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Judgment
Dilip Gupta, J
Prem Henna Pvt. Ltd, the appellant has sought the quashing of the order dated 30.12.2020 passed by the Commissioner for recovery of central excise duty from the appellant under section 11A(5) read with section 11A(10) of the Central Excise Act, 1944, the Central Excise Act with interest under section 11AA of the Central Excise Act. The order also imposes penalty upon the appellant under section 11AC (1)(c) of the Central Excise Act.
The appellant is engaged in the manufacture and clearance of mehandi paste and mehandi powder. The dispute in the present appeal relates to availment of Notification No. 12/2012-CE dated 17.03.2012, the Exemption Notification, as subsequently amended by Notification No. 12/2013-CE dated 01.03.2013, by the appellant on the manufacture of mehandi paste. The said Exemption Notification exempts the excisable goods of the description specified in Column (3) of the Table from so much of the duty of excise specified thereon under the First Schedule to the Excise Tariff Act, as is in excess of the amount calculated by the rate specified in the corresponding entry in Column (4) of the said Table.
The relevant portion of the Exemption Notification dated 17.03.2012 is reproduced below:
TABLE
Sl. No.
Chapter or heading or sub-heading or tariff item of the First Schedule
Description of excisable goods
Rate
Condition No.
(1)
(2)
(3)
(4)
(5)
xx
xx
xx
xx
xx
134
33
Henna powder, not mixed with any other ingredient
6%
-
The Central Government made an amendment in the Notification dated 17.03.2012 and the relevant portion of the amended Exemption Notification dated 1.03.2013 is reproduced below:
“In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2012-Central Excise, dated the 17th March, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide G.S.R. 163(E), dated the 17th March, 2012, namely:-
In the said notification,-
(a) xxxxxxxxxx
(b) xxxxxxxxxx
(i) to (v) xxxxxxx
(vi) for serial number 134 and the entries relating thereto, the following serial number and the entries shall be substituted, namely:-
134
33
Henna powder or paste, not mixed with any other ingredient
Nil
-
According to the department, the appellant would not be entitled to claim exemption on the manufacture of mehandi paste, whereas according to the appellant it would be entitled to claim the benefit of the Exemption Notification dated 17.03.2012, as amended on 01.03.2013, on the manufacture of mehandi paste.
The Central Board of Excise and Customs, through a letter dated 10.07.2014, clarified that the aforesaid exemption would be available to henna powder mixed with a liquid, so far that liquid is a medium to change the form of henna powder into paste, but excludes products like henna dye and such other products which are cosmetics.
A show cause notice dated 02.08.2019 was issued to the appellant for the period from 01.08.2014 to 30.06.2017 mentioning therein that under the amended Exemption Notification dated 01.03.2013 henna powder cannot be mixed with any other ingredient and should contain pure henna. The show cause notice states that to ascertain the presence of other ingredients in the henna paste manufactured by the appellant, the Superintendent sent samples drawn on 21.05.2014 to the Central Revenue Control Laboratory, New Delhi, which submitted a test report dated 27.08.2014. The Superintendent also drew sample on 25.10.2015 and sent it to the Central Revenue Control Laboratory, New Delhi which submitted a test report dated 22.01.2016. Both the test reports were enclosed as relied upon document no. 6 to the show cause notice. The show cause notice drew a conclusion from the aforesaid two reports that there were some extraneous dyes/material other than henna powder/leaves present in the samples and thus henna paste manufactured and cleared by the appellant did not satisfy the description given for claiming exemption under the Exemption Notification. The show cause notice also alleges that the appellant is mixing other ingredients like Benzyl Alcohol, Terpineol, Clove Oil, Eucalypts Oil in mehandi powder to manufacture mehandi paste. The appellant was, therefore, required to show cause as to why central excise duty should not be demanded and recovered from the appellant for the period August 2014 to June 2017 with interest and penalty.
The appellant submitted a reply dated 23.012.2019 to the show cause notice. The appellant pointed out that the Tribunal, by an order dated 19.12.2018 in Prem Henna Pvt. Ltd. vs. C.C.E. & S.T.– Jaipur-I, 2019 (3) TMI 847 – CESTAT New Delhi, had decided the issue in favour of the appellant and that reliance placed by the department on the two test reports dated 27.08.2014 and 22.01.2016 was misplaced. The appellant also pointed out that the test report dated 27.08.2014 was relied upon in another show cause notice dated 26.03.2015 that was earlier issued to the appellant, which show cause notice was adjudicated upon on 03.05.2016. This order was challenged by the appellant before the Tribunal which decided the appeal on 13.03.2018 in Prem Henna Pvt. Ltd., Prem Mehandi Centre, Meenakshi Heena Products, Parmanand & Company Pushp Enterprises vs. C.C., Jodhpur, 2018 (362) E.L.T. 659 (Tri.-Del.) holding that the methodology adopted by the Central Revenue Control Laboratory, New Delhi was not correct. The appellant also pointed out that no reliance could be placed on the test report dated 27.08.2014, which pertains to the earlier period and not for the period for which the show cause notice was issued, as was held by the Tribunal in the order dated 19.12.2018 in Prem Henna. In the context of the test report dated 22.01.2016, the appellant pointed out that the test report does not mention or conclude that extraneous dyes/material other than henna powder/leaves were present in the sample. The appellant also explained in detail as to why it would be entitled to claim the benefit of the Exemption Notification and in this connection the appellant also placed reliance on the order dated 13.03.2018 passed by the Tribunal in CCE, Jaipur vs. M/s. Meenakshi Heena Powder, 2018 (4) TMI 821 – CESTAT New Delhi. The appellant also pointed out that in respect of the sister concern of the appellant, the Tribunal had decided the issue in the order dated 19.12.2018 in M/s. Prem Mehandi Centre vs. CCE, Jaipur, Excise Appeal No. 53480 of 2018 decided on 19.12.2018 by granting the benefit of the Exemption Notification. The appellant also pointed out that neither the extended period of the limitation could have been invoked in the facts and circumstances of the case nor penalty could have imposed or interest charged from the appellant.
