By TIOL News Service

CHENNAI, JUNE 13, 2017: THIS is a Revenue appeal.

The respondent is engaged in the business of manufacturing lubricating oils falling under Chapter 27 and 34 of the CETA, 1985. It appears that they had filed a classification list in 1992 for various products and claimed exemption under Notification No.287/1986-CE as amended by Notification No.8/1992 dated 01.03.1992, Notification No. 120/1984 amended by 94/1989-CE.

The Department alleged that the goods were misclassified and consequently, the respondent had wrongly availed the benefit of the Notification(s).

In reply to the SCN the respondent submitted that the SCN did not indicate as to what should be the classification qua the subject products vis-à-vis which the Revenue had raised objection.

The AA passed an order denying the benefit of the notification claimed.

The Commissioner(A) remanded the matter and directed the AA to undertake a chemical analysis of the subject products and thereafter decide the entitlement of the impugned notification.

In de novo proceedings, the stand of the assessee that the products were lubricating oil/grease was rejected. The Adjudicating Authority held that the subject products were "lubricating preparations", and hence, the benefit of exemption under the Notification was not available to IOCL.

In appeal, the first appellate authority, once again, set aside the order of the Adjudicating Authority and remanded the matter for decision after obtaining the report of the Chief Chemical Examiner, Delhi.

The Adjudicating Authority, this time around, noted that the Chief Chemical Examiner had opined that there was no standard method available for ascertaining the percentage of mineral oil content in a finished product. Furthermore, the Adjudicating Authority observed that respondent had furnished all technical details in respect of the subject products. Consequently, the decision, according to the Adjudicating Authority, had to be based on, insofar as the classification was concerned, on the declarations furnished by the Assessee.

Accordingly, the Adjudicating Authority classified the subject products TAK40, Gear Compound-30 and SM 85/175/260 under heading 3403.00 and denied the exemption benefit claimed. However, RP 150 was classified under 2719.99 and benefit of exemption was extended. Duty was computed accordingly.

In appeals filed by both, the Revenue and the assessee, the Commissioner(A) allowed the one filed by Revenue but rejected that of the respondent assessee. In sum, the duty liability of respondent IOCL was enhanced to a sum equivalent to Rs.1,25,90,015/- as against what was provided in the Order-in-Original, which was equivalent to a sum of Rs.1,16,88,203/-. Furthermore, IOCL was directed to pay the aforementioned amount along with appropriate interest.

The Tribunal allowed the appeal of IOCL on the short ground that the SCN was vague; it did not indicate the sub headings under which the subject goods had to be classified; and lastly, did not quantify the duty, which was being demanded from IOCL. This conclusion was reached by the Tribunal, based on a perusal of record and the ratio of the judgement of the Supreme Court in the matter of Metal Forgings V. Union of India 2003 (2) SCC 36.

Revenue has, therefore, approached the High Court.

The counsel for the Revenue contended that the observations made by the Tribunal with regard to the deficiencies in the SCN had no relevance in view of the fact that the matter had been agitated by IOCL, on previous two occasions as well, and that, during the course of the proceedings before the Adjudicating Authority, albeit, on the third occasion, the duty and the period, for which, the duty was demanded, was, in fact, crystallised. Inasmuch as since in the earlier rounds the purported deficiencies in SCN had not been made an issue, there was, in a sense, acquiescence on the part of the IOCL.

That even the classification of the subject products, had been indicated in the order of the Adjudicating Authority, which was passed, though, in the third round, i.e. in the order dated 31.10.2005; that none of the findings of fact returned by the Tribunal had any relevance to the merits of the matter, as they had already been taken care of by the Adjudicating Authority.

The respondent submitted that the objection qua the deficiencies in the SCN went to the root of the jurisdiction of the Revenue to impose any liability on IOCL; that the SCN had four deficiencies - (i) First, it did not re-classify the subject products, (ii) Second, it did not indicate the period, for which duty was proposed to be levied, (iii) Third, it did not quantify the proposed duty, and (iv) Lastly, the order passed by the Adjudicating Authority in the third round seeks to proceed beyond the legal periphery of the SCN, as duty, is demanded, for the period beyond December 1992, which is the date of the SCN.

The High Court noted -

(i) The SCN dated December 1992, was served, admittedly, on IOCL.

(ii) The SCN took objection to the classification of the subject products by IOCL.

(iii) The SCN did not indicate as the sub-heading, under which, the subject products ought to have been classified.

(iv) The SCN did not indicate the period, for which, duty was being demanded.

(v) The SCN did not quantify the amount of duty, which was sought to be levied on IOCL.

It was further observed –

++ Given these undisputed facts, we are inclined to accept the contention … that the SCN was deficient in material particulars. The submission of Mr. Srinivas (counsel for Revenue), that the deficiencies pointed out hereinabove, in the SCN, had no relevance, in view of the fact that in the earlier rounds, the issues raised by IOCL, were different from that which were sought to be propounded before the Tribunal in this round and the Court in the instant appeal, does not cut much ice with us. The reason being that the deficiencies pointed out by IOCL go to the root of the jurisdiction of the Revenue to impose penalty based on the said SCN.

++ It is well settled that the issues pertaining to jurisdiction can be raised at any stage and even in collateral proceedings. The instant proceedings are the proceedings, which, in fact, emanate from the SCN issued in December 1992, and therefore, in that sense, the principle of law adverted to above applied with greater vigour in IOCL's case.

++ Furthermore, the record shows that right at the very inception, when, reply dated 25.08.1993, was filed by IOCL, the objection with regard to the untenability of the SCN was taken by IOCL. Furthermore, the record shows that even in its third round before the Commissioner, IOCL continued to press the said objection.

++ Therefore, there was no reason for the Tribunal not to entertain the objection and decide the matter, accordingly, since, the very basis and the foundation of the entire proceedings initiated by the Revenue was in jeopardy. It is, in these circumstances, that the Tribunal did not proceed to adjudicate upon the merits of the matter and, in our opinion, quite correctly so, as on jurisdiction, it came to a conclusion that the SCN, based on which proceeding against IOCL had been triggered, was not viable in law.

++ According to us, there could be no acquiescence, where, the issue involved pertains to jurisdiction. As a matter of fact, in our view, even the Lawyer could not have made a concession in this behalf. Moreover, even otherwise, it is a question of law qua which facts were not in dispute and hence, could have been raised before the Tribunal.

Concluding that there is no merit in the Revenue appeal, the same was dismissed.

(See 2017-TIOL-1094-HC-MAD-CX )