ORDER
P.C. Jain, Member (T)
1. Brief facts of the case are as follows :-
1.1. The respondents, the Joint Sector Public Limited Company of the Government of Andhra Pradesh, manufactures a product known as asphalt corrugated roofing sheets (hereinafter referred to as ACR sheets). The factory of the respondents was established in 1970 and started its production in 1971. The process of manufacture of ACR sheets is described as follows in the appeal filed by the appellant-Collector :-
“Waste paper obtained from road pickings is covered into pulp and formed into sheets. These paper sheets are dried in the sun and corrugated by the machine. These corrugated paper sheets are also called as ‘Base Mats’. These base mats are impregnated with asphalt and finally painted with aluminium paste. The final product is known and marketed as ACR sheets. Thus the corrugated boards after impregnating with asphalt are conferred with special properties of thickness. Water proof, fire resistance, and therefore are specially treated paper boards.”
1.2. On 25-5-1974, the Superintendent of Central Excise issued a memo to the respondent company stating that it had been decided to bring their factory under Central Excise Control since the corrugated and plain sheets coming into existence at the intermediary stage are liable to be assessed under T.I. 17(3) CET. The respondent company were, therefore, directed to apply for a Central Excise licence and to remove the goods on payment of duty. They were also required to give the production and clearance data of such intermediate sheets for manufacture of their final product ACR sheets. The above memo was followed thereafter by a formal show cause notice dated 25-5-1974. This notice was also in respect of the intermediate product namely corrugated and plain sheets which were impregnated with asphalt and cleared from the factory as ACR sheets. The respondents contested the above show cause notice vide their reply dated 8th July, 1974. Thereafter another show cause notice dated 29-7-1974 was issued by the Assistant Collector to show cause as to why a duty of Rs. 2,62,583.84p. should not be demanded from the respondent company under Rule 10-A, as it existed then, as being the duty on the intermediate product mentioned above which conformed to the description of mill board falling under T.I. 17(3). This show cause notice was also contested by the respondents vide their reply dated 5-8-1974 stating that their intermediary product differed from mill board in various respects such as (a) the manufacturing process (b) the raw material used (c) in appearance and (d) in end-use.
1.3. While the aforesaid case on intermediate product (base mats i.e. corrugated plain sheets) was in the process of adjudication, the Assistant Collector issued a notice dated 11-9-1974 detaining the finished product namely ACR sheets lying in the factory from the date of receipt of the notice.
1.4. Upon this, the respondent company filed a writ petition in the High Court of Andhra Pradesh. An interim order suspending the Asstt. Collector’s detention order dated 11-94974 was issued by the Andhra Pradesh High Court subject to furnishing of security of Rs. 10,000/-. A counter-affidavit was filed by the department against the writ petition filed by the respondent company stating that the base mats fell under T.I. 17(3) and the ACR Sheets fell under T.I. 17(4).
1.5. From 1-3-1975, on introduction of T.I. 68 in the CET the final product “ACR sheets” was classified under T.I. 68 after filing of the classification list by the respondent company and grant of a manufacturing excise licence under T.I. 68.
1.6. A show cause notice dated 2-9-1975 was issued by the Assistant Collector demanding duty on the final product ACR sheets under Rule 10-A for the period 1971 to 31-3-1975. It is appropriate at this stage to reproduce the grounds mentioned in the notice in which an amount of Rs. 91,25,381.20p. for the period 1-8-1971 to 31-7-1975 was sought to be recovered under Rule 10-A :-
“On examination and study of the manufacturing process of the asphaltic roofing sheets manufactured by M/s. Modern Roofings Pvt. Ltd., Tadimala. It has since been decided that the above said product would be classifiable under T.I. 17(4) of the Central Excise Tariff as these are specially treated paper board.”
2. Reference to the decision in the grounds of show cause notice mentioned above appears to be based on Collectorate Trade Notice No. 103/75, dated 2-8-1975 which in turn was based on Board’s Tariff Advice No. 27/75 communicated in F. No. 61-12-1972-CX.II, dated 19-7-1975. On a perusal of the Board’s Tariff advice, it is observed that this advice is based on Chief Chemist’s note recorded in the File No. 61/12/72-CX.II. The Chief Chemist after examining the samples sent to him for analysis and opinion, opined that the samples satisfied the criteria of mill board given under Explanation to Notification 30/70 as amended. However, he drew attention to a Board’s letter dated 8-2-1957 on the basis of which he stated that the samples are not mill boards. Nevertheless, he was of the opinion that since the product ACR sheets was made of paper pulp it qualified to be called ‘paper board other sorts’ mentioned under Tariff Item 17(3) CET. The Chief Chemist also relied upon BTN Notes to opine that ‘tarred roofing paper’ was covered under a Tariff Heading 48.07 pertaining to paper and paper board, impregnated, coated, surface coloured etc. in rolls or sheets. He, therefore, also opined that the roofing sheets fell under treated paper board falling under T.I. 17(4) CET.
