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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.      4458-4459 OF 2015 (ARISING OUT OF SLP (C) NOS. 37108-37109 OF 2012)

M/S. DHARAMPAL SATYAPAL LTD. .....APPELLANT(S)

VERSUS

DEPUTY COMMISSIONER OF CENTRAL  EXCISE, GAUHATI & ORS.

.....RESPONDENT(S)

J U D G M E N T

A.K. SIKRI, J.

Leave granted.

2) Union  of  India,  vide  Memorandum dated  December  24,  1997,

unveiled a new industrial policy for the North-Eastern region.  In

the said policy, in order to give stimulation to the development of

industrial  infrastructure  in  the  North-Eastern  region,  the  said

region was made tax free zone for a period of ten years giving

incentives  to  those  who  wanted  to  establish  industries  in  that

region.  Pursuant thereto, the Notification dated July 08, 1999 was

issued  granting  new  industrial  units  that  had  commercial

production on or after December 24, 1997 and certain types of

industrial  units  that  increased their  installed  capacity  after  that

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date, exemption on goods cleared from units located in growth

centres and integrated infrastructure centres.

3) The  aforesaid  Notification  was  issued  under  the  provision  of

Central Excise Act, 1944 as well as Additional Duties of Excise

(Goods of Special Importance) Act, 1957 and Additional Duties of

Excise  (Textiles  and  Textile  Articles)  Act,  1978.   However,  on

December  31,  1999,  another  Notification  was  issued  whereby

exemption of central excise was withdrawn in respect of goods

falling  under  Chapter  21.06  (pan  masala)  and  Chapter  24

(tobacco and tobacco substitutes,  including cigarettes,  chewing

tobacco etc.).

4) This withdrawal Notification was challenged by the appellant by

filing the writ petition in the High Court of Gauhati.  The learned

Single  Judge  dismissed  the  writ  petition.   However,  appeal

preferred by the appellant was allowed by the Division Bench vide

judgment dated December 03, 2012.  In nutshell, the High Court

held  that  the  principal  of  Promissory  Estoppel shall  apply  and

once a promise was given by the Union of India assuring that no

such duty would be charged for a period of ten years, it was not

open for the Union of India to withdraw the same. Challenging

that  judgment,  Union  of  India  filed  petitions  for  special  leave.

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Leave  was  granted  and  the  petitions  were  registered  as  Civil

Appeal Nos. 8841-8844 of 2003.

5) After  the  filing  of  the  aforesaid  appeals,  certain  subsequent

events took place.  It so happened that vide Section 154 of the

Finance Act, 2003 (hereinafter referred to as the 'Act of 2003'),

withdrawal of the benefit was effected from retrospective effect.

Effect  thereof  was  to  withdraw  the  benefit  given  under  the

Notification issued earlier.  Validity of Section 154 was questioned

and the issue was considered  by this  Court  in  R.C.  Tobacco

Private Ltd. & Anr. v. Union of India & Anr.1  This Court upheld

the constitutional validity of the aforesaid provision and repelled

the challenge so laid.  The effect was to disentitle the appellant

and other similarly situated from getting any such benefit by virtue

of Section 154 of the Act of 2003 and knocking down the basis of

the  judgment  of  the  High  Court,  which  lost  its  validity  on  the

aforesaid ground.

6) So far so good.  The grievance of the appellant and other similarly

situated  industries  for  not  extending  the  benefit  of  Notification

dated  July  08,  1999  is  buried  down.   However, after  notifying

Section 154 of the Act of 2003, which had nullified the effect of

1 (2005) 7 SCC 725

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Notification No. 32 of 1999 retrospectively thereby annulling the

effect thereof altogether, respondent No.1 herein passed recovery

order dated June 03, 2003 for recovery of a sum of ₹2,93,43,244

(rupees two crores ninety three lakhs forty three thousand two

hundred and forty four only) from the appellant, which was the

benefit  that  had  been  drawn  by  the  appellant  for  the  period

November 1999 till February 2001 in terms of the Notification No.

32 of 1999.  By another order dated June 06, 2003 issued by

respondent No.1,  the appellant  was directed to pay the excise

duty for the said period for which the benefit had been availed.

