1979 (8) TMI 84 - HC - Central Excise

Summary

Issues Involved:
1. Validity of demand notice dated July 2, 1974.
2. Applicability of Rule 9(2) of the Central Excise Rules, 1944.
3. Applicability of Rule 10 of the Central Excise Rules, 1944.
4. Applicability of Rule 10-A of the Central Excise Rules, 1944.

Detailed Analysis:

1. Validity of Demand Notice Dated July 2, 1974:
The petitioners challenged the demand notice dated July 2, 1974, for Rs. 3,57,704.98, issued under Rule 9(2) and Rule 173-Q of the Central Excise Rules, 1944. The petitioners argued that the demand was time-barred under Rule 10 of the Rules, which provides a three-month limitation period for recovering duties short-levied due to inadvertence or error.

2. Applicability of Rule 9(2) of the Central Excise Rules, 1944:
Rule 9(2) states that if excisable goods are removed in contravention of sub-rule (1), the producer or manufacturer must pay the duty upon written demand within the period specified in Rule 10. The petitioners argued that they did not remove the goods clandestinely but did so openly and to the knowledge of the Department. The Supreme Court's decision in N.B. Sanjana v. The Elphinstone Spinning and Weaving Mills Co. Ltd. was cited, which held that Rule 9(2) applies only to cases of clandestine removal and evasion of duty. The court concluded that Rule 9(2) was not applicable as the goods were removed openly and with the Department's knowledge.

3. Applicability of Rule 10 of the Central Excise Rules, 1944:
Rule 10 deals with the recovery of duties short-levied due to inadvertence, error, collusion, or misconstruction. The Supreme Court in Sanjana's case clarified that Rule 10 applies even in cases of nil assessment, where the entire duty later assessed is considered originally short-levied. The court agreed with the petitioners that the goods were cleared at a nil rate of duty due to the inadvertence of the Inspector, and thus, Rule 10 was applicable. Since the demand notice was issued after the three-month limitation period specified in Rule 10, it was deemed invalid.

4. Applicability of Rule 10-A of the Central Excise Rules, 1944:
Rule 10-A provides residuary powers for the recovery of sums due to the Government where no specific provision exists. The respondents argued that Rule 10-A could justify the demand notice. However, the Supreme Court in Sanjana's case held that Rule 10-A does not apply where a specific provision (Rule 10) exists for the collection of duty. The court found that Rule 10-A was not applicable as Rule 10 specifically covered the situation of short-levied duties due to inadvertence or error.

Conclusion:
The court concluded that the demand notice dated July 2, 1974, was invalid as it was issued under Rule 9(2), which was not applicable, and was time-barred under Rule 10. Rule 10-A was also deemed inapplicable. Consequently, the demand notice was quashed, and the petitioners' security was discharged. The rule was made absolute in terms of prayer (a) of paragraph 21 of the petition, with no order as to costs.