K.K. Desai, J.
1. In this petition under articles 226 and 227 of the Constitution, the Petitioner Company, being manufacturer of dye-stuffs, hereinafter referred to as 'the company', challenges the legality of the notice of demand, respective dated December 24, 1965 and January 24, 1966 purported to have been issued under rule 10-A of the Central Excise Rules 1944 and demanding from the Company payment of the two respective sums of Rs. 41,152.25 and Rs. 83,238.14 as also the decision of the Assistant Collector of Central Excise, Poona, dated March 26, 1966 whereby the Collector negatived the contentions of the company relating to these notices of demands being illegal and not enforceable.
2. Following the judgment of a Division Bench of court dated 1/2 July, 1965 in Appeal No. 69 of 1963 we are about to accept the company's contentions that those notices of demands were beyond the period of limitation prescribed by rule 10-A, we have prevented the company from arguing all other contentions made in the petition. For the very same reasons we do not find it necessary to relate all facts mentioned in the pleadings of the parties in this judgment. The facts which require to be noticed are as follows :-
Prior to April 1, 1961 duty of excise was not levied under the Central Excises and Salt Act on 'synthetic organic dye-stuffs and synthetic organic derivatives used in any dyeing process'. By the Finance Act of 1961, the schedule to the above Act was amended to include entry 14(D) and on the goods of the description mentioned above, basic and special excise duties were levied respectively at the rates 16% ad valorem and 10% of the basic duty chargeable.
3. Prior to April 1, 1961, the company appears to have become Owners of Naphthol ASBS, Naphthol AS, Naphthol ASG, Naphthol ASD, Base Red KB, Vat Brown BR. Vat Olive Green B. Sym. Indigo, Base Red B, Bordo GP Base and Base Red GG which were all synthetic organic dye-stuffs (basic). Excise duty was not chargeable in respect of these goods as they come to be of the ownership of the company prior to April 1, 1961.
4. By a notification dated November 23, 1961, under powers available under sub-rule (1) of rule 8 of the Central Excise Rules, the Government of India exempted processed dyes from payment of excise duty altogether if such dyes were manufactured from any other dye on which excise duty or countervailing customs duty had already been paid. In connection with the quantity of the above basic dyes which were of the ownership of the company, correspondence took place with the officers of Excise Department and by a letter dated March 3, 1963, the company was informed that in respect of those dyes it had been decided to levy duty as and when they were intended to be taken in the manufacture of processed dyes which were exempted from levy of excise duty under the above Notification dated November 23, 1961. In pursuance of the above information, from time to time and as and when the company cleared the above quantities of basic dyes for manufacturing processed dyes, excise duty was recovered from the Company. These goods were cleared for manufacturing processed dyes between March 1963 and November 1964. In respect of all these basic dyes, excise duty was recovered though these goods were not chargeable with such duty as they came to the ownership of the Petitioner prior to April 1, 1963.
5. Between March 1963 and January 1965, processed dyes manufactured by the Company by use of the above quantities of basic dyes were cleared from the licensed godowns of the Company. In connection with such clearances in accordance with the provisions in the excise rules in respect thereof, the company filled in AR-1 forms submitting the particulars of the goods to be cleared for assessment by the concerned Inspector of Excise of levy of excise duty. All these goods were, during the above period, assessed as being exempted from payment of duty under the notification of exemption dated November 23, 1961 mentioned above. Apparently, it was held in respect of these processed dyes manufactured from other dyes on which excise duty had already been paid which, as already recited above was the true fact.
6. By the first impugned notice of demand dated December 24, 1965 bearing No. 1589, a demand was made against the Company for claiming Rs. 41,152.25 under rule 10-A of the Central Excise Rules as duty on the processed dyes cleared by the company under exemption of duty as per the notification dated November 23, 1961. The case of the department appears to have been that these processed dyes were not entitled to exemption under the notification dated November 23, 1961. A statement of details as regards the above sum of Rs. 41,152.25 was forwarded to the Company. This statement contains particulars about the basic dyes and the dates of their clearance from the Company's godowns for manufacturing of processed dyes and the particulars of the processed dyes produced and the dates of clearance thereof from the Company's godowns for marketing thereof to the public as also the quantities and values of each item cleared and the basic and special duty in respect of each of such items. These particulars show that the processed dyes in respect whereof the above sum of Rs. 41,152.25 was claimed as excise duty, were cleared from the Company's godown on different dates between April 22, 1963 and December 16, 1964. The Petitioner contends that under rule 10-A of Excise Rules in respect of duty short levied, notice of demand under the rule could only be issued under rule 10 and not under rule 10-A. The Petitioner further contends that the claim for Rs. 41,152.25 in the first impugned notice of demand related to short levied excise duty and notice under rule 10 could only be issued within the prescribed time of three months from the date on which the duty was assessed and paid in respect of each item of goods cleared from the Petitioner's godown. The Excise Act and Rules did not make any provision for recovering short levied duties after that period of three months prescribed under rule 10 had expired.
