1976 (9) TMI 44 - HC - Central Excise

Summary

Issues:
- Challenge to order of Superintendent of Central Excise
- Benefit of special procedure under Section E-III of Central Excise Rules
- Imposition of penalty under Rule 9 of the Rules
- Legality of the order based on the grounds of illegality
- Payment of excise duty by the petitioners
- Levy of excise duty under normal procedure
- Contentions raised by petitioners
- Contravention of sub-rule (1) of Rule 9
- Application of sub-rule (2) of Rule 9
- Recovery of duties short-levied
- Time limitation under Rule 10 for recovery of duty

In this judgment by the High Court of Madras, Justice Koshal disposed of six petitions under Article 226 of the Constitution of India, where the petitioners, manufacturers of cotton fabrics in powerloom factories, challenged an order of the Superintendent of Central Excise. The order refused to grant them the benefit of the special procedure detailed in Section E-III of the Central Excise Rules and imposed penalties under Rule 9 of the Rules. The petitions sought to quash the order on the ground of illegality.

The facts of the case revolve around one of the petitions, where the petitioner applied for special provisions under Rule 96-I of the Rules, but no sum was tendered with the application. Subsequently, the petitioner paid the due excise duty into the treasury, and the goods were allowed to be removed from the factory. However, in July 1968, proceedings were initiated against the petitioner for the levy of excise duty under the normal procedure and for imposing a penalty under sub-rule (2) of Rule 9, as the application was not accompanied by the required sum.

The petitioners raised two main contentions. Firstly, they argued that there was no intention to evade excise duty, hence sub-rule (2) of Rule 9 should not apply. Secondly, they contended that since excise duty was paid and accepted under the special procedure, higher duty could not be charged after the stipulated period under Rule 10, limiting the recovery period to three months.

Justice Koshal, relying on the Supreme Court's decision in N.B. Sanjana v. The Elphinstone Spinning and Weaving Mills Co. Ltd., held that sub-rule (2) of Rule 9 would not apply if duty is paid and goods are allowed to be removed without evasion. Therefore, the penalty imposed was deemed illegal. Additionally, the excise duty was paid by the petitioners, albeit under the belief of applicability of the special procedure. The proceedings initiated for levying normal duty after the error was detected were considered time-barred under Rule 10, as the demand was not made within three months of the duty being short-levied. Consequently, the petitions were accepted, the impugned orders were quashed, and the petitioners were awarded costs of the proceedings.