Commissioner of C. Ex. vs N.T.B. International Pvt. Ltd.

This appeal by Revenue u/s 35G of the Central Excise Act, 1944 (''the Act'') challenges the order dated 20 December 2005 of the Customs, Excise and Service Tax Appellate Tribunal (''the Tribunal'') allowing a Miscellaneous Application for rectification. By the impugned order dated 20 December 2005, the Tribunal allowed an application for rectification of mistake filed by the Respondent-Assessee of an order dated 1 September 2004 passed by the Tribunal finally disposing of an appeal u/s 35C of the Act. This appeal was admitted on 2 November 2007 on the following substantial questions of law:--

Whether in the facts and in the circumstances of the cases the Tribunal was justified in passing an order u/s 35C(2) of the Central Excise Act, 1944 after a period of six months from the date of passing of the order u/s 35C(1)?

Whether in the facts and in the circumstances of the case, the impugned order of the Tribunal amounts to review of its own order dated 1-9-2004 and not simply rectification of a mistake?

Whether in the facts and circumstances of the case, the Tribunal is justified in recalling its entire order, which was earlier confirmed and thereafter holding that the extended period of limitation is not available and as a result thereof, reducing the duty of Rs. 42,07,807/- to Rs. 5,01,600/-?

At the outset, Mr. Dharmadhikari, learned counsel for the Respondent-Assessee raises a preliminary objection in respect of maintainability of this appeal u/s 35G of the Act. This for the reason that the order dated 1 September 2004 of the Tribunal raises issues with regard to rate of duty and the Respondent-Assessee has already preferred an appeal therefrom to the Supreme Court u/s 35L of the Act and the same was admitted on 11 February 2005.

As against the above, Mr. Bhate, learned counsel for Revenue submits that the challenge in this appeal is not to the order dated 1 September 2004 passed by the Tribunal but is to the order dated 20 December 2005 of the Tribunal allowing a miscellaneous application filed by the Respondent-Assessee seeking to rectify a mistake. According to Revenue, the order dated 20 December 2005 of the Tribunal only rectifies its earlier order dated 1 September 2004 for errors apparent from record. Besides, it is submitted that this objection is being taken only to delay the proceedings as no such objection was taken at the time of admission of this appeal on 2 November 2007.

We find substance in the submission of Mr. Bhate, learned Counsel appearing for the Revenue that the challenge in this appeal is to the order dated 20 December 2005 of the Tribunal. The basic issues arising in this appeal is whether or not the exercise of jurisdiction u/s 35C(2) of the Act by the Tribunal to rectify an error is justified or not. We, therefore, take up the appeal for final disposal.

Briefly, the facts pertinent to this appeal are as under:--

(a) The Respondent-Assessee by appeal challenged the order dated 31 December 2001 passed by the Commissioner of Central Excise before the Tribunal. The order dated 31 December 2001 had, inter aim, confirmed a duty demand of Rs. 42.07 lakhs attributable to appropriate classification of transmission Belts. Besides, imposing an equivalent penalty u/s 11AC of the Act;

(b) By a final order dated 1 September 2004 passed u/s 35C of the Act the Tribunal inter alia, upheld the duty demand of Rs. 42.07 lakhs. However, while upholding the duty demand of Rs. 42.07 lakhs, the order dated 1 September 2004 reduced the penalty imposed u/s 11AC of the Act from Rs. 42.07 lakhs to Rs. 6.00 lakhs;

(c) On 27 December 2004, the Respondent-Assessee filed an application for rectification of mistake u/s 35C(2) of the Act seeking to rectify the order dated 1 September 2004.

(d) In its rectification application dated 27 December 2004, the Respondent-Assessee pointed out that though the issue of limitation was raised before the Tribunal and also urged at the hearing, the order dated 1 September 2004 did not deal with the same. Thus leading to an error apparent from the record warranting rectification of the final order dated 1 September 2004 of the Tribunal.

(e) On 20 December 2005, the Tribunal after hearing the parties, allowed the application for rectification of the mistake and held that the longer period of limitation was not invocable in the present facts. Consequently, the duty demand was reduced by Rs. 37.06 lakhs from Rs. 42.07 lakhs.

Regarding Question - 1:--

(a) The Respondent-Assessee made an application for rectification to the Tribunal on 27 December 2004. By the above application, the Respondent-Assessee sought to amend the order dated 4 September 2004. Therefore, admittedly the application has been filed within a period of six months u/s 35C(2) of the Act from the date of the order of final order passed u/s 35C(1) of the Act.

(b) For the sake of convenience, we reproduce Section 35C(2) of the Act which reads as under:--

(2) The Appellate Tribunal may, at any time within six months from the date of the order, with a view to rectifying any mistake apparent from record, amend any order passed by it under subsection (1) and shall make such amendments if the mistake is brought to its notice by the Commissioner of Central Excise or the other party to the appeal:

Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the other party, shall not be made under this sub-section, unless the Appellate Tribunal has given notice to him of its intention to do so and has allowed him a reasonable opportunity of being heard.

