K. Sankararaman, Member (T)

1. The Miscellaneous Application for taking on record additional documents viz., copies of notifications, show cause notices, reply and written submissions before the Collector, is allowed.

2. Shri A.K. Bhowmick appeared for the petitioners who have sought waiver of predeposit of the amount of duty demanded and penalty imposed on them vide Collector of Central Excise, Bhubaneswars Order-in-Original dated 31-1-1992, as a condition for the hearing of their appeal. Shri Bhowmick submitted that the notice is barred by limitation and the allegation of misstate-ment, suppression and mala fide intention to evade duty has been made only to justify the invoking of the longer time limit for the issue of the notice. They are manufacturers of cement and for packing the same they receive HDPE fabrics from which they make bags by cutting and stitching them. The HDPE bags are exempt from duty in terms of exemption Notification No. 223/86. Initially the notification was applicable subject to the condition that woven sacks are manufactured on flat knitting looms. The notification was amended with effect from 7-1-1987 vide amending Notification No. 3/87 whereby the said notification was made non-applicable if woven sacks are manufactured on circular looms. Through another amending notification, Notification No. 57/90 dated 27-3-1990 an explanation was added to the effect that woven sacks would be deemed to have been woven on circular looms if such sacks are made out of fabrics woven on circular looms. Shri Bhowmick contended that the Notifications are to be interpreted and applied as per their actual wording, and there is no room for applying the criterion of intcndment. He relied upon the following judgments :

(1) 1978 (2) E.L.T. J355 (S.C.) -). K. Steel Ltd. v. Union of India

(2) 1986 (26) E.L.T. 367 (Tribunal) - Collector of Customs (Bombay) v. Warner Hindustan Ltd.

The 1990 amendment introducing the Explanation cannot be held to have retrospective application and applied to the earlier notification as clarifying the scope of the proviso therein regarding sacks manufactured on circular looms. In support of this line of argument regarding the prospective applicability of Explanations in statutes, he cited the following decisions :

(1) 1978 (2) E.L.T. J375 - Cannanore Spinning & Weaving Mills Ltd. v. Collector of Customs and Central Excise, Cochin.

(2) 1982 (10) E.L.T. 895 - Neelam Prints v. Deputy Superintendent of Central Excise

(3) 1986 (25) E.L.T. 318 (Tribunal) - Indye Chemicals v. Collector of Central Excise, Ahmedabad.

3. Shri Bhowmick then submitted that the show cause notice issued on 28-8-1991 covering alleged short payment of duty during the period from 2-12-1986 to 31-12-1989 was clearly hit by limitation and only to get over the said handicap allegation of suppression etc. has been made for applying the extended period of limitation. The officers were regularly visiting their factory and they had seen their manufacturing activity including the production of HDPE bags. What they had stated in their declarations for claiming exemption was correct and truthful according to their understanding. They had bonafide believed that HDPE bags manufactured by them were eligible for exemption. As laid down by the Supreme Court in Collector of Central Excise v. Chemphar Drugs & Liniments Ltd. reported in 1989 (43) E.L.T. 276, to attract the longer period of limitation for the issue of show cause notice something more positive than mere inaction is required. There is no such irregularity involved in this case and the longer period is not attracted. He pleaded for grant of stay.

4. The arguments were strongly resisted by Shri S. Dutt Majumder, learned Senior Departmental Representative. He submitted that the crucial question in the present matter is whether the Explanation introduced vide Notifications dated 7-1-1987 and 27-3-1990 have retrospective effect. These are classificatory and therefore, they have retrospective effect. The earlier proviso introduced in terms of Notification dated 20-11-1986 restricted the benefit of exemption to sacks manufactured on flat knitting looms. This was amended vide Notification dated 7-1-1987 whereby it was laid down that the exemption would not be available to sacks manufactured on circular looms. The last amendment dated 27-3-1990 added an explanation that woven sacks would be deemed to have been woven on circular looms if such sacks are made out of fabrics woven on circular looms. The learned S.D.R. submitted that sacks cannot be manufactured from circular looms directly. Only fabrics are manufactured first from the circular looms and not sacks and such fabrics are then stitched to make sacks. In view of this position, the explanation contained in the Notification dated 27-3-1990 was only classificatory. He referred to the circular dated 18-11-1988 issued by the Central Board of Excise and Customs regarding HDPE/PP woven fabrics in circular from a copy of which has been included as Annexure-12 in the enclosures to the appeal submitted by the petitioners themselves. It has been clarified that the materials manufactured in circular looms are in tubular form and are not flat in nature but still they are known as fabrics. He contended that the petitioners had suppressed vital facts while applying for exemption from licensing control vide their application dated 1-1-1987 (Annexure -2 to their appeal). They had referred in this application to exemption from duty under Notification No. 223/86 dated 3-4-1986 and in respect of the basis for exemption they had stated that appropriate duty of excise had been paid in respect of such of the raw materials as have been used in the manufacture of the goods. The process of manufacture has been shown as stitched out of HDPE Tubes/fabrics which are exempted from duty. Similar declarations had been repeated by them vide letters dated 13-4-1987 and 11-4-1988. These have been fully discussed in the Collectors order. As observed by the Collector therein, they had suppressed the fact that the sacks/bags were manufactured out of fabrics made on circular looms. This is the only criterion regarding the said exemption and this had been suppressed by them and instead a different and wrong reason has been given by them in their applications, referred to above. The Collector has referred to the decisions of Supreme Court and the Tribunal laying down that for claiming an exemption, mere staking of claim is not sufficient but complete information or data showing fulfilment of conditions or requirements of the exemption notification should also be set out clearly. These decisions are :

