JUDGMENT
V.S. Kotwal, J.
1. This proceeding which was initiated long back in the year 1975 or atleast 1977 has got itself entangled in the spate of litigation where there have been repeated remands and the matter has been tossed from one forum to another and ultimately it is being argued though the impugned order carries more or less same deficiencies. The petitioner is a Company registered under the Companies Act. Petitioner No. 2 is the Works Secretary. The respondents are the Officers exercising jurisdiction under the Indian Tariff Act and Customs Tariff Act as also under the Customs Act as their statutory obligation The petitioner company is division called J. K. Batteries, which is engaged in manufacturing and marketing of Dry Cell Batteries at Bhopal in the State of Madhya Pradesh. High Grade Natural Manganese Dioxide Ore is the product utilised in the manufacture of dry cell and Company has been importing said product and it is commercially known as activated manganese dioxide ore or electrolytic mangamese dioxide which can be obtained by separate and distinct process. The ore in fact is natural ore which is subjected to purely physical treatment which consists of crushing of ore and suspending the ore in stream of water to remove the physical impurities such as earth and stones. Obviously such ore which is in the natural form cannot be utilised in the manufacture of dry cells and for which purpose the further treatment becomes necessary for removal of other impurities such as copper, antimony and arsenic which is done essentially by chemical treatment before the ore can be labelled as “manganese dioxide battery grade” and thus it has been used in the manufacture of dry cells and the Company has been importing such natural ore In addition thereto the Company has been also importing activated dioxide and also electrolytic manganese dioxide. The property of these three items become necessary because all these three items are mixed and blended together for the purpose of making the battery grade manganese dioxide. The present proceeding however is restricted to the natural ore and not the other two types by activated dioxide or electrolytic dioxide. The company has imported about 615 metric tonnes of such dry grade dioxide sometime in May 1975 Two bills of entries ha\e been filed and noted in that behalf on 20th May 1975, under Item No. 26 of the Indian Tariff Act.
2. According to the petitioners this commodity as has been noted in the Bill of Entries is high grade natural manganese dioxide and on testing it was found to he ranging between 83 to 85% of manganese dioxide and it is known as Moanda quality Gabta origin. The Customs House however, tested the said commodity and the report is at Exh. F under which it is certified that the sample in the form of coarse powder and it is mainly composed from manganese dioxide 95.18% of moisture being 9.85. A rider was annexed to that certificate inviting the attention to the ruling in D.C.T. Guide on Manganese ore The petitioners were dissatisfied and, therefore, applied for re-testing essentially by the official laboratory located at Jamshedpur. A written application in that behalf was filed but it was not replied to and now the record reveals that the prayer reflected in that application was not complied with and as such the commodity was not got re-tested from any other laboratory. The petitioners consistently wrote to the Assistant Collector of Customs to give the copy of such report if the commodity is already sent for re-testing and if it was not, give reasons why it was not sent. Even in the Invoice dated 30.4.1975 issued by the Foreign Suppliers the goods have been stated to be confirming to the said percentage.
3. The petitioners staked their claim vis-a-vis classification in entry No. 26 in respect of this commodity which prescribes as “metallic ores all sorts except achres and other pigment ores and antimony ores.” This according to the petitioners was in consonance with the bill of entry as also the information supplied by Foreign Suppliers. The Customs Authorities however, rejected this application and placed it in item 28 of Indian Tariff Act and which entry takes within its fold items classified as chemical drugs and medicines all sorts not otherwise specified. In substance it is being essentially classified as chemical as not being otherwise specified For that purpose the high percent-ape as disclosed in the test being 95% or odd was taken into account and other feature that was available in the field was that it was in coarse form. As stated the application for re-testing was impliedly rejected because the article was never got re-tested either at the official laboratory of the Central Revenue Control at Delhi or official laboratory at Jamshedpur even though the petitioners were prepared to bear the expenses in that behalf.
