1999 (8) TMI 70 - SC - Central Excise

s.37B circulars binding on Department; earlier show-cause notices invalid; goods classified under Chapter 49 until 16-1-1989

PAPER PRODUCTS LTD. Versus COMMISSIONER OF CENTRAL EXCISE

The SC held the Board's Circulars under s.37B are binding on the Department, which cannot challenge their correctness; the appellant's products were to be ... Manufacture of printed polyester films backed with paper - printed polyester films backed with polythene films; and printed polyester films backed with aluminium foils; all of which are used either as labels, pouches or wrappers - What is the true nature and effect of the Circulars issued by the Board in exercise of its power under Section 37B of the Central Excise Act, 1944 ? - Held that:- The respondent does not dispute that by virtue of Circular dated 23-7-1986 and as clarified by Circular dated 7-8-1987, the products manufactured by the appellant will have to be classified under Chapter 49 of the Act at the relevant time but it contends that the Circulars referred to above did not correctly reflect the correct classification and correct position is as clarified by subsequent Circular of the Board dated 16-1-1989 and also in view of the judgment of this Court in the case of Rollatainers Ltd. v. Union of India [1994 (7) TMI 86 - SUPREME COURT], the Tribunal was justified in dismissing the appeal of the appellant. The Circulars issued by the Board are binding on the Department, the Department is precluded from challenging the correctness of the said Circulars even on the ground of the same being inconsistent with the statutory provision. Therefore, it is clear that so far as the Department is concerned, whatever action it has to take, the same will have to be consistent with the Circular which is in force at the relevant point of time. It is an admitted fact in the present case that by virtue of Circular No. 4/85, dated 23-7-1986 as clarified by Circular dated 7-8-1987, all the three products of the appellant are to be treated as the products of the printing industry and not that of the packaging industry. A change in the said view of the Board occurred for the first time by virtue of its Circular No. 6/89, dated 16-1-1989. Further, the Board itself by its subsequent Circular No. 29/89, dated 5-5-1989 has made it abundantly clear that the change notified in Circular No. 6/89 will be prospective from the date of issuance of Circular No. 6/89, that is, from 16-1-1989. Therefore, it is clear that till the issuance of Circular No. 6/89 which is dated 16-1-1989 the products of the appellant, by virtue of the two Circulars dated 23-7-1986 and 7-8-1987, have to be classified under Chapter 49 of the Act as being products of the printing industry eligible for exemption of duty under Notification Nos. 122/75 and 234/82 as applicable at the relevant time. The impugned show cause notices and consequent demand being ab initio bad inasmuch as the same was contrary to the existing Circulars of the Board, the same cannot be sustained. In favour of assessee. Appeals are liable to be allowed and the impugned orders of the Tribunal are set aside. Issues:Classification of products under Central Excise & Tariff Act, 1985 based on Circulars issued by the Central Board of Excise & Customs; Binding nature of Circulars on the Department; Validity of show cause-cum-demand notices issued by authorities.Classification of Products:The appellant manufactured various products and contended that based on Circulars issued by the Central Board of Excise & Customs, their products should be classified under Chapter 49 of the Central Excise & Tariff Act, 1985. However, the Board revised its position through Circular No. 6/89, dated 16-1-1989, classifying the products under the packaging industry in Chapter 39. The appellant argued that until the issuance of Circular No. 6/89, their products should be classified under Chapter 49, making them eligible for duty exemption under specific notifications. The Tribunal upheld the Board's revised classification, leading to the dispute.Binding Nature of Circulars:The Supreme Court analyzed the binding nature of Circulars issued by the Board under Section 37B of the Central Excise Act, 1944. It reiterated that such Circulars are binding on the Department, preventing them from taking a stance contrary to the instructions issued. The Court emphasized that while an assessee can challenge the legality of Circulars, the Department is obligated to comply. The judgments highlighted the importance of consistency and adherence to Circulars, barring the Department from disputing their validity or filing appeals against their binding nature.Validity of Show Cause-Cum-Demand Notices:The Court ruled that the show cause-cum-demand notices issued by the authorities were invalid as they contradicted the Circulars in force at the time. Since the Circulars classified the appellant's products under Chapter 49 until the issuance of Circular No. 6/89, the notices were deemed unsustainable. Consequently, the Court allowed the appeals, set aside the Tribunal's orders, quashed the notices, and discharged the bank guarantees, granting the appellant consequential benefits without costs.