1987 JTR(SC) 200
1987 AIR(SC) 1161 ; 1987 1 CurCC(SC) 755 ; 1987 28 ELT 53 ; 1987 1 JT 469 ; 1987 1 Scale 361 ; 1987 2 SCC 93 ; 1987 SCC(Tax) 165 ; 1987 2 SCR 309 ; 1987 1 UJ 627 ; 1987 KHC 907
SUPREME COURT OF INDIA
R.S. PATHAK, CJI., RANGANATH MISRA, J.
Gokak Patel Volkart Ltd., Appellant
Versus
Collector of Central Excise, Belgaum, Respondent.
Civil Appeal No. 161 of 1986, D/- 17-2-1987.
Act Referred :CENTRAL EXCISE ACT : S.3, S.11(a)(1)
(A) The Central Excises and Salt Act, 1944, sections 3 and 11(a)(1) govern the levy, collection, and procedural requirements for excise duty. The Explanation to section 11A of the Act allows exclusion of the period of stay from the six-month limitation for serving a show-cause notice only when the service of the notice itself is stayed by a court order. In this appeal, the High Court stayed the collection of excise duty but did not stay the service of the notice, rendering the Explanation inapplicable to bar the demand raised beyond the statutory period.
(B) Core legal principles include: levy and collection are distinct steps under the excise statute; a show-cause notice is a condition precedent to a demand; and the period of limitation under section 11A is extendable only by excluding time during which service of the notice is stayed by an order of court under the principle in S. 15 of the Limitation Act.
Facts of the case:
The appellant was subject to an excise demand for a period from 1975 to 1981. A notice to show cause under section 11A(1) was issued in 1982, which was held to be beyond the six-month limitation. The High Court had stayed only the collection of excise duty, not the service of notice. No notice was served for the relevant period, and an outright demand was made instead.
Findings of Court:
The court found that the Explanation to section 11A did not apply because the stay order did not extend to the service of notice. The statutory scheme under sections 11A(1) and (2) requires a show-cause notice as a precondition to demand, and compliance with this was absent. The demand was therefore invalid.
Issues:
Whether the Explanation to section 11A applies when only collection is stayed and not the service of notice; whether a demand can be validly made without compliance with the notice requirement; and whether the demand was barred by the limitation period.
Ratio Decidendi:
Since the stay order did not prevent service of the notice, the Appellant could not invoke the time-exclusion provision. The demand was invalid for non-compliance with section 11A(1) and (2), and for being outside the limitation period.
Result:
The appeal is allowed, the demand is set aside, no costs are awarded, and the tax paid, if any, is to be refunded.
(A) The Central Excises and Salt Act, 1944, sections 3 and 11(a)(1) govern the levy, collection, and procedural requirements for excise duty. The Explanation to section 11A of the Act allows exclusion of the period of stay from the six-month limitation for serving a show-cause notice only when the service of the notice itself is stayed by a court order. In this appeal, the High Court stayed the collection of excise duty but did not stay the service of the notice, rendering the Explanation inapplicable to bar the demand raised beyond the statutory period.
(B) Core legal principles include: levy and collection are distinct steps under the excise statute; a show-cause notice is a condition precedent to a demand; and the period of limitation under section 11A is extendable only by excluding time during which service of the notice is stayed by an order of court under the principle in S. 15 of the Limitation Act.
Facts of the case:
The appellant was subject to an excise demand for a period from 1975 to 1981. A notice to show cause under section 11A(1) was issued in 1982, which was held to be beyond the six-month limitation. The High Court had stayed only the collection of excise duty, not the service of notice. No notice was served for the relevant period, and an outright demand was made instead.
Findings of Court:
The court found that the Explanation to section 11A did not apply because the stay order did not extend to the service of notice. The statutory scheme under sections 11A(1) and (2) requires a show-cause notice as a precondition to demand, and compliance with this was absent. The demand was therefore invalid.
Issues:
Whether the Explanation to section 11A applies when only collection is stayed and not the service of notice; whether a demand can be validly made without compliance with the notice requirement; and whether the demand was barred by the limitation period.
Ratio Decidendi:
Since the stay order did not prevent service of the notice, the Appellant could not invoke the time-exclusion provision. The demand was invalid for non-compliance with section 11A(1) and (2), and for being outside the limitation period.
Result:
The appeal is allowed, the demand is set aside, no costs are awarded, and the tax paid, if any, is to be refunded.
B.DUTTA, HARISH N.SLAVE, Indra Sawhney, P.K.RAM KUMAR, Ravindra Narayan, S.GANESH RAO, S.Relan, SOLI J.SORABJI
Judgement
RANGANATH MISRA, J.:- The fate of this appeal under S. 35(L), Central Excises and Salt Act, 1944, depends upon the meaning and scope of the Explanation appearing in S. 11 A of the Act.
2. 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 excise 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 Courts final order ran thus :
"For the reasons aforesaid, we make the following order :-
(i) Rule discharged;
(ii) We decline to interfere at this stage leaving open to the petitioner to urge all the contentions in reply to the show cause notices."
3. 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.
4. It is 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 S. 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 :
"Where 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, Limitation Act, 1908 (also of, S. 15, Limitation Act, 1963) incorporates the same principle. This Court in Sirajul Haq Khan v. Sunni Central Board of Waqf, U.P., 1959 SCR 1287, dealt with the effect of an order of injunction in the matter of computation of limitation. At page 1302 (of SCR) : (at P. 205 of AIR) 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 failing under S. 15, the party instituting the suit would by such institution be in contempt of Court.
....... .......... .......... .......... ..........
But, in 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 S. 11 A provided :
"(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 :
xxx xxx xxx xxx
(2) The Assistant Collector of Central Excise, shall, after considering the representation, if any, made by the person on whom notice is served under sub-s. (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 S. 3 of the Act which contains the charging provision clearly shows that levy and collection are two distinct and separate steps. This Court in N. B. Sanjana v. Elphinstone Spinning & Weaving Mills Co. Ltd., (1971) 3 SCR 506 at page 514 stated
".........The charging provision S. 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-s. (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."
5. 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. Therefore, there is force in the submission of the appellant that the benefit of the Explanation is not available in the facts of the case.
6. No 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 S. 11 A(1) and (2) make it clear that the statutory scheme is that in the situations covered by sub-s. (1), a notice of show cause has to be issued and sub-s. (2) requires that the cause shown by way of representation has to be considered by the prescribed authority and then 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-s. (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.
7. The 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.
Appeal allowed.
For Citation AIR 1987 SC 1161