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PETITIONER: UNION OF INDIA & ORS.

       Vs.

RESPONDENT: MADHUMILAN SYNTEX PVT. LTD. & ANR.

DATE OF JUDGMENT03/05/1988

BENCH: KANIA, M.H. BENCH: KANIA, M.H. PATHAK, R.S. (CJ)

CITATION:  1988 AIR 1236            1988 SCR  (3) 838  1988 SCC  (3) 348        JT 1988 (2)   255  1988 SCALE  (1)979

ACT:      Central Excises  and Salt  Act, 1944-Challenging demand of  short   payment  of   excise  duty  being  violative  of provisions of section 11-A of.

HEADNOTE:      The respondent  No. 1  in this appeal was manufacturing Spun yarn.  In the  manufacture of  the  said  product,  the respondents used  as raw material cellulosic fibres and non- cellulosic fibres.  Prior to 7th July, 1983, the respondents had filed  a classification list in respect of the spun yarn manufactured by them showing the same as covered by Item No. 18 (III)  (i) in  the first  schedule to the Central Excises and  Salts   Act,  1944   ("Central  Excises   Act").   This classification was  on the  basis that  the  spun  yarn  was manufactured by  them out of non-collulosic synthetic waste. The said  classification list  was approved  by  the  excise authorities   on    7th   July,    1983.   A   supplementary classification list was approved on 15th October, 1983.      Samples were drawn out of the spun yarn manufactured by the respondents and sent for chemical analysis. Reports were submitted by  the Chemical  Analyser. On 7th February, 1984, the Superintendent of Central Excises issued a demand notice against the  respondent No.  1 on the footing that there was short payment  of excise  duty as  the goods manufactured by the respondents  were liable  to be classified under Central Excises Tariff  Item No. 18(III) (ii). The respondents filed a writ petition in the High Court, challenging the notice of demand. On  9th February,  1984, the  Assistant Collector of Central Excises  passed  an  order  modifying  the  approval granted  to   the  classification  lists  submitted  by  the respondents and  classifying the  aforesaid product  of  the respondents under Item No. 18(III) (ii) of Schedule I of the Central  Excises   Act,  on   the   basis   of   which   the Superintendent,  Central   Excises,  issued   on  the   10th February, 1984,  a notice  to the  respondent No. 1, calling upon them  to show cause why duty short-levied should not be recovered from  them under the provisions of section 11-A of the Central  Excises Act. A second similar show-cause notice was also issued.      The Assistant  Collector passed  orders of adjudication

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dated 5th 839 March,  1984,   modifying  the   classification  lists   and confirming the  demand made  under the  aforesaid notice  of demand. The  respondents-petitioners thereupon amended their aforesaid writ  petition to  challenge  the  two  show-cause notices and the orders of adjudication. The petitioners also filed an  appeal before  the Collector  of  Central  Excises against the said orders of adjudication.      The High  Court allowed  the  writ  petition  in  part, quashing the  notice of  demand for  the period 15th August, 1983 to  6th February,  1984, and  the orders  modifying the classification lists,  and directing  the Collector, Central Excises to  hear the  appeal of  the petitioners  on  merits considering their evidence in respect of the period from 7th February, 1984  onwards. The  High Court  took the view that the show-cause  notice served  on the  petitioner  could  be treated as  valid only  in respect  of the  period from  7th February, 1984,  onwards and  not retrospectively  from 15th August, 1983  to 6th February, 1984. The Union of India, the Collector of  Central Excises and other Excise officers then moved this  Court by this appeal against the decision of the High Court.      Dismissing the appeal, the Court, ^      HELD:  If   the  Cellulosic   spun  yarn   made  by   a manufacturer with  the aid  of power contains man-made fibre of non-cellulosic  origin,  it  will  fall  under  Item  No, 18(III) (ii),  but if it does not contain any man-made fibre of non-cellulosic  origin,  it  will  fall  under  Item  No. 18(III) (i)  and duty  would be  leviable there  at a  lower rate. [843B-C]      Under the  provisions of  Section 11-A  of the  Central Excises Act,  before  any  demand  is  made  on  any  person chargeable in  respect of  non-levy or  short levy or under- payment of duty, a notice requiring him to show cause why he should not  pay the  amounts specified in the notice must be served on  him. In this case, no such notice was served. The aforesaid notice  of demand dated 7th February, 1984, was in violation of  the provisions  of Section  11-A and is bad in law, and  the High Court was fully justified in quashing the same. [843G-H;844G-H]      The appellants  contended that  although the  notice of demand might  be set  aside, the  notice to show cause dated 9th/10th February, 1984, should be treated as a valid notice in respect  of the  period from  15th August,  1983  to  6th February, 1984  and the  period  from  7th  February,  1984, onwards. The  notice referred  to the  service of  notice of demand dated 7th February, 1984 on the respondent No. 1. The notice  set   out  as   an   established   fact   that   the classification lists submitted by the 840 respondents had  been modified  by the  Assistant Collector, and the  only matter  with respect  to which the respondents were  asked   to  show   cause  was   with  regard   to  the quantification of  the amount of short levy which was liable to be  recovered from the respondent No. 1. The Notice could not  be   regarded  as   a  show-cause  notice  against  the modification of  the classification  lists in respect of the aforesaid period.  The show  cause notice was bad in law and of no  legal  effect  as  far  as  the  earlier  period  was concerned. Under  Section 11-A  of the  Central Excises Act, the notice  can relate only to a period of six months period to the  issue of  that notice  except in  cases where  it is alleged that  the short  levy or  payment  has  occurred  by

