Bhor Industries Ltd. vs Union of India

Kurdukar, J.—This writ petition under Article 226 of the Constitution of India is directed against the orders dated 12-6-1977 and 23-12-1978 passed by the authorities in exercise of the powers conferred on them under the Central Excises and Salt Act, 1944 (hereinafter referred to as "the Act"). The order of the Collector of Central Excise, Pune is at Exh. D and the order of the Member, Central Board of Excise and Customs, New Delhi is at Exh. E.

The petitioner is a Company incorporated under the Companies Act, 1956 and has its registered office at Bombay. The petitioner company has got two units, one at Borivli-Bombay and the other at Bhor, district Pune. The dispute in the present petition is restricted to the units at Bhor. The petitioner company is engaged in manufacturing the product commonly known as PVC coated paper. "PVC" is short form of Poly Vinyl Chloride" which is a plastic raw material within the meaning of the said Act. The petitioner''s product is sold in the market under brand names of "Paplast" and "Muralon" The plant at Borivli is called Lamination plant whereas the plant at Bhor is called Coating plant. Although manufacturing process is different at both the Units the final product is one and the same namely Paplast and Muralon.

As far as Bhor plant is concerned the petitioner company filed the classification list (Exh. C) in 21-12-1976 claiming benefit of the concessional rate of duty under Notifications 46/73 dated 1-3-1973, 27/74 dated 1-3-1974 68/76 dated 16-3-1976 issued under the said Act. The classification list filed by the petitioner from time to time is at Exh. C. collectively. On 13-7-1976 the officer of the Excise department carried out a search and they opinion that the goods cleared by the petitioner-company is not the same which is reflected under the classification list. The office of the Excise department therefore seized the goods and on 23-12-1976 issued show cause notice (Exh. D.) It is relevant to reproduce part of the show cause notice since the dispute centers round the validity of the show cause notice :

"WHEREAS it appears that M/s. Bhor Industries Ltd. Bhor District Pune holder of Central Excise Licence No. L-4 Paper/1/73 have contravened the provisions of Rule 173-Q (1)(a) and (d) read with Rule 173-B, 173-C, 173-F and 173-G(1) and 9(1) of the Central Excise Rules, 1944 inasmuch as they did not file the classification list, did not file the price list, did not determine the duty liability in respect of PVC coated paper manufactured in their Factor and cleared the same without payment of Central Excise duty.

Now, therefore, M/s. Bhor Industries Bhor District Pune are required to show cause to the Collector of Central Excise Pune PMC''s Commercial Building, Hirabaug, Tilak Road, Pune 411 002 as to why the 644 bundles 80185.75 Mtrs. 24292 Kgs. of PVC coated paper under seizure should not be confiscated under Rule 173-Q(1) of Central Excise Rules, 1944 and why penalty should not be imposed on them under Rule 173-Q(1) ibid and why duty should not be recovered under Rule 9(2) ibid on the 1418207.00 L. Mtrs. (38001.25 Kgs.) PVC coated paper removed by them without payment of duty upon 13-10-1976."

It appears that during the seizure, statements of same witnesses were recorded which were also annexed to the show cause notice.

A bare perusal of this show cause notice would show that the same was issued on the footing that the petitioner company has cleared the goods which did not conform with the classification list. The petitioner company has thus contravened the provisions as indicated above. The show cause notice is substance is under Rule 9(1) of the Central Excise Rules, 1944 - hereinafter referred to as "the Rules."

The Petitioner company showed the cause and explained to the Authority that the goods cleared by them are in conformity with the classification list and there is no contravention of any of the provisions of the Act and Rules. The petitioner company also urged that they are entitled for benefit of concessional rate of duty under the above notification issued under Tariff Item 17(2). No excise duty was payable in view of the said notification. Show cause notice is bad, illegal and be dismissed.

The Collector of Central Excise, Pune after hearing the representative of the petitioner-company held that the goods cleared by the petitioner company were and are not one covered by the classification list and consequently the goods cleared by the petitioner company are without filing the classification list. The Collector also pointed that the petitioner company is not entitled for the benefit of notification issued under Tariff Item 17(2). Consistent with these findings the Collector passed the following order :

"Under Rule 173-Q(1) of the Central Excise Rules, 1944, I imposed a penalty of Rs. 10,000/- (Rupees ten thousand only) on M/s. Bhor Industries Ltd., Bhor. I also order confiscation of the 644 packages of paper valued at Rs. 2,83,723.00 under the same Rule. However, I give M/s. Bhor Industries Ltd., Bhor an option to redeem the goods, within three month of the date of this order, on payment of a fine of Rs. 30,000/- (Rupees Thirty Thousand only) only.

