Calcutta High Court
Nayek Paper Industries Pvt. Ltd. vs Union Of India (Uoi) on 14 May, 1991
Equivalent citations: 1994ECR634(CALCUTTA), 1991(56)ELT31(CAL)
Author: Ruma Pal
Bench: Ruma Pal
ORDER Ruma Pal, J.
1. The petitioner Company carries on the business of manufacturing paper and paper board. According to the petitioner for the first time on 19-4-1983, the petitioner Company manufactured Chromo Board. The manufacture of Chromo Board took place during the period 1-3-1983 to 28-3-1984. According to the petitioners the Chromo Board has a distinct characteristic which sets it apart from other types of paper board viz. that it has a surface suitable for fine screen half tone work and "is capable of accepting coloured printing specially in lithography thereby capable of accepting varnish coating".
2. On 1-3-1983 a notification (hereinafter referred to as the said notification) was issued by the Central Government in exercise of powers under Rule 8(1) of the Central Excise Rules, 1944 by which rates of Excise Duty were specified in respect of various kinds of paper and paper board. There were 13 such types of paper and paper board, provided for in the Table to the said notification under separate headings. For the purpose of this application, the following two headings are relevant viz. 11 and 13 of the table to the said notification :-
This read as follows :
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SI. Description Rate Condition No.
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11. Paper board of the follow- Ten per cent ad valorem plus one ing varieties, namely, pulp thousand eight hundred and ten board, duplex board and rupees per metric tonne, triplex board.
13. Paper and paper boards Ten per cent ad valorem plus one other than those specified thousand and four hundred and in S. Nos. 1 to 12. thirty rupees per metric tonnes.
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3. The petitioner submitted two classification lists in Form-I dated 21-4-1983 and 6-11-1983 in respect of the said Chromo Board. The petitioner claimed that the said Chromo Board was classifiable under Heading No. 13 of the said notification. The classification lists submitted by the petitioners' were approved provisionally by the respondents on 11-6-1983 and 9-3-1984 respectively.
4. As such the petitioner cleared Chromo Board from the petitioner's Factory after payment of Central Excise Duty under the Central Excises and Salt Act, 1944 (hereinafter referred to as the said Act) on the basis that the Chromo Board was subject to duty under Serial 13 of the said notification. R.T. returns in respect of the said Chromo Board which were submitted by the petitioner were checked and provisionally approved by the Superintendent of Central Excise, Burdwan Range.
5. On 9th November 1983 the Officers of the Anti Evasion Wing, West Bengal Collectorate took samples of the Chromo Board and Pulp under 3 test memos. On 27th June 1984 a notice was issued by the respondents to the petitioners to show cause why penalty should not be imposed on the petitioners under Rule 9(2), 173Q and 198 of the Central Excise Rules, 1944 (hereinafter referred to as the said Rules) and why the differential duty of Rs. 89,234.04 should not be demanded and paid under Rule 9 of the said Rules read with Section 11A of the said Act. It was alleged in the show cause notice that the said Chromo Board should have been classified under the description Duplex Board listed under Heading No. 11 of the said notification. It is further alleged in the show cause notice that wilful false information had been given by the petitioner's representative by stating that an adhesive was used in the production of Chromo Board whereas in fact, it was found on Chemical Examination that the Chromo Board manufactured by the petitioner did not disclose such adhesives. Duplex Board according to the respondents consists of two furnish layers felted together during the manufacture by pressure while still moist without use of adhesive. In the said show cause notice reliance has been placed on the statements of purchasers of Boards manufactured by the petitioner Company. The statements were to the effect that the Chromo Board manufactured by the petitioner was in fact duplex board.
