Copies of Test Reports Justifying Reclassification Products under Central Excise Tariff Act must be Disclosed to Manufacturer: Supreme Court [Read Judgment]

The Supreme Court ruled that when a test report forms the basis for reclassification of the petrochemical products, necessitating a higher duty, than the copy of such test reports ought to be furnished to the manufacturer-taxpayer.

Oswal Petrochemicals Ltd,  the appellant  filed appeal under Section 35L(b) of the Central Excise Act, 1944. Since the three appeals arise out of the common order dated 21.05.2010 passed by the Customs, Excise and  Service Tax Appellate Tribunal, West Zonal Bench at Mumbai  and are inter-related with parties being the same, those were heard together and are being disposed of by this common judgment and order.

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By the impugned order dated 21.05.2010, CESTAT dismissed the appeals filed by the appellant and partly allowed the appeal filed by the respondent. The differential duty demand in respect of the two products Benzene and Toluene for the period September, 1990 to December, 1992 amounting to Rs. 1,97,17,015.00 and for the period January and February, 1993 of Rs. 18,16,304.00 have been upheld. In respect of the aforesaid two products, CESTAT has also held that contents of the test reports on the basis of which tariff classification of the above two products were changed leading to higher duty and hence differential duty were duly communicated to the appellant. CESTAT has also held that the assessments covering the said period were not provisional except for the months of January and February, 1993.

The disputes arose from the reclassification of two products, i.e., Benzene and Toluene, under the Central Excise Tariff Act, 1985, leading to demands for differential excise duty. The Respondent-department issued show-cause notices for differential duty totaling ₹1.97 crore (1990–1992) and ₹18.16 lakh (January–February 1993), alleging misclassification. The Customs, Excise, and Service Tax Appellate Tribunal (“CESTAT”) upheld the demand in 2010, prompting Oswal to approach the Supreme Court.

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According to the ruling written by Justice Bhuyan, which set aside the contested order, the appellant was never given access to the test reports supporting the reclassification, depriving it of the opportunity to request a retest in accordance with Rule 56(4) of the Central Excise Rules, 1944. In order to claim a retest under Rule 56(4), assessors must be fully informed of test findings, as required by Rule 56(2). But since the appellants in this case were not informed, the department's failure to communicate test reports tainted the reclassification procedure as a whole.

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The division bench of Justices Abhay S. Oka and Ujjal Bhuyan dismissed the ₹2.15 crore central excise duty demand against M/s Oswal Petrochemicals Ltd., arguing that the revenue authorities had disregarded important evidence, including the test report that supported the petrochemicals' reclassification that resulted in the higher duty, in violation of natural justice principles.

The court observed that a copy of the test report has to be furnished to the manufacturer. In such circumstances, extracting the gist of the test reports, that too in the show-cause notices, would clearly be in breach of Rule 56 (2) and Rule 56 (4) of the Central Excise Rules. Such a procedure is not contemplated under Rule 56.

To Read the full text of the Order CLICK HERE

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