Holding

The demand notice was bad in law for violating Section 11‑A, and the show‑cause notice is effective only from 7 February 1984 onward; therefore the appeal fails.

Issues considered

Whether a demand notice for short levy of excise duty issued without a prior show‑cause notice violates Section 11‑A of the Central Excises and Salt Act, 1944.
Whether the show‑cause notice dated 9‑10 February 1984 can be treated as valid for the period 15 August 1983 to 6 February 1984.
How the spun yarn should be classified under the Central Excise Tariff – Item 18(III)(i) or Item 18(III)(ii).

Legislation cited

Central Excises and Salt Act, 1944s. 11-A

Subjects

excise dutyshort levySection 11-Ashow-cause noticetariff classificationnatural justiceCentral Excise Act

Judgment

UNION OF INDIA & ORS.
A
v.
MADHUMILAN SYNTEX PVT. LTD. & ANR.

MAY 3, 1988

B IR.S. PATHAK, CJI AND M.H. KANIA, J.] "I' ~
Central Excises and Salt Act, 1944-Challenging demand of

r
short payment of excise duty being violative of provisions of section
11-Aof.

c yarn. The respondent No. 1 in this appeal was manufacturing Spun
In the manufacture of the said product, the respondents used as '
raw material cellnlosic fibres and non-cellnlosic fibres. Prior to 7th
Joly, 1983, the respondents had filed a classification list in respect of
the spun yam manufactured by them showing the same as covered by
Item No. 18 (III) (i) in the first schedule to the Central Excises and Salts
D Act, 1944 ("Central Excises Act"). This classification was on the basis
that the spnn yarn was manufactured by them out of non-collnlosic
synthetic waste. The said classification list was approved by the excise
authorities on 7th Joly, 1983. A supplementary classification list was
approved on 15th October, 1983.
--\
E Samples were drawn out of the spun yarn manufactured by the
respondents and sent for chemical analysis. Reports were submitted by
the Chemical Analyser. On 7th February, 1984, the Superintendent of
Central Excises issued a demand notice against the respondent No. 1 on
the footing that there was short payment of excise duty as the goods
manufactured by the respondents were liable to he classified under >_/
F Central Excises Tariff Item No. 18(111) (ii). The respondents filed a writ
petition in the High Court, challenging the notice of demand. On 9th
February, 1984, the Assistant Collector of Central Excises passed an
order modifying the approval granted to the classification lists submit-
led by the respondents and classifying the aforesaid product of the
respondents under Item No. 18(111) (ii) of Schedule I of the Central
G Excises Act, on the basis of which the Superintendent, Central Excises,
issued on the 10th February, 1984, a notice to the respondent No. I, ,.I_
calling upon them to show cause why duty short-levied should not be
recovered from them under the provisions of section 11-A of the Central
E;xcises Act. A second similar show-cause notice was also issued.

H The Assistant Collector passed orders of adjudication dated 5th
838
U.0.1. v. MADHUMILAN SYN1EX 839
j
March, 1984, modifying the classification lists and confirming the
A
demand made under the aforesaid notice of demand. The respondents-
petitioners thereupon amended their aforesaid writ petition to challenge
the two show-cause notices and the orders of adjudication. The petition-
ers also filed an appeal before the Collector of Central Excises against
the said orders of adjudication.
-·Y B
The High Court allowed the writ petition in part, quashing the
notice of demand for the period 15th August, 1983 to 6th February,
1984, and the orders modifying the classification lists, and directing the
Collector, Central Excises to hear the appeal of the petitioners on merits

J considering their evidence in respect of the period from 7th February,
1984 onwards. The High Court took the view that the show-cause notice
served on the petitioner could be treated as valid only in respect of the
period from 7th February, 1984, onwards and not retrospectively from
15th August, 1983 to 6th February, 1984. The Union of India, the
c

Collec~r of Central Excises and other Excise officers then moved this
Court by this appeal against the decision of the High Court.
D
Dismissing the appeal, the Court,

