2025 (7) TMI 1019 - HC - Customs

Maintainability of appeal - issue involved touches upon classification of the goods or not - HELD THAT - The Hon ble Supreme Court in Union of India vs. Kamlakshi Finance Corporation Ltd. 1991 (9) TMI 72 - SUPREME COURT held the principles of judicial discipline requires that the order of the higher appellate authority should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authorities is not acceptable to the department in itself and objectionable phrase and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. Further it was held that if this healthy rule is followed the result will not only be undue harassment to assessee and chaos in the administration of law laws. This decision has to be borne in mind in the instant case as we are of the clear view that the adjudicating authority while commencing the de novo adjudication proceeding can culminate the same by an order dated 12.9.2017 virtually sat in judgment over the direction issued by this court. The writ petition filed by the appellant was allowed on 10.3.2010 and the order passed by the Tribunal dated 2.3.2006 as well as the order of the Commissioner dated 6.11.2002 were set aside and the Commissioner of Customs (Airport Administration) was directed to re-hear and re-decide the matter in accordance with the observation within a period of twelve weeks from the date of the order. This direction has not been complied with by the department and it has taken seven long years for the department to commence the de novo adjudication that too after a direction was issued in a writ petition filed by the appellant in WP/203/2017 dated 13.4.2017. The delay is attributable to the department and the department is solely responsible for the delay as is evident from the submissions made before the learned writ court in WP/203/2017 to the effect that they were under the impression that an appeal was filed against the order passed in the writ petition dated 10.3.2010 when the fact remains that no such appeal was preferred. Therefore this delay has resulted in great prejudice to the appellant which cannot be compensated. The adjudicating authority while carrying out the de novo proceeding clearly exceeded its jurisdiction and proceeded to re-open a settled issue which could not have been done and this aspect of the matte has not been taken note of by the learned Tribunal in a proper sense which results in perversity in the order passed by the learned Tribunal. The order passed by the learned Tribunal as well as the de novo adjudication order are set aside and the substantial questions of law are answered in favour of the appellant - Appeal allowed.

Summary

The core legal questions considered by the Court in this appeal primarily revolve around the scope and jurisdiction of the Customs, Central Excise and Service Tax Appellate Tribunal (Tribunal) in conducting de novo adjudication proceedings, the binding nature of prior judicial decisions, classification of imported goods, procedural delays, and the legality of orders imposing confiscation and redemption fines. Specifically, the issues include:

(i) Whether the Tribunal acted without jurisdiction and breached judicial discipline by relying on and reinstating its own earlier three-member decision which had been set aside by the High Court and attained finality;

(ii) Whether the Tribunal exceeded its jurisdiction by reopening classification issues already settled by the High Court and disregarding the binding nature of the High Court's judgment;

(iii) Whether the Tribunal failed to appreciate the limited scope of de novo adjudication as laid down by the High Court;

(iv) Whether the Tribunal failed to address the issue of inordinate delay in the de novo adjudication proceedings, thereby violating principles of natural justice;

(v) Whether the Tribunal erred by not making any finding on confiscation and redemption fines imposed by the de novo adjudicating authority, especially when the original adjudicating authority had not ordered confiscation, rendering the order incomplete and unenforceable.

Issue-wise detailed analysis:

1. Jurisdiction and Judicial Discipline Regarding Reliance on Earlier Tribunal Decision

The legal framework governing this issue includes the principle of judicial discipline as enunciated by the Supreme Court in Union of India vs. Kamlakshi Finance Corporation Ltd., which mandates that subordinate authorities must unreservedly follow the orders of higher appellate authorities unless such orders have been stayed or set aside. The Court emphasized that non-compliance leads to undue harassment and chaos in administration.

The Tribunal had relied on its own earlier three-member decision which was set aside by the High Court in a writ petition that attained finality, with no appeal filed by the Department. The Court interpreted this reliance as a breach of judicial discipline and an excess of jurisdiction by the Tribunal, effectively sitting in judgment over the High Court's order. The key finding was that the Tribunal failed to respect the binding nature of the High Court's decision and selectively accepted portions favorable to the Department while ignoring the directions issued by the High Court.

The Court applied the law strictly to the facts, concluding that the Tribunal's reinstatement of the quashed decision was impermissible and constituted a jurisdictional error.

2. Scope of De Novo Adjudication and Reopening of Classification Issue

The High Court's earlier judgment had remanded the matter for a specific factual enquiry limited to whether the imported goods contained an embryo or a live organism, and directed that the enquiry be conducted with due notice and opportunity to the appellant to present evidence. The scope of the remand was circumscribed and did not authorize a wholesale reopening of classification or reassessment of the goods.

