2023 (1) TMI 389 - HC - Central Excise

Clandestine manufacture and removal - Special Boiling Point Spirit classifiable under Central Excise Tariff Sub-heading 2710.1213 commercially known as EPC solvent - HELD THAT - The issue has been dealt with in a very cursory manner without taking note of the objection raised by the appellant in their reply to the show cause notice. The adjudicating authority has stated that no doubt has been raised by the appellant with regard to the observations of the chemical examiner. This finding is factually incorrect as this was specifically raised in the reply to the show cause notice in Paragraph 21(c) therein. The learned senior standing counsel had referred to certain paragraphs of the adjudicating order and in particular paragraphs 3.2, 6.3, 6.5, 6.8 and 6.9. Paragraph 3.2 is the statement of the case which is partially culled out from the averments in the show cause notice and partially from the reply given by the appellant. Paragraph 6.5 deals with the chemical examiners report which we have also considered and held that the chemical examiner report is of little avail as the report does not address the queries which was raised apart from the fact that the report was submitted after seven months after the drawl of the samples. On a cursory reading of the paragraph 6.8 of the adjudicating order, one gets the impression that the adjudicating authority recorded a positive finding that the process done by the appellant is manufacture . But on a closer reading, we find it is only a discussion about certain decisions which was referred to by the adjudicating authority and nothing turns out on the facts of the case on hand. The issue in the case on hand relates to classification of a product which requires to be done in a scientific manner and such classification cannot be determined and concluded based on statements given by either the Director of the company or their employees. The adjudication order is thoroughly flawed more particularly on the ground of limitation - Petition allowed.

Issues Involved:
1. Jurisdiction of the authority to issue the show cause notice by invoking the extended period of limitation.
2. Classification of the product under the Central Excise Tariff Act.
3. Allegations of willful suppression and mis-statement by the appellants.
4. Validity of the chemical examiner's report.
5. Whether the process undertaken by the appellants amounts to "manufacture" under the Central Excise Act.

Detailed Analysis:

1. Jurisdiction of the Authority to Issue the Show Cause Notice by Invoking the Extended Period of Limitation:
The appellants challenged the jurisdiction of the authority to issue the show cause notice by invoking the extended period of limitation. The court referred to the Hon'ble Supreme Court's decision in Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai, which held that the alternate remedy is not a bar in cases where there is a violation of natural justice, lack of jurisdiction, or challenge to the vires of an act. The court noted that the department had accepted the classification of the product for over six years, and the monthly returns filed by the appellants were never questioned. The court held that the extended period of limitation could not be invoked as there was no material to establish willful suppression or mis-statement by the appellants.

2. Classification of the Product Under the Central Excise Tariff Act:
The appellants contended that the product was correctly classified under tariff sub-heading 27090000 attracting NIL rate of duty. The court observed that the adjudicating authority was largely guided by the chemical examiner's report, which did not address the queries regarding the chemical constituents and classification of the samples. The court held that the classification dispute could not be appropriately adjudicated in a writ petition and that the department should have given the appellants an opportunity to demonstrate that the process adopted did not amount to manufacture.

3. Allegations of Willful Suppression and Mis-statement by the Appellants:
The court found that the allegations of willful suppression and mis-statement were vague and not supported by sufficient material. The court emphasized that mere usage of terms like "willful suppression" and "mis-statement" is not sufficient to hold an assessee guilty. The court concluded that there was no material on record to establish these allegations, and thus, invoking the extended period of limitation was bad in law.

4. Validity of the Chemical Examiner's Report:
The court noted that the chemical examiner's report was submitted after a delay of more than seven months, which could affect the natural properties of the petro-product. The report did not answer the queries regarding the chemical constituents and classification of the samples. The court held that the report was of little avail and should be discarded.

5. Whether the Process Undertaken by the Appellants Amounts to "Manufacture" Under the Central Excise Act:
The appellants argued that the process of distillation did not bring about a new product and thus did not amount to manufacture. The court observed that the adjudicating authority did not provide a clear basis for concluding that the process amounted to manufacture. The court held that the issue of whether the process amounts to manufacture is a technical question that requires a scientific approach and cannot be determined based on statements from the appellants' employees.

Conclusion:
The court allowed the appeal, set aside the order passed in the writ petition, and quashed the Order-in-Original dated 29.11.2016. The court concluded that the adjudication order was flawed, particularly on the ground of limitation, and that the writ petition was maintainable as it involved a jurisdictional question.

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