1996 (9) TMI 121 - SC - Central Excise

Whether no notice had been issued to the appellants in regard to the recovery of any short-levied duty pursuant to such re-classification and that therefore no demand in this behalf could have been made or sustained? Held that - The order of the Collector under Section 35A gave to the appellants no notice that he proposed to make an order that would require them to pay the duty which might be found to have been short-levied if the frit was found to be classifiable under Item 23A(4). The orders of the Collector and of the Tribunal insofar as they required the appellants to pay the short-levied duty even though limited to the period of six months prior to the date of the notice by the Tribunal are bad in law. In the result the appeal is allowed. The order of the Tribunal is set aside insofar as it directs the Central Excise authorities to recalculate the amount of the short levy in the light of its observation that recovery of the short-levied duty could be made in respect of the period of six months preceding the date of the Collector s order and requires the appellants to pay such sum.

Summary

Issues:
Classification of frit under Tariff Item 23A(4) - Whether frit should be classified as "other glass" under Item 23A(4) of the First Schedule.
Recovery of short-levied duty - Whether the appellants were liable to pay the short-levied duty on frit.

Analysis:
The case involved the classification of a commodity called frit, manufactured by the appellants, under Tariff Item 23A(4). The Collector of Central Excise issued a notice to the appellants under Section 45A of the Central Excises and Salt Act, proposing to classify frit under sub-item (4) of Item 23A. The Collector's order classified frit as "other glass" falling within the purview of Item 23A(4) and directed the appellants to pay the excise duty accordingly. The appellants challenged this classification, leading to a revision application transferred to the Tribunal. The Tribunal upheld the classification of frit as "other glass" under Item 23A(4) based on the evidence presented by the appellants.

Regarding the recovery of short-levied duty, it was argued that no notice specifically addressing the recovery of short-levied duty had been issued to the appellants. The Tribunal acknowledged that the original show-cause notice did not mention the recovery of short-levied duty but held that once the re-classification order was issued, the Collector was justified in demanding the payment of the differential duty. However, the recovery was limited to the six months preceding the order date, in accordance with Rule 11 or Section 11A. The Excise authorities were instructed to re-calculate the short levy amount and communicate it to the appellants.

The Supreme Court observed that the new Tariff explicitly provided for the classification of frit and noted that no notice for the recovery of short-levied duty, as required by Section 35A, was given to the appellants. The Court emphasized that the Collector's order did not provide the appellants with a notice proposing the payment of short-levied duty, rendering the orders of the Collector and the Tribunal, demanding such payment, legally flawed. Consequently, the Court allowed the appeal, setting aside the Tribunal's direction for the recalculation of the short levy amount and the requirement for the appellants to pay the sum. Any recovered amount was to be returned to the appellants, and no costs were awarded in the matter.