1. Manufacture of liquid carbon dioxide — Dispute over excise duty exemption under Notification 7/65-Ce — Classification of raw carbon dioxide gas as marketable grade or waste gas. (Para 1 , 2 , 3 )
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1997 Supreme(SC) 195
1997(3) Supreme 448
SUPREME COURT OF INDIA
S.P. Bharucha & K.S. Paripoornan, JJ.
M/s. Poulose and Mathen -Appellant
versus
Collector of Central Excise & Anr. -Respondents
Civil Appeal No. 2344 of 1986
Decided on 4-2-1997
Counsel for the Parties :
For the Appellant : Joseph Vellapally, Sr. Advocate, Mrs. A.K. Verma, Advocate, for M/s. JBD & Co., Advocates.
For the Respondents : Dr. R.R. Mishra, Sr. Advocate, P. Narsimhan, V.K. Verma and Ms. Sushma Suri, Advocate.
The Court ruled that duty demands cannot exceed the period specified in the show-cause notice. It also held that binding Trade Notices must be followed and, in cases of ambiguity or two plausible interpretations, the benefit of the doubt should be given to the assessee.
Headnote:(i) EXCISE DUTY-Central Excise and Salt Act, 1944-Section 35L(b)-Manufacture of liquid carbon-dioxide-Levy of duty-Show cause notice served for a shorter period cannot be relied on for purpose of levy for a much longer period-Appellant not served with a proper notice before saddling duty for a period beyond September 1978-This is unfair and vitiates proceedings. (Para 12)
(ii) EXCISE DUTY-Central Excise and Salt Act, 1944-Section 35L(b)-Entry No. 14H(iv) of 1st Schedule-Exemption notification No. 7/65-Ce dated 30-1-1965-Appellants manufacture carbon dioxide out of raw carbon dioxide gas-Show cause notice served on appellants to explain why L.6 licence granted to them should not be revoked-Demand of duty under Rule 10-Duty levied holding appellants are not eligible for benefit of exemption notification -Appeal -Appellate Collector relied on Trade Notice No. 220/81 dated September, 1981-Appellate Tribunal reversed decision of Appellate Collector-Tribunal referred to a later tariff advice No. 6/85 ignoring trade notice No. 220/81-Tariff advice No. 83/81 on basis of which trade notice No. 220/81 is binding on department-No material that this has been rescinded or departed from-Assessee should be given benefit of doubt. (Paras 14 & 15)
Legal Category Hierarchy
Table of Contents
2. Whether raw carbon dioxide is used for industrial purposes and whether impure gas not conforming to ISI specifications is classifiable under Item 14H or Item 68. (Para 5 , 10 )
3. The demand for duty beyond the period specified in the show-cause notice violates natural justice; the Tribunal erroneously discarded a binding trade notice based on surmises. (Para 12 , 13 , 14 )
4. A show-cause notice for a shorter period cannot support a levy for a longer period; binding trade notices must be given effect unless rescinded. (Para 12 , 15 )
5. Appeal allowed — Order of the Appellate Tribunal set aside — Order of the Appellate Collector restored. (Para 16 )
6. Can a duty demand be extended beyond the period specified in the show-cause notice?
No. A show-cause notice served for a shorter period cannot be relied upon to levy duty for a significantly longer period, as this is unfair and vitiates the proceedings. (Para 12 )
7. What is the legal effect of a Trade Notice issued based on a Tariff Advice from the Board?
A Trade Notice issued based on a Tariff Advice is binding on the department and must be given effect to unless there is material evidence that it has been rescinded or departed from. (Para 14 , 15 )
8. How should a court proceed when two plausible legal interpretations of a tax provision exist?
In cases where the legal position is not clear and two opinions are possible, the assessee should be given the benefit of the doubt, and the opinion in their favor should prevail. (Para 15 )
JUDGMENT
Paripoornan, J.-The appellant is a small industry. It carries on the business of manufacture of liquid Carbon Dioxide (CO2) conforming to ISI Grades. The factory is situated at Kalamassery in Ernakulam District, Kerala State. The first respondent in this appeal is the Collector of Central Excise, Cochin. The second respondent is the Fertilizer & Chemicals Travancore Limited (FACT). This appeal is filed under Section 35L(b) of the Central Excise & Salt Act, 1944, against the order dated 18.3.1986 passed by the Central Excise and Gold (Control) Appellate Tribunal, New Delhi substantially modifying the order passed in the appellants favour by the Appellate Collector of Central Excise, Madras dated 18.6.1982. The Appellate Collector set aside the order of the Assistant Collector rendered on 2.2.1982 holding that the appellant is not entitled to the benefit of exemption notification No. 7/65-Ce dated 30.1.1965.
2. The facts of this case are in a narrow compass. The appellants manufacture carbon dioxide of ISI specification out of raw carbon dioxide gas received through pipe line from M/s. FACT Ltd., Eloor. The raw carbon dioxide is odourous and has a purity of less than 99% and contains moisture above 0.1%. Such raw carbon dioxide is subjected to various processes in order to remove traces of moisture, oxide of sulphur etc. The gas is then dried and fed into Rotary Booster compressor to boost the pressure to a very high point and then passed through activated carbon to remove final traces of oil and also to deodourise. The pure gas obtained after these processes is liquified and filled in cylinders and removed therefrom for making further products or for sale.
3. At the relevant time, Carbonic Acid (carbon dioxide) was specified in Entry No. 14H(iv) of the 1st Schedule to the Central Excise Act, 1944 and was assessable to duty of excise at the rates in force from time to time. The appellants had taken out L.4 licence for the manufacture of carbon dioxide. They were permitted to remove waste gas generated from M/s. Fertilizer and Chemicals, Travancore Ltd., in view of paragraph 2 of Notification No. 7/65 dated 30.1.1965 after taking out L.6 licence. The licence was granted on 11.3.1977. Under notification No.7/65, carbon dioxide falling under item 14H of the Central Excise Tariff was exempted from the whole of the duty of excise leviable thereon, provided it was used for any "industrial purpose" and subject to the procedure in Chapter X of the Central Excise Rules and it is common ground that such procedure was followed by the appellant by taking out L.6 licence. The appellants had given an undertaking that they would pay the duty on the carbon dioxide received for processing (raw carbon dioxide - waste gas) in case it was subsequently decided that they were not entitled to receive the said carbon dioxide free of duty under Notification No. 7/65.
4. The appellants were served with a show-cause notice dated 20.11.1978 to explain why L.6 licence granted to them (to receive impure carbon dioxide gas (waste gas) by pipe line from M/s. FACT.) and also .4 licence for the manufacture of carbon dioxide (or liquid carbonic acid) should not be revoked and why duty of Rs. 8,92,695.60 along with SED Rs. 19,823.10 should not be demanded from them for the period from March 1977 to September, 1978 under Rule 10 of the Central Excise Rules, 1944.
5. The plea of the Revenue was that the appellant was not entitled to receive CO2 gas (raw carbon dioxide) free of duty under Notification No.7/65 as they are not using the same for any "industrial purposes" involving any product other than the self-sale of CO2 which was received by them.
6. After hearing the appellant, the Assistant Collector of Central Excise passed an order on 2.2.1982 holding that the appellants are not eligible for the benefit of the Notification No. 7/65 dated 30.1.1965 and in consequence the Superintendent of Central Excise by proceedings dated 4.5.1983 quantified the total duty
