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CASE NO.:

Appeal (civil) 7868 of 1995

PETITIONER:

ITW Signode India Ltd.

RESPONDENT:

Collector of Central Excise

DATE OF JUDGMENT: 19/11/2003

BENCH:

CJI, S.B. Sinha & Dr. AR. Lakshmanan.

JUDGMENT:

J U D G M E N T

S.B. SINHA, J.

The primal question involved in this appeal which arises out a

judgment and order of the Customs, Excise & Gold (Control) Appellate

Tribunal dated 6.4.1995 revolves round the effect of a validating

statute.

BACKGROUND FACTS:

The appellant manufactures and deals in box strappings. For the

said purpose they receive duty paid cold rolled steel strips. Several

processes are undertaken for manufacturing the end product.

The appellant allegedly informed the Superintendant of Central

Excise about the processes undertaken by them contending that the

resultant product falls under Tariff Item No. 26AA(iii) and no further

excise duty is leviable thereupon. The Assistant Collector by a letter

dated 25.6.1983 stated that the box strappings made out of the duty paid

cold rolled steel strips would be classifiable under Tariff Item 68 and

not under Tariff Item 26AA(iii). The appellant protested thereagainst

by a letter dated 2.7.1983 inter alia contending that having regard to

the ISI specifications and certain judicial pronouncements, Tariff Item

68 would not be applicable. The Assistant Collector by an order dated

11.7.1983 held:

"Considering all aspects, the cold rolled strips

known as box strappings continue to be cold rolled

strips under Tariff item 26AA (iii). The painting

and waxing on the product does not change the

classification of the product.

As the raw material, cold rolled strips has

discharged its duty liability under T.I. 26AA(iii)

and the resultant product continues to be cold

rolled strips under T.I. 26AA (iii), no further

duty liability arises."

The said order is said to have become final. Thereafter on or

about 4.2.1986 a classification list was filed by the appellant

effective from 1.3.1986 stating that box strappings are made by cutting

duty paid steel strips under the column "particulars of other goods

produced or manufactured and intended to be removed by the assessee".

Reference in this behalf was also made to the order of the Assistant

Collector dated 11.7.1983. The said classification list filed by the

appellant was approved by the Assistant Collector. However, by a notice

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dated 8.4.1987, the Collector, Central Excise called upon the Appellant

herein to explain as to why processes undertaken by them would not

amount to manufacture with immediate effect and why an amount of Rs.

1,13,82,247/- should not be levied on the basis that the goods should be

classified under chapter sub-heading 7308.90 of the Central Excise

Tariff Act, 1985 upon invoking Rule 9(2) of the Central Excise Rules,

1944 read with the provisions of Section 11A of the Central Excise

Rules.

The appellants contend that the issue as regard classification was

raised with the Department even in 1983, whereupon the Assistant

Collector vide his letter dated 11.7.83 held that the process carried

out by the appellants does not amount to manufacture since the product

continues to be a strip and accordingly there was no change in the

classification, i.e., it will fall under Tariff Item 26AA(iii). This

order has not been challenged by the department and thus it has become

final and conclusive. Thereafter, all along the appellants have filed

classification lists right from 1986 claiming the classification as

strips under Tariff Item 26AA under the old Tariff according to the

order passed by the Assistant Collector. All the classification lists

described the process manufacture adopted by the appellants. This was

finally approved by the department without any modification in favour of

the appellants. This classification continued even for the period

effective from March 1987. Thus, no demand could have been raised

against the appellant under Section 11A for the past period since there

was no short levy and in any event no suppression can be attributed to

the appellants.

A reply to the show cause was filed by the appellant highlighting

the processes undertaken. The Collector by his order dated 24.9.1987

held that the processes undertaken by the appellant do not amount to

manufacture and as such their product is classifiable under Chapter 72

only. An appeal thereagainst was filed by the respondents before the

Appellate Tribunal.

The matter was heard by three members of the Tribunal who

constituted the Bench. Three separate orders in the matter were passed

on 6.4.1995. The Member (Judicial) in his order proposed to remit the

matter to the Collector for a de novo consideration on the merit;

whereas the Vice-President and the Member (Technical) decided the merit

of the matter against the appellant. The majority of the Appellant

Tribunal classified the box strappings in running length and in coil

under heading 73.08 as articles of iron or steel. However, none of the

members took into consideration the question as to whether the demand

made by revenue was barred by limitation. Aggrieved thereby and

dissatisfied therewith the appellant is in appeal before us.

REFERENCE TO CONSTITUTION BENCH AS REGARD SHORT-LEVY:

Having regard to the conflict of decision in Ballarpur Industries

Ltd. Vs. Asstt. Collector of Customs & Central Excise [1995 Supp (3) SCC

429] and Rainbow Industries (P) Ltd. Vs. Collector of Central Excise,

Vadodara [(1994) 6 SCC 563] the question was referred to a Constitution

Bench. This Court in Collector of Central Excise, Baroda Vs. Cotspun

Ltd. [(1999) 7 SCC 633] (wherein one of us V.N. Khare, CJI was a member)

overruled the decision of this Court in Ballarpur Industries (supra) and

held that the Rainbow Industries (supra) has correctly laid down the

law.

AMENDMENT IN SEC. 11A:

The Parliament thereafter amended Section 11A of the Central

Excise Act, 1944 by Act No. 10 of 2000 which was published in the

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Gazette of India on 12.5.2000 and the same was given a retrospective

effect and retroactive operation from 27.12.1985.

REFERENCE TO THIS BENCH REGADING VALIDATING ACT:

The appellants herein therafter questioned the vires of the said

provision. It is also not in dispute that the said question came up for

consideration before a two-Judge Bench of this Court in Easland

Combines, Coimbatore Vs. Collector of Central Excise, Coimbatore [(2003)

3 SCC 410] wherein the validity of the Amendment was upheld.

However, when this matter was placed before another Division Bench

it referred the matter to a three-Judge Bench by an order dated 20th

February, 2003 opining:

"Earlier this appeal was adjourned awaiting the

judgment of this Court in C.A. No. 2693 of 2000,

Easland Combines v. Collector of Central Excise,

Coimbatore, 2003 (152) E.L.T. 39 (S.C.). When

this appeal is taken up for hearing today, Mr.

Bajpai, the learned Counsel appearing for the

Revenue, invited our attention to the judgment

in Easland Combines (supra) and submitted that

the point involved in this appeal is covered by

the said judgment.

In Collector of Central Excise, Baroda v.

