Circular limiting applicability of Tribunal's decision

Case: SHIVA TAXFABS LIMITED v. UNION OF INDIA

Citation: 2011 (24) S.T.R. 525 (Del.)

Issue: -Board circular instructing Department that Tribunal’s order was binding only in that case and not to others – Authorities directed to examine the applicability of Tribunal’s decision to facts of each case – Board cannot restrict the applicability of Tribunal’s decision in identical matters.

Brief Fact: -Petitioners are challenging the Board Circular No. 929/19/2010-CX, dated 29.06.2010 by alleging that the Circular is patently illegal and contrary to the ratio laid down by the Delhi Tribunal in the case of Commissioner of Central Excise, Kanpur v. G.P.L. Polyfils Ltd [2005 (183) E.L.T. 27 (Tri-Del)].

Petitioner’s Contention: -Petitioners contended as under:

- That the decision in the case of GPL Polyfils Ltd was accepted by the Revenue and was not challenged. The said decision, therefore, is binding on the respondents in view of the principle of consistency and uniformity. Reliance is placed on Union of India v. Kaumudini, (2001) 10 SCC 231; Berger Paints India Ltd. v. CIT. (2004) 12 SCC 42; Indian Oil Corporation v. CCE, Baroda, (2007) 13 SCC 803 = 2006 (202) E.L.T. 37 (S.C.); Commissioner of Central Excise, Bangalore v. Bal Pharma Ltd., (2011) 2 SCC 620 = 2010 (259) E.L.T. 10 (S.C.); and Sunflag Iron & Steel Co. Ltd. v. Additional Collector of Central Excise, Nagpur, 2003 (162) E.L.T. 105 (Bom.). It is highlighted that the Authorities have been asked to ignore the decision of the Tribunal in GPL Polyfils Ltd.

- Secondly, the circular is contrary to the statute as Chapter Note I of Chapter 54 to the Central Excise Tariff has been ignored. The Chapter Note is an integral and principal part of the statute as held by the Supreme Court in Subhash Photographics v. Union of India, [1993 (66) E.L.T. 3 (S.C.)]. Therefore, the circular which is contrary to the statutory provisions has no existence in law (Ref. Commissioner of Central Excise, Bolpur v. Ratan Melting & Wire Industries, [2008 (12) S.T.R. 416 (S.C.) = 2008 (231) E.L.T. 22 (S.C.)].

- Lastly, on merits, it was submitted that the activity undertaken by petitioners is not excisable and the impugned circular is contrary to law. Petitioners contended that though an appeal against the earlier order of the High Court has not been filed, since larger public interest is involved in the interpretation given by the High Court following its earlier judgment, the matter requires consideration by the High Court.

Respondent’s Contention: - Revenue on merits, submitted that the Chapter Note I of Chapter 54, does not help and support the contentions of petitioners. Reliance is placed on the definition of the term 'manufacture' in the definition clause 2(f) of the Central Excise Act, 1944 to controvert the first contention.

To draw support, Revenue have referred to decision in Plasmac Machine Mfg. Co. Pvt. Ltd. v. Collector of Central Excise, 1991 (51) E.L.T. 161 (S.C.); Elson Machines Pvt. Ltd. v. CCE, 1988 (38) E.L.T. 571 (S.C.); Faridabad CT Scan Centre v. D.G. Health Services, 1997 (95) E.L.T. 161 (S.C.); B.J. Akkara, Col. (Retd.) v. Govt. of India, 2007 (207) E.L.T. 3 (S.C.) = 2008 (11) S.T.R. 305 (S.C.); Sharp Industries Ltd. v. Commissioner of Central Excise, (2005) 7 SCC 676 = 2005 (188) E.L.T. 146 (S.C.); Rajasthan State Electricity Board & Ors. v. Laxman Lal & Ors., 1991 Supp (2) SCC 531; State of Maharashtra v. Digambar, (1995) 4 SCC 683; Union of India v. Delhi Cloth and General Mills Co. Ltd, Sterling Foods v. State of Karnataka, AIR 1986 SC 1809; Aditya Mills Ltd. v. Union of India, 1988 (37) E.L.T. 471 (S.C.) and Collector of Central Excise, Bombay v. K.W.H. Heliplastics, 1998 (97) E.L.T. 385 (S.C.). It is submitted that the order of the Tribunal in GPL Polyfils Ltd, is per incuriam and cannot be treated as a precedent. On the question of the circular and the right of the Board to issue circulars, it is submitted that the same has been validly issued under Section 37B of the Act.

