2007(06)LCX0227

IN THE HIGH COURT OF JUDICATURE AT MADRAS

A.P. Shah, C.J. and P. Jyothimani, J.

Madras Steel Re-Rollers Association

Versus

Union of India

W.A. No. 464 of 2007, decided on 27-6-2007

Cases Quoted -

Mahadayal Premchandra v. Commercial Tax Officer - AIR 1958 SC 667 - Followed [Para 9]

Orient Paper Mills Ltd. v. Union of India -1978 (002) ELT J345 (S.C.) - Followed [Paras 7,8]

Rajagopal Naidu v. State Transport Appellate Tribunal - AIR 1964 SC 1573 - Followed [Para 10]

Tata Teleservices Ltd. v. Commissioner - 2005(12)LCX0028 Eq 2006 (194) ELT 0011 (S.C.) - Followed [Para 11]

DEPARTMENTAL CLARIFICATIONS QUOTED

C.B.E. & C. Circular No. 1/2005-Cus., dated 11-1-2005 [Para 4]
C.B.E. & C. Circular No. 8/2006-Cus., dated 17-1-2006 [Paras 2,5,12]

Advocated By -

S/Shri Arvind P. Datar, Sr. Counsel for V. Jaikumar, for the Appellant.
Shri V.T. Gopalan, Addl. SG assisted by P. Wilson, Asstt. SG, for the Respondent.

[Judgment per : A.P. Shah, C.J.]. -

Admit. By consent of both parties, the writ appeal is taken up for hearing.


2. This appeal is directed against the common order passed by the learned single Judge in W.P. Nos. 4848, 4963 and 5678 of 2006. The prayer in the writ petitions is to declare Circular No. 8 of 2006, dated 17-1-2006 issued by the Central Board of Excise and Customs, the 2nd respondent herein as violative of the Articles 14, 19(l)(g) and 265 of the Constitution of India and Section 151A of the Customs Act, 1962.


3. The appellant-Madras Steel Re-rollers Association is the petitioner in W.P. No. 4963 of 2006. W.P. Nos. 4848 and 5678 of 2006 are filed by the members of the appellant-association.


4. The brief facts of the case are as follows : The 2nd respondent has issued a Circular Bearing No. 1 of 2005-Customs dated 11-1-2005 containing clarification on various tariff issues. One such clarification is relating to the subject "classification of used steel rails for re-rolling under CTH 72.04 or 73.02 and whether freely importable" and the clarification reads as follows :
"The Board considered the alternative Headings of 72.04 and 73.02 for the item. The main point for discussion related to the policy restrictions on the import of used rails. Chapter 73 of the CTA, 1975 specifically covers articles such as rails. In the case under reference, even though the items in question were in the form of rails, these bore markings of use and therefore these could not be used again as rails. Hence, suitable classification would be as scrap of CTH 72.04 and not as articles under Heading 73.02. It has accordingly been decided by the Board that used steel rails for re-rolling were appropriately classifiable under CTC 72.04 and these were freely importable."


5. It is the case of the appellant that the members of the appellant association have been importing such "used rails" viz., "re-rollable scrap" by classifying the same under chapter heading 72.04 49 00 of the First Schedule to the Customs Tariff Act, 1975 which attracts 5% of the basic Customs Duty, 16% of Additional Customs Duty (CVD) and applicable Education Cess thereon. Several such import assignments ordered by the respective members of the appellant-association were on their voyage and expected to reach the Chennai Port shortly. While so, the 2nd respondent suddenly issued another Circular Bearing No. 8 of 2006-Customs dated 17-1-2006 which reads as follows :

"Subject: Classification of used rails - Reg.

I am directed to invite your attention to the Board's Circular No. 1/2005-Cus. dated 11-1-2005 [2005 (179) ELT T22] and the doubts expressed on the issue of appropriate classification of "used steel rails" - whether under CTH 7204 as 'ferrous waste and scrap' or under CTH 7302 as 'used rails'.

2. The issue of classification has been re-examined by the Board with respect to the clarification issued under Central Excise Tariff vide Circular. No. 27 of 1989 dated 21-9-1989. The Board decided that heading No. 7204 read with Section Note 8(a) to Section XV of the First Schedule to the Customs Tariff Act and explanatory notes of Harmonized Commodity Description and Coding System (HSN) cover only such waste and scrap as would generally used for recovery of metal by re-melting or for the manufacture of chemicals. Such waste and scrap which is not for re-melting will have to be classified in the other appropriate headings of the tariff. Further, HSN notes to CTH 72.04, by example excludes structural steel work usable after renewal of worn-outs parts; worn railway lines which are usable as pitprops or may be covered into other articles by re-rolling; steel files capable of reuse after cleaning and sharpening. Accordingly, 'used rails' would not be covered by chapter heading 7204.

3. Further Board also noted that CTH 7302 specifically covers 'rails'. HSN Note on this heading provides that it covers all lengths of rails, all rails of the type normally used for railway or tramway track, irrespective of their intended use. There is no exclusion for 'used rails' from this CTH.

