Citation Codes

Equivalent Citations

citation codes

Case Number

Order No. 1700/90-A in Appeal No. E/2888/84-A

Judges

I.J Rao, Member (T)
Jyoti Balasundaram, Member (J)
S.V Maruthi, Member (J)

Acts

Central Excise [ (Bom.)]. In 1982, explanation to Section 4(4)(d)(ii) of the Central Excises & Salt Act
Section 35A(2) of the Central Excises and Salt Act, 1944,
provisions of the Finance Act 2 of 1980
Central Excises & Salt Act, 1944.
Finance Act No. 47/82

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Smart Summary

Structured Summary of the Tribunal's Order (per I.J. Rao, Member (T))

Factual and Procedural Background

This matter arises from an Assistant Collector's order dated 6-12-1979. The Collector of Central Excise issued a show cause notice on 7-6-1980 under Section 35A(2) of the Central Excises and Salt Act, 1944, seeking to review the Assistant Collector's order. An appeal-in-appeal (order-in-appeal No. 181/CE/JPR/84) dated (as recorded in the opinion) 6/20-9-1984 was filed and challenged in this Tribunal. The appellants pursued remedies in the Rajasthan High Court and ultimately filed a special leave petition in the Supreme Court.

The Supreme Court, by its order in Civil Appeal No. 601 of 1983 dated 27-7-1990, directed that the review show cause notice dated 7-6-1980 be transferred to the Tribunal for adjudication and that the Tribunal had jurisdiction to consider whether the notice should have been issued under the relevant finance provisions. Pursuant to that direction, the Tribunal heard both the appeal and the review show cause notice.

The controversy centers on interpretation of Notification No. 198/76-C.E. Two principal questions were identified: (i) whether assessable value can be recalculated taking into account part of concessional duty availed by manufacturers but not passed on to customers; and (ii) whether for calculating excess production (relevant to concessional rates) the adjusted value of base clearance (as per the notification) or the actual value should be taken. The Collector had proposed, by the review show cause notice, to set aside a refund sanction order for Rs. 10,53,778.40 issued by the Assistant Collector; the Collector relied on an assumption about when the refund claim (Rs. 4,02,790/-) was received and asserted that the notification did not envisage refund to the assessee.

Legal Issues Presented

Whether the assessable value can be recalculated by taking into account that part of the concessional duty availed by manufacturers which was not passed on to customers (i.e., a valuation issue under Notification No. 198/76-C.E.).
Whether, for the purpose of calculating excess production (on which concessional rate is availed in terms of the notification), the value to be considered is the adjusted value of the base clearance (as per the notification) or the actual/unadjusted value.
Who is to fix the base clearance.
Whether the base clearance should be the actual clearance or the adjusted clearance in terms of Notification No. 198/76-C.E.
How limitation operates for refund claims (i.e., when limitation begins to run).
Whether the Collector's review show cause notice (dated 7-6-1980) survives after the Assistant Collector's order merged into the Appellate Collector's order.

Arguments of the Parties

Appellants' Arguments (as presented by their counsel, Shri Khaitan)

The declaration of base clearance and base period was made by the appellants on 2-4-1977 and the declarations were approved (after modification) by the Assistant Collector's order dated 6-12-1979.
The appellants obtained a refund to the extent both sides agreed was due; after dismissal by the Appellate Collector, they appealed to the Tribunal.
The base period 1975-76 was accepted; the dispute relates to whether base clearance value should be the adjusted value (as per Notification No. 198/76) rather than the actual value — the appellants contended for adjusted value.
Relying on the Delhi High Court judgment in Modi Rubber Ltd., they argued that it is the adjusted value of base clearance that should be considered.
The refund was not time-barred; limitation must be computed from the date of declaration of the base period and base clearance, and the refund claim was filed within six months of that date.
They relied on judgments (as cited) including Carborandum Universal Ltd. v. Union of India (Madras High Court), Collector of Central Excise, Indore v. Associated Cements Corporation Ltd. (Tribunal), and K. Manibhai & Co. v. Collector of Central Excise, Bombay (Tribunal) in support of their position on limitation and related issues.
The appellants maintained that nothing in central excise law or Notification No. 198/76 prevents refund of excess duty voluntarily paid and cited Tribunal decisions in Sahu Cylinders & Udyog (P) Ltd and Delhi Chemicals and Pharmaceutical Works (P) Ltd. for that proposition.
They also argued that the show cause notice could not survive because the Assistant Collector's order merged in the Appellate Collector's order (invoking the doctrine of merger).
Specific factual points: they said the declaration of base clearance was filed in April 1977; they contended the refund claim was in time, filed within six months from that date.

