By TIOL News Service

MUMBAI, JAN 01, 2013: THE question for consideration before the High Court was -

"Once the Commissioner of Central Excise (A) holds that if the excise duty payable on fresh mushrooms under Section 3(1) of the Central Excise Act, 1944 read with the Schedule to the Central Excise Tariff Act, 1985 is Nil, then, the excise duty payable on DTA clearances of fresh mushrooms by a 100% EOU covered under the proviso to Section 3(1) of the Central Excise Act, 1944 shall also be Nil, then, is it open to the Assessing Officer to issue notice under Section 11A of the Central Excise Act, 1944 and confirm the demand of duty contrary to the decision of the Commissioner of Central Excise (A) ?

The appellants were a 100% EOU established for cultivation and selling of fresh Mushrooms. The appellants cleared ‘fresh Mushrooms' in DTA as well as exported the same. The dispute in the present case relates to the duty liability in respect of DTA clearances of fresh mushrooms effected by the assessee.

During the period from April 1997 to December 1998 no excise duty was levied on the DTA clearances of ‘fresh mushrooms' as it was considered that the ‘fresh mushrooms' were not excisable. However, by four show cause notices issued u/s 11A of the CEA, 1944 the assessee was called upon to show cause as to why excise duty equivalent to customs duty should not be levied and collected in respect of the DTA clearances of fresh mushrooms effected during the period from 1st June 1998 to 30th November 1999 on the ground that fresh mushrooms are classifiable under Chapter 7 heading No.0701.00 and were liable to pay Nil rate of duty under the Central Excise Tariff but as per the proviso to Section 3(1) of the 1944 Act, in respect of DTA clearances of fresh mushrooms, the assessee, a 100% EOU, was liable to pay excise duty equivalent to the aggregate of the duties of customs that would be leviable on the imported fresh mushrooms.

The assessee replied to the said show cause notices by contending that fresh mushrooms were not covered under heading 0701.00 and, hence, were not excisable goods under the 1985 Act and, therefore, demanding duty by invoking the proviso to Section 3(1) of the 1944 Act does not arise. Alternatively it was contended that even if it is construed that fresh mushrooms were excisable goods, since the rate of excise duty on fresh mushroom under the 1985 Act being 'nil', no excise duty equivalent to customs duty could be demanded on fresh mushrooms cleared in DTA by the assessee.

The adjudicating authority dropped the proceedings.

The Revenue went in appeal.

By an order dated 27th May 2004 the Commissioner of Central Excise (A) dismissed the appeal filed by the Revenue by holding firstly, that the "fresh mushrooms"were not covered under heading 0701.00 of the CETA and, hence, fresh mushrooms being ‘not excisable' no duty could be demanded on clearance of the fresh mushrooms and secondly, even if it was assumed that fresh mushrooms were covered under Chapter 7 of the Central Excise Tariff, since excise duty on mushrooms covered under heading 0701.00 or under heading 0702.00 of the Central Excise Tariff being Nil, excise duty in respect of DTA clearances of fresh mushrooms effected by the assessee shall also be Nil and, therefore, the AO was not justified in demanding excise duty equivalent to the aggregate of the duties of customs leviable on fresh mushrooms imported in to India.

The said decision was accepted by the Revenue and subsequent DTA clearances of fresh mushrooms were allowed without demanding excise duty equivalent to customs duty payable on imported mushrooms.

By the Central Excise Tariff (Amendment) Act 2004 w.e.f 28.02.2005, the six digit entries in the Schedule to the 1985 Act were rearranged into eight digit entries.

Even after the aforesaid realignment of the entries in the Schedule to the 1985 Act by the 2004 Act, the Central Excise authorities continued to allow DTA clearances of fresh mushrooms without levying excise duty, because, as in the past, even after the 2004 Act, the excise duty on fresh mushrooms was 'Nil' and in terms of the order passed by the Commissioner of Central Excise (A) on 27th May 2004, if excise duty on fresh mushrooms was Nil, then, in respect of DTA clearances effected by the assessee covered under the proviso to Section 3(1) of the 1944 Act would also be Nil.

However, a SCN dated 28.12.2007 was issued u/s 11A of the CEA, 1944 seeking to recover excise duty equivalent to the customs duty leviable on the imported mushrooms amounting to Rs.1,76,21,021/- in respect of DTA clearances of fresh mushrooms effected by the assessee during the period from 1.12.2006 to 30.11.2007. It was alleged that fresh mushrooms became excisable on being specifically covered under Entry 07095100 in Chapter 7 w.e.f 28.02.2005 and though the excise duty payable under that entry was Nil, in respect of DTA clearances of fresh mushrooms, excise duty was payable at the rate equivalent to the customs duty in terms of the proviso to Section 3(1) of the 1944 Act.

