1. The question that falls for decision in this case is whether item 46 of the Central Excise Tariff relating to metal containers, as introduced by the Finance Bill, 1970, included flattened or folded containers.
2. The case has an interesting history. Soon after the introduction of tariff item 46, some doubt was felt whether flattened or folded containers were covered within its scope. The appellants paid duty on two consignments of such containers cleared on 10-3-1970. On 21-4-1970, Central Excise Officer informed them by a letter that since flattened cans were treated non-excisable at that time, the payment of duty by the appellants was not in order and that they should, therefore, apply for refund of the same. Then came notification No. 96/70-C.E., dated 1-5-1970 which fully exempted metal containers re-formed out of duty-paid flattened containers or folded containers. This seems to have set the central excise authorities to reconsider their earlier view. On 18-12-1970, they collected particulars of flattened or folded containers cleared by the appellants without payment of duty and on 22-2-1971 12 demands in form D.D. 2, totalling Rs. 55.005/-, with a forwarding letter of the same date were issued to them. The appellants were able to collect the duty demanded from some of their customers and accordingly they paid 8 out of these 12 demands. In respect of the remaining 4 demands, 2 of their customers stated that they had already paid duty when they re-formed the containers. The remaining 2 customers maintained that their containers were exempt from duty on one ground or the other. The appellants did not pay these 4 demands but went in appeal against them to the Appellate Collector. The Appellate Collector remanded the matter to the Assistant Collector for a fresh decision after taking into consideration the objections of the appellants against the demands. On re-consideration, the Assistant Collector confirmed the 4 demands. In appeal, the Appellate Collector upheld the Assistant Collector's order but gave relief to the extent of duty already paid, if any, by the customers on re-formed containers. In revision, the Government of India maintained the appellate order holding, inter alia, "the commodity "Metal Containers" from the day of inclusion of the same in the Central Excise Tariff as Item 46 included containers known commercially as flattened or folded containers, and accordingly the Tariff description of the commodity being very clear and specific, there was no reason for the petitioners for being mis-guided and for them to feel that flattened containers were not dutiable at their end." The appellants thereupon filed an Original Petition in Kerala High Court. The High Court observed that the possibility of the Central Government having made a mistake in considering the matter in the light of tariff item 46 as amended in 1971 (when flattened or folded containers were specifically included therein) could not be ruled out. The High Court directed that the appellants should be given another opportunity to argue their case with reference to the right tariff item and the relevant evidence which they may want to adduce and for this purpose remanded the matter back to the Central Government. The said proceedings, on transfer to this Tribunal, have been taken up as the present appeal.
3. During the hearing before us, the appellants made two arguments.
First, they asserted that flattened or folded containers were not a container at all as they could not contain anything, that before they could become containers their bottom had to be fixed by a seaming machine which was a major operation in the process of manufacture of metal containers and that the onus for classification of the incomplete containers under item 46 was on the Department which the Department had not discharged. Secondly, they argued that no proper show cause notice had been issued to them as required by, and within the time-limit of Rule 10.
4. The Department's representative maintained that this Bench should now confine itself to the question of classification only as per the direction of the Kerala High Court and that the new argument of absence of show cause notice and time-bar of Rule 10 could not be raised at this stage. He added, however, there was no confusion or doubt in the mind of the appellants that the demands in form D.D. 2 issued to them were notices for demand of the duty not levied on flattened or folded containers and there was, therefore, no breach of principle of natural justice if a formal show cause notice had not been issued to them.
Regarding the classification issue, he stated that the appellants themselves as well as their customers described the subject goods as containers only which showed that as per the trade understanding they were considered as containers. He stated that it was a regular trade practice to supply metal containers in flattened or folded condition with a view to facilitating their transport; such containers were re-formed in the customer's factory before use.
5. Availing their right of reply, the appellants stated that they had a right to raise the plea of time-bar at any stage of the proceedings as it was only a legal argument and at least in this case did not require verification of any facts. For this they relied on this Tribunal's earlier order reported at 1983-ECR-1193D.6. The Bench observed that during March and April 1970, to which period the impugned demands pertained, the commodity metal containers was under physical type of control and the self removal procedure to this commodity was extended only with effect from 1-6-70 by notification No.121/70-C.E., dated 28-5-70. In other words, time limit for collection of short levy in respect of metal containers during the relevant period was only three months under Rule 10. The demands in form D.D. 2 in this case were, however, issued much later, on 22-2-71. The Department's representative was asked to comment on this aspect. He stated that he had nothing to say since this aspect had not been examined by any of the lower authorities.
7. We have carefully considered the matter. According to the direction of the Hon'ble Kerala High Court, this Bench is called upon to consider the excisability of flattened or folded containers under item 46 as it existed during the relevant period, i.e., March and April, 1970, before the amendment of the item in 1971. During this period, item 46 did not expressly include flattened or folded containers. We have, therefore, to decide whether flattened or folded containers could be classified as containers under item 46. In the flattened or folded condition, the containers had no bottoms or tops fixed and were, therefore, incapable of containing anything in them. The appellants are right when they say that it was a misnomer to call such articles as containers. The very fact that item 46 was substantially amended in 1971 and it was considered necessary to include flattened or folded containers therein by a specific provision, shows that it was considered doubtful whether the item as originally introduced in 1970 could have included flattened or folded containers. So much so, that when during March, 1970 the appellants themselves volunteered to pay duty on flattened or folded containers, the Central Excise authorities told them in writing not to do so as the goods were considered non-excisable and even asked the appellants to apply for refund of the duty already paid. In the facts and circumstances of this case, we hold that item 46, as in force during March and April, 1970, did not cover flattened or folded containers. We also find force in the appellants' second argument that no proper show cause notice, as specifically required by Rule 10, was served on them within the time-limit laid down in that rule. In the result, we hold that the impugned demands totalling Rs. 14,514.07 are not sustainable and are set aside.
8. Accordingly, we allow this appeal with consequential relief to the appellants.