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CASE NO.: Appeal (civil)  754 of 2001

PETITIONER: M/s. Duncans Industries Ltd., Calcutta           

RESPONDENT: Commissioner of Central Excise, New Delhi       

DATE OF JUDGMENT: 22/08/2006

BENCH: ASHOK BHAN & MARKANDEY KATJU

JUDGMENT: J U D G M E N T With

Civil Appeal Nos. 4075-4076 of 2001

BHAN, J.                  These civil appeals are directed against the  common impugned order Nos. 829 and 830 of 2000  dated 4.10.2000 passed by the Customs, Excise &  Gold (Control) Appellate Tribunal (hereinafter  referred to as "the Tribunal") in Appeal Nos.  E/1622/99-A and E/2095/2000-A.   Revenue has filed  Civil Appeal Nos. 4075 \026 4076 of 2001 against the  deletion of duty demand of Rs. 17,67,13,315/-  raised in the show-cause notice dated 1.10.1986 for  the period September 1981 to February 1983 and the  assessee has filed Civil Appeal No. 754 of 2001  against the levy of penalty of Rs. One crore.   Since these appeals are directed against the common  order passed by the Tribunal, we also propose to  dispose them of by a common order.  The facts are  common in both the sets of appeals.       This case has a chequered history and has had  various round of litigation in different forums.   In order to determine the controversy and the point  involved in these appeals the following facts may  be noticed.  M/s National Tobacco Company Limited  Agarpara,  a manufacturer of cigarettes falling under  erstwhile Central Excise Tariff Item No. 4 II(2),  and holder of Central Excise Licence L-4 No. 3/84  for the manufacture of cigarettes, was merged with  M/s Mirpara Tea Company effective from 1.4.1977.   Consequent to this, it became a Division of newly  formed M/s. Duncans Agro Industries Limited,  Calcutta.  Thereupon, Central Excise Licence L-4  No. 1-Cig/I/V/78 dated 18.2.1978 for the  manufacture of cigarettes was issued to M/s.  National Tobacco Company.   In April 1984, M/s. National Tobacco Company  was de-merged from M/s. Duncans Agro Industries  Limited and was made a wholly owned subsidiary of  M/s. Duncans Agro Industries Limited in the name  and style of M/s. New Tobacco Company.   M/s.  Duncans Agro Industries Limited, is the respondent  in the two appeals filed by the Revenue and the  appellant in Civil Appeal No. 754 of 2001 and would  be referred to as the assessee.   

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As a result of demerger, a new Central Excise  Licence No. L-4 No.1/Cig/IV/Khar/85 dated 9.3.1985  was issued to M/s. New Tobacco Company Limited for  the manufacture of cigarettes.   As there was some dispute as to whether excise  was leviable on manufacturing cost plus  manufacturing profit and post manufacturing cost  and profits arising from post manufacturing  operations, the provisional assessments were made  from July, 1973 to February, 1983.  Final  assessments were to be made later.  On 8.5.1984,  Assistant Collector of Central Excise, Calcutta  issued a show-cause notice to the assessee for the  period July, 1973 to February, 1983 calling upon  the assessee to show cause as to why: "...the deductions claimed on account of  freight, interest on freight, rebate,  octroi, interest on receivables and  tariff rate of duty from the wholesale  price should not be disallowed and why  the charges on account of freight,  interest on freight, rebate, octroi and  interest on receivables should not be  included in the assessable value and also  why the cost of C.F.C. packing charged  and realized by them from the buyers  should not be included in the assessable  value under Section 4(1) (a) and Section  4 (4) (d) (i) of Central Excise & Salt  Act, 1944 and why price of each product  should not be approved accordingly.

