1970 (8) TMI 32 - HC - Central Excise

Summary

Issues Involved:
1. Legality of five notices of demand for recovering excise duty.
2. Order of detention dated June 17, 1964.
3. Seizure of documents by Central Excise Department.
4. Compliance with principles of natural justice.
5. Whether the Mills Company was the manufacturer of the cloth in question.
6. Right to a hearing before issuing demand notices.
7. Adequacy of the evidence and opportunity to rebut.

Detailed Analysis:

1. Legality of Five Notices of Demand:
The petitioners challenged the legality of five notices of demand issued for recovering excise duty. The notices were dated June 17, 1964, June 26/29, 1964, June 30/July 1, 1964, July 23/24, 1964, and August 18, 1964. The petitioners contended that these notices were issued without proper compliance with the provisions of law and without giving them a fair opportunity to be heard, thereby violating the principles of natural justice.

2. Order of Detention:
The petitioners also challenged an order of detention dated June 17, 1964, which was issued in connection with the recovery of excise duty. This order was a direct consequence of the first notice of demand and was therefore also contested on similar grounds of legality and fairness.

3. Seizure of Documents:
The Central Excise Department seized books of account, documents, vouchers, and other papers from the office premises of the petitioner company on March 18, 1963. This seizure was challenged in a writ petition filed on April 8, 1963. The petitioners argued that the seizure was not conducted in accordance with the provisions of law.

4. Compliance with Principles of Natural Justice:
The petitioners argued that the impugned notices of demand were issued without giving them a hearing or an opportunity to show cause against the conclusions arrived at by the excise authorities. The notices did not indicate the basis or evidence on which the conclusions were drawn, making the process arbitrary and in violation of the principles of natural justice.

5. Whether the Mills Company was the Manufacturer:
The petitioners contended that the Mills Company had not engaged any powerloom owners or weavers for manufacturing cloth in the sectors mentioned in the notices of demand. They argued that the Mills Company was not the manufacturer of the cloth and, therefore, not liable for payment of excise duty. The respondents, however, maintained that documentary evidence showed that the Mills Company was manufacturing cotton fabrics on powerlooms and was liable for the excise duty.

6. Right to a Hearing:
The petitioners argued that they were entitled to a hearing and an opportunity to explain the circumstances before the issuance of the demand notices. They cited various Supreme Court decisions to support their claim that assessing authorities exercise quasi-judicial functions and must act in a judicial and independent manner. The respondents, however, contended that the Mills Company was not entitled to any hearing in connection with the issuance of the demand notices and that the assessment was an administrative act.

7. Adequacy of Evidence and Opportunity to Rebut:
The petitioners argued that the evidence and material on which the excise authorities relied were not disclosed to them, and they were not given an opportunity to rebut the same. The respondents, on the other hand, claimed that the Mills Company was aware of the nature of the charge against it and had been given adequate time to respond. They also argued that the Mills Company had obstructed the investigations and refused to disclose relevant information.

Judgment:

The Court held that the impugned notices of demand were issued without giving a proper opportunity to the Mills Company to show cause. The Court emphasized that the principles of natural justice require that the materials on which the authorities relied should be disclosed to the affected party, and an opportunity should be given to explain and rebut the evidence. The Court cited various Supreme Court decisions to support its view that inquiries under Rule 9(2) of the Central Excise Rules are quasi-judicial in nature and must comply with the principles of natural justice.

The Court concluded that the impugned notices of demand and the detention order were invalid and liable to be struck off. The rule was made absolute in terms of prayer (a) of the petition, setting aside the detention order dated June 17, 1964, with a six-week stay on the order's operation. There was no order as to costs.