Mandatory show cause notice and non-retrospectivity of penalties defeat central excise demand and penalty imposition.

In central excise proceedings, duty could not be determined and confiscation or penalties could not stand without issuance of the mandatory show cause notice under Section 11A; an alleged admission, deposit of amounts, or purported waiver did not dispense with that statutory requirement. The proceedings were therefore contrary to law and natural justice, and the demand failed. Penalty under Section 11AC could not be imposed for conduct in 1995-96 because that provision came into force only on 28-9-1996, and a penal provision cannot operate retrospectively without clear legislative intent. The adjudication was set aside and the assessee succeeded.

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Issues: (i) whether the demand and allied proceedings were sustainable in the absence of a mandatory show cause notice under the central excise law, despite the assessee's alleged admission and deposit of amounts; (ii) whether penalty under Section 11AC could be imposed for a period prior to its commencement.

Issue (i): whether the demand and allied proceedings were sustainable in the absence of a mandatory show cause notice under the central excise law, despite the assessee's alleged admission and deposit of amounts.

Analysis: The scheme of Section 11A requires issuance of a notice and consideration of the assessee's reply before duty is determined. Admission of liability, deposit of amounts, or a purported waiver does not dispense with the statutory requirement. The Board's circular also treated issuance of show cause notice as mandatory even where waiver was expressed. Proceedings founded without notice were therefore contrary to law and to natural justice.

Conclusion: The demand and the connected confiscation and penalties could not be sustained for want of a show cause notice; this issue was decided in favour of the assessee.

Issue (ii): whether penalty under Section 11AC could be imposed for a period prior to its commencement.

Analysis: Section 11AC came into force only on 28-9-1996, whereas the contravention related to 1995-96. A penal provision cannot be applied retrospectively in the absence of clear legislative intent. The penalty imposed under that provision was therefore unsustainable for the relevant period.

Conclusion: Penalty under Section 11AC was not leviable for the period in question; this issue was also decided in favour of the assessee.

Final Conclusion: The adjudication order was set aside and the appeal succeeded, with consequential relief following from the invalidity of the proceedings and the inapplicability of the later penalty provision.

Ratio Decidendi: In central excise proceedings, issuance of a show cause notice is a mandatory precondition for duty determination, and a penalty provision cannot be applied to conduct occurring before its commencement.

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