EFFECT OF SHOW CAUSE NOTICE ASKING FOR REPLY SAME DAY AND ORDER PASSED NEXT DAY

[Mr. M. GOVINDARAJAN]

                        The provisions of Central Excise Act, 1944 (‘Act’ for short) give powers to the Central Excise Office to recover the duties from the assessees.   Before initiating action to recover the duty show cause notice is to be issued to the assessee by giving reasonable opportunity of being heard.  In ‘Ganesh Polytex Limited V. Union of India’ – 2010 -TMI - 201882 – (ALLAHABAD HIGH COURT) a different situation came to the consideration of the High Court. 

                        In this case the petitioner is manufacturing Recycled Polyester Staple Fibre.  It is neither an excisable goods nor any excise duty is leviable on the same.   The petitioner in the returns filed showed them as non excisable goods.  A notice under Sec. 11A of the Act was issued to the petitioner for charging excise duty on the said non excisable products.   The petitioner filed reply which was decided against the petitioner.  The Commissioner of Central Excise (Appeals) allowed the appeals.   The Tribunal, on the file of appeal by the Department dismissed the appeal filed by the Department.  The petitioner filed his cross objection in support of the order of the Commissioner (Appeals).   The Tribunal disposed the cross objection of the petitioner accordingly.  The Tribunal, in their order, upheld that the goods manufactured by the petitioner were non excisable goods in view of Note 1 of Chapter 54 of the Schedule of Central Excise Tariff Act. 

                        Under Sec. 37B of the Act instructions were issued by the Department in which certain goods were explained to be excisable goods.   On the basis of these instructions the Department issued notices on 14.7.2010, 27.7.2010 and 02.08.2010 demanding excise duty from the petitioner before the clearance of the goods.  The petitioner filed replies.  The Department, instead of deciding the matter by speaking order, seized the goods of the petitioner and also the truck.  The petitioner filed writ petition against the same.  The said writ petition was entertained but the prayer for challenging the notices were decided and the petitioner was asked to file its reply before the competent authority and the Department was restrained from interfering with the functioning of the petitioner’s factory. 

The Department against issued a show cause notice dated13.08.2010 asking the petitioner to execute a bond for the amount of assessable value likely to be cleared during the month.   For this action also the petitioner filed a writ petition before the High Court.  The said writ petition was also entertained and interim order was granted.   However the Court clarified that it would be open to the Department to decide the question of classification of the goods manufactured by the petitioner. 

During the pendency of the writ petitioners, a show cause notice dated 03.09.2010 was sent to the petitioner to show cause on the same day as to why the product manufactured by them may not be under the heading mentioned in the show cause notice.  The petitioner submitted that the said notice was served late in the evening at about05.30 P.M., The offices of the Department were also closed.   Therefore it was not possible to file any objections on the same day.  The Department passed an order in the next day i.e., 04.09.2010 holding that the goods manufactured by the petitioner are covered under the heading CSH 5503 20 00, 5506 20 00, 5505 10 90, 5053 30 00 and 5503 40 00.   The petitioner filed an application in the second writ petition.  No amendment has been made amending the second writ petition challenging the order dated 04.09.2010 but agreed that the writ petitioners may be decided finally and the validity of the order dated 04.09.2010 may be considered.   The petitioner submitted before the High Court that- 

• ·No reasonable opportunity was given before passing the order dated 04.09.2010.   The notice dated 03.09.2010 was received late in the evening asking them to appear and show cause on the same day.   No objection could also be filed as the case was decided next day;
• ·The instructions issued by the Board can neither override the statutory provisions contained in Note 1 Chapter 54, a part of the Tariff Act;
• ·The judgment of the Tribunal is in favor of the petitioner.   The instruction of the Board can neither override it nor nullify it;
• ·The Note No. 1 of Chapter 54 applies to all chapters and is also applicable to Chapter 55;
• ·If Note 1 of Chapter 54 is taken into account then the goods manufactured by the petitioner are not excisable goods and this was also so held by the Tribunal.

The Department did not dispute the first two submissions of the petitioner but submitted that the instructions merely explain the statutory provisions and do not contravene them.   The principles of res judicata are not applicable in taxing statutes.

The High Court held that the notice dated 03.09.2010 was served the same day in the evening.  The order classifying the petitioner’s goods was passed on the next date.   The petitioner’s goods were earlier held to be non excisable by the Tribunal.   The instructions may be issued under Section 37-B of the Act but it is doubtful if they can nullify a judgment though principles of res judicata do not apply in taxing statutes.  The High Court is the of the opinion that the present issue is not such an issue that could be decided in such a shoddy manner without affording reasonable opportunity to the petitioner.  The order passed by the Department is against the principles of Natural Justice.  The order is illegal and the same is set aside. The High Court further gave directions that the petitioner may appear before the Assistant Commissioner and file objections against the notice dated 03.09.2010 with the relevant supporting material.   It would open to the petitioner to take all objections against the same.  Thereafter the Department may decide the same in accordance to law after hearing the petitioner. 

            The High Court also directed to follow the interim arrangement as detailed below, till the question of classification of the petitioner’s goods is decided:

• ·The petitioner has already given bond to the Excise Department  and it would be entitled to remove the goods without payment of any excise duty till it is exhausted;
• ·In case, the aforesaid bond is exhausted, the petitioner may be asked to furnish another bond;
• ·In case bonds are filed as noted, the Department shall not interfere in the functioning of the factory or clearing of the goods by the petitioners unless order classifying the goods are passed against the petitioner for which the aggrieved party will have right to take legal proceeding against the same