The Commissioner, however, did not accept the contentions raised in the reply submitted by the appellant and by order dated 30.12.2020 confirmed the demand of duty with interest and penalty.
In respect of the two test reports dated 27.08.2014 and 21.02.2016 the Commissioner observed as follows:
“13. xxxxxxxxxx
Both the above reports clearly indicate that there was some extraneous dyes/material other then Henna Powder/leaves present in the sample of Heena Paste.”
In regard to the reliance placed by the appellant on earlier decisions of the Tribunal, the Commissioner observed:
“14.5 xxxxxxxxxxxxx
In the instant case, CESTAT Final Order No. 53529/ 2018 dated 19.12.2018 in the case of M/s Prem Mehandi Centre Vs CCE, Jaipur and Final Order No. 53561/2018 dated 19.12.2018 in their own case have been accepted by Department on ground of monetary limit which. Hence, in terms of the provisions of Section 35R of the Central Excise Act, 1944, such non filing of appeal did not mean that the Department had acquiesced in the decision on the disputed issue. Accordingly, final order passed by Hon'ble Tribunal did not have binding effect in so far as on the instant case involving similar issue.
14.6. The matter of precedent value of such orders of Hon'ble Tribunal or Hon'ble High Court and binding effect thereof, where the Department has either not filed an appeal to the higher appellate forum due to low tax effect or has withdrawn the appeal already filed due to revision in the monetary limits, has been clarified by the Central Board of Indirect Taxes and Customs vide Instruction F.No.390/Misc./163/2010-JC, dated 20.10.2010. xxxxxxxxx.
In view of these instructions, it is evident that in cases where the Department decides not to pursue the matter further before the higher appellate forums due to low tax effect, the decisions/ orders/ judgments passed by Hon'ble Tribunal or High Court, as the case may be, shall not have any precedent value and the Department is at liberty to pursue the future cases before the higher appellate fora on merits. In the instant cases mentioned in para 14.2 & 14.3, the Department has not accepted the orders passed by Hon'ble Tribunal on merits but on monetary limit.”
(emphasis supplied)
In regard to the issue as to whether the appellant can claim the benefit of the Exemption Notification, the Commissioner observed:
“There is no dispute that noticee was using henna powder, water and oils to manufacture the Henna paste. Facts of the case prove that there is addition of oils in henna paste (in addition to dyes as per test report, which can be ignored for the time being). Change of Henna powder into henna paste by addition of oils conclusively proves that henna paste manufacture and cleared by the noticee was not pure henna with water as a medium to change form, but was also mixed with other ingredients viz. oils. I find that there is exemption to pure henna paste under the CETA, 1985 during the impugned period under Notification No. 12/2013-CE dated 01.03.2013. Henna paste that is made by mixing water and oils with Henna powder cannot be equated to the pure Henna powder, not mixed with other ingredient or Henna powder mixed with water as a medium to change its form from powder to paste. I find that the henna paste can be made by continuously stirring and mixing water with Henna Powder. The oils mixed with henna powder & water constitutes other ingredients in the henna paste. The noticee's plea that paste cannot be made without mixing oils to henna powder is not legally tenable and recognise oils as a liquid medium to change form of henna powder to henna paste because oils in henna paste are used as preservatives and/or used to enhance quality of the product. Oils make henna paste that stained quickly, darkened rapidly with glossy finish and make product ready to use with added values. Thus, I find that water is the only liquid can be used as liquid to change form of henna powder to henna paste. Moreover, burden to prove that all the conditions of notification have been fulfilled, lies on the noticee and not on the Department. In view of the concrete and conclusive CRCL report dated 27.08.2014 exhibiting that extra spot on the Chromatogram have been found which indicates extraneous dyes are present in the sample. I hold that the Henna paste manufactured by the noticee during the impugned period is mixed with other ingredients and is not genuine (pure) henna. Thus, the benefit of effective rate of duty on Henna paste under the Notification No. 12/2013-CE dated 01.03.2013 (S. No. 134) is not available to the noticee. I reject the request for retest of the sample in view of the concrete and conclusive test results under the CRCL Test Report vide No.35\ CRCL\2014-CL-50(CE)/29.05.2014 Dated 27.08.2014 and No. 35-CUSICRCL\2015-CL-459-C.Ex/04.11.2015 dated 22.01.2016. Anyway the noticee has not accepted the order of CESTAT for retest of their samples and gone appeal before Hon'ble Supreme Court.
18.7. Thus, I find that the noticee has manufactured Henna paste mixed with other ingredients during the impugned period and was therefore not eligible to avail benefit of Notification No. 12/2013-CE dated 01.03.2013 (S.No. 134).”
(emphasis supplied)
It is this order dated 30.12.2020 passed by the Commissioner that has been assailed in this appeal.
Shri Rupesh Kumar, learned senior counsel for the appellant assisted by Shri Jitin Singhal made the following submissions:
(i) The appellant is clearly entitled to avail the benefit of the Exemption Notification as henna powder is not mixed by the appellant with any other ingredient in the manufacture of henna paste;
(ii) Neither the test report dated 27.08.2014 nor the test report dated 22.01.2016 submitted by the Central Revenue Control Laboratory, can be made the basis to deny the benefit of the Exemption Notification to the appellant;
(iii) The benefit of the Exemption Notification cannot be denied to the appellant merely because it is alleged that the appellant is using oil in henna powder to make henna paste. In this connection, reliance has been placed on certain decisions of the Tribunal, to which reference shall be made at the appropriate stage;
(iv) The Commissioner clearly committed an error in holding that if the department does not challenge an order passed by the adjudicating authority only because of monetary limit, then the said order would not have any precedence value;
(v) The extended period of limitation could not have been invoked in the facts and circumstances of the case; and
(vi) Neither penalty could have been imposed upon the appellant nor interest could have been demanded from the appellant.
