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Show-cause notice under Section 11A of Central Excise Act, 1944 is only a Prima facie View: SC

COMMISSIONER OF CENTRAL EXCISE, HALDIA V. M/S KRISHNA WAX (P) LTD. – November 14, 2019 CIVIL APPEAL NO. 8609 OF 2019 (DIARY NO.17005 OF 2018)

The bench consisting of JUSTICE UDAY UMESH LALIT and JUSTICE VINEET SARAN held that the respondents shall be entitled to respond to the said show cause notice within three weeks from the date of this judgment and shall be entitled to material evidence to place in reliance in support of the case.

It must be noted that while issuing a show cause notice under Section 11A of the Act, what is entertained by the Department is only a prima facie view, on the basis of which the show cause notice is issued. The determination comes only after a response or representation is preferred by the person to whom the show cause notice is addressed.  As a part of his response, the concerned person may present his view point on all possible issues and only thereafter the determination or decision is arrived at.  In the present case even before the response could be made by the respondent and the determination could be arrived at, the matter was carried in appeal against said Internal Order.  The appellant was therefore, justified in submitting that the appeal itself was pre-mature.

In the present case, a Show Cause Notice was issued by the office of the Commissioner of Central Excise, Haldia to the respondent and the facts available on record appeared that manufacturing activity was being undertaken by the respondent without following due procedure and without paying any Excise Duty. The question was raised as to why the Central Excise Duty should not be demanded and recovered under the extended proviso to Section 11A of the said Act. It was alleged that the Show Cause Notice had been issued without deciding the preliminary objection of the petitioner. An objection was taken on behalf of the Appellant that the Appeal was completely premature as there was no reply to the Show Cause Notice that was filed by the Respondent and there was, as a matter of fact, no adjudication by the concerned authority.

The Appellant, being aggrieved, filed an appeal before the Tribunal which classified that processed materials are emerging from the imported materials and the Revenue classified the processed material under the same Tariff Heading. The Hon’ble Supreme Court and the Tribunal in various decisions held that such a process cannot be treated as manufacture under Section 2(f) of the Central Excise Act. Section 11A deals with various facets including non-levy and non-payment of excise duty and contemplates the issuance of a Show cause notice by the Central Excise Officer requiring the “person chargeable with duty” to show cause why “he should not pay the amount specified in the notice.” The amount of duty of excise due from such person has to be determined by the Central Excise Officer. If the process or activity is undertaken does not amount to manufacture or if no duty is payable for any reason including the benefit under any scheme of exemption holding the field, it shall always be open to the concerned person to project such viewpoint while making any representation in response to the Show cause notice.

The scheme of Section 11A does not contemplate that before issuance of any Show cause notice, there must, prima facie, be(a) a preliminary determination that the process or activity undertaken in the matter amounts to manufacture; and (b) before arriving at such preliminary determination, any hearing to the concerned person is contemplated. In other words, there is no segregation of the matter at different stages and all the possible contours of the matter including whether the process in question amounts to manufacture or not are to be gone into while considering the response to the Show cause notice itself. It is only after considering all the relevant aspects of the matter that the final determination under sub-section 10 of Section 11A is to be arrived at, as the issuance of show cause notice under Section 11A also has some significance in the eyes of law.

In the present case, the respondent had not registered itself and was not paying any excise duty on the products that it was manufacturing. The search conducted by the Department at the registered office and the factory premises of the respondent led to the recovery of certain material based on which the Department was considering the matter. The matter was correctly assessed by the High Court on the next occasion when in spite of having directed that a copy of the Internal Order be supplied, it acknowledged that the remedy of the respondent lied in submitting reply to the show cause notice, in which reply it would be open to the respondent to take objections to the jurisdiction of the appellant to proceed against the respondent under the provisions of the Act.

It has been laid down by this Court that the excise law is a complete code in itself and it would normally not be appropriate for a Writ Court to entertain a petition under Article 226 of the Constitution and that the concerned person must first raise all the objections before the authority who had issued a show cause notice and the redressal in terms of the existing provisions of the law could be taken resort to if an adverse order was passed against such person.  For example in Union of India and another vs. Guwahati Carbon Limited5, it was concluded; “The Excise Law is a complete code in order to seek redress in excise matters and hence may not be appropriate for the writ court to entertain a petition under Article 226 of the Constitution”

The court observed that the excise law is a complete code in itself and it would normally not be appropriate for a Writ Court to entertain a petition under Article 226 of the Constitution and that the concerned person must first raise all the objections before the authority who had issued a show cause notice and the redressal in terms of the existing provisions of the law could be taken resort to if an adverse order was passed against such persons. The court in the case of Union of India and another vs. Guwahati Carbon Limited concluded that “The Excise Law is a complete code in order to seek redress in excise matters and hence may not be appropriate for the writ court to entertain a petition under Article 226 of the Constitution”.

It is thus well settled that writ petition should normally not be entertained against mere issuance of show cause notice.  In the present case no show cause notice was even issued when the High Court had initially entertained the petition and directed the Department to prima facie consider whether there was material to proceed with the matter.

In the present case, there was no assessment and computation of any duty element. The matter had not gone beyond the Show Cause Notice. The questions in the matter pertained to the correctness of the view whether there was any adjudication in the matter and whether the appeal at the instance of the Respondent was maintainable, therefore the court allowed the appeal and set aside the appellate order.

Pranav M Varma

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