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PETITIONER: J K COTTON SPINNING & WEAVING MILLS COMPANY LTD.

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE

DATE OF JUDGMENT:       04/03/1998

BENCH: CJI, K.T. THOMAS, M. SRINIVASAN

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T Thomas, J.      This moot point in this appeal this: Whether the period of six months envisaged in Section 11A of the Central Excise Act, 1944  (for short  the  Act),  for  issuing  show  cause notice, stood extended by 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 the ‘relevant  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 a entire time when the stay order was in operation.      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.      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

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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 Section 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.  and Anr.  V. Union  of India  and  others,  (32) E.L.T1987. 234  - (AIR  1987 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.      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 11A of the Act." It is  advantageous at  this stage  to read  Section 11-A  * Act:      "11A. Recovery of duties not levied      or  not  paid  or  short-levied  or      short-paid or erroneously refunded.      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 aid 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 facts,  or contravention  of any      of the  provisions of the 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 "six  months" the words "five      years" were substituted.      Explanation -  Where the service of

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    the notice  is stayed  by the order      of a court, the period of such stay      shall be  excluded in computing the      aforesaid period  of six  months or      five years, as the case may be.      (2) considering the representation,      if any,  made by the person on whom      notice is  served under sub-section      (1) determine the amount of duty of      excise due  from such  person  (not      being  in   excess  of  the  amount      specified  in   the   notice)   and      thereupon such person shall pay the      amount so determined.      (3)  for   the  purposes   of  this      section.      (i)  "refund"  includes  rebate  of      duty of  excise on  excisable  good      exported  out   of  India    or  on      excisable  materials  used  in  the      manufacture  of   goods  which  are      exported out of India;      (ii) "relevant date" means"      (a) in  the case of excisable goods      on which  duty of  excise  has  not      been levied  or paid  or  has  been      short-levied or short-paid-      (A)  Where  under  the  rules  made      under this  Act a  monthly  return,      showing  particulars  of  the  duty      paid on the excisable goods removed      during the  month to which the said      return relates, is to be filed by a      manufacturer  or   producer  or   a      licensee of  a  warehouse,  as  the      case may be, the date on which such      return is so filed;      (B)  where  no  monthly  return  as      aforesaid is  filed, the  last date      on which such return is to be filed      under the said rules;      (c) in  any other case, the date on      which the  duty is to be paid under      this  Act   or   the   rules   made      thereunder;      (b) in  a case where duty of excise      is  provisionally   assessed  under      this  Act   or   the   rules   made      thereunder, the  data of adjustment      of duty  after the final assessment      thereof,".      The period  of six months envisaged in sub-section  (1) thereof can thus be extended only under three eventualities. First is,  if the  impairment of the levy is attributable of any  fraud,   collusion  or   wilful  misrepresentation   or suppression of  facts, the  period of  six months will stand stretched upto five years. The second eventuality is, if the original assessment  was  provisional,  in  which  case  the period would  start running  only from  the  date  of  final assessment. The  third is  , 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.      The  first   eventuality   mentioned   above   has   no application to the facts of this case and hence a discussion

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on that  can conveniently  be skipped.  Regarding the second contingency, though  the  department  pleaded  that  only  a provisional assessment  was made,  that plea was repelled by CEGAT in  reversal  of  a  finding  made  by  the  Assistant Collector as  well as  the Collector  (Appeals). It  is  the third contingency which the Revenue has alternatively relied on which secured approval from CEGAT. Before we  proceed to  consider the  merits of  the case, we have to  deal with  a preliminary  objection raised  by  the Revenue regarding  maintainability   of this  appeal. In the appeal petition  it is stated that the appeal is filed under Section 35L (b) of the Act which reads as under:      "35-L. Appeal  to supreme Court _An      appeal shall  lie  to  the  Supreme      Court from-      (a) x x x x x x x x x x x      (b)  any   order  passed   by   the      Appellate Tribunal  relating, among      other things,  to the determination      of any  question having  a relation      to the rate of duty of excise or to      the value  of goods for purposes of      assessment."      We agree  with the learned counsel for the Revenue that the question  sought to  be determined  in this  appeal  has neither any relationship to the rate of duty of excise or to the value  of the goods for purpose of assessment. It may be that  the  appeal  could  not  have  been  filed  under  the aforesaid Section on the facts of this case.      Be that  as it  may, we are no disposed to dismiss this appeal on  that technical  ground at  this stage because the appellant could  in that  situation have  sought for special leave under  Article 136  of the  Constitution. With all the papers available  for deciding the question involved in this appeal, we  do not think it proper to drive the appellant to file  another   special  leave  petition  for  that  purpose particularly because of the lapse of almost nine years since the filing  of this appeal. We, therefore, treat this appeal as one filed by special leave.      We will now come down to the question to be determined. Two vivid  period are  involved about which appellant raised the contention  that the  bar under  section 11-A of the Act would operate. The first period is between 6.11.1980 and 31.3.1981 and the  second period  is from 1.4.1981 to 5.12.1981 (there is no  dispute regarding  the subsequent period as it falls, indubitably, within the span of Section 11-A).      Shri Joseph  Vallapalli, learned senior counsel for the appellant fairly  submitted that though the appellant raised the contention  relating to the aforesaid two periods (first and second),  he would  confine his  argument to  the second period only, as a decision of this Court in this appeal need be given with reference to the second period.      According to  the Revenue,  there was a stay of service of notice (to show cause as envisaged in Section 11-A of the Act) from  12.8.1981. The  said contention  is made  on  the strength of  an order of stay passed by the Delhi High Court on a  Writ Petition  filed by  the appellant  challenging  a circular issued  by the  Central Board of Excise and Customs (for short  ’the Board’)  on 24.9.1980.  That  circular  was issued by  the board purportedly in interpretation Rule 9 of the Central  Excise Rules.  As per  the said  circular,  the Collector of  Central Excise  was  required  to  specify  in addition to  the place where excisable goods are produced or cured  or  manufactured  premises  appurtenant  thereto,  if

