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i) Whether the “Relays” manufactured by the appellant used only as Railway signaling equipment would fall under Chapter 86, Tariff Item 8608 as claimed by the appellant or under Chapter 85 Tariff Item No.8536.90 as claimed by the Department ? (ii).whether the show cause­cum­demand notices issued by the Department on various dates during the period 1995­1998 were not barred by time under Section 11­A of the Central Excise Act, 1944, in the absence of any fraud, collusion, willful misstatement or suppression of facts, especially since the classification list submitted by the appellant have been approved on 27.08.1993

(i)  Whether   the   “Relays”   manufactured   by   the appellant used only as Railway signaling equipment would fall under Chapter   86, Tariff Item 8608 as claimed by the appellant or under Chapter 85 Tariff Item No.8536.90 as claimed by the Department ?

(ii).whether   the   show   cause­cum­demand   notices   issued   by   the Department on various dates during the period 1995­1998 were not barred by time under Section 11­A of the Central Excise Act, 1944, in   the   absence   of   any   fraud,   collusion,   willful   misstatement   or suppression   of   facts,   especially   since   the   classification   list submitted by the appellant have been approved on 27.08.1993

REPORTABLE

                 IN THE SUPREME COURT OF INDIA

                 CIVIL APPELLATE JURISDICTION

          CIVIL APPEAL NO.37 OF 2009

WESTINGHOUSE SAXBY FARMER LTD.           …Appellant(s)

Versus

COMMR. OF CENTRAL EXCISE CALCUTTA          …Respondent(s)

J U D G M E N T

V. RAMASUBRAMANIAN, J.

1. Aggrieved by the dismissal of their appeal by the  Customs

Excise and Service Tax Appellate Tribunal (for short “CESTAT”), the

1

assessee has come up with the present appeal under Section 35

L(b) of the Central Excise Act, 1944.

2. We have heard Shri Kunal Chatterji, learned counsel for the

appellant/assessee and Ms. Nisha Bagchi, learned standing counsel

for the respondent.

3. The   appellant   is   a   company   wholly   owned   by   the   State

Government of West Bengal. It is engaged in the manufacture of

“Relays” which is used as part of the Railway signaling system.

4. A ‘Relay’ is generally an electrically operated switch, used to

control a circuit. They may also be used where several circuits must

be controlled by one signal.

5.  Though essentially relays are electrical equipment, they may

also form part of Railway signaling equipment.

6. While the normal electrical relays fall under Tariff Item No.

8536.90, ‘Railways and Railways signaling equipment’ fall under

No. 8608.

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7. It   appears   that   from   01.03.1986   till   February­1993,   the

effective rate of excise duty charged under both sub­headings was

15% and hence the appellant had no problem with the classification

of their goods under sub­heading No.8536.90. But with effect from

28.02.1993, the effective rate of excise duty for the goods under

sub­heading No.8536.90 became much higher than the effective

rate of duty for the goods under sub­heading 8608.

8. On 27.08.1993, the appellant submitted a classification list for

the approval of the Assistant Collector, Central Excise. This list

provided details of the products manufactured by the appellant as

Railway   signaling   equipment,   including   relays   and   claimed   that

they should be classified under sub­heading 8608 and not under

8536   in   the   First   Schedule   to   the   Central   Excise   Tariff   Act.

Admittedly this classification list was approved by the competent

authority.

9. On   23.04.1996   the   Central   Board   of   Excise   and   Customs

issued   a   circular   indicating   that   ‘plug­in   type   relays’   merited

3

classification   under   the   Chapter   Heading   85.36.   Thereafter,   the

Assistant   Commissioner   of   Central   Excise   issued   nine   different

show   cause­cum­demand   notices   calling   upon   the   appellant   to

show cause as to why the goods should not be classified under the

Sub­Heading 8536.90 and why the differential duty should not be

collected together with the interest and penalty.

10. The   appellant   gave   reply   to   the   show   cause   notices,

contending that what was manufactured by them was supplied only

to Railways as part of the signaling equipment and that, therefore,

the show cause notices required to be dropped.

