1981 (2) TMI 83 - HC - Central Excise

C.C.M.S. Wires or cuts - Liability to duty - Tariff Advice - Legality - Classification - Standard text-books - Significance - Fiscal statute - Meaning - Fiscal/taxing statutes

Issues Involved:

1. Classification of Copper Coated Mild Steel (C.C.M.S.) Wires under Tariff Item 50.
2. Reliance on end-use, technical books, and dictionary meanings for classification.
3. Burden of proof for classification under excise duty.
4. Validity of ex-parte order without notice to the Company.
5. Adherence to Supreme Court guidelines in classification matters.

Issue-wise Detailed Analysis:

1. Classification of Copper Coated Mild Steel (C.C.M.S.) Wires under Tariff Item 50:

The primary issue was whether the Company's C.C.M.S. Wires could be classified as "welding electrodes" under Tariff Item 50, thus attracting excise duty. The Company argued that its C.C.M.S. Wires could not be classified as welding electrodes because they are not used by conducting electricity, which is an essential characteristic of electrodes. The authorities, however, classified the C.C.M.S. Wires as welding electrodes based on their end-use in submerged arc welding, which does not necessarily involve electricity.

2. Reliance on end-use, technical books, and dictionary meanings for classification:

The authorities relied on personal observations, the end-use of the product, technical books, and dictionary meanings to classify the C.C.M.S. Wires under Tariff Item 50. The Court noted that such reliance had been repeatedly deprecated by the Supreme Court. The Supreme Court had emphasized that the classification should be based on the popular meaning or the commercial sense of the term, not on technical or scientific definitions. The Court cited several Supreme Court judgments, including *Commissioner of Sales Tax, Madhya Pradesh v. M/s. Jaswant Singh Charan Singh* and *Union of India v. Gujarat Woollen Felt Mills*, to support this view.

3. Burden of proof for classification under excise duty:

The Court held that the burden of proof was on the Department to establish that C.C.M.S. Wires were popularly understood in the trade as welding electrodes. The Company had consistently argued that its C.C.M.S. Wires were not known as electrodes in commercial parlance. The Department failed to provide any evidence to the contrary. The Court reiterated that in fiscal or taxing statutes, the burden of proof lies heavily on the Department seeking to recover the tax, as supported by the Division Bench's observations in *Amar Dye Chem. Ltd. v. The Union of India*.

4. Validity of ex-parte order without notice to the Company:

The ex-parte order passed by the Superintendent on 2nd February 1973, classifying the C.C.M.S. Wires under Tariff Item 50 without notice to the Company, was also challenged. The Court observed the close proximity between the tariff advice issued by the Central Board on 23rd January 1973 and the Superintendent's order, suggesting that the order might have been influenced by the tariff advice. The Court cited *Orient Paper Mills Ltd. v. Union of India*, emphasizing that quasi-judicial powers cannot be controlled by directions from higher authorities.

5. Adherence to Supreme Court guidelines in classification matters:

The Court found that the authorities had ignored principles repeatedly laid down by the Supreme Court regarding the classification of goods for excise duty. The Supreme Court had consistently held that the classification should be based on the commercial sense of the term and not on technical or scientific definitions. The authorities' reliance on personal observations, technical books, and dictionary meanings was contrary to these guidelines.

Conclusion:

The Court allowed the petition, quashing the impugned orders of the Superintendent, the Appellate Collector, and the Revisional Authority. The Department was directed to refund the amount of Rs. 14,25,736.28 paid by the Company under protest within four months. The Department was also instructed to refund any additional amount paid under protest after necessary inquiries. The Court emphasized the importance of adhering to Supreme Court guidelines in classification matters and the burden of proof lying with the Department in fiscal statutes.

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