Collector of Central Excise, Delhi issued  another show-cause notice on 1.10.1986 to the  assessee for the period September, 1981 to  February, 1983 alleging that the assessee has  willfully mis-declared assessable value of  cigarettes from time to time during the period from  September, 1981 to February, 1983 in the Central  Excise documents, Price Lists with fraudulent  intent to evade the payment of correct amount of  duty and thereby they have short paid Central  Excise duty amounting to Rs. 97,55,56,362/-.   Accordingly, the assessee was called upon to show  cause as to why:  "a)     the duty short paid amounting to Rs.  97,55,56,362.00 as per Annexure ’D’  should not be demanded under Rule  9(2) of the Central Excise Rules,  1944 read with the proviso of sub- section (1) to Section 11A of the  Central Excise and Salt Act, 1944.

  b)      Penalties should not be imposed on  them under Rules 9(2), 52A(5), 210 &  226 of the Central Excise Rules,  1944."

Assessee being aggrieved filed a Civil Writ  Petition No. 1708 of 1987 in the Delhi High Court  on the ground that the show cause notice dated  1.10.1986 issued to the assessee alleging  contravention of the central excise duty in respect  of cigarettes manufactured and cleared from the

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factory at Agarpara during the period September,  1981 to February, 1983 and also addendum to the  show-cause notice dated 3.10.1986 was in excess of  the jurisdiction and/or without authority of law  inasmuch as the assessee had been paying the excise  duty on the basis of the provisional assessments  pursuant to filing of provisional price lists and  till the price lists and the  assessments were  finalized a show-cause notice could not be issued.   According to the petitioner Section 11-A of the  Central Excises Salt Act, 1944 (for shot "the Act")  could not be invoked in cases where duties are paid  under provisional assessment made under Rule 9B of  the Central Excise Rules, 1944 (for short "the  Rules") without first finalizing the assessment.   The Division Bench of the High Court dismissed the  writ petition by its order dated 12.8.1988 reported  in Duncans Agro Industries Ltd. Vs. Union of India  & Ors., 1989 (39) ELT 511 (Del.).  Contention of  the assessee that the cause of action for invoking   Section 11-A would accrue only from the relevant  date defined under Section 11-A which in case of  provisional assessment means the date of adjustment  of duty after final assessment under Rule 9B was  rejected.  This judgment became final and is  binding between the parties.  This Court later took  a contrary view in Serai Kella Glass Workers Pvt.  Ltd. Vs. Collector of Central Excise, Patna, 1997  (4) SCC 641. Collector of Central Excise, Delhi took up for  hearing the proceedings arising from the show-cause  notice dated 1.10.1986 and disposed of the same on  27.3.1991 with the interim directions, which are as  under: "I direct the Divisional Assistant  Collector, Kharda Division of Calcutta-II  Collectorate to make final assessment in  the case under Rule 9B(5) of the Central  Excise Rules, 1944, for the period  covered by the instant show cause notice  as early as possible.  He may use the  material contained in the instant show  cause notice as independent material to  support the final assessment after  according an opportunity to the  manufacturer/other parties concerned to  meet the case and after considering the  cause show.  He is further directed to  intimate the undersigned as soon as he  completes the said provisional  assessment.  Thereafter this show cause  notice will be taken up for  adjudication."

In this order the Collector of Central Excise,  Delhi  gave three fold directions to the Divisional  Assistant Collector, Kharda Division of Calcutta  II, namely, (1) To make final assessment in the  case under Rule 9B(5) of the Rules for the period  covered by the instant show-cause notice  (1.10.1986) as early as possible;  (2) He could use  the material contained in the show-cause notice  dated 1.0.1986 as independent material to support  the final assessment after affording an opportunity  to the manufacturer/other parties concerned to meet