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reason of  fraud, collusion  or wilful  misrepresentation or suppression of  facts or  contravention of the provisions of the said  Act or  rules, as  contemplated in  the proviso to sub-section (1)  of Section  11-A. No such case was made out in the  said show-cause  notice. The  said show-cause notice must be  struck down  in so  far  as  the  period  upto  6th February, 1984,  was concerned  and could  be regarded  as a proper show-cause  notice only  in respect of the subsequent period from 7th February, 1984 onwards. Under the said show- cause notice,  the question  of short  levy or  non-levy  of excise duty  prior to  6th February, 1984, could not be gone into by  the Collector  and the  High Court was right in the view it took. [845B-C;846A-E]      Gokak  Patel  Vokkart  Ltd.  v.  Collector  of  Central Excise, Belgaum, A.I.R. 1987 S.C. 1161, referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal  No.  1110 (NT) of 1986      From the  Judgment and  Order dated  24.11.1984 of  the High Court  of Madhya  Pradesh, Indore Bench, passed in M.P. NO. 104 of 1984.      Gobind Das,  Mrs. Sushma  Suri, Mrs.  Indra Sawhney and C.V.S. Rao for the Appellants.      Dr. Y.S.  Chitale, Sanjay Sarin, Abdul Chitale and S.K. Gambhir, for the Respondents.      The Judgment of the Court was delivered by      KANIA, J.  This is  an appeal against the judgment of a Division Bench  of the  Madhya Pradesh  High Court, Jabalpur (Indore Bench) in M. Petition No. 104 of 1984. The appeal is filed at the instance of the 841 Union of  India, Collector of Central Excise, Indore and two other excise  officers. The  respondents  are  the  original petitioners in  the aforesaid  petition. We propose to refer to the parties by the description in the petition.      The facts necessary for the disposal of this appeal can be shortly stated.      The petitioner  No. 1  is a  Company manufacturing spun yarn. According  to the  petitioners, in  the manufacture of the said  product they use as raw material cellulosic fibres and non-cellulosic  fibres. Some  time prior  to  7th  July, 1983, the petitioners filed a classification list in respect of the  spun yarn  manufactured by  them showing the same as covered by Item No. 18(III) (i) in the First Schedule to the Central Excises  and Salt Act, 1944 (referred to hereinafter as the "Central Excise Act"). The said schedule is generally referred  to   as  the   "Central  Excises   Tariff".   This classification was  on the  basis that  the  spun  yarn  was manufactured by  them out of non-cellulosic synthetic waste. The said  classification list  was approved  by  the  excise authorities   on    7th   July,    1983.   A   supplementary classification list  was approved on 15th October, 1983. The petitioners  were   clearing  the  goods  on  the  basis  of aforesaid classification lists. It appears that samples were drawn out  of the  spun yarn manufactured by the petitioners and sent  for chemical  examination. There  are some reports submitted by  the Chemical  Analyser, with  the  details  of which we  are not  concerned. Without  giving any show cause notice or affording any opportunity to the petitioners to be heard, on  7th February, 1984, the Superintendent of Central Excise issued  a  notice  of  demand  for  a  total  sum  of Rs.26,47,749.39 against  the petitioner No. 1 on the footing

