[Order per : P.G. Chacko, Member (J)]. - These appeals filed by the assessee are against an order passed by learned Commissioner of Central Excise in adjudication of seven show-cause notices issued by the department. The impugned order has demanded duty of over Rs. 8.6 crores on ‘backing cloth’ consumed captively/cleared for home consumption from 15-12-1995 to 28-2-2002. It has also imposed penalties on the assessee. Backing cloth is a processed cotton fabric, an intermediate product arising during the course of manufacture of ‘coated abrasives’, the appellants’ final product (Heading 68.01 of the CETA Schedule).

2. After examining the records  and hearing both sides, we find that, for the period prior to March ‘90, ‘backing cloth’ manufactured by the assessee had been classified under Heading 52.06 of the Schedule to the Central Excise Tariff Act by the Tribunal in Order No. 402/2001 dated 13-3-2001 [vide ] and that the civil appeal filed by the Revenue against the said order was dismissed by the Supreme Court on 3-9-2001 [vide ]. It further appears from the records that, for the period 15-12-95 to 31-3-2000, 12 show-cause notices were issued to the appellants by the department during July 1996-April 2000 classifying the same goods under Heading 59.01 and demanding differential duty on that basis. The dispute under 8 of these 12 SCNs eventually reached this Tribunal through the department’s appeal No. E/800/2005. Similarly, the dispute under the remaining 4 out of the 12 SCNs eventually came up before the Tribunal through appeal No. E/801/2005 filed by the department. Both these appeals were dismissed as per Final Order dated 19-9-2006 of this Bench. Thus, for the period prior to   March 1990, classification of ‘backing cloth’ manufactured by the appellants was settled under Heading 52.06 as per the Supreme Court’s judgment dated 3-9-2001 and, for the period from 15-12-95 to 31-3-2000, the department’s attempt for revised classification of the product under Heading 59.01 failed with the dismissal of their appeals, Nos. E/800 & 801/2005, by the Tribunal. The respondent has no case that the Tribunal’s decision in the said appeals of the department has not attained finality. In the result, the classification of ‘backing cloth’ stands settled under Heading  52.06/52.07 for the period upto 31-3-2000.

3. The seven SCNs (issued during November 2000 - November 2002), which are relevant to the present appeals, are the following :-

The notices mentioned at Sl. No. 1 to 6 classified the product under SH 5901.10 and demanded Additional Duty of Excise (ADE) [under Section 3 of the Additional Duty of Excise (Goods of Special Importance) Act] from the assesses for the respective periods. These notices held that the exemption under Notification No. 67/95-C.E. dated 16-3-95 was not available to ADE (GSI). The SCN mentioned at Sl. No. 7 invoked the extended period of limitation to demand both Basic Excise Duty (BED) & Additional Duty of Excise (GSI) on the goods for the period 15-12-95 to 30-3-2000. This notice also classified the goods under SH 5901.10. The assessee, in their replies to all the SCNs, maintained that the processed cotton fabric (backing cloth) continued to remain classified under Heading 52.06/52.07. They contested the demand of duty on this and other grounds. In adjudication of the 7 SCNs, learned Commissioner classified the goods under Heading 52.06/52.07 (which carried higher rate of duty than Heading 59.01 proposed in the SCNs) and confirmed demand of duty accordingly vide impugned order.

4. Ld. Commissioner summed up his findings in para (13) of the impugned order as follows :

(a)     The process carried out by CUMI on the grey fabrics to obtain backing cloth amounts to manufacture in terms of Section 2(f) of Central Excise Act, 1944.

(b)     Backing cloth are marketable goods and therefore chargeable to excise duty as excisable goods.

(c)     CUMI are not entitled to the exemption under Notification No. 8/96-C.E., dated 23-7-96 and successor notification as well as under Notification No. 9/96-C.E., dated 23-7-96 for the reasons stated in para 7.0 to 7.5 above. However they are eligible for exemption from payment of BED for captive consumption of backing cloth under Notification No. 67/95-C.E., dated 16-3-95. Therefore, CUMI are liable to pay (i) BED for removals outside and (ii) AED (GSI) for captive consumption as well as removals outside.

(d)     The demand of duly on backing cloth made under Heading No. 59.01 will survive for the demand of duty under Heading No. 52.07 for the reasons detailed in para 8.0 to 8.3.

(e)     The assessable value as proposed in the show cause notices have been taken into account for the purpose of demand of duty for the reasons as detailed in para 9.0 to 9.2 above.

(f)      CUMI had suppressed certain facts with an intention to evade payment of duty as established in para 10.0 to 10.8 above.

