2022 (4) TMI 70 - HC - Central Excise

High Court Quashes Show Cause Notices Due to Procedural Flaws

L AND T HYDROCARBON ENGINEERING LTD Versus UNION OF INDIA

L AND T HYDROCARBON ENGINEERING LTD Versus UNION OF INDIA - TMI Issues Involved:1. Absence of pre-show cause notice consultation.2. Applicability of the extended period of limitation under Section 11A(4) of the Central Excise Act, 1944.3. Compliance with Central Excise laws by the predecessor entity.4. Double taxation and procedural compliance.5. Jurisdiction of Central Excise authorities to question the legality and validity of a scheme of demerger approved by the High Court.6. Demand of excise duty on goods cleared under the International Competitive Bidding (ICB) contracts.Detailed Analysis:1. Absence of Pre-Show Cause Notice Consultation:The court highlighted that the CBEC master circular No.1053/2/2017-CX dated 10th March 2017 mandates pre-show cause notice consultation for demands above Rs. 50 lakhs. The respondents argued that the consultation was not required as the case originated from intelligence gathered by the DGGI, but the court rejected this argument, citing a recent clarification from the Board stating that the exclusion from pre-show cause notice consultation is case-specific, not formation-specific. The absence of this mandatory consultation rendered the show cause notice procedurally flawed.2. Applicability of the Extended Period of Limitation:The court examined whether the extended period of limitation under Section 11A(4) was applicable. The extended period can be invoked in cases of fraud, collusion, wilful misstatement, suppression of facts, or contravention of provisions with intent to evade duty. The court found that the writ applicants had a bona fide belief that compliance by the predecessor entity was sufficient, and there was no intent to evade duty. Therefore, the extended period of limitation was not applicable.3. Compliance with Central Excise Laws by the Predecessor Entity:The court noted that the predecessor entity, Larsen & Toubro Ltd., had complied with all Central Excise laws, including issuing invoices, paying duty, and filing returns. The writ applicants applied for new central excise registration upon demerger, and the predecessor continued to comply with excise laws until the effective date of the demerger. The court found no procedural breach by the predecessor or the writ applicants.4. Double Taxation and Procedural Compliance:The court observed that the demand of Rs. 19,61,06,399/- was for goods cleared during December 2013 to March 2014, for which the predecessor had already paid the excise duty. Demanding the same duty from the successor entity would amount to double taxation, which is impermissible. The court emphasized that the duty paid by the predecessor should be adjusted against any duty payable by the successor.5. Jurisdiction of Central Excise Authorities to Question the Legality and Validity of a Scheme of Demerger:The court held that once a scheme of demerger is approved by the High Court, it has statutory force and becomes binding on statutory authorities. The Central Excise authorities cannot question the legality and validity of such a scheme. The court cited various judgments to support this view and concluded that the respondents were bound by the order of the Bombay High Court approving the scheme.6. Demand of Excise Duty on Goods Cleared under ICB Contracts:The court found that the goods supplied under ICB contracts were exempt from excise duty as per Notification No.12/2012-CE dated 17th March 2012. The predecessor had duly complied with the exemption notification, and the supplies made by the successor entity post-demerger were also exempt. The court held that the demand for excise duty on goods cleared under ICB contracts was baseless and amounted to double taxation.Conclusion:The court quashed and set aside the impugned show cause notices, finding them procedurally flawed, barred by limitation, and lacking jurisdiction. The court emphasized that compliance by the predecessor entity was sufficient and that the scheme of demerger approved by the High Court was binding on the Central Excise authorities.