Case Note & Summary
The appeal arose under Section 35L(b) of the Central Excise & Salt Act, 1944 against an order of the Central Excise and Gold (Control) Appellate Tribunal dated 18.3.1986 which substantially modified the order passed by the Appellate Collector of Central Excise, Madras dated 18.6.1982. The appellant, a small scale industry at Kalamassery, Kerala, manufactured liquid carbon dioxide of ISI specification from raw carbon dioxide gas received through pipeline from the Fertiliser & Chemicals Travancore Limited (FACT), Eloor. The raw gas was odorous, had purity less than 99%, and contained moisture above 0.1%, and was subjected to purification, drying, compression, and deodorisation before liquefaction. At the relevant time, carbonic acid (carbon dioxide) fell under Item 14H(iv) of the First Schedule to the Central Excise Act, 1944. The appellant held L.4 and L.6 licences and was permitted to receive waste gas free of duty under Notification No. 7/65-CE dated 30.1.1965, provided it was used for industrial purposes and Chapter X procedure followed. The appellant gave an undertaking to pay duty if later found not entitled to exemption. A show cause notice dated 20.11.1978 was issued for the period March 1977 to September 1978, proposing to revoke licences and demand duty of Rs.8,92,695.60 plus SED Rs.19,823 under Rule 10. The Assistant Collector by order dated 2.2.1982 held the appellant not entitled to exemption and demanded duty. The Appellate Collector by order dated 18.6.1982 set aside that order, relying on Trade Notice No. 220/81 dated September 1981 based on Tariff Advice No. 83/81 dated 24.8.1981, which stated that carbon dioxide gas from fertiliser factories not conforming to ISI specifications was classifiable under Item 68, not Item 14H. The Appellate Collector also held the gas fell outside Item 14H. On further appeal by Revenue, the Appellate Tribunal by order dated 18.3.1986 reversed the Appellate Collector, holding that the trade notice had no relevance as it was issued three years later and that a later Tariff Advice No. 6/85 dated 6.2.1985 indicated classification under Item 14H. The core legal issues were whether the show cause notice for a shorter period could support duty demand for a longer period without fresh notice, and whether the Tribunal erred in discarding the earlier trade notice and relying on the later advice. The appellant argued that the extended levy violated natural justice and that the earlier trade notice was binding on the department. The appellant also argued waste gas was not marketable and not exigible to duty citing Union of India v. Indian Aluminium. The Supreme Court held that the show cause notice dated 20.11.1978 for March 1977 to September 1978 could not be relied upon to levy duty for a longer period up to February 1982; the absence of proper notice for the extended period was unfair and vitiated the proceedings. The Court further held that the Tribunal's reasoning was based on surmise and that it ignored the earlier trade notice of 1981 without proper reasons; the later Tariff Advice No. 6/85 was referred to with a mere presumption that some Collectorates issued trade notices accordingly. Consequently, the Court set aside the Tribunal's order and restored the Appellate Collector's order in favour of the appellant.
Headnote
A) Central Excise - Classification of Goods - Impure Carbon Dioxide Gas Not Conforming to ISI Specifications - Central Excise & Salt Act, 1944, Item 14H(iv) and Item 68 - The dispute concerned classification of raw/impure carbon dioxide gas generated in fertiliser factories and not conforming to ISI specifications - The Appellate Collector held it classifiable under Item 68 based on Trade Notice No. 220/81, but the Tribunal discarded that notice and relied on later Tariff Advice No. 6/85 without proper reasons - Held that the Tribunal's reasoning was based on surmise and it ignored the earlier binding trade notice without proper reasons (Paras 11-14). B) Central Excise - Show Cause Notice and Demand - Natural Justice and Procedural Fairness - Central Excise Rules, 1944, Rule 10 - The show cause notice dated 20.11.1978 was issued for March 1977 to September 1978, but duty was demanded for the extended period March 1977 to February 1982 without fresh notice - Held that levy for the period beyond September 1978 was without proper notice, unfair and vitiated the proceedings (Paras 10, 12).
Issue of Consideration
Whether the show cause notice dated 20.11.1978 for March 1977 to September 1978 could sustain a duty demand for the extended period March 1977 to February 1982 without fresh notice; whether the Appellate Tribunal erred in discarding Trade Notice No. 220/81 based on Tariff Advice No. 83/81 and relying on later Tariff Advice No. 6/85; whether impure carbon dioxide gas received from FACT Ltd. was classifiable under Item 14H or Item 68 of the Central Excise Tariff
Final Decision
The Supreme Court held that the show cause notice dated 20.11.1978 for March 1977 to September 1978 could not support duty demand for the extended period up to February 1982, and the levy for the extended period was without proper notice, unfair and vitiated; further, the Tribunal erred in discarding Trade Notice No. 220/81 and its reasoning was based on surmise; the appeal was allowed, the Tribunal's order was set aside, and the Appellate Collector's order was restored.
Law Points
- Show cause notice for a shorter period cannot sustain duty demand for a longer period
- trade notice based on Board's tariff advice is binding on department
- Tribunal cannot discard earlier trade notice without proper reasons
- reliance on later contrary advice on presumption is based on surmise
- natural justice requires proper notice before levy
- classification of impure carbon dioxide gas not conforming to ISI specifications falls under Item 68
