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Nuchem Plastics Ltd. Vs. Collector of C. Ex. - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1983)LC1888DTri(Delhi)
AppellantNuchem Plastics Ltd.
RespondentCollector of C. Ex.
Excerpt:
1. this is an appeal to the tribunal against the order-in-appeal no.129-ce/dlh/83 dated 23.2.1983 of the collector (appeals) central excise, new delhi, in which he has upheld the order-in-original no.20/81 dated 1.7.81 issued by the assistant collector of central excise, division iii, faridabad.2. the facts in brief are that the appellants have been manufacturing urea formaldehyde moulding power (ufmp) falling under item 15a(1) of the central excise tariff schedule. they filed a series of classification lists, namely no. 18/80 effective 27.2.80, 26/80 effective 18.6.80 and 35/80 effective 19.6.80, in respect of ufmp. in each of these classification lists they claimed the benefit of the concessional rate of duty under notifica- tion no. 7/80, dated 27.2.1980. this notification provided.....
Judgment:
1. This is an appeal to the Tribunal against the order-in-appeal No.129-CE/DLH/83 dated 23.2.1983 of the Collector (Appeals) Central Excise, New Delhi, in which he has upheld the order-in-original No.20/81 dated 1.7.81 issued by the Assistant Collector of Central Excise, Division III, Faridabad.

2. The facts in brief are that the appellants have been manufacturing urea formaldehyde moulding power (UFMP) falling under Item 15A(1) of the Central Excise Tariff Schedule. They filed a series of classification lists, namely No. 18/80 effective 27.2.80, 26/80 effective 18.6.80 and 35/80 effective 19.6.80, in respect of UFMP. In each of these classification lists they claimed the benefit of the concessional rate of duty under Notifica- tion No. 7/80, dated 27.2.1980. This notification provided for a concessional rate of duty, namely 33%, in respect of UFMP "manufactured from raw naphtha or any chemical derived therefrom, on which the appropriate amount of duty of excise has already been paid". The classification lists were duly approved by the concerned Assistant Collector. Subsequently, a show cause notice dated 15.1.81 was issued to the appellants, requiring them to show cause to the Assistant Collector why the approval to the three classification lists should not be revoked, the appropriate amount of duty on the UFMP should not be approved at 40% instead of at 33% as leviable under Notification in /80, and the differential duty should not be demanded from them under Rule 10 of the Central Excise Rules.

After following the adjudication procedure, the Assistant Collector passed his order dated 1.7.81 containing decision as proposed In the show cause notice. An appeal to the Collector of Central Excise (Appeals) having been rejected, the appellants have come before us.

3. On behalf of the appellants, their Advocate, Shri K. Narasimhan, raised a number of points, on which he argued at length. It is, however, necessary to consider in detail only two of his contentions, which are as follows :- (i) The Assistant Collector's order dated 1.7.81 amounted to a "review" of the decision of his predecessor, and such a review or revision was not within the jurisdictional competence of the Assistant Collector. This power at the material time vested only in the Collector of Central Excise under Section 35A of the Central Excises and Salt Act as in force before 11.10.1982; and (ii) The Assistant Collector as well as the Collector (Appeals) proceeded on the erroneous assumption that formaldehyde, being the only essential input, was brought from outside sources into the factory for the manufacture of UFMP.4. For reasons which will be apparent later, we shall deal with the second ground first. The reason given In the show cause notice dated 15.1.81 for proposing to take action was as follows :- "Whereas the concessional rate of duty @ 33% adv. can only be availed under Notification No. 7/80, dated 27.2.80 if the Urea Formaldehyde Moulding Powder is manufactured out of raw-Naphtha or Chemical derived therefrom (Formaldehyde in this case) on which the appropriate amount of duty has already been paid.

Whereas it appears that the appropriate amount of duty had not been paid by the party because they have availed the facility of proforma credit under Rule 56-A on the formaldehyde falling under Tariff Item 5. In the order issued by the Assistant Collector the following conclusion has been recorded :- "As regards the application of Notification No. 201/79, dated 4.6.79, it is correct that the end product UFMP pays the duty and that the in-put "formaldehyde" before being brought into the factory has also discharged the duty liability under Tariff item No. 68. But this position no longer remains valid after the party take credit of the amount of duty paid on it in terms of Notification No. 201/79, dated 4.6.79. In doing so, the Input "formaldehyde" becomes defacto a non-duty paid item". (Notification No. 201/79-C.E., dated 4.6.79 provides for relief of the duty of excise paid on goods falling under Tariff Item No. 68 when they are used in the manufacture of other excisable goods).