Cotspun Ltd., [(1999) 7 SCC 633], a Constitution

Bench of this Court laid down as follows :

"14. The levy of excise duty on the basis

of an approved classification list is the

correct levy, at least until such time as

to the correctness of the approval is

questioned by the issuance to the assessee

of a show cause notice. It is only when

the correctness of the approval is

challenged that an approved classification

list ceased to be such.

15. The levy of excise duty on the basis

of an approved classification list is not

a short levy. Differential duty cannot be

recovered on the ground that it is a short

levy. Rule 10 has then no application."

The Parliament has amended Section 11A of the

Central Excise Act, 1944 by Finance Act, 2000

(10 of 2000) with effect from November 17, 1980

with a view to change the basis of the judgment

in the afore-mentioned case. The question

whether the amendment has changed the basis of

the judgment in Cotspun's case (supra), is the

question that arises in this case. The same

question came up for consideration of this Court

in Easland Combines (supra). A bench of two

learned Judges took the view that the amendment

which conferred power to correct the errors or

mistakes in approval, acceptance or assessment

relating to the rate of duty on or valuation of

excisable goods cannot be said to be

unreasonable. It was further held that with

retrospective effect, the legislature has

empowered the Central Excise Officer to set at

naught the erroneous approval of classification

list or acceptance of price list or assessment

order, and, on that premise, it was laid down,

"Hence, it is held that in view of the

amendment of Section 11A(1), the decision

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rendered by this Court in Cotspun's case

(supra) would not be a good law. Show

cause notice for correcting errors or

mistakes in approval, acceptance or

assessment relating to the rate of duty on

or valuation of excisable goods under the

provisions of the Act or the Rules made

thereunder could be issued within the

prescribed period."

Having gone through the judgment carefully and

given our anxious consideration to the said

judgment in Easland Combines (supra), we are

unable to agree with the view taken by the bench

of two learned Judges in regard to either the

import of the amendment or the effect thereof

and, in our view, the amendment does not alter

the basis of the judgment in Cotspun's case

(supra).

We, therefore, consider it appropriate to refer

the appeal to a bench of three learned Judges.

The Registry is directed to obtain the orders of

Hon'ble the Chief Justice for listing the case

before a bench of three learned Judges."

That is how the matter is before us.

SUBMISSIONS:

Mr. V. Lakshmikumaran, the learned counsel appearing on behalf of

the appellant would submit that by reason of the amendment made in

Section 11A of the Act, the basis of the decision in Cotspun (supra) had

not been taken away. The learned counsel would urge that in Cotspun

(supra) it has categorically been held that Rule 10 which was in pari

materia with Section 11A of the Act as unamended did not deal with

classification lists or related to the reopening of the draft

classification lists which having been exclusively provided for Rule 173

B, by amending Section 11A the basis of the said judgment cannot said to

have been removed.

The learned counsel would argue that in Cotspun (supra) it has not

only been held that Sub-Rule (5) of Rule 173B deals with classification

lists but therein the question as regard different stages for correct

levy had been laid down.

Mr. Lakshmikumaran would contend that levy of excise duty on the

basis of an approved classification list would not be a short levy and

as such differential duty could not be recovered on the said premise and

in that view of the matter Section 11A of the Act will have no

application.

Submission of the learned counsel is that Section 11A of the Act

as amended only provides that even if the short levy is based on the

approved classification list, show cause notice can be issued, but the

same cannot be said to be sufficient to get over the basis of the

judgment/Constitution Bench in Cotspun (supra). Once it is held in

Cotspun (supra), Mr. Lakshmikumaran would argue, that the levy based on

the approved classification list is not short levy, the entry point in

Section 11A must be held to have been closed. According to the learned

counsel, by reason of the amendment as also the retrospective effect

given thereto the short levy having been redefined for the purpose of

Section 11A contrary to what had been held in Cotspun (supra), it must

be held that even now there is no short levy of duty.

The learned counsel further submitted that the Tribunal

misdirected itself in holding that the processes undertaken by the

appellants on the duty paid cold rolled steel strappings amounts to

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manufacture in terms of Section 2(f) of the Central Excise Act, 1944.

According to the learned counsel, having regard to the processes

undergone the resultant product would not attain any new and distinct

character so as to warrant fresh levy of duty. In other words, Mr.

Lakshmikumaran would contend, that the characteristics of cold rolled

strip which is the starting material are retained in the box strappings.

Relying on the decision of Gujarat Steel Tubes Ltd. Vs. State of Kerala

[1989 (42) ELT 513] it was urged that galvanization of pipes undertaken

for the purpose of making them weather proof would not bring into

existence a new commodity and even by a circular dated 9.2.1994 the

Board of Excise and Customs has clarified that the process of

galvanization does not amount to manufacture.

As regard question of classification , the learned counsel would

submit that box strappings is classifiable under 7211.31 as strip only

and not under 7308.90. Heading 7308, it was contended, covers other

articles of iron or steel and in that view of the matter, the box

strappings can be called as article of steel. Even after the processes

undertaken for the end product, the box strappings remain as strips. It

was argued that in any event having regard to the fact that heading 7308

covers other articles of iron and steel covering articles of steel in

individual pieces like bottom steel, nails, rivets, ranges etc, it

cannot be equated with the product in question, i.e., box strappings

which are in running length in coil form and not individual pieces. In

any view of the matter, box strappings being covered as cold rolled

strips i.e. IS: 5872-1973, the same is not classifiable under 7308.90.

The learned counsel would contend that in the instant case, the

proviso appended to Section 11A of the Act is not attracted inasmuch as

the extended time period specified thereunder would have application

only when the short levy is occasioned on account of fraud, collusion,

willful mis-statement or suppression of facts with an intent to evade

payment of duty. In that view of the matter the period of limitation

for issuing a show cause notice would be six months and not five years.

In support of the aforementioned contention, reliance has been placed on

Padmini Products Ltd. Vs. CCE [1989 (43) ELT 195], P&B Pharmaceuticals

Ltd. Vs. CCE [2003 (153) ELT 14] and Pushpam Pharmaceuticals Ltd. Vs.

CCE [1995 (78) ELT 401].

In this connection, the learned counsel has drawn our attention to

the fact that the issue of classification had been raised by the

appellant since 1983 and the same had been approved and even received

the seal of approval by the Collector.

The learned counsel would lastly contend that even if the product

in question is held to be dutiable the appellant should be allowed to

take the Modvat credit of the duty paid on the cold rolled steel strips.

