Alcobex Metals (P) Ltd. Vs. Collector of Central Excise - Court Judgment

Excerpt:
1. this appeal is directed against the impugned order passed by the collector of customs and central excise, jaipur dated 12-4-1989.2. brief facts so far as material for the purpose of the present appeal are that the appellants were engaged in the manufacture of copper and copper alloys falling under t.i. 26a with the erstwhile central excise tariff at the relevant time i.e. to say from 1-3-1981 to 5-12-1985. a show cause notice c. no. iv(6)133/ae/85/803 was issued to the appellants by the deputy collector of central excise, jaipur on 6-3-1986 calling upon them to show cause as to why duty amounting to rs. 11,83,19,476.94 leviable on the shells and blanks for pipes and tubes falling under tariff item 26a(4) during the period 1-3-1981 to 31-7-1984 and under sub-item (10) of t.i. 26a.....

Judgment:
1. This appeal is directed against the impugned order passed by the Collector of Customs and Central Excise, Jaipur dated 12-4-1989.

2. Brief facts so far as material for the purpose of the present appeal are that the appellants were engaged in the manufacture of copper and copper alloys falling under T.I. 26A with the erstwhile Central Excise Tariff at the relevant time i.e. to say from 1-3-1981 to 5-12-1985. A show cause notice C. No. IV(6)133/AE/85/803 was issued to the appellants by the Deputy Collector of Central Excise, Jaipur on 6-3-1986 calling upon them to show cause as to why duty amounting to Rs. 11,83,19,476.94 leviable on the Shells and Blanks for pipes and tubes falling under Tariff Item 26A(4) during the period 1-3-1981 to 31-7-1984 and under sub-item (10) of T.I. 26A w.e.f. 1-8-1984, manufactured and cleared by the appellants from their factory premises during the period 1-3-1981 to 5-12-1985 without discharging their duty liability be not recovered and as to why the seized goods and the land, building, plant, machinery etc. belonging to the appellants be not confiscated and the penalty be not imposed on the allegation that the appellants had contravened the provisions of Rule 9, 52, 52A, 53, 173C, 173F, 226, 56B read with Rule 173Q of the Central Excise Rules, 1944 as detailed out more vividly in the show cause notice. In reply the appellants contested the show cause notice inter alia on the ground that (i) the show cause notice demanding duty in respect of removals from 1-3-1981 to 5-12-1985 after a period of 5 years and therefore it was time barred by limitation under Section 11A of the Central Excises and Salt Act, since there was no fraud, collusion or any wilful mis-statement or suppression of facts and (ii) that the notice has been issued without any authority of law, since the notice of demand after the amendment made on 27-12-1985 ought to have been issued by the Collector and not by the Deputy Collector and therefore, any order passed on a notice in hand issued by the Deputy Collector would be void being without any authority. However, the Collector, Customs and Central Excise, Jaipur vide his impugned order dated 12-4-1989 found the case of the department proved on merits and also partly agreed with the appellants that the demand for duty in respect of shells and blanks removed for further manufacture by the appellants to their ancillary unit during the period 1-3-1981 to 31-7-1984 is hit by limitation of time prescribed under Section 11A of the Act but after holding so further held that the demand in respect of such removals after 1-8-1984 is not hit by limitation of time and in respect of removals for captive consumption in the manufacture of pipes and tubes and hollow rods, the demand for duty for a period of 5 years prior to the service of the notice is sustainable in law. As regards the defence of the appellants that the show cause notice in hand issued by the Deputy Collector was without the authority of law, the Collector of Customs and Central Excise negatived the said defence holding that the draft of the show cause notice issued on 6-3-1986 was actually approved by the Deputy Collector on 20-12-1985 when the relevant provisions of the Act had not been amended and therefore, issuance of the fair copy of the said draft notice in March 1986 when the law has been amended was of no consequence and further that in the initial reply to the show cause notice the appellants did not raise the issue at all and therefore, it was not open to the appellants after a lapse of 3 years to claim that the notice was not sustainable in law. On these findings he confirmed the demand for duty to the tune of Rs. 5,46,69,607.08 and held that the seized pipes and tubes which were provisionally released to the appellants are liable for confiscation and since the same were not available for confiscation, he called upon the appellants to pay forthwith an amount of Rs. 11 lakhs in terms of the bond executed by them at the time of provisional release and in default directed the concerned officer to appropriate the said amount out of the security furnished by the appellants. He also ordered for the confiscation of plant, machinery of the appellants used in the manufacture of shells and blanks with an option to redeem the same on payment of a redemption fine of Rs. 50 lakhs in lieu of confiscation and also imposed a penalty of Rs. 25 lakhs. Hence the present appeal.

3. At the outset Shri V. Laxmikumaran, Advocate duly assisted by S/Shri A.R. Madhava Rao and L.R. Mehta, Advocates raised a preliminary ground that since the show cause notice issued in the instant case was without any authority the whole impugned order is void and therefore the hearing may be limited on this preliminary point and if this preliminary point is over-ruled, then in that case the appeal may be heard on merits. In reply Smt. Dolly Saxena, learned SDR also agreed that the said preliminary point may be heard and decided at the outset.

Accordingly we agreed to hear the parties on the said preliminary point i.e. to say regarding the validity of the show cause notice issued in the instant case and reserved the orders making it clear that if necessary the case will be re-opened for further arguments.

4. Shri V. Laxmikumaran, learned counsel for the appellants while elaborating on his arguments submitted that the demand-cum-show cause notice dated 6-3-1986 was without jurisdiction because the same was issued by the Deputy Collector, Central Excise, Jaipur on 6-3-1986.

