CESTAT Chandigarh Quashes ₹55 Lakh Excise Duty Demand Over Pre-1991 Duty Collections

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside an excise duty demand of ₹55 lakh against Kamal Steel Fabricators.

It held that Section 11D of the Central Excise Act, which requires manufacturers to deposit with the Government excise duty collected from buyers, could not be invoked for amounts collected before the provision came into force.

The tribunal observed, “Any statutory provision unless expressly stated cannot be applied retrospectively. We find that in the instant case, there is nothing on record to show that the amendment is retrospective.”

A bench of Judicial Member S.S. Garg and Technical Member P. Anjani Kumar allowed the company's appeal.

The dispute arose from a show cause notice issued on June 4, 1998. The Revenue alleged that Kamal Steel Fabricators had collected excise duty from the Indian Railways but had not deposited the amount with the Government. The transactions in question related to the period between January 29, 1990 and September 19, 1991, before Section 11D came into force on September 20, 1991.

The Commissioner had originally confirmed the demand and imposed a penalty of ₹5 lakh. The tribunal later remanded the matter for requantification, holding that the excise duty actually paid by the company at the time of clearance of the goods could not be included in the total demand. In the remand proceedings, the Commissioner again confirmed the demand of ₹55 lakh.

Before the tribunal, the company argued that Section 11D could not be applied to transactions that took place before it came into force. It also contended that the show cause notice, issued nearly seven years after the relevant period, was barred by limitation. The company relied on the decisions in Mahatma Sugar and Power Ltd., Hindalco Industries Ltd. and Omid Engineering Pvt. Ltd.

The tribunal noted that the dispute pertained to a period before Section 11D was introduced. It found nothing on record to indicate that the provision was intended to operate retrospectively. Referring to the Bombay High Court's decision in Mahatma Sugar and Power Ltd., which relied on the Supreme Court's ruling in Jalna Sahakari Shakkar Karkhana Ltd., and the Delhi High Court's decision in Hindalco Industries Ltd., the tribunal concluded that the Revenue could not invoke Section 11D in the present case.

The tribunal held, “We find that Revenue has not made out any case to recover the duty collected and retained by the appellants prior to the introduction of Section 11D. Moreover, learned counsel for the appellants has further submitted on limitation. We find that the appellants have also a strong case on limitation in view of the cases cited by her as above. However, as we find that the issue is squarely covered on merits, we do not find it necessary to give findings on the issue of limitation.”

Holding that the impugned order was unsustainable, the tribunal allowed the appeal. Having decided the case on merits, it did not record any findings on the limitation issue.

For Appellant: Advocate Shweta Chauhan,

For Respondent: Yashpal Singh, Authorized Representative