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M/s. Shahnaz Ayurvedics & anr v. The Commissioner of Central Excise,Noida & ors. - WRIT - C No. 820 of 2003 [2004] RD-AH 49 (29 January 2004)


This is an UNCERTIFIED copy for information/reference. For authentic copy please refer to certified copy only. In case of any mistake, please bring it to the notice of Joint Registrar(Copying).


- Alternative remedy of appeals in Supreme Court and

  Judicial review under Art. 226

- Administrative interpretation

- Circulars are binding on the Department

- Section 11-A Excise Act

- Point not agitated cannot be considered by the Court

- Court cannot go out of the pleadings

- Pro iso (Purpose of) + (2004) 2 SCC 249   A.F.R.




M/s. Shahnaz Ayurvedics & anr ..........   Petitioners


The Commissioner of Central Excise,

Noida & ors. ...........                Respondents

Hon. Dr. B.S. Chauhan, J.

Hon. R.C. Pandey, J.

(By Hon. Dr. B.S. Chauhan, J.)

This writ petition has been filed for quashing the order dated 14.05.2003 (Annex.10) passed by the Customs Excise and Gold (Control) Appellate Tribunal, hereinafter called the ''CEGAT', by which the Tribunal has dismissed the appeal against the orders dated 07.08.1998 and 24.11.1998 passed by the adjudicating authority.

Facts and circumstances giving rise to this case are that the petitioner no.1 claims that it manufactures Ayurvedic medicines since 1986 after obtaining the licence under the Drug and Cosmetics Act, 1940 hereinafter called ''the Act 1940' and the Rules framed thereunder, hereinafter called ''the Rules'. In September, 1987, the officers of the Central Excise department conducted investigation in the process of manufacturing of the products by the petitioner no.1 as well as nature thereof. In 1988, dispute arose as to whether the products manufactured by petitioner no.1 could fall within the category of Ayurvedic medicines or were in fact Cosmetics used for the care and condition of the skin and hair, and were liable to duty under the Central Excise Tariff Act, 1985, hereinafter called the ''Act 1985'. For that purpose, the provisions of Section 11-A of the Central Excise Act, 1944, hereinafter called ''the Act 1944' were invoked and the matter was also examined as to whether the petitioner no.1 had suppressed/concealed required informations/materials in that regard. After completing the inquiry required under the law, the Revenue accepted the plea of the petitioner no.1 vide order dated 29.08.1989 passed by the Additional Commissioner, holding that the said products were Ayurvedic medicines and not Cosmetics. It was further held that as no material facts were suppressed by the assessee, provisions of Section 11-A of the Act 1944 could not be invoked and proceedings initiated vide show cause notice dated 07.03.1988 were dropped. Assessee was allowed clearance of its products under Chapter 30 of the Tariff Act 1985, as Ayurvedic medicines. Again, the same controversy arose and the proceedings initiated by the show cause notice dated 14.07.1988, were dropped vide order dated 29.01.1992 by the Assistant Commissioner holding that products of the assessee were Ayurvedic medicines and could not be classified as Cosmetics.  In 1994, the Classification Lists and Price List along with questionnaire were furnished by the assessee, as required under the provisions of Rule 173 (B) and (C) of the Central Excise Rules, 1944, framed under the Act 1944, hereinafter called the "Rules 1944". Same were provisionally approved vide order dated 26.08.1994 by the Assistant Commissioner, Central Excise, MOD-II, New Delhi and finally vide order dated 29.09.1994. The products stood classified under Chapter 30 and not Chapter 33 of the Tariff Act 1985, holding the same to be Ayurvedic medicines and not Cosmetics. Similar remained the case regarding the other establishments in NOIDA, wherein the classification was approved under Chapter 30 of the Tariff Act 1985 by the Assistant Commissioner provisionally vide order dated 01.09.1994 and finally vide order dated 02.12.1994. Again, assessee was served with show cause notices dated 28.02.1997; 01.04.1997; and 01.07.1997 regarding the same controversy and the authority, after adjudicating the matter, i.e. Commissioner of Central Excise (Adjudication), on 07.08.1998 passed the following order:-

"(1) As the facts establish that duty was evaded by willful mis-statement and suppression of facts I upheld invokation of the extended period of limitation in terms of the proviso to Section 11A(1) of the Central Excise Act, 1944 and confirm the demand of duty amounting to Rs.3,68,04,850 (Rupees Three crores, sixty eight lakhs, four thousand, eight hundred and fifty only) on M/s. Shahnaz  Ayurvedics, Okhla Industrial Area, New Delhi & duty demands of Rs.4,80,84,599 (Rupees Four crores, eighty lakhs, eighty four thousand, five hundred and ninety nine only) and Rs. 92,39,773 (Rupees Ninety two lakhs, thirty nine thousand, seven hundred and  seventy three only) on M/s Shahnaz Ayurvedics, Noida. I also hold that interest is recoverable from them under Section 11AB of the Central Excise Act, 1944.

(2) I impose penalties equivalent to the duty determined under Section 1A(2), as indicated above, amounting to Rs. 3,68,04,850 (Rupees Three crores, sixty eight lakhs, four thousand, eight hundred and fifty only) on M/s Shahnaz Ayurvedics, Okhla Industrial Area, New Delhi and Rs. 4,80,84,599 (Rupees Four crores, eighty lakhs, eighty four thousand five hundred and ninety nine only) and Rs. 92,39,773 (Rupees Ninety two lakhs; thirty nine thousand, seven hundred and seventy three only) on M/s. Shahnaz Ayurvedics, Noida under the provisions of Section 11AC of the Central Excise Act, 1944.

(3) I impose a penalty of Rs. 25 lakhs (Rupees Twenty five lakhs only) on M/s. Shaherb. Cosmetics, under Rule 209A of the Central Excise Rules, 1944.

(4) I impose a penalty of Rs. 50 lakhs (Rupees Fifty lakhs only) on Ms. Shahnaz Husain under Rule 209A of the Central Excise Rules, 1944".

Being aggrieved, assessee preferred appeals No. E/2787, 2925, 2926, 2927 and 2928 of 1998-NB-(C) before the CEGAT, which have been disposed vide impugned judgment and order dated 14.05.2003 (Annex.10). By the said impugned order, the learned Tribunal set aside the order of interest only so far as the first clause is concerned. The second clause was modified to the extent that it was partly set aside imposing penalty on petitioner no.2 under Rule 209-A of Rules 1944 as having dealt with the excisable goods and as the same was not liable to confiscation. No interference was made with clause (3) of the order. However, the 4th clause of the order imposing the penalty of Rs. 50,00,000/- on assessee under Rule 209-A of the Rules 1944 was set aside. By the same impugned order, 8 cross-appeals of the Revenue, on the ground that Assessee was liable to pay the excise duty on the price of the products after including the excise duty, sales tax and other taxes etc, were dismissed. Hence this petition.

Before proceeding with the merit of the case, it may be pertinent to mention here that Shri B.N. Singh, learned Standing Counsel along with Shri S.K. Misra, Advocate for the Revenue has raised an objection regarding maintainability of the writ petition contending that as the remedy of appeal is provided under the provisions of Section 35-L of the Act 1944 either against the order of classification or valuation, before the Hon'ble Apex Court, and as in the instant case, both the issues are involved, this Court has no competence to deal with the case, and it should be dismissed as not maintainable.

On the contrary, Shri Rakesh Dwivedi, learned Senior Counsel with Mrs. Gitanjali Mohan and Shri W.H. Khan, Advocates appearing for the Assessee has submitted that the Revenue did not raise the preliminary objection on the first date of hearing, i.e. 10.07.2003 when the matter was heard for admission. Preliminary objection should have been taken at the initial stage. It is being raised after the arguments on behalf of the Assessee on merit stood concluded, after hearing on several dates.  The statutory appeal before the Hon'ble Supreme Court cannot be a bar for this Court to exercise the power of judicial review under Articles 226/227 of the Constitution and this case has to be considered entirely from a different angle, as it does not fall within the category of cases where writ is not entertained for the reason that the petitioner has not exhausted the statutory remedies of appeal or revision etc. The power of judicial review  being a basic feature of the Constitution, cannot be taken away by the Legislature by providing the remedy of appeal before the Hon'ble Supreme Court. The petition cannot be rejected on this sole ground.

We have considered the rival submissions made by the learned counsel for the parties and perused the record.  

