Bombay High Court
Acme Metal Industries Pvt. Ltd. vs S.S. Pathak, The Inspector, Central ... on 1 January, 1800
Equivalent citations: 1980CENCUS74D, 1980(6)ELT156(BOM)
ORDER
1. By this petition filed under Article 226 of the Constitution of India, the petitioners are challenging the validity and legality of demand notice dated July 2, 1974 for an amount of Rs. 3,57,704.98.
2. Only few facts are required to be stated to appreciate the grievance of the petitioners. The petitioners are carrying on business of rolling and re-rolling of Ferrous and Non-ferrous metals. The petitioner are manufacturing goods known as "aluminium coils". the petitioners on November 1, 1969, filed the requisite classification list before the respondents setting out the particulars of excisable goods and other goods manufactured and intended to be removed from their factory. The respondent No. 2 approved the list by his order dated january 17, 1970 and after the said approval, the petitioners manufactured and removed from the factory aluminium coils without payment of duty. At the time of grant of approval by respondent No. 2, the aluminium coils were exempted from the whole of the duty of excise leviable in view of ......Notification No. 120/67, dated June 14, 1967, Subsequently, by virtue of Notification No. 55/70 dated March 1, 1970, the earlier Notification was rescinded. By another Notification dated March 1, 1970, the Central Government exempted aluminium coils manufactured by the petitioners. However, by Notification No. 74/70, dated March 26, 1970, the Central Government amended the Notification No. 46/70 and the result of which was that the products manufactured by the petitioners were liable to excise duty.
3. Though the Notification No. 74/70 came into force on March 26, 1970, the petitioners cleared the product manufactured in their factory without payment of excise duty till December 20, 1971. It is required to be stated at this juncture that the petitioners are securing the aluminium sheets from the customers and merely doing labour work in their factory for converting it into aluminium coils. The petitioners cleared the goods from their factory in spite of Notification No. 74/70 and the respondents did not object to that even after the period subsequent to March 26, 1970. The earlier exemption. it is not in dispute between the parties that such clearance was made by the petitioners in ignorance of the subsequent notification and the Inspector of respondents inadvertently permitted the petitioners to do so. The respondents served a show cause notice dated October 19, 1971 upon the petitioners informing that the petitioners have contravened Rules 173 and 174 of the Central Excise Rules, 1944 (hereinafter referred to as the "Rules") and are also liable to pay the excise duty from March 26, 1970 till December 19, 1971 on the goods cleared from their factory. The petitioners gave certain replies and ultimately by an order dated July 7, 1972, the Assistant Collector, Central Excise adjudicated that the petitioners have contravened the provisions of Rules 173 and 174 of the Rules. The Assistant Collector further directed that the petitioners should pay excise duty on the clearance effected from March 26, 1970 till December 19, 1971. Rule 173 requires the licensee of........warehouse to keep record of all entries into, operations in, and removals from his warehouse, whereas Rule 174 requires every manufacturer to take out a licence and not to conduct the business otherwise than by the authority and subject to the terms and conditions of a licence. The Assistant Collector by his adjudication dated July 7, 1972 held that the goods were cleared under Tariff item No. 27 in view of the notification till March 26, 1970 and till that time, the products were assessed at nil rate of duty. The Assistant Collector felt that after March 26, 1970 and till that time, the products were assessed at nil rate of duty. The Assistant Collector felt that after March 26, 1970, the petitioners ought to have filed a fresh classification list and mere ignorance of law is not sufficient to deprive the revenue of the amount of duty. The petitioners accepted this adjudication and in pursuance of that a notice of demand dated July 25, 1972 was served upon the petitioners requiring the petitioners to pay an amount of Rs. 34,252.56.....towards the duty for the period from March 26, 1970 to December 19, 1971. Tariff Item No. 27 fixes the duty of aluminium coils at 25% ad valorem and the amount of Rs. 34,252.56 covered only the duty on the amount of rolling charges and not on the materials. The petitioners did not dispute this demand and the amount was paid on August 29, 1972.
4. Thereafter, the respondents called upon the petitioners to produce gate passes for fixing the exact amount of excise duty leviable on the products cleared between March 27, 1970 and December 19, 1971. The petitioners could not produce the gate passes but produced the requisite challans and ultimately the respondents informed the petitioners that they are not co- operating with the Department for assessing the correct excise duty leviable on the products for the relevant period. The respondent No. 2 served a demand notice dated July 2, 1974 for an amount of Rs. 3,57,704.98 upon the petitioners and this notice was issued under Rule 9(2) and Rule 173-Q of the Rules. The validity and legality of this notice is under challenge.