6. The order of the Collector (Appeals) contains the following observations :- "The benefit of Notification No. 201/79 claimed by the appellants in the classification list and subsequently in reply to the show cause memo was also not available to them on that quantity ef formaldehyde which had not borne the Incidence of duty for whatever reasons.

It could of course be claimed in respect of such quantity of formaldehyde which could be shown to be duty paid but once the proforma credit was taken (and A.C. is right in this respect) the material in effect becomes non-duty paid in charac- ter and, therefore, UFMP produced by its interaction with urea would not be entitled to the benefit of Notification No. 7/80." 7. The entire case of the Department is, therefore, on the basis that the appellants bought formaldehyde and brought it into their factory; that they took proforma credit of duty under Rule 56A on the formaldehyde so brought in; that the formaldehyde became in effect non-duty paid in character; and consequently UFMP produced by the interaction of the formaldehyde with urea (or rather the UFMP so produced) would not be entitled to the benefit of Notification No.7/80.

8. Shri Narasimhan pointed out that all these observations contained a basic error of fact. This was that the appellants did not buy any formaldehyde or bring it into their factory. What they bought was Methanol, from which they themselves manufactured formaldehyde. To make the position clearer, it may be stated that the sequence of evolution of UFMP is as follows:- According to the appellants, they purchased Methanol from Rashtriya Chemicals & Fertilizers Ltd., a Government undertaking, and this Methanol was manufactured out of raw naphtha on which the appropriate Central Excise duty had been paid. They had produced before the Collector (Appeals) a certificate to this effect from M/s. Rashtriya Chemicals & Fertilizers Ltd., which was rejected as it was not in the proper form. They have annexed to their appeal a copy of a certificate on the letterhead of Rashtriya Chemicals & Fertilizers Ltd., signed by their Regional Manager, which certifies that raw naphtha used by them in the manufacture of Methanol had been supplied by Hindustan Petroleum/Bharat Petroleum, and that the appropriate amount of excise duty had been paid on the same. No duty under the Central Excises and Salt Act is leviable on Methanol, being a variety of alcohol. The formaldehyde which they manufactured from the Methanol was liable to duty in the normal course under Item 68 of the Central Excise Tariff.

Since, however, it was used in the factory of its production for further manufacture, it was exempt from duty under Notification No.118/75, dated 30.4.1975. This formaldehyde was in turn combined with urea which they purchased from outside to form UFMP, on which they paid duty under Item 15A.9. In support of their statement that formaldehyde was manufactured in their factory and not brought from outside, the appellants have filed their copies of three classification lists referred to earlier, in Form 1. In these classification lists, the goods produced are shown as "urea formaldehyde moulding powders". On the reverse of the form, which shows "particulars of other goods produced or manufactured and intended to be removed by the assessee", "Formaldehyde" has been mentioned in each classification list.

10. From the evidence produced, it is clearthat the appellants had not been bringing formaldehyde into their factory, but had been manufacturing it out of Methanol purchased by them. Their assertion in this regard was not controverted by the Departmental Representative. It is clear, therefore, that the lower authorities acted throughout on the wrong assumption that the appellants had brought formaldehyde into their factory and availed themselves of proforma credit of the duty paid on it, and it was on this ground that their eligibility for the concessional rate of duty under Notification No. 7/80 was assailed.

11. As we said, the above facts were not controverted by Smt. Zutshi, appearing for the Department. There was a faint suggestion that if the formaldehyde was not duty paid, even though manufactured within the factory and therefore exempt from duty, the appellants would be ineligible for the benefit of the duty concession on the UFMP manufactured using the said formaldehyde. In other words, the argument is that the words "manufactured from raw naphtha or any chemical derived therefrom on which the appropriate amount of duty of excise has already been paid", should be interpreted to mean that even where the raw naphtha was duty-paid, any intermediate chemical manufactured from it and used for the further manufacture of UFMP should also have been duty-paid. We consider that this would be a strained construction of the notification. The reference is to raw naphtha or any chemical derived therefrom. Thus, if the material used in the process of manufacture can be identified as raw naphtha on which duty has been paid, the final product, namely, UFMP, is eligible for the concession.

