The Gujarat High Court has set aside orders passed by the adjudicating authority and the appellate authority in a Central Excise dispute after finding that the adjudicating authority had made unwarranted observations contrary to the directions issued by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bengaluru. 

The bench of  Justice A.S. Supehia and Justice Vaibhavi D. Nanavati has observed that the observations made by the Adjudicating Authority is not only contemptuous but, egregious as the Adjudicating Authority has recklessly recorded that he is inclined to hold a contrary view from that of the Tribunal as it is not the function of the Chief Chemist to give an opinion as to whether the goods in question would be covered by the particular tariff item or not.

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The petitioners/assessee, who were also appellants before the CESTAT, had challenged the actions of the Commissioner concerning the denial of CENVAT credit for classifiable goods falling under different tariff headings.

The CESTAT, through its order dated June 15, 2023, remanded the matter to the Commissioner for reconsideration of the classification and valuation of the disputed products. The Tribunal also directed the authority to examine the question of demanding duty for the extended period while taking into account the fact that the classifications had been approved and regular returns had been filed by the appellant.

The dispute involved 27 products, for which the classification was to be determined with reference to the applicable Central Excise Tariff headings and supporting technical material. 

The CESTAT took note of technical evidence submitted by the appellant, including certification from Dr. R. Sundaravadivelu, Professor of the Department of Ocean Engineering, IIT Madras, and a technical opinion from Dr. R. Nagendra, Technical Director of Civil-Aid Technoclinic Pvt. Ltd.

The Tribunal directed the adjudicating authority to consider the test reports and technical opinions placed on record, including the opinion of IIT Madras, before arriving at a conclusion regarding the classification of the 27 products.

The Tribunal observed that valuation under Section 4A of the Central Excise Act, 1944, depended on the classification of the products. Accordingly, it directed that valuation be examined after redetermining classification in light of the technical reports.

The Tribunal also directed the Commissioner to consider the appellant’s contention that regular returns had been filed and the classifications had been approved from time to time, with the department being aware of the same. The question of invoking the extended period under the proviso to Section 11A was left for consideration upon remand. 

Following the remand, the adjudicating authority passed an order dated August 30, 2024. The authority determined Central Excise duty amounting to ₹3,42,79,213 and imposed a penalty after classifying the 27 products under Central Excise Tariff headings 3208, 3210, 3214, and 3402.

The classification covered goods under Chapters 32 and 34 of the First Schedule to the Central Excise Tariff Act, 1985.

The subsequent proceedings became the subject of judicial scrutiny because of observations made by the adjudicating authority while dealing with the Tribunal’s directions and the technical evidence placed on record. 

The Gujarat High Court took serious note of the observations made by the adjudicating authority, particularly the statement that the authority was inclined to take a view contrary to the CESTAT’s approach regarding the need for testing products for classification.

The adjudicating authority had recorded that there was no mandatory requirement for testing goods for determining classification. It also relied upon a decision of the Gujarat High Court concerning the evidentiary value of test reports and observed that the Chief Chemist’s function was to provide data obtained through chemical analysis rather than determine whether goods fell under a particular tariff item.

The authority nevertheless stated that the CESTAT’s directions to examine the classification afresh would be given full respect and that the disputed products would be examined carefully.

The High Court, however, found the observations concerning the Tribunal to be unwarranted and described the conduct as a serious instance of insubordination toward a statutory quasi-judicial forum. 

The Division Bench observed that the adjudicating authority had recklessly recorded an inclination to hold a contrary view to that of the CESTAT. The Court described the observations as not only contemptuous but also egregious.

The High Court’s concern was not merely about the final determination of classification or duty. It specifically addressed the manner in which the adjudicating authority had referred to and dealt with the Tribunal’s directions.

The Court emphasized the significance of complying with the directions of the appellate tribunal while undertaking fresh adjudication following a remand.

The relevant observations arose in the context of the adjudicating authority’s treatment of the Tribunal’s directions concerning testing, technical reports, and classification of the disputed products. 

During the hearing, the High Court indicated that it was inclined to issue directions for appropriate disciplinary action against the adjudicating authority and to impose personal costs.

However, the Senior Standing Counsel appearing for the respondents requested that no such action be taken. It was submitted that the adjudicating authority had ultimately determined the excise duty on the basis of other evidence.

At the same time, the counsel acknowledged that the observations made by the adjudicating authority against the Tribunal were unnecessary and uncalled for. The respondents requested that the matter be remanded to the adjudicating authority instead of proceeding with adverse action.

The petitioner’s advocate, Mr. Paresh M. Dave, stated that there was no objection to the proposed remand.

After considering the submissions, the High Court accepted the request for remand while simultaneously warning the adjudicating authority against repeating the comments. 

The High Court further examined the order dated September 18, 2024, passed by the Joint Commissioner in appeal, which had confirmed the adjudicating authority’s order dated August 30, 2024.

The Court found that the appellate order suffered from the same infirmity because the entire order of the adjudicating authority had been incorporated into the appellate decision. Consequently, the appellate order was also held to suffer from non-application of mind.

The Court therefore set aside both the original adjudication order and the subsequent appellate order.

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