Whether issuance of SCN mandatory even if demand confirmed after giving opportunity of hearing to assessee?

Case:-KANTI BROTHERS VERSUS DY. COMMISSIONER OF CENTRAL EXCISE, KURNOOL

Citation:-2014 (301) E.L.T. 683(Tri.-Bang.)

Brief facts:-Brief facts of the case in the Order-in-Appeal are as under:-

The appellant had cleared refined oils (with a brand name) and soap stock from April, 2003 without payment of duty and later paid duty of Rs. 3,77,656/- and Rs. 1,46,492/- under protest along with interest of Rs. 31,765/-and Rs. 8,230/-, respectively and asked for a speaking order. The appellants contended that they are not required to pay Central Excise duty as the value of clearances in 2002-03 has not crossed Rs. 3 Crores and further stated that the value of refined oils pertaining to March, 2003 has only to be taken for computing the value of clearances of 2002-03 for the reason that duty on refined oils is effective from 1-03-2003 and stated that they are eligible for SSI exemption under Notification No. 8/2003-C.E., dated 1-3-2003 in 2003-04. As the Central Excise duty has been imposed on refined oils in the budget 2003, vide Notification No. 6/2003- C.E., dated 1-3-2003, the appellant is not eligible to avail the SSI exemption as per Notification No. 8/2003-C.E., dated 1-3.2003 which has been amended by Notification No. 30/2003-C.E., dated 14-2003. As per para 3(A) of the Notification No. 8/2003 as amended, for the purposes of determining the aggregate value of clearances of all excisable goods for home consumption, mentioned in clause (vii) of para 2 of the notification, the following clearances, viz.
(a) The clearances of excisable goods without payment of duty -

(i) to a unit in a free trade zone;
(ii) to a unit in special economic zone;
(iii) to a 100% EOU;
(iv) to a unit in an electronic hardware technology park or software technology park;

(b) supplied to the United Nations or International Organizations for their official use or supplied to projects funded by them on which exemption of duty is available under notification of the Government of India in the erstwhile Ministry of Finance (Department of Revenue) No. 108/95-C.E., dated 284-1995.

(c) Clearances bearing a brand name or trade name of another person, which are ineligible for the grant of this exemption in terms of para 4 of the notification.

(d) Clearances of specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified goods.

(e) Clearances of strips of plastics used within the factory of production for weaving of fabrics or for manufacture of sacks or bags made of polymers of ethylene or propylene;

shall not be taken into account and if the aggregate value of clearances for all excisable goods for home consumption by a manufacturer from one or more factories or from a factory by one or more manufacturers did not exceed Rs. 300 lakhs in the preceding financial year exemption will be available in the current year to an SSI unit subject to other conditions. The value of clearances made by the appellant during the financial year 2002-03 was Rs. 2997.41 lakh and these clearances did not fall under any of the exempted categories mentioned above. In view of this position, Department took the view that the appellant is not eligible for SSI exemption for the year 2003-04. Thereafter, the assessee was given a personal hearing of 6-12-2004 and during the hearing the assessee submitted a letter dated 04-12-2004. After taking note of the letter, original authority held that the assessee is not eligible for the benefit of SSI exemption under the Notification No. 8/2003-C.E., dated 1-3-2003 and ordered that the protest made by the assessee while making the payment is vacated and appropriated the amount paid towards the duty liability. An appeal was filed by the appellant-assessee before the Commissioner (Appeals) which was also rejected on merits holding that the assessee is not eligible for the benefit of SSI exemption notification and therefore payment made by the assessee was in order and no further action was required. Hence the present appeal to the Tribunal.

Appellant Contentions:-The learned advocate on behalf of the appellant submitted that it is settled law that for demanding amount of duty arising because of any short levy or short payment, a notice under Section 11A of Central Excise Act has to be issued. He submitted that the appellant had to pay the duty because they were afraid that Department may initiate coercive steps if they do not pay the amount. He submits that in their letter dated 4-12-2004, the appellant had clearly stated that the demand is Ultra Vires and the payment of duty made by them under protest should be refunded to them. The letter also said that payment was made under protest to have a smooth relationship between the assessee and Department. In their letter, they also demanded that first it should be decided by the Department whether the demand issued by the Superintendent was proper, legal and lawful and only thereafter the question of appropriation would arise. He relies upon the decision of the Hon'ble Supreme Court in the case of Metal Forgings v. UOI [2002 (146) E.L.T. 241 (S.C.)] to submit that without issue of a show cause nonce, no demand can be confirmed.