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the case and after considering the show cause; (3)  He was further directed to intimate the Collector  of Central Excise, Delhi as soon as he completes  the provisional assessment; and  (4)  The show- cause notice dated 1.10.1986 was to be taken up for  adjudication thereafter. The assessee being aggrieved filed an appeal  before the Appellate Tribunal at New Delhi, which  was disposed of on 9.12.1997.  The assessee  challenged the finding/observation made by the  Collector of Central Excise, Delhi that "thereafter  this show cause notice will be taken up for  adjudication" on the ground that after finalizing  of the assessment there would be nothing left for  the Collector of Central Excise, Delhi for  consideration or decision and therefore, this  sentence in the order should be set aside.  The  appeal was disposed of by observing:         "\005.We do not understand the impugned  order as recording a finding overruling  the contention raised by the appellant  the collector had no jurisdiction to  adjudicate on the strength of show cause  notice dated 1.10.86 or as to whether  after finalisation of assessments  anything would be left for the Collector  to decide.  Thereafter the appellant  cannot have any grievance.  It is open to  the appellant to raise these aspects if  after finalisation of assessment, the  Collector takes up the proceeding before  him for adjudication in this matter.

With this observation, the appeal is  disposed of."                                                  [Emphasis supplied]

Thus the liberty to take up this point was  reserved with the assessee after the finalization  of the proceedings. In pursuance to the interim directions issued  by the Collector of Central Excise, Delhi in its  order dated 27.3.1991 the office of the Assistant  Collector Central Excise, Kharda Division, Calcutta  issued addendum dated 20.2.1992 incorporating the  contents of the show-cause notice dated 1.10.1986  in the show cause notice dated 8.5.1984 thereby  assuming jurisdiction to adjudicate all issues  raised in both the show cause notices. The two show cause notices were finally  adjudicated by the Assistant Collector Central  Excise, Kharda Division, Calcutta by its order  dated 11.1.1996.  The assessable value was  determined and consequent thereupon demand was  raised by finalizing assessments for the entire  period from July 1973 to February, 1983. On 3.7.1996 show cause cum demand notice  was  issued by the Superintendent, Office of the  Assistant Collector Central Excise, Kharda  Division. Calcutta on the basis of adjudication  order dated 11.1.1996 quantifying the amount of  short levy for the period July 1973 to February,  1983.  Assistant Collector Central Excise, Kharda  Division, Calcutta adjudicated the show cause cum  demand notice dated 3.7.1996 confirming the demands

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(short levy) of Rs. 386,45,71,192.69 and Rs.  66,45,136.19 in respect of cigarettes and smoking  mixtures respectively.

The assessee being aggrieved against the order  of Assistant Collector Central Excise, Kharda  Division. Calcutta filed an appeal before the  Commissioner (Appeals) Central Excise, Calcutta.   Commissioner of Appeals by his order in appeal  dated  25.7.1997 accepted the appeal and remanded  the matter to the Assistant Collector Central  Excise, Kharda Division. Calcutta for recomputation  of the duty afresh in the light of the decision of  this Court in Government of India Vs. Madras Rubber  Factory, 1995 (4) SCC 349.  Assistant Collector  Central Excise, Kharda Division. Calcutta in  compliance of the order of remand dated 25.7.1997  of the Commissioner of Appeals Central Excise,  Calcutta recomputed the amount of duty short paid  as Rs. 16.6,94,320.34 and Rs. 8,13,683.29  after  adjusting Rs. 5.97 crores pre-deposited in the  light of the judgment of this Court in Madras  Rubber Factory’s case (supra).  This order was  later on corrected by issuing a corrigendum and the  amount was reduced.  

After finalization of the proceedings by the  Assistant Collector Central Excise, Kharda  Division. Calcutta the Commissioner of Central  Excise, Delhi passed an order in original in show- cause notice dated 1.10.1986 determining Rs. 17.67  crores as due as duty liability and imposing a  penalty of Rs. One crore.   Assessee being aggrieved filed Appeal No.  E/1622/99-A/92E/2095/2000A which has culminated in  the impugned order.  Tribunal accepted the appeal  partly.  Duty liability was set aside as it had  already been adjudicated in the earlier proceedings  but upheld the levy of penalty.  While deleting the  duty liability the Tribunal observed thus: "From this, it is clear that the  Collector had left the duty demand raised  in the show cause notice dated 1-10-1986  also to be included in the finalisation  of the provisional assessment which was  pending from 1973. The Revenue had not  challenged that order. Pursuant to that  order, the Assistant Collector had issued  an Addendum to the assessees on 20-2-1992  making the materials relied upon in the  show cause notice dated 1-10-1986 as part  of the materials for finalising the  assessments and the duty demand was  finalised after assessees made their  representations. That duty demand became  final as the Revenue did not challenge  it. The order passed on the assessees’  appeal against that duty demand was also  not challenged by both sides. We,  therefore, hold that the duty demand made  by the Assistant Collector was a  consolidated demand and that demand  having become final, no second demand  could be made in another adjudication  proceeding by the Commissioner.

