Court quashes demand notice citing natural justice violation. Writ petition allowed. No costs awarded.

The court quashed the demand notice dated 16.02.1994 due to the violation of principles of natural justice and the inapplicability of Section 11D of the Central Excise Act, 1944. The writ petition was allowed, and no costs were awarded to either party.

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Issues Involved:
1. Constitutional validity of Section 11D of the Central Excise Act, 1944.
2. Violation of principles of natural justice.
3. Retrospective application of Section 11D.
4. Applicability of Section 11D to the petitioner.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 11D:
The petitioner challenged the constitutional validity of Section 11D of the Central Excise Act, 1944, claiming it was ultra vires Articles 14, 19(1)(g), and 300A of the Constitution of India. However, the petitioner's counsel suggested that Section 11D could be interpreted in a manner that would avoid the constitutional challenge.

2. Violation of Principles of Natural Justice:
The petitioner argued that the demand notice dated 16.02.1994 was issued without a preceding show cause notice or an opportunity for the petitioner to explain its case, constituting a violation of the principles of natural justice. The court agreed with this contention, stating that the demand notice without a show cause notice was bad in law, even without considering sub-Sections (2) and (3) of Section 11D, which were retrospectively effective from 20.09.1991. This principle was supported by the decision in Union of India v. Madhumilan Syntex Pvt. Ltd., 1988 (3) SCC 348.

3. Retrospective Application of Section 11D:
The petitioner contended that Section 11D, introduced on 20.09.1991, did not have retrospective operation. The Department argued that Section 11D applied retrospectively, especially since the High Court's decision exempting Renusagar Power Company from excise duty came in 1993, making the excise duty element on electricity surplus in the petitioner's hands. The court sided with the petitioner, stating that Section 11D was not expressly made retrospective, and there was no basis to infer its retrospective operation. The court referenced the Supreme Court decision in Hindustan Metal Pressing Works v. Commissioner of Central Excise, Pune, (2003) 3 SCC 559, which supported the prospective application of Section 11D.

4. Applicability of Section 11D to the Petitioner:
The court examined whether the conditions for invoking Section 11D were met. The petitioner argued that:
- There must be a liability to pay excise duty on the goods manufactured.
- An amount in excess of the duty assessed/determined must have been collected.
- The excess amount collected should represent the duty of excise.

The petitioner contended that it had paid the excise duty on aluminium manufactured, and there was no excess collection representing excise duty. The Department argued that the price of aluminium included an element of excise duty on electricity, implying an excess collection. The court agreed with the petitioner, stating that Hindalco's liability was for excise duty on aluminium, not on electricity. Since the duty on aluminium was paid, there was no excess collection, and thus, Section 11D did not apply.

Conclusion:
The impugned demand notice dated 16.02.1994 was quashed due to the violation of principles of natural justice and the inapplicability of Section 11D. The writ petition was allowed, and there was no order as to costs.

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