For, proviso to Section 11A of the Central Excises & Salt Act providing for the extended period of limitation of five years in place of six months for raising the demand of duty was amended with effect from 27-12-1985 by the Central Excises & Salt (Amendment) Act, 1985 (No. 79 of 1985). As a sequel thereof, it is only the Collector who is entitled to issue Demand Notice for the purpose of invoking extended period of limitation and since the said notice relates to the period from 1-3-1981 to 5-12-1985 it is only the Collector who could issue the notice as it has been issued much after the expiry of six months from the removal of the goods as alleged in the show cause notice dated 6-3-1986. In a nutshell his submission was that the show cause notice dated 6-3-1986 having been issued by the Deputy Collector after amendment of the proviso to Section 11A in 1985 was without jurisdiction and the proceedings commenced in pursuance of the said notification by the Collector are void ab initio and cited the case of Gujarat State Fertilizer Co. Ltd. v. Union of India, 1988 (34) ELT 442 decided by the Gujarat High Court and Order No. 393/1989-C dated 11-8-1989 passed by this Tribunal in the case of M/s. Partap Rajasthan Copper Foils & Laminates Ltd. v. Collector of Central Excise, Jaipur in Appeal No. E/2455/1988-C reported in 1989 (44) ELT 775 (Tri.). However, he did not pause here and continued submitting that the observations of the learned Collector in the impugned order that "the assessee in their initial reply to the notice did not raise this issue at all. It is not open to them after a lapse of 3 years to claim that the notice was not sustainable in law, as the notice had been signed by the Dy. Collector.

Once the assessee had submitted themselves to the jurisdiction of the adjudicating authority on the basis of a notice issued without challenging the legality of the notice, it was not open to them at a subsequent date to challenge the legality of the notice" are not factually correct because the appellants on receipt of the said show cause notice made representation to the Chairman, Central Board of Excise and Customs regarding the issue raised in the show cause notice and therefore, requested the Collector, Central Excise and Customs, Jaipur through their letter dated 24-3-1986 to keep the matter in abeyance for the time being reserving their right to submit a detailed reply to the show cause notice after receipt of clarification from the Board and went on requesting the Adjudicating Authority to keep the matter pending till the disposal of the representation by the Board.

However, since the Adjudicating Authority was insisting for the reply to the show cause notice, the appellants submitted their interim reply dated 17-11-1988 specifically challenging the authority of the Deputy Collector of Central Excise to issue the show cause notice under reference in para 22 of their reply. In this premises he submitted that there was no delay on the part of the appellants to challenge the legality/validity of the show cause notice. Alternatively he submitted that even otherwise since there was a lack of inherent jurisdiction in that authority (i.e. to say Dy. Collector), no amount of consent, express or implied, can confer jurisdiction on the Deputy Collector to deal with the matter not within its jurisdiction and the appellants cannot be estopped from challenging the impugned order on the ground of lack of jurisdiction in that authority and cited the case of Dayalal v.State Transport Authority, AIR 1973 Orissa 39 and Commissioner of Sales Tax v. Sarjoo Prasad, 1976 (37) STC 533 (SC).

4A. In reply Smt. Dolly Saxena, learned SDR while reiterating the reasonings recorded by the Collector in his impugned order submitted that in the show cause notice issued by the Dy. Collector the appellants were called upon to show cause to the Collector, Central Excise and Customs and therefore, it shall be deemed to have been issued on behalf of the Collector. She also contended that even otherwise since the Dy. Collector could issue the demand for six months under Section 11A of the Act the show cause notice should be held to be valid for six months.

5. After going through the facts of the case and the submissions made by the parties we are of the opinion that the preliminary submission made by the learned counsel for the appellants deserves to be upheld in view of the admitted facts on the record and the plain language of Section 11A of the Central Excises and Salt Act. Sub-section (1) of Section 11A of the Act in an unmistakable terms provides that "When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, a Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice". In other words under this sub-section power has been conferred on the Central Excise Officer to serve notice on the person chargeable with the duty which has not been levied or paid to show cause why he should not pay the same. The notice must be issued within six months from the relevant date, the expression relevant date having been defined in clause (ii) of Sub-section (3) of that section.

Then there is a proviso to that Sub-section (1) which refers to cases of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of the Act or of the Rules made thereunder with intent to evade payment of duty etc. and provides that in such a situation the provisions of Sub-section (1) shall have effect, as if, for the words "Central Excise Officer," the words "Collector of Central Excise," and for the words "six months", the words "five years" were substituted. This amendment was effected vide Central Excises and Salt (Amendment) Act, 1985 (79 of 1985) w.e.f.

27-12-1985. In a nutshell the effect of the amendment is that with effect from 27-12-1985 whenever a larger period of five years is invoked for reason the demand, a show cause notice must be issued by the Collector of Central Excise and not by a Central Excise Officer. In the instant case it is an admitted fact on record that the larger period of limitation provided under the said proviso to Sub-section (1) of Section HA was invoked by the Department for raising the demand for the period from 1-3-1981 to 5-12-1985 i.e. to say exceeding six months and the show cause notice was issued on 6-3-1986 i.e. to say much after the amendment came into force on 27-12-1985 and the show cause notice was not issued by the Collector of Central Excise as required under the said proviso but was issued by the Deputy Collector. Thus, the show cause notice under reference is patently illegal and in contravention of Sub-section (1) of Section 11A of the Act read with its proviso on the face of it. In this view of the matter we are supported by the judgment of the Gujarat High Court rendered in the case of Gujarat State Fertilizer Co. Ltd. v. UOI, supra, wherein in somewhat similar circumstances their Lordships observed as follows - "3. Section HA of the Act provides that when any duty of excise has not been levied or paid, a Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid requiring him to show cause why he should not pay the amount specified in the notice.

