2014 (12) TMI 653 - HC - Central Excise

Validity of circular bearing No.145/56/95-CX dated 31.8.1995 - Classification of coconut oil packed in small container of sizes upto 200 ml - jurisdiction of CBEC to issue orders or circular in exercise of power under section 37B - violation of Article 14 of the Constitution of India - Held that - the power under section 37B cannot be used to interfere with the exercise of quasi judicial power of adjudication and as the impugned circular is contrary to well settled principles, the impugned circular is bad for want of jurisdiction. Coconut oil is excluded from the purview of Chapter Note 2 of Chapter 33 and the same falls under Chapter 15 in the absence of any indication to show that it is meant for the use as cosmetics and irrespective of packings and the first respondent has no jurisdiction to issue circular, which has the effect of nullifying the decisions rendered by the Tribunal. Coconut oil in such small packs being purchased by poor people both for personal and domestic use, the nature of the use favourable to the assessee to be adopted in preference to other use as held by Gauhati High court in Shalimar Chemical Works Ltd case 2011 (7) TMI 1062 - GAUHATI HIGH COURT . At the risk of repetition, it is stated that the small packs, having been mainly meant for economically poor and down trodden, the presumption that it is used as cosmetics than as edible oil, has no rhyme, reason or logic in the same. By doing so, the poor purchaser of small packs are burdened by levying additional service tax. The first respondent has through the impugned circular, proceeded to impose tax for the coconut oil packed in the container upto 200ml and thus usurped the function of the legislative body. The first respondent has sought to impose duty indirectly, which, the legislature would intend to impose directly in accordance with law. Thus way, the same amounts to indirectly legislating, which is not legally permissible. - Decision in the case of Delhi High court in Faridabad Iron and Steel Traders Association v. Union of India case 2003 (11) TMI 107 - HIGH COURT OF DELHI followed. Impugned circular issued by the first respondent is held to be arbitrary, unreasonable, without jurisdiction, null and void and contrary to the provisions of the Central Excise Act, 1944, and ultra vires of Articles 14, 19(i)(g) and 21 of the Constitution of India and Section 37B of the Central Excise Act 1944 and the rules made thereunder and the Central Excise Tariff Act 1985, as such, the petitioner is entitled to the declaratory relief as sought for in this writ petition in respect of impugned circular passed by the first respondent. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of CBEC under Section 37B of the Central Excise Act, 1944.
2. Classification of coconut oil based on packing size.
3. Violation of Article 14 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Jurisdiction of CBEC under Section 37B of the Central Excise Act, 1944:
The petitioner argued that the CBEC exceeded its jurisdiction by issuing the impugned circular under Section 37B, which classified coconut oil packed in containers up to 200 ml under heading 3305. It was contended that Section 37B only allows CBEC to issue orders for uniformity in classification and excise duties, but not to overturn Tribunal decisions or interfere with quasi-judicial powers. The court referenced several judgments, including Pioneer Miyagi Chemicals, Faridabad Iron and Steel Traders Association, and Raymon Glues & Chemicals, which established that CBEC cannot issue circulars that nullify judicial decisions or interfere with quasi-judicial functions. The court concluded that the impugned circular was issued in excess of jurisdiction and was thus invalid.

2. Classification of Coconut Oil Based on Packing Size:
The petitioner challenged the classification of coconut oil based on packing size, arguing it was not proper or correct. The court noted that before the amendment of Chapter Note 2 of Chapter 33, coconut oil was classified as a fixed vegetable oil under Chapter 15, but post-amendment, it was classified as hair oil under Chapter 33 based solely on packing size. The court reviewed Tribunal decisions, including M/s. Madhan Agro Industries and Capital Technologies Ltd, which held that coconut oil should be classified under Chapter 15 unless there is specific indication for cosmetic use. The court found that the impugned circular contradicted these decisions and was therefore without jurisdiction.

3. Violation of Article 14 of the Constitution of India:
The petitioner contended that the circular violated Article 14 by creating hostile discrimination between identical goods based on packing size. The court agreed, noting that the same coconut oil was treated differently depending on whether it was packed in containers up to 200 ml or above, without any rational basis. This classification lacked a rational relation to the object sought to be achieved and was thus arbitrary and unreasonable. The court held that the circular resulted in discrimination against economically disadvantaged consumers who purchase smaller packs, thereby violating the equality clause in Article 14.

Conclusion:
The court declared the impugned circular null and void, holding it arbitrary, unreasonable, and without jurisdiction. It was found to be contrary to the provisions of the Central Excise Act, 1944, and ultra vires of Articles 14, 19(i)(g), and 21 of the Constitution of India. The writ petition was allowed, and the petitioner was granted the declaratory relief sought.