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CASE NO.: Appeal (civil)  1669-1679 of 2005

PETITIONER: Commnr. Central Excise & Customs, Mumbai & Ors.          

RESPONDENT: M/s. I.T.C. Ltd. & Ors.                                          

DATE OF JUDGMENT: 31/10/2006

BENCH: S.B. Sinha & Dalveer Bhandari

JUDGMENT: J U D G E M E N T

S.B. SINHA, J.   

       Completion of an assessment proceedings whether is a sine qua non  for issuance of notice under Section 11-A of the Central Excise Act, 1944  (for short "the Act") is the question involved in this appeal which arises of a  judgment and order dated 18.6.2004 as modified by an order dated 2.7.2004.   

       M/s. ITC Ltd., Respondent No. 1 herein manufactures cigarettes.  It  gets the work done also by way of job work through various factories.   These factories inter alia belonged to M/s. Master Tobacco Company  situated at 36/40, Mahalaxmi Birdege Arcade, Mahalaxmi Road, Mumbai  and M/s. Crown Tobacco Co. situated at 9, St. John Baptist Road, Bandara,  Mumbai.  A provisional price list was issued by the Department for the  period 1.3.1973 to 28.2.1983.

       It appears that their existed a dispute as regards mode of valuation for  the purpose of levy of excise duty.  By a judgment and order dated  19.7.1995, this Court opined that excise duty should be paid on the  wholesale dealers price to their customers and not on the price of  Respondent No. 1 to its wholesale dealers.   

       A show cause notice was issued on 10.4.1986 as to why Respondent  and its wholesale dealers, being related persons, the cost of Corrugated Fibre  Containers (CFCs) should not be added to the manufacturing cost.  A show  cause notice was also issued on 10/11.8.1983 asking the respondent to show  cause as to why differential duty of Rs. 57,22,63,857.70 for the period from  1.7.1980 to 31.3.1982 shall not be directed to be paid.  Another notice was  issued on 8.10.1984 demanding the differential duty of Rs. 43,53,137.70 for  the period 1.4.1982 to 30.6.1983.  One show cause notice was furthermore  issued on 13.4.1987 demanding Rs. 34 crores claiming freight,  administrative charges collected by Respondent herein to be added as  additional consideration.  

       Indisputably, the issue between the parties as regards valuation of the  goods was decided in favour of Respondent by CEGAT by an order dated  18.3.1994.

       By reason of the order dated 30.8.1996, the assessee’s contention that  the show cause notices issued prior to finalization of the provisional  assessment was invalid had been rejected by the adjudicating authority  directing:  "(i)    The contention of the noticees that the show  cause under consideration is invalid on the  ground that it has been issued prior to the

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finalization of the provisional assessment is  not sustainable in law or on facts and hence  it is rejected. (ii)    The Assistant Commissioner of Central  Excise concerned or any other officer who is  competent to make final assessment in the  case under the relevant provisions of the  Central Excise & Salt Act read with the  Rules made thereunder will finalize the  pending provisional assessment in respect of  each of the three notices as per law for the  period covered in the show cause notice  involved in the present proceedings.  The  said competent authority while finalizing the  provisional assessment as aforesaid is  entitled and at liberty to proceed with any  enquiry for the purpose of making final  assessment in this case.  Nothing prevents  the said competent authority for the purpose  of making the final assessment from  utilizing any material collected by the Deptt.  and that such material does not cease to be  available to the said competent authority by  reason alone of the circumstances that such  material had been referred to and  incorporated in the show cause notice  involved in the present proceedings.  The  material contained in the said notice can be  used as independent material to support final  assessment, after affording an opportunity to  the noticees concerned to meet the case and  after considering the cause shown.  The  finalization of provisional assessment as  aforesaid should be completed as  expeditiously as possible. (iii)   The said competent authority is further  directed to intimate the Adjudicating  Authority (CCE, Delhi) as soon as he  completes the finalization of the said  provisional assessment.  After that, this  show cause notice involved in the present  proceedings will be taken up for  adjudication by the said Adj. Authority."  

       Yet again on 13.9.1996, the adjudicating authority passed an order in  Original No. 6/1996.  The final order of assessment was passed on  16.12.1997.  An appeal was preferred thereagainst which was marked as  Appeal No. 267/M-I/98.   

       Yet again a show cause notice during pendency of the said appeal was  issued on 31.3.1998, , purported to be in terms of order dated 16.12.1997  whereby Respondent No. 1 was asked to make payment of the differential  duty amounting to Rs. 1,38,00,035.76.  An appeal was preferred against the  said second show cause notice as also the demand notice dated 31.3.1998  before the Commissioner (Appeals) which was registered as 571/M-I/98.   On an application filed therein for waiver of the requirements of pre-deposit  of duty demanded and stay of operation of the said notice of demand during  pendency of the appeal, by an order dated 29.12.1998, the Commissioner  (Appeals) directed Respondent to deposit an amount of 50% of the disputed  duty demanded, as a condition precedent for entertaining the appeals within  a period of 15 days therefor.  Against the said order, a writ petition was filed  before the High Court of Bombay which was allowed by an order dated  22.1.1999 directing the Commissioner (Appeals) to dispose of the stay  application afresh by a speaking order within six weeks.  

