The Collector of Central Excise vs Fenoplast Ltd.

L. Narasimha Reddy, J.

These reference cases are filed by the Central Excise Department under Section 35G(3) of the Central Excise Act, 1944 (for short the Act). The genesis of these cases is a bit complicated.

The respondent is a manufacturing unit and it is an assessee of the Central Excise Duty. One of the products manufactured by it is rexin cloth. The excise duty was being levied upon it by treating the rexin cloth as a product falling under Clause 19(iii) of Schedule-I to the Central Excise Tariff Act (for short the Tariff Act). The respondent made a representation to the Assessing Authority on 09.03.1981 with a prayer to treat the rexin cloth as the one under Clause 19(i) of the Schedule-I to the Tariff Act. Alleging that its representation was not being considered, the respondent filed W.P. No. 2199 of 1981 before this Court with a prayer to declare the inaction on the part of the Assessing Authority as arbitrary and for consequential directions. An interim order was passed in the writ petition with a direction to the respondent therein to treat the rexin cloth under Clause 19(i) of the Tariff Act, subject to the condition that the respondent shall furnish bank guarantee to the extent of 30% of the difference of excise duty.

The writ petition was ultimately disposed of on 18.03.1987 with a direction to the respondent therein to consider the representation dated 09.03.1991 submitted by the respondent. In compliance with the direction, the concerned authority passed an order dated 04.05.1987 confirming the original classification i.e., under Clause 19(iii). The matter was carried in appeal and thereafter to the Supreme Court. The appeal before the Supreme Court was dismissed on 27.06.1994 and ultimately the order dated 04.05.1987 affirming the classification of the product was upheld.

The petitioner issued a demand notice, dated 16.11.1994 to the respondent requiring it to pay the difference of the excise duty for the products that were cleared during the pendency of W.P. No. 2199 of 1981, in compliance with the interim orders. The respondent raised an objection as to limitation under Section 11-A of the Act as it stood at the relevant point of time. That was not accepted by the petitioner and an order of attachment, dated 29.11.1994 was passed for realisation of the arrears of excise duty. The respondent filed Appeal Nos. 308/94(H)(CE) before the Commissioner of Central Excise (Appeals), Hyderabad, challenging the order of attachment, dated 29.11.1994. He has also filed Appeal No. 388/96(H)(CE) challenging the demand notice, dated 16.11.1994. While Appeal No. 308/94(H)(CE) was allowed on 13.01.1994, Appeal No. 388/96(H)(CE) was allowed on 24.09.1996, mainly on the ground that the demand was barred by limitation stipulated under Section 11-A of the Act, as it stood at the relevant point of time. The Department filed Appeal Nos. E/SB/5264/95 and E/1425/96 before the Central Excise and Gold (Control) Appellate Tribunal, South Zonal Bench, Madras (for short the Tribunal), against the orders passed by the Commissioner.

The two Members of the Tribunal, who heard the appeals expressed divergent opinions on the question of limitation. Therefore, the matter was referred to a Third member, who took the view that the demand of arrears of excise duty from the respondent is barred by Section 11-A of the Act.

Applications filed by the petitioner seeking reference of the question of law, involved in the matter to this Court were rejected. Hence, these two references with a prayer to direct the Tribunal to refer the following questions to this Court:

Where goods were cleared pursuant to an interim order passed by the High Court on furnishing a bank guarantee towards differential duty and finally proceedings culminated in passing an adjudication order, can it be said that Section 11A of the Act is applicable?

Can a party who filed writ petition and obtained interim orders preventing the department from collecting duty can be permitted to plead the bar of limitation subsequently?

Whether in the facts and circumstances of the case, in determining the validity of the demand, the period during which the proceedings are pending before the Courts/Tribunals should be excluded for computation of period of limitation?

Whether the facts and circumstances of the case, the assessee is debarred by the principles of constructive res-judicata from rising the plea of limitation in view of the judgment of the Supreme Court restoring the order of adjudication made by the Assistant Commissioner?

We heard Sri V. Gopala Krishna Gokhaley, learned counsel for the petitioner in detail. Inspite of the matters being posted repeatedly, to enable the appearance of the learned counsel for the respondent, none had appeared.

This is not the stage, at which we need to answer the questions referred to above one way or the other. The exercise is only to verify whether those questions deserve to be referred to this Court by the Tribunal.

Section 11-A of the Act, as it stood then, prescribes the period of limitation, within which the Department can recover the arrears of excise duty. One year was stipulated for this purpose. Where however, the default is committed or failure of recovery was on account of acts of fraud or misrepresentation or misstatement, the prescribed limitation is five years from the date on which the amount became due.

Obviously because the Parliament did not anticipate that the question of limitation would be raised regarding the amounts that became recoverable as a result of adjudication, the provision did not contain any arrangement in that behalf.

It is not uncommon that wherever time frame is stipulated under enactment, and before the expiry of the limitation so stipulated, the further steps became untenable on account of the pendency of the proceedings or the interim orders passed therein, the limitation ceases to run. Once the proceedings culminate, paving the way for continuation of the proceedings, the duration for which the proceedings remain pending before the Court needs to be excluded in the reckoning of limitation. The relevant provisions contained in the Land Acquisition Act can be treated as an example. Section 6 of that Act mandates that a notification under that provision must be published within two years from the date on which the notification under Section 4(1) of that Act is published. The proviso to the Section is to the effect that if within the period of two years, any proceedings have been instituted before a Court of law, the period, during which the proceedings were pending, must be excluded. The examples can be multiplied. We are making a mention to these aspects only to impress that there exists prima facie case in favour of the Department to seek reference on the questions extracted in the preceding paragraphs. This and the other aspects need to be considered.

In the instant case, the Department was disabled from recovering the difference of duty between the items that fall under Clause 19(iii) on the one hand and Clause 19(i) on the other hand only on account of the interim orders passed by this Court in W.P. No. 2199 of 1981. Once that writ petition ended in the form of a direction to the respondent therein to pass an order and an order was passed on 04.05.1987, affirming the original classification, the question as to whether the period deserves to be excluded in the process of reckoning limitation under Section 11-A of the Act needs to be considered.

We therefore, allow the C.E.R.Cs. and the Tribunal, which now has jurisdiction over the respondent, shall refer the questions to this Court for answer, duly putting the respondent on notice.