Revenue's Arguments (as presented by the learned SDR, Smt. Baliga)

The learned SDR submitted that Tribunal decisions have often been in favour of the Revenue and particularly relied upon a Bombay High Court judgment in Tata Engineering & Locomotive Co. Ltd. v. Assistant Collector of Central Excise to support the Revenue position.
It was pointed out that an explanation to Section 4(4)(d)(ii) of the Central Excises & Salt Act was inserted by Finance Act No. 47/82 with retrospective effect from 1-10-1975; on that basis the Delhi High Court judgment in Modi Rubber Ltd. (relied upon by the appellants) was said to be no longer good law (regarding valuation).
The SDR contended the refund claim was time-barred because it was filed more than six months after the payment of duty (i.e., limitation running from date of payment).
She supported the Collector's review and maintained that the Collector was exercising powers vested in him by the Central Excises & Salt Act, 1944.
The Revenue's position was that the base clearance should be taken at the unadjusted/actual figure rather than the adjusted value advocated by the appellants.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Supreme Court — Civil Appeal No. 601 of 1983 (order dated 27-7-1990)	The Supreme Court directed that the Collector's review show cause notice dated 7-6-1980 be transferred to the Tribunal and indicated the Tribunal's jurisdiction (under Finance Act 2 of 1980) to consider whether a notice should be issued to revise the refund already made.	The Tribunal proceeded to consider the transferred show cause notice on merits and heard arguments on it together with the pending appeal(s) as directed by the Supreme Court.
Tata Engineering & Locomotive Co. Ltd. v. Asstt. Collector of Central Excise (Bombay High Court) (referred)	Invoked by Revenue to support the proposition that earlier jurisprudence and statutory amendments (Finance Act No.47/82) affect the applicability of the Delhi High Court authority (Modi Rubber) on valuation.	Cited by the Revenue; the Tribunal noted this line of authority as part of the debate whether Modi Rubber remained good law for valuation questions.
Modi Rubber Ltd. v. Union of India (Delhi High Court) [1978 (2) E.L.T. (J) 127]	Holds that the exemption/notification requires adjustment of the value (by wholesale price index) so that the exemption is to be given after such adjustment — i.e., the adjusted value (not Section 4 value) should determine base clearance.	The Tribunal quoted paragraph 16 of Modi Rubber and, on that basis, accepted the appellants' plea that the adjusted value of base clearance should be taken for the purposes of the notification. The Tribunal nevertheless observed earlier in the order that Modi Rubber had been challenged by later authority/legislation in respect of valuation, but also noted it remained good law for other questions it dealt with.
Carborandum Universal Ltd. v. Union of India and Another (Madras High Court)	Determination of base period and base clearances must be accepted/determined by the Department; refund/quantification presupposes departmental approval of base period and base clearances. Also, limitation runs from the date of determination/approval of base period and base clearance.	The Tribunal relied on the Madras High Court's reasoning to hold that base clearance and base period, though declared by the assessee, had to be accepted by the Department and that limitation runs from the date of determination/approval; accordingly the Collector's observations to the contrary in the review show cause notice were held not valid on this aspect.
K. Manibhai & Co. v. Collector of Central Excise, Bombay (Tribunal)	Tribunal authority cited on questions concerning fixation of base clearances and related procedural issues (including references to limitation in similar contexts).	The Tribunal perused this Tribunal judgment and used it alongside Carborandum to conclude that base clearances and base period had to be accepted by the Department.
Munibhai & Co. (referred to as "Munibhai & Co. (supra)" / Tribunal)	The Tribunal (in that case) took the view that refund claims made in respect of duty paid up to six months prior to the date of declaration would be within the date of declaration for limitation purposes.	The present Tribunal noted this Tribunal authority and, while preferring the directly on-point ratio of the Madras High Court, referenced Munibhai & Co. in its conclusion on when limitation runs.
Associated Cements Corporation Ltd. v. Collector of Central Excise, Indore (Tribunal) (referred)	Referenced by appellants in support of their limitation/refund arguments (specific legal principle not spelled out in detail in the opinion).	Cited by the appellants; the Tribunal considered the line of authorities collectively in addressing limitation and refund questions.
Sahu Cylinders & Udyog (P) Ltd. v. Collector of Central Excise (Tribunal)	Tribunal authority cited by appellants for the proposition that voluntary excess payment can be refunded (i.e., nothing in law or Notification 198/76 prohibits refund of voluntarily paid excess).	Referenced by appellants to support entitlement to refund; the Tribunal recorded this citation while evaluating the refund claim but the order's final directions rested on limitation and valuation determinations.
Delhi Chemicals and Pharmaceutical Works (P) Ltd. v. Collector of Central Excise (Tribunal)	Another Tribunal authority cited for the proposition that excess payments voluntarily made are capable of being refunded.	Cited by appellants and recorded by the Tribunal as supporting material for their contention that refunds of excess duty voluntarily paid are permissible under the law.