The Tribunal and the de novo adjudicating authority exceeded their jurisdiction by reopening the entire classification issue, disregarding the settled principle that the product, if containing embryos, must be classified as prawn feed under Customs Tariff Heading 2309.90. The Court relied on the principle that classification once judicially settled cannot be reopened in subsequent proceedings without fresh grounds.

Precedents such as the Supreme Court's decision in Commissioner of Income Tax vs. Venkateswara Hatcheries (P) Ltd. were relied upon to establish that the natural and biological process of incubation does not change the fundamental nature of the product. The Court found that the Tribunal failed to adhere to this principle and the directions of the High Court, thus committing a jurisdictional error.

3. Maintainability of Appeal and Nature of Substantial Questions of Law

The Court examined the maintainability of the appeal under Section 130 of the Customs Act, 1962, referring to Supreme Court precedents including Commissioner of Customs, Bangalore-1 vs. Motorola India Ltd. and others. The principle established is that appeals before the High Court are maintainable only if the questions involve points of law of general public importance extending beyond inter-parties' disputes, or relate directly and proximately to the value or classification of goods for assessment purposes.

Here, the Court found that the issues raised were primarily inter se between the parties and did not involve questions of law of general public importance applicable to a class or category of assessees. Therefore, the appeal was held maintainable before the High Court, consistent with the statutory scheme and judicial precedents.

4. Delay in De Novo Adjudication and Violation of Natural Justice

The Court took note of the inordinate delay in commencing and completing the de novo adjudication proceedings. The writ petition directing re-hearing and re-deciding was allowed on 10.3.2010 with a clear mandate to complete the process within twelve weeks. However, the department commenced the de novo adjudication only after approximately seven years, and that too following a direction from this Court in 2017.

The Court found that such delay was attributable solely to the department, which mistakenly believed that an appeal had been filed against the High Court's order when none was. The delay caused serious prejudice to the appellant and was held to violate the principles of natural justice and the duty of the department to adjudicate within a reasonable time.

The Court relied on the Supreme Court's decision in Union of India vs. ATA Freight Line (I) Pvt. Ltd., which emphasized that notices must be adjudicated upon within a reasonable time and that prolonged inaction vitiates the proceedings.

5. Confiscation and Redemption Fine Imposed Without Jurisdiction

The original adjudicating authority had explicitly held that the goods were not liable for confiscation as they had been provisionally released, and no redemption fine was imposed. The de novo adjudicating authority, however, proceeded to order confiscation and impose redemption fines, exceeding its jurisdiction.

Additionally, penalty was imposed on a director who was deceased, which was a clear error. The Court found that the Tribunal failed to address these issues properly, rendering the impugned order incomplete and unenforceable.

6. Classification of Goods and Effect of Time Lapse on Factual Inquiry

The factual inquiry mandated by the High Court to determine the presence of embryos or live organisms in the imported goods had become unworkable due to the passage of time (over two decades since import). The Court observed that representative samples drawn by the Department would no longer be in the same condition as at the time of import, making the factual determination impossible.

Consequently, the Court directed the Department to accept the classification as adopted by the appellant, i.e., classification under Heading 2309.90 as prawn feed, and to extend the benefit of relevant notifications accordingly. The Court imposed a strict timeline of three weeks for compliance and warned of personal responsibility for non-compliance.

Significant holdings:

"The adjudicating authority while commencing the de novo adjudication proceeding can culminate the same by an order dated 12.9.2017 virtually sat in judgment over the direction issued by this court."

"If there is an embryo within an egg, then there is a living organism within it. Upon such incubation the living organism merely grows, it does not change its nature and character."

"The Tribunal lost sight of the scope of the remand pursuant to the order passed by this court and proceeded to reinstate findings from a previously quashed decision, which is impermissible."

"The inordinate delay of seven years in commencing the de novo adjudication after a clear direction to complete it within twelve weeks is attributable solely to the department and results in prejudice to the appellant."

"The order of confiscation and imposition of redemption fine by the de novo adjudicating authority was without jurisdiction as the original adjudicating authority had not ordered confiscation."

"The factual enquiry ordered by the High Court is no longer feasible due to the efflux of time, and therefore the Department is directed to accept the classification as adopted by the appellant."

In conclusion, the Court held that the Tribunal and the de novo adjudicating authority exceeded their jurisdiction by disregarding the binding High Court judgment, reopening settled classification issues, and failing to comply with procedural mandates. The Court set aside the impugned orders, answered the substantial questions of law in favor of the appellant, and directed the Department to accept the appellant's classification of the goods within a specified timeframe.