2014 (5) TMI 95 - HC - Central Excise

Validity of Section 11D - Duty demand - Held that - three conditions are necessary before Section 11D could apply - (1) There must be a liability to pay excise duty in respect of the goods manufactured by the petitioner; (2) an amount in excess of the duty assessed/determined ought to have been collected by the petitioner; and (3) the collection of the excess amount should be representative of the duty of excise. In this context Mr Tripathi submitted that the petitioner manufactures aluminium. Excise duty is a duty on manufacture. Therefore, the excise duty liability of the petitioner would be the excise duty payable on aluminium . Insofar as the aluminium manufactured by the petitioner is concerned, the duty that was payable by the petitioner has been paid and there is no issue with regard to this. As such the petitioner has not collected any excise duty which the petitioner was liable to pay in excess of what the petitioner was assessed on in respect of the aluminium produced by it. Therefore, there is no question of the applicability of Section 11D. Conditions precedent for invoking Section 11D have not been satisfied. Section 11D( 1) has specific reference to a person who is liable to pay duty under the Act. In the present case it is Hindalco which is that person. Hindalco s liability to pay duty is in respect of the aluminium manufactured by it inasmuch as a duty of excise is a duty on manufacture and not on the sale of any product. Insofar as aluminium is concerned the price charged for it is by virtue of the Aluminium Control Order. The duty leviable on aluminium based on such price has been collected and paid by Hindalco . There is no excess on this account. Therefore, the question of invoking Section 11D would not arise - Decided in favour of assessee.

Summary

Issues Involved:
1. Constitutional validity of Section 11D of the Central Excise Act, 1944.
2. Violation of principles of natural justice.
3. Retrospective application of Section 11D.
4. Applicability of Section 11D to the petitioner.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 11D:
The petitioner challenged the constitutional validity of Section 11D of the Central Excise Act, 1944, claiming it was ultra vires Articles 14, 19(1)(g), and 300A of the Constitution of India. However, the petitioner's counsel suggested that Section 11D could be interpreted in a manner that would avoid the constitutional challenge.

2. Violation of Principles of Natural Justice:
The petitioner argued that the demand notice dated 16.02.1994 was issued without a preceding show cause notice or an opportunity for the petitioner to explain its case, constituting a violation of the principles of natural justice. The court agreed with this contention, stating that the demand notice without a show cause notice was bad in law, even without considering sub-Sections (2) and (3) of Section 11D, which were retrospectively effective from 20.09.1991. This principle was supported by the decision in Union of India v. Madhumilan Syntex Pvt. Ltd., 1988 (3) SCC 348.

3. Retrospective Application of Section 11D:
The petitioner contended that Section 11D, introduced on 20.09.1991, did not have retrospective operation. The Department argued that Section 11D applied retrospectively, especially since the High Court's decision exempting Renusagar Power Company from excise duty came in 1993, making the excise duty element on electricity surplus in the petitioner's hands. The court sided with the petitioner, stating that Section 11D was not expressly made retrospective, and there was no basis to infer its retrospective operation. The court referenced the Supreme Court decision in Hindustan Metal Pressing Works v. Commissioner of Central Excise, Pune, (2003) 3 SCC 559, which supported the prospective application of Section 11D.

4. Applicability of Section 11D to the Petitioner:
The court examined whether the conditions for invoking Section 11D were met. The petitioner argued that:
- There must be a liability to pay excise duty on the goods manufactured.
- An amount in excess of the duty assessed/determined must have been collected.
- The excess amount collected should represent the duty of excise.

The petitioner contended that it had paid the excise duty on aluminium manufactured, and there was no excess collection representing excise duty. The Department argued that the price of aluminium included an element of excise duty on electricity, implying an excess collection. The court agreed with the petitioner, stating that Hindalco's liability was for excise duty on aluminium, not on electricity. Since the duty on aluminium was paid, there was no excess collection, and thus, Section 11D did not apply.

Conclusion:
The impugned demand notice dated 16.02.1994 was quashed due to the violation of principles of natural justice and the inapplicability of Section 11D. The writ petition was allowed, and there was no order as to costs.