(g)     CUMI have rendered themselves liable for penal action under Section 11AC of Central Excise Act, 1944. Rule 173Q(d) and 173Q (a) of Central Excise Rules, 1944 and Rule 25 of Central Excise Rules, 2001.

(h)     CUMI are liable to pay interest under Section 11AA and 11AB of Central Excise Act, 1944 as detailed in para 12 above.

(i)      The total duty payable by CUMI on the backing cloth consumed captively as well removed outside during the period from December ‘95 to February 2002  works out to Rs. 8,65,08,087/- as detailed in Annexure A to this order.

5. Heard both sides. Learned Senior Advocate submitted that the adjudicating authority had classified the product under a heading different from the one proposed by the department. The assessee had no notice of that authority’s intention to classify the goods under Heading 52.06/52.07 and, therefore, the impugned order travelling beyond the scope of the SCNs was liable to be set aside. It was also pointed out that, even classifying the goods under Heading 52.06/52.07, learned Commissioner denied the benefit of Notifications in respect of BED on clearances from the factory and ADE (GSI) on similar clearances as well as clearances for captive consumption for which also there was no SCN. The assessee was not put to notice of the rates/quanta of duties either. In relation to SCN dated 27-11-2000, it was submitted that the demand of duty was for the period (15-12-95 to 31-3-2000) for which earlier demands of duty on the same goods under Heading 59.01 had been vacated by the appellate Commissioner and the department’s appeals (E/800 & 801/2005) against his orders were rejected by this Tribunal as time-barred. On these grounds, according to ld. counsel, the Commissioner’s order impugned in the present appeals was liable to be set aside. In this connection, support was drawn from the following decisions :-

(1)     Warner Hindustan Ltd. v. CCE Hyderabad, (S.C.)

(2)     Hindustan Polymers v. CCE, (S.C.)

(3)     Metal Forgings v. UOI, (S.C.)

(4)     CCE v. Bright Brothers Ltd., (Tribunal) affirmed by the Supreme Court in Collector v. Bright Brothers Ltd., (S.C.)

(5)     Nestle India Ltd. v. CCE, (Tri.-Del.)

(6)     Usha Industrial Corporation v. CCE, (Tri. -Del.)

(7)     Raphael Pharmaceuticals Pvt. Ltd. v. Supdt. of Distilleries, (A.P.)

Learned counsel also reiterated other grounds raised in the appeals.

6. Though, in the written submissions filed by her, learned SDR made submissions in justification of the adjudicating authority’s findings with regard to manufacture and marketability of the goods and applicability of Exemption Notifications, she did not press these points at the bar. However, on the question whether the Commissioner’s order demanding duty from the appellants under Heading 52.06/52.07 was tenable in law, she vehemently argued in favour of the impugned order. She claimed support from the Tribunal’s decision in Precision Rubber Industries Pvt. Ltd. v. CCE, Mumbai IV, (Tri.-Mumbai) after pointing out that the facts of the two cases were similar. In the case of Precision Rubber Industries case, the party had classified the goods under SH 4009.99 and the department wanted it to be classified under SH 4016.99. The Tribunal classified the product under a third SH viz. 8448.00. In the mean time, the department issued seven SCNs seeking to classify the goods under SH 4016.99. After the Tribunal’s order classifying the goods under SH 8448.00 became available, the adjudicating authority followed that classification and, accordingly, demanded duty from the assessee in adjudication of the seven SCNs. This demand of duty was challenged before the Tribunal by the assessee on the main ground that the classification of the goods under a Heading (84.48) not proposed in the SCN was not legal. It was contended that the department should have issued a SCN proposing revised classification under such heading so as to demand duty on that basis. This challenge was rejected by the Tribunal vide and the demand of duty on the goods under Heading 84.48 was sustained against the assessee. Ld. SDR submitted that the ratio of the decision in Precision Rubber Industries case was squarely applicable to the facts of the present case and, accordingly, duty demanded by learned Commissioner in terms of Heading 52.06/52.07 was to be upheld. Reacting to the counsel’s submission that the SCNs were issued for classifying the goods under Heading 59.01 and demanding duty accordingly after the Supreme Court’s decision classifying it under Heading 52.06, ld. SDR submitted that a certified copy of the Supreme Court’s order dated 3-9-2001 had been received by the department only on 11-7-2005. Referring to the Tribunal’s orders in the cases of Nestle India (supra), Usha Industrial Corporation (supra), Bright Brothers (supra) etc. cited by ld. counsel, it was submitted that the entire case law was examined and distinguished in the case of Precision Rubber Industries (supra). Ld. SDR submitted that, in the light of the apex court’s order giving finality to the classification of the product under Heading 52.06, the assessee was bound to pay duty in terms of such classification and it was not necessary for the department to issue any SCN proposing such classification and demanding duty. In this connection, reliance was placed on the High Court’s decision in Madura Coats v. Govt. of India, (Mad.) and the Supreme Court’s decision in Shree Ram Multi Tech. Ltd. v. CCE, Ahmedabad, (S.C.).

