ECHJAY INDUSTRIES LTD Vs. UNION OF INDIA

JUDGEMENT

(1.) By filing the instant petition under Article 226 of the Constitution, the petitioners have prayed to issue a writ of certiorari, or any other appropriate writ or a direction to quash the order dated January 31, 1990, passed by the Collector of Customs and Central Excise, Rajkot, by which the petitioner Nos. 2 and 3, who are Managing Director and General Manager respectively of the petitioner No. 1-Company, are visited with penalty of Rs. 25000/- and Rs. 10,000/- respectively, in terms of Rule 173Q(1) of the Central Excise Rules, 1944 . In the alternative, the petitioners have prayed that Rules 221 and 225 of the Central Excise Rules, 1944 be declared ultra vires the provisions of the Central Excises and Salt Act, 1944.

(2.) The petitioner is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing forgings and forged products. The forgings are products made by roughly shaping the steel by the process of rolling or forging. Prior to August 1, 1983, Tariff Item 26AA(ia) of the erstwhile First Schedule to the Act specifically covered forged or rolled shapes and sections . There was total exemption on all such forged or rolled shapes and sections, which were made from duty paid steel vide Exemption Notification dated November 30, 1963. After August 1, 1983, Tariff Item 26AA was recast and in its place, erstwhile Tariff Item 25 was legislated. The said tariff entry read pieces roughly shaped by rolling or forging of iron or steel not elsewhere specified. The earlier exemption was also continued vide Notification dated August 1, 1983. This position continued till February 28, 1986 when the new Tariff Act was brought into force. The petitioner No. 1 carried out its activities under L-4 Licence and had submitted classification lists, which were approved by the competent authorities. After the new Tariff Act came into force, Tariff Item 25(8) was recast in the form of Tariff Heading 72.08, which was identical with the wordings of the erstwhile Tariff Item 25(8). Therefore, the petitioners kept on filing classification lists classifying their forgings under Tariff Heading 72.08. The exemption available earlier was also continued vide Notification dated August 1, 1983 as amended by Notification dated February 10, 1986. From May 29, 1986 onwards, the petitioners sought to avail of the Modvat credit on steel used only for manufacture of forgings for railway tyres. The petitioners also filed a classification list to this effect, which was approved by the competent authorities. On September 25, 1986, the Assistant Collector of Central Excise visited the premises of the petitioner No. 1-Company and effected large scale seizure of the forgings for railway-tyres. As a consequence of seizure, a show-cause notice was issued claiming that forgings for tyres fell under Chapter Heading 86.07 and not under Chapter Heading 72.08. The petitioners filed reply and contested the claim advanced in the show-cause notice. However, the Collector vide order dated January 31, 1990 confirmed the show-cause notice and imposed penalty of Rs. 15 lakhs on the petitioner No. l as well as penalty of Rs. 25,000/- and Rs. 10,000/- respectively on the petitioner Nos. 2 and 3. The imposition of penalty on the petitioner Nos. 2 and 3 is subject matter of challenge in the instant petition.

(3.) This Court has heard Mr. D. G. Trivedi, learned counsel appearing for the petitioner and Mr. J. M. Malkan, learned Assistant Solicitor General of India appearing for the respondents, at length and in great detail.