By TIOL News Service

NEW DELHI, MAY 15, 2015: THIS case has a long history.

Government of India, vide Memorandum dated December 24, 1997, unveiled a new industrial policy for the North-Eastern region. Pursuant thereto, the Notification dated July 08, 1999 was issued granting new industrial units that had commercial production on or after December 24, 1997 and certain types of industrial units that increased their installed capacity after that date, exemption on goods cleared from units located in growth centres and integrated infrastructure centres. However, on December 31, 1999, another Notification was issued whereby exemption of central excise was withdrawn in respect of goods falling under Chapter 21.06 (pan masala) and Chapter 24 (tobacco and tobacco substitutes, including cigarettes, chewing tobacco etc.).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 Single Judge dismissed the writ petition. However, appeal preferred by the appellant was allowed by the Division Bench vide judgment dated December 03, 2012. The High Court held that the principal of Promissory Estoppel shall apply and once a promise was given by the Union of India assuring that no such duty would be charged for a period of ten years, it was not open for the Union of India to withdraw the same. Challenging that judgment, Union of India filed petitions for special leave. Leave was granted and the petitions were registered as Civil Appeal Nos. 8841-8844 of 2003.

After the filing of the aforesaid appeals, certain subsequent events took place. It so happened that vide Section 154 of the Finance Act, 2003, withdrawal of the benefit was effected from retrospective effect. Effect thereof was to withdraw the benefit given under the Notification issued earlier. Validity of Section 154 was questioned and the issue was considered by the Supreme Court in R.C. Tobacco Private Ltd. & Anr. v. Union of India & Anr. - 2005-TIOL-115-SC-CX. The Court upheld the constitutional validity of the aforesaid provision and repelled the challenge so laid. The effect was to disentitle the appellant and other similarly situated from getting any such benefit by virtue of Section 154 of the Act of 2003 and knocking down the basis of the judgment of the High Court, which lost its validity on the aforesaid ground.

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, the Deputy Commissioner of Central Excise 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 the 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.

These recovery orders were challenged by the appellant by filing appeal before the Commissioner (Appeals). Along with the appeal, the appellant also filed an application for interim order seeking stay against the pre-deposit. On this application, orders dated March 31, 2004 were passed by the Commissioner (Appeals) directing the appellant to deposit entire duty amount within a period of thirty days. This order of pre-deposit was challenged by the appellant by filing four writ petitions in the High Court of Guwahati. The Single Judge of the High Court dismissed these writ petitions vide orders 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. Interim orders dated June 11, 2004 were passed in the writ appeals directing the Commissioner (Appeals) not to dismiss the appeals preferred by the appellant before him for non-deposit of the duty amount. In other words, interim stay against the pre-deposit was given. 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. After this final order was passed by the Commissioner (Appeals), writ appeals of the appellant before the Division Bench were disposed of as infructuous in view of the fact that the Commissioner (Appeals) had passed an order on merits and, therefore, no cause survived which required further adjudication in those appeals.

Insofar as the order of the Commissioner (Appeals) is concerned, both the appellant as well as the Revenue felt aggrieved thereby. The appellant was not satisfied with the order of remand and the nature of relief granted even after accepting that issuance of show-cause notice was mandatory before passing a valid recovery of demand. The respondents were aggrieved of the order passed on merit holding that show-cause notice was mandatory. Therefore, 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 Appellate Tribunal ('CESTAT') decided these appeals vide common order dated May 28, 2007. It reversed the orders of the Commissioner (Appeals), which resulted in allowing the appeal filed by the Revenue and dismissing the appeal preferred by the appellant.

The appellant challenged the order of CESTAT by filing Central Excise Tax Reference No. 1 of 2008 before the High Court of Gauhati. This Reference was dismissed by the High Court on December 01, 2011 on the ground of res judicata holding that orders dated May 18, 2004 passed by the Single Judge dismissing the writ petitions of the appellant had attained finality. The appellant preferred Review Petition seeking review of the said order, which has also been dismissed by the High Court on June 05, 2012.

In the present appeals, the appellant has challenged both the orders dated December 01, 2011 passed in the Tax Reference as well as the order dated June 05, 2012 passed in the Review Petition.

The following three issues are for consideration in these appeals:

(a) Whether order of the Single Judge at pre-deposit stage can operate as res judicata on merits?

(b) Whether recovery proceedings can be initiated without show-cause notice under Section 11A of the Excise Act, which is mandatory?

