Classification of Goods - Binding nature of Circular

PJ/CASE STUDY/2011-12/48

07 March 2012

PJ/Case Study/2011-12/48

CASE STUDY

Prepared By:
CA Pradeep Jain
CA Nishit Shah
Sukhvinder Kaur LLB [FYIC]

Introduction:-

The question that whether the Circular issued by the Board will be binding on the Courts/Tribunal and the assessee, the Constitution bench of the High Court consisting of Five member judges in the case of Collector of C. Ex., Vadodara v/s Dhiren Chemical Industries [2002 (139) ELT 3 (SC)] had held that Board circulars will be binding on Department even if a different interpretation has been given than the interpretation given by the Supreme Court. However, the interpretation was given that the Circular is to be followed, even if it is different from the interpretation given by the Apex Court thus giving an overriding effect to the Circular. This was remedied in another Constitution Bench of the Supreme Court in the case of Commissioner of Central Excise, Bolpur v/s M/s Ratan Melting & Wire Industries [2008-TIOL-194-SC-CX-CB] wherein it was held that the Board circular will not prevail over the Order of the Supreme Court. It was held that it is for the Court to declare what the particular provisions of statute says and not for the Executive. A circular which is contrary to the statutory provisions has really no existence in law.

Now, in the case under study, although the main issue was with regard to classification of goods involved, the Division bench of the Supreme Court has held that the departmental circulars are not binding on assessee or quasi judicial authorities or courts at all.

Commissioner of Central Excise, Bhopal v/s Minwool Rock Fibres Ltd
[2012-TIOL-18-SC-CX]

Brief Facts:-

- Respondent-assessee had filed classification declaration before the Adjudicating Authority under Rule 173B of the central Excise Rules, 1944 inter alia, claiming that the goods, namely, Slagwool and Rickwool requires to be classified under Chapter sub-heading No. 6807.10 of the Central Excise Tariff Act, 1985 with effect from 09.06.1998.

- Show cause notice was issued to the Respondent proposing to classify the said goods under sub-heading 6803.00 and recover duty @ 18% under Rule 9(2) read with Section 11-A of the Act. Penalty under Rule 173Q of the Rules was also proposed to be imposed.

- In their reply to the show cause notice, it was inter alia contended that they are manufacturing ‘Min wool’ using more than 25% of blast furnace slag by weight, right from 1993 onwards and they have been filing classification declarations mentioning this fact and such declarations so filed prior to 1997-98 are accepted by the Department and therefore, the goods in question requires to be classified under Chapter sub-heading no. 6807.10 of the Act.

- The Adjudicating Authority accepted the stand of the respondent classification of the goods in issue should be under Chapter sub-heading no. 6807.10 of the Act.

- Revenue being aggrieved by the impugned order filed appeal. The Commissioner (Appeals) allowed Revenue’s appeal and thereby declared that the goods in question are to be classified under sub-heading No. 6803.00 and not under sub-heading no. 6807.10, as claimed by the assessee.

- Hence, the respondent went into appeal before the Tribunal.

- The Tribunal allowed the appeal of the assessee that goods namely Slagwool and Rockwool are to be classified under chapter sub-heading No. 6807.01 and rejected Revenue’s stand that the said goods require to be classified under sub-heading no. 6803.00.

- Hence, Revenue is in appeal before the Supreme Court.

Appellant’s Contention:-

- Revenue contended that when there is specific heading/sub-heading wherein the goods, such as Slagwool, Rockwool and simlar wools are enumerated, that entry requires to be applied and not the general entry or a residuary entry.

- Revenue also relied on the Circular issued by the Central Board of Excise and Customs (Board) dated 17.09.2001 to substantiate that the Board, after a detailed consideration of the claim and the counter claim of the traders dealing in Rockwool and Slagwool, has specifically classified that the afore-said goods requires to be classified under sub-heading no. 6803.00 and not under sub-heading 6807.10.

Reasoning of the Supreme Court:-

- The Supreme Court perused the relevant entries under Chapter 68 i.e. sub-heading No. 6803.00 and sub-heading 6807.10 of the First Schedule to the Central Excise Act, 1985.

- It was noted that the rate of duty for the aforesaid goods if it is classified under sub-heading no. 6803.00 is at 18% and if it is classified under sub-heading no. 6807.10 is at 8%. Sub-heading no. 6803.00 speaks of Slagwool, Rockwool and similar wools, whereas sub-heading no. 6807.10 speaks of goods in which more than 25% by weight, red mud, press mud or blast furnace slag or one or more of these materials is used. Sub-heading no. 6807.10 was introduced after the Budget of 1997.

- It was noted that the period involved is after 09.06.1998.

- The Supreme Court held that no doubt there is a specific entry which speaks of Slagwool and Rockwool under sub-heading no. 6803.00, but there is yet another entry which is consciously introduced by the Legislature under sub-heading no. 6807.10 which speaks of goods in which Rockwool, Slagwool and products thereof are manufactured by use of more than 25% by weight of blast furnace slag. It is not in dispute that the goods in question are those goods in which more than 25% by weight of one or more of red mud, press mud or blast furnace slag is used. If that be the case, then, in a classification dispute, an entry which is beneficial to the assessee requires to be applied and the same has been done by the Adjudicating Authority, which has been confirmed by the Tribunal.

- Alternatively, it can be said that sub-heading 6807 is specific to the goods in which more than 25% by weight, red mud, press mud or blast furnace slag is used. The heading is based entirely on material used on composition of goods. A tariff heading, based on composition of goods, is also specific heading like a heading based on commercial nomenclature. Therefore, the Supreme Court was of the view that goods in issue are appropriately classifiable under sub-heading no. 6807.10 of the tariff entry.

- With regard to Board circular relied upon by the Revenue, the Court was of the view that the departmental circulars are not binding on assessee or quasi judicial authorities or courts and therefore, in that view of the matter, the Cisular/instructions issued by the Board, would not assist them.

- It was noticed by the Court that the Full Bench of the Tribunal in the case of Commissioner of Central Excise, Raipur v/s Punj Star Insulation Fibre Co. [2004-TIOL-562-CESTAT-DEL-LB] has taken a view that the slagwool and rockwool would fall under sub-heading no. 6807.10 and not under sub-heading no. 6803.00. The judgment of the Tribunal has attained finality, since the Revenue have not questioned the same before the appropriate forum. This fact was noticed by the Supreme Court while disposing appeal in the case of M/s Rockwool (India) Pvt Ltd v/s Commissioner of Customs & Central Excise, Hyderabad [Decision dated 07.05.2008 in civil appeal no. 60-61 of 2003].

- Thus, the Supreme Court was of the opinion that the Tribunal did not commit any error and therefore, no interference required.

Decision of the Supreme Court:-

Appeal dismissed.

Conclusion:-

From the judgment of the Apex Court it is clear that on the main issue that even if a specific entry is existing but another entry was consciously introduced to cover the goods and which is favourable to the assessee, then the more favourable entry will have to be applied to classify the goods.

On the other issue, the Court has held that Board circulars are not binding on the assessee as well as on the Courts or Quasi judicial bodies. Although this judgment is given by Division Bench of the Supreme Court but will it have overriding effect on the judgment of Constitution Bench of the Supreme Court is required to be considered.

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PJ/CASE STUDY/2011-12/48
07 March 2012

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