Civil Appeal No 1110 NT of 1986 From the Judgment and Order dated 24111984 of the High Court of Madhya Pradesh Indore Bench passed in MP NO 104 of 1984
Gobind Das Mrs Sushma Suri Mrs Indra Sawhney and CVS Rao for the Appellants
Dr YS Chitale Sanjay Sarin Abdul Chitale and SK Gambhir for the Respondents
The Judgment of the Court was delivered by KANIA J
This is an appeal against the judgment of a Division Bench of the Madhya Pradesh High Court Jabalpur Indore Bench in M Petition No 104 of 1984
The appeal is filed at the instance of the 841 Union of India Collector of Central Excise Indore and two other excise officers
The respondents are the original petitioners in the aforesaid petition
We propose to refer to the parties by the description in the petition
The facts necessary for the disposal of this appeal can be shortly stated
The petitioner No 1 is a Company manufacturing spun yarn
According to the petitioners in the manufacture of the said product they use as raw material cellulosic fibres and non cellulosic fibres
Some time prior to 7th July 1983 the petitioners filed a classification list in respect of the spun yarn manufactured by them showing the same as covered by Item No 18III i in the First Schedule to the referred to hereinafter as the Central Excise Act
The said schedule is generally referred to as the Central Excises Tariff
This classification was on the basis that the spun yarn was manufactured by them out of non cellulosic synthetic waste
The said classification list was approved by the excise authorities on 7th July 1983
A supplementary classification list was approved on 15th October 1983
The petitioners were clearing the goods on the basis of aforesaid classification lists
It appears that samples were drawn out of the spun yarn manufactured by the petitioners and sent for chemical examination
There are some reports submitted by the Chemical Analyser with the details of which we are not concerned
Without giving any show cause notice or affording any opportunity to the petitioners to be heard on 7th February 1984 the Superintendent of Central Excise issued a notice of demand for a total sum of Rs264774939 against the petitioner No 1 on the footing that there was short payment of excise duty
This was done on the ground that the yarn manufactured by the petitioners had been manufactured out of waste of synthetic fibres in blend of viscose fibres of noncellulosic origin and hence the said goods manufactured by them were liable to be classified under Central Excises Tariff Item No 18IIIii
It is an admitted position that the yarn manufacturing process used by the petitioners was with the aid of power
The petitioners filed the aforesaid writ petition in the High Court of Madhya Pradesh challenging the validity of the said notice of demand dated 7th February 1984
The High Court granted an interim stay of the operation of the demand notice on 9th February 1984
On the same day namely 9th February 1984 an order was passed by the Assistant Collector of Central Excise modifying the approval granted to the aforesaid classification lists submitted by the petitioners which had been approved 842 as aforesaid and classifying the aforesaid product under Item No 18III ii of Schedule 1 of the Central Excises Act
On 10th February 1984 a notice was issued by the Superintendent Central Excise on the petitioner No 1 reciting inter alia that the Assistant Collector had modified the approval of the classification lists on 9th February 1984 and calling upon the petitioner No 1 to show cause why the duty short levied should not be recovered from them under the provisions of Section 11 A of the Central Excises Act
A second similar show cause notice was also issued
The petitioner No 1 wrote to the excise authorities pointing out that in view of the aforesaid writ petition filed by the appellant the adjudication proceedings should be stayed till writ petition was disposed of
This request was turned down on 5th March 1984 and orders of adjudication were passed by the Assistant Collector modifying the classification lists and confirming the demand made under the aforesaid notice of demand
The petitioners thereupon amended the aforesaid writ petition filed by them and challenged the two show cause notices as well as the said orders of adjudication dated 5th March 1984
The petitioners also filed an appeal before the Collector of Central Excises Appeal against the orders of adjudication dated 5th March 1984
On 24th November 1984 by the impugned judgment the Madhya Pradesh High Court allowed the aforesaid writ petition in part
Mulye J held by his judgment that the writ petition was allowed to the extent that the demand for recovery of Rs264774939 for the period 15th August 1983 to 6th February 1984 which was the period referred to in the demand notice was quashed
However the learned Judge directed the Collector Central Excise before whom the appeal filed by the petitioners was pending to decide the appeal in respect of the demand made by the excise authorities for the subsequent period
Giani J the other learned judge in his concurring judgment set aside the two roders issued by the Assistant Collector Central Excise Ujjain Division both dated 5th March 1984 as set out earlier
Copies of these adjudication orders are at Annexure R10 and R11 respectively to the writ petition
Very shortly put both the Judges held that the notice of demand and the orders modifying the classification list served on the petitioners were bad in law and ordered that the same be quashed
A perusal of the judgment also clearly indicates that the Division Bench directed that the Collector Central Excise Appeal should hear the appeal of the petitioners on merits after giving the petitioners an adequate opportunity to put their case and their evidence before him in respect of the period from 7th February 1984 onwards