5. It is required to be stated that the petitioners carried on appeal against this demand notice but the same came to be dismissed by an order dated December 2, 1974 but before that the petitioners have preferred this petition on November 20, 1974.
6. In view of Notification No. 74 of 1970, Mr. Bhandare, the learned counsel appearing in support of the petition, ....did not challenge the order of adjudication and the fact that the petitioners were liable to pay the excise duty at the rate of 25% ad valorem. What Mr. Bhandare seriously challenged is the demand notice which was served upon his clients on July 2, 1974 under Rule 9(2) of the Central Excise Rules. The learned counsel submitted that the facts of the case would squarely fall within the provisions of Rule 10 of the Rules and it was not open for the respondents to make demand after expiry of 3 months from the date of clearance of the goods. On behalf of the respondents, a return sworn by N. Ramakrishnan, Assistant Collector of Central Excise is filed on July 24, 1979. The respondents claimed that the demand notice issued under Rule 9(2) of the Rules is perfectly valid but, in any event the action of the respondents can be justified under the provisions of Rule 10-A of the Rules which confers residuary powers for recovery of sums due to the Government. In view of these rival contentions, the sole question which falls for determination is whether the demand notice dated July 2, 1974 was properly given under Rule 9(2) of the Rules or was time barred in view of Rule 10 of the Rules. It is required to be stated at this juncture that the petitioners are not challenging the demand notice dated July 25, 1972 under which the amount of Rs. 34,252.56 has been paid by the petitioners.
7. Rule 9 of the Rules provides for the time and manner of payment of duty and Rules 9(2) reads as under :-
"(2) If any excisable goods are, in contravention of sub-rule (1) deposited in or removed from, any place specified therein, the producer or manufacturer thereof shall pay the duty leviable on such goods upon written demand made within the period specified in rule 10 by the proper officer, whether such demand is delivered personally to him, or is left at his dwelling house, and shall also be liable to a penalty which may extend to two thousand rupees, and such goods shall be liable to confiscation."
Mr. Bhandare submits that Rule 9(2) has no application as the petitioners have not removed the goods from their factory in contravention of sub-rule (1) Mr. Bhandare submits that the goods were removed from the factory by the petitioners as they were not conscious of Notification No. 74/70 dated March 26, 1970. The learned counsel submitted that the goods were removed being assessed at nil rate of duty and though the Inspector of the Department was visiting the factory almost regularly, the petitioners were not told either to file classification list or not to clear the goods without payment of excise duty for a considerable long time. The learned counsel submits, and there is no serious challenge, that the goods were removed openly and to the knowledge of the Department. The learned counsel submitted that in view of these undisputed facts, the Department was in error in issuing demand notice under Rule 9(2) of the Rules and the case would squarely fall under Rule 10(1) of the Rules. Rules 10(1) provided for recovery of duties or charges short-levied, or erroneously refunded and reads as under :-
"(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."
8. Mr. Bhandare rightly placed reliance upon the decision of the Supreme Court in the case of N. B. Sanjana, Assistant Collector of Central Excise, Bombay and other vs. The Elphinstone Spinning and Weaving Mills Co. Ltd. and contended that in order to attract Rule 10, it is not necessary that some amount of duty ought to have been assessed and that amount also actually..........paid. The Supreme Court did hold that Rule 10 applies to a case where there has been a nil assessment and in which case entire duty later on assessed must be considered to be duty originally short levied. The learned counsel placed strong reliance upon the observations of the Supreme Court in paragraph 26 of the judgment and claimed that to attract sub-rule (2) of Rule 9, the goods should have been removed in contravention of sub- rule (1) and such removal must be clandestine and without assessment. The Supreme Court held that Rule 9(2) applies only to cases where there has been an evasion from payment of duty and approved its earlier decision taking the identical view in the case of J. K. Steel Ltd., vs. Union of India . The judgment in Sanjana's case makes it abundantly clear that unless the removal is in clandestine fashion, sub-rule (2) of Rule 9 is not attracted. The facts of the present case leave no manner of doubt that the goods were cleared by the petitioners openly and to the knowledge of the Department.