The Constitution Benches of the Hon'ble Supreme Court, in K.S.  Rashid & Sons Vs.  Income Tax Investigation  Commission & ors., AIR 1954 SC 207; Sangram Singh Vs. Election Tribunal, Kotah & Ors., AIR 1955 SC 425;  Union  of India  Vs. T.R.  Varma,  AIR  1957 SC 882; State of U.P.  &  ors. Vs.  Mohammad  Nooh,  AIR 1958 SC 86; and M/s. K.S.  Venkataraman & Co. (P) Ltd. Vs. State of Madras, AIR 1966 SC 1089, held  that  Article 226 of the  Constitution confers on  all the High Courts a very wide power in the matter  of issuing writs.  However, the remedy of writ is  an absolutely  discretionary  remedy  and  the  High Court has  always  the  discretion to  refuse  to grant any  writ  if  it  is  satisfied  that  the aggrieved  party can have an adequate or suitable relief elsewhere.  The Court, in  extraordinary circumstances, may exercise the power if it comes to the conclusion that there has been a breach of principles of natural  justice or procedure required for decision could not be adopted.

Another Constitution Bench of the Hon'ble Supreme Court,  in State of Madhya Pradesh & Anr. Vs.  Bhailal  Bhai etc.  etc., AIR 1964 SC  1006, held that   the  remedy  provided   in   a   writ jurisdiction   is  not   intended  to   supersede completely  the  modes of obtaining relief  by  an action in  a  civil  court  or  to  deny  defence legitimately  open in such actions.  The power to give relief under Article 226 of the Constitution is a discretionary  power.  Similar view has been reiterated in N.T.  Veluswami Thevar Vs.  G.   Raja Nainar &  ors., AIR 1959 SC 422; Municipal Council, Khurai & Anr.  Vs. Kamal Kumar & Anr., AIR 1965 SC 1321; Siliguri  Municipality & Ors. Vs.   Amalendu Das & ors.,  AIR 1984 SC 653; S.T.  Muthusami Vs.  K.  Natarajan & ors., AIR  1988 SC 616; R.S.R.T.C.   &  Anr.  Vs.  Krishna Kant  &  Ors., AIR 1995 SC 1715;  Kerala State Electricity Board & Anr. Vs.  Kurien  E.   Kalathil & ors., AIR 2000 SC 2573;  A.   Venkatasubbiah   Naidu  Vs.   S. Chellappan  & ors., (2000) 7 SCC 695; and  L.L.  Sudhakar Reddy  &  ors. Vs.  State of Andhra Pradesh & ors., (2001) 6 SCC 634;  Shri  Sant Sadguru Janardan Swami (Moingiri Maharaj)  Sahakari Dugdha Utpadak Sanstha &  Anr. Vs.  State  of  Maharashtra & ors., (2001) 8  SCC 509; Pratap Singh  &  Anr.   Vs.   State  of  Haryana, (2002) 7 SCC 484; and G.K.N.   Driveshafts  (India)   Ltd.    Vs. Income Tax  Officer & ors., (2003) 1 SCC 72.

In  Harbans  Lal Sahnia Vs.   Indian  Oil Corporation  Ltd., (2003) 2 SCC 107, the  Hon'ble Supreme Court  held that the rule of exclusion of writ jurisdiction  by availability of alternative remedy is  a  rule of discretion and not  one  of compulsion  and the Court must consider the  pros and cons of the case and then may interfere if it comes to  the  conclusion  that  the  petitioner seeks enforcement  of  any of the  fundamental  rights; where there  is  failure of principle of  natural justice or  where  the orders or proceedings  are wholly without  jurisdiction  or the vires of  an Act is challenged.  

In G. Veerappa Pillai Vs.  Raman  & Raman Ltd., AIR  1952 SC 192; Assistant  Collector of Central Excise Vs.  Dunlop India Ltd., AIR 1985 SC 330;  Ramendra Kishore Biswas Vs.  State  of  Tripura, AIR 1999 SC 294;   Shivgonda  Anna Patil & Ors. Vs.  State of Maharashtra & Ors., AIR 1999 SC 2281; C.A.  Abraham  Vs.  I.T.O. Kottayam & Ors., AIR 1961 SC 609; Titaghur  Paper Mills Co.  Ltd.   Vs. State of  Orissa  &  Anr., AIR 1983 SC  603; H.B.   Gandhi  Vs.  M/s Gopinath  &  Sons, 1992 (Suppl.)  2 SCC 312;  Whirlpool Corporation  Vs.   Registrar of Trade Marks & Ors.,  AIR 1999 SC 22; Tin  Plate Co.  of India Ltd.   Vs. State of  Bihar & Ors., AIR 1999 SC 74; Sheela Devi Vs.  Jaspal Singh, (1999) 1 SCC 209; and Punjab National Bank Vs. O.C. Krishnan & Ors., (2001) 6 SCC 569, the Hon'ble Apex  court held that  where hierarchy of appeals is provided by the statute,  party must exhaust the statutory remedies before resorting to writ jurisdiction.

Thus, the law can be summarized that rule of exclusion of the writ jurisdiction is not a law. Discretion should be exercised by the writ Court considering the facts and circumstances involved in each case. But where there has been violation of the principle of natural justice or failure of any rule of fundament procedural or Tribunal places erroneous interpretation on the statutory provision, or exceeds its jurisdiction, writ petition can be entertained, even if the Statute provides for appeal/revision.

A Constitution Bench of the Hon'ble Supreme Court in L. Chandra Kumar Vs. Union of India, 1997 SC 1125, held that all decisions of the Tribunals whether created under Article 323-A or 323-B of the Constitution, are subject to the High Court writ jurisdiction under Articles 226/227 of the Constitution and the remedy provided in the parent institute by way of special leave to Appeal under Article 136 of the Constitution is no bar. After considering a large number of its earlier judgments including Kesavananda Bharati Sripadagalvaru Vs. State of Kerala, AIR  1973 SC 1461; and Minerva Mills Ltd. Vs. Union of India & Ors., AIR  1980 SC 1789, the Apex Court came to the conclusion that theory of alternative institutional mechanism established in S.P. Sampat Kumar Vs.  Union of India, (1985) 4 SCC 458, was not in accordance with the proposition of law laid down in Keshwanand Bharti's case (supra). The Court held as under:-

"We, therefore, hold that the power of judicial review over legislative action vested in the High Courts  under Article 226 and in this Court Under Article 32 of the Constitution is an integral and essential feature of the Constitution, constituting part of its basic structure. Ordinarily, therefore, the power of High Courts and the Supreme Court to test the Constitutional validity of the legislations can never be ousted or excluded. We also hold that the power vested in the High Courts to exercise judicial superintendence over the decisions of all the Courts and Tribunals within their respective jurisdiction, is also a part of the basic structure of the Constitution. This is because of a situation where the High Courts are divested of all other judicial functions apart from that a Constitutional interpretation, is equally to be avoided........ On the other hand, to hold that all such decisions will be subject to the decision of the High Court under Article 226/227 of the Constitution before a Division Bench of the High Court within whose territorial jurisdiction, the Tribunal concerned falls, will serve two purposes. While saving the power of judicial review of legislative action vested in the High Courts under Article 226/227 of the Constitution, it will ensure that frivolous claims are filtered out through the process of adjudication in the Tribunal. The High Court will also have the benefit of a reasoned decision on merits which will be of the use to it in finally deciding the matter............ We hold that all decisions of Tribunals, whether created pursuant to Article 323-A or 323-B, will be subject to High Courts writ jurisdiction under Article 226/227 of the Constitution before a Division Bench of the High Court within whose territorial jurisdiction, the particular Tribunal falls."

Similar view has been reiterated in R.K. Jain Vs. Union of India & Ors., AIR 1993 SC 1769.

In Than Singh Nathmal Vs. The Superintendent of Taxes, AIR  1964 SC 1419, the Constitution Bench of the Hon'ble Supreme Court held that the jurisdiction of the High Court under Article 226 of the Constitution is couched in wide terms and the exercise thereof  is not subject to any restrictions except the territorial restrictions, which are expressly provided under the Constitution. But the exercise of the jurisdiction is discretionary; it is not exercised merely because it is lawful to do so. The very amplitude of the jurisdiction demands that it will ordinarily be exercised subject to certain self-imposed limitations.

Similar view has been reiterated in State of Karnataka Vs. Vishwabharathi House Building Cooperative Society & Ors., (2003) 2 SCC 412 by the Hon'ble Supreme Court observing that a Court may entertain a petition notwithstanding concurrent jurisdiction of the other forum/Court for the reason that "the power of judicial review of the High Court, which is a basic feature of the Constitution, has not been nor could be taken away".

