J.K. Synthetics Limited and Another vs Union of India (UOI) and Others

Badar Durrez Ahmed, J.—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.

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.

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

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.

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 assessed 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.

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 and Another Vs. Union of India (UOI) and Others, . In paragraph 10 of the said decision, the Supreme Court held as under:

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 assessed to show cause if he has any objection for such demand. The said notice also will have to be served on the assessed 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.

Rule 10 of the Central Excise Rules 1944, to the extent relevant, is reproduced hereinbelow:

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.

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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".

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 assessed to show cause if he has any objection to such a demand. The said notice is also required to be served on the assessed within the prescribed period.

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.

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 assessed 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.

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.