2019 (1) TMI 127 - HC - Central Excise

Validity of SCN - Levy of duty - scented supari manufactured - petitioner contends that the impugned show cause notice is without jurisdiction, opposed to Central Excise Act and Rules and is totally barred by limitation and is arbitrary - principles of squity - time limitation. Held that - The dispute got settled in favor of the Petitioner by Order dated 12.04.1999 in WP No 4266 of 1994 and affirmed in the Order dated 27.04.2010 in Writ Appeal No 1271 of 2000. Consequent to the final orders, two proceedings are initiated in the files of the Department, one regarding the claim filed by the petitioner for refund of the duty paid by them under protest on the final products during the period May, 1994 to March, 1995 and the other being the impugned Show Cause Notice No.34/2010 dated 11.10.2010 for the demand of modvat credit availed during the same time. There is no dispute that a refund claim accrues on the petitioner as a result of the Order dated 27.04.2010 in Writ Appeal No.1271 of 2000 going in favour of them against the department. And there is also no dispute that the modvat credit taken and utilized for the payment of duty on the final products shall not be allowed as refund - Certain averments were made by the respondents regarding the refund process which is deliberately ignored since the same is not part of relief sought under this Writ Petition. Therefore, consciously no opinion is expressed regarding the proceedings in Show Cause Notice C.No.V/21/18/166/2009 dated 26.05.2010 issued in the refund claim proceedings. Whether the impugned Show Cause Notice No 34/2010 dated 11.10.2010 is sustainable? - Held that - In the peculiar circumstances of the case, the question of demanding modvat credit availed is not tenable. It is arbitrary exercise of power. It is not correct to argue that the dispute got settled in favour of the petitioner by virtue of an order of this Court and as a consequence a demand notice gets slapped on them. Such a preposition borders on absurdity. The recourse to Section 5-B of the Central Excise Act, 1944 by the respondents is not correct. At the material time, while the petitioner had contested the assessment by registering protest, the respondents endorsed the assessment that included the availment of modvat credit. Also the dispute in the pending court cases pertained to the dutiability of the final products and the availing of modvat credit was never in dispute during the pendencies - Therefore the plea on the principle of equity made by the respondents on the bar of limitation is misplaced. The modvat credit was availed during the period May, 1994 to March, 1995. Even the Writ Petition was decided against the Department on 12.04.1999. The Show Cause Notice was issued on 11.10.2010 - the Show Cause Notice is hit by limitation also. The Show Cause Notice No 34/2010 dated 11.10.2010 is quashed. No opinion is expressed on the proceedings in the refund claim.

Summary

Issues involved:
1. Validity of the Show Cause Notice dated 11.10.2010 demanding modvat credit availed by the petitioner during May 1994 to March 1995.
2. Jurisdiction of the Court to quash the Show Cause Notice under Article 226 of the Constitution.

Analysis:

Issue 1: Validity of the Show Cause Notice
The petitioner, a manufacturer of Scented Supari, faced a dispute regarding the classification of their product under the Central Excise Tariff Act. After a long legal battle, the court ruled in favor of the petitioner, affirming that the final products were non-leviable to duty. Subsequently, the Department issued a Show Cause Notice demanding modvat credit availed by the petitioner during May 1994 to March 1995. The petitioner argued that the notice was without jurisdiction, opposed to the Central Excise Act and Rules, and barred by limitation. They contended that the modvat credit was rightfully availed during the material time but became ineligible due to the later court decision. The court found the demand for modvat credit arbitrary and not sustainable, as the Department had no objection to the credit until the court's ruling. The notice was deemed hit by limitation and an arbitrary exercise of authority, warranting interference under Article 226.

Issue 2: Jurisdiction of the Court
The respondents argued that the Writ Petition was premature as statutory remedies were available to the petitioner. They cited various legal precedents supporting the rule of alternate remedy. However, the court found that the circumstances of the present case were distinct, and the Show Cause Notice was deemed arbitrary and hit by the bar of limitation. The court held that the statutory remedy was not efficacious, justifying the Writ interference under Article 226. Consequently, the Show Cause Notice dated 11.10.2010 was quashed, and the petitioner was not entitled to the modvat credit portion of the refund claim. The refund claim was directed to be disposed of in accordance with the law.

In conclusion, the High Court of Madras, in the judgment delivered by Mrs. Justice J. Nisha Banu, allowed the Writ Petition, quashing the Show Cause Notice dated 11.10.2010, and closed the connected miscellaneous petition, emphasizing the importance of jurisdiction and the validity of demands made by the Department in excise matters.