COLLECTOR, SALES TAX AND CENTRAL EXCISE VS BROTHERS SUGAR MILLS LTD., 2008 PTD-LAHORE-HIGH-COURT-LAHORE 1297 (2005)

Central Excise Rules, 1944---

----R. 10(1)(2)(3)---Show-cause notice---Validity---Show-cause notices were issued to the companies asking each of them to show-cause against imposition of the central excise duty, additional duty and penalty on its sugar exports---Said show-cause notices issued to the companies were vague, unspecific and too general to fall within any of the sub-rules of R.10 of Central Excise Rules, 1944; lacked in essential ingredients and did not meet the mandatory preconditions meant for the attraction of R.10 of Central Excise Rules, 1944---Mere allegation of non-payment of the central excise duty was not an adequate reason to invoke R.10 of Central Excise Rules, 1944 for charging or imposing the central excise duty on a citizen---In absence of any specific allegation in terms of the provisions of R.10(1)(2)(3) of Central Excise Rules, 1944, show-cause notices could not be presumed to fall within the scope of a particular provision of law to attract a particular period of limitation---Impugned show-cause notices served upon the companies by the Revenue, were held illegal, without lawful authority and beyond the period of limitation by High Court in appeal.

Messrs Atlas Tyres (Pvt.) Limited, Sheikhupura v. Additional Collector (Adjudication), Collectorate of Central Excise, Lahore and another 2003 PTD 1593; Messrs Zamindara Paper & Board Mills (Pvt.) Ltd. v. Collector, Central Excise and Sales Tax 2003 PTD 1257 and Assistant Collector Customs and others v. Messrs Khyber Electric Lamps and others 2001 SCMR 838 rel.

Aftab Hussain for Appellant.

Ijaz Ahmad Awan for Respondent.

Date of hearing: 7th March, 2005.

JUDGMENT

MUHAMMAD SAIR ALI, J.---This judgment shall deal with and decide C.A. No.162/2001 titled "The Collector of Sales Tax Central Excise v. Messrs Pattoki Sugar Mills Ltd., etc.", C.A. No.163 of 2001 "The Collector of Sales Tax and Central Excises v. Messrs Fauji Sugar Mills Ltd., etc.", C.A. No.164 of 2001 "The Collector of Sales Tax and Central Excises v. Haseeb Waqqas Sugar Mills etc., C.A. No.165 of 2001 titled "The Collector of Sales Tax Central Excises v. Haseeb Waqqas Sugar Mills, etc." ICA No.166 of 2001 titled "The Collector of Sales Tax and Central Excise v. Messrs Sugar Mills Ltd., etc.", C.A. No.167 of 2001 titled "The Collector of Sales Tax and Central Excises v. Messrs Brothers Sugar Mills Ltd., etc.", C.A. No.168 of 2001 titled "The Collector of Sales Tax and Central Excise v. Messrs Baba Farid Sugar Mills, etc.", C.A. No.169 of 2001 titled "The Collector of Sales Tax and Central Excise v. Messrs Abdullah Sugar Mills, etc." and C.A. No.170 of 2001 titled "The Collector of Sales Tax and Central Excise v. Messrs Abdullah Sugar Mills, etc." being against the common questions of the law and the facts.

2. Pursuant to a trade agreement between the Government of Pakistan and the Government of India, a memo. of understanding was signed on 25-9-1998 by the Government of Pakistan through the Secretary (Ministry of Finance) and the Chairman C.B.R. with Pakistan Sugar Mills Association (PSMA) for exporting the sugar to India inter alia on `zero' rated central excise duty and the sales tax. The respondent sugar mills exported different quantities of sugar to India during 1997-98 and 1998-99 'without payment of the central excise duty and the sales tax.

3. On audit objections, show-cause notices were issued to the respondent companies between April, 2000 and October/November, 2000 seeking each of the respondent companies to show cause against the imposition of the central excise duty additional duty and the penalty on its sugar exports respectively between 1997-98 and 1998-99.

4. Each of the respondent company filed a contesting reply. The replies were rejected. Through respective orders in original, the central excise duty along with the additional duty and the penalty were imposed upon each respondent.

5. The respondent companies respectively appealed against the above-said orders in original before the learned Customs, Excise and Sales Tax Appellate Tribunal, Lahore, all the said appeals were accepted. The imposition of the central excise duty, additional duty and the penalty in each case were set aside through judgment, dated 31-1-2001 by the learned Tribunal. Hence the present appeals.

6. Each of the respondent companies was represented through its learned counsel at the pre-admission notice.

7. The learned counsel for the respondents submitted that the show cause notices respectively issued to each of the respondent companies were barred by limitation and it was so held by the learned Appellate Tribunal in the impugned judgments, dated 31-1-2001.

8. On the question of each show-cause notice being barred by limitation, the learned Tribunal held as under:---

"The next contention of the appellant's counsel relates to the limitation as prescribed under rule 10(a) of the Central Excise Rules, 1944. They are rightly of the view that in the first instance there was no inadvertence, error or misconstruction on the part of the appellants but if at all there was any lapse of this kind attributable to them, the claim of the respondent based on the aforesaid S.R.O. was time-barred because the export of sugar to India during the years 1997-98 and 1998-99 had been completed by them more than a year prior to the show cause notices were issued by the respondent. It could never be a case of mis-declaration, false information or collusion on the part of the appellants to attract the provisions of rule 10(2) and the respondent's contention in this regard was without any substance."