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that there  was short  payment of excise duty. This was done on the  ground that the yarn manufactured by the petitioners had been  manufactured out  of waste  of synthetic fibres in blend of  viscose fibres (of noncellulosic origin) and hence the said  goods manufactured  by  them  were  liable  to  be classified   under   Central   Excises   Tariff   Item   No. 18(III)(ii). It  is  an  admitted  position  that  the  yarn manufacturing process  used by  the petitioners was with the aid of  power. The  petitioners  filed  the  aforesaid  writ petition in the High Court of Madhya Pradesh challenging the validity of  the said  notice of  demand dated 7th February, 1984.  The  High  Court  granted  an  interim  stay  of  the operation of the demand notice on 9th February, 1984. On the same day, namely, 9th February, 1984, an order was passed by the Assistant  Collector of  Central  Excise  modifying  the approval  granted  to  the  aforesaid  classification  lists submitted by the petitioners which had been approved 842 as aforesaid  and classifying  the aforesaid  product  under Item No.  18(III) (ii)  of Schedule 1 of the Central Excises Act. On  10th February,  1984 a  notice was  issued  by  the Superintendent, Central  Excise  on  the  petitioner  No.  1 reciting  inter   alia  that  the  Assistant  Collector  had modified the  approval of  the classification  lists on  9th February, 1984 and calling upon the petitioner No. 1 to show cause why the duty short levied should not be recovered from them under  the provisions  of Section  11-A of  the Central Excises Act.  A second  similar show  cause notice  was also issued. The petitioner No. 1 wrote to the excise authorities pointing out  that in  view of  the aforesaid  writ petition filed by  the appellant, the adjudication proceedings should be stayed  till writ  petition was disposed of. This request was  turned   down  on   5th  March,   1984  and  orders  of adjudication  were   passed  by   the  Assistant   Collector modifying the classification lists and confirming the demand made under  the aforesaid  notice of demand. The petitioners thereupon amended  the aforesaid writ petition filed by them and challenged  the two  show cause  notices as  well as the said orders  of adjudication  dated  5th  March,  1984.  The petitioners also  filed an  appeal before  the Collector  of Central Excises  (Appeal) against the orders of adjudication dated 5th  March,  1984.  On  24th  November,  1984  by  the impugned judgment, the Madhya Pradesh High Court allowed the aforesaid writ  petition in  part. Mulye,  J.  held  by  his judgment that  the writ  petition was  allowed to the extent that the  demand for  recovery of  Rs.26,47,749.39  for  the period 15th  August, 1983  to 6th  February, 1984, which was the period  referred to  in the  demand notice  was quashed. However, the  learned Judge  directed the Collector, Central Excise before  whom the  appeal filed by the petitioners was pending to  decide the  appeal in respect of the demand made by the  excise authorities for the subsequent period. Giani, J., the  other learned judge, in his concurring judgment set aside the  two roders  issued by  the  Assistant  Collector, Central Excise,  Ujjain Division  both dated 5th March, 1984 as set  out earlier. Copies of these adjudication orders are at Annexure R/10 and R/11 respectively to the writ petition. Very shortly  put, both  the Judges  held that the notice of demand and  the orders  modifying  the  classification  list served on  the petitioners  were bad in law and ordered that the same  be quashed. A perusal of the judgment also clearly indicates  that   the  Division   Bench  directed  that  the Collector, Central Excise (Appeal) should hear the appeal of the petitioners  on merits  after giving  the petitioners an adequate opportunity  to put  their case  and their evidence

