M/s Varun Beverages Limited Vs Commissioner Of Customs, GST And Central Excise, Jaipur

This appeal has been filed to assail the order dated April 22, 2019 passed by the Commissioner (Appeals), Central Excise & Central Goods And Service Tax, Jaipur, The Commissioner (Appeals). The appeal was filed before the Commissioner (Appeals) to assail the order dated February 22, 2018 passed by the Assistant Commissioner for recovery of central excise duty under section 11A of the Central Excise Act, 1944 with interest and penalty from the appellant.

The appellant is engaged in the manufacture and sale of Aerated Water, Packaged Water and Fruit Juice based drinks. In regard to the factory of the appellant at Bhiwadi, waste and scrap that was generated was disposed of to scrap dealers.

Eight show cause notices were issued to the appellant alleging that it had cleared “excisable goods” namely scrap during the period from February 2013 to June 2017 without payment of duty. The show cause notices also sought to impose interest and penalty on the appellant. The appellant filed a detailed reply to the show cause notices mentioning therein that it removed petroleum coke ash, used carbon, PVC shell, sugar juice and other wastes as scrap and excise duty could not have been imposed.

The Assistant Commissioner confirmed the demand and imposed interest with penalty.

An appeal was preferred by the appellant before the Commissioner (Appeals). Before the Commissioner (Appeals), the appellant pointed out that though in the appellants’ own case the Commissioner (Appeals), by order dated March 28, 2017, had rejected the appeal on the ground that the appellant was required to pay central excise duty on the said waste and scrap products that were cleared, but the appellant had filed an appeal before the Tribunal to assail the said order and the Tribunal by order dated March 14, 2018 allowed the appeal holding that the scrap material did not emerge due to a process of manufacture and, therefore, excise duty could not have been levied.

In the present case, the Commissioner (Appeals) accepted that the issue involved in the appeal filed before him was identical to the issue that was earlier decided by the Tribunal, but refused to accept it as a precedent for the reason that the order of the Tribunal had been accepted by the Department on monetary grounds. The Commissioner (Appeals) perhaps intended to convey that the Department had accepted the decision of the Tribunal only on the ground of monetary limits and not otherwise. The appeal filed by the appellant was, therefore, rejected by the Commissioner (Appeals) and the relevant part of the order is as follows:

“7.6 It is seen that earlier on the same issue, in the appellant’s own cases the then Commissioner (Appeals) vide OIAs No. 70-71 and 72-73(AB)CE/JPR/2017 dated 28.03.2017 rejected the appeals filed by the appellant on the ground that the appellant was required to pay Central Excise duty on the said waste and scrap products cleared by them. Being aggrieved the appellant preferred appeals before the Hon’ble CESTAT who vide Final Orders No. A/51001- 51004/2018-EX(DB) dated 14.03.2018 allowed the appeals filed by the appellant against the said OIAs and held that these scrap material are not emerging due to a process of manufacture. Hence, they do not qualify to be taxed for excise duty.

7.7 In view of the above, it is an established fact that sale of scrap is an excisable event. The appellant has heavily relied upon Final Order of Hon’ble CESTAT in their own case and almost on identical issue. I find that the above said Final Order has been accepted by the department on monetary ground therefore, it cannot taken as precedent.”

(emphasis supplied)

Shri R. Sudhinder, learned Counsel for the appellant submitted that the Commissioner (Appeals) was bound by the order dated March 14, 2018 passed by the Tribunal in the appellant’s own case relating to an earlier period and, therefore, the Commissioner (Appeals) was not justified in not treating the said order of Tribunal as a precedent merely because the Department had accepted the said order of the Tribunal only on the ground of monetary limits.

Shri Sanjay Kumar Singh, learned Authorised Representative appearing for the Department, however, supported the impugned order.

The submissions advanced by the learned counsel appearing for the appellant and the learned authorised representative appearing for the Department have been considered.