Under this sub-section power has been conferred on a Central Excise officer to serve notice on the person chargeable with the duty which has not been levied or paid to show cause why he should not pay the same. The notice must be issued within six months from the relevant date, the expression, relevant date, having been defined in clause (ii) of Sub-section (3) of that section. We then come to the proviso which refers to cases of fraud, collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act or the Rules made thereunder with intent to evade payment of duty etc. Under this proviso where any duty of excise has not been levied or paid by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of the Act or the Rules made thereunder with intent to evade the payment of duty, the provisions of the sub-section will have effect as if for the words 'Central Excise Officer', the words 'Collector of Central Excise' and for the words 'six months' the words 'five years' are substituted. Since the period in respect of which the duty is demanded exceeds six months, there can be no doubt that the Department proposes to invoke the proviso to Sub-section (1) of Section HA of the Act. As pointed out above, the duty sought to be recovered is for the period from 1st January 1981 to 30th November 1986, that is, for a period exceeding six months from the relevant date. Mrs. Mehta was, therefore, unable to contend that the Department had not invoked the proviso to Sub-section (1) of Section HA of the Act. That being so, in view of the proviso the words 'Collector of Central Excise' have to be read in Sub-section (1) for the words 'Central Excise Officer'. Once we substitute the words 'Collector of Central Excise' for the words 'Central Excise Officer' in Sub-section (1) of Section 11A, it becomes obvious that the Collector of Central Excise only can issue a show cause notice if the Department seeks to invoke the proviso to Sub-section (1) of Section 11A of the Act. In this view that we take, we are of the opinion that the impugned notice is illegal and in contravention of Sub-section (1) of Section 11A of the Act." The same view was also expressed by this Tribunal in the case of M/s.

Pratap Rajasthan Copper Foils & Laminates Ltd. v. CCE Jaipur, supra.

Even otherwise the reasonings of the learned Collector, who had adjudicated the case that draft of the notice was approved by the Dy.

Collector on 20-12-1985 when the relevant provision of the Act had not been amended and a fair copy of the notice had been issued in March 1986 (i.e. to say on 6-3-1986 when the law has been amended) appears to be factually incorrect. From the copy of the show cause notice on record we find that after a tentative draft was prepared and approved by the Deputy Collector on 20-12-1985 as alleged the factory premises of the appellants were again visited on 26th and 27th December, 1985 to conduct further investigation and in particular to ascertain the exact position of the product described by the unit as 'hollow rods' and on this further investigation evasion of duty was also detected and this was made a ground in the show cause notice dated 6-3-1986 for raising the demand as could be seen from paragraph 11 of the said show cause notice. As regards the other contention of the learned Collector that the appellants in their initial reply to the show cause notice did not raise the issue of the validity of the show cause notice and that it was not open to them at a subsequent stage to challenge the legality of the notice, it would suffice to say that from a copy of the interim reply dated 17-111988 on record we find that in paragraph 22 of the reply the jurisdiction of the Deputy Collector to issue the show cause notice under reference was expressly challenged and reiterated during the adjudication proceedings. Under these circumstances it cannot be said that the delay, if any, in raising the question of jurisdiction is fatal to the appellants. It is not a case where the appellants submitted to the jurisdiction of the authority and obtained a final decision at his hands but is a case where during the original proceedings itself the appellants had challenged the very jurisdiction of the Deputy Collector to issue the show cause notice. That apart, in the Central Excises and Salt Act and the Rules made thereunder we do not find any provision which precludes the appellants from raising any objection as to the jurisdiction, if the same is raised before the Adjudicating Authority at a subsequent stage or there is a delay in raising it. In the case of Commissioner of Sales Tax v. Sarjoo Prasad, supra while dealing with the case of assessment under the U.P. Sales Tax Act (15 of 1948) the Hon'ble Supreme Court observed that "unless there is some provision either in the Act or in the Rules framed which precludes the assessee from raising any objection as to jurisdiction, if the same is not raised before the assessing authority, the assessee cannot be precluded from raising that objection at a later stage. An objection as to jurisdiction goes to the root of the case". In Dayalal v. State Transport Authority, supra the Orissa High Court while dealing with the case under Motor Vehicles Act, 1939 repelled the contention raised by the opposite party therein that where a party has submitted to the jurisdiction of an authority such conduct disentitles him from any relief from the hands of the Court observing that where there is absence of jurisdiction to decide a matter and jurisdiction is exercised, the dispute goes to the root of the matter and relied upon the observations made by the Hon'ble Supreme Court in the case of United Commercial Bank Ltd. v. Their Workmen, AIR 1951 SC 230 to the effect that "consent cannot give a Court jurisdiction if a condition which goes to the root of the jurisdiction has not been performed or fulfilled. No appearance or consent can give a jurisdiction to a Court of limited jurisdiction which it does not possess".

6. Thus, we do not approve the reasonings recorded by the learned Collector in his impugned order for rejecting the defence of the appellants.

7. As regards the alternative submission of the learned SDR that since the show cause notice could be issued by the Deputy Collector (meaning thereby a Central Excise Officer), the notice in hand issued by the Deputy Collector could be held valid for six months, it would suffice to say that statutory requirements cannot be whittled down or circumvented in this fashion. However, this controversy should not retain us any further as the said points stand concluded against the department by the judgment rendered by this Tribunal in the case of M/s. Partap Rajasthan Copper Foils & Laminates Ltd. v. Collector of Central Excise, Jaipur, supra. In that case the Hon'ble Sr.

Vice-President speaking for the Bench while repelling the contention of the Revenue that though the Assistant Collector in his notice dated 1-9-1986, alleged suppression and mis-statement, he did not invoke the proviso to Section 11A(1) of the Central Excises and Salt Act and the period of demand was also not the extended period but the normal limitation of six months and consequently the Assistant Collector was competent to adjudicate the notice, observed as follows :- "38. We are unable to agree with the Revenue's contentions. Section 11A(1) makes a clear distinction between cases where short-levy has arisen by reason of fraud, collusion or any wilful mis-statement or suppression of facts, and cases where short-levy is due to other reasons. In the latter case, the notice may be issued by any Central Excise Officer. In the former cases, however, with the amendment, effective from 15-11-1980, by Section 21 of the Customs, Central Excises and Salt and Central Boards of Revenue (Amendment) Act, 1978, the notice has to be issued by the Collector. This statutory requirement does not get whittled down by the fact that the demand is made only for the normal period of 6 months and not the extended period. In this view, the show cause notice dated 1-9-1986 is incompetent and without jurisdiction and the orders following the said notice are bad on that account and have to be, and are, struck down on that score." 8. In view of the above we allow the appeal on the short ground that the show cause notice under reference was without jurisdiction without entering into the merits of the case and set aside the impugned order with consequential relief, if any.