7. Before dealing with this question, it is necessary to relate facts relating to the second impugned notice. By the second impugned notice dated January 24, 1966, a demand was made on the petitioner for payment of Rs. 83,238.14 under Rule 10-A of the Excise Rules. This notice was in substitution of a prior notice dated December 24, 1965 bearing No. 1588 whereby Rs. 55,341.48 was demanded from the company. Along with this notice dated January 24, 1966, a statement similar to the statement in respect of the first impugned notice was forwarded to the Petitioner. This statement also shows that dates when the basic dyes were cleared by the Company from its godown for manufacturing the processed dyes in respect whereof the above sum was demanded. The statement includes the dates of the clearance of each item of processed dyes and the quantity and the value thereof as also the duty payable in respect of each of the items cleared. The processed dyes mentioned in this statement were cleared from the Petitioner's godown on different dates between March 29, 1962 and January 29, 1965. In connection with this notice of demand, the Petitioner's contentions are the same as mentioned above in respect of the first impugned notice of demand.
8. Now, the question of the true construction and the effect of the provisions of rules 10 and 10-A as also other relevant rules came before a single Judge on the Original Side of this Court in Miscellaneous Petition No. 20 of 1962 decided on August 6/7, 1963. In Appeal No. 69 of 1963 the decision in that Petition was questioned and the Division Bench of this Court disposed of the appeal by its judgment dated July 1/2, 1965. The questions raised in the petition and the appeal were all same and similar and the first Court's judgment was confirmed by the Division Bench.
9. Before mentioning the findings of the Division Bench and the contention made on behalf of the Respondents it is necessary to quote here the rules 10 and 10-A on which reliance has been placed by either side.
'10. Recovery of duties or charges short levied, or erroneously refunded. - When duties or charges have been short levied through inadvertence, error, collusion or mis-construction on the part of an officer, or through mis-statement as to the quantity, description or value of such goods on the part of the owner, ...... the person chargeable with the duty or charge, so short-levied..... shall pay the deficiency..... on written demand by the proper officer being made within three months from the date on which the duty.... was paid or adjusted in the owners account-current, if any....'
'10-A. Residuary powers for the recovery of sums due to Government. - Where these Rules do not make any specific provision for the collection of any duty, or of any deficiency in duty if the duty had for any reason been short-levied, or of any other sum of any kind payable to the Central Government under the Act or these Rules, such duty, deficiency in duty or sum shall on a written demand made by the proper officer, be paid to such person and at such time and place, as the proper officer may specify.'
10. The question before the Division Bench in the above appeal directly related to the contention made on behalf of the department that the phrase 'short-levied' in rule 10 meant that some amount must have been initially levied, but it fell short of a larger amount correctly leviable. The contention was that rule 10 did not apply when initially no amount was levied. Reliance in that connection was placed on behalf of the Government on the words 'deficiency' and 'paid or adjusted' as contained in rule 10. Reliance was placed on the fact that in the AR-1 form, the assessee in that case had shown the duty payable as nil and had done so fraudulently with the intention to show that the goods were entitled to exemption under the notification dated January 5, 1967, although as a matter of fact the goods were not entitled to such exemption. The contention was that the fraud of the assessee vitiated the assessment made for clearance of the goods and, therefore, it should be held to be altogether non-existent. The further contention was that since the assessee had escaped payment of duties, there was no other specific provision in the rules and, therefore rule 10-A applied. As there was no time limit under that rule, the impugned notices were valid and justified. In connection with these contentions, the Division Bench took notice of the scheme in the rules relating to storage of excisable goods in a licensed godown and the limitation on manufacturing of such goods except under the supervision of the Central Excise, the fact that under the rules, the duty was chargeable and must be collected at the time of clearance of the goods from godowns and the procedure prescribed in that connection of filling in AR-1 forms and the assessment of duty on the basis of facts disclosed in those forms and the facts to be ascertained at the time of clearance by the concerned officer who must assess the leviable duty then. Having regard to the scheme of the rules, it was held that the phrase 'short levied' in rule 10 did not have the sense of imposition of liability to duty but had the sense of assessment, i.e. determination of the exact amount payable by the collection of the amount as assessed. The phrase 'deficiency' would mean not merely the amount of difference between the amount actually paid and the amount correctly leviable but also the entire amount correctly leviable in case where no amount at all had been paid. 'Deficiency' meant the amount of short-fall which could be even the entire amount of duty leviable in case where no payment at all had been made. It was held that there was no reason why rule 10 did not apply in cases of short-levy only but not in cases of non-levy. The finding of the Court was that rule 10 applied when duty was short levied due either to certain factors relating to the owner or due to certain other factors relating to the officer. The factors relating to the owner are mis-statement as to quantity, description or value of the goods (including claim for total exemption from duty). On the above findings the appeal was dismissed and the Petitioners succeeded.
