1970 Supreme(Bom) 113

IN THE HIGH COURT OF BOMBAY
K.K. Desai and J.N Nain, JJ.
Appellants: Prakash Cotton Mills Private Ltd. and Ors.
Vs.
Respondent: B.N. Rangwani and Ors.
Misc. Petn. No. 324 of 1964 Decided On: 26.08.1970
Counsels:
For Appellant/Petitioner/Plaintiff: F.S. Nariman, P.R. Mridul and P.R. Kedia, Advs.
For Respondents/Defendant: K.H. Bhabha, R.J. Joshi and R.L. Dalal, Advs.

Inquiries held under Sub-rule (2) of Rule 9 of the Central Excise Rules, 1944, are quasi-judicial and not merely administrative inquiries. Even if the inquiry is held to be administrative inquiry, having regard to the evil consequences which would be visited on the offending manufacturer, the inquiry would have to be without breach of rules of fairplay and natural justice.

Headnote:

CENTRAL EXCISE - Levy and collection of duty - Quasi-judicial proceedings - Principles of natural justice - Opportunity of hearing - Necessity - Central Excises and Salt Act, 1944 (1 of 1944), Ss. 6, 9, 33 - Central Excise Rules, 1944, Rr. 7, 9(2), 43 to 56.

Fact of the Case:

The petitioner, a company engaged in the manufacture of cloth, challenged the legality of five notices of demand issued by the Central Excise Department for recovering excise duty, as well as an order of detention issued in connection with the recovery of the amounts mentioned in those notices. The petitioner contended that the notices were issued without giving it an opportunity to show cause against the conclusion that it had manufactured cotton fabrics without payment of excise duty, and that the action of the department in arriving at this conclusion ex parte and without giving the petitioner a prior opportunity of being heard was in flagrant disregard of the principles of natural justice.

Finding of the Court:

The court held that the impugned notices of demand were issued without giving any proper opportunity to the petitioner and were therefore invalid and liable to be struck off. The court also held that the impugned detention order, which was the result of one of the impugned notices of demand, was also liable to be struck off.

Issues: 1. Whether the proceedings leading to the issuance of the impugned notices of demand were quasi-judicial proceedings. 2. Whether the petitioner was entitled to an opportunity of hearing and to give explanations in respect of the circumstances on which the department relied for its conclusions. 3. Whether the department was required to disclose all the materials on which it was relying to the petitioner and to call upon it to explain these circumstances and to show cause why the intended notices of demand and levy of duty should not be made against it.

Ratio Decidendi: 1. The court held that the proceedings leading to the issuance of the impugned notices of demand were quasi-judicial proceedings. The court observed that the nature of the investigations which must be made before imposing duty under Sub-rule (2) of Rule 9 of the Central Excise Rules, 1944, became evident from the provisions of the Central Excises and Salt Act, 1944, and the rules relating to enforcement and collection of excise duty. The court noted that evasion of payment of excise duty of necessity involved contravention of the rules in Chapter V of the Central Excise Rules, 1944, which provided for a watertight scheme for recovering duty before the excisable goods were removed from the place of manufacture and/or any other place fixed for storing of the excisable goods after taking licence and the authority of the Collector. The court held that the findings to be made for imposing excise duty under Sub-rule (2) of Rule 9 would be of extremely serious kind and character, and it was difficult to hold that investigations which must be made before imposing duty under Sub-rule (2) could not be of quasi-judicial character and were of administrative character. 2. The court held that the petitioner was entitled to an opportunity of hearing and to give explanations in respect of the circumstances on which the department relied for its conclusions. The court observed that the nature of the opportunity to be afforded to an offending manufacturer could not be stated in detail in the judgment, but it was sufficient to state that the materials on the basis whereof conclusions and/or findings were intended to be arrived at against him should be in clearest terms and in all detailed particulars disclosed to the offending manufacturer. The court held that this was necessary so that in connection with these materials he could give explanations and if he so chooses tender evidence and make a case that the material was insufficient for the necessary conclusions and findings and/or that the material was not reliable. 3. The court held that the department was required to disclose all the materials on which it was relying to the petitioner and to call upon it to explain these circumstances and to show cause why the intended notices of demand and levy of duty should not be made against it. The court observed that in the case of Orient Paper Mills Ltd. v. Union of India (Civil Appeals Nos. 976-996 of 1966 - (reported in AIR 1970 SC 1498) duty was levied by excise officers under sub-item (1) of item 17 in the First Schedule to the Act merely because they were directed to do so by the higher authorities. The Supreme Court held that it was not proper for the excise officers to proceed to levy duty merely because directions were given. The court observed that it was apparent from the judgment referred to above and numerous other decisions of the Supreme Court delivered in respect of various taxation laws that the assessing authorities exercise quasi-judicial functions and they have duty cast on them to act in a judicial and independent manner. The court also referred to the case of (Civil Appeals Nos. 1362 and 1363 of 1967) wherein the Supreme Court observed that if a tribunal receives from a third party a document relevant to the subject-matter of the proceedings it should give both parties an opportunity of commenting on it. The court held that these cases went to show that the Supreme Court was of the view that assessment of excise duty involved determination of issues in a quasi-judicial manner.

Final Decision: The rule was made absolute in terms of prayer (a) of the petition. The order setting aside the detention order dated June 17, 1964, was not to operate for six weeks. There was no order as to costs.