* THE HON'BLE MR. ANIL R. DAVE, THE CHIEF JUSTICE AND THE HON’BLE MR. JUSTICE C.V.NAGARJUNA REDDY + WRIT PETITION No.18114 of 2009 % Dated: 25-11-2009 # M/s. Sanghi Polyesters Limited., Petitioner VERSUS $ The Superintendent of Central Excise, Koheda Range, Navya Estates, Moulali, Hyderabad & another. Respondents ! Counsel for the petitioners: Sri S. Ravi, senior counsel for Sri Ch. Pusyam Kiran ^ Counsel for respondents : Sri A. Rajasekhar Reddy Asst. Solicitor General <GIST: > HEAD NOTE: ? Cases referred 1. (2000) 5 SCC 299 2. 2008 (225) ELT 41 (AP) IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD PRESENT THE HON'BLE MR. ANIL R. DAVE, THE CHIEF JUSTICE AND THE HON’BLE MR. JUSTICE C.V.NAGARJUNA REDDY WEDNESDAY, THE TWENTY FIFTH DAY OF NOVEMBER, TWO THOUSAND NINE WRIT PETITION No.18114 of 2009 Between: M/s. Sanghi Polyesters Limited … Petitioner And: The Superintendent of Central Excise, Koheda Range, Navya Estates, Moulali, Hyderabad & another. …Respondents. Counsel for the Petitioner : Sri. S. Ravi Senior Counsel for Sri Ch. Pusyam Kiran Counsel for the respondents: Sri A. Rajasekhar Reddy Asst. Solicitor General This Court made the following: THE HON'BLE MR. ANIL R. DAVE, THE CHIEF JUSTICE AND THE HON’BLE MR. JUSTICE C.V.NAGARJUNA REDDY WRIT PETITION No. 18114 of 2009 JUDGMENT:- (Per Sri C.V. Nagarjuna Reddy, J) The petitioner, a company registered under the Companies Act, 1956, filed this writ petition for a Mandamus to declare that sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002 (for short, “the Rules”) is not retrospective and for a consequential declaration that the demand of duty of Rs.1,63,24,762/- with interest by respondent No.1, as illegal and arbitrary. The facts, which are not in dispute, are as under: The petitioner manufactures polyester yarn (textured and non- textured). The polyester yarn is liable for excise duty under the Central Excise Tariff Act, 1944 (for short, “the Act”). The petitioner purported to pay excise duty for the months of January, 2005 and February, 2005 through certain outstation cheques. Those cheques were dishonoured. The amount, which fell due by 5th February, 2005, was eventually paid by the petitioner through account current. Nearly three years thereafter, respondent No.1 issued notice dated 01.05.2009 to the petitioner, wherein the latter was called upon to pay a sum of Rs.1,63,24,762/- and interest thereon for the period from 01.06.2006 to 14.06.2006, within ten days of receipt of the said letter. The petitioner vide its letter dated 06.05.2009, replied to the said demand by stating that during the period between 01.06.2006 and 14.06.2006, it discharged the duty liability from the Cenvat account in view of availability of adequate cenvat credit and that no reasons were mentioned in the letter of respondent No.1 for making the said payment. In response to the said letter, respondent No.1 addressed letter dated 14.05.2009, wherein it was inter alia mentioned that the duty liable from January, 2005 and in respect of which outstation cheques were issued by the petitioner and were bounced, was paid only on 15.06.2006 and that with effect from 01.06.2006, Rule 8 of the Rules was amended under which it is provided that if default in payment of duty continues beyond 30 days, the defaulter is not entitled to avail cenvat credit during the period of default. It was further stated that while the default continued beyond 30 days, the duty was paid only on 15.06.2006 and that therefore the consignment wise clearance ought to have been made from 01.06.2006 to 14.06.2006 in account current and not by availing cenvat credit. This stand taken by respondent No.1 was disputed by the petitioner through its letter dated 01.06.2009, wherein the petitioner maintained that the amended sub-rule (3A) of Rule 8, which came into force on 01.06.2006, is applicable only to the defaults of payment occurred on or after 01.06.2006 and not to those which occurred prior to the said date. The petitioner further stated that the penal action which was envisaged in sub-rules (3) and (3A), as it was in force at that time, was not taken by the respondents when the default was committed and that in the absence of any order of forfeiture passed by the respondents at that time, no action can be taken to deny utilization of cenvat credit almost 4 years thereafter. By his order dated 19.08.2009, respondent No.1 ordered for detention of excisable goods i.e., finished products, inputs, raw material etc., by invoking his powers under Section 11 of the Act. It is this order, which is assailed in this writ petition. A counter affidavit has been filed on behalf of the respondents by respondent No.2. Apart from referring to the fact of dishonour of the cheques issued by the petitioner for payment of duty for