He also rejected the pending claim of refund for the period from

March  2001  till  May  31,  2003.   These  recovery  orders  were

challenged  by  the  appellant  by  filing  appeal  before  the

Commissioner (Appeals).   Along with the appeal,  the appellant

also filed an application for interim order seeking stay against the

pre-deposit.   On this application, orders dated March 31, 2004

were  passed  by  the  Commissioner  (Appeals)  directing  the

appellant to deposit entire duty amount within a period of thirty

days.  This order of pre-deposit was challenged by the appellant

by filing  four  writ  petitions in  the High Court  of  Gauhati.   The

learned Single Judge of the High Court, however, dismissed these

writ  petitions  vide  orders  dated  May 18,  2004.   The  appellant

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carried this issue of pre-deposit to a higher forum in the form of

writ appeals before the Division Bench of the said Court.  Interim

orders  dated  June  11,  2004  were  passed  in  the  writ  appeals

directing the Commissioner (Appeals) not to dismiss the appeals

preferred by the appellant before him for non-deposit of the duty

amount.  In other words, interim stay against the pre-deposit was

given.   The  Commissioner  (Appeals)  heard  the  appeals  and

passed the orders dated June 15, 2005 deciding the appeals in

favour  of  the appellant.   He held that  issuance of  show-cause

notice was mandatory before a valid recovery of demand could be

made from the appellant  and,  thus,  remitted the matter  to  the

adjudicating authority.  After this final  order was passed by the

Commissioner (Appeals), writ appeals of the appellant before the

Division Bench were disposed of as infructuous in view of the fact

that the Commissioner (Appeals) had passed an order on merits

and,  therefore,  no  cause  survived  which  required  further

adjudication in those appeals.

7) Insofar as the order of the Commissioner (Appeals) is concerned,

both the appellant as well as the Revenue felt aggrieved thereby.

The appellant was not satisfied with the order of remand and the

nature  of  relief  granted  even  after  accepting  that  issuance  of

show-cause  notice  was  mandatory  before  passing  a  valid Civil Appeal Nos. 4458-4459 of 2015 Page 5 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

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recovery  of  demand.   The  respondents  were  aggrieved  of  the

order  passed  on  merit  holding  that  show-cause  notice  was

mandatory.  Therefore, both the appellant as well as the Revenue

filed appeals aggrieved against the order dated June 15, 2005

passed by the Commissioner (Appeals).  The Customs Excise &

Service Tax Appellate Tribunal (for short 'CESTAT') decided these

appeals vide common order dated My 28, 2007.  It reversed the

orders of the Commissioner (Appeals), which resulted in allowing

the  appeal  filed  by  the  Revenue  and  dismissing  the  appeal

preferred by the appellant. A  perusal  of  the  judgment  of  the

CESTAT  would  reveal  that  it  has  primarily  referred  to  the

judgment of this Court in R.C. Tobacco and held that the matter

stood concluded by the said judgment.  The appellant challenged

the order of CESTAT by filing Central Excise Tax Reference No. 1

of 2008 before the High Court of Gauhati.  This Reference was

dismissed  by  the  High  Court  on  December  01,  2011  on  the

ground of  res judicata holding that orders dated May 18, 2004

passed by the Single Judge dismissing the writ petitions of the

appellant  had attained finality.  The appellant  preferred Review

Petition seeking review of the said order, which has also been

dismissed by the High Court on June 05, 2012.  In the present

appeals,  the  appellant  has  challenged  both  the  orders  dated

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December 01, 2011 passed in the Tax Reference as well as the

order dated June 05, 2012 passed in the Review Petition.

8) From  the  brief  narration  of  the  background  facts  mentioned

above, it is apparent that the frontal attack of the appellant against

the recovery orders passed by the respondents is premised on

the  plea  that  no  such  recovery  proceedings  could  be  initiated

without a show-cause notice under Section 11-A of the Excise Act.

The appellant has also taken a plea in these appeals that order of

the Single Judge at pre-deposit stage could not operate as  res

judicata on merits and, therefore, dismissal of the Tax Reference

by  the  High  Court,  and  consequently  the  Review  Petition,  is

clearly erroneous and the High Court should have gone into the

merits of the issue decided by CESTAT.