Even before the aforesaid SCN was adjudicated another SCN was issued in December 2008 demanding excise duty of Rs.1,38,85,706/- on the same grounds - the period covered was from 1.12.2007 to 22.06.2008.

By an o-in-o dated 27th February 2009, the adjudicating authority CCE, Pune-III confirmed the demand of Rs.3.15 crores raised under the aforesaid two SCNs with penalty amounting to Rs.3.11 crores.

The Appeal filed by the assessee was dismissed by the CESTAT on 31st May 2011. - (2011-TIOL-783-CESTAT-MMU).

Against the CESTAT order the assessee is before the High Court.

The following were the submissions made -

+ so long as the favourable decision of Commissioner of Central Excise (A) dated 27th May 2004 was holding the field, the AO in respect of subsequent DTA clearances could not have demanded excise duty equivalent to the customs duty and, therefore, the impugned duty demand confirmed with penalty is liable to be quashed and set aside.

+ Revenue is barred from changing its stand retrospectively and, therefore, the decision of the AO could be applied prospectively and not retrospectively.

+ Alternatively, since the Revenue is changing its stand retrospectively, the 100% EOU unit of the assessee should be permitted/treated to have been relieved from the EOU Scheme with effect from 1st December 2006, so that with effect from 1st December 2006, the unit of the assessee ceases to be a 100% EOU and the clearances effected from that day would be liable for Nil rate of duty under the Central Excise Tariff and consequently no demand would be enforceable against the assessee.

The Revenue representative submitted the appeal is liable to be dismissed on account of the following -

+ that fresh mushrooms were not covered under the 1985 Act as originally enacted and it is only by the 2004 amendment to 1985 Act with effect from 28th February 2005, fresh mushrooms have been specifically included in Chapter Heading 07095100 of the 1985 Act. Therefore, the decision of Commissioner of Central Excise (A) dated 27th May 2004 rendered when the fresh mushrooms were not excisable would have no bearing after 28th February 2005 when "fresh mushrooms"became excisable & in view of the change in law, the department was justified in demanding the excise duty

+ the two SCNs were issued within the time limit as envisaged in Section 11A of the 1944 Act and, hence, it cannot be said that the duty is being demanded retrospectively as contended on behalf of the assessee.

+ that the power to raise a demand includes the inherent power to review the past assessment and that the excise authorities are not estopped from taking a view different from the view taken in the earlier period. Decisions in Plasmac Machine Mfg Co Pvt Limited - (2002-TIOL-455-SC-CX), ITW Signode Ind. Limited - (2003-TIOL-38-SC-CX) and Jain Shudh Vanaspati Limited - (2002-TIOL-585-SC-CUS) were relied upon.

+ once the assessee has chosen to get out of EOU Scheme from a particular date and the same has been allowed with effect from 2nd September 2008 it is not open to the assessee thereafter to seek de-bonding from an anterior date with effect from 1st December 2006 on ex-post facto basis.

The High Court in a detailed order inter alia observed -

+ The argument of the Revenue that the fresh mushrooms were not excisable prior to the 2004 amendment to the 1985 Act is unsustainable.

+ The argument of the Revenue that by the 2004 amendment to the 1985 Act, fresh mushrooms were made excisable for the first time with effect from 28th February 2005 is also unsustainable because the amendment was brought about with a view to convert the existing six digit entries in the schedule to the 1985 Act to eight digit entries on par with the entries in the schedule to the Customs Tariff Act and not with a view to bring in new goods within the purview of excise.

+ The argument of the Revenue that the decision of the Commissioner of Central Excise (A) dated 27th May 2004 rendered prior to the 2004 amendment to the 1985 Act would not be applicable after the 2004 amendment to the 1985 Act is without any merit, because, as noted earlier, fresh mushrooms were excisable prior to the 2004 amendment and continue to be excisable even after the 2004 amendment.

On the question whether the adjudicating authority was bound by the decision of Commissioner of Central Excise (A) rendered prior to the 2004 amendment to the 1985 Act in respect of the DTA clearances of fresh mushrooms effected after the amendment of the 1985 Act by the 2004 Act, the High Court observed -

"26. It is well established principle of judicial discipline that the orders passed by the higher appellate authorities must be followed unreservedly by the subordinate authorities. Once the decision given by the higher appellate authority is accepted by the Revenue, then, it is not open to the AO to doubt the correctness of the order passed by the appellate authority and must follow the appellate order."