3. On 22-12-1975, the appellant-Collector issued a Trade Notice No. 222/75 which ruled that the intermediary products base mats before impregnation with asphalt were known or recognised as boards nor marketed as such. Hence it was held that the base mats were not excisable under T.I. 17 CET.
4. On 9-2-1976 the Central Government issued a Notification No. 25/76 under Rule 8(1) exempting ACR sheets falling under T.I. 17(4) from the whole of duty of excise leviable thereon.
5. The respondents contested the show cause notice dated 2-9-1975 vide their reply dated 8-7-1974 with regard to the intermediate product i.e. base mats. It also pointed out that since no order had been passed in respect of earlier show cause notice dated 25-5-1974 from the Superintendent of Central Excise it was presumed by them that the allegation of base mats being a paper board was dropped. Since in this case the impregnation by asphalt did not change the character of the base mats no further process of manufacture was involved and hence the finished product ACR sheets were not excisable at all.
6. On 8-4-1976 the writ petition filed by the respondent company in Andhra Pradesh High Court was decided by a Single Judge ordering that the respondents were not obliged to take out a licence and pay duty on the goods manufactured as ACR sheets were not excisable items. The reasoning which led the learned Single Judge of Andhra Pradesh High Court to hold ACR sheets as not paper board is as follows :-
“They are marketed as light roofing. It is stated by the petitioner that ‘the weight of each mat before asphalting is about 1 1/2 kgs and after asphalting it weighs about 3 to 3 1/2 kgs. More than 50 per cent of the weight of the ACR sheet represent Asphalt. The porus mats are used only as a media for Molding asphalt which alone gives all the qualities namely flexibility, waterproof and fire resistance to the final product. This fact is not denied in the counter. Thus paper is only one of the raw materials used for the manufacture of these goods.
The other Important raw materials is Asphalt. The goods that are manufactured by the petitioner are thus neither paper nor paper board. It is also not useful as paper or paper board. It is used as light roofing and not for packing like any other paper or paper board. Though one of the raw material used for manufacture of ACR sheets is paper, still what the petitioner manufactures is not paper or paper board, but a totally different product known as ACR sheets, merely because at an intermediary stage of the manufacture of ACR sheets, the petitioner manufactures a board which is formed from the road pickings, it cannot be said that the petitioner is manufacturing paper board. Further merely because at the intermediary stage the goods answer the description of paper board they do not excisable goods. Paper boards are not manufactured by the petitioner, he manufactures ACR sheets. Once this intermediary product is turned into ACR sheets, no part of it remains as paper board, nor anything of the board remains as a by-product. The whole of it is converted into ACR sheet. I, therefore, do not think that the ACR sheet 4s an excisable goods. The intermediary stage of manufacture of a particular goods cannot be taken as basis for determining whether any person is a manufacturing excisable goods or not. If the petitioner is manufacturing excisable goods then alone he would be liable to take out a licence and not if at some intermediary stage of manufacture of particular goods, the goods answer the description of some excisable goods which he is not manufacturing. The petitioner was, therefore, not obliged to take out a licence and pay the duty on goods manufactured by him. The writ petition is therefore, allowed with costs.”
7. The department filed an appeal against the aforesaid judgment of the learned Single Judge on 17-7-1976. On 15-11-1977 conveyed by the Deputy Registrar on 22-12-1977, the Division Bench of the Andhra Pradesh High Court set aside the judgment of the learned Single Judge of the same Court mainly on the ground that the matter before the Single Judge was regarding the classification of the intermediate product i.e. base mats and not with regard to the classification of the final product i.e. ACR sheets. The Division Bench also observed that the proper authority for classifying the product after consideration of all the material is the Assistant Collector of Central Excise and thereafter the Central Excise Act provides for appellate remedies. The Division Bench therefore, directed that the matter should be decided by the Assistant Collector in accordance with law after giving due opportunity to the petitioner i.e. the respondents herein. The show cause notice dated 2-9-1975 was perhaps decided by the Asstt. Collector on 31-12-1975. The order was, however, not served on the respondents till 9 years and it is contended that it was served on 18-1-1985.
