IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL CIVIL CIVIL APPELLATE APPELLATE APPELLATE JURISDICTION JURISDICTION JURISDICTION WRIT WRIT WRIT PETITION NO. 5412 OF 1999 PETITION NO. 5412 OF 1999 PETITION NO. 5412 OF 1999 Sharda Synthetics Bombay P.Ltd., Dombivli, Thane. ... Petitioner. V/s. 1. Union of India; 2. The Commissioner of Central Excise, Mumbai-III. 3. The Asstt. Commisioner (Kvss) Central Excise, Mumbai. ... Respondents. Mr.Shridharan with Prakash Shah i/b. M/s.Desai, Doijode and Phatarphekar for the petitioner. Mrs.S.V.Bharucha for the respondents. CORAM CORAM CORAM : V.C.DAGA AND J.P.DEVADHAR, JJ. : V.C.DAGA AND J.P.DEVADHAR, JJ. : V.C.DAGA AND J.P.DEVADHAR, JJ. RESERVED RESERVED RESERVED ON : 6th May 2005 ON : 6th May 2005 ON : 6th May 2005 PRONOUNCED PRONOUNCED PRONOUNCED ON : 29th June 2005. ON : 29th June 2005. ON : 29th June 2005. JUDGMENT JUDGMENT JUDGMENT : : : (Per V.C.Daga, J.) -------- -------- -------- . The petitioner - company is a manufacturer of Processed Fabrics at its factory at MIDC, Dombivli (East) in the district of Thane which is processed on job work basis for and on behalf of the Merchant Manufactures. Petitioner in due course of its business receives grey fabrics from the Merchant Manufacturers for the purpose of processing. The processed fabrics is liable to additional duty of excise under the Additional Duties of Excise (Goods - 2 - of Special Importance) Act, 1957 ("said Act" for short). The petitioner while pressing grey fabrics was following procedure prescribed under Notification No.305 of 1977. 2. Petitioner had filed writ petition being Writ Petition No.2447 of 1990 in the Delhi High Court, inter alia, to restrain the Excise Department from recovering and/or levying additional duty of excise under the said Act, inter alia; on the ground that the said levy was ultra vires Article 366(29A) read with Articles 246 and 274 of the Constitution of India and sought to quash notifications dated 25th November, 1987; 9th December, 1987 and 20th March, 1990 issued by respondent No.1 under the Central Excise Act, 1944 ("Excise Act" for short) 3. The Delhi High Court while admitting the above writ petition was pleased to grant interim relief whereby the petitioner was permitted to clear processed fabrics on payment of 50% of the disputed duty and restrained the respondents from recovering the balance of the disputed duty on petitioner’s furnishing bank guarantee of the balance amount. - 3 - 4. The petitioner, accordingly, paid 50% of the of disputed duty and had furnished bank guarantees for the balance amount of disputed duty amounting to Rs.35,44,614.55 in terms of the interim order of the Delhi High Court. 5. The petitioner went on regularly submitting monthly returns in RT-12 pending the above writ petition. The Excise Authorities did not assess said monthly returns. However, the petitioner claimed that duty was paid under mistake on the Merchant Manufacturers sale price though it was required to pay on the basis of formula laid down by the Supreme Court in the case of Ujagar Prints v. Ujagar Prints v. Ujagar Prints v. Union Union Union of India, of India, of India, 39 ELT 535. 6. Ultimately, Delhi High Court was pleased to dismiss the above petition on 9th July, 1991 upholding the constitutional validity of the said Act and permitted the Excise Authorities to encash the bank guarantees furnished by the petitioner by way of security. The Delhi High Court while disposing of the petition ruled that the petitioner shall be liable to pay interest at the the rate of 17.5% p.a.on the balance amount; which was secured - 4 - by way of furnishing bank guarantees. Thus, the interest liability came to be crystalised against the petitioner in terms of this order. 7. The Excise Authorities, after disposal of the above writ petition by the Delhi High Court, assessed the monthly returns filed by the petitioner for the period August, 1990 to July, 1991 and, cumulatively, for the said period nationally demanded duty of Rs.35,44,614.55 from the petitioner. 8. The petitioner did not remit the aforesaid amount demanded on the basis of assessment of RT-12 returns since it was secured by bank guarantees. Consequently, the then Assistant Collector of Central Excise, Kalyan-II Division invoked the bank guarantees and called upon the Syndicate Bank, Dombivli to remit the proceeds of the bank guarantees furnished by the petitioner. 9. The petitioner in order to prevent encashment of the bank guarantees filed suit in the Court of learned Civil Judge, Senior Division, Thane being Regular Civil Suit No.649 of 1991. The Second Joint Civil Judge, Senior Division Thane vide its - 5 - order dated 23rd October, 1991 refused to grant interim injunction as prayed by the petitioner. 