2017 (2) TMI 98 - HC - Central Excise

Classification of parts of manufactured motor - stators and rotors - classified under sub-heading 8501.00 or under sub-heading 8414.91 - for a period of 25 years stators and motors have been classified and charged to duty as electric motors when cleared together and as parts of electric motors when cleared separately. That long standing practice is sought to be changed and retrospectively although the clarificatory circular prohibits this exercise. Held that - Once there is a clear instruction that the practice followed in the light of the earlier clarification of the Board may be changed only prospectively, we have no doubt in our minds that on the date on which the earlier circular was in force, the SCN could not have been issued nor the demand raised. The show cause notice and the demand in furtherance thereof cannot be sustained - demand set aside - petition allowed - decided in favor of petitioner.

Issues Involved:
1. Legality of the show cause notices issued by the Revenue.
2. Classification of stators and rotors under the Central Excise Tariff.
3. Application of circulars and instructions from the Central Board of Excise and Customs.
4. Retrospective vs. prospective application of circulars.
5. Binding nature of circulars on adjudicating authorities.

Detailed Analysis:

1. Legality of the Show Cause Notices Issued by the Revenue:
The petitioner challenged a show cause notice issued by the respondent-Revenue and an order made in furtherance thereof. The show cause notices were issued on 11th January 1989 and 21st April 1989, seeking to classify stators and rotors under sub-heading 8414.91 and alleging a short levy of duty. The court found that the show cause notices could not have been issued based on the subsequent circular dated 13th December 1989, which was meant to be applied prospectively. Therefore, the show cause notices and the demand raised in furtherance thereof were quashed and set aside.

2. Classification of Stators and Rotors under the Central Excise Tariff:
The petitioners classified stators and rotors under sub-heading 8501.00 when cleared together and under sub-heading 8503.00 when cleared individually. This classification was approved by the Excise Department until the issuance of the show cause notices. The court noted that the classification of stators and rotors under sub-heading 8414.91 was contrary to the existing circulars and instructions from the Central Board of Excise and Customs, which classified these items under sub-heading 8503.00.

3. Application of Circulars and Instructions from the Central Board of Excise and Customs:
The petitioners relied on Circular No.6/1986-CX4 dated 25th September 1986 and subsequent trade notices, which classified stators and rotors under sub-heading 8503.00. The court emphasized that the show cause notices ignored these clear instructions. The circular dated 25th September 1986, addressed to all Collectors of Central Excise, clarified the classification of parts and accessories of refrigerating and air conditioning machinery, including stators and rotors under heading 8503.00.

4. Retrospective vs. Prospective Application of Circulars:
The court highlighted that the circular issued on 13th December 1989, which classified stators and rotors under heading 84.14, explicitly stated that the practice followed in light of the earlier clarification should be changed only prospectively. Therefore, the show cause notices issued prior to this circular could not rely on it for classification purposes. The court ruled that the retrospective application of the 1989 circular was not permissible.

5. Binding Nature of Circulars on Adjudicating Authorities:
The court referenced judgments from the Hon'ble Supreme Court, including Collector of Central Excise, Bombay vs. Jayant Dalal Private Limited, Paper Products Ltd. vs. Commissioner of Central Excise, and Commissioner of Customs, Calcutta vs. Indian Oil Corporation Limited. These judgments established that circulars issued by the Board are binding on the Revenue and adjudicating authorities. The court concluded that the adjudicating authority could not disregard the binding nature of the circulars and issue show cause notices contrary to them.

Conclusion:
The court ruled in favor of the petitioner, quashing both the show cause notices and the demand raised in furtherance thereof. The court reiterated that the circulars issued by the Central Board of Excise and Customs are binding on the Revenue and must be applied prospectively as stated. The petitioners' long-standing classification practice was upheld, and the retrospective application of the 1989 circular was deemed invalid.

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