GUL BOTTLERS (PVT.) LTD. VS ADDITIONAL COLLECTOR-II, CUSTOMS AND CENTRAL EXCISE, CUSTOM HOUSE, S.I.T.E. HYDERABAD, 2003 PTD-KARACHI-HIGH-COURT-SINDH 1354 (2003)

Central Excise Rules, 1944---

----R.10---Notice of recovery of duty short-levied or erroneously refunded ---Limitation---Assessee had deposited the instalments of duty levied and claimed adjustment in respect of the remaining demand on account of a judgment passed by Lahore High Court, however, on insistence of the Department the entire demand for the 3rd quarter was paid by the assessee---No misdeclaration or false information was given by the assessee; no collusion between the assessee and any other person was found; no fraud, whatsoever was practised by the assessee and if the additional duty was not levied by the departmental offices the same was due to their inadvertence and consequently the period of limitation as prescribed in R.10(1) of Central Excise Rules, 1944 was attracted within which a show-cause notice was to be served on the assessee---Any notice of recovery beyond the period of limitation provided in R.10 was barred by time and excise duty could not be recovered/enforced beyond that period---Period of limitation provided in R.10(1) of the Central Excise Rules, 1944 being attracted to the facts of the present case, the show -cause notice and the demand created in pursuance thereof was held to be illegal, unlawful and void ab initio---Show-cause notice and all subsequent orders in pursuance thereof were quashed by High Court in appeal.

Aziz A. Shaikh for Appellant.

Fariduddin for Respondent.

Date of hearing: 16th January, 2003.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---This appeal under section 36-C of Central Excises Act, 1944, is directed against the order, dated 16-1-2002 by the learned Customs. Excise and Sales Tax Appellate Tribunal Karachi Bench.

The relevant facts are that, the appellant is a licensed manufacturer of branded aerated waters, which is subject to the payment of excise duty under the Central Excises Act, 1944 and rules made thereunder. The end product was subjected to Central Excise Duty on production capacity vide S.R.O. 507(I)/90, dated 7-6-1990, per option exercised by the appellant under Rue 7(a)(1) of the said S.R.O. For the assessment year 1993-94, the Assistant Collector of Customs and Central Excise. Division-III, Sukkur passed the assessment order at Rs.1,01,80,863. The demand notice was duly served on 27-6-1993 and the quarterly schedule was also served which is as follows:--

The appellant paid first and second instalments according to schedule of payment. However, the appellant deposited Rs.3,13,655 instead of Rs.10,18,086 towards the third instalment. The remaining amount was paid later on 30-6-1994. The appellant had submitted Bank- guarantee in the sum of Rs.10,20,000 for the payment of third instalment. The bank-guarantee was not encashed. The reason -for depositing lesser amount in the third quarter of the assessment year 1993-94 was that the Lahore High Court in its judgment, in the case of Messrs Seven-Up Bottling Company (Pvt.) Ltd., had allowed certain concessions and therefore, the appellant had claimed refund of the excess amount paid in first and second quarters of the assessment year 1993-94 and had claimed adjustment of the said excess payment towards tax liability for the third quarter. The Assistant Collector of Customs and Central Excise, Sukkur, submitted the case of the appellant to the Collector of Customs and Excise, Hyderabad. The Collector of Customs and Excise Hyderabad directed the Assistant Collector Sukkur to approach the Deputy Collector, Sukkur. However, the claim for refund/adjustment remained un-decided and therefore, the Assistant Collector Sukkur, issued a notice to the appellant on 19-6-1994 for the payment of short deposit stating that no instructions were received in respect of refund/adjustments. The appellant thereafter, paid the short deposit on 30-6-1994. Subsequently, a show-cause notice was issued on 3-5-1997 by the Additional Collector of Customs Hyderabad, as follows:

"Show-Cause Notice

It has been reported that Messrs Gul Bottlers were paying Central Excise duty on capacity basis in terms of (Excise duty on production capacity (Aerated Water) Rules, 1990) during the year 1993-94 and payment was made on quarterly basis required to be made on 30t6-1993, 31-12-1993, 31-3-1994 and 30-6-1994. But it was observed that the 3rd instalment of Rs.10,18,886 was short paid by Rs.7,04,431. Against the amount due Rs.3,13,655 were deposited vide T.C. No.C-1/4, dated 3-3-1994. The remaining amount was later on paid vide T.C. No.C-1/17, dated 30-6-1994. As the manufacturer failed to pay the 3rd instalment in full upto 31-3-1994 as required under Rule 8-A (4) of the Rules ibid. this irregularity was punishable with the levy of additional duty/penalty under Rule 8-A(4) of the Rules ibid, read with section 3-B of Central Excises Act, 1944. The recoverable dues come to Rs.3,52,216 upto the end of June, 1994 with the calculation of additional duty @ 2 % for the period from July, 1994 to February., 1997 the aggregate recoverable Government dues add up to Rs.6,63,765 details enclosed in Annexures "A".

