M. Appachi Gounder and Others vs Superintendent of Central Excise and Others

Koshal, J.—By this judgment, I shall dispose of six petitions under Article 226 of the Constitution of India, viz. W.P. Nos.630 and 980 to

984 of 1972 in each of which the petitioner is a manufacturer of cotton fabrics in a factory commonly known as power looms and challenges an

order of the Superintendent of Central Excise, Tirupur circle, refusing to allow him the benefit of the special procedure detailed in Section E-III of

Chapter V of the Central Excise Rules there in after referred to as the Rules) and imposing on him a penalty under the provisions of Sub-rule (2) of

Rule 9 of the Rules. The prayer made in each of the, petitions is that the said order be quashed by a writ of certiorari on the ground of illegality.

In all the petitions, the facts are identical and may, therefore, be given with reference only to one of them, viz. W.P. No. 630 of 1972. On the

27th February 1967, the petitioner made an application in pursuance of the provisions of Rule 96-1 of the Rules to the Collector of Central Excise,

who granted the same so that the special provisions contained in the said Section E-III became applicable to him. No sum was, however, tendered

with the application. On the same date, the petitioner made another application under Sub-rule (1) of Rule 96-K of the Rules to the Collector. No

sum was paid along with that application either. On the 25th May, 1967, the petitioner paid into the treasury a sum of Rs. 25 which would have

been due to him on account of excise duty in case the special procedure contained in Section E-III was applicable to him. On production of the

receipt evidencing the payment, the concerned Excise Inspector allowed the petitioner to remove the goods manufactured by him from his factory.

In the month of July 1968, the Superintendent of Central Excise, who figures as respondent No. 1 before me, held proceedings against the

petitioner for the levy of excise duty under the normal procedure, that is, as if Section E-I1I aforesaid was not applicable to him and also for the

levy of penalty in pursuance of the provisions of Sub-rule (2) of Rule 9. These proceedings were initiated because it was considered that the

application made by the petitioner under Rule 96-1 of the rules not having been accompanied by a sum representing the special levy, he was not

entitled to the benefit of the Special Procedure, but, on the other hand, had made himself liable to pay levy under the normal procedure and also a

penalty. The impugned order was passed as a result of those proceedings.

The following two contentions have been raised in support of the petitions: (1) There was no attempt by the petitioners to remove the goods

from their factories with a view to evade the levy of excise duty and therefore the provisions of Sub-rule (2) of Rule 9 were not attracted to the

case of any of them so that none of them was liable to any penalty. (2) The excise duty having been paid by the petitioners and accepted by the

department under the special procedure provided in Section E-III aforesaid, higher duty could not be charged from them by reason of the

provisions of Rule 10 of the Rules, which provides a period of three months only within which proceedings can be taken by the Excise department

for recovery of duty to be so levied.

Both these contentions must prevail for the reasons hereinafter appearing.

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As laid down by their Lordships of the Supreme Court in N.B. Sanjana v. The Elphinstone Spinning and Weaving Mitts Co. Ltd.- AIR 1971

S.C. 2039, a contravention of Sub-rule (1) of Rule 9 would take place only if excise duty is sought to be evaded by a clandestine removal of the

goods. Where duty is paid and accepted and the goods are allowed to be removed by the department, there is no question of any attempted

evasion or clandestine removal, so that Sub-rule (1) is inapplicable and if that be so, the provisions of Sub-rule (2) do not come into play. In this

view of the matter, the first respondent was not entitled to impose any penalty on the petitioners and to that extent his order is illegal.

As already stated, the excise duty in the cases before me was actually paid by the petitioners and accepted by the department, although short-

levied under the latter''s belief that the special procedure contained in Section E-III aforesaid was applicable. The error was detected sometime in

July 1968 and that is why proceedings were held for levying the normal duty. In other words, the proceedings were meant to collect duty at the

normal rate minus what had already been paid and that is exactly what would amount to a case of recovery of duties short-levied. Rule 10,

therefore, squarely embraces these petitions and the demand not having been made within three months from the date on which the duty was short-

levied, the case of the department is time-barred. On that account, the proceedings for the recovery of the duty itself, apart from the position of the

penalty, are legally untenable.

In the result, the petitions succeed and are accepted and the impugned orders are quashed. The petitioners will have their costs of the proceedings

before me. Counsel''s fee Rs. 100 in each petition.