Shri Bhagwat Dayal, learned authorized representative appearing for the department, however, supported the impugned order and made the following submissions:
(i) The order passed by the Commissioner has considered each and every aspect of the matter and correctly concluded that the appellant would not be entitled to avail the benefit of the Exemption Notification;
(ii) The extended period of limitation was correctly invoked; and
(iii) The Commissioner was justified in imposing penalty upon the appellant and demand of interest is also justified.
The submissions advanced by the learned senior counsel for the appellant and the learned authorized representative appearing for the department have been considered.
The period of dispute in the present case is from 01.08.2014 upto 30.06.2017. The Exemption Notification, dated 17.03.2012, against serial no. 134, describes the excisable goods as “henna powder, not mixed with any other ingredient”. This was subjected to six percent excise duty. The amendment made on 17.03.2012 substituted serial no. 134 as “henna powder or paste, not mixed with any other ingredient”. It was subjected to Nil rate of duty. It is the said amendment that would be applicable to the facts of the present case.
The Commissioner has found that the appellant was using henna powder, water and oils to manufacture henna paste and addition of oils to henna powder to make henna paste would deprive the appellant from taking the benefit of the Exemption Notification. According to the Commissioner, the benefit of the Exemption Notification would accrue to the appellant only if water was added to henna powder for making henna paste. Using oils, in the opinion of the Commissioner, would amount to adding “any other ingredient” for making henna powder into henna paste. To arrive at such a conclusion the Commissioner relied upon the two test reports dated 27.08.2014 and 22.01.2016 submitted by the Central Revenue Control Laboratory, New Delhi.
The Tax Research Unit in the Department of Revenue explained the scope of the Exemption Notification dated 17.03.2012 in the following manner:
“(2) Doubts have been raised regarding the scope of the exemption from excise duty available for heena powder or paste under S.No. 134 of notification 12/2012-Central Excise dated 17th March, 2012 in the context of the phrase “not mixed with any other ingredient”. It is clarified that the exemption is available to heena powder mixed with a liquid, so for that the liquid is a medium to change the form of heena powder into paste but excludes products like heena dye and such other products which are cosmetics.”
(emphasis supplied)
Thus, exemption would be available to an assessee if henna powder is mixed with a liquid, so far that the liquid is a medium to change the form of henna powder into paste. The liquid is not restricted to water. It can be any liquid which is a medium to change the form of henna powder into paste. What has been excluded are products like henna dye and such other products which are cosmetics.
In Prem Henna decided on 19.12.2018, in the matter of the appellant itself and in the matter of manufacture of henna paste from henna powder, the show cause notice that was issued to the appellant alleged that the appellant was mixing clove oil with henna powder for the manufacture of henna paste and, therefore, since another ingredient was added to henna powder, the appellant would not be entitled to the benefit of the Exemption Notification. Rejecting this contention, the Tribunal held that clove oil is a liquid used to make henna paste from henna powder and make it marketable as such paste in cones. Such a process for making the paste marketable/usable by the customers would not mean that the appellant would not be entitled to the benefit of the Exemption Notification. In this connection, the Tribunal placed reliance upon the letter dated 10.07.2014 issued by the Board regarding the Exemption Notification.
It also needs to be noted that by an order dated 13.03.2018, the Tribunal in Prem Henna remanded the appeals to the adjudicating authority to follow the standard tests specified for henna paste instead of following the tests prescribed for henna powder to determine whether ‘other ingredients’ had been used for manufacture of henna paste from henna powder. The relevant portion of the order dated 13.03.2018 of the Tribunal is reproduced below:
“6. Having heard both the sides, we note that we are constrained by the lack of clarity in the proceedings initiated by the Revenue. First of all, when the nature of product is in dispute, it is necessary to have it tested by the competent laboratory to get a clear view. Such tests were done by the Chemical Examiner. Unfortunately, the methodology adopted is apparently not proper. The standard specified for testing the Henna Powder cannot be applied to paste. The IS Standard clearly states that the comparison of samples should be done with the standard plants source, which has not been got done. We note while re-testing, such comparison of proper sample has been made and the report, in fact, came in favour of the claim made by the appellant/assessee. In such scenario, we are constrained that the basic facts of the case have not been found in chromatography test so that the Tribunal will be able to pass an order on legality of the claim of the appellant. That being the case, we are left with no alternative except to set aside the impugned orders and remand the matter to the Original Authority for a due process to be followed including re-testing of the product manufactured and cleared by the appellant. Here, we note that both the sides agree that the product are continued to be manufactured by the appellant/assessee and they continued to claim the nature of products as same. We note that without having an essential test by the proper method, the decision on the claim of the appellant cannot be made by us. Accordingly, all the appeals are allowed by way of remand with the above observations.”
(emphasis supplied)
The adjudicating authority, pursuant to the aforesaid order of the Tribunal, took fresh sample of henna paste and ultimately dropped the show cause notice on the basis of the fresh test report dated 17.11.2022. This test report is reproduced below:
“TEST REPORT
Reported Dated: 17.11.2022
Lab No. CRCL/14/371(CGST)/27.10.2022
Test Memo No. 02/2022
Name Contact information of customer: Superintendent CGST Range-18, Div-D, Pali
Description of Sample: HENNA PASTE
Sample Plan: Sample Not Drawn By this Laboratory. Report; Report: The sample describe as Henna Paste is in unit packing having description as Neeta Mehandi Cone. The sample is in the form of dark brown colored paste having pleasant smell. It is having following constants.