Mr. Dhruv Mehta, learned counsel appearing on behalf of the

respondent, on the other hand, would submit that by reason of amendment

carried out in Section 11A of the Central Excise Act by Act No. 10 of

2000, the basis of judgment in Cotspun has been removed inasmuch as the

words "erroneously refunded" in the unamended Act had been supplemented

by "whether or not such non-levy or non-payment, short-levy or short-

payment or erroneous refund, as the case may be, was on the basis of any

approval, acceptance or assessment relating to the rate of duty on or

valuation of excisable goods under any other provisions of this Act or

the rules made thereunder". According to the learned counsel, what was

exclusively provided for by Rule 173B has now specifically been included

in Section 11A of the Act.

Mr. Mehta would urge that Section 11A, as it now stands, provides

for reopening of approved classification lists and by reason of a show

cause notice issued in terms thereof, the correctness of approval itself

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can be questioned and in that view of the matter the ratio of the

judgment as laid down in paragraph 13 of the Cotspun (supra) has been

removed.

Relying heavily on M/s. Easland Combines (supra), the learned

counsel would argue that the Cotspun (supra) could not have been

rendered if the amended provisions of Section 11A of the Act had been in

existence at the time of the said decision.

As regard the question as to whether the processes undertaken by

the appellant for obtaining the end product known as box strappings

would amount to manufacture or not, the learned counsel would submit

that the several stages of processes which are undertaken by the

appellant is a clear pointer to the fact that the same amounts to

manufacturing. The learned counsel would contend that this Court should

not interfere with such a finding of fact.

Reliance in this behalf has been placed on Aditya Mills Ltd. Vs.

Union of India [(1988) 4 SCC 315].

On the question of classification, the learned counsel would

submit that the judgment and order of the Tribunal does not suffer from

any misdirection in law inasmuch as once it is held that the processes

undertaken by the appellants lead to the manufacture of a distinct and

identifiable product known in the marked as box strappings having regard

to the fact that there is no substantial heading for box strappings and

as such the product has rightly been classified as sub-heading 7308.90.

As regard the question of limitation and MODVAT, the learned

counsel would submit that as the said question had not been raised

before the Tribunal we should not permit the appellant to do the same

before this Court for the first time.

VALIDATING STATUTE:

Relevant Statutory Provisions:

Rule 10 of the Central Excise Rules, 1944, as it stood, read as

under:

"10. Recovery of duties not levied or not paid or short-

levied or not paid in full or erroneously refunded.--

(1) When any duty has not been levied or paid or has

been short-levied or erroneously refunded or any duty

assessed has not been paid in full, the proper officer

may, within six months from the relevant date, serve

notice on the person chargeable with the duty which

has not been levied or paid, or which has been short-

levied, or to whom the refund has erroneously been

made, or which has not been paid in full, requiring

him to show cause why he should not pay the amount

specified in the notice:

Provided that:

(a) where any duty has not been levied or paid or has

been short-levied or has not been paid in full by

reason of fraud, collusion or any wilful mis-

statement or suppression of facts by such person

or his agent, or

(b) where any person or his agent, contravenes any of

the provisions of these rules with intent to evade

payment of duty and has not paid the duty in full,

or

(c) where any duty has been erroneously refunded by

reason of collusion or any wilful mis-statement or

suppression of facts by such person or his agent,

the provisions of this sub-section shall, in any

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of the cases referred to above, have effect as

if, for the words "six months", the words "five

years" were substituted :

Explanation : Where the service of the notice is

stayed by an order of a Court, the period of such stay

shall be excluded in computing the period of six

months or five years, as the case may be.

(2) The Assistant Collector of Central Excise shall, after

considering the representation, if any, made by the person

on whom notice is served under sub-rule (1), determine the

amount of duty due from such person (not being in excess of

the amount specified in the notice) and thereupon such

person shall pay the amount so determined.

(3) For the purposes of this rule,-

(i) "refund", includes rebate referred to in

rules 12 and 12A;

(ii) "relevant date" means,-

(a) in the case of excisable goods on

which duty of excise has not been levied

or paid or on which duty has been short

levied or has not been paid in full, the

date on which the duty was required to be

paid under these rules;

(b) in the case of excisable goods on

which the value or the rate of duty has

been provisionally determined under these

rules, the date on which the duty is

adjusted after final determination of the

value or the rate of duty, as the case may

be;

(c) in the case of excisable goods on

which duty has been erroneously refunded

the date of such refund."

Rules 173B and 173C of the Central Excise Rules read as under:

"173B ASSESSEE TO FILE LIST OF GOODS PRODUCED

FOR APPROVAL OF THE PROPER OFFICER

(1) Every assessee, shall file with the proper

officer for approval a list in such form as the

Collector may direct (in quintuplicate) showing,

-

(a) the full description of -

(i) all excisable goods produced or manufactured

by him,

(ii) all other goods produced or manufactured by

him and intended to be removed from his factory,

and

(iii) all the excisable goods already deposited

or likely to be deposited from time to time

without payment of duty in his warehouse;

(b) the Chapter, heading No. and sub-heading

No., if any, of the Schedule to the Central

Excise Tariff Act, 1985 (5 of 1986) under which

each goods fall;

(c) the rate of duty leviable on each such

goods; and

(d) such other particulars as the Collector may

direct,

(2) The proper officer shall, after such inquiry

as he deems fit, approve the list with such

modifications as are considered necessary and

return one copy of the approved list to the

assessee who shall, unless otherwise directed by

the proper officer, determine the duly payable

on the goods intended to be removed in

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accordance with such list.

(2A)All clearances shall, subject to the

provisions of rule 173 CC, be made only after

the approval of the list by the proper officer.

If the proper officer is of the opinion that on

account of any inquiry to be made, in the matter

or for any other reason to be recorded in

writing, there is likely to be delay in

according the approval, he shall, either on a

written request made by the assessee or on his

own accord, allow such assessee to avail himself

of the procedure prescribed under rule 9B for

provisional assessment of the goods.

(3) Where the assessee disputes the rate of duty

approved by the proper officer in respect of any

goods, he may, after giving an intimation to

that effect to such officer, pay duty under

protest at the rate approved by such officer.

(4) If in the list approved by the proper

officer under sub-rule (2) any alteration

becomes necessary because of-

(a) the assessee commencing production,

manufacture or warehousing of goods not

mentioned in that list, or

(b) the assessee intending to remove from

his factory any non-excisable goods not

mentioned in that list, or

(c) a change in the rate or rates of duty

in respect of the goods mentioned in

that list or, by reason of any

amendment to the Schedule to the

Central Excise Tariff Act, 1985 (5 of

1986) change in the Chapter, Heading

No. and Sub-heading No.

the assessee shall likewise file a fresh

list or an amendment of the list already filed

for the approval of such officer in the same

manner as is provided in sub-rule (1)

(5) When the dispute about the rate of duty has

been finalized or for any other reasons

affecting rate or rates of duty a modification

of the rate or rates of duty is necessitated,

the proper Officer shall make such modification

and inform the assessee accordingly.

