Supreme Court of India
GOKAK PATEL VOLKART LIMITEDversusCOLLECTOR OF CENTRAL EXCISE, BELGAUM
- Citation
- 1987 INSC 47
- Decided
- 17 February 1987
- Disposal
- Appeal(s) allowed
- Bench
- R S PATHAK
Holding
The Explanation to Section 11A applies only to a stay of service of notice; since the High Court stayed only collection, the 1982 notice is beyond the limitation period and the demand is invalid.
Summary
Gokak Patel Volkart Ltd challenged a show‑cause notice issued on 20 May 1982 seeking excise duty for the period June 1976 to February 1981, arguing that it was beyond the six‑month limitation under Section 11A of the Central Excises and Salt Act, 1944. The Karnataka High Court had earlier stayed only the collection of duty as "fabric" but allowed payment as "yarn" and gave no order staying the service of any notice. The Supreme Court examined whether the Explanation to Section 11A, which excludes a period of stay of service of notice from the limitation clock, could be invoked. It held that the Explanation applies only when a court stays the service of the notice, not merely the collection of duty, and that a notice is a condition precedent to a demand under Section 11A(1)‑(2). Consequently, the 1982 notice was invalid, the demand was set aside, and the appellant was entitled to a refund of any tax paid. The appeal was allowed.
Issues considered
- Whether the six‑month limitation period under Section 11A of the Central Excises and Salt Act, 1944 applies to the notice issued on 20 May 1982.
- Whether the Explanation to Section 11A, which excludes the period of stay of service of notice, is applicable when the High Court order stayed only the collection of duty.
- Whether a demand for excise duty can be made without a prior valid show‑cause notice as required by Section 11A(1) and (2).
Legislation cited
- Central Excises and Salt Act, 1944s. 11A(1), s. 11A(2), s. 3
- Limitation Act, 1908s. 15
- Limitation Act, 1963s. 15
Subjects
Central ExciseSection 11ALimitation periodShow cause noticeStay of noticeLevy vs collectionNatural justiceTax demandRefund
Judgment
GOKAK PATEL VOLKART LIMITED A
. v.
COLLECTOR OF CENTRAL EXCISE, BELGAUM
FEBRUARY 17, 1987
[R.S. PATHAK C.J.I. AND RANGANATH MISRA, J.] B
Central Excises and Salt Act, 1944 section llA and Explanation
thereto, scope of-Limitation of six months' period-No order of the
court staying the service of notice-Whether a show cause notice issued
beyond the /imitation, period specified under section llA is valid.
A show cause notice dated 29.1.1976 issued by the respondent to
c
the appellant calHng upon him to explain as to why excise duty treating
his product as "fabric" and not as "yarn" may not be levied, was
challenged in the High Court of Karnataka In Writ Petition No. 2632/
1976. PendiDK ftnal disposal of the writ petition, an Interim order stay-
ing the collection or excise daty as a "fabric" for the period 1.4.1975 to D
18.8. 75 alone was pasaed wltll a speclftc direction that the appellant
should continue to pay excise daty as ''yarn''. Finally the .writ petition
was dismissed on 16.2.1981.