Sr. No.
Parameters
Test method
Result
1.
Moisture (% by mass)
IS 173 18:2020
66.44%
2.
Lawsone of content
IS 173 18:2020
Present
3.
Chemical Dyes
IS 173 18:2020
Absent
4.
Lead mg/kg
AOAC 2015
1.08
5.
Arsenic mg/kg
AOAC 2015
0.1
6.
pH of the sample
IS 173 18:2020
5.8
Based on the above analyzed parameter reveals that the tested sample under reference meets the requirement of Henna paste as per IS – 173 18:2020 (Henna (Mehandi) Paste in shape of cone and other allied packaging – specification).
Sealed remnant returned.
Tested by (Dr. Vittal Sharavath)
(Dr. Aradhana Sharma) Assistant Chemical Examiner
Chemical Examiner-II Authorized Signature”
(emphasis supplied)
Thus, when the methodology specified for henna paste as per IS-173 18:2020 was followed, a finding was recorded in the test report that the tested sample meets the requirement of henna paste.
The relevant portions of the order dated 31.01.2023 passed by the Commissioner, after the remand by the Tribunal by order dated 13.03.2018, in respect of the show cause notice dated 06.04.2015 issued for the period 01.04.2014 to 31.08.2014 and the show cause notice dated 06.10.2015 issued for the period 01.09.2014 to 31.03.2015 are reproduced below:
“10.1. In view of the fact that the CESTAT order dated 18.03.2018 has been accepted by the department the third report dated 17.11.2022 and 22.11.2022 for the sample drawn on 19.10.2022 (Para 8.5 above), which are also the latest reports in this case, are most relevant to decide the present case. The said reports says that the Heena Powder and Heena paste manufactured by the does not contain any extraneous dyes/chemical dyes.
xxxxxxxxxxx
11.2 In the present case as per the CRCL report dated 17.11.2022 and 22.11.2022 the Heena p0aste and Heena Powder manufactured by the assessee does not contains any extraneous dyes/chemical dyes. I find that Heena Paste and Heena Powder in present case did not contain any other ingredient except mixed with a liquid, so the liquid was a medium to change the Heena powder into paste.
11.3 Thus, I find that Heena paste manufactured by the assessee in this case also does not contain any other ingredients except that Heena powder is mixed with oils. The clarification by the Board denies the mixing of dyes and cosmetic products only, which was not found in the Heena paste in the instant case as per CRCL testing report dated 30.12.2015. xxxxxxxxxx.
11.4 Hence the benefit of exemption of the Sl. No. 134 of the notification no. 12/2013-CE dated 01.03.2013 is available to the assessee in view of the Board’s D.O.F. No. 334/15/2014 TRU dated-10.07.2014.”
(emphasis supplied)
The Commissioner, in the aforesaid order dated 31.01.2023, also placed reliance upon an earlier order dated 20.03.2015 passed by the Commissioner in respect of Meenakshi Heena Products, against which order the appeal filed by the department before the Tribunal was dismissed by order dated 13.03.2018. The Commissioner also noticed that the said order of the Tribunal had been accepted by the department.
The Commissioner also placed reliance upon an order dated 18.03.2021 passed by the Commissioner (Appeals) in the matter of M/s. Suresh and Company, OIA No.-084(CRM)CE/JDR/2021 dated 18.03.2021, wherein the order of the adjudicating authority was set aside. The relevant portion of the order passed by the Commissioner is reproduced:
“11.7 I also place reliance on the findings of Hon’ble Commissioner (Appeals), CGST, Jodhpur vide OIA No.-084(CRM)CE/JDR/2021 dated 18.03.2021 in the case of M/s. Suresh and Company, Sojat City, Pali wherein Hon’ble Commissioner (Appeals) set aside the OIO of original adjudicating authority on merits being the demand unsustainable:-
"Para-10 I find that Heena paste in present case did not contain any other ingredient except mixed with a liquid (Clove oil to prevent decay and with nilgiri and turpentine oil to keep paste wet), so the liquid was a medium to change the Heena powder into paste. I find that Board has also clarified vide D.O.F No.334/15/2014 TRU dated- 01.07.2014 that the exemption is available to Heena powder mixed with a liquid so that the liquid is a medium to change the form of the Heena powder into paste but excludes products like Heena dye and such other products which are cosmetics. I find that Heena paste also does not contain any other ingredients except that Heena powder is mixed with liquid. I also find that in the notice as well as in impugned OIO, the allegations and findings are not that it is Heena dye or cosmetic, therefore benefit of board's circular deserves to be extended".
11.7.1 The above mentioned order of the Commissioner (Appeals) has already been accepted by the Committee of Commissioners on 24.05.2021 on merit.
In view of the above discussions and findings, I hold that:-
12.1 I find that Heena powder and Heena paste manufactured by the assessee in this case does not contain any other ingredients except that Heena powder is mixed with oils, this is in consonance with the clarification issued under Board’s D.O.F. No. 334/15/2014 TRU dated – 10.07.2014, I also find that in the show cause there was no allegations that it is Heena dye or cosmetic, therefore, benefit in terms of board’s D.O.F. No. 334/15/2014 TRU dated–10.07.2014, can be extended in this case.”
(emphasis supplied)
In Prem Mehandi Centre decided on 19.12.2018, the Tribunal held as follows:
“2. The appellant is engaged in the manufacture of henna powder and heena paste in cone falling under Chapter 33 of the Central Excise Tariff. For the period 1.3.2013 to 30.06.2013, the appellant did not pay central excise duty on heena powder & heena paste cleared by them. They have claimed exemption in terms of Sl.No.134 of the Notification No.12/2013-CE dated 1.3.2013. The said entry states that heena powder or paste, “not mixed with any other ingredient” falling under Chapter 33 are liable to nil rate of duty. By the said impugned order, the benefit of the said exemption was not allowed to the appellant.