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       The Commissioner (Appeals) by a common order dated 26.2.1999  disposed of both the appeals and set aside the order of Assistant  Commissioner and the Superintendent upon remitting the matter back to the  Commissioner.   

       Against the said order also Respondent preferred an appeal before the  Tribunal bearing No. E/3234/99 which was dismissed as withdrawn on  15.11.2000.  Respondent No. 1 and M/s. Master Tobacco Co. thereafter filed  appeals for setting aside :

(i)     Show Cause Notice dated 21.10.1987 issued to Respondent No. 1 for  undervaluation during the period from 1.11.1979 to 28.2.1983; (ii)    Order in Original No. 5/1996 dated 30.8.1996 and 6/96 dated  13.9.1996 directing jurisdiction Assistant Commissioner to finalize  provisional assessment; (iii)   Order in Original No. 38/2000 of the Commissioner (Appeals) Delhi  dated 29.12.2000 issued in respect of Show Cause Notice dated  21.10.1987; (iv)    Show Cause Notices dated 10/11.8.1983 and 8.10.1984 for under  valuation; (v)     Order in Original No. 6/96 dated 13.9.1996 directing Asst.  Commissioner to finalise provisional assessment; (vi)    Order in Original No. 8/99 of the Commissioner (Appeals), Delhi  dated 30.9.1999 issued in respect of show cause notices dated  10/11.8.1983 and 8.10.1984; (vii)   Order of the Commissioner (Appeals) dated 31.7.2002 on the grounds  that Show Cause Notices were issued during pendency of provisional  assessment.

       Appellant also preferred an appeal before the Tribunal against the  order dated 31.7.2002 of the Commissioner (Appeals) whereby the appeal  by the Department against the order in Original No. 254/2000 dated  22.9.2000 for finalization of provisional assessment in respect of  Respondent No. 1 whereby and whereunder it was held that Respondent had  paid a sum of Rs. 85 lakhs duty in excess was dismissed.

       These appeals were heard by the Tribunal and by a final order dated  18.6.2004, it set aside the show causes notices issued and orders in Original  inter alia on a finding that the same could not have been done during  pendency of proceedings for final assessment.

       Appellants are, thus, before us.

       Sub-section (1) of Section 11-A of the Act reads as under:

"11A. Recovery of duties not levied or not paid or  short-levied or short-paid or erroneously  refunded.-- (1) 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 misstatement or  suppression of facts, or contravention of any of the  provisions of this Act or of the rules made  thereunder with intent to evade payment of duty,

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by such person or his agent, the provisions of this  sub-section shall have effect as if, for the words  "six months", the words "five years" were  substituted"

       Rule 9B of Central Excise Rules, 1944 (for short "the Rules") reads as  under:

"Rule 9B. Provisional assessment to duty \026 (1)  Notwithstanding anything contained in these rules,  -  

(a)     where the proper officer is satisfied that an  assessee is unable to produce any document or  furnish any information necessary for the  assessment of duty on any excisable goods; or (b)     where the proper officer deems it necessary  to subject the excisable goods to any chemical or  any other test for the purpose of assessment of  duty thereon; or (c)     where an assessee has produced all the  necessary documents and furnished full  information for the assessment of duty, but the  proper officer deems it necessary to make further  inquiry (including the inquiry to satisfy himself  about the due observance of the conditions  imposed in respect of the goods after their  removal) for assessing the duty;

The proper officer may, either on a written request  made by the assessee or on his own accord, direct  that the duty leviable on such goods shall, pending  the production of such documents or furnishing of  such information or completion of such test or  enquiry, be assessed provisionally at such rate or  such value (which may not necessarily be the rate  or price declared by the assessee) as may be  indicated by him, if such assessee executes a bond  in the proper form with such surety or sufficient  security in such amount, or under such conditions  as the proper officer deems fit, binding himself for  payment of the difference between the amount of  duty as provisionally assessed and as finally  assessed.

***                         ***                         ***

(4)     The goods provisionally assessed under sub- rule (1) may be cleared for home consumption or  export in the same manner as the goods which are  not so assessed.

(5)     When the duty leviable on the goods is  assessed finally in accordance with the provisions  of these rules, the duty provisionally assessed shall  be adjusted against the duty finally assessed, and if  the duty provisionally assessed falls short of, or is  in excess of, the duty finally assessed, the assessee  shall pay the deficiency or be entitled to a refund  as the case may be."

       It is not in dispute that now final assessment proceedings are  complete.   

       The learned Additional Solicitor General appearing on behalf of

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Appellant raised a short contention in support of this appeal.  A provisional  assessment being also an order of assessment and keeping in view the  purport and object for which Section 11-A of the Act was enacted and read  with the definition of "relevant date", the jurisdiction thereunder can be  invoked even after a provisional assessment is made and before a final  assessment is completed.

       Mr. Ravinder Narain, learned counsel appearing on behalf of  Respondents, however, would submit that a bare perusal of Section 11-A of  the Act would clearly show that the impugned show cause notices were  illegal.

