1983 (9) TMI 204 - AT - Central Excise

Issues Involved:

1. Jurisdictional competence of the Assistant Collector to review or revise the decision of his predecessor.
2. Eligibility for concessional rate of duty under Notification No. 7/80 for Urea Formaldehyde Moulding Powder (UFMP).
3. Correctness of the assumption that formaldehyde was brought from outside and availed proforma credit.

Detailed Analysis:

1. Jurisdictional Competence of the Assistant Collector:

The appellants argued that the Assistant Collector's order dated 1.7.81 amounted to a "review" of the decision of his predecessor, which was not within his jurisdictional competence. This power, at the material time, vested only in the Collector of Central Excise under Section 35A of the Central Excises and Salt Act as in force before 11.10.1982. The judgment referenced the Allahabad High Court's decision in Khazanchi Paper and Board Mills v. Superintendent of Central Excise, which held that orders of a quasi-judicial nature could not be reviewed unless specific power was conferred. The Delhi High Court's decision in Caltex (India) Ltd. v. Union of India emphasized that no authority could review an order unless explicitly provided by statute.

Conversely, the Department relied on the Andhra Pradesh High Court's decision in Southern Steel Ltd., which held that authorities could levy duty if they concluded that the classification list was incorrect. The Delhi High Court in Bawa Potteries v. Union of India and J.K. Synthetics Ltd. v. Union of India provided that an assessment decision could be reviewed by the same authority or its successor if there were adequate reasons, such as fresh facts or a change in law.

The Tribunal concluded that the Assistant Collector's order was vitiated because it was based on incorrect assumptions and did not meet the criteria for a valid review as set out in the cited judgments.

2. Eligibility for Concessional Rate of Duty under Notification No. 7/80:

The appellants claimed the benefit of the concessional rate of duty under Notification No. 7/80, which provided a 33% rate for UFMP manufactured from raw naphtha or any chemical derived therefrom, on which the appropriate duty had been paid. The Assistant Collector and the Collector (Appeals) denied this benefit, assuming that formaldehyde, an essential input, was brought from outside and availed proforma credit under Rule 56A, making it non-duty paid.

The Tribunal found that the appellants did not buy formaldehyde but manufactured it from methanol, which was derived from duty-paid raw naphtha. This methanol was purchased from Rashtriya Chemicals & Fertilizers Ltd., and the appropriate excise duty had been paid on the raw naphtha used in its manufacture. The formaldehyde produced was exempt from duty under Notification No. 118/75 as it was used within the factory for further manufacture.

The Tribunal held that the lower authorities acted on a wrong assumption, and the appellants were indeed eligible for the concessional rate under Notification No. 7/80, provided the raw materials used (including urea) met the duty-paid condition.

3. Correctness of the Assumption Regarding Formaldehyde:

The Department's case was based on the incorrect assumption that formaldehyde was brought into the factory and availed proforma credit, making it non-duty paid. The appellants clarified that they manufactured formaldehyde from methanol within their factory. The Tribunal noted that the classification lists filed by the appellants clearly showed that formaldehyde was manufactured in-house.

The Tribunal found that the Department's assumption was factually incorrect and that the appellants did not bring formaldehyde from outside. This incorrect assumption invalidated the basis for denying the concessional rate of duty.

Conclusion:

The Tribunal set aside the orders of the Assistant Collector and the Collector (Appeals) due to the incorrect assumption that formaldehyde was brought from outside and availed proforma credit. The Tribunal refrained from expressing an opinion on whether the UFMP was entitled to the concessional rate of duty under Notification No. 7/80, considering the use of urea derived from raw naphtha, and left it open for the excise authorities to initiate fresh proceedings if necessary.

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