Patel Volkart Limited Vs. Collector of Central Excise, Belgaum  INSC 47 (17 February 1987)
Rangnath Misra Rangnath Pathak, R.S. (Cj)
1987 AIR 1161 1987 SCR (2) 309 1987 SCC (2) 93 JT 1987 (1) 469 1987 SCALE
INFO : R 1988 SC1236 (5)
Excises and Salt Act, 1944 section 11A and Explanation thereto, scope
of--Limitation of six months' period--No order of the court staying the service
of notice--Whether a show cause notice issued beyond the limitation, period
specified under section 11A is valid.
cause notice dated 29.1.1976 issued by the respondent to the appellant calling
upon him to explain as to why excise duty treating his product as
"fabric" and not as "yarn" may not be levied, was
challenged in the High Court of Karnataka in Writ Petition No. 2632/ 1976.
Pending final disposal of the writ petition, an interim order staying the
collection of excise duty as a "fabric" for the period 1.4.1975 to
18.8.75 alone was passed with a specific direction that the appellant should
continue to pay excise duty as "yarn". Finally the writ petition was
dismissed on 16.2.1981.
On 20th May, 1982, another notice No. 913 to show
cause was issued to the appellant simultaneously seeking to raise a demand for
the period from 20.6.1976 to 28.2.1981 apart from for the period between
1.4.1975 to 18.8.1975 challenged in the earlier writ petition. The Karnataka
High Court having rejected the plea of bar of limitation under section 11A of
the Central Excises and Salt Act, 1944 raised in the writ petition challenging
the said second show cause notice and demand, the appellant has come in appeal
by way of special leave.
the appeal, the Court,
1.1 Section 3 of the Act which contains the charging provision clearly shows
that levy and collection are two distinct and separate steps. [312H]
The provision of section 11A(1) and (2) of the Central Excises and Salt Act,
1944 make it clear that the statutory scheme is that in the situations covered
by the 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 310 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 thereof.
Notice is thus a condition precedent to a demand under sub-section(2). In the
instant case, compliance with this statutory requirement has not been made,
and, therefore, the demand is In contravention of the statutory provision.
Explanation to section 11A of the Central Excises and Salt Act, 1944, which
incorporates a well known principle of law, in clear terms refers to 'stay of
service of notice'.
High Court order did not at all refer to service of notice. The High Court
having directed stay of collection of duty as 'fabric' has not issued any interim
direction in the matter of issue of notice of levy of the duty. Therefore, the
benefit of Explanation to section 11A of the Act is not available to the
Respondent. [313C-D] Sirajul Haq Khan & Ors. v. The Sunni Central Board of Waqf,
U.P. & Ors.,  SCR 1287; and N.B. San jane Assistant Collector of
Central Excise, Bombay & Ors. v. Elphinstone Spinning & Weaving Mills
Co. Ltd.,  3 SCR 506, 514 referred to.
APPELLATE JURISDICTION: Civil Appeal No. 161 Of 1986.
the Judgment and Order dated 17.9.85 of the Customs Excise and Gold (Control)
Appellate Tribunal, New
Delhi in Appeal No. ED(SB)
J. Sorabjee, Ravinder Narain, Harish Salve, S. Ganesh and P.K. Ram for the
Additional Solicitor General, Mrs. Indra Sawhney and Ms. S. Relan for the
Judgment of the Court was delivered by RANGANATH MISRA, J. The fate of this
appeal under section 35(L) of the Central Excises and Salt Act, 1944, depends
upon the meaning and scope of the Explanation appearing in section 11A of the
High Court of Karnataka by its order dated 4.6.1976 in Writ Petition No. 2632
of 1976 gave the following direction:
"Pending disposal of the aforesaid writ Petition, it is ordered by this
Court that collection of excise duty as a fabric be and the same is hereby
stayed. It is further ordered that the petitioner shall however continue to pay
exercise duty as yarn and shall further maintain an account in square metres
for future clearance." The said Writ Petition was ultimately dismissed by
the High Court on 16.2. 1981. The operative part of the Court's final order ran
the reasons aforesaid, we make the following order:(i) Rule discharged;
We decline to interfere at this stage leaving open to the petitioner to urge
all the contentions in reply to the show cause notices." On 20th May, 1982, a notice to show cause was issued
to the appellant by the Assistant Collector, being Notice No. 913, and with
this the Collector sought to raise a demand for the period from 20th June, 1976 to 28th February, 1981 apart from for the period between 1.4. 1975 to
18.8.1975 in respect of which an earlier show cause notice dated 29.1. 1976 had
already been issued.