The issue involved in the present appeal is with regard to levy of central excise duty on waste and scrap products cleared by the appellant and this was precisely the issue that was involved in the earlier Appeal Nos. 51560 to 51563 of 2017 (M/s Varun Beverages Limited Vs. CCE & ST, Jaipur-I) filed by the appellant, which appeals were allowed by the Tribunal on March 14, 2018. The relevant portion of the earlier decision of the Tribunal is reproduced below:

“We note that the appellant were engaged in the manufacture of sweetend / non-sweetend assorted water.

During such manufacture these various assorted scrap arise which in any case cannot be considered as products arising out of a manufacturing process. The view of various judicial pronouncement on this issue has been consistent and clear. Such scrap materials arising as incidental products and even if they were sold for a consideration cannot be considered as excisable products. In this connection, we refer to the decision of the Tribunal in Magnum Ventures vs. CCE, Ghaziabad -2014 (303) ELT 226 (Tri. Del.). The Tribunal examining the provisions of Section 2(d) including the Explanation thereto observed as under:

“9. The lower authorities have strongly relied upon the amendment made in Section 2(d) of the Central Excise Act on 10-5- 2008 vide which the explanation was introduced vide Section 78 of the Finance Act, 2008. The said explanation was to the effect that any material which is capable of being bought and sold for consideration shall be deemed to be marketable. However, first of all, it has to be seen whether the said goods can be held to be result of any manufacturing activity. The expression “manufacture” stands defined under Section 2(f) of Central Excise Act, 1944 and is to the effect that the same would include any process incidentally or ancillary to the completion of a manufactured product or which is specified in relation to any goods in Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture or which involves packing or re-packing or labelling or re-labelling of container or declaration or alteration of retail sale price or adoption of any other treatment on the goods to render the product marketable to the consumer. Admittedly, the sludge as also pulper waste emerges during the course of manufacture of paper and paperboard and such emergence is inevitable. The same cannot be held to be any incidental or ancillary process to the completion of a manufactured product. Similarly, there is no deeming provision under any section or Chapter notes so as to hold the said emergence of waste in the shape of sludge or pulper waste, as amounting to manufacture. Admittedly, the third situation involving packing or re-packing, labelling or re-labelling or declaring MRP, etc. on the said sludge and paper waste is not involved in the present cases. As such, the emergence of sludge and pulper waste during the course of manufacture of paper or paperboard cannot be held to the result of any manufacturing activity.

The lower authorities have relied upon the addition of explanation to Section 2(d) of the Central Excise Act, 1944. However, if a product is not a result of a manufacture, such explanation relatable to the excisability of the goods, based upon the marketability of the same, cannot be used for holding a product to be the result of manufacture inasmuch as the same not only relates to the marketability of the product but also the “criteria of manufacture” is still required to be satisfied”.

We also note that the Hon’ble Supreme Court in the case of Union of India vs. Ahmedabad Electricity Co. Ltd. -2003 (158) ELT 3 (SC) examined the scope of excisability on the basis of marketability. The Apex Court held that only on the fact that the goods were marketed, excise duty cannot be automatically imposed. The Apex Court held that for being produced and manufactured in India the raw material should have gone through the process of transformation into a new product by skilful manipulation. Excise duty is an incident on manufacturer. The onus to show a particular goods emerged due to manufacture is on the Revenue. The Apex Court held that coal ash (cinder) was not liable to Excise duty.

In the present case, we note that the various goods on which the Revenue seeks to collect Excise duty are all, admittedly, products incidentally arising during the manufacture of finished goods on which in any case, the appellant is discharging duty. These scrap material are not emerging due to a process of manufacture. Hence, they do not qualify to be taxed for excise levy.

In view of the above discussions and analysis, the impugned orders are set aside. The appeals are allowed.”

(emphasis supplied)

Learned authorised representative appearing for the Department does not dispute that the issue involved in this appeal and the earlier appeals decided by the Tribunal is identical.

The Commissioner (Appeals), it needs to be noticed, even after noticing that the same issue was involved did not accept the decision of the Tribunal as a precedent solely for the reason that the order passed by the Tribunal had been accepted by the Department on monetary grounds.

