2012 (12) TMI 828 - SC - VAT and Sales Tax

Penalty invoking Rule 633 of the Excise Manual - assessee contested agianst non granting of opportunity of being heard - Held that - Principles of natural justice demand that a show-cause notice should be issued and an opportunity of hearing should be afforded to the person concerned before an order under the said Rule is made, notwithstanding the fact that the said Rule does not contain any express provision for the affected party being given an opportunity of being heard. Vide letter dated 2nd October 1992, the Excise Commissioner called upon the appellant to deposit an amount of Rs.14,20,943/- towards Excise duty and interest on account of default on their part to furnish PD-25 pass duly certified by the competent authority at Kandla Port. The letter /notice does not indicate the exact quantity of rectified spirit on which duty @ Rs.40/- per alcoholic litre has been charged, though the total amount of duty payable is mentioned. Similarly, in the final show-cause notice dated 6th April 1994, threatening action for black listing for future exports on account of non-payment of the aforenoted amount, there is not even a whisper as to how and why rectified spirit in question was being subjected to Excise duty by the State. As stated above, this Court having categorically held in Synthetics And Chemicals (1989 (10) TMI 214 - SUPREME COURT OF INDIA) that the State Legislature had no legislative competence to impose Excise duty on rectified spirit (industrial alcohol), the Commissioner of Excise could not demand Excise duty on rectified spirit contained in the tank wagon which, later on, was found to be empty, without returning a finding that the said spirit had been diverted/converted into potable alcoholic liquor fit for human consumption, on which the State was empowered to impose duty. It bears repetition that such a finding could not be recorded by the Commissioner without affording due opportunity to the appellant to explain its stand in this regard for which, the onus lay on them as transporter and the executant of the bond. We are convinced that in the present case, before imposing the impugned demand of penalty and interest, there was absolutely no adjudication by any authority as regards the breach committed by the appellant, except the allegation that the appellant had failed to furnish the PD-25 pass certified by the Collector, therefore, the action of the respondents for the recovery of penalty and interest, being violative of principles of natural justice, is null and void.

Summary

Issues Involved:
1. Authority of the State Government to levy Excise duty on rectified spirit (industrial alcohol).
2. Imposition of penalty under Rule 633(7) of the Uttar Pradesh Excise Manual.
3. Requirement of hearing before recovery of penalty under Rule 633(7).
4. Applicability of principles of natural justice.

Detailed Analysis:

1. Authority of the State Government to Levy Excise Duty:
The High Court concluded that the State Government had no authority to levy Excise duty on rectified spirit (industrial alcohol) under Section 28 of the U.P. Excise Act, 1910. This conclusion was based on the precedent set by the Supreme Court in the case of Synthetics And Chemicals Ltd. & Ors. Vs. State of U.P. & Ors. (1990) 1 SCC 109, which held that states are not competent to impose a tax or charge imposts on rectified spirit meant for industrial purposes. The Supreme Court affirmed this view, stating that the State Legislature has no power to levy duty on spirit not meant for human consumption.

2. Imposition of Penalty under Rule 633(7):
The High Court upheld the imposition of a penalty on the appellant under Rule 633(7) of the Uttar Pradesh Excise Manual, despite the lack of authority to levy Excise duty. The High Court presumed that the rectified spirit in the missing tank wagon was diverted for conversion into potable alcohol, thus justifying the penalty. However, the Supreme Court found that Rule 633 applies only to potable liquor and not to industrial alcohol, and that the High Court's presumption was not justified without proper adjudication.

3. Requirement of Hearing Before Recovery of Penalty:
The Supreme Court emphasized that the principles of natural justice require that a show-cause notice be issued and an opportunity of hearing be afforded to the concerned party before any order under Rule 633(7) is made. The Court noted that the imposition of penalty involves quasi-judicial functions, necessitating due application of mind to the facts and law. The Court found that the appellant was not given any opportunity to explain their stand before the penalty was imposed, making the action violative of principles of natural justice.

4. Applicability of Principles of Natural Justice:
The principles of natural justice, particularly the rule of audi alteram partem (right to be heard), were discussed extensively. The Supreme Court reiterated that unless explicitly excluded by statute, the requirement of a reasonable opportunity of being heard is generally read into statutory provisions, especially when the order has adverse civil consequences. The Court concluded that the failure to provide such an opportunity in this case rendered the penalty and interest demand null and void.

Conclusion:
The Supreme Court allowed the appeal, set aside the demand raised by the Commissioner of Excise, and remitted the matter back to the jurisdictional Excise Commissioner for a fresh decision after affording an adequate opportunity of hearing to the appellant. The Court emphasized the necessity of adhering to the principles of natural justice and ensuring fair play in administrative actions.