1971 (1) TMI 50 - SC - Central Excise

Whether in order to constitute short-levy, some amount should have been assessed as payable by way of duty so as to make R. 10 applicable? Whether the demands could be justified under Rule 9 (2)? Held that - By the interpretation placed by us on Rule 10, the position will be that an assessee who has been assessed to the smaller amount as well as an assessee who has been assessed to nil duty will all be put on par and that is what is intended by Rule 10.The above reasoning leads to the conclusion that Rule 10-A does not apply to the case on hand. There is absolutely no material placed before us by the appellants which would justify the issue of the notice under Rule 9 (2). The proper provision under which action should have been taken if at all is Rule 10. The demands having admittedly been made long after the expiry of the period of three months, referred to in the said rule, it follows that the demands were not valid. The High Court was justified in striking down the notices dated November 3, 1961 Ex. G. as well as the demand dated December 2, 1961 under Ex. H. Appeal dismissed.

Summary

Issues Involved:
1. Validity of demand notices issued under Rule 9, Rule 10, and Rule 10-A of the Central Excise Rules, 1944.
2. Interpretation of "short levied" and "paid" in Rule 10.
3. Applicability of Rule 10-A and Rule 9(2) in this context.

Detailed Analysis:

1. Validity of Demand Notices Issued Under Rule 9, Rule 10, and Rule 10-A:
The respondents contested the validity of demand notices dated November 3, 1961, and December 2, 1961, arguing that neither Rule 9 nor Rule 10-A empowered the appellants to issue such notices. They asserted that Rule 10 was the applicable rule and that the demands were barred by the three-month limitation period prescribed in Rule 10. The appellants contended that Rule 10 did not apply as no initial amount was levied, and therefore, Rule 10-A or alternatively Rule 9(2) was applicable.

2. Interpretation of "Short Levied" and "Paid" in Rule 10:
The court examined the meaning of "short levied" and "paid" in Rule 10. The appellants argued that Rule 10 applied only when some duty had been assessed and paid, and later found to be deficient. The respondents, however, contended that "paid" should be interpreted as "ought to have been paid," making Rule 10 applicable even in cases of nil assessment. The court agreed with the respondents, stating that the expression "paid" should be read as "ought to have been paid" to avoid rendering Rule 10 inapplicable in cases of nil assessment. The court further noted that the entire duty later assessed should be considered as the duty originally short-levied.

3. Applicability of Rule 10-A and Rule 9(2):
The court held that Rule 10-A was incorporated to cover cases not specifically provided for by other rules, such as the increased levy due to a change in law. However, in this case, the specific provision for recovery of short-levy was provided by Rule 10, making Rule 10-A inapplicable. The court also found that Rule 9(2) did not apply as the goods were not removed clandestinely or without assessment. The respondents had complied with sub-rule (1) of Rule 9 by obtaining the necessary permissions and assessments, even though the assessments were of nil duty.

Conclusion:
The court concluded that Rule 10 was the applicable provision for the recovery of duties short-levied or erroneously refunded. Since the demand notices were issued beyond the three-month limitation period specified in Rule 10, they were deemed invalid. The High Court was justified in quashing the notices dated November 3, 1961, and December 2, 1961. The appeal was dismissed with costs.