Alternatively, if the material used in the process of manufacture can be traced back only to a chemical derived from raw naphtha, then the appropriate amount of duty should have been paid on that chemical. As pointed out above, Naphtha cannot be directly transformed to UFMP, but has to pass through a number of intermediate stages. We do not think it would be a reasonable construction to hold that the concession would be admissible only if duty is paid not only on raw naphtha but also on each of the intermediate products resulting therefrom until the final product, namely UFMP, is produced, particularly in view of Notification No. 118/75, which grants a general exemption from excise duty on goods falling under Item 68, manufactured in a factory and intended for use in the factory in which they are manufactured.

12. From the foregoing discussion it is clear that the basis on which the Assistant Collector and the Collector (Appeals) held that the appellants were ineligible for the concession under Notification No.7/80 was not correct and cannot be sustained.

13. However, this does not ipso facto mean that the appellants were eligible for the concession. During the personal hearing it was observed by the Bench that the urea which is also a component of UFMP is itself derived from raw naphtha. The appellants were asked whether the urea was also duty paid. Shri Narasimhan's reply was that the question regarding urea had not been gone into by the lower authorities. However, the position was that they purchased the urea from the market. Some of it was bought from Rashtriya'Chemicals & Fertilizers Ltd., in which case credit of duty was taken in terms of Notification No. 2C1/79. Where it was bought from other manufacturers, though it was presumed to be duty paid, no set-off of duty was taken.

He argued that even when the urea was bought directly from the manufacturers like Rashtriya Chemicals & Fertilizers Ltd., and "set-off" of duty was taken, the condition precedent for availing of the exemption under Notification No. 7/80 should be deemed to have been satisfied.

14. The implications of what has been stated in the preceding paragraph will be referred to later in this order.

15. We now come to the other main argument of Shri Narasimhan, relating to the alleged lack of jurisdiction of the Assistant Collector to pass his order dated 1.7.1981. Shri Narasimhan argued that the classification lists had been approved on 8.4.1980,2.7.1980 and 22.7.1980 respectively by the concerned Assistant Collector, and that these approvals constituted decisions under the Central Excises and Salt Act and Rules. The "revocation" of the approval of the classification lists by the successor Assistant Collector, according to him, amounted to a revision of his predecessor's order, which was not within his juris-dictional competence. It was only the Collector of Central Excise, acting under Section 35A of the Act, as in force at that time, who had the jurisdictional competence to review the orders of the Assistant Collector.

16. In support of his argument, Shri Narasimhan cited the decision of the Allahabad High Court in the case of Khazanchi Paper and Board Mills v. Superintendent of Central Excise, Kanpur, reported in 1977 E.L.T.(J144), and the decision of the Delhi High Court in the case of Caltex Oil Refining (India) Ltd. v. Union of India and Ors., reported in 1979 E.LT. (J581). In the first case referred to, the question was of cancellation by a Collector of a licence in Form L4 issued by his predecessor. The High Court observed that orders with regard to issuance and cancellation of licences are of a quasi-judicial nature.

Such orders are appealable and a revision also lies. Unless specific power is conferred upon the authority concerned, it cannot review an order of judicial nature. In the second case, the Court referred to the decision of the Supreme Court in Harbhajan Singh v. Karan Singh and Ors., AIR 1966 S.C. 641, in which it was held that "inasmuch as no court or authority has power of setting aside an order which has been properly made unless it is given by statute, an order once made by an authority cannot be reviewed unless there is a specific provision giving power of review". It is apparently on this observation that Shri Narasimhan relies, and not on the actual decision on the case, since there it was held that re-opening of a decision on the basis of an objection raised by Audit would not amount to review.