Thus the Division Bench took the view that the show cause notice served on the petitioners could be treated as valid and effective only in respect of the period 843 from 7th February 1984 onwards and not retrospectively from 15th August 1983 to 6th February 1984 being the period for which the demand has already been made in the demand notice dated 9th February 1984
As far as the relevant items in the First Schedule of the Central Excises Act are concerned it is not necessary to set out the same in detail
It will be enough to point out that if the cellulosic spun yarn made by a manufacturer with the aid of power contains man made fibre of non cellulosic origin it will fall under Item No 18III ii but if it does not contain any man made fibre of non cellulosic origin it will fall under Item No 18III i and duty would be leviable there at a lower rate
The relevant portion of Section 11 A of the Central Excises Act runs as follows 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 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 fact or contravention of any of the provisions of this 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 Central Excise Officer the words Collector of Central Excise and for the words six months the words five years were substituted
 A perusal of the aforesaid provisions shows that before any demand is made on any person chargeable in respect of non levy or short levy or under payment of duty a notice requiring him to show cause why he should not pay the amounts specified in the notice must be served on him
It is the admitted position in the present case that no such notice was served
It would thus appear that the aforesaid demand notice dated 7th February 1984 was in violation of the provisions of Section 11 A and is bad in law
Mr Govind Das learned 844 counsel for the appellant however contended that although the aforesaid Section provides that no demand could be made against a person thereunder without affording that person an adequate opportunity to show cause against the same in the present case though no prior show cause notice was given and the petitioners were not given an opportunity to be heard before the notice of demand was issued such a notice was issued and an opportunity to show cause was given after the demand was made and the demand confirmed after hearing and hence it must be regarded as valid
It was submitted by him that a post facto show cause notice should be regarded as adequate in law
In support of this contention Mr Govind Das tried to place reliance on certain decisions where a view has been taken that in cases where urgent and emergent action is required an opportunity to be heard can be given after the order affecting a person adversely is passed and that where a particular Act does not provide for any such opportunity to be heard being given before an adverse order is passed a post facto opportunity to be heard might in certain cases be regarded as adequate compliance with principles of natural justice
We are of the view these cases have no relevance in considering the questions before us because it is quite apparent that in the present case no urgent or emergent action was required and Section 11 A of the Central Excises Act clearly provides that prior show cause notice must be issued to the person against whom any demand on ground of short levy or non levy of payment of excise duty is proposed to be made
In Gokak Patel Vokkart Ltd vs Collector of Central Excise Belgaum  this Court has held that the provisions of Section 11 A1  2 of make it clear that the statutory scheme is that in the situations covered by 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 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
Notice is thus a condition precedent to a demand under sub Section 2
In view of the aforesaid decision the submission of Mr Govind Das must be rejected and it must be held that the aforesaid notice of demand was clearly bad in law and the High Court was fully with respect justified in quashing the same
The next submission of Mr Govind Das was that in any event 845 as the Collector of Central Excise Appeals had been directed to examine the merits of the matter in respect of alleged short levy or non levy and the modification of the classification lists after allowing adequate opportunity to the petitioners to show cause in respect of the period from 7th February 1984 onwards the question as to whether there was short levy or non levy in respect of the period from 15th August 1983 to 6th February 1984 should even also be allowed to be decided by the Collector
It was submitted by Mr Govind Das that although the notice of demand may be set aside the notice to show cause dated 910th February 1984 should be treated as a valid and effective notice in respect of the period from 15th August 1983 to 6th February 1984 as well as the period from 7th February 1984 onwards
In this connection it is the submission of Dr Chitale that this notice merely asked the petitioners to show cause against calculation or determination of the amount of short levy and not against the alteration in the classification lists on the basis of which short levy was alleged and hence in respect of the said period from 15th August 1983 to 6th February 1984 the show cause notice is liable to be struck down
In our view the submission of Dr Chitale deserves to be accepted
The opening paragraph of the show cause notice refers to the service of notice of demand dated 7th February 1984 for Rs264774939 on the petitioner
Paragraphs 2 and 3 of the said notice run as follows AND whereas the Assistant Collector Central Excise Ujjain under his letter CN V18IIII183371 1374 dated 9th Feb 84 has modified approval of the classification lists of the party and has directed that the short levied should be quantified by the Inspector Central Excise BiaoraSuperintendent Central Excise Ujjain and confirmation or otherwise of such short levied and recoveries if any would be ordered by him Assistant Collector Central Excise Division Ujjain after following the prescribed procedure
