Case: Dharampal Satyapal Ltd Vs. Deputy Commissioner of Central Excise and Ors

2) Union of India, vide Memorandum dated December 24, 1997, unveiled a new industrial policy for the North-Eastern region. In the said policy, in order to give stimulation to the development of industrial infrastructure in the North-Eastern region, the said region was made tax free zone for a period of ten years giving incentives to those who wanted to establish industries in that region. Pursuant thereto, the Notification dated July 08, 1999 was issued granting new industrial units that had commercial production on or after December 24, 1997 and certain types of industrial units that increased their installed capacity after that date, exemption on goods cleared from units located in growth centres and integrated infrastructure centres.3) The aforesaid Notification was issued under the provision of Central Excise Act, 1944 as well as Additional Duties of Excise (Goods of Special Importance) Act, 1957 and Additional Duties of Excise (Textiles and Textile Articles) Act, 1978. However, on December 31, 1999, another Notification was issued whereby exemption of central excise was withdrawn in respect of goods falling under Chapter 21.06 (pan masala) and Chapter 24 (tobacco and tobacco substitutes, including cigarettes, chewing tobacco etc.).4) This withdrawal Notification was challenged by the appellant by filing the writ petition in the High Court of Gauhati. The learned Single Judge dismissed the writ petition. However, appeal preferred by the appellant was allowed by the Division Bench vide judgment dated December 03, 2012. In nutshell, the High Court held that the principal of Promissory Estoppel shall apply and once a promise was given by the Union of India assuring that no such duty would be charged for a period of ten years, it was not open for the Union of India to withdraw the same. Challenging that judgment, Union of India filed petitions for special leave. Leave was granted and the petitions were registered as Civil Appeal Nos. 8841-8844 of 2003.5) After the filing of the aforesaid appeals, certain subsequent events took place. It so happened that vide Section 154 of the Finance Act, 2003 (hereinafter referred to as the Act of 2003), withdrawal of the benefit was effected from retrospective effect. Effect thereof was to withdraw the benefit given under the Notification issued earlier. Validity of Section 154 was questioned and the issue was considered by this Court in R.C. Tobacco Private Ltd. & Anr. v. Union of India & Anr. ((2005) 7 SCC 725 ) This Court upheld the constitutional validity of the aforesaid provision and repelled the challenge so laid. The effect was to disentitle the appellant and other similarly situated from getting any such benefit by virtue of Section 154 of the Act of 2003 and knocking down the basis of the judgment of the High Court, which lost its validity on the aforesaid ground.6) So far so good. The grievance of the appellant and other similarly situated industries for not extending the benefit of Notification dated July 08, 1999 is buried down. However, after notifying Section 154 of the Act of 2003, which had nullified the effect of Notification No. 32 of 1999 retrospectively thereby annulling the effect thereof altogether, respondent No.1 herein passed recovery order dated June 03, 2003 for recovery of a sum of ?2,93,43,244 (rupees two crores ninety three lakhs forty three thousand two hundred and forty four only) from the appellant, which was the benefit that had been drawn by the appellant for the period November 1999 till February 2001 in terms of the Notification No.32 of 1999. By another order dated June 06, 2003 issued by respondent No.1, the appellant was directed to pay the excise duty for the said period for which the benefit had been availed. He also rejected the pending claim of refund for the period from March 2001 till May 31, 2003. These recovery orders were challenged by the appellant by filing appeal before the Commissioner (Appeals). Along with the appeal, the appellant also filed an application for interim order seeking stay against the pre-deposit. On this application, orders dated March 31, 2004 were passed by the Commissioner (Appeals) directing the appellant to deposit entire duty amount within a period of thirty days. This order of pre-deposit was challenged by the appellant by filing four writ petitions in the High Court of Gauhati. The learned Single Judge of the High Court, however, dismissed these writ petitions vide orders dated May 18, 2004. The appellant carried this issue of pre-deposit to a higher forum in the form of writ appeals before the Division Bench of the said Court. Interim orders dated June 11, 2004 were passed in the writ appeals directing the Commissioner (Appeals) not to dismiss the appeals preferred by the appellant before him for non-deposit of the duty amount. In other words, interim stay against the pre-deposit was given. The Commissioner (Appeals) heard the appeals and passed the orders dated June 15, 2005 deciding the appeals in favour of the appellant. He held that issuance of show-cause notice was mandatory before a valid recovery of demand could be made from the appellant and, thus, remitted the matter to the adjudicating