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necessary, and  to take  immediate  steps to ensure approval to the  place or  production, and  to delegate the powers of the Collector  under Rule 9(1) to the licensing authorities; and further  to demand  the assesses  to submit fresh ground plans etc.      The  appellant   had  moved  a  petition  in  the  writ application for  an order  of stay  in terms  of prayer  (a) thereof which consisted of the following limbs:      (i) Stay permitting the petitioners      to process  yarn within its factory      without payment of duty;      (ii)  restraining  respondent  from      giving effect  to the  contents  of      the directive  of the  Board  dated      24.9.1980; and      (iii) to  stay further  proceedings      pursuant to  notices date  4th  and      5th   May,  1981  relating  to  the      period 6.11.1980 to 31.3.1981.      The High  Court of  Delhi has allowed the said petition on 12.8.1981  in terms  of the  said prayer.  The contention which the  Revenue pressed  into service  before  CEGAT  and which was  fond acceptance by them is that as per the second limb, the  stay became operative which virtually amounted to stay of service of notice under Section 11-A of the Act.      Exclusion of  any period  from the  time  provided  for issuing notice  which is  contemplated in Section 11A of the Act is mentioned in the Explanation which is incorporated as part of  that Section. Period of the stay can be excluded if "the service  of the  notice is  stayed by  on  order  of  a court." The  converse is  if there  is no stay of service of notice, there  is no  scope for  excluding any time from the period of limitation as per this Explanation.      If a very strict interpretation is given, notice should have been  issued before  passing the  order of stay so that service of  the notice could be blocked. But such an extreme view is  not necessary for understanding the contours of the Explanation.      In considering  whether the extension of time permitted in Section  11-A of  the Act  can be  liberally construed or that it  should be a strict construction, we think it useful to recall  how this  Court  approached  the  challenge  made against Section  51 of the Finance  Act, 1982 which afforded retrospective operation to the amended Rules 9 and 49 of the Central Excise  Rules. Those  provision were assailed in the case of  J.K. Spinning and Weaving Mills Ltd. & Anr. (Supra) attributing  arbitrariness   and  unreasonableness  to  them besides  being   violative  of  Article  19(1)  (g)  or  the constitution.      It  was   contended  in   that  case   that   excessive retrospective operation prescribed by a taxing statute would amount  to  contravention  of  fundamental  rights,  and  in support of  that contention,  those appellants made reliance on the  decisions of  this Court in Raj Ramakrishna & Others v. The  State of  Rajasthan of  Others, 1966 (1) SCR 890. In the former  decision, this Court has pointed out that if the retrospective feature  of a law is arbitrary and burdensome, the statute  will not be sustained and reasonableness of the extent of  retrospective operation  of a statute will depend upon he  circumstances of each case. The apprehension of the appellants in  J.K. Spinning  and Weaving  Mill (supra) that the  long   retrospectivity  attached   to  the  legislative amendments  would  result  in  mulcting  the  taxpayer  with whopping financial  burden has  gained serious consideration of this  Court and  an effort  was made to find a way out to

