Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Fedders Lloyd Corporation Private Ltd. on 8 August, 1986
Equivalent citations: 1986(10)ECC227, 1987(10)ECR209(TRI.-DELHI), 1986(27)ELT202(TRI-DEL)
ORDER H.R. Syiem, Member (T)
1. By a notice F.No. 198/10/23/ 78-CVX dated 15th November, 1978 issued under Section 36(2) of the Central Excises and Salt Act, 1944, the Government of India called upon M/s. Fedders Lloyd Corporation to show cause why the order of the Appellate 'Collector of Central Excise, New Delhi, No. 2427-2428 CE/77 dated 9-12-1977 should not be set aside and why the Government of India should not pass another order. The order of the Appellate Collector arose from Orders No. V(29A)2/65/74/10369 dated 11-7-1977 and No. V(29A)3/7/75/10632 dated 14-7-1977 passed by the Assistant Collector of Central Excise, New Delhi. The Assistant Collector confirmed demands of duty served on the appellants on the basis that the 3 - ton air-conditioners manufactured and cleared by the appellants were package type (water cooled) air-conditioners. One order was in respect of Rs. 92,535/- and the other for an amount of Rs. 19,84,600/-. These orders were set aside by the Appellate Collector.
2. The arguments before us by the two sides centred only on one point. The learned counsel for M/s. Fedders Lloyd Corporation, Mr. Soli J. Sorabjee maintained that the notice of the Government issued under Section 36(2) of the Central Excises and Salt Act, 1944 is dated 15th November, 1978, while the order of the Appellate Collector is dated 9-12-1977. This notice is time barred under proviso to Section 36 which reads thus :
Provided also that where the Central Government is of opinion that any duty of excise has not been levied or has been short levied or erroneously refunded, no order levying or enhancing the duty, or no order requiring payment of the duty so refunded, shall be made under this section unless the person affected by the proposed order is given notice to show cause against it within the time limit specified in Section 11 A.
3. The learned counsel for the department, Mrs. Zutshi, however, said that the main question is what caused the Government to issue its notice under Section 36(2). She pointed to the fact that the Government says nothing about recovering any money by means of this notice. Provisos 2 and 3 of Section 36(2) are part of the same section and must not be understood to be incompatible; no interpretation must be given that would make one proviso or the other nugatory.
4. The Government came to no finding in respect of any duty or short levy which it seeks to recover from the assessee by means of this notice. She cited in support the decision of this Tribunal in 1986 (7) ECR 196 re.: Mizar Govinda Annappa Pai. In this order, the Tribunal showed that when the Central Government merely spoke of its tentative view that the order proposed to be revised was not proper, legal and correct, and if the notice did not quantify or demand payment of any duty not levied, short levied, or erroneously refunded, it would have to be held necessarily that proviso 3 to Section 36(2) was not attracted. In that case, the notice did not quantify or demand any money as short levied duty or erroneously refunded and, therefore, the notice was governed by proviso 2 which gave a time limit of one year from the date of the decision or order sought to be reviewed.
5. The Central Government, continued the learned counsel for the department, must come to a definite opinion about money having been lost through short levy of duty or wrong refund if proviso 3, that is to say, the shorter time limit of six months, is to operate. She read the notice dated 15th November, 1978 of the Government and said that she could not find anything in this notice that the Government had come to an opinion or conclusion of any money having been lost through short levy or erroneous refund. The Government said only that the order of the Appellate Collector was not proper, legal and correct on 3 or 4 grounds that it enumerated; towards the end of the notice it announced that it proposed to set aside the impugned order and to pass another order, and proceeded to call upon M/s. Fedders Lloyd to show cause why the Government should not pass the proposed order, setting aside the impugned appellate order. The order of the Tribunal in Mizar Govinda Annappa Pai was a three member bench order and was, therefore, binding on the Tribunal.
6. The learned counsel for M/s. Fedders Lloyd began his arguments by saying that this decision had already been decided by the New Delhi High Court in 1981 ELT 421 re.: Associated Cement Company. The court had, in fact, gone into this question of what happened when the notice does not refer to short levy or non-levy. In the Associated Cement Company case also the same problem arose in the notice of the Government seeking to review the Appellate Collector's order. It was argued on behalf of the Government that the notices were under the proviso 2 and that they were, therefore, not barred by limitation as they were issued within the period of one year from the dates of the' orders of the Appellate Collector. This, the High Court said, was contrary to the scheme of Section 36(2) including the provisos.
