1994 (3) TMI 104 - HC - Central Excise

Issues Involved:
1. Re-classification of excisable goods.
2. Jurisdiction to revise classification.
3. Validity of the show cause notice.
4. Differential duty and provisional assessments.
5. Applicability of Section 11A of the Central Excise Act.
6. Binding nature of departmental circulars.

Detailed Analysis:

1. Re-classification of excisable goods:
The petitioner, a company manufacturing 'Ultramarine Blue' in two grades (technical and laundry), challenged the re-classification of its product from Heading 3206.19 (10% duty) to Heading 3212.90 (20% duty). The Assistant Collector's order dated 26-7-1990 and subsequent show cause notice dated 3-8-1990 sought to re-classify the product, leading to a demand for differential duty of Rs. 56,53,972.57. The petitioner argued that Ultramarine Blue had always been classified under 3206.19 and that the Assistant Collector lacked jurisdiction to invoke Section 11A for re-classification.

2. Jurisdiction to revise classification:
The court examined whether the Assistant Collector had jurisdiction to re-classify the goods. It was argued that classification is a factual issue, and the pattern of classification under the Central Excise Tariff Act is based on mutually exclusive headings. The court noted that the Assistant Collector's order and the Appellate Collector's view that re-classification was permissible were flawed. The court emphasized that Ultramarine Blue is not a pigment and cannot fall under 32.12 or 3212.90, as established by previous judicial decisions.

3. Validity of the show cause notice:
The petitioner contended that the show cause notice was arbitrary, illegal, and discriminatory, as other manufacturers were not subjected to the higher rate. The court found that the re-classification was based on a circular dated 7-12-1990, which interfered with the quasi-judicial powers of the Assistant Collector. The court held that the circular could not override judicial decisions, and the re-classification was invalid.

4. Differential duty and provisional assessments:
The court noted that provisional assessments were made under Rule 9B, and the petitioner had paid the differential duty for subsequent periods. However, the court found that the Assistant Collector's reliance on the circular for re-classification was unjustified, and the product remained the same, warranting classification under 3206.19.

5. Applicability of Section 11A of the Central Excise Act:
The court examined the applicability of Section 11A, which allows for recovery of short-levied duty within six months (or five years in case of fraud). The court held that in the absence of any change in facts or law, the authorities could not re-classify the goods merely on a change of opinion. The court emphasized that the earlier classification was a relevant fact and could not be ignored without cogent reasons.

6. Binding nature of departmental circulars:
The court addressed the binding nature of circulars issued under Section 37B of the Central Excise Act. It held that while circulars bind the officers, they do not bind the assessees if contrary to law. The circular dated 7-12-1990, re-classifying Ultramarine Blue, was found to be contrary to judicial decisions and, therefore, irrelevant for revising assessments.

Conclusion:
The court quashed the show cause notice and declared that Ultramarine Blue is taxable under 3206.90. The proceedings initiated by the respondents were held to be without jurisdiction and unsustainable. The writ petition was allowed with costs, and the authorities were directed to follow this judgment in dealing with subsequent periods.

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