In State of Orissa & Ors. Vs. Gokulnanda Jena, (2003) 6 SCC 465, the Hon'ble Apex Court held that the power of the High Court to entertain writ petition is an original power and that power of judicial review is subject to rules of exclusion such as alternative remedy or exhaustion of remedy.

In T.K. Rangarajan Vs. Government of Tamil Nadu & Ors., 2003 AIR SCW 3807, the Hon'ble Supreme Court held that ordinarily the writ Court should not entertain any matter where statutory remedies have not been exhausted but is empowered to exercise extraordinary jurisdiction to meet unprecedented extraordinary situation, having no parallel and the Court held that where the State Government has dismissed two lakhs employees for going on strike, the situation was very very exceptional. There was no justifiable reason for the High Court not to entertain the petitions on the ground of alternative remedy provided under the Statute.

Preliminary objection in this regard was accepted by the Karnataka High Court in Premier Irrigation Equipment Ltd. Vs. Union of India, 1998 (100) ELT 29; Bombay High Court in Colour-Chem Ltd. Vs. Union of India 1998 (98) E.L.T. 303; and Delhi High Court in Shalimar Rubber Industries Vs. Union of India & Ors., (1998) 103 ELT 217; & Perfect Electric Concern Pvt. Ltd. Vs. Assistant Collector/CCE, 2000 (118) ELT 578.

     However, the Division Bench of the Madhya Pradesh High Court in Neo Sack Ltd. Vs. CEGAT, New Delhi, 1999(114) ELT 826 (M.P.), entertained the petition and rejected the same objection observing as under:-

"Coming to respondent's plea of alternative statutory remedy, it deserves to be rejected on the very threshold. It is well settled that rule of exhaustion of available statutory remedy is only a rule of policy. It neither bars nor prohibits jurisdiction of the Court and the entertaining or otherwise of a petition falls squarely within the discretion of the Court. It is also well recognized that where the Tribunal or a Court acts outside its jurisdiction or in excess of it or under a law which is ultra vires or places an erroneous interpretation on a statute or conducts proceedings in a manner contrary to rules of natural justice and accepted rules of procedure, the plea of alternative statutory remedy becomes irrelevant....Moreover the remedy of appeal provided in Section 35L is restrictive in nature and character and thus could not be treated as efficacious to oust the exercise of the writ jurisdiction."

Appeal under Section 35-L of the Act 1944 is required to be considered in a different way than any other statutory appeal. In other cases, if a party is relegated to appellate/revisional forum, the party after exhausting the said statutory remedy, may again approach the writ Court challenging the order of the said forum. Such a course is not permissible in case of appeal under Section 35-L of the Act 1944.

The power of judicial review is basic feature of the Constitution and even the Parliament cannot take it away by amending the Constitution. Thus, it becomes difficult to assume that such a jurisdiction can be ousted merely by amending the statute without having any express provision for ouster of the said remedy, even while providing the statutory remedy of appeal directly before the Hon'ble Apex Court. Accepting the contention of the Revenue that  under no circumstances writ can be entertained in view of the provisions of Section 35-L of the Act 1944, the provisions of Section 35-L have to be read re-writing the same adding the words "and no writ under Article 226 of the Constitution would be entertained." Adding or substracting of any word or re-writing of the provisions could itself amount to an amendment to the Act, which is not permissible. (Vide Union of India Vs. Mohindra Supply Company, AIR 1962 SC 256; Madanlal Fakir Chandra Dudhediya Vs. Shri Changdeo Sugar Mills Ltd., AIR 1962 SC 1543; Mangi Lal Vs. Sugamchand Rathi, AIR 1965 SC 101; Union of India Vs. Sankal Chand Himmat Lal Seth, AIR 1977 SC 328; Commissioner of Sales-Tax, U.P. Vs. Auriya Chambers of Commerce, Allahabad, AIR 1986 SC 1556; P.K.Unni Vs. Nirmala Industries, AIR 1990 SC 933; and Union of India Vs. Deokinandan Agarwal, AIR 1992 SC 96).

Be that as it may, the Hon'ble Apex Court in Union of India Vs. Ahmedabad Electricity Co. Ltd. & Ors., JT (2003) 8 SC 153, while dealing with the same provisions, has categorically held that the writ jurisdiction is not barred in all the circumstances.Thus, we are of the view that the writ petition can be entertained against the impugned judgment and order.  The petition was entertained at the initial stage after hearing the learned counsel for the Revenue, and interim relief had been granted after having deliberations at length and the counsel for Revenue did not even raise the plea in this regard at that time. It is being raised at a belated stage, the same is not worth acceptance and accordingly rejected.

Shri Rakesh Dwivedi, learned Senior Counsel appearing for the petitioners has submitted that as there has been no intention of the petitioner to evade duty and the assessee had always been furnishing full information regarding classification, valuation also disclosing the relation with petitioner no.2, there was no occasion for the Adjudicating Authority to pass the impugned orders. More so, in such an eventuality, the proviso of Section 11-A of the Act 1944 could not be attracted. The Adjudicating Authority as well as the Tribunal failed to appreciate the material on record particularly the Price List, Questionnaires, Invoices, Returns and Literatures submitted by the assessee had not been taken into account at all. Petitioner no.2 had been the bulk purchaser of the products and less than 2 percent of the products had been sold in the open market including Hotels and Airlines and the said small quantity could not be the decisive factor for the purpose of classification. Packing material and labels affixed on that had clearly shown that they were Ayurvedic medicaments. They were having effect of curing and not only caring of the human body. None of the authorities below ever tried to find out by chemical analysis as what was the contents of the products and which constituent of the product had been having the dominant character. The reports of experts submitted by the petitioner were brushed aside without giving any reason, giving a hostile treatment to the petitioner while in cases of other Assessees, reports of experts had been given due consideration/weightage. Findings of fact recorded by the Tribunal as well as by the Adjudicating Authority are perverse, being based on no evidence rather contrary to the evidence on record. Petitioner had always been disclosing all the information, which had been accepted by the revenue throughout and orders impugned could not be passed merely because of the change of the opinion. Therefore, the revenue erred grossly applying the proviso of Section 11-A of the Act 1944. The case of the petitioners was squarely covered by the Chapter 30 and not 33 of the Tariff Act 1985. Hence, the orders are liable to be set aside.

Shri B.N. Singh, learned counsel appearing for the revenue has vehemently opposed the averments made on behalf of the assessee contending that while dealing with the case under fiscal statutes, the Court has to apply the rule of literal interpretation, as equity, personal hardship to the assessee are not the grounds to be taken into consideration at all. Assessment for each year is an independent act and assessee cannot ask the revenue not to make the assessment in accordance with law, if earlier orders had been passed in favour of the assessee wrongfully.  The findings of fact recorded by the statutory authorities that the assessee had evaded the tax, is enough to attract the proviso to Section 11-A of the Act 1944. More so, the entire case of the petitioner is not covered by the said proviso and a short period is covered by the main clause. The Court should not interfere with the well reasoned orders passed by the statutory authorities which have categorically held that case of the petitioners falls under Chapter 33 and not 30 of the Act 1985. The case does not present any special feature warranting judicial review of the findings of fact recorded by the statutory authorities. Petition is liable to be dismissed.

We have considered the rival submissions made by the learned counsel for the parties and perused the record.  

It is settled legal proposition that while interpreting a fiscal statute, the Court should apply the rule of literal interpretation. In  Mathuram Agarwal Vs.   State of Madhya Pradesh & ors., AIR 2000 SC 109,  the Hon'ble Apex Court observed  that equally, impermissible  is an interpretation which does not follow from the plain and unambiguous language of the Statute.

In   M/s.   Saraswati   Sugar  Mills   Vs. Haryana State  Board  & ors.,  AIR 1992 SC 224,  the Hon'ble Supreme Court held that there can be no room for any intentment, nor  is there  equity  about a tax.  Nothing is to  be read in and  nothing  can be implied. While interpreting  the taxing statute, one has to look fairly at  the language used therein.  The fiscal statute must, therefore, be strictly construed in order to  find  out  the   extent  of   liability fastened on a particular industry and while doing so, the fiscal  statute must be read according to its natural   construction  of  words. While deciding  the  said case, the Apex  Court  placed reliance  upon  large  number   of  its   earlier judgments,  particularly, in Gursahai Saigal  Vs. C.I.T., AIR  1963 SC 1062;  Controller of  Estate Duty Vs.   Kantilal Trikamlal, AIR 1976 SC  1935;A.Vs.  Farnandez Vs.  State of Kerala, AIR 1957 SC 657;  C.I.T.   Vs.  Mr.  P.  Firm Muar, AIR  1965 SC 1216, and Ahmedabad Urban Development Authority Vs.  Sharda Kumar Jayanti Kumar Parawalla, AIR 1992 SC 2038.