9. I have carefully considered the judgment proposed by my Ld. Brother, Shri G.P. Agarwal, Judicial Member. But I regret, with respect, disagreeing with the said judgment in so far as it holds that the show cause notice dated 6-3-1986 is not valid even for six months.

10. The appellants have relied on, so far as the above issue is concerned on a judgment of the two-members Bench in the case of Partap Rajasthan Copper Foils and Laminates Ltd. v. C.C.E., Jaipur. Relevant para 38 from the said judgment has already been reproduced in para 7 of the judgment proposed by the Ld. Brother.

11. It has been pleaded that a show cause notice for recovery of duty based on the grounds of fraud, collusion or any wilful mis-statement or suppression of facts could be issued only by the Collector and not by any other officer, even if such a notice is made only for the normal period of six months. This plea has been upheld in the above judgment of the Tribunal.

12. In order to appreciate the plea, it is appropriate to set out the relevant extracts of the provisions of Section 11A :- "11A(1) - When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, a Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice : Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, [as if for the words 'Central Excise Officer', the words 'Collector of Central Excise'] and for the words 'six months', the words 'five years' were substituted." Main Sub-section (1) of Section 11A, it is apparent, lays down the period of limitation as six months for issuing the show cause notice for recovery of any duty arising for whatever reasons inasmuch as no reasons have been spelt out in the said sub-section. In other words, a Central Excise Officer can issue a notice for recovery of duty even for reasons of fraud, collusions, wilful mis-statement or suppression of facts, so long as the notice is within six months of the relevant date.

That is the plain and true effect of the main provisions of sub-section without the effect of proviso.

13. What the proviso to Sub-section (1) of Section 11A does is to enlarge the period of limitation. Rewriting the proviso, after substituting the words 'Collector of Central Excise' for the words 'Central Excise Officer' and the words 'five years' for the words 'six months', as enjoined therein, we read as follows :- "Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, a Collector of Central Excise may, within five years from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice." 14. Effect of the proviso is to carve out an exception to the main provisions which stipulates issuing of a notice by a 'Central Excise Officer' within the period of six months from the relevant date - exception being that if the notice is based on any of the reason of fraud, wilful mis-statement etc., the notice may be issued by a Collector of Central Excise within five years. There is an extension of time for issuing the notice as well as restriction on the category of the Central Excise Officer issuing the notice. Both these parameters i.e. (1) invocation of longer time limitation of five years and (2) issuing of a notice by a particular category of Central Excise Officer, namely Collector under the exceptional grounds of fraud, collusion etc.

have to be fulfilled simultaneously.

14.1. The general rule in construing a proviso is that "the words of a proviso are not to be taken 'absolutely in their strict literal sense' but that a proviso is 'of necessity . . . limited in its operation to the ambit of the section which it qualifies. And, so far as that section itself is concerned, the proviso again receives a restricted construction where the section confers powers, "it would be contrary to the ordinary operation of a proviso to give it an effect which would cut down those powers beyond what compliance with the proviso renders necessary" [Maxwell 12th Edition-pages 189]. Main provisions of Section 11A(1) give the power to a Central Excise Officer to issue a notice within six months for recovery of any duty irrespective of any reasons.

Compliance with the proviso would be complete and sufficient when the notice on exceptional reasons of fraud, collusion etc. would be issued within 5 years by a Collector of Central Excise. If the contention of the appellant is accepted, it would tend to encroach unnecessarily upon the ambit and scope of powers of the Central Excise Officer who is competent to issue a notice for recovery of duty, irrespective of any reasons, so long as the notice is within six months from the relevant date.

15. The plea advanced, appears to be bad for another reason. If a fraud, collusion, etc. is detected within six months of relevant date, there is no reason why the powers under the main provisions of Sub-section (1) of Section 11A cannot be invoked by the department without resorting to the terms of the proviso. We could appreciate the plea of the appellant's Ld. advocate if the proviso could not be reasonably given effect otherwise.

16. In view of the foregoing discussion, I respectfully disagree with the Ld. Brother Shri G.P. Agarwal and hold that the notice would be valid for a period of six months preceding the date of receipt of that notice by the appellant. The matter, therefore, needs to be argued on merits so far as demand of duty for this period is concerned.

17. There is yet another reason for which I do not think that the notice can be termed illegal and without jurisdiction. The notice is for demand of duty, for imposition of penalty and for liability to confiscation of goods seized. The bar created by Section 11A for issuance of a notice by Collector of Central Excise alone is with reference to demand or recovery of duty only. This bar does not operate so far as liability to confiscation of goods seized and imposition of penalty on the noticee is concerned. Imposition of penalty and redemption fine in lieu of confiscation, after liability to confiscation is upheld, is not related to the demand of duty, it is related to the value of the goods. Therefore, the subject of demand of duty is severable from the subjects of liability to confiscation of goods and plant and machinery and imposition of penalty on the noticee/appellant. [See 1983 (13) ELT 1321 (SC) para 12 - Amba Lal v.U.O.I.]. The notice, therefore, is not liable to be struck down for the purpose of adjudicating the confiscation of goods, plant and machinery and imposition of penalty. The notice is, therefore, perfectly valid so far as the aforesaid two subjects are concerned. Merits of the case on these two subjects are, therefore, required to be argued by both sides.

