2019 (11) TMI 673 - SC - Central Excise

Scope of SCN - Manufacturing activity taking place or not - Respondent manufactured Foots Oil, Pressed Wax, Pressed Paraffin Wax without observing the mandatory procedure and clearing Excise Duty - demand of Central Excise duty under the extended proviso to Section 11A of the said Act - interest under Section 11 AB of the said Act - recovery of duty - scope of SCN. HELD THAT - Section 11A deals with various facets including non-levy and non-payment of excise duty and contemplates issuance of a show cause notice by the Central Excise Officer requiring the person chargeable with duty to show cause why he should not pay the amount specified in the notice. In terms of sub-section 10 of said Section 11A, the concerned person has to be afforded opportunity of being heard and after considering his representation, if any, the amount of duty of excise due from such person has to be determined by the Central Excise Officer. If the process or activity undertaken does not amount to manufacture or if no duty is payable for any reason including the benefit under any scheme of exemption holding the field, it shall always be open to the concerned person to project such view point while making any representation in response to the show cause notice - the scheme of Section 11A does not contemplate that before issuance of any show cause notice, there must, prima facie, be (a) a preliminary determination that the process or activity undertaken in the matter amounts to manufacture; and (b) before arriving at such preliminary determination, any hearing to the concerned person is contemplated. In the present case, the respondent had not registered itself and was not paying any excise duty on the products that it was manufacturing. The search conducted by the Department at the registered office and the factory premises of the respondent led to the recovery of certain material on the basis of which the Department was considering the matter - the provisions of the Act do not contemplate any such prima facie determination to be arrived at and requiring that a copy of such determination to be submitted to the concerned person and only thereafter to proceed in the matter. Since the provisions of the Act do not contemplate any prima facie determination which must be communicated to the concerned person, the Department was justified in not communicating the Internal Order on its own. The matter was correctly assessed by the High Court on the next occasion when in spite of having directed that a copy of the Internal Order be supplied, it acknowledged that the remedy of the respondent lied in submitting reply to the show cause notice, in which reply it would be open to the respondent to take objections to the jurisdiction of the appellant to proceed against the respondent under the provisions of the Act. Scope of SCN - HELD THAT - In the present case, there was no assessment and computation of any duty element. The matter had not gone beyond the Show Cause Notice. The questions in the matter pertained to the correctness of the view whether there was any adjudication in the matter and whether the appeal at the instance of the Respondent was maintainable. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Jurisdiction of the Assistant Commissioner of Central Excise.
2. Whether the process undertaken by the Respondent amounted to manufacture.
3. Premature appeal against the Internal Order dated 15.03.2006.
4. Applicability of Section 11A of the Central Excise Act, 1944.
5. Maintainability of the appeal before the Commissioner (Appeals).
6. Significance of show cause notice under Section 11A.
7. Relevance of the High Court's directions and the subsequent procedural steps.
8. Applicability of the Circular dated 22.08.2019 issued by the Ministry of Finance.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assistant Commissioner of Central Excise:
The Respondent filed a writ petition challenging the jurisdiction of the Assistant Commissioner of Central Excise, claiming no manufacturing activity was undertaken. The High Court directed the respondent to decide the preliminary objection regarding jurisdiction before addressing other issues. The Assistant Commissioner concluded that the matter could proceed under the Central Excise Act.

2. Whether the Process Undertaken by the Respondent Amounted to Manufacture:
The Internal Order dated 15.03.2006 indicated a prima facie view that the process undertaken by the Respondent amounted to manufacture. The Appellate Authority and the Tribunal later concluded that the process did not amount to manufacture, primarily because the process was manual and involved only marginal use of hydraulic pressure, resulting in no new product.

3. Premature Appeal Against the Internal Order Dated 15.03.2006:
The Respondent appealed against the Internal Order dated 15.03.2006 without filing a reply to the Show Cause Notice. The Appellant contended that the appeal was premature as there was no adjudication by the concerned authority. The Supreme Court agreed, stating that the Internal Order was not a final determination under Section 11A(10) and hence not appealable.

4. Applicability of Section 11A of the Central Excise Act, 1944:
Section 11A deals with recovery of duties not levied or paid and requires a show cause notice followed by an opportunity to be heard and consideration of representation. The Supreme Court emphasized that the scheme of Section 11A does not contemplate a preliminary determination before issuing a show cause notice.

5. Maintainability of the Appeal Before the Commissioner (Appeals):
The Commissioner (Appeals) entertained the appeal against the Internal Order, concluding that the process did not amount to manufacture. However, the Supreme Court held that the Internal Order was not a decision or determination under Section 11A(10) and thus not appealable.

6. Significance of Show Cause Notice Under Section 11A:
The issuance of a show cause notice under Section 11A is significant as it marks the beginning of the adjudication process. The Supreme Court noted that the show cause notice itself is based on a prima facie view, and the final determination comes after considering the response from the concerned person.

7. Relevance of the High Court's Directions and the Subsequent Procedural Steps:
The High Court's direction to decide on jurisdiction before proceeding on merits was not in line with the provisions of the Act. The Department complied with the High Court's order by issuing an Internal Order, but the Supreme Court clarified that such an order was not required by the Act and did not constitute a final determination.

8. Applicability of the Circular Dated 22.08.2019 Issued by the Ministry of Finance:
The Circular sets monetary limits for filing appeals. The Supreme Court noted that the issues in the present case pertained to procedural correctness and the maintainability of the appeal, which did not fall within the confines of the Circular.

Conclusion:
The Supreme Court allowed the appeal, set aside the appellate order dated 10.01.2007, and directed that the proceedings pursuant to the show cause notice dated 21.03.2006 be taken to a logical conclusion. The Respondent was given three weeks to respond to the show cause notice and place supporting material. The matter was to proceed in accordance with the law.

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