6. The petitioners showed cause to the said notice. A personal hearing was granted. By an order dated 3rd May 1985 the Additional Collector of Central Excise, Bolpur held that Chromo Board as manufactured by the petitioner company was classifiable as Duplex Board and chargeable to duty under Heading No. 11 of the said notification. The petitioner Company was directed to pay duty both basic and special amounting to Rs. 89,234.04 being the differential duty involved in Duplex Board and the duty involved in the category under Heading No. 13 in terms of the provisions of the Rule 9(2) of the said Rules read with Section 11A of the said Act. The Additional Collector also imposed a penalty of Rs. 50,000/- on the petitioner under Rule 173Q of the said rules "having regard to the facts and circumstances of the case".
7. The petitioner preferred an appeal from the order of the Additional Collector before the Customs, Excise, Gold (Control) Appellate Tribunal (CEGAT). The petitioner applied for waiver of pre-deposit. The CEGAT disposed of the application by rejecting the claim for waiver of pre-deposit of the differential duty but stayed realisation of the penalty amount and waived the pre-deposit as far as the penalty amount. The petitioner accordingly deposited the amount of differential duty claim being Rs. 89,234.04.
8. The CEGAT disposed of the appeal filed by the petitioner by an order dated 1-3-1989...nature of the petitioner's challenge in this writ petition. The said order in so far as it is material reads as follows :-
"The appeal is with regard to imposition of penalty...
The Advocate for the appellant Shri M. Chandra Shekharan has raised a point of law in that the two classification lists filed on 21-3-1984 were provisionally approved and the show cause notice is dated 27-6-1984. The allegation is that they have cleared Chromo Board from 1-3-1983 to 28-1-1984 without payment of duty. When the classification was approved provisionally, there was no case for imposing penalty. He referred to the Tribunal's decision in the case Vijay Tank and Vessels Pvt. Ltd. v. Collector of Central Excise, , which is squarely applicable to this case. He stated that the Additional Collector had no right to impose a penalty when the approval of the classification list was provisional. The Ld. J.D.R., Shri A. S. Sunder Rajan, who has appeared on behalf of the department, agrees with the above contention and states that demand can be raised after finalisation of the classification list.
In the case under reference, the classification list have yet to be finally approved. When the Duplex Boards were found cleared as Chromo Board, the same should have been first got rectified by getting a revised classification for final approval and charging the duty due thereon. Any case of removal with intent to clear goods fraudulently should have been taken up after the final approval of the classification list as the imposition of penalty by the Additional Collector at a state when the Assistant Collector was yet to approve the classification list finally, is premature.
... ... ... ... ... ...
This Tribunal agrees with the appellants pleas and sets aside the penalty imposed by the Additional Collector without prejudice to the fact that it is open to the department to take such action as may be fit in case there is any alleged removal without payment of duty due. The differential duty has been already collected and is not a disputed issue. The appeal is disposed of accordingly."
9. The petitioner had contended :
(1) The show cause notice could not have been issued until the duty of excise had been finally assessed. Reliance has been placed on Section 11A(3)(ii)(b) of the Act, as well as on the following decisions :
(a) Union of India v. Godrej & Boyce Mft. Co. Pvt. Ltd. reported in 1989 (44) ELT 3 (Bom.)
(b) Vijay Tank and Vessels Pvt. Ltd. v. Collector of Central Excise .
