1990 (8) TMI 166 - HC - Central Excise

Demand - Section 11A and Rule 223A - Dealing with different situations and serving different objects

Summary

Issues:
1. Barred by limitation under Section 11A of the Act.
2. Department's right to levy duty on shortages.
3. Nature of business and percentage of shortage.
4. Applicability of Rule 223A and Section 11A.
5. Quantum of shortages and deficiencies found.
6. Reasonableness and arbitrariness of impugned proceedings.

Detailed Analysis:
1. The writ petitioners challenged the impugned order on the grounds of limitation under Section 11A of the Act, arguing that the show cause notice was issued beyond the prescribed period. However, the court held that Section 11A applies to cases involving non-levy, non-payment, short levy, or short payment, not to situations covered under Rule 223A. The court clarified that Rule 223A deals with stock verification and penal assessment, where the limitation under Section 11A does not apply. The court rejected the plea of limitation raised by the writ petitioner, emphasizing the distinct purposes served by Section 11A and Rule 223A.

2. The petitioners contested the Department's right to levy duty on mere shortages without evidence of surreptitious removal of goods. The court noted that Rule 223A empowers the Collector to assess duty based on stock discrepancies, with penalties for deficiencies. The liability under Rule 223A arises automatically upon stock verification, without the need to prove intentional removal. The court explained that Rule 223A constitutes a penal assessment for unaccounted stocks, distinct from the provisions of Section 11A. The court upheld the Department's authority to levy duty under Rule 223A.

3. The petitioners argued that the percentage of shortages in their business was marginal due to the nature of goods handled, and thus did not warrant penal levy. The court examined the Central Government's condonation of shortages in a similar case, emphasizing the inevitability of some shortages in a business handling a variety of products. The court found the Department's approach arbitrary and directed a reevaluation based on the Central Government's principles. The court emphasized the need for a reasonable and objective consideration of shortages in line with the statutory revisional authority's directions.

4. The court addressed the applicability of Rule 223A and Section 11A, clarifying the distinct purposes served by these provisions. While Section 11A pertains to non-payment or short levy, Rule 223A deals with stock verification and penal assessment for unaccounted stocks. The court emphasized that the limitation under Section 11A does not apply to situations covered by Rule 223A. The court rejected the petitioner's argument regarding the limitation under Section 11A, underscoring the different nature of the two provisions.

5. The court scrutinized the quantum of shortages and deficiencies found by the Department, comparing it to the Central Government's condonation of shortages in a similar case. The court highlighted the need for a reasonable and just assessment of shortages, pointing out the arbitrary nature of the Department's approach in determining duty payable. The court directed the Department to reevaluate the matter based on the principles laid down by the Central Government, ensuring a fair and objective consideration of shortages.

6. In conclusion, the court allowed the writ petition, quashed the impugned proceedings, and directed the third respondent to reconsider the matter in line with the Central Government's principles. The court emphasized the importance of applying consistent standards and reasoned principles in assessing shortages and determining duty payable. The court found the impugned proceedings to be arbitrary and lacking in objective consideration, necessitating a reevaluation based on fair and just principles.