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Reliance Industries v. Commissioner Of C. Ex., Mumbai-Iii
Structured Summary of the Opinion (Gowri Shankar, Member (T))
Factual and Procedural Background
The Appellant-company manufactures polyester yarn (POY). In May 1992 it applied to the Assistant Collector for permission under sub-rule (2) of Rule 57F to remove POY to its factory at Naroda, Gujarat for texturising and to clear the texturised product from that factory. The Assistant Collector granted permission in the same month. The appellant removed POY to Naroda, had it texturised and cleared texturised yarn; about 85% of the texturised yarn was exported under bond without payment of duty and the remainder was cleared for home consumption on payment of duty as appropriate.
By letter dated 4 December 1992, the Assistant Collector informed the appellant that the tariff entry for polyester yarn was not specified in the Table to Notification 211 of 1986 and therefore the Modvat-related provisions did not apply to these goods; consequently the permission under sub-rule (2) to Rule 57F was declared not valid and withdrawn. Following withdrawal, a show-cause notice was issued to the appellant proposing recovery of duty in respect of POY removed without payment of duty in the period 5 June 1990 to 31 December 1990. The Collector confirmed the demand on the ground that permission could not have been granted because POY was not an input specified in the notification, and the permission was thus outside the purview of the Modvat Rules. The appellant appealed against that order, leading to this opinion.
Legal Issues Presented
- Whether a permission granted under sub-rule (2) of Rule 57F that was not in accordance with law (because the goods were not notified) had the effect of restraining the Department from recovering duty for goods removed without payment while that permission remained in force.
- Whether Rule 56A (and related notifications/provisions) applied to the appellant's case and whether the Collector erred in refusing to consider the availability of Rule 56A.
- What factual and documentary verification is required at the field level (including exclusion of quantities imported duty-free under schemes such as DEEC) to determine whether any benefit should be granted and to correlate cleared POY with exported or duty-paid texturised yarn.
Arguments of the Parties
Appellant's Arguments
- When permission under sub-rule (2) to Rule 57F was granted, the Department was aware that POY was not a notified input; notwithstanding that knowledge, it granted permission — therefore removal of goods without payment of duty during the period when the permission was in force cannot be questioned after cancellation of the permission.
- Decisions of the Tribunal in Himadri Electrical Pvt. Ltd. v. C.C.E (1987 (29) E.L.T 140) and C.C.E v. Shri Bagavathi (1997 (92) E.L.T 240) support the proposition that benefits under a permission granted by the Department should continue until withdrawal.
- The duty structure was such that duty was payable only on POY and texturised yarn manufactured out of duty-paid POY was (as asserted) relieved from further duty; insisting on payment now on the POY would amount to double payment on quantities cleared for home consumption. Both POY and texturised yarn are (it was contended) covered by notifications under Rule 56A and the provisions of Rule 56A would ensure duty is not paid twice.
- Goods exported are not required to pay duty; Rule 12(a) provides for clearance without payment and for rebate if duty was paid, and Rule 13(1)(c) permits removal of excisable material without payment of duty for manufacture of export goods. Thus, POY that was texturised and then exported should not attract duty.
Department's Arguments
- The permission granted under sub-rule (2) of Rule 57F was invalid when granted because neither the raw materials nor the finished product were notified under the relevant rule; consequently the permission was legally void ab initio and could not be treated as valid until withdrawal.
- Withdrawal of a wrongly granted permission is not a mere review; the legality of the permission is examinable and duty short-paid or not paid can be recovered independently under sub-section (1) of section 11A. The Department relied on the Supreme Court decision in LML Ltd. v. Union of India, 1987 (28) E.L.T 234 (S.C) in this regard.