Respondent Contentions:-Learned AR on behalf of the Revenue submits that in this case, the appellant was informed very clearly that they were not eligible for the benefit of SS1 exemption and after the correspondence between the party and the Department only, the appellant made the payment under protest. The question before the Department was whether the payment made under protest was liable to be paid or not and the issue before the lower authorities was whether the appellant was eligible for the benefit. The grievance of the appellant was that if show cause notice was issued, they would have got an opportunity to defend their case. The very fact that the appellants had been informed of their ineligibility to SSI exemption Notification which was availed as Government publication to the public at large and in the regime of self-assessment, an assessee is expected to know the provisions of law and apply the law and the Notifications to the facts of their case, the information given by the Department that they were not eligible for exemption on specific grounds was sufficient to enable the assessee to come to a conclusion about their liability. There was no coercive exercise by the Revenue to collect the money. In any case, after paying money, the Department took steps to vacate the protest and when the personal hearing was given for vacating the protest, the appellants could have definitely given justification as to why they are eligible for exemption and why the payment made by them was wrong. The Department had informed about the provisions of Notification and therefore they cannot say that they were not aware of the allegations. Further she also submits that the Superintendent initiated action after scrutinizing the ER-1 returns files by the assessee. The ER-1 return is a self-assessment document and subject to scrutiny/assessment by the Range Officer. She submits that in this case, question of issue of show cause notice would not arise because there was no short-levy or short-payment and the appellant had paid the entire amount of duty with interest, of course, under protest. She submits that there is no provision for payment under protest either in the Central Excise Rules or provisions at present and therefore the payment already made by the appellant has to be considered in the light of provisions of Section 11A which provides for acceptance of payment made by an assessee under Section 11A(2B) of Central Excise Act. The decision of the Hon'ble Supreme Court in the case of Metal Forgings (supra) related to a period during which the Section 11A as it exists now was not in force. Further there was no self-assessment system also during the relevant period. In view of the fact that provisions of law are not pari materia, the question of application of decision in the case of Metal Forgings to the facts of this case does not arise.

Reasoning of Judgment:- Tribunal has considered the submissions made by both sides. After the year 2003 budget, refined oils were brought into the Central Excise net and consequently the appellant engaged in the manufacture of refined oil became liable to pay Central Excise duty. However, the products were covered by Notification No. 8/2003 which provides for exemption to SSI units. Up to 31-3-2003, the assessee availed exemption. However, Notification No. 8/2003 was also amended by Notification No. 30/2003-C.E., dated 1-4-2003. According to Para 3(A) of the Notification, for the purpose of determining the aggregate value of clearances of all excisable goods for home consumption, certain clearances could be excluded. When the clearances of the assessee was calculated on this basis, the value of clearances during the preceding financial year was found to be about Rs. 29.9 crores rendering them ineligible for the exemption. From 1-5-2003, refined oil started to attract duty of Re. 1 per kg. and the calculation of applicability of SSI exemption does not arise. However, the appellant did not pay any duty in the month of April, 2003 and claimed the benefit of SSI exemption by writing a letter dated 4-4-2003. On 7-11-2003, after getting the details of clearances by corresponding with the assessee, the Range Officer wrote a letter to the assessee on 04-12-2003. Therefore, a demand was raised by Range Officer on 7-11-2003 and further vide his letter dated 2-12-2003, the Range Officer informed them that they are not eligible for the exemption under Notification No. 8/2003 and he also explained why they are not eligible. The assessee replied to the Range Officer on 8-12-2003 wherein they stated that have to obtain legal opinion and requested for three weeks time. On 17-12-2003, the appellant wrote to the Range Officer in reply to the letter dated 4-12-2003 intimating that a show cause notice may be issued to them with all copies of related invoices and documents and when proceeding to their request, they paid the duty under protest amounting to Rs. 5,24,148/-.