9) As  noted  above,  CESTAT has  decided  the  case  against  the

appellant on the ground that issue now raised is covered by the

judgment of this Court in R.C. Tobacco (supra).  As pointed out,

in  R.C.  Tobacco (supra),  this  Court  has  already  upheld  the

validity of Section 154 of the Act of 2003 thereby taking away the

benefit  of  Notification No. 32 of 1999 retrospectively insofar as

excisable  goods  falling  under  Chapter  24  are  concerned.

Conscious of the position that judgment in R.C. Tobacco (supra)

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stares  at  the face of  the appellant,  Mr. Soli  Sorabjee,  learned

senior counsel who appeared for the appellant, has also made an

endeavour  to  show  that  the  said  judgment  in  R.C.  Tobacco

(supra) is in clear conflict with earlier three Judge Bench judgment

of this Court in  M/s. J.K. Cotton Spinning and Weaving Mills

Ltd. v. Union of India2.  Thus, following three issues have arisen

for consideration in these appeals:

(a) Whether order of the Single Judge at pre-deposit stage

can operate as res judicata on merits?

(b) Whether  recovery  proceedings  can  be  initiated  without

show-cause notice under Section 11A of the Excise Act,

which is mandatory?

(c) Whether  there  is  a  conflict  between  the  three  Judge

Bench  judgment  in  J.K.  Cotton  (supra)  and  R.C. Tobacco (supra)?

First issue is the basis for the judgment of the High Court.

10) For  answering  this  issue,  it  would  be  necessary  to  take  into

account  the  complete  implication  thereof  with  reference  to  the

nature of recovery orders passed by respondent No.1, challenge

thereto before the Commissioner (Appeals) and interim order of

pre-deposit passed by the Commissioner (Appeals) on March 31,

2004  as  also  the  nature  of  challenge  which  was  laid  by  the

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appellant against the said order of pre-deposit in the writ petitions

filed  in  the  High  Court,  which  were  dismissed  by  the  learned

Single Judge on May 18, 2004.

11) By virtue of Notification dated July 08, 1999, the appellant was

granted refund of the duty deposited in cash up to February 2001.

After the enactment of Section 154 of the Act of 2003, recovery

order  dated  June  03,  2003  was  passed  for  recovery  of  the

aforesaid  amount  which  had  been  refunded  to  the  appellant.

Simultaneously, another order dated June 06, 2003 was issued

asking the appellant to pay duty on the ground that such goods

were no more exempted from payment of duty.  In the appeals

which  were  filed  by  the  appellants  before  the  Commissioner

(Appeals)  challenging  the  aforesaid  orders,  the  Commissioner

passed  interim  orders  dated  March  31,  2004  directing  the

appellants to pay the amount demanded by the aforesaid orders.

This order dated March 31, 2004 of the Commissioner (Appeals)

reflects that the Commissioner went into various issues raised by

the  appellant  on  the  basis  of  which  it  was  pleaded  by  the

appellant  that  it  had  a  good  case  on  merits  and,  therefore,

condition of pre-deposit be waived.  Apart from the contention that

no show-cause notice was given before passing those orders, it

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was even argued that by making the retrospective amendment in

the form of Section 154 of the Act of 2003, the only effect was to

validate  the  earlier  actions  but  no  demand  of  refund  of  any

amount could be made and no refund of the amount already paid

could be claimed.  It was also argued that the matter of recovery

of amounts was pending consideration of Central Board of Excise

and Customs (CBEC) as well as in the Gauhati High Court.  All

these issues were considered by the Commissioner  (Appeals),

who  gave  his  prima  facie view  thereupon  observing  that  the

appellants  did  not  have  strong  prima  facie  case  on  merits

resulting  into  the  direction  to  deposit  the  entire  amount  within

thirty days.

12) The appellant had filed writ petitions against the aforesaid order of

the Commissioner (Appeals) with the prayer that the direction of

the Commissioner (Appeals) to deposit the entire amount within

thirty  days  be  set  aside  and  the  prayer  of  pre-deposit  of  the

appellant be accepted.  No doubt, while arguing for this relief, the

appellant had raised various contentions on the merits of the case

in its endeavour to demonstrate that it had a good case on merits.