In  Martand  Dairy & Farm Vs. Union  of India & ors.,  AIR 1975 SC 1492, the Hon'ble Apex Court observed  that:-

"Law is not always logic and taxation considerations  may   stem   from administrative  experience  and other factors  of life and  not  artistic  visualization  or  neat logic and  so  "the literal,  though  pedestrian, interpretation  must  prevail."  

Same  view  was  subsequently  reiterated  in   Member  Secretary, A.P.S.B.   for  Prevention and Control  of  Water Pollution  Vs.   A.P.  Rayons Ltd., AIR  1989  SC 611.  It  is  also well settled that a very  wide latitude  is  available  to  the  legislature  in fiscal matters  but  fiscal   enactments  require strict interpretation.

The  Court  is  bound to give  a  literal interpretation  if  there is no ambiguity in  the provision. In Patel Chhunibhai  Dajibha   Vs. Narayainrao  K. Jambekar & Anr., AIR 1965 SC 1457, the Apex Court observed that an interpretation of the provision  without  giving  full  effect  to  the language  used, would be unsupportable and  hence not permissible.    In  Martin   Burn  Ltd.   Vs. The Corporation  of  Calcutta, AIR 1966 SC  529,  the Apex Court observed as under:-

"That a result flowing from a  statutory provision  is never an evil.  A court has no  power  to ignore that  provision  to relieve  what  it  considers  a  distress resulting  from its operation.  A statute must,  of  course,  be  given  effect  to whether  the  Court likes the  result  or not."

Similar  view  has  been   taken  by  the Hon'ble Supreme  Court in Raees Ahmad Vs. State of U.P.  &  ors., AIR 2000 SC 583;  Mool  Chand Vs., Kedar, AIR 2000 SC 745 ;  and  Kadiyala Rama Rao Vs.  Gutala Kahna Rao, (2000) 3 SCC 87.

In  Vs.Vs.S.   Sugars  Vs.   Government  of Andhra Pradesh,  AIR  1999 SC 2124,  the  Hon'ble Supreme Court  observed  that while  interpreting the tax statute,   the    literal    and   strict construction  is to be applied.  The Court has to read a fiscal  statute  as  it   reads,  with  no addition  and  no subtraction on the  ground  of legislative  intendment and reading it  otherwise would defeat  the  legislative  intent. Similar view has  been  reiterated in Shyam Kishori  Devi Vs.  Patna  Municipal  Corporation, AIR  1966  SC 1678;  Gulam  Yasin   Khan  Vs.    Sahebrao Yashwantrao Walaskar & Anr., AIR 1966 SC 1339; Orissa State Warehousing  Corporation Vs.  Commissioner  of  Income  Tax, AIR  1999  SC 1388; Arulnadar  Vs.  Authorised Officer, Land Reforms, (1998) 7 SCC 157;  and Jagdish Chandra Pathak Vs. State of Orissa, (1998) 4 SCC 456.

In  Karamchari Union, Agra Vs.  Union  of India & ors., AIR 2000 SC 1226;  the  Hon'ble Supreme Court  has  held that while  interpreting the fiscal  statute, general and plain meaning of the words  have to be given by the Court.  Equity and hardship to an individual assessee are out of place in interpretation of tax statutes.  Similar view has  been  reiterated  in  Commissioner   of Income Tax,   Bhopal  Vs.     Hindustan   Elector Graphites  Ltd.,  Indore, AIR 2000 SC 1481; and Travancore   Rubber   &  Tea   Co.    Ltd.    Vs. Commissioner  of Income Tax, Trivendrum, AIR  2000  SC 1980.

In  Molar Mal  Vs.  Kay  Iron Works  (P) Ltd., AIR  2000  SC 1261, the Hon'ble Supreme Court held that  unless  the statute, read as a  whole,  indicates  a  different meaning or  provides  for  inconsistency,  the  Court has to  interpret  the language  of the provisions literally and  merely because a  law causes hardship, it cannot be read  otherwise.

Thus, it is evident that while deciding a case under fiscal statute, the Court cannot import the principles of  equity nor it can take into account the question of hardship to the assessee merely for the reason that assessee could not have transferred the liability of duty to consumers and it was not possible for him to recover the same at that stage.

In the instant case, relevant issue is regarding application of the proviso to Section 11-A of the Act 1944. The proviso is read as a restriction to the generality of the main provision and it may also be termed as an exception to the main part of the statute but it has to be read in the context of the main proviso and not as an independent one. The proviso must be read with relation to the principal matter to which it stands as a proviso. It should not be treated as an independent enacting clause instead of being dependent on the main enactment. (Vide M/s. Sukhwinder Pal Bipan Kumar & Ors. Vs. State of Punjab & Ors., AIR 1982 SC 65; Indian Oil Corporation Ltd. Vs. Chief Inspector of Factories & Ors., (1998) 5 SCC 738; Mallawwa & Ors. Vs. Oriental Insurance Company Ltd. & Ors., AIR 1999  SC 589; Balchandra Anantrao Rakvi & Ors. Vs. Ramchandra Tukaram (Dead) by LRs. & Anr., (2001) 8 SCC 616).

In CIT Vs. Indo Mercantile Bank Ltd., AIR  1959 SC 713, the Hon'ble Supreme Court held as under:-

"The proper function of a proviso is that it qualifies the generality  of the main enactment by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso would fall within the main enactment. Ordinarily, it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment. The territory of a proviso, therefore, is to carve out an exception to the main enactment and exclude something which otherwise would have been within the section. It has to operate in the same field and if the language of the main enactment is clear, it cannot be used for the purpose of interpreting the main enactment or to exclude by implication what the enactment clearly says unless the words of the proviso are such that that is its necessary effect."

While deciding the said case, the Supreme Court placed reliance upon a decision of the Privy Council in Madras and Southern Maharatta Rly. Co. Vs. Bezwada Municipality, AIR 1944 PC 71, wherein it had been observed that "proper function of a proviso is to except and deal with a case which was otherwise fall within the general language of the main enactment, and its effect is confined to that case."

In Babulal Nagar Vs. Shree Synthetics Ltd. & Ors., AIR  1984 SC 1164, Hon'ble Supreme Court observed as under:-

"Proviso does cut down the ambit of the main provision but it cannot be interpreted to denude the main provision of any efficacy and reduce it to a better provision. Both must be so interpreted as to permit interference which if not undertaken, there would be miscarriage of justice."

In Commissioner of Sales Tax, Orissa & Anr. Vs. Halari Stores, (1997) 7 SCC 715, the Hon'ble Supreme Court  dealt with a case under the Sales Tax Act, wherein the suo motu  power of revision has been conferred upon the statutory authority by the proviso but not to file a revision by the assessee, as for him there was a provision of appeal. Explaining the discrepancy, the Court held that normally a proviso is "enacted to carve out something special out of the general enactment or to qualify what is in the enactment."

In Satnam Singh Vs. Panjab & Haryana High Court & Ors., AIR 1997 SC 983, the Hon'ble Supreme Court explainging the scope of proviso, held as under:-

"A proviso has to be strictly construed inasmuch as it carves out an exception to the general rule. The general rule  enacted in the main part is not only to be unduly restricted by expanding the contents of the proviso which is intended to carve out the exception from the general rule."

In J.K. Industries Ltd. Vs. Chief Inspector of Factories and Boilers, (1996) 6 SCC 665, while expanding the scope of proviso the Court held as under:-

"A proviso to a provision in a statute has several functions and while interpreting a provision of the statute, the court is required to carefully scrutinize and find out the real object of the proviso appended to that provision. It is not a proper rule of interpretation of a proviso that the enacting part or the main part of the section be construed first without reference to the proviso and if the same is found to be ambiguous only then recourse may be had to examine the proviso as has been canvassed before us. On the other hand an accepted rule of interpretation is that a section and the proviso thereto must be construed as a whole, each portion throwing light, if need be, on the rest. A proviso is normally used  to remove special cases from the general enactment and provide for them specially.

