ivil Appeal No 161 Of 1986
From the Judgment and Order dated 17985 of the Customs Excise and Gold Control Appellate Tribunal New Delhi in Appeal No EDSB T 46384 D Soli J Sorabjee Ravinder Narain Harish Salve section Ganesh and PK Ram for the Appellant
B Datta Additional Solicitor General Mrs Indra Sawhney and Ms section Relan for the Respondent
The Judgment of the Court was delivered by RANGANATH MISRA J
The fate of this appeal under sec tion 35L of the  de pends upon the meaning and scope of the Explanation appear ing in section 11A of the Act
The High Court of Karnataka by its order dated 461976 in Writ Petition No 2632 of 1976 gave the following direc tion 311 Pending disposal of the aforesaid writ Peti tion it is ordered by this Court that collec tion 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 162
The operative part of the Court s final order ran thus For the reasons aforesaid we make the fol lowing 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
 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 14 1975 to 1881975 in respect of which an earlier show cause notice dated 291
1976 had already been issued
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 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 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 of the Limitation Act of 1908 also of Section 15 of the Limitation Act of 1963 incorpo rates the same principle
This Court in Sirajul Haq Khan  others vs The Sunni Central Board of Waqf UP  others dealt with the effect of an order of injuc tion in the matter of computation of limitation
At page 1302 of the Reports Gajendragadkar J as he then was spoke for the Court thus
312 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
But in our opinion there would be no justifi cation for extending the application of section 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 Karna taka 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 provid ed 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 erro neously been made requiring him to show cause why he should not pay the amount specified in the notice 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 section 1 determine the amount of duty ofexcise 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 charg ing provision clearly shows that levy and collection are two distinct and separate 313 steps
This Court in NB Sanjana Assistant Collector of Central Excise Bombay  Ors
vs Elphinstone Spinning  Weaving Mills Co Ltd   at page 514 stat ed  
The charging provision section 3i specifically says there shall be levied and collected in such a manner as may be pre scribed 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
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
No notice seems to have been issued in this case in regard to the period in question
Instead thereof an out right 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 there fore the demand is in contravention of the statutory provi sion
Certain other authorities have been cited at the hearing by counsel for both sides
Reference to them we consider is not necessary
The appeal has to be allowed and the demand raised for the period 1981975 to 2321981 has to be set aside
There shall be no order for costs
The tax paid if any shall be refunded to the appellant
SR Appeal al lowed


Summary:
A show cause notice dated 2911976 issued by the re spondent 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 141975 to 18875 alone was passed with a specific direc tion that the appellant should continue to pay excise duty as yarn
Finally the writ petition was dismissed on 1621981
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 2061976 to 2821981 apart from for the period between 141975 to 1881975 challenged in the earlier writ petition
The Karnataka High Court having rejected the plea of bar of limitation under section 11A of the 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
Allowing the appeal the Court HELD 11 Section 3 of the Act which contains the charg ing provision clearly shows that levy and collection are two distinct and separate steps
312H 12 The provision of section 11A1 and 2 of the make it clear that the statutory scheme is that in the situations covered by the sub section1 a notice of show cause has to be issued and sub section2 requires that the cause shown by way of representation has to be considered by the prescribed au thority 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 prece dent to a demand under sub section2
In the instant case compliance with this statutory requirement has not been made and therefore the demand is In contravention of the statutory provision
313E G 2
Explanation to section 11A of the  which incorporates a well known principle of law in clear terms refers to stay of service of notice 
The 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
vs The Sunni Central Board of Waqf UP  Ors
  and NB San jane As sistant Collector of Central Excise Bombay  Ors
vs El phinstone Spinning  Weaving Mills Co Ltd   514 referred to