It  is  also borne from the record that the learned Single Judge,

while dismissing the writ petition, dealt with these issues, which

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touched upon the merits of the main issue.  That is the reason

that the order dated May 18, 2004 of the learned Single Judge

dismissing the writ petition of the appellant runs into 37 pages.

Nevertheless, we find that the observations which were made by

the learned Single Judge on the issues raised were only  prima

facie in nature and the prime focus of the judgment rested on the

core issue, namely, whether the direction of  the Commissioner

(Appeals) directing the appellant to make deposit of the amount

as a pre-condition for hearing of the appeal was sustainable or

not.   The  writ  petition  was dismissed  affirming  the  said  order.

Therefore, any observations made by the learned Single Judge,

which  were  tentative  in  nature,  could  not  be  taken  into

consideration by the Division Bench in the impugned judgment,

thereby dismissing the Reference, invoking the principle of  res

judicata.  The order of the learned Single Judge dismissing the

writ  petition was challenged before the Division Bench and the

Division Bench passed interim orders in the writ appeals not to

dismiss the appeals preferred by the appellant for non-deposit of

the duty.  In  this  backdrop,  appeals were heard and appellant

even  partly  succeeded.   After  the  order  of  the  Commissioner

(Appeals)  dated  June  15,  2005  deciding  the  appeals  partly  in

favour  of  the  appellant,  the  writ  appeals  which  were  pending

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before the Division Bench had become infructuous and disposed

of as such without going into the merit of the order passed by the

learned Single Judge.  This is yet another reason to hold that the

order of  the learned Single Judge could not  be treated as  res

judicata.

13) Having  regard  to  the  aforesaid  position,  we  heard  the  instant

appeal  on  merits,  namely,  on  the  issue  as  to  whether  it  was

mandatory  to  issue  show-cause  notice  making  an  order  of

recovery.   The  Commissioner  (Appeals)  has  held  it  to  be

mandatory  and  this  order  of  the  Commissioner  (Appeals)  has

been set aside by the CESTAT.  The Reference petition against

the order of CESTAT, though wrongly is dismissed on the ground

of  res judicata, the impugned order shows that it has mentioned

that such show-cause notice was not mandatory as held by the

learned Single Judge by order dated May 18, 2004.

14) Learned senior  counsel  appearing for  the appellant  as  well  as

learned Attorney General agreed that in this situation this Court

may decide the aforesaid issue finally.  It is for this reason that we

have heard counsel for the parties at length on this aspect of the

matter.

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15) The neat submission made by Mr. Soli Sorabjee on behalf of the

appellant  was  that  the  impugned  demand  of  the  Assistant

Commissioner  was  in  the  nature  of  adjudication  whereby  the

amount  demanded  in  the  order  dated  June  06,  2003  was

crystallized and, therefore, there could not have been demand for

recovery of  the stipulated amount without issuing notice to the

appellant and giving the appellant herein right of hearing.  He also

submitted that merely because vires of Section 154 of the Act of

2003 were upheld by this Court in  R.C. Tobacco  (supra) could

not  be  a  ground  to  dispense  with  the  aforesaid  mandatory

requirements  of  principles  of  natural  justice.   His  further

submission  was  that  'no  prejudice' principle  adopted  by  the

CESTAT amounted to erroneous approach.  He sought to draw a

fine  distinction  in  this  behalf  by  contending  that  the  Authority

passing the order could not presume that prejudice would not be

caused to a person against whom the action is contemplated and

on that presumption dispense with the mandatory requirement of

issuance of the notice.  According to him, such a doctrine could

be  applied  only  by  the  courts  while  dealing  with  such  issues

where it is found that the action of the Authority was violative of

principles of  natural  justice,  the Court  could still  choose not  to

remit the case back to the concerned Authority if it finds that it will

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be a futile exercise.

