Sivashankar Granites Pvt. Ltd. vs Assistant Commissioner of Central Excise, Warangal

S. Parvatha Rao, J.—In this writ petition the petitioner questions notice in D.O.R. No. 11/93-C.E., dated 29-9-1995 issued by the Assistant Commissioner of Central Excise, Warangal Division asking it to pay the Central Excise duty amounting to Rs. 13,12,799.43 ps. within 15 days failing which the terms of the bonds would be enforced to realise the said amount. The grievance of the petitioner is that no show cause notice and opportunity were given to the petitioner before making the said demand.

The learned Standing Counsel for the Central Government, Mr. P. Innayya Reddy, took notice when this writ petition came up for admission on 19-10-1995 and took time for filing counter. Subsequently he filed the counter-affidavit of the Assistant Commissioner of Central Excise, Warangal Division, i.e. the first respondent herein, dated 18-10-1995.

Both Counsel agree that the writ petition itself can be disposed of at the admission stage and accordingly they are heard.

The question is whether the petitioner had violated the conditions regarding the use of the machinery subject to which they were exempted from the whole of the excise duty leviable on them, under Notification No. 123/81-C.E., dated 2-6-1981. It is not in dispute that the first respondent granted exemption under that notification in respect of that machinery under his orders dated 25-3-1991, 3-1-1992 and 13-1-1993. It is the petitioner''s case that after acquiring the said machinery it has been putting them to use in its premises either at the factory or at the mines only in connection with the manufacturing and in total accordance with the terms and conditions of the exemption granted in respect of them under the said notification. The petitioner submits that on or about 16-7-1993 the first and second respondents visited the quarries and factory of the petitioner and effected seizure of nine items of the machinery on the ground that the same had been put to such use and at such places not specifically approved or permitted by the first respondent while granting exemption under the said notification. Representations made by the petitioner to the third respondent seeking release of the seized machinery were of no avail. The petitioner then moved this Court by way of Writ Petition No. 4315 of 1994 and this Court by order dated 23-3-1994 directed the Collector of Central Excise to dispose of the representation of the petitioner for the release of the seized machinery within four weeks from the date of receipt of a copy of the said order. The petitioner states that the said order of this Court has not been complied with as yet. The petitioner states that even before its representation was disposed of as directed, the first respondent issued notice D.O.R. No. 11/93-C.E., dated 9-8-1995 to pay the excise duty on the seized machinery within one week from the date of receipt of that notice. The petitioner objected by its letter dated 21-8-1995 stating that it had not violated the conditions subject to which excise duty exemption was granted in respect of the machinery seized, The petitioner once again approached this Court by way of Writ Petition No. 18788 of 1995 questioning the said demand and this Court disposed of the writ petition by its order dated 25-8-1995 with a direction to the third respondent to dispose of the petitioner''s representation, if not already disposed of, within one week from the date of receipt of a copy of the order of this Court and that meanwhile no coercive steps for recovery of tax should be taken by the authorities. Thereafter the third respondent replied to the petitioner by his letter dated 18-9-1995 stating as follows :

"It is seen from the records that the Assistant Commissioner of Customs & Central Excise, Warangal has already been directed to release the goods seized on 16-7-1993. However, the Assistant Commissioner is again being directed to release the goods, if not already done. You are advised to approach him in this regard.

It may please be noted that Assistant Commissioner is free to pursue the action of recovery of duty on the goods in question and initiate any other action warranted in accordance with law."

The petitioner submits that the impugned notice dated 29-9-1995 was then issued by the first respondent without any notice and opportunity and consideration of its case. The impugned notice, inter alia, states as follows :

"It has been noticed that M/s. Shiva Shankar Granites (P) Ltd., have been using the indegenous goods procured under Notification No. 123/81-C.E., dated 2-6-1981 free of duty not at their factory of manufacture notified by them and which was declared for grant of a L-4 licence No. 3/89 (amended by CER No. 6/92) but at the quarries/mines which are far away from their factory.

Whereas it appears that M/s. Shiva Shankar Granites Pvt. Ltd. have violated the conditions of the Notification No. 123/81-C.E., dated 2-6-1981 as amended, the terms of the general bonds executed by them appear liable to be enforced unless they pay the Central Excise duty amounting to Rs. 13,12,799.43 as computed in Annexures - A, B and C.

M/s. Shiva Shankar Granites Pvt. Ltd., Khammam are therefore asked to pay the Central Excise duty amounting to Rs. 13,12,799.43 within 15 days failing which the terms of the bonds will be enforced to realise the amounts and the Bank Guaranteed amounts will be realised without further reference to M/s. Shiva Shankar Granites Pvt. Ltd., Khammam."