A proviso qualifies the generality of the main enactment by providing an exception and taking out from the main provision, a portion, which, but for the proviso would be a part of the main provision. A proviso must, therefore, be considered  in relation to the principal matter to which it stands as a proviso. A proviso should not be read as if providing something by way of addition to the main provision which is foreign to the main provision itself.

Indeed, in some cases, a proviso, may be an exception to the main provision though it cannot be consistent with what is expressed in the main provision and if it is so, it would be ultra vires of the main provision and struck down. As a general rule in construing an enactment containing a proviso, it is proper to construe the provisions together without making either of them redundant or otiose. Even where the enacting part is clear, it is desirable to make an effort to give meaning to the proviso with a view to justify its necessity."

Thus, it is evident from the above, that a proviso to statutory provisions provides for an exception and, therefore, authorities dealing with the matter are required to give strict interpretation to the same.

So far as the application of the proviso to Section 11-A of the Act 1944 is concerned, it has also been considered by the Hon'ble Apex Court, High Courts and Tribunals time and again. The proviso provides for resorting to certain proceedings even after expiry of limitation period under certain circumstances.

In Collector of Central Excise Vs. Chemphar Drugs & Liniments, AIR 1989 SC 832, the Hon'ble Supreme Court held as under:-

"In order to make the demand for duty sustainable beyond a period of six months and up to a period of 5 years in view of the proviso to sub-section 11A of the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or short paid, or erroneously refunded by reasons of either fraud or collusion or willful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or willful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case."

Similarly in Padmini Products Vs. Collector of Central Excise, AIR  1989 SC 2278, the Hon'ble Supreme Court held that "mere failure or negligence on the part of the producer or manufacturer either  not to take out a licence in case where there was scope for doubt as to whether licence was required to be taken out or where there was scope for doubt whether goods were dutiable or not, would not attract Section 11-A of the Act."

In Cosmic Dye Chemical Vs. Collector of Central Excise, Bombay, (1995) 6 SCC 117,  Hon'ble Apex Court  held that where the assessee acted under a bona fide  impression based on the judgments of the High Court, he cannot be held guilty of suppression of facts etc. and provision of Section 11-A of the Act 1944 were not attracted.

In Tamil Nadu Housing Board Vs. Collector of Central Excise, Madras, (1995) Suppl (1) SCC 50, the Hon'ble Apex Court held as under:-

"A bare reading of the proviso indicates that it is in nature of an exception to the principal clause. Therefore, its exercise is hedged on one hand with existence of such situations as have been visualized by the proviso by using such strong expression as fraud, collusion etc. and on the other hand it should have been with intention to evade payment of duty. Both must concur to enable the Excise Officer to proceed under this proviso and invoke the exceptional power. Since the proviso extends the period of limitation from six months to five years, it has to be construed strictly. The initial burden is on the Department to prove that the situations visualized by the proviso existed. But once the Department is able to bring on record material to show that the appellant was guilty of any of those situations which are visualized by the Section, the burden shifts and then applicability of the proviso has to be construed liberally. When the law requires an intention to evade payment if duty then it is not mere failure to pay duty. It must be something more. That is, the assessee must be aware that the duty was leveable and it must deliberately avoid paying it. The word ''evade' in the context means defeating, the provision of law of paying duty. It is made more stringent by use of the word ''intent'. In other words the assessee must deliberately avoid  payment of duty which is payable in accordance with law."

In Prabhu Steel Industries Ltd. Vs. Collector of Central Excise, Nagpur, (1998) 1 SCC 303, the Hon'ble Apex Court held that if the goods had been cleared in accordance with the approved classification list and all material facts were in the knowledge of the revenue authorities, mere change in opinion as to correct the classification/description of inputs is not sufficient to invoke the extended period of limitation, particularly when there was no concealment of facts.

In Lubri-Chem Industries Ltd. Vs. Collector of Central Excise, Bombay, AIR 1994 SC 2604, the Hon'ble Supreme Court examined the same issue and placing reliance upon Chemphar Drug (supra) held that for invoking the proviso to Section 11-A, it has to be established that there had been an intention to evade duty and there had been something more positive than mere inaction or failure on the part of the assessee or conscious or deliberate withholding of information when the assessee knew otherwise, was required before he could be saddled with any liability beyond the period of general limitation, and unless the assessee is found to be guilty of any fraud or collusion or misstatement by suppression of fact  with intent to evade payment of excise duty, the extended period of limitation cannot be applied.

In Collector of Central Excise, Ahmedabad Vs. ITEC (P) Ltd., Bombay, (2002) 7 SCC 473, the Hon'ble Supreme Court considered the meaning of "related person". Section 4(4)(c) of the Act 1944 defines ''related person' as a person who is so associated by the assessee that they have interest, directly or indirectly in the business of each other. Therefore, if A has interest in the business of B but B does not have interest in the business of A, they will not be related person for the reason that " the mutuality of the interest between the two is apparent and in absence of any evidence regarding mutuality of interest, it cannot be held that they were related person and they cannot be held to be related persons" and in such an eventuality, the revenue must deal with parties concerned before approving the Price List. The assessee has disclosed the correct facts including the price at which the goods were sold to related person and the difference in the price, it is futile in view of the declaration to contend that there was any suppression of fact on the part of the assessee and the provisions of Section 11-A of the Act 1944 cannot be made applicable by the revenue.

In P & B Pharmaceuticals (P) Ltd. Vs. Collector of Central Excise, (2003) 3 SCC 599, the Hon'ble Apex Court allowed the case of the assessee that where he had been disclosing the relationship with the distributor from time to time and it was in full knowledge of the Revenue, the issue could not be reopened applying the extended provision of limitation.

Similarly, in Easland Combines, Coimbatore Vs. Collector of Central Excise, Coimbatore, (2003) 3 SCC 410, the Hon'ble Apex Court examined a case wherein a Clerk of the assessee made an assumption that as the Company had been registered as SSI unit at Trivendrum, it did not require to obtain such certificate at Coimbatore and the mistake of the Clerk was bona fide, it cannot be concluded that it was a willful misstatement by suppression of fact for getting the benefit of exemption of notification. The Court also took the note of the fact that the classification list submitted by the assessee had also been approved by the revenue on the said assumption without noticing that separate SSI certificate filed by the factory at Coimbatore was required and had not been obtained and not being a case of intentional evasion of duty, their Lordships held that provision of the extended period of limitation were not applicable.

Thus, in view of the above, it becomes evident that where the list for classification/valuation is submitted by the assessee and it is  approved by the revenue  and even if there has been a bona fide mistake on the part of the assessee without establishing the willful evasion of duty or intentional suppression of material information, the provisions of extended limitation cannot be applied. The revenue has to establish that there has been a positive act on the part of the assessee and not merely a passive act/negligence or omission for evasion of duty or furnishing the relevant facts regarding its product. If the classification has been approved by the revenue having full facts before it, the assessee cannot be held responsible for the reason that the department cannot be permitted to take the benefit of its own mistake. (Vide G.S. Lamba & Ors. Vs. Union of India & Ors., AIR 1985 SC 1019; and Narender Chadha Vs. Union of India, AIR  1986 SC 638).

In Amrutanjan Ltd. Vs. Collector of Central Excise, 1995 (77) ELT 500, the Hon'ble Supreme Court observed that as the Amrutanjan Pain Balm Ayurvedic was having contents like Menthol IP, Camphor IP, Turpentine IP and Methyl Salicylate IP as main ingredients, which was to be classified as Ayurvedic medicine under sub-heading 3003.30 of the Act 1985, as the ingredients in it were known both to Ayurvedic and western sciences and had been used in making the medicines, the real test is to determine as to whether the main ingredients have pharmaceutical quality and are usable in medicinal preparations.

In Adhyaksha Mathur Babu's Sakti Oushadhalaya Dacca (P) Ltd. & Ors. Vs. Union of India & Ors., AIR 1963 SC 622, the Constitution Bench of the Hon'ble Supreme Court examined the provisions of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, wherein certain contents according to the standard Ayurvedic text were classifiable as medical preparations though the same could also be used as ordinary alcoholic beverage and held that the same were liable to duty under Item 1 of Schedule II of the Act 1955,  notwithstanding the decision of the Standing Committee and consequential omission of those preparations from the list appended to the Rules framed under the Act 1955 and the preparations could not be subjected to excise duty at all. The main question for their Lordships' consideration was had been as to whether the three preparations were in fact medicinal preparations containing alcohol falling within Item 84, List I of the 7th Schedule to the Constitution, on which item, the Act was passed and so whether they were medicinal preparations as defined under the Act and Court held that if they are medicinal preparations as defined therein, they would be governed only by the Act. The Constitution Bench of Hon'ble Supreme Court emphasised that  it becomes the duty of the statutory authority as to whether the preparations had been in accordance with the recipe given in the standard text books of Ayurved and under the instructions of the qualified persons.

