M/S J.K. Synthetics Limited & ... vs Union Of India, Through The ...
2008 Latest Caselaw 992 Del

           THE HIGH COURT OF DELHI AT NEW DELHI

%                                  Judgment delivered on: 10.07.2008

+               WP (C) 166/1981

M/S J.K. SYNTHETICS LIMITED & ANOTHER                            ... Petitioners


                                   - versus -

UNION OF INDIA, THROUGH THE SECRETARY,
MINISTRY OF FINANCE AND OTHERS      ... Respondents

Advocates who appeared in this case:

For the Petitioners : Mr Pravin Bahadur with Mr Rajan Narain For the Respondents : None

CORAM:-

HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE RAJIV SHAKDHER

1. Whether Reporters of local papers may be allowed to see the judgment ?

2. To be referred to the Reporter or not ?

3. Whether the judgment should be reported in Digest ?

BADAR DURREZ AHMED, J (ORAL)

1. This matter was passed-over once. It has been taken up on

second call. Nobody appears on behalf of the respondents.

Consequently, this writ petition has been heard in the absence of the

respondents as this court is left with no other alternative. The matter

has been pending since 1981 and no further indulgence can be granted

to any of the parties.

2. The petitioner has challenged the order dated 16.10.1980

passed by the revisional authority (Government of India). The revision

was preferred by the petitioner against the order dated 28.01.1978

passed by the Appellate Collector, which, in turn, arose out of the

order-in-original dated 03.07.1973 passed by the Assistant Collector.

3. The issue involved in the present proceedings is with regard

to the availability of exemption in respect of clearances of alleged

waste of nylon tow and nylon staple fibre cleared by the petitioner

during the period December, 1971 to February, 1972 claiming

classification under Tariff Item 18 in the First Schedule to the Central

Excise and Salt Act, 1944. The petitioner has sought the benefit of the

exemption notification No.53/72-CE which exempted other waste items

falling under Tariff Item 18 from so much of the Central Excise Duty

as was in excess of Rs 5/- per kg. The normal Central Excise Duty

leviable on such waste was Rs 30/- per kg.

4. A letter dated 24.04.1973 was issued by the Assistant

Collector to the petitioner in which it was contended that the earlier

order passed by the Superintendent of Range-I, Kota vide his letter

dated 25.01.1973 approving the petitioner's said classification was

beyond the said Superintendent's competence and was, therefore,

invalid. It was also stated in the letter that the classification is to be

approved by the Assistant Collector and the petitioner was advised to

file a separate classification list in respect of the goods in question and

that the same should not be cleared without approval of the

classification list by the Assistant Collector. It may be relevant to note

that the clearances in question had already been done prior to the

issuance of this letter on the basis of the orders passed by the

Superintendent. The petitioner sent a reply on 26.04.1973 explaining

the circumstances under which the classification of the subject goods

was validly done by them and indicating that the petitioner was not

required to file a separate classification list and should be allowed to

continue despatches of the subject goods to parties to whom the goods

had already been sold. Thereafter, the Assistant Collector passed the

order-in-original on 03.07.1973 denying the exemption claimed by the

petitioner on merits. Pursuant to the Assistant Collector's order dated

03.07.1973, a demand notice dated 17.07.1973 for the sum of Rs

5,42,420/- was sent to the petitioner. Thereafter, the petitioner

preferred an appeal which was also dismissed by an order-in-appeal

passed by the Appellate Collector on 28.01.1978. This led to the filing

of a revision petition before the Central Government which was also

dismissed by the impugned order dated 16.10.1980.

5. It is relevant to note that one of the contentions raised by the

petitioner in its revision petition was that the demand raised was illegal

as no show cause notice had been issued to the petitioner under Rule 10

of the Central Excise Rules, 1944. It was contended that the order-in-

original passed by the Assistant Collector pursuant to his letter of

24.04.1973 was, therefore, invalid. The letter of 24.04.1973 had

merely required the assessee to file a separate classification list in

respect of the subject goods. There was no specific demand sought to

be raised in that letter as is the requirement under Rule 10 of the

Central Excise Rules, 1944. As such, it was contended that no

opportunity in that behalf had been given to the petitioner.