8. Pursuant to the judgment dated 15-11-1977 of the Division Bench of Andhra Pradesh High Court a show cause notice from C. No. V(17)3/l/74-M.P. II, dated 22-3-1978 was issued by the department asking the respondents to show cause as to why the respondents should riot be penalised under Rule 173-Q(c) for failure to obtain a licence for the manufacture of ACR sheets. On the same date i.e. 22-3-1978 the department issued a letter from C. No. V(17)3/l/74-MP.II from the same file asking the respondent company to pay a duty of Rs. 1,04,81,057.57p. (Rs. 91,25,381.20p. for the period 1-8-1971 to 31-7-1975 and Rs. 13,55,676.37p. for the period 1-8-1975 to 8-2-1976) on ACR sheets. An amount of Rs. 91,25,381.20p. was demanded in pursuance of the adjudication order dated 31-12-1975 and the remaining amount of Rs. 4,13,55,676.37p. was demanded for duty raised in the 12-DD2s. The respondent company contested the show cause notice as well as the letter both dated 22-3-1978 vide their detailed reply dated 23-6-1978. Opportunity for personal hearing was also given to them by the Asstt. Collector on 17-5-1978. An adjudication order dated 18-12-1978 was passed by the Asstt. Collector of Central Excise holding that ACR sheets manufactured by the respondent company are specially treated paper board falling under T.I. 17(4) [now Tariff Item 17(2) of CET] and accordingly he confirmed the demand of Rs. 1.04,84,057.57p. during the period 1-8-1971 to 8-2-1976. He, however, refrained from imposing any penalty under Rule 173Q(c).
9. Thereafter the respondent company filed a writ petition No. 1826/79 against the aforesaid adjudication order dated 18-12-1978 of the Asstt. Collector making detailed submissions. A Division Bench of Andhra Pradesh High Court by its order on the said writ petition closed the writ petition directing the respondent company to take to appellate remedies under Sections 35 and 36 of the Central Excises and Salt Act, 1944.
9.1. Accordingly, the appeal was filed by the respondent company before the Collector of Central Excise (Appeals), Madras. The said Collector (Appeals) vide his order-in-appeal No. 185/84(G), dated 16-11-1984 made the following orders :-
(a) The adjudication order No. 3/76, dated 31-12-1975 is set aside with a direction that the said order be communicated to the appellants (respondents herein), if the same had not been communicated to them so far. It was open to the appellants (respondents herein) to file an appeal against the earlier order dated 31-12-1975 subject to provisions of Section 35 of the Central Excises and Salt Act, 1944.
(b) As regards the order relating to the period not covered by the earlier order dated 31-12-1975, the impugned order dated 18-12-1978 of the Asstt. Collector was vacated and he was directed to hear the appellants (respondents herein) afresh in the matter alongwith the certain other directions.
10. The respondents thereafter were given a copy of the adjudication order No. 3/76, dated 31-12-1975 confirming a demand of Rs. 91,25,381.20p. holding ACR sheets as falling under T.I. 17(4) and the same having been removed by them during the period 1-8-1971 to 31-7-1975. The reasoning of the Asstt. Collector given in the order No. 3/76, dated 31-12-1975 for classification of ACR sheets under T.I. 17(4) and confirming the demand under Rule 10-A is as follows :
“The comparison of the description given under Item 44 of the Customs Tariff with that of Item 17 of Central Excise Tariff is not relevant in the circumstances of this case. The Asphaltic Roofing sheets in question are made from paper pulp and the paper board at the intermediate stage is impregnated with Asphalt, and the finished product is nothing but impregnated paper board which can rightly be classified under Item 17(4) of the Central Excise Tariff. The contention of the party that the popular meaning of the goods as is understood by the public and known to the trade as to be taken into consideration and that Asphaltic roofing sheets have no semblance of paper board is not correct. In this case the same product is derived from its end use. In this case the same product is derived from its end use. Nevertheless the fact that it is an impregnated paper board cannot be denied if a study of the manufacturing process is made. The very name of ‘paper board’ connotes that the raw material is ‘paper’ and the plea that no definition of ‘paper board’ is given in Central Excise Tariff does not in any way effect the classification of the Asphaltic Roofing Sheets under Item 17(4); Since it has been finally decided that the finished product falls under Tariff Item 17(4) the earlier classification under Item 68 will cease to be operative and orders have already been issued in this regard. The present proceedings under Rule 10 A are sustainable as the product escaped assessment under Item 17 all these (sic) under the impression that the same is not excisable. The contention of the party that they made a representation to Central Board of Revenue on the issue and that no decision should be taken until orders are received from the Board is not correct. The correct procedure regarding appeal and revision under the Act has to be followed by the party and passing of this order cannot be stayed for the reasons advanced.”