       Section 11-A of the Act provides for a penal provision.  Before a  penalty can be levied, the procedures laid down therein must be complied  with.  For construction of a penal provision, it is trite, the golden rule of  literal interpretation should be applied.  The difficulty which may be faced  by the Revenue is of no consequence.  The power under Section 11-A of the  Act can be invoked only when a duty has not been levied or paid or has been  short-levied or short-paid.  Such a proceeding can be initiated within six  months from the relevant date which in terms of Sub-section (3)(ii)(b) of  Section 11-A of the Act (which is applicable in the instant case) in a case  where duty of excise is provisionally assessed under the Act or the Rules  made thereunder, the date of adjustment of duty after the final assessment  thereof.  A proceeding under Section 11-A of the Act cannot, therefore, be  initiated without completing the assessment proceedings.   

       Ranganathan, J. in Ujjagar Prints (II) v. Union of India [(1989) 3 SCC  488] defined the word "levied" in the following terms:

"\005The word "levied" is a wide and generic  expression. One can say with as much  appropriateness that the Income Tax Act levies a  tax on income as that the Income Tax Officer  levies the tax in accordance with the provisions of  the Act. It is an expression of wide import and  takes in all the stages of charge, quantification and  recovery of duty, though in certain contexts it may  have a restricted meaning\005"

       The question as to non-levy or short-levy of an excise duty would  arise only when the levy had been laid in accordance with law.  When a duty  is levied, it becomes payable which in turn would mean legally recoverable.   

       In New Delhi Municipal Committee v. Kalu Ram [(1976) 3 SCC  407], the word "payable" has been defined in the following terms:

"The word "payable" is somewhat indefinite in  import and its meaning must be gathered from the  context in which it occurs. "payable" generally  means that which should be paid."

       Concededly, in terms of the provisions of the Act and the Rules  framed thereunder, the amount becomes payable only in the event, the  assessee does not deposit the amount levied within a period of ten days from  the date of completion of the order of assessment.  A provisional assessment  is made in terms of Rule 9B inter alia at the instance of the assessee.  Such a  recourse is resorted to only when the conditions laid down therein are  satisfied, viz., where the assessee is found to be unable to produce any  document or furnish any information necessary for assessment of duty on  any excisable good.

       Whereas provisional duty is levied in terms of Sub-Rule (1) of Rule  9B, final assessment is contemplated under Sub-Rule (5) thereof by reason  of which the duty provisionally assessed shall be adjusted against the duty

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finally assessed and in the event, the duty provisionally assessed falls short  of or is in excess of the duty finally assessed, the assessee will pay the  deficiency or will be entitled to a refund, as the case may be.  Ultimately,  thus, the liability of the assessee would depend upon the undertaking of  exercises by the assessing officer to complete the assessment proceeding as  contemplated under the Rules.

       On a plain reading of the provisions of the Act and the Rules framed  thereunder, we have no doubt in our mind that the Tribunal was correct in its  finding that the impugned show cause notices were illegal.   

       The question came up for consideration before this Court in Serai  Kella Glass Works Pvt. Ltd. v. Collector of C. Excise, Patna [1997 (91) ELT  497: (1997) 4 SCC 641] wherein this Court clearly opined:

 "Section 11-A deals with recovery of duty not  levied or not paid or short-levied or short-paid or  erroneously refunded. Proceedings under Section  11-A have to be commenced with a show-cause  notice issued within six months from the relevant  date. "Relevant date" has been defined under sub- section (3)(ii) to mean in a case where duty of  excise is provisionally assessed under this Act or  the rules made thereunder, the date of adjustment  of duty after the final assessment thereof.

After final assessment, a copy of the order on the  return filed by the assessee has to be sent to him.  Duty has to be paid by the assessee on the basis of  the final assessment within ten days’ time from the  receipt of the return. No question of giving any  notice under Section 11-A arises in such a case. It  is only when even after final assessment and  payment of duties, it is found that there has been a  short-levy or non-levy of duty, the Excise Officer  is empowered to take proceedings under Section  11-A within the period of limitation after issuing a  show-cause notice. In such a case, limitation  period will run from the date of the final  assessment. The scope of Section 11-A and Rule  173-I are quite different. In this case, the  provisional assessment earlier made by the proper  officer has been quashed and pursuant to the  direction of the High Court, the proper officer has  made the final assessment. No question of failure  of issuance of show-cause notice under Section 11- A arises in this case. Even otherwise, we do not  find any infirmity in the order of the Tribunal."

         The said decision has been relied upon by the Tribunal in arriving at  its finding.  The learned Additional Solicitor General would contend that the  said decision was rendered in a different fact situation.  We do not agree, as  the ratio is clearly decipherable therefrom.

       The said decision was noticed by a Division Bench of this Court in  M/s. Duncans Industries Ltd., Calcutta v. Commissioner of Central Excise,  New Delhi [2006 (8) SCALE 463].   

       For the reasons aforementioned, we do not find any merit in this  appeal which is dismissed accordingly.  No costs.