1991 (2) TMI 141 - HC - Central Excise

Summary

Issues Involved:
1. Validity of demand notice without a preceding show cause notice under Section 11A of the Central Excise Act.
2. Competency of the Superintendent of Central Excise to issue the demand notice for a period beyond six months.

Detailed Analysis:

1. Validity of Demand Notice Without a Preceding Show Cause Notice Under Section 11A of the Central Excise Act

The petitioner, a manufacturer of aluminium filter housing castings, challenged the demand notice dated 17-8-1988 issued by the Superintendent of Central Excise, which called for the payment of differential duty amounting to Rs. 96,665.04 for the period November 1986 to February 1987. The primary contention was that the demand was unsustainable in law as it was not preceded by a show cause notice as required under Section 11A of the Central Excise Act.

The petitioner cited two Supreme Court decisions, Union of India v. Madhumilan and Gokak Patel Volkart Ltd. v. Collector of Central Excise, to substantiate that any demand for short-levy or short-payment must be preceded by a show cause notice, which is a condition precedent to a demand under sub-section (2) of Section 11A. The Supreme Court in Gokak Patel Volkart Ltd. emphasized that the statutory scheme under Section 11A mandates a notice of show cause, followed by consideration of the representation and determination of the amount by the prescribed authority, ensuring compliance with natural justice principles.

In Madhumilan's case, the Supreme Court reiterated that a notice must precede any demand for differential duty to provide the assessee an opportunity to be heard. The Court quashed demands made without such notice, affirming that non-compliance with Section 11A's statutory requirements renders the demand invalid.

The High Court noted that the demand notice (Annexure-F) in the present case was not preceded by any notice demanding the differential duty based on the modified classification list. The Department should have either mentioned the differential duty in the show cause notice dated 7-5-1987 or issued a separate show cause notice before making the demand.

2. Competency of the Superintendent of Central Excise to Issue the Demand Notice for a Period Beyond Six Months

The petitioner also challenged the competency of the Superintendent of Central Excise to issue the demand notice for a period beyond six months. The High Court upheld this contention, noting that the power under Section 11A is subject to several conditions, including time limits. For short-levy or short-payment recovery, a show cause notice must be issued within six months from the relevant date, and in cases involving suppression or wilful misstatement by the assessee, a five-year time limit is provided.

The High Court concluded that the demand notice (Annexure-F) was invalid as it did not comply with the procedural requirements of Section 11A, including the necessity of a preceding show cause notice specifying the amount payable and the adjudication process. The demand notice was thus set aside.

Conclusion

The High Court allowed the writ petition, setting aside the demand notice dated 17-8-1988 (Annexure-F). The Court emphasized the necessity of adhering to the statutory requirements under Section 11A of the Central Excise Act, including the issuance of a show cause notice before making any demand for differential duty. Additionally, the Court upheld the objection regarding the competency of the Superintendent of Central Excise to issue the demand notice for a period beyond six months.