18. Preliminary point disposed of in the above terms.

(P.C. Jain) Since a difference has arisen between the two Members comprising of the Bench, the following question requires determination by a Third Member in accordance with law- "Whether the show cause notice under reference was without jurisdiction and if so, whether the entire demand of duty made therein was time barred, and so also the entire proceedings for other purposes".

(P.C. Jain) (G.P. Agarwal)Technical Member Judicial Member 19. With reference to the President's order dated 20th March 1990 by which the point of difference between the two Members who heard this appeal was referred to us, we heard both on 18th and 19th June 1990.

Shri Lakshmikumaran, the learned Advocate for the appellants submitted that both Members on the Bench agreed that there is no dispute regarding the lack of jurisdiction on the part of the Deputy Collector to issue the show cause notice beyond six months and that the consequence of a final order would pertain only to the period of six months. Thereafter he made the following submissions: ' (a) That the objects and reasons to the amendment to Section 11A by Central Excises and Salt (Amendment) Bill, 1985 support the order proposed by Shri Agarwal, the learned Member (Judicial).

(b) That the learned Advocate relied on the judgment of the Gujarat High Court in the case of Gujarat State Fertilizer Company Ltd. v. Union of India [1988 (34) ELT 442].Pratap Rajasthan Copper Foils & Laminates Ltd. v. Collector of Central Excise, Jaipur [1989 (44) ELT 775 (Tribunal)] completely covers the issue and may be followed by this Bench.

(d) That the order proposed by Shri P.C. Jain, the learned Technical Member contained a basic error in that he elected to re-write the proviso to Sub-section (1) of Section 11A which would amount to redrafting of the Section itself.

(e) That even rewriting was assumed to be correct as both the main Sub-section (1) and proviso co-exists simultaneously, the main Sub-section (1) would not then cover situations covered by the proviso. In other words the same situations are likely to be covered by the main sub-section and the proviso rendering the proviso redundant.

(f) That a proviso is "of necessity . . . limited in its operation to the ambit of the Section in which it qualifies" Maxwell on the Interpretation of Statute - 12th Edition page 189.

(g) That assuming, without admitting that an officer below the rank of Collector could issue the show cause notice and demand duty simultaneously alleging suppression of facts, mis-statements, etc., then the present show cause notice is not severable for the period beyond six months and within six months. The learned Advocate submitted that Shri P.C. Jain himself accepted such severance cannot be made.

(h) That there is yet another error in Shri Jain's order in assuming that a show cause notice could be issued by an authority for imposing penalty and confiscation of the goods and to this extent at least the present show cause notice is valid. The learned Advocate submitted that power to impose penalty or confiscation is derived from the power to re-open assessments and if the assessments cannot be re-opened, the question of imposing penalty does not arise.

Explaining he submitted that the power to reopen assessments is derived from power to issue show cause notice and that if there is lack of power for issuing the show cause notice by an authority under Section 11A for reopening assessments, the Adjudicating authority cannot impose penalty alone.

In support of his submission that severability does not apply to jurisdiction the learned Advocate relied on 1983 (12) ELT 533 CEGAT in the case of Hydraulics Ltd. v. Collector of Central Excise, Madras.

(i) That the Central Board of Excise and Customs issued instructions [F.No. 4/3/87-CX1, dated 21-7-1987 (Cir. No. 8/87-CX-1)] clarifying that where a demand is to be made on account of fraud, collusion, etc. the matter would fall under the proviso to Section 11A(1) and not in the main section.

20. For these reasons the learned Advocate argued that this Bench may agree with the view expressed by the Member (Judicial).

21. Shri Asthana, the learned Jt. CDR opposing the arguments submitted that the Deputy Collector was competent to issue a show cause notice upto a period of six months even in cases of fraud, suppression, etc.

He argued that applying the rule of harmonious construction, the main provision would cover all demands upto a period of six months irrespective of the reasons for non-levy etc. The proviso would cover only those cases where demand beyond six months is contemplated. In this context the learned representative referred to para 8 of the Supreme Court's judgment in Collector of Central Excise v. Chemphar Drugs and Liniments reported in 1989 (40) ELT 276 (S.C). He submitted that the proviso to Section 11A does not carve out any exception to the general rule that the demand should be issued within six months (for which there need be no allegation of fraud or suppression). He argued that under the proviso the powers are much higher as the demand can go upto 5 years. Therefore, a larger power cannot be said to have been taken out from the main section and included in the proviso which is of limited scope. On the contrary in specified situations it enlarges the power with a safeguard that such power can be exercised only by a Collector.

22. The learned DR submitted that if a view is taken that a Deputy Collector of Central Excise cannot issue a demand for a period of six months under the main provision in cases of fraud, suppression, etc. it would lead to anomalous results in that in a case not involving fraud, etc. the Deputy Collector can issue the show cause notice for six months. But if fraud is to be alleged it has to be done by the Collector. Shri Asthana argued that in cases where in respect of show cause notices for six months mixed reasons are involved and in cases where at subsequent stages fraud, etc. comes to light an anomalous situation would be created as the interpretation proposed by the Member (Judicial) would result substantially taking away or whittling down the exercise of the power under the main Section. Such an interpretation should be avoided.

23. Submitting that the objects and reasons of the amendment bill referred to the experience gained in the implementation of the Act, Shri Asthana submitted that the experience was confined to improper exercise of the power to demand duty beyond five years by the Assistant Collector of Central Excise, Collectors, etc. there could be no question of any abuse with regard to notices issued for a period of six months because such notices needed no reasons to be given. Referring to the earlier suggestion by the learned Advocate for the appellants that the object of the amendment was to take away from the officers of the Central Excise lower than a Collector the power to deal with cases of suppression etc. in toto, Shri Asthana submitted that these officers have vast powers of adjudicating offences where big issues are involved. Referring to the background of the amendment to Section 11A the learned Representative submitted that the question of making a distinction on the basis of competence of the officers did not arise and that all that was done by the amendment of .1985, was that the powers to issue demand beyond the period of six months was given to the Collector instead of the Assistant Collector of Central Excise.

