2013 (1) TMI 51 - HC - Central Excise

Excise duty payable on fresh mushrooms - Whether fresh mushrooms were excisable goods under the Schedules to the 1985 Act prior to the 2004 (Amendment) Act or for the first time with effect from 28th February 2005, after the 2004 amendment to the 1985 Act ? - Held that - In view of chapter note 1 to Chapter 7 of the 1985 Act (prior to its amendment by 2004 Act), it is crystal clear that edible mushrooms, whether dried or fresh, were covered under Chapter 7 of the 1985 Act. Rate of excise duty payable on dried mushrooms under Chapter Heading 07.01 as well as the rate of excise duty on fresh mushrooms under Chapter Heading 07.02 were Nil. DTA clearances of fresh mushrooms effected by the assessee a 100% EOU - Held that - The argument of the Revenue was rejected by the Commissioner of Central Excise (A) by holding that even if fresh mushrooms were excisable and covered under Chapter 7 of the Central Excise Tariff, in view of the Nil rate of duty, the Revenue was not justified in demanding excise duty equivalent to customs duty in respect of DTA clearances of fresh mushrooms effected by the assessee. Thus, the Commissioner of Central Excise (A) while accepting the contention of the Revenue that fresh mushrooms were excisable, held that in view of the Nil rate of duty, the Revenue was not justified in demanding duty equivalent to customs duty in respect of DTA clearances of fresh mushrooms effected by the assessee, a 100% EOU. Therefore, the argument of the Revenue that the fresh mushrooms were not excisable prior to the 2004 amendment to the 1985 Act is unsustainable. Argument of the Revenue that by the 2004 amendment to the 1985 Act, fresh mushrooms were made excisable for the first time with effect from 28th February 2005 is also unsustainable, because, the said amendment was brought about with a view to convert the existing six digit entries in the schedule to the 1985 Act to eight digit entries on par with the entries in the schedule to the Customs Tariff Act and not with a view to bring in new goods within the purview of excise. This was further clarified by issuing notification No.1 of 2005-CE dated 24th February 2005 and Trade Circular No.808/2005 dated 25th February 2005 - The fact that fresh mushrooms classified in the general category under heading 07.02 of the Central Excise Tariff prior to the 2004 amendment have been classified specifically under entry 07095100 in Chapter 7 of the Central Excise Tariff after the 2004 amendment, it cannot be inferred that fresh mushrooms became excisable for the first time after the 2004 amendment to the 1985 Act. Whether the AO was bound by the decision of Commissioner of Central Excise (A) rendered prior to the 2004 amendment to the 1985 Act - Held that - It is well established principle of judicial discipline that the orders passed by the higher appellate authorities must be followed unreservedly by the subordinate authorities. Once the decision given by the higher appellate authority is accepted by the Revenue, then, it is not open to the AO to doubt the correctness of the order passed by the appellate authority and must follow the appellate order as decided in Jindal Dye Intermediate Limited V/s. Collector of Customs 2006 (4) TMI 128 - SUPREME COURT OF INDIA - in favour of the assessee

Issues Involved:
1. Whether fresh mushrooms were excisable goods under the Central Excise Tariff Act, 1985 before the 2004 amendment.
2. Whether the Assessing Officer (AO) was bound by the decision of the Commissioner of Central Excise (A) regarding the excisability and duty on fresh mushrooms.
3. Whether the AO could demand excise duty equivalent to customs duty on Domestic Tariff Area (DTA) clearances of fresh mushrooms after the 2004 amendment.
4. Whether the AO could issue show-cause notices and confirm demands contrary to the decision of the Commissioner of Central Excise (A).

Issue-wise Detailed Analysis:

1. Excisability of Fresh Mushrooms Before the 2004 Amendment:
The court examined Chapter 7 of the Central Excise Tariff Act, 1985, which included edible mushrooms under the heading "EDIBLE VEGETABLES AND ROOTS AND TUBERS." It was noted that dried mushrooms were covered under Heading 07.01 and fresh mushrooms under Heading 07.02, both attracting a Nil rate of duty. The court concluded that fresh mushrooms were excisable goods under the 1985 Act before the 2004 amendment. The argument that fresh mushrooms became excisable only after the 2004 amendment was rejected, as the amendment merely transitioned the classification from six-digit to eight-digit entries without introducing new excisable goods.

2. Binding Nature of the Commissioner of Central Excise (A)'s Decision:
The court emphasized the principle of judicial discipline, stating that orders passed by higher appellate authorities must be followed unreservedly by subordinate authorities. The Commissioner of Central Excise (A) had determined that even if fresh mushrooms were excisable, the Nil rate of duty meant no excise duty equivalent to customs duty could be demanded on DTA clearances by a 100% Export Oriented Unit (EOU). This decision, accepted by the Revenue, was binding on all adjudicating authorities, including the AO.

3. Demand for Excise Duty Equivalent to Customs Duty Post-2004 Amendment:
The court found that the 2004 amendment did not change the excisability or dutiability of fresh mushrooms, which remained Nil. Therefore, the AO's attempt to demand excise duty equivalent to customs duty on DTA clearances of fresh mushrooms post-amendment was contrary to the established decision of the Commissioner of Central Excise (A). The court held that the AO should have adhered to the decision until it was overturned by a competent higher authority.

4. Issuance of Show-Cause Notices and Confirmation of Demands:
The AO issued show-cause notices in December 2007 and December 2008, demanding excise duty equivalent to customs duty for DTA clearances from December 2006 to June 2008. The court ruled that the AO was not justified in issuing these notices and confirming demands contrary to the binding decision of the Commissioner of Central Excise (A). The court cited the Supreme Court's decisions emphasizing that subordinate authorities must follow higher appellate orders unless suspended by a competent court.

Conclusion:
The appeal was allowed, and the court answered the question in the negative, favoring the assessee. The court ruled that the AO could not issue notices or confirm demands contrary to the Commissioner of Central Excise (A)'s decision, which was binding until overturned on 31st May 2011 by the CESTAT. The AO's actions were deemed bad in law, and the demands confirmed by the order-in-original dated 27th February 2009 were unsustainable.

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