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salvage those  provisions by  minimising the  gravity of the hardship on  the assessees.  That endeavour  resulted in the judicial pronouncement  in J.K.  Spinning and  Weaving Mills (supra) by  placing those  provisions subject  to  the  time limit fixed under Section 11-A.      If the  said rider was not imposed by this Court as per the decision  in J.K.  Cotton spinning  and Weaving Co, case (supra), what would have been the fate of Rules 9 and 49 (as amended in the wake of the challenge to its vires cannot now be reexamined.  Whatever it be, the fact remains, that Rules 9 and 49 survived the challenge when this Court nailed their sweep to  the limitation  specified in  Section 11-A.  Hence that limitation period should not be stretched more than the elasticity supplied  in  the  Section  itself.  So,  in  our opinion, the  eventuality envisaged  in Section 11-A for the further  lengthening   of  the  limitation  period  must  be strictly construed. The notice  envisaged in  Sub-section (1) of Section 11-A of the Act can be issued under any one of the four conditions:      (1) when  duty of  excise  has  not      been levied on the commodity;      (ii) when such duty has been short-      levied; or      (iii)  when   such   duty,   though      levied, has not been paid; or      (iv) when such duty levied was only      short-paid.      If any  one of  the above  condition exists, the notice contemplated therein  can be  issued.  It  is  an  extremely difficult  proposition  for  acceptance  that  Collector  of Central Excise  was prevented  from issuing  a notice to the appellant  in   this  case  as  the  Delhi  High  Court  has restrained  the   department  from  "giving  effect  to  the contents of  the directives  of the  board dated 24.9.1980". The said  directive of  the Board  was mainly intended to be observed by the Collector of Central Excise as well as other officials  under  him  to  carry  out  certain  steps  while exercising powers  under Rule  9(1) of  the Act and also for making  delegation   of  such   powers  to   the   licensing authorities. here  the test  is, if  the said  circular  (or directive) had  not been  issued at all, could the Collector of Central Excise have issued a notice under sub-section (1) to Section  11-A  of  the  Act.  The  answer  is,  that  the Collector could  still have  issued a  notice.  If  so,  the suspension of  the circular  by the order of the court would not have  prevented the  Collector from  issuing the notice. The effect  of the  court order  dated 12.8.1981 was only to keep the  circular in  suspended animation  so  far  as  the appellant is concerned and nothing more.      That apart,  the mere fact that department issued three notices during  the time  when the  aforesaid order  was  in force itself  is sturdy  proof that  even according  to  the Department, there  was no  stay of  service of  notice by  a court order. Nobody has advanced a contention, nor could any such contention  have been  advanced, that  the Collector of Central Excise  has flouted the stay order of the Delhi High Court by issuing such notices.      Shri Gauri  Shankar Murthi,  learned  counsel  for  the Revenue adopted an alternative contention that the period of limitation can be saved by holding that the assessment which preceded the  action was  only a provisional one. Of course, Section 11-A  A permits  the said  six  months  time  to  go further if  the preceding assessment was only provisional as could be  noted from  sub-section 3(ii)  (b) of Section 11A. The same  contention was  urged before the CEGAT but after a

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detailed discussion,  it was  repelled.  Undaunted  by  such adverse finding,  Shri Gauri Shankar Murthi pleaded that the Revenue must  be allowed to canvass for reversal of the said finding in  this appeal  in on  the footing of the principle adumbrated in  Order 41  Rule 22  of Civil  Procedure  Code, 1908. Shri Joseph Vallapalli, learned senior counsel opposed reopening the  said finding  on the  premise  that  in  this appeal, even  after it  is treated  as one  by special leave under Article  136 of the Constitution, the points raised by the appellant alone can be canvassed.      A three-judge  bench of  this Court  in  Vashit  Narain Sharma v.  Dev Chandra  and Others, 1955 (1) SCR 509 did not permit a  respondent, in  an appeal  filed by  special leave under Article  136 to support the decision challenged in the appeal on  a ground  which had  been found  against him. The court held  that the  corresponding provision  in the  Civil Procedure Code  has no  application to  an appeal  filed  by special leave under Article 136.      The aforesaid  decision was cited before another three- judge bench in the case of Sri Baru Ram v. Shrimati Prasanni and Others  1959 SCR  1403 where  it was not dissented from. But in  the light  of the decision of the Constitution bench of this Court in Ramanbhai Ashabhai Patel v. Dabhi Ajitkumar Fulsinji and  Others, 1965 (1) SCR 712, the ratio adopted in the earlier mentioned two decisions is no more in vogue. The Constitution Bench  held that this Court has power to decide all points  arising from  the impugned  judgment and even in the absence  of an express provision like Order 41, Rule 22, CPC, this  Court can  devise  appropriate  procedure  to  be adopted at  the hearing. The observations of the bench which are relevant now are the following:      "There could  be no  better way  of      supplying the  deficiency  than  by      drawing upon  the provisions  of  a      general law  like the Code of Civil      Procedure  and   adopting  such  of      those provisions  as are  suitable.      We cannot  lose sight  of the  fact      that  normally  a  party  in  whose      favour the  judgment appealed  from      has been  given will not be granted      special leave  to appeal  from  it.      Consideration      of      justice,      therefore, require  that this Court      should in  appropriate cases permit      a party  placed in  such a position      to  support  the  judgment  in  his      favour  even   favour   even   upon      grounds  which  were  negatived  in      that judgement.  We are  therefore,      of the  opinion  that  in  Vashisht      Narain Sharma’s  Case, too narrow a      view was taken regarding the powers      of this Court".      We,  therefore,  concede  that  respondents  cannot  be precluded in  this appeal  from canvassing for reversal of a finding contained  in the impugned  judgment despite its end result being in their favour.      However, on  a consideration of the arguments raised on the merits  of that  point, we  find it is difficult to hold that there was provisional assessment. CEGAT has adverted to certain reasons  for arriving at such a finding. Rule 9-B of the Central  Excise Rules  has been  quoted in  the impugned judgment. The title of the rule is "Provisional Assessment", in which situations are detailed when provisional assessment

