1988 (4) TMI 61 - HC - Central Excise

Summary

Issues Involved:
1. Classification of "stencil paper" under the Central Excise Tariff.
2. Distinction between "stencil paper" and "duplicating stencils."
3. Validity of the show-cause notice issued by the Central Excise authorities.
4. Jurisdiction of the High Court in the matter.

Detailed Analysis:

1. Classification of "Stencil Paper" under the Central Excise Tariff:
The petitioner company and its predecessor were granted a license to manufacture "stencils" under Tariff Item No. 68 of the First Schedule to the Central Excises and Salt Act. The Superintendent of Central Excise issued a notice to the petitioner questioning why excise duty should not be recovered for the manufacture of coated paper at the intermediate stage prior to the manufacture of duplicating stencils. The petitioner argued that coated paper was never cleared from its factory premises and was produced in a continuous process of manufacturing duplicating stencils, thus not liable for excise duty at the intermediate stage.

2. Distinction Between "Stencil Paper" and "Duplicating Stencils":
The Central Excise authorities classified stencil paper under Tariff Item No. 17(2) as a coated variety of paper. The petitioner contended that stencil paper and duplicating stencils are distinct items, with stencil paper being a component or raw material for duplicating stencils, which are classified under Tariff Item No. 68 as stationery items. The confusion arose when the Central Excise authorities failed to distinguish between stencil paper and duplicating stencils, leading to the issuance of a show-cause notice based on this misunderstanding.

3. Validity of the Show-Cause Notice Issued by the Central Excise Authorities:
The show-cause notice dated 20.8.1980 alleged short-levied excise duties amounting to Rs. 1,44,91,276 for the period from 16.3.1976 to 31.5.1980. The petitioner sought redress under Article 226 of the Constitution, arguing that the notice was based on a fundamental confusion between stencil paper and duplicating stencils. The Court found that the show-cause notice resulted from a total confusion and misconception of facts, as the Central Excise authorities did not distinguish between the two items at the time of issuance.

4. Jurisdiction of the High Court in the Matter:
The Court noted that it would be beyond its jurisdiction to determine whether the show-cause notice related to stencil papers/coated papers or duplicating stencils. The Court directed the Central Excise authorities to issue a clarification or a modified show-cause-cum-demand notice specifying the particular commodity involved. The matter was referred back to the Central Excise authorities for proper adjudication within a specified timeframe, with the petitioner required to cooperate in the process.

Conclusion:
The High Court directed the Central Excise authorities to clarify the show-cause notice, specifying whether it pertains to stencil paper/coated paper or duplicating stencils. The authorities were given thirty days to issue the clarification or a modified notice and six months to dispose of the matter in accordance with the law, after giving the petitioner a reasonable opportunity to be heard. The Court refrained from commenting on the merits of the contentions of either party and made no order for costs.