1. Dispute over excise duty on yarn — retrospective amendment of Central Excise Rules — limitation period for issuing show cause notice under Section 11A, Central Excises Act. (Para 3 , 4 , 5 )
Back
Next 
1998 Supreme(SC) 310
1998(3) Supreme 31
Supreme Court of India
(From Customs Excise and Gold (Control) Appellate Tribunal)
M.M. Punchhi, CJI, K.T. Thomas, M. Srinivasan, JJ.
J.K. Cotton Spinning and Weaving Mills Co. Ltd. -Appellant
versus
Collector of Central Excise -Respondent
Civil Appeal No. 1735-36 of 1989
Decided on 4-3-1998
Counsel for the Parties :
For the Appellant : Joseph Vallapalli, Sr. Advocate, Ms. Amita Mitra and Ms. Juhi, Advocates for M/s. JBD & Co., Advocates.
For the Respondent : M. Gauri Shankar Murthi, S.D. Sharma (V.K. Verma) Advocate for P. Parmeshwaran, Advocate.
Important Points
Important Point
The period of six months envisaged in Section 11A of the Central Excise Act, 1944 for issuing show cause notice did not stand extended by any further period so as to enable the Revenue to scale over the hurdle of limitation in this case.
The period of six months envisaged in Section 11A of the Central Excise Act, 1944 for issuing show cause notice did not stand extended by any further period so as to enable the Revenue to scale over the hurdle of limitation in this case.
Subject
Taxation - Indirect Tax
Act Referred
CENTRAL EXCISE ACT: S.35(l)(b), S.11(a)(1)
CENTRAL EXCISE AND SALT ACT: S.11(a)(3)(ii)(b)
CENTRAL EXCISE RULES: R.9, R.49
CIVIL PROCEDURE CODE: O.41 R.22
CONSTITUTION OF INDIA: Art.136
FINANCE ACT: S.51(2)(d)
CENTRAL EXCISE AND SALT ACT: S.11(a)(3)(ii)(b)
CENTRAL EXCISE RULES: R.9, R.49
CIVIL PROCEDURE CODE: O.41 R.22
CONSTITUTION OF INDIA: Art.136
FINANCE ACT: S.51(2)(d)
Headnote
(i) Central Excise Act, 1944-Section 35L(b)-Appeal to Supreme Court-Order passed by Central Excise and Gold (Control) Appellate Tribunal, New Delhi-Question sought to be determined in the appeal had neither any relationship to the rate of duty of excise or to the value of the goods for purpose of assessment - So appeal not maintainable u/s 35L(b) to Supreme Court-But appeal pending for last nine years-Proper course -Not to dismiss it on a technical ground but treat it as one filed by special leave under Article 36 of Constitution. (Paras 8 & 9, 10)
(ii) Central Excise Act, 1944-Section 11A-Recovery of Excise duties-Limitation of six months-Limitation extendable in three eventualities viz. fraud etc., provisional assessment, or stay-Tribunal upholding third factor of stay-Stay of service of show cause notice from 12.8.1981-Alleged to be as High Court restrained the Department from “giving effect to” a circular dated 24.9.1980 issued under Rule 9 of Central Excise Rules-Whether correct? (No)-Whether there was a provisional assessment? (No) -Result-Recovery is barred by limitation-Appeal allowed. (Paras 6, 22, 23 & 28 to 32)
Held : We allow this appeal and set aside the impugned judgment. We hold that recovery of excise duty for yarn from the appellant for the period between 1.4.1981 and 5.12.1981 is barred by the period of limitation prescribed in Section 11-A of the Act. The appeal is thus allowed without any order as to costs. (Para 33)
Legal Category Hierarchy
Table of Contents
2. Whether the limitation period was extended due to provisional assessment or a court stay order preventing the issuance of show cause notices. (Para 1 , 2 , 24 )
3. Stay of a circular interpreting rules does not constitute a stay of service of notice; provisional assessment requires specific statutory compliance under Rule 9-B. (Para 16 , 17 , 20 , 22 , 23 , 28 )
4. Limitation periods under Section 11A must be strictly construed; stay of an interpretative circular does not exclude time for serving show cause notices. (Para 20 , 22 )
5. Appeal allowed — recovery of excise duty for the specified period held barred by limitation under Section 11A of the Act. (Para 33 )
6. Does a court stay on a Board circular interpreting excise rules extend the limitation period for issuing a show cause notice under Section 11A?