11. However,   the   Assistant   Commissioner   passed   9   separate

Orders­in­original on 20/21.12.2001 confirming the demand.  The

dates of the show cause notices, the period to which each one of

them   related   to,   the   differential   excise   duty   arrived   at   by   the

Adjudicating Authority and the penalty imposed by the Adjudicating

Authority are provided in a tabular column for easy appreciation as

follows:­

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Show Cause

Notice Date

Period Involved Differential

Duty

Penalty

30.08.1995 01.02.1995 to 31.07.1995 Rs. 3,04,662    Rs. 5000

05.02.1997 27.10.1995 to 09.01.1996 Rs.    66,311 1.    Rs. 

2000

09.02.1996 01.08.1995 to 31.01.1996 Rs.    95,978 2.    Rs. 

2000

06.08.1996 01.02.1996 to 31.07.1996 Rs. 1,63,843.25 1.    Rs. 

5000

06.02.1998 01.08.1996 to 31.01.1997 Rs.  2,69,842 2.    Rs. 

5000

07.08.1997 01.02.1997 to 31.07.1997 Rs.  1,53,441.583.    Rs. 

5000

04.09.1998 February 1998 Rs.     41,509.204.    Rs. 

2000

05.09.1998 01.03.1998 to 31.08.1998 Rs.  3,71,922.575.    Rs. 

5000

05.03.1999 01.09.1998 to 28.02.1999 Rs.  1,99,180 6.    Rs. 

5000

Total Duty Imposed/ Total Penalty 

Imposed

Rs.16,67,109/­ 7.   

Rs.36,000/­

12. Aggrieved   by   the   Orders­in­original,   the   appellant   filed

statutory appeals. All the nine appeals were partly allowed by the

Commissioner (Appeals) by an Order dated 29.08.2003. By this

Order, the Appellate Authority confirmed the classification made by

the Adjudicating Authority and the consequential differential duty

demanded   by   the   Adjudicating   Authority.   However,   the   penalty

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imposed   by   the   Original   Authority   was   set   aside   by   the

Commissioner (Appeals).

13. Challenging   that   portion   of   the   order   of   the   Commissioner

(Appeals)   upholding   the   proposed   classification   and   demanding

differential duty, the appellant filed an appeal before CESTAT.  The

CESTAT dismissed the appeal by a final order dated 26.03.2008. It

is against the said order that the appellant has come up with the

present appeal under Section 35L(b) of the Central Excise Act, 1944.

14. The questions that arise for our consideration in this appeal

are:

(i)  Whether   the   “Relays”   manufactured   by   the

appellant used only as Railway signaling equipment

would fall under Chapter   86, Tariff Item 8608 as

claimed by the appellant or under Chapter 85 Tariff

Item No.8536.90 as claimed by the Department ?

(ii) Whether   the   show   cause­cum­demand   notices

issued by the Department on various dates during

the   period   1995­1998   were   not   barred   by   time

under Section 11­A  of the Central Excise Act,1944,

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in   the   absence   of   any   fraud,   collusion,   willful

misstatement   or   suppression   of   facts,   especially

since   the   classification   list   submitted   by   the

appellant have been approved on 27.08.1993?

Question No.1

15.  For finding an answer to question No.1, it is necessary first to

see the description of the goods that fall under Chapter 85 and

Chapter 86 with particular reference to the relevant Tariff Items

thereunder.   Chapter   85   covers   goods,   described   as  “Electrical

machinery and equipment and parts thereof; sound recorders and

reproducers, television image and sound recorders and reproducers,

and parts and accessories of such articles.”

16. Chapter   Heading   8536   covers  “Electrical   apparatus   for

switching or protecting electrical circuits, or for making connections to

or in electrical circuits (for example, switches, relays, fuses, surge

suppressors,   plugs   sockets,   lamp­holders   and   other   connectors,

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junction boxes), for a voltage not exceeding 1,000 volts; connectors

for optical fibres, optical fibre bundles or cables.” 

