The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh has quashed a demand of ₹55.01 lakh holding that Section 11D of the Central Excise Act, 1944 cannot be applied retrospectively to recover amounts allegedly collected before the provision came into force. 

The Tribunal ruled that the department could not invoke Section 11D for transactions undertaken prior to 20 September 1991, the date on which the provision was introduced. 

The appeal arose from an Order-in-Original passed by the Principal Commissioner, Central Excise & Service Tax, Faridabad-I, confirming a demand of ₹55,01,282 along with a penalty of ₹5 lakh. The Revenue alleged that the appellant had collected excise duty from its customer, the Indian Railways, but failed to deposit the amount with the Government, thereby violating Section 11D of the Central Excise Act. 

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The dispute traces back to a show cause notice issued on 4 June 1998, covering the period 29 January 1990 to 19 September 1991. The matter had earlier been remanded by the Tribunal in 2012 for fresh quantification after directing that excise duty actually paid at the time of clearance should be excluded from the computation. Despite the remand, the adjudicating authority once again confirmed the entire demand. 

Before the Tribunal, the appellant argued that the demand was fundamentally unsustainable because the disputed period preceded the enactment of Section 11D. It was submitted that the provision became effective only from 20 September 1991 and lacked any indication of retrospective operation. The appellant relied on judicial precedents, including Mahatma Sugar and Power Ltd. and Hindalco Industries Ltd., which held that Section 11D operates only prospectively. The appellant also contended that the 1998 show cause notice was barred by limitation since it sought recovery for transactions that had taken place several years earlier. 

The Revenue defended the impugned order and reiterated the findings of the adjudicating authority. 

After examining the record, the Tribunal observed that the entire dispute related to a period before Section 11D came into force. It emphasized the settled principle that statutory provisions are presumed to operate prospectively unless the legislature expressly provides otherwise. Finding no indication that Section 11D was intended to have retrospective effect, the Bench held that the provision could not be invoked to recover amounts allegedly collected prior to its introduction. 

The Tribunal also referred to the decisions of the Bombay High Court in Mahatma Sugar and Power Ltd., which relied on the Supreme Court’s judgment in Jalna Sahakari Shakkar Karkhana Ltd., and the Delhi High Court’s ruling in Hindalco Industries Ltd., both supporting the prospective application of Section 11D. 

While the appellant had also raised a limitation challenge, relying on precedent that even in the absence of a prescribed limitation period under Section 11D, proceedings must be initiated within a reasonable time, the Tribunal declined to examine that issue in detail. It held that since the appeal succeeded on merits, it was unnecessary to decide the limitation question. 

Accordingly, the CESTAT held that the Revenue had no legal basis to recover amounts allegedly collected and retained before the introduction of Section 11D, declared the impugned order unsustainable, and allowed the appeal, granting complete relief to the appellant.

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