- The appellant had also cleared quantities of POY imported under advance licences or the DEEC scheme without payment of duty; any benefit on account of export of the finished product must be verified to ensure it does not extend to POY imported without payment of duty.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Himadri Electrical Pvt. Ltd. v. C.C.E, 1987 (29) E.L.T 140 | That relief granted under a departmental permission may continue to be available until it is withdrawn (Tribunal held permission's benefit ceased only after withdrawal in that factual context). | The Court reviewed the facts of Himadri and distinguished them from the present case (noting that in Himadri there was a trade notice and the assessee had voluntarily paid duty), concluding that the present facts were different and Himadri did not entitle the appellant to benefit here. |
| C.C.E v. Shri Bagavathi Tea Estate, 1997 (92) E.L.T 240 | Where the Department itself had treated a product as a semi-finished product and granted permission under a rule limited to semi-finished products, clearances under that permission were held valid. | The Court noted the Bagavathi decision but distinguished it: in the present case there was no departmental perception or trade notice treating POY/texturised yarn as falling within the relevant rule. |
| LML Ltd. v. Union of India, 1987 (28) E.L.T 234 (S.C.) | Supports the proposition that duty short-paid or not paid can be recovered under statutory provisions (section 11A(1) was specifically referred to in the opinion). | The Department relied on this Supreme Court decision; the Court recorded that the Department argued recovery under s.11A(1) is independent of any permission wrongly granted. |
Court's Reasoning and Analysis
The Court's reasoning follows the sequence in the opinion; the analysis is confined to the materials and arguments as presented.
- The Court first posed the central question whether a departmental permission, granted though not in accordance with law (because goods were not notified), had the effect of restraining the Department from recovering duty for removals made without payment while that permission was in force. It accepted that the permission could not lawfully have been granted.
- The Court examined the appellant's precedents (Himadri and Bagavathi) and recited their facts and holdings:
- In Himadri the Tribunal found that, given the factual matrix (including a trade notice and the assessee's conduct), the relief under permission ceased only after withdrawal.
- In Bagavathi the Tribunal upheld clearances under permission because the Department itself had treated the product as falling within the permissive rule.
- Applying the legal principle that there can be no estoppel against law, the Court concluded that a permission clearly contrary to law cannot be relied upon by the appellant to prevent recovery of duty. Therefore the appellant could not claim the benefit of the invalid permission.
- The Court found error in the Collector's procedural approach: the Collector declined to consider the availability of Rule 56A on the ground that it was not an issue before him. The Court held that an assessee may raise the applicability of a notification at any stage and the Collector was obliged to consider and decide on that argument. Accordingly, the Collector's refusal to consider Rule 56A was incorrect.
- Because some of the arguments raised before the Tribunal had not been advanced before the Collector, and because the Collector had erred in not considering Rule 56A, the Court directed that the Collector (Commissioner on remand) should give findings on those arguments and adjudicate afresh.
- The Court emphasized that certain factual verifications at the field level are unavoidable if any benefit is to be granted. Specifically:
- Any benefit (if held available) would be limited to POY manufactured and cleared without payment of duty; quantities imported under schemes such as DEEC or otherwise without payment must be excluded.
- There must be correlation/verification that POY cleared without payment was actually converted into texturised yarn and that the resulting texturised yarn was exported or cleared on payment of duty as claimed.
Holding and Implications
Core Ruling: The Court set aside the order in appeal and remanded the matter to the Commissioner for fresh adjudication.
Consequences and Implications:
- The Collector's order confirming the demand was set aside and the Commissioner is directed to hear the appellant and adjudicate the matter according to law.
- The Commissioner must consider, and give findings upon, the applicability of Rule 56A and other arguments raised by the appellant which were not previously decided at the Collector level.
- Any entitlement to benefit (if ultimately found available) is to be limited to POY manufactured and cleared without payment of duty; imported POY cleared under duty-exempt schemes (such as DEEC) must be excluded from any such benefit.
- The Commissioner must carry out factual verification and correlate quantities of POY cleared without payment with quantities of texturised yarn claimed to have been produced from that POY and exported or cleared on payment of duty.
- The opinion distinguishes the present facts from the earlier precedents relied on by the appellant and applies the principle that an invalid permission cannot create estoppel against recovery of duty; the Court did not lay down a new legal principle but directed re-adjudication on the merits and fact-verification.
