By TIOL News Service

MUMBAI, SEPT 14, 2018: THE respondent is engaged in processing of Cinematographic Films.

For the purpose of processing of cinematographic films, the respondent makes various chemical preparations known as colour developer, stop bath, bleach, fixer, stabilizer, etc. by mixing different chemicals in pre-determined quantities. During the processing, the film passes through various baths/chambers/stages consisting of these chemical preparations.

Revenue took a view that these "chemical preparations for photographic uses" are classifiable under CETH 3707 of the CETA and chargeable to CE duty.

It was also noticed that during processing of the film, silver residues are obtained which are classifiable under Chapter 26 and excise duty is payable thereon.

Demand notices were issued and confirmed and in the first round of appeal, the Tribunal had remanded the matter by its order dated 11.07.2008.

This order was challenged by the Revenue but the Bombay High Court dismissed the appeal.

Pursuant to denovo adjudication, the demands were again confirmed and an appeal came to be filed before the CESTAT for the second time.

Relying on the decision in Prasad Film Laboratories - 2005-TIOL-1083-CESTAT-BANG where it is held that chemical preparations captively consumed in the processing/developing of negative cinematographic films do not have any shelf life and hence are not marketable and not excisable; that as per the HSN Explanatory Note, waste of precious metal is classifiable under Ch. 71 and Ch. 26 specifically excludes the waste of precious metals and under Chapter 71, silver is exempt from duty and, therefore, the impugned demands are not sustainable in law, the assessee pleaded.

It was submitted that in spite of specific directions from this Tribunal to examine the marketability aspect of the goods, the adjudicating authority had not examined the same and merely confirmed the duty demand and, therefore, the impugned orders are not sustainable in law.

It was further informed that the appellant has been discharging service tax on the film processing activity since 2001-2002 onwards and, therefore, the demand of excise duty on the chemical preparations cannot be made by treating the same as manufacturing activity.

The CESTAT allowed the appeals with consequential relief. We reported this order as 2013-TIOL-1901-CESTAT-MUM.

Revenue is aggrieved and has taken the matter to the Bombay High Court.

Following questions of law were framed by Revenue for consideration -

(a) Whether in the facts and circumstances of the case and in law, was Tribunal right in setting aside the order in original dated 27.08.2009 instead of remanding back the matter for fresh consideration of the issue of marketability and excisability of the goods?

(b) Whether in the facts and circumstances of the case, the impugned order dated 12.11.2013 passed by the Tribunal is in violation of principles of natural justice?

(c) Whether in the facts and circumstances of the case, the Tribunal is right in disapproving the issue of marketability of the goods already established vide order in original No.5/2000 dated 31.05.2000 which had attained finality on the issue of marketability?

(d) Whether in the facts and circumstances of the case, the Tribunal has failed to appreciate the order of Hon'ble Apex Court in case of Bhor Industries Ltd. And Medley Pharmaceutical Ltd. in its true letter and spirit?

The respondent raised a preliminary objection that the appeal filed by the Revenue is not maintainable in view of Section 35G(1) of the CE Act, which excludes the jurisdiction of the High Court from an order of the Tribunal dealing with issue of rate of duty of excise i.e. manufacture or not for the purpose of assessment; that the remedy, if any, is appeal before the Supreme Court in terms of Section 35L(1)(b) and (2) of the Act; that the issue is no longer res integra in view of the decision in Bajaj Auto Ltd. - 2015-TIOL-3028-HC-MUM-ST  and where it is held that the insertion of sub-section (2) in section 35L is clarificatory.

The counsel for the Revenue placed reliance on the decision in Global Vectra Helicorp Ltd. Vs. C.S.T. Mumbai (CEA No.66 of 2014, decided on 23rd March, 2015) where the High Court had entertained an appeal with regard to taxability of the services. It was also submitted that the decision in Global Vectra was rendered on 23rd March 2015 whereas that of Bajaj Auto on 24th June 2015; that the decision in Global Vectra was not noticed while delivering the decision in Bajaj Auto.

The High Court noted that the said order in Global Vectra Helicorp Ltd. was not a case deciding the competing entries for classification but the impugned order had decided the taxability of the services itself; that after having considered the amended provision of s.35L i.e. 35L(2) of the CEA, 1944, the appeal was entertained although Revenue had raised an objection about the maintainability of the appeal.

Sub-section (2) inserted in Section 35L of the CEA, 1944 by the Finance Act, 2014 (w.e.f 06.08.2014) reads -

(2) For the purposes of this Chapter, the determination of any question having a relation to the rate of duty shall include the determination of taxability or excisability of goods for the purpose of assessment.

The High Court further observed -

"9. There is no dispute between the parties that post insertion of sub-section (2) to Section 35L of the Act w.e.f. 6th August, 2014, issues of taxability and excisability arising from the order of the Tribunal would be appealable to the Hon'ble Supreme Court. The issue on which there seems to be an apparent conflict of view is in respect of orders passed by the Tribunal prior to 6th August, 2014 in the two orders of this Court i.e. Global Vectra Helicorp Ltd. (supra) and Bajaj Auto Ltd. (supra). There is one more variant which is possible in case the amendment is held to be non-clarificatory. The variant is that the amendment made on 6th August, 2014 by insertion of subsection (2) of Section 35L of the Act will not take away vested rights of an appeal in regard to excisability / taxability i.e. of filing an appeal to this Court and, thereafter, to the Supreme Court."

The High Court further viewed that the the decision in Global Vectra Helicorp Ltd. (supra) cannot be said to be per incuriam as the High Court was conscious of the amendment made to Section 35L of the Act and which is evident from the specific reference made to Section 35L(2) of the Act in the order.

It was, therefore, observed -

"12. Therefore, taking into account the fact that the issue involves the very jurisdiction of this Court to entertain appeals from orders of the Tribunal, it would be best that apparent conflicting views of this Court, one as indicated in Global Vectra Helicorp Ltd. (supra) and the other in Bajaj Auto Ltd. (supra), be resolved by a larger bench of this Court."

The Registry was directed to place the papers and proceedings of the appeal before the Chief Justice to obtain suitable directions to place following questions of law before the larger bench to decide :-

(a) Whether the question of taxability or excisability of goods is an issue of rate of duty arising from orders of the Tribunal which are appealable only to the Supreme Court in terms of Section 35L(2) of the Act applies even to appeals from order of the Tribunal passed prior to 6th August, 2014 (i.e. the date of insertion of Subsection (2) to Section 35L of the Act)?

(b) Whether the amendment made to Section 35L of the Act on 6th August, 2014 by insertion of subsection (2) therein, is clarificatory or prospective in nature?

In passing:

++ Paragraph 246 of the Budget Speech -

++ The TRU letter D.O.F.No. 334/15/2014-TRU dated 10th July 2014 mentions the following -

(See 2018-TIOL-1900-HC-MUM-CX)

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