The jurisdictional Deputy Commissioner after giving an opportunity to appellant to hear personally and after hearing them on 6-12-2004, passed an order wherein he held that the assesses is not eligible for SSI exemption Notification No. 8/2003-C.E., dated 1-3-2003 and the duty paid by them under protest amounting to Rs. 5,24,148/- with interest was appropriated by him towards duty liability and the protest thereby was vacated.
This order was challenged by the appellant and the appeal was dismissed by the Commissioner (Appeals).

A perusal of the orders of the lower authorities would show that the claim of the appellant all through was that the demand issued by the Range Officer was without any authority and a show cause notice should have been issued to them requiring them to pay duty with copies of relevant notifications and documents. Since this was not done, the original adjudicating authority as well as the appellate authority could not have appropriated the amount already paid by them. The appellant was contending that the appropriation could not have been done by the adjudicating authority and upheld by the appellate authority without issue of a notice demanding the amount under Section 11A and there was no provision to vacate the protest and appropriation of the amount. The very same grounds were urged before the Tribunal. There were no submissions on merit (applicability of Notification) either before lower authorities or before the Tribunal.

During the course of hearing, Tribunal enquired whether there was any provision for payment under protest under law and no specific provision was brought to their notice. However, the Tribunal take note of the fact that one place where the payment under protest finds its place is in the Explanation to Section 11B(1) of Central Excise Act, 1944. This proviso provides that the limitation of one year was not applicable where any duty has been paid under protest. This is contrary to the position existing under erstwhile Central Excise Rules, 1944. Earlier, there was a specific rule for payment under protest under Rule 233 of Central Excise Rules and this rule besides providing for payment under protest also gave the procedure to be followed briefly. However no such provisions exist under the law and either side could not bring any such provision to Tribunal’s notice.

The question now arises whether in this case a show cause notice should have been issued for appropriation of the amount paid by the appellant under protest. Section 11A of Central Excise Act, 1944 is applicable for recovery of duties not levied or not paid or short-levied or short paid or erroneously refunded. It is not the case of either side that there was a short-levy, short payment or non-levy or non-payment or erroneous refund. Therefore, provisions of Section 11A(1) of Central Excise Act would not be applicable at all. However, Section 11A(2B) provides for a situation where there is a short-levy or short-payment or erroneous refund, the person chargeable pays such amount to the Government. The relevant provision is reproduced below:-

Section 11A(2B):-Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person, chargeable with the duty, may pay the amount of duty on the basis of his own ascertainment of such duty or on the basis of duty ascertained by a Central Excise officer before service of notice on him under sub-section (1) in respect of the duty, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the duty so paid :

Provided that the Central Excise Officer may determine the amount of short payment of duty, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of one year" referred to in sub-section (1) shall be counted from the date of receipt of such information of payment.

Explanation 1. - Nothing contained in this sub-section shall apply in a case where the duty was not levied or was not paid or was short-levied or was short-paid or was erroneously refunded by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty.

Explanation 2. - For the removal of doubts, it is hereby declared that the interest under Section 11AB shall be payable on the amount paid by the person under this sub-section and also on the amount of short-payment of duty, if any, as may be determined by the Central Excise Officer, but for this sub-section.

In this case also, apparently, if the Department did not issue any notice pointing out any miscalculation on the part of the assessee while making payment, notice can be issued. Otherwise, after one year of payment, the Department entirely loses the right to make any demand for differential duty on the assessee. What this means is that once an assessee pays the amount, informs the Department and Department does not take action within one year, the issue attains finality for both sides. Therefore in this case, once the appellant paid the amount and Department did not issue notice, the matter should have ended there. Even then, the original adjudicating authority has chosen to adjudicate the matter only for the purpose of vacating the protest which was the requirement when the rules were different. The appellants after making payment, wanted to convert it into a dispute and have asked the Superintendent concerned to issue a show cause notice to them. The law does not contemplate this. Therefore, in terms of statute and in the eyes of statute and in Tribunal’s view, the proceedings initiated by the Department were not required at all for appropriation and vacating the protest. Since payment has attained finality after one year, appeal has no merit.

