Cotton Spinning & Weaving Mills Company Ltd. Vs. Collector of Central
Excise  INSC 145 (4
K.T. Thomas, M. Srinivasan Thomas, J.
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
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.
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.
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 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.
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.
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.
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:
Recovery of duties not levied or not paid or short-levied or short-paid or
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:
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 there under 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 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.
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.
the purposes of this section.
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;
"relevant date" means"
the case of excisable goods on which duty of excise has not been levied or paid
or has been short-levied or short-paid-
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;
no monthly return as aforesaid is filed, the last date on which such return is
to be filed under the said rules;
any other case, the date on which the duty is to be paid under this Act or the
rules made thereunder;
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
period of six months envisaged in sub-section (1) thereof can thus be extended
only under three eventualities.
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
first eventuality mentioned above has no application to the facts of this case
and hence a discussion 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.
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:
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.
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.
will now come down to the question to be determined.
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).
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.
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 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
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:
Stay permitting the petitioners to process yarn within its factory without
payment of duty;
respondent from giving effect to the contents of the directive of the Board
dated 24.9.1980; and
stay further proceedings pursuant to notices date 4th and 5th May, 1981 relating to the period 6.11.1980 to
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.
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.
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
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.
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 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.
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.
notice envisaged in Sub-section (1) of Section 11-A of the Act can be issued
under any one of the four conditions:
duty of excise has not been levied on the commodity;
such duty has been short- levied; or
such duty, though levied, has not been paid; or
such duty levied was only short-paid.
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".
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.
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.
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.
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
same contention was urged before the CEGAT but after a 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.
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.
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
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:
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.
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.
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".
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.
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 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.
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
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.
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.
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.
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 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