Summary
Re-classification of Benzene and Toluene from sub-heading 2902.00 to 2707.10 and 2707.20 of the Central Excise Tariff, and the resulting differential duty demand for September 1990 to December 1992, rested on chemical test reports of which only a gist was given in the show-cause notices. The Supreme Court held this breached Rule 56(2) and (4) of the Central Excise Rules, 1944 and natural justice, since a manufacturer can seek a re-test within 90 days only on receiving the report; belated sampling after approval of the classification list under Rule 173B compounded the doubt. Assessments for January and February 1993 were also not provisional: Rule 9B requires a written order of the proper officer and a bond, a Superintendent's endorsement on RT-12 returns does not suffice, and a later order of 18.10.1993 could not operate retrospectively. All three appeals allowed.
Issues
- Whether a differential duty demand based on re-classification of Benzene and Toluene from Chapter 29 to Chapter 27 is sustainable when the re-classification rests on test reports dated 29.01.1991, on samples drawn in October 1990, of which only a gist was supplied to the manufacturer.
- Whether such test reports could legally form the basis for re-classification of the products manufactured and cleared during 1991 and 1992.
- Whether CESTAT was justified in treating the assessments of Benzene and Toluene for January and February 1993 as provisional in the absence of an order under Rule 9B of the Central Excise Rules, 1944 and without execution of a B-13 bond.
Provisions considered
- Rule 56(2) and 56(4), Central Excise Rules, 1944The word 'shall' in sub-rule (2) makes communication of the test result to the manufacturer mandatory, and sub-rule (4) lets an aggrieved manufacturer seek a re-test within 90 days of receiving the result. A copy of the test report must therefore be furnished; extracting only a gist in the show-cause notices breached both sub-rules and defeated the right to seek re-test, so CESTAT's view that there was substantial compliance was contrary to the rule and to natural justice. (¶¶ 35, 36, 37, 38, 38.1, 39)
- Rule 9B, Central Excise Rules, 1944Provisional assessment requires a written request by the assessee (or a direction by the proper officer satisfied that self-assessment is not in order), a written order of the proper officer directing provisional assessment, and execution of a bond. None of these existed for January and February 1993; a Superintendent's endorsement on RT-12 returns cannot make an assessment provisional, and the order of 18.10.1993 could not operate retrospectively. (¶¶ 43, 44, 44.1, 45, 46, 47, 48)
- Rule 173B, Central Excise Rules, 1944The classification list filed under this rule was approved on 26.04.1990. Approval is not an empty formality: the proper officer must apply his mind and may inquire before approving. Drawing samples more than five months after approval, followed by still later test reports, cast doubt on the whole procedure. (¶¶ 8, 34, 40, 48)
- Sub-headings 2902.00, 2707.10 and 2707.20, Central Excise Tariff Act, 1985Benzene and Toluene of 96 percent or higher purity fall under Chapter 29 (2902.00) as declared; the department sought to re-classify them under 2707.10 and 2707.20 on test reports showing lower purity. The orders of re-classification and the consequential differential duty demand were set aside. (¶¶ 8.1, 9, 12, 33, 34, 40)
- Section 35L(b), Central Excise Act, 1944The three appeals against CESTAT's common order were filed under this provision. (¶ 1)
Held
- Documents relied upon by an authority to take a view different from the existing one, with adverse civil consequences for the affected party, must be furnished to that party; otherwise there is a clear breach of natural justice. Since the test reports formed the entire substratum of the re-classification and higher duty demand, informing the appellant only of their gist was not compliance with natural justice. (¶ 37)
- Rule 56(2) of the Central Excise Rules casts a positive, mandatory duty on the officer who takes samples to communicate the test result to the manufacturer, and Rule 56(4) permits a re-test request within 90 days of receipt. Unless a copy of the test report is furnished the manufacturer cannot seek a re-test within time, so extracting a gist in the show-cause notices breached Rule 56(2) and (4). CESTAT missed the point in faulting the appellant for not seeking a re-test; its view was contrary to Rule 56 and violated natural justice. (¶¶ 38.1, 39)
- Approval of a classification list under Rule 173B is not an empty formality; if the department doubted the classification it could have sampled the products before approval. Belated sampling more than five months after approval and still later test reports cast a shadow of doubt over the procedure, compounded by non-furnishing of the reports; the orders re-classifying Benzene and Toluene under 2707.10 and 2707.20 and the consequential differential duty demand, and CESTAT's order upholding them, cannot be sustained. (¶¶ 34, 40, 41)
- Whether an assessment is provisional is crucial because provisional assessment freezes limitation, whereas if the assessments were regular the demand under the order-in-original dated 03.03.2004 covering 03.11.1989 to 1998-99 would be barred by limitation. (¶ 43)
- Under Rule 9B the assessee must request provisional assessment in writing when unable to determine value or classification; the proper officer may then direct provisional assessment, which he can do only by a written order; and the assessee must execute a bond for the differential duty. The exception is a direction by the proper officer satisfied that self-assessment is not in order. In any event an order is required, and, as held in Coastal Gases, Hindustan National Glass and Metal Forgings, an order under Rule 9B and payment of duty on a provisional basis are essential to establish provisional clearance. (¶¶ 44.1, 45, 46, 47)
- No evidence showed that the appellant executed a bond or furnished a bank guarantee under the order dated 18.10.1993, and that order could not render assessments from 1989-90 to 17.10.1993 provisional retrospectively. There was no Rule 9B order for January and February 1993 and no bond; a mere endorsement by the Superintendent on two RT-12 returns cannot make an assessment provisional. Having issued and adjudicated show-cause notices for September 1990 to December 1992 as regular assessments, it is implausible that assessments became provisional from January 1993; CESTAT's contrary finding was unsustainable. (¶¶ 48, 49)
Result
Appeals allowed. CESTAT's order dated 21.05.2010 set aside in respect of appeals E/40/02-NB-C and E/3816/03-MUM; orders of the Assistant Commissioner dated 27.02.2001 and of the Commissioner (Appeals) dated 28.09.2001 and 29.08.2003 set aside; the portion of CESTAT's order in appeal E/2380/06-MUM holding the assessments of Benzene and Toluene for January and February 1993 to be provisional set aside; no order as to costs.