SCN can be issued only after finalization of provisional assessment and not on the basis of provisional assessment.

Cases: - AVERY INDIA LTD VERSUS UNION OF INDIA

Citation: -2011 (268) E.L.T. 64 (Cal.)

Issue: - Show Cause notice can be issued only after finalization of provisional assessment and not on the basis of provisional assessment.

SCN based on same set of facts for which earlier SCN issued – not sustainable.

SCN issued after expiry of five years of limitation period – not sustainable.

Writ Petition against Show cause notice when alternative remedy exists - maintainable if violation of natural justice.

Brief Facts: - Petitioner no. 1 manufactures interalia weighing machines, Scales, weigh bridges, and part thereof which are excisable goods falling under Chapter 72.00, 84.00, and 90.00 of Central Excise Tariff act, 1985. On the charge that the petitioner had undervalued the excisable goods by removing them for repairing and/or servicing and therefore, there was short payment of duty on spare parts during the period from April, 1986 to February, 2002.

In 1991, a search was conducted by Central Excise Authority interalia at the registered office of petitioner no 1 as well as its manufacturing unit and the various document was seized. According to the petitioner, the seized documents were still in custody of the respondent authorities.

The Show causes notice dated 05.03.1992 was issued to the petitioner for the financial year 1986 to December, 1991. Order of adjudication was passed against which the petitioner filed an appeal along with stay petition before the Tribunal.

Appeal was allowed by an Order dated 29.09.1993 and matter was remanded for de novo adjudication in the light of settled legal position with regard to the maintainability of a show cause notice under Section 11A of the Central Excise and Salt Act, 1994 when the assessment was provisional.

On 12.04.2002 the petitioner received the impugned Notice dated 27.03.2002 issued by Assistant Commissioner calling upon Petitioner for recovery of duty for the period from April 1986 to February, 2002 under Rule 9(b)of the Central Excise Rules, 1944 and Rule 7 of the Central Excise Rules, 2001, on the basis of certain documents and records for calculating the duty amount. But these records where not provided alongwith the SCN.

Petitioner filed writ petition in 2005 which was disposed of by an order dated 24.02.2005, where by the Excise Authorities were directed not to proceed with the adjudication proceeding, without supplying copy of document relied upon on the show cause notice, but to no effect. Several letters were sent by the petitioner asking fot the documents relied upon but no documents were provided by the Department.

According to the petitioner, they wrote a letter dated 22.12.2005 calling upon the respondent Commissioner to supply copies of document relied upon in the show cause notice , in terms of the order dated 24.02.2005, within a fortnight, failing which it would be deemed that the respondents did not intend to proceed with the impugned show cause notice any further. No reply was received by the petitioner.

Thereafter, petitioner-assessee filed the present writ petitions seeking orders for restraining the respondent-excise authorities from further proceeding against the petitioner on the basis of the impugned show cause notice dated 27.02.2002 as respondent had not furnished the records on which the said SCN was issued.

Thereafter, respondent-authorities issued communication dated 07.05.07 informing petitioners that only documents relied were the SCN dated 05.03.1992 and the appellate order dated 29.09.1993.

Reasoning of Judgments: - The High Court noted that the perusal of the Communication dated 07.05.07 it is clear that there were no materials with the respondent, other than the materials on the basis of the which SCN dated 05.03.1992 was issued. Nothwithstanding the appellate order remanding the proceedings started pursuant to the SCN dated 05.03.1992 for fresh adjudication, on the issue of maintainability of a SCN under Section 11A of the CEA, 1944 when the assessment was provisional, the respondent-Authority did not decide the aforesaid issue. Instead of de novo adjudication, the respondent-authorities issued the second show cause notice which inter alia covers the period covered by the earlier show cause notice dated 05.03.1992.

The High Court perused Rule 7 of the Central Excise Rules, 2002 relating to provisional assessment and noted that it is patently clear that the provisional assessment can only be made upon the request of the assessee in writing. There can be no provisional assessment in the absence of request from the assessee. In this case, there was apparently no request from the petitioners for provisional assessment. It was held that in any case, the provisional assessment could only be made where the assessee was unable to determine the value of excisable goods on account of unavailability of documents or information or where there doubts with regard to the correct classification of goods.

The High Court rejected the suggestion of respondent-authorities that impugned SCN was not issued under Section 11A of CEA, 1994 but a SCN was for finalization of provisional assessment on the ground that there is no provision in the Central Excise Act, 1944 or the Rules and Regulations made there under for issuance of show cause notice for finalization of the provisional assessment.

The High Court held that petitioner has rightly pointed out that provisional assessment had to be finalized by the Assistant Commissioner within a period not exceeding six months from the date of communication of the order of provisional assessment. The Commissioner could, for sufficient reasons, recorded in writing extend the time for finalization of assessment by another 6 months. If assessment was not finalized within one year also, the Chief Commissioner could grant further extension for such period as he found reasonable, provided there were good and sufficient reasons for the inability to complete assessment within one year. It would, however, be obligatory for the Chief Commissioner to records reasons. In the instant case, there does not appear to be any order of extension and in any case, no reasons have been disclosed. The time for finalization of provisional assessment had long expired.