10. The petitioner herein (plaintiff in the suit) filed appeal in the District Court, Thane against the aforesaid order dated 23rd October, 1991. The Sixth Additional District Judge, Thane vide his order dated 30th April, 1991 was pleased to restrain the respondents from encashing bank guarantees till excise duty is assessed and revised as per the clarification given by the Supreme Court in the case of Ujagar Prints Ujagar Prints Ujagar Prints (supra). 11. Being aggrieved by the above order, the Revenue- respondents filed writ petition before this Court being Writ Petition No.4072 of 1992 to challenge the legality and validity of the aforesaid order passed by the learned Additional District Judge, Thane dated 30th April, 1991. This Court was pleased to issue rule in the said writ petition. 12. During pendency of the petition Government introduced a Kar Vivad Samadhan Scheme, 1998 (KVS Scheme for short) in the Finance (No.2) Bill, 1998 to invite the tax-payers to settle their tax arrears by availing substantial discount in payment of taxes - 6 - and also to seek immunity from prosecution. Pursuant to this scheme, the tax payers could file declaration for settling the tax arrears between 1st September, 1998 to 31st January, 1999. 13. The petitioner on 24th November 1998 opted to take advantage of the said scheme by filing declaration in terms of the said scheme. The declaration filed by the petitioner was acknowledged by the office of the Commissioner of Central Excise on 26th December, 1998. However, on 24th February, 1999, the Assistant Commissioner (KVSS) Central Excise, Mumbai-II rejected the declaration filed by the petitioner on the ground that show cause notice as required under the said scheme was never issued to the petitioner. 14. Being aggrieved by the above order rejecting declaration made under KVS Scheme, petitioner has invoked writ jurisdiction of this Court under Article 226 of the Constitution of India. Submissions Submissions Submissions : : : ----------- ----------- ----------- 15. Mr.Shridharan, learned counsel appearing with Mr.Prakash Shah for the petitioner submitted that the declaration filed by the petitioner under - 7 - KVS Scheme was erroneously rejected by respondent No.3 holding that neither any show cause notice was issued nor any demand notice was served on the petitioner. In the submission of Mr.Shridharan, factually, there was a notice of demand pending against the petitioner pursuant to section 173-I of the Central Excise Rules, 1944 ("Excise Rules" for short), which, accordingly to him, did amount to a notice of demand as contemplated under KVS Scheme. 16. Mr.Shridharan while elaborating his submissions submitted that, in each of the monthly returns filed by the petitioner; endorsements/ remarks in the following manner duly authenticated by the concerned Excise Official were made. Specimen of one such endorsement is reproduced hereinbelow for immediate reference: "Total duty comes to Rs.33,608/- while you have paid duty of Rs.18,804/-. Please pay the differential duty and intimate this office accordingly as per Delhi High Court decision." 17. Mr.Shridharan, reading the aforesaid endorsement, submits that there was assessment quantifying the differential additional duty which itself constituted a notice of demand for the following reasons: - 8 - (a) that the assessment order had precisely and exactly quantified amount of differential duty as a specific sum of money in rupees; (b) that the said assessment order had unconditionally called upon the petitioner to pay the differential duty; (c) that the demand made was to pay an ascertained and specific sum of money. (d) that in the event of failure on the part of the petitioners to pay the differential duty, recovery action under section 11 of the Central Excise Act, 1944 could straightway lie against the petitioner. 18. In the submission of Mr.Shridharan, the monthly returns of the petitioner were not assessed during the pendency of the petition filed before the Delhi High Court. Assessments were made after dismissal of the writ petition though the goods were provisionally cleared during pendency of the petition. According to him, it was obligatory on the part of the Excise Department to pass assessment orders in accordance with the final judgment of the - 9 - Delhi High Court in Writ Petition No.2447/1990, following the principles laid down by the Apex Court in the case of Ujagar Prints Ujagar Prints Ujagar Prints (supra). 19. In the submission of Mr.Shridharan, assuming without admitting that the amounts of differential duties mentioned in RT-12 returns filed by the petitioner though were confirmed with the dismissal of the petition filed in the Delhi High Court; even then it cannot be suggested that in the present case no notice of demand was issued. It is, thus, submitted that provision of section 95(ii)(b) of the Finance (No.2) Act, 1998 was wrongly applied in the case of the petitioner. 