HELD: H the Cellulosic spun yarn made by a manufacturer with
~· the aid'of·power contains man-made fibre ofnon-celluloslc origin, it will
fall under Item No, 18(111) (ii), but if it does not contain any man-made
fibre of non-cellulosic origin, it will fall under Item No. 18(111) (I) and E
duty would be Ieviable !here at a lower rate. [843B-CI

Under the11rovisions of Section 11-A of the Central Excises Act,
before any demand is made on any person chargeable in respect of
"·'(, non-levy or short levy or under-payment of duty, a notice requiring him
to show cause why he should not pay the amounts specified in the F
notice must be served on him. In this case, no such notice was served.
The aforesaid notice of demand dated 7th February, 1984, was in viola-
tion of the provisions of Section 11-A and is I>ad in law, and the High
Court was fully justified in quashing the same. [843G-H; 844G-HI

The appellants contended that although the notice of demand G
'
),. might be set aside, the notice to show cause dated 9th/10th February,
1984, should be treated as a valid notice in respect of the period from
15th August, 1983 to 6th February; 1984 and the period from 7th
February, 1984, onwards; The notice referred to the service of notice of
demand dated 7th February, 1984 on the respondent No. 1. The notice
set out as an established fact that the classification lists submitted by the H
840 SUPREME COURT REPORTS (1988) 3 S.C.R. ~

A respondents bad been modified by the Assistant Collector, and the only
matter with respect to which the respondents were asked to show cause
was with regard to the quantification of the amount of short levy which
was liable to be recovered from the respondent No. 1. The Notice could
not be regarded as a show-cause notice against the modification of the
classification lists in respect of the aforesaid period. The show cause
B notice was bad mlaw and of no legal effect as far as the earlier period
was concerned. Under Section 11-A of the Central Excises Act, the
notice can relate only to a period of six months prior to the issue of that
notice except in cases where it is alleged that the short levy or payment
bas occurred by reason of fraud, collusion or wilfnl misrepresentation
or suppression of facts or contravention of the provisions of the said Act
or rules, as contemplated in the proviso to sub-section (1) of Section
c ll·A. No such case was made out in the said show-cause notice. The said
show-cause notice must be struck down in so far as the period upto 6th
February, 1984, was concerned and could be regarded as a proper
show-cause notice only in respect of the subsequent period from 7th
February, 1984 onwards. Under the said show-cause notice, the ques·
D lion of short levy or non-levy of excise duty prior to 6th February, 1984,
could not be gone into by the Collector and the High Court was right In
the view it took. [845B-C; 846A-E)

Gokak Patel Vokkart Ltd. v. Collector of Central Excise,
Belgaum, A.I.R. 1987 S.C. 1161, referred to.
E
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1110
(NT) of 1986

From the Judgment and Order dated 24.11.1984 of the High
Court of Madhya Pradesh, Indore Bench, passed in M.P. NO. 104 of _)-'
F 1984.

Go bind Das, Mrs. Sushma Suri, Mrs. Indra Sawhney and C. V .S.
Rao for the Appellants.

Dr. Y.S. Chitale, Sanjay Sarin, Abdul Chitale and S.K. Gamb·
G hir, for the Respondents.

The Judgment of the Court was delivered by

KANIA, J. This is an appeal against the judgment of a Division
Bench of the Madhya Pradesh High Court, Jabalpur (Indore Bench) in
H M. Petition No. 104 of 1984. The appeal is filed at theinstance of the
U.0.1. v. MADHUMILAN SYNIBX [KANIA, J.J 84.1
}-
Union of India, Collector of Central Excise, Indore and two other A
excise officers. The respondents are the original petitioners in the
aforesaid petition. We propose to refer to the parties by the descrip-
tion in the petition.

The facts necessary for the di:posal of this appeal can be shortly
y stated. B

The petition~r No. 1 is a Company manufacturing spun yam.
According to the petitioners, in the manufacture of the said product
they use as raw material cellulosic fibres and non-cellulosic fibres.

