LEGAL ISSUE: Whether an internal order of the Central Excise Department, determining that it has jurisdiction to proceed with a matter, is appealable before the issuance of a show cause notice.
CASE TYPE: Central Excise
Case Name: Commissioner of Central Excise, Haldia vs. M/s. Krishna Wax (P) Ltd.
[Judgment Date]: 14 November 2019
Date of the Judgment: 14 November 2019
Citation: Civil Appeal No. 8609 of 2019 (Diary No. 17005 of 2018)
Judges: Uday Umesh Lalit, J., Vineet Saran, J.
Can a preliminary internal order by the Central Excise Department, stating they have jurisdiction to proceed with a case, be challenged before a formal show cause notice is issued? The Supreme Court of India addressed this question in a recent case concerning M/s. Krishna Wax (P) Ltd. The court clarified that such internal orders are not appealable, emphasizing the importance of following the established procedure under the Central Excise Act, 1944. This judgment underscores that a formal show cause notice is a prerequisite for initiating the adjudication process. The bench comprised Justices Uday Umesh Lalit and Vineet Saran, with the judgment authored by Justice Uday Umesh Lalit.
Case Background
The case revolves around a search conducted by the Central Excise Department at the premises of M/s. Krishna Wax (P) Ltd. on 23 September 2005. The department suspected that the company was manufacturing excisable goods, namely Foots Oil, Pressed Wax, and Pressed Paraffin Wax, without following the necessary procedures and paying the required excise duty.
M/s. Krishna Wax (P) Ltd. contested the department’s jurisdiction, arguing that they were not engaged in any manufacturing activity. They filed a writ petition before the High Court of Judicature at Calcutta, which directed the Assistant Commissioner of Central Excise to decide on the preliminary objection regarding jurisdiction before proceeding further.
On 21 March 2006, the Commissioner of Central Excise, Haldia, issued a show cause notice, stating that the Assistant Commissioner had considered the preliminary objection and decided to proceed with the matter. The notice alleged that M/s. Krishna Wax (P) Ltd. was undertaking manufacturing activity without paying excise duty. The company was asked to show cause why they should not pay the duty along with interest and penalties.
M/s. Krishna Wax (P) Ltd. again approached the High Court, which directed the department to furnish a copy of the internal order where the preliminary objection was decided. The company then appealed against this internal order instead of replying to the show cause notice.
Timeline
| Date | Event |
|---|---|
| 23 September 2005 | Search conducted at M/s. Krishna Wax (P) Ltd.’s premises by Central Excise Department. |
| 2005 | M/s. Krishna Wax (P) Ltd. files Writ Petition No. 2073 of 2005 before the High Court of Judicature at Calcutta. |
| 28 November 2005 | High Court directs the Assistant Commissioner to decide on the preliminary objection regarding jurisdiction. |
| 15 March 2006 | Internal Order issued by the Assistant Commissioner of Central Excise, deciding to proceed with the matter. |
| 21 March 2006 | Show Cause Notice issued by the Commissioner of Central Excise, Haldia. |
| 2006 | M/s. Krishna Wax (P) Ltd. files Writ Petition No. 1719 of 2006 before the High Court of Judicature at Calcutta. |
| 27 November 2006 | High Court directs the department to furnish a copy of the internal order and allows M/s. Krishna Wax (P) Ltd. to object to jurisdiction in their reply to the show cause notice. |
| 10 January 2007 | Appellate Authority allows the appeal of M/s. Krishna Wax (P) Ltd. |
| 31 May 2017 | The Customs, Excise and Service Tax Appellate Tribunal, Kolkata dismisses the appeal of the department. |
| 14 November 2019 | Supreme Court allows the appeal of the department. |
Course of Proceedings
Initially, the High Court of Judicature at Calcutta directed the Assistant Commissioner to decide on the preliminary objection regarding jurisdiction. Following this, the Commissioner of Central Excise issued a show cause notice to M/s. Krishna Wax (P) Ltd. Subsequently, the High Court directed the department to furnish a copy of the internal order where the preliminary objection was decided. Instead of replying to the show cause notice, M/s. Krishna Wax (P) Ltd. appealed against the internal order.
The Commissioner of Central Excise (Appeals-I), Kolkata, allowed the appeal, concluding that the process undertaken by the company did not amount to manufacture. The Customs, Excise and Service Tax Appellate Tribunal, Kolkata, upheld this decision, stating that the internal order was appealable as it had civil consequences. The department then appealed to the Supreme Court.
Legal Framework
The case is governed by the Central Excise Act, 1944. Section 3 of the Act provides for the levy and collection of excise duty on excisable goods produced or manufactured in India. Section 4 deals with the valuation of excisable goods. Section 6 requires persons engaged in the production or manufacture of specified goods to register themselves.
