1987 (2) TMI 64 - SC - Central Excise

Order of stay passed by the Karnataka High Court had only stayed the collection of the excise duty Held that - The High Court having direct stay of collection had therefore not given any interim direction in the matter of issue of notice or levy of the duty. No notice seems to have been issued in this case in regard to the period in question. Instead thereof an outright demand had been served. The provisions of Section 11A(1) and (2) make it clear that the statutory scheme is that in the situations covered by the sub-section (1) a notice of show cause has to be issued and sub-section (2) requires that the cause shown by way of representation has to be considered by the prescribed authority and then only the amount has to be determined. The Scheme is in consonance with the rules of natural justice. An opportunity to be heard is intended to be afforded to the person who is likely to be prejudiced when the order is made before making the order thereof. Notice is thus a condition precedent to a demand under sub-section (2). In the instant case compliance with this statutory requirement has not been made and therefore the demand is in contravention of the statutory provision. Certain other authorities have been cited at the hearing by Counsel for both sides. Reference to them we consider is not necessary. Appeal allowed.

Summary

Issues:
1. Interpretation of the Explanation in Section 11A of the Central Excises and Salt Act, 1944.
2. Validity of the notice issued beyond the period of limitation.
3. Distinction between levy and collection of excise duty.
4. Compliance with statutory requirements for issuing a demand notice.

Analysis:
1. The judgment revolves around the interpretation of the Explanation in Section 11A of the Central Excises and Salt Act, 1944, to determine the fate of the appeal. The Explanation allows for the exclusion of the period of stay by a court order in computing the limitation period for issuing a notice. The court refers to established legal principles and previous judgments to analyze the application of this Explanation.

2. The notice to show cause was issued beyond the statutory limitation period of six months. The Revenue sought to rely on the Explanation for extension of the limitation period. However, the court found that the order of stay by the High Court did not pertain to the issuance of the notice for levy of duty, rendering the Explanation inapplicable in this case. The court emphasized the importance of complying with statutory limitations in such matters.

3. The judgment clarifies the distinction between the levy and collection of excise duty under the Act. It highlights that the High Court's stay order only pertained to the collection of duty and did not impact the issuance of a notice for levy. The court references Section 3 of the Act to emphasize the separate steps of levy and collection, reinforcing the necessity of adhering to procedural requirements in excise duty matters.

4. The court scrutinized the procedural compliance for issuing a demand notice under Section 11A(1) and (2) of the Act. It emphasized that a notice of show cause is a prerequisite for determining the amount of duty, ensuring adherence to natural justice principles. In this case, the demand was served outright without issuing a proper notice, contravening the statutory provision. Consequently, the court set aside the demand for the specified period and ordered the refund of any tax paid by the appellant.