1. Excise duty on yarn — retrospective amendment to Central Excise Rules — limitation for issuing show cause notice under Section 11-A, Central Excises Act. (Para 1 , 3 , 4 , 5 )
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1998 Supreme(SC) 312
Supreme Court Of India
Decided On : (March 4, 1998)
MILLS COMPANY LIMITED
Versus
COLLECTOR OF central EXCISE
Important Points
The period of limitation for issuing show cause notice under Section 11-A of the Central Excises Act, 1944 can be extended only under the three eventualities specified in the section, and the Explanation to the section, which provides for exclusion of any period from the time provided for issuing notice, should be strictly construed.
Subject
Central Excise - LIMITATION
Act Referred
CENTRAL EXCISE ACT: S.35(l)(b), S.11(a)(3)(ii)(b)
CENTRAL EXCISE RULES: Ch.7(a), R.9, R.49, R.173(f)
CIVIL PROCEDURE CODE: O.41 R.22
CONSTITUTION OF INDIA: Art.136
CENTRAL EXCISE RULES: Ch.7(a), R.9, R.49, R.173(f)
CIVIL PROCEDURE CODE: O.41 R.22
CONSTITUTION OF INDIA: Art.136
Headnote
CENTRAL EXCISE - RECOVERY OF DUTY - LIMITATION - EXTENSION OF TIME - STAY OF SERVICE OF NOTICE - INTERPRETATION OF SECTION 11-A OF THE CENTRAL EXCISES ACT, 1944 - PERIOD OF LIMITATION FOR ISSUING SHOW CAUSE NOTICE - EXTENSION OF TIME - STAY OF SERVICE OF NOTICE - INTERPRETATION OF EXPLANATION TO SECTION 11-A - STRICT CONSTRUCTION - NO STAY OF SERVICE OF NOTICE - ISSUANCE OF NOTICES DURING STAY PERIOD - PROVISIONAL ASSESSMENT - REOPENING OF FINDING - POWER OF SUPREME COURT IN APPEAL BY SPECIAL LEAVE - RULE 9-B OF CENTRAL EXCISE RULES - SELF-REMOVAL PROCEDURE - NOT A PROVISIONAL ASSESSMENT.
Fact of the Case:
The appellant, a textile mill, challenged the Revenue's direction to pay excise duty on yarn removed from one area of the factory to another, as per Rules 9 and 49 of the Central Excise Rules. The appellant obtained a favorable judgment from the Delhi High Court, but the Revenue filed an appeal in the Supreme Court. During the pendency of the appeal, the Revenue issued two notices under Section 11-A of the Central Excises Act, 1944 (the Act) for recovering the excise duty. The Revenue also issued a notification amending Rules 9 and 49, creating a fiction of "deemed removal" of input goods within the factory. The appellant challenged the amendments, but their validity was upheld by the Supreme Court in J. K. Spinning and Weaving Mills Ltd. v. Union of India. However, the Supreme Court held that the retrospective effect of the amendments must be subject to the provisions of Section 11-A of the Act.
Finding of the Court:
The Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) 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.
Issues: 1. Whether the period of six months envisaged in Section 11-A of 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? 2. Whether the 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?
Ratio Decidendi: 1. The period of six months envisaged in Section 11-A of the Act can be extended only under three eventualities: (i) If the impairment of the levy is attributable to any fraud, collusion or wilful misrepresentation or suppression of facts, the period of six months will stand stretched up to five years. (ii) If the original assessment was provisional, in which case the period would start running only from the date of final assessment. (iii) If the service of show cause notice on the person chargeable with duty is stayed by a Court, in which case the entire period of stay shall be excluded from computing the aforesaid limitation time. 2. The Explanation to Section 11-A, which provides for exclusion of any period from the time provided for issuing notice, should be strictly construed. The mere fact that a Court order restrains the department from giving effect to a circular or directive does not amount to a stay of service of notice under Section 11-A. 3. The assessment preceding the action in this case was not provisional, as there was no express order of provisional assessment, no circumstances for making a provisional assessment, and no statement in the show cause notice that the assessment was provisional. 4. The Revenue cannot be permitted to advance a new ground for supporting its theory of provisional assessment, based on the Self-Removal Procedure envisaged in Chapter VII-A of the Rules, as it never adopted such a stand before.