authority. After this final order was passed by the Commissioner (Appeals), writ appeals of the appellant before the Division Bench were disposed of as infructuous in view of the fact that the Commissioner (Appeals) had passed an order on merits and, therefore, no cause survived which required further adjudication in those appeals.7) Insofar as the order of the Commissioner (Appeals) is concerned, both the appellant as well as the Revenue felt aggrieved thereby. The appellant was not satisfied with the order of remand and the nature of relief granted even after accepting that issuance of show-cause notice was mandatory before passing a valid recovery of demand. The respondents were aggrieved of the order passed on merit holding that show-cause notice was mandatory. Therefore, both the appellant as well as the Revenue filed appeals aggrieved against the order dated June 15, 2005 passed by the Commissioner (Appeals). The Customs Excise & Service Tax Appellate Tribunal (for short CESTAT) decided these appeals vide common order dated My 28, 2007. It reversed the orders of the Commissioner (Appeals), which resulted in allowing the appeal filed by the Revenue and dismissing the appeal preferred by the appellant. A perusal of the judgment of the CESTAT would reveal that it has primarily referred to the judgment of this Court in R.C. Tobacco and held that the matter stood concluded by the said judgment. The appellant challenged the order of CESTAT by filing Central Excise Tax Reference No. 1 of 2008 before the High Court of Gauhati. This Reference was dismissed by the High Court on December 01, 2011 on the ground of res judicata holding that orders dated May 18, 2004 passed by the Single Judge dismissing the writ petitions of the appellant had attained finality. The appellant preferred Review Petition seeking review of the said order, which has also been dismissed by the High Court on June 05, 2012. In the present appeals, the appellant has challenged both the orders dated December 01, 2011 passed in the Tax Reference as well as the order dated June 05, 2012 passed in the Review Petition.

Reasoning:
Apart from the contention that nonotice was given before passing those orders, it was even argued that by making the retrospective amendment in the form of Section 154 of the Act of 2003, the only effect was to validate the earlier actions but no demand of refund of any amount could be made and no refund of the amount already paid could be claimed. It was also argued that the matter of recovery of amounts was pending consideration of Central Board of Excise and Customs (CBEC) as well as in the Gauhati High Court. All these issues were considered by the Commissioner (Appeals), who gave his prima facie view thereupon observing that the appellants did not have strong prima facie case on merits resulting into the direction to deposit the entire amount within thirty days.12) The appellant had filed writ petitions against the aforesaid order of the Commissioner (Appeals) with the prayer that the direction of the Commissioner (Appeals) to deposit the entire amount within thirty days be set aside and the prayer ofof the appellant be accepted. No doubt, while arguing for this relief, the appellant had raised various contentions on the merits of the case in its endeavour to demonstrate that it had a good case on merits. It is also borne from the record that the learned Single Judge, while dismissing the writ petition, dealt with these issues, which touched upon the merits of the main issue. That is the reason that the order dated May 18, 2004 of the learned Single Judge dismissing the writ petition of the appellant runs into 37 pages. Nevertheless, we find that the observations which were made by the learned Single Judge on the issues raised were only prima facie in nature and the prime focus of the judgment rested on the core issue, namely, whether the direction of the Commissioner (Appeals) directing the appellant to make deposit of the amount as afor hearing of the appeal was sustainable or not. The writ petition was dismissed affirming the said order. Therefore, any observations made by the learned Single Judge, which were tentative in nature, could not be taken into consideration by the Division Bench in the impugned judgment, thereby dismissing the Reference, invoking the principle of res judicata. The order of the learned Single Judge dismissing the writ petition was challenged before the Division Bench and the Division Bench passed interim orders in the writ appeals not to dismiss the appeals preferred by the appellant forof the duty. In this backdrop, appeals were heard and appellant even partly succeeded. After the order of the Commissioner (Appeals) dated June 15, 2005 deciding the appeals partly in favour of the appellant, the writ appeals which were pending before the Division Bench had become infructuous and disposed of as such without going into the merit of the order passed by the learned Single Judge. This is yet another reason to hold that the order of the learned Single Judge could not be treated as res judicata.13) Having regard to the aforesaid position, we heard the instant appeal on merits, namely, on the issue as to whether it was mandatory to issuenotice making an order of recovery. The