So long as the order of the Tribunal had not been set aside by the High Court or the Supreme Court, it had precedential value so far as the Commissioner (Appeals) was concerned and the observations made by the Commissioner (Appeals) that the earlier decision of the Tribunal would not have precedential value for the reason that the Department had accepted the order of the Tribunal on monetary grounds speaks volumes about non-observance of judicial propriety. The Commissioner (Appeals) was bound to follow the order of the Tribunal even if the Department had not accepted the decision of the Tribunal and had not only taken a decision to file an appeal but an appeal was also filed, since the Commissioner (Appeals) was bound by the decision of the Tribunal so long as it had not been set aside by the High Court or the Supreme Court.

In this connection, it would be pertinent to refer to the decision of Supreme Court in The Bhopal Sugar Industries Ltd. vs. the Income-Tax Officer, Bhopal, AIR 1961 SC 182. The Supreme Court pointed out that it would result in chaos in the administration of justice if a subordinate Tribunal refuses to carry out directions given to it by a superior Tribunal. Infact, this would be destructive of one of the basic principles of administration of justice. The observations of the Supreme Court are as follows:

“By that order the respondent virtually refused to carry out the directions which a superior tribunal had given to him in exercise of its appellate powers in respect of an order of assessment made by him. Such refusal is in effect a denial of justice, and is furthermore destructive of one of the basic principles in the administration of justice based as it is in this country on a hierarchy of courts. If a subordinate tribunal refuses to carry out directions given to it by a superior tribunal in the exercise of its appellate powers, the result will be chaos in the administration of justice and we have indeed found it very difficult to appreciate the process of reasoning by which the learned Judicial Commissioner while roundly condemning the respondent for refusing to carry out the directions of the superior tribunal, yet held that no manifest injustice resulted from such refusal.

It must be remembered that the order of the Tribunal dated April 22, 1954, was not under challenge before the Judicial Commissioner. That order had become final and binding on the parties, and the respondent could not question it in any way. As a matter of fact the Commissioner of Income-tax had made an application for a reference, which application was subsequently withdrawn. The Judicial Commissioner was not sitting in appeal over the Tribunal and we do not think that in the circumstances of this case it was open to him to say that the order of the Tribunal was wrong and, therefore, there was no injustice in disregarding that order. As we have said earlier, such view is destructive of one of the basic principles of the administration of justice. In fairness to him it must be stated that learned counsel for the respondent did not attempt to support the judgment of the Judicial Commissioner on the ground that no manifest injustice resulted from the refusal of the respondent to carry out the directions of a superior tribunal. He conceded that even if the order of the Tribunal was wrong, a subordinate and inferior tribunal could not disregard it; he readily recognised the sanctity and importance of the basic principle that a subordinate tribunal must carry out the directions of a superior tribunal.”

(emphasis supplied)

This principle was also laid down by Supreme Court in Dharma Chand Jain Vs. The State of Bihar, AIR 1976 SC 1433 and the observations are:

“The State Government being a subordinate authority in the matter of grant of a mining lease, was obliged under the law to carry out the orders of the Central Government as indicated above. But the State Government declined to do so on the ground that it had laid down a policy that the mining leases in respect of the area should be given only to those who were prepared to set up a cement factory. It was clearly not open to the State Government to decline to carry out the orders of the Central government on this ground, particularly because the Central Government was a tribunal superior to the State Government………………..”

In Smt. Kaushalya Devi Bogra and others vs. The Land Acquisition Officer and another, AIR 1984 SC 892, the Supreme Court held that the direction of the appellate court is binding on the courts subordinate thereto and that judicial discipline requires and decorum known to law warrants that appellate directions should be taken as binding and followed. In this connection, the Supreme Court referred to the observations made by the House of Lords and the relevant portion of the judgment of the Supreme Court is reproduced below:

“The direction of the appellate court is certainly binding on the courts subordinate thereto. That apart, in view of the provisions of Article 41 of the Constitution, all courts in India are bound to follow the decisions of this Court. Judicial discipline requires and decorum known to law warrants that appellate directions should be taken as binding and followed. It is appropriate to usefully recall certain observations of the House of Lords in Broom v. Cassell & Co.(1) Therein Lord Hailsham, L. C. observed:

"The fact is, and I hope it will never be necessary to say so again, that in the hierarchical system of courts which exist in this country, it is necessary for each lower tier, including the Court of Appeal, to accept loyally the decisions of the higher tier."

