2002 (11) TMI 90 - SC - Central Excise

Whether the products manufactured by the appellants are classifiable under Tariff Item 68? Whether the demand of the Revenue is barred by limitation ? Held that - In the absence of a show cause notice it is not open to the Revenue to make a demand on the appellants even assuming that the contention of the Revenue in regard to classification as held by the Tribunal is correct. In view of our finding on this question of limitation which precludes the Revenue from making a demand on the appellants because of the bar of limitation, we think it unnecessary to go to the first question as to the correctness of the classification made by the Tribunal in the impugned order. In favour of assessee.

Issues Involved:
1. Classification of the products under Tariff Item 68.
2. Limitation period for the demand of duty by the Revenue.

Detailed Analysis:

1. Classification of the Products under Tariff Item 68:

The primary issue was whether the products manufactured by the appellants, which underwent processes like polishing and trimming after forging, should be classified under Tariff Item 68. The appellants contended that these processes did not constitute the manufacture of a new product and relied on the judgment in Tata Iron & Steel Co. Ltd. v. Union of India, which supported their stance. The Tribunal, however, had a split decision, with the Judicial Member supporting the classification under Tariff Item 68 and the Technical Member suggesting a remand for further examination. The third member agreed with the Judicial Member, leading to a majority view that the products fall under Item 68.

2. Limitation Period for the Demand of Duty by the Revenue:

The Tribunal also had differing opinions on whether the demand for duty was within the limitation period. The Judicial Member held that the final order of the Assistant Collector dated 22-1-1976 required a show cause notice within the limitation period, which was not issued, thus partly allowing the Revenue's claim. The Technical Member considered the clearances as provisional, negating the need for a show cause notice and thus rejecting the limitation bar. The third member sided with the Technical Member on this point, resulting in the Tribunal upholding the demand without considering the limitation.

Supreme Court's Analysis and Judgment:

Limitation Issue:

The Supreme Court prioritized addressing the limitation issue, noting that no show cause notice was issued by the Revenue as required by law. The Court emphasized that issuance of a show cause notice in a specified format is mandatory, and mere letters or orders do not suffice. The Court agreed with the Tribunal's members who found that the documents treated as show cause notices were inadequate.

The Court also examined whether the order of the Assistant Collector dated 22-1-1976 was provisional. It concluded that there was no evidence of a provisional classification or an order under Rule 9B, thus affirming that the order was final. Consequently, the limitation period prescribed under Section 11A applied, and the absence of a proper show cause notice barred the Revenue from making a demand.

Regarding the interim order by the High Court dated 19-2-1981, the Supreme Court held that it did not prevent the Revenue from issuing a show cause notice. The Court cited the Gokak Patel Volkart Ltd. case, which clarified that an interim order staying the collection of duty does not extend the limitation period for issuing a show cause notice.

Conclusion:

The Supreme Court concluded that without a valid show cause notice, the Revenue's demand was barred by limitation. As this finding on limitation precluded the need to address the classification issue, the appeals were allowed, and the impugned orders were set aside.

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