7. In his rejoinder, ld. counsel pointed out that the apex court granted stay to M/s. Precision Rubber Industries (P) Ltd. in Civil Appeal No. 1757/2005 filed against the Tribunal’s decision cited by ld. SDR as reported in (S.C.) and, therefore, nothing contained in the Tribunal’s order could be relied on in the present case.

8. We have already noted that the “backing cloth” was an intermediate product manufactured by the appellants and used captively in the manufacture of coated abrasives or cleared for home consumption during the period of dispute. This intermediate product was classified, for the period prior to March 1990, under Heading 52.06 by the Tribunal in Final Order No. 402/2001 dated 13-3-2001 reported in (Tri.-Chennai) (Carborandum Universal Ltd. v. Commissioner) and this classification was upheld by the Supreme Court as per order dated 3-9-2001 reported in Commissioner v. Carborandum Universal Ltd., (S.C.). Before the apex court and the Tribunal, the department had claimed classification of the goods under Heading 59.01 but this claim was rejected. For the period 15-12-95 to 31-3-2000 also, the department had proposed to classify the same item under Heading 59.01 and to demand duty accordingly from the appellants. The party contested this proposal. The dispute reached this Tribunal and the department’s appeals were dismissed as time-barred vide order dated 19-9-2006 in appeal No. E/800 & 801/2005. One of the seven SCNs involved in the present case was issued for demanding differential amounts of ADE (GSI) on ‘backing cloth’ (classified under SH 5901.10) consumed captively during the above period (15-12-95 to 31-3-2000)  as also differential amounts of BED and ADE (GSI) on ‘backing cloth’ (classified likewise) cleared for home consumption during the same period. The notice invoked the extended period of limitation for demanding these duties and proposed penalties on the assessee under Section 11AC and Rule 173Q. The remaining six SCNs demanded ADE (GSI) on ‘backing cloth’ cleared for home consumption/captive use for a total period, April 2000 to February 2002. These notices also classified the goods under SH 5901.10. In adjudication of the seven SCNs, learned Commissioner held the goods to be classified under Heading 52.06/52.07 and, accordingly, quantified the demand of duty. The Commissioner’s decision has come under severe attack on irresistible grounds supported by binding judicial authorities.

9. In the case of Bright Brothers Ltd. (supra), a SCN was issued by the department demanding Special Excise Duty (SED) from the assessee in terms of Central Excise Tariff Item No. 15A(2), but Basic Excise Duty (BED) leviable under that tariff item was not demanded from them. The assessee had already paid BED on the goods wrongly classified under Tariff Item 68. The Tribunal did not permit appropriation of this amount towards BED on the goods under Tariff Item 15A (2) as the department had not issued SCN for classifying the goods under this Tariff entry and demanding duty appropriately. The view taken by the Tribunal was upheld by the Supreme Court vide (S.C.) by holding thus - upon the facts of the case, no interference is called for since as is clear from the order of the Collector of Central Excise (Appeals) that no demand for recovery of basic excise duty under Tariff 15(A)(2) had ever been made upon the Respondent. The civil appeals are dismissed.

10. In the case of Nestle India Ltd. (supra), the SCN classified the goods under SH 2108.90 attracting Central Excise duty @ 20% ad valorem. The adjudicating authority upheld this classification and, accordingly, confirmed demand of duty against the assessee. The first appellate authority classified the goods under Heading 19.01 and directed the lower authority to re-quantify the duty accordingly. The Tribunal held that, without any SCN for classification of the goods under Heading 19.01 and demanding duty on that basis, the decision of the lower appellate authority was not sustainable. It appears, the Tribunal’s decision in Nestle India case was accepted by the department.

11. In the case of Warner Hindustan Ltd. (supra), the assessee classified their products as “Ayurvedic Medicines” under SH 3003.30 of the CETA Schedule. The department issued a SCN proposing to classify the goods as “Patent or Proprietory Medicines” under SH 3003.19. The original authority upheld this proposal, but the first appellate authority rejected it and classified the goods under SH 3003.30 as claimed by the assessee. The department preferred appeal to the Tribunal, taking the stand for the first-time that the goods were correctly classifiable as “confectionery” under Heading 17.04 and this appeal was allowed by the Tribunal. The Supreme Court set aside the Tribunal’s order in the absence of SCN for classifying the goods under Heading 17.04. It held that it was open to the Excise authorities to issue a fresh SCN to the assessee for classifying their products as items of confectionery under Heading 17.04 and demanding duty on that basis.