4. This classification obviously entailed into demanding and levying the custom duty because uuder entry 26 nothing is payable whereas under entry 28 itself 40% ad valorem is to be paid. The Custom duty amounting to Rs. 2,79,161,00 was levied on the basis of that classification. The petitioners, therefore, obviously claimed refund of the said amount maintaining that the goods consisted of natural ore which has been subjected to mere physical process of crushing and suspending it in stream of water to separate the ore from the earth and other physical impurities without subjecting the commodity for any other test or treatment. In the meanwhile the petitioners got the commodity tested through Italab Private Limited, who certified that the same contains percentage of manganese dioxide of 83.64%. As and from 1st April 1978 Madhya Pradesh Company was merged into present Company and that is how called as J. K. Batteries, which itself is a separate division It is also worth noting that there has been a supplementary test carried out by the Customs authorities, sometime in January 1976 and the percentage of manganese dioxide was to be 82.84% which is in contrast to 95% and odd which was found in first test and which is more in tune with the test carried out by Italab where percentage was found to be 83.64%. The net result was that even the test carried out by Customs House itself very much diluted the effect of said percentage of manganese ore and ultimately it is reduced to 82% and odd and that is again included in the Invoice and other documents.
5. As stated, the petitioners under these circumstances asked for the refund on the ground of wrong classification. The Assistant Collector by his Order dated 25th January 1977 rejected the said claim of refund. Me essentially relied on the Customs House test report which gave the percentage of 95% and odd and also relied on the tariff advice of Central Board of Revenue. In the context of the percentage of manganese dioxide which according to him is on the higher side, he rejected the report of the Italab. The question as to whether prayer for re-testing either at Delhi or Jamshedpur was not considered at all and if there was testing then those test reports are also not considered.
6. Agitated by the said Order, the petitioners preferred an appeal with respondent No. 2 being Collector of Customs (Appeals) under Section 128 of the Customs Act on 11th May 1977. It was again reiterated that they had applied for re-testing by Delhi or Jamshedpur laboratories. If there was test they were waiting for the reports and therefore, the Assistant Collector should have waited for the same. It was also indicated once again that if the article was not sent then the reasons should be communicated and if it was actually sent then copy of the report should be supplied to the petitioners. This was utilised for the purpose of formulating ground for attack that the principles of natural justice are violated. This argument prevailed over the appellate authority, who by his order dated 18th September 1978 set aside the Assistant Collector’s order mainly on the ground that there was breach of principles of natural justice. He therefore, remitted back the proceeding to the Assistant Collector with direction to re-hear the matter afresh after giving full opportunity to the petitioners. That is how the matter came back to the first forum after these two rounds.
7. However, no action was taken by the Assistant Collector for nearly one year. The petitioners were anxious enough and, therefore, they informed the Assistant Collector reminding him about their application to send the commodity to Delhi and Jamshedpur for which purpose they were prepared to bear the expenses and also to give the copy of the test report. One such letter is dated 27th December 1979. However, the petitioners knew nothing of the said reports, and even as to whether the article was really sent to the Central Laboratory nor were they supplied with the copies of the said test reports. It is, however, at the personal hearing that the supplementary test report carried out by the Customs House on 28th January 1976 was shown to the representative of the Company and which as stated has certified that the percentage of manganese dioxide was 82.84%. Some contentions were canvassed on behalf of the petitioners before the Assistant Collector with this further ground.
8. The Assistant Collector, however, rejected all the contentions raised on behalf of the Company, by his order dated 22nd July 1980. At that time he however, relied mainly on the physical appearance of the goods the same being in powder form and once again relied on the tariff advice of the Central Board of Revenue in the form of classification. He felt that this commodity appears to have been subjected to some treatment which was more than normal one so as to make it suitable for battery use. In keeping with this finding the classification of Indian Tariff Act was confirmed.
9. Inevitably the petitioners once again had to knock the doors of the appellate authority viz. respondent No. 2 by filing an appeal on 29th December 1980. Same points were canvassed on that forum. However, the petitioners contended that respondent No. 2 represented that he would be accepting the supplementary test report and the finding under the same as has been carried by the Customs House and as such no further arguments were necessary. This obviously generated a legitimate feeling in the mind of the petitioners that since the supplementary test report is in their favour and since no further arguments were directed to be canvassed they were very much likely to succeed on that count and hence no arguments were advanced on the merits of the case.
