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M/s. Dharampal Satyapal Ltd. Versus Deputy Commissioner of Central Excise, Gauhati & Others

2015 (5) TMI 500 - SUPREME COURT

Recovery of excise duty without issuance of show cause notice - useless formality theory - Scope of section 11A - area based exemption was Nullified with retrospective effect - In the case of R.C. Tobacco Private Ltd. & Anr. v. Union of India & Anr. [2005 (9) TMI 80 - SUPREME COURT OF INDIA] Apex Court has upheld the withdrawal of retrospective exemption - general theory of fair treatment - Violation of principle of natural justice - Held that:- It, cannot be denied that principles of natural ju .....

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ecisions 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 upo .....

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any ground whatsoever as it is bound by the dicta in R.C. Tobacco (2005 (9) TMI 80 - SUPREME COURT OF INDIA).

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'.

Non-issuance of notice before sending communication dated June 23, 2003 has not resulted in any pre .....

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own in J.K. Cotton [1987 (10) TMI 51 - SUPREME COURT OF INDIA] and explained the same in a particular manner while deciding the appeal in R.C. Tobacco [2005 (9) TMI 80 - SUPREME COURT OF INDIA], it cannot be argued that the judgment in R.C. Tobacco (supra) runs contrary to J.K. Cotton [1987 (10) TMI 51 - SUPREME COURT OF INDIA] - Decided against assessee. - Civil Appeal Nos. 4458-4459 of 2015 ( Arising Out of SLP (C) Nos. 37108-37109 of 2012) - Dated:- 14-5-2015 - A. K. Sikri And Rohinton Fali N .....

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stablish industries in that 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. 3) The aforesaid Notification was issued under the provision of Central Excise Act, 1944 as well as Additiona .....

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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. In nutshell, 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 .....

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Section 154 was questioned and the issue was considered by this Court in R.C. Tobacco Private Ltd. & Anr. v. Union of India & Anr. (2005) 7 SCC 725 This 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 o .....

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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 20 .....

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it petitions in the High Court of Gauhati. The learned Single Judge of the High Court, however, 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 amoun .....

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ion 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. 7) 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 mand .....

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als), which resulted in allowing the appeal filed by the Revenue and dismissing the appeal preferred by the appellant. A perusal of the judgment of the CESTAT would reveal that it has primarily referred to the judgment of this Court in R.C. Tobacco and held that the matter stood concluded by the said judgment. 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 Decemb .....

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Petition. 8) From the brief narration of the background facts mentioned above, it is apparent that the frontal attack of the appellant against the recovery orders passed by the respondents is premised on the plea that no such recovery proceedings could be initiated without a show-cause notice under Section 11-A of the Excise Act. The appellant has also taken a plea in these appeals that order of the Single Judge at pre-deposit stage could not operate as res judicata on merits and, therefore, di .....

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the benefit of Notification No. 32 of 1999 retrospectively insofar as excisable goods falling under Chapter 24 are concerned. Conscious of the position that judgment in R.C. Tobacco (supra) stares at the face of the appellant, Mr. Soli Sorabjee, learned senior counsel who appeared for the appellant, has also made an endeavour to show that the said judgment in R.C. Tobacco (supra) is in clear conflict with earlier three Judge Bench judgment of this Court in M/s. J.K. Cotton Spinning and Weaving M .....

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s for the judgment of the High Court. 10) For answering this issue, it would be necessary to take into account the complete implication thereof with reference to the nature of recovery orders passed by respondent No.1, challenge thereto before the Commissioner (Appeals) and interim order of pre-deposit passed by the Commissioner (Appeals) on March 31, 2004 as also the nature of challenge which was laid by the appellant against the said order of pre-deposit in the writ petitions filed in the High .....

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t such goods were no more exempted from payment of duty. In the appeals which were filed by the appellants before the Commissioner (Appeals) challenging the aforesaid orders, the Commissioner passed interim orders dated March 31, 2004 directing the appellants to pay the amount demanded by the aforesaid orders. This order dated March 31, 2004 of the Commissioner (Appeals) reflects that the Commissioner went into various issues raised by the appellant on the basis of which it was pleaded by the ap .....

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ery of amounts was pending consideration of Central Board of Excise and Customs (CBEC) as well as in the Gauhati High Court. All these issues were considered by the Commissioner (Appeals), who gave his prima facie view thereupon observing that the appellants did not have strong prima facie case on merits resulting into the direction to deposit the entire amount within thirty days. 12) The appellant had filed writ petitions against the aforesaid order of the Commissioner (Appeals) with the prayer .....

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rits of the main issue. That is the reason that the order dated May 18, 2004 of the learned Single Judge dismissing the writ petition of the appellant runs into 37 pages. Nevertheless, we find that the observations which were made by the learned Single Judge on the issues raised were only prima facie in nature and the prime focus of the judgment rested on the core issue, namely, whether the direction of the Commissioner (Appeals) directing the appellant to make deposit of the amount as a pre-con .....