6. The main and only point urged before this court by the

learned counsel for the petitioner is based on this ground. It is

contended that the provisions of Rule 10 of the Central Excise Rules,

1944 are mandatory and unless and until they are complied with, no

amount can be recovered from the petitioner. It was contended that

since there was no show cause notice issued in the manner prescribed

under Rule 10, the entire proceedings pursuant to the letter dated

24.04.1973 were invalid and were liable to be set aside. The learned

counsel placed strong reliance on the decision of the Supreme Court in

the case of Metal Forgings v. Union of India: 2002 (146) ELT 241

(SC). In paragraph 10 of the said decision, the Supreme Court held as

under:-

"10. It is an admitted fact that a show cause notice as required in law has not been issued by the revenue. The first contention of the revenue in this regard is that since the necessary information required to be given in the show cause notice was made available to the appellants in the form of various letters and orders, issuance of such demand notice in a specified manner is not required in law. We do think that we cannot accede to this argument of the learned counsel for the revenue. Herein we may also notice that the learned Technical Member of the tribunal has rightly come to the conclusion that the various documents and orders which were sought to be treated as show cause notices by the appellate authority are inadequate to be treated as show cause notices contemplated under Rule 10 of the Rules or Section 11A of the Act. Even the Judicial Member in his order has taken almost a similar view by holding that letters either in the form of suggestion or advice or deemed notice issued prior to the finalisation of the classification cannot be taken note of as show cause notices for the recovery of demand, and we are in agreement with the said findings of the two Members of the tribunal. This is because of the fact that issuance of a show because notice in a particular format is a mandatory requirement of law. The law requires the said notice to be issued under a specific provision of law and not as a correspondence or part of an order. The said notice must also indicate the amount demanded and call upon the assessee to show cause if he has any objection for such demand. The said notice also will have to be served on the assessee within the said period which is either 6 months or 5 years as the facts demand. Therefore, it will be futile to contend that each and every communication or order could be construed as a show cause notice. For this reason the above argument of the revenue must fail."

7. Rule 10 of the Central Excise Rules 1944, to the extent

relevant, is reproduced hereinbelow:-

"10. Recovery of Duties or Charges short- levied, or erroneously refunded. - (1) When duties or

charges have been short-levied through inadvertence, error, collusion or misconstruction on the part of an officer, or through mis-statement as to the quantity, description or value of such goods on the part of the owner, or when any such duty or charges, after having been levied, has been owing to any such cause, erroneously refunded, the proper officer may, within three months from the date on which the duty or charge was paid or adjusted in the owner's account- current, if any, or from the date of making the refund, serve a notice on the person from whom such deficiency in duty or charges is or are recoverable requiring him to show cause to the Assistant Collector of Central Excise why he should not pay the amount specified in the notice.

xxxx xxxx xxxx xxxx xxxx xxxx"

The said rule specifically provides that before any duties can be

recovered on account of, inter alia, short levy, a notice has to be served

on the person from whom such deficiency in duty is to be recovered

requiring him to show cause to the Assistant Collector as to why he

should not pay "the amount specified in the notice".

8. As noted above, the Supreme Court in Metal Forgings

(supra) has clearly indicated that the issuance of a show cause notice

under Rule 10 of the Central Excise Rules in a particular format is a

mandatory requirement of law. It is also clear that the law requires the

said notice to indicate the amount demanded and call upon the assessee

to show cause if he has any objection to such a demand. The said

notice is also required to be served on the assessee within the

prescribed period.

9. It is apparent from the records of the case as well as on the

basis of the submissions made by the learned counsel for the petitioner

that no show cause notice as contemplated under Rule 10 of the Central

Excise Rules, 1944 has been issued to the petitioner at all. The letter

dated 24.04.1973 cannot pass off as a show cause notice under Rule 10.

First of all, the said letter does not specify the amount sought to be

recovered from the petitioner. Secondly, the petitioner is not required

to explain or show cause as to why any deficiency in duty ought to be

recovered from the petitioner.

10. In these circumstances, we are of the view that the

petitioner's writ petition is liable to succeed on this short ground. The

show cause notice not having been issued in the prescribed manner, all

proceedings pursuant thereto would also be invalid. It is apparent that

the issuance of a show cause notice has been stipulated so as to give an

opportunity to an assessee to give his reasons for not being liable to

pay the alleged deficiency in duty which is sought to be recovered. It is

all a part of natural justice whereby a person against whom an adverse

order is to be passed is to be given a full and meaningful opportunity of

meeting the case against him. The principles of natural justice have

been enshrined in Rule 10 of the Central Excise Rules, 1944 and they

are, as held by the Supreme Court in Metal Forgings (supra),

mandatory. Any deviation from such a prescription would be fatal to

the revenue's case.

11. Consequently, this writ petition is allowed. The impugned

order as well as the demand raised as a consequence of the order-in-

original for the amount of Rs 5,42,420/- stands set aside and / or

quashed. No order as to costs.

BADAR DURREZ AHMED, J

RAJIV SHAKDHER), J July 10, 2008 dutt