10. The said appellate Authority on 5th of January 1981 set aside the Assistant Collector’s order and once again remanded the proceeding to him with the specific direction that the report of the Central Revenue Control Laboratory at Delhi and the concerned laboratory at Jamshedpur should be considered by the authorities. This was obviously on the footing that sample of commodity was sent for analysis to those two laboratories as required by the petitioners. The Appellate Authority obviously felt that the order of the Assistant Collector merely proceeds on the footing of the Customs House Test Report so as to justify falling of the item under entry 28 though subsequent Reports have not been considered.
11. The matter once again tossed back to the forum of the Assistant Collector. At the time of hearing more or less same contentions were reiterated on behalf of the Company entailing that the commodity has undergone only physical treatment and was not subjected to any chemical treatment nor was it obtained by any other treatment and therefore it could not fall in Entry 28. The Assistant Collector on 22nd April 1982 inspite of direction of the Appellate Authority to consider other test reports once again relied on the physical appearance of the goods as also earlier test report and in fact he very much relied on previous order dated 22nd July 1980 and it is on these basis he once again came to the same conclusion that the commodity would fall under Entry 28 of the Indian Tariff Act.
12. Once again the forum had to be switched over to the Appellate Authority of the Customs when the petitioners were obliged to file an appeal on 29th July 1982 under Section 128 of the Customs Act. Parallel to that the petitioners had also moved this Court under Article 226 of the Constitution by filing writ petition No. 1421 of 1982 and that was placed for disposal prior in point of time before appeal pending could be touched The learned Single Judge directed that Respondent No. 2 should finally hear the matter without any further remand and it was specifically indicated that the appellate authority should ignore the tariff advice of the Central Board of Revenue because the concerned authority had very much relied on the same. This order was recorded on 4th August 1982.
13. Some developments occurred thereafter which perhaps added to the confusion though in reality there was no scope for confusion at all. There came into existence Customs Tariff Act of 1975. Some consignments were imported by the said Company subsequent to the coming into force of the said Act though ultimately consignment at hand was prior thereto. However, the Cus. Authorities classified the goods under heading 25.01/32 of the Schedule to the Customs Tariff Act, 1975 under heading as “Battery Grade Manganese Dioxide”, though the documents suggest that the goods should have been classified even under the New Act under heading 26.01 as metallic ore and concentrates. However, that is not germane to this proceeding because it is conceded that the provisions of New Act and rigour of the entries therein are not applicable to the instant case insofar as the consignment at hand is concerned.
14. Continuing the thread of narration after this Court passed the said order in the writ petition directing the appellate authority to dispose of the matter without remand and without reference to the tariff advice the matter was heard by the said Appellate Authority where more or less same submissions were canvassed. It is at that time that it was revealed that no test reports were received from Delhi or Jamshedpur laboratories and in fact those were not tested at all. The Appellate Authority on 25th Jan, 1983 rejected the said classification which was given to fall under item 25 entry 26.01 in Customs Tariff Act and significantly he held that it could squarely fall under Entry 25 01 of Chapter 25 of Customs Tariff Act, 1975. He essentially based his findings on the end use of the article along with test of physical appearance and also relying on certain dictionary meaning.
15. Ultimately it is this order dated 18th January 1983 that is being placed under challenge in this petition under Article 226 of the Constitution on behalf of the petitioners
16. This narration of long drawn litigation would complete the factual structure which commenced some time in 1977 and ostensibly concluded in 1983 on the other forums and in between there have been atleast two remands. It is significant to note that most of the time reliance was placed on physical appearance of the commodity, the same being in powder form as also percentage disclosed in test report being 95% and odd of the Manganese dioxide coupled with the Tariff Advice whereas the final order is essentially founded on the item falling in Entry 25.01 of Customs Tariff Act, 1975. The net result is that the earlier ground would obviously not stand the test of scrutiny in view of the material on record including supplementary test report carried out by Customs House itself whereas the main ground as adopted by the appellate forum of applicability of New Act of 1975 would also be nonexistent because it is conceded on behalf of the department that the said provision would not apply. It is equally conceded when questioned that the Entry 25.01 is not corresponding to entry 28 of the Tariff Act and, therefore, there cannot be any analogy of comparison. It is then conceded on behalf of respondents that the scrutiny wilt have to be restricted as to whether the case falls in entry 26 or 28 of the Indian Tariff Act, without reference to the entries in Customs Tariff Act of 1975. Once this premise is accepted then the question arises as to whether the matter can be disposed of on this forum itself or whether the Collector of Customs (Appeals) should be directed to re-hear the matter. However, the matter has lingered for years together undergoing remand after remand coupled with the prominent feature that there was more than adequate material to decide the matter on this forum it was so felt that the matter can be adjudicated on merits in this petition itself.
