Pranav B Prem

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member), has set aside an excise duty demand against a gutka manufacturer after holding that the show cause notice (SCN) was not properly served within the statutory limitation period, rendering the proceedings unsustainable.  The Tribunal allowed the appeals filed by the company and its former managing director, observing that the adjudication order could not stand because the foundational requirement of timely service of the SCN had not been satisfied.

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The dispute arose from a show cause notice dated 11.04.2011 alleging clandestine removal of excisable goods by the assessee during the period from 01.04.2007 to 30.06.2007. The notice formed the basis of the adjudication order which confirmed the duty demand and penalties.  However, the Tribunal noted that the SCN had been sent to the appellant’s old address even though the assessee had already intimated the department about the change of address. The postal authorities returned the notice with the remark “left,” after which the department pasted the notice on the office notice board and proceeded with adjudication.

The appellants contended that the SCN was actually served only on 24.07.2012, while the annexures were supplied on 16.07.2019 and the relied-upon documents were furnished only on 29.12.2022. Thus, the complete SCN was served well beyond the extended limitation period of five years from the relevant period ending 30.06.2007.

Examining the issue, the Tribunal referred to Section 11A of the Central Excise Act, 1944, which permits a demand to be made by serving an SCN within the normal limitation period of two years, extendable up to five years in cases involving fraud, collusion, wilful misstatement, or suppression of facts. It held that no demand can be made by serving an SCN beyond the extended period of five years.

The Tribunal found that the undisputed position was that the appellant had changed its address and informed the department, yet the SCN was sent to the old address. It observed that pasting the notice on the departmental notice board after it was returned by the postal authorities “cannot be termed service of notice.”

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Rejecting the department’s argument that the appellants should be treated as having knowledge of the SCN because the allegations were contained in the adjudication order, the Tribunal held, “The SCN must be served before issuing the order and not after the order has been issued. The very purpose of issuing an SCN is to give the noticees an opportunity to show cause which cannot be served if the order is passed without serving the SCN.”  In view of these findings, the Tribunal held that the SCN was clearly time-barred and the impugned order deciding the proposals therein could not be sustained. Accordingly, the impugned order was set aside and both appeals were allowed with consequential relief to the appellants.

Cause Title: M/s Gahoi Tobacco Products Pvt. Ltd.  Versus Commissioner of Central Tax

Case No.:Excise Appeal No. 51753 OF 2023

Coram: Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member)