17. As against this contention of Shri Narasimhan, Smt. Zutshi relied on a decision of the Andhra Pradesh High Court in the case of Southern Steel Ltd., Hyderabad v. Union of India and Ors., reported in 1979 E.L.T. (J402). In para 15 of this judgment, the following observations have been made :- "It is no doubt true that the petitioner was submitting classification list in which it took up the stand that it would not be liable to excise duty and this position was accepted for a number of years by the department. It is also true that the mere fact that the authorities had not questioned the position taken up by the petitioner does not prevent them from levying duty whenever they come to the conclusion that the description in the classification list is not correct and according to the correct description duty is leviable." Smt. Zutshi argued that this was an authority to hold that if it was found that approval was incorrectly given to a classification list, the authorities concerned were not precluded from varying their decision at a subsequent date. Smt. Zutshi also relied on a decision of the Government of India in revision in the case of Gramophone Company of India Ltd., Calcutta, reported in 1981 E.L.T. 82, in which it was held that a trade notice or a reference in an Audit Report regarding classification of a product was not in any way binding on a quasi-judicial authority deciding a revision application. (This does not appear to be very relevant to the point raised). Smt. Zutshi also relied on an order of the Government of India In the case of C.B. Glass Works, reported in 1979 E.L.T. (J40), wherein it was held that "the plea that final assessment cannot be re-opened at a subsequent stage was not maintainable in law". Since no reasoning or authority is given for this conclusion, this decision is of very limited authority.

18. There are, however, two other judgments which have an important bearing on the question regarding the circumstances in which an authority under the Central Excises and Salt Act can review, or depart from, an earlier decision taken by its predecessor. Though these were not among the authorities cited by either of the parties before us, we do not feel ourselves justified in ignoring them. This is not only because of their general relevance, but also because they happen to have been pronounced by the Delhi High Court within whose jurisdiction we are situated.

19. The earlier of these judgments is that of a Division Bench of the Delhi High Court in the case of Sawa Potteries, Mehrauli v. Union of India and Anr., reported in 1981 E.LT. 144 (Del.). In this case there was a dispute regarding the various deductions to be made from the retail price of the excisable goods in order to arrive at the assessable value. The matter went up to the Delhi High Court. The learned Single Judge before whom the case came up quashed the assessment order of the Assistant Collector of Central Excise, with the direction that the Assistant Collector should decide the matter afresh in the light of the legal principle mentioned in the judgment. When the matter thus went back to the Assistant Collector, that authority passed an order in which he inter alia allowed a deduction of 10% from the retail price on account of "breakages". Refund of duty as found due on this as well as on other grounds was made to the assessees.

Subsequently, the successor Assistant Collector issued a notice under Rule 10 of the Central Excise Rules, in which he expressed the opinion that the 10% deduction on account of breakage allowed by his predecessor was not correct as no actual expenditure was incurred on account of insurance. He, therefore, proposed to revise the earlier order and to call upon the assessees to refund an amount of Rs. 1.25 lakhs said to have been overpaid as a result of the earlier determination. After considering the assessees' reply to the show cause notice, the Assistant Collector passed an order in terms of the show cause notice direct- ing the assessees to pay the sum of Rs. 1.25 lakhs being the excess amount of refund granted to them under the earlier order. This order of the Assistant Collector was set aside by the Appellate Collector on the ground that the earlier order of refund could only have been revised by the Central Government (sic) under Section 35A of the Central Excises and Salt Act, and was not open to review by invoking Rule 10 of the Central Excise Rules. Subsequently, in further proceedings under Section 36(2) Central Excises and Salt Act, as it then stood, the Central Government revised the Appellate Collector's order and restored the Assistant Collector's order, holding that he was justified in taking action as he did under the provisions of Rule 10. Against this order of the Central Government the assessees again went in a writ petition to the Delhi High Court, which disposed of the petition by its order dated 9.9.1980, passed by a Division Bench consisting of Chief Justice Mr.Prakash Narain and Mr. Justice S.Ranganathan. One of the grounds taken by the petitioners was that, the refund having been granted by the order of an Assistant Collector after a careful consideration of the various points involved, it was not open to another Assistant Collector to "review" that order merely because he thought that it was wrong, and to hold to the contrary. The High Court, however, rejected this contention. In doing so, it made the following observations :- "Nevertheless, the legislature has considered it expedient to confer on the assessing authority itself a limited power of review where, according to him or his successor, the earlier order is erroneous.

