1979 (8) TMI 78 - HC - Central Excise

Show Cause Notice Lacked Jurisdiction and Was Time-Barred Under Central Excise Act; Costs Awarded to Petitioner.

The HC allowed the Writ Petitions, concluding that the show cause notice issued by the Central Excise Integrated Divisional Office lacked jurisdiction and ... Jurisdiction to issue show cause notice under Rule 40 of the Central Excise Rules, 1944 - liability for receipt of unmanufactured tobacco without a duty-paid transport document - limitation under Section 40(2) of the Central Excise and Salt Act - effect of legislative amendment on time-barred transactions - administrative duty to verify transport permitsJurisdiction to issue show cause notice under Rule 40 of the Central Excise Rules, 1944 - liability for receipt of unmanufactured tobacco without a duty-paid transport document - Whether the show cause notice under Rule 40 could be validly issued against the petitioner for receipt of tobacco purportedly transported under T.P.1s - HELD THAT: - Rule 40 penalises a wholesale purchaser who receives unmanufactured tobacco except under a permit showing payment of duty or other transport document recognised by the Central Government that shows duty has been paid. The petitioner's case was that the tobacco was received under T.P.1s and the recitals in those T.P.1s satisfied the petitioner that duty had been paid. The show cause notice and the respondent's averments did not contain a clear finding that the T.P.1s were not issued by the Department; rather the counter-affidavit proceeded on factual assertions including that the named consignor did not exist. In the absence of a clear statement that the T.P.1s relied upon were not departmental permits evidencing payment of duty, the issuance of the show cause notice against the petitioner was held to be without jurisdiction. [Paras 3, 4]Issuance of the show cause notice under Rule 40 was without jurisdiction and cannot be sustained.Limitation under Section 40(2) of the Central Excise and Salt Act - effect of legislative amendment on time-barred transactions - Whether the show cause notice was time-barred by Section 40(2) of the Central Excise and Salt Act - HELD THAT: - Section 40(2) bars instituting a suit, prosecution or other legal proceeding more than six months after accrual of the cause of action. The court accepted that, if the allegation were that the petitioner received tobacco which previously had not suffered duty, the cause of action accrued at the earlier date and any proceeding beyond six months would be barred. There is no exclusion in Section 40(2) for quasi-judicial or judicial proceedings; a show cause notice is a legal proceeding for the purposes of the limitation provision. An amendment made in 1973 could not revive transactions already barred under the law as it stood at the relevant time. [Paras 5, 6]The show cause notice is barred by limitation under Section 40(2) and cannot be maintained; the 1973 amendment does not revive time-barred transactions.Final Conclusion: Writ petitions allowed; the show cause notice quashed as issued without jurisdiction and barred by limitation. Direction given for departmental enquiry to fix responsibility for failure to verify transport permits; costs awarded. Issues:1. Jurisdiction of the respondent to issue the show cause notice under Rule 40 of the Central Excise Rules.2. Bar of limitation under Section 40 Clause (2) of the Central Excise Act.Analysis:Issue 1: Jurisdiction of the respondent to issue the show cause notice under Rule 40 of the Central Excise Rules:The petitioner challenged the show cause notice issued by the Central Excise Integrated Divisional Office, Vijayawada, demanding duty on unmanufactured tobacco bits and midribs. The respondent alleged a contravention of Rule 40 based on the petitioner's receipt of tobacco without duty payment. However, the petitioner claimed to have purchased the tobacco under valid T.P. 1s, indicating duty payment. The court noted that the show cause notice lacked clarity on the validity of the T.P. 1s and failed to prove they were not issued by the Excise authorities. As a result, the court held the notice to be without jurisdiction as the contravention of Rule 40 was not established conclusively.Issue 2: Bar of limitation under Section 40 Clause (2) of the Central Excise Act:The petitioner contended that the show cause notice was time-barred under Section 40 Clause (2) of the Central Excise Act, which limits legal proceedings to six months from the accrual of cause of action. The court agreed with this argument, emphasizing that the notice was related to an alleged failure to pay duty in 1968, falling outside the limitation period. The court rejected the argument that the limitation bar did not apply to judicial or quasi-judicial proceedings, stating that the law of limitation applies to such cases. The court cited a Supreme Court judgment and a previous Bench decision to support its interpretation. Consequently, the court held the show cause notice to be issued without jurisdiction due to being time-barred.Additional Observation:The court expressed concern over the department's failure to verify duty payment and the issuance of T.P. 1s, leading to a loss of a significant amount. It directed a proper inquiry to determine responsibility for this oversight and recommended sending a copy of the judgment to the Central Board of Revenue, New Delhi. The court also rejected the argument of an alternative remedy through appeal due to its finding of no jurisdiction in issuing the notice.In conclusion, the Writ Petitions were allowed, with costs awarded to the petitioner, highlighting the court's decision on the lack of jurisdiction and the limitation bar under the Central Excise Act.