24. Supporting the order proposed by Shri Jain, the learned Representative further argued that the Supreme Court in the case of State of Bihar v. Sukameshwar Singh [AIR 1952 SC 252] observed that the "real question to decide in all such cases is whether what remains is so inextricably bound up with the part declared invalid that what remains cannot independently survive, or, it has sometimes been put, whether on a fair review of the whole matter it can be assumed that the legislature would have enacted at all that which survives without ignoring the part that is 'ultra vires'. He submitted that this principle is equally applicable in the cases of notices and orders.

25. Further reiterating his arguments in favour of the severability the learned Representative submitted that the Supreme Court as well as the Tribunal dealing with cases in which suppression was alleged but was not upheld, still maintained a demand for a period of six months indicating that severability was there.

26. Shri Asthana argued that penalty is a totally different matter different from the question of time limit under Section 11A and that the notice is in any event valid, and severable in so far as the penal proceedings relating to confiscation and penalty are concerned. In this context the learned Jt. CDR submitted that the penal provisions in the Central Excise Act are wholly independent of the assessment procedure and that in any event just because the time limit for issuing a demand is over it does not imply that the power of the Collector to determine the tax liability has extinguished. These are two distinct aspects. The learned representative argued that the competence of the Deputy Collector to order penalty and or confiscation is not at all affected by the fact that he has no power to issue a demand under the proviso.

Referring to the judgment of the Supreme Court in Khemka & Co. Pvt.

Ltd. v. State of Maharashtra [AIR 1975 SC 1549], Shri Asthana submitted that as held therein the penalty is not merely sanctioned nor is merely adjunct to assessment. But it is in addition to tax. Finally he submitted that it is not merely the form of the show cause notice but the substance which matters.

27. In his rejoinder Shri Lakshmikumaran submitted that the statement of objects and reasons was clear that the show cause notice in regard to excise duty shortlevied or short-paid etc. by reason of fraud, collusion, etc. should be issued and such cases decided by the Collector. He submitted that the Finance Minister's own words disprove the arguments of Shri Asthana. He further submitted that there is no question of any anomaly because in matters where fraud, collusion, etc.

are to be alleged, the show cause notice is issued by the Collectors and in other matters by officers below the rank of Collectors. He reiterated that merely containing an allegation of fraud etc. would place the matter in the proviso. He submitted that there is no question of whittling down Sub-section (1) as that Sub-section (1) is general in nature and the proviso to it is specific. He further submitted that a demand can follow a finding on the liability and only on such liability being established can there be a question of confiscation and penalty.

He further submitted that the judgment in Khemka & Co. is in fact in the appellants' favour and referred to paragraph 10 of the said judgment.

28. We have considered the submissions of both sides. Our learned Brothers had already taken note of way in which Section 11A and its proviso are worded. At the time of his arguments Shri Lakshmikumaran made an interesting submission. It was that the. purpose of the amendment was to ensure that if allegations of fraud, mis-statement, etc. are to be made, such allegations should be made with caution and careful consideration as they would be in the nature of accusations likely to bring down the prestige and self-respect of the people. He submitted that not all licencees of central excises can be considered as dishonourable merely because they are being alleged not to have paid some duty. His argument was that before making such an allegation matured consideration must be there and it was this view which resulted in the amendment to Section 11A. Whether or not such was the consideration the statement of objects and reasons in so far as it is relevant makes the intention quite clear in the following words : "Opportunity is also being availed of to make certain other amendments in the Act in the light of the experience gained in the implementation of the Act. The main amendments proposed are as follows : (a) show cause notice in regard to duty of excise short-levied or shor- paid etc. by reason of fraud, collusion or any wilful mis-statement or suppression of facts should be issued, and such cases decided by the Collector of Central Excise instead of the Assistant Collector of Central Excise as at present." 29. Whatever be the intention of the law makers it is what the law says that matters. In paragraph 11, the learned Member (Technical) reproduced the Section. He also rewrote the proviso. It was Shri Lakshmikumaran's argument that it is not the proviso that should be rewritten if at all but the main section, with reference to the proviso. In this context we refer to "Maxwell" on Interpretation of Statutes - Twelfth Edition: "If, however, the language of the proviso makes it plain that it was intended to have an operation more extensive than that of the provision which it immediately follows, it must be given such wider effect.

If a proviso cannot reasonably be construed otherwise than as contradicting the main enactment, then the proviso will prevail on the principle that "it speaks the last intention of the makers." 30. In Section 11A, the proviso was introduced after the main section, in point of time. Therefore, beyond doubt the proviso "speaks the last intention of the makers". Besides in our opinion even without the application of any of these principles the words employed in the sub-section and the proviso quite clearly show that there are two circumstances and there are two provisions of law viz. a situation in which no fraud, etc. is alleged, such a situation would be governed by the Sub-section (1) of the Section 11A. The second situation would be where fraud, collusion, etc. are alleged and such cases would be governed by the proviso.

31. The learned Member (Judicial) took note of two judgments which were relied on by Shri Lakshmikumaran before us also. These are Gujarat State Fertilizer Co. Ltd. and Pratap Rajasthan Copper Foils and Laminates Ltd. (supra). In Gujarat State Fertilizer Co. Ltd. the facts involved show that a demand beyond six months was made by an officer below the rank of a Collector. Therefore, the facts are not similar.

But, as mentioned in the Member (Judicial's) order, the language of the judgment helps, if at all, the appellants and not the Department.