20. Without prejudice to the aforesaid contention, learned counsel for the petitioner further submitted that having satisfied the condition of sub-clause (ii) of clause (m) of section 87 of the Finance Act, 1998 in as much as with the determination of the amount of the additional duty due under the Act on 31st March, 1998, a liability to pay unpaid duty was standing against the petitioner, which was the subject matter of unsatisfied demand notice pending against the petitioner on the date of making the declaration. - 10 - It is, thus, submitted that both the sub-clauses of clause (m) of section 87 were independently satisfied; though only one of them was enough to avail the benefit of the said scheme. In the submission of the petitioner, the impugned rejection of the declaration filed by the petitioner under KVS Scheme is clearly erroneous and untenable in law. According to Mr.Shridharan, the petitioner had fulfilled all the conditions for being eligible to avail the benefits of KVS Scheme. Thus, according to him, the erroneous order of the designated authority denying benefits of the KVS Scheme has caused substantial loss to the petitioner. 21. Mr.Shridharan, learned counsel for the petitioner, in order to reinforce; emphasis and reiterate his submission, pressed into service rule 173-I of the Excise Rules, which reads thus: "Rule Rule Rule 173I. Assessment by proper officer.- 173I. Assessment by proper officer.- 173I. Assessment by proper officer.- (1) The proper officer shall on the basis of the information contained in the return filed by the assessee under sub-rule (3) of rule 173G and after such further inquiry as he may consider necessary, assess the duty due on the goods removed and complete the assessment memorandum on the return. A copy of the return so completed shall be sent to the assessee. (2) The duty determined and paid by the assessee under rule 173F shall be adjusted against the duty assessed by the proper officer under sub- rule (1) and where the - 11 - duty so assessed is more than the duty determined and paid by the assessee, the assessee shall pay the deficiency by making a debit in the account-current within ten days of receipt of copy of the return from the proper officer and where such duty is less, the assessee shall take credit in the account-current for the excess on receipt of the assessment order in the copy of the return duly countersigned by a Superintendent of Central Excise." On the text of the aforesaid rule, he submits that it was wrong on the part of respondent No.3 to assume that the show cause notice or notice of demand must be under section 11-A of the Excise Act. According to him, once the assessment made under rule 173-I had become final, then there was no need to issue notice under section 11-A of the Excise Act. In support of his submission he relied upon the judgment of this Court in the case of M/s.Swan M/s.Swan M/s.Swan Mills Mills Mills Limited v. Union of India Limited v. Union of India Limited v. Union of India, 1989 (44) ELT 601 (Bom); wherein it was held as under: "If we are right in the view that we have taken above, it is clear that once the assessment orders made under Rule 173 I have become final, there was no need to issue notices under section 11A. If the authorities, have inspite of this issued notices also under section 11A for the recovery of the amount due under the said assessment orders, they have indulged in an exercise not warranted by law." Mr.Shridharan also relied upon the judgment of the Karnataka High Court in the case of M/s.Chairman M/s.Chairman M/s.Chairman - 12 - CBEC CBEC CBEC and Ors v. Davangere Cotton Mills and Ors v. Davangere Cotton Mills and Ors v. Davangere Cotton Mills, 1996 (63) ECR 244 (Kar); wherein it was held as under: " As this court by an interim order restrained the department from levy and collection of excise duty in respect of yarn manufactured by the mills, it was not possible for the officer to the complete the assessment order. The learned single judge, was in error in observing that the department could not have completed assessment in accordance with the provisions of Rule 173 I of the rules after interim order passed by this court came to an end without giving prior notice to show cause before completing the assessment under rule 173I of the Rules. The department has followed the procedure prescribed under Rule 173I and called upon the mills to pay the duty within a period of 10 days. The exercise carried out by the department did not demand prior notice to the assessee. ..... ..... ..... 