not disputed by the Revenue that the appropriate period of limitation to apply
to the facts of the case is six months as provided in section 11A of the Act
and that the Notice issued on 20th of May, 1982 was beyond that period.
Reliance was placed on the Explanation for obtaining extension of that period.
The Explanation reads thus:
the service of the notice is stayed by an 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." The provision in the Explanation incorporates
a well-known principle of law. Section 15 of the Limitation Act of 1908 (also
of Section 15 of the Limitation Act of 1963) incorporates the same principle. This
Court in Sirajul Haq Khan & others v. The Sunni Central Board of Waqf, U.P.
& others,  SCR 1287 dealt with the effect of an order of injuction in
the matter of computation of limitation. At page 1302 of the Reports, Gajendragadkar,
J. as he then was, spoke for the Court thus.
"It is plain that, for excluding the time under this section, it must be
shown that the institution of the suit in question had been stayed by an
injunction or order; in other words, the section requires an order or an
injunction which stays the institution of the suit. And so in cases falling under
Section 15, the party instituting the suit would by such institution be in
contempt of court.
our opinion, there would be no justification for extending the application of
s. 15 on the ground that the institution of the subsequent suit would be
inconsistent with the spirit or substance of the order passed in the previous
litigation " In the instant case, the order of stay passed by the
Karnataka High Court had only stayed the collection of the excise duty, which
is a stage following levy under the scheme of the Act. Obviously there was no
interim direction of the High Court in the matter of issue of notice for the
purpose of levy of duty. The relevant portion of Section 11A provided.
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:
The Assistant Collector of Central Excise shall, after 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. ' ' Reference to Section 3 of the
Act which contains the charging provision clearly shows that levy and
collection are two distinct and separate 313 steps. This Court in N.B. Sanjana,
Assistant Collector of Central Excise, Bombay & Ors. v. Elphinstone
Spinning & Weaving Mills Co. Ltd.,  3 SCR 506, at page 514 stated:
.... The charging provision section 3(i) specifically says "there shall be
levied and collected in such a manner as may be prescribed the duty of excise .....
"It is to be noted that sub-section (i) uses both the expressions
"levied and collected" and that clearly shows that the expression
"levy" has not been used in the Act or the Rules as meaning actual
collection." The High Court having directed stay of collection had,
therefore, not given any interim direction in the matter of issue of notice or
levy of the duty. The Explanation in clear terms refers to stay of service of
notice. The order of the High Court did not at all refer to service of notice.
there is force in the submission of the appellant that the benefit of the
Explanation is not available in the facts of the case.
notice seems to have been issued in this case in regard to the period in
question. Instead thereof an outright demand had been served. The provisions of
Section 11A (1) and (2) make it clear that the statutory scheme is that in the
situations covered by the 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 mount 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 thereof. Notice is thus a condition precedent to demand under sub-section
(2). In the instant case, compliance with this statutory requirement has not
been made, and, therefore, the demand is in contravention of the statutory
provision. Certain other authorities have been cited at the hearing by counsel
for both sides. Reference to them, we consider, is not necessary.
appeal has to be allowed and the demand raised for the period 19.8.1975 to
23.2.1981 has to be set aside. There shall be no order for costs. The tax paid,
if any, shall be refunded to the appellant.