I.T.C Limited And Another vs U.O.I. And Others
2009 Latest Caselaw 4405 Del

*              IN THE HIGH COURT OF DELHI AT NEW DELHI

%                            Judgment Reserved on: 13.10.2009
                             Judgment delivered on: 30.10.2009

                        W.P. (C) No. 2045/1998


I.T.C LIMITED & ANR.                         ..... PETITIONERS

                                   Vs

U.O.I & ORS.                                 ..... RESPONDENTS


Advocates who appeared in this case:

For the Petitioners          : Mr R. Narain, Ms Sonu Bhatnagar, Mr
                             Ajay Aggarwal, Ms Kanika Gomber & Mr
                             Rajan Narain, Advocates.
For the Respondents          : Mr A.S. Chandhiok, ASG with Mr Mukesh
                             Anand, Mr R.C.S. Bhadoria & Mr Sumit
                             Balra, Advocates.

CORAM :-
HON'BLE THE CHIEF JUSTICE
HON'BLE DR. JUSTICE S. MURALIDHAR
HON'BLE MR JUSTICE RAJIV SHAKDHER

1.        Whether the Reporters of local papers may
          be allowed to see the judgment ?               Yes
2.        To be referred to Reporters or not ?           Yes
3.        Whether the judgment should be reported
          in the Digest ?                                Yes

RAJIV SHAKDHER, J

1.        A Division Bench of this Court vide its order dated

12.05.2000 referred the captioned case to a „Larger Bench‟ for

adjudication of two issues:-

    (i)   The applicability of Section 11A of the Central Excise and

          Salt Act, 1944 (in short the „Act‟) before and after the

          final order of assessment was passed.

    (ii) The applicability of the judgment of the Supreme Court

          rendered in the case of Serai Kella Glass Works Pvt.

          Ltd. vs. C.C.E, Patna 1997 (91) ELT 497 (SC), more


W.P. (C) 2045/1998                                       Page 1 of 21
         particularly, paragraph 18 of the said judgment to the

        instant case.

2.      The occasion for reference to a larger bench arose in

view of the judgments of two separate Division Benches of this

court taking diametrically opposite views with respect to the

issue as to whether a show cause notice, under the provisions

of Section 11A of the Act could be issued, pending final

assessment of a show cause notice, issued prior in point of

time.

2.1     In   the     case   of   International   Computers   Indian

Manufacturers Ltd vs. Union of India 1981 ELT 632

(Del); the Division Bench held that a show cause notice under

Section 28 of the Customs Act, 1962, (which is analogous to

Section 11A of the Act), could not be issued, while a

provisional assessment was pending finalisation. However, in

Duncans Agro Industries vs. Union of India 1989 (39)

ELT 511, another Division Bench held to the contrary.

Fortuitously, the evidently disparate views stand reconciled by

virtue of a judgment of the Supreme Court in the writ

petitioner‟s own case, i.e., Commissioner of Central Excise,

Mumbai vs. ITC Ltd 2006 (203) ELT 532.

3.      The issue in principle is no longer res integra. A show

cause notice under Section 11A of the Act cannot be issued

during the pendency of assessment proceedings. This is quite

clear from the poser of the Supreme Court in the very opening

paragraph of its judgment in the case of ITC Ltd (supra), and

the observations made in paragraph 17 thereof.                Being

relevant, the same are extracted hereinbelow:
W.P. (C) 2045/1998                                      Page 2 of 21
        "Completion        of     an    assessment      proceedings
       whether is a sine qua non for issuance of notice
       under Section 11A of the Central Excise Act,
       1944 (for short 'The Act') is the question
       involved      in   this   appeal      which    arises     of    a
       judgment        and     order    dated      18.06.2004         as
       modified by an order dated 02.07.2004.
       ......17. Section 11A of the Act provides for a penal
       provision.      Before a penalty can be levied, the
       procedures laid down therein must be complied with.
       For construction of a penal provision, it is trite, the
       golden rule of literal interpretation should be applied.
       The difficulty which may be faced by the Revenue is of
       no consequence. The power under Section 11A of the
       Act can be invoked only when a duty has not been
       levied or paid or has been short-levied or short-paid.
       Such a proceeding can be initiated within six months
       from the relevant date which in terms of sub-section
       (3)(ii)(b) of Section 11A of the Act (which is
       applicable in the instant case) in a case where duty
       of excise is provisionally assessed under the Act
       or the Rules made thereunder, the date of
       adjustment of duty after the final assessment
       thereof. A proceeding under Section 11A of the
       Act    cannot,     therefore,        be   initiated   without
       completing the assessment proceedings."