(6) The Collector may exempt by a general order

any class of assesses who manufacture wholly

goods which, for the time being, are exempt from

paying duty, from filing the list under sub-rule

(1):

Provided that as and when duty exemption is

withdrawn or modified or no longer applicable,

the assessee shall comply with the provisions of

sub-rule (4) as if he had filed a list earlier

and the list had been approved with 'nil' rate

of duty.

173C ASSESSEE TO FILE PRICE-LIST OF GOODS

ASSESSABLE AD VALOREM.

(1) Every assessee who produces, manufactures or

warehouses goods which are chargeable with duty

at a rate dependent on the value of the goods,

shall file with the proper officer a price-list,

in such form and at such manner and in such

intervals as the Collector may require, showing

the price of each of such goods and the trade

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discount, if any, allowed in respect thereof to

the buyers along with such other particulars as

the Central Board of Excise and Customs or the

Collector may specify.:

(2) Prior approval by the proper officer of the

price-list filed by an assessee under sub-rule

(1) shall be necessary only, where the assessee

-

(i) sells goods to or through related person as

defined in section 4 of the Act; or

(ii) uses such goods for manufacture or

production of other goods in his factory; or

(iii) clears such goods for free distribution;

or

(iv) clears such goods in any other manner which

does not involve sale to a non-related person;

or

(v) clears the goods of the same kind and

quality from his factories located in the

jurisdiction of different Collectors of Central

Excise or Assistant Collectors of Central Excise

or

(vi) submits a fresh price-list or an amendment

of the price-list already filed with the proper

officer and which has the effect of lowering the

existing value of the goods.

*** ***

(5) Subject to the provisions of rule 173CC, an

assessee specified in sub-rule (2) shall not

clear any goods from a factory, warehouse or

other approved place of storage unless the

price-list has been approved by the proper

officer. In case the proper officer is of the

opinion that on account of any enquiry to be

made in the matter or for any other reasons to

be recorded in writing, there is likely to be

delay in according approval, he shall either on

a written request made by the assessee or of his

own accord allow such assessee to avail himself

of the procedure prescribed under rule 9B for

provisional assessment of the goods."

Section 11A of the Central Excise Act, 1944 introduced from

15.11.1980 reads as follows:

"11A. Recovery of duties not levied or not paid or short-levied

or short-paid or erroneously refunded.--

(1) When any duty of excise has not been levied or paid or

has been short-levied or short-paid or erroneously refunded,

a Central Excise Officer may, within six months from the

relevant date, serve notice on the person chargeable with

the duty which has not been levied or paid or which has been

short-levied or short-paid or to whom the refund has

erroneously been made, requiring him to show cause why he

should not pay the amount specified in the notice :

Provided that where any duty of excise has not been levied

or paid or has been short-levied or short-paid or

erroneously refunded by reason of fraud, collusion or any

wilful mis-statement or suppression of facts, or

contravention of any of the provisions of this Act or of the

rules made thereunder with intent to evade payment of duty,

by such person or his agent, the provisions of this sub-

section shall have effect as if, for the words Central

Excise Officer the words "Collector of Central Excise and

for the words "six months" the words "five years" were

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substituted :

Explanation : Where the service of the notice is stayed by

an order of a Court, the period of such stay shall be

excluded in computing the aforesaid period of six months or

five years, as the case may be."

Clause 97 of the Finance Act provided that in Sub-Section (1) of

Section 11A of the Act following shall be added:--

"(a) in the opening portion, for the

words "erroneously refunded", the words

"erroneously refunded, whether or not such

non-levy or non-payment, short-levy or

short payment or erroneous refund, as the

case may be was on the basis of any

approval, acceptance or assessment

relating to the rate of duty on or

valuation of excisable goods under any

other provisions of this Act or the rules

made thereunder", shall be substituted and

shall be deemed to have been substituted

on and from the 17th day of November, 1980;

(b) for the words "six months", wherever

they occur, the words "one year" shall be

substituted;

(c) after the proviso and before the

Explanation the following provisos shall

be inserted, namely:-

"Provided further that where the amount of

duty which has not been levied or paid or

has been short- levied or short-paid or

erroneously refunded is one crore rupees

or less a notice under this sub-Section

shall be served by the Commissioner of

Central Excise or with his prior approval

by any officer subordinate to him:

Provided also that where the amount of

duty which has not been levied or paid or

has been short-levied or short-paid or

erroneously refunded is more than one

crore rupees, no notice under this sub-

section shall be served without the prior

approval of the Chief Commissioner of

Central Excise".

Section 11A after amendment by Section 110 of the Finance Act,

2000 reads as under:

"11A. Recovery of duties not levied or not paid or short-

levied or short-paid or erroneously refunded.--

(1) When any duty of excise has not been levied or

paid or has been short-levied or short-paid or

erroneously refunded, whether or not such non-levy or

non-payment, short-levy or short payment or erroneous

refund, as the case may be, was on the basis of any

approval, acceptance or assessment relating to the

rate of duty on or valuation of excisable goods under

any other provisions of this Act or the rules made

thereunder a Central Excise Officer may, within one

year from the relevant date, serve notice on the

person chargeable with the duty which has not been

levied or paid or which has been short-levied or

short-paid or to whom the refund has erroneously been

made, requiring him to show cause why he should not

pay the amount specified in the notice :

Provided that where any duty of excise has not been

levied or paid or has been short-levied or short-paid

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or erroneously refunded by reason of fraud, collusion

or any wilful mis-statement or suppression of facts,

or contravention of any of the provisions of this Act

or of the rules made thereunder with an intent to

evade payment of duty, by such person or his agent,

the provisions of this sub-section shall have effect

as if, for the words "one year", the words "five

years" were substituted :

Explanation : Where the service of the notice is

stayed by an order of a Court, the period of such stay

shall be excluded in computing the aforesaid period of

one year or five years, as the case may be."