10. ..... ..... ..... The assumption of the learned single judge that the adjudication or ascertainment of duty by the department was not permissible without prior service of notice under sub-section 1 of section 11A is entirely incorrect. The further assumption that the stay order issued by the court in an earlier litigation does not dispense with the notice is also inaccurate in as much as there was no occasion to serve any notice under Rule 173 I of the Rules" Relying on the aforesaid judgments, Mr.Shridharan submitted that in all the above cases there were interim orders passed by the High Court and the assessments were thereafter made under rule 173-I. Thus, in even cases which go to the High Court, - 13 - ultimately, assessment has to be done under rule 173-I of the Excise Rules by the proper officer. 22. Mr.Shridharan also pressed into service judgment in the case of M/s.Serai Kella Glass Works M/s.Serai Kella Glass Works M/s.Serai Kella Glass Works Pvt.Ltd. Pvt.Ltd. Pvt.Ltd. v. CCE, Patna v. CCE, Patna v. CCE, Patna, 1997 (91) ELT 497 (SC); wherein the Apex Court observed as under: "If the duty paid by the proper officer on final assessment is more than the duty determined and paid by the assessee, the assessee has to pay the deficiency by making a debit in the account-current within ten days of the receipt of the copy of the return from the proper officer. If the duty on final assessment payable by the assessee is less than what he has actually paid, the assessee is entitled to take credit in the account current for the excess payment. No question of any show cause notice under section 11A arises in such as case." Mr.Shridharan thus submits that once an assessment order passed under rule 173-I of the Excise Rules becomes final, there is no need to issue notice under section 11-A of the Excise Act and that order itself constitutes a notice of demand. According to him, in the present case there was indeed a notice of demand raised under rule 173-I of the Excise Rules. He, thus, submits that the impugned order rejecting the declaration made by the petitioner is liable to be quashed and set aside. - 14 - Per Per Per Contra: Contra: Contra: ---------- 23. Mrs.S.V.Bharucha, learned counsel appearing for the respondents-Revenue submits that the endorsement made on RT-12 returns at the time of assessment cannot be considered as notice of demand. In her submission, section 95(ii)(b) of KVS Scheme contemplates that the provisions of KVS Scheme does not apply to the tax arrears under any indirect tax enactment in a case where show cause notice or notice of demand under any indirect tax enactment has not been issued. She submits that in the case on hand no such show cause notice or notice of demand was ever issued or served under section 11-A of the Excise Act. She relied upon the judgment of the Apex Court in the case of M/s.Metal Forgings v. M/s.Metal Forgings v. M/s.Metal Forgings v. Union Union Union of India of India of India, 2002 (144) ELT 241 (SC); wherein the requirement of show cause notice was held to be mandatory for raising any demand. 24. Mrs.Bharucha further submits that the petitioner itself had filed RT-12 returns. The duty liability was quantified by the petitioner itself in terms of interim order dated 18th September, 1990 passed by the Delhi High Court in Writ Petition No.2447 of 1990. Based on such self assessment, 50% duty was paid by the petitioner and balance 50% duty - 15 - liability was secured by way of bank guarantees. The endorsements were made on the RT-12 returns in view of the final order of the Delhi High Court dated 9th July, 1991 whereby the above-noted writ petition was dismissed and recovery of balance amount with interest thereon was directed. Thus, according to her, the RT-12 assessment memorandum was nothing but an act of self assessment. The assessable value was computed by the respondents on the basis of the prices declared by the petitioner itself. In her submission, the endorsement made on RT-12 returns was nothing but a communication to the petitioner showing compliance of the order of the Delhi High Court so as to make it a foundation for invoking bank guarantees furnished by the petitioner. In her submission, writ petition having been decided finally by the Delhi High Court and that order having become final, there was no occasion for raising any additional demand against the petitioner. By making endorsement neither the dispute was settled nor any assessment was made. To put it simply, what was done by the said endorsement was nothing but an intimation of implementation of the final order passed by the Delhi High Court was given so as to report compliance of the writ issued by the Delhi High Court. - 16 - 25. Mrs.Bharucha further submits that the assessable values having been computed by the respondents on the basis of the prices declared by the petitioner there was no dispute pending between the parties. The petitioner could not have made any grudge or complaint against the said assessment order as the same was passed on the basis of particulars furnished and declared by the petitioner itself. The petitioner by no means could be treated to be a person aggrieved by the said assessment order made on RT-12 returns. In nutshell, she submits that there was no dispute pending between the parties warranting any resolution thereof under KVS Scheme. 