Reasoning of Judgment: - The High Court found force in appellant’s contention. In the similar circumstances, this Court in State of Maharashtra v. Digambar and in State of W.B. v. High Debdas Kumar, had held that though an appeal was not filed against an earlier order, when public interest is involved in interpretation of law, the court is entitled to go into the question."

On the question of effect of Revenue not challenging the decision of the Tribunal in the case of GPL Polyfils Ltd, it was observed that the said issue is not required to be dealt with as this issue is no longer res integra and was settled by the Supreme Court in C.K. Gangadharan and Ant'. v. UT, Cochin, [2008 (228) E.L.T. 497 (S.C.) = 2009 (16) S.T.R. 659 (S.C.)] that Revenue can be precluded from defending itself or contesting an issue when an assessee relies upon a contrary decision of a Tribunal or High Court which has not been challenged; Whether it is open to the Revenue to challenge correctness of a ratio or a decision which has been accepted in case of one assessee, in cases of other assessees.

The High Court examined the following judgment given in BSNL v. Union of India [2006 (2) S.T.R. 161 (S.C.)] and held that the legal principle laid down is that while continuity and consistency are conducive to the smooth evolution of Rule of Law yet hesitancy to correct a wrong or set forth or correct a deviation for future can prevent obstruct its growth. Rule of estoppels applies to one and the same assessment and not to the assessment of different years/ person. The doctrine of “approbate and reprobate “is only a specie of estoppels. It applies to the conduct of the parties. It cannot operate against the provision of a statute [CIT v. V. Mr. P. Firm [1965] 56 ITR 67 (SC)].

The High Court noted that they were not required to decide, whether a contrary stand in the assessment/adjudication procedure can be taken by the Revenue/authorities when the High Court having jurisdiction over the authorities has decided the question. A decision of the High Court is a binding precedent. In view of the reference decided by the Supreme Court, it has to be held that the Revenue can prefer appeals or take a contrary stand to what has been held by the Tribunal even if they have not preferred an appeal, when a "just cause" is established and can be shown. Mere fact that the Revenue has not preferred an appeal or challenged the same, does not bar the Revenue from preferring an appeal or taking a different stand in another case where there is a just cause or it is in public interest to do so or when a pronouncement of the higher Court is different and/or divergent views are expressed by the Tribunals or the High Courts (other than jurisdictional High court). The first contention raised by the petitioner is answered accordingly.

With regard to the validity of the Board Circular, the Court noted that the said circular shows that the respondents have referred to the technical process involved when "PET scrap and waste bottles are converted". According to the stand taken by Revenue this is covered by Chapter Note I to Chapter 54 read with Section 2(f) of the Act. The circular also refers to the divergent stands as to the classification adopted in different jurisdictions of the Central Excise. It has been stated that the circular has been issued for the purposes of uniformity of classification. Right of the Central Boards to issue circulars and the effect thereof under Section 119 of the Income Tax Act, 1961 or Section 37B of the Act, Section 151A of the Customs Act, 1962 etc. has been examined and explained by the Supreme Court in several cases.

The High Court perused the judgment given in State of Kerala v. Kurian Abraham (P) Ltd., [2008 (224) ELT 354 (SC)] and in Padinjarekkara Agencies Ltd. v. State of Kerala, [(2008) 3 SCC 59].

It was held that the Paragraph 10 of the circular cannot be sustained. It was noted that Paragraph 10 of the circular states that the decision of the Tribunal in GPL Polyfils Ltd would be relevant to the facts of that particular case and is not a binding precedent in other matters. It stipulates that even if the facts and the process are identical, other Assessee cannot rely upon the decision in GPL Polyfils Ltd before the Revenue authorities. Intention of the Revenue in paragraph 10 of the circular is apparent, Revenue authorities should not follow the decision of the CESTAT in GPL Polyfils Ltd. (supra). Paragraph 10 of the said circular is accordingly struck down.

