M/S. RAINBOW INDUSTRIES (P) LTD.versusTHE COLLECTOR OF CENTRAL EXCISE, VADODARA

                 M/S. RAINBOW INDUSTRIES (P) LTD.                                   A
                                       v.
      THE COLLECTOR OF CENTRAL EXCISE, VADODARA

                             OCTOBER 4, 1994

              [R.M. SAHAI AND M.K. MUKHERJEE, JJ.]
                                                                                    B

      Central Excise Rules, 1944:

       Rule 173(2}-Sales to related persons-Price list in prescribed proforma
submitted by assessee-Department accepting and acting upon it--Reclas-              C
sification by Department-consequent revision of price and show cause
notice for levy of difference--Held: Reclassification is valid but effective from
date of show cause notice and not earlier.

      The appellant, a manufacturer of dye-stuff, filed a price list in the
prescribed proforma as applicable for sales to related persons, showing             D
various includible and excludible expenses as well as assessable value. This
was approved by the department on 6th December 1975 and the approval
was to be effective from 1st October 1975. After about a year the Assistant
Collector issued a show cause notice requiring the appellant to show cause
as to why the net assessable value should not be revised and differential           E
duty recovered from the appellant. The reply of the appellant was not
accepted by the Assistant Collector or by the Appellate Collector. The
Tribunal also did not accept the same.

       In the appeal, it was contended that the classification and the price
list submitted by .the appellant having been accepted and acted upon under          F
Rule 173 (2) of the Central Excise Rules, 1944 the Department was estopped
from claiming that the appellant was guilty of suppression of facts; and
that law does not comptemplate issuing of any notice merely because the
Department felt that a particular Item was dutiable in another entry.
Alternatively it was contended that if the calculation resorted to by the           G
Department is held to be correet it should apply from the date of issue of
notice and not from the date when the price list was submitted.

      Allowing the appeal, this Court

      HELD : 1. Since the appellant did not dispute the method adopted              li
                                      135
         : 136                 SUPREME COURT REPORTS (1994} SUPP. 4 S.C.R.

     A    for calculation or the duty by the Department, the question or lack or
          jurisdiction to lnltlaie proceedings Is not necessary to be decided as the
          power to Issue show-cause notice vests even If the duty was short·levled as
          a result or erroneous application of law. [137-G]

                 z. However, once the Department accepted the price list, acted upon
     B It and the goods were cleared with the knowledge of the department, then
           in the absence of any amendment io law or judicial pronouncement or
           Intention to evade duty, the reclassification should be effective from the
           date the Dep11rtment Issued the sho~ cause notice. [137-H, 138-A}

     C           Collector of Central Excise, CalcUtta v. Indian Oxygen Ltd., Kluvdah,
           [1990] 48 E.L.T. AZ4 referred to.          ·                  ·

                 CIVIL APPELLATE JURISDICTION                     Civil Appeal No.
           3148(NM) of 1985.

     D           From the Judgment and Order dated 21.11.84 of the Central Cus-
           toms Excise and Gold (Control) AppeUate Tribunal, New Delhi io 0. No.
           759/84A."

                 S. Ganesh and Ms. Poonam Madam for the Appellant

     E          A.K Ganguli, AK. Srivas1ava, V.K Verma and Ms. Sushma Suri for
           the Respondent                           •. .

                 The Judgment of the Court w~ delhrered by

                 R.M. SAHAI, J. The short question of law that arises for considera-
     F lion in this appeal directed against the judgment and order of the Customs
           Excise & Gold (Control) AppeUate Tribunal, New Delhi, is whether th: .
           classification and the price list accepted by the Department and acted ~~
           upon, found ~ubsequently to be erroneous, is to be applied prospectively
           or retrospeCtively.
     G
                The appellant, a manufacturer of dye-stuff, ftled a price list in Part ·
'i        IV profor~ as. appli:able for sales to related persons. The price Jist
.i        showed va~ous mcludible and excludible expenses as weU as assessable
 I
r         value as cl:umed by the appellant. This was approved by the Department
          on 6th December 1975 and the assessable value as declared was accepted
     H    The approval was to be effective from 1st October 1975. After nearly a yea;
       RAINBOW v. COLLECTOR OF C. EXCISE [R.M. SAHAI, J.]              137

the Assistant Collector issued a show cause notice requiring the appellant A
to show cause as to why the net assessable value as per the method shown
in the annexure should not be revised and differential duty recovered from
the appellant. The reply of the appellant was not accepted either by the
Assistant Collector or by the appellate Collector or the Tribunal. In fact
before the Tribunal it was conceded on behalf of the appellant that the B
method for determining the assessable value in the price list submitted by
the appellant was not correct.

       The order of the Tribunal was challenged and it was urged that the
classification and the price list submitted by the appellant having been
accepted and acted upon under Rule 173(2) of the Central Excise Rules,        C
1944 the Department precluded the appellant from challenging it and,
therefore, it is estopped from claiming that the appellant was guilty of
suppression of facts. The learned counsel urged that the classification and
 the price list having been accepted and acted upon, the Department was
not justified in taking proceedings under Section 11A of the Central          D
Excises & Salt Act, 1944. It was also urged that the Department could not
have changed its opinion and the law does not contemplate issuing of any
notice only because the Department felt that a particular item was dutiable
in another entry. In the alternative the learned counsel submitted that
where the Department has been acting upon the price list submitted by the
appellant worked out in one manner but the Department claims that it          E
should be calculated in a different manner then even if the calculation
resorted to by the Department is held to be correct it should apply from
the date of issue of notice and not from the date when the price list was
submitted. Reliance for it was placed on the order passed by this Court
in Civil Appeal Nos. 1960-61 of.-1988 in the case of Collector of Central     F
Excises, Calcutta v. Indian Oxygen Ltd., Kh01dah, Decided on 17th March,
1989-1990 (48) E.L.T. A 24.

      Since the appellant did not dispute that the method of calculation of
the duty by the department was correct, th.e submission of the learned
counsel on lack ofjurisdiction to initiate proceedings is not necessary to G
be decided as the power to issue show-cause notice vests even if the duty
was short- levied as a result of erroneous application of law. However, once
the Department accepted the price list, acted upon it and the goods were
cleared with the knowledge of the Department, then in absence of any
amendment in law or judicial pronouncement the reclassification should be H
    138                   SUPREME c;ouRT REPORTS [1994) SUPP. 4 S.C.R.

A   effective from the date the Department issued the show-cause notice. The
    reason for it is clearance with the knowledge of the Department and no
    intentiun to evade payment of duty.

          In the result, this appeal succeeds and is allowed in part. The
    appellant is held liable to pay duty on the dye-stuffs manufactured by it in
B   the manner calculated by the Department from 16th October, 1976, the
    date the show-cause notice was issued to the appellant.

           Parties shall bear their own costs.

    G.N.                                                       Appeal allowed.