We note that the objection of the Revenue, that no other ingredients should have been added to claim the exemption, is correct. However, the facts of the present case did not reveal that any other ingredients at all has been added in making the henna paste. Admittedly, the clove oil is a liquid used to make henna paste from powder and make it marketable as such paste in cones. We note that the said process is for making the paste marketable/useable much later by the customers. There is no addition of any active ingredients to heena powder to make the heena paste other than the said oil or liquid. Based on the clarification issued by the Board cited above and the materials on record, the impugned order is set aside and the appeal is allowed with consequential relief, if any.”
In view of the aforesaid orders passed by the Tribunal, the Commissioner and Commissioner (Appeals), it has to be held that the appellant, while manufacturing henna paste from henna powder, would be entitled to avail the benefit of the Exemption Notification.
The Commissioner, in the present case, has not accepted the two orders each dated 19.12.2018 in Prem Henna (Excise Appeal No. 52327 of 2018) and in Prem Mehandi Centre (Excise Appeal No. 53480 of 2018) for the reason that the department did not file appeals to challenge these orders passed by the Tribunal and had accepted the decisions of the Tribunal only on the ground of monetary limit. In this connection, the Commissioner placed reliance upon section 35R of the Central Excise Act to hold that the final orders passed by the Tribunal did not have a binding effect.
The Commissioner also placed reliance upon the Circular dated 20.10.2010 issued by the Central Board of Indirect Taxes. The relevant portion of the said Circular is reproduced below:
“It may also be noted that, wherever it is decided not to file appeal in pursuance of these instructions, which are aimed solely at reducing Government litigation, such cases shall not have any precedent value. In such cases, Commissioners should specifically record that "even though the decision is not acceptable, appeal is not being filed as the amount involved is less than the monetary limit prescribed by the Board." Further, in such cases, there will be no presumption that the Department has acquiesced in the decision on the disputed issues in the case of same assessee or in case of any other assessees, if the amount involved exceeds the monetary limits. Thus, in case any prior order is being cited on facts and law, it must be checked whether such order(s) were accepted only on account of the monetary limit before following them in the name of judicial discipline. In respect of an order where it is decided not to file appeal in pursuance of these instructions, a data base needs to be created so that all the Commissionerates are made aware of the orders that are accepted solely on the ground that the revenue involved is below the threshold prescribed herein and which should not be taken as having precedent value. The details of such orders in respect of CESTAT and the High Courts is required to be furnished by the Zonal Chief Commissioners in Proforma enclosed (Annexure III E & Annexure III F) which should form part of the Monthly Technical Report being sent to the Directorate of Legal Affairs for posting on the departmental website. These Annexures III E and III F should be sent to the Directorate of Legal Affairs by e-mail also to [email protected].
The above instructions of the Board must be adhered to strictly for all appeals filed on or after 1.11.2010.”
(emphasis supplied)
The Commissioner, after making reference to the said Circular, observed:
“14.6 xxxxxxxxxx
In view of these instructions, it is evident that in cases where the Department decides not to pursue the matter further before the higher appellate forums due to low tax effect, the decisions/ orders/ judgments passed by Hon'ble Tribunal or High Court, as the case may be, shall not have any precedent value and the Department is at liberty to pursue the future cases before the higher appellate fora on merits. In the instant cases mentioned in para 14.2 & 14.3, the Department has not accepted the orders passed by Hon'ble Tribunal on merits but on monetary limit.”
(emphasis supplied)
The effect of section 35R of the Central Excise Act and the Circular dated 20.10.2010 issued by the Central Board of Indirect Taxes would need to be considered.
It would, therefore, be necessary to reproduce section 35R of the Central Excise Act and it is as follows:
“35R. Appeal not to be filed in certain cases
(1) The Central Board of Excise and Customs may, from time to time, issue orders or instructions or directions fixing such monetary limits, as it may deem fit, for the purposes of regulating the filing of appeal, application, revision or reference by the Central Excise Officer under the provisions of this chapter.
(2) Where, in pursuance of the orders or instructions or directions, issued under sub-section (1), the Central Excise Officer has not filed an appeal, application, revision or reference against any decision or order passed under the provisions of this Act, it shall not preclude such Central Excise Officer from filing appeal, application, revision or reference in any other case involving the same or similar issues or questions of law.
(3) Notwithstanding the fact that no appeal, application, revision or reference has been filed by the Central Excise Officer pursuant to the orders or instructions or directions issued under sub-section (1), no person, being a party in appeal, application, revision or reference shall contend that the Central Excise Officer has acquiesced in the decision on the disputed issue by not filing appeal, application, revision or reference.
(4) The Commissioner (Appeals) or the Appellate Tribunal or court hearing such appeal, application, revision or reference shall have regard to the circumstances under which appeal, application, revision or reference was not filed by the Central Excise Officer in pursuance of the orders or instructions or directions issued under sub-section (1).
(5) Every order or instruction or direction issued by the Central Board of Excise and Customs on or after the 20th day of October, 2010, but before the date on which the Finance Bill, 2011 receives the assent of the President, fixing monetary limits for filing of appeal, application, revision or reference shall be deemed to have been issued under sub-section (1) and the provisions of sub-section (1) and the provisions of sub-sections (2), (3) and (4) shall apply accordingly.”
