M/S Swati Menthol And Allied Chemicals LTD. And Another vs. Commissioner, GST And Central Excise, Commissioerate Chandigarh And Others

Facts

The petitioners, M/s Swati Menthol & Allied Chemicals Ltd. and its Managing Director, are challenging show cause notices dated March 2, 2010, and May 6, 2010, issued by the respondent-department. These notices proposed recovery of Cenvat credit amounting to Rs. 11.26 crore, along with interest and penalty, and rebate of Rs. 7.11 crore claimed on exports. A further demand of Rs. 7.33 lakh was proposed in the May 6, 2010 notice. The allegations pertained to availing Cenvat credit on inputs against fake invoices from Jammu & Kashmir and North East based units, and subsequently utilizing this credit for payment of excise duty on final products and claiming export rebates. The petitioners had filed replies, but the adjudication proceedings remained pending for over 10 years, with hearings repeatedly adjourned or postponed. The petitioners approached the High Court due to this inordinate delay.

Held

The Court held that the show cause notices issued more than a decade ago were not sustainable in law due to the inordinate delay in adjudication. The Court referenced Section 11A(11) of the Central Excise Act, 1944, which prescribes time limits for determining duty amounts (six months for cases under sub-section (1) and one year for cases under sub-section (4) or (5)). While acknowledging the phrase 'where it is possible to do so,' the Court emphasized that this phrase does not permit delays stretching to decades. The Court agreed with the principle laid down in the Gujarat High Court's "M/s Siddhi Vinayak Syntex Private Limited" case and a Division Bench judgment of the same High Court in "M/s GPI Textiles Limited," which held that revival of proceedings after a long gap of ten to fifteen years without a plausible explanation for the delay is unlawful and arbitrary, vitiating the entire proceedings. The Court found that the delay in the present case was not due to the impossibility of adjudication but due to extraneous reasons, such as the matter being kept in "cold storage" or "call book." Therefore, the impugned show cause notices were quashed.

Key Issues

1. Whether the show cause notices issued on March 2, 2010, and May 6, 2010, are liable to be quashed on the ground of inordinate delay in adjudication, exceeding 10 years, contrary to the time limits prescribed under Section 11A(11) of the Central Excise Act, 1944? Petitioner's contention: The petitioners argued that a period of over 10 years has elapsed since the issuance of the show cause notices without adjudication, which is in violation of Section 11A(11) of the 1944 Act. They cited that normal cases should be concluded within six months and cases involving fraud within one year, whereas their proceedings have been pending for over a decade. They relied on a Division Bench judgment of the same court in "M/s Mentha & Allied Products Ltd. vs. Commissioner, Central Goods and Service Tax, Chandigarh" (CWP No. 11990-2020, decided on 04.12.2020). Respondents' contention: The respondents did not dispute the facts regarding the delay and had no objection if the petition was decided in terms of the "M/s Mentha" case.