1996 (6) TMI 90 - HC - Central Excise

Section 11D of Central Excises and Salt Act, 1944 - Legislative competence - Demand - Statute - Enforcement of

Issues Involved:
1. Constitutional validity of Section 11D of the Central Excises and Salt Act, 1944.
2. Legality of the show-cause-cum-demand notices issued under Section 11D.
3. Legislative competence of Parliament under Entry 84 of List I of the VII Schedule to the Constitution.
4. Applicability of Sections 11A and 11D of the Act simultaneously.
5. Absence of a specific machinery provision for adjudication under Section 11D.
6. Violation of Articles 14 and 265 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 11D:
The petitioners challenged the constitutional validity of Section 11D, arguing that it was ultra vires and beyond the legislative competence of Parliament under Entry 84 of List I of the VII Schedule to the Constitution. They contended that Section 11D required the deposit of amounts collected as 'representing' excise duty, even if not payable as such duty. The court, however, upheld the validity of Section 11D, stating that the Parliament had the necessary legislative competence to enact this provision under Article 248 read with Entry 97 of List I of the Constitution. The court rejected the view of the Andhra Pradesh High Court in Luxmi Starch Limited case, which had read down Section 11D to sustain its constitutionality.

2. Legality of the Show-Cause-Cum-Demand Notices:
The petitioners contended that the show-cause notices were illegal and arbitrary, as they had not charged or collected any amount as excise duty for the UT Products. The court found that the show-cause notices were issued based on the prima facie conclusion that the petitioners had collected excise duty from their customers for the UT Products, which were exempt from such duty. The court noted that it was not within its scope to undertake an enquiry into the correctness of the conflicting factual claims at the stage of show-cause notices.

3. Legislative Competence of Parliament:
The petitioners argued that Section 11D was beyond the legislative competence of Parliament under Entry 84 of List I, as it dealt with amounts collected as excise duty, which were not actually payable. The court held that the legislative competence of Parliament was not confined to any one topic of legislation and could encompass powers under more than one entry. The court concluded that Parliament had the necessary competence to enact Section 11D and rejected the challenge on this ground.

4. Applicability of Sections 11A and 11D Simultaneously:
The petitioners argued that Sections 11A and 11D were mutually exclusive and could not be simultaneously invoked. The court observed that Section 11A dealt with recovery of duty not levied or paid, short levied or short paid, or erroneously refunded, while Section 11D dealt with amounts collected as representing duty of excise, which were not actually payable. The court held that the machinery or procedure under Section 11A could not be applied to cases under Section 11D, as they dealt with distinct and different claims.

5. Absence of a Specific Machinery Provision for Adjudication under Section 11D:
The petitioners contended that the absence of any machinery or notified authorities to adjudicate disputes under Section 11D rendered the provision unenforceable and violative of Article 14 of the Constitution. The court agreed, noting the conspicuous omission of any provision for initiating proceedings or adjudicating disputes under Section 11D. The court emphasized the need for specific machinery provisions to deal with claims under Section 11D and quashed the impugned show-cause notices as being without jurisdiction.

6. Violation of Articles 14 and 265 of the Constitution of India:
The petitioners argued that the impugned show-cause notices violated Articles 14 and 265 of the Constitution. The court held that the absence of a specific machinery provision for adjudication under Section 11D rendered the notices arbitrary and unreasonable, thus violating Article 14. The court also noted that Article 265 required that every stage in the process of taxation must be authorized by law, which was not the case here due to the lack of adjudication machinery under Section 11D.

Conclusion:
The court declared Section 11D of the Act to be a valid piece of legislation but quashed the impugned show-cause notices due to the lack of authority and proper machinery provisions for adjudication. The court preserved the liability created under Section 11D, allowing for future enforcement once the necessary machinery provisions were enacted.

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