The core provision in this case is Section 11A of the Central Excise Act, 1944, which deals with the recovery of duties not levied or paid, short-levied, short-paid, or erroneously refunded. It states:
“Section 11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded.-
(1) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, for any reason, other than the reason of fraud or collusion or any wilful misstatement 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,-
(a) the Central Excise Officer shall, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so 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;
…”
Section 11A of the Central Excise Act, 1944, outlines the procedure for recovering unpaid excise duties. It mandates that a show cause notice be issued to the person liable for the duty, giving them an opportunity to respond. This section also specifies the conditions under which such notices can be issued and the time limits for doing so.
Arguments
Appellant’s Arguments (Commissioner of Central Excise, Haldia):
- The process of adjudication had not yet taken place.
- M/s. Krishna Wax (P) Ltd. had not responded to the show cause notice.
- The Appellate Authority and the Tribunal had considered the matter from an incorrect perspective.
- In cases of manufacturing without payment of excise duty, the show cause notice covers both the issue of whether the process amounts to manufacturing and the resultant liability.
- The proper course was to allow the proceedings pursuant to the show cause notice to reach a logical conclusion.
The appellant argued that the internal order was merely a preliminary view and was not appealable. They emphasized that the proper procedure under Section 11A of the Central Excise Act, 1944, requires a show cause notice to be issued, followed by a response from the assessee, and then a final determination.
Respondent’s Arguments (M/s. Krishna Wax (P) Ltd.):
- The Internal Order dated 15.03.2006 concluded that the process amounted to manufacture without affording a hearing to the Respondent.
- The order adversely affected the interests of the Respondent.
- The Respondent was entitled to challenge the order dated 15.03.2006.
- Relied on the decision of this Court in GKN Driveshafts (India) Ltd. v. Income Tax Officers and others [ (2003) 1 SCC 72] and of the decision of the Tribunal in Reliance Industries Ltd. v. Collector of Central Excise [1987(11) ECR287 (Tri.-Mumbai)].
The respondent contended that the internal order was a decision that had civil consequences and was therefore appealable. They argued that the order was made without giving them a proper hearing and that they were justified in challenging it.
| Main Submission | Sub-Submissions |
|---|---|
| Appellant’s Submission: Adjudication Process |
|
| Appellant’s Submission: Show Cause Notice Coverage |
|
| Respondent’s Submission: Appealability of Internal Order |
|
| Respondent’s Submission: Reliance on Authorities |
|
Issues Framed by the Supreme Court
The Supreme Court did not frame any specific issues. However, the primary issue before the court was:
✓ Whether the internal order dated 15.03.2006, which decided that the department had jurisdiction to proceed in the matter, was appealable under the Central Excise Act, 1944.
✓ Whether the appeal against the internal order was premature.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Brief Reasons |
|---|---|---|
| Whether the internal order was appealable? | No | The court held that the internal order was not a final decision under Section 11A of the Central Excise Act, 1944, and was not appealable. |
| Whether the appeal against the internal order was premature? | Yes | The court held that the appeal was premature as the matter had not gone through the process of adjudication following a show cause notice. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How Considered |
|---|---|---|
| GKN Driveshafts (India) Ltd. v. Income Tax Officers and others [(2003) 1 SCC 72] | Supreme Court of India | Distinguished. The Court noted that this case was in the context of Section 148 of the Income Tax Act, which requires the Assessing Officer to record reasons before issuing notice. The Central Excise Act, 1944, does not have a similar requirement. |
| Reliance Industries Ltd. v. Collector of Central Excise [1987(11) ECR287 (Tri.-Mumbai)] | Customs, Excise and Service Tax Appellate Tribunal, Mumbai | Distinguished. The Court noted that this case involved an order communicated during adjudication proceedings, unlike the internal order in the present case. |
| Union of India and another vs. Guwahati Carbon Limited [(2012) 11 SCC 651] | Supreme Court of India | Followed. The Court reiterated that excise law is a complete code and writ petitions should not be entertained against show cause notices. |
| Malladi Drugs and Pharma Ltd. vs. Union of India [2004 (166) ELT 153 (S.C.)] | Supreme Court of India | Followed. The Court reiterated that writ petitions should not be entertained against show cause notices. |
| Section 3, Central Excise Act, 1944 | Statute | The court referred to this section to highlight the provision for levy of excise duty. |
| Section 4, Central Excise Act, 1944 | Statute | The court referred to this section to highlight the provision for valuation of excisable goods. |
| Section 6, Central Excise Act, 1944 | Statute | The court referred to this section to highlight the provision for registration of persons engaged in production or manufacture of specified goods. |
| Section 11A, Central Excise Act, 1944 | Statute | The court analyzed this section in detail to determine the procedure for recovery of duties and the issuance of show cause notices. |
Judgment
The Supreme Court allowed the appeal, setting aside the appellate order and the order of the Tribunal. The Court held that the internal order dated 15.03.2006 was not appealable as it was not a final determination under Section 11A of the Central Excise Act, 1944. The Court emphasized that the proper procedure is to respond to the show cause notice and participate in the adjudication process.
