Union of India & Ors. v. Madhumilan Syntex Pvt. Ltd. & Anr.

KANIA, J. This is an appeal against the judgment of a Division Bench of the Madhya Pradesh High Court, Jabalpur (Indore Bench) in H M. Petition No. 104 of 1984. The appeal is filed at theinstance of the }- U.0.1. v. MADHUMILAN SYNIBX [KANIA, J.J 84.1 Union of India, Collector of Central Excise, Indore and two other A excise officers. The respondents are the original petitioners in the aforesaid petition. We propose to refer to the parties by the descrip- tion in the petition. The facts necessary for the di:posal of this appeal can be shortly y stated. B The petition~r No. 1 is a Company manufacturing spun yam. According to the petitioners, in the manufacture of the said product ~ they use as raw material cellulosic fibres and non-cellulosic fibres. Some time prior to 7th July, 1983, the petitioners filed a classification list in respect of the spun .Yam manufactured by them showing the c same as covered by Item No. 18(111) (i) in the First Schedule to the Ce11tral Excises and Salt Act, 1944 (referred to hereinafter as the "Central Excise Act"). The said schedule is generally referred to as the "Central Excises Tariff'. This classific~. :ion was on the basis that the spun yam was manufactured by them out of non-cellulosic synth- etic waste. The said classification list was approved by the excise au- D thorities on 7th July, 1983. A supplementary classification list was approved on 15th October, 1983. The petitioners were clearing the goods on the basis of aforesaid classification lists. It appears that sam- ) pies were drawn out of the spun yam manufactured by the petitioners and sent for chemical examinatioin. There are some reports submitted by the Chemical Analyser, with the details of which we are not con- JO cerned. Without giving any show cause notice or affording any op- portunity to the petitioners to be heard, on 7th February, 1984, the Superintendent of Central Excise issued a notice of demand for a total sum of Rs.26,47,749.39 against the petitioner No. 1 on the footing that '( there was short paym• 11t of excise duty. This was done on the ground that the yam manufactured by the petitioners had been manufactured F out of waste of synthetic fibres in blend of viscose fibres (of non- cellulosic origin) and hence the said goods manufactured by them were liable to be classified under Central Excises Tariff Item No. 18(III)(ii). It is an admitted position that the yam manufacturing process used· by the petitioners was with the aid of power. The petitioners filed the aforesaid writ petition in the High Court of Madhya Pradesh challeng- G J ing the validity of the said notice of demand dated 7th February, 1984. The High Court granted an interim stay of the operation of the demand notice on 9th February, 1984. On the same day, namely, 9th February, 1984, an order was passed by the Assistant Collector of Central Excise modifying the approval granted to the aforesaid clas- sification lists submitted by the petitioners which had been approved H """ A as aforesaid and classifying the aforesaid product under Item No. 18(111) (ii) of Schedule 1 of the Central Excises Act. On 10th February, 1984 a notice was issued by the Superintendent, Central Excise on the petitioner No. 1 reciting inter alia that the Assistant Collector had modified the approval of the classification lists on 9th February, 1984 and calling upon the petitioner No. 1 to show cause B why the duty short levied should not be recovered from them under '"( the provisions of Section 11-A of the Central Excises Act. A second similar show cause notice was also issued. The petitioner No. 1 wrote to the excise authorities pointing out that in view of the aforesaid writ petition filed by the appellant, the adjudication proceedings should be ~ stayed till writ petition was disposed of. This request was turned down c on 5th March, 1984 and orders of adjudication were passed by the Assistant Collector modifying the classification lists and confirming the demand made under the aforesaid notice of demand. The petition- ers thereupon amended the aforesaid writ petition filed by them and challenged the two show cause notices as well as the said orders of adjudication dated 5th March, 1984. The petitioners also filed an D appeal before the Collector of Central Excises (Appeal) against the orders of adjudication dated 5th March, 1984. On 24th November, 1984 by the impugned judgment, the Madhya Pradesh High Court allowed the aforesaid writ petition in part. Mulye, J. held by his judg- ment that the writ petition was allowed to the extent that the demand ~ for recovery of Rs.26,47, 749 .39 for the period 15th August, 1983 to E 6th February, 1984, which was the period referred to in the demand notice was quashed. However, the learned Judge directed the Col- Jector, Central Excise before whom the appeal filed by the petitioners was pending to decide the appeal in respect of the demand made by the excise authorities for the subsequent period. Giani, J., the other learned judge, in his concurring judgment set aside the