THEREFORE in accordance with the said order of the Assistant Collector Central Excise Division Ujjain you are called upon to show cause to the Assistant Collector Central Excise Ujjain within 10 days of the receipt of this show cause notice as to why the short levies of Rs264774939 should not be recovered from you under Section 11 A of the Central Excise and Salt Act 1944
 A reading of these paragraphs clearly shows that the notice set 846 out as an established fact that the classification lists submitted by the petitioners had been modified by the Assistant Collector Central Excise Ujjain and the only matter with respect to which the petitioners were asked to show cause was with regard to the quantification of the amount of the short levy and consequently the amount which was liable to be recovered from the petitioner No 1
This notice therefore cannot be regarded as a show cause notice against the modification of the classification lists in respect of the aforesaid period
In these circumstances the show cause notice is bad in law and of no legal effect as far as the said earlier period is concerned
Under Section 11 A of the Central Excise Act the notice can relate only to a period of six months prior to the issue of that notice except in cases where it is alleged the short levy or short payment has occurred by reason of fraud collusion or wilful misrepresentation or suppression of facts or contravention of the provisions of the said Act or rules made by the period concerned as contemplated in the proviso to sub Section 1 of Section 11 A
No such case has been sought to be made here in the said show cause notice
The result is that the said show cause notice must be struck down in so far as period upto 6th February 1984 is concerned and can be regarded as a proper show cause notice only in respect of the subsequent period from 7th February 1984 onwards
We are therefore of the view that under the said show cause notice the question of short levy or non levy of excise duty prior to 6th February 1984 cannot be gone into by the Collector and the High Court was right in the view which it took
In the result the appeal fails and is dismissed with costs
SL Appeal dismissed


Summary:
On 16th January 1958 a lease deed was executed between the lessee and the lessor respondent in respect of the demised land for a period of ten years with a right of renewal for a further period of five years and with permission to sub lease the same
The lessee sub leased the premises to the petitioner for running a petrol pump
After the expiry of the lease period on 16th January 1968 the lessor continued to accept the rent from month to month
However no fresh instrument was executed by the parties
The lessor issued on 30th November 1972 a notice to the lessee terminating the lease and for giving vacant possession of the land on the expiry of 15th January 1973 after removing the structures by the 16th January 1973
No notice was given separately to the petitioner
The lessee did not contest the suit filed on the basis of the notice
The petitioner contested the proceedings and contended that it was holding over after the expiry of the lease that no notice terminating tenancy was received by it and that the notice was invalid
The trial Court dismissed the suit holding that the notice terminating the lease was necessary and the notice in this case was invalid
The Court also rejected the lessor s plea that the tenancy expired by afflux of time
The trial Court however held that the lease was not extended for a fixed period of five years in absence of any written instrument
The 1st Additional Sub Judge allowed the lessor s appeal and held the notice valid
The High Court upheld the appellate order
812 Dismissing the special leave petition it was  HELD 1 In view of paragraph 1 of section 107 of the a lease of immovable property from year to year or for any term exceeding one year or reserving an yearly rent can be made only by a registered instrument
In the absence of a registered instrument it must be a monthly lease
815G H 2 The High Court was right in holding that the lessee and the sub lessee in the facts of this case continued to remain in possession as a tenant from month to month
816A B 3 The High Court was right that the tenancy was automatically determined on the expiry of ten years
The lease was thereafter renewed from month to month which could only be terminated by giving a valid notice
816E F 4 The notice of termination must be read in the context of the facts of each particular case having regard to the situation of the parties to whom it is addressed
If all the paragraphs of the notice in the instant case are read together in harmony it would be manifest that the lessee was directed to handover the lease hold property on 16th January 1973 and hence the notice was a valid notice of termination of the lease under section 106 of the Act
817C818F 5 Law does not require that the sub lessee need be made a party if there was a valid termination of the lease
In all cases where the landlord instituted a suit against the lessee for possession of the land on the basis of a valid notice to quit served on the lessee and did not implead the sub lessee as a party to the suit the object of the landlord is to eject the sub lessee from the land in execution of the decree and such an object is quite legitimate
The decree in such a suit would bind the sub lessee
818H819A B Harihar Banerji vs Ramsashi Roy 45 Indian Appeals 222Mangilal vs Suganchand Rathi  Subadini vs Durga Charan Law ILR Gobinda Chandra Saha vs Dwarka Nath Patita AIR 1915 Cal 313 and Roop Chand Gupta vs Raghuvanshi Pvt Ltd   referred to