The observation above would show that Tribunal need not deal with other submissions at all to decide the issue before them. However, the issue is examined in academic interest. On an examination of the correspondence between the appellant and the assessee, it is noticed that it cannot be the case of the appellant that they were not aware of the statutory provisions. The appellants were well aware of the statutory provisions since when the exemption Notification became inapplicable and appellants were required to pay duty on all the clearances, they started paying the same. Moreover from the correspondences we also find that the appellants were informed on what ground they were being required to pay. This was done only after obtaining the value of clearances of all the excisable goods by the appellants during the previous financial year. Appellants submitted the details required by the Department. No appellant can claim ignorance of law and the period covered in this case is the period when the self-assessment procedure had already come into the statute book. It was the duty of the assessee to assess the duty correctly and make the payment. When they did not make the payment, the Department obtained the relevant details and after getting the relevant details informed them that as per the provisions of Notification No. 8/2003, their clearances of all excisable goods had exceeded the limit prescribed in the Notification and therefore they were not eligible for the exemption. The situation would show that even though assessee was required to know the procedure and law, the Department collected the details from them and after collecting the details informed them why they are not eligible. Under these circumstances, we are unable to understand the significance of the demand made by the appellants after making the payment in their letter dated 17-12-2003. In their letter dated 17-12-2003, they clearly say that after issue of Notification No. 37/2003, they started following the procedure and started paying the duty. They also say that they had furnished the value of clearances of all excisable goods in the previous financial year. After saying all these, they submit "when the position is so, the demand of duty by the Superintendent is without a speaking order or the reasons for denial of SSI exemption to our industry, and its products by the competent authority as the issue involves may legal aspects which we will dealt with elaborately if we are visited with show cause notice with all copies of relied notifications and documents. However, without prejudice to the above contentions, we are paying the duty "UNDER PROTEST" and the copy of the challan is enclosed herewith". After this, appellants were given an opportunity of personal hearing which was attended by them on 6-12-2004 and during the personal hearing they handed over another letter. In this letter dated 4-12-2004, the only claim made is that they have sought SSI exemption and the Department should deny it by issue of a show cause notice and demand a specific amount. The letter issued by the Superintendent required them to pay the amount is not a show cause notice and therefore the action is illegal. They have also submitted that the Superintendent has no authority to make assessment without following the Act, rules and procedures and this can be done only after giving an opportunity to the appellants to defend. As we have already observed, the system of an assessment and payment of duty is no longer in existence. It is self-assessment. Even though, after the Superintendent informed the appellants and when the appellants made the payment under protest, the Assistant Commissioner has given an opportunity to the appellant to present the case and in this opportunity, the appellants are seeking a show cause notice to be issued with copies of notifications and other documents without specifying what documents. They also did not explain what is the factor or what is the law which they do not understand and they do not even contest the demand on merits. When there is no contest of the demand or duty liability on merits and they are not in a position to say what documents are required by them or which provision of notification they do not understand, it is difficult to find fault with the procedure followed by the adjudicating authority who has given an opportunity of personal hearing and has passed an order outlining the provisions of notifications according to which appellant is liable to pay and hence has held that the payment made by them is proper and correct and if this is not in fulfillment of natural justice, we cannot understand what more should have been done by the Department in this case.

The requirement of show cause notice is only to observe principles of natural justice and what is required to be examined, therefore, is whether any assessee has been required to suffer duty liability without giving him an opportunity to defend his case. A horse can be taken to the river for drinking water but if it refuses to drink nothing can be done. That is the situation in this case also. Department has explained the notification provisions, informed the assessee in spite of the fact that the assessee did not explain why they were having an impression that they were not liable to pay and did give an importunity by giving personal hearing before appropriation to explain their case as to why they are eligible for exemption and the assessee's only demand is "you have not issued a show cause notice to me and issue a show cause notice first". The end is justice and show cause notice is a means to that end. Appellants on no occasion have made out a case on merit (their eligibility for exemption) but have been seeking the means. "Means" seems to be more important to them than justice. It is not even their case that some specific information or document was held back from them. They want to be asked why they should not be required to pay the amount paid by them. They give more importance to 'form' than "substance".

Several cases have been cited by the appellants but the facts of this case are so peculiar and there are new legal aspects which have come into consideration which were not considered or which were not there for consideration. Therefore the precedent decisions are clearly not applicable. Still we consider the decisions herein below.