3.1    Therefore, the first issue raised in the order of reference

need    not    be    answered     by   us    except   to   reiterate       the

applicability of the principle enunciated in the case of ITC Ltd

(supra) to the facts of the present case.

3.2    In so far as the second issue is concerned, it is pertinent

to note that the Supreme Court in ITC Ltd (supra) has taken a

note of its own judgment in the case of Serai Kella (supra),

W.P. (C) 2045/1998                                             Page 3 of 21
 and held that the principle enunciated by them is in

consonance with the ratio of Serai Kella (supra). We have

dealt with this aspect, in greater detail, in the latter part of our

judgment.

4.     Faced with this circumstance, the learned Additional

Solicitor General (in short „ASG‟), Mr. A.S. Chandhiok with

usual dexterity, submitted that, the writ petition would have to

be dismissed in view of the fact that, at the point in time when

the show cause notice dated 28.01.1988 (i.e., which is

impugned in the present writ petition) was issued, assessment

proceedings were not pending. It was his submission that the

final assessment proceedings culminated with the passing of

the adjudication order dated 10.04.1986.

5.     Therefore,    the   only   issue   which   survives   for   our

consideration is: whether order dated 10.04.1986 was a final

assessment order.      Because if it was not so, then the writ

petition would have to be allowed without more, in view of the

ratio of the Supreme Court judgment in the case of ITC Ltd

(supra).

6.     Mr. Ravinder Narain, Advocate who appeared for the

writ petitioner submitted that even though the challenge to the

impugned show cause notice was on several grounds, the only

ground he wished to press was that: the impugned show cause

notice dated 27.01.1988 could not have been issued during

pendency of the assessment proceedings.

6.1    In order to establish that show cause notice dated

10.04.1986 was not a final assessment order, he drew our

attention to the following:-

W.P. (C) 2045/1998                                       Page 4 of 21
      (i) Paragraph 13.1 (K) (at page 125 of the paper book) of the

         impugned show cause notice dated 27.01.1988.

     (ii) The operative part of the order dated10.04.1986.

     (iii) Paragraph 5 (at page 134 of the paper book) of the

         order dated 28.04.1988 - which according to the writ

         petitioner, was in fact, the order of "final assessment"

         by which central excise duty demand was pegged at Rs

         80,30,20,263.55.

     (iv) Paragraph 5 and 13 (at pages 138 & 142 of the paper

         book) of the counter affidavit filed by the respondent -

         Union of India, in writ petition No. 1259/1988 instituted

         between the same parties, in the High Court of

         Allahabad.

     (v) Paragraph 24 (at pages 262-263 of the paper book) in the

         counter affidavit of the respondent - Union of India, in

         the instant writ petition.

7.     The learned ASG, on the other hand, strenuously relied

upon paragraph 46 of the adjudication order dated 10.4.1986.

8.     We must confess what, according to us were issues,

already covered by judgment of the Supreme Court in the case

of ITC Ltd (supra), became vexed in view of the stand taken by

the Respondents. Therefore, it may be relevant to bring to fore

the following brief facts, in so far they are relevant.

8.1    The writ petitioner, that is, ITC Ltd, which has its

registered office in Calcutta (now Kolkata), is, amongst others,

in the business of, manufacture of, excisable goods, namely

cigarettes, of different brands. At the relevant point in time,

cigarettes were manufactured by the writ petitioner in several

W.P. (C) 2045/1998                                        Page 5 of 21
 factories    all     over   the   country   including:   Fraizer   Town,

Banglore, Saharanpur (U.P.) and Mungair (Bihar).               With the

introduction of a new Section 4 in the Act, which was brought

into force w.e.f. 01.10.1975, the writ petitioner had been

submitting their price-list in the prescribed proforma-I in

respect of cigarettes, manufactured by it. The writ petitioner

had been claiming before the department that assessable value

of cigarettes, manufactured by it, ought to be determined on

the basis of ex-factory prices as charged to their wholesale

dealers, with allowance for deductions on account of post-

manufacturing expenses, such as, marketing and distribution

expenses, advertising expenses and interest, amongst others.