(emphasis supplied)
Section 35R of the Central Excise Act was inserted w.e.f. 20.10.2010. Sub-section (1) gives power to the Central Board of Excise and Customs to issue orders or instructions or directions, fixing monetary limits for the purposes of regulating the filing of appeals. Sub-section (2) provides that where in terms of the orders or instructions issued under sub-section (1), the Central Excise Officer has not filed an appeal against any decision rendered under the Central Excise Act, it shall not preclude the Central Excise Officer from filing an appeal, in any other case involving the same or similar issues or questions of law. Sub-section (3) provides that if an appeal is not filed in terms of the instructions or directions issued under sub-section (1) then a person who is a party in the appeal shall not contend that the Central Excise Officer has acquiesced in the decision on the disputed issue by not filing appeal.
This section is, therefore, limited to cases where because of the monetary limit prescribed for filing appeals in terms of the instruction or directions issued under sub-section (1) of section 35R of the Central Excise Act an appeal is not filed by the department. It provides that non filing of the appeal shall not preclude the Central Excise Officer from filing an appeal in any other case involving the same or similar issues or questions of law. It, further, provides that merely because an appeal has not been filed because of monetary limits no person, being a party in the appeal, shall contend that the Central Excise Officer has acquiesced in the decision on the disputed issue by not filing an appeal. This is for the reason that in many matters when a decision is taken by the department not to file an appeal because of monetary limits or otherwise, the party to such an appeal raise a plea in subsequent cases that the Central Excise Officer has acquiesced in the decision and so it has to be followed.
It is, therefore, more than apparent that section 35R of the Central Excise Act does not in any manner provide that order of the Tribunal against which a decision has been taken by the department not to file an appeal because of the monetary restrictions imposed by the Central Board of Excise and Customs would not have any precedent value. A decision of a Tribunal cannot be rendered ineffective merely because the department takes a decision not to file an appeal because of the monetary restrictions or otherwise. Unless a decision of the Tribunal is set aside by the High Court or the Supreme Court, it will continue to bind the revenue authorities empowered to decide matters under the provisions of the Central Excise Act. The Circular dated 20.10.2010, which was issued by the Central Board of Indirect Taxes after the insertion of section 35R of the Central Excise Act on 20.10.2010, cannot also render any decision of the Tribunal to have no precedence value if a decision is taken by the department not to file an appeal against the decision of the Tribunal because of monetary restrictions. At best, in such cases, a party would be precluded from contending that the decision against which appeal was not filed had attained finality. It cannot, under any circumstances, be contended by the department that the decision of the Tribunal in such cases would not have any binding effect.
In such circumstances that portion of the Circular that provides that “wherever it is decided not to file appeal in pursuance of these instructions, which are aimed solely at reducing Government litigation, such cases shall not have any precedent value” is not only not in accordance with the provisions of section 35R of the Central Excise Act but is also contrary to judicial discipline as the binding effect of a decision of a Tribunal cannot be taken away by merely deciding not to file an appeal because of the monetary restrictions imposed by Circulars or Orders. All that can be derived from the provisions of section 35R of the Central Excise Act is that in such matters the party to the decision cannot in subsequent cases contend that the department has acquiesced in the decisions.
It needs to be noted that though the appellant had filed an appeal against the order of the Tribunal dated 13.03.2018 in Prem Henna contending that instead of remanding the matter to the adjudicating authority for a fresh decision, the Tribunal should have allowed the appeals, but subsequently the Supreme Court by judgment and order dated 27.07.2021 dismissed the Civil Appeal filed by the appellant holding that:
“We see no reason to deviate from the view taken by the Tribunal to relegate the parties before the adjudication authority in the fact situation of the present case. Hence, we decline to interfere in these Appeals. Accordingly, the Civil Appeals are dismissed.”
It is in pursuance of the order passed by the Supreme Court that the adjudicating authority, by a detailed order dated 31.01.2023, dropped the proceedings initiated by the show cause notices dated 06.04.2015 and 06.10.2015. The other decisions dated 19.12.2018 of the Tribunal in Prem Mehandi Centre (Excise Appeal No. 53480 of 2018) was in any case binding on the Commissioner.
The Commissioner, therefore, clearly fell in error in holding that in cases where the department decides not to pursue the matter before a higher appellate forum due to monetary limits, the decision of the Tribunal or the High Court shall not have any precedence value. In fact, the observations made by the Commissioner are against all propriety and judicial discipline. So long as the orders of the Tribunal have not been set aside, the Commissioner is bound to follow the decision of the Tribunal.
This observation made by the Commissioner compels us to remind the adjudicating authorities of the observations made by the Supreme Court and the High Courts on the issue relating to judicial discipline.
It would be pertinent to refer to the decision of Supreme Court in The Bhopal Sugar Industries Ltd. vs. the Income-Tax Officer, Bhopal, AIR 1961 SC 182. The Supreme Court pointed out that it would result in chaos in the administration of justice if a subordinate Tribunal refuses to carry out directions given to it by a superior Tribunal as this would be destructive of one of the basic principles of administration of justice. The observations of the Supreme Court are as follows:
“By that order the respondent virtually refused to carry out the directions which a superior tribunal had given to him in exercise of its appellate powers in respect of an order of assessment made by him. Such refusal is in effect a denial of justice, and is furthermore destructive of one of the basic principles in the administration of justice based as it is in this country on a hierarchy of courts. If a subordinate tribunal refuses to carry out directions given to it by a superior tribunal in the exercise of its appellate powers, the result will be chaos in the administration of justice and we have indeed found it very difficult to appreciate the process of reasoning by which the learned Judicial Commissioner while roundly condemning the respondent for refusing to carry out the directions of the superior tribunal, yet held that no manifest injustice resulted from such refusal.