The language of the Rule clearly postulates the existence of a prior quasi-judicial determination by way of levy of duty or grant of refund or a decision not to levy duty and confers on the same authority a power of review of the earlier decision, subject to the fulfilment of the conditions mentioned in the Rule and subject to action for review being taken within the prescribed period of limitation." (paragraph 11) "It is, therefore, difficult to accept the contention that the Rule is not attracted merely because the earlier order has been passed after a detailed consideration. The Rule permits a review when the appropriate authority comes to a conclusion that the earlier decision was erroneous and that more duty should have been levied or that no refund ought to have been granted, such error having crept in inter alia due to "inadvertence, error, collusion, or mis-construction on the part of an officer". These words are very wide and clearly cover the circumstances of the present case, as according to the respondents, the refund was erroneously granted due to a misconstruction of law and the earlier order of Rangarajan J. If the order of review is incorrect, it is, of course, subject to correction by appeal, further revision and, in appropriate cases, by judicial review in a writ petition but It is not open to objection on the ground that the authority has no jurisdiction to review a considered order." (paragraph 12) 20. The second and subsequent judgment of the Delhi High Court, delivered on 24.4.1981, is that in the case of J.K. Synthetics Ltd. and Anr. v. Union of India and Ors., reported in 1981 E.LT. 328 (Del.).

This judgment was also delivered by a Division Bench, and the composition of the Bench happened to be the same as in the case of Bawa Potteries. The facts in this case were that there had been a determination by the Central Government as the revisional authority which was favourable to the assessees. Subsequently, the Central Excise Department, apparently on the basis of instructions from higher authority, sought to re-open the issue. It was contended on behalf of the petitioners that the Department was not entitled, without any clear or cogent reasons, to depart from the conclusion which had been already arrived at in relation to the earlier period.

21. The judgment examines this issue at great length. Reference is made to the well-settled proposition of law that the doctrine of res judicata or estoppel will not apply in matters of this kind. However, the judgment goes on to say that while that principle will not apply in tax matters, an earlier decision will be a cogent factor in the determination of the same point in a subsequent period. It would be helpful to set out the relevant paragraphs of the judgment which lay down the principles which the High Court held should be followed in such a case:- "Will it be open to the department, without reasons and merely at its own caprice, to refuse to follow the conclusion reached on the earlier occasion and to take up a totally different stand in a subsequent year? In answering this question, it has to be appreciated that, while what is sought to be done in this case is to ignore or brush aside the decision taken by one of the departmental authorities on the same Issue for an earlier period, it should make no difference in principle even in a case where the decision for the earlier year had been confirmed by the High Court or Supreme Court in appropriate proceedings for, as pointed out by Lord Radcliffe, the Rule operates not because of the nature of the proceedings in which the decision was taken earlier but because of the truly limited scope of the issue decided earlier. If that be so, the question for consideration would be whether, for a subsequent period, the department can contend that the decision on an issue on an earlier occasion would have no importance or relevance whatever when the issue arises subsequently, even if it had been contested upto, and decided by, the High Court or Supreme Court for the earlier period. If the matter is looked at from this larger perspective, we think it will be clear that there can be only one answer to this question viz., that the department should not be permitted to take different stands unless there is any good or cogent reason for the change in view. For example if the facts are different or if further and fresh facts are brought on record or if the process of manufacture has changed or if the relevant entries in the tariff have undergone a modification or if, subsequent to the earlier decision there has been the pronouncement of a High Court or the Supreme Court which necessitates reconsideration of the issue, it can hardly be doubted that the department can take a different view and have the matter agitated right upto the Supreme Court, if necessary. But when there is no change at all and when the position is exactly the same, legally and factually, as it was on the earlier occasion then we think that the department should be restrained from capriciously changing its stand and inflicting unnecessary proceedings and hardship upon assessees." (paragraph 15) "The above decisions bring out clearly that whatever may be the position of a court of law or of an Appellate Tribunal it is not open to the Income-tax Authorities to change their view capriciously. An authority can depart from a finding arrived at in an earlier year only for cogent reasons. There should be either fresh facts or a change of law or at least a suggestion that while arriving at the conclusion of the earlier year certain material facts or provisions had not been considered and that if they had been considered a different view might have been taken. But for no reason at all there can be no departure from the view taken in an earlier year. This Rule is based both on the principle that there should be a finality to litigation even in Income-tax matters as well on principles of natural justice." [paragraph 20] "But, on careful consideration, it appears to us that the principle followed by us carries with it its own limitations and inherent restrictions and ensures freedom to the Department in cases where a fresh consideration is due for genuine reasons. Also, not being a conclusive objection like res judicata but only a Rule of natural justice it only precludes the same authority or one subordinate to him from revising his views arbitrarily and that too, only in the case of the particular assessee where the earlier decision has been taken. Thus, where the original decision Is taken by an assessing authority, it is open to the higher authorities, who may consider it a wrong decision, to exercise their powers of revision or review under the Act and to set out the correct position. But if this has not been done or, if in a revisional proceeding for an earlier year, the ultimate revisional authority has taken a view in favour of the assessees, fresh proceedings cannot be launched against the assessee merely because the department later thinks that the previous view is untenable or that the matter should be agitated and a fresh decision obtained. In such cases, the department would still have the remedy of enunciating its views in another case where its hands are not so tied and matters can be pursued therein." In the light of the above observations, the High Court held in the case before it that it was not open to the excise authorities to take a different view without any valid reasons and to start levying excise duty on the goods which had been the subject matter of an earlier decision.