Since the department was not in agreement with the stand

taken by the writ petitioner; the Collector of Central Excise,

Banglore, Meerut (earlier Kanpur), Patna issued several show-

cause notices from time to time to the writ petitioner.

8.2    It is pertinent to note that in this writ petition, we are

dealing with only that part of the adjudication order which

pertains to the Collector of Meerut involving the Saharanpur

factory of the writ petitioner. It is not disputed that in respect

of Saharanpur factory of the writ petitioner, the Collector, at

Kanpur had issued a show cause notice on 08.12.1978. This

was followed by a supplementary show-cause notice dated

29.01.1979. The department, in order to avoid multiplicity of

proceedings, got the Central Board of Excise and Customs to

issue an order dated 10.09.1984, whereby the adjudication of

show-cause notices, issued to the writ petitioner by various

Collectors, was centralized for the purposes of adjudication

W.P. (C) 2045/1998                                           Page 6 of 21
 with the Director General (Inspection) in the office of the

Directorate-General of Inspection and Audit (Customs and

Central Excise), New Delhi. For the purposes of adjudication,

he was to act as the Collector of Central Excise.

8.3    On 13.09.1985, a corrigendum to the show cause notices

dated 08.12.1978 and 29.01.1979, as mentioned above, was

issued by the Collector, at Kanpur to the writ petitioner. The

corrigendum, inter alia, was issued primarily on account of the

fact that on 07.10.1983, the Supreme Court had pronounced its

judgment in the case of UOI vs Bombay Tyre International

(1984) 1 SCC 467, wherein several issues with respect to

post-manufacturing expenses were decided, and a finality was

lent, as to what would constitute normal price "in terms of the

new Section 4(1)(a) of the Act."

8.4    Consequently, the Director General (Inspection) passed a

common order dated 10.04.1986, pertaining to several other

factories of the writ petitioner, including the Saharanpur

Factory.      The adjudication order pertained to the period

01.10.1975 to 28.02.1983. Since, this order is at the heart of

the present controversy as to whether it constitutes a final

assessment order, it would be apposite to extract the operative

part of the order.

       "18.1 To sum up the discussions and findings in the
       preceding paragraphs, -
       (a)   the company and its WDs are not "related
       persons" within the meaning of Section 4(4)(c) of the
       Central Excise and Salt Act, 1944;
       (b) the price(s) at which the company sold the
       cigarettes to its WDs was not the sole consideration
       for sale;


W.P. (C) 2045/1998                                  Page 7 of 21
        (c)    the assessable value(s) of the cigarettes has to
       be determined in accordance with the provisions of
       Rule 5 of the Central Excise (Valuation) Rules, 1975.
       (d) for the purpose of determining the value under
       the said Rule 5-
              (i)   freight element (whether actual or
              equalized) cannot be added;
              (ii)  similarly, cost of CFC cannot be added;
              (iii) advertisement and sales promotion
              expenses incurred by the WDs shall be added;
              and
              (iv) similarly, interest including that on the
              security deposits made by the WDs shall be
              added.
       (e)    no deduction whatsoever on account of the
       supposed duty shall be made from the advertisement
       and sales promotion expenses and interest while
       adding these to the price;
       (f)    the company is liable for penal action under
       Rule 173-Q of the Central Excise Rules, 1944;
       (g) principles of natural justice are not violated by
       not producing the witnesses for cross-examination by
       the company;
       (h) no part of the demand is time barred.
                                 ORDER

19.1 Considering the above discussions and findings, I make the following order:-

(a) pending provisional assessments shall be finalized by the respective proper officers and where the assessment had already been finalized, differential duty demanded, on the basis of the revised assessable value(s) of the cigarettes, keeping in view the findings above; and the company shall pay the differential duty demanded, (whether on finalization of the provisional assessments or otherwise as aforesaid; and

(b) penalty of Rs 1,00,00,000.00 (rupees one crore only) is imposed on the company under rule 173-Q of the Central Excise Rules, 1944. However, I do not propose to order confiscation of land, building, plant, machinery, materials, etc."

9. On 27.01.1988, the impugned show cause notices were

issued for the period 27.06.1980 to 28.02.1983. According to

the respondent, the said show cause notice came to be issued

as they had gathered intelligence that the writ petitioner was

evading the payment of appropriate excise duty by resorting to

fraudulent undervaluation. On the basis of this intelligence,

raids were conducted by the Director of Anti-Evasion, at

various offices and factories of the writ petitioner, as well as

some of its, wholesale dealers. The said raids revealed several

incriminating documents. The scrutiny of the seized

documents and the investigations conducted thereafter,

resulted in issuance of the aforementioned impugned show-

cause notice. By this show cause notice, dated 27.01.1988, a

sum of Rs 26,43,02,733.49/- was sought to be recovered from

the writ petitioner towards central excise.