16) As a pure principle of  law, we find substance and force in the

aforesaid submission of Mr. Sorabjee.  No doubt, the Department

was seeking to recover the amount paid by virtue of Section 154

of  the  Act  of  2003 which  was enacted retrospectively  and the

constitutional validity of the said Section had already been upheld

by this Court in R.C. Tobacco (supra) at the time of issuance of

notice  for  recovery.   Further,  no  doubt,  the  effect  of  the  said

amendment retrospectively was to take away the benefit  which

was granted earlier.  However, the  question  is  whether  before

passing such an order of recovery, whether it was necessary to

comply  with  the  requirement  of  show-cause  notice?   The

appellant wanted to contend that Section 11A of the Excise Act

was  applicable,  which  requires  this  procedure  to  be  followed.

Even  if  that  provision  is  not  applicable,  it  is  fundamental  that

before taking any adverse action against a person, requirement of

principles  of  natural  justice  is  to  be  fulfilled.   This  Court  in

Collector of Central Excise, Patna & Ors.  v.  I.T.C. Limited &

Anr.3 has  held  that  show-cause  and  personal  hearing  is

necessary before saddling an assessee with additional demand.

It is also trite that when a statute is silent, with no positive words

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in  the Act  or  Rules spelling out  need to hear  the party  whose

rights or interests are likely to be affected, requirement to follow

fair procedure before taking a decision must be read into statute,

unless the statute provides otherwise.

17) What is the genesis behind this requirement?  Why it is necessary

that before an adverse action is taken against a person he is to be

given  notice  about  the  proposed  action  and  be  heard  in  the

matter?  Why is it treated as inseparable and inextricable part of

the doctrine of principles of natural justice?

18) Natural justice is an expression of English Common Law.  Natural

justice is not a single theory – it is a family of views.  In one sense

administering  justice  itself  is  treated  as  natural  virtue  and,

therefore,  a  part  of  natural  justice.   It  is  also called  'naturalist'

approach to the phrase  'natural justice' and is related to  'moral

naturalism'.   Moral  naturalism  captures  the  essence  of

commonsense morality – that good and evil, right and wrong, are

the  real  features  of  the  natural  world  that  human  reason  can

comprehend.  In this sense, it may comprehend virtue ethics and

virtue jurisprudence in relation to justice as all these are attributes

of  natural  justice.   We are  not  addressing  ourselves  with  this

connotation of natural justice here.

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19) In  Common  Law,  the  concept  and  doctrine  of  natural  justice,

particularly which is made applicable in the decision making by

judicial  and  quasi-judicial  bodies,  has  assumed  different

connotation.  It is developed with this fundamental in mind that

those whose duty is to decide, must act judicially.  They must deal

with the question referred both without bias and they must given

to each of the parties to adequately present the case made.  It is

perceived that  the practice  of  aforesaid  attributes in  mind only

would lead to doing justice.  Since these attributes are treated as

natural  or  fundamental,  it  is  known  as  'natural  justice'.   The

principles of natural justice developed over a period of time and

which is still  in vogue and valid even today were: (i) rule against

bias, i.e.  nemo iudex in causa sua; and (ii) opportunity of being

heard to the concerned party, i.e. audi alteram partem.  These are

known as principles of natural justice.  To these principles a third

principle is added, which is of recent origin.  It   is duty to give

reasons in support of decision, namely, passing of a  'reasoned

order'.

20) Though the aforesaid principles of natural justice are known to

have their origin in Common Law, even in India the principle is

prevalent  from  ancient  times,  which  was  even  invoked  in

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Kautilya's  'Arthashastra'.   This  Court  in  the case of  Mohinder

Singh Gill & Anr.  v.  The Chief Election Commissioner, New

Delhi & Ors.4 explained the Indian origin of these principles in the

following words:

“Indeed,  natural  justice  is  a  pervasive  facet  of secular  law  where  a  spiritual  touch  enlivens legislation,  administration  and  adjudication,  to make fairness a creed of life.  It has many colours and  shades,  many  forms  and  shapes  and,  save where valid law excludes, it  applies when people are affected by acts of authority.  It is the bone of healthy government, recognised from earliest times and  not  a  mystic  testament  of  judge-made  law. Indeed from the legendary days of Adam – and of Kautilya's Arthashastra – the rule of  law has had this stamp of natural justice, which makes it social justice.  We need not go into these deeps for the present except to indicate that the roots of natural justice  and  its  foliage  are  noble  and  not new-fangled.   Today  its  application  must  be sustained by current legislation, case law or other extant principle, not the hoary chords of legend and history.   Our  jurisprudence  has  sanctioned  its prevalence even like the Anglo-American system”.