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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 .....

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, though wrongly is dismissed on the ground of res judicata, the impugned order shows that it has mentioned that such show-cause notice was not mandatory as held by the learned Single Judge by order dated May 18, 2004. 14) Learned senior counsel appearing for the appellant as well as learned Attorney General agreed that in this situation this Court may decide the aforesaid issue finally. It is for this reason that we have heard counsel for the parties at length on this aspect of the matter. 15) .....

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ere upheld by this Court in R.C. Tobacco (supra) could not be a ground to dispense with the aforesaid mandatory requirements of principles of natural justice. His further submission was that 'no prejudice' principle adopted by the CESTAT amounted to erroneous approach. He sought to draw a fine distinction in this behalf by contending that the Authority passing the order could not presume that prejudice would not be caused to a person against whom the action is contemplated and on that pr .....

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. Sorabjee. 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 orde .....

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SCC 38 has held that show-cause and personal hearing is necessary before saddling an assessee with additional demand. 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. 17) What is the genesis behind this requirement? Why it is necessary that .....

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aturalist' approach to the phrase 'natural justice' and is related to 'moral naturalism'. Moral naturalism captures the essence of commonsense morality - that good and evil, right and wrong, are the real features of the natural world that human reason can comprehend. In this sense, it may comprehend virtue ethics and virtue jurisprudence in relation to justice as all these are attributes of natural justice. We are not addressing ourselves with this connotation of natural just .....

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ttributes in mind only would lead to doing justice. Since these attributes are treated as natural or fundamental, it is known as 'natural justice'. The principles of natural justice developed over a period of time and which is still in vogue and valid even today were: (i) rule against bias, i.e. nemo iudex in causa sua; and (ii) opportunity of being heard to the concerned party, i.e. audi alteram partem. These are known as principles of natural justice. To these principles a third princi .....

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IR 1978 SC 851 explained the Indian origin of these principles in the following words: Indeed, natural justice is a pervasive facet of secular law where a spiritual touch enlivens legislation, administration and adjudication, to make fairness a creed of life. It has many colours and shades, many forms and shapes and, save where valid law excludes, it applies when people are affected by acts of authority. It is the bone of healthy government, recognised from earliest times and not a mystic testam .....

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sanctioned its prevalence even like the Anglo-American system . 21) Aristotle, before the era of Christ, spoke of such principles calling it as universal law. Justinian in the fifth and sixth Centuries A.D. called it 'jura naturalia', i.e. natural law. 22) The principles have sound jurisprudential basis. Since the function of the judicial and quasi-judicial authorities is to secure justice with fairness, these principles provide great humanising factor intended to invest law with fairne .....

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the natural sense of what is right and wrong. 23) This aspect of procedural fairness, namely, right to a fair hearing, would mandate what is literally known as 'hearing the other side'. Prof. D.J. Galligan On 'Procedural Fairness' in Birks (ed), the Frontiers of Liability (Volume One) (Oxford 1994) attempts to provide what he calls 'a general theory of fair treatment' by exploring what it is that legal rules requiring procedural fairness might seek to achieve. He underlin .....

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social good is realised. For taking this view, Galligan took support from Bentham A Treatise of Judicial Evidence (London 1825), who wrote at length about the need to follow such principles of natural justice in civil and criminal trials and insisted that the said theory developed by Bentham can be transposed to other forms of decision making as well. This jurisprudence of advancing social good by adhering to the principles of natural justice and arriving at correct decisions is explained by Ga .....

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, whether to the benefit or the detriment of a particular person, is simply a failure to achieve the general good in that case. At this level of understanding, judgments of fairness have no place, for all that matters is whether the social good, as expressed through laws, is effectively achieved. Galligan also takes the idea of fair treatment to a second level of understanding, namely, pursuit of common good involves the distribution of benefits and burdens, advantages and disadvantages to indiv .....

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individuals, in respect of whom or against whom the decision is taken, in the following words: The instrumental value of procedures should not be underestimated; the accurate application of authoritative standards is, as Galligan clearly explains, an important aspect of treating someone with respect. But procedures also have intrinsic value in acknowledging a person's right to understand his treatment, and thereby to determine his response as a conscientious citizen, willing to make reasonab .....

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cern and respect for all. It, thus, cannot be denied that 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. 25) It is on the aforesaid jurisprudential premise that the fundamental principles of natur .....

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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 jsutice 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. De Smith Judial Review of Administrative Action (1980), at page 161 captures the essence thu .....