10. On 28.04.1988, the Assistant Collector of Central Excise

Division, Saharanpur passed an order whereby, for the period

01.10.1975 to 28.02.1983, a demand in the sum of Rs

80,30,20,263.55/- was raised in addition to sum already paid

for the aforementioned period, on the basis of the order of

Director General (Inspection) dated 10.04.1986.

11. This order was assailed by the writ petitioner by filing a

writ petition being, Civil Misc. Writ Petition 1259/1988. The

said writ petition was filed in the High Court of Allahabad. In

response to the writ petition, a counter-affidavit was filed by

the respondent-Union of India. The writ petition came to be

dismissed by the Allahabad High Court vide its order dated

09.08.1990. Being aggrieved, a Special Leave Petition was

preferred. The Supreme Court disposed of the Special Leave

Petition vide its order dated 28.09.1990, whereby the writ

petitioners were given liberty to file an appeal with the

Collector of Central Excise (Appeal), Allahabad against order

dated 28.04.1988, within a period of four weeks. Accordingly,

the petitioner filed the appeals impugning the order dated

28.04.1988 before the Collector of Central Excise (Appeal),

Allahabad. However, these appeals were transferred to the

Collector of Central Excise (Appeal), Ghaziabad. By an order

dated 18.10.1994, the Collector of Central Excise (Appeals),

Ghaziabad dismissed the appeals. The demand was, however,

reduced from Rs 80.30 crores (approximately) to Rs 76 crores

(approximately). We are informed that appeals against this

order of the Collector were filed before the Central Excise Gold

and Appellate Tribunal (in short the „Tribunal‟). The writ

petitioner succeeded in the said appeals before the Tribunal.

The department‟s appeals, we are also informed, to the

Supreme Court, were also rejected. However, as per the

averments made by the writ petitioner in the proceeding

before the Commissioner of Central Excise, Delhi, a

preliminary issue was raised with regard to jurisdiction and

maintainability of the impugned show-cause notice dated

27.01.1988. In respect of the writ petitioner‟s Calcutta (now

Kolkata) factory, the then Collector vide its order dated

02.04.1996 dropped the proceedings. It transpires that the

Collector, based on the submissions of the writ petitioner that

the calculation of the differential excise duty had to be made in

terms of the judgment of the Tribunal in writ petitioner‟s own

case reported in 1994 (72) ELT 315, directed the

representative of the Central Excise Department, Saharanpur

to recalculate the demand.

11.1 On 11.02.1988, the Commissioner of Central Excise

enclosed a copy of letter dated 06.02.1988 addressed by

Assistant Commissioner to him enclosing a chart showing the

recalculated differential duty. By this letter, the writ petitioner

was called upon to submit its reply or submissions within 15

days of the letter. The writ petitioner has averred that by

virtue of the recalculation, carried out by the Assistant

Commissioner, the demand, in respect of the impugned show

cause notice dated 27.01.1988, stood reduced from Rs 26

crores (approximately) to Rs 4,28,85,544.42 (approximately).

On 23.03.1998, the writ petitioner had issued a communication

to the Commissioner of Central Excise, Delhi, inter alia,

pointing out that in view of the lack of jurisdiction in the

issuance of the said show cause notice, further proceedings

with regard to examination and cross-examination of witnesses

need not be continued with. A reference was also made in

respect of the fact that based on this preliminary issue, the

predecessor of the Commissioner of Central Excise had

dropped notices relating to another factory of the writ

petitioner located at Kidderpore. Amongst other averments, it

was also averred in the said communication that the issues and

the period raised referred to in the impugned show-cause

notice was covered by the decision of the Tribunal in appeal

no. E/1505-09/92-A. The sum and substance of the submission

was that this issue in the impugned show-cause notice need

not be reopened and reagitated. The Commissioner of Central

Excise (Delhi), however, in response to the writ petitioner‟s

letter dated 23.03.1998, intimated to the writ petitioner that he

intended to continue with the proceedings, that is, the cross-

examination of witnesses.

