Allowed

M/S. Nirlon Ltd. v. Union of India and 3 Ors.

Bombay HC6 Oct 2006WP/2697/2006

Case brief

AI extract

What is this about?

This writ petition challenges excise interest demands and a goods detention memo issued without a show cause notice. The High Court held that principles of natural justice require a prior opportunity to be heard and quashed the impugned orders, directing respondents to issue a show cause notice.

What did the court decide?

Demand notices of August and September 2006 and detention memo of September 2006 quashed; goods released; respondents directed to issue show cause notice.

M/S. Nirlon Ltd. Vs Union of India and 3 Ors. — Writ and Judicial Review | Bombay HC (2006)

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 IN THE HIGH COURT OF JUDICATURE AT BOMBAY

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 O.O.C.J.

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 WRIT PETITION (L) NO.2274 OF 2006

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 M/s.Nirlon Ltd. .. .. Petitioner
 v/s.

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 Union of India & ors. .. .. Respondents

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 Mr.M.H. Patil for petitioner.
 Mr.A.S.Rao with Ms.Ritu Singh for respondents.

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 -----

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CORAM : H.L. GOKHALE &
J.P. DEVADHAR, JJ.

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DATED : 6th October 2006

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P.C. :

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 1. Heard the learned Counsel for the parties.

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 2. Rule. Rule is made returnable forthwith.
 Respondents have filed a reply. Counsel have made
 their submissions.

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 3. The petitioner herein is challenging the
 action initiated by respondent Nos.2 to 4 for
 recovery of the amount of interest through their
 letters dated 24th August 2006, 4th September 2006
 and the detention Memo dated 27th September 2006.

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 4. The brief facts leading to the filing of
 this Petition are as follows:-

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 . The petitioner is a Company having its

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 factory at Tarapur in District Thane. The

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 petitioner has been paying the excise duty while
 clearing the goods from time to time as per Rule
 173G of the Central Excise Rules, 1944. It,
 however, so happened that there were a few
 defaults in the period July to September 2000.

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 The petitioner was required to make defaults good
 by paying interest at the rate of 24% under
 sub-clause (1)(d) thereof. According to the
 petitioner, it has paid the same. Thereafter the
 Deputy Commissioner, Central Excise, who is
 respondent No.3 herein, wrote to the petitioner by
 his letter dated 14th November 2000 that
 thereafter the petitioner will be disallowed to
 pay the Central Excise duty on fortnightly basis
 as it was earlier doing under Rule 173G(i)(a) and
 that the petitioner will have to pay the duty for
 each consignment by debiting to the current
 account or by CENVAT for the period of two months
 from the date of communication of that order.
 Accordingly, petitioner preferred to follow the
 CENVAT method from 16.11.2000 onwards. The

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 respondents subsequently issued a Corrigendum on
 19th December 2000 making it clear that the
 petitioner will have to make payment by debiting
 to the current account only. It is the case of
 the petitioner that thereafter it made payment

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 from the Personal Ledger Account i.e. after 20th
 December 2000. That was so until the expiry of
 the period of two months as required and then the
 petitioner went back to the method permissible
 under Rule 173G(i)(a) i.e. paying the excise duty
 on a fortnightly basis.

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 5. Now, it so happened that much later i.e.
 on 12th October 2004 the petitioner was served
 with a notice after an inspection by the audit
 party that the resort to CENVAT during the period
 16.11.2000 to 20.12.2000 was not correct and that
 the petitioner should pay the interest to the tune
 of Rs.31,98.398/-. The petitioner replied to the
 same by its reply dated 20th October 2004 by
 stating that the petitioner was only following the
 method which was permissible under the Deputy
 Commissioner’s letter dated 14th November 2000.
 Nearly two years passed thereafter and now again
 on 31st August 2006 the demand is raised that this
 interest amount should be paid and now a detention
 Memo is issued on 21st September 2006 not to clear
 the goods of the petitioner for non-payment of the
 interest amount.

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 6. The case of the petitioner is that it
 followed the method permitted by the Deputy

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 Commissioner and it should not be made to suffer.
 In any case, the petitioner should be afforded a
 hearing and for that purpose, reliance is placed
 on the judgment of the Apex Court in Union of
India & ors. vs. Madhumilan Syntex Pvt.Ltd.
reported in 1988 (35) E.L.T. 349 (S.C.) to the
 effect that the demand raised without notice or
 hearing would be invalid.

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 7. Reliance is also placed on a judgment of
 another Division Bench of this Court in Lloyds
Steel Industries Ltd. vs. Union of India
reported in 2005 (183) E.L.T. 351 (Bom.) where
 the Revenue did not dispute that the liability to
 pay duty can be discharged either by debiting the
 current account or by utilizing CENVAT credit.
 This is recorded in para-6 of this judgment.

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 8. Mr.Rao appearing for the respondents,
 however, contends that this judgment is not
 explaining Rule 173G of the Central Excise Rules,
 1999. That apart, he states that although the
 letter of the Deputy Commissioner dated 14.11.2000
 did state that the petitioner may pay the excise
 duty by debit to the current account / CENVAT, the
 reference to CENVAT was erroneous and that was
 impermissible. He relied on sub-clause 1(e) of

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 Rule 173G which provides as follows:-

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 " (e) If the manufacturer defaults on
 account of any of the following reasons,
 namely:-

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 (i) full payment of any one instalment is
 discharged beyond a period of thirty days
 from the date on which the instalment was
 due in a financial year, or

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 (ii) the due date on which full payment of
 instalments are to be made is violated for
 the third time in a financial year,
 whether in succession or otherwise,

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 then the manufacturer shall forfeit the
 facility to pay the dues in instalments
 under this sub-rule for a period of two
 months, starting from the date of
 communication of an order passed by the
 proper officer in this regard and during
 this period the manufacturer shall be
 required to pay excise duty for each
 consignment by debit to the account
 current referred to in clause (b) and in
 the event of any such failure it will be

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 deemed as if such goods have been cleared

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 without payment of duty and the
 consequences and penalties as provided in

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 the Central Excise Rules shall follow."

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 9. We have noted the submissions with respect
 to the merits of the demand and the defence of the

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 petitioner. The fact however remains that
 principles of natural justice require that the
 petitioner ought to be issued a Show Cause Notice
 as to why the interest amount should not be
 claimed from it and after affording a hearing that
 liability ought to be decided. That has not been
 done which is clearly contrary to the judgment of
 the Apex Court in Madhumilan Syntex (supra). That
 was particularly necessary in the fact of the
 present case where the petitioner has chosen to
 follow one of the options given by the Revenue and
 the demand for interest was being raised after a
 good number of years. As far as that aspect is
 concerned, in our view, the submissions of
 Mr.Patil deserve to be accepted. The petitioner
 was entitled to at-least show cause for which he
 had to be given an opportunity.

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 10. For this limited reason, we interfere with
 the demand Notices dated 24th August 2006 and 4th

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 September 2006 and quash and set aside the
 detention Memo dated 21st September 2006.
 Consequently, the goods will be released. The
 respondents may issue a show cause notice to the
 petitioner as to why the interest as claimed
 should not be recovered and then after affording a
 hearing and considering the defence, pass
 appropriate orders.

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 11. Rule is made absolute in the aforesaid

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 terms. No order as to costs.

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(H.L. GOKHALE, J.)

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 (J.P. DEVADHAR, J.)

M/S. Nirlon Ltd. v. Union of India and 3 Ors.

Case brief

What is this about?

What did the court decide?

M/S. Nirlon Ltd. v. Union of India and 3 Ors.

Case brief

What is this about?

What did the court decide?

What the court decided

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