ORDER
S. Kalyanam, Member (J)
1. Since the issue is common in both the petitions, they are taken up together and disposed of by a common order.
2. The above applications have been filed for waiver of pre-deposit of duty of Rs. 7,56,519.10 and penalty of Rs. 25,000 by petitioners in Stay Petition No. E/SB/Stay/3400/93 and duty of Rs. 2,60,432.02 and penalty of Rs. 20,000 by petitioners in Stay Petition No. E/SB/Stay/3401 /93.
3. Dr. Jois, the learned counsel for petitioners M/s. Ramkumar Mills Ltd., and Shri Iswaraiah, the learned Consultant for petitioners M/s. Karnataka Handloom Development Corporation, mainly urged that the issue is with reference to classification of Printing Paste and as to whether they are excisable goods at all. Reference was made on behalf of the petitioners to the copy of the Board’s order No. 2/93, dated 21-4-1993 issued under Section 37B of the Central Excises and Salt Act, 1944, wherein the Board clarified that the Printing Paste prepared from formulated, standardised or prepared dyes by simple mixing with other materials would not amount to manufacture and, therefore, not classifiable under sub-heading 3204.29 of the Tariff. It was submitted that the Board’s instruction is statutory in nature and binding on the Excise authorities in regard to classification of the goods in question. It was further urged that excepting in the two cases the Department nowhere collects any excise duty on such goods and duty was levied on the goods in question in the present cases because at the time when the impugned order was passed the Board’s statutory instruction was not available. It was further urged that when the manufacturers of identical goods are not called upon to pay any duty all over, to levy duty on the goods from the petitioners alone would amount to hostile discrimination not permissible in law. At any rate it was urged that on prima facie consideration of the Board’s circular and keeping in mind the balance of convenience they would become entitled to the grant of waiver of pre-deposit of duty and penalty pending appeals.
4. Heard Shri Jayaseelan, the learned DR, for the Department.
5. We have considered the submissions made before us. On going through the records we find that the goods in question viz. Printing Paste are classified under the respective impugned orders under sub-heading 3204.29 of the Tariff on the basis of Board’s Circular 5/92, dated 28-5-1992 issued under Section STB of the Act. Now on representations from the Trade the Board would appear to have reconsidered its earlier view and the latest Order No. 2/93 issued under Section STB, dated 21-4-1993 reads as under :-
“After the issue of Order No. 5/92 Section 37B, dated 28-5-1992 regarding classification of “printing paste”, representations have been received contending inter alia that all the products used by printing Industry for purpose of printing textiles are being classified under sub-heading No. 3204.29 of the Schedule to the Central Excise Tariff Act, 1985 (henceforth referred to as Tariff).
2. The matter was re-examined in consultation with the Chief Chemist.
3. Printing paste is obtained from both unformulated, unstandardised or unprepared forms of synthetic Organic dyes and formulated, standardised or prepared forms. Printing paste contains synthetic Organic dyes, Kerosene oil, urea, water, emulsifier, binder and catalyst etc. The process of manufacture involves intimate mixing of all these ingredients in the form of dispersion and the solvent is used to increase the solubility of dye stuff, or colouring matter. The goods are steamed or otherwise treated to cause the dyes to transfer to and penetrate the fabric. The residue of the paste is removed in the finishing.
4. ‘Note 6 of Chapter 32 stipulates that in relation to synthetic Organic dyes of Heading 32.04 conversion of unformulated, unstandardised or unprepared forms, (eg. Wet cake) of such dyes by (a) reduction in particle size, (b) addition of dispersing agents or diluents, or (c) adoption of any other treatment into .formulated, standardised or prepared forms ready for the use in the process of dyeing shall amount to “manufacture”. ‘By virtue of this, only unformulated, unstandardised or unprepared forms of dyes when converted into formulated, standardised or prepared forms ready for use in the process of dyeing by addition of disposing agents or diluents, etc. would amount to ‘manufacture’.
5. Keeping this in view, it is hereby clarified that the printing paste prepared from formulated, standardised or prepared dyes by simple mixing with other materials shall not amount to manufacture and as such, not be classifiable under sub-heading No. 3204.29 of the Tariff.
6. This Order is issued in exercise of the powers conferred under Section 37B of the Central Excises and Salt Act, 1944 (1 of 1944) for the purpose of ensuring uniformity in the classification of excisable goods. It is further ordered that a copy of this Order be sent to all Collectors of Central Excise for being observed and followed and for being made available to all other persons employed in the execution of the Central Excises and Salt Act, 1944 and for the issue of Trade Notices.”