12. Being aggrieved, the writ petitioner filed the instant

petition in this Court. The petition was moved on 27.04.1998.

A division Bench of this Court issued notice to the respondent,

and granted an ad-interim order whereby, the cross-

examination of the witnesses was allowed to continue with a

caveat that the proceedings thereafter, shall remain stayed till

the next date of hearing. After several dates, as indicated

hereinabove, the order dated 12.05.2000 was passed by the

Division Bench referring the matter to a larger Bench.

12.1 It is pertinent to note that on 28.07.2000, the matter was

adjourned sine die by the then Constituted Full Bench to await

the decision of the Supreme Court in the writ petitioner‟s own

case in respect of judgment of the Tribunal (Chennai Bench)

pending before it. The parties, as was noted in the order, had

agreed to inform the court as regards disposal of the matter by

the Supreme Court so that the Full Bench could be constituted.

We may only note that the parties, thereafter, did not make any

effort to inform this court, as regards the disposal of the

matter by the Supreme Court. The registry of this Court

discovered that the Supreme Court had disposed of the appeal

against the Tribunal‟s order (Chennai Bench), on 06.03.2003.

This discovery, however, was made by the registry on its own

initiative only in August, 2009 whereupon the present Full

Bench was re-constituted. We may only observe that we

expect more alacrity from counsels. It is these small but

significant steps, if taken promptly by lawyers of both sides,

that would enable this Court to deal effectively with the burden

of pendency.

12.2 From the narration of facts and circumstances, set out

hereinabove, it is without doubt established that order dated

10.04.1986 is not an assessment order, much less a final

assessment order. Our reasons for coming to this conclusion

are as follows:

12.3 The order dated 10.04.1986 categorically refers to the

fact that after the said show-cause notices were issued for the

period 01.10.1975 to 28.02.1983, and the total excise duty,

which, according to the department was payable by the writ

petitioner, was in the sum of Rs 5,24,31,23,735.87/-. Against

this, on the department‟s own showing, the writ petitioner had

paid a sum of Rs 4,21,01,94,370.44/-. Therefore, vide show

cause notice dated 08.12.1978 and supplementary show-cause

notice dated 29.01.1979, as corrected by show cause notice

dated 13.09.1985, the differential duty, which the writ

petitioner was called upon to pay, was in the sum of

Rs 1,03,29,29,365.43/-. The said show-cause notices were

obviously issued in response to the deductions claimed by the

writ petitioner in their price list filed for the period 01.10.1975

to 28.02.1983. The department had obviously come to a

provisional figure of duty in the sum of Rs 1,03,29,29,365.43/-,

based on stand that the post-manufacturing expenses, which

were claimed as deduction by the writ petitioner, were

required to be disallowed in calculation of the assessable value

of cigarettes, manufactured by the assessee, by adding the said

post-manufacturing expenses to ex-factory price.

12.4 Upon adjudication, the Director General (Inspection) by

his order dated 10.04.1986, crystallized the principles, based

on which the assessable value had to be determined, in respect

of cigarettes, manufactured by the writ petitioner, having

regard to the then prevailing provisions of Rule 5 of Central

Excise (Valuation) Rules, 1975. It cannot be disputed that the

final assessment, in respect of at least, the Saharanpur factory,

with which we are concerned in the present petition, got

settled only by virtue of order dated 28.04.1988. A plain

reading of the order dated 28.04.1988 demonstrates that it

relates to clearances made by the writ petitioner during the

period 01.10.1975 to 28.02.1983; made in respect of,

cigarettes manufactured by the writ petitioner by its

Saharanpur factory. The principles, on the basis of which the

assessment was concluded, was undoubtedly the order of the

Director General (Inspection) dated 10.04.1986. A bare

reading of paragraphs 4 & 5 of the order dated 28.04.1988

makes that amply clear. Being relevant the same are extracted

hereinbelow:-

"4. Accordingly, in the light of D.G. Audit & Inspection, New Delhi‟s order No. 1/1986, Dt. 10.04.1986, differential duty on the revised "assessable value" has been worked out, as shown in the attached charts. A consolidated chart, showing the quantum of duty paid, actual amount of duty payable consequent upon revision of assessable value and differential duty to be paid by the party is also enclosed. As per this consolidated chart, M/s I.T.C. Ltd., Saharanpur are required to pay differential duty to the tune of Rs 80,30,20,263.55/- in addition to the duty already paid on the goods cleared from Oct. 1975 to Feb., 1983 as per details shown in the charts attached.

