2007 (11) TMI 22 - SC - Central Excise

Classification The appellant herein manufacture HDPE bags classify it under Chapter 63 of CETA and accordingly pay the duty for the period 1-4-92 to 15-9-92 but as per CBE & C circular said product classifiable under Chapter 39 w.e.f. 24-9-92 Held that no demand sustain prior to issuance of circular

Summary

Issues:
Interpretation of Circular dated 24-9-1992 for classification of HDPE bags under excise duty.
Validity of Circular in light of retrospective effect and recovery of differential duty.
Applicability of Section 11A of Central Excise Act for recovery of duty.
Prospective vs. retrospective effect of circular in classification of goods.

Analysis:
The case involves the interpretation of a Circular dated 24-9-1992 issued by the Central Board of Excise and Customs regarding the classification of HDPE bags for excise duty payment. The appellant manufactured HDPE bags and classified them under Chapter 63 of the Central Excise Tariff Act for duty payment. However, different High Courts had conflicting views on whether the duty should be paid under Chapter Heading 63. The Circular issued by the Board aimed to ensure uniformity in classification by directing HDPE bags to be classified under specific sub-headings. A show cause notice was issued to the appellant based on this Circular to pay differential duty under Chapter 39 for a specific period.

The Tribunal relied on a three-Judge Bench decision of the Supreme Court in ITW Signode India Ltd. case to justify the revenue's jurisdiction to recover the differential duty. The appellant argued that the Tribunal failed to consider the decision in H.M. Bags Manufacturer case, which emphasized prospective application of circulars. On the other hand, the revenue contended that Section 11A of the Central Excise Act allowed for recovery of duty based on correcting classification mistakes, citing the ITW Signode case to support their position.

The Court examined the retrospective effect of the Circular and the application of Section 11A. It noted that the Circular aimed to rectify classification disparities and ensure uniformity but was intended to have prospective application. The Court emphasized the importance of proper interpretation of the Circular's language, particularly the use of the term "henceforth," indicating prospective effect. The Court distinguished the ITW Signode case from the present situation, emphasizing the need to consider the specific facts and legal principles involved in each case.

Ultimately, the Court held that the impugned judgment could not be sustained as the Tribunal erred in applying the ITW Signode case without considering the specific circumstances of the Circular in question. The appeal was allowed, and no costs were awarded in the case.