(c) This question is no longer res integra. The Apex Court in Sree Ayyanar Spinning and Weaving Mills Ltd. Vs. Commissioner of Income Tax, has analyzed an identical provision found in Section 254(2) of Income Tax Act, 1961 and held that the time-limit of 4 years provided therein applied only to the Tribunal rectifying its errors suo motu. However, when an application for rectification is made within 4 years by a party, the Tribunal can pass an order on such an application even beyond a period of 4 years. The relevant observation of the Apex Court in Sree Ayyanar (supra) reads as under:--

In the light of the above controversy, we set out herein below provisions of Section 254(2) of the 1963 Act which read as follows:--

The Appellate Tribunal, may at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any other passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer.

Analyzing the above provisions, we are of the view that Section 254(2) is in two parts. Under the first part, the Appellate Tribunal may, at any time, within four years from the date of the order, rectify any mistake apparent from the record and amend any order passed by it under sub-section (1). Under the second part of Section 254(2) reference is to the amendment of the order passed by the Tribunal u/s (1) when the mistake is brought to its notice by the assessee or the Assessing Officer. Therefore, in short, the first part of Section 254(2) refers to suo motu exercise of the power or rectification by the Tribunal, whereas the second part refers to rectification and amendment on an application being made by the Assessing Officer or the assessee pointing out the part of Section 254(2). As stated above, application for rectification was made within four years. Application was well within four years. It is the Tribunal which took its own time to dispose of the application. Therefore, in the circumstances, the High Court had erred in holding that the application could not have been entertained by the Tribunal beyond four years.

(d) Therefore, in view of the Apex Court''s decision in Sree Ayyanar Spinning and Weaving Mills Ltd. (supra), under the Income Tax Act identically worded to Section 35C(2) of the Act the question No. 1 is answered in the affirmative i.e. against the Revenue and in favour of the respondent -assessee.

Regarding Question Nos. 2 and 3:--

We take up question Nos. 2 and 3 together as they overlap and submissions were also addressed by Counsel on both the questions together.

(a) Mr. Bhate, learned counsel for the Revenue submits that the Tribunal being a creature of the statute viz: the Customs Act, 1962 has not been bestowed with the power to review its orders. Therefore, the impugned order dated 20 December 2005 which amounts to review of the order dated 1 September 2004 is without jurisdiction. It is the case of the Revenue that under the Act, it can only rectify mistake on record and not reconsider an issue already decided. The remedy, if any, available to respondent-assessee is by way of an appeal to the higher forum and not to review an order. Mr. Bhate, further submits that the jurisdiction to rectify a mistake would mean to only rectify a clerical or typographical error in the order and any rectification beyond that would amount to review of its own''s order. In support of this contention, he places reliance on a decision of Supreme Court in Deva Metal Powders Pvt. Ltd. Vs. Commissioner, Trade Tax, U.P., . It is therefore, submitted that the impugned order dated 20 December 2005 considering the issue of limitation and reducing the demand amounts to a review of an order. Thus, without jurisdiction. In view of the above, it is submitted that question Nos. 2 and 3 be answered in the negative i.e. in favour of the Revenue and against the respondent-assessee.

(b) Per contra, Mr. Dharmadhikari, learned counsel for the Respondent-Assessee points out that the impugned order dated 20 December 2005 was in the exercise of its jurisdiction to rectify errors apparent on record u/s 35C(2) of the Act. It is pointed out that when the appeal before the Tribunal was heard on 18 August 2004 prior to passing the order dated 1 September 2004, they had filed a synopsis and had specifically argued/submitted that the demand to the extent of Rs. 37.06 lakhs is barred by limitation so far as classification of transmission belts is concerned. However, in the order dated 1 September 2004, the Tribunal did not consider the issue of limitation and consequently gave no finding on it. Therefore, they were justified in filing an application for rectification of error apparent on record. Moreover, it is submitted that the issue of demand being barred by limitation on account of approved classification was not a debatable issue but error appellant on the face of it. Therefore, the exercise of jurisdiction by the Tribunal leading to the impugned order dated 1 September 2004 u/s 35C(2) of the Act cannot be faulted with. In support of his submission, he placed reliance upon decisions of Supreme Court in matters of Honda Siel Power Products Ltd. Vs. Commissioner of Income Tax, Delhi, and Commissioner of Central Excise, Mumbai v. Bharat Bijlee Limited [ 2006 (198) E.L.T. 489 (S.C.)]. Therefore, Mr. Dharmadhikari submits that question Nos. 2 and 3 be answered in the affirmative i.e. in favour of the respondent-assessee and against the Revenue.

We have considered the rival submissions. The jurisdiction of the Tribunal u/s 35C(2) of the Act is to rectify mistakes apparent from the record i.e. the mistake must be obvious and self-evident. The discovery of mistakes must not require a long process of reasoning. The question whether there is a mistake in the order sought to be rectified or not should not be a subject of debate. Once a mistake is brought to the notice of the Tribunal, it is duty bound to correct the mistake in its order, where an issue has been argued and/or submission made on the issue and the same is not recorded and/or considered in the order, it follows that there is a mistake apparent from the record.