26. Mrs. Bharucha further submits that the order passed by the Delhi High Court dismissing the petition and directing payment of balance 50% amount secured by way of bank guarantees with interest thereon has been confirmed by the Supreme Court since the S.L.P. filed against the said order came to be dismissed. According to her, as stated above, no dispute warranting resolution under KVS Scheme was pending. - 17 - 27. Mrs.Bharucha further submits that as a matter of fact, the petitioner has recovered or collected the differential amount of duty amounting to Rs.35,44,614.55 from its customers. In her submission, the object of KVS Scheme is not to enrich the assessee but to see that he is relieved of his duty liability, may be partially. At the same time, another object is to bring an end to the long pending revenue disputes or litigations. 28. Mrs.Bharucha, alternatively, submits that assuming RT-12 assessments were made, but none of those assessments were challenged by the petitioner contending that they were contrary to law laid down by the Apex Court in the case of Ujagar Prints Ujagar Prints Ujagar Prints (supra). Consequently, in her submission, those orders of assessment; though made subsequent to the filing of the suit; would operate as res-judicata between the parties since the orders passed thereon were made prior to the decision of the suit in view of Explanation-I to section 11 of the Code of Civil Procedure, 1908. 29. Mrs.Bharucha, on the above canvas, submits that the recovery which was secured by way of bank guarantees against the petitioner was a demand - 18 - judicially adjudicated as valid demand; as such there was no dispute in respect of the said demand between the parties. Such undisputed demand was not covered by the provisions of KVS Scheme. She, thus, submits that the provisions of KVS Scheme did not and do not apply to the cases where no appeal or reference or writ petition is admitted and pending before any appellate authority or High Court or Supreme Court on the date of filing of declaration or application for revision under KVS Scheme. The petitioner, as such was not entitled to claim benefit of the KVS Scheme. 30. Mrs.Bharucha further submitted that the Regular Civil Suit No.96 of 1989 filed by the petitioner against the respondents came to be withdrawn by the petitioner. According to her, the subsequent suit filed by the petitioner in the Court of Civil Judge, Senior Division, Thane being Regular Civil Suit No.649 of 1991 to prevent encashment of bank guarantees, was based on separate, distinct and independent contract and it had nothing to do with the excise liability. The entire attempt behind filing of the suit was to frustrate and flout the order of the Delhi High Court whereby encashment of bank guarantees furnished by the petitioner pursuant - 19 - to the order dated 18th September, 1990 was directed, which had not only attained finality vide order dated 9th July, 1991, but was subsequently, confirmed by the Apex Court by dismissing the S.L.P. filed against it. As such, according to her, filing of suit and/or writ petition arising therefrom and/or pendency thereof cannot come to the rescue of the petition to contend that any dispute in respect of tax arrears was pending between the parties. According to her, dispute contemplated in the scheme must be a dispute arising under the provisions of the indirect tax legislation. Pendency of civil suit or any other proceeding arising therefrom, may be in the form of civil appeal or civil revision or writ petition, is not contemplated under the KVS Scheme. 31. Mrs.Bharucha further submits that so far as KVS Scheme is concerned, it does not apply to a case pending in the suit in any Court since the pendency of the suit stands specifically excluded from the purview of the scheme. In nutshell, Mrs.Bharucha submits that on the date of filing of declaration by the petitioner neither any demand or show cause notice was issued to petitioner nor any appeal or reference or writ petition duly admitted was pending - 20 - before any appellate authority or the High Court or the Supreme Court.