After placing reliance on the decisions in Jindal Dye Intermediate Limited V/s. Collector of Customs - (2006-TIOL-58-SC-CUS), Union of India V/s. Kamlakshi Finance Corporation Limited - (2002-TIOL-484-SC-CX-LB) Commissioner of Central Excise, Mumbai V/s. Bigen Industries Limited - (2006-TIOL-49-SC-CX), the Court further observed -

"30. In the present case, the specific case of the Revenue prior to the 2004 amendment to the 1985 Act was that fresh mushrooms were excisable under Chapter 7 of the 1985 Act and even though the rate of excise duty on fresh mushrooms was Nil, as per the proviso to Section 3(1) of the 1944 Act in respect of DTA clearances of fresh mushrooms effected by the assessee, a 100% EOU, the excise duty was payable equivalent to the customs duty payable on imported fresh mushrooms. The Commissioner of Central Excise (A) held that the fact that fresh mushrooms were excisable would not entitle the Revenue to recover duty, because, so long as the duty on fresh mushrooms under the Central Excise Tariff was Nil, in respect of DTA clearances of fresh mushrooms by a 100% EOU covered under the proviso to Section 3(1) of the 1944 Act would also be Nil. That decision of the Commissioner of Central Excise (A) dated 27th May 2004 was admittedly accepted by the Revenue. Therefore, so long as the decision of the Commissioner of Central Excise (A) dated 27th May 2004 was holding the field, all the adjudicating authorities including the Commissioner of Central Excise were bound by the said decision passed by the Commissioner of Central Excise (A) dated 27th May 2004. This view is supported by the decision of this Court in the case of Prakash Construction & Engineering Company V/s. Union of India reported in 1991 (56) E.L.T. 58 (Bom.)."

Elaborating on the legal position the High Court added -

"32. Assuming that the adjudicating authority considered that the decision of the Commissioner of Central Excise (A) which was accepted by the Revenue required to be reconsidered, then, the proper course for the adjudicating authority while passing the assessment in respect of the subsequent clearances was to record his views on the decision of the Commissioner of Central Excise (A) but pass an order in consonance with the decision of Commissioner of Central Excise (A) so that the higher authorities could take a relook at the decision of Commissioner of Central Excise (A) dated 27th May 2004. In other words, until the decision of Commissioner of Central Excise (A) dated 27th May 2004 was reversed by a competent higher authority, the AO was bound by the said decision and could not have taken a view contrary to the view taken by the Commissioner of Central Excise (A).

34. It is only on 31st May 2011 when the CESTAT held that even if the rate of excise duty under the Central Excise Tariff on excisable goods is Nil, under the proviso to Section 3(1) of the 1944 Act, excise duty equivalent to customs duty would be payable on DTA clearances of such excisable goods by a 100% EOU, the decision of the Commissioner of Central Excise (A) dated 27th May 2004 ceased to have binding effect. In other words, till 31st May 2011, the decision of the Commissioner of Central Excise (A) dated 27th May 2004 which was accepted by the Revenue was binding on all the adjudicating authorities including the Commissioner of Central Excise. Therefore, in the facts of the present case, the demand confirmed by order-in-original dated 27th February 2009 being contrary to the decision of the Commissioner of Central Excise (A) dated 27th May 2004, which was holding the field and accepted by the Revenue, cannot be sustained.

35. The CESTAT on 31st May 2011 while correctly interpreting the proviso to Section 3(1) of the 1944 Act, ought to have held that so long as the decision of the Commissioner of Central Excise (A) dated 27th May 2004 was holding the field, the adjudicating authorities were bound by the said decision….To put it simply, the CESTAT ought to have held that the decision of the Commissioner of Central Excise (A) dated 27th May 2004, which was accepted by the Revenue was binding on the AO and therefore the order in original passed by the AO on 27th February 2009 contrary to the decision of the Commissioner of Central Excise (A) dated 27th May 2004 was bad in law.

36. It is relevant to note that the dispute before the CESTAT was not arising out of the order of the Commissioner of Central Excise (A) dated 27th May 2004 and in fact that decision was accepted by the Revenue. The dispute before the CESTAT related to the assessment order passed on 27th February 2009 in respect of the DTA clearances effected after the decision of the Commissioner of Central Excise (A) dated 27th May 2004. Therefore, while it was open to the CESTAT to disagree with the decision of the Commissioner of Central Excise (A) dated 27th May 2004, the CESTAT ought to have held that the adjudicating authority was bound by the decision of the Commissioner of Central Excise (A) till it was set aside on 31st May 2011 and accordingly the CESTAT ought to have set aside the demands confirmed by the AO on 27th February 2009."

The decisions cited by the Revenue were distinguished and the High Court answered the question in favour of the assessee and against the Revenue.

(See 2013-TIOL-03-HC-MUM-CX)