~
Some time prior to 7th July, 1983, the petitioners filed a classification
list in respect of the spun .Yam manufactured by them showing the
same as covered by Item No. 18(111) (i) in the First Schedule to the
c
Ce11tral Excises and Salt Act, 1944 (referred to hereinafter as the
"Central Excise Act"). The said schedule is generally referred to as
the "Central Excises Tariff'. This classific~. :ion was on the basis that
the spun yam was manufactured by them out of non-cellulosic synth-
etic waste. The said classification list was approved by the excise au- D
thorities on 7th July, 1983. A supplementary classification list was
approved on 15th October, 1983. The petitioners were clearing the
goods on the basis of aforesaid classification lists. It appears that sam-
) pies were drawn out of the spun yam manufactured by the petitioners
and sent for chemical examinatioin. There are some reports submitted
by the Chemical Analyser, with the details of which we are not con- JO
cerned. Without giving any show cause notice or affording any op-
portunity to the petitioners to be heard, on 7th February, 1984, the
Superintendent of Central Excise issued a notice of demand for a total
sum of Rs.26,47,749.39 against the petitioner No. 1 on the footing that
'( there was short paym• 11t of excise duty. This was done on the ground
that the yam manufactured by the petitioners had been manufactured F
out of waste of synthetic fibres in blend of viscose fibres (of non-
cellulosic origin) and hence the said goods manufactured by them were
liable to be classified under Central Excises Tariff Item No. 18(III)(ii).
It is an admitted position that the yam manufacturing process used· by
the petitioners was with the aid of power. The petitioners filed the
aforesaid writ petition in the High Court of Madhya Pradesh challeng- G
J ing the validity of the said notice of demand dated 7th February, 1984.
The High Court granted an interim stay of the operation of the
demand notice on 9th February, 1984. On the same day, namely, 9th
February, 1984, an order was passed by the Assistant Collector of
Central Excise modifying the approval granted to the aforesaid clas-
sification lists submitted by the petitioners which had been approved H
842 SUPREME COURT REPORTS [1988] 3 S.C.R.

A
as aforesaid and classifying the aforesaid product under Item No. """
18(111) (ii) of Schedule 1 of the Central Excises Act. On 10th
February, 1984 a notice was issued by the Superintendent, Central
Excise on the petitioner No. 1 reciting inter alia that the Assistant
Collector had modified the approval of the classification lists on 9th
February, 1984 and calling upon the petitioner No. 1 to show cause
B why the duty short levied should not be recovered from them under '"(
the provisions of Section 11-A of the Central Excises Act. A second
similar show cause notice was also issued. The petitioner No. 1 wrote
to the excise authorities pointing out that in view of the aforesaid writ
petition filed by the appellant, the adjudication proceedings should be

~
stayed till writ petition was disposed of. This request was turned down
on 5th March, 1984 and orders of adjudication were passed by the
c Assistant Collector modifying the classification lists and confirming
the demand made under the aforesaid notice of demand. The petition-
ers thereupon amended the aforesaid writ petition filed by them and
challenged the two show cause notices as well as the said orders of
adjudication dated 5th March, 1984. The petitioners also filed an
D appeal before the Collector of Central Excises (Appeal) against the
orders of adjudication dated 5th March, 1984. On 24th November,
1984 by the impugned judgment, the Madhya Pradesh High Court
allowed the aforesaid writ petition in part. Mulye, J. held by his judg-
ment that the writ petition was allowed to the extent that the demand
~
for recovery of Rs.26,47, 749 .39 for the period 15th August, 1983 to
E 6th February, 1984, which was the period referred to in the demand
notice was quashed. However, the learned Judge directed the Col-
Jector, Central Excise before whom the appeal filed by the petitioners
was pending to decide the appeal in respect of the demand made by the
excise authorities for the subsequent period. Giani, J., the other
learned judge, in his concurring judgment set aside the two roders ;r-
F issued by the Assistant Collector, Central Excise, Ujjain Division both
dated 5th March, 1984 as set out earlier. Copies of these adjudication
orders are at Annexure R/10 and R/11 respectively to the writ petition.
Very shortly put, both the Jndges held that the notice of demand and
the orders modifying the classification list served on the petitioners
were .bad in Jaw and ordered that the same be quashed. A perusal of
G the judgment also clearly indicates that the Division Bench directed
that the Collector, Central Excise (Appeal) should hear the appeal of .A
the petitioners on merits after giving the petitioners an adequate
opportunity to put their case and their evidence before him in respect
of the period from 7th February, 1984 onwards. Thus, the Division
Bench took the view that the show cause notice served on the petition-
H ers could be treated as valid and effective only in respect of the period
U.O.l. v. MADHUMJLAN SYNTEX [KANIA, J.] 843

from 7th February, 1984 onwards and not retrospectively from 15th A
August, 1983 to 6th February, 1984 being the period for which the
den:.and has already been made in the demand notice dated 9th
February, 1984.