(2) The respondents have relied upon the statements of third parties who were examined behind the back of the petitioners and who were not produced before the petitioners for cross examination. The respondents not having produced the said witnesses for cross examination, the entire proceedings were vitiated. Reliance has been placed on :-
(a) Phulbari Tea Estate v. Its Workmen . (b) Kishinchand Chellaram v. Commissioner of Income Tax reported in 125 ITR 713. (3) The proceedings were time barred. There were no circumstances justifying the taking of proceedings after the period of six months as specified under Section 11A. It could not be said that the petitioner was guilty of any fraud or collusion or wilful misstatement or suppression of fact as the petitioner had disclosed all relevant material before the officer concerned. Reliance has been placed on : Collector of Central Excise v. Chemphar Drugs & Liniments . (4) It is finally contended that there was no scope for raising the plea of unjust enrichment as the demand had been raised by the respondents in respect of Chromo Board which had already been cleared. The petitioner has claimed the refund of the amount of Rs. 89,234.04 with interest at 12 per cent per annum. In this connection the petitioner has relied upon the following decisions : (a) Jyoti Limited, Baroda v. Union of India and Anr. reported in 1979 (4) ELT (J 546). (b) Vijay Textile, A partnership Firm at Plot No. 4, Nerol Adendaly v. Union of India reported in 1979 (4) ELT (J 181). (c) Dulichand Shreelal v. Collector of Central Excise and Anr. . (d) Sheel Thermoplastics Limited and Anr. v. Union of India and Anr. (e) Redihot Electricals v. Union of India . (f) Geep Industrial Syndicated Ltd. v. Union of India (g) Alembic Glass Industries Ltd. v. Union of India . 10. The respondents have contended : (1) The petitioner had not raised any dispute regarding the classification of the goods before C.E.G.A.T. and therefore could not challenge the same at this stage. (2) The petitioner had an alternative remedy of preferring an appeal from the decision of C.E.G.A.T. under Section 35L of the said Act. (3) The evidence of the three witnesses were formal and cross examination was not required in the facts of this case. (4) The goods having been released on the basis of provisional assessment, there was no question of limitation.
11. With regard to the first contention of the petitioner, the respondents have not questioned the same as a proposition of law. The only dispute raised is that the petitioner had not raised any dispute regarding the classification before C.E.G.A.T. It is true that the Tribunal in its order dated 1-3-1989 recorded that differential duty was not a disputed issue and further that the appeal was only with regard to imposition of penalty. There is however other evidence intrinsic in the proceedings before the Tribunal which would suggest that the Tribunal had misdirected itself in considering that the appeal was limited only to the question of penalty. The very fact that the petitioner company had prayed for waiving the pre-deposit of differential duty show that it was a disputed amount. Furthermore the point of law raised by the petitioner before the Tribunal viz. that unless the classification was approved finally there would be no question of raising any demand against the petitioner, would go to the root of the matter and would effect the very jurisdiction of the authorities to issue a show cause notice against the petitioner. In other words the point of law raised would affect both the question of penalty as well as the payment of differential duty. There is no reason why the petitioner should have given in the point of law as far as the differential duty was concerned and yet pressed the same only with regard to the question of payment of penalty.
12. it also appears from the order dated 1-3-1989 that the respondents counsel had himself conceded that a demand can be raised only after finalisation of the classification list. Finally the question whether a show cause notice can be issued under Section 11A of the Act before the final assessment is a matter of construction of a statutory provision. It is well established that there can be no estoppel against a statute.
13. The point has in any event again been conceded before the Court by the respondents by making the submission that there was no question of limitation as the demands had been raised on the basis of provisional assessment.
14. In the circumstances although it is not necessary for the Court to decide the question of prematurity of the Show Cause Notice I do so ex abundants cautela.
15. Section 11A of the Act in so far as it is relevant provides as follows :
"11-A. Recovery of duties not levied or not paid or short levied or short-paid or erroneously refunded. - (1) 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 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:
... ... ... ... ... ... (3) For the purposes of this section, (ii) "relevant date" means; ... ... ... ... ... ...
(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."
16. The assessment takes place on the basis of a classification list filed by the assessee under Rule 173B of the said Rules. The assessee under Rule 173B(2) is entitled to remove the goods in accordance with the list as approved by the proper officer and after payment of the duty as determined on such goods on the basis of such classification. Sub-rule 2-A of Rule 173B provides as follows :
"All clearances shall, subject to the provisions of Rule 173CC, be made only after the approval of the list by the proper officer. If the proper officer is of the opinion that on account of any inquiry to be made in the matter or for any other reason to be recorded in writing there is likely to be delay in according the approval, he shall either on a written request made by the assessee or on his own accord, allow such assessee to avail himself of the procedure prescribed under Rule 9B for provisional assessment of the goods."