the months of January, 2005 and February, 2005, it has been specifically averred in the counter affidavit that the petitioner is not eligible to utilize the cenvat credit, as it continued to be a defaulter beyond 30 days and that as sub-rule (3A) of Rule 8 of the Rules came into force from 01.06.2006 by which date the default beyond 30 days period continued, the petitioner was not entitled to avail the cenvat credit from 01.06.2006 and till payment of the due amount was made. The respondents further pleaded that as the due amount was cleared only on 15.06.2006, the availment of cenvat credit between 01.06.2006 and 14.06.2006 was illegal, even though the petitioner may have adequate credit in its cenvat account. The respondents further pleaded that the petitioner, who was responsible for dishonour of the cheques, is not entitled to invoke the discretionary jurisdiction of this Court under Article 226 of the Constitution and that on the facts of the case, sub- rule (3A) of Rule 8 of the Rules, as amended with effect from 01.06.2006, is applicable. In reply to the petitioner’s averment that under Section 11(A)of the Act, the normal period of limitation for recovery of duty, which is not paid or not levied or erroneously refunded is one year and that it is only if the duty was not paid or not levied or erroneously refunded on account of willful mis-statement or suppression of facts or contravention of any of the provisions of the Act or the Rules that the period of five years limitation for recovery is available, it has been stated that Section 11(A) of the Act is not attracted when action for violation of sub-rule (3A) of Rule 8 is initiated and that it is only the provisions of Section 11, which are applicable to such situations. The respondents also joined issue on the petitioner’s contention that in view of denial of opportunity to the petitioner as envisaged in Section 11(A) of the Act it was entitled to bypass the statutory remedy in order to invoke the jurisdiction of this Court by stating that in the light of the stand taken by them that Section 11(A) is not attracted, the petitioner is bound to avail the alternative remedy of appeal before invoking the jurisdiction of this Court. In the reply affidavit filed on behalf of the petitioner, the stand taken in the main affidavit on all the above aspects has been reiterated. It was further stated that the respondents, having accepted the cenvat credit without demur, cannot turn round after a long time and make a demand for payment of duty. At the hearing, Sri S. Ravi, learned Senior Counsel for the petitioner, made the following submissions. 1) The very initiation of action for recovery of the duty not paid is barred by limitation, as the respondents failed to initiate such action within one year as prescribed under Section 11(A) of the Act. 2) Alternatively, the respondents failed to issue a show cause notice as envisaged in Section 11(A) of the Act before passing the order of attachment and consequently the impugned order is in flagrant violation of the said provision, and 3) While, ordinarily, the petitioner shall avail the alternative remedy of appeal, on the facts of the present case where the respondents failed to issue show cause notice and thereby violated the principles of natural justice, the petitioner was entitled to straight away invoke the jurisdiction of this Court under Article 226 of the Constitution of India. Per contra, the learned Assistant Solicitor General submitted that in the case of admitted default in payment of duty for which action under sub-rule (3A) of Rule 8 is initiated, it is only the provisions of Section 11 of the Act that are attracted and not the provisions of Section 11(A) and therefore neither the period of limitation of one year prescribed under Section 11(A) is attracted nor was there any duty cast on the respondents to issue show cause notice. In support of his contention, the learned counsel placed reliance on the judgment of the Supreme Court in Collector of Central Excise, Jaipur vs. Raghuvar (India) Limited[1] and a Division Bench of this Court in Fenoplast Limited vs. Assistant Commissioner of Central Excise, Hyderabad[2]. We shall first deal with the contention of the learned Senior Counsel that a show cause notice is mandatory before taking any action for recovery of the duty in dispute. In order to resolve this controversy, the provisions of Sections 11 and 11(A) and sub-rule (3A) of Rule 8 need to be considered. For better appreciation, they are reproduced hereunder: “Section 11. Recovery of sums due to Government – In respect of duty and any other sums of any kind payable to the Central Government under any of the provisions of this Act or of the rules made thereunder [including the amount required to be paid to the