Court's Reasoning and Analysis

The Tribunal heard arguments on both the appeal and the transferred review show cause notice. It identified four discrete questions to be decided: (i) who is to fix the base clearance; (ii) whether the base clearance should be the actual clearance or the adjusted clearance under Notification No. 198/76-C.E.; (iii) how limitation operates for refund claims; and (iv) whether the Collector's show cause notice can survive.

On the first question (who fixes base clearance), the Tribunal examined precedent, particularly the Madras High Court judgment in Carborandum Universal Ltd. and the Tribunal's K. Manibhai decision. The Madras High Court had observed that quantification of refund presupposes determination and approval of base period and base clearances by the Department. Applying that reasoning, the Tribunal held that although the assessee declares base clearance and base period, those declarations must be accepted/approved by the Department; accordingly, portions of the Collector's review notice criticizing the Department's fixation were held not valid.

On the second question (whether to take adjusted value or actual value of base clearance), the Tribunal considered the Delhi High Court's exposition in Modi Rubber Ltd. (paragraph 16) which explains that paragraph 2(1)(b) of the notification was enacted to permit adjustment (by wholesale price index) of the value found under Section 4 so that exemption is given after such adjustment. The Tribunal quoted this passage and, based on it, upheld the appellants' plea that the adjusted value of base clearance should be taken for the purposes of Notification No. 198/76-C.E. (The opinion also records an earlier observation that Modi Rubber had been challenged for valuation by later materials, but it proceeds to apply the quoted reasoning when deciding the second question.)

On limitation, the Tribunal noted that the Assistant Collector had not raised limitation and therefore it had not been agitated before the Appellate Collector. Nevertheless, because limitation is fundamental, the Tribunal addressed it. Relying on the Madras High Court in Carborandum and relevant Tribunal authority (Munibhai & Co.), the Tribunal held that limitation runs from the date of determination/approval of the base period and base clearance (i.e., limitation is computed from departmental approval/determination rather than from the date of payment alone). The Tribunal directed that refund claims be disposed of to the extent necessary in light of this finding.

On whether the show cause notice survives, the Tribunal noted that the Collector had issued the review notice under statutory powers. However, on 6-9-1984 (as recorded in the opinion) the impugned order-in-appeal was passed by the Collector (Appeals), at which point the Assistant Collector's order merged in the Appellate order and thus no longer survived independently. The Tribunal reasoned that once the Assistant Collector's order had merged in the appellate order, the Collector could not thereafter review the Assistant Collector's order; the proper remedy was to appeal against the appellate order. Consequently, the Tribunal held that the review show cause notice dated 7-6-1980 did not survive.

In summary, the Tribunal applied the departmental-approval principle for base clearances (Carborandum and related authorities), accepted that adjusted value should be used for base clearance valuation (quoting Modi Rubber), held that limitation runs from the date of departmental determination/approval of base period and base clearance, and concluded that the Collector's review show cause notice could not be sustained after merger of the Assistant Collector's order into the appellate order.