21) Aristotle, before the era of Christ, spoke of such principles calling

it as universal law.  Justinian in the fifth and sixth Centuries A.D.

called it 'jura naturalia', i.e. natural law.

22) The  principles  have  sound  jurisprudential  basis.   Since  the

function of the judicial and quasi-judicial authorities is to secure

justice  with  fairness,  these principles  provide great  humanising

factor intended to invest law with fairness to secure justice and to

4 (1978) 1 SCC 405 : AIR 1978 SC 851 Civil Appeal Nos. 4458-4459 of 2015 Page 17 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

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prevent miscarriage of justice.  The principles are extended even

to those who have to take administrative decision and who are not

necessarily discharging judicial or quasi-judicial functions.  They

are a kind of code of fair administrative procedure.  In this context,

procedure is not a matter of secondary importance as it is only by

procedural  fairness shown in the decision making that decision

becomes acceptable.   In its proper sense, thus,  natural  justice

would mean the natural sense of what is right and wrong.

23) This aspect of procedural fairness, namely, right to a fair hearing,

would mandate what is literally known as 'hearing the other side'.

Prof. D.J. Galligan5 attempts to provide what he calls  'a general

theory of  fair  treatment' by exploring what  it  is  that  legal  rules

requiring  procedural  fairness  might  seek  to  achieve.   He

underlines the importance of arriving at correct decisions, which is

not possible without adopting the aforesaid procedural fairness,

by  emphasizing  that  taking  of  correct  decisions  would

demonstrate that the system is working well.  On the other hand,

if mistakes are committed leading to incorrect decisions, it would

mean that the system is not working well and the social good is to

that extent diminished.  The rule of procedure is to see that the

law is applied accurately and, as a consequence, that the social

5 On 'Procedural Fairness' in Birks (ed), the Frontiers of Liability (Volume One) (Oxford 1994) Civil Appeal Nos. 4458-4459 of 2015 Page 18 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

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good is realised.  For taking this view, Galligan took support from

Bentham6,  who wrote  at  length  about  the  need to  follow such

principles of natural justice in civil and criminal trials and insisted

that the said theory developed by Bentham can be transposed to

other  forms of  decision making as well.   This jurisprudence of

advancing  social  good by  adhering to  the principles  of  natural

justice and arriving at correct decisions is explained by Galligan in

the following words:

“On this approach, the value of legal procedures is judged  according  to  their  contribution  to  general social  goals.   The  object  is  to  advance  certain social  goals,  whether  through  administrative processes, or through the civil or criminal trial.  The law and its  processes are simply instruments  for achieving  some  social  good  as  determined  from time to time by the law makers of the society.  Each case is an instance in achieving the general goal, and a mistaken decision, whether to the benefit or the  detriment  of  a  particular  person,  is  simply  a failure to achieve the general good in that case.  At this level  of  understanding, judgments of  fairness have no place, for all  that matters is whether the social  good,  as  expressed  through  laws,  is effectively achieved.”

Galligan also takes the idea of fair treatment to a second

level of understanding, namely, pursuit of common good involves

the  distribution  of  benefits  and  burdens,  advantages  and

disadvantages  to  individuals  (or  groups).   According  to  him,

principles  of  justice  are  the  subject  matter  of  fair  treatment.

6 A Treatise of Judicial Evidence (London 1825) Civil Appeal Nos. 4458-4459 of 2015 Page 19 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

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However, that aspect need not be dilated.

24) Allan7,  on  the  other  hand,  justifies  the  procedural  fairness  by

following the aforesaid principles of natural justice as rooted in

rule of law leading to good governance.  He supports Galligan in

this respect and goes to the extent by saying that it is same as

ensuring  dignity  of  individuals,  in  respect  of  whom  or  against

whom the decision is taken, in the following words:

“The instrumental value of procedures should not be  underestimated;  the  accurate  application  of authoritative  standards  is,  as  Galligan  clearly explains, an important aspect of treating someone with  respect.   But  procedures also have  intrinsic value  in  acknowledging  a  person's  right  to understand his treatment, and thereby to determine his response as a conscientious citizen, willing to make reasonable sacrifices for the public good.  If obedience to law ideally entails a recognition of its morally obligatory character, there must be suitable opportunities  to  test  its  moral  credentials. Procedures may also be though to have intrinsic value  in  so  far  as  they  constitute  a  fair  balance between the demands of accuracy and other social needs:  where  the  moral  harm  entailed  by erroneous  decisions  is  reasonably  assessed  and fairly  distributed,  procedures  express  society's commitment to equal concern and respect for all.”