COTSPUN:

In Cotspun (supra) classification lists were filed in terms of

Rule 173 B of the Central Excise Rules and the same had been approved by

Revenue. The approval classified the NES yard under old Tariff Item 19-

I(2)(a)(2)(e). A notice to reopen the assessment was issued on 28th

September, 1977 in respect of the period February, 1977 to May, 1977

inter alia on the ground that the NES yarn ought to have been correctly

classified under old Tariff Item 19-I(2)(F). Another notice was issued

for a subsequent period. The contention of the assessee was that the

approved classification list could not be reopened and, therefore, the

demand for differential duty could not be enforced. The Assistant

Collector upheld the assessee's contention whereas the Appellate

Collector reversed the same. The Tribunal held that the revised

assessment could be made effective only prospectively from the date of

the show cause notices and not with reference to earlier removals made

under approved classification lists. An appeal was filed thereagainst

by the Revenue. This Court noticed that in terms of Rule 173B which

deals with self-removal procedure, an assessee is required to file

before the proper Excise officer or approval a list of the goods that he

proposes to clear containing a description of the goods produced or

manufactured by him, the goods that he intends to remove and all

excisable goods already deposited or likely to be deposited without

payment of duty in his ware house and to indicate the tariff entry under

which he intends to fall, rate of duty leviable thereon and such other

particulars as may be required. In terms of Sub-rule (2) of Rule 173B

the proper officer was required to determine the duty payable on the

goods upon making an enquiry in that regard. Provision for a dispute as

to the approved rate of duty was made in Clause (3). Sub-rule (5) of

Rule 173B reads as under:

"(5) When the dispute about the rate of duty

has been finalized or for any other reasons

affecting rate or rates of duty a modification

of the rate or rates of duty is necessitated,

the proper Officer shall make such modification

and inform the assessee accordingly."

In Rainbow Industries (supra), it was held:

"Once the Department accepted the price list,

acted upon it and the goods were cleared with

the knowledge of the Department, then, in

absence of any amendment in law or judicial

pronouncement, the reclassification should be

effective from the date the Department issued

the show cause notice. The reason for it is

clearance with the knowledge of the Department

and no intention to evade payment of duty."

The reason for arriving at the aforementioned conclusion, thus,

was that clearance had been made with the knowledge of the Department

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and there had been no intention to evade payment of duty.

However, in Ballarpur Industries (supra), this Court had held that

reclassification would operate retrospectively. In Ballarpur Industries

(supra), Rainbow Industries (supra) was distinguished stating that the

observations made therein were confined to the facts of that case.

Placing reliance on Rule 10 which was in pari materia with unamended

Section 11A, it was observed:

"The Bench placed reliance upon Rule 10 and

held that, on a plain reading of that provision

as also of Section 11-A, the show-cause notice

which could be issued within the time-limit

prescribed under the relevant provision could

only be in relation to the duty of excise for a

period prior to the issuance of show-cause

notice. There could be no reason for the

issuance of a show-cause notice for the period

subsequent to the notice as in that case the

necessary corrective action could always be

taken. But Rule 10 with which we are concerned

as well as Section 11-A to which a reference is

made in the case of Rainbow Industries ((1994) 6

SCC 563), the show-cause notice which must be

issued within the time frame prescribed in the

said provisions must relate to a period prior

thereto as the purpose of the show-cause notice

is recovery of duties or charges short-levied,

etc. We, therefore, find it difficult to accept

the contention that the ratio of the decision in

Rainbow Industries ((1994) 6 SCC 563) is that

under Section 11-A past dues cannot be demanded.

We must, therefore, reject that contention".

The controversy, thus, revolved round the question as to whether

until the proposal for modification of the classification was mooted,

the earlier classification would operate or as to whether duty in

accordance with law also could be demanded.

The Constitution Bench analyzing the provisions of Rule 10 and

Rule 173B observed:

The levy of excise duty on the basis of an

approved classification list is the correct

levy, at least until such time as to the

correctness of the approval is questioned by the

issuance to the assessee of a show-cause notice.

It is only when the correctness of the approval

is challenged that an approved classification

list ceases to be such.

The levy of excise duty on the basis of an

approved classification list is not a short

levy. Differential duty cannot be recovered on

the ground that it is a short levy. Rule 10 has

then no application.

VALIDATION ACT:

Section 11A as amended by Finance Act, 2000 brings about

absolutely a different situation.

Statement of Objects and Reasons for amending Section 11A reads,

thus:

"Clause 106 seeks to validate certain action

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taken under Section 11A of the Central Excise

Act with retrospective effect from 17th November,

1980, so as to prescribe that the notices issued

under the said section for non-recovery or

short-recovery or erroneous refund of duties for

a period of six months or five years in certain

situations will prevail notwithstanding any

approval, acceptance or assessment of duty under

the provisions of the Central Excise Rules. The

clause also seeks to validate actions taken in

the past on this basis in conformity with the

legislative intention. This amendment has become

necessary to overcome certain judicial

pronouncements."

Further, Clause 110 of the Finance Act validating actions taken

under Section 11A provides as under:--

"110.(1) Any notice issued or served on any

person under the provisions of Section 11A of

the Central Excise Act during the period

commencing on and from the 17th day of November,

1980 and ending on the date on which the Finance

Act, 2000 receives the assent of the President

(hereinafter referred to as the said period)

demanding duty on account of non-payment, short

payment, non-levy, short-levy or erroneous

refund within a period of six months or five

years, as the case may be, from the relevant

date as defined in Clause (ii) of Sub-section

(3) of that section shall be deemed to be and to

always have been, for all purposes, validly and

effectively issued or served under that section,

notwithstanding any approval, acceptance or

assessment relating to the rate of duty on or

value of, the excisable goods by any Central

Excise Officer under any other provision of the

Central Excise Act or the rules made thereunder.

(2) Any action taken or anything done or

purporting to have been taken or done under

Section 11A of the Central Excise Act at any

time during the said period shall be deemed to

be and to have always been, for all purposes, as

validly and effectively taken or done as if Sub-

section (1) had been in force at all material

times and, accordingly, notwithstanding anything

contained in any judgment, decree or order of

any court, tribunal or other authority,-

(a) all duties of excise levied, assessed

or collected during the period specified

in Sub-section (1) on any excisable goods

under the Central Excise Act, shall be

deemed to be and shall be deemed to always

have been, as validly levied, assessed or

collected as if Sub-section (1) had been

in force at all material times;

(b) no suit or other proceedings shall be

maintained or continued in any court,

tribunal or other authority for the refund

of, and no enforcement shall be made by

any court of any decree or order directing

the refund of any such duties of excise

which have been collected and which would

have been validly collected if Sub-section

(1) had been in force at all material

times;

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(c) recovery shall be made of all such

duties of excise which have not been

collected or, as the case may be, which

have been refunded but which would have

been collected or, as the case may be,

would not have been refunded, if Sub-

section (1) had been in force at all

material times.

Explanation.--"For the removal of doubts, it is

hereby declared that no act or omission on the

part of any person shall be punishable as an

offence which would not have been so punishable

if this section had not come into force."

THE LAW OPERATING IN THE FIELD:

A validation Act removes actual or possible voidness, disability

or other defect by confirming the validity of anything which is or may

be invalid.