11. Thereafter they filed an appeal before the Collector of Central Excise (Appeals) who vide his order dated 27-3-1985 has held that the demand will not be sustainable under Rule 10-A in the facts and circumstances of the case. The lower appellate authority has held that Rule 10 would be applicable; as regards the question on merit regarding classification of the product ACR sheets, the said authority has directed the matter to be examined afresh in the light of judicial/quasi-judicial decision delivered after 31-12-1975.
11.1. It is against the aforesaid impugned order dated 27-3-1985 that an appeal has been filed by the Collector of Central Excise, Guntur and cross-objections have been filed by the respondents. It is the contention of both that there is no need for remand for re-examination of the issue on merits. On the question of limitation the appellant-Collector contends that Rule 10-A, as it stood, before its amendment on 6-8-1977 would be applicable whereas the respondents contend for upholding the decision of the Collector (Appeals) for application of Rule 10 instead of Rule 10-A.
12. In the above factual setting following two questions, arise in this case :-
(i) Whether the demand for the period 1-8-1971 to 31-7-1975 for Rs. 91,25,381.20p. was wholly on partly covered by Rule 10 or Rule 10-A, as they stood, before the amendment by a common new Rule 10 on 6-8-1977 to the Central Excise Rules, 1944;
(ii) Whether the ACR sheets are classifiable as ‘paper board’ under T.I. 17 or these were non-excisable before 1-3-1975 and thereafter fell under T.I. 68.
12.1. We would deal with the 2nd issue first. Learned D.R. Shri A.S. Sunder Rajan, appearing for the department has urged that the issue of classification stands decided by the judgment of Madras High Court in the case of Light Roofings Ltd. [1981 (8) E.L.T. 738 (Mad.)]. It has been held that the product ACR sheets fall under T.I. 17(4) before the Budget of 1976 and thereafter under T.I. 17(2). According, to D.R., this is the only judgment of a High Court and therefore, as per the practice of the Tribunal, it is required to be followed.
13. Learned Advocate Shri K. Narasimhan appearing for the respondent company urges that the High Court of Madras has merely taken note of the fact that “the authorities under the Central Excises and Salt Act have the power to classify the excisable items” and also of the fact that “the matter has been discussed in the Central Excise Conference (of Collectors) and a decision was arrived at”. Consequently, the High Court held, “in the absence of material contra, that due procedure had been observed and a decision had been arrived at with reference to the excisability of the ultimate product viz. Light roofing material, under T.I. No. 17(4)” [para 39 of the aforesaid report 1981 (8) E.L.T. 738]. The learned advocate has, therefore, urged that High Court of Madras has relied heavily on the finding of the Collectors’ Conference without going into the correctness of the basis of that decision. The High Court has not arrived at independent decision on the classification of the product in conformity with the established principles.
13.1. He further submits that the basis of the decision of the Collectors’ Tariff Conference is the Note of the Chief Chemist, who, relying on BTN, has pointed out that ‘tarred roofing paper’ finds mention under sub-heading (3) impregnated paper and paper board of Chapter Heading 48.07-” paper and paper board, impregnated, coated, surface coloured surface-decorated or printed (not being merely ruled, lined, or squared and not constituting printed matter within Chapter 49) in rolls or sheets” and thus, according to the Chief Chemist, the roofing sheets merit to be treated as impregnated paper board. Learned Advocate has assailed this opinion on the following grounds :-
(a) Tariff Entry 17 in particular and Central Excise Tariff in general during the relevant period is not modelled on B.T.N. Therefore, Explanatory Notes and Chapter Notes of BTN cannot be applied in interpreting entries in Central Excise Tariff. For this proposition, learned Advocate has relied on Supreme Court’s judgment in Atul Glass v. CCE [1986 (25) E.L.T. 473 SC Para 10 at 479].