4. In view of the above and for the purpose of uniformity in classification, it is hereby clarified by the Board that the appropriate classification of used steel rails" shall be under CTH 7302, and not under CTH 72.04 as ferrous waste and scrap. The instructions contained in para 8 of Board's circular No. 1/2005 may be considered as modified accordingly."

6. According to the appellant, as per the impugned Circular "used rails" shall be classifiable under Chapter heading 73.02 of the Customs Tariff Act, 1975 which attracts 15% of the Basic Customs Duty, 16% of the Additional Customs Duty (CVD) and applicable Education Cess thereon. Further, the Chapter heading 73.02 also requires an import licence from the Director General of Foreign Trade as it is a restricted item of import and as such, the consignment of "used rails" being imported by the petitioners would be assessed to higher duty of customs. The appellant-association and its members filed the present writ petitions questioning the validity of the Circular on various grounds. The learned single Judge by the impugned order took the view that the issue raised by the petitioners has to be adjudicated before the authorities concerned and this Court cannot be converted into an adjudicatory forum by-passing the provisions of the Act.


7. Mr. Arvind P. Datar learned Senior Counsel appearing for the appellant strenuously contended that the goods imported by the members of the appellant-association such as broken rails, pieces of steel are sought to be classified as finished rails but the imported goods are unfit to be used on railway track. The impugned Circular, however, treats the items of scrap as finished rails. Learned Senior Counsel submitted that the impugned Circular predetermines the issue before the assessing authority as the authority is bound by the Circulars and Notifications that are issued by the Department. Learned Senior Counsel submitted that the Circulars of these kind are in contradiction with the several rulings of the Supreme Court starting from Orient Paper Mills Limited v. Union of India - 1978 (002) ELT J345 (S.C.) = AIR 1969 SC 48. On the other hand, Mr. V.T. Gopalan, learned Additional Solicitor General submitted that whatever may be the interpretation with regard to the goods in question being classified under one entry or the other, assessment of duty will be made in accordance with the Customs Tariff Act and the assessing authority is not bound by the Circular issued by the 2nd respondent and such Circulars are issued only in the nature of guidelines.


8. The question whether the items imported by the member of the appellant are "used steel rails" or "waste/scrap" is essentially a question of fact. That has to be decided by the authorities under the Act. It is well settled that the assessing authority while adjudicating the issue functions as a quasi-judicial authority. The power exercised by the appellate authority or the Central Government as revisional authority is also held to be a quasi-judicial power. It has been repeatedly held by the Supreme Court that the power exercised by these authorities is a quasi-judicial power and that power cannot be controlled by the directions issued by the Board. In Orient Paper Mills v. Union of India (supra) the question before the Collector was whether the paper declared as "M.G. Poster Paper" should be assessed as "packing and wrapping paper, other sorts". The assessing officer following a directive of the Board held that all types of poster paper of whatever colour including white should not be treated as "printing and writing paper" but as a "packing and wrapping paper". Allowing the appeal, the Supreme Court held in Para 8 as follows: (AIR at page 51)
"If the power exercised by the Collector was a quasi-judicial power -as we hold it to be - that power cannot be controlled by the directions issued by the Board. No authority however high placed can control the decision of a judicial or a quasi judicial authority. That is the essence of our judicial system. There is no provision in the Act empowering the Board to issue directions to the assessing authorities or the appellate authorities in the matter of deciding disputes between the persons who are called upon to pay duty and the department. It is true that the assessing authorities as well as the appellate authorities are judges in their own cause; yet when they are called upon to decide disputes arising under the Act they must act independently and impartially. They cannot be said to act independently if their judgment is controlled by the directions given by others. Then it is a misnomer to call their orders as their judgments; they would essentially be the judgments of the authority that gave the directions and which authority had given those judgments without hearing the aggrieved party. The only provision under which the Board can issue directions is Rule 233 of the Rules framed under the Act. That rule says that the Board and the Collectors may issue written instructions providing for any supplemental matters arising out of these Rules. Under this rule the only instruction that the Board can issue is that relating to administrative matters; otherwise that rule will have to be considered as ultra vires Section 35 of the Act."

The Court further held in Para 12 as follows : (AIR at page 52)
" From these notes it is clear that at any rate the correctness of the direction issued by the Board was put in issue during the hearing of the revision applications. That apart, we are clearly of the opinion that even if the question of the legality of the directions issued by the Board had not been taken before the authorities under the Act, as that direction completely vitiates the proceedings and makes a mockery of the judicial process, we think we ought to consider the legality of that direction. For the reasons already mentioned, we hold that direction was invalid and the same has vitiated the proceedings before the Collector as well as the Government." (emphasis supplied)


9. In Mahadayal Premchandra v. Commercial Tax Officer, Calcutta (AIR 1958 SC 667) the Supreme Court held that the Commercial Officer while assessing certain transactions should not have solicited instructions from the Assistant Commissioner, nor should he have acted on the basis of those instructions. It was further held that the instructions given by the Assistant Commissioner had vitiated the entire proceedings as "the procedure adopted was, to say the least, unfair and was calculated to undermine the confidence of the public in the impartial and fair administration of the sales tax department".