17. Sub­heading 8536.90 covers “other apparatus”. This includes

(i)  Motor starters for AC motors under sub­heading 8536.90.10;

(ii)  Motor starters for DC motors under sub­heading 8536.90.20;

(iii) Junction boxes under sub­heading 8536.90.30; and (iv) others

under sub­heading 8536.90.90.

18. Chapter 86 covers “Railway or tramway locomotives, rollingstock   and   parts   thereof;   railway   or   tramway   track   fixtures   and

fittings and parts thereof; mechanical (including electro­mechanical)

traffic signaling equipment of all kinds.”

19. Chapter   Heading   8608   covers  “Railway   or   tramway   track

fixtures   and   fittings;   mechanical   (including   electro­mechanical)

signaling safety or traffic control equipment for railway, tramways,

roads, inland waterways, parking facilities, port installation or airfields; parts of the foregoing”.

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20. There   are   five   sub­headings   under   Chapter   Heading   8608

which are as follows:

8608 00 10

8608 00 20

8608 00 30

8608 00 40

8608 00 90

­Railway   and   tramway   track   fixtures   and

fittings………………..

­Mechanical equipment, not electrically powered for

signaling   to,   or   controlling,   road   rail   or   other

vehicles, ships or aircraft

­Other   traffic   control   equipment   for

railways……………………

­Other traffic control equipment for roads or inland

waterways   including   automatic   traffic   control

equipment for use at ports and airports

­Other ……………………………………

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21. The   Assistant   Commissioner   who   passed   the   Orders­inOriginal felt that the ‘Relays’ manufactured by the appellant fell

only under the category of ‘Electrical machinery’ covered by Chapter

85 and that in view of Note 2(f) of Section XVII, the expressions

“parts” and “parts and accessories” appearing in Chapter 86 do not

apply to electrical machinery or equipment, covered by Chapter 85.

The   Assistant   Commissioner   also   relied   upon   Rule   3(a)   of   the

“General   Rules   for   Interpretation   of   the   First   Schedule”   to   the

Central Excise Tariff Act, 1985 to hold that the Heading which

provides   the   most  specific   description   shall   be   preferred   to   the

Heading   providing   a   more   general   description.   Therefore,   the

Original Authority held that since “Relays” do not find a mention in

Chapter 86, but finds a specific mention in Chapter Heading 8536,

the same has to be classified only under sub­Heading 8536.90.

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22. The   Appellate   Authority   agreed   with   the   assessee   that   the

Relays manufactured by them are used solely as part of the Railway

signaling equipment, but held that in view of Note 2(f) of Section

XVII,   the   Orders   of   the   Original   Authority   did   not   call   for   any

interference. However, the Appellate Authority set aside that portion

of   the   Orders   of   the   Original   Authority   by   which   penalty   was

imposed.   This   was   on   the   ground   that   the   classification   list

submitted by the appellant on 27.08.1993 was approved by the

competent Authority and that, therefore, the appellant could not be

taken to have violated the provisions of the law.

23. CESTAT, by the Order impugned in the present appeal, merely

concurred with the reasoning given by the Appellate Authority and

dismissed the appeal.

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24. As could be seen from the Orders of the Original Authority and

the first Appellate Authority, the answer to question No.1 revolves

around the description of goods found in Chapters 85 and 86, as

well   as   the   Notes   in   Section   XVII   and   the   General   Rules   for

Interpretation of the First Schedule. We have already extracted the

description of goods in Chapters 85 and 86. Therefore, let us now

take note of the relevant Notes in Section XVII and the relevant Rule

of the General Rules for interpretation of the First Schedule.  

25. Section 2 of the Central Excise Tariff Act, 1985 provides that

the rates at which duties of excise shall be levied under the Central

Excise Act, 1944 are specified in the First Schedule and the Second

Schedule.   The First Schedule contains a set of Rules known as

“General Rules for the Interpretation of this Schedule”.  These Rules

begin   with   a   mandate   that   the  “classification   of   goods   in   this

Schedule shall be governed by the principles laid thereunder.”

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26. Rule 1 of these Rules makes it clear that “the titles of Sections,

Chapters and Sub­Chapters are provided for ease of reference only

and   that   for   legal   purposes,   classification   shall   be   determined

according to the terms of the Headings and any relative Section or

Chapter Notes and provided such headings or Notes do not otherwise

require, according to the provisions of the rules that follow”.