It is clear from the above statutory order of the Board that the Department is not treating the goods in question as excisable and the Department is not levying any duty on any manufacture of such goods. In the present cases the impugned orders came to be passed before the issue of the statutory order of the Board cited supra. When the Department is not levying any duty on the basis of the Board’s clarification all over, it would be unjust and discriminatory to call upon the petitioners alone to pay duty on the same goods. It would amount to treating equals unequally offending the spirit of equality enshrined under Article 14 of the Constitution of India. We also find that Vadodara Collectorate has issued a Trade Notice No. 30/93, dated 18-5-1993 on the goods in question, which reads as under :-
“Attention is invited to this Collectorate Trade Notice No. 49/92, dated 23-6-1992 regarding classification of “Printing Paste”.
2. After the above, representations have been received contending, inter alia, that all the products used by Printing Industry for purpose of Printing Textiles are being classified under sub-heading No. 3204.29 of the Schedule to the Central Excise Tariff Act, 1985. [Pages T26 & T37 of E.L.T. Vol. 60 of 1992 refers].
3. The matter has been re-examined. In exercise of the powers conferred under Section 37B of the Central Excises and Salt Act, 1944 and for the purpose of ensuring uniformity in the classification of excisable goods, the Central Board of Excise & Customs have clarified that the Printing Paste prepared from formulated, standardised or prepared dyes by simple mixing with other materials shall not amount to ‘manufacture’ and as such, not be classifiable under sub-heading 3204.29 of the Tariff.”
Dealing with as we do applications for the grant of waiver of pre-deposit and having regard to the fact that the other manufacturers of the identical goods are not called upon to pay any duty and the balance of convenience in the facts and circumstances is in favour of the petitioners, we grant waiver of pre-deposit of duty and penalty pending appeals and also grant stay of recovery of the same.
6. The appeals being Special Bench appeals the papers are directed to be transmitted to CEGAT, New Delhi, for disposal.
Sd-
(S. Kalyanan)
Dated : 16-7-1993 Member (J)
V.P. Gulati, Member (T)
7. I have given a careful thought to the order recorded by my learned Brother Member (Judicial) and I have not been able to persuade myself to agree with him that hardship will be caused to the applicants in case pre-deposit of the duty demanded is asked to be made for the reason that at a point of time after the relevant period of the demand an order under Section STB has been issued by the Board holding that the goods in question cannot be taken to be manufactured goods and, therefore, not chargeable to duty under Tariff Heading 3204.29. This order of the Board bearing Order No. 2/93 dated 21-4-1993 issued tinder Section STB of the Central Excises and Salt Act, 1944 superseded the earlier order of the Board issued under the said section whereunder it was held that the duty on the goods viz. Printing Paste would be chargeable under Tariff Heading No. 3204.29.I observe that during the period for which the demand has been raised the earlier statutory order of the Board under Section STB was in force and the departmental authorities, therefore, all over the country were bound by this order and were, therefore, required to assess the duty as also collect the same by assessing the goods in question under Tariff Heading 3204.29. At the relevant time, therefore, the applicants were required to pay the duty as anybody else. The latter order of the Board bearing No. 2/93 would be applicable only prospectively. In my view, therefore, the demand of duty and the pre-deposit of the same by them in this background will not tantamount to any discrimination against them. As it is, it is seen from the Order No. 5/92 issued under Section STB by the Board from their file No. F. No. 95/1 /91 /CX. 3, dated 28-5-1992 the goods in question were being charged under different Tariff Headings except in the case of two Collectorates at Baroda and Nagpur which were holding the same as non-excisable, as under :-
———————————————————————
Name of the Collectorate Heading under which printing paste has
been classified/proposed to be clas-
sified.