On 20th May, 1982, another notice No. 913 to show cause was
issued to the appellut slmullaneol!sly seelti111 to raise a demand for the E
period from 20.6.1976 to 28.2.1981 apart Crom for the period between
1.4.1975 to 18.8.1975 challenged In the earlier writ petition. The
Karnataka High Court havinl! rejected the plea of bar of limitation
under section HA or the Central Excises and Salt Act, 1944 raised in
the writ petition challenging the said second show cause notice and
..... demand, the appellant has come In appeal by way of special leave. F
t Allowing the appeal, the Court,
HELD: 1.1 Section 3 of the Act which contains the cjtarging pro-
vision clearly shows that levy and collection are two distinct and sepa-
rate steps. l312Hl G
1.2 The provision of section I IA( I) and (2) of the Central Excises
and Salt Act, 1944 make it clear that the statutory scheme is that in the
situations covered by the sub-section( I), a notic~ of show cause has to be
issued and sub-section(2) requires that the cause shown by way of rep-
resentation has to be considered by the prescribed authority and then H
309
310 SUPREME COURT REPORTS (1987] 2 S.C.R.
only the amount has to be determined. The scheme is in consonance
A
with the rules of natural jl\lstice. An opportunity to be heard is intended
to he afforded to the person who is likely to he prejudiced when the
order is made, before making the order thereof. Notice is thus a condi-
tion precedent to a demand under sub-section(2). In the instant case,
compliance with this statutory requirement has not been made, and, there-
8 fore, the demand Is in contravention of the statutory provision. [313E-Gl
2. Explanation to seetion I IA of the Central Excises and Salt Act,
1944, which incorporates a well known principle of law, in clear terms
refers to 'stay of service of notice'. The High Court order did not at all
refer to service of notice. The High Court having directed stay of collec·
C lion of duty as 'fabric' has not issued any interim direction in the matter
of issue of notice of levy of the duty. Therefore, the benefit of Explana-
tion to section llA of the AClt is not available to the Respondent. [313C·Dl
Sirajul Haq Khan & Ors. v. The Sunni Central Board of Waqf,
U.P. & Ors., [ 1959] SCR 1287; and N.B. Sanjane Assistant Collector of
D Central Excise, Bombay & Ors. v. Elphinstone Spinning & Weaving
Mills Co. Ltd., [1971] 3SCU506, 514referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 161
Of 1986.
E From the Judgment and Order dated 17.9.85 of the Customs
Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal
No. ED(SB) (T) 463/84-D. ,
Soli J. Sorabjee, Ravinder Narain, Harish Salve, S. Ganesh and
P.K. Ram for the Appellant.
....
F +
B. Datta, Additional Solicitor General, Mrs. Indra Sawhney and
Ms. S. Rela!J for the Respondent.
The Judgment of the Court was delivered by
G RANG ANATH MISRA, J. The fate of this appeal under sec-
tion 35(L) of the Central Excises and Salt Act, 1944, depends upon the }..
meaning and scope of the Explanation appearing in section I IA of the
Act.
The High Court of Karnataka by its order dated 4.6.1976 in Writ
H Petition No. 2632 of 1976 gave the following direction:
G.P.V. LTD. v. COLL. OF C. EXCISE (MISRA, J.] 311
"Pending disposal of the aforesaid writ Petition, it is or-
"4f dered by this Court that collection of excise duty as a fabric
A
be and the same is hereby stayed. It is further ordered that
the petitioner shall however continue to pay execise duty
as yarn and shall further maintain an account in square
metres for future clearance."
B
~I The said Writ Petition was ultimately dismissed by the High Court on
16.2.1981. The operative part of the Court's final order ran thus:
-' r "For the reasons aforesaid, we make tl{e following order:-
(i) Rule discharged;
c
~ (ii) We decline to interfere at this stage leaving open to the
petitioner to urge all the contentions in reply to the
show cause notices."
On 20th May, 1982, a notice to show cause was issued to the
D
appellant by the Assistant Collector, being Notice No. 913, and with
this the Collector sought to raise a demand for the period from 20th
June, 1976 to 28th February, 1981 apart from for thje period between
1.4.1975 to 18.8.1975 in respect of which an earlier show cause notice
dated 29.1.1976 had already been issued.
- It is not disputed by the Revenue that the appropriate period of
limitation to apply to the facts of the case is six months as provided in
E
section 11A of the Act and that the Nntice issued on 20th of May, 1982
-4· was beyond that period. Reliance was placed on the Explanation for
obtaining extension of that period. The Explanation reads thus:
i "Where the service of the notice is stayed by an order of a
F
Court, the period of such stay shall be excluded in comput-
ing the aforesaid period of six months or five years, as the
case may be."