11. Now, in the present case, the contention of the Company is that since the processed dyes admittedly were cleared from the Company's godown in the case of the first impugned notice between April 1963 and December 1964 the period of three months as prescribed by rule 10 must be held to have expired in respect of each of the items cleared within three months from the date of clearance mentioned in the statement furnished to the Petitioner along with the notice. The last of such items having been cleared on December 16, 1964, the period of three months in respect of the last item within which the notice for demanding short-levied excise duty could be served on the Petitioner expired on March 16, 1964. The first impugned notice having been issued on December 24, 1965 was belated by about one year and 9 months and must be struck down as invalid.
12. As regards the second impugned notice, similar contention is that different items of processed dyes were cleared between March 1963 and January 29, 1965. The last item was cleared on the above last mentioned date and the three months' period expired on April 29, 1965. The second impugned notice having been issued on January 24, 1966 was belated by 11 months and odd days and must be struck down as invalid. The contention is that every question which can be raised on behalf of the department in respect of the true construction and effect of the provisions in rules 10 and 10-A was raised before this Court in the first instance before a single Judge and was negatived in Petition No. 20 of 1962. All the contention which could be raised have been negatived on the Confirming Judgment of the Division Bench in Appeal No. 69 of 1963. Following the reasoning and finding of the Division Bench, there was no escape but to hold that these notices were beyond the time prescribed and invalid and must accordingly be struck down.
13. Contrary to the findings in the above judgment, the Assistant Collector of Central Excise, whilst disposing of the representation made on behalf of the Company, by his order dated March 26, 1966 held that under rule 10-A had been rightly issued because the processed dyes of the Company were never subject to any levy of excise duty at all and that rule 10 related to differential duty or short-levied duty and was not applicable where duty was not paid altogether. This officer was bound to follow the decision of this Court in respect of the true construction and effect of the provisions in rules 10 and 10-A and his finding to the above effect was unwarranted and unjustified. In the first instance, we were of the view that a contempt notice should be issued against him as regards his refusal to follow the judgment of this Court. However, it is not clear that the judgment was put up before him and taking a lenient view of the matter, we have decided not to have any contempt notice served on him. Needless to state that all the officers in all the departments must stand warned that in the event of their refusal to follow findings made on question of law by this Court, a very strict view will be taken by the Court and necessary steps will be also taken.
14. Mr. Paranjpe for the respondents contends that in the finding of the Division Bench it has not been decided that if any goods escaped excise duty by reason of mistake of law, rule 10-A will not be applicable and the provisions in rule 10 will cover the same. His contention was that though excise duty was not chargeable in respect of the basic synthetic organic dyes which were of the ownership of the Company from a date prior to April 1, 1961, the same had been recovered under mistake of law. That was not an error or inadvertence as mentioned in rule 10 and, therefore, the impugned notices of demand could legally be issued under rule 10-A. It is sufficient to state that this argument proceeds from failure to appreciate the ratio of the decision of the Division Bench of this Court in the judgment cited above. It has been clearly held that in every case arising from whatever the reasons, where goods excise are permitted to be cleared by excise authorities without collecting excise duty, the demand for collection of such short-levied excise duty can only be issued under the provisions of rule 10. There was no other source of authority of law for collecting such short-levied duty. To the facts of this case, the above ratio of the Division Bench judgment applies in all particulars and this contention must, therefore, be negatived.
15. It is quite extraordinary that without refunding the duty charged in respect of the basic synthetic organic dyes which were of the ownership of the Company, from a date prior to April 1, 1961, the department has sought to issue the impugned notices on the footing that in respect of those dyes, excise duty had not been levied. Admittedly, the processed dyes in respect whereof these impugned notices were issued were manufactured by use of basic synthetic organic dyes on which excise duty had been paid. The notification dated November 23, 1961 was applicable to the goods in respect whereof the notices were issued. It is impossible to hold that these goods were out manufactured from dyes on which excise duty had already been paid. It is, therefore, impossible to hold that the provisions in the notification of exemption dated November 23, 1961 were not applicable to these processed dyes. The impugned notices were, therefore, entirely illegal and unwarranted. These notices were issued beyond the time prescribed by rule 10 and, therefore, also invalid. The order dated March 26, 1966 finding these notices to be legal and valid was contrary to the ratio of the decision of the Division Bench of this Court. These notices and the order are, therefore, liable to be set aside.
16. Having regard to these findings we do not find it necessary to deal with other questions raised in the Petition on behalf of the Company. The impugned notices and the impugned order are accordingly set aside and struck off. Rule absolute with costs.