1998 Supreme(SC) 312

Supreme Court Of India
Decided On : (March 4, 1998)
MILLS COMPANY LIMITED
Versus
COLLECTOR OF central EXCISE

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.

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.