In Dabur India Ltd. Vs. Collector of Central Excise, Meerut, 1994 (71) ELT 1069, the CEGAT itself held that Hajmola Candy containing 25% active ingredients as per Ayurvedic texts and 75% sugar for taste and as a preservative, manufactured under Drug Controller's licence under the Act 1950 was classifiable as Ayurvedic medicine under sub-heading 3003.30 of Tariff Act 1985 and not as sugar confectionary.

In B.P.L. Pharmaceuticals Ltd. Vs. Collector of Central Excise, Vadodara, 1995 Supp. (3) SCC 1, Hon'ble Supreme Court held while examining such an issue, the Court/Tribunal/Authority must examine the relevant factors and that include label, literature and medicinal preparations concerning the product in question. It is so because the label specifies many thing   and may reveal what are its content, for what it can be used, for what purpose, it should not be used, whether it is dangerous for life or health and the method of its application. The literature for that purposes must be the standard text book used only by registered medical practitioner or hospital or laboratory. It may explain that if a particular ailment for which the drug is prepared is included, which may lead to serious problems. So far as the medicinal preparations of the product are concerned, it can be governed from the technical and/or pharmaceutical references  of the product and the revenue is also at liberty to produce such material discrediting the case of the assessee. If a product has therapeutics or prophylactic uses, it should be classified as medicaments under Chapter 30 and the Court held that as the shampoo  "Selsun" in that case had medicinal value, it was held to be classifiable under Chapter 30 and not 33.

In Shree Baidyanath Ayurved Bhavan Ltd. Vs. Collector of Central Excise, Nagpur, (1996) 9 SCC 402, the Hon'ble Supreme Court held that scientific and technical meaning of the terms and expressions used in the tax laws may not be resorted to rather goods to be classified according to the popular meaning attached to them by those using the product. The issue involved there, had been as to whether the Dantmanjan Lal manufactured by the appellant-company fell within the meaning of Ayurvedic medicine to qualify exemption from payment of excise duty under notification dated 1st March, 1978. The Apex Court took note of the fact that before the Adjudicating Authority or Appellate Authority, the said appellant company claiming exemption, did not adduce any evidence to show and prove that it was entitled for exemption showing that the common-man using the said Dantmanjal Lal daily, considered to be a medicine and not as a toilet requisite.

The said case was reconsidered by the Hon'ble Apex Court in Commissioner of Central Excise Vs. Sharma Chemical Works, (2003) 5 SCC 60, and the Court held as under:-

"It is settled law that the onus or burden to show that a product falls within a particular tariff item is always on the Revenue. Mere fact that a product is sold across the counters and not under a doctor's prescription, does not by itself lead to the conclusion that it is not a medicament. We are also in agreement with the submission of Mr. Lakshmikumaran that merely because the percentage of medicament in a product is less, does not also ipso facto mean that the product is not a medicament. Generally, the percentage or dosage of the medicament will be such as can be absorbed by the human body. The medicament would necessarily be covered by fillers/vehicles in order to make the product usable. It could not be denied that all the ingredients used in "Banphool Oil" are those which are set out in the Ayurveda textbooks. Of course the formula may not be as per the textbooks but a medicament can also be under a patented or proprietary formula. The main criterion for determining classification is normally the use it is put to by the customers who use it. The burden of proving that Banphool Oil is understood by the customers as a hair oil was on the Revenue. This burden is not discharged as no such proof is adduced.  On the contrary, we find that the oil can be used for treatment of headache, eye problem, night blindness, reeling head, weak memory, hysteria, amnesia, blood pressure, insomnia etc. The dosages required are also set out on the label. The product is registered with the Drug Controller and is being manufactured under a drug licence.

Another aspect to be kept in mind is that the Revenue is bound by the circulars issued by the Board. The board circular dated 5.12.1991 clearly stipulates that in case of doubt the matter should be referred to the Drug Controller. The matte was referred to the Drug Controller who, as stated above, has opined that it is an Ayurvedic medicament. If the Department was still entertaining any doubts, they could have referred the matter to the Advisor, Ayurveda/Sub-Commissioner in the Office of Drug Controller of India, Director General of Health Services, New Delhi. This was not done."

The Hon'ble Supreme Court categorically held in this case that the ratio of Shree  Baidyanath (supra) has no bearing in a case like instant.

Similar view has been taken in Commissioner of Central Excise Vs. Pandit D.P. Sharma, (2003) 5 SCC 288, and distinguishing the case of Shree Baidyanath (supra) and following the judgment in Sharma Chemical Works, the Court held that "Himtaj Oil" was an Ayurvedic medicament.

In M/s. Colfax Laboratories Ltd. Vs. State of Goa, JT (2003) 8 SC 203, a similar issue was considered as to whether the preparation, i.e. shave lotion was a medicinal preparation or toilet/cosmetic preparation. The Hon'ble Apex Court explained the distinction in both holding that in order to come within the ambit of medicinal preparation, the intended use of the article must be for treatment, mitigation or prevention of disease. The article must be used for the purpose of either curing or mitigating the disease after its symptoms have appeared or in prevention of any disease. If the intended use of the article is not for anyone of the aforesaid purposes, it cannot be described as a medicinal preparation. The Court further explained that "Disease" means an impairment of the normal state of the living animal that interrupts or modifies the performance of the vital functions being a response to environmental factors (as malnutrition, industrial hazards, or climate) or to specific infective  agents (as worms, bacteria, or viruses) or to inherent defects of the organism (as various genetic anomalies) or to combinations of these factors.

In Union of India Vs. Hindalco Industries, (2003) 5 SCC 194, the Hon'ble Apex Court examined a case wherein the show cause notice issued under Section 11-A of the Act 1944 had been challenged in the writ jurisdiction before the High Court. The Apex Court held that normally in taxation matters, the High Court should not interfere at the stage of show cause notice but the limitation is self-imposed by the Courts and where the authority lacks jurisdiction to issue notice, the Court can definitely interfere  even at that stage. The Apex Court made it clear that if the authority has jurisdiction in respect of one aspect but has no jurisdiction in respect of another issue alleged in the notice, the Court would be justified in interfering in respect of the issue to which the authority has no jurisdiction. In the said case, the question arose as in a case where the authority had power for directing enquiry in respect of clandestine removal of goods, as to whether the Assessee could have been directed to file explanation also in regard to the matters concerning incorrect valuation. The Apex Court answered in the negative.

Similarly, in M/s. Naturalle Health products (P) Ltd. Vs. Collector of Central Excise, Hyderabad, JT 2003 (8) SC 614, the Apex Court held that it is not permissible for the authorities to reopen an issue or hold an enquiry in respect of the matter only on the ground that the authority had competence to reopen some other connected issue. The Court further held that the real test to determine regarding the classification of products claimed to be Ayurvedic medicines would be to find out as to how the customers, practitioners in Ayurvedic medicines, dealers and licensing officials treat the product and where all the ingredients of the products in question are mentioned in the authoritative book of Ayurveda, the mere fact that the ingredients are purified or added with some preservatives, does not really alter their character.

From the aforesaid settled legal proposition, it becomes evident that while deciding the case like instant, the statutory authority must deal with the issue as to whether a product falls within Chapter 30 or 33 of the Act 1985 and definition of medicament is to be given strict adherence as provided under the Act 1944. Burden to prove that a particular product falls within a particular Chapter of Act 1985, lies upon the revenue and not upon the assessee and for the same, evidence is to be adduced and the contents of the products have to be analysed in order to determine as to whether some of them have medicinal values and it is not relevant as to whether the said content is dominant or dormant. The authority is also under a legal obligation to examine the textbook, literature, affidavits and certificates given by the assessee and experts and if the classification list has earlier been approved by the revenue and there is no concealment of fact, the assessee should not suffer for the fault of the revenue even if it has wrongly been accepted by it.

