M/S. Bhavani Binny Rice Mill vs. The State Of Telangana

Facts

The petitioner, M/s. Bhavani Binny Rice Mill, received paddy for Custom Milling Rice (CMR) from respondent authorities seven years prior. The petitioner claims to have fulfilled all obligations and that there was no balance of CMR rice to deliver. However, the respondents issued a demand notice on January 16, 2024, under the Telangana Revenue Recovery Act, 1864, for Rs. 14.89 crores, including interest, alleging a shortfall of 6196.762 metric tons of paddy for Khariff and Rabi seasons of 2022-23. The respondents had previously visited the mill on January 9, 2024, conducted a panchanama on January 10, 2024, seized 240 quintals of rice, and attempted to shift it. A complaint was lodged, leading to a notice under Section 41-A Cr.P.C. The petitioner submitted a reply to the demand notice on January 24, 2024.

Held

The Court held that the respondents' action of issuing the impugned demand notice dated January 16, 2024, under the Telangana Revenue Recovery Act, 1864, without considering the petitioner's explanation dated January 24, 2024, and without following due process of law, was illegal and arbitrary. The Court found that merely conducting a panchanama and registering a case under Section 6A of the Essential Commodities Act, 1955, did not justify issuing a recovery demand notice under the Revenue Recovery Act, 1864, without proper adherence to procedural requirements. The Court reasoned that the principles of natural justice were violated by not giving due consideration to the petitioner's reply before proceeding with recovery. Therefore, the Court set aside the demand notice and directed the respondents to consider the petitioner's explanation and pass appropriate orders in accordance with the law. The ratio decidendi is that recovery proceedings under the Revenue Recovery Act must be preceded by due process, including consideration of the assessee's response, to uphold principles of natural justice.

Key Issues

1. Whether the demand notice dated January 16, 2024, issued by the 7th respondent under the Telangana Revenue Recovery Act, 1864, is illegal and arbitrary for failing to follow due process of law, including considering the petitioner's reply dated January 24, 2024, and violating principles of natural justice under Articles 14, 19, and 21 of the Constitution of India? Petitioner's arguments: The respondents issued the demand notice without considering the petitioner's reply, without any panchanama or shortfall notice, and before the expiry of the extended milling period for KMS 2022-23 as per a circular dated January 2, 2024, from the Ministry of Consumer Affairs, Food and Public Distribution. The action is illegal, arbitrary, and violative of natural justice. Respondents' arguments: A shortfall of 6196.762 metric tons of paddy was identified, a case was registered under Section 6A of the Essential Commodities Act, 1955, and the petitioner was unavailable to serve notices. They contend there is no illegality in issuing the demand notice, and mere procedural irregularity is not grounds to set aside the notice.