credit of the Central Government under Section 11D], the officer empowered by the [Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963)] to levy such duty or require the payment of such sums may deduct the amount so payable from any money owing to the person from whom such sums may be recoverable or due which may be in his hands or under his disposal or control, or may recover the amount by attachment and sale of excisable goods belonging to such person; and if the amount payable is not so recovered, he may prepare a certificate signed by him specifying the amount due from the person liable to pay the same and send it to the Collector of the district in which such person resides or conducts his business and the said Collector, on receipt of such certificate, shall proceed to recover from the said person the amount specified therein as if it were an arrear of land revenue. Provided that where the person (hereinafter referred to as predecessor) from whom the duty or any other sums of any kind, as specified in this section, is recoverable or due, transfers or otherwise disposes of his business or trade in whole or in part, or effects any change in the ownership thereof, in consequence of which he is succeeded in such business or trade by any other person, all excisable goods, materials, preparations, plants, machineries, vessels, utensils, implements and articles in the custody or possession of the person so succeeding may also be attached and sold by such officer empowered by the Central Board of Excise and Customs, after obtaining written approval from the Commissioner of Central Excise, for the purposes of recovering such duty or other sums recoverable or due from such predecessor at the time of such transfer or otherwise disposal or change. Section 11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded - (1) When any duty of excise has not been levied or paid or has been short-levied or short-paid or [erroneously refunded, whether or not such non-levy or non-payment, short- levy or short payment or erroneous refund, as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made thereunder], a Central Excise Officer may, within [one year] 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 willful mis- statement or suppression of facts, 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 (one year), the words “five years” were Substitute.” Sub-rule (3A) of Rule 8 – If the assessee defaults in payment of duty beyond thirty days from the due date, as prescribed in sub-rule (1), then notwithstanding anything contained in said sub-rule (1) and sub-rule (4) of Rule 3 of CENVAT Credit Rules, 2004, the assessee shall, pay excise duty for each consignment at the time of removal, without utilizing the CENVAT credit till the date the assessee pays the outstanding amount including interest thereon; and in the event of any failure, it shall be deemed that such goods have been cleared without payment of duty and the consequences and penalties as provided in these rules shall follow.” A plain reading of Sections 11 and 11(A) would reveal that the provisions of Section 11 are attracted where duty and any other sums are payable to the Central Government under any of the provisions of the Act or Rules made thereunder and the officer empowered in this behalf is entitled to recover such duty through one of the following modes, namely; (i) by deduction of the amount so payable from any money owed to the person from whom such sums may be recoverable or due which may be in his hands or under his disposal or control, (ii) by recovery of the amount by attachment and sale of excisable goods belonging to such person, and (iii) where such a recovery could not be made, by preparing a certificate specifying the due amount and sending the same to the District Collector concerned, who in turn, on receipt of the same, shall recover the amount specified therein, as if it were an arrear of land revenue. However, Section 11(A) is attracted where the duty was either not levied or not paid or short levied or short paid or erroneously refunded. The Supreme Court in Collector of Central Excise, Jaipur (1 supra) held that Section 11(A) is not an omnibus provision which provides any period of limitation for all or any and every kind of action to be taken under the Act or the Rules, but will be attracted only to cases where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded. While dealing with a case where action was initiated for recovery of duty in respect of which the assessee availed MODVAT credit, the Supreme Court held that Section 11(A) being a general provision, the same is not attracted in a case where action is initiated for recovery of the duty under a special scheme such as MODVAT scheme. The Apex Court observed that while Section 11(A) was