2014 (11) TMI 534 - HC - Central Excise

Challenge to the Show Cause Notice - Maintainability of Writ Petition - exemption in respect of petroleum gases and other gaseous hydrocarbons falling under Chapter Heading No.27.11 - Exemption Notification No.157/89-C.E. dated 17.07.1989 - Held that - The impugned show cause notice actually has the effect of destroying the very exemption notification. A careful look at the ad hoc exemption order bearing No.23/3-95-CX dated 24.03.1995 issued by the Under Secretary to the Government of India, Ministry of Finance, Department of Revenue would show that the Government itself was aware of the supply by the 5th Respondent of Polyisobutylene enriched LPG to the petitioner through the pipeline. The petitioner extracts Polyisobutylene and returns the remnant after subjecting it to a process. The exemption Notification as originally issued on 17.07.1989, was actually rescinded by another Notification dated 01.03.1994, when Modvat was extended to petroleum products including LPG. Therefore, when companies like the petitioner made representations, the Government of India decided to restore the exemption by issuing a Notification No.116/94-CE dated 24.06.1994. But during the period from the date of withdrawal of exemption (1.3.1994) and the date of restoration of exemption (23.06.1994), the petitioner was made to pay the full incidence of Excise Duty. Therefore, the Government of India passed an order dated 24.03.1995, directing refund of the Duty paid during the said period. It is clear that the Government of India was fully aware of the nature of the exemption Notification, the nature of the manufacturing process carried on by the petitioner and the entitlement of the petitioner to the benefit. Being an authority functioning under the Government of India, the second Respondent is bound by the exemption Notification as well as the decision taken by the Government of India way back in 1995. Impugned show cause notice is nothing but an attempt to unsettle what was settled for nearly 24 years. What was settled for 24 years was not merely at the level of the Commissioner of Central Excise but at the level of the Government of India as seen from the ad hoc Notification issued in 1995 directing refund. Therefore, the impugned show cause notice is wholly without jurisdiction and nothing but an abuse of the process of law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Maintainability of the writ petition against a show cause notice.
2. Justification for interference with the show cause notice.

Issue-wise Detailed Analysis:

1. Maintainability of the Writ Petition:

The primary objection from Respondents 1 to 4 is that the writ petition challenges only a show cause notice, suggesting that the petitioner should respond to the notice and follow the prescribed legal remedies if an adverse order is passed. The respondents cited multiple decisions where courts have refused to interfere with show cause notices, emphasizing the limited jurisdiction of the High Court under Article 226. However, the court noted that the general rule of non-interference has exceptions, particularly where the show cause notice is issued without jurisdiction or constitutes an abuse of the process of law. The court referenced the Supreme Court's decision in Union of India vs. Vicco Laboratories, which highlighted these exceptions.

2. Justification for Interference with the Show Cause Notice:

The court examined whether the case fell within the exceptions warranting interference. The petitioner receives Poly Butylene Feed Stock (PBFS) from the 5th Respondent and extracts Poly Iso Butylene, returning 83% of the remnants. Since 1989, exemption notifications have been issued for petroleum gases used in manufacturing Poly Iso Butylene, including notifications in 2006 and 2012. The respondents' claim that the petitioner must comply with Rule 6 of the CENVAT Credit Rules, 2004, due to the use of additional materials from other vendors, was scrutinized. Rule 6 mandates maintaining separate accounts for dutiable and exempted goods, or alternatively, paying a percentage on the value of exempted goods if separate accounts are not maintained.

The court found the respondents' reliance on Rule 6 misplaced, noting that the exemption notifications clearly covered the return of petroleum gases after extraction. The longstanding practice and government decisions, including an ad hoc exemption order in 1995, supported the petitioner's entitlement to the exemption. The court concluded that the show cause notice was issued without jurisdiction and constituted an abuse of the process of law, thus justifying interference.

Conclusion:

The writ petition was deemed maintainable, and the court found sufficient grounds to interfere with the show cause notice. The impugned notice was set aside as it attempted to unsettle a settled position of nearly 24 years, contravening the established exemption notifications and government decisions. The writ petition was allowed, and the show cause notice was quashed.