No. The limitation period is extended only if the service of the notice itself is stayed. A stay on a circular does not prevent the Collector from issuing a notice, as the notice can be issued independently of the circular. (Para 16 , 22 , 23 )
7. What constitutes a provisional assessment for the purpose of extending the limitation period under Section 11A?
A provisional assessment requires a specific order as mandated by Rule 9-B of the Central Excise Rules. The mere fact that a matter is sub-judice is insufficient to treat an assessment as provisional. (Para 28 )
8. Should the limitation period for recovering duties under Section 11A of the Central Excises Act be liberally or strictly construed?
The limitation period must be strictly construed, especially when retrospective amendments to rules are involved, to prevent imposing an unbearable financial burden on taxpayers. (Para 19 , 20 )
9. Can a respondent in an appeal filed under Article 136 challenge a finding that was decided against them, even if the final judgment was in their favor?
Yes. The Supreme Court has the power to decide all points arising from the impugned judgment and may permit a party to support a judgment in their favor even on grounds previously negatived. (Para 25 , 26 , 27 )
Judgment
Thomas, J.- The moot point in this appeal is this: Whether the period of six months envisaged in Section 11A of the Central Excises Act, 1944 (for short ‘the Act’), for issuing show cause notice, stood extended by any further period so as to enable the Revenue to scale over the hurdle of limitation? Respondent (Revenue) advanced two alternative premises in support of the plea that the said period of six months stood extended. First is, there was only a provisional assessment and hence the ‘relevant date’ for issuing the show cause notice could be counted only from final assessment. Second is that an order of stay issued by the High Court of Delhi on 12.8.1981 virtually amounted to a bridle against issuing show cause notice and hence the period stood extended by the entire time when the stay order was in operation.
2. Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT-the acronym hereafter) held that the assessment was not provisional and hence the first premise was not available to the Revenue. But it held by a majority of 2:1 that the interim order of the Delhi High Court dated 12.8.1991 operated as virtually a stay, though not expressly so, against issuance of show cause notice and hence there was no bar of limitation for recovering the amount of excise duty levied. Thus, the Revenue was permitted by the CEGAT to proceed to recover the duty. The said order of CEGAT is challenged in this appeal.
3. The facts which led to the opening of the aforesaid question can be summarised as follows: Appellant has a textile mill consisting of various divisions, among which the division where yarn is made is distinct from other divisions. Yarn is to be used in the manufacture of fabric which is the end product of the textile mill of the appellant. Yarn is obtained at an intermediary stage in the composite textile mill and is further processed in the mill for making fabric. According to the Revenue, there is removal of yarn from one area of the factory and hence that commodity is exigible to excise duty as per Rules 9 and 49 of the Central Excises Rules irrespective of the excise duty payable on manufacture of fabric. Appellant challenged the aforesaid direction of the Department in a writ petition filed before Delhi High Court and its contention was upheld by judgment dated 16.10.1980. The Department then filed an appeal in this Court by special leave. When the special leave petition was pending the Department issued two notices under Section 11-A of the Act for recovering the excise duty on yarn for the period from 6.11.1980 to 31.3.1981. However, the Department issued a notification on 20.2.1982 as a precautionary step, amending Rules 9 and 49 of the Central Excise Rules creating a fiction of “deemed removal” of the input goods at the intermediary stage within the factory. That amendment later gained incorporation in a legislative enactment also, vide Section 51(2)(d) of the Finance Act, 1982 by which it was given retrospective effect from 1944. Though the appellant challenged the aforesaid amendments first in the Delhi High Court and later in this Court, its validity remained undisturbed vide J.K. Spinning and Weaving Mills Ltd. & Anr. v. Union of India & Ors.1. A three-Judge Bench of this Court in that decision upheld the validity of the amendments to Rules 9 and 49 besides upholding the retrospectively granted to the provisions as per Section 51 of the Finance Act, 1982.
4. However, in order to allay the apprehension of the assessees that the judicial imprimatur accorded to the long distant retrospectively to Rules 9 and 49 of the Central Excise Rules would precipitate them to unbearable financial burden, their Lordships put a rider that the retrospective effect “must be subject to the provisions of Section 11A of the Act”.
5. It is advantageous at this stage to read Section 11-A of the Act:
“11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded.-- When any duty of ex
