1969 (9) TMI 40 - HC - Central Excise

Court overturns illegal demand notices under Rule 10A, upholds Rule 10, warns officials to follow judicial interpretations.

The Court set aside the demand notices issued under Rule 10A of the Central Excise Rules, 1944, as they were deemed illegal and beyond the prescribed time ... Processed dyes manufactured from basic synthetic organic dyes - Liability to duty - Short levy - Deficiency - Interpretation of - Precedents - Refusal to follow - Strictures Issues Involved: Legality of demand notices issued under Rule 10A of the Central Excise Rules, 1944; Applicability of Rule 10 versus Rule 10A; Limitation period for issuing demand notices.Issue-wise Detailed Analysis:1. Legality of Demand Notices under Rule 10A:The Petitioner Company, a manufacturer of dye-stuffs, challenged the legality of demand notices dated December 24, 1965, and January 24, 1966, issued under Rule 10A of the Central Excise Rules, 1944. These notices demanded payment of Rs. 41,152.25 and Rs. 83,238.14, respectively. The Assistant Collector of Central Excise, Poona, had previously upheld these demands on March 26, 1966, rejecting the company's contentions.2. Applicability of Rule 10 versus Rule 10A:The Court referenced a prior Division Bench judgment from July 1/2, 1965, in Appeal No. 69 of 1963, which clarified the interpretation of Rules 10 and 10A. Rule 10 deals with the recovery of duties short-levied due to inadvertence, error, collusion, or misstatement, and mandates that such demands must be issued within three months. Rule 10A provides residuary powers for recovery where no specific provision exists. The Court held that Rule 10 applies to both short-levy and non-levy situations, rejecting the Department's argument that Rule 10A should apply when no initial levy occurred.3. Limitation Period for Issuing Demand Notices:The Court noted that the processed dyes were cleared between April 22, 1963, and December 16, 1964, for the first notice, and between March 29, 1962, and January 29, 1965, for the second notice. The Petitioner argued that the three-month limitation period under Rule 10 had expired well before the notices were issued. The Court agreed, stating that the first notice issued on December 24, 1965, was nearly two years late, and the second notice issued on January 24, 1966, was also significantly delayed.4. Findings on the Assistant Collector's Decision:The Assistant Collector had justified the use of Rule 10A, arguing that the processed dyes were never initially subject to excise duty. The Court criticized this reasoning, emphasizing that the Assistant Collector was bound by the Division Bench's interpretation of Rules 10 and 10A. The Court considered issuing a contempt notice but refrained, instead warning officers to adhere to judicial decisions.5. Respondents' Contentions:The Respondents argued that the Division Bench had not addressed situations where excise duty was evaded due to a mistake of law, suggesting Rule 10A should apply. The Court dismissed this argument, reiterating that any short-levy or non-levy must be addressed under Rule 10, as established by the Division Bench.6. Illegality of the Notices and Order:The Court found it extraordinary that the Department sought to issue demand notices without refunding the duty already paid on the basic dyes. The processed dyes were manufactured from dyes on which excise duty had been paid, making them eligible for exemption under the November 23, 1961, notification. Thus, the demand notices were illegal and unwarranted, issued beyond the prescribed time limit, and contrary to the Division Bench's decision.Conclusion:The Court set aside and struck off the impugned notices and the Assistant Collector's order dated March 26, 1966. The Petitioner's contentions were upheld, and the Rule was made absolute with costs.