9. Mr. Talyarkhan, the learned counsel appearing on behalf of the respondents, contended that the petitioners removed the goods in spite of the Notification No. 74/70. dated March 26, 1970 and that amounts to removal by clandestine mode. It is difficult to accept this submission. In my judgment, in view of the decision of the Supreme Court in Sanjana's case, it must be held that Rule 9(2) has no application to the facts of the case and the demand notice issued under that sub-rule is totally invalid.
10. Mr. Talyarkhan then submitted that in any event the demand notice can be sustained under the provisions of Rule 10-A of the Rules. That rule reads as under :-
"10-A. (1) Where these Rules do not make any specific provision for the collection of any duty or of any deficiency in duty if the duty has for any reason been short-levied, or of any other sum of any kind payable to the Central Government under the Act or these Rules, the proper officer may serve a notice on the person from which such duty, deficiency in duty or sum is recoverable requiring him to show cause to Assistant Collector of Central Excise why he should not pay the amount specified in the notice.
(2) The Assistant Collector of Central Excise, after considering the representation, if any, made by the person on which notice is served under sub-rule (1), shall... determine the amount of duty, deficiency in duty or sum due from such person not being in excise of the amount specified in the notice and thereupon such person shall pay the amount so determined within ten days from the date on which he is required to pay such amount or within such extended period as the Assistant Collector of Central Excise may, in any particular case, allow."
11. This rule also came for consideration before the Supreme Court in Sanjana's case and the Supreme Court observed that Rule 10-A does not apply, to a case where there has been nil assessment and which must be considered to be duty originally short-levied. The Supreme Court observed in Sanjana's case that Rule 10-A does not apply as a specific provision for collection of duty is provided by Rule 10 of the Rules. Mr. Talyarkhan submits that the decision of the Supreme Court in the case of Assistant Collector of Central Excise, Calcutta vs. National Tobacco Co. of India Ltd. , points out a different concept of the term "Levy" and the term "Assessment". The Supreme Court observed as follows :-
"The term "levy" is wider in its import than the term "assessment". It may include both "imposition" of a tax as well as assessment, the term "imposition" is generally used for the levy of a tax or duty by legislative provisions indicating the subject-matter of the tax and the rates at which it has to be taxed. The term "assessment", on the other hand, is generally used in this country for the actual procedure adopted in fixing the liability to pay a tax on account of particular goods or property or whatever may be the object of the tax in a particular case and determining its amount."
12. Relying upon the observations of the Supreme Court in paragraphs 25 and 26 of the judgment, the learned counsel submitted that Rule 10 should be confined to cases where the demand is being made for a short levy caused wholly by one of the reasons given in that rule so that an assessment has to be re- opened. Mr. Talyarkhan submits that the goods were cleared from the factory without there being any levy and as such Rule 10-A would directly come into operation. The learned counsel submitted that Rule 10 would apply only in case of escarpment of assessment or mistake in collection occurred due to the inadvertence, collusion or other causes mentioned in Rule 10. In the present case, submits Mr. Talyarkhan, the goods were removed from the factory without any levy and the case is not one of the escarpment of assessment or mistake in collection. it is difficult to accept this submission. it is clear from the material on record that the goods were cleared from the factory between March, 26, 1970 and December 19, 1971 with the assessment at nil rate of duty. The goods were cleared obviously because of the inadvertence of the Inspector in not enforcing the Notification No. 74/70. The duty or charges were short levied through inadvertence or error on the part of the Officer in permitting the clearance of the goods with nil rate of duty.
13. Mr. Bhandare is right in his submission that the petitioners had not removed the goods clandestinely and the duty or charges were not levied because of the error on the part of the Officer and, therefore, the department could have proceeded against the petitioners only under Rule 10 of the Rules. Mr. Bhandare submits that the impugned demand notice dated July, 2, 1974 was served after expiry of three months from the date on which the duty was liable to be paid and as such the action of respondents cannot be sustained. Mr. Talyarkhan did not dispute that if the case falls within the ambit of Rule.10, then the demand notice would not be valid. In my judgment, in view of the decision of the Supreme Court in Sanjana's case, the case squarely falls under Rule 10 of the Rules, and Rules 9(1) and 10-A of the Rules have no application whatsoever. In this view of the matter, the demand notice deserves to be quashed.
14. Accordingly, the rule is made absolute in terms of prayer (a) of paragraph 21 of the petition. It hardly requires to be stated that the security furnished by the petitioners stands discharged in view of success of the petition. In the circumstances of the case, there will be no order as to costs.