7. The learned counsel said that the notice must be read as a composite whole to get at the total meaning behind its issue. If the interpretation given by the learned counsel for the department is accepted, then the Government can, by omitting all reference to short levy and by omitting to state its desire to recover a demand, exclude the operation of proviso 3, and claim that its notice would operate within the longer one year limit of proviso 2. The learned counsel read paragraph 10 of the Associated Cement judgment and pointed to the words "the view of the Central Government has to be gathered not only from the language used in the show cause notices but also by reading the said language with the orders passed under Section 35 or 35A which are sought to be reviewed by the orders proposed in the show cause notices. Once the notices are read with the orders passed under Section 35 or 35A, it would be clear whether the notices are issued under the 3rd proviso." When we read the language of the notice with the order of the Appellate Collector of Central Excise, New Delhi, dated 9-12-1977, it is impossible to miss the fact that the order under Section 35 passed in appeal by the Appellate Collector was an order that concerned itself with duty and that it was an order in which the Appellate Collector said that the duty demand was not in order and that, therefore, the assessees from whom the duty was sought to be recovered were not required to pay it. The whole question was the question of duty and it arose as a question of duty, because while the assessees claimed that their air-conditioners were window type air-conditioners, the Assistant Collector held them to be package type air-conditioners. And, as can be seen from the two orders of the Assistant Collector, he ends them by demanding duties which he said had been short paid by the assessees. The counsel ended by saying that all decisions and judgments to the contrary had been displaced by the decision of the New Delhi High Court in Associated Cement Company case.
8. The learned counsel for the department replied that there was nothing in the law that requires that the notice should be read as a whole particularly with the order passed by the Appellate Collector. The law only requires that the Central Government should be of the opinion that any duty of excise had not been levied or had been short levied or erroneously refunded. No such opinion was expressed by the Central Government in its notice to Fedders Lloyd and, therefore, this is enough to exclude provision of Section 36(2). The learned counsel read the lines of the Mizar Govinda Annappa Pai decision of this Tribunal that dealt with the question of how to determine the meaning of when an opinion is formed, and how a reason to believe arises. The Mizar Govinda judgment discussed and quoted two judgments of the Supreme Court :
(1) AIR 1967 S.C. 297 re.: Barium Chemicals and (2) AIR 1969 S.C. 707 re.: Rohtas Industries.
The Central Government must form the opinion and must declare such opinion in the notice so that the receiver of the notice can say that there was such an opinion before the notice was served on him. However, the notice served on M/s. Fedders Lloyd did not declare the formation of such an opinion and did not say that the Central Government had formed the opinion or was of the opinion that any duty of excise had not been levied or had been short levied. The Central Government merely declared that it was of the opinion that the order of the Appellate Collector was not proper, legal and correct. This is the language found not in proviso 3 but in Section 36(2) itself and provides for the Central Government calling and examining the records of the proceedings in which a decision or an order has been passed under Section 35 or Section 35A for the purpose of satisfying itself as to the correctness, legality or propriety of such decision or order, and by virtue of which, the Central Government may pass an order thereon as it thinks fit. But the present notice did not say that the Government was of the opinion that any duty had been short levied or not levied. In these circumstances, the learned counsel said, the notice would be governed by one year under proviso 2, and is, therefore, in time.
9. We will first examine the Mizar Govinda decision of the Tribunal in 1986 (7) ECR 196. This order records that the notice merely spoke of the tentative view of the Central Government that the order proposed to be revised was not proper, legal and correct did not quantify or demand payment of any duty not levied, short levied or erroneously refunded. The order did not say that there was no short levy or a non-levy, but that the notice did not speak of it, but only of the tentative view of the Central Government that the order was not proper, legal and correct. The decision itself does not tell us whether there was any such short levy or non-levy. It was based purely on the fact that the Government did not quantify or demand payment of any duty. We will have to take this to mean, therefore, that the bench of the Tribunal found that there was no demand of duty and that recovery of any money as duty short levied was not the cause that led the Government to issue the notice under Section 36(2). Though the learned SDR said that there was such a short levy in the Mizar Govinda case, this it appears, was not placed before the Bench-, the judgment does not show that the JCDR who appeared before the bench was aware of this. It is a moot point, therefore, what would have been the decision of the bench had short levy been presented as a fact before it. The decision certainly does not say that there was such a short levy, but that since the notice did not specifically speak about it, the Bench would not take any notice of it as long as it did not form a part of the grounds under which the Central Government issued the notice.
10. This Mizar Govinda decision dealt, as we have seen at para 8 above, with two judgments of the Supreme Court: Barium Chemicals and Rohtas Industries, both under the Companies Act, 1956.
11. In the Rohtas Industries judgment, two judges recorded that in the Barium Chemicals case two judges held that although the formation of opinion by the Central Government is a purely subjective process and such an opinion cannot be challenged in a court on the ground of propriety, reasonableness or sufficiency, the authority concerned is nevertheless required to arrive at such an opinion from circumstances suggesting the conclusion set out in Sub-clauses (i), (ii) and (iii) of Section 237(b) and the expression "circumstances suggesting" cannot support the construction that even the existence of circumstances is a matter of subjective opinion. One of the two judges observed further that it was hard to contemplate that the legislature could have left to the subjective process both the formation of opinion and also the existence of circumstances on which it is to be founded; it was not reasonable to say that the clause permitted the authority to say that it had formed the opinion on circumstances which in its opinion exist and which in its opinion suggest an intent to defraud or a fraudulent or unlawful purpose.
