1990 (7) TMI 130 - HC - Central Excise

Issues Involved:
1. Legality and jurisdiction of the show cause notice dated 24th February 1988.
2. Applicability of the exemption notification dated 3rd April 1986.
3. Alleged suppression, mis-statement, fraud, or collusion by the petitioners.
4. Validity of the endorsement made on the classification list by the Excise Authorities.
5. Limitation period under Section 11A of the Central Excises and Salt Act, 1944.

Detailed Analysis:

1. Legality and Jurisdiction of the Show Cause Notice:
The petitioners challenged the show cause notice dated 24th February 1988 on the grounds that it was illegal, without authority of law, and barred by limitation. They argued that the notice was based on the incorrect assertion that the products were sold to non-pharma manufacturers, which was misleading and without basis. The court found that the notice was issued beyond the period of six months as stipulated under Section 11A of the Central Excises and Salt Act, 1944, and there was no evidence of fraud, collusion, willful mis-statement, or suppression of facts by the petitioners. Thus, the notice was quashed as being without jurisdiction and beyond the period of limitation.

2. Applicability of the Exemption Notification:
The petitioners contended that their products, Sorbitol 70% and Sorbitol powder BP, were bulk drugs conforming to pharmacopoeial standards and thus eligible for exemption under the notification dated 3rd April 1986. They had obtained the necessary certificate from the Drugs Controller of India and were permitted to clear the products without payment of duty. The court noted that the petitioners had complied with the conditions of the notification and had not suppressed any facts while clearing the goods. The exemption was applicable as the products were normally used for pharmacopoeial purposes.

3. Alleged Suppression, Mis-statement, Fraud, or Collusion:
The respondents argued that the petitioners had suppressed facts and mis-stated the use of the products, which were also used for non-pharma purposes. However, the court found that the petitioners had filed the classification list and obtained the necessary certificate from the Drugs Controller. The gate passes issued by the petitioners mentioned the names of the companies to which the products were sold, indicating no suppression of facts. The court held that there was no evidence of suppression, mis-statement, fraud, or collusion by the petitioners.

4. Validity of the Endorsement on the Classification List:
The petitioners challenged the endorsement made on the classification list by the Excise Authorities, arguing that it was inconsistent with the exemption notification and made without jurisdiction. The court noted that the endorsement was made without giving an opportunity to the petitioners to be heard. However, the petitioners had not challenged the endorsement immediately and had been paying duty on non-pharma consignments under protest. The court refrained from passing any order on this issue due to the lack of complete records and the involvement of factual determinations. The petitioners were advised to approach the authorities for redressal of their grievances.

5. Limitation Period under Section 11A:
The court emphasized that the extended period of five years under Section 11A of the Central Excises and Salt Act, 1944, is applicable only in cases involving fraud, collusion, willful mis-statement, suppression of facts, or contravention of the provisions of the Act or Rules with intent to evade payment of duty. In the absence of such evidence, the normal limitation period of six months applies. The court cited several Supreme Court judgments to support this view and concluded that the notice issued under Section 11A was beyond the period of limitation and without jurisdiction.

Conclusion:
The petition was partly allowed. The show cause notice dated 24th February 1988 was quashed, and the respondents were prohibited from acting in furtherance of or implementing the notice. The prayer regarding the endorsement on the classification list was disallowed. The parties were directed to bear their own costs.

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