In Shri Prithvi Cotton Mills Ltd. & Anr. Vs. Broach Borough

Municipality & Ors. [(1969) 2 SCC 283], it was pointed out that a

legislature does possess the power to validate statutes and to pass

retrospective laws. The Court, however, laid down:

"When a Legislature sets out to validate a tax

declared by a court to be illegally collected

under an ineffective or an invalid law, the

cause for ineffectiveness or invalidity must be

removed before validation can be said to take

place effectively. The most important condition,

of course, is that the Legislature must possess

the power to impose the tax, for, if it does

not, the action must ever remain ineffective and

illegal. Granted legislative competence, it is

not sufficient to declare merely that the

decision of the Court shall not bind for that is

tantamount to reversing the decision in exercise

of judicial power which the Legislature does not

possess or exercise. A court's decision must

always bind unless the conditions on which it is

based are so fundamentally altered that the

decision could not have been given in the

altered circumstances. Ordinarily, a court holds

a tax to be invalidly imposed because the power

to tax is wanting or the statute or the rules or

both are invalid or do not sufficiently create

the jurisdiction. Validation of a tax so

declared illegal may be done only if the grounds

of illegality or invalidity are capable of being

removed and are in fact removed and the tax thus

made legal. Sometimes this is done by providing

for jurisdiction where jurisdiction had not been

properly invested before. Sometimes this is done

by re-enacting retrospectively a valid and legal

taxing provision and then by fiction making the

tax already collected to stand under the re-

enacted law. Sometimes the Legislature gives its

own meaning and interpretation of the law under

which the tax was collected and by legislative

fiat makes the new meaning binding upon courts.

The Legislature may follow any one method or all

of them and while it does so it may neutralise

the effect of the earlier decision of the court

which becomes ineffective after the change of

the law. Whichever method is adopted it must be

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within the competence of the legislature and

legal and adequate to attain the object of

validation. If the Legislature has the power

over the subject-matter and competence to make a

valid law, it can at any time make such a valid

law and make it retrospectively so as to bind

even past transactions. The validity of a

Validating Law, therefore, depends upon whether

the Legislature possesses the competence which

it claims over the subject-matter and whether in

making the validation it removes the defect

which the courts had found in the existing law

and makes adequate provisions in the Validating

Law for a valid imposition of the tax."

In M/s. Ujagar Prints and Others (II) Vs. Union of India and

Others [(1989) 3 SCC 488] wherein after considering various decisions,

this Court held thus:

"A competent legislature can always validate a

law which has been declared by courts to be

invalid, provided the infirmities and vitiating

infactors noticed in the declaratory judgment

are removed or cured. Such a validating law can

also be made retrospective. If in the light of

such validating and curative exercise made by

the legislature - granting legislative

competence - the earlier judgment becomes

irrelevant and unenforceable, that cannot be

called an impermissible legislative overruling

of the judicial decision. All that the

legislature does is to usher in a valid law with

retrospective effect in the light of which

earlier judgment becomes irrelevant. (See Shri

Prithvi Cotton Mills Ltd. Broach Borough

Municipality ((1969) 2 SCC 283 : (1970) 1 SCR

388 (1971) 79 ITR 136)).

66. Such legislative experience of validation of

laws is of particular significance and utility

and is quite often applied, in taxing statues.

It is necessary that the legislature should be

able to cure defects in statues. No individual

can acquire a vested right from a defect in a

statute and seek a windfall from the

legislature's mistakes. Validity of legislations

retroactively curing defects in taxing statues

is well recognised and courts, except under

extraordinary circumstances, would be reluctant

to override the legislative judgment as to the

need for and the wisdom of the retrospective

legislation. In Empire Industries Ltd. v. Union

of India ((1985) 3 SCC 314 : 1985 SCC (Tax) 416

: 1985 Supp 1 SCR 292), this Court observed :

.... not only because of the paramount

governmental interest in obtaining adequate

revenues, but also because taxes are not in the

nature of a penalty or a contractual obligation

but rather a means of apportioning the costs of

government amongst those who benefit from it.

In testing whether a retrospective imposition of

a tax operates so harshly as to violate

fundamental rights under Article 19(1)(g), the

factors considered relevant include the context

in which retroactivity was contemplated such as

whether the law is one of validation of a taxing

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statute struck down by courts for certain

defects; the period of such retroactivity, and

the degree and extent of any unforeseen or

unforeseeable financial burden imposed for the

past period etc. Having regard to all the

circumstances of the present case, this Court in

Empire Industries case ((1985) 3 SCC 314 : 1985

SCC (Tax) 416 : 1985 Supp 1 SCR 292) held that

the retroactivity of the amending provisions was

not such as to incur any infirmity under Article

19(1)(g)."

In Delhi Cloth & General Mills Co. Ltd. and Another Vs. State of

Rajasthan and Others [(1996) 2 SCC 449] a question arose as to whether a

village which was not held to have been included within the limits of a

town municipality as mandatory provisions in that part had not been

followed could be so included with retrospective effect by a Validating

Act by seeking to set at naught a full Bench decision of the Rajasthan

High Court. Referring to Prithvi Cotton Mills (supra) it was held:

"15. In the case of the village of Raipura

there was a preliminary notification calling for

objections to the extension of the limits of the

Kota Municipality to include it, but it was not

followed by a final notification. In the case of

the village of Ummedganj there was a

notification extending the limits of the Kota

Municipality to include it, but it had not been

preceded by a notification inviting the

objections of the public thereto. Later, another

notification was published whereby the village

of Ummedganj was excluded from the limits of the

Kota Municipality. The provisions of Sections 4

to 7 of the 1959 Act and the earlier provisions

of the 1951 Act in the same behalf were,

therefore, not met in the case of either the

village of Raipura or the village of Ummedganj.

The Full Bench of the Rajasthan High Court has

held that these provisions were mandatory and

that judgment has become final.

16. The Validating Act provides that,

notwithstanding anything contained in Sections 4

to 7 of 1959 Act or in any judgment, decree,

order or direction of any court, the villages of

Raipura and Ummedganj should be deemed always to

have continued to exist and they continue to

exist within the limits of the Kota

Municipality, to all intents and for all

purposes. This provision requires the deeming of

the legal position that the villages of Raipura

and Ummedganj fall within the limits of the Kota

Municipality, not the deeming of facts from

which this legal consequence would flow. A legal

consequence cannot be deemed nor, therefrom, can

the events that should have preceded it. Facts

may be deemed and, therefrom, the legal

consequences that follow."

As Sections 4 to 7 of Rajasthan Municipalities Act, 1959 remained

unamended which were mandatory, the defect was held to have not been

cured.