It, thus, cannot be denied that principles of natural justice

are  grounded  in  procedural  fairness  which  ensures  taking  of

correct  decision  and  procedural  fairness  is  fundamentally  an

instrumental  good,  in  the  sense  that  procedure  should  be

7 'Procedural Fairness and the Duty of Respect', (198) 18 OJLS 497 Civil Appeal Nos. 4458-4459 of 2015 Page 20 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

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designed to ensure accurate or appropriate outcomes.  In fact,

procedural  fairness  is  valuable  in  both  instrumental  and

non-instrumental terms.

25) It is on the aforesaid jurisprudential premise that the fundamental

principles of natural justice, including  audi alteram partem, have

developed.  It is for this reason that the courts have consistently

insisted that such procedural fairness has to be adhered to before

a decision is made and infraction thereof has led to the quashing

of  decisions  taken.   In  many  statutes,  provisions  are  made

ensuring that a notice is given to a person against whom an order

is likely to be passed before a decision is made, but there may be

instances where though an authority is vested with the powers to

pass  such  orders,  which  affect  the  liberty  or  property  of  an

individual  but  the statute  may not  contain  a  provision for  prior

hearing.  But what is important to be noted is that the applicability

of principles of natural jsutice is not dependent upon any statutory

provision.   The  principle  has  to  be  mandatorily  applied

irrespective of the fact as to whether there is any such statutory

provision or not.

De Smith8 captures the essence thus -  “Where a statute

authorises interference with properties or other rights and is silent

8 Judial Review of Administrative Action (1980), at page 161 Civil Appeal Nos. 4458-4459 of 2015 Page 21 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

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on  the  question  of  hearing,  the  courts  would  apply  rule  of

universal application and founded on plainest principles of natural

justice”.

Wade9 also  emphasizes  that  principles  of  natural  justice

operate as implied mandatory requirements, non-observance of

which  invalidates  the  exercise  of  power.   In  Cooper  v.

Sandworth  Board  of  Works10 the  Court  laid  down  that:

'...although there is no positive word in the statute requiring that

the party shall be heard, yet justice of common law would supply

the omission of Legislature”.  Exhaustive commentary explaining

the varied contours of this principle can be traced to the judgment

of this Court in Managing Director, ECIL, Hyderabad & Ors. v.

B. Karunakar & Ors.11,  wherein the Court  discussed plenty of

previous case law in restating the aforesaid principle, a glimpse

whereof can be found in the following passages:

“20.  The origins  of the law can also be traced to the principles of natural justice, as developed in the following cases: In A. K. Kraipak v. Union of India, (1969) 2 SCC 262 : (1970) 1 SCR 457, it was held that the rules of natural justice operate in areas not covered by any law. They do not supplant the law of  the  land  but  supplement  it.  They  are  not embodied rules and their aim is to secure justice or to  prevent  miscarriage  of  justice.  If  that  is  their purpose, there is no reason why they should not be made applicable to administrative proceedings also especially when it is not easy to draw the line that

9 Administrative Law (1977), at page 395 10 (1863) 14 GB (NS) 11 (1993) 4 SCC 727 Civil Appeal Nos. 4458-4459 of 2015 Page 22 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

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imputation of tax evasion arises where an order for compulsory

purchase is  made and such an imputation casts a slur  on the

parties to the agreement to sell leads to the conclusion that before

such an imputation can be made against the parties concerned

they must be given an opportunity to show-cause that the under

valuation in the agreement for sale was not with a view to evade

tax.  It is, therefore, all the more necessary that an opportunity of

hearing is provided.

27) From  the  aforesaid  discussion,  it  becomes  clear  that  the

opportunity to provide hearing before making any decision was

considered to be a basic requirement in the Court  proceeding.