17. Rule 9B of the said rules provides as follows :-
"9B - Provisional assessment to duty. - (1) Notwithstanding anything contained in these rules - (a) where the proper officer is satisfied that an assessee is unable to produce any document or furnish any information necessary for the assessment of duty on any excisable goods; or
(b) where the proper officer deems it necessary to subject the excisable goods to any chemical or any other test for the purpose of assessment of duty thereon; or
(c) where an assessee has produced all the necessary documents and furnished full information for the assessment of duty, but the proper officer deems it necessary to make further inquiry (including the inquiry to satisfy himself about the due observance of the conditions imposed in respect of the goods after the removal) for assessing the duty.
the proper officer may, either on a written request made by the assessee or on his own accord, direct that the duty leviable on such goods shall, pending the production of such documents or furnishing of such information or completion of such test or enquiry, be assessed provisionally as such rate or such value (which may not necessarily be the rate or price declared by the assessee) as may be indicated by him, if such assessee executes a bond in the proper form with such surety or sufficient security in such amount, or under such conditions as the proper officer deems fit, binding himself for payment of the difference between the amount of duty as provisionally assessed and as finally assessed."
18. In this case the duty of excise was provisionally assessed as stated hereinabove. There has been no final assessment. Adjustment of duty under Section 11A(3)(ii) would be only after the approval of the classification list when the final assessment of duty would take place. The Central Excise Officer could only thereafter serve a notice on the person chargeable with the differential duty. In other words the cause of action under Section 11A would arise only from the date of adjustment of duty and not earlier. The cases relied upon by the petitioner also support this view although it must be pointed out that the decision of the Bombay High Court in Godrej and Boyce Mfg. Co. Pvt. Ltd. (Supra) was in an interlocutory matter. Nevertheless the reasoning in the said judgment is apposite and is as under :
"It will be seen that sub-section 11A, which invest the officer with the power to issue a show cause notice invests him with the power to do so within a stated time "from the relevant date". The relevant date has come and gone is therefore, a sine qua non of the valid exercise of the power conferred by sub-section (1) the definition of relevant date appropriate to the present case is contained in sub-section (3)(ii)(b) of Section 11A. Where, as here excise has been provisionally assessed, it is the date of adjustment of duty after final adjustment. Prim facie, there is, therefore, substance in the respondents' contention the relevant date has not come and that, consequently the officer did not have the power to issue the show cause notice."
19. The respondent authorities are themselves of the view that until the finalisation of the assessment, no show cause notice under Section 11A of the Act could be issued. Reference may be made to the decision of the Tribunal in the case of Vijay Tank and Vessels Pvt. Ltd. (Supra), in which the Tribunal stated :
"We would also like to note that while the RT 12 assessment was itself made on 31-12-1985 show cause notice was issued even prior to that on 4-2-1985. We are at a loss to understand how a show cause notice could be issued under law even before the finalisation of the assessment on the RT 12."
20. It was submitted on behalf of the petitioner (which submission is not disputed by the respondents) that the respondents have not finally approved the classification list with regard to Chromo Board till today. Therefore, the condition precedent to the exercise of power under Section 11A(1) of the Act is absent. For the reasons aforesaid, I must uphold the first contention of petitioner and hold that the show cause notice was issued without jurisdiction.