With regard to interpretation ofChapter Note 1 to Chapter 54, the High Court noted that petitioners and Revenue have taken divergent stand on the same and whether petitioners are ‘manufacturing’ a taxable commodity, polyester stable fibre. It was noticed that Revenue have also relied upon definition clause 2(f). The circular in question refers to the process by which the purported ‘manufacture’ takes place. The stand of the petitioners is to the contrary and they heavily rely upon the decision in GPL Polyfils Ltd. It was noted that in the said decision, it has been held by the Tribunal that:

The Chapter Note 1 to Chapter 54 of the Tariff sets out the definition of man-made fibres for the purpose of bringing the same within the ambit of the First Schedule of the CETA. It gives an exhaustive and self-contained/self-defined, definition and for bringing the “man-made fibres” within the scope of the First Schedule of the CETA, the processes detailed in this Chapter note, must be undertaken by an assessee.

The High Court noted that the actual process involved and the chemical reaction involved etc. are technical and factual aspects and the Court did not see any reason why they should go into the said disputed and debatable questions in the writ petition. These aspects have to be gone into and examined by the authorities under the Act, and if required by the Tribunal.

The Court noted that one difficulty remained as pointed petitioner that the hands of the Authorities are bound and tied because of the impugned circular. It is submitted that the entire adjudication process would be a formality. It is further submitted that even if paragraph 10 of the circular is struck down, the damage and harm has been caused.

The Court found is merit in contention of the petitioners in this regard. The Court has redeemed the situation by giving two directions:

- Firstly, the Revenue authorities will examine the contentions raised by the petitioners without being influenced or treating the circular as binding. The Revenue/Adjudicatory Authorities will independently apply their mind and take into consideration the decision of the Tribunal in GPL Polyfils Ltd. They will also examine whether the said decision is applicable or state if they feel that there are good grounds and reasons (i.e. just cause) why the said decision should not be applied and questioned in appeal etc. The circular will be read as a guideline and not a binding mandate.

- Secondly, the petitioners can be protected by ensuring that in case the Authorities hold that the decision in GPL Polyfils Ltd. is not to be applied even if facts are similar, then the demands should not be recovered by adopting coercive measures till stay applications are decided by the Tribunal. This direction is necessary, as a piquant situation has been created by the Revenue. Equities have to be balanced. The earlier decision of the Tribunal in GPL Polyfils Ltd. should be given due regard if the petitioners are able to show that the same applies, unless the same is set aside. [M/s. Gammon India Ltd. v. Commissioner of Customs, Mumbai [2011 (269) ELT 289 (SC)].

The assessee will have to obtain stay in accordance with law.

The High Court noted that aforesaid directions have been issued in view of the peculiar facts of the present case. They find echo and resonance in the decision of the Supreme Court in Varsha Plastics Private Limited v. Union of India [2009 (235) ELT 193 (SC)].

The Court noted that Section 37B of the Act has a similar proviso. Referring to the said section which provided that in Proviso no such orders, instructions or directions shall be issued—

(a)        so as to require any Central Excise Officer to make a particular assessment or to dispose of a particular case in a particular manner; or

(b)        so as to interfere with the discretion of the Commissioner of Central Excise (Appeals) in the exercise of his appellate functions.

Accordingly, the High Court disposed of the writ petition by holding as under:

(a)        The first question is decided in terms of judgment above.

(b)        Paragraph 10 of the impugned circular is struck down;

(c)        The Assessing Officer and the Authorities under the Act shall independently apply their mind and consider the judgment of Tribunal in GPL Polyfills Ltd. and keep in mind the observations and ratio of Supreme Court in C.K. Gangadharan & Anr. The Assessing Officer/authorities will not be bound by the impugned circular. The circular can be referred for guidance but not as a binding mandate.

(d)        In case of an adverse decision, the demand will not be enforced by adopting coercive method till the stay application is decided by the Tribunal.

Decision: - Petition disposed off.

Comment:- This is landmark judgment wherein the High Court has laid down a very good principle that non-filing of appeal in one identical case cannot preclude the asseesee from filing of appeal in another identical case for different assessee or different period. We are always pleading that the appeal has not been filed by revenue in this case, hence the matter has been finalized and the department cannot take contrary decision in identical case. This will lead to discrimination. But this law does not hold good now.

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PJ/Case laws/2012-13/1063

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