1996 (7) TMI 146 - SC - Central Excise

Whether the notice issued was time-barred under Rule 10 Held that - In view of the fact that the notice fails to refer to any of the acts of commission or omission enumerated in the relevant proviso to Rule 10, the notice, given more than six months after the date of the order of refund, is time-barred. Put differently, the Superintendent who issued it had no authority to do so. Appeal allowed of assessee.

Summary

Issues:
1. Interpretation of Rule 10 of the Central Excise Rules, 1944 regarding the time limit for issuing a notice for recovery of duty.
2. Whether the demand for recovery of duty was justified based on the circumstances of the case.
3. Compliance with principles of natural justice in issuing a show cause notice under Rule 10.

Detailed Analysis:
1. The case involved an appeal against the judgment of a Division Bench of the High Court at Allahabad dismissing a Writ Petition. The appellants, who manufactured sugar, claimed exemption under an Exemption Notification dated 28th April, 1978. An order was issued granting rebate on excess production of sugar. Subsequently, a notice was issued demanding recovery of an allegedly erroneously sanctioned rebate. The appellants contended that the notice was time-barred under Rule 10 as it was issued beyond the stipulated period of six months. The Assistant Collector confirmed the demand, alleging wilful misstatement and suppression of facts by the appellants.

2. The appellants challenged the demand in a Writ Petition, arguing that the demand for recovery could not be raised due to the limitation period under Rule 10. The High Court upheld the demand, stating that the proviso to Rule 10 allowed a notice within five years in cases of fraud or wilful misstatement. The Assistant Collector found that the appellants had concealed facts and made misstatements to evade duty payment. The Supreme Court, however, held that the demand was time-barred as the notice did not specify any fraudulent acts within the proviso to Rule 10.

3. The Supreme Court emphasized the importance of natural justice in issuing show cause notices under Rule 10. It stated that the notice must clearly allege collusion, wilful misstatement, or suppression of facts to extend the limitation period to five years. Citing a previous judgment, the Court highlighted that failure to specify the alleged misconduct in the notice deprives the party of the opportunity to defend against the allegations. As the notice in this case did not mention any of the enumerated acts, the Court ruled it was time-barred and set aside the judgment, directing the refund of the demanded amount to the appellants.

In conclusion, the Supreme Court allowed the appeal, set aside the judgment of the High Court, and directed the refund of the demanded amount to the appellants, emphasizing the necessity of complying with principles of natural justice in issuing show cause notices under Rule 10 of the Central Excise Rules, 1944.