As far as the relevant items in the First Schedule of the Central
Excises Act are concerned, it is not necessary to set out the same in B
detail. It will be enough to point out that if the ce11ulosic spun yam
made by a manufacturer with the aid of power contains man made
fibre of non-cellulosic origin, it will fall under Item No. 18(111) (ii), but
if it does not contain any man-made fibre of non-cellulosic origin, it

~
will fall under Item No. 18(111) (i) and duty would be leviable there at
a lower rate. The relevant portion of Section 11-A of the Central
..

Excises Act runs as follows:
c
"When any duty of excise has not been levied or paid or has
been short-levied or short-paid or erroneously refunded, a
Central Excise Officer may, within six months from the
relevant date, serve notice on the person chargeable with D
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 notice:

Privided that where any duty of excise has not been E
levied or paid or has been short-levied or short-paid or
erroneously·refunded by reason of fraud, collusion or any
wilful mis-statement or suppression of fact, or contraven-
tion of any of the provisions of this Act or of the rules made
therunder with Intent to evade payment of duty, by such
person or his agent, the provisions of this sub-section shall F
have effect, as if for the words "Central Excise Officer",
the words "Collector of Central Excise" and for the words
"six months", the words "five years"·were substituted.",

A perusal of the aforesaid provisions shows that before. any
demand is made on any person chargeable in respect of non-levy or G
short levy or under payment of duty, a notice requiring him to show
cause why he should not pay the amounts specified in the notice must
be served on him. It is the admitted position in the present case that no
such notice was served. It would thus appear that the aforesaid
demand notice dated 7th February, 1984 was in violation of the provi-
sions of Section 11-A and is bad in law. Mt. Govind Das, learned H
844 SUPREME COURT REPORTS [19881 3 S.C.R.

A counsel for the appellant, however, contended that although the
aforesaid Section provides that no demand could be made against a
person therunder without affording that person an adequate opportun-
ity to show cause against the same, in the present case, though no prior
show cause notice was given and the petitioners were not given an
opportunity to be heard before the notice of demand was issued, such
B a notice was issued and an opportunity to show cause was given after
the demand was made and the demand confirmed after hearing and
hence it must be regarded as valid. It was submitted by him that a post
facto show cause notice should be regarded as adequate in law. In
support of this contention Mr. Govind Das tried to place reliance on
certain decisions where a view has been taken that in cases where
,urgent and emergent action is required, an opportunity to be heard can
c be given after the order affecting a person adversely is passed and that
where a particular Act does not provide for any such opportunity to be
heard being given before an adverse order is passed, a post facto
opportunity to be heard might, in certain cases, be regarded as ad-
equate compliance with principles of natural justice. We are of the
D view these cases .have no relevance in considering the questions before
us because it is quite apparent that in the present case no urgent or
emergent action was required and Section 11-A of the Central Excises
Act clearly provides that prior show cause notice must·be issued to the
person against whom any demand on ground of short levy or non-levy
of payment of excise duty is proposed to be made. In Gokak Patel
E Vokkart Ltd. v. Collector of Central Excise, Belgaum, A.LR. 1987
S.C. 1161 this Court has held that the provisions ofSection 11-A(l) &
(2) of Central Excises and Salt Act, 1944 make it clear that the' statut-
ory scheme is that in the situations covered by sub-section (1), a notice
of show cause has to be issued and sub-Section (2) requires that the
cause shown by way of representation has to be considered by the
F 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 mak1ng the
order. Notice is thus a condition precedent to a demand under sub-
Section (2).
G
In view of the aforesaid decision the submission of Mr. Govind
Das must be rejected and it must be held that the aforesaid notice of
demand was clearly bad in law and the High Court was fully, with
respect, justified in quashing the same.