---------------------------------------------------------------------
Bombay-I 32.15
Bombay-II 3204.29
Bombay-III 32.04
Ahmedabad 38.09
Baroda Treated as non-excisable
Kanpur 32.04
Pune 3204.29
Aurangabad Under examination
Tiruchirapalli Under examination
Nagpur Non-excisable
Indore 32.15
---------------------------------------------------------------------
With a view to bring about an element of uniformity in the assessment, the Board after considering the facts of the manufacture of the goods, its characteristics and use has held that this preparation is a process of manufacture and has ruled that they should be assessed under Tariff Heading 3204.29. As it is in the Tariff under Tariff Heading 32.04 Pigments and preparations based thereon are separately covered by a separate entry for each of them and, therefore, any preparation which qualifies to be considered as goods would have to be charged for separately. As it is during the relevant period for which the applicants have been asked to pay duty the goods were by and large except in a few Collectorates being charged to duty. With respect I would like to observe that the latter order of the Board reproduced by learned Brother Member (Judicial) in his order holding that printing paste prepared from formulated, standardised or prepared dyes by simple mixing with other materials shall not amount to manufacture and as such not be classifiable under sub-heading No. 3204.29 of the Tariff prima facie cannot be accepted as reflecting the correct interpretation of the Tariff entry. The view taken by the Board that since in terms of Note 6 of Chapter 32 conversion of unformulated, unstandardised or unprepared forms (e.g. Wet cake) of such dyes by (a) reduction in particle size, (b) addition of dispersing agents or diluents, or (c) adoption of any other treatment into formulated, standardised or prepared forms ready for the use in the process of dyeing alone shall amount to “manufacture”, I am afraid, does not lend itself prima facie to the interpretation that it follows from the said rate [sic] the in the case of formulated, standardised or prepared forms of dyes the making of the material into printing paste would not amount to manuacture. Note 6 has to be taken to mean that so far as the concept of ‘manufacture’ is concerned an extended meaning has been given to the same in case unformulated, unstandardised and unprepared forms of synthetic organic colouring matter, dyes, etc. are converted into formulated, standardised or prepared forms. This merely lends itself to the interpretation that the conversion of an unformulated or unstandardised form like that of Wet cake when changed by simple reduction of the size etc. the same would still be taken to be a manufacture. But this is not to say when out of a standardised synthetic organic colouring matter a paste with the addition of a number of ingredients is prepared and which answers to a specific end-use that would not amount to manufacture. In my humble view the earlier view of the Board held in Order No. 5/92, dated 28-5-1992 reflected the correct position. In this order the Board has clearly stated that the paste is prepared by mixing synthetic dyes, kerosene oil, urea, water, emulsifiers, binders, catalysts, etc. and which is stable in character and, therefore, merits classification under Heading 3404.29. As it is the demand in the case of the applicants is restricted to six months period by the lower authority. In view of what I have held above, I hold that prima facie there is no infirmity in the learned lower authority’s order and taking into consideration that duty was being charged though not uniformly throughout the country except in two Collectorates in respect of the goods from various assessees on the goods in question during the relevant period, there can be no element of discrimination against the applicants in case they are called upon to pre-deposit of the duty as demanded.
8. M/s. Karnataka Handloom Development Corporation, however, have pleaded financial hardship and stated that they suffered losses. The Balance Sheet for the year 1991-92 shows that the applicants have made profits after depreciation and in the Directors’ Report credit has been taken for the good performance. It has been stated that the improvement in profitability is despite increase in the finance charges burden from Rs. 370.66 lakhs to Rs. 472.35 lakhs. The sales turnover of the applicants is however Rs. 57 crores which was higher than that of the previous year. It is seen that the applicants have given substantial advances to their suppliers amounting to over Rs. 68 lakhs and the amount shown under ‘Other Advances and Deposits’ is over Rs. 2 crores. The applicants have Cash and Stamps on hand for over Rs. 60 lakhs and they have got in their Current A/c with Scheduled Banks an amount of Rs. 1.44 crores and they have got a Deposit A/c with Govt. Treasury of over Rs. 2 crores. The applicants have also a surplus of over Rs. 81 lakhs. The loss, if any, pleaded by the learned Advocate can only be in the nature of paper loss after provisions have been made for the investment allowances etc. In view of the above, I hold that the applicants ‘financial position is quite healthy. The amount of duty demanded from the applicants is Rs. 2,60,432.02 and taking into consideration the magnitude of the operations and their financial position as indicated in their Balance Sheet, I hold that no undue hardship will be caused in case they are called upon to pre-deposit the entire duty and I, therefore, order the applicants to pre-deposit the duty in terms of the impugned order subject to this, the pre-deposit of the penalty of Rs. 20,000 shall stand dispensed with pending appeal. The date by which the pre-deposit has to be made will be indicated only on the outcome of the decision by the Third Member.