Commissioner (Appeals) has held it to be mandatory and this order of the Commissioner (Appeals) has been set aside by the CESTAT. The Reference petition against the order of CESTAT, though wrongly is dismissed on the ground of res judicata, the impugned order shows that it has mentioned that suchnotice was not mandatory as held by the learned Single Judge by order dated May 18,As a pure principle of law, we find substance and force in the aforesaid submission of Mr. Sorabjee. No doubt, the Department was seeking to recover the amount paid by virtue of Section 154 of the Act of 2003 which was enacted retrospectively and the constitutional validity of the said Section had already been upheld by this Court in R.C. Tobacco (supra) at the time of issuance of notice for recovery. Further, no doubt, the effect of the said amendment retrospectively was to take away the benefit which was granted earlier.27) From the aforesaid discussion, it becomes clear that the opportunity to provide hearing before making any decision was considered to be a basic requirement in the Court proceeding. Later on, this principle was applied to otherauthorities and other tribunals and ultimately it is now clearly laid down that even in the administrative actions, where the decision of the authority may result in civil consequences, a hearing before taking a decision is necessary. It was, thus, observed in A.K. Kraipaks case (supra) that if the purpose of rules of natural justice is to prevent miscarriage of justice, one fails to see how these rules should not be made available to administrativeTherefore, we are inclined to hold that there was a requirement of issuance ofnotice by the Deputy Commissioner before passing the order of recovery, irrespective of the fact whether Section 11A of the Act is attracted in the instant case or not.30) But that is not the end of the matter. While the law on the principle of audi alteram partem has progressed in the manner mentioned above, at the same time, the Courts have also repeatedly remarked that the principles of natural justice are very flexible principles. They cannot be applied in anyformula. It all depends upon the kind of functions performed and to the extent to which a person is likely to be affected.31) We are not concerned with these aspects in the present case as the issue relates to giving of notice before taking action. While emphasizing that the principles of natural justice cannot be applied informula, the aforesaid instances are given. We have highlighted the jurisprudential basis of adhering to the principles of natural justice which are grounded on the doctrine of procedural fairness, accuracy of outcome leading to general social goals, etc.if it is found by the Court that there is a violation of principles of natural justice, the Courts have held that it may not be necessary to strike down the action and refer the matter back to the authorities to take fresh decision after complying with the procedural requirement in those cases whereof hearing has not caused any prejudice to the person against whom the action is taken. Therefore, every violation of a facet of natural justice may not lead to the conclusion that order passed is always null and void. The validity of the order has to be decided on the touchstone of prejudice. The ultimate test is always the same, viz., the test of prejudice or the test of fairTherefore, on the facts of this case, we are of the opinion thatof notice before sending communication dated June 23, 2003 has not resulted in any prejudice to the appellant and it may not be feasible to direct the respondents to take fresh action after issuing notice as that would be a mereWith this we advert to the last submission of Mr. Sorabjee that the judgment in R.C. Tobacco (supra) (which is a two Judge Bench decision) is in conflict with the three Judge Bench judgment in J.K. Cotton (supra). This argument is not even open to the appellant for the simple reason that the judgment in J.K. Cotton (supra) was specifically taken note of and discussed in R.C. Tobacco (supra). Paragraph 13 of the judgment in R.C. Tobacco (supra) would reflect that the appellant therein had specifically relied upon the judgment in J.K. Cotton (supra) in support of the submission that retrospectivity was harsh and excessive since there is, in fact, a retrospective imposition of excise duty. It was also argued that justification of such retrospective imposition of tax must be overwhelming and no such overriding consideration had been disclosed. The submission went to the extent of pleading that if the appellant is called upon to pay the excise duty now it will cripple its unit. More pertinent was another submission, which is relevant for our purpose, that the demand which was raised could not be sustained as it was made without issuing anynotice and was in contravention of Section 11A of the Act. In support of this view, few judgments, including J.K. Cotton (supra), were relied upon.In the aforesaid scenario, when the Court was conscious of the principle laid down in J.K. Cotton (supra) and explained the same in a particular manner while deciding the appeal in R.C. Tobacco (supra), it cannot be argued that the judgment in R.C. Tobacco (supra) runs contrary to J.K. Cotton (supra).