12. The above ruling of the apex court was followed by this Tribunal in the case of Usha Industrial Corporation (supra), wherein the SCN proposed to classify Aluminum card cans under SH 76I2.91 as containers of aluminum; the adjudicating authority confirmed this classification; the Collector of Central Excise (Appeals) disapproved it and classified the goods under SH 7616.90; and the Tribunal set aside the appellate Collector’s order on the ground that no SCN had been issued to the party for classifying their goods under SH 7616.90. The Tribunal, however, left it open to the Revenue to issue SCN for revising classification of the product.

13. In the case of Metal Forgings (supra), it was held by the apex court that, in the absence of a show-cause notice, it was not open to the Revenue to make a demand on the assessee even if it be assumed that the Revenue’s contention as to classification of the goods as held by the Tribunal was correct. Even a corrigendum to show-cause notice, changing the very complexion of the department’s case, has been held to be impermissible vide S.T.L. Exports Ltd. v. Commissioner - (Tri.-Del.). Thus the paramount importance of a show-cause notice under Section 11A(1) of the Central Excise Act for demanding duty from an assessee on a chosen basis is something oft-repeated by judicial authorities.

14. In the present case, the proposal in the SCNs was to classify “backing cloth” under Heading 59.01. The adjudicating authority, however, classified the goods under Heading 52.06/52.07 and, accordingly, modified the demand of duty. Admittedly, no SCN had been issued for classifying the product under Heading 52.06/52.07 and demanding duty on that basis for any part of the period of dispute (15-12-95 to 28-2-2002). Ld. Commissioner’s order is a determination of duty under sub-section (2) of Section 11A of the Central Excise Act and the same is on a basis different from the one laid down by the department in the relevant SCNs. The order classified the product differently and demanded duty at higher rates. Such action is not permissible in law as held by the A.P. High Court in Raphael Pharmaceuticals case (supra).

15. In terms of the above case law, the demand of duty raised by the Commissioner on the appellants in respect of backing cloth classified under Heading 52.06/52.07 cannot be sustained.

16. Ld. SDR has claimed support from the High Court’s order in Madura Coats case to her submission that as the classification of the goods under Heading 52.06 had attained finality with the Supreme Court’s order dated 3-9-2001, it was not necessary for the department to issue SCN again for classifying the goods under the said heading. The High Court’s decision does not support this contention. In the case considered by the High Court, the department had issued a SCN dated 17-2-1975 to the party to classify their product (twisted cotton/nylon yarn) under Central Excise Tariff Item No. 18E. The party challenged the SCN in W.P. No. 3737/75. On 8-8-77, the Govt. of India issued a Notification directing classification of the product under Tariff Item 18A(ii). The writ petition was disposed of on this basis. The department, however, filed writ appeal No. 232/78 against the order passed in the writ petition. The department also issued a SCN dated 30-8-78 proposing reclassification of the above goods under Tariff Item 18A(ii) and this classification was confirmed by the adjudicating authority as per order dated 25-11-78, against which the assessee filed W.P. No. 2877/79. On 6-3-85, a Division Bench of the High Court disposed of the above writ appeal by quashing SCN dated 17-2-75 and directing the department to consider the question of liability of the assessee for Excise Duty on the goods in terms of the order within 2 months. Pursuant to this direction of the High Court, the Asst. Collector offered personal hearing to the party, who reiterated their stand and also contended that, SCN dated 17-2-1975 having been quashed by the High Court, the department had no authority in law to invite their views without issuing a fresh SCN. The Asst. Collector rejected this objection and, by order dated 3-5-85, held that “twisted cotton/nylon yarn” was a new product classifiable under Tariff Item 18E. This order was also challenged in W.P. No. 5424/85 filed by the assessee. In the meantime, W.P. No. 2877/79 was allowed by the High Court which quashed the Asst. Collector’s order dated 25-11-78. Subsequently, the Asst. Collector again took up SCN dated 30-8-78 for adjudication and called for the assessee’s remarks, whereupon the latter took the stand that the former could not direct them to present any case without issuing fresh SCN. This was during the period 1986-89. Ultimately, on 23-1-90, the AC issued a SCN to the party proposing classification of their goods under Tariff Item 18E(ii). In reply, the noticee submitted that such classification had already been set aside by the High Court. The adjudicating authority passed order dated 28-5-90 upholding the classification proposed in the said notice. It was against this order of the Asst. Collector that W.P. No. 15469/90 was filed in the High Court by M/s. Madura Coats Ltd. The Hon’ble High Court, in the order cited by ld. SDR vide (Mad.), rejected the plea raised by the assessee that the SCN issued in 1990 in respect of liability which arose in the 70s was heavily barred by limitation. The court observed thus - In my view, such a contention is not available to the writ petitioner in the instant case. It is not a new show cause notice that had been issued. If we look at the events leading to the issuing of impugned notice, it will be seen that the proceedings had been a continuous one and possibility at every stage there was disruption in the course of events before orders were passed by this Court in writ petitions and writ appeals. We do not find that the above view taken by the High Court in the peculiar facts and circumstances of the case of Madura Coats Ltd. is applicable to the present case.