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before him  in respect of the period from 7th February, 1984 onwards. Thus,  the Division  Bench took  the view  that the show cause notice served on the petitioners could be treated as valid and effective only in respect of the period 843 from 7th February, 1984 onwards and not retrospectively from 15th August, 1983 to 6th February, 1984 being the period for which the  demand has already been made in the demand notice dated 9th February, 1984.      As far  as the  relevant items in the First Schedule of the Central  Excises Act  are concerned, it is not necessary to set  out the  same in  detail. It will be enough to point out that  if the cellulosic spun yarn made by a manufacturer with the  aid of  power contains  man  made  fibre  of  non- cellulosic origin, it will fall under Item No. 18(III) (ii), but if  it does  not contain  any  man-made  fibre  of  non- cellulosic origin,  it will  fall under Item No. 18(III) (i) and duty  would be  leviable there  at  a  lower  rate.  The relevant portion  of Section 11-A of the Central Excises Act runs as follows:           "When any  duty of  excise has  not been levied or           paid or  has been  short-levied or  short-paid  or           erroneously refunded,  a  Central  Excise  Officer           may, within  six months  from the  relevant  date,           serve notice  on the  person chargeable  with  the           duty which  has not  been levied  or paid or which           has been short-levied or short-paid or to whom the           refund has erroneously been made, requiring him to           show cause  why  he  should  not  pay  the  amount           specified in the notice:                Provided that  where any  duty of  excise has           not been  levied or  paid or has been short-levied           or short-paid or erroneously refunded by reason of           fraud, collusion  or any  wilful mis-statement  or           suppression of  fact, or  contravention of  any of           the provisions  of this  Act or  of the rules made           thereunder with  intent to  evade payment of duty,           by such  person or  his agent,  the provisions  of           this sub-section  shall have effect, as if for the           words  "Central   Excise   Officer",   the   words           "Collector of  Central Excise"  and for  the words           "six  months",   the  words   "five  years"   were           substituted."      A perusal of the aforesaid provisions shows that before any demand  is made  on any  person chargeable in respect of non-levy or  short levy  or under  payment of duty, a notice requiring him  to show  cause why  he  should  not  pay  the amounts specified in the notice must be served on him. It is the admitted  position in  the present  case  that  no  such notice was  served. It  would thus appear that the aforesaid demand notice  dated 7th  February, 1984 was in violation of the provisions of Section 11-A and is bad in law. Mr. Govind Das, learned 844 counsel for  the appellant, however, contended that although the aforesaid  Section provides that no demand could be made against a person thereunder without affording that person an adequate opportunity  to show cause against the same, in the present case,  though no  prior show  cause notice was given and the  petitioners were  not given  an opportunity  to  be heard before  the notice of demand was issued, such a notice was issued  and an opportunity to show cause was given after the demand  was made  and the demand confirmed after hearing and hence  it must be regarded as valid. It was submitted by him that  a post  facto show cause notice should be regarded