Yet again in K. Shankaran Nair (Dead) through LRs. Vs. Devaki Amma

Malathy Amma and Others [(1996) 11 SCC 428] this Court followed the

aforementioned as well as and other decisions of this Court. It was

observed:

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"It becomes at once clear that once this Court

struck down the rule concerned permitting

compulsory retirement of a government servant

the very basis of the earlier judgment upholding

such an exercise got knocked off and was totally

obliterated from the Statute-Book. Consequently

the very foundation of the judgment vanished.

Such a judgment would obviously become baseless

lacking the very foundation on which it could

operate. The very foundation of an earlier

judgment can be displaced by either a competent

legislature enacting a retrospective provision

for that purpose or by a competent court

deciding the legal provision concerned on which

such judgment is based as ultra vires and void.

In either case the very foundation and legal

substitution of such judgment will vanish

retrospectively. In such an eventuality the law

could be said to have been totally displaced

from the very inception of enactment of such a

law and consequently any judgment based on such

a non-existing law as found in retrospect could

obviously lack efficacy and consequential force

of res judicata."

In Bakhtawar Trust and Others Vs. M.D. Narayan and Others [(2003)

5 SCC 298], one of us (Khare, CJI) speaking for the Bench upon noticing

some of the decisions referred to hereinbefore and other decisions

observed that the questions which were required to be posed and answered

are:

(i) what was the basis of the earlier decision; and

(ii) what, if any, may be said to be removal of that basis?

Upon considering the relevant provisions therein it was held that

the basis of the decision of the High Court had undergone a change

having regard to the change in the Zonal Planning Regulations which now

changed the law, which the High Court was bound to take the view in

terms of the changed law. This Court held:

"It is well settled by the decisions of this

Court that when a validity of a particular

statute is brought into question, a limited

reference, but not reliance, may be made to the

Statement of Objects and Reasons. The Statement

of Objects and Reasons may, therefore, be

employed for the purposes of comprehending the

factual background, the prior state of legal

affairs, the surrounding circumstances in

respect of the statute and the evil which the

statute has sought to remedy. It is manifest

that the Statement of Objects and Reasons

cannot, therefore, be the exclusive footing upon

which a statute is made a nullity through the

decision of a Court of law."

In Easland Combines (supra), this Court held:

"In our view, there is no substance in this

submission. As stated earlier, the relevant

amended portion of Section 11A inter alia makes

it abundantly clear that when any duty of excise

has been short levied or short paid, whether or

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not such short levy or short payment was on the

basis of any approval, acceptance or assessment

relating to the rate of duty on or valuation of

excisable goods under any other provisions of

the Act or the rules, the Central Excise

Officer, can within one year from the relevant

date, serve notice on the person chargeable with

the duty, which has been short levied or short

paid, requiring him to show cause why he should

not pay the amount specified in the notice. This

amendment changes the entire basis or foundation

of the judgment rendered in Cotspun's case

(supra). The entire discussion in the said case

is based upon rule 173B which dealt with

classification list and that assessee must

determine the excise duty which is payable by

him on the goods which he intends to remove in

accordance with approved classification list.

The Court based its reasoning by holding "Rule

10 does not deal with classification list or

relate to reopening of approved classification

lists. That is exclusively provided by Rule

173B." The Court further held that the levy of

excise duty on the basis of approved

classification list is not short levy and the

differential duty cannot be recovered on the

ground that it is a short levy and Rule 10 then

has no application. After the amendment of law,

this reasoning of the judgment would no longer

survive. It is true that the levy of excise duty

on the basis of approved classification list or

price-list or the assessment order is correct

levy till such time as the correctness of the

approved classification list or price list or

till the assessment order is set aside. However,

with retrospective effect, the legislature has

empowered the Central Excise Officer to set at

naught the erroneous approval of classification

list or acceptance of price list or assessment

order. What was provided by Rule 173B is now

specifically provided by Section 11A."

We may notice that in Widia (India) Ltd. and Others Vs. State of

Karnataka and Others [(2003) 8 SCC 22], this Court held:

"It is true that normally tax would not be

levied with retrospective effect but at the same

time to validate the tax which was levied, after

removing the defects pointed out by the previous

decision, the State Government could exercise

its powers under Section 3(1) of the Act and it

cannot be said that it has acted beyond its

jurisdiction. Therefore, it cannot be held that

notification dated 23rd September, 1998

empowering the authority to levy and collect tax

w.e.f. 1.4.1994 to 6.1.1998 is, in any way,

illegal or erroneous. The defects pointed out in

Avinyl Polymers's case (supra) are removed and,

therefore, it cannot be said that the

notification dated 23.9.1998 is, in any way,

illegal. In a situation like the present one

where notifications levying tax were held to be

illegal, for validating such levy, the State

Government has issued the aforesaid

notification. It is not pointed out that the

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said notification is discriminatory between the

goods imported from other States and similarly

goods manufactured or produced within the

State."

APPLICATION OF THE LAW:

The Statements of Objects and Reasons for enacting a statute can

be read for a limited purpose. In Cotspun (supra) this Court held that

Rule 10 does not deal with classification list or relate to reopening of

the approved classification list. According to the Constitution Bench,

the same is exclusively provided by Rule 173B.

Section 11A deals with a case when inter alia excise duty has been

levied or has been short-levied or short-paid. The word "such"

occurring after the words "whether or not" refers to non-levy, non-

payment, short-levy or short-payment or erroneous refund. It is,

therefore, not correct to contend that the word "such" indicates only

such short-levy which has been held to be non-existent in Cotspun having

regard to Rule 173B. Such short-levy or non-levy may be on the basis of

any approval, acceptance or assessment relating to the rate of duty on

or valuation of excisable goods. Thus, any approval made in terms of

Rule 10, in the event, any mistake therein is detected, would also come

within the purview of the expression "such short-levy or short-

payment". Such notice is to be served on the person chargeable with

the duty which inter alia has been short-levy or short-paid.

It is true that Rule 173B has not been amended. But even if the

same has not been done, it would not make a material difference as now a

comprehensive provision has been made in the primary Act, and, thus, a

rule framed thereunder even in case of conflict must give way to the

substantive statute. It is a well-settled principle of law that in case

of a conflict between a substantive act and delegated legislation, the

former shall prevail inasmuch as delegated legislation must be read in

the context of the primary/ legislative act and not the vice-versa.

The procedure laid down under Rule 173B of the Rules has

specifically been included in the Act. Furthermore, by reason of the

amended Act a provision has been made for reopening the approved

classification lists. It is a procedural provision in terms whereof

statutory authorities are required to determine as to whether the

earlier classification was correctly done or not. The said authority

upon giving an opportunity of hearing the parties may come to the

conclusion that decision on the approval granted need not be reopened

and even if the same is reopened, the reasons therefor are to be stated.