·H The next submission of Mr. Govind Das was that, in any event,
U.0.1. v. MADHUMILAN SYNTEX [KANIA, J.J 845

as the Collector of Central; Excise (Appeals) had been directed to A
examine the merits ·of the matter in respect of·alkged short levy or
non-levy •and the modification of the classification lists aft~r allowing
adequate opportunity to the petitioners to show cause in respect of the
period from 7th February, 1984, onwards, the question as· to whether
there was short levy or ·non-levy in respect of the period from 15th
August, 1983 to 6th February, 1984 should even also be allowed to be B
decided by the Collector. It was submitted by Mr. Govind Das that
although the notice of demand may be set aside .the notice to show
cause dated 9/lOth February, 1984 should be treated as a va1id and
effective notice in respect of the period from 15th August, 1983 to 6th
February, 1984 as well as the period from 7th February, 1984 onwards.
In this connection, it is the submission of Dr. Chitale that this notice
merely asked the petitioners to show cause against calculation or
c
determination of the amount of short levy and not against the altera-
tion in the classification lists on the basis of which short-levy was
alleged and hence, in respect of the said period from 15th August, 1983
to 6th February, 1984the show cause notice is liable to be struck down.
In our view the submission of Dr. Chitale deserves to be accepted. The D
opening paragraph of the show cause notice refers to the service of
notice of demand dated 7th February, 1984 for Rs.26,47,749.39 on the
petitioner. Paragraphs 2 and 3 of the said notice run as follows:

"AND whereas the Assistant Colle'ctor Central Excise,
Ujjairt under his letter C.N. V(18)III/l/l/83/l371-1374 E
dated 9th Feb., 84'has modified approval of the classifica-
tion lists of the party and has directed that the short levied
should be quantified by the Inspector, Central Excise,
Biaora/Superintendent Central Excise, Ujjain and confir-
mation or otherwise of such short levied and recoveries :if
any would be ordered by him (AssistantCollector .Central F
Excise, Division Ujjain) after followiitg the prescribed
procedure. ·

THEREFORE, in. accordance with the said order of the
Assistaii.t Collector; Central Excise Division, U jjain, you
are called upon to show cause to the Assistant Collector, G
'Central Excise, Ujjain within 10 days of the receipt of this
show cause notice as to why the short levies of Rs.26,
47, 749.39 should not be recovered from you, under Section
11-A of the Central Excise and Salt Act, 1944."

A reading of these paragraphs clearly shows that the notice set H
846 SUPREME COURT REPORTS [1988] 3 S.C.R.
A out as an established fact that the dassificatii>il lists submitted by the
petitioners had been modified by the Assistant Collector, Central
Excise, Ujjain and the only matter with respect to which the petition-
ers were asked to show cause was with regard to the quantification of
the amount of the short levy and consequently, the amount which was
liable to be recovered from the petitioner No. 1. This notice, there-
B
fore, cannot be regarded as a show cause notice against the modifica-
tion of the classification iists in respect of the aforesaid period. In
these circumstances, the show cause notice is bad in law and of no
legal effect as far as the said earlier period is concerned. Under Section
11-A of the Central Excise Act, the notice can relate only to a period
of six months prior to the issue of that notice except in cases where it is
C alleged the short levy or short payment has occurred by reason of
fraud, collusion or wilful misrepresentation or suppression of facts or
contravention of the provisions of the said Act or rules made by the
period concerned, as contemplated in the proviso to sub-Section (1) of
Section 11-A. No such case has been sought to be made here in the
said show cause notice. The result is that the said show cause notice
D must be struck down in so far as period upto 6th February, 1984 is
concerned, and can be regarded as a proper show cause notice only in
respect of the subsequent period from 7th February, 1984 onwards.
We are, therefore, of the view that under the said show cause notice
the question of short levy or non-levy of excise duty prior to 6th
E February, 1984 cannot be gone into by the Collector and the High
Court was right in the view which it took. ,

In the result, the appeal fails and is dismissed with costs.

S.L. Appeal dismissed.