Later  on,  this  principle  was  applied  to  other  quasi-judicial

authorities and other tribunals and ultimately it is now clearly laid

down that even in the administrative actions, where the decision

of the authority may result in civil consequences, a hearing before

taking a decision is necessary.  It  was, thus, observed in  A.K.

Kraipak's  case  (supra)  that  if  the  purpose  of  rules  of  natural

justice is to prevent miscarriage of justice, one fails to see how

these  rules  should  not  be  made  available  to  administrative

inquiries.  In the case of  Maneka Gandhi  v.  Union of India &

Anr.13 also  the  application  of  principle  of  natural  justice  was

13 (1978) 1 SCC 248 Civil Appeal Nos. 4458-4459 of 2015 Page 25 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

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extended  to  the  administrative  action  of  the  State  and  its

authorities.  It is, thus, clear that before taking an action, service

of  notice  and  giving  of  hearing  to  the  noticee  is  required.   In

Maharashtra  State  Financial  Corporation  v.  M/s.  Suvarna

Board Mills & Anr.14, this aspect was explained in the following

manner:

“3.  It has been contended before us by the learned counsel for the appellant that principles of natural justice  were  satisfied  before  taking  action  under Section 29, assuming that it was necessary to do so.  Let it  be seen whether it  was so.  It  is  well settled that  natural  justice cannot  be placed in a straight-jacket; its rules are not embodied and they do  vary  from  case  to  case  and  from  one fact-situation to another.  All that has to be seen is that no adverse civil consequences are allowed to ensue  before  one  is  put  on  notice  that  the consequence would follow if he would not take care of the lapse, because of which the action as made known  is  contemplated.   No  particular  form  of notice is the demand of law: All will depend on facts and circumstances of the case.”

28) In the case of East India Commercial Company Ltd., Calcutta

& Anr. v. The Collector of Customs, Calcutta15, this Court held

that whether the statute provides for notice or not, it is incumbent

upon  the  quasi-judicial  authority  to  issue  a  notice  to  the

concerned  persons  disclosing  the  circumstances  under  which

proceedings are sought to be initiated against them, failing which

the  conclusion  would  be  that  principle  of  natural  justice  are 14 (1994) 5 SCC 566 15 AIR 1962 SC 1893 Civil Appeal Nos. 4458-4459 of 2015 Page 26 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

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violated.  To the same effect are the following judgments:

a)  U.O.I. & Ors. v. Madhumilan Syntex Pvt. Ltd. & Anr.16

b)  Morarji Goculdas B&W Co. Ltd. & Anr. v. U.O.I. & Ors.17

c)  Metal Forgings & Anr. v. U.O.I. & Ors.18

d)  U.O.I. & Ors. v. Tata Yodogawa Ltd. & Anr.19

29) Therefore, we are inclined to hold that there was a requirement of

issuance  of  show-cause  notice  by  the  Deputy  Commissioner

before  passing  the  order  of  recovery,  irrespective  of  the  fact

whether Section 11A of the Act is attracted in the instant case or

not.

30) But  that  is  not  the  end  of  the  matter.   While  the  law  on  the

principle of  audi alteram partem  has progressed in the manner

mentioned  above,  at  the  same  time,  the  Courts  have  also

repeatedly remarked that the principles of natural justice are very

flexible principles.  They cannot be applied in any straight-jacket

formula.  It all depends upon the kind of functions performed and

to the extent to which a person is likely to be affected.  For this

reason, certain exceptions to the aforesaid principles have been

invoked under certain circumstances.  For example, the Courts

16 (1988) 3 SCC 348 17 (1995) Supp 3 SCC 588 18 (2003) 2 SCC 36 19 1988 (38) ELT 739 (SC) :: 1988 (19) ECR 569 (SC) Civil Appeal Nos. 4458-4459 of 2015 Page 27 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

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have held that it would be sufficient to allow a person to make a

representation  and  oral  hearing  may  not  be  necessary  in  all

cases, though in some matters, depending upon the nature of the

case,  not  only  full-fledged  oral  hearing  but  even

cross-examination  of  witnesses  is  treated  as  necessary

concomitant  of  the  principles  of  natural  justice.   Likewise,  