1993 (9) TMI 129 - SC - Central Excise

Notice of demand served upon by the Central Excise Authorities to pay the duty specified therein questioned - Held that - The notices issued to the Respondent prior to the filing of the Writ Petition did not speak of the Explanation aforesaid; they did not spell out their stand clearly; they referred to the notification as such - though the Respondent referred specifically to the Explanation in his letters. Be that as it may it was appropriate that the true factual situation is ascertained first before pronouncing upon the questions of law. If the factual situation alleged by the authorities is true it changes the entire complexion of the controversy. We are therefore constrained to set aside the judgment of the High Court on the said ground. The result is that the declaration made by the High Court with respect to the validity of the Explanation in the Exemption Notification aforesaid stands set aside. The demand notices issued to the Respondents are also quashed herewith. We make it clear that it shall be open to the authorities to issue fresh demands upon the persons liable to pay the duty after investigating the necessary facts and an adjudication according to law. If and when they do so it is made clear the question of limitation shall not be raised by the Respondent for the period of pendency of these proceedings. It is not necessary to go into the question of maintainability of the Writ Petition which was raised in the High Court with reference to the provisions of the 42nd Amendment Act then in force.

Summary

Issues:
1. Validity of the notification and the Explanation under Rule 8 of the Central Excise Rules.
2. Whether the Respondent can be deemed as the manufacturer under the notification.
3. Competence of the Central Government to impose liability on a party not the manufacturer or producer.
4. Jurisdiction of the High Court under Article 226 to entertain the matter.

Analysis:
1. The case involved a dispute regarding a notification issued by the Central Government under Rule 8 of the Central Excise Rules, specifically focusing on the validity of the Explanation provided in the notification. The Respondent, a renowned footwear manufacturer, challenged a demand notice issued by the Central Excise Authorities based on the notification. The High Court held that the Explanation in the notification exceeded the Central Government's competence, emphasizing that conditions for exemption should be related to the manufacturer/producer under Rule 8. The High Court ruled that the power of exemption cannot be used to shift liability to a party not involved in manufacturing or production, and that statutory provisions cannot be overridden by a notification under Rule 8.

2. The Respondent contended that it should not be deemed as the manufacturer merely because it affixed its brand on footwear purchased from small manufacturers. The Central Excise Authorities argued that the Respondent was the actual manufacturer, alleging that the small manufacturers were ancillaries of the Respondent. However, the High Court dismissed this argument, stating that the basis of the demand was the Explanation in the notification, not the relationship with the small manufacturers. The Supreme Court set aside the High Court's judgment, emphasizing the need to ascertain the factual situation before deciding on legal questions. The Court quashed the demand notices and allowed authorities to issue fresh demands after proper investigation and adjudication.

3. The Supreme Court criticized the High Court for entertaining the matter under Article 226 without clarifying the factual disputes raised by the Union of India. The Court highlighted that the notices issued prior to the Writ Petition did not mention the Explanation in the notification clearly, leading to a lack of clarity on the factual situation. The Court stressed the importance of investigating the facts before addressing legal issues. The judgment emphasized that the authorities could issue fresh demands based on proper investigation, and the Respondent could not raise the question of limitation during the proceedings.

4. The Supreme Court did not delve into the question of the Writ Petition's maintainability under the 42nd Amendment Act, as the primary issue of factual investigation and proper adjudication was paramount. The Court allowed the appeal by the Union of India, setting aside the High Court's judgment and directing authorities to issue fresh demands after investigating the facts and adhering to legal procedures. The judgment concluded that there would be no order as to costs in the matter.