Final Decision: The appeal is allowed and the impugned judgment is set aside. The 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.
Legal Category Hierarchy
- taxation
- administrative law
- practice and procedure
Advocates:
referred to : J.K. Cotton. Spg. and Wvg. Milts Ltd. v. Union of India, 1987 Supp1 SCC 350
Rai Ramkrishna v. State of Bihar, AIR 1963 SC 1667
Jawahamal v. State of Rajasthan, AIR 1966 SC 764
followed : Ramanbhai Ashabhai Patel v. Dabhi Ajitkumar Fulsinji, AIR 1965 SC 669
Vashist Narain Sharma v. Dev Chandra, AIR 1954 SC 513
Baru Ram v. Prasanni, AIR 1959 SC 93
referred to : Serai Kella Glass Works (P) Ltd. v. CCE, 1997 4 SCC 641
relied on : J.K. Cotton. Spg. and Wvg. Mills Ltd. v. Union of India, 1987 Supp1 SCC 350
referred to : J.K. Cotton. Spg. and Wvg. Milts Ltd. v. Union of India, 1987 Supp1 SCC 350
Rai Ramkrishna v. State of Bihar, AIR 1963 SC 1667
Jawahamal v. State of Rajasthan, AIR 1966 SC 764
followed : Ramanbhai Ashabhai Patel v. Dabhi Ajitkumar Fulsinji, AIR 1965 SC 669
Vashist Narain Sharma v. Dev Chandra, AIR 1954 SC 513
Baru Ram v. Prasanni, AIR 1959 SC 93
referred to : Serai Kella Glass Works (P) Ltd. v. CCE, 1997 4 SCC 641
relied on : J.K. Cotton. Spg. and Wvg. Mills Ltd. v. Union of India, 1987 Supp1 SCC 350
Table of Contents
2. Whether the limitation period was extended due to provisional assessment or a court stay on a circular preventing the issuance of show cause notices. (Para 1 , 2 , 7 , 13 , 24 , 29 )
3. Stay of a circular does not constitute stay of notice service; limitation periods in taxing statutes require strict construction; provisional assessment requires specific statutory orders. (Para 6 , 16 , 17 , 20 , 22 , 23 , 28 , 32 )
4. Limitation periods under Section 11-A must be strictly construed; a stay on a directive does not constitute a stay on the service of notice. (Para 20 , 22 )
5. Appeal allowed — recovery of excise duty for the disputed period held barred by limitation under Section 11-A of the Act. (Para 33 )
6. Does a court order staying the operation of a circular constitute a stay on the service of a show cause notice under Section 11-A?
No. A stay on a circular, which serves as a directive to officials, does not prevent the authority from issuing a notice under the Act. The limitation period is only extended if the service of the notice itself is stayed by a court order. (Para 16 , 22 )
7. How should the limitation period for recovering duties under Section 11-A of the Central Excises Act be construed?
The limitation period must be strictly construed and cannot be stretched beyond the elasticity provided within the section itself, particularly when the court has previously limited the impact of retrospective amendments to protect taxpayers from undue financial burden. (Para 20 )
8. What constitutes a provisional assessment for the purpose of extending the limitation period under Section 11-A?
A provisional assessment requires a specific order as per Rule 9-B of the Central Excise Rules and compliance with statutory requirements. Mere pendency of litigation or the existence of a self-assessment procedure is insufficient to qualify as a provisional assessment. (Para 28 , 31 , 32 )
9. Can a respondent in an appeal filed by special leave under Article 136 challenge a finding that was decided against them in the lower court?
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 favour even on grounds that were previously negatived in that judgment. (Para 25 , 26 , 27 )
Judgment
THOMAS, J.
( 1 ) THE moot point in this appeal is this : Whether the period of six months envisaged in Section 11-A 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 therelevant 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 Sectio 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. v. Union of India , (1987) 32 ELT 234 : (AIR 1988 SC 191 ). A three-Judge Bench of this Court in that decision upheld the validity of the amendments to Rules 9 and 49 besides upholding the retrospectivity 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 retrospectivity 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 11-A of the Act".
( 5 ) IT is advantageous at this stage to read Section 11-A of the Act :"11-A. Recovery of duties not levied or not paid or short-levied or short-paid o