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as adequate in law. In support of this contention Mr. Govind Das tried  to place  reliance on  certain decisions  where a view has  been taken that in cases where urgent and emergent action is  required, an opportunity to be heard can be given after the  order affecting  a person adversely is passed and that where  a particular  Act does  not provide for any such opportunity to  be heard being given before an adverse order is passed,  a post  facto opportunity  to be heard might, in certain cases,  be  regarded  as  adequate  compliance  with principles of  natural justice.  We are  of the  view  these cases have  no relevance in considering the questions before us because  it is quite apparent that in the present case no urgent or  emergent action  was required and Section 11-A of the Central  Excises Act  clearly provides  that prior  show cause notice  must be  issued to the person against whom any demand on  ground of  short levy  or non-levy  of payment of excise duty  is proposed  to be made. In Gokak Patel Vokkart Ltd. v.  Collector of  Central Excise,  Belgaum, A.I.R. 1987 S.C. 1161 this Court has held that the provisions of Section 11-A(1) &  (2) of Central Excises and Salt Act, 1944 make it clear that  the statutory  scheme is  that in the situations covered by sub-section (1), a notice of show cause has to be issued and  sub-Section (2) requires that the cause shown by way of representation has to be considered by the prescribed authority and then only the amount has to be determined. The scheme is  in consonance  with the rules of natural justice. An opportunity to be heard is intended to be afforded to the person who is likely to be prejudiced when the order is made before  making   the  order.  Notice  is  thus  a  condition precedent to a demand under sub-Section (2).      In view of the aforesaid decision the submission of Mr. Govind Das  must be  rejected and  it must  be held that the aforesaid notice  of demand  was clearly  bad in law and the High Court  was fully,  with respect,  justified in quashing the same.      The next  submission of Mr. Govind Das was that, in any event, 845 as the  Collector  of  Central  Excise  (Appeals)  had  been directed to  examine the  merits of the matter in respect of alleged short  levy or  non-levy and the modification of the classification lists  after allowing adequate opportunity to the petitioners  to show cause in respect of the period from 7th February,  1984, onwards,  the question  as  to  whether there was  short levy  or non-levy  in respect of the period from 15th  August, 1983  to 6th  February, 1984  should even also be  allowed to  be decided  by the  Collector.  It  was submitted by  Mr. Govind  Das that  although the  notice  of demand may  be set  aside the  notice to  show  cause  dated 9/10th February,  1984 should  be treated  as  a  valid  and effective notice  in respect of the period from 15th August, 1983 to  6th February,  1984 as  well as the period from 7th February, 1984  onwards.  In  this  connection,  it  is  the submission of  Dr. Chitale that this notice merely asked the petitioners   to   show   cause   against   calculation   or determination of  the amount  of short  levy and not against the alteration  in the  classification lists on the basis of which short-levy  was alleged  and hence,  in respect of the said period from 15th August, 1983 to 6th February, 1984 the show cause  notice is  liable to be struck down. In our view the submission  of Dr.  Chitale deserves to be accepted. The opening paragraph  of the  show cause  notice refers  to the service of  notice of  demand dated  7th February,  1984 for Rs.26,47,749.39 on the petitioner. Paragraphs 2 and 3 of the said notice run as follows:

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         "AND  whereas   the  Assistant  Collector  Central           Excise,   Ujjain    under    his    letter    C.N.           V(18)III/I/1/83/371-1374 dated  9th Feb.,  84  has           modified approval  of the  classification lists of           the party  and has  directed that the short levied           should be  quantified by  the  Inspector,  Central           Excise,  Biaora/Superintendent   Central   Excise,           Ujjain and confirmation or otherwise of such short           levied and  recoveries if  any would be ordered by           him (Assistant  Collector Central Excise, Division           Ujjain) after following the prescribed procedure.           THEREFORE, in  accordance with  the said  order of           the Assistant  Collector, Central Excise Division,           Ujjain, you  are called  upon to show cause to the           Assistant Collector, Central Excise, Ujjain within           10 days  of the  receipt of this show cause notice           as to  why the  short  levies  of  Rs.26,47,749.39           should not  be recovered  from you,  under Section           11-A of the Central Excise and Salt Act, 1944."      A reading  of these  paragraphs clearly  shows that the notice set 846 out as  an established  fact that  the classification  lists submitted by  the  petitioners  had  been  modified  by  the Assistant Collector,  Central Excise,  Ujjain and  the  only matter with  respect to  which the petitioners were asked to show cause  was with  regard to  the quantification  of  the amount of  the short levy and consequently, the amount which was liable  to be  recovered from the petitioner No. 1. This notice, therefore, cannot be regarded as a show cause notice against the  modification of  the  classification  lists  in respect of the aforesaid period. In these circumstances, the show cause  notice is  bad in  law and of no legal effect as far as  the said  earlier period is concerned. Under Section 11-A of  the Central  Excise Act, the notice can relate only to a  period of six months prior to the issue of that notice except in  cases where it is alleged the short levy or short payment has occurred by reason of fraud, collusion or wilful misrepresentation or  suppression of  facts or contravention of the  provisions of  the said  Act or  rules made  by  the period concerned,  as contemplated  in the  proviso to  sub- Section (1) of Section 11-A. No such case has been sought to be made  here in  the said  show cause notice. The result is that the  said show  cause notice  must be struck down in so far as  period upto 6th February, 1984 is concerned, and can be regarded as a proper show cause notice only in respect of the subsequent  period from  7th February,  1984 onwards. We are, therefore,  of the  view that under the said show cause notice the question of short levy or non-levy of excise duty prior to  6th February,  1984 cannot  be gone  into  by  the Collector and  the High Court was right in the view which it took.      In the  result, the  appeal fails and is dismissed with costs. S.L.                                  Appeal dismissed. 847