Featured image for Supreme Court Judgment dated 14-11-2019 in case of petitioner name Commissioner of Central Excise vs M/s Krishna Wax (P) Ltd.
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Commissioner of Central Excise vs. Krishna Wax: Supreme Court’s Ruling on Excise Duty Dispute

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The case of Commissioner of Central Excise, Haldia vs. M/s Krishna Wax (P) Ltd. revolves around a dispute concerning the liability of a manufacturer under the Central Excise Act, 1944. The Supreme Court had to determine whether the Excise Department could demand duty on the manufacture of wax and oil derivatives and whether procedural lapses affected the case’s validity.

This ruling is significant in clarifying the excise tax liability of manufacturers, procedural requirements for tax demands, and the judicial interpretation of excise laws.

Background of the Case

The case began when the Excise Department conducted a search at M/s Krishna Wax (P) Ltd. on September 23, 2005, suspecting that the company was manufacturing Foots Oil, Pressed Wax, and Pressed Paraffin Wax without complying with excise regulations. The department alleged that the company was clearing excisable goods without payment of excise duty.

Initial Writ Petition Before the High Court

  • In response to the search, Krishna Wax filed Writ Petition No. 2073 of 2005 before the Calcutta High Court, challenging the excise department’s authority.
  • The High Court, in its order dated November 28, 2005, directed the Assistant Commissioner of Central Excise to first decide the jurisdictional issue before proceeding further.

Issuance of Show Cause Notice

  • On March 21, 2006, the Commissioner of Central Excise issued a Show Cause Notice to Krishna Wax, alleging that manufacturing activities were being carried out without proper excise duty payment.
  • The notice demanded payment of Rs. 1,56,31,712 in excise duty, along with an education cess of Rs. 2,11,007, under the extended limitation period of Section 11A of the Central Excise Act.

Second Writ Petition

  • Krishna Wax filed another writ petition (W.P. No. 1719 of 2006), challenging the show cause notice, arguing that the excise department had not complied with the High Court’s earlier order.
  • The High Court ruled on November 27, 2006, stating that the company should reply to the show cause notice and could raise jurisdictional objections in the adjudication process.

Legal Proceedings and Appeals

Appeal Before the Commissioner (Appeals)

  • Instead of responding to the show cause notice, Krishna Wax filed an appeal before the Commissioner (Appeals), challenging the department’s jurisdiction.
  • The Commissioner (Appeals) ruled in favor of Krishna Wax, concluding that its activities did not constitute manufacturing under Section 2(f) of the Central Excise Act.

Tribunal’s Decision

  • The Excise Department challenged this decision before the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Kolkata.
  • On May 31, 2017, CESTAT dismissed the department’s appeal, holding that Krishna Wax was not engaged in a manufacturing process that warranted excise duty.

Dissatisfied with this ruling, the Excise Department filed an appeal before the Supreme Court.

Arguments Before the Supreme Court

Arguments by the Excise Department

  • The adjudication process had never taken place, and the company had not responded to the show cause notice.
  • The case involved a crucial issue of tax evasion, where goods were cleared without excise duty.
  • The Tribunal erred in ruling on the manufacturing question without allowing proper adjudication of facts.

Arguments by Krishna Wax

  • The internal order dated March 15, 2006 was issued without giving the company a hearing.
  • The excise authorities had wrongly assumed jurisdiction without considering the company’s objections.
  • The decision by the Commissioner (Appeals) was justified as the process did not amount to manufacturing.

Supreme Court’s Judgment

The Supreme Court ruled in favor of the Excise Department, setting aside the decisions of the Commissioner (Appeals) and the Tribunal. The key findings were:

1. Premature Appeal Before the Commissioner (Appeals)

  • The Court held that Krishna Wax should have responded to the show cause notice instead of directly appealing.
  • It stated:

    “The scheme of Section 11A does not contemplate preliminary determinations before issuing a show cause notice.”

2. Show Cause Notice as the Primary Legal Step

  • The Court emphasized that the show cause notice is the starting point for tax disputes.
  • It ruled:

    “The issuance of a show cause notice under Section 11A marks the beginning of the adjudication process and provides an opportunity for the assessee to respond.”

3. Jurisdictional Objections Must Be Raised in Adjudication

  • The Court clarified that objections to jurisdiction should be raised during the adjudication process, not through premature appeals.

Impact of the Judgment

This ruling sets a strong precedent in excise law enforcement:

  • Importance of Responding to Show Cause Notices: Companies must first respond to tax authorities before challenging their jurisdiction.
  • Strict Interpretation of Excise Law: The Court reinforced that manufacturing activities are subject to excise duty based on statutory definitions.
  • Judicial Efficiency: The decision prevents companies from delaying tax disputes through premature appeals.

Conclusion

The Supreme Court’s ruling underscores the importance of procedural compliance in tax disputes. By reinstating the adjudication process, the Court ensured that excise duty cases are handled systematically, preventing premature challenges that could undermine tax enforcement. The ruling reaffirms the need for taxpayers to first exhaust statutory remedies before seeking judicial intervention.


Petitioner Name: Commissioner of Central Excise, Haldia.
Respondent Name: M/s Krishna Wax (P) Ltd..
Judgment By: Justice Uday Umesh Lalit, Justice Vineet Saran.
Place Of Incident: Haldia.
Judgment Date: 14-11-2019.

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