. The Revenue filed Civil Appeals Nos. 3228-30 of 1999 challenging the finding that the extended period of limitation was not available. ASCU also filed a rectification application before the Tribunal on the basis that there was an error apparent on the face of the record. There was difference of opinion amongst the Members and therefore the matter was referred to a third Member. By majority it was held that as the test reports pertaining to the other two parties were relied upon for arriving at a finding against ASCU there was an error apparent on the face of the record. The Tribunal had thus set aside its own order. As the Tribunal had set aside its earlier order these appeals stood disposed of as infructuous. Against that order an appeal was filed to this Court. This Court by its judgment in the case of CCE v. ASCU Ltd. (2003) 9 SCC 230 held that in effect the Tribunal had reviewed its own order. It was held that the Tribunal had no power to review. This Court thus set aside the order reviewing the earlier order. These appeals were revived by this Court.
5. We have heard the parties at great length. We find that the Tribunal has, in considering the three appeals, used materials which pertained to one party to arrive at a finding against another party. This the Tribunal could not have done. It was submitted that even if the test reports pertaining to the other parties are ignored, the order of the Tribunal discloses that there is sufficient material to arrive at the conclusion that ASCU is manufacturing “densified wood”. We find ourselves unable to accept this argument. As noted above, the Tribunal had itself set aside its order, inter alia, on the ground that they strongly relied on material which they could not have relied upon. It is not possible for us to conclude whether or not in the absence of the test reports the Tribunal would have still arrived at the same conclusion. In our view, the following observations of this Court in the case of Dhirajlal Girdharilal v. CIT (1954) 26 ITR 736, AIR 1955 SC 271 apply with full force to this case: (AIR p. 273, para 5)
“The learned Attorney General frankly conceded that it could not be denied that to a certain extent the Tribunal had drawn upon its own imagination and had made use of a number of surmises and conjectures in reaching its result. He, however, contended that eliminating the irrelevant material employed by the Tribunal in arriving at its conclusion, there was sufficient material on which the finding of fact could be supported. In our opinion, this contention is not well founded. It is well established that when a court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises.”
As it is not possible for us to arrive at a conclusion, we set aside the order of the Tribunal and remit the matter back to the Tribunal. We, however, clarify that we are setting aside the order only qua ASCU and not qua the other two parties who have not challenged that order at all.
6. Before we part there is one aspect which we must clarify. In the course of argument before us, it was sought to be submitted that even if it is held that the appellants' product is “densified wood” even then there would be no manufacture. This is not a point which has been taken up at any stage and will not be allowed to be urged before the Tribunal. The Tribunal will restrict itself to the material which is already on record and decide on the basis of that material whether or not the Department has shown that “densified wood” has come into existence and whether or not the extended period of limitation could be invoked.
7. In Civil Appeals Nos. 3228-30 of 1999 i.e Revenue's appeals on the aspect of limitation, we find from the Tribunal's judgment that it was decided against the Revenue only on the basis of material produced by ASCU. There is no material to show that the claim against the others was also time-barred. Therefore, in their case there was no justification for holding that the demand against them was barred by limitation. To this extent, Civil Appeals Nos. 3228-30 of 1999 succeed. The finding of the Tribunal that the claim was barred by limitation as against Respondents 2 and 3 therein is set aside.
8. The appeals are disposed of accordingly. There will be no order as to costs.
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