It must be remembered that the order of the Tribunal dated April 22, 1954, was not under challenge before the Judicial Commissioner. That order had become final and binding on the parties, and the respondent could not question it in any way. As a matter of fact the Commissioner of Income-tax had made an application for a reference, which application was subsequently withdrawn. The Judicial Commissioner was not sitting in appeal over the Tribunal and we do not think that in the circumstances of this case it was open to him to say that the order of the Tribunal was wrong and, therefore, there was no injustice in disregarding that order. As we have said earlier, such view is destructive of one of the basic principles of the administration of justice. In fairness to him it must be stated that learned counsel for the respondent did not attempt to support the judgment of the Judicial Commissioner on the ground that no manifest injustice resulted from the refusal of the respondent to carry out the directions of a superior tribunal. He conceded that even if the order of the Tribunal was wrong, a subordinate and inferior tribunal could not disregard it; he readily recognised the sanctity and importance of the basic principle that a subordinate tribunal must carry out the directions of a superior tribunal.”
(emphasis supplied)
This principle was also laid down by Supreme Court in Dharma Chand Jain vs. The State of Bihar, AIR 1976 SC 1433 and the observations are:
“The State Government being a subordinate authority in the matter of grant of a mining lease, was obliged under the law to carry out the orders of the Central Government as indicated above. But the State Government declined to do so on the ground that it had laid down a policy that the mining leases in respect of the area should be given only to those who were prepared to set up a cement factory. It was clearly not open to the State Government to decline to carry out the orders of the Central government on this ground, particularly because the Central Government was a tribunal superior to the State Government………………..”
In Smt. Kaushalya Devi Bogra and others vs. The Land Acquisition Officer and another, AIR 1984 SC 892, the Supreme Court also observed that the direction of the Appellate Court is binding on the courts subordinate thereto and that judicial discipline requires and decorum known to law warrants that appellate directions should be taken as binding and followed. In this connection, the Supreme Court referred to the observations made by the House of Lords and the relevant portion of the judgment of the Supreme Court is reproduced below:
“The direction of the appellate court is certainly binding on the courts subordinate thereto. That apart, in view of the provisions of Article 41 of the Constitution, all courts in India are bound to follow the decisions of this Court. Judicial discipline requires and decorum known to law warrants that appellate directions should be taken as binding and followed. It is appropriate to usefully recall certain observations of the House of Lords in Broom v. Cassell & Co.(1) Therein Lord Hailsham, L. C. observed:
" "The fact is, and I hope it will never be necessary to say so again, that in the hierarchical system of courts which exist in this country, it is necessary for each lower tier, including the Court of Appeal, to accept loyally the decisions of the higher tier."
Lord Reid added:
"It seems to me obvious that the Court of Appeal failed to understand Lord Delvin's speech but whether they did or not, I would have accepted them to know that they had no power to give any such direction and to realise the impossible position in which they were seeking to put those judges in advising or directing them to disregard a decision of this House.”
Lord Diplock observed at p. 874 of the Reports:
"It is inevitable in a hierarchical system of courts that there are decisions of the Supreme appellate tribunal which do not attract the unanimous approval of all members of the judiciary. When I sat in the Court of Appeal, I sometimes thought the House of Lords was wrong in over ruling me. Even since that time there have been occasions, of which the instant appeal is one, when alone or in company. I have dissented from a decision of the majority of this House. But the judicial system only works if someone is allowed to have the last word and if that last word, once spoken, is loyally accepted.”
(emphasis supplied)
In this connection it will also be appropriate to refer to the decision of the Supreme Court in Union of India vs. Kamlakshi Finance Corporation Ltd,v. The order passed by the Assistant Collector not only ignored the order of the Collector (Appeals) remanding the matter, but also distinguished the decision of the Tribunal by observing that the decision of the Tribunal had not been agreed to by the Department as an appeal had been filed in the Supreme Court. The assessee filed a writ petition in the Bombay High Court to challenge the said order of the Assistant Collector. The High Court not only quashed the order passed by the Assistant Collector but also directed the Department to allocate the matter to a competent officer for passing a proper order. It is against this decision of the Bombay High Court that the Union of India preferred an appeal before the Supreme Court. The Supreme Court remarked that as the Assistant Commissioner had not followed the decision of the Tribunal merely because an appeal had been filed by the Department before the Supreme Court, the High Court had rightly criticized the conduct of the Assistant Collector since it resulted in harassment to the assessee caused by the failure to give effect to the order passed by the Tribunal. The Supreme Court also observed that the order of the Tribunal is binding upon the Assistant Collectors who functions under the jurisdiction of the Tribunal and that the principles of judicial discipline require that the orders of higher appellate authorities are unreservedly followed by the subordinate authorities. The relevant portion of the order of the Supreme Court is reproduced below:
“6. Sri Reddy is perhaps right in saying that the officers were not actuated by any mala fides in passing the impugned orders. They perhaps genuinely felt that the claim of the assessee was not tenable and that, if it was accepted, the Revenue would suffer. But what Sri Reddy overlooks is that we are not concerned here with the correctness or otherwise of their conclusion or of any factual mala fides but with the fact that the officers, in reaching in their conclusion, by-passed two appellate orders in regard to the same issue which were placed before them, one of the Collector (Appeals) and the other of the Tribunal. The High Court has, in our view, rightly criticised this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate heirarchy. It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities; The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department - in itself an objectionable phrase - and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.
*****
We have dealt with this aspect at some length, because it has been suggested by the learned Additional Solicitor General that the observations made by the High Court, have been harsh on the officers. It is clear that the observations of the High Court, seemingly vehement, and apparently unpalatable to the Revenue, are only intended to curb a tendency in revenue matters which, if allowed to become widespread, could result in considerable harassment to the assesses-public without any benefit to the Revenue. We would like to say that the department should take these observations in the proper spirit. The observations of the High Court should be kept in mind in future and the utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities which are binding on them.”
