Case: Madhu Milan Syntex Pvt. Limited and another Vs. Union of India and others

2. The facts necessary for the disposal of this appeal can be shortlyPetitioner 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 July 7, 1983, the petitioners filed a classification list in respect of the spun yarn manufactured by them showing the same as covered by item No. 18(III)(i) in the First Scheduled to the Central Excises and Salt Act, 1944 (referred to hereinafter as the "Central Excises 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 July, 1983. A supplementary classification list was approved on October 15, 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 February 7, 1984, the Superintendent of Central Excise issued a notice of demand for a total sum of Rs. 26, 47, 749.39 against petitioner 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 non-cellulosic origin) and hence the said goods manufactured by them were liable to be classified under Central Excises Tariff item No. 18(III)(ii). 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 February 7, 1984. The High Court granted an interim stay of the operation of the demand notice on February 9, 1984. On the same day, namely, February 9, 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 as aforesaid and classifying the aforesaid product under item No. 18(III)(ii) of the First Schedule of the Central Excises Act. On February 10, 1984 a notice was issued by the Superintendent, Central Excise on petitioner 1 reciting inter alia that the Assistant Collector had modified the approval of the classification lists on February 9, 1984 and calling upon petitioner 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. Petitioner 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 March 5, 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 March 5, 1984. The petitioners also filed an appeal before the Collector of Central Excises (Appeal) against the orders of adjudication dated March 5, 1984. On November 24, 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 Rs. 26, 47, 749.39 for the period August 15, 1983 to February 6, 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 orders issued by the Assistant Collector, Central Excise, Ujjain Division both dated March 5, 1984 as set out earlier. Copies of these adjudication orders are at Annexures R/10 and R/11 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 February 7, 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 from February 7, 1984 onwards and not retrospectively from August 15, 1983 to February 6, 1984 being the period for which the demand has already been made in the demand notice dated February 9,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 manmade fibre of non-cellulosic origin, it will fall under item No. 18(III)(ii), but if it does not contain any manmade fibre of non-cellulosic origin, it will fall under item No. 18(III)(i) and duty would be leviable there at a lower rate. The relevant portion of Section 11-A of the Central Excise Act runs asany duty or 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 noticeProvided 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 misstatement 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 "Central Excise Officer", the words Collector of Central Excise", and for the words "six months", the words "five years" were substituted

Court's reasoning:
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 Volkart Ltd. v. Collector of Central Excise [(1987) 2 SCC 93 : AIR 1987 SC 1161 : 1987 SCC (Tax) 165] this Court has held that the provisions of Section 11-A(1) and (2) of Central Excises and Salt Act, 1944 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-sectionIn view of the aforesaid decision the submission of Mr. Gobind 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 thein accordance with the said order of the Assistance 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 Rs. 26, 47, 749.39 should not be recovered form you, under Section 11-A of the Central Excise and Salt Act,A reading of these paragraphs clearly shows that the notice set 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 form petitioner 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 insofar as period up to February 6, 1984 is concerned, and can be regarded as a proper show cause notice only in respect of the subsequent period from February 7, 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 February 6, 1984 cannot be gone into by the Collector and the High Court was right in the view which it took