12. Two other judges held that the power conferred on the Central Government under Section 237(b) was a discretionary power and no facet of that power was open to judicial review. The 5th judge in that bench did not express any opinion on this aspect of the case. The judges in Rohtas Industries appeal, therefore, said that it had become necessary for them to sort out the requirements of Section 237(b) and to see which of the two contradictory conclusions reached in Barium Chemicals case was in their judgment according to law.
13. After discussing the notice issued by the Government of India, Ministry of Commerce and Industry, appointing a person as inspector under Section 237 of the Companies Act to investigate the affairs of the company, because it was of the opinion, that there were circumstances suggesting that the business of the company was being conducted with an intent to defraud its creditors, members or other persons and the persons concerned in the management of its affairs have in connection therewith been guilty of fraud, misfeasance, and other misconduct towards the company and its members, the court decided in paragraph 39 that existence of the circumstances in question was open to judicial review though the opinion formed by the Government was not amenable to review by the courts. It held that the required circumstances did not exist in the case, and the fact that one of the leading directors of the company was a suspect in the eyes of the Government because of his antecedents was not a relevant circumstance. That circumstance should not have been allowed to cloud the opinion of the Government which is charged with the responsibility to form a bona fide opinion on the basis of relevant material. The court held that the opinion formed in that case could not be held to have been formed in accordance with law. This opinion formed by two judges was accepted, by the third judge who said that the opinion so formed was in excess of the Government's power and could not support the order under Section 237(b).
14. We will see from this order- that the ultimate judgment in the Rohtas Industries case was one on whether there were circumstances justifying a particular opinion declared to have been held by the Central Government, that is to say, the opinion that the affairs of Rohtas Industries were being conducted with an intent to defraud its creditors and members and other persons etc. It was the sufficiency of the grounds for holding such an opinion that was under trial before the Supreme Court. This judgment bears no relation with and furnishes no precedent for the problem we have. Our problem is: Did the Government have such an opinion or not? the opinion in question being that there had been a short levy of duty in the proceedings before the Appellate Collector. We cannot answer this question by reference to these two judgments.
15. The learned counsel for the department said that the Government had not formed an opinion that there had been a short levy and she repeated this statement a number of times. She was then asked by the Bench: What did the Central Government seek? There was no answer to this except that the Central Government was simply of the opinion that the order of the Appellate Collector was incorrect and improper and needed modification and that the order the Government proposed was to change that order. The same answer was returned when the question was repeated. Therefore, when the Bench asked whether the Government would, after modification of the Appellate Collector's order, stand to recover any money as short levied duty from M/s. Fedders Lloyd, there was no answer from the learned SDR.
16. We are not satisfied that this is a mere matter of passing another order because the order of the Appellate Collector was incorrect or mistaken. As pointed out by the learned counsel, Mr. Sorabjee, by the simple device of omitting to say that there had been a short levy, the Central Government can avoid the shorter time limit of six months. However that may be, we must look a little deeper into the notice of the Government of India.
17. The notice does not say why the order of the Appellate Collector is incorrect or improper, but it does say that the Appellate Collector observed that the package type units are water cooled, but in the present case, the units were air cooled and he, therefore, allowed the appeal setting aside the orders of the Assistant Collector. It is this that the Central Government said was not proper or correct. Clearly, therefore, it thought that the Assistant Collector's orders demanding duty from M/s. Fedders Lloyd were correct and that the Appellate Collector was wrong in setting them aside, preventing the department from recovering the duties said to beshort levied. While the action of the Appellate Collector is discussed with disfavour, the action of the Assistant Collector in his two orders is quoted with implicit approval, though care is taken not to make the approval manifest, in order to avoid a complaint of prejudice. But if the Assistant Collector issued and confirmed the demands and the Appellate Collector set them aside as incorrect, and at the end of it, the Central Government steps in to make a correction, it does not need too much imagination to see with direction the correction is meant to take. The only conclusion we are able to arrive at is that the correction will take the form of recovering the duty, the duty that the Assistant Collector set out to recover in his two orders and which the Appellate Collector by his order ruled out. There can be no doubt, therefore, that the notice of the Government of India was issued only because it had formed the opinion that there had been a short levy, and that it issued the notice with the sole intention of recovering the short levy which the order of the Appellate Collector had temporarily prevented.
18. The notice is, therefore, time barred and is set aside. In arriving at this decision we have relied entirely on the decision of the New Delhi High Court in the Associated Cement Company case.