5. All the previous provisional assessments made, after payment of the aforesaid amount of Rs 80,30,20,263.55/-, being differential duty, may be treated as finally settled."

12.3 In our view, therefore, the show cause notices of

08.12.1978 and 29.01.1979, as corrected by show cause notice

dated 13.09.1985, culminated into a final assessment, and

consequently, a final demand only by virtue of order dated

28.04.1988. In the show cause notice a provisional demand in

the sum of Rs 103 crores (approximately) was made, which,

upon finalisation of the assessment, got reduced to Rs 80.30

crores (approximately).

12.4 The submission of the learned ASG that the order of the

Director General (Inspection) dated 10.04.1986 was itself an

order of final assessment, is thus, in our view, without merit.

12.5 Great stress was laid by the learned ASG on paragraph

46 of the order dated 10.04.1986 in which the following extract

of the show cause notice is found:

"......accordingly ITC Ltd., Saharanpur are required to show cause as to why central excise duty, amounting to Rs 1,03,29,29,365.43/-, short-paid by them during the period from 01.10.1975 to 28.02.1983 should not be demanded from them (by finalizing the provisional assessments on the principles discussed above) under Section 11-A of the Central Excise and Salt Act, 1944...."

12.6 Based on the above extract, it was submitted by the

learned ASG that the assessments had already been finalized

and what was done thereafter was only a mathematical

computation. In our view, this submission is untenable for

more than one reason.

(i) We have yet to see a show cause notice in a revenue

matter, in which a provisional demand is not raised by the

department. The extract, referred by the learned ASG, is only

one such instance.

(ii) The bracketed portion of the extract which reads as:

"...(by finalizing the provisional assessments on the principles

discussed above)..." itself shows that the figure of Rs 103

crores (approximately) was „provisional‟ which was to be

finalized only after the same was adjudicated upon, and

thereafter crystallized into a demand.

(iii) It is not disputed by the respondent, as it cannot do so,

that the order dated 28.04.1988 was passed in respect of writ

petitioners‟ factory at Saharanpur with regard to clearances of

cigarettes, made during the period 01.10.1975 to 23.02.1983;

and that the differential central excise duty, which was

demanded from the writ petitioners, got reduced to a sum of

Rs 80.30 crores (approximately).

(iv) The submission of the learned ASJ, in our view, perhaps

would have applied to a situation where, in the absence of any

response by the assessee to the show cause notices issued by

the revenue; the revenue without more treats that, as the order

of assessment. Even in that situation in our view ordinarily, a

formal order of assessment would have to be passed.

(v) In our view, the process of assessment would involve not

only the ascertainment of the basis on which the duty is to be

calculated, but also the determination of the final amount. In

our opinion, assessment is an "integrated process". The

assessee is as interested in knowing the basis; as he is in the

determination of final liability, which he is mulcted with by the

department.

(v)(a) A somewhat identical issue arose in the case of

Kalyankumar Ray vs CIT (1991) 191 ITR 634 (SC). The

Supreme Court was called upon to decide as to what would

constitute an assessment order. The income tax officer in the

said case, had determined the basis on which tax had to be

computed on one sheet of paper, while the calculation with

regard to the exact liability was left to the office; which after

due scrutiny was signed by the income tax officer. The

Supreme Court in that context observed as follows:

".........assessment is one integrated process involving not

only the assessment of total income but also

determination of tax. The later is as crucial for the

assessee as the former...... If, therefore, the income tax

officer first draws up an order assessing the total income

and indicating the adjustments to be made, directs the

office to compute the tax payable on that basis and then

approves of it, either immediately or some time later, no

fault can be found with the process, though it is only

when both the computation sheets are signed or initialed

by the income tax officer that the process described in

Section 143(3) will be complete." The concept of

„assessment‟ for the purposes of excise has also to be

understood likewise.

(v)(b) A perusal of sub-paragraphs (c), (d) & (e) of paragraph

18.1 of order dated 10.04.1986 (extracted in an earlier part of

our judgment) clearly demonstrates the point - various

elements of cost had to be added or subtracted in order to

arrive at the assessable value of cigarettes. To cite an

instance the said paragraph alludes to the fact that the

advertisement and sales promotion expenses incurred by

wholesale dealers, which were to be added, were not known at

that stage.