This summary is based exclusively on the content of the provided opinion and does not add information beyond the text of that opinion.
Gowri Shankar, Member (T):— The Appellant-company is engaged in the manufacture of polyester yam (POY). It applied, in May, 1992, to the Assistant Collector, for permission to remove the POY under sub-rule (2) of Rule 57F to its factory at Naroda, Gujarat for texturising and on such texturising to be cleared from that factory. The Assistant Collector, in the same month, granted permission. Appellant thereafter cleared the texturised yam without payment of duty, and removed it to its factory at Naroda, where it was texturised. The bulk of such texturised yam exported about 85% was under bond without payment of duty. Remaining portion was cleared on payment of appropriate duty for home consumption. By letter dated 4th December, 1992, the Assistant Collector informed the appellant that since the tariff entry in which polyester yam fell was not specified in the Table to the Notification 211 of 1986, none of the provisions of rule relating to Modvat would apply to these goods. Therefore, the permission under sub-rule (2) to Rule 57F was not valid and was withdrawn. Following this withdrawal, a notice was issued to the appellant to show cause why duty should not be recovered and a quantity of POY removed without payment of duty between 5th June, 1990 to 31st December, 1990. In the order impugned in the appeal, the Collector has held that permission could not have been granted under sub-rule (2) to Rule 57F since the POY was not an input specified in the notification. Therefore, permission was outside the purview of the Modvat Rules. He therefore, confirmed the demand for duty. Hence this appeal.
2. Advocate for the appellant raised the following contentions: When the appellant asked for permission for removal of goods under sub-rule (2) to Rule 57F, the Department has been aware that the POY was not a notified input. Despite this, however, the Department granted the permission. Therefore, removal of goods without payment of duty during the period when the permission granted was in force cannot be questioned following the cancellation of the permission. The decisions of this Tribunal in Himadri Electrical Pvt. Ltd. v. C.C.E, 1987 (29) E.L.T 140, and C.C.E v. Shri Bagavathi, 1997 (92) E.L.T 240 are cited in support. It is next contended that duty structure was such that duty was payable only on the POY, and texturised yam manufactured out of duty paid POY was from payment of duty. Therefore, if payment of duty, on the POY is now insisted upon, it would amount to double payment of duty in respect of that quantity of texturised yam which was cleared for home consumption. It is contended in this regard that both POY and texturised yam are notified under the provisions of Rule 56A. Apart from the benefit of the notifications, the provisions of Rule 56A would be available. This would again require that duty paid is only once and not at two stages.
3. A related argument raised is that goods which are exported are not required to pay duty. There is specific provision for clearance of these goods without payment of duty under Rule 12(a), and for rebate of duty if paid under Rule 12. Clause (c) of sub-rule (1) of Rule 13 allowed removal of excisable material without payment of duty for manufacture of export goods. According to these rules, finished excisable goods can be removed for export without payment of duty, against draw back of duty would be available in terms of Rule 12(a), on the duty paid on the raw materials used in the manufacture of the texturised yarn i.e POY. Even without application of this provision, by virtue of the provision of Rule 13(l)(c) duty is not payable on the POY which was texturised and exported.
4. Advocate for the Department contends that the permission granted under sub-rule (2) of Rule 57F was invalid when it was granted because of the fact that neither the raw materials nor finished product were notified under Rule 57F. It cannot, therefore, be argued that the permission was valid till it was cancelled. Withdrawal of such a wrongly granted permission does not amount to any review and it cannot be argued that the permission ceased to operate only when it was formally withdrawn. In any event, duty short-paid or not paid can be recovered independently in terms of sub-section (1) of section 11A. He cites the decision of the Supreme Court in LML Ltd. v. Union of India, 1987 (28) E.L.T 234 (S.C). He contends that in addition to its own manufacture, the appellant has been clearing through import quantities of POY, some of which had not paid any duty, having been imported under advance licences under the DEEC Scheme. Therefore, if any, benefit is to be granted on the ground that the finished product has been exported, it is necessary to verify that such benefit does not extend to POY imported without payment of duty.
