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Monday, August 3, 2015


Union of India, vide Memorandum dated December, 24, 1997, unveiled a new industrial policy for the North-Eastern region. In the said policy, in order to give stimulation to the development of industrial infrastructure in the North-Eastern region, the said region was made tax free zone for a period of ten years giving incentives to those who wanted to establish industries in that region.

However, on December, 31, 1999, another Notification was issued whereby exemption of central excise was withdrawn in respect of goods falling under Chapter 21.06 (pan masala) and Chapter 24 (tobacco and tobacco substitutes, including cigarettes, chewing tobacco etc.).

This withdrawal Notification was challenged by the appellant by filing the writ petition in the High Court of Gauhati. The learned single Judge dismissed the writ petition. However appeal preferred by the appellant was allowed by the Division Bench vide judgment dated December, 03, 2012.   

However, after notifying Section 154 of the Act of 2003, which had nullified the effect of Notification No. 32 of 1999 retrospectively thereby annulling the effect thereof altogether, respondent No. 1 herein passed recovery order dated June, 03, 2003 for recovery of a sum of Rs. 2,93,43,244/- (Rupees two crores ninety three lakhs forty three thousand two hundred and forty four only) from the appellant, which was the benefit that had been drawn by the appellant for the period November, 1999 till February, 2001 in terms of Notification No. 32 of 1999. By another order dated June, 06, 2003 issued by respondent No. 1, the appellant was directed to pay the excise duty for the said period for which the benefit had been availed. He also rejected the pending claim of refund for the period from March, 2001 till May, 31, 2003. There recovery orders were challenged by the appellant by filing appeal before the Commissioner (Appeals). This order of pre-deposit was challenged by the appellant by filing four writ petitions in the High Court of Gauhati. The learned single Judge of the High Court, however, dismissed these writ petitioners vide order dated May, 18, 2004. The appellant carried this issue of pre-deposit to a higher forum in the form of writ appeals before the Division Bench of the said Court. The Commissioner (Appeals) heard the appeals and passed the orders dated June 15, 2005 deciding the appeals in favour of the appellant. He held that issuance of show-cause notice was mandatory before a valid recovery of demand could be made from the appellant and, thus, remitted the matter to the adjudicating authority, both the appellant as well as the Revenue filed appeals aggrieved against the order dated June, 15, 2005 passed by the Commissioner (Appeals). The Customs Excise & Service Tax Appellant Tribunal (for short ‘CESTAT’) decided these appeals vide common order dated May 28, 2007. It reversed the order of Commissioner (Appeals), which resulted in allowing the appeal filed by the Revenue and dismissing the appeal preferred by the appellant.

One of the issued was whether recovery proceedings can be initiated without show-cause notice under section 11A of the Excise Act, which is mandatory?

The Supreme Court held that “the appellant was accorded certain benefits under Notification dated July, 08, 1999. This Notification stands nullified by Section 154 of the Act of 2003, which has been given retrospective effect. The legal consequence of the aforesaid statutory provision is that the amount with which the appellant was benefitted under the aforesaid Notification becomes refundable. Even after the notice is issued, the appellant cannot take any plea to retain said amount on any ground whatsoever as it is bound by the dicta in R.C. Tobacco (supra). Like-wise, even the officer who passed the order has no choice but to follow the dicta in R.C. Tobacco (supra). It is important to note that as far as quantification of the amount is concerned, it is not disputed at all. In such a situation, issuance of notice would be an empty formality and we are of the firm opinion that the case stands covered by ‘useless formality theory’.

The Supreme Court held that by the factual matrix the non-issuance of notice before sending communication dated June, 23, 2003 had not resulted in any prejudice to the appellant and it may not be feasible to direct the respondents to take fresh action after issuing notice as that would be a mere formality.

[M/s Dharampal Satyapal Ltd., Vs. Deputy Commissioner of Central Excise, Gauhati and Ors.;   2015 AIR SCW 3884]   

Prepared by: S. Hemanth