27. Rule 2 deals with (i) incomplete or unfinished articles; and (ii)

mixtures or combinations of material or substance. While Rule 2(a)

deals with incomplete or unfinished Articles, Rule 2(b) deals with

mixtures or combinations of a material or substance.

28. Rule 3 deals with cases where goods are classifiable under two

or more sub­headings. But Rule 3 begins with a reference to Rule

2(b). Therefore, it is necessary to extract Rule 2(b) and Rule 3

together. They read as follows:

“2. (a)  xxxx 

13

(b) Any reference in a heading to a material or substance shall be

taken to include a reference to mixtures or combinations of that

material   or   substance   with   other   materials   or   substances.   Any

reference to goods of a given material or substance shall be taken to

include a reference to goods consisting wholly or partly of such

material or substance. The classification of goods consisting of more

than one material or substance shall be according to the principles

of Rule 3. 

3. When by application of rule 2(b) or for any other reason, goods

are,   prima   facie,   classifiable   under   two   or   more   headings,

classification shall be effected as follows: 

(a)  the   heading   which   provides   the   most   specific

description shall be preferred to headings providing a

more general description. However, when two or more

headings  each refer to part only of the  materials or

substances contained in mixed or composite goods or to

part only of the items in a set put up for retail sale,

those headings are to be regarded as equally specific in

relation to those goods, even if one of them gives a more

complete or precise description of the goods. 

(b)  mixtures,   composite   goods   consisting   of   different

materials   or   made   up   of   different   components,   and

goods put up in sets for retail sale, which cannot be

classified by reference to (a), shall be classified as if

they consisted of the material or component which gives

them their essential character, insofar as this criterion

is applicable. 

(c)  when goods cannot be classified by reference to (a) or

(b), they shall be classified under the heading which

occurs   last   in   numerical   order   among   those   which

equally merit consideration.”

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29. Interestingly Rule 2(a) speaks about “Article”, Rule 2(b) speaks

about “material or substance” as well as “goods of a given material

or substance” and Rule 3 speaks about “goods”.

30. In the case on hand, the claim of the assessee was that the

relays manufactured by them were part of the railway signaling

equipment. But all the Authorities were of the unanimous view that

this   product   is   referable   to   goods   of   a   specific   description   in

Chapter sub­Heading 8536.90 and that, therefore, General Rule

3(a) will apply.

15

31. But   in   invoking   General   Rule   3(a),   the   Authorities   have

omitted to take note of 2 things. They are : (i) that as laid down by

this Court in Commissioner of Central Excise  Vs.  Simplex Mills

Co. Ltd1

 the General Rules of Interpretation will come into play, as

mandated in Rule 1 itself, only when no clear picture emerges from

the terms of the Headings and the relevant section or chapter notes;

and  (ii)  that in any case, Rule 3 of the General Rules can  be

invoked only when a particular good is classifiable under two or

more Headings, either by application of Rule 2(b) or for any other

reason. Once the authorities have concluded that by virtue of Note

2(f) of Section XVII, ‘relays’ manufactured by the appellant are not

even classifiable under Chapter Heading 8608, we do not know how

the Authorities could fall back upon Rule 3(a) of the General Rules.

There is a fundamental fallacy in the reasoning of the Authorities,

that Rule 3(a) of the General Rules will apply, especially after they

1  (2005) 3 SCC 51

16

had found that ‘relays’ are not classifiable under Chapter Heading

8608, on account of Note 2(f) of Section XVII.

32. Coming to Section XVII, which precedes Chapter 86, the same

contains a few notes, one of which is Note 2, which lists out certain

articles   to   which   the   expressions  “parts”  and   “parts   and

accessories” mentioned in Chapter 86 do not apply. Note 2 (f) reads

as follows:­

“1. xxxx

 2. xxx

(a) xxxx

(b) xxxx

(c) xxxx

(d) xxxx

(e xxxx

(f) electrical machinery or equipment (Chapter 85)”

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33. Note 2(f) is relied upon by the Revenue, in view of the fact that

Chapter Heading 8608 uses the words “parts of the foregoing” after

the   words   “Railway   or   tramway   track  fixtures   and  fittings”   etc.