Holding and Implications

Holding: The Tribunal's operative conclusions (as recorded in the opinion) are:

The review show cause notice dated 7-6-1980 does not survive because the Assistant Collector's order merged into the Collector (Appeals) order (the proper remedy after merger being an appeal against the appellate order).
Refund claims of the appellants are to be considered applying limitation from the date of determination/approval of the base period and base clearance (i.e., limitation runs from departmental approval/determination), and on the basis that the adjusted value of the base clearance (as per Notification No. 198/76-C.E.) is the correct valuation for the purposes of calculating entitlement.
The appeal is disposed of accordingly.

Implications: As a direct consequence of the decision, the appellants' refund claims are to be adjudicated by reference to (a) the adjusted value of base clearance (per the Tribunal's application of the Modi Rubber reasoning), and (b) limitation computed from the date on which the Department determined/approved the base period and base clearance. The Collector's attempt to review the Assistant Collector's order by the show cause notice was held invalid post-merger. The opinion does not elaborate on broader doctrine beyond these direct effects; it therefore effects these immediate consequences for the parties without purporting to lay down a wider new precedent.

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National Engineering Industries Ltd. v. Collector Of C. Ex.

[Order per : I.J. Rao, Member (T)]. - We heard both sides in this appeal, which was filed against order-in-appeal No. 181/CE/JPR/84 dated 6/20-9-1984. The said order was in an appeal filed against the order-in-original passed by the Assistant Collector on 6-12-1979. On 7-6-1980, the Collector of Central Excise issued a show cause notice under Section 35A(2) of the Central Excises and Salt Act, 1944, seeking to review the Assistant Collector’s order. The appellants approached the Rajasthan High Court and ultimately filed a special leave petition in the Supreme Court. The Hon’ble Supreme Court on 27-7-1990 directed that the review show cause notice dated 7-6-1980 be transferred to this Tribunal for adjudication of the controversy involved. For the sake of completeness of the record we reproduce below the Supreme Court’s order in Civil Appeal No. 601 of 1983 passed on 27-7-1990.

“Pursuant to our order dated July 20, 1990 the matter was further taken up and counsel are heard. It is admitted that the appeals against the orders of the Collector dismissing the appeals of the appellants by Order dated February 29, 1984 and September 6, 1984 are now pending before the Tribunal. Under the provisions of the Finance Act 2 of 1980 the Tribunal has jurisdiction to consider whether a notice should be issued to revise the refund already made by the Assistant Collector in respect of which the Collector has already issued a notice under S. 35(A)(2) of the Old Act.

2. Since the notice dated 7-6-1980 has already been issued by the Collector under S. 35(A)(2), we think it proper that that notice shall be transferred to the Tribunal for adjudication of the controversy involved. Counsel for the appellant has no objection with regard to the procedure adopted by this Court and indeed, he submitted that it would be more appropriate. We accordingly direct that the notice dated June 7, 1980 issued under S. 35(A)(2) under the Old Act be transferred to the Tribunal for consideration on merits also for being disposed of with Appeal No. E-2888/84-D prepared by the appellant which is now pending. With the directions given, the appeal stands disposed of. The parties will have opportunity to raise all their contentions.

No costs."

2. In the light of these orders we heard arguments on the show cause notice also.

3. The interpretation of the provisions of the Notification No. 198/76-C.E. constitutes the subject matter of the dispute in this case. The two main questions involved are (i) whether the assessable value can be recalculated taking into consideration that part of the concessional duty of Central Excise availed by the manufacturers and not passed on to the customers and (ii) whether for the purpose of calculating excess production (on which concessional rate is availed of, in terms of the notification) it is the adjusted value of the base clearance that should be taken into consideration or whether its actual value.

4. On the first issue, the ld. SDR Smt. Baliga submitted that the Tribunal has taken many decisions in favour of Revenue. She particularly pointed out the judgment of the Bombay High Court in Tata Engineering & Locomotive Co. Ltd. v. Asstt. Collector of Central Excise [ (Bom.)]. In 1982, explanation to Section 4(4)(d)(ii) of the Central Excises & Salt Act was inserted by Finance Act No. 47/82 with retrospective effect from 1-10-1975. In view of this decision, the judgment of the Delhi High Court in Modi Rubber Ltd. v. U.O.I. [1978 (2) E.L.T. (J 127)] relied on by the ld. advocate Shri Khaitan is no more good law. Shri Khaitan advanced his arguments but fairly accepted that the Delhi High Court judgment in Modi Rubber is no more good law.

