1970 (8) TMI 81 - HC - Central Excise

Summary

Issues Involved:
1. Legality of reassessments and claims for excise duty.
2. Liability of independent processors for excise duty.
3. Applicability of sub-item (5) of Item 19 in the First Schedule.
4. Validity of notices issued under Rule 10A versus Rule 10.
5. Alleged violation of natural justice.

Detailed Analysis:

1. Legality of Reassessments and Claims for Excise Duty:
The Petitioner Company, an independent processor, challenged reassessments and demands for excise duty for three periods: May 26, 1966 to October 25, 1967, October 26, 1967 to November 15, 1967, and November 16, 1967 to February 15, 1968. The demands were based on the assertion that the goods processed by the Petitioner were "cotton fabrics, not otherwise specified" under sub-item (5) of Item 19, and thus liable to an excise duty of 80 paise per sq. metre. The Petitioner contended that this duty was always chargeable against the original manufacturers and not independent processors, making the reassessments and demands illegal and without jurisdiction.

2. Liability of Independent Processors for Excise Duty:
The Petitioner argued that the processed goods were already charged to excise duty under sub-item (1) of Item 19 before being delivered for processing. The Petitioner paid only the differential duty of 8 paise per sq. metre as per the relevant notifications. The Court found that the goods processed by the Petitioner were initially charged duty as "Superfine goods" and that the subsequent reassessment demanding duty under sub-item (5) was unjustified. The Court held that duty on goods falling under sub-item (5) of Item 19 could only be recovered once and from the original manufacturers, not from independent processors.

3. Applicability of Sub-item (5) of Item 19 in the First Schedule:
The Court noted that sub-item (5) of Item 19 had not been sub-classified like sub-items (1) to (4). Therefore, the duty on goods falling under sub-item (5) could only be charged once and from the original manufacturers. The Court rejected the Respondent's argument that the Petitioner, by processing the goods, manufactured new excisable goods falling under sub-item (5). The Court emphasized that the processed goods were the same as those initially manufactured and subjected to excise duty, and thus could not be charged again.

4. Validity of Notices Issued Under Rule 10A Versus Rule 10:
The Court examined the validity of the notices issued under Rule 10A, which provides for residuary powers for recovery of sums due to the government. The Court found that the reassessments were for short-levied duty, which falls under Rule 10, requiring claims to be made within three months. Since the period for claims under Rule 10 had expired, the use of Rule 10A was deemed inappropriate and illegal. The Court referenced a previous decision, reinforcing that the notices issued under Rule 10A were invalid.

5. Alleged Violation of Natural Justice:
The Petitioner also contended that the reassessments and demands were made without notice or hearing, violating natural justice principles. Although the Court did not delve deeply into this issue, it acknowledged the argument and noted that the demands were made arbitrarily and capriciously, influenced by higher authorities without proper application of mind.

Conclusion:
The Court held that the reassessments and demands for excise duty against the Petitioner were illegal and without authority. The notices issued under Rule 10A were invalid as they should have been issued under Rule 10 within the stipulated three-month period. The Court set aside the reassessments and demands, making the rule absolute and awarding costs to the Petitioner.