17. To recapitulate the order of Assistant Collector dated 22nd April 1982 at Exhibit J proceeds on an erroneous track. Thus for instance the authority relied on technical books which indicate as to how the characteristics can be improved making those capable of being used in the batteries The first mode consists of product known as natural ore which can be selected on the basis of no impurities and which requires more treatment than the other ore. The second is activated ore where natural manganese dioxide is simply leached with acid and to improve the performance there is third chemical ore or chemically treated battery where natural ore is subjected to further treatment to improve the characteristic and metallic impurities is leached out with the mineral acid and it has superior efficiency as a dry cell material Typically high grade pyrelusits ore ground to 20%-200 mesh is heated in reducing atmosphere or in the presence of carbon. The leaching process removes about 95% of manganese. He also relied on the first report of the Customs House that the goods have processed manganese ore containing 95% purity On the basis of these features the Assistant Collector felt that natural ore is given somehow more treatment so as to make it suitable for battery and therefore, he felt further that it would be reasonable to consider that battery grade manganese dioxide ore in coarse powder form to be a processed mineral meritting classification under item No. 28. It was further observed that as per Indian Customs Tariff Guide if it has undergone any processing after extraction or is in the form of coarse grains or powder, it can be correctly assessable under Entry No. 28. He further relied and accepted as-
it was further stated therein that if any consignment is found to consist of powder or stones like grains it may legitimately be assumed to have been processed.
He also observed that though the sample has not been sent to Delhi or Jamshedpur laboratory the very physical nature of goods gives clear indication of its assessability under item 28. He ultimately concluded as:
the very physical nature of the goods being in powder/grain form has been conclusively established and that the goods are meant for battery industry and if the ore is in grain form it is correctly assessable under item 28.
It is essentially on that basis that he refused refund confirming that the classification is under Entry 28.
18. The appellate forum however, had gone entirely on different track which was equally erroneous. In fact it has concentrated on one aspect about the applicability of Chapter 25 and thus entry 25.01 under Customs Tariff Act, 1975. In that behalf as stated at the outset the respondents have practically conceded that this Act was not in force at that time and therefore would not be applicable and what is of more importance is that it is conceded that this entry 25.01 under New Act is not parallel or has no comparison with entry 28 of Indian Tariff Act. He declined to put the entry atleast in item 26 01 of the New Act essentially because it is based on the form in which the ore is to be derived from the mine. Therefore, according to him de hors of such derivation if those are to be used in batteries they can be taken away from item 26 and can be rightly put under heading 25.01/32(3). Incidentally heading 25.01 refers to metallic ore which however, did not find favour with the appellate forum. The second ground relied upon by the appellate authority was that the goods are of Gabon/Can go origin, which is a African country, as disclosed from the Invoice and Bills of Entry and relying on Chemical Dictionary it was found that such manganese dioxide ore has got the different structure and is used exclusively for battery grade and therefore, would appropriately fall under item 25.01 of the New Act. Even the cursory reading of this order would make it manifestly clear that it is essentially on the basis of some items that it was held that it would fall under item 25.01 of the New Act whereas there was absolutely no discussion whatsoever as to why it should fall under Entry 28 and as stated Item 25.01 has no comparable material with Entry 28 and what is of importance is that the reasons for making the item fall in Entry 25.01 are absolutely unsustainable and really speaking irrelevant whereas the relevant grounds are not considered in that context. The net result is that the Assistant Collector went on one track while the appellate authority went on different track but both were erroneous.