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Accordingly, we set aside the duty demand  of over Rs. 17 crores made in the  impugned order."

Revenue being aggrieved has filed Civil Appeal  Nos. 4075-4076 of 2001 against the deletion of the  duty liability and the assessee has filed the Civil  Appeal No. 754 of 2001 against the order  maintaining the levy of penalty. Another fact which needs to be noticed is that  after the Assistant Collector Central Excise,  Kharda Division, Calcutta finalized the assessment  order dated 3.12.1996, the Assistant Collector  Central Excise, issued show cause notice dated  27.5.1998 stating therein that the order in  original dated 12.12.1997 the extra amounts  realized as "additional consideration" was not  taken into consideration and accordingly a demand  of Rs. 21.58 crores was made on the assessee.  In  the meantime, Kar Vivad Samadhan Scheme, 1998 (for  short "the KVS Scheme")  was introduced by Finance  (No. 2) Act, 1998.  Pursuant to the said scheme the  assessee filed a declaration under Section 89 of  the Finance (No. 2) Act, 1998 in respect of the KVS  Scheme.  An order under the KVS Scheme was passed  in pursuance to which the assessee paid the demand  raised under the said scheme.   Counsel for the parties have been heard at  great length.   The issue before the Assistant Collector  Central Excise, Kharda Division, Calcutta was for  the determination of the assessable value of the  goods for the period July, 1973 to   February, 1983 i.e. the period covered by the show  cause notice dated 8.5.84.  The issue before the  Commissioner of Central Excise, Delhi was also for  determination of the assessable value of the goods  for the period September, 1981 to February, 1983,  the period covered by show cause notice dated  1.10.1986.   The show cause notice dated 1.10.1986  was issued against 20 persons including the  assessee company.  As regards the assessee, for the  period September, 1981 to February, 1983, the  Commissioner of Central Excise passed the order  dated 27.3.1991 directing the Assistant  Commissioner to determine the assessable value  taking into consideration the materials contained  in show cause notice dated 1.10.1986.  This he did  by noticing the correct position of law laid down  by this Court in the case of Union of India Vs.  Godrej & Boyce Mfg. Co. (Pvt.) Ltd.,  (Civil Appeal  No.12824 of 1989 decided on 8.3.90).  The Assistant  Collector Central Excise, Kharda Division, Calcutta  thereafter issued addendum dated 20.2.992   incorporating the allegations made in show cause  notice dated 1.10.1986 in the show-cause notice  dated 8.5.1984.  The effect of the order passed by  the commissioner of Central Excise, Delhi was that  the Assistant Collector Central Excise, Kharda  Division, Calcutta alone had the jurisdiction to  finally adjudicate and determine the assessable  value of the goods cleared from the assessee’s  factory for the entire period and the consequent  duty liability.  Either party wishing to dispute  the determination made by the Assistant Collector