22. Of the two cases cited, in the first the High Court had upheld the power of the Assistant Collector, under Rule 10 of the Central Excise Rules, to review the order of his predecessor, even if that was a "considerad order". In the second case, where there was an attempt to review an earlier decision, it was held that it was not open to the excise authorities to take a different view without any valid reasons.

However, while the conclusions arrived at in the two cases were different, it will be found that the two judgments are consistent with each other, although the emphasis is different in each case. Both the judgments are to the effect (but the first one more emphatically) that an assessment decision taken by an authority under the Central Excises and Salt Act may be reviewed by the same authority or its successor.

Both judgments are also to the effect (but the second one more emphatically) that such a review is permissible only if there are adequate reasons which justify a review being undertaken. As has been stated in the second judgment, what has been arrived at is "a harmonious reconciliation between two well-established positions: on the one hand, that the matter of levy of tax in respect of each occasion is a separate and independent subject matter and that, generally speaking, there can be no reason why the authorities as well as the assessee could not approach the matter from different stand points on different occasions and the practical necessity, on the other, that there should be a finality to all litigation even in tax matters and that it should not be open to the department to change the pattern of assessments at its whim and put an assessee to avoidable inconvenience and harassment." 23. We shall now examine, with particular reference to the two pronouncements of the Delhi High Court, the contention of Shri Narasimhan that the successor Assistant Collector was not entitled to re-open the question of classification which had been decided by his predecessor. The judgment in the case of J.K. Synthetics sets out certain guidelines in this regard. If the process of manufacture of the goods has changed, or if the relevant entries in the Tariff have undergone a modification, or if there has been a subsequent pronouncement of a High Court or the Supreme Court which necessitates reconsideration of the issue, there is obvious justification for such action to be taken. None of these factors operated in the present case.

However, the judgment gives the authorities some further latitude by indicating that such a decision could be reopened if fresh facts are brought on record, or there is at least a suggestion that while arriving at the earlier conclusion certain material facts or provisions had not been considered, and that if they had been considered a different view might have been taken. (The case of Bawa Potteries could be considered as falling within this category, since the predecessor Assistant Collector had made an assumption that the assessees were paying for insurance for breakages, which assumption the successor Assistant Collector found to be factually incorrect). These guidelines might have been invoked in the present case on the basis that the Department had come across certain facts (fresh or otherwise) which would have led to a different view had they been considered. This, indeed, is what the successor Assistant Collector proposed to do, on the ground that the appellants had purchased formaldehyde and brought it into their factory, and taken credit of the duty paid on it, and therefore they were using non duty-paid formaldehyde in the manufacture of UFMP. This assumption, as we have seen, was totally erroneous. Yet, it was on this assumption that the proceedings were initiated, and the decisions of the Assistant Collector and the Collector (Appeals) were passed. While the judgments of the Delhi High Court cited above could be relied upon in support of the reopening of a case on the basis of a fresh fact or a fact which was not properly considered, neither of these judgments and in fact none of the authorities cited before us, justifies the reopening of an earlier assessment decision on the basis of "non-facts", that is to say, on the basis of assumptions which themselves were incorrect.

24. The position might have been different if the reopening of the earlier decision had been on the ground that the appellants were using urea, which was derived from raw naphtha and which might be considered as non-duty-paid, in the manufacture of UFMP, and that this was a material fact which had not been considered in taking the earlier decision, and would, if considered, have led to a different decision.

