Notice prior to finalization of provisional assessment invalid
AIT News Network
NEW DELHI. The Apex Court giving relief to top industrial group vide ruling dated 31^st October AIT-2006-214-SC has ruled that completion of an assessment proceedings is a sine qua non for issuance of notice under Section 11-A of the Central Excise Act, 1944. 

T H E  F A C T S:

Completion of an assessment proceedings whether is a sine qua non for issuance of notice under Section 11-A of the Central Excise Act, 1944 was the question involved in this appeal. M/s. ITC Ltd., Respondent No. 1 herein manufactures cigarettes.  It gets the work done also by way of job work through various factories. These factories inter alia belonged to M/s. Master Tobacco Company .It appears that their existed a dispute as regards mode of valuation for the purpose of levy of excise duty.  By a judgment and order dated 19.7.1995, this Court opined that excise duty should be paid on the wholesale dealers price to their customers and not on the price of Respondent No. 1 to its wholesale dealers. 

          A show cause notice was issued on 10.4.1986 as to why Respondent and its wholesale dealers, being related persons, the cost of Corrugated Fibre Containers (CFCs) should not be added to the manufacturing cost.  A show cause notice was also issued on 10/11.8.1983 asking the respondent to show cause as to why differential duty of Rs. 57,22,63,857.70 for the period from 1.7.1980 to 31.3.1982 shall not be directed to be paid.  Another notice was issued on 8.10.1984 demanding the differential duty of Rs. 43,53,137.70 for the period 1.4.1982 to 30.6.1983.  One show cause notice was furthermore issued on 13.4.1987 demanding Rs. 34 crores claiming freight, administrative charges collected by Respondent herein to be added as additional consideration. The assessee's contention that the show cause notices issued prior to finalization of the provisional assessment was invalid had been rejected by the adjudicating authority.           

T H E  R U L I N G:             

Section 11-A of the Act provides for a penal provision.  Before a penalty can be levied, the procedures laid down therein must be complied with.  For construction of a penal provision, it is trite, the golden rule of literal interpretation should be applied.  The difficulty which may be faced by the Revenue is of no consequence.  The power under Section 11-A of the Act can be invoked only when a duty has not been levied or paid or has been short-levied or short-paid.  Such a proceeding can be initiated within six months from the relevant date which in terms of Sub-section (3)(ii)(b) of Section 11-A of the Act (which is applicable in the instant case) in a case where duty of excise is provisionally assessed under the Act or the Rules made thereunder, the date of adjustment of duty after the final assessment thereof.  A proceeding under Section 11-A of the Act cannot, therefore, be initiated without completing the assessment proceedings.  

 Ranganathan, J. in Ujjagar Prints (II) v. Union of India defined the word "levied" in the following terms:

"-The word "levied" is a wide and generic expression. One can say with as much appropriateness that the Income Tax Act levies a tax on income as that the Income Tax Officer levies the tax in accordance with the provisions of the Act. It is an expression of wide import and takes in all the stages of charge, quantification and recovery of duty, though in certain contexts it may have a restricted meaning-" 

          The question as to non-levy or short-levy of an excise duty would arise only when the levy had been laid in accordance with law.  When a duty is levied, it becomes payable which in turn would mean legally recoverable.   

          In New Delhi Municipal Committee v. Kalu Ram , the word "payable" has been defined in the following terms: 

"The word "payable" is somewhat indefinite in import and its meaning must be gathered from the context in which it occurs. "payable" generally means that which should be paid."

          Concededly, in terms of the provisions of the Act and the Rules framed thereunder, the amount becomes payable only in the event, the assessee does not deposit the amount levied within a period of ten days from the date of completion of the order of assessment.  A provisional assessment is made in terms of Rule 9B inter alia at the instance of the assessee.  Such a recourse is resorted to only when the conditions laid down therein are satisfied, viz., where the assessee is found to be unable to produce any document or furnish any information necessary for assessment of duty on any excisable good.

          Whereas provisional duty is levied in terms of Sub-Rule (1) of Rule 9B, final assessment is contemplated under Sub-Rule (5) thereof by reason of which the duty provisionally assessed shall be adjusted against the duty finally assessed and in the event, the duty provisionally assessed falls short of or is in excess of the duty finally assessed, the assessee will pay the deficiency or will be entitled to a refund, as the case may be.  Ultimately, thus, the liability of the assessee would depend upon the undertaking of exercises by the assessing officer to complete the assessment proceeding as contemplated under the Rules. 

          On a plain reading of the provisions of the Act and the Rules framed thereunder, we have no doubt in our mind that the Tribunal was correct in its finding that the impugned show cause notices were illegal. 

( Click here for full text of ruling AIT-2006-214-SC )