(c) Whether there is a conflict between the three Judge Bench judgment in J.K. Cotton - 2002-TIOL-559-SC-CX-LB and R.C. Tobacco - 2005-TIOL-115-SC-CX?

Res judicata: the Supreme Court observed, "The order of the learned Single Judge dismissing the writ petition was challenged before the Division Bench and the Division Bench passed interim orders in the writ appeals not to dismiss the appeals preferred by the appellant for non-deposit of the duty. In this backdrop, appeals were heard and appellant even partly succeeded. After the order of the Commissioner (Appeals) dated June 15, 2005 deciding the appeals partly in favour of the appellant, the writ appeals which were pending before the Division Bench had become infructuous and disposed of as such without going into the merit of the order passed by the learned Single Judge." Held: the order of the learned Single Judge could not be treated as res judicata.

Can recovery proceedings can be initiated without show-cause notice under Section 11A of the Excise Act, which is mandatory? The Supreme Court observed, No doubt, the Department was seeking to recover the amount paid by virtue of Section 154 of the Act of 2003 which was enacted retrospectively and the constitutional validity of the said Section had already been upheld by this Court in R.C. Tobacco (supra) at the time of issuance of notice for recovery. Further, no doubt, the effect of the said amendment retrospectively was to take away the benefit which was granted earlier. However, the question is whether before passing such an order of recovery, whether it was necessary to comply with the requirement of show-cause notice? The appellant wanted to contend that Section 11A of the Excise Act was applicable, which requires this procedure to be followed. Even if that provision is not applicable, it is fundamental that before taking any adverse action against a person, requirement of principles of natural justice is to be fulfilled. It is also trite that when a statute is silent, with no positive words in the Act or Rules spelling out need to hear the party whose rights or interests are likely to be affected, requirement to follow fair procedure before taking a decision must be read into statute, unless the statute provides otherwise.

Why it is necessary that before an adverse action is taken against a person he is to be given notice about the proposed action and be heard in the matter? Why is it treated as inseparable and inextricable part of the doctrine of principles of natural justice ? Principles of natural justice are grounded in procedural fairness which ensures taking of correct decision and procedural fairness is fundamentally an instrumental good, in the sense that procedure should be designed to ensure accurate or appropriate outcomes. In fact, procedural fairness is valuable in both instrumental and non-instrumental terms. the courts have consistently insisted that such procedural fairness has to be adhered to before a decision is made and infraction thereof has led to the quashing of decisions taken. In many statutes, provisions are made ensuring that a notice is given to a person against whom an order is likely to be passed before a decision is made, but there may be instances where though an authority is vested with the powers to pass such orders, which affect the liberty or property of an individual but the statute may not contain a provision for prior hearing. But what is important to be noted is that the applicability of principles of natural justice is not dependent upon any statutory provision. The principle has to be mandatorily applied irrespective of the fact as to whether there is any such statutory provision or not.

Is the judgment in R.C. Tobacco (which is a two Judge Bench decision) is in conflict with the three Judge Bench judgment in J.K. Cotton?. This argument is not even open to the appellant for the simple reason that the judgment in J.K. Cotton was specifically taken note of and discussed in R.C. Tobacco. Paragraph 13 of the judgment in R.C. Tobacco would reflect that the appellant therein had specifically relied upon the judgment in J.K. Cotton in support of the submission that retrospectivity was harsh and excessive since there is, in fact, a retrospective imposition of excise duty. It was also argued that justification of such retrospective imposition of tax must be overwhelming and no such overriding consideration had been disclosed. The submission went to the extent of pleading that if the appellant is called upon to pay the excise duty now it will cripple its unit. More pertinent was another submission, which is relevant for our purpose, that the demand which was raised could not be sustained as it was made without issuing any show-cause notice and was in contravention of Section 11A of the Act. In support of this view, few judgments, including J.K. Cotton, were relied upon. The Court, however, did not find any merit in the aforesaid submissions. In the aforesaid scenario, when the Court was conscious of the principle laid down in J.K. Cotton and explained the same in a particular manner while deciding the appeal in R.C. Tobacco, it cannot be argued that the judgment in R.C. Tobacco runs contrary to J.K. Cotton.

Even though no notice was given for recovery, the Supreme Court declined to remand the case as no purpose would be served as non-issuance of notice before sending communication dated June 23, 2003 has 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.

(See 2015-TIOL-121-SC-CX)