(vi) The provisions of Rule 9B(5) of the Central Excise Rules,

1984 make the position quite clear. The said rule reads as

follows:

"Rule 9B. Provisional assessment to duty - (1) Notwithstanding anything contained in these rules, -

(a) xxxx

(b) xxxx

(c) xxxx (2) Omitted (3) xxxx (4) xxxx (5) When the duty leviable on the goods is assessed finally in accordance with the provisions of these rules, the duty provisionally assessed shall be adjusted against the duty finally assessed, and if the duty provisionally assessed falls shot (short) of, or is in excess of, the duty finally assessed, the assessee, shall pay the deficiency or be entitled to a refund as the case may be."

(vi)(a) A bare reading of sub-Rule (5) of Rule 9B would

show that in order to calculate; the differential duty to be paid

by the assessee or the assessee‟s entitlement to refund, the

duty, which is assessed provisionally, is required to be adjusted

against duty finally assessed. There is, therefore, no final

assessment till such time there is an adjustment, as mentioned

above.

(vii) There is another reason which persuades us to hold in

favour of the writ petitioner. The reason being: the provisions

of Section 11A get triggered only upon a final assessment of

duty. It is so because, a bare reading of the provisions of

Section 11A of the Act would show that the „relevant date‟ for

commencement of limitation begins from the date on which the

excise duty, which is provisionally assessed, is adjusted against

final assessment. This is quite clear if regard is had to the

provisions of Section 11A(3)(ii)(b). The same being relevant is

extracted hereinbelow:-

"11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded.- (1) xxxx (2) xxxx (3) xxxx

(i) xxxx

(ii) "relevant date" means:

(a) xxxx (A) xxxx (B) xxxx (C) xxxx

(b) in a case where duty of excise is provisionally assessed under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof;"

13. In view of our discussions above, both questions are

answered in favour of the writ petitioner. The respondent

could not have issued the impugned show cause notice dated

27.01.1988, without having finalised the assessment

proceedings. As discussed above, the provisions of Section

11A get triggered only upon completion of the final assessment

proceedings. In the instant case, at a point in time when the

show cause notice dated 27.01.1988 was issued the

assessment proceedings were undoubtedly incomplete. They

were provisional. The final assessment proceedings got

finalized only on 28.04.1988. The order of the Director

General (Inspection) dated 10.04.1986, in our view, was not a

final assessment order, as contended by the respondent.

14. The other issue posed to us is with regard to applicability

of the judgment of the Supreme Court in the case of Serai

Kella (supra). The issue, which arose in Serai Kella (supra)

was whether the order of the Tribunal passed pursuant to the

directions of the High Court, whereby it had quashed the

provisional assessment made by the Revenue, with a direction

that a fresh assessment be made in terms of the guidelines

given by it, was erroneous, in view of absence of a show-cause

notice under Section 11A of the Act. The Supreme Court came

to the conclusion that where the assessee was clearing the

goods on the basis of self-assessment procedure, the

assessment was only provisional, which would have to be set

off against duty finally assessed by a proper officer. In both

instances, where duty was payable, or a credit was available to

the assessee; a result could be attained through the necessary

debit or credit in the account - "current", maintained by the

assessee, within the prescribed period of 10 days. (See

observations in paragraph 16). It is in these circumstances

that the Supreme Court came to the conclusion that, at that

stage, the provisions of Section 11A were not applicable.

Consequently, in paragraph 17 & 18 of its judgment, the

Supreme Court observed that section 11A of the Act come into

play only after the final assessment, and the limitation in that

respect would commence from the date of the final

assessment. The Supreme Court in the subsequent judgment,

that is, in the petitioner‟s own case in ITC Limited, has

noticed the observations in Serai Kella (supra) in paragraph

24. The Supreme Court in paragraph 24 of ITC Ltd (supra)

has as a matter of fact taken recourse to the observations

made in paragraph 17 & 18 in Serai Kella (supra). In view of

the Supreme Court‟s own view in ITC Ltd (supra) as regards

the ratio of Serai Kella (supra), the answer of the second

question is also in favour of the writ petitioner.

15. Accordingly, the writ petition is allowed in terms of

prayer „B‟. The show cause notice dated 27.01.1988, as also

letter dated 13.04.1988 being enclosures „B‟ & „J‟ to the writ

petition are quashed.

RAJIV SHAKDHER, J

CHIEF JUSTICE

S. MURALIDHAR, J

OCTOBER 30, 2009 Kk