1999 (9) TMI 87 - SC - Central Excise

Rule 10 cannot reopen approved classification lists; Rule 173B governs reclassification and levy validity until show-cause

Appeal dismissed. SC held that Rule 10, which permits recovery for short-levied duties, does not permit reopening or reclassification of approved ... Demand for differential duty - Classification of NES yarn under old Tariff Item 19-I(2)(a)(2)(e) Or old Tariff Item 19-I(2)(F) - reclassification of the NES yarn would operate retrospectively - Held that:- Rule 10 is a provision for recovery of duties that have not been levied or paid in full or part. So far as is relevant for our purposes, it provides that where any duty has been short-levied, the Excise officer may, within six months from the relevant date, serve notice on the assessee requiring him to show cause why he should not pay the amount that had been short-levied. Rule 10 does not deal with classification lists or relate to the re-opening of approved classification lists. That is exclusively provided for by Rule 173B. 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. We are, therefore, of the opinion that the. judgment in Ballarpur Industries [1995 (1) TMI 71 - SUPREME COURT OF INDIA], which did not advert to Rule 173B, does not lay down the law correctly and it is over-ruled. The decision in Rainbow Industries [1994 (10) TMI 59 - SUPREME COURT OF INDIA], on the other hand, correctly lays down the law. It was delivered in the context of Rule 173C dealing with approved price lists and the provisions of Rules 173C and 173B are analogous. We are informed that the position in law has. changed since the year 1995 or thereabout. We have not considered these altered provisions. Nothing that we have said in this judgment shall ipso facto apply thereto.The appeal is dismissed. Issues:Classification of NES yarn under old Tariff Item 19-I(2)(a)(2)(e) vs. old Tariff Item 19-I(2)(F) - Reopening of assessment - Differential duty demand - Retrospective reclassification - Interpretation of Rule 10 of Central Excise Rules - Conflict between previous judgments.Analysis:The case involved a dispute regarding the classification of NES yarn under different tariff items, leading to a demand for differential duty. The Excise authorities sought to re-open the assessment for a specific period, claiming that the NES yarn should have been classified differently. The assessee contended that the approved classification lists could not be re-opened, thus challenging the demands for differential duty.The Tribunal held that any revised assessment could only be effective prospectively from the date of show cause notices, not retroactively affecting earlier removals under approved classification lists. The Excise authorities appealed this decision, arguing that the reclassification should operate retrospectively based on Rule 10 of the Central Excise Rules.The Supreme Court analyzed previous conflicting judgments, notably the cases of Ballarpur Industries Ltd. and Rainbow Industries (P) Ltd. The Court overturned the decision in Ballarpur Industries, emphasizing that the approved classification list remains valid until challenged through a show cause notice. Differential duty cannot be recovered based on an approved list, as it does not constitute a short levy under Rule 10.The Court clarified that Rule 173B governs the re-opening of approved classification lists, distinct from Rule 10's provisions on recovery of short-levied duties. The judgment in Rainbow Industries correctly interpreted the law, aligning with the analogous provisions of Rules 173C and 173B.Ultimately, the Court dismissed the appeal, ruling in favor of the assessee. The judgment emphasized the importance of challenging approved classification lists through show cause notices and upheld the principle that differential duty cannot be imposed based on an existing approved list. The decision in Ballarpur Industries was overruled, and the position of law post-1995 was left unaddressed in this judgment.