(b) The Chief Chemist has mis-read and mis-quoted the Explanatory Notes on BTN. On the other hand, he urges that para (3) under Heading 48.07 of the Explanatory Notes clearly says that “the heading does not included –
(a)…
to…
(j) …
(k) Roofing boards consisting of a substrate of paper board completely enveloped in, or covered on both sides by, a layer of asphalt or similar material (Heading 68.08).
(l) …
(m)…
Again, Explanatory Notes under Heading 68.08 specifically includes : “(2) Roofing boards consisting of a substrate (e.g. of paper board, of web or fabric of glass fibre….) completely enveloped in, or covered on both sides by, a layer of asphalt or similar material”. Heading 68.08 BTN pertains to ‘Articles of Asphalt or of similar Material, e.g. of Petroleum Bitumen or Coal Tar Pitch.”
(c) No attempt had been made and no evidence brought on record by the department for which the burden squarely lies on it, this being a question of classification, as to how the ACR sheets are known in the market. Deptt. is required to prove that ACR sheets are known as paper board in the market before these can be classified as such. He relies, in support on (i) Dunlop India v. Union of India [1983 (13) E.L.T. 1566 SC] (ii) Indian Aluminium Cable Co. v. U.O.I. [1985 (21) E.L.T. 3 (SC)].
(d) Learned Single Judge of the Andhra Pradesh High Court in W.P. 5315 of 1974 decided on 8-4-1976 (extracts already set out) quite independently that ACR sheets do not fall under T.I. 17(4) and therefore, not excisable, even though it was later set aside by the Division Bench on a technical ground.
13.2 Learned DR replying to the learned Advocate for the respondents has stated that the judgment of the learned Single Judge of the Andhra Pradesh High Court stands set aside by the Division Bench, and cannot, therefore, be looked into by the Tribunal. Only surviving judgment is that of Madras High Court in the case of Light Roofings Ltd. mentioned supra and as such is binding on the Tribunal, whatever be the basis of that judgment.
133. We have carefully considered the pleas advanced on both sides. We have gone through Madras High Court’s judgment in the case of Light Roofings. We observe from paras 39 and 40 of 1981 E.L.T. 738 (Mad.) that the High Court has relied heavily on the decision of the Collectors Tariff Conference as well as come independently to conclusion that the ACR sheets fall under T.I. 17(4). We agree with the learned Advocate for the respondents that learned Single Judge of the Andhra Pradesh High Court independently came to the contrary conclusion, even though the said judgment was set aside on technical ground. We notice that the said judgment has not been over-ruled on merits by a decision of a superior competent authority/court. Due note of the Andhra Pradesh High Court’s decision by the learned Single Judge is, therefore, required to be taken.
13.4 Apart from this, we observe that the impugned order relies on the decision of the Collectors’ Tariff Conference which in turn relies on the note of the Chief Chemist. Learned Advocate for the respondents has rightly pointed out that the Explanatory Notes to the BTN, instead of including the roofing boards coated with asphalt on both sides specifically excludes the same from the purview of “paper and paper board impregnated, coated etc.” Further, it appears that the judgment of Madras High Court in the case of Light Roofings Ltd. does not take into account the judgment of Supreme Court in the case of Dunlop India v. UOI. Keeping all these things in view we are inclined to think that we should take an independent decision on the basis of available material on record so far as the question of classification of ACR sheets is concerned. The Tariff Entry relating to paper all sorts under Tariff Item 17 during the relevant period was as follows :-
“Paper : all sorts (including paste board, mill board, straw board and card board) in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power :-
1. Cigarette tissue.
2. Blotting, toilet, target, tissue other than cigarettes tissue, teleprinter, typewriting manifold, bank, bond, art paper, chrome paper, tubsized paper, cheque paper, stamp paper, cartridge paper, waxed paper, polyethylene coated paper, parchment, and coated board (including art board, chrome board and board of paying cards).
3. Printing and writing paper, packing and wrapping paper, straw board and pulp board, including grey board, corrugated board, duplex and triplex boards, other sorts.”
4. All other kinds of paper and paper board not otherwise specified.
Later on this item was amended by Act 66 of 1976 and the Tariff Entries were as follows :-
“Paper and Paper Board, all sorts (including paste board, mill board, straw board, card board, and corrugated board) in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power :-
(1) Uncoated and coated printing and writing paper (other than poster paper).
