2011 (9) TMI 116 - HC - Central Excise

Legality of Circular No. 929/19/2010-CX dated 29th June, 2010 - Decision of CESTAT in CCE vs. G.P.L. Polyfils Ltd (2005 -TMI - 93334 - CESTAT, NEW DELHI). - Revenue did not challenge the order of CESTAT but issued a contrary circular - Held that - Supreme Court in C.K. Gangadharan and Anr. vs. CIT, Cochin, (2008 -TMI - 4694 - SUPREME COURT) has settled this issue - the Revenue can prefer appeals or take a contrary stand to what has been held by the tribunal even if they have not preferred an appeal, when a just cause is established and can be shown. Mere fact that the Revenue has not preferred an appeal or challenged the same, does not bar the Revenue from preferring an appeal or taking a different stand in another case where there is a just cause or it is in public interest to do so or when a pronouncement of the higher Court is different and/or divergent views are expressed by the Tribunals or the High Courts (other than jurisdictional High court). Validity of circular - Circular No. 929/19/2010-CX dated 29th June, 2010 - Classification of Polyester Staple Fibre manufactured out of PET scrap and waste bottles. - Paragraph 10 of the circular states that the decision of the Tribunal in GPL Polyfils Ltd (2005 -TMI - 93334 - CESTAT, NEW DELHI). would be relevant to the facts of that particular case and is not a binding precedent in other matters. It stipulates that even if the facts and the process are identical, other assessees cannot rely upon the decision in GPL Polyfils Ltd. before the Revenue authorities. - Held that - Paragraph 10 of the impugned circular is struck down - The Assessing Officer and the authorities under the Act shall independently apply their mind and consider the judgment of tribunal in GPL Polyfills Ltd. (2005 -TMI - 93334 - CESTAT, NEW DELHI) and keep in mind the observations and ratio of Supreme Court in C.K. Gangadharan and Anr. (2008 -TMI - 4694 - SUPREME COURT). The Assessing Officer/authorities will not be bound by the impugned circular. The circular can be referred for guidance but not as a binding mandate;

Issues Involved:
1. Legality of Circular No. 929/19/2010-CX dated 29th June, 2010.
2. Binding nature of the CESTAT decision in GPL Polyfils Ltd.
3. Interpretation of Chapter Note I of Chapter 54 of the Central Excise Tariff.
4. Right of the Central Board of Excise and Customs to issue circulars under Section 37B of the Central Excise Act, 1944.
5. Validity of the circular in light of the statutory provisions and judicial precedents.

Issue-Wise Detailed Analysis:

1. Legality of Circular No. 929/19/2010-CX dated 29th June, 2010:
The petitioners challenged the circular as illegal and contrary to the CESTAT decision in GPL Polyfils Ltd. They argued that the circular ignored the statutory Chapter Note I of Chapter 54 of the Central Excise Tariff and was therefore invalid. The court noted that the circular was issued to ensure uniformity in classification and referred to the technical process involved in converting PET scrap and waste bottles into polyester staple fiber. The court emphasized that the circular should be considered a guideline rather than a binding mandate.

2. Binding Nature of the CESTAT Decision in GPL Polyfils Ltd.:
The petitioners argued that the decision in GPL Polyfils Ltd. was accepted by the respondents and thus binding on them. The court referred to the Supreme Court's decision in C.K. Gangadharan and Anr. vs. CIT, Cochin, which held that res judicata does not apply to tax matters for different assessment years. The court concluded that the Revenue could take a contrary stand in different cases if there was a "just cause" or it was in the public interest. The court struck down paragraph 10 of the circular, which stated that the GPL Polyfils decision was not a binding precedent.

3. Interpretation of Chapter Note I of Chapter 54 of the Central Excise Tariff:
The petitioners contended that the circular was contrary to the statute as it ignored Chapter Note I of Chapter 54, which defines man-made fibers. The court noted that the actual process and chemical reactions involved were technical and factual aspects that needed to be examined by the authorities under the Act. The court directed the Revenue authorities to independently apply their mind and consider the GPL Polyfils decision without being influenced by the circular.

4. Right of the Central Board of Excise and Customs to Issue Circulars under Section 37B of the Central Excise Act, 1944:
The respondents argued that the circular was validly issued under Section 37B of the Act. The court referred to several Supreme Court decisions, including State of Kerala v. Kurian Abraham (P) Ltd., which upheld the Board's power to issue circulars for the proper administration of tax laws. The court reiterated that such circulars are binding on the authorities but not on the courts or the assessees.

5. Validity of the Circular in Light of the Statutory Provisions and Judicial Precedents:
The court emphasized that the circular should be read as a guideline and not a binding mandate. It directed the Revenue authorities to consider the GPL Polyfils decision and other relevant judicial precedents while making assessments. The court also provided directions to ensure that the petitioners were not subjected to coercive recovery measures until their stay applications were decided by the CESTAT.

Conclusion:
The court disposed of the writ petition with the following directions:
(a) The first question was decided in terms of paragraph 8 of the judgment.
(b) Paragraph 10 of the impugned circular was struck down.
(c) The Assessing Officer and authorities under the Act were directed to independently apply their mind, consider the GPL Polyfils decision, and not be bound by the impugned circular.
(d) In case of an adverse decision, the demand would not be enforced by coercive methods until the stay application was decided by the CESTAT.

There was no order as to costs.

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