I also demand from M/s. Bhor Industries Ltd., Bhor under Rule 9(2) of the Central Excise Rules, 1944 duty on the 14,18,207.00 Meters (380001.25 Kgs.) PVC coated paper removed by them without payment of duty upto 13-10-1976 at the appropriate rate. The goods under seizure if redeemed, shall be cleared on payment of duty."

It is thus clear that the order passed by the Collector also proceeds on the footing that the petitioner have contravened the provisions of Rule 9(2) of the Rules.

The petitioner Company aggrieved by the said order preferred an appeal to the Central Board of Excise and Customs, New Delhi and the learned Member of the Central Board of Excise and Customs, New Delhi vide his order dated 23-12-1978 modified the order passed by the Collector as regards the confiscation and penalty holding that it is case "for leniency." The learned Member opinion that there is no evidence that the petitioner Company has knowingly filed a wrong classification list. The Board then observed."

"The subject matter is quite controversial and the petitioner Company might very well have been under the impression that they were entitled to exemption. In any event it was the duty of the Assistant Collector to whom the classification list was submitted, together with necessary information about the article and to confirm or amend the classification list filed by the party. As the Board does not doubt the bonafides of the petitioner-company it orders that both the personal penalty and the confiscation may be set aside."

What follows is the important direction in the order and we may reproduce the same :

"During the personal hearing it was also submitted that the clearance in this case had taken place with the knowledge of the Department and therefore Rule 173(Q) will not apply to this case. It was contended that according to the ratio of the decision in the Elphinstone Mill Judgment the department could invoke only Rule 10 to demand this duty. In view of the foregoing finding of the Board that there was no malafide on the part of the appellant and that they had submitted a classification list which should have been properly scrutinized before approval by the Assistant Collector, the Board agrees with them that only Rule 10 (as amended by Rule 173-J) can be invoke in this case to demand the duty.

Subject to the above modification, the Collector''s order is confirmed."

It is this order which is the subject matter of challenge in this writ petition. The show cause notice was based upon facts constitution contravention of Rule 9(1) of the Rules. The learned Member of the Board in paras 6 and 7 finds otherwise and accordingly order of the Collector was modified. The learned Member also pointed, "the Collector or the Assistant Collector may invoke Rule 10 as amended by Rule 173-J of the Rules." Mr. Petal therefore urged that the show cause notice was totally silent as regards the contravention of Rule 10 as amended by Rule 173-J of the Rules and in view thereof the impugned order which is inconsistent with the show cause notice must be quashed and set aside.

Mr. Desai appearing for the respondents, however, urged that the show cause notice at Exh. B undoubtedly refer to Rule 9(1) of the said Rules but the substance contained therein is referable to Rule 10 as amended by Rule 173-J and, therefore, there is no error on facts which would invalid the show cause notice. In support of his submission Mr. Desai drew our attention to the judgment of the Supreme Court in N.B. Sanjana, Assistant Collector of Central Excise, Bombay and Others Vs. The Elphinstone Spinning and Weaving Mills Company Ltd., . In particular, he drew our attention to the first head-note which reads as under :-

"Demand Notice - Quoting of wrong rule not invalid - If the authorities have the power to issue notice either under Rule 10A or Rule 9(2), the fact that the notice refer specifically to a particular rule which may not be applicable, will not make the notice invalid."

Mr. Desai also drew our attention to paragraph 14 of the judgment. On careful reading of the judgment of the Supreme Court we are of the opinion that the said judgment is clearly distinguishable. In the present case the show cause notice was issued under Rule 9(1) of the Rules and the contents of the said notice were based upon the requirements contemplated under the said rule. The requirements as regards the show cause notice under Rule 10 read with amended Rule 173-J are different. Even the Central Board of Excise and Customs in its order has held that the approval by the Assistant Collector was due to inadvertence. If this be so we are unable to read the contents of the show cause notice issued to the petitioner Company as if Fulfilling the requirements of Rule 10 as amended by Rule 173-J of the Rules.

On this short ground, in our opinion, the petition must succeed. Rule is made absolute in terms of prayer clauses (a)(b) and (c) with a rider that the Assistant Collector may invoke rule 10 (as amended by rule 173-J) if permissible in law to demand the duty. No order as to costs.