5. While taking up the second issue, we find that it would be proper to take up the review show cause notice also. By this notice, the Collector proposed to set aside the sanction order for refund of Rs. 10,53,778.40 issued by the Asstt. Collector. The proposal was based on the assumption that the refund claim of Rs. 4,02,790/- was received by the Asstt. Collector on 2-12-1977, (June 1977 according to the ld. Advocate for the appellants) and that no refund should be granted as the appellants deliberately paid the duty and not due to inadvertence or misconstruction and that the provisions of the Notification No. 198/76 dated 16-6-1976 did not envisage refund of excise duty to the assessee. The review show cause notice also indicates the opinion of the Collector that base period need not have been fixed by the Department.

6. Shri Khaitan submitted that the declaration of base clearance and base period was made by the appellants on 2-4-1977 and these declarations were approved after modification by the Assistant Collector’s order dated 6-12-1979. The appellants then filed an appeal before the Collector (Appeals) but obtained a refund to the extent that, both sides agreed, was due to the appellants. The Appellate Collector having dismissed the appeal, they are now before us.

7. The learned Advocate submitted that 1975-76 was held to be the base period and there is no dispute about it. The dispute is only regarding the value in that the Assistant Collector took the actual value but the appellants plead that it is the adjusted value in terms of Notification No. 198/76 that should be considered.

8. Shri Khaitan further pleaded that the declaration of base clearance and period had to be approved by the Department and that in terms of the Delhi High Court judgment in Modi Rubber Ltd. (supra) it is the adjusted value of the base clearance that should be considered for the purpose of the Notification. The learned Advocate pleaded that the refund was not time-barred as limitation is to be computed with effect from the declaration of the base period and base clearance. In support of this the learned Advocate relied on the following judgments :

(i) Carborandum Universal Ltd., Madras v. Union of India and Another - (Mad.)

(ii) Collector of Central Excise, Indore and Another v. Associated Cements Corporation Ltd. - (Tribunal)

(iii) K. Manibhai & Co. v. Collector of Central Excise, Bombay - (Tribunal).

9. The learned Advocate submitted that there is nothing either in the Central Excise Law or in Notification No. 198/76 to support the view that excess payment if made voluntarily cannot be refunded. In this context, the Learned Advocate cited two judgments of the Tribunal in Sahu Cylinders & Udyog (P) Ltd v. Collector of Central Excise, reported in (Tribunal) and Delhi Chemicals and Pharmaceutical Works (P) Ltd. v. Collector of Central Excise, reported in (Tribunal).

10. The learned Advocate submitted that declaration having been filed in April 1977, the refund claim was in time, having been filed within six months from the said date.

11. Shri Khaitan argued that the show cause notice does not survive as the Assistant Collector’s order merged in the Appellant Collector’s order, now impugned before us. The learned Advocate referred to the doctrine of merger.

12. The learned SDR, opposing the arguments, submitted that the refund claim was time-barred as it was filed more than six months after the payment of duty. She supported the review order by the Collector, submitting that the Collector was acting in exercise of the powers conferred on him by the Central Excises & Salt Act, 1944. She further argued that the base clearance should be taken at the unadjusted figure.

13. We have considered the arguments of both sides. On the second issue and consequent question the following points arise for a decision in this matter.

(i) Who is to fix the base clearance;

(ii) Should the base clearance be the actual clearance or the adjusted clearance in terms of Notification No. 198/76-C.E.;

(iii) How does the limitation operate; and

(iv) Can the show cause notice survive.

14. While we earlier in this order concluded that the Delhi High Court judgment is no more good law in so far as the valuation aspect is concerned, the judgment remains good law in respect of other questions it dealt with, no contrary judgments having been cited before us by the Revenue. Keeping in view we take up each of the four points for a decision.

