Conversion of SCN under One enactment to another

PJ/Case Laws/2011-12/1322

Conversion of SCN under One enactment to another - permissibility of

Case: THE COMMISSIONER OF CUSTOMS Vs M/s KESAR MARBLE & GRANITES & ORS

Citation: 2011-TIOL-381-HC-KAR-CUS

Issue:- Demand cannot be confirmed with out issuance of show cause notice.

Show cause notice issued under one enactment cannot be converted into being issued by anther enactment by way of issue of letter.

Brief Facts:- Respondent-assessees was served with show cause notice under Section 124 of the Customs Act, 1962 demanding duty and proposing to impose penalties. Assessee contended that the provisions of the Customs Act were not applicable to the present case.

Realizing their mistake, Revenue issued Letter dated 12.12.2000 for demand of duty under the provisions of the Central Excise Act. Assessees contended that the said Letter cannot be construed either as a corrigendum or addendum to the original show cause notice because it completely changes the basis of demand and the very complexion of the show cause notice. They relied on the judgment of the Apex Court in METAL FORGING vs UNION OF INDIA [2002 (146) ELT 241 (SC)] wherein it was held that a show cause notice was mandatory requirement for raising demand and that communications, orders, suggestions or advises from Department cannot deemed to be a show cause notice and therefore, it was urged that the said demand is unsustainable. They also contended that the activity of cutting and polishing of granites amount to manufacture only from 1.3.2006 in view of the Budgetary changes in 2006. Therefore, the alleged clandestine removal of granite slabs for the period from 1996-2000 does not amount to manufacture and hence no excise duty is payable.

The Adjudicating Authority over-ruled the objections and demanded duty under the Excise Act as well as the penalty.

Aggrieved, assessee filed appeal to the Tribunal. The Tribunal followed the judgment of the New Delhi Tribunal in the case of S.T.L. EXPORTS LIMITED v/s CC INDORE [2004 (168) ELT 272 (TRI. DEL] wherein it was held that the demand transformation from excise duty to customs duty belatedly more than 2 years from original notice is not permissible especially if at stage of reply to notice the Department did not realize its mistake. The Tribunal held that the enquiry notice issued under the Customs Act was not proper by issuing a letter, no demand of duty under the Excise Act could be made. A valid show cause notice being a condition precedent before levy of duty, in the instant case there was no valid show cause notice issued under the provisions of the Central Excise Act. Therefore, Impugned order was set aside.

Aggrieved by the same, Revenue is in appeal before the High Court.

Appellant’s Contention:- Revenue contended that once the assessee objected to the show cause notice that he is not liable to pay any customs duty, realising the mistake a corrigendum by way of a letter was issued converting the demand from customs duty to excise duty and therefore, no prejudice or hardship is caused to the assessee by such act and the Tribunal was in error in holding that the show cause notice is not valid and legal.

Reasoning of Judgment:- The High Court held that in the light of judgments relied on by the Tribunal where it has been held a valid show cause notice is a sine quo non before any duty and penalty is levied on the assessee coupled with the fact: a show cause notice issued under one enactment cannot be converted into a notice under another enactment, the High Court is satisfied that the show cause notice proceeding the demand is not a valid one. Moreover, prior to 1996 cutting of granite was not treated as a manufacture. It is from 1.3.2006 cutting and polishing of granites is treated as manufacturing activity attracting payment of excise duty. On facts, no case made out on Merits.

Decision:- Appeal dismissed.

Comment:- There is very important decision wherein the Hon’ble High Court has clearly held that the demand under one enactment cannot be converted into other by issue of Adjoiner to show cause notice. The department normally tries to cover their case. Such type of practice is normally followed by them to prove their case. But such an approach is clearly against the spirit of law as held in impugned order.

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PJ/Case Laws/2011-12/1322

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