By TIOL News Service

NEW DELHI, APRIL 30, 2014 : THE petitioner Hindalco manufactures aluminium. The sale price of aluminium was subject to an Aluminium Control Order. In order to manufacture aluminium, the petitioner drew electricity from two sources – UPSEB and Renusagar Power Company.

An interesting piece of information here - Renusgar Power Company and Hindalco are sister concerns. Initially, excise duty was sought to be collected from Renusagar Power Company in respect of electricity supplied by it to Hindalco for the manufacture of aluminium. That was the subject matter of challenge in a WP 1008/1978. That dispute was resolved by a decision of the Delhi High court on 09.07.1993 whereby it was held that if the corporate veil was lifted, it would appear that the electricity produced by Renusagar was actually captively consumed by Hindalco&on captive consumption of electricity there was no excise duty liability on account of exemption. Therefore, the sum and substance of the decision of 09.07.1993 was that Renusagar was exempted from its liability to pay duty on the electricity produced by it and consumed by Hindalco for the manufacture of aluminium.

The issue in the present Writ Petition is -

A demand notice letter dated 16.02.1994 was issued by Assistant Collector, Central Excise, Mirzapur in respect of the period 01.03.1978 to 30.09.1983 alleging the following -

+ Whereas duty on electricity was imposed during the period from 1.3.78 to 30.9.83 at the rate set out in erstwhile T.I.11-E of the Ist schedule to the Central Excise and Salt Act, 1944.

+ And whereas during the relevant period the sale of Aluminium and articles thereof were regulated under the said order and the price of indigenous Aluminium was fixed by the Controller appointed by the Central Govt. for the purposes of the said order having regard to all relevant factors including the estimated cost of production or manufacture thereof and whereas only one price was fixed for one specification of indigenous Aluminium for all the manufacturers in India.

+ Whereas the cost of electricity constituted a substantial part of the cost of production of the said good and whereas during the relevant period the sale price was fixed under clause 4 of the said order on the basis of the estimated cost of production which included the cost of electricity including duty leviable thereon under T.I.-II-E of the erstwhile first schedule to the Central Excise & Salt Act, 1944.

+ Whereas inter-alia the element of the duty on electricity was included in the sale price fixed for indigenous Aluminium manufactured by the manufacturers in India and whereas the price charged by M/s Hindalco from the buyers clearly included the element of duty on electricity consumed by them in the manufacture of aluminium amongst above.

+ Whereas M/s Hindalco collected the sale price of the said goods from the buyers which included inter alia the element of duty amounting to Rs.1459.37 lacs leviable on electricity purchased from M/s Renusagar Power Co. and consumed during the relevant period and whereas they ought to have suo-moto paid the same as required under Sec.11-D of the Central Excise and Salt Act, 1944.

+ Whereas it is observed that out of total sum ofRs.1459.37 lacs M/s Hindalco have M/s Hindalco have made provision for Rs. 547.26 lacs and the rest Rs.912.11 lacs have been sequestored in the Aluminium regulation account and whereas instead of keeping the said sum with them or in the Aluminium Regulation Accounts it should have been deposited to the credit of Central Government as envisaged under the provision of Section 11-D.

The sum and substance of the allegation - When the price of aluminium was fixed it included a component of excise duty on electricity. Since Renusagar was exempted from paying excise duty by virtue of the said decision of 1993, the amount which was embedded in the price of aluminium and which allegedly represented the excise duty on electricity, became surplus in the hands of the petitioner and, therefore, according to the Department the same was recoverable under Section 11D.

In fine, the petitioner was directed to deposit Rs.1459.37 lacs to the credit of Central Govt. as contemplated under the provision of Section 11 D of CESA, 1944, within 10 days of the receipts of the notice failing which action u/r 230 of the CER, 1944 was to be initiated.

Against this demand letter dated 16/02/1994, a Writ Petition came to be filed before the Delhi High Court in the same year.

The WP was decided recently.

The following were the issues raised by the petitioner and the decision of the High Court.

First issue:

That the impugned demand notice letter dated 16.02.1994 was not preceded by any show cause notice nor was any opportunity given by the Department to the petitioner to explain its case and, therefore, it was a clear violation of the principles of natural justice.

It was further submitted that the principles of natural justice were inbuilt in Section 11D by virtue of sub-Section (2) and sub-Section (3) and although, these sub-Sections (2) and (3) were inserted in the year 2000, they were to operate with retrospective effect from 20.09.1991, which is the date on which Section 11D was inserted into the said Act.

Held -

The High Court agreed that the demand notice, without the issuance of a SCN, would be bad in law even de hors sub-Sections (2) and (3) of Section 11D as that would be in clear violation of the principles of natural justice.[ Union of India v. MadhumilanSyntex Pvt. Ltd. 2002-TIOL-512-SC-CX relied upon] The High Court, therefore, held that on this ground alone, the impugned demand dated 16.02.1994 is liable to be quashed.

Second Issue:

The period of demand 01.03.1978 to 30.09.1983 is much prior to the introduction of Section 11D, which happened only on 20.09.1991 and section 11D does not have retrospective operation; that even if an amount as recognized under Section 11D had been collected a day prior to 20.09.1991 the same could not be recovered under Section 11D as the said provision came into operation only on 20.09.1991.

That several amendments have been introduced in Section 11D but the amendment was to take retrospective effect from 20.09.1991.

Held -

We agree with the submission that Section 11D has not been made retrospective expressly and there is nothing which requires us to imply or infer the retrospective operation of the same. [Hindustan Metal Pressing Works v. Commissioner of Central Excise, Pune: (2003) 3 SCC 559 referred]

Third issue:

The petitioner would, in any event, not be covered under Section 11D.

Three conditions are necessary before Section 11D could apply:- (1) There must be a liability to pay excise duty in respect of the goods manufactured by the petitioner; (2) an amount in excess of the duty assessed/determined ought to have been collected by the petitioner; and (3) the collection of the excess amount should be representative of the duty of excise.

The petitioner manufactures aluminium. Excise duty is a duty on manufacture. Therefore, the excise duty liability of the petitioner would be the excise duty payable on aluminium. Insofar as the aluminium manufactured by the petitioner is concerned, the duty that was payable by the petitioner has been paid and there is no issue with regard to this. As such, the petitioner has not collected any excise duty which the petitioner was liable to pay in excess of what the petitioner was assessed on in respect of the aluminium produced by it. Therefore, there is no question of the applicability of Section 11D.

Submission by Revenue

That the price for aluminium which the petitioner charged from its buyer in terms of the Aluminium Control Order included an element of excise duty paid on electricity consumed by it and, therefore, it may be inferred that the petitioner collected duty in excess of the amount that it was entitled to collect. Consequently, the conditions precedent to Section 11D were squarely met and, therefore, the recovery could have been made under Section 11D.

Held -

We agree with the submission that the conditions precedent for invoking Section 11D have not been satisfied. Section 11D(1) has specific reference to a person who is liable to pay duty under the Act. In the present case it is Hindalco which is that person. Hindalco's liability to pay duty is in respect of the aluminium manufactured by it inasmuch as a duty of excise is a duty on manufacture and not on the sale of any product. Insofar as aluminium is concerned the price charged for it is by virtue of the Aluminium Control Order. The duty leviable on aluminium based on such price has been collected and paid by Hindalco. There is no excess on this account. Therefore, the question of invoking Section 11D would not arise.

The demand notice dated 16.02.1994 is quashed and the Writ Petition stands allowed.

(See 2014-TIOL-599-HC-DEL-CX)