Recovery order passed without issue of show cause notice is illegal- SC

Brief of the Case: 

The Hon’ble Supreme court in the case of M/s Dharampal Satyapal Ltd. held that the passing of recovery order without issuance of show cause notice is against the principles of law and thus, the proceedings initiated has no validity. Thus, the order recovery order passed without providing an opportunity to assessee of being heard, even in a case where the subject matter is decided by Apex court in some other case, is also invalid.

Brief Facts of the case:

• Assessee was engaged in manufacturing tobacco products in North-East India availing the benefits of Notification No. 32/2008 exempting the payment of various excise duties as payable on goods manufactures in tax free zone of North –East.
• Subsequently, on Dec 31,1999 another Notification was issued whereby exemption of central excise was withdrawn in respect of goods falling under Chapter 21.06 (pan masala) and Chapter 24 (tobacco and tobacco substitutes, including cigarettes, chewing tobacco etc.).
• This partial withdrawal was challenged before Guhati High Court where the amendment was cracked down.
• Again the notification was withdrawn vide Sec 154 of Finance Act, 2003 to be retrospectively effective. Hon’ble Apex court in the case of R.C. Tobacco Private Ltd. upheld the constitutional validity of Sec 154.
• The jurisdictional Assistant order passed an order for recovery of duty refunded under the withdrawn notification without issuing a show cause notice u/s 11A.
• The action of adjudicating authority has been disputed by the assessee in the present appeal which finally reached to Hon’ble Apex Court.

Contention of the Assessee:

• The demand made by the Asst. Commissioner was in the nature of adjudication. But as per the requirement of Sec 11A the demand should be preceded by issuance of show cause notice which was not so issued in the present case.
• Merely because validity of Section 154 of the Act of the Finance Act, 2003 were upheld by the Apex Court in the case of  C. Tobacco , it could not be a reason to straight away passing an adjudication order and initiating recovery proceedings
• In the case the principals of natural justice have been overlooked which has the result of invalidating the entire proceedings

Contention of the Revenue:

• Since the benefit of notification has been taken away by withdrawal of notification under sec 154 of Finance Act, 2003 which has been even validated and confirmed by the Hon’ble Supreme Court in the case of R.C Tobacco.
• In such a situation straightaway recovery order can be passed without issuance a formal show cause notice which is no more than a formality.

Held by Hon’ble Supreme:

• The point of dispute is that before passing  an order of recovery the basis of which has been has been upheld constitutional valid  by Apex court in some other case , whether it was necessary to comply with the requirement of issuing  show-cause notice
• Sec 11A of the Central Excise Act, 1944 require the issue of show cause notice before proceeding for any adjudication or recovery.
• Further, as per the principles of natural justice the issuance of show cause notice is mandatory before initiating any adverse action against the assessee so as to give a reasonable  opportunity to put forth its point.
• The court relied on its own decision in the case of Collector of Central Excise, Patna & Ors. v. I.T.C. Limited & Anr. Wherein it held that show-cause and personal hearing is necessary before saddling an assessee with additional demand.
• The principles of natural justice is showing of procedural fairness in the decision making that decision becomes acceptable.
• Therefore, opportunity to provide hearing before making any decision was considered to be a basic requirement in the Court proceeding, the non-compliance to such basic requirement result into invalidating the entire proceedings so initiated.
• The court thus, decides that there was a requirement of issuance of show-cause notice by the Deputy Commissioner before passing the order of recovery even if the basis of recovery has been upheld by Apex court in other case.
• In result appeal was decided in the favour of assessee.