Chapter   Heading   8608   does   not   specifically   mention  “electrical

relays”. The assessee’s contention is that “it is part of the railway

signaling  safety or traffic control equipment”  and that, therefore,

Relays manufactured by them would fall under Chapter Heading

8608 due to the usage of the word “parts”. It is this contention that

is sought to be repelled by the Authorities by relying upon Note 2(f)

of Section XVII.

34. Though at first blush, Note 2(f) seems to apply to the case on

hand, it may not, upon a deeper scrutiny. 

35. Note 3 of Section XVII reads as follows:

“References in Chapters 86 to 88 to “parts” or “accessories” do not

apply to parts or accessories which are not suitable for use solely or

principally with the articles of those Chapters. A part or accessory

which answers to a description in two or more of the headings of

those   Chapters   is   to   be   classified   under   that   heading   which

corresponds to the principal use of that part or accessory.”

18

36. What is recognized in Note 3 can be called the “suitability for

use test” or ‘the user test’. While the exclusion under Note 2(f) may

be of goods which are capable of being marketed independently as

electrical machinery or equipment, for use otherwise than in or as

Railway signaling equipment, those parts which are suitable for

use solely or principally with an article in Chapter 86 cannot be

taken to a different Chapter as the same would negate the very

object of group classification. This is made clear by Note 3.  

37. It is conceded by the Revenue that the relays manufactured by

the appellant are used solely as part of the railway signaling/ traffic

control equipment. Therefore, the invocation of Note 2(f) in Section

XVII, overlooking the “sole or principal user test” indicated in Note

3, is not justified.  

38. On the question as to what test would be appropriate in a given

case, this court pointed out in A. Nagaraju Bros Vs. State of A.P.2

,

as follows: 

2   1994 Supp( 3) SCC 122

19

“…..there is no one single universal test in these matters. The

several decided cases drive home this truth quite eloquently. It is

for   this   reason   probably   that   the   common   parlance   test   or

commercial usage test, as it is called, is treated as the more

appropriate test, though not the only one. There may be cases,

particularly in the case of new products, where this test may not

be   appropriate.   In   such   cases,   other   tests   like   the   test   of

predominance, either by weight of value or on some other basis

may have to be applied. It is indeed not possible, nor desirable, to

lay down any hard and fast rules of universal application

Therefore,   the   respondents   ought   not   to   have   overlooked   the

‘predominant use’  or ‘sole/principal use’ test acknowledged by the

General Rules for the Interpretation of the Schedule.

39. As pointed out by the Commissioner (Appeals), the goods were

previously classified (before 1993) under Sub­heading 8536.90, but

a   revised   classification   list,   classifying   them   under   sub­heading

8608, submitted by the appellant, was approved by the competent

Authority   on   27.08.1993.   After   such   specific   approval   of   the

classification list, it is not proper on the part of the Authorities to

invoke Note 2(f) of Section XVII. Hence question No.1 is answered in

favour of the appellant and against the Revenue. 

Question No.2

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40.  The second question that arises for consideration is as to

whether   the   show   cause­cum­demand   notices   issued   by   the

Department on various dates during the period 1995­1998 were not

barred by time under Section 11­A of the Central Excise Act, 1944,

in   the   absence   of   any   fraud,   collusion,   willful   misstatement   or

suppression   of   facts,   especially   since   the   classification   list

submitted by the appellant have been approved on 27.08.1993.

41. At the outset we should point out that this is not a case where

the extended period of limitation would apply, especially in the light

of the admitted position that the assessee who had his product

classified under sub­heading 8536.90 till the year 1993, specifically

filed a classification list on 27.08.1993, reclassifying them under

sub­heading   8608   and   the   same   was   also   approved   by   the

competent authority. Therefore, there is no question of any fraud or

collusion or any willful misstatement or suppression of facts or

contravention of any of the provisions of this Act or of the rules

made there under with intent to evade payment of duty.  It is not

21

even the case of the Department that the appellant was guilty of

any   of   these   things,   warranting   the   invocation   of   the   extended

period of limitation. Therefore, the conclusion is inescapable that

the Revenue had only the normal period of limitation available to

them to invoke the power under Section 11­A.