(emphasis supplied)
The aforesaid decisions of the Supreme Court have been referred to by the Supreme Court in Commissioner of Income Tax vs. Ralson Industries Ltd., (2007) 2 SCC 326 and it has been observed that when an order is passed by a higher authority, the lower authority is bound, keeping in view the principles of judicial discipline.
Recently, a Division Bench of the Madras High Court in Royal Sundaram General Insurance Company Limited vs. Commissioner of Central Excise and Service Tax, Writ Petition No’s. 31725 and 31726 of 2023 decided on 24.05.2024 consisting of the Acting Chief Justice R. Mahadevan (now Hon’ble Judge of the Supreme Court) and Justice Mohammed Shaffiq also examined this issue. What was assailed before the Madras High Court was a reference order in which Member (Judicial) and Member (Technical) differed in their views. The Madras High Court noticed that the issue that had come up for consideration before the Division Bench of the Tribunal had been dealt with and decided by co-ordinate benches of the Tribunal and so there was no reason to make a reference to a third Member. In this connection, the Madras High Court also made reference to various decisions and the observations made by the Madras High Court are reproduced below:
“14. Referring to the decisions of the Honourable Supreme Court in Union of India vs. Kamlakshi Finance Corporation Limited reported in 1992 Suppl (1) Supreme Court Cases 443 and in East India Commercial Co. Ltd vs. Collector of Customs, Calcutta reported in 1983 (13) E.L.T. 1342 (SC), the learned Senior counsel for the petitioner submitted that judicial discipline demands that the decision reached by the coordinate benches has to be scrupulously followed by the other Tribunal. However, in this case, the Tribunal has taken a contrary decision and refused to place reliance on the decisions of the Coordinate Benches. Thus, according to the learned Senior Counsel, without taking note of the ratio laid down by the Coordinate Benches, on the very same issue, the Member (Technical) has passed the prejudicial portion of the order, which cannot be allowed to be sustained.
We find much force in the submissions so made by the learned Senior counsel for the petitioner. The prejudicial portion of the order has been passed by the Tribunal in derogation of the various orders passed by the coordinate benches of the Tribunal on the very same issue. xxxxxxxxxx. Therefore, we hold that the very reference made by the Tribunal to determine as to whether the conclusion reached by the Member (Judicial) is right or the one made by the Member (Judicial) itself is unnecessary. The issue before the Tribunal has already been examined and adjudicated by the coordinate benches and it binds the Tribunal in all respects. While so, the Tribunal cannot go beyond the settled issue and to re-adjudicate the same by referring the dispute to a third member. Judicial discipline requires that the orders of the coordinate bench or the jurisdictional High Court have to be followed without in any manner attempting to factually re-examine or re-adjudicating the same issue.
At this juncture, it would be appropriate to refer to the decision of Hon'ble Supreme Court in the case of Official Liquidator v. Dayanand and others, reported in (2009) 1 SCC (L&S) 943, in which, the aspect of judicial discipline has been discussed in detail.
xxxxxxxxxxxxx
There have been several instances of different Benches of the High Courts not following the judgments/orders of coordinate and even larger Benches. In some cases, the High Courts have gone to the extent of ignoring the law laid down by this Court without any tangible reason. Likewise, there have been instances in which smaller Benches of this Court have either ignored or bypassed the ratio of the judgments of the larger Benches including the Constitution Benches. These cases are illustrative of non-adherence to the rule of judicial discipline which is sine qua non for sustaining the system.”
(emphasis supplied)
The Madras High Court also placed reliance on the decision of the Supreme Court in Official Liquidator vs. Dayanand and others, (2009) 1 SCC (L&S) 943, in which the aspect of judicial discipline has been discussed in detail. Paragraph 90 of the decision of the Supreme Court in Official Liquidator, on which reliance has been placed by the Division Bench of the Madras High Court, is reproduced below:
“90. We are distressed to note that despite several pronouncements on the subject, there is substantial increase in the number of cases involving violation of the basics of judicial discipline. The learned Single Judges and Benches of the High Courts refuse to follow and accept the verdict and law laid down by coordinate and even larger Benches by citing minor difference in the facts as the ground for doing so. Therefore, it has become necessary to reiterate that disrespect to constitutional ethos and breach of discipline have grave impact on the credibility of judicial institution and encourages chance litigation. It must be remembered that predictability and certainty is an important hallmark of judicial jurisprudence developed in this country in last six decades and increase in the frequency of conflicting judgments of the superior judiciary will do incalculable harm to the system inasmuch as the courts at the grass root will not be able to decide as to which of the judgment lay down the correct law and which one should be followed.”
(emphasis supplied)
In the instant case, as noticed above, though there were two binding decisions of the Tribunal on the issue that had arisen for consideration before the Commissioner, but the Commissioner decided to not follow the decisions as according to him they had no precedence value.
What further needs to be noticed is that pursuant to the order dated 13.03.2018 passed by the Tribunal in Prem Henna decided on 13.03.2018, the Commissioner dropped the show cause notices after taking note of the fresh test report dated 17.11.2022 as also the decision dated 18.03.2021 of the Commissioner (Appeals) in the matter of Suresh and Company as also the order dated 20.03.2015 passed by the Commissioner in the matter of Meenakshi Heena Products as also the decision dated 19.12.2018 of the Tribunal in Prem Henna Centre.
The appellant would, therefore, clearly be entitled to avail the benefit of the Exemption Notification dated 17.03.2012, as amended on 01.03.2013, when manufacturing henna paste from henna powder.
In view of the aforesaid, it would not be necessary to examine the contention raised by the learned counsel for the appellant that the extended period of limitation could not have been invoked in the facts and circumstances of the case.
The order dated 30.12.2020 passed by the Commissioner is, accordingly, set aside and the appeal is allowed.
(Order pronounced on 03.01.2025)