general in nature, the MODVAT scheme being a specific and special beneficial scheme, with self- contained procedure, they fall in two distinct and different categories altogether and that unless the scheme provided for a notice before recovering the disputed duty, the provisions of Section 11(A) cannot be pressed into service. While strongly banking on the above ruling of the Supreme Court, the learned Assistant Solicitor General placed reliance on sub- rule (4) of Rule 8 in asserting that for recovery of the duty, the respondents are entitled to invoke Section 11 and not Section 11(A). On a careful reading of the said judgment of the Supreme Court, we are satisfied that the ratio laid down therein applies in favour of the petitioner instead of supporting the case of the respondents. The reason for this conclusion of ours is that as in the case of MODVAT scheme considered by the Apex Court in the aforementioned judgment, the Cenvat scheme, which is applicable to the present case, is covered by a separate set of statutory provisions called Cenvat Credit Rules, 2004 (for short, “the 2004 Rules”). Rule 14 of the said Rules reads as under: “Recovery of CENVAT credit wrongly taken or erroneously refunded – Where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of Sections 11-A and 11-AB of the Excise Act or Sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.” The admitted facts of this case show that the dispute pertains to the entitlement of the petitioner to avail Cenvat credit during the period when duty was due and payable by it. It is not a case where the respondents are seeking to recover the duty, payment of which was defaulted by the petitioner. But, this is a case where the respondents alleged that by operation of sub-rule (3A) of Rule 8, which was amended with effect from 01.06.2006, the petitioner was not entitled to avail Cenvat credit during the period of default. Thus, in substance, the dispute relates to the petitioner’s eligibility to avail Cenvat credit during the period of default, namely, between 01.06.2006 and 14.06.2006. This dispute is thus clearly comprehended by Rule 14 of the Cenvat Credit Rules, 2004, which is reproduced hereinabove. Since the dispute between the parties is governed by the special rules, which specifically applied Section 11(A) for effecting recoveries, the said provision is squarely attracted and consequently it is incumbent upon the respondents to issue a show cause notice to the petitioner calling upon it to pay the duty in respect of which Cenvat credit was availed. If and when such a notice is issued, the petitioner shall be free to raise such objections as are permissible to it under law including the one relating to the period of limitation. Admittedly, the respondents failed to follow the procedure prescribed under Section 11(A) and therefore the impugned action, whereby the goods manufactured by the petitioner are attached, cannot be sustained in law. With respect to the judgment of the Division Bench of this Court in Fenoplast Limited (2 supra) on which reliance has been placed by the respondents, we have carefully gone through the same. In that case, admittedly, there was default in payment of the duty for which the department has forfeited the facility for the company to pay the duty in instalments and also by availing Cenvat credit. The learned Division Bench of this Court upheld the said action of the department and also rejected the plea of violation of the principles of natural justice on the ground that there was no dispute regarding the factum of default. That was not a case where the company has already availed Cenvat credit and the department has initiated action for recovery of duty despite such availment. Therefore, the said judgment has no application to the facts of the present case. As regards the contention of the learned counsel for the respondents relating to alternative remedy, since the respondents failed to follow the mandatory procedure prescribed under the statutory provision under which the petitioner is entitled to be given an opportunity of being heard by way of a show cause notice, the petitioner is entitled to invoke this Court’s jurisdiction under Article 226 of the Constitution of India without first availing the remedy of appeal. (see Whirlpool Corporation vs. Registrar of Trade Marks ((1998) 8 SCC 1) and Harbanslal Sahnia vs. Indian Oil Corporation Limited (2003 (2) SCC 107) For the abovementioned reasons, the writ petition is allowed and the impugned order is quashed. Liberty is given to the respondents to initiate fresh action by following the procedure prescribed in Rule 14 of the 2004 Rules. ANIL R. DAVE, CJ C.V. NAGARJUNA REDDY, J Date: 25.11.2009 ES L.R. Copies to be marked. [1] (2000) 5 SCC 299 [2] 2008 (225) ELT 41 (A.P)