10. In Rajagopal Naidu v. State Transport Appellate Tribunal (AIR 1964 SC 1573) Gajendragadkar, C.J. speaking for the Court observed thus : (AIR at page 1579)

"In reaching this conclusion, we have been influenced by certain other considerations which are both relevant and material. In interpreting Section 43A we think, it would be legitimate to assume that the legislature intended to respect the basic and elementary postulate of the rule of law, that in exercising their authority and in discharging their quasi-judicial function, the tribunals constituted under the Act must be left absolutely free to deal with the matter according to their best judgment. It is the essence of fair and objective administration of law that the decision of the Judge or the Tribunal must be absolutely unfettered by any extraneous guidance by the executive or administrative wing of the State. If the exercise of discretion conferred on a quasi-judicial tribunal is controlled by any such direction, that forges fetters son the exercise of quasi-judicial authority and the presence of such fetters would make the exercise of such authority completely inconsistent with the well accepted notion of judicial process. It is true that law can regulate the exercise of judicial powers. It may indicate by specific provisions on what matters the Tribunals constituted by it should adjudicate. It may by specific provisions lay down the principles which have to be followed by the Tribunals in dealing with the said matters. The scope of the jurisdiction of the Tribunals constituted by statute can well be regulated by the statute and principles for guidance of the said Tribunals may also be prescribed subject of course to the inevitable requirement that these provisions do not contravene the fundamental rights guaranteed by the Constitution. But what law and the provisions of law may legitimately do cannot be permitted to be done by administrative or executive orders. This position is so well established that we are reluctant to hold that in enacting Section 43A of the Madras Legislature intended to confer power on the State Government to invade the domain of the exercise of judicial power. In fact, if such had been the intention of the Madras Legislature and had been the true effect of the provisions of Section 43A, Section 43A itself would amount to an unreasonable contravention of fundamental rights of citizens and may have to be struck down as unconstitutional. That is why the Madras High Court dealing with the validity of Section 43A had expressly observed that what Section 43A purported to do was to clothe the Government with the authority to issue directions of an administrative character and nothing more. It is somewhat unfortunate that though judicial decisions have always emphasised this aspect of the matter, occasion did not arise so long to consider the validity of the Government Order which on the construction suggested by the respondent would clearly invade the domain of quasi-judicial administration."


11. In Tata Teleservices Limited v. Commissioner of Customs, 2005(12)LCX0028 Eq 2006 (194) ELT 0011 (S.C.) the Supreme Court considered the validity of the Circular issued by the Central Board of Excise and Customs defining the phrase "Cellular phones" mentioned at item No. 13 of the exemption notification by saying that a telephone would not be considered as a cellular phone merely because it works on cellular technology. The Supreme Court has observed in Para 10 as follows :
(ELT at page 14)
"We are of the view that the reasoning of the Bombay Bench of the Tribunal as well as that of the Andhra Pradesh High Court must be affirmed and the decision of the Delhi Tribunal set aside insofar as it relates to the eligibility of LSP 340 to the benefit of the exemption notification. The Andhra Pradesh High Court was correct in coming to the conclusion that the Board had, in the impugned circular, pre-determined the issue of common parlance that was a matter of evidence and should have been left to the Department to establish before the adjudicating authorities. The Bombay Bench was also correct in its conclusion that the circular sought to impose a limitation on the exemption notification which the exemption notification itself did not provide. It was not open to the Board to whittle down the exemption notification in such a manner. The exemption notification merely reproduced the language of Entry 8525-20-17 and since the exemption notification merely reproduced the tariff entry, the limitation sought to be imposed by the Board would tantamount also to reading the limitation into the classification itself. Since the issue would be ultimately a question of evidence the onus was on the Department to prove by appropriate evidence that the goods were classifiable under 8525-20-19 being the residuary entry. This the Department could have done by negativing the claim of importers that the goods were classifiable under Tariff Entry 8525-20-17 and by establishing that the imported goods could not reasonably be classified under any other head. In this particular case the onus had not been discharged by the Revenue. The only evidence on record was the opinion sought for by the Ministry of Finance itself and given by the Department of Telecommunications to the effect that the Model LSP 340 was in fact covered by the phrase "cellular telephone". Since there is no dispute that the technology used in LSP 340 and the hand held mobile phone is the same there is no warrant to limit either the tariff entry or the exemption notification to hand held cellular phones. Neither the range nor the size would make any difference."


12. Section 151A of the Customs Act confers the power to issue direction only with respect to classification of the goods and with respect to levy of customs duty so long as it does not affect the quasi-judicial power of the authorities. The Board has no power to interfere with the quasi-judicial powers of assessing officer or for that matter the appellate authority or revisional authority. In our opinion, the impugned Circular is beyond the powers conferred on the Board under Section 151A of the Act and the same is liable to be quashed and set aside. Accordingly, Writ Appeal is allowed and the impugned Circular dated 17-1-2006, is set aside. It is needless to say that the assessing officer shall consider the classification in respect of the goods.

Equivalent 2007 (217) ELT 0167 (Mad.)

Equivalent 2007 (083) RLT 0441 (Mad.)