But this was not what the excise authorities did. There is no reference either in the show cause notice or in the Assistant Collector's order or in the order of the Collector (Appeals) to the use of "non-duty-paid" urea in the manufacture of UFMP as affecting the eligibility of UFMP to the duty concession. It must be said that the communications addressed by the appellants to the Assistant Collector in the course of the adjudication proceedings did not bring out very clearly the point that formaldehyde was manufactured in their factory and not brought In from outside. However, this was clearly brought out in the appeal to the Collector (Appeals) in which they have stated as follows :- "To this extent the raw-naphtha remains and continue to remain duty paid in character and the order of the Asstt. Collector in particular to page 3 para 2 line 7 which reads as under:- "...In doing so that input Formaldehyde becomes defacto a non-duty paid item".

The learned Asstt. Collector has not appreciated the factual position that It is the Raw-Naphtha which the Appellant use In the manufacture of UFMP...." Of course, this position was also apparent from the classification lists.

25. We have, therefore, come to the conclusion that it was not open to the successor Assistant Collector to reopen or revoke his predecessor's order on the basis of the material contained in the show cause notice issued by him, and that the order passed by him is vitiated by this basic infirmity.

26. The fact that the Urea used in the manufacture of UFMP was manufactured from raw naphtha, and was purchased from outside, has come out only in the course of the proceedings before us. We cannot totally ignore this fact, which might well have a material bearing on the eligibility of the UFMP to the concessional rate of duty. At the same time, we do not think it would be open to us to decide the matter on the basis of this fact, as it would amount to our setting up an entirely new case which the appellants were not called upon to meet by any of the lower authorities.

27. We are considered to express our surprise at the way in which this case, involving very substantial amounts of duty, has been handled by the Department. Firstly, the decisions of the lower authorities appear to have been taken without ascertaining the full facts regarding the materials used in the manufacture of UFMP and their duty status.

Secondly, and what is more surprising, even when a doubt arose that the earlier decision was wrong, the correct facts were not ascertained, but a show cause notice issued, the very basis of which was an assumption which was factually incorrect (namely that formaldehyde was being purchased and brought into the factory). As brought out earlier, this was in spite of the fact that the classification lists filed by the appellants clearly showed that formaldehyde was being manufactured by them.

28. It is also not clear to us why, instead of the Assistant Collector seeking to "revoke" the decision of his predecessor, action was not taken by the Collector, in exercise of his power under Section 35A, to revise the Assistant Collector's order. It has already been stated that the three classification lists were dated 27.2.1980,18.6.1980 and 19.6.1980. It is seen from the three classification lists that they were approved on 8.4.1980, 2.7.1980 and 22.7.1980 respectively. The Assistant Collector's show cause notice was issued on 15.1.1981, which was less than one year from the date of approval of the first classification list, and less than six months from the date of approval of the third. The proceedings under Section 35A could be initiated within one year from the date of the decision or order proposed to be revised. Even if the proviso to Section 35A, limiting the time limit to six months in certain cases, were held to be applicable, it would still have been possible to Initiate proceedings in regard to the classification list which was approved on 22.7.1980. The power of revision under Section 35A is not subject to strict limitations such as have been laid down by the Courts where an authority seeks to revise an earlier decision of the same authority. If it appears to the revisional authority that the orders passed by the lower authority are not proper, legal or correct, proceedings could be initiated. Instead of invoking this specific statutory power, which is of very wide scope, the Department has preferred to follow a different course, and that also in such a defective manner that there is a fatal infirmity in the action taken, so that the course adopted goes against the observations of the Delhi High Court in para 22 of its judgment in the J.K. Synthetics' case (which have been quoted in para 21 above).

29. A number of other points were canvassed by Shri Narasimhan for the appellants, but in view of the position as emerging from the above discussion, it is not necessary for us to refer to them, it is clear that the order of the Assistant Collector and of the Collector (Appeals) are based on a totally wrong assumption, and these orders cannot therefore be sustained. We have also to hold that the proceedings initiated by the Assistant Collector to "revoke" his predecessor's decision, based as they were on a totally wrong assumption, were without proper jurisdiction. In this view we set aside the orders of the Collector (Appeals) and the Assistant Collector. In the circumstances of the case we refrain from expressing any opinion as to whether (a) the UFMP was in fact entitled to the concessional rate of duty under Notification No. 7/80 (having regard to what we have stated in para 13 above), or (b) it would be open to the excise authorities even at this stage to initiate fresh proceedings on the basis that the earlier decisions on the respective classification lists were taken without considering certain material facts, which might have led to a different view.


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