42. As a matter of fact the first Appellate Authority held in the

penultimate paragraph of its Order as follows:

“I find that the subject goods were previously classified under subheading   No.8536.90   and   then   the   appellant   asked   for

reclassification of the goods under sub­heading No.8608.00.   The

new classification was approved by the proper authority and the

appellant paid duty according to the approved classification.  Hence

there is no violation of any provisions of law on the part of the

appellant and therefore penalty is not imposable under rule 173Q.

43. The Appellate Authority also held without any discussion, that

the show cause notices were issued within the time limit envisaged

in   Section  11­A   and  that  “any   discussion   on   the   jurisdiction   of

invocation of extended period is not at all required”.  Therefore, it is

obvious that none of the Authorities chose to invoke the extended

period of limitation, but proceeded on the footing that all show

22

cause notices were issued within the normal period of limitation. If

only any of the Authorities had taken care to look at the dates of the

show cause notices, the period covered by those notices and the

normal period of limitation that prevailed at that time, they could

have easily found that the show cause notices were at least partly

time barred.

44. The normal period of limitation for invoking Section 11­A was

six months until 11.05.2000 and the same was modified as one

year by Act 10 of 2000 with effect from 12.05.2000. This period of

one year was modified as two years by Act 28 of 2016 with effect

from 14.05.2016. Keeping this in mind let us now have a look at the

dates of issue of show cause notices and the period covered by the

show cause notices. They are as follows:

S.No. Date of Show Cause 

Notice 

Period covered by the Show 

Cause Notice

1 30.08.1995 01.02.1995 to 31.07.1995

2 09.02.1996 01.08.1995 to 31.01.1996

3 05.02.1997 01.08.1996 to 31.01.1997

4 07.08.1997 01.02.1997 to 31.07.1997

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5 06.08.1996 01.02.1996 to 31.07.1996

6 06.02.1998 01.08.1996 to 31.01.1997

7 04.09.1998 February 1998

8 05.09.1998 01.03.1998 to 31.08.1998

9 05.03.1999 01.09.1998 to 28.02.1999

45. It could be seen from the above table (i) that all show cause

notices were of a date prior to 12.05.2000 and hence the normal

period of limitation was only six months; and  (ii)  that at least a

couple of show cause notices were issued in respect of a period

partly or fully beyond the period of limitation. Unfortunately neither

the Appellate Authority nor CESTAT took care to analyze the show

cause notices individually with reference to the period covered by

them.

46. In any case all the show cause notices were issued only on

and after 30.08.1995, raising a classification dispute, after having

approved   the   classification   list   submitted   on   27.08.1993.     The

dispute   in   the   case   on   hand   was   one   of   classification   alone,

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applicable to the product manufactured during the entire period

after 27.08.1993. The dispute was not invoice­centric. Therefore,

what was sought to be done by the Original Authority was actually

to   review   the   approval   of   the   classification   list   submitted   on

27.08.1993 by cleverly issuing separate notices covering certain

specific periods. What is to be seen here is that the attempt to undo

the effect of the approval of the classification done on 27.08.1993,

was actually time barred. Therefore, despite the fact that some of

the individual notices were issued within the period of limitation

either in respect of the part of the period or in respect of the whole

of the period covered by them, the very invocation of Section 11­A,

in the facts and circumstances of the case, cannot be said to be

within time.

47. Therefore, both questions of law are answered in favour of the

appellant and the appeal is allowed. The Orders­in­Original, the

Order of the Appellate Authority and the Order of the CESTAT are

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set aside. Consequently, the show cause­cum­demand notices are

also set aside. There will be no order as to costs. 

…………....................CJI.

(S. A. Bobde)

....…………....................J.

 (A. S. Bopanna)

  …..………......................J.

(V. Ramasubramanian)

March 08, 2021

New Delhi

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