2015 (5) TMI 500 - SC - Central Excise

Recovery of excise duty without issuance of show cause notice - useless formality theory - Scope of section 11A - area based exemption was Nullified with retrospective effect - In the case of R.C. Tobacco Private Ltd. & Anr. v. Union of India & Anr. 2005 (9) TMI 80 - SUPREME COURT OF INDIA Apex Court has upheld the withdrawal of retrospective exemption - general theory of fair treatment - Violation of principle of natural justice - Held that - It, cannot be denied that principles of natural justice are grounded in procedural fairness which ensures taking of correct decision and procedural fairness is fundamentally an instrumental good, in the sense that procedure should be designed to ensure accurate or appropriate outcomes. In fact, procedural fairness is valuable in both instrumental and non-instrumental terms. Courts have consistently insisted that such procedural fairness has to be adhered to before a decision is made and infraction thereof has led to the quashing of decisions taken. In many statutes, provisions are made ensuring that a notice is given to a person against whom an order is likely to be passed before a decision is made, but there may be instances where though an authority is vested with the powers to pass such orders, which affect the liberty or property of an individual but the statute may not contain a provision for prior hearing. But what is important to be noted is that the applicability of principles of natural justice is not dependent upon any statutory provision. Appellant was accorded certain benefits under Notification dated July 08, 1999. This Notification stands nullified by Section 154 of the Act of 2003, which has been given retrospective effect. The legal consequence of the aforesaid statutory provision is that the amount with which the appellant was benefitted under the aforesaid Notification becomes refundable. Even after the notice is issued, the appellant cannot take any plea to retain the said amount on any ground whatsoever as it is bound by the dicta in R.C. Tobacco (2005 (9) TMI 80 - SUPREME COURT OF INDIA). It is important to note that as far as quantification of the amount is concerned, it is not disputed at all. In such a situation, issuance of notice would be an empty formality and we are of the firm opinion that the case stands covered by useless formality theory . Non-issuance of notice before sending communication dated June 23, 2003 has not resulted in any prejudice to the appellant and it may not be feasible to direct the respondents to take fresh action after issuing notice as that would be a mere formality. - Section 154(4) specifically and expressly allows amounts to be recovered within a period of thirty days from the day Finance Bill, 2003 received the assent of the President. It cannot but be held therefore that the period of six months provided under Section 11-A would not apply. When the Court was conscious of the principle laid down in J.K. Cotton 1987 (10) TMI 51 - SUPREME COURT OF INDIA and explained the same in a particular manner while deciding the appeal in R.C. Tobacco 2005 (9) TMI 80 - SUPREME COURT OF INDIA , it cannot be argued that the judgment in R.C. Tobacco (supra) runs contrary to J.K. Cotton 1987 (10) TMI 51 - SUPREME COURT OF INDIA - Decided against assessee.

Summary

Issues Involved:
1. Whether order of the Single Judge at pre-deposit stage can operate as res judicata on merits?
2. Whether recovery proceedings can be initiated without show-cause notice under Section 11A of the Excise Act, which is mandatory?
3. Whether there is a conflict between the three Judge Bench judgment in J.K. Cotton and R.C. Tobacco?

Detailed Analysis:

Issue 1: Res Judicata Effect of Single Judge's Order at Pre-Deposit Stage
The appellant challenged the recovery orders passed by the respondents, arguing that no recovery proceedings could be initiated without a show-cause notice under Section 11-A of the Excise Act. The High Court dismissed the writ petitions, and the Division Bench affirmed the dismissal, invoking the principle of res judicata. The Supreme Court held that the observations made by the learned Single Judge were prima facie in nature and primarily focused on the issue of pre-deposit, not the merits of the case. Hence, the Division Bench's invocation of res judicata was incorrect. The Supreme Court decided to hear the appeal on merits, emphasizing that the Single Judge's order could not be treated as res judicata.

Issue 2: Necessity of Show-Cause Notice for Recovery Proceedings
The appellant argued that the impugned demand was in the nature of adjudication, requiring a show-cause notice and a right of hearing. The Supreme Court acknowledged the fundamental principle that before taking any adverse action, the requirement of principles of natural justice must be fulfilled. It cited precedents emphasizing the necessity of procedural fairness and the right to a fair hearing. The Court concluded that there was a requirement for issuing a show-cause notice by the Deputy Commissioner before passing the recovery order, irrespective of whether Section 11A of the Act was applicable. However, the Court also noted that principles of natural justice are flexible and must be applied based on the context and potential prejudice to the affected party.

Issue 3: Conflict Between J.K. Cotton and R.C. Tobacco Judgments
The appellant contended that the judgment in R.C. Tobacco (a two Judge Bench) conflicted with the three Judge Bench judgment in J.K. Cotton. The Supreme Court noted that the judgment in J.K. Cotton was specifically considered and distinguished in R.C. Tobacco. The Court in R.C. Tobacco had addressed the retrospective imposition of excise duty and the applicability of Section 11-A, concluding that the period of six months provided under Section 11-A would not apply due to the specific provisions in Section 154(4) of the Finance Act, 2003. Therefore, the Supreme Court found no conflict between the two judgments.

Conclusion:
The appeals were dismissed. The Supreme Court held that the order of the Single Judge could not operate as res judicata on merits, a show-cause notice was mandatory before initiating recovery proceedings, and there was no conflict between the judgments in J.K. Cotton and R.C. Tobacco. The Court also applied the "useless formality theory," concluding that remanding the case for issuing a show-cause notice would be futile given the binding precedent in R.C. Tobacco.