It is significant that the first respondent states in the said notice that "it appears" that the petitioner has violated the conditions of the notification dated 2-6-1981 as amended and that the terms of the general bonds executed by the petitioner "appear liable to be enforced". It follows from this that the first respondent himself is not very sure and certain whether the petitioner in fact has violated the conditions of that notification and whether the bonds in fact are liable to be enforced. Without a definite finding in that regard he could not have demanded the payment of the Central Excise Duty amounting to Rs. 13,12,799.43 ps. Apart from this, the question is whether the respondents could arrive at a decision in that regard without notice and opportunity to, and hearing, the petitioner.

The first respondent accepts in his counter-affidavit that the petitioner is entitled for the benefits of Notification No. 123/81-C.E., dated 2-6-1981 subject to fulfilment of conditions prescribed therein and that the petitioner applied for exemption under the said notification in respect of the machinery in question for bringing the same to its unit at Yedulapuram, but (sic) not to the mining area. The first respondent submits that under that notification the goods required by the undertaking should be brought directly to the factory of manufacture and that the mine is not declared as private bonded warehouse to extend the benefits of that notification. He further states that the petitioner put to use the said machinery in a place different from the place of licence and therefore they were seized in view of the violation of the conditions of that notification. He also states that the second respondent lifted the seizure by his office letter OC No. 1128/95, dated 21-9-1995. The first respondent admits in his counter-affidavit that show cause notice was not issued to the petitioner before issuing the impugned notice dated 29-9-1995. He supports his action as follows :

"In this case a formal show cause notice is not required as the party is a 100X1 E.O.U. who have executed the bond and furnished the Bank Guarantee before obtaining the goods in question. If the goods are not found eligible for concession the petitioner has to pay the duty. If the petitioner does not pay the duty, the department is at liberty to enforce the bond and encash the Bank Guarantee.

He further states that by using duty free machinery obtained under notification dated 2-6-1981 in mines which are outside the bonded premises, the petitioner has violated the terms and conditions of that notification and therefore the bonds and bank guarantees have become enforceable.

The learned Counsel for the petitioner contends that the petitioner had not violated any of the conditions imposed under the notification dated 2-6-1981 and that using the machinery in question at the quarries within the mining circle will not amount to violation of the said conditions. One of the said conditions is that the capital goods so exempted under the notification should be brought "into an undertaking", i.e., "directly to the factory of manufacture" and used in the manufacture of articles solely meant for export. The learned Counsel submits that at the time of making of the applications for exemption under the said notification in respect of the machinery in question, it was brought out that that (sic) machinery would be used in the quarrying area, i.e., in the process of extracting granite in rough condition. He also submits that the quarries are located about 5 kms. from the factory proper where the granite is cut to size and polished before it is marketed by export. He submits that using the machinery in question at the factory site was not in contravention of the conditions under the notification. In support of his contention he relies on the decisions of the Supreme Court in Chowgule and Co. Pvt. Ltd. and Another Vs. Union of India (UOI) and Others, and Indian Copper Corporation Limited Vs. Commissioner of Commercial Taxes, Bihar and Others, , and the decision of the Customs, Excise and Gold (Control) Appellate Tribunal in Collector of Central Excise v. Kudremukh Iron Ore Co. Ltd. [ 1988 (36) E.L.T. 626 (Tribunal)]. But, we are not inclined to go into the merits of the case.

As already pointed out above, the short question that has to be decided in this writ petition is whether the impugned notice of demand violates principles of natural justice and air play. Admittedly, the demanded for payment of excise duty was made on the basis that the petitioner did not satisfy or follow the conditions imposed while granting excise duty exemption in respect of the machinery in question. We are of the view that, in fairness, the finding on the question whether the petitioner violated those conditions can be arrived at only after giving an opportunity to the petitioner and not behind his back and without hearing him, because a finding against the petitioner on that question results in obvious civil consequences like withdrawal of the exemption from payment of excise duty on the capital goods in question. The first respondent cannot take the matter lightly. He will have to consider all aspects of the matter after giving an opportunity and hearing to the petitioner before deciding whether the petitioner in fact violated the conditions under the notification dated 2-6-1981. He cannot simply rest on appearance of violation of the said conditions. He has to arrive at a firm conclusion in that regard before subjecting the petitioner to the liability of paying the excise duty in respect of the machinery in question. The decision of the third respondent communicated to the petitioner by his letter dated 18-9-1995, referred to earlier, cannot be read as authorising the first respondent in taking a decision in an arbitrary manner in violation of principles of natural justice and of fair play behind the back of the petitioner. If it is to be read as so authorising or directing the first respondent, we will have to hold that it is bad and liable to be set aside. However, we find that it only left open, the matter making it clear that the first respondent could act in accordance with law. This is not a case where the petitioner has conceded or admitted that he violated the conditions of the notification and that he became liable to the excise duty.