two roders ;r- F issued by the Assistant Collector, Central Excise, Ujjain Division both dated 5th March, 1984 as set out earlier. Copies of these adjudication orders are at Annexure R/10 and R/11 respectively to the writ petition. Very shortly put, both the Jndges held that the notice of demand and the orders modifying the classification list served on the petitioners were .bad in Jaw and ordered that the same be quashed. A perusal of G the judgment also clearly indicates that the Division Bench directed that the Collector, Central Excise (Appeal) should hear the appeal of the petitioners on merits after giving the petitioners an adequate .A opportunity to put their case and their evidence before him in respect of the period from 7th February, 1984 onwards. Thus, the Division Bench took the view that the show cause notice served on the petition- H ers could be treated as valid and effective only in respect of the period ~ .. U.O.l. v. MADHUMJLAN SYNTEX [KANIA, J.] 843 from 7th February, 1984 onwards and not retrospectively from 15th August, 1983 to 6th February, 1984 being the period for which the den:.and has already been made in the demand notice dated 9th February, 1984. As far as the relevant items in the First Schedule of the Central Excises Act are concerned, it is not necessary to set out the same in detail. It will be enough to point out that if the ce11ulosic spun yam made by a manufacturer with the aid of power contains man made fibre of non-cellulosic origin, it will fall under Item No. 18(111) (ii), but if it does not contain any man-made fibre of non-cellulosic origin, it will fall under Item No. 18(111) (i) and duty would be leviable there at a lower rate. The relevant portion of Section 11-A of the Central Excises Act runs as follows: "When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, a Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with D the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount·specified in the notice: Privided that where any duty of excise has not been E levied or paid or has been short-levied or short-paid or erroneously·refunded by reason of fraud, collusion or any wilful mis-statement or suppression of fact, or contraven- tion of any of the provisions of this Act or of the rules made therunder with Intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall F have effect, as if for the words "Central Excise Officer", the words "Collector of Central Excise" and for the words "six months", the words "five years"·were substituted.", A perusal of the aforesaid provisions shows that before. any demand is made on any person chargeable in respect of non-levy or G short levy or under payment of duty, a notice requiring him to show cause why he should not pay the amounts specified in the notice must be served on him. It is the admitted position in the present case that no such notice was served. It would thus appear that the aforesaid demand notice dated 7th February, 1984 was in violation of the provi­ sions of Section 11-A and is bad in law. Mt. Govind Das, learned H 844 SUPREME COURT REPORTS [19881 3 S.C.R. A counsel for the appellant, however, contended that although the aforesaid Section provides that no demand could be made against a person therunder without affording that person an adequate opportun­ ity to show cause against the same, in the present case, though no prior show cause notice was given and the petitioners were not given an opportunity to be heard before the notice of demand was issued, such B a notice was issued and an opportunity to show cause was given after the demand was made and the demand confirmed after hearing and hence it must be regarded as valid. It was submitted by him that a post facto show cause notice should be regarded as adequate in law. In support of this contention Mr. Govind Das tried to place reliance on certain decisions where a view has been taken that in cases where ,urgent and emergent action is required, an opportunity to be heard can c be given after the order affecting a person adversely is passed and that where a particular Act does not provide for any such opportunity to be heard being given before an adverse order is passed, a post facto opportunity to be heard might, in certain cases, be regarded as ad­ equate compliance with principles of natural justice. We are of the D view these cases .have no relevance in considering the questions before us because it is quite apparent that in the present case no urgent or emergent action was required and Section 11-A of the Central Excises Act clearly provides that prior show cause notice must·be issued to the person against whom any demand on ground of short levy or non-levy of payment of excise duty is proposed to be made. In Gokak Patel E Vokkart Ltd. v. Collector of Central Excise, Belgaum, A.LR. 1987 S.C. 1161 this Court has held that the provisions ofSection 11-A(l) & (2) of Central Excises and Salt Act, 1944 make it clear that the' statut­ ory scheme is that in the situations covered by sub-section (1), a notice of show cause has to be issued and sub-Section (2) requires