17. Ld. SDR has also relied on the apex court’s judgment in the case of Shree Ram Multi Tech Ltd. (supra). In this case, the department issued SCN dated 4-9-96 to the party proposing to reject their claim for classification of their product (tarpaulin) under SH 3926.90 and for exemption under Notification No. 36/94-C.E., dated 1-3-94, and to classify the goods under SH 6306.00. The notice also demanded duty on the goods under this Tariff heading. On receipt of the notice, the assessee filed a revised classification list classifying their product under SU 6306.00. Subsequently, the department issued another SCN dated 18-3-99 demanding duty as applicable to SH 3926.90 for the period August ‘98 to February ‘99. On 22-3-99, the first SCN dated 4-9-96 was withdrawn. The assessee replied to the second SCN claiming that ‘tarpaulin’ was specifically covered under SH 6306.00 and, therefore, no differential duty was payable by them. In adjudication of this dispute, the Commissioner, by order dated 7-2-2002, classified “tarpaulin” under SH 3926.90 and confirmed the demand of duty against the assessee. In an appeal preferred by the party against the Commissioner’s decision, the Tribunal upheld the demand of’ duty for the period from September ‘98 to February ‘99, the demand for Aug ‘98 having been found time-barred. The Tribunal held so after noting that the classification of “tarpaulin” had been concluded by the decision in the case of Gujarat Raffia Industries Ltd. v. CCE, Ahemedabad, (Tribunal) and, accordingly, the item was classified under SH 3926.90. The civil appeal filed by the assessee against the Tribunal’s decision was dismissed by the apex court, which rejected the appellants’ plea that, as they had not collected duty from their customers because of the contrary stand taken by the department, they could not be made to suffer for the same. Their lordships held that there was no provision under the Act for waiver of payment of duty and that duty could be waived only by Exemption Notification. It was, further, held that, once ‘tarpaulin’ was held to be classifiable under SH 3926.90, the appellant was liable to pay differential duty. Ld. SDR has heavily relied on this conclusion recorded by the Supreme Court in the case of Shree Ram Multi Tech Ltd. (supra). Again, we do not find any merit in this argument inasmuch as, before the Tribunal and the Supreme Court, there was only one SCN and the same was the notice issued on 18-3-99 proposing to classify ‘tarpaulin’ under SH 3926.90 and demanding differential duty on that basis. The earlier SCN dated 4-9-96 had been withdrawn. The classification proposed in the surviving SCN was confirmed by the Commissioner, affirmed by the Tribunal and reaffirmed by the apex court. On these facts, no assistance could be claimed by the Revenue from the above judgment of the apex court.

18. In the impugned order, learned Commissioner relied on the Tribunal’s decision in Precision Rubber Industries (supra). Ld. SDR also has submitted that the ratio of the said decision is squarely applicable to the present case, the facts of the two cases being similar. But we are not in a position to accept this case of the Revenue inasmuch as the apex court’s stay order vide (S.C.) has eclipsed finality of the Tribunal’s decision. It is also pertinent to note that neither the decision of the Supreme Court in the case of Bright Brothers Ltd. vide (S.C.) nor its decision in the case of Warner Hindustan Ltd. vide (S.C.) had been cited before the Tribunal in the case of Precision Rubber Industries.

19. For the reasons already stated, we hold that the demand of ADE (GSI) or that of BED on the subject goods under Heading 52.06/52.07 is not sustainable in law for want of show-cause notice for the purpose and consequently the penalties imposed on the appellants are also liable to be vacated. In the result, the impugned orders are set aside and these appeals are allowed. However, this order does not stand in the way of the department issuing proper show-cause notice to the party and proceeding further in accordance with law.

(Operative part of the order was pronounced in open court on 28-11-2006)