The first respondent states in his counter-affidavit that "non-compliance of the bond and enforcement thereof are administrative in nature and not quasi-judicial in character and no appeal in law" would lie against the said action as per the decision of the Customs, Excise and Gold (Control) Appellate Tribunal in 1985 ECR 1887 . But the question here is not whether an appeal lies against an administrative action or decision; the question is whether such an administrative action or decision, when it results in civil consequences, can be taken without following the principles of natural justice and fair play. On the other hand, when no remedy by way of an appeal is available to the citizen, it is all the more necessary that the administrative authorities should act in consonance with the principles of fair play and not arbitrarily when civil consequences flow from their action. It is now well settled that principles of natural justice and audi alteram partem are part of Article 14 of the Constitution of India and that principles of natural justice apply to administrative orders affecting the rights of citizens - Containment Board, Dinapore v. Taramani Devi AIR 1992 S.C. 61. In Union of India and others Vs. E.G. Nambudiri, , the law in that regard has been succinctly stated as follows :

"It is true that the old distinction between judicial act and administrative act has withered away and the principles of natural justice are now applied even to administrative orders which involve civil consequences, as held by this Court in State of Orissa Vs. Dr. (Miss) Binapani Dei and Others, . What is a civil consequence has been answered by this Court in Mohinder Singh Gill v. The Chief Election Commissioner, New Delhi - 1973 (2) SCR 272. Krishna Iyer, J. speaking for the Constitution Bench observed :

"But what is a civil consequence, let us ask ourselves, by passing verbal booby-traps ? ''Civil Consequences'' undoubtedly cover infraction of not merely property or personal rights but of civil liberties, material deprivations and non-pecuniary damages. In its comprehensive connotation, everything that affects a citizen in his civil life inflicts a civil consequence.''

The purpose of the rules of natural justice is to prevent miscarriage of justice and it is no more in doubt that the principles of natural justice are applicable to administrative orders if such orders affect the right of a citizen. Arriving at the just decision is the aim of both quasi-judicial as well as administrative enquiry, an unjust decision in an administrative enquiry may have more far-reaching effect than decision in a quasi-judicial enquiry. Now, there is no doubt that the principles of natural justice are applicable even to administrative enquiries. See A.K. Kraipak and Others Vs. Union of India (UOI) and Others, ."

G.N. Ray, J., observed in Rattan Lal Sharma Vs. Managing Committee, Dr. Hari Ram (Co-education) Higher Secondary School and others, that "in Administrative Law, rules of natural justice are foundational and fundamental concepts and law is now well settled that the principles of natural justice are part of the legal and judicial procedures" and, after referring to the authorities in that regard, observed :

"There are number of decisions where application of principles of natural justice in the decision-making process of the administrative body having civil consequence has been upheld by this Court but it is not necessary to refer to all such decisions. Prof. Wade in his Administrative Law (1988) at page 503, has very aptly observed that the principles of natural justice are applicable to almost the whole range of administrative powers."

The principle applies equally to tax matters. Considering the question whether opportunity to show cause should be afforded to intending purchaser and seller of property before making an order of compulsory purchase of the property u/s 269UD of the Income Tax Act, 1961, the Supreme Court in C.B. Gautam Vs. Union of India and Others, held that it was necessary though no express provision was made in the Statute, observing as follows :

"It must, however, be borne in mind that Courts have generally read into the provisions of the relevant sections a requirement of giving a reasonable opportunity of being heard before an order is made which would have adverse civil consequences for the parties affected."

In Collector of Central Excise, Patna and Others Vs. I.T.C. Limited and Another, , the question that arose before the Supreme Court was whether the assessing authority could make a demand for additional excise duty without giving an opportunity to the assessee to meet the grounds upon which the duty was enhanced or revised, as the case may be. It was contended on behalf of the Revenue that sub-rule (5) of Rule 98 of the Central Excise Rules did not provide for a fresh opportunity for a fresh show cause notice being given before determining the final duty. The Supreme Court held as follows rejecting that contention :

"Before the first respondent (assessee) is made liable for higher or enhanced duty, it must be told on what grounds it is sought to be made liable for additional duty and it must be given an opportunity of meeting those grounds. This is the minimum requirement of the principle of natural justice which must be read into sub-rule (5) of Rule 9B, wherever called for.

In the present case the learned Counsel for the petitioner also submits that the impugned order is in violation of Section 11A of the Central Excises and Salt Act, 1944. That is also a matter to be considered by the first respondent.

We may observe that it is high time that the Central Excise authorities wake up to the requirements of fair play as laid down by innumerable decisions of the Apex Court and observe the principles of natural justice in taking actions resulting in civil consequences, eschewing arbitrariness that is anathema to Article 14 of the Constitution.

In the result, we hold that the demand notice of the first respondent in D.O.R. No. 11/93-C.E., dated 29-9-1995 cannot stand because it is made in violation of the principles of natural justice and fair play, which are clearly attracted on the facts of the present case. It is therefore set aside. We make it clear that it will be open to the first respondent to take appropriate action in accordance with law after giving notice and reasonable opportunity to the petitioner and following the principles of fair play.

The Writ Petition is accordingly allowed. We desist from awarding costs because the learned Standing Counsel for the Central Government fairly accepted that the matter would have to go back.