19. As indicated hereinabove there is a very graphic report made by the Expert by name Shri Suresh Donge at Exhibit A to the petition and that Report in fact answers and satisfies every question posed in this field, and as a counter-part said report answers every shade. He is a well qualified person having enough experience in the field in question and what is of more importance is that he has assigned cogent and elaborate reasons in support of his findings. Thus he satisfies his capacity as Expert and also satisfies the validity of the report by any yardstick, He is the Manager (Ceill Construction & Quality Control). He is Master of Science with electrochemistry by Research. He is the Member of the Royal Institute of Chemistry, London and he is on the panel of Primary Batteries set up by the Indian Standard Institute, New Delhi. He has 15 years’ experience in the Dry Battery Field and he has published a paper on nangarese dioxide. He maintains that manganese dioxide is used in dry batteries, which is a distinct product than naturally occurring manganese ore. He then gave out a comparative table in respect of naturally occurring manganese ore, battery grade manganese ore and battery grade manganese dioxide, which in trade circle is known as synthetic hyrate, i.e. Sedema M. The split up of items refer to several features the prominent being percentage of manganese dioxide and it is relevant to note that in the natural ore it is 82.84% while in electrolytic it is minimum 91% while in third it is minimum 89%. The other item consists of Iron Oxide, insoluble acid, etc. and what is of utmost significance is that as per this table the naturally occurring manganese ore contains 82.84% manganese dioxide and that practically tallies and coincides with the percentage that is found in second test report by the Customs House as also by the test carried out by the Italab and this is in contrast with the first test report by the Customs House when percentage was found to be 95% and which falls in the second group relating to electrolytic manganese dioxide. Then he has given various other items which differentiates the others. He has also indicated various modes of treatment, one being natural, one being galvanic method i.e. by electrolysis and other is known as chemical synthesis. He has also indicated that battery grade manganese dioxide has got very high oxygen giving power which is much lower in naturally occurring manganese ore and therefore, such ore requires various processes to be performed. The details need not be multiplied. He has then indicated various modes of the treatment and processing to be done on the natural occurring manganese ores which are used in dry cell batteries, such as crushing, removal of impurities by washing or leaching, enriching by sedimentation, drying the leached ore to remove excess moistures, puluerising, removal of iron impurities and last is more important which suggests blending with electrolytic manganese dioxide or Sedema. M. The importance lies in the fact that the petitioners have positively asserted in the petition also that three types of commodities can be imported, one of those being naturally occurring ore and it is the mixing and blending of all these three items that ultimately go in the user of dry cell battery. As stated, some confusion has been created because other consignment relates to the other items, but this commodity was brought in order to complete the process of mixing and other consignment or another commodity appears to have made little confusion. Paragraph 6 of his report however, is extremely relevant, and it reads as:
The Moanda Manganese Ore imported by the appellant (and which is the subject matter of the present appeal) has to undergo the several processes enumerated in immediately preceding paragraph before the same is ready for use of application in dry cell batteries.
He has ultimately concluded in last paragraph that it is essential that the naturally occurring manganese ore which is used by the petitioner company should undergo the processes enumerated hereinabove and unless that is done the same cannot be used in the dry cell batteries.
20. As observed all the recitals in this report are completely in consonance with the assertions in the petition and those are also supported by various documents which go a long way to establish the petitioner’s case about the nature of commodity which has been imported, which is nothing but the naturally occurring ore. It may be in powder form and it has undergone the only treatment of removing some impurities by suspending in water. Nonetheless its characteristic as naturally occurring manganese ore has remained intact and that is precisely that the Expert has stated and in fact that is what even the order in question inferentially indicated. It is rightly submitted by Sh. Talyarkhan, the learned Counsel that it was wrong on the part of the authority to hold otherwise predominantly on the ground that it is in powder form, That form or shape really speaking would not be that relevant. If at all any authority is required the same is furnished through the ratio in Minerals and Metals Trading Corporation of India Limited v. Union of India AIR 1972 S.C. 255 : 1989 (25) ECR 278 S.C. It has been observed as:
The separating of wolfram ore from rock to make it usable ore is a process of selective mining and not a manufacturing process. The important test is that the chemical structure of the ore should remain the same. Whether the ore imported is in powder or granule form is wholly immaterial. There is a preponderating weight of authority both of experts and of books….
Therefore this substantiates the arguments advanced by Shri Talyarkhan, the learned Counsel, that articles under powder form hardly makes any difference whereas the other feature has been completely highlighted by the Expert’s Report.