Messrs Gul Bottlers (Pvt.) Limited, Sukkur are hereby called upon to show-cause as to why duties amounting to Rs.6,63,765 and penalties should not be imposed under Rule 8-A(1)(4) of Central Excise. Duty on production capacity (Aerated Water) Rules, 1990.

Hearing in this case is fixed for 12-5-1997 at 11-00 hours in the office of the undersigned. If no reply within ten days of the receipt of this notice and no one appear for hearing on the above date and time, it will be presumed that Messrs Gul Bottlers (Pvt.) Limited, Sukkur have nothing to offer any comment in their defence and the case will be decided ex-parte on merits."

The appellant furnished explanation to the effect that they had furnished Bank-guarantee for the third quarter of the year 1993-94 and the department could have enforced the encashment of Bank-guarantee without reference to the appellant, which was not done and therefore, the imposition of additional duty was not justified. It was further contended that the show-cause-notice was barred by time as under Rule 10(1) of the Central Excise Rules, 1944, the notice could be served within one year of the relevant date. The relevant date is defined in Rule 10(4) of the Central Excise Rules, 1944, to mean in case where duty had not been levied as a date prescribed for payment of duty for the services provided or rendered.

In reply to the above contentions of the appellant, the department took plea that the Bank-guarantee can neither be termed as payment of duty nor it can absolve the licensee from the requirement of payment of duty within due date. It was asserted that the show-cause notice was not barred by time as a demand notice was immediately issued in respect of short payment by the Assistant Collector Sukkur on 19-6-1994.

The Additional Collector, after hearing the appellant and the departmental representative held that the appellant has violated the provisions of Rule 8-A(1) of the Production Capacity (Aerated Water) Rules, 1990 notified under S.R.O. No.507(I)/90, which was punishable under Rule 8-A(4) read with section 3-B of Central Excises Act, 1944. It was further held that the demand of additional duty was not time barred because Assistant Collector, Sukkur had issued demand notice within one year of the short payment. The plea that the department could enforce encashment of bank-guarantee which was not done and therefore, the additional duty was not tenable was also repelled. He ultimately required the appellant to pay additional Central Excise Duty under rule 8(4) of the Production Capacity (Aerated Water) Rules, 1990 and section 3-B of the Central Excises Act, 1944, amounting to Rs.663,765 as calculated up to February, 1997 and to pay penalty of Rs.50,000.

The appellant being aggrieved preferred first appeal, before the Collector (Appeals) II Western Zone, Karachi. The learned Collector (Appeals) held that the appellant was bound to pay 3rd instalment which was due on 31-3-1994 and with these observations dismissed the appeal.

The appellant thereafter preferred second appeal before the Tribunal, reiterating the contentions raised before the lower forums. However, the learned members of the Tribunal up held the imposition of additional duty/penalty levied under Rule 8(1)(4) of the Central Excise Rules of the Production Capacity (Aerated Water) Rules, 1990 read with section 3-B of Central Excises Act; 1994, However, the personal penalty of Rs.50,000 was waived.

Being dissatisfied with the findings of learned Tribunal, the appellant preferred this appeal assailing the findings of the learned Tribunal.

We have heard Mr. Aziz A. Shaikh, learned counsel for the appellant and Mr. Fariduddin, the learned counsel for the respondent.

Mr. Aziz A. Shaikh, has submitted that the learned Tribunal has wrongly observed that the agreement arrived at between the appellant and the department is binding for the whole year 1993-94. He has submitted that this observation has been made due to ignorance and non- examination of the record. He has shown us the letter, dated 2-4-1994 written by Assistant Collector of Customs and Central Excise, Sukkur, addressed to the appellant and other manufacturers of Aerated Water, intimating that with effect, from 22-3-1994, the basic system of collection of Central Excise Duty on Aerated Water has been introduced. Further intimating that the earlier demand notice issued under the previous capacity system stands withdrawn since 22-3-1994. He has vehemently argued that, in view of the withdrawal of demand notice with effect from 22-3-1994, the appellant was not required to make any payment in pursuance of demand notice dated 27-6-1993. Mr. Fariduddin learned counsel for the respondent has supported the observations made by the learned Tribunal.

In view of the withdrawal of demand notice, dated 27-6-1993 vide letter dated 2-4-1994, we are persuaded submissions of Mr. Aziz A. Shaikh. It is held that the observation made by the learned Tribunal is not sustainable. It is further held that the appellant was required to make payment of the Central Excise and Sales Tax Duty on capacity basis up till 22-3-1994 only.

This brings us to the main contention of the learned counsel for the appellant. He has argued vehemently that the show-cause notice dated 3-5-1997 is barred, by time and consequently the demand through it is liable to be quashed.

