1991 (3) TMI 139 - HC - Central Excise

Summary

Issues Involved:
1. Validity of the observations and directions given by the Court in W.P. No. 19994/81 in light of Supreme Court decisions in Gokak Patel's case and J.K. Cotton Mills' case.
2. Validity of the demand made as per the letter dated 2-5-1986 under Section 11A of the Central Excises Act.
3. Whether the impugned demand is barred by the limitation prescribed under Section 11A(1).

Issue-wise Detailed Analysis:

1. Validity of the Observations and Directions in W.P. No. 19994/81:
The petitioner contended that the observations made by this Court in W.P. No. 19994/81 are no longer good law in view of the Supreme Court's decisions in J.K. Cotton Mills' case and Gokak Patel's case. The Supreme Court in J.K. Cotton Mills' case held that Rules 9 and 49 of the Central Excise Rules, both before and after amendment, require excise duty to be paid on goods produced and consumed within the factory. The amendment introduced 'deemed removal' to levy excise duty on goods produced in a factory and used in the manufacture of other goods. The Supreme Court also emphasized that any demand must be made within six months from the date of amendment, subject to Section 11A of the Act. Similarly, in Gokak Patel's case, the Supreme Court held that a show cause notice is mandatory for recovering any duty not paid, and without such notice, the demand is invalid.

2. Validity of the Demand Made as per the Letter Dated 2-5-1986:
The petitioner argued that the demand was made without an order of adjudication and in defiance of the mandatory requirements of Section 11A(2). The Department contended that no adjudication was necessary after the dismissal of the writ petition and relied on Rule 173-I of the Central Excise Rules. However, the Court found that the procedure under Chapter VII-A of the Rules does not apply to cases where the levy and collection of duty are stayed by a court order. The Court emphasized that Section 11A(1) and (2) requires a show cause notice and adjudication by the Assistant Collector before any demand can be made. The Department's failure to follow this procedure rendered the demand invalid.

3. Limitation Prescribed Under Section 11A(1):
The Court noted that the demand for duty must be made within six months from the date of the monthly returns, extended by the period of the stay order. The Supreme Court in J.K. Cotton Mills' case held that the retrospective application of Rules 9 and 49 is subject to the limitation imposed by Section 11A. The Court observed that the directions in Para 47 of the order in W.P. No. 19994/81, which allowed the respondents to recover amounts ignoring the bar of limitation, are not good law in light of the Supreme Court's decisions. The demand made without issuing a show cause notice within the prescribed period is barred by limitation and invalid.

Conclusion:
The Court concluded that the demand notice dated 2-5-1986 was made without authority of law and is therefore illegal. The writ petition was allowed, and the demand letter was quashed. The petitioner was entitled to a refund of the excise duty paid in installments. The Court also noted the Department's lack of vigilance in issuing the notice for recovery of the arrears and emphasized the importance of following the statutory procedure to avoid losing large revenue on technical grounds.