The provision in the Explanation incorporates a well-known principle G
of law. Section 15 of the Limitation Act of 1908 (also of Section 15 of
the Limitation Act of 1963) incorporates the same principle. This
Court in Sirajul Haq Khan & others v. The Sunni Central Board of
Waqf, U.P. & others, (1959] SCR 1287 dealt with the effect of an order
of injuction in the matter of computation of limitaion. At page 1302 of
the Reports, Gajendragadkar, J. as he then was, spoke for the Court H
thus.
312 SUPREME COURT REPORTS [1987] 2 S.C.R.
"It is plain that, for excluding the time under this section, it
must be shown that the institution of the suit in question
had been stayed by an injunction or order; in other words,
the section requires an order or an injunction which stays
the instituiion of the suit. And so in cases falling under
Section 15, the party instituting the suit would by such
ll instituion be in contempt of court.
But in our opinion, there would be no justification for
extending the aipplication of s.15 on the ground that the
instituion of the subsequent suit would be inconsistent with
c the spirit or substance of the order passed in the previous
litigation ........ "
In the instant case, the order of stay passed by the Karnataka High
Court had only stayed the collection of the excise duty, which is a stage
following levy under the scheme of the Act. Obviously there was no
D interim direction of the High Court in the matter of issue of notice for
the purpose of levy of duty. The relevant portion of Section 1lA
provided.
"(1) When-any duty of excise has not been levied or paid
E
or has been short-levied or short-paid or erroneously re·
funded, a Central Excise Officer may, within six months
from the relevant date, serve notice on the person charge-
-
able with the duty which has not been levied or paid or
which has been short-levied or short-paid or to whom the
refund has erroneously been made, requiring him to show
cause why he should not pay the amount specified in the
F
notice:
(2) The Assistant Collector of Central Excise shall, after
considering the n!presentation, if any, made by the person
on whom notice is served under sub-section (1), determine
G the amount of duty of excise due from such person (not
being in excess of the amount specified in the notice) and
thereupon such person shall pay the amount so deter-
mined."
Reference to Section 3 of the Act which contains the charging provi· .....
H sion clearly shows that levy and collection are two distinct and separate
G.P.V. LTD. v. COLL. OF C. EXCISE [MISRA, J.] 313
steps. This Court in N. B. Sanjana, Assistant Collector of Central A
Excise, Bombay & Ors. v. E/phinstone Spinning & Weaving Mills Co.
Ltd., [1971) 3 SCR 506, at page 514 stated:
" .... The charging provision section 3(i) specifically says
"there shall be levied and collected in such a manner as B
may be prescribed the duty of excise ..... "It is to be noted
that sub-section (i) uses both the expressions "levied and
collected" and that clearly shows that the expression"levy"
has not been used in the Act or the Rules as meaning actual
collection."
The High Court having directed stay of collection had, therefore, C
not given any interim direction in the matter of issue of notice or levy
of the duty. The Explanation in clear terms refers to stay of service of
notice. The order of the High Court did not at all refer to service of
notice. Therefore, there is force in the submission of the appellant that
the benefit of the Explanation is not available in the facts of the case.
D
No notice seems to have been issued in this case in regard to the
period in question. Instead thereof an outright demand had been
served. The provisions of Section llA (1) and (2) make it clear that the
statutory scheme is that in the situations covered by the sub-section
(1), a notice of show cause has to be issued and sub-section (2) re- E
quires that the cause shown by way of representation has to be con-
sidered by the prescribed authority and then only the amount has to be
determined. The scheme is in consonance with the rules of natural
justice. An opportunity to be heard is intended to be afforded to the
person who is likely to be prejudiced when the order is made, before
making the order thereof. Notice is thus a· condition precedent to F
demand under sub-section (2). In the instant case, compliance with
this statutory requirement has not been made, and, therefore, the
demand is in contravention of the statutory provision. Certain other
authorities have been cited at the hearing by counsel for both sides.
Reference to them, we consider, is not necessary.
G
••
I
The appeal has to be allowed and the demand raised for the
period 19.8.1975 to 23.2.1981 has to be set aside. There shall be no
order for costs. The tax paid, if any, shall be refunded to the appellant.
S.R. Appeal allowed.
H
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Central Excise"Sign in to search