9. In the case of Ramkumar Mills Ltd. the duty demanded is Rs. 7,56,519.10 and the penalty imposed is Rs. 25,000. In their stay application a general plea has been taken that the applicants’ company is a potentially viable company and employs nearly 1,000 workmen directly and indirectly and the cost of inventories has gone up perceptibly since the devaluation of rupee. No facts and figures by way of Balance Sheet have been produced before us. The learned Advocate at the time of personal hearing also did not put forth any plea of financial hardship with facts and figures. In the absence of that, I direct the applicants to pre-deposit the entire duty demanded in terms of the impugned order and in doing so the pre-deposit of the penalty shall stand dispensed with. The date by which the pre-deposit has to be made will be indicated only on the outcome of the decision by the Third Member.
Sd/-
(V.P. Gulati)
Dated : 12-8-1993 Member (T)
POINT OF DIFFERENCE
Whether in the facts and circumstances of the case pre-deposit of duty and penalty has to be waived pending appeals as held by Member (Judicial) for the reasons recorded by him in his order,
or
pre-deposit of the duty amounts will have to be made in terms of the impugned order and the penalty shall stand waived pending appeals, as held by Member (Technical) for the reasons recorded by him in his order.
Sd/- Sd/-
(S. Kalyanam) (V.P. Gulati)
Member (J) Member (T)
13-8-1993 12-8-1993
ORDER
Harish Chander, President
10. I have perused the order written by learned brothers Shri S. Kalyanam, Member (Judicial) and Shri V.P. Gulati, Member (Technical). The following point of difference has been referred to me:-
"Whether in the facts and circumstances of the case pre-deposit of duty and penalty has to be waived pending appeals as held by Member (Judicial) for the reasons recorded by him in his order;
or
pre-deposit of the duty amounts will have to be made in terms of the impugned order and the penalty shall stand waived pending appeals, as held by Member (Technical) for the reasons recorded by him in his order.
11. Dr. V.P. Jois, Advocate and Shri G.M.M. Iswaraiah, Consultant appeared for the appellants. The learned Advocate reiterated the facts and pleaded that synthetic oil dyes are purchased from the market and are mixed with kerosene and other materials, after mixing a paste is formed which is used in the printing section immediately for the printing of textiles. He pleaded that the trade has represented before the Board and the Board was pleased to pass an order on 21st April, 1993 under Section STB of the Central Excises and Salt Act, 1944, being Order No. 2/93 and Member (Judicial) has reproduced the same and has discussed at length. The learned Advocate pleaded that the period involved is May 1992 – July 1992 and the Revenue seeks to assess the goods under Chapter Heading 32.04. He pleaded that no manufacturing activity is involved and there was an earlier Notification No. 172/87-C.E., dated 18th June, 1987 amended from time to time and in terms of this Notification exemption is being given to finishing agents etc. used in the textile industry falling under Chapter Heading 38.04 for printing purposes. The learned Advocate further pleaded that different Collectorates have classified the goods under different headings like 32.15, 32.04,38.09 etc. for the purpose of assessment and some Collectorates have even held that the goods are not at all liable to duty. The learned Advocate also drew my attention to para No. 3 of Member (Judicial)’s order in support of his arguments. In support of his plea the learned Advocate cited the decision of the Bombay High Court in the case of Phoenix Mills Ltd., in W.P. No. 1906 of 1993 and he has placed a copy of the said order attested to be true copy. The Hon’ble Bombay High Court in this matter has set aside the order passed by the Tribunal and directed the Tribunal to hear and dispose of the appeal without insisting of pre-deposit of the duty demanded. While passing the order, Bombay High Court has duly taken note of the Board’s order dated 21st April 1993. He pleaded that if the appellants are directed to pre-deposit the duty amount demanded it would amount to undue hardship. He pleaded that the order passed by Member (Judicial) is correct. The learned Advocate further pleaded that there is a Bombay High Court decision which is applicable all over the country and in support of his plea he cited the ruling of the Bombay High Court in the case of Commissioner of Income-Tax, Vidarbha & Marathwada, Nagpur v. Smt. Godavaridevi Saraf, Tumsar reported in 1978 (2) E.L.T.( J 624). He also cited the decision of the Bombay High Court in the case of Hindoostan Spg. & Wvg. Mills Co. Ltd., in W.P. No. 1879 of 1992, wherein the Bombay High Court has passed similar order granting complete stay. He, therefore, pleaded for grant of stay.