Lord Reid added:

"It seems to me obvious that the Court of Appeal failed to understand Lord Delvin's speech but whether they did or not, I would have accepted them to know that they had no power to give any such direction and to realise the impossible position in which they were seeking to put those judges in advising or directing them to disregard a decision of this House."

Lord Diplock observed at p. 874 of the Reports:

"It is inevitable in a hierarchical system of courts that there are decisions of the Supreme appellate tribunal which do not attract the unanimous approval of all members of the judiciary. When I sat in the Court of Appeal, I sometimes thought the House of Lords was wrong in over ruling me. Even since that time there have been occasions, of which the instant appeal is one, when alone or in company. I have dissented from a decision of the majority of this House. But the judicial system only works if someone is allowed to have the last word and if that last word, once spoken, is loyally accepted."

(emphasis supplied)

In this connection it will also be appropriate to refer to the decision of the Supreme Court in Union of India vs. Kamlakshi Finance Corporation Ltd, AIR 1992 SC 711. The order passed by the Assistant Collector not only ignored the order of the Collector (Appeals) remanding the matter, but also distinguished the decision of the Tribunal by observing that the decision of the Tribunal had not been agreed to by the Department as an appeal had been filed in the Supreme Court. The assessee filed a writ petition in the Bombay High Court to challenge the said order of the Assistant Collector. The High Court not only quashed the order passed by the Assistant Collector but also directed the Department to allocate the matter to a competent officer for passing a proper order. It is against this decision of the Bombay High Court that the Union of India preferred an appeal before the Supreme Court. The Supreme Court remarked that as the Assistant Commissioner had not followed the decision of the Tribunal merely because an appeal had been filed by the Department before the Supreme Court, the High Court had rightly criticised the conduct of the Assistant Collector since it resulted in harassment to the assessee caused by the failure to give effect to the order passed by the Tribunal. The Supreme Court also observed that the order of the Tribunal is binding upon the Assistant Collectors who functions under the jurisdiction of the Tribunal and that the principles of judicial discipline require that the orders of higher appellate authorities are unreservedly followed by the subordinate authorities. The relevant portion of the order of the Supreme Court is reproduced below:

“But what Sri Reddy overlooks is that we are not concerned here with the correctness or otherwise of their conclusion or of any factual malafides but with the fact that the officers, in reaching in their conclusion, by-passed two appellate orders in regard to the same issue which were placed before them, one of the Collector (Appeals) and the other of the Tribunal. The High Court has, in our view, rightly criticised this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate heirarchy. It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi -judicial issues before them, revenue officers are bound by the decisions of the appellate authorities; The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department - in itself an objectionable phrase - and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.”

(emphasis supplied)

In Morgan Securities and Credit Pvt. Ltd. vs. Modi Rubber Ltd., 2006 (14) SCALE 267, the Supreme Court observed:

“While exercising its power under sub-section (3) of Section 22, the Board cannot ignore an order passed by a superior court. It may be bound by the doctrine of judicial discipline.”

The aforesaid decisions of the Supreme Court have been referred to by the Supreme Court in Commissioner of Income Tax vs. Ralson Industries Ltd., (2007) 2 SCC 326 and it has been observed that when an order is passed by a higher authority, the lower authority is bound keeping in view the principles of judicial discipline.

The appeal before the Commissioner (Appeals), therefore, should have been allowed solely on the ground that on the same issue the Tribunal had earlier decided that no excise duty could be levied but the Commissioner (Appeals) refused to accept this decision as a binding precedent and dismissed the appeal.

The impugned order dated April 22, 2019 passed by the Commissioner (Appeals) is, therefore, set aside and the appeal is allowed.