9. On Court query, the learned counsel for the appellant revenue admitted that the export of sugar by each of the respondent companies completed at maximum by April, 1999 and that the show-cause notice in each case was issued on the dates hereunder specified against the name of each of the respondent companies in these appeals:---

10. The above schedule of dates of the show-cause notices issued to the respondents when compared with the date of the completion of the export (April, 1999) proved that the show cause notices were issued beyond the period of one year of the export. The said show-cause notices were thus beyond the time prescribed under sub-rule (1) of Rule 10 of the Central Excise Rules, 1944. The show cause notices did not specify or allege "mis-declaration", "false information", "collusion", false documentation", "counterfeiting seal or impressions", "fraud" or any other heinous offence. These show cause notices therefore could not fall within the larger period of limitation of three years or ten years respectively prescribed in sub-rules (2) and (3) of Rule 10 ibid.

11. The bare reading of the show cause notices issued to the respondents would prove the same to be vague, unspecific and too general to fall within any of the subsections of Rules 10 ibid. In fact these show cause notices lacked in essential ingredients and did not meet the mandatory preconditions for the attractability of Rule 10 ibid.

12. Mere allegation of non-payment of the central excise duty has been held to be not an adequate reason to invoke Rule 10 for charging or imposing the central excise duty on a citizen. Furthermore, it is well-settled that in absence of the specific allegations in terms of the provisions of sub-rules (1), (2) and (3) of Rule 10 ibid, the show cause notices could not be presumed to fall within the scope of a particular provisions of the law to attract a particular period of limitation.

13. In the case of "Messrs Atlas Tyres (Pvt.) Limited, Sheikhupura v. Additional Collector (Adjudication), Collectorate of Central Excise, Lahore and another" 2003 PTD 1593 and "Messrs Zamindara Paper and Board Mills (Pvt.) Ltd., v. Collector, Central Excise and Sales Tax" 2003 PTD 1257 discussing Rule 10 of the Central Excise Rules, 1944, a Division Bench of this Court (of which one of us was a member; Muhammad Sair Ali, J.) held that:---

"6 There is no doubt that show-cause notice for non-levy and/or short-levy of Excise Duty can be served upon a defaulting party by the department under above.-referred sub-rules of Rule 10 ibid. The bare reading whereof makes it clear that show-cause notice has to specify the reason(s) for non-levy and short-levy of the duty and such notice can only be served within the period of limitation given in the applicable sub-rule(s) that too "with reference to reason specified therein. Sub-rule (1) of Rule 10 can only be involved for service of a show-cause notice for the reasons of "inadvertence, error or mis construction", leading to non-levy, short-levy or erroneous refund of duty and such show-cause notice can be served within one year of the relevant date. Under sub-rule (2) of Rule 10 ibid, a show-cause notice can be issued "within three years of the relevant date, "if non-levy or short levy of duty is caused due to mis-declaration, false information or collusion. Similarly sub-rule (3) of Rule 10 ibid can be resorted to through a show cause notice within ten years of the relevant date for non-levy or short-levy of duty occurring for reasons of "any false document, counterfeit seal or impression fraud or any other heinous offence."

7 .The inescapable conclusion thereto is that mere non-levy, short-levy, or erroneous refund of duty or charge cannot become the basis for show-cause notice. Instead a show-cause notice must be founded upon non-levy, short-levy or erroneous refund of duty or charge occasioned/caused by any of the above reasons to be within the scope and period of limitation separately prescribed in each sub-rule of Rule 10 ibid. In absence of any, of the three pre-conditions/ ingredients, show cause notice will be rendered illegal and without competence:

(8) In the present case show-cause notice alleged against the appellant evasion of duty yet patently omits to state any one of the ten reasons respectively prescribed in sub-rules (1), (2) and (3) of said Rule 10 ibid. However, tenor of the order-in-original shows that the learned Adjudicating Authority/Additional Collector presumed appellant's case to fall in sub-rules (2) and (3) of Rule 10 because she proceeded to impose a penalty upon the appellant apart from directing payment of Excise Duty along with Additional Duty. In the absence of a particular allegation or charge in the show-cause notice against the appellant for having non-paid or short-paid duty owing to mis-declaration, false information or collusion or by reasons' of false documents, counterfeit seal, fraud or heinous offence, such presumption is obviously erroneous and could not have been drawn by the Adjudicating Authority against the appellant, since particular reasons were conspicuously and patently missing from the show-cause notice, Adjudicating Authority lacked jurisdiction to imply applicability of sub-rules (2) and (3) of Rule 10 to the case of the appellant."

14. The Honourable Supreme Court of Pakistan in the case of "Assistant Collector Customs and others v. Messrs Khyber Electric Lamps and others" 2001 SCMR 838 also pleased to pronounce the law in the matter so similar show-cause notices under section 32 of the Customs Act (IV of 1969), as under:---

"Show-cause notices under subsections (2) and (3) of section' 32 of the Act are two distinct and separate types of notices and different ground and different period for service of notice in each subsection has been prescribed. Under subsection (2) for non-levy, short-levy or erroneous refund, specific allegations of any collusion between the assessee and the Customs Staff has to be levelled with proper particulars in the show-cause notice which has to be served within three years of the relevant date whereas under subsection (3) if non-levy, short-levy or erroneous refund is done due to inadvertence, error or mis-construction then show-cause notice to the importer has to be served within six months of the non-short levy. If such specific particulars are not stated in the notice, the notice would be vague and would not be in consonance with the requirement of subsections (2) and (3) of section 32 of the Act."

15. In view of the above discussion, it is held that the show cause notices served upon the respondents by the revenue were patently illegal, without lawful authority and beyond the period of limitation. The learned Appellate Tribunal was justified to accept the appeals of the respondent companies and to set aside the impugned orders of impositions of the central excise duty, additional tax and the penalty. The questions stated as 1 and 2 are answered in the affirmative. Rest of the questions do not need any answer.

16. As a result, these appeals are dismissed with no order as to the costs.

H.B.T./C-28/LAppeals dismisse