1997 (3) TMI 102 - SC - Central Excise

Modification of the classification lists - Held that - This Court has construed the judgment of the High Court dated November 24, 1984 to mean that both the Judges have held that the order of the Assistant Collector of Central Excise dated March 5, 1984 modifying the classification lists was bad in law and had ordered that the same be quashed. In these circumstances, the High Court was in error in proceeding on the basis that the said order dated March 5, 1984 had not been quashed by the High Court and that the Collector did not commit any error in dismissing the appeal filed by the appellant company against those orders. In our opinion, the Collector (Appeals) should have proceeded on the basis that the order dated March 5, 1984 passed by the Assistant Collector modifying the classification lists had been quashed by the High Court. By dismissing the appeal filed by the appellant company against the order of the Assistant Collector, Central Excise dated March 5, 1984 modifying the classification lists the Collector (Appeals) has affirmed the modification of the classification lists with effect from the date the appellant company manufactured such yarn i.e. from July 1983 onwards, which is contrary to the earlier decision of the High Court in M.P. No. 104/84 which has been affirmed by this Court in Union of India v. Madhumilan Syntex (1988 (5) TMI 38 - SUPREME COURT OF INDIA). The appeal is, therefore, allowed, the impugned judgment of the High Court is set aside and the order dated May 27, 1985 passed by the Collector (Appeals) dismissing the appeal is set aside and it is held that the order dated March 5, 1984 passed by the Assistant Collector, Central Excise modifying the classification lists stands quashed

Summary

Issues Involved:
1. Classification of spun yarn under the Central Excises & Salt Act, 1944.
2. Validity of the demand notice for differential duty.
3. Jurisdiction of the Assistant Collector to modify the classification list.
4. Compliance with principles of natural justice.
5. Retrospective application of modified classification.
6. Interpretation of the High Court's previous judgment.

Issue-wise Detailed Analysis:

1. Classification of spun yarn under the Central Excises & Salt Act, 1944:
The appellant company filed a classification list under Rule 173(2)(b) of the Central Excise Rules, classifying their spun yarn under Tariff Item No. 18-III(i), which was approved by the Assistant Collector. However, after chemical analysis, it was determined that the yarn contained man-made fibers of non-cellulosic origin, necessitating classification under Tariff Item No. 18-III(ii). The Assistant Collector reclassified the yarn under Tariff Item No. 18-III(ii) and issued a demand notice for the differential duty.

2. Validity of the demand notice for differential duty:
The demand notice dated February 7, 1984, sought Rs. 26,47,749.39p as differential duty. The High Court quashed this demand for the period from August 15, 1983, to February 6, 1984, citing lack of proper notice and opportunity for the appellant company to respond. The Supreme Court upheld this quashing, emphasizing that the notice was not preceded by the required show cause notice as per Section 11A of the Act.

3. Jurisdiction of the Assistant Collector to modify the classification list:
The High Court initially rejected the appellant's contention that only the Collector of Central Excise had jurisdiction to revise the classification. However, it was noted that the Assistant Collector acted hastily and without proper notice, thus violating principles of natural justice. The Supreme Court agreed, stating that the Assistant Collector's order modifying the classification lists was bad in law.

4. Compliance with principles of natural justice:
The High Court and Supreme Court both highlighted the failure of the Assistant Collector to provide adequate opportunity for the appellant company to present their case. The High Court noted that "natural justice requires that quasi-judicial authority must inform the person proceeded against, the material which it proposed to use against him so that he may meet the inference likely to be raised from material."

5. Retrospective application of modified classification:
The High Court found no material indicating that the appellant company had been manufacturing yarn covered by Item 18-III(ii) from August 15, 1983. Consequently, it ruled that excess duty could only be demanded prospectively from February 7, 1984, after proper notice and hearing. The Supreme Court affirmed this view, holding that retrospective application of the modified classification was unjustified.

6. Interpretation of the High Court's previous judgment:
The Supreme Court clarified that the High Court's judgment in M.P. No. 104/84 had indeed quashed the Assistant Collector's order dated March 5, 1984. The Supreme Court noted that both Judges of the High Court had held that the modification of the classification lists was bad in law. Consequently, the Collector (Appeals) erred in dismissing the appellant's appeal against the Assistant Collector's order.

Conclusion:
The Supreme Court allowed the appeal, set aside the High Court's impugned judgment, and quashed the Assistant Collector's order dated March 5, 1984, modifying the classification lists. The Court emphasized the necessity of adhering to principles of natural justice and proper procedural requirements.