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Central Excise, Kharda Division, Calcutta had to do  so by invoking the right of appeal to the  Commissioner of Appeals, Tribunal and the Supreme  Court.  In addition the Department could have  invoked the short levy provision under Section 11-A  within a period of six months or invoked the  extended period of limitation of 5 years under  proviso to Section 11-A provided the conditions  laid down in the proviso were satisfied.  The two  show-cause notices were finally adjudicated by the  Assistant Collector Central Excise, Kharda  Division, Calcutta on 11.01.1996.  The assessable  value determined and consequent demand was raised  by finalizing assessments for the entire period  July 1973 to February, 1983.   If the revenue was  aggrieved by the above proceedings it was incumbent  upon them to either invoke the right of appeal  against that order under Section 35 E (2) or issue  a short levy notice under Section 11-A within six  months.  Neither of these two options having been  invoked, the order attained finality as against the  revenue. It need not be emphasized that there could not  be two assessments for the same period. This apart finally determined as due for the  entire period of 10 years from the assessee having  been settled under the Kar Vivad Samadan Scheme,  1998, there is no scope for any further review or  determination of that issue by any authority under  the Act.  In Hira Lal Hari Lal Bhagwati Vs. CBI.  2003  (5) SCC 257, at page 274 this Court observed:

"We have carefully gone through the  Kar Vivad Samadhan Scheme, 1998 and the  certificate issued by the Customs  Authorities.  In our opinion, the GCS is  immune from any criminal proceedings  pursuant to the certificates issued under  the said Scheme and the appellants are  being prosecuted in their capacity as  office-bearers of the GCS.  As the  customs duty has already been paid, the  Central Government has not suffered any  financial loss.  Moreover, as per the Kar  Vivad Samadhan Scheme, 1998, whoever is  granted the benefit under the said Scheme  is granted immunity from prosecution from  any offence under the Customs Act, 1962  including the offence of evasion of duty.   In the circumstances, the complaint filed  against the appellants is unsustainable."

And at page 280 it was observed: "The Kar Vivad Samadhan Scheme  certificate along with CBI v. Duncans  Agro Industgries Ltd., 1996 (5) SCC 591,  and Sushila Rani  v. C.I.T., 2002 (2) SCC  697,  judgments clearly absolve the  appellants herein from all charges and  allegations under any other law once the  duty so demanded has been paid and the  alleged offence has been compounded.  It  is also settled law that once a civil  case has been compromised and the alleged

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offence has been compounded, to continue  the criminal proceedings thereafter would  be an abuse of the judicial process."

Thus, after the grant of certificate under the  Kar Vivad Samadan Scheme, 1998 as having settled  the dispute and payment of the amount determined no  further proceedings could be initiated or proceeded  with for the period in question.  For the reasons stated above, we do not find  any substance in the appeals filed by the Revenue.   Accordingly, Civil Appeal Nos. 4075-4076 of 2001  are dismissed and the order passed by the Tribunal  in this respect is affirmed. Taking up the appeal of the assessee, it may be  noted that the proposed penalty was under Rule 9(2)  and 52-A.  This Court in N.B. Sanjana Vs.  Elphinstone Spg. & Wvg. Mills Co. Ltd., 1971 (1)  SCC 337, at page 348 held as under: ".....To attract sub-rule (2) of  Rule 9, the goods should have been  removed in contravention of sub-rule (1).   It is not the case of the appellants that  the respondents have not complied with  the provisions of sub-rule (1). We are of  the opinion that in order to attract sub- rule (2), the goods should have been  removed clandestinely and without  assessment.  In this case there is no  such clandestine removal without  assessment.  On the other hand, goods had  been removed with the express permission  of the Excise authorities and after order  of assessment was made.  No doubt the  duty payable under the assessment order  was nil.  That, in our opinion, will not  bring the case under sub-rule (2). "

In the present case there is not even an  allegation much less finding by the department that  there has been any clandestine removal of goods  without assessment.  As such the penalty is liable  to be set aside.   The matter having been settled  in the Kar Vivad Samadan Scheme, 1998 the question  of determination of the duty payable or levy of  penalty did not arise.  In our view, the Tribunal  clearly erred in upholding the levy of penalty.    Accordingly, Civil Appeal No. 754 of 2001 filed by  the assessee is accepted and the penalty levied is  ordered to be deleted.   

These two sets of appeals are disposed of in  the above terms leaving the parties to bear their  own costs. 27965