1995 (8) TMI 323 - HC - Central Excise

Summary

Issues Involved:

1. Validity of the demand notice dated May 2, 1986.
2. Requirement of a show-cause notice before issuing the demand.
3. Applicability of Section 11A of the Central Excises and Salt Act, 1944.
4. Refund of the amount paid by the Mills under interim relief.
5. Entitlement to interest on the refunded amount.

Detailed Analysis:

1. Validity of the Demand Notice Dated May 2, 1986:

The High Court quashed the demand notice dated May 2, 1986, issued by the Superintendent of Central Excise to the Mills. The demand was for Rs. 2,11,86,467.27 for the period from September 1981 to July 20, 1985, for the clearance of yarn captively consumed without payment of duty. The learned Single Judge found the demand invalid due to the lack of a show-cause notice and held it was barred by limitation. However, the appellate court found that the demand was issued in compliance with the procedure under Chapter VIIA of the Central Excise Rules, which does not necessitate a prior notice before completing the assessment under Rule 173-1.

2. Requirement of a Show-Cause Notice Before Issuing the Demand:

The Mills argued that the demand should have been preceded by a show-cause notice. The learned Single Judge agreed, stating that the provisions of Section 11A of the Act, which require a show-cause notice, were applicable. However, the appellate court disagreed, stating that Rule 173-1 of the Central Excise Rules does not require a show-cause notice before determining the duty payable. The court clarified that the term "adjudicate" used in the earlier court order meant merely calculating the duty payable based on the RT-12 returns filed by the Mills, which was an arithmetic exercise not requiring a prior notice.

3. Applicability of Section 11A of the Central Excises and Salt Act, 1944:

The learned Single Judge held that Section 11A of the Act, which deals with the recovery of duties not levied or paid, was applicable and that the demand was barred by limitation. The appellate court, however, found that Section 11A was not applicable as the duty had been levied and the Mills had voluntarily paid the amounts in instalments. The court noted that the demand was made based on the RT-12 returns filed by the Mills, and there was no dispute about the quantity of yarn cleared or the rate of duty. The court further held that the provisions of Section 11A are independent of Rule 173-1 and are applicable only in specific situations mentioned therein.

4. Refund of the Amount Paid by the Mills Under Interim Relief:

The learned Single Judge directed the department to refund Rs. 1,69,75,724.79 paid by the Mills under the interim order. However, the appellate court set aside this direction, stating that the amount was voluntarily paid by the Mills in compliance with the court's interim order. The appellate court held that the Mills could not claim a refund of the amount paid voluntarily and that the department was entitled to recover the balance amount due.

5. Entitlement to Interest on the Refunded Amount:

The Mills had also claimed interest on the refunded amount. The learned Single Judge had declined to award interest. The appellate court upheld this decision, stating that the Mills were not entitled to interest on the amount of duty voluntarily paid. Consequently, the Mills' appeal for interest on the refunded amount was dismissed.

Conclusion:

The appellate court allowed the appeal by the Revenue, setting aside the order of the learned Single Judge and dismissing the writ petition filed by the Mills. The cross-appeal by the Mills for interest on the refunded amount was also dismissed. The court directed the Mills to pay the costs of the department throughout both appeals.