The instructions issued by the department are binding on the authorities for the reason that the issuing a circular/instruction is intimately conversant not only with the policy of legislation for the purposes of the provisions of the Act but also familiar with the nature and qualities of the commodities and also their use from time to time, therefore, such notifications/circulars/executive instructions in fiscal statutes are binding. Apart from the fact that circulars of the Board are binding on the tax department, they are in the nature of contemporanea expositing furnishing legitimate aid the construction to the relevant provisions. More so, it is necessary to issue such circulars to give effect to internal complexity of fiscal adjustment of diverse elements. [Vide State of Orissa Vs. M/s. Deenabandhu Sahu & Ors., AIR  1976 SC 1561;K.P. Vergese Vs. I.T.O. & Ors., AIR 1981 SC 1922; Keshavji Ravji & Co. Vs. CIT & Ors., AIR 1991 SC 1806; Commissioner of Income Tax Vs. Vasudeo Vs. Dempo, 1993 Supp (1) SCC 612; CCE Vs. Jagat Dalal (P) Ltd., (1997) 10 SCC 402; Bengal Iron Corporation & Anr. Vs. Commercial Tax Officer & Ors., AIR  1993 SC 2414; Ranadey Micronutrients Vs. CCE, (1996) 10 SCC 387; Poulose & Mathan Vs. CCE, (1997) 3 SCC 50; British Machinery Supplies Co. Vs. Union of India &  Ors., (1996) 9 SCC 663; and CCE Vs. Usha Martin Industries, (1997) 7 SCC 47; and Pandit D.P. Sharma (supra)].

It is well established rule of interpretation of a statute by reference to the exposition it has received from contemporary authority. However, the Apex Court added the words of caution that such a rule must give way where the language of the statute is plain and unambiguous. Similarly, in Collector of Central Excise, Bombay & Anr. Vs. M/s. Parley Export (P) Ltd., AIR 1980 SC 644, the Hon'ble Supreme Court observed that the words used in the provision should be understood in the same way in which they have been understood in ordinary parlance in the area in which the law is in force or by the people who ordinarily deal with them. In Indian Metals and Ferry Alloy Ltd., Cuttack Vs. Collector of Central Excise, AIR 1991 SC 1028, the Hon'ble Supreme Court has applied the same rule of interpretation by holding that "contemporanea expositio by the administrative authority is a very useful and relevant guide to the interpretation of the expression used in a statutory instrument." Same view has been taken by the Hon'ble Supreme Court in State of Madhya Pradesh Vs. G.S. Daal and Flour Mills (Supra); and Y.R. Chawla and others Vs. M.P. Tiwari and Anr., AIR 1992 SC 1360. In  N. Suresh Nathan Vs. Union of India & ors, 1992 (Suppl) 1 SCC 584; and M.B.Joshi & ors. Vs. Satish Kumar Pandey & ors., 1993 (Suppl.) 2 SCC 419, the Apex Court observed that construction in consonance with long-standing practice prevailing in the concerned department is to be preferred.

In J.K. Cotton Spinning & Weaving Mills Ltd. Vs. Union of India & ors., AIR 1988 SC 191, it has been held that the maxim is applicable in construing ancient statute but not to interpret Acts which are comparatively modern and an interpretation should be given to the words used in context of the new facts and situation, if the words are capable of comprehending them. Similar view had been taken by the Apex Court in Senior Electric Inspector Vs. Laxminarain Chopra & ors., AIR 1962 SC 159.

In Desh Bandhu Gupta & ors Vs. Delhi Stock Exchange Association Ltd., AIR 1979 SC 1049, the Apex Court observed that the principle of contemporenea expositio, i.e. interpreting a document by reference to the exposition it has received from Competent Authority can be invoked though the same will not always be decisive of the question of construction. The administrative construction, i.e. the contemporaneous construction placed by administrative or executive officers responsible for execution of the Act/Rules etc. generally should be clearly wrong before it is over-turned. Such a construction commonly referred to as practical construction although not controlling, is nevertheless entitled to considerable weight and is highly persuasive. However, it may be disregarded for cogent reasons. In a clear case of error the Court should, without hesitation refuse to follow such construction for the reason that "wrong practice does not make the law." (Vide Municipal Corporation for City of Pune Vs. Bharat Forge Co. Ltd., AIR 1996 SC 2856). In D. Stephen Joseph Vs. Union of India & ors., 1997 (4) SCC 753, the Hon'ble Supreme Court has held that "past practice should not be upset provided such practice conforms to the rules" but must be ignored if it is found to be dehores the rules.

However, in Laxminarayan R. Bhiattod & ors. Vs. State of Maharashtra, 2003 AIR SCW 2020, the Apex Court held that "the manner in which a statutory authority had understood the application of a statute would not confer any legal right upon a party unless the same finds favour with the Court of law dealing with the matter".

There can be no dispute to the settled legal proposition that the Court or Tribunal is not permitted to decide a case going out of pleadings of the parties nor the evidence led on a non-existing plea is permitted to be taken into consideration. (Vide Sri Mahant Govind Rao Vs. Sita Ram Kesho, (1898) 25 IA 195 (PC); Messers Trojan & Co. Vs. RM. N.N. Nagappa Chettiar, AIR 1953 SC 235; Kishori Lal Vs. M/s. Chaltibai, AIR  1959 SC 504; Samant N. Balakrishan Vs. George Fernandez & Ors., AIR  1969 Sc 1201; Dalim Kumar Sain & Ors. Vs. Smt. Nand Rani Dassi & Anr., AIR 1970 Cal. 292; Rao Sahab Vs. Rangnath Gopalrao, AIR  1971 SC 2548; Bhoona Bi & Anr. Vs. Gujar Bi, AIR 1973 Mad 154; DR. R.K. S. Chauhan Vs. State of U.P. & Ors., 1995 Supp (3) SCC 688; Commissioner of Income Tax Vs. Park Hotel, (1996) 2 SCC 15; Syed Dastagir Vs. T. R. Gopalakrishna Setty, AIR  1999 SC 3029; Sankaran Pillai (Dead) by LRs Vs. Vs.P. Venuguduswami & Ors., AIR  1999 SC 1218; J. Jermons Vs. Aliammal, AIR 1999 SC 3041; Life Insurance corporation of India & Ors. Vs. Jyotish Chandra  Biswas, (2000) 6 SCC 562; OM Prakash Gupta Vs. Ranbir B. Goyal, (2002) 2 SCC 256; and Ashutosh Gupta Vs. State of Rajasthan & Ors., (2002) 4 SCC 34).

It is not possible for the Court to decide an issue, not raised/agitated by the authority for the reason that other party did not have opportunity to meet it and such a course would violate the principles of natural justice. (Vide New Delhi Municipal Council Vs. State of Punjab, AIR 1997 SC 2841).  Similarly, in Vs.K. Majotra Vs. Union of India & Ors., (2003) 8 SCC 40, the Apex Court held as under:-

"The Courts would be well advised to decide the petitions on the points raised in the petition and if in a rare case keeping in view the facts and circumstances of the case any additional points are to be raised then the concerned and affected parties should be put to notice on the additional points to satisfy the principles of natural justice. Parties cannot be taken by surprise."

Section 11-A of the Act 1944 empowers the reopening of an assessment as well as the modification of the classification list while reopening the assessment.

Reopening is not permissible by mere change of opinion. [Vide Maharajadhiraj Sir Kamleshwar Singh Vs. State of Bihar, 1959 SC 1303; Calcutta Discount Co. Ltd. Vs. Income-tax Officer, AIR 1961 SC 372;  Commissioner of Income-tax Vs. M/s. Bhanji Lavji Porbandar; AIR 1971 SC 717; Income-tax Officer Vs. Nawab Mir Barkat Ali Khan Bahadur, AIR  1975 SC 703; Income Tax Officer Vs. Lakhmani Mewal Das, 1976 SC 1753; M/s. Indian Eastern Newspapers Society, New Delhi VS. The Commissioner of Income-tax, New Delhi; AIR  1979 SC 1960; Delhi Cloth & General Mills Co. Ltd. VS. State of Rajasthan & Ors., AIR  1980 SC 1552; Prabhu Steel Industries Ltd. (supra)].

In Ahmedabad Manufacturing & Calico Printing Co. Ltd. Vs. Union of India, (1993) Supp. 2 SCC 7; Commissioner of Central Excise Vs. Hindustan Safety Glass Works Ltd., 1995 (77) ELT 40 (SC); and Union of India Vs. Maheshwari Woolen Mills, 1998 (97) ELT 220 (SC), the Hon'ble Supreme Court held that while dealing with a case like instant, the Courts have to be conscious enough that the order may be quashed only to the extent of extended period of limitation and not for the period of six months for the reason that the notice remains valid to that extent. Though in T.N. Dadha Pharmaceuticals Vs. Collector of Central Excise, (2003) 3 SCC 574, entire notice was quashed, i.e. notice even for the period of six months, holding that for the purpose of application of Section11-A, all the three ingredients, i.e. duty of excise has not been levied or short paid for the reason of fraud, collusion, misstatement of facts etc. and it was intentionally done by the assessee. The requirements were held to be cumulative and not alternative.

