Classification issue - whether clarificatory circular issued later on applicable retrospectively

PJ/Case Laws/2011-12/1217

Case: Commissioner of C. Ex. v/s Eswaran & Sons Engineers Ltd.

Citation: 2005 (179) E.L.T. 272 (S.C.)

Issue:- Classification of Minimum Oil Circuit Breakers – Clarificatory Circular issued after the issue of SCN – whether applicable retrospectively?

Brief Facts: -On 17th December, 1993 respondent-assessee was engaged in the manufacture of Minimum Oil Circuit Breakers. They paid duty by classifying the same under Tariff sub-heading 8535 of Central Excise Tariff Act, 1985. According to the Department the said item was classifiable under sub-heading 8537.

Four show cause notices were issued for the period from 30-6-1993 to August 1994 to pay differential duty and proposed to revise the classification from sub-heading 8535 to sub-heading 8537.

Respondent in their reply submitted that they were manufacturers of electrical goods falling under Chapter 85. They were manufacturing Switchgear Products coming under sub-headings 8535.00, 8536.90, 8537.00 and 8538.00. They submitted that Minimum Oil Circuit Breaker was classified, right from inception, under Tariff sub-heading 8535.00, as it is an apparatus used for switching and protecting the electrical circuit in cases where the voltage exceeded 1000 V. The assessee contended that the demand for duty was not maintainable because the said Minimum Oil Circuit Breaker was one single apparatus having function of breaking the current under abnormal conditions such as short circuit.

The Assistant Collector held that Minimum Oil Circuit Breakers were classifiable under sub-heading 8537.00 and not under sub-heading 8535.00. Reliance was placed on the Explanatory Note to Chapter 85 as well as HSN for coming to the conclusion that Circuit Breakers were classifiable under sub-heading 8537.00.

In appeal before the Collector, assessee placed reliance on a Circular dated 14-7-1994 issued under Section 37B clarifying that the item in question would fall under Tariff sub-heading 8537.00 prospectively.The Collector dismissed the appeal.

Assessee filed further appeal before the Tribunal. The Tribunal held that Minimum Oil Circuit Breaker was classifiable under sub-heading 8537 and not under sub-heading 8535. However, the Tribunal held that in view of the Circular dated 14-7-1994 issued by the Board under Section 37B the quantum of duty leviable needed recalculation as the said Circular dated 14-7-1994 operated prospectively. The Tribunal noted that the assessee had pre-deposited Rs. 4,00,000/- whereas the amount payable on the basis of the Circular dated 14-7-1994 fell within the amount of Rs. 4,00,000/-.Accordingly, the Tribunal remitted the matter to the Assistant Commissioner concerned to recalculate the duty payable by respondent and to refund the balance amount.

Department has filed appeal before the High Court against the order of the Tribunal.

Appellant’s Contention: - Department contended that the components of Minimum Oil Circuit Breaker performed individual functions within the said Circuit Breaker and, therefore, cannot be termed as a separate apparatus. According to the Department Minimum Oil Circuit Breaker (outdoor) was put on a control panel for controlling the electricity current. Therefore, according to the Department the item in question came within sub-heading 8537.Department submitted that the first SCN was issued in 1993 much prior to the Board’s Circular dated 14.02.1994. That the said SCN was based on the said Circular but it was on the basis of the interpretation placed on the aforestated two entries by the Assistant Collector. Therefore, the Tribunal had erred in restricting the demand raised by the Department to the period on and after 14.07.1994.

Reasoning of Judgement:-The High Court perused the order of the Tribunal and noted that on merits, the Tribunal had followed the judgment in the case of Crompton Greaves Limited v/s CCE, Aurangabad [1996 (87) ELT 414] and has held that the Circuit Breakers are paneled equipped with circuit breakers classifiable under sub-heading 8535 and are also equipped with one or more apparatus under sub-heading 8535.00 or under sub-heading 8536.00 and consequently such panels were classifiable under sub-heading 8537.00 of CET. It was noted that against this decision, respondent-assessee had not filed any appeal.

With regard to question of interpretation of Section 37B of the Act, it was noted that the Tribunal had held that the Circular dated 14-7-1994 issued by the Board was prospective and consequently the Department was not entitled to demand duty on the basis of reclassification for the period prior to that date. In this connection, reliance was placed on the judgment of this Court in the case of H.M. Bags Manufacturer v. Collector of Central Excise, reported in [1997 (94) E.L.T. 3].

In view of the High Court, the judgment of this Court in the case of H.M. Bags Manufacturer has no application to the facts of the present case. As can be seen from the facts enumerated hereinabove, much prior to 14-7-1994 a show cause notice was issued by the Assistant Collector on 17-12-1993 on the basis of his interpretation of the above two entries. The order passed by the Assistant Collector dated 19-12-1994 is also on the basis of his interpretation of the above two entries. The said order is not based on the Circular dated 14-7-1994. Therefore, the Circular had no application to the facts of this case.

Under Section 37B of the Act, the Board is empowered to issue instructions to Central Excise Officers, for the purpose of uniformity in the classification of excisable goods, which instructions, are required to be followed by such officers. However, under proviso (a) to Section 37B an exception is made. The said proviso states that the said Instructions, orders or directions cannot make any Central Excise Officer to dispose of a particular case in a particular manner. Similarly, under proviso (b) such Instructions, shall not bind the discretion of Commissioner of Central Excise (Appeals), discharging appellate functions. In view of the proviso to Section 37B, the said Circular dated 14-7-1994 issued by the Board was not applicable to the facts of the present case. As stated above, in the present case, the Assistant Collector had taken a prima facie view for purposes of reclassification as far back as 17-12-1993. Therefore, the Circular dated 14-7-1994 had no application to the facts of the present case.

It was noted that the extent and scope of Section 37B had been considered before the High Court in the case of Birla Jute and Industries Ltd. v. Assistant Collector of Central Excise, reported in [1992 (57) E.L.T. 674]. In that case, the Court had has succinctly analysed the provisions of Section 37B by laying down the following principles:-

“(1) There is a distinction between a decision in a particular assessment by a quasi-judicial authority and a decision on principle by the Board. While an instruction issued under Section 37B cannot be binding upon a quasi-judicial authority under the Act, the departmental officers conducting before such quasi-judicial authority cannot take a stand contrary to the directive/instruction issued.

(2) The instructions which may be binding on the Central Excise Officers are not binding on the Assessee who may question the correctness of the same before a quasi-judicial authority and before a Court. Both the quasi-judicial authority and afortiori, the Court, can question the correctness of the instructions.

(3) An assessee has on the other hand the right to claim and the court may compel compliance with such instructions as are for the benefit of the assessee by the Central Excise Officers.” Impugned judgment of the Tribunal set aside with no order as to costs.

Decision: - Appeals allowed.

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PJ/Case Laws/2011-12/1217

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