High time Board's circular was made binding on Commissioner Appeals

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One of the latest judgments of the Supreme Court has given a chance to correct a long-standing anomaly in Customs, excise and service tax laws that while a Board's classification circular is binding on the executive commissioner and other lower assessing officers, it is not binding on the Commissioner, Appeals. Section 151A of Customs Act, 1962, says that the Board can issue circulars to direct the officers to make classification in a particular manner but sub-section (b) makes this inapplicable to Commissioner, Appeals. Section 38 B (b) also provides the same on the central excise side. The same applies to service tax also. These sections introducing the power of the Central Board of Excise and Customs (CBEC) to give instructions to the officers were brought about by amendments during the Budget in 1985. But, the Commissioner, Appeals, were not to be bound by the Board's circulars for classification. The idea was that the Commissioner, Appeals, was to be independent. This has resulted in an anomaly which was not realised at that time.

A classic case of anomaly arises when the Commissioner, Appeals, does not follow the circular of the Board but gives an order different from the circular. The junior officers making classification such as the Assistant Commissioners, are supposed to follow the Board's circular. If they follow the Board's order, it will be against the order of the Commissioner, Appeals.

Take a Commissioner, Appeals' jurisdiction. The Commissioner of Kolkata has a jurisdiction which includes West Bengal, Odisha, Bihar, Assam and the other eastern states. If the commissioner orders the classification at the rate of 30 per cent for some goods, all officers of these states have to classify them at the rate of 30 per cent. But the Board's circular says that it is 40 per cent. So, the whole of India will classify the rate of 40 per cent while some states will classify them at the rate of 30 per cent. There will be a serious dichotomy. The very purpose of bringing Sections 151A and 38B is lost when such a serious difference of practice in classification happens.

The situation faced by the officers is also uncertain and even risky. Whom will they follow? If they follow the Board's order, they will have to go against the order of the Commissioner, Appeals, whom they also have to follow as that is the judicial discipline. If they do not follow the Commissioner, Appeals, then the very purpose of an appellate order is meaningless.

I know specific cases where assistant commissioners have been charge-sheeted, since they did not follow the Board's order. During the departmental proceeding, in one particular case, that I know well, the assistant collector took the plea that he was also bound by the order of the Commissioner, Appeals, as well. The Board merely dropped the proceedings but did not correct the basic legal anomaly that haunts the Department.

A good opportunity has come when the Supreme Court has now passed an order in the case of Swetha Engineering Ltd vs CCE reported in 2016 (335) ELT 193(S.C).

In this judgment, the facts are that a Board's circular for classification was issued on 2.4.2012 for classification of boiler parts cleared separately, (not being a boiler in dismantled condition), as parts attracting a lower rate.

The Commissioner, Appeals, did not follow the circular. The Supreme Court set aside the order of the Commissioner, Appeals, and also the CESTAT's order saying that it is not necessary to go into the details of merits since the Board's circular clarifies that the goods are parts of the boiler. It is clear that the Supreme Court has held that the order of the Board for classification is binding on the Commissioner, Appeals.

This is one opportunity when the Board should cite this judgment of the Supreme Court and correct the anomaly described above. For this the sub-section 151A (b) of Customs and sub-section 38 B (b) of central excise relating to Collector Appeal and the relevant sub-section in service tax should be deleted in the next Budget. This will mean that the Commissioner, Appeals, will only determine if the classification has been done in consonance with the Board's order of classification. If there is no order of the Board, which happens in most of the cases, then the commissioner will be entitled to enter into the merit of the case. This will bring in uniformity.

The writer is retired member of the Central Board of Excise and Customs
smukher2000@yahoo.com