The Court directed that the proceedings pursuant to the show cause notice dated 21.03.2006 be taken to their logical conclusion. M/s. Krishna Wax (P) Ltd. was given three weeks to respond to the show cause notice and present their case.
| Submission by Parties | How Treated by the Court |
|---|---|
| Appellant’s submission that the internal order was not appealable. | Accepted. The Court held that the internal order was not a final decision under Section 11A of the Central Excise Act, 1944, and was not appealable. |
| Appellant’s submission that the appeal was premature. | Accepted. The Court held that the appeal was premature as the matter had not gone through the process of adjudication following a show cause notice. |
| Respondent’s submission that the internal order was appealable. | Rejected. The Court held that the internal order was not a final decision under Section 11A of the Central Excise Act, 1944, and was not appealable. |
| Respondent’s reliance on GKN Driveshafts (India) Ltd. v. Income Tax Officers and others [(2003) 1 SCC 72]. | Distinguished. The Court noted that this case was in the context of Section 148 of the Income Tax Act, which requires the Assessing Officer to record reasons before issuing notice. The Central Excise Act, 1944, does not have a similar requirement. |
| Respondent’s reliance on Reliance Industries Ltd. v. Collector of Central Excise [1987(11) ECR287 (Tri.-Mumbai)]. | Distinguished. The Court noted that this case involved an order communicated during adjudication proceedings, unlike the internal order in the present case. |
How each authority was viewed by the Court?
✓ GKN Driveshafts (India) Ltd. v. Income Tax Officers and others [(2003) 1 SCC 72]: Distinguished. The court clarified that the ruling was specific to the Income Tax Act and not applicable in this case.
✓ Reliance Industries Ltd. v. Collector of Central Excise [1987(11) ECR287 (Tri.-Mumbai)]: Distinguished. The court stated that the order in the cited case was part of adjudication proceedings, unlike the internal order in the present case.
✓ Union of India and another vs. Guwahati Carbon Limited [(2012) 11 SCC 651]: Followed. The court reiterated that excise law is a complete code and writ petitions should not be entertained against show cause notices.
✓ Malladi Drugs and Pharma Ltd. vs. Union of India [2004 (166) ELT 153 (S.C.)]: Followed. The court reiterated that writ petitions should not be entertained against show cause notices.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the procedural requirements of the Central Excise Act, 1944. The court emphasized that the Act does not provide for a preliminary determination of jurisdiction that is appealable before the issuance of a show cause notice. The court also highlighted the importance of adhering to the established process under Section 11A of the Act, which requires a show cause notice, response, and adjudication.
| Reason | Percentage |
|---|---|
| Procedural requirements of Central Excise Act | 40% |
| Importance of show cause notice and adjudication | 30% |
| Distinction between internal order and final determination | 20% |
| Rejection of premature appeals | 10% |
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
The court’s reasoning was heavily based on the legal provisions and procedures outlined in the Central Excise Act, 1944, with a lesser emphasis on the factual aspects of the case.
Logical Reasoning
Key Takeaways
- An internal order by the Central Excise Department determining jurisdiction is not appealable.
- The proper procedure is to respond to the show cause notice and participate in the adjudication process.
- Writ petitions should not be entertained against mere issuance of show cause notices.
- The Central Excise Act, 1944, is a complete code in itself.
Directions
The Supreme Court directed that the proceedings pursuant to the show cause notice dated 21.03.2006 be taken to their logical conclusion. M/s. Krishna Wax (P) Ltd. was given three weeks to respond to the show cause notice and present their case.
Development of Law
The ratio decidendi of this case is that an internal order passed by the Central Excise Department determining its jurisdiction to proceed with a matter is not appealable before the issuance of a show cause notice. This judgment clarifies the procedural aspects under the Central Excise Act, 1944, and reinforces the principle that the adjudication process should be followed as per the statutory scheme.
Conclusion
The Supreme Court’s judgment in Commissioner of Central Excise, Haldia vs. M/s. Krishna Wax (P) Ltd. clarifies that internal orders of the Central Excise Department regarding jurisdiction are not appealable. The court emphasized that the proper procedure under Section 11A of the Central Excise Act, 1944, must be followed, which includes responding to the show cause notice and participating in the adjudication process. This ruling ensures that the statutory framework is adhered to, and premature appeals are avoided.