14(i). The first point relates to the fixation of base clearance. - We have perused the judgment of the Tribunal in K. Manibhai & Co. (supra) and, especially, the Madras High Court judgment in Carborandum Universal Ltd. In the later judgment, the Madras High Court observed that “certainly, this determination could not be that of the petitioner and it could be only that of the second respondents....... Refund pre-supposes quantification and that is feasible only after the base period and base clearances are determined and approved by the second respondents. In the light of this observation of the Madras High Court we hold that the base clearance and base period though they were to be declared by the appellants, had to be accepted by the Department. To this extent the Collector’s observations in the review show cause notice are not valid.

14(ii). The second question relates to the base clearance value. - The Department holds that it should be the actual clearance value and the appellants’ plea is that it should be the adjusted clearance value. The Delhi High Court in Modi Rubber Ltd. (supra) decided as follows, in paragraph 16 of its judgment.

“It was argued by Mr. Lokur for the respondents that paragraph 2(1)(b) was concerned with the determination of the base period and not of the base clearances. It is true that para 2(1) starts with the words ”for the purpose of determining the base period". But base period itself is determined only by the fixation of the base clearances. In fact, base period has no meaning except in relation to base clearances. The base is of clearance and not of any period. The base period simply means the period for which the clearance is to be taken as the base clearances. It is because this is taken as the base clearances, the time to which the base clearance extends is simply called the base period. Once this is realised, the meaning of paragraph 2(1)(b) becomes clear. It is wholly devoted to the modification of the value of the goods found under Section 4 of the Act, by adjustment of the said value with the wholesale price index number. It is because such adjustment is not contemplated in Section 4 that paragraph 2(1)(b) of the notn. was enacted. The exemption of duty is, therefore, to be given not on the value found under Section 4, but after adjustment of that value made under paragraph 2(1)(b). The making of such adjustment is necessary only for the purpose of finding out the clearance of the goods. When such a clearance is found for a particular period, it becomes the base clearance for the base period.” We, therefore, uphold the appellants’ plea.

14(iii). The third question relates to limitation. - The Assistant Collector did not take up the question of limitation. Therefore, it was not agitated before the Collector (Appeals). The threat of limitation was contained only in the show cause notice issued by the Collector. We, however, examine the question because it is fundamental to the issue and we cannot ignore a vital aspect of the matter.

In Carborandum Universal Ltd. (supra) the Madras High Court clearly held that, after examination of the very same notification, limitation would run only from the date of determination of the approval of the base period and base clearance. In Munibhai & Co. (supra) the Tribunal took the view that refund claims made in respect of duty paid upto six months prior to the date of declaration would be within the date of declaration. In this judgment the Tribunal inter alia referred to the Madras High Court judgment in Carborandum Universal. In our opinion it would be correct to follow the ratio of the judgment of Madras High Court which is directly on the point. We hold that limitation should run from the date of determination of approval of base period and base clearance. We hold accordingly and direct that the refund claim should be disposed of, to the extent necessary, in the light of this finding.

14(iv). The last question that is to be decided is whether the show cause notice issued by the Collector can be sustained. - We have already made references to certain aspects of the show cause notice. As submitted by the learned SDR the show cause notice was issued by the Collector in exercise of powers vested in him by the Central Excises and Salt Act. On 6-9-1984 the impugned order-in-appeal was passed by the Collector (Appeals). On this date the Assistant Collector’s order got merged in the Appellate order and after this date the Assistant Collector’s order did not survive independently. Therefore, after this date the Collector could not review the Assistant Collector’s order. The only remedy available was to file an appeal against the appellate order. In these circumstances we hold that the review show cause notice dated 7-6-1980 does not survive.

15. As a result we hold that the refund claims of the appellants should be considered applying the limitation period as directed and on the basis of adjusted value of base clearance. The appeal is disposed of accordingly.

National Engineering Industries Ltd. v. Collector Of C. Ex.

Structured Summary of the Tribunal's Order (per I.J. Rao, Member (T))

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellants' Arguments (as presented by their counsel, Shri Khaitan)

Revenue's Arguments (as presented by the learned SDR, Smt. Baliga)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

National Engineering Industries Ltd. v. Collector Of C. Ex.

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