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that: '...although there is no positive word in the statute requiring that the party shall be heard, yet justice of common law would supply the omission of Legislature . Exhaustive commentary explaining the varied contours of this principle can be traced to the judgment of this Court in Managing Director, ECIL, Hyderabad & Ors. v. B. Karunakar & Ors. (1993) 4 SCC 727, wherein the Court discussed plenty of previous case law in restating the aforesaid principle, a glimpse whereof can b .....

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e, there is no reason why they should not be made applicable to administrative proceedings also especially when it is not easy to draw the line that demarcates administrative enquiries from quasijudicial ones. An unjust decision in an administrative inquiry may have a more far reaching effect than a decision in a quasi-judicial inquiry. It was further observed that the concept of natural justice has undergone a great deal of change in recent years. What particular rule of natural justice should .....

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ld in good faith and without bias and not arbitrarily or unreasonably is now included among the principles of natural justice. 21. In Chairman, Board of Mining Examination v. Ramjee, (1977) 2 SCC 256, the Court has observed that natural justice is not an unruly horse, no lurking landmine, nor a judicial cure-all. If fairness is shown by the decision-maker to the man proceeded against, the form, features and the fundamentals of such essential processual propriety being conditioned by the facts an .....

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d from denial of reasonable opportunity, the Court will decline to be punctilious or fanatical as if the rules of natural justice were sacred scriptures. 22. In Institute of Chartered Accountants of India v. L. K. Ratna, (1986) 4 SCC 537, Charan Lal Sahu v. Union of India, (1990) 1 SCC 613 (Bhopal Gas Leak Disaster Case) and C. B. Gautam v. Union of India, (1993) 1 SCC 78, the doctrine that the principles of natural justice must be applied in the unoccupied interstices of the statute unless ther .....

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supplying the material which is the basis for the decision. The enquiry report constitutes fresh material which has great persuasive force or effect on the mind of the disciplinary authority. The supply of the report along with the final order is like a post mortem certificate with putrefying odour. The failure to supply copy thereof to the delinquent would be unfair procedure offending not only Arts. 14, 21 and 311(2) of the Constitution, but also, the principles of natural justice. 26) Likewi .....

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rises where an order for compulsory purchase is made and such an imputation casts a slur on the parties to the agreement to sell leads to the conclusion that before such an imputation can be made against the parties concerned they must be given an opportunity to show-cause that the under valuation in the agreement for sale was not with a view to evade tax. It is, therefore, all the more necessary that an opportunity of hearing is provided. 27) From the aforesaid discussion, it becomes clear that .....

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se of rules of natural justice is to prevent miscarriage of justice, one fails to see how these rules should not be made available to administrative inquiries. In the case of Maneka Gandhi v. Union of India & Anr. (1978) 1 SCC 248 also the application of principle of natural justice was extended to the administrative action of the State and its authorities. It is, thus, clear that before taking an action, service of notice and giving of hearing to the noticee is required. In Maharashtra Stat .....

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case to case and from one fact-situation to another. All that has to be seen is that no adverse civil consequences are allowed to ensue before one is put on notice that the consequence would follow if he would not take care of the lapse, because of which the action as made known is contemplated. No particular form of notice is the demand of law: All will depend on facts and circumstances of the case. 28) In the case of East India Commercial Company Ltd., Calcutta & Anr. v. The Collector of C .....

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348 b) Morarji Goculdas B&W Co. Ltd. & Anr. v. U.O.I. & Ors. (1995) Supp 3 SCC 588 c) Metal Forgings & Anr. v. U.O.I. & Ors. (2003) 2 SCC 36 d) U.O.I. & Ors. v. Tata Yodogawa Ltd. & Anr. 1988 (38) ELT 739 (SC) :: 1988 (19) ECR 569 (SC) 29) Therefore, we are inclined to hold that there was a requirement of issuance of show-cause notice by the Deputy Commissioner before passing the order of recovery, irrespective of the fact whether Section 11A of the Act is attracted .....

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ons to the aforesaid principles have been invoked under certain circumstances. For example, the Courts have held that it would be sufficient to allow a person to make a representation and oral hearing may not be necessary in all cases, though in some matters, depending upon the nature of the case, not only full-fledged oral hearing but even cross-examination of witnesses is treated as necessary concomitant of the principles of natural justice. Likewise, in service matters relating to major punis .....

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justice may even be excluded by reason of diverse factors like time, place, the apprehended danger and so on. 31) We are not concerned with these aspects in the present case as the issue relates to giving of notice before taking action. While emphasizing that the principles of natural justice cannot be applied in straight-jacket formula, the aforesaid instances are given. We have highlighted the jurisprudential basis of adhering to the principles of natural justice which are grounded on the doct .....