As regards the decision in the case of Metal Forgings v. UOI [2002 (146) E.L.T. 241 (S.C.)]relied upon by the learned counsel, we take note of the fact that the issue arose as a result of an order made by the Assistant Collector on 21-1-1976 when the statutory provisions were totally different and the learned advocate also could not show that the legal provisions were similar during the relevant period when compared to legal provisions during the disputed period. Another factor that has to be taken into account is that during the relevant period the classification list was required to be approved by the Assistant Collector and in the present case there was no classification list to be filed or approved which is a major difference between the situation then and now. In 1976, to claim an exemption, a classification list was to be filed and approved and if a classification list could not be approved as submitted, show cause notice was required. Now there is no classification list concept at all. Therefore, this decision is not applicable.

In the case of Indian Oil Corporation Ltd. v. CCE, Vadodara [2003 (157) E.L.T. 344 (Tri.-Del.)], an amount of Rs. 5.16 crores out of deposit of Rs. 10 crores made under protest on ad hoc basis was adjusted towards another disputed matter without issue of a show cause notice and the adjudication order was held to be wrong. Once again the facts in this case are not applicable and the nature of dispute is also entirely different.

In the case of CIPLA Ltd. v. CCE, Bangalore [2002 (143) E.L.T. 202 (Tri.-Bang.)] also, the issue related to the period prior to 1997 during which the provisions of law were entirely different and a view was taken that a show cause notice for change in classification was required to be issued and without issuance of show cause notice for change in classification, demand for payment by way of a letter could not have been made. At that time, a classification list was required to be approved and in any case in that case the view was taken by the Tribunal was that the decision of the Superintendent was not appealable to CEGAT but only to Commissioner (Appeals). It was also held that the letter of the Superintendent cannot be considered as an order of finalization of assessment. We have already considered the legal provisions now and held that there is no system of assessment by a Central Excise Officer in the present statute.

In the case of CCE, Delhi-I v. Kandhar Radio Corporation [2012 (280) E.L.T. 376 (Del.)], it was held that no liability could be fastened on a unit to which no show cause notice was issued when a demand is made by denying SSI exemption clubbing the clearances of several units. The facts in this case have nothing but with clubbing and it is not the case that there is another party. In any case, we have already held that there was nothing left to be explained to the assessee and the Department has followed principles of natural justice.

The decision of the Tribunal in the case of Merchant Impex v. CC, Bangalore [2007 (219) E.L.T. 508 (Tri.-Bang.) = 2009 (15) S.T.R. 504 (Tri.-Bang.)] is also not relevant. In that case, after the bill of entry was assessed, Assistant Collector felt notification benefit was not available and there was short levy. Therefore, it was a case covered by Section 28 of Customs Act, 1962. Moreover, even the letter as reproduced does not indicate why importer was not eligible for exemption. In the absence of self-assessment procedure and the situation wherein payment had already been made, the facts of the present are not comparable.
Thus, it was found that none of the decisions cited by the learned counsel are applicable to the facts of this case.

In view of the above discussion, Tribunal found that there is no merit absolutely in the appeal filed and accordingly the appeal was rejected.

Decision:-Appeal rejected.

Comment:-The essence of this case is that in the era of self assessment, there is no mechanism as duty paid under protest if there are no merits in the contentions made by the assessee. The only ground that no show cause notice was issued cannot be treated as sufficient to set aside the duty paid under protest because sufficient opportunity of hearing was given. It was concluded that even though no show cause notice was issued to the assessee, but still, it cannot be said that the duty paid by the assessee under protest could not be appropriated by the government because the appropriation was done after granting personal hearing to the assessee. The objective of issuance of show cause notice is only to meet the ends of justice and if any duty demand is confirmed after providing opportunity of hearing, it is legally correct and proper in law. Moreover, the assessee had no merits and only contested on the grounds of non-issuance of the show cause notice to them. Therefore, once the appellant paid the amount under protest and Department did not issue notice, the matter should have ended there. Moreover, when the personal hearing was given for vacating the protest, the appellants could have definitely given justification as to why they are eligible for exemption and why the payment made by them was wrong. But as no suitable explanation was given, the appeals were rejected as devoid of merits.

Prepared by: Hushen Ganodwala

Comments

PJ/Case law/2014-15/2253

Post a Comment

Query