Haryana City Gasdistribution LTD vs. Commissioner Of CGST And Central Excise Gurgaon Ors

Held

The Court allowed the writ petition, quashing the order dated 02.05.2024 and summons dated 17.09.2024. The Court held that the action of demanding the amount and imposing penalty was not sustainable in law. It was reasoned that the provisions of Section 11A of the Central Excise Act clearly mandate that before any demand is made for non-levy or short-levy of duty, a show cause notice must be served on the person chargeable, requiring them to show cause why the specified amounts should not be paid. The Court noted that it was an admitted position that no such notice was served on the petitioner. The Court relied on the Supreme Court's decision in Gokak Patel Vokkart Ltd. v. Collector of Central Excise, Belgaum, which held that a prior show cause notice is a condition precedent to a demand under Section 11A(2) and that the statutory scheme requires the cause shown to be considered before determining the amount. The Court found that the petitioner should have been given an opportunity of hearing and to put up its defense after the financial implications identified in the audit were placed before it, followed by a speaking order. The Court expressly left undecided the specific classification of goods and the rate of duty applicable, as the primary issue was the procedural irregularity.

Facts

The petitioner, City Gas Distribution Limited, a company authorized to distribute CNG and PNG, challenged proceedings initiated by the Superintendent of Central Excise and Service Tax. The Superintendent sought recovery of excise duty, interest, and penalty based on a CAG audit report for the period April 2018 to March 2023. The audit report indicated that excise duty was not deposited within the prescribed time. Following this, the Superintendent issued letters requesting payment of interest and penalty. Subsequently, the Assistant Commissioner directed the freezing of the petitioner's bank account under Section 11(2) of the Excise Act, citing non-payment of the outstanding amount of approximately ₹6.99 crore. The petitioner had deposited ₹1 crore under protest.

Key Issues

1. Whether the recovery proceedings initiated based solely on a CAG audit report, without a formal assessment order following due procedure under the Excise Act, are legally sustainable? (Section 11A(1) and 11A(14) of the Excise Act) 2. Whether the Superintendent has the jurisdiction to issue notices and initiate recovery proceedings, including freezing bank accounts, without a prior show cause notice and an opportunity for the petitioner to present its case? (Principles of natural justice, Section 11A of the Excise Act) Petitioner's arguments: The petitioner argued that the CAG audit report could only form the basis for assessment and that recovery proceedings could not be initiated without a proper assessment order. They contended that the Superintendent lacked jurisdiction to issue notices and that freezing the bank account was illegal. Reliance was placed on a CBIC Circular dated 19.01.2022, stating recovery can only be initiated after confirmed demand of interest or penalty. They also argued that the delay in payment was due to server issues and the Covid-19 pandemic, and that no show cause notice was issued, preventing them from presenting their defense. They cited Union of India vs. Madhumilan Syntex Private Limited. Revenue's arguments: The revenue contended that the petitioner did not cooperate with the audit, and the delayed payment of excise duty was admitted. They argued that interest is automatically liable on delayed payment under the Excise Act, and no adjudication was required. They asserted that Section 11A(16) of the Excise Act allows for interest and penalty without a show cause notice in cases of admitted non-payment. They also alleged the petitioner did not disclose correct bank accounts.