that the cause shown by way of representation has to be considered by the F prescribed authority and then only the amount has to be determined. The scheme is in consonance with the rules of natural justice. An opportunity to be heard is intended to be afforded to the person who is likely to be prejudiced when the order is made before mak1ng the order. Notice is thus a condition precedent to a demand under sub­ Section (2). In view of the aforesaid decision the submission of Mr. Govind Das must be rejected and it must be held that the aforesaid notice of demand was clearly bad in law and the High Court was fully, with respect, justified in quashing the same. · H The next submission of Mr. Govind Das was that, in any event, U.0.1. v. MADHUMILAN SYNTEX [KANIA, J.J 845 as the Collector of Central; Excise (Appeals) had been directed to A examine the merits ·of the matter in respect of·alkged short levy or non-levy •and the modification of the classification lists aft~r allowing adequate opportunity to the petitioners to show cause in respect of the period from 7th February, 1984, onwards, the question as· to whether there was short levy or ·non-levy in respect of the period from 15th August, 1983 to 6th February, 1984 should even also be allowed to be B decided by the Collector. It was submitted by Mr. Govind Das that although the notice of demand may be set aside .the notice to show cause dated 9/lOth February, 1984 should be treated as a va1id and effective notice in respect of the period from 15th August, 1983 to 6th February, 1984 as well as the period from 7th February, 1984 onwards. In this connection, it is the submission of Dr. Chitale that this notice merely asked the petitioners to show cause against calculation or determination of the amount of short levy and not against the altera­ tion in the classification lists on the basis of which short-levy was alleged and hence, in respect of the said period from 15th August, 1983 to 6th February, 1984the show cause notice is liable to be struck down. In our view the submission of Dr. Chitale deserves to be accepted. The opening paragraph of the show cause notice refers to the service of notice of demand dated 7th February, 1984 for Rs.26,47,749.39 on the petitioner. Paragraphs 2 and 3 of the said notice run as follows: "AND whereas the Assistant Colle'ctor Central Excise, Ujjairt under his letter C.N. V(18)III/l/l/83/l371-1374 E dated 9th Feb., 84'has modified approval of the classifica- tion lists of the party and has directed that the short levied should be quantified by the Inspector, Central Excise, Biaora/Superintendent Central Excise, Ujjain and confir­ mation or otherwise of such short levied and recoveries :if any would be ordered by him (AssistantCollector .Central F Excise, Division Ujjain) after followiitg the prescribed procedure. · THEREFORE, in. accordance with the said order of the Assistaii.t Collector; Central Excise Division, U jjain, you are called upon to show cause to the Assistant Collector, G 'Central Excise, Ujjain within 10 days of the receipt of this show cause notice as to why the short levies of Rs.26, 47, 749.39 should not be recovered from you, under Section 11-A of the Central Excise and Salt Act, 1944." A reading of these paragraphs clearly shows that the notice set H A out as an established fact that the dassificatii>il lists submitted by the petitioners had been modified by the Assistant Collector, Central Excise, Ujjain and the only matter with respect to which the petition­ ers were asked to show cause was with regard to the quantification of the amount of the short levy and consequently, the amount which was B liable to be recovered from the petitioner No. 1. This notice, there­ fore, cannot be regarded as a show cause notice against the modifica­ tion of the classification iists in respect of the aforesaid period. In these circumstances, the show cause notice is bad in law and of no legal effect as far as the said earlier period is concerned. Under Section 11-A of the Central Excise Act, the notice can relate only to a period of six months prior to the issue of that notice except in cases where it is C alleged the short levy or short payment has occurred by reason of fraud, collusion or wilful misrepresentation or suppression of facts or contravention of the provisions of the said Act or rules made by the period concerned, as contemplated in the proviso to sub-Section (1) of Section 11-A. No such case has been sought to be made here in the said show cause notice. The result is that the said show cause notice D must be struck down in so far as period upto 6th February, 1984 is concerned, and can be regarded as a proper show cause notice only in respect of the subsequent period from 7th February, 1984 onwards. We are, therefore, of the view that under the said show cause notice the question of short levy or non-levy of excise duty prior to 6th E February, 1984 cannot be gone into by the Collector and the High Court was right in the view which it took. , In the result, the appeal fails and is dismissed with costs. S.L. Appeal dismissed.