32. The arguments advanced by Shri Asthana are based on the assumption that the proviso to Sub-section (1) to Section 11A does not whittle down or take away anything from the main provision, but merely, in specified circumstances, enlarges the power with safeguards. In our opinion expressed earlier differently the sub-section and the proviso deal with two different situations. The difference is in the quality of the situation. These situations are where fraud, mis-statements, etc.

are not involved and where they are involved. The distinction is made not on the basis of six month-period and more than that period but on the basis of whether or not fraud, etc. are alleged.

33. We have considered the submissions of both sides also on the question whether the notice issued by the Deputy Collector could be held valid for six months. The learned Jt. CDR argued that in the light of the judgment of the Supreme Court in the case of State of Bihar v.Kameshwar Singh it was held that there can be survival of a part of the Statute when other part of the Statute not inextricably bound up with the part that is found to be ultra vires (paragraph 62). The Supreme Court held that "in this case a presumption cannot be drawn that the legislature would not have enacted the Act leaving out the two or three provisions which have to be declared to be invalid" (ibid). The learned Advocate for the appellants argued that this finding of the Supreme Court helps his case. We do not see how this judgment would help either side. We are not on the question whether the Section or any part of it under consideration is ultra vires or not. We are examining the implication of the proviso to Section 11A of the Act and there is no question of any part of the statute surviving and any other part not surviving. Examining a similar question about the competence of the adjudicating authority, the Tribunal in Hydraulics Ltd., Madras v.Collector of Central Excise [1983 (12) ELT 533 (CEGAT)] held as follows (in a concurring but a separate judgment of Shri H.R. Syiem, Member (Technical)(Paragraph 8): "The show cause notice both demanded duty under Rule 9(2). But the Assistant Collector in his order dated 16-8-1979 held that Rule 9(2) was not applicable since there was no clandestine removal. Therefore he held that only one year time-limit was valid, evidently meaning that the demands were enforceable only under Rule 10, although his order does not specify that rule. It has been held that question of a rule does not vitiate a proceeding if the power exercised is conferred on the decision-making authority, because the rule number or section number is not material so long as the power sought to be exercised is legally and validly exercised. The question now is whether that is the case in these demands and whether the recovery of duty under Rule 10 remains unvitiated by quotation of Rule 9(2) whereas the power was exercised under Rule 10. Rule 9(2) was resorted to in the demand because there was suspicion that there had been suppression of the production in respect of which the demands were issued. However, as we have seen, the demands were enforced by exercising power under a different rule. It is not that the same power exercised as had been propsosed under the show cause notice but that a different power were employed under circumstances different from the ones in the mind of the issuer of the show cause notice. The quotation of Rule 9(2) was indicative of the circumstances in which he considered the short levy had arisen.

Therefore, the issue of show cause notice under Rule 9(2) was incorrect and must be struck down. In the result the order of the Assistant Collector was not based on a show cause notice issued validly in accordance with the law." Keeping this position in view we agree with the order proposed by the learned Member (Judicial) where, in paragraph 7 he dealt with this question. We note that the Jt. CDR submitted that in certain matters where demand was raised for a period of five years it was sustained for a period of six months, thereby indicating that the jurisdiction could be severed. No specific judgment was cited but we are aware there were such judgments. But it has not been shown to us and it is not our recollection that the question of severability of the jurisdiction was raised in any of them. Now that the question has come directly and has been examined not only by the earlier Bench but also by us. We see no reason to differ from the view taken by the learned Member (J).

34. In the light of these views we take note, in passing, of the Board's instruction of 21-7-1987 issued on the basis of the advice of the Law Ministry as follows : "Where the non-levy, short-levy erroneous refund etc. is due to fraud, collusion, etc. these cases will fall in the proviso to Section 11A(1) and not in main Sub-section (1) of Section 11A. The period of limitation and the authority competent to issue the notice will be the ones provided in the . . . If fraud etc. is the ground for issue of notices, the Competent Authority to issue such a notice would be the Collector of Central Excise irrespective of the fact, whether the notice is issued within six months or thereafter".

These instructions are in accordance with our own views. The Tribunal's judgment in Pratap Rajasthan Copper Foils and Laminates (supra) took the same view.

35. After carefully and respectfully perusing the two orders proposed by our learned Brothers and the Tribunal's judgment in Pratap Rajasthan Copper Foils and Laminates (supra) and for the reasons discussed above, we agree with the order proposed by Shri Agarwal, Member (Judicial).

36. In the light of these discussions and in view of the case law on the subject we further hold that as a consequence of the show cause notice being found to be without jurisdiction the entire proceedings for the other purposes would also be without jurisdiction.

37. The point of difference having been answered accordingly we direct that the file be placed before the Original Bench for further orders.

38. I agree with the findings and conclusion reached in the order written by learned brothers S/Shri G.P. Agarwal and I.J. Rao so far as they relate to the jurisdiction of the Deputy Collector of Central Excise in issuing the show cause notice for recovery of duty. I agree with the view that there are two situations for demanding duty under Sub-section (1) of Section 1.1A of the Central Excises and Salt Act and under the proviso to the said sub-section, respectively. In the first situation, where there is no allegation of fraud, collusion, suppression or mis-statement of facts, etc. and the duty is sought to be demanded for a period of six months, a Central Excise Officer below the Collector of Central Excise is competent to issue the show cause notice under the main provision of Sub-section (1). In the second situation, where fraud, collusion, or suppression of facts, etc. is alleged, it is only the Collector who can issue the show cause notice under proviso to Sub-section (1) of Section 11A irrespective of the fact whether the demand for duty is for the normal period of six months or beyond the period of six months. In this view of the matter, entire demand for duty has to be quashed as the show cause notice was issued by Deputy Collector. Referring to para 33 of learned brother Shri Rao's order, to my recollection, the earlier decisions, where part of demand for six months was upheld, were under the provision of Section 11A of the Central Excises and Salt Act as it existed prior to 28-12-1985 or under the Central Excise Rules, as the case might be.

