1981 (9) TMI 109 - HC - Central Excise

Summary

Issues:
Challenge to legality of show cause notice dated October 20, 1977 issued by Superintendent, Central Excise, Agra based on Notification No. 88/77-C.E. dated May 9, 1977.

Analysis:

1. Background and Petitioners' Business Activities:
The petitioners, a public limited company, are engaged in the business of manufacturing, selling, and purchasing various types of footwear and parts thereof. They own factories in Maharashtra and also purchase footwear from other manufacturers and dealers for resale. The petitioners claim no direct involvement in the manufacturing activities of their suppliers.

2. Legal Framework and Notifications:
An excise duty is levied on footwear and parts thereof under the Central Excises and Salt Act, 1944. Notifications issued by the Government of India exempt footwear from duty under certain conditions, as detailed in Notification No. 88/77-C.E. dated May 9, 1977. This notification includes provisions regarding the manufacturing process and the exemption criteria based on the number of workers and power usage.

3. Impugned Show Cause Notice:
The Superintendent of Central Excise, Agra, issued a show cause notice to the petitioners alleging contravention of Central Excise Rules by removing footwear without payment of duty. The notice was based on the explanation to the May 9, 1977 notification, which deemed footwear affixed with the petitioners' brand name to have been manufactured by them. The petitioners disputed the validity of the notice, citing a judgment from the Patna High Court that struck down a similar explanation.

4. Legal Arguments and Court's Analysis:
The petitioners argued that the explanation to the notification was invalid, as established by previous judicial decisions. The Court agreed with this argument, citing a relevant case law and emphasizing that affixing a brand name does not automatically imply manufacturing by the brand owner. The Court found the show cause notice to be without legal authority due to the invalidated explanation.

5. Jurisdictional Challenge and Decision:
The Department contested the jurisdiction of the Bombay High Court to hear the petition, claiming the dispute primarily arose in Agra. However, the Court rejected this argument, noting the petitioners' registered office and assets were in Bombay. The Court emphasized the futility of transferring the case to the Appellate Side after three years and maintained the jurisdiction of the Original Side.

6. Validity of Show Cause Notice:
The Department argued that the notice was not solely based on the invalidated explanation and could proceed independently for duty recovery. However, the Court found that the Department's intention, as indicated in the return filed by the Assistant Collector of Central Excise, was to rely on the struck-down explanation. Consequently, the Court held the show cause notice to be invalid and ordered its withdrawal.

7. Final Decision and Relief Granted:
In conclusion, the Court ruled in favor of the petitioners, striking down the show cause notices dated October 20, 1977, and April 4, 1978. The Court did not address the quashing of the explanation to the May 9, 1977 notification as it had already been invalidated. No costs were awarded in this case.

In summary, the High Court of Bombay upheld the petitioners' challenge to the show cause notice, emphasizing the invalidity of the explanation to the relevant notification and dismissing jurisdictional objections raised by the Department. The Court's decision centered on the legal interpretation of the exemption criteria and the petitioners' lack of direct involvement in the manufacturing process of the footwear in question.