K. Veeraswami, C.J.
1. The plea of limitation turns on the scope and applicability of Section 40(2) of the Central Excise and Salt Act, 1944. The respondent was a manufacturer of tobacco. On 28th May, 1965, his warehouse was checked by Central Excise officials with the result that shortage of 5738 legs, was found in addition to substitution of 1730 legs. We are not concerned with the substitution. On 21st December, 1967 a show-cause notice was served on the respondent as to why the shortage should not be brought to bear excise duty. After considering his explanation dated 4th January, 1968, an assessment order along with demand of tax was made on 16th May, 1968. The respondent's appeal failed on 22nd December, 1968 and so too his revision on 14th July, 1969. On 3rd December, 1970, he was served with notice to remit the duty. These orders of the department were quashed by Ramaprasada Rao, J., on the ground that the show cause notice of the Assistant Collector, treated as a 'proceeding' within the meaning of Section 40(2), was beyond six months from 28th May, 1965, and therefore was barred by limitation, the learned Judge's view being that limitation started from that date when the department came to have knowledge of the shortage. The learned Judge, in support of his view, relied on Public Prosecutor v. Raju : 1972CriLJ1699 .
2. With due respect, we are unable to concur with the view of the learned Judge; So far as the respective scope of Sub-sections (1) and (2) of Section 40 is concerned, we are undoubtedly bound by the judgment of the Supreme Court we have referred to. We may also take it for granted, without deciding for purposes of this appeal by the Central Government, that 'proceeding other than a suit' in Sub-section (2) of Section 40 may possibly cover assessment proceedings. We proceed on that basis because of Governor General v. Shiroomani Sugar Mills and Rele v. Deshpande (1967) Comp. L.J. 210, which were decisions on Section 171 of the Companies Act, 1913, and Section 446 of the Companies Act, 1956, the phraseology there occurring being suit or other legal proceeding' for purposes of leave for being proceeded with when the company is under liquidation. In our opinion, an assessment proceeding, started with a show cause notice, as in this case, is not within the purview of Section 40(2). For the purpose of prosecution, of course, it will be different; in that case, s violation of any statutory provision or rule made thereunder in the taxing statute will be an offence for which prosecutions will lie. Such was the case in Public Prosecutor, Madras v. R. Raju : 1972CriLJ1699 . But, assessment is not based on violation by the assessee of any provision of law, but is founded on the charging provision. Tax is attracted because the assessee makes income, or a sale, or possesses wealth, or if some one dies his or her estate attracts duty. In the case of excise duty tax is attracted not because the assessee violated some provisions of law, but because he manufactured goods which are assessable to excise duty but escaped charge. It follows, therefore, that once it is clear that violation is not the basis of assessment, the starting point of limitation can only be from the date of the accrual of the cause of action or o f an act or an order made under that Act, which in this case is either the proceedings started on 21st December, 1967, by way of show cause notice, or later the assessment order dated 16th May, 1968. Before that date, there is no room for applying Section 40(2).
3. In the order under appeal the learned Judge had proceeded upon the assumption that violating by the respondent through evasion formed the cause of action or the act. It is obvious that the assessee was not aggrieved by his own violation and as we mentioned, no proceeding is started, for the purpose of such violation. The proceeding started was on the basis of the charging provision, but not the provision creating offences and penalty for violation of any rule or a statutory provision. We allow the appeal with costs.
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