39. I am, however, of the view that the proceedings for recovery of duty and the proceedings for confiscation and penalty are two separate proceedings. Therefore, that part of the common show cause notice which relates to confiscation and penalty is not vitiated by the fact that the notice was issued by the Deputy Collector who is competent to issue show cause notice for confiscation and penalty proceedings. If the appellants are otherwise liable to pay the duty, though not bound to pay because of the show cause notice for recovery of duty being without the jurisdiction of the Deputy Collector, the confiscation and imposition of penalty are legally permissible under the impugned show cause notice.

40. I, therefore, hold that the case is required to be heard and decided on the questions of confiscation and penalty only.

(D.C. Mandal) 41. I agree with the findings in the order written by Shri G.P.Agarwal, learned Member (Judicial) and Shri I.J. Rao, learned Member (Technical). In addition, I would like to state that a show cause notice for recovery of duty and for confiscation and levy of penalty (which is the starting point of proceedings culminating in an order of adjudication) is a composite one and cannot be truncated so as to uphold that part of it which relates to confiscation and penalty while setting aside the part relating to demand of duty.

In view of the findings of the majority, the point of difference is answered thus: the show cause notice under reference was totally without jurisdiction and the entire demand of duty made therein was time barred and so also the entire proceedings for other purposes. The file may be placed before the Original Bench for final orders.

42. On receipt of the opinion of 3-Member Bench, the case was posted for delivery of judgment and notices were issued to the parties.

43. Shri V. Laxmikumaran, Advocate, appeared on behalf of the appellants and Shri G. Bhushan, learned SDR, on behalf of the respondent.

44. Arguing on behalf of the respondent Shri G. Bhushan, learned SDR, submitted that, at the time of the arguments of the appeal before the Referring Bench, the only argument advanced by the appellants was that the show cause notice dated 1-9-1986 issued in the instant case was incompetent being without jurisdiction, and the orders following the said notice were bad on that account and have to be struck down on that score. The Department replied accordingly to the said argument. The learned Judicial Member in his referring order held that the show cause notice under reference was without jurisdiction, however, the other learned Technical Member comprising the Referring Bench disagreed and held that the notice would be valid for a period of six months preceding the date of receipt of the notice by the appellants. After holding so he (learned Technical Member) went further and in paragraph 17 of his judgment observed that there is yet another reason for which he does not think that notice can be termed as illegal and without jurisdiction for, the notice issued in the instant case was for demand of duty, for imposition of penalty and for liability to confiscation of goods seized and since the Bar created by Section 11A of the Central Excises and Salt Act, 1944 for issuance of a show cause notice by Collector of Central Excise alone is with reference to demand or recovery of duty only. Consequently, this Bar does not operate so far as liability to confiscation of goods seized and imposition of penalty on the noticee is concerned. In this premises, it was held by him (learned Technical Member) that the show cause notice under reference was perfectly valid for the purposes of liability to confiscation of goods seized and imposition of penalty. On these facts, it was contended by the learned SDR that the learned Judicial Member comprising the Referring Bench did not record his decision on the question of the validity of the show cause notice under reference for the purpose of confiscation of seized goods and imposition of penalty and, therefore, the only judgment which can be passed in the present appeal in favour of the appellants may be that the entire demand of duty made in the show cause notice under reference was time-barred.

45. Refuting the argument advanced by the learned SDR, Shri V.Laxmikumaran, learned counsel for the appellants submitted that, it is true that, the learned Judicial Member comprising the Referring Bench did not record his opinion regarding the validity of the show cause notice under reference for the purposes of confiscation of seized goods and imposition of penalty, yet the fact remains that this question, that is to say, "whether the show cause notice under reference was without jurisdiction and if so, whether the entire demand of duty therein was time-barred, and so also the entire proceedings for other purposes" was framed by the Referring Bench. Consequently, it shall be deemed in the eye of law that the other Member agreed with the opinion expressed by the Technical Member by implication. To draw support to his arguments, he drew our attention to the case of Metal Extruders (I) Private Limited, Bombay v. Collector of Central Excise, Bombay, 1985 (19) ELT 198, wherein it was held by this Tribunal that if an argument is advanced and no findings are given thereon in the order, then the same is taken to have been rejected. He also cited the case of Commissioner of Income Tax, Bombay v. Scindia Steam Navigation Co.

Ltd., AIR 1961 (SC) 1633, wherein while enterpreting the words "any question of law arising out of such order" appearing in Section 66(1) of the Income-tax Act, 1922, the Apex Court inter alia held that "when a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is therefore one arising out of its order". Continuing further he submitted that on reference by the Referring Bench, the President of the Tribunal constituted a 3-Member Bench and consequently, it heard both the parties on merits and by Majority it held that the show cause notice under reference was not only without jurisdiction for the purposes of demand, but it was also without jurisdiction for other purposes also, that is to say, the entire proceedings for other purposes would also be without jurisdiction. In this premises, his submission was that, the show cause notice under reference be struck down for all purposes whether for the demand of duty or for confiscation of the seized goods or for the imposition of penalty.

46. We have considered the submissions. From the record, it is clear that, as to whether the show cause notice under reference was without jurisdiction, even for other purposes also was the part of the question referred to the Third Member by the Referring Bench and on receipt of the Reference the Hon'ble President constituted a 3-Member Bench to determine the question as referred to above by the Referring Bench, and this Bench held by Majority that the show cause notice was not only without jurisdiction for the purposes of demand of duty but the entire proceedings for the other purposes were also without jurisdiction. In the presence of these peculiar facts and circumstances of the case, we in consonance with the opinion expressed by the 3-Member Bench, as aforesaid, allow the appeal on the short ground that the show cause notice under reference was without jurisdiction. Hence without entering into the merits of the case, we set aside the impugned Order with consequential relief to the appellants, if any.