2015 (4) TMI 998 - HC - Central Excise

Prosecution proceedings where demand of duty was set aside on the ground of period of limitation - non-petitioners were discharged mainly on the ground that separate proceedings for imposition of penalty were decided in favour of the non-petitioners - Held that - Perusal of Section 11 of the Act of 1944 shows as to when and for what purpose, it can be invoked. It is for recovery of excise duty which is not paid for various reasons or could not be recovered. Section 11 of the Act of 1944, however imposes limitation for initiation of the proceedings. In the first category of cases, limitation to issue notice is only of 6 months, whereas in the second category, it is for 5 years. So far as Section 9 of the Act of 1944 is concerned, it operates for the offences and consequential penalties. No limitation for initiation of prosecution has been given therein. The facts aforesaid are relevant as proceedings in pursuance to Section 11 of the Act of 1944 were terminated as the notice was found beyond the period of limitation for recovery of excise duty. The Tribunal found case to be falling in first category having limitation of 6 months and not in second category having limitation of 5 years. The order was passed in favour of the assessee after recording finding on the issue of limitation, thus it becomes clear that determination of the issues by the Tribunal was not on merit but on limitation. It may be that arguments were made even on merit but no finding has been recorded, if the order of the Tribunal is perused. Determination of issue by the Tribunal is not on merit but on a technical ground of limitation. The same is the position regarding reference whether determination of the issue was not made but reference was dismissed on account of default in appearance of the parties concerned. - In absence of determination of issues on merit, the non-petitioner cannot take shelter of judgment of Apex Court in the case of K.C. Builders (2004 (1) TMI 7 - SUPREME Court). In the instant case, Section 9 of the Act of 1944 does not provide any limitation to initiate the proceedings though there may be limitation for taking cognizance of offence under Cr.P.C. The issue aforesaid is not raised before me. When the Tribunal so as High Court has not touched the merit, there was no reason for the revisional court to discharge the non-petitioners by setting aside the order of learned Magistrate. The non-petitioners were definitely entitled to take the benefit of delay in issuance of notice for recovery of excise duty if It was beyond the period of limitation. So far as prosecution under Section 9 of the Act is concerned, it has not provided limitation. The revisional court failed to make distinction between two proceedings and the effect of the order passed by the Tribunal and the High Court where merit of the case was not touched. - Decided in favour of Revenue.

Summary

Issues Involved:
1. Challenge to the order dated 28.06.2008 regarding discharge of non-petitioners.
2. Distinction between proceedings under Section 11 and Section 9 of the Central Excise Act, 1944.
3. Impact of limitation on recovery proceedings and prosecution.
4. Applicability of judgments in similar cases.

Issue-wise Detailed Analysis:

1. Challenge to the Order Dated 28.06.2008 Regarding Discharge of Non-Petitioners:
The petitioner challenged the order dated 28.06.2008, which accepted the revision petition of the non-petitioners and discharged them from prosecution. The petitioner argued that the discharge was based on the erroneous assumption that the penalty proceedings decided in favor of the non-petitioners were on merits, while they were actually dismissed on technical grounds of limitation. The revisional court failed to distinguish between the proceedings for recovery of excise duty and the prosecution for wrongful benefit of Modvat, leading to the impugned order being passed without realizing the separate consequences of each proceeding.

2. Distinction Between Proceedings Under Section 11 and Section 9 of the Central Excise Act, 1944:
The court noted that two distinct proceedings were initiated by the department: one under Section 11 for recovery of excise duty and the other under Section 9 for offences and penalties. Section 11 involves recovery of unpaid excise duty with a limitation period for issuing notices, whereas Section 9 pertains to prosecution for offences without a specified limitation period. The proceedings under Section 11 were terminated due to the notice being beyond the limitation period, while the prosecution under Section 9 was not affected by this limitation.

3. Impact of Limitation on Recovery Proceedings and Prosecution:
The court emphasized that the Tribunal's decision to terminate proceedings under Section 11 was based solely on the limitation period and not on the merits of the case. Similarly, the High Court's dismissal of the reference was due to the department's default in appearance, not a determination on merits. Therefore, the revisional court's decision to discharge the non-petitioners based on these terminations was flawed. The court clarified that the non-petitioners could not avoid prosecution under Section 9 merely because the recovery proceedings under Section 11 were time-barred.

4. Applicability of Judgments in Similar Cases:
The non-petitioners cited judgments from the Supreme Court, including K.C. Builders v. Asstt. CIT and Swathy Chemicals Ltd. v. Union of India, to argue that prosecution should not proceed when recovery proceedings fail. However, the court distinguished these cases, noting that in K.C. Builders, the determination was on merits, whereas in the present case, the termination was on technical grounds. Thus, the judgments cited did not apply to the current scenario where the merits of the case were not addressed by the Tribunal or the High Court.

Conclusion:
The court concluded that the revisional court erred in discharging the non-petitioners without considering the distinction between the proceedings under Section 11 and Section 9 and the impact of the limitation period. The order of the revisional court was set aside, and the order of the learned Magistrate was maintained, allowing the prosecution to continue under Section 9 of the Central Excise Act, 1944. The petition under Section 482 Cr.P.C. was allowed.