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e in Malloch v. Aberdeen Corporation (1971) 1 WLR 1578 at 1595, who said that a 'breach of procedure...cannot give (rise to) a remedy in the courts, unless behind it there is something of substance which has been lost by the failure. The court dos not act in vain'. Relying on these comments, Brandon LJ opined in Cinnamond v. British Airports Authority (1980) 1 WLR 582 at 593 that 'no one can complain of not being given an opportunity to make representations if such an opportunity wou .....

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tter back to the authorities to take fresh decision after complying with the procedural requirement in those cases where non-grant of hearing has not caused any prejudice to the person against whom the action is taken. Therefore, every violation of a facet of natural justice may not lead to the conclusion that order passed is always null and void. The validity of the order has to be decided on the touchstone of 'prejudice'. The ultimate test is always the same, viz., the test of prejudic .....

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ef should be granted to him in such cases. The answer to this question has to be relative to the punishment awarded. When the employee is dismissed or removed from service and the inquiry is set aside because the report is not furnished to him, in some cases the non-furnishing of the report may have prejudiced him gravely while in other cases it may have made no difference to the ultimate punishment awarded to him. Hence to direct reinstatement of the employee with back-wages in all cases is to .....

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se. Where, therefore, even after the furnishing of the report, no different consequence would have followed, it would be a perversion of justice to permit the employee to resume duty and to get all the consequential benefits. It amounts to rewarding the dishonest and the guilty and thus to stretching the concept of justice to illogical and exasperating limits. It amounts to an unnatural expansion of natural justice which in itself is antithetical to justice. 33) So far so good. However, an impor .....

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ve. It is not permissible for the authority to jump over the compliance of the principles of natural justice on the ground that even if hearing had been provided it would have served no useful purpose. The opportunity of hearing will serve the purpose or not has to be considered at a later stage and such things cannot be presumed by the authority. This was so held by the English Court way back in the year 1943 in the case of General Medical Council v. Spackman 1943 AC 627. This Court also spoke .....

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ces it was not necessary for the Board to have issued a show cause notice. We are unable to accept this contention. Whether a duty arises in a particular case to issue a show cause notice before inflicting a penalty does not depend on the authority's satisfaction that the person to be penalised has no defence but on the nature of the order proposed to be passed. 34) In view of the aforesaid enunciation of law, Mr. Sorabjee may also be right in his submission that it was not open for the auth .....

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n. This was so clarified in the case of Managing Director, ECIL (supra) itself in the following words: 31. Hence, in all cases where the enquiry officer's report is not furnished to the delinquent employee in the disciplinary proceedings, the Courts and Tribunals should cause the copy of the report to be furnished to the aggrieved employee if he has not already secured it before coming to the Court/ Tribunal and given the employee an opportunity to show how his or her case was prejudiced bec .....

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short cuts. Since it is the Courts/Tribunals which will apply their judicial mind to the question and give their reasons for setting aside or not setting aside the order of punishment, (and not any internal appellate or revisional authority), there would be neither a breach of the principles of natural justice nor a denial of the reasonable opportunity. It is only if the Court/Tribunal finds that the furnishing of the report would have made a difference to the result in the case that it should s .....

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w laid down by this Court in R.C. Tobacco (supra). 37) To recapitulate the events, 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 ca .....

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ory'. 38) In Escorts Farms Ltd. (Previously known as M/s. Escorts Farms (Ramgarh) Ltd.) v. Commissioner, Kumaon Division, Nainital, U.P. & Ors. (2004) 4 SCC 281, this Court, while reiterating the position that rules of natural justice are to be followed for doing substantial justice, held that, at the same time, it would be of no use if it amounts to completing a mere ritual of hearing without possibility of any change in the decision of the case on merits. It was so explained in the fol .....

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nce, more so, when on this legal question all affected parties have got full opportunity of hearing before the High Court and in this appeal before this Court. Rules of natural justice are to be followed for doing substantial justice and not for completing a mere ritual of hearing without possibility of any change in the decision of the case on merits. In view of the legal position explained by us above, we, therefore, refrain from remanding these cases in exercise of our discretionary powers un .....

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decision) is in conflict with the three Judge Bench judgment in J.K. Cotton (supra). This argument is not even open to the appellant for the simple reason that the judgment in J.K. Cotton (supra) was specifically taken note of and discussed in R.C. Tobacco (supra). Paragraph 13 of the judgment in R.C. Tobacco (supra) would reflect that the appellant therein had specifically relied upon the judgment in J.K. Cotton (supra) in support of the submission that retrospectivity was harsh and excessive .....

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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 (supra), were relied upon. The Court, however, did not find any merit in the aforesaid submissions and dealt with the issue as under, duly taking note of the judgment in J.K. Cotton (supra): 40. In J.K. Cotton Spg. & Wvg. Mills Ltd. v. Union of India, (1987) Supp. SCC 350, relied upon by the petitioners, by virtue of the retrospective am .....

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