2002 (1) TMI 73 - HC - Central Excise

Summary

Issues Involved:

1. Whether the circular issued by the Central Board of Excise and Customs (CBEC) dated 7th April 1998, treating cinder as an excisable commodity, is valid.
2. Whether the consequent show cause notice dated 10th August 1998 is valid.
3. Whether the respondents can proceed with the adjudication of the show cause notice based on the said circular.

Detailed Analysis:

Issue 1: Validity of the Circular Issued by CBEC

The petitioners argued that cinder produced during the burning of coal in boilers does not constitute manufacture or production of an excisable commodity. The sine qua non for the levy of excise duty is the process of manufacture, which does not apply to cinder. The petitioners relied on several judgments, including the Supreme Court's dismissal of an appeal in the case of Swadeshi Cotton Mills Ltd., which upheld that cinder is not an excisable item. The Gujarat High Court in Ahmedabad Electricity Co. Ltd. v. Union of India also held that cinder is not excisable. The respondents contended that the Gujarat High Court judgment is under challenge in the Supreme Court, and thus, they should be allowed to proceed with the adjudication.

Issue 2: Validity of the Show Cause Notice

The petitioners contended that the show cause notice dated 10th August 1998, based on the CBEC circular, is ultra vires the provisions of the Act and violates Article 14 of the Constitution. They argued that the circular is arbitrary and without jurisdiction. The respondents maintained that the show cause notice is valid and should be adjudicated.

Issue 3: Adjudication of the Show Cause Notice

The petitioners argued that the respondents cannot proceed with the adjudication based on the CBEC circular. They cited the doctrine of merger, where the dismissal of an appeal by the Supreme Court results in the merger of the Tribunal's order with the Supreme Court's order, making it binding. They also cited the principle that judgments of the High Courts interpreting central statutes are binding unless there is a differing judgment from the jurisdictional High Court or the Supreme Court. The respondents should respect the Tribunal's judgments, and in case of conflict between a binding judgment of the Tribunal and a circular of the CBEC, the latter must yield.

Conclusion:

The court held that the circular issued by the CBEC dated 7th April 1998 is not valid. The Tribunal and the Gujarat High Court have held that cinder is not an excisable item, and the Supreme Court's dismissal of the appeal in Swadeshi Cotton Mills Ltd. results in the merger of the Tribunal's order with the Supreme Court's order. The judgment of the Gujarat High Court in Ahmedabad Electricity Co. Ltd. is still binding as it has not been set aside or stayed by the Supreme Court. The respondents are bound to respect the Tribunal's judgments, and the circular must yield in case of conflict. Consequently, the show cause notice dated 10th August 1998 is quashed and set aside. The petition is allowed, and the rule is made absolute in terms of prayer clauses (a) and (b) with no order as to costs.