(2) Paper board and all other kinds of paper (including paper or paper boards which have been subjected to various treatments such as coating, impregnating, corrugation, creping and design printing), not elsewhere specified.”
It is to be observed from the foregoing entries that paper or paper boards which have been subjected to various treatments such as coating, impregnating, corrugation, wrapping and design printing were included by Act 66 of 1976 by amendment after the relevant period i.e. after 8-2-1976. No material has been brought on record by the department as to how the expression ‘paper board’ referred to in Item 17(1), as it stood during the relevant time, was known in the trade. Supreme Court in 1986 (25) E.L.T. 473 Para 8 has clearly stated “the test commonly applied to such cases is how the product identified by a class or section of people dealing with or using the product? That is a test which is attraded whenever Statute does not contain any definition. It is generally by its functional character that the product is identified….It is a matter of common experience that the identity of an article is associated with its primary function. It is only logical that it should be so. When a consumer buys an article, he buys it because it performs a specific function for him. There is mainly an association in the mind of a consumer between the article; and the need it supplies in his life. It is the functional character of the article which identifies it in his mind”.
14. Keeping the above observation in mind, A.C.R. sheets can by no stretch of imagination be considered as paper boards in the instant case. The function of the product is admittedly cheap roofing material for the protection of homes of the poor people. It is also on record that the predominant content in the product is that of asphalt and not of paper pulp as is apparent from the analysis of samples made by the Chief Chemist in his note. Further the reliance placed by the learned Advocate for the respondent company on BTN Explanatory Notes as an indication of the trade understanding in international trade is also well founded. The product under consideration is treated in international trade as an article of asphalt and not as a product or article of paper under Heading 48.07 BTN. Learned Chief Chemist appears to have fallen into an error by equating ‘tarred roofing paper’ mentioned in the Explanatory Notes to BTN under T.I. 48.07 with the product under consideration. Having regard to the thickness of the product in the samples analysed by him, it is not the case of the department that it is ‘paper’. Chief Chemist clearly describes the product as ‘Board’. The process of manufacture referred to by the Asstt. Collector does not determine the classification. Accordingly, we hold that ACR sheets during the relevant period did not fall under T.I. 17(4).
15. On the basis of the above finding it would be futile to discuss the other issue whether the demand can be made under Rule 10 or Rule 10-A of the Central Excise Rules as they then stood because no demand is sustainable in view of our aforesaid finding on classification.
16. Nevertheless, we would like to record whether Rule 10 or Rule 10-A is applicable to the circumstances of this case or so for which periods because these issues have been raised before us.
17. Considerable arguments have been advanced from the side of the appellant-Collector by the learned DR that Rule 10-A was valid. Collector (Appeals) finding that it was held ultra vires, the provisions of the Act by Madras High Court and therefore, Rule 10-A could not be applied in the circumstances of this case was an incorrect finding. Now that controversy is resolved by the Supreme Court’s judgment in Assistant Collector v. Ramakrishnan Kulwant Rai-1989 (41) E.L.T. 3 wherein the constitutional validity of Rule 10-A has been upheld in the most unambiguous terms. Learned Advocate for the respondents company, therefore, concedes that the Tribunal should proceed on the constitutional validity of Rule 10-A.
18. On the question of limitation, learned DR has stated that upto 25-5-1974, Rule 10-A would be applicable inasmuch as the respondent company has neither taken a licence nor observed any Central Excise formalities in the matter of assessment of the goods under consideration. From 26-5-1974 to 8-2-1976 the proceedings are continuing against the respondent company and therefore, the question of limitation does not arise.
19. Learned Advocate for the respondent company, on the other hand, urges that letter dated 25-5-1974 speaks of taking an L-4 licence for the manufacturer of intermediate product. Therefore, it is apparent from the above as well as the show cause notice issued by the Supdt. on 25-5-1974 that the production of final product i.e. ACR sheets is fully known to the department in which the impugned intermediate product for which duty was demanded was used. In a subsequent notice issued by the Asstt. Collector on 29-7-1974 Rule 9(2) has been given up. This notice also speaks of the intermediate product i.e. base mats being manufactured and classifiable as paper board used in ACR sheets. Further, the department on introduction of Tariff Item 68 in the Central Excise Tariff for ‘goods not elsewhere specified’ (NES) on its own approved the classification list for ACR sheets as falling under T.I. 68. This action of the department underscores the point that the ACR sheets before 1-3-1975 were non-excisable and therefore, not liable to duty. In these facts and circumstances, he urges that only Rule 10 applies and Rule 10-A would have no application.
19.1 We have carefully considered the pleas advanced on both sides on the issue of limitation. Construction of Rule 10 and 10-A and their scope had come up for consideration before the Supreme Court in the case of Asstt. Collector v. National Tobacco of India Ltd. 1978 (2) E.L.T.J 416. It had been held by the Supreme Court that Rule 10A was residuary in character and would be inapplicable if a case fell within a specified category of cases mentioned in Rule 10. It is appropriate at this stage to give the relevant extracts from paras 23 and 25 of the judgment of the Supreme Court in the said Report :-
“23. Rules 10 and 10-A placed side by side do raise difficulties of interpretation. Rule 10 seems to be so widely worded as to cover any “inadvertence, error, collusion or mis-construction on the part of an officer” as well as any “misstatement as to the quantity, description or value of such goods on the part of the owner” as causes of short-levy. Rule 10-A would appear to cover any “deficiency in duty if the duty has for any reason been short-levied except that it would be outside the purview of Rule 10-A if its collection is expressly provided for by any Rule. Both the rules, as they stood at the relevant time, dealt with collection and not with assessment. They have to be harmonised. In N.R. Sanjana’s case (supra) this Court harmonised them by indicating that Rule 10-A which was residuary in character, would be inapplicable if a case fell within a specified category of cases mentioned in Rule 10.
25. We think that Rule 10 should be confined to cases where the demand is being made for a short-levy caused wholly by one of the reasons given in that rule so that an assessment has to be reopened.”
20. Rule 10, as it stood at the relevant time, provided for recovery of short-levy on account of any inadvertence, error, collusion or mis-construction on the part of an officer, as well as any mis-statement as to the quantity, description or value of such goods on the part of the owner. It is an admitted fact that till 25-5-1974 the respondent company had not brought to the notice of the department that they were manufacturing ACR sheets. The question of any short-levy, therefore, did not arise on account of inadvertence, error, collusion or mis-construction on the part of the officer. Similarly, the question of mis-statement as to the quantity, description or value of excisable goods on the part of the owner did not arise because they had not made any statement at all to the department. The assessee had not taken even a licence for the manufacture of ACR sheets leave apart their assessment. Thus, it was a case of total escape of duty by the action of the assessee/respondent company. Therefore, a question arises, can the subsequent action of the department by not raising an issue regarding the final product i.e. ACR sheets on 25-5-74 when they came to know of the production of ACR sheets by the respondent, will wash off the limitation in respect of assessment on goods removed prior to 25-5-74? We do not think so. Action of the department in issuing the first show cause notice on 25-5-74 and subsequent actions referred to by the learned Advocate for the respondent cannot be considered to have any effect on goods removed prior to this date. Assessment of the goods is required to be made at the time of removal thereof from the factory and duty is to be paid immediately before removal. Limitation is, therefore, to count in each case of removal so far as Rule 10 is concerned, provided Rule 10 is applicable. But Rule 10 does not apply to goods removed prior to 25-5-74 because of non-applicability of any of the reasons enumerated in Rule 10. In view of this, it would be clear that Rule 10-A would be applicable to all removals of ACR sheets upto 25-5-1974.
20.1 However, for the period subsequent to 25-5-1974 Rule 10 would be applicable because from that date onwards it is clear that the department was fully aware of the production of ACR sheets. It is also not in dispute that the show cause notice for demand of duty on ACR sheets was issued for the first time on 2-9-1975. Therefore, for the removals after 25-5-1974 show cause notice dated 2-9-1975 can be considered as valid for a period of one year preceding 2-9-1975 in terms of Rule 10 read with Rule 173-J. In other words, the notice dated 2-9-1975 can be considered as valid for the period 1-8-1971 to 24-5-1974 and 3-9-1974 to 31-7-1975.
20.2 However, this finding on limitation, as stated earlier, is only of academic effect in view of our findings on the classification of ACR sheets.
21. In view of our aforesaid findings, the appeal for restoration of the order-in-Original No. 3/76, dated 31-12-1975 asked by the Assistant Collector, Eluru Division, is dismissed.