21. On the analysis of this entire material through which the controversy is sought to be generated it becomes manifestly clear that the commodity in question would squarely fall in Entry No. 26 of Indian Tariff Act and not Entry No. 28 as was sought to be claimed and it becomes manifestly apparent that the authority has relied on absolutely irrelevant and incorrect entry viz., 25.01/32 of Customs Tariff Act which was not in existence at that time and even the reasons therefor are unsustainable. Similarly as stated two entries viz. 25.01 under New Act and Entry No. 28 under Old Act have no comparable data. Consequently, therefore, entire premise is on the wrong presumption and wrong footing. This pertains to the order recorded by the appellate authority whereas the Assistant Collector has also recorded an equally erroneous order and it is surprising to note that he has indicated in the order that since it is in the powder form it could be assumed against the validity of the argument advanced by the petitioner that it is not in natural form such an assumption is wholly unsustainable in the face of tangible material on record. As stated if the material justifies the label that is to be given to the commodity has been natural manganese ore without having undergone any treatment as such which would place it under other two categories then in that context the percentage of manganese assumes some importance because that is why there is some nexus sought to be established and therefore, the percentage falls in the range of 82% and odd and thus below 90% and odd. It would be a criterion by itself to bring within its fold the natural ore. This has been accepted by the Expert in his report and what is of importance is that even the supplementary test report of the Customs House supports that percentage and which is in consonance with the report given by Italab and the Authorities were thoroughly in error to practically reject that report without assigning any reasons. The other reports recorded by the Expert fully justified the assertion of the petitioner in that behalf. All these aspects could not be successfully countered much less be raised on behalf of the Department and therefore, validity of the impugned order could not be sustained.
22. Before closing this chapter it would not be out of place to mention that one of the striking features is that no affidavit in reply has been filed by the Department and therefore, all the recitals in the petition have practically gone unchallenged and especially when they are fully substantiated by ‘other material on record.
23. In this view of the matter the petition obviously would succeed and placing the commodity in Entry No. 28 of the Indian Tariff Act and equally an endeavour to place it in Entry No. 25.01/32 of the Customs Tariff Act, 1975, both of which being thoroughly erroneous will have to be set aside with the further necessary result that it would he the entry No. 26 of the Indian Tariff Act which would squarely cover the commodity in question and assertion of the petitioner in that behalf will have to be upheld. In view of this finding when the impugned orders being set aside it should follow as a logical corollary that consequently relief of refund of amount, which has been already paid by the petitioner when the customs duty was levied on the footing of Entry No. 28 will have to be granted. Shri Sethna, the learned Counsel appearing for the Department, however, contended, which contention is no doubt related to the proposed consequential relief of refund of the amount, that the larger Bench of this Court is seized of the matters where similar question has teen raised as to whether in spite of excise duty having been paid and in spite of order of its refund whether such a refund can be made and according to him the situation is not different inasmuch as though ostensibly it is the plea on application for refund of duty may be even under Section 27 of the Customs Act as contended by Shri Talyarkhan, the learned Counsel, still basically it flows out of alleged wrong classification of the entry and therefore, according to the learned Counsel even if it is so notwithstanding the amount, the Department would be proztected and would not be compelled to refund the amount. This contention is no doubt countered by Shri Talyarkhan as according to him the distinction is apparent inasmuch as he has not based his claim on any mistake committed by the Department, but his claim is simpliciter for refund and that is based on utterly wrong classification adopted by the Department. I am afraid that the distinction sought to be made may not appear to be real though the basic aspect remains about the wrong classification out of which flows the question of refund. The judicial propriety therefore, requires that this aspect should not be decided by this Court when the larger Bench is seized of the matter. Under the circumstances, though the petition succeeds and though as logical corollary an order would have been for refund of the said amount, the said consequential relief would be subject to the outcome of the decision of the larger Bench. A legitimate submission is made by Shri Talyarkhan, the learned Counsel that if occasion arises after decision of Full Bench, if the payment is delayed, the petitioner would be at liberty to move this Court. Granting of such liberty would be in consonance with the interest of justice.
24. Rule made absolute with costs, in terms of prayer Clause (a) under which the impugned order dated January 18, 1983 recorded by the second respondent is set aside, and it would follow that the petitioner would be entitled to the consequential relief as incorporated in prayer clause b(ii) vis-avis refund of Rs. 2,79,161/-, which however, would be subject to the outcome of the decision of the larger Bench.