(1) 1989 (43) E.L.T. 183 (S.C.) - Tata Oil Mills v. Collector of Central Excise

(2) 1986 (25) E.L.T. 338 (Tribunal) - Grauer & Weil (India) Ltd. v. Collector of Central Excise

(3) 1988 (38) E.L.T. 429 (Tribunal) - Again & Gem Laboratories v. Collector of Central Excise By filing declarations without disclosing the correct facts, they had evaded duty and the longer period of limitation has been correctly applied by the Collector. Shri Dutt Majumder pleaded that the stay prayed for may be refused.

5. Shri Bhowmick, learned Consultant gave a rejoinder to the arguments advanced by the learned S.D.R. While reiterating the point already made by him that they had disclosed the facts as known to them, he invited our attention to the letter dated 19-4-1989 wherein they had stated that if the Department have any comments on their declaration, they may be intimated immediately so that they can take action as required to avoid any legal complication in future. This letter was addressed to the Assistant Collector and copy endorsed to the Superintendent. The letter had been duly received on 20-4-1989. They did not get any reply from the Department. No observation was taken or any direction given. Demand and show cause-cum-demand notice were issued later on in March 1990 and April 1990. In this connection, the learned Consultant referred to the decision of the Tribunal in Collector of Central Excise v. Mazaffarnagar Steels, reported in 1989 (44) E.L.T. 55. It has been held therein that once the classification has been approved, the Department has to bear the consequences thereof, and that the extended period of time is not invokable in the absence of deliberate suppression or misstatement of facts. The issue of clarification indicates that the matter was not free from doubt and the Government had to issue the same for the guidance of all concerned. While they had not suppressed any facts in their declaration or made any misstatement, it was open to the departmental authorities, making use of the clarification issued, to guide them properly and decide the classification matter correctly and deny the benefit of exemption to them if they were not eligible for the same. Having failed to do so, it is not open to them to issue a notice belatedly alleging misstatement, suppression etc. which were actually not there at all. Shri Bhowmick pleaded, in conclusion, for the grant of stay.

6. We have considered the submissions made. For the purpose of the stay petition, it would not be necessary to consider all the points raised. The main thrust of the arguments of Shri Bhowmick is that they had furnished a bona fide declaration of the facts in their knowledge and had committed no suppression or misstatement. They had specifically sought instructions if the Department had any comments vide their letter dated 19-4-1989. The manner in which they had sought Departments comments to be intimated to them so that they can take action as required to avoid any legal complication in future is rather unusual and not a simple declaration for claiming exemption from licensing consequent to exemption from duty. In their own previous declarations dated 1-1-1987, 13-4-1987 and 11-4-1988 they had given simple declarations. The unusual declaration vide their letter dated 19-4-1989, possibly points to some doubt in their mind. All the same, they had specifically indicated that if the Department had any comments on their declaration they may be intimated immediately, so that they can take action as regard to avoid any legal complications in future. They gave this declaration on 19-4-1989, when the exemption Notification in question was not applicable if the woven sacks were manufactured on circular looms. The deemed manufacture of sacks on circular looms if they are made out of fabrics woven on circular looms was spelt out vide amendment dated 27-3-1990. The demand pertains to the period 2-12-1986 to 31-12-1989 which is before the said amendment dated 27-3-1990. The contention of the applicants is that the amendment can have effect only prospectively and they were entitled to the exemption as their woven sacks were not manufactured on circular looms. Whether the Explanation regarding the deemed status of woven sacks as manufactured on circular looms if they are made from fabrics which are woven on circular looms would have retrospective effect, if this Explanation is held to be of a clarificatory type, is the moot question which will come up for decision in the appeal. At the present interlocutory stage, we feel there is an element of doubt in their favour as they had given the declaration and sought confirmation (comments) from the Department. That sacks as such are not manufactured on circular looms and what are manufactured on circular looms are fabrics which are then cut and stitched into sacks is a fact which is not unknown and should not have been unknown to the Department in view of the circulars and instructions. It is not that they gave a declaration that they manufactured sacks from fabrics not woven on circular looms. But their staking a claim for exemption under the relevant Notification impliedly constituted a claim that they did not manufacture the woven sacks on circular looms. The question will be whether such an implied claim would constitute a misdeclaration or suppression. We feel the element of doubt present in the circumstances of the case would justify the grant of stay. We, accordingly, grant waiver of pre-deposit of the disputed amounts for the hearing of the appeal and stay of recovery of the said amounts during the pendency of the appeal.

7. The Registry should transfer the appeal to the Special Bench of the Tribunal for disposal.