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could be  made. CEGAT  pointed out  in the  judgment certain admissions made by the Department such as the absence of any express order  of provisional  assessment as  required under Rule  9-B,   absence  of   any  circumstance  for  making  a provisional assessment,  and that  it was  not stated in the show cause  notice  that  the  assessment  made  during  the relevant period was provisional. The Assistant collector had treated the  assessment as provisional solely on the premise that  the   matter  was   subjudice,  and   hence  "all  the assessments for  the period  April 1981  to 15.3.1983  were, therefore, made  provisional". CEGAT  has rightly found that the  said   yardstick  was  hardly  sufficient  to  make  an assessment provisional.      Shri Gauri  Shankar Murthi,  in  order  to  surmount  a difficult situation  confronted by the aforesaid Rule 9-B of the Central Excise Rules adopted a new contention as under:      Rule 9-B  was incorporated  in the Central Excise Rules with  effect   from  1-8-1059   whereas  the  ‘Self  Removal Procedure" by  manufacturers themselves  has been introduced in the Rules with effect from 14.7.1969 which provides for a self assessment,  the finalization of which could be made as indicated in Rule 173-F. Learned counsel contended that with the introduction  of the  said procedure  a self  removal by itself would amount to provisional assessment. In support of the contention,  learned counsel  cited the decision of this Court in  Seraikella Glass  Works vs.  Collector of  Central Excise, Patna  [1997 (91)  ELT 497] wherein implication of a self assessment  has been  considered  and  held  it  to  be nothing but  a provisional  assessment which  is subject  to final assessment.      Shri Joseph  Vallapalli, learned senior counsel for the appellant pointed out, in reply to the said contention, that the concept of provisional assessment adverted to in Section 11-A has a connotation which can be traced in rule 9-B which requires a  specific  order  to  the  made  for  provisional assessment and  it should  be followed  by  compliance  with certain statutory  requirements, In  the absence of any such order there  was no  provisional assessment  as envisaged in Section 11-A  of the  Act, according to the learned counsel. he further  contended that respondent cannot be permitted to advance  a   new  ground   for  supporting   his  theory  of provisional assessment.  On the  factual side  also, learned counsel submitted  that pursuant to the judgment of the High Court dated  16.10.1980, the  appellant has totally excluded captively consumed  yarn from assessment and hence there was no self  assessment at  all on yarn because it was a case of non-levy of  a particular  commodity and  not one  of  short levy. The  corollary according to the counsel, is that there was no provisional assessment at all.      It is  a fact  that Revenue  has never  adopted a stand based on  self Removal  procedure envisaged in Chapter VII-A of the  Rules for  establishing that there was a provisional assessment. It  is one  thing to say that respondent can, in an appeal  filed  by  the  opposite  party,  re-canvass  for reversal of  a finding  reached against him in the judgment, (the  operative   part  of   which  the  respondent  is  now supporting),  and   it  a  different  thing  to  permit  the respondent to put forth absolutely new grounds for it. hence it is  not necessary  to further  consider whether there was any self-assessment.  We are,  therefore, not  persuaded  to disturb the  finding reached by the CEGAT regarding the plea of provisional assessment.      In the  result, we  allow this appeal and set aside the impugned judgement. We hold that recovery of excise duty for yarn from  the appellant for the period between 1.4.1981 and

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5.12.1981 is  barred by  the period of limitation prescribed in section  11-A of  the Act.  The appeal  is  thus  allowed without any order as to costs.