5. We first have to see whether notwithstanding the fact neither POY nor texturised yam were notified under Rule 57A, the grant of permission by the Department had the effect of restraining it from recovering duty for the goods cleared without payment in terms of that permission. It was not disputed that the goods not being notified such permission could not have been granted in accordance with law. In Himadri Electrical Pvt. Ltd. v. C.C.E, the facts before the Tribunal were briefly as follows: The assessee manufactured electric fans. He also manufactured rotors and stators parts used in manufacture of fans and for such manufacture obtained from the market duty paid electrical stampings and laminations, rotors and stators captively used in manufacture of fans were exempted from duty by Notification 28/69. By another notification duty paid on stampings and laminations could be set off against duty paid on rotors and stators. The assessee was permitted by the Assistant Collector to avail of the proforma credit of the duty paid on stampings and laminations to be used towards payment of duty of electric fans. Subsequently this permission was withdrawn on the ground that it was not according to law and the credit of the duty paid on stampings and laminations was disallowed. The correctness of this action was questioned before the Tribunal. The Tribunal noted that the assessee had voluntarily offered to pay duty on rotors and stators and again on regulators and fans, though no duty was payable on stators and rotors in view of Notification No. 28/69, and that it was only as a consequence of a trade notice that the appellant approached the Assistant Collector and obtained the orders. In the facts of that case the Tribunal held that the relief granted under permission would cease to be available only after it was withdrawn.
6. The background to the decision in C.C.E v. Shri Bagavathi Tea Estate was that assessee was given permission under Rule 56B to remove without paying duty tea emerging from the drier mouth to another factory and availed of this permission. Subsequently the Department held that the tea in question was not a semi-finished product and hence permission under Rule 56B which is limited to semi-finished product could not be granted, and duty was demanded on the tea removed. The Tribunal held that the tea was validly cleared by the assessee under the permission granted under Rule 56B since the Department itself had considered the tea to be a semi-finished product.
7. The facts before us are quite different. Here there is no question of any trade notice having been issued by the Department supporting the permission granted or conclusion by the Department as to whether a particular produce is semi-finished or not. The POY in question was quite clearly not an input under Rule 56A nor was texturised yarn finished product in terms of that rule. It cannot, therefore, be said that the permission granted was in accordance with the law or procedure understood by the Department, or based on the perception of the nature of such goods by the Department. It is settled that there can be no estoppel against law. The permission as granted is clearly contrary to law and the appellant cannot claim benefit of that permission.
8. We note that the Collector had declined to consider the question of availability of Rule 56A on the ground that, that was not the issue in the proceedings before him. The Collector was not right in refusing to consider this question. An assessee can raise the availability of a notification or of a particular procedure at any stage, the Collector was required to deal with this argument and give a folding.
9. The other arguments which were advanced before us were not advanced before the Collector, as is clear from the reply to the notice and the written submission. We have already observed that the Collector had erred in not considering extensive arguments raised in regard to the availability of Rule 56A and we are of the view that the Collector should give finding on this. In view of this we consider it appropriate for him to give a finding on its other arguments raised by the appellant before us.
10. In our view, it is not possible to avoid verification of certain factual aspects of the matter. If it is held that the benefit claimed by the advocate for the appellant is available (on which we expressed no opinion) it would, in any case, be limited to POY manufactured and cleared without payment of duty. Quantities imported under the DEEC scheme or otherwise without payment of duty will necessarily have to be excluded. This was one of the contentions raised by the advocate for the Commissioner. Further, co-relation is unavoidable to ensure that quantities of POY which were cleared without payment of duty were actually exported after being converted to texturised yarn. Therefore, co-relation between the POY cleared by the appellant and texturised yam which is claimed to have been manufactured out of that has to be undertaken. Further, it has also to be ensured that that quantity of texturised yam was exported or cleared on payment of duty. These matters would obviously have to be attended to at the field level.
11. Accordingly we set aside the order in appeal. The Commissioner shall hear the appellant and adjudicate the matter according to law.
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