21. This finding by itself would have been sufficient to dispose of the writ petition. However, as I intend to pass certain directions on the respondents it is necessary to consider the remaining submissions of the petitioner to obviate the possibility of future dispute in this regard. As far as the second contention of the petitioners is concerned, the Supreme Court in the case of Kishanchand Chellaram (Supra) had to consider a situation where the Income Tax Authorities had relied upon a letter by a Bank Manager. The letter was shown by the Income Tax Authorities to the assessee at the hearing before the Tribunal. It was in this connection that the Supreme Court held -
"It will, therefore, be seen that, even if we assume that this letter was in fact addressed by the manager of the Punjab National Bank Ltd. to the ITO, no reliance could be placed upon it, since it was not shown to the assessee until at the stage of preparation of the supplemental statement of the case and no opportunity to cross examine the manager of the bank could in the circumstances be sought or availed of by the assessee. It is true that the proceedings under the income tax law are not governed by the strict rules of evidence and, therefore, it might be said that even without calling the manager of the bank in evidence to prove this letter, it could be taken into account as evidence. But before the I.T. authorities could rely upon it, they were found to produce it before the assessee so that the asses-see could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him."
22. Although the case of Phulbari Tea Estate (Supra) related to proceedings under the Industrial Disputes Act, 1947, the Supreme Court held :
"there is no evidence that copies of the statements of witnesses who had given evidence against Das were supplied to him or even that the statements made by the witnessees to the manager were read out in existence to Das before he was asked to question them. In these circumstances one of the basic principles of natural justice in the enquiry of this nature was not observed, and, therefore, the finding of the Tribunal that proper procedure had not been followed is justified and is not open to challenge."
23. Of course in this case the copies of the statements of the witnesses had been given to the petitioner along with the show cause notice. The petitioners had also never sought for an opportunity to cross examine the witnesses.
24. Since there is a possibility of fresh proceedings it is made clear the petitioner has a right to cross examine witnesses whose statements may be relied on although the right may be waived.
25. As far as the third contention of the petitioner is concerned, in my view it is not open to the petitioners to raise the contention of limitation in view of the submission made by the petitioners that no demand at all could be raised until there was a final approval of the classification list. If the demand could not have been raised, the time would not begin to run under Section 11A. The principles laid down in the case of Chemphar Drugs & Liniments (Supra) are not therefore of relevance in this case.
26. The last submission of the petitioners relates to the petitioners claim for interest on the amount of Rs. 89,234.04 said to have been deposited by the petitioner during the pendency of the petitioners appeal before the Tribunal. The fact that the amount was not realised as such by the respondents is immaterial. The deposit was made because the respondents had demanded the money from the petitioners. Even in cases where the assessee has paid money voluntarily but under a mistake, the Courts have directed refund of the said money so paid to the assessee with interest. The cases relied upon by the petitioner support this view.
27. The last and final question which will have to be determined is whether the petitioners should be relegated to the alternative remedy of preferring an appeal from the decision of the Tribunal under Section 35L of the said Act. This writ application was moved in 1989 and has been entertained by this Court. Having regard to the principles laid down in the decision of the Supreme Court in Harday Narain v. Income Tax Officer, Bareilly , the court would not be justified in directing the petitioners at this stage of the proceedings to avail of the alternative remedy.
28. For the reasons aforesaid I am of the view that the entire proceedings initiated by the show cause notice dated 27th June 1984 cannot be sustained. The impugned show cause notice and all proceedings subsequent thereto are accordingly quashed. The respondents will be at liberty to take any action against the petitioner's in respect of the Chromo Board after the finalisation of the classification list in respect thereof. It is made clear that this Court has not in any manner gone into or determined the merit of the dispute whether Chromo Board is duplex board or not. It is also made clear that if the respondents wish to rely upon the statements of any witnesses at any stage of the proceedings, the respondents should give the petitioners an opportunity to cross examine such witnesses provided the petitioners seek such opportunity. The amount of the differential duty deposited by the petitioner with the respondents must be returned by the respondents to the petitioner with interest at 12 per cent per annum.
29. The application is disposed of accordingly. There will be no order as to costs.
MENTIONED A xerox copy of the operative portion duly countersigned by the Deputy Registrar (Court) be handed over to the learned Counsel appearing for the party on payment of usual charge.
The respondents will make payment of the amount as directed to the petitioners within two weeks from the date of communication of the operative portion of this order to the appropriate authority.