Case Note & Summary
The dispute arose out of excise duty payable on the commodity 'frit' manufactured by the appellant. The Assistant Collector of Central Excise had initially classified frit under the general residuary Item 68 of the First Schedule to the Central Excise and Salt Act, 1944. With the amendment of Tariff Item 23-A(4) by insertion of the words 'glass and', the item read 'other glass and glassware including tableware'. The Collector of Central Excise, Baroda, issued a show-cause notice dated 4 November 1981 under Section 45-A of the Act, proposing to classify frit under Item 23-A(4) with effect from 1 March 1979 and to revise the Assistant Collector's order accordingly. The appellant showed cause. By order dated 3 December 1981, the Collector made the notice absolute, set aside the Assistant Collector's order, classified frit as 'other glass' falling within Item 23-A(4), and directed the appellant to pay differential duty. The appellant's revision application was transferred to the Customs, Excise and Gold (Control) Appellate Tribunal. The Tribunal considered the evidence and upheld the classification, but it also held that although the show-cause notice did not in terms ask the appellant to show cause against recovery of short-levied duty, once the Collector reclassified the goods, he was right in demanding payment of differential duty. However, the Tribunal limited recovery to six months preceding the date of the Collector's order, i.e., 30 April 1982, under Rule 11 or Section 11A, and directed the excise authorities to recalculate the amount. The appellant challenged this before the Supreme Court, principally contending that no notice for recovery of short-levied duty had been issued as required by Section 35A. The Court examined Section 35A(2) and (3). Sub-section (2) empowers the Collector to call for and examine records of any proceeding and pass such order as he thinks fit. Clause (a) of sub-section (3) requires giving a reasonable opportunity of representation and hearing before any order prejudicially affects a person. Clause (b) applies when duty has not been levied, has been short-levied, or has been erroneously refunded; in such a case, no order levying or enhancing duty or requiring payment of refunded duty shall be made unless the affected person is given notice to show cause against it within the time limit specified in Section 11A. The Court held that the requirement of clause (b) was mandatory and independent of the classification notice. The show-cause notice dated 4 November 1981 only asked the appellant to show cause why frit should not be classified under Item 23-A(4); it did not give notice that the Collector proposed to recover short-levied duty. Consequently, the orders of the Collector and the Tribunal, insofar as they required the appellant to pay short-levied duty, even though limited to six months, were bad in law. The Supreme Court allowed the appeal, set aside the Tribunal's order to the extent it directed recalculation and payment of short levy, and ordered that any recovered sum be returned. No order as to costs was made. The Court did not decide the classification issue because the new Tariff expressly provided for classification of frit and the appeal could be disposed of on the procedural ground of absence of notice.
Headnote
A) Central Excise - Classification of Goods - Item 23-A(4), First Schedule to Central Excise and Salt Act, 1944 - The dispute concerned classification of frit as 'other glass' under Item 23-A(4), but the Supreme Court declined to decide classification because the new Tariff expressly provided for frit and the appeal was disposed of on procedural grounds - Held that no opinion on classification was necessary (Paras 1-3). B) Central Excise - Recovery of Short-Levied Duty - Sections 35A(3)(b) and 11A, Central Excise and Salt Act, 1944 - A Collector exercising revisional powers under Section 35A cannot order payment of short-levied or erroneously refunded duty unless the person affected is given notice to show cause against such payment within the Section 11A limitation period - In this case, the show-cause notice dated 04.11.1981 only required showing cause against classification under Item 23-A(4) and did not ask the appellant to show cause against recovery of short-levied duty; therefore, orders of Collector and Tribunal directing payment of differential duty, even limited to six months, were bad in law - Held that the appeal was allowed, the Tribunal's order was set aside to that extent, and any recovered sum was to be returned (Paras 1-3).
Issue of Consideration
Whether the order of the Collector under Section 35A of the Central Excise and Salt Act, 1944 directing payment of short-levied duty consequent to reclassification of frit under Item 23-A(4) was valid when no show-cause notice for recovery of such duty was issued to the assessee within the time limit specified in Section 11A.
Final Decision
The appeal was allowed. The order of the Tribunal was set aside insofar as it directed recalculation of short levy and required the appellants to pay such sum. Any recovered amount was to be returned to the appellants. No order as to costs.
Law Points
- Section 35A(3)(b) of Central Excise and Salt Act
- 1944 mandates show cause notice before recovering short-levied duty
- notice for classification alone does not satisfy recovery notice
- demand for differential duty without notice is void even if limited to six months
- Collector's revisional powers under Section 35A cannot override statutory notice requirement
- Section 11A limitation applies to notice under Section 35A(3)(b)
- no opinion on classification because new Tariff expressly provides for frit