Suppression of facts means that it should be intentional and to be read in context of other words, like fraud, collusion or willful default and requires to be considered very strictly. Mere omission to disclose the correct information is not a suppression of fact unless it was deliberate to escape the payment of duty and there can be no suppression when the facts were known to the assessee as well as the revenue. (Vide Pushpam Pharmaceuticals Co. Ltd. Vs. Commissioner of Central Excise, (1995) Supp.3 SCC 462.).

Similarly, the willfulness and intent refer to mental state at the time of doing or omitting to do an act by a person. Thus, it has to be gathered from assessing the overall facts and circumstances of the case as to whether the assessee intended to evade duty. Same remained the position regarding mis-declaration and in case declaration has been made by the assessee to the best of its knowledge considering the facts and circumstances of the case and the quality of the product, the charge of mis-declaration cannot be sustained. The concealment and suppression must be in order to deceit the revenue keeping it in dark so that it acquiescence and endorses an unlawful act thinking that it is lawful when it approved the act in the full knowledge of the relevant particulars to it in good faith, that cannot be a case of deceit, fraud or concealment or suppression.

The onus to prove fraud, misstatement is on the Revenue and not otherwise. It is only when the Revenue discharges its onus, the burden is shifted to the assessee to prove that he never intended to evade the liability. Evidence led by the assessee cannot be brushed aside by the authority concerned rather it has to be dealt with in accordance with law. Nor it is permissible for the authority to ignore the relevant evidence/factors, taking into consideration irrelevant documents.

The instant case requires to be examined in the light of the aforesaid settled legal proposition. Admittedly, assessee has a licence under the Act 1940. It has submitted the price list, questionnaires, invoices from time to time. Its classification has been approved provisionally and subsequently finally by the authorities concerned and had consistently been accepted. In the receipts and returns, invoices have also been filed showing that 98 percent  of the products are sold to the petitioner no.2 and the petitioner no.1 has interest in petitioner no.2 and has a control over it but petitioner no.2 does not have control over petitioner no.1. Only 2 percent of its product are being sold in the open market. It had also filed affidavits of several Vaidyas, literature, Ayurvedic textbooks to show that the product had been Ayurvedic medicines. The Adjudicating Authority as well as the Tribunal had never asked for chemical analysis of its product; no report had ever been asked from any Drug authorities under the Act 1940 about the contents thereof; no product had ever been sent for chemical analysis seeking the report regarding its constituents; no evidence had been led by the revenue to establish that the products did not have any medicinal value and, therefore, will fall within the ambit of Chapter 30 and not 33. There was no mutuality of interest between the petitioners no.1 and 2 as only petitioner no.1 had been interested in petitioner no.2 and not vice-versa. Investigations had been carried out since 1989 and in view of the provisions of Rule 173 of the Rules 1944, the classification list filed along with the questionnaire and price list etc. had always been approved after holding enquiry vide orders dated 26.08.1994 and 29.09.1994, as referred to above. The petitioners' case had always been accepted by the Adjudicating Authority, as is evident from the orders referred to above, particularly orders dated 29.08.1989, 29.01.1992 and 07.09.1998. Its products had always been classified under Chapter 30 vide order dated 29.09.1994. The petitioners had always been submitting the required information to the department. Thus, there can be no case of suppression of material facts or misstatement of facts. There is nothing on the record to show that there had been any kind of fraud, collusion or suppression of material fact  or information in this regard, as there was no finding by the Adjudicating Authority on the issue of suppression of fact and, therefore, it was not warranted that the Tribunal would deal with the issue.

Neither the Adjudicating Authority nor the learned Tribunal considered it proper to send any of the products of the petitioners for chemical analysis, though the Hon'ble Apex Court while interpreting the circulars issued from time to time by the Revenue, had emphasised upon the need of such analysis, nor there is any explanation for deviating the understanding of the department and acceptance of the explanation given by the petitioners earlier. Undoubtedly, administrative interpretations may not be binding upon the authority concerned but it must record certain reasons for taking a different view. There were no pleadings before the Adjudicating Authority or the Tribunal on behalf of the Revenue on the basis of which it could conclusively be held that the products of the petitioners were purely cosmetics and had no medicinal value at all. What to talk of any leading evidence to substantiate the same, the department did not produce any article etc. or any opinion of expert in this regard nor any explanation has been furnished by the authorities below not giving due weightage to the reports of the experts produced by the Assessee. Thus, we failed to understand on what basis and relying upon what documentary evidence, the findings have recorded against the Assessee.

The crystal-clear finding of fact recorded by the learned Tribunal is that there was no suppression of the material fact with respect to classification. Therefore, the Tribunal erred in invoking the suppression of Section 11-A of the Act 1944 holding that the fact that petitioner no. 2 was related person, was not known, and this fact had been suppressed. The assessee has definitely disclosed that Shahnaz Hussain was controlling Partner in Saharab Chemicals. As the facts had been fully disclosed, there was no occasion for drawing an inference of petitioner being a related person-qua-Saharab Cosmetics, and this has been accepted by the adjudicating authority. The Revenue did not challenge their said findings of fact in appeal. The question of taking up this issue by the Tribu nal was totally unjustified. A literature of the assessee can be looked into. But it has to be appreciated in a correct perspective that the literature might have been prepared keeping in mind the law of other countries. The averment of the assessee that the literatures consisted for expert, and particularly, to be understood in foreign countries, like U.K. and United States of America, have to be printed in a different manner showing the same products as cosmetics for the reason that Ayurvedic system is not accepted to the medical sciences of those countries and that could not have been a decisive factor, Without sending the product for chemical analysis and recording a finding as to whether the constituent thereof had medicinal value, the show cause notice  was issued invoking the proviso  to Section 11-A (1) of the Act 1944 on 3 different grounds, including wilful mis-statement and suppression of fact, claiming the products as medicines, though in some of its literatures it has been shown as cosmetics and the goods had been sold at much lower price to petitioner no. 2, a related person with a intention to evade excise duty.

So far as the 3rd ground was concerned, i.e., suppression of fact with respect to related person with intention to evade duty, the adjudicating authority has not recorded any finding. The Revenue in its cross-appeal has not taken this issue at all. Thus, the learned Tribunal could not have raised this issue inasmuch as without giving a show cause notice to the assessee if the Tribunal wanted to examine this issue suo motu and it was permissible in law for it, the Tribunal did not furnish any explanation giving a discriminatory treatment to the petitioner as it had been submitted before the Tribunal that the similar products had been classified as medicines by the same Tribunal in various other cases, and a large number of its own judgments had been cited before it, particularly, the case of Dabar India, Ishan Research Lab Vs. Naturance Research Lab etc. The Triobunal tried to distinguish the case of the assessee from that of Ishan Research Lab on the issue of classification only on the ground that in that case the Tribunal had classified certain products as Ayurvedic medicines on the basis of the report of Dr. Vs.N.Pandey, though in the case of assessee the report of the same expert, i.e., Dr. V.N. Pandey had not been accepted at all. The Tribunal relied upon certain articles in the newspapers and magazines without disclosing as to whether the author of the said article was an expert of the subject and what could have been the evidenciary value of its opinion.

In view of the above, we reach the unescapable conclusion that there had been no mis-statement or suppression on any information required to be disclosed in law on behalf of the assessee. Therefore, the provisions of Section 11-A of the Act 1944 could not be attracted. More so, in the instant case, the period involved had been from March, 1992 to October, 1996. The show cause notice dated July, 1997 was clearly barred by limitation as the provisions of Section 11-A were not applicable.

Thus, petition succeeds and is allowed. The judgment and order dated 14.5.2003 (Annex.10) and orders dated 7.8.1998 and 24.11.1998 are hereby set aside to the extent the same adversely affected the assessee. So far as the show cause notice relating to subsequent period is concerned, the authorities are at liberty to make a fresh assessment in accordance with law, and for that purpose, the case is remanded to the adjudicating authority who  after considering the material on record shall permit both the parties to lead evidence to prove their case.

In the facts and circumstances of the case, there shall be no order as to costs.




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