In this case, the respondent-assessee in its application for rectification dated 27 December 2004, pointed out as under:--

The total demand of duty against applicant was raised for period 1-4-1992 to 3-9-1996 for which SCN was issued on 3-5-1997. The demand of duty was raised in terms of proviso to Section 11A of the Central Excise Act. The applicant specifically raised and argued the issue regarding limitation before the Commissioner as also in the memo of appeal filed before this Hon''ble Tribunal and during the hearing of appeal before this Tribunal. In the synopsis filed at the time of hearing, detailed submission were set out on this aspect vide para 20 to 22.7 of the synopsis.

The issue of limitation has not been considered by this Hon''ble Tribunal in the order referred above. The non- consideration of vital issue of limitation tantamount to mistake apparent on record, hence needs consideration. The limitation issue is very vital in the present case as entire demand is barred by limitation.

Our attention was also invited to the synopsis submitted at the hearing on 18 August 2004 before the Tribunal leading to order dated 1 September 2004. We find that in Page 8 of the synopsis, it is urged that the demand to the extent of Rs. 12.68 lakhs and Rs. 24.38 lakhs aggregating to Rs. 37.06 lakhs are time barred. This was entirely on the ground that classification lists were approved earlier as well as the fact that the Commissioner has given no finding of suppression on the classification issue to warrant invoking the extended period of limitation. On a close perusal of the order dated 1 September 2004 of the Tribunal, we find that the issue of limitation has not been adverted to at all by the Tribunal. The issue of limitation as pointed out in the application for rectification of the Respondent-Assessee was urged during the hearing before the Tribunal but the same was not dealt with in its order dated 1 September 2004. This non-consideration of an issue urged before the Tribunal but not dealt with by it would give rise to a mistake apparent from the record.

The Apex Court in Honda Siel Power Products Ltd. (supra) while dealing with the powers of rectification of the Tribunal under Income Tax Act, has held that the purpose behind allowing the rectifications of mistakes is a fundamental principle that no party appearing before the Tribunal should suffer on account of any mistake committed by the Tribunal. This fundamental principle, the Court observed has nothing to do with the inherent powers of the Tribunal, as the power bestowed on the Tribunal is to rectify its mistakes to ensure that no prejudice is caused to either of the parties appearing before it. This is particularly so, if the mistake is apparent from the record. The Apex Court further observed that where prejudice has resulted to any of the parries on account of Tribunal''s mistake, error or omission and which is manifest, then the Tribunal would be duty bound to rectify its mistake. Similarly, in case of Bharat Bijlee Limited (supra), the failure of the Tribunal to consider the evidence on record and arguments made before it would justify exercising of powers to correct its mistake in exercise of powers u/s 35C(2) of the Act.

We find that the issue of limitation though argued before the Tribunal, was not considered while passing the order dated, 1 September 2004. The decision relied upon by Mr. Bhate in the matter of Deva Metal Powders Pvt. Ltd. (supra) in fact very categorically holds that a mistake capable of being rectified is not confined to clerical or arithmetical mistake but any error apparent from the record. A mistake which can be rectified is one which is patent, obvious and whose discovery is not dependent on argument or elaboration. In this case, the Tribunal rectified its mistake in not having considered the issue of limitation earlier. In the process of rectifying its mistake it considered the issue of limitation for the first time which was not considered earlier. This consideration by the Tribunal was well within the exercise of its jurisdiction u/s 35C(2) of the Act to rectify a mistake apparent on the record.

In fact, on similar facts, the Gujarat High Court had in Baroda Rayon Corporation Ltd. and Another Vs. Union of India (UOI) and Others, observed that where the findings of a Tribunal are a result of ignoring the facts on record or failing to consider the averments made in the memorandum of appeal, then such an error is an error apparent on record. In such cases, the Court held that the Tribunal should not feel shy to accept that it had committed an error.

It would, therefore, follow that the Tribunal was correct in exercising its jurisdiction u/s 35C(2) of the Act and correct its mistake by considering the issue of limitation. The fact that the demand to the extent of Rs. 37.07 lakhs in the aggregate is time-barred, is based on the fact that the classification lists were approved earlier and there is no finding in the order of the Commissioner of Central Excise invoking the extended period of limitation that there has been any suppression etc. on the part of the respondent-assessee. Thus, this reduction of demand by the impugned order dated 20 December 2005 is on account of it allowing the rectification application and not on account of review of an order. It is pertinent to note that the Revenue was represented before the Tribunal at the hearing of the rectification application and have not contended that the demand is not time-barred.

In view of the above, question Nos. 2 and 3 are answered in the affirmative i.e. in favour of respondent-assessee and against the Revenue. Accordingly, the appeal is dismissed with no order as to costs.