He has contended that the admitted facts are that according to original demand notice, dated 27-6-1993 the 3rd instalment of Rs.10,18,086 was due on 31-3-1994. The appellant paid Rs.3,13,655 on 3-3-1,994 claiming adjustment of the refund on the basis of Lahore High Court judgment and subsequently the remaining amount of Rs.7,04,431 was paid on 30-6-1994. The show-cause notice for short payment was issued on 3-5-1997. He has submitted that in view of these admitted facts the period of limitation provided in Rule 10(1) is attracted which is one year from the relevant date meaning thereby the date, when the duty was not levied. He has submitted that the term `duty' has been defined in section 2(17) of the Central Excises Act, 1944 to include additional duty, regularity duty or any sum payable under any of the provisions of the Central Excises Act, 1944, or the rules made thereunder. According to him if there was any short payment, out of the demand payable on 31-3-1994 the additional duty was leviable on the said date and the period of limitation started running from said date and expired after one year. He has contended that the show-cause notice being clearly barred by time, the demand raised through it is not sustainable in law and is liable to be quashed.

Replying to this contention, the learned counsel for the respondent has submitted that the period of limitation provided to sub- rule (3) of Rule 10, is attracted which provides a period of 10 years and consequently. Show-cause notice is within time. He submitted that the appellant has played a fraud on the department and therefore, Rule 10-(3) of the Central Excise Rules, 1944 is applicable.

We have carefully considered the contentions raised by the learned advocates for the parties. So far, the facts are concerned, they are admitted and consequently we need not to repeat the same. In order to appreciate the contentions raised by the learned Advocates for the parties, it would be appropriate to reproduce Rule, 10 of the Central Excise Rules 1944, which reads as follows:--

"(10) Recovery of duty short-levied or erroneously refunded, etc."

(1) Where by reason of any inadvertence, error or misconstruction, any duty or charge has not been levied or has been short-levied or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within one year of the relevant date by an officer not below the rank of. Superintendent requiring him to show-cause why he should not pay the amount specified in the notice.

(2) Where by reason of any misdeclaration, false information or collusion, any duty or charge has not been levied or has been short-levied or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within three years of the relevant date by the competent Adjudicating Authority, requiring him to show-cause why he should not pay the amount specified in the notice and be penalized under the law and the rules.

(3) Where by reason of any false document, counterfeit seal or impression, fraud or any other heinous offence any duty or charge has not been levied or has been short levied or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within ten years of the relevant date by the competent Adjudicating Authority, requiring him to show-cause why he should not pay the amount specified in the notice and be penalised under the rules.

(4) For the purpose of this rule, ' the expression "relevant date" means."

"(a) in any case where duty has not been levied or has been short -levied, the date on which clearance of goods is made or the date prescribed for payment of duty for the services provided or rendered;

(b) in case where duty has been erroneously refunded, date of its refund. "

Reverting to the admitted facts, we find that the appellant deposited the amount of Rs.3,13,655 on 3-3-1994 and claimed adjustment in respect of the remaining demand on account of a judgment of Lahore High Court in the case of Messrs Seven-Up Bottling Company. However, on insistence of department the entire demand for the 3rd quarter was paid on 30-6-1994. Thus, we do not find any substance in the contention of learned counsel for the respondent that the appellant has played any fraud on the department making Rule 10(3) applicable. The appellant has admittedly placed the entire facts before the department and after considering the contention of the appellant for adjustment of the refund claimed, it was rejected and the appellant was insisted upon to pay the short payment. The respondent has himself narrated all these facts in the order-in-original. A perusal of the order-in- original, dated 11-4-1998, shows that adjustment was claimed and the matter was considered by the Collector of Customs and Excise Hyderabad, who directed the Assistant Collector Sukkur, to seek orders from Deputy Collector Sukkur. A perusal of the order-in-original belies the contention of learned counsel for the respondent that any fraud was practised by the appellant on the Department. We are of the considered opinion that the entire facts were available with the departmental officers, There was no misdeclaration or false information on the part of the appellant: There was no collusion between the appellant and any other person. No fraud whatsoever, was practised by the appellant and it the additional duty was not levied by the departmental officers, it was due to their inadvertence and consequently the period of limitation provided in rule 10(1) is attracted. Under rule 10, the Legislature has prescribed the period of limitation' and a show-cause notice is to be served on an assessee within the period of limitation provided in Rule 10. Any notice or recovery beyond the period of limitation provided in rule 10 is barred by time and no excise duty can be recovered/enforced beyond a period of limitation specified in Rule 10.

Consequent to above discussion, we hold that, the period of limitation provided in rule 10(1) of the Central Excise Rules, 1944 is attracted to the facts of the present case and consequently, the show- cause notice and the demand created in pursuance thereof is admittedly beyond the period of limitation with the result that it is held to be illegal, unlawful, void ab initio. The show-cause notice and all subsequent orders in pursuance thereof are hereby quashed.

The impugned order of the Tribunal, upholding the levy of additional duty is set aside. The appeal is allowed accordingly.

M.B.A./G-136/K Appeal allowed.