As the provision of Section 11A is a recovery provision as regards non-

levy or non-paid or short-levy or short-paid or erroneously refunded

duties by reason of the said amendment the Parliament had merely

provided that an approval on the basis of a classification list inter

alia in case of a short-levy can be recovered if a finding is arrived at

that the goods had undergone a short-levy. For the aforementioned

purpose, Clause 110 of the Finance Act, validating actions taken under

Section 11A can be taken into consideration whereby and whereunder a

legal fiction is created.

The effect of creating such legal fiction is well-known and need

not be reiterated. [See Bhavnagar University Vs. Palitana Sugar Mill

Pvt. Ltd. and others (2003) 2 SCC 111, State of Karnataka Vs.

Vishwabharathi House Building Coop. Soc. & Ors. (2003) 2 SCC 412, High

Court of Judicature for Rajasthan Vs. P.P. Singh and Anr 2003 (4) SCC

239 and Dipak Chandra Ruhidas Vs. Chandan Kumar Sarkar (2003) 7 SCC 66]

Before us, the constitutionality of Section 11A as amended in the

year 2000 has not been questioned.

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Cotspun (supra) was decided when the matters relating to

classification, approval thereof as also short-levy or upon detection of

a mistake were governed by the rules. Rule 10 and Rule 173 B were to be

read in conjunction with each other and the Constitution Bench merely

followed the said principle of interpretation of statute. A different

situation has arisen now having regard to the fact that not only the

substantive provision dealing with the consequence of non-levy, non-

payment or short levy or short-payment or erroneous refund but also has

laid down the procedure therefor.

A statute, it is trite, must be read as a whole. The plenary

power of legislation of the Parliament or the State Legislature in

relation to the legislative fields specified under Seventh Schedule of

the Constitution of India is not disputed. A statutory act may be

enacted prospectively or retrospectively. A retrospective effect

indisputably can be given in case of curative and validating statute.

In fact curative statutes by their very nature are intended to operate

upon and affect past transaction having regard to the fact that they

operate on conditions already existing. However, the scope of the

validating act may vary from case to case.

For the reasons aforementioned, we are of the opinion that the

Section 11A of the Act as amended is a valid piece of legislation.

LIMITATION:

Having answered the reference, we are of the opinion that this

Court in the peculiar facts and circumstances of this case at this stage

need not go into the question as to whether the processes undertaken by

the appellant would amount to manufacture or whether the classification

of goods under sub-heading 7308.90 is correct, in view of the fact that

the question as regard limitation and availability of MODVAT had not

been considered.

It is not in dispute that in terms of Section 11A a show cause

notice for short-levy could have been issued only within six months from

the relevant date. Only in the event, such short-levy was imposed on

account of fraud, collusion, willful mis-statement or suppression of

facts with an intent to evade payment of duty on the part of the

manufacturer, the extended period of limitation of five years could be

invoked.

The appellant herein in paragraph 15 of reply dated 2nd June, 1987

categorically stated that such classification has been made to the

knowledge of the Department. It was contended:

"On the contrary all the processes were carried

out openly and they itself had come up for

detailed consideration and eventually the

decision was taken under Assistant Collector's

order dated 14.7.83 after due application of

mind and it would, therefore, be incredible to

allege as is sought to be done that the

department was not in a position to get first-

hand knowledge of the various processes

adopted."

The appellant further had contended:

"We deny each and every allegation contained in

the show cause notice. We submit that from the

legal point of view the classification cannot be

changed as proposed in the show cause notice,

nor does the factual position warrant

modification of the classification. When

Heading/Sub-heading 7211.31 is specific (cold

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rolled strips), the goods cannot be consigned to

7308.90 which is not specific and is a residuary

item. As long as the subject goods were not

classifiable under T.I 68 when it existed, they

cannot attract the corresponding sub-heading

7308.90. We also submit that Rule 9(2) cited in

the show cause notice is not applicable since

there was no clandestine clearances."

It is, therefore, evident that the contention of the appellant was

that Rule 9(2) cited in the show cause notice was not applicable. But,

unfortunately, despite the same it had not been adverted to by the

tribunal. We must notice that the appellant herein succeeded before the

Appellate Collector. The Revenue went up in appeal. The Tribunal was,

therefore, bound to take the aforementioned question into consideration

inasmuch a finding of fact was required to be arrived at that the period

of limitation for issuing such notices under Section 11A of the Act

would depend upon the question as to whether such short-levy was due to

any act of fraud, collusion, willful, mis-statement or suppression of

facts, the extended period of limitation of five years could not have

been invoked.

Such an extended period of limitation can be invoked only on a

positive act of fraud etc. on the part of assessee is found. Such a

positive act must be in contradistinction to mere inaction like non-

taking of licence etc. It has to be pleaded and established. [See

Padmini Products (supra), P&B Pharmaceuticals Ltd. (supra) and Pushpam

Pharmaceuticals Ltd. (supra)]

Even in Easland Combines(supra) this Court held:

"It is settled law that for invoking the

extended period of limitation duty should not

have been paid, short levied or short paid or

erroneously refunded because of either fraud,

collusion, wilful misstatement, suppression of

fact or contravention of any provision or rules.

This Court has held that these ingredients

postulate a positive act and, therefore, mere

failure to pay duty and/or take out a licence

which is not due to any fraud, collusion or

willful misstatement or suppression of fact or

contravention of any provision is not sufficient

to attract the extended period of limitation."

The question of limitation involves a question of jurisdiction.

The findings of fact on the question of jurisdiction would be a

jurisdictional fact. Such a jurisdictional question is to be determined

having regard to both fact and law involved therein. The Tribunal, in

our opinion, committed a manifest error in not determining the said

question, particularly, when in the absence of any finding of fact that

such short-levy of excise duty related to any positive act on the part

of the appellant by way of fraud, collusion, willful mis-statement or

suppression of facts, the extended period of limitation could not have

been invoked and in that view of the matter no show cause notice in

terms of Rule 10 could have been issued.

Furthermore, even if the short-levy, if any, is to be recovered,

the appellant was entitled to raise a question that he is entitled to

adjust the duty upon taking MODVAT credit of the duty paid on cold

rolled steel strips. These aspects of the matter, in our opinion,

required to be gone into by the Tribunal.

CONCLUSION:

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For the reasons aforementioned, the impugned judgment cannot be

sustained which is set aside and the matter is remitted to the Tribunal

for consideration thereof afresh in accordance with law and in the light

of the observations made herein. This appeal is allowed in part but

without any order as to costs.