2005 (3) TMI 161 - HC - Central Excise

Validity Of Circular - Judicial discipline - Precedent - Departmental instructions - whether a particular circular is or is not applicable to the facts of the case that is incidental - Petitioner classifying domestic flour mill under the said Heading of Tariff Act - However on 31st May 1990 CBEC issued Circular bearing No. 11/90-CX. 4 whereby it was declared that flour mills with or without electric motors were properly classifiable under Heading No. 85.09 of the Tariff Act - HELD THAT - In a case where a superior forum had issued direction can it be said that it is open to the inferior Tribunal to disregard the same in any manner whatsoever. The controversy is no longer res integra. In the case of Bhopal Sugar Industries Ltd. v. Income Tax Officer Bhopal 1960 (9) TMI 11 - SUPREME COURT the Supreme Court was called upon to decide this point. In the case before the Apex Court the assessee company which manufactured and sold sugar used sugarcane purchased from other cultivators as well as grown in its own farms. It claimed deduction of agricultural income from its total income by valuing the sugarcane grown in its own farm at market value and deducting therefrom the agricultural expenses. In appeal the Tribunal directed the Income Tax Officer to ascertain the average transport charges from the purchasing centres to the assessee s factory and after adding to it the rate of purchase in order to ascertain the market value give any relief that may be due to the assessee. The said order was challenged by way of Reference Application by Revenue but the Reference was withdrawn and the order of the Tribunal became final. On the assessee applying to the Income Tax Officer to give effect to the directions of the Tribunal the officer wrote to the assessee that no relief could be given to it. The assessee challenged the same in appeal and it was held by the Appellate Authority that the officer had acted arbitrarily and in clear violation of the directions given by the Tribunal but proceeded to consider the correctness of the Tribunal s order and held that there was no manifest injustice done to the assessee. Once respondent No. 2 had found on facts that the case of the petitioner was governed by Circular dated 5th December 1994 there was no occasion for him to go beyond the said point. The order of the Tribunal is categorical in terms and the remand was for a limited purpose. Respondent No. 2 could not have thereafter chosen to expand the scope of the proceedings by referring to the earlier Circular of 31st May 1990 and deny the relief which the petitioner was otherwise entitled to by virtue of Circular dated 5th December 1994. The impugned order of Respondent No. 2 is therefore bad in law to the aforesaid extent. In the present case the Tribunal had remanded the matter to respondent No. 2 on 26th July 2000 by making specific reference to the later Circular of 5th December 1994 and decide the factual position qua the said Circular. In other words applicability of Circular was not to be decided by respondent No. 2 but he was directed to ascertain the fact as to whether the product referred to and considering the entry mentioned in the said Circular the product manufactured by the petitioner would fall within the said entry. In these circumstances also there was no occasion for the respondent No. 2 authority to disregard the said circular after holding that the same was applicable in the facts of the case considering the product manufactured by the petitioner. Thus the impugned order-in-appeal (Annexure-F) made by respondent No. 2 is quashed and set aside to the extent it goes beyond the order of remand and decides that the Circular dated 31st May 1990 is applicable and confirms the order-in-original to the said extent. The petition is allowed accordingly. Rule made absolute to the aforesaid extent. There shall be no order as to costs.

Issues Involved:
1. Classification of domestic flour mills under the Central Excise Tariff Act.
2. Applicability and binding nature of CBEC Circulars.
3. Adherence to the directions of superior appellate authorities by subordinate tribunals.
4. Retrospective application of CBEC Circulars.

Detailed Analysis:

1. Classification of Domestic Flour Mills:
The petitioner, a Private Limited Company manufacturing domestic flour mills, challenged the classification of their product under the Central Excise Tariff Act, 1985. Initially, the flour mills were classified under Heading No. 84.37. However, a CBEC Circular dated 31st May 1990 reclassified these mills under Heading No. 85.09. The petitioner argued that their product did not contain any inbuilt electrical mechanism and thus should not be classified as an electric appliance.

2. Applicability and Binding Nature of CBEC Circulars:
The CBEC issued another Circular on 5th December 1994, reclassifying domestic flour mills under Heading No. 84.37. The Tribunal, in its order dated 26th July 2000, remanded the matter to the jurisdictional Commissioner to consider the applicability of this later Circular. The Tribunal emphasized that the Board's Circular dated 5th December 1994 was still in force and had not been modified or rescinded.

3. Adherence to Directions of Superior Appellate Authorities:
Respondent No. 2, upon remand, acknowledged the applicability of the Circular dated 5th December 1994 but also considered the earlier Circular of 31st May 1990. This action was challenged by the petitioner, arguing that the respondent exceeded the Tribunal's directions. The court held that subordinate tribunals must adhere to the directions of superior appellate authorities, citing the Supreme Court's rulings in Bhopal Sugar Industries Ltd. v. Income Tax Officer and Union of India v. Kamlakshi Finance Corporation Ltd. The court emphasized that disregarding such directions leads to chaos in the administration of justice.

4. Retrospective Application of CBEC Circulars:
The petitioner contended that the Circular dated 5th December 1994 should apply retrospectively, as it superseded all earlier instructions. The court agreed, stating that once the later Circular came into effect, it governed the classification of the product. The court rejected the respondents' argument that the Circular should not apply retrospectively, emphasizing that the adjudication must consider the Circular effective at the time of the decision.

Conclusion:
The court quashed the impugned order to the extent it applied the earlier Circular of 31st May 1990 and confirmed the applicability of the Circular dated 5th December 1994. The petition was allowed, and the rule was made absolute to the specified extent, with no order as to costs.

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