It was held that the impugned show cause notice suffered from complete non-application of mind and apparent inconsistencies. The impugned show cause notice is in effect and substance, a show cause notice under Section 11A could not have been issued as long as assessment was provisional. It was noticed that although SCN was for finalization of provisional assessment but on the second page it is mentioned that now that provisional assessment is finalized. This shows non-application of mind and show cause notice is liable to be set aside.

It was further noted that no documents were disclosed to the petitioner except earlier SCN dated 05.03.1992 and the Appellate Order passed in that SCN. It was also noted that respondent-authorities in their affidavit-in-opposition have stated that records pertaining to the SCN dated 27.03.2002 have gone missing and for that an FIR has also been filed. But on the other hand they have only supplied the SCN dated 05.03.1992 and the appellate order dated 29.09.1993 contending that only those documents and not the documents that have gone missing, were relied upon by the Department for issuance of the impugned SCN.

The High Court held that an earlier petition was filed challenging the impugned SCN interalia on the ground of same being violative of principles of natural justice, since documents relied upon by the respondent-authorities had not disclosed to the petitioners. And they have failed to comply with the order passed in that petition to supply all the documents and this gave rise to fresh cause of action to the petitioners.

It was noted that the proceedings initiated against the petitioner even though were not carried further, but the same could not have been kept pending against the petitioners for an indefinite time. Therefore, as no additional material except SCN dated 05.03.1992 and the appellate order dated 29.09.1993 was in existence, therefore, the impugned SCN was required to be quashed.

Next the High Court took up the issue that whether the writ petition is maintainable against SCN pertaining to the period from 1986 to 2002 issued under Section 11A (1) of CEA, 1944. The High court perused the provisions of Section 11A and held that it made clear that a SCN has to be issued within one year from the relevant date. Only in exceptional cases of fraud, collusion, willful misstatement or suppression of facts or contravention of the Excise Act or the Rules framed thereunder to evade payment of duty, the proviso to Section 11A (1), which provides for extended period of limitation of 5 years from the relevant date, is attracted.

The High Court held that the impugned SCN issued in 2002 was beyond the period of limitation as the period involved was of the years 1986 to 2001. And there was no allegation of fraud, willful suppression etc with intent of evade payment of duty in the SCN against the petitioner. And the said SCN was issued based on the same facts on the basis of which earlier SCN dated 05.03.1992 was issued. No SCN could in any circumstances have been issued in 2002 for any period prior to 1997.

The High Court relied upon the judgments in the following cases: -

-         M/s P & B Pharmaceuticals (P) Ltd v/s Collector of central Excise [2003 (153) ELT 14 (SC)].
-         ECE Industries Ltd v/s Commissioner of Central Excise, New Delhi [2004 (164) ELT 236 (SC)]
-         Hyderabad Polymers (P) Ltd v/s Commissioner of central Excise, Hyderabad [2004 (166) ELT 151]
-         Nizam Sugar Factory v/s Collector of Central Excise, A.P. [2006 (197) ELT 465]
-         M/s Anand Nishikawa Co. Ltd v/s Commissioner of Central Excise Meerut [2005 (188) ELT 149]

The High Court held that for invocation of extended period of limitation, the reasons were mandatory but no such reasons were given by the respondent-authorities in the case of the petitioners. Therefore, the impugned SCN was barred by limitation. In this regard, reliance was placed on Duncan Industries Ltd v/s Commissioner of Central Excise, New Delhi [2006 (201) ELT 517 (SC)] and it was held that there could be no two assessments for the same period. Therefore, two show cause notices could not have been issued in relation to the same period. Impugned SCN is not sustainable.

It was further held that in view of Rule 53 (2) of CER, 1944 and Rule 10 (3) of CER, 2002, the assessee was required to maintain records only for 5 years and for no period beyond that therefore, if impugned SCN issued beyond 5 years is sustained then the assessee is deprived of the opportunity of presenting effective defence.

On the question whether the High Court should reject the writ petition on the sole ground of existence of the alternative remedy, the High Court discussed the power of the High Court under Article 226 of the Constitution that it was nowhere any limitation on exercise of power by High Court under Article 226 but as a rule of judicial discipline, convenience and policy, the High Court refrain from exercising writ jurisdiction where alternative remedy exists. However, there are exceptions to the said rule of alternative remedy. The petition will not be rejected if there are proceedings initiated in violation of principles of natural justice, without jurisdiction, under a provision of law which is ultra vires or in violation of fundamental rights.

Respondent-authorities did not have authority to issue the impugned SCN after expiry of five years from the relevant date. SCN was in excess of powers. Impugned SCN was without jurisdiction. Further, non-disclosure of documents relied upon in a SCN amounted to denial of natural justice for which a writ petition is directly maintainable. It was also held that as the writ petition was pending for 4 years, it cannot at this time be rejected on the ground of existence of alternative remedy. Impugned SCN and subsequent proceedings held to be not sustainable and are set aside.

Decision: - Writ Petition disposed of accordingly.

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PJ/Case Laws/2011-12/1420

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