12. Shri Prasad, the learned SDR appearing on behalf of the respondent relied on the order passed by Member (Technical). He pleaded that the Notification issued by the Central Board of Excise and Customs cannot have retrospective effect and earlier there was a Notification No. 5/92, dated 26-5-1992. He pleaded that the order passed by Member (Technical) is correct and the same should be accepted.
13. I have heard both the sides and I have gone through the facts and circumstances of the case. The facts are not disputed. Learned Member Judicial) in his order has reproduced the Board’s Order No. 2/93 issued under Section 37B dated 21-4-1993. The learned Advocate has cited the decision of the Bombay High Court in the case of Phoenix Mills in Writ Petition No. 1906 of 1993. The West Regional Bench in Order No. 335/93, dated 2-8-1993 has also followed the Bombay High Court’s decision. The relevant paras of the said order are reproduced below :-
“Dr. P.V. Jois, the Ld. Advocate for the applicants pleaded that the dispute is about the classification of printing paste, manufactured from formulated/standardised/prepared dyes by mixing them with other materials. The Collector has held that they are liable to classification under Chapter Heading No. 3204.19 and confirmed the demands which have been issued within a period of six months. In this context, he took us through the Govt. of India, Ministry of Finance Order No. 2/93 (Section 37B) (F. No.95 /7/92-CX. 3), dated 21-4-1993 issued under Section STB of the Central Excises and Salt Act, 1944, wherein the Govt. have held that such preparations are not covered under Chapter Heading 3204.19. In view of this clarification given by the Government the Bombay High Court has given unconditional stay in similar cases wherever they were earlier directed to execute Bank guarantee.
Shri Mondal, the ld. SDR, however, supports the order and could not give any indication as to whether this clarification is taken into account by the Collector.
After hearing both the sides, it appears that this clarification given by the Government is after passing the impugned order. In view of the aforesaid position, prima facie case is in favour of the applicants. We therefore grant stay and waiver of recovery of the duty amount.”
The Hon’ble Bombay High Court in the case of Commissioner of Income-Tax v. Smt. Godavaridevi Saraf, Tumsar reported in 1978 (2) E.L.T. (J 624) in para No. 81 has observed as under :-
8. In view of this clear pronouncement of the Supreme Court, it is not controverted by Mr. Joshi on behalf of the Revenue that an Income-Tax Tribunal sitting at Madras is bound to proceed on the footing that Section 140A(3) of the Act is non-existent in view of the pronouncement of the Madras High Court in the case of A.M. Sali Maricar and Anr., 90 I.T.R. 116. Actually the question of authoritative or persuasive decision does not arise in the present case because a Tribunal constituted under the Act has no jurisdiction to go into the question of constitutionality of the provisions of that statute. It should not be overlooked that the Income-tax Act is an All-India statute and if an Income-tax Tribunal in Madras, in view of the decision of the Madras High Court, has to proceed on the footing that Section 140A(3) was non-existent and the order of penalty thereunder cannot be imposed by the authority under the Act. Until a contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that law declared by the High Court, though of another State, is a final law of the land. When the Tribunal set aside the order of penalty it did not go into the question of infra vires or ultra vires. It did not go into the question of constitutionality of Section 140A(3). That section was already declared ultra vires by a competent High Court in the country and an authority like an Income-tax Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question. It is admitted before us that at the time when the Tribunal decided the question, no other High Court in the country had taken a contrary view on the question of constitutionality of Section 140A(3). That being the position, it is not possible for us to take the view that the Tribunal in Bombay, when it set aside the order of penalty, went into the question of constitutionality of that section and gave a finding that it is ultra vires following the decision of the Madras High Court. What the Tribunal really did was that in view of the law pronounced by the Madras High Court it proceeded on the footing that Section 140A(3) was nonexistent and so the order of penalty passed thereunder cannot be sustained.
9. Accordingly, the question referred to us is answered in the negative in favour of the assessee. The Revenue shall pay the costs of the assessee.
In view of the above discussion I am in agreement with the view expressed by Member (Judicial) and the point of difference is answered accordingly. Registry is directed to place the matter before the regular Bench to pass the final order in accordance with law.
Sd/-
(Harish Chander)
President
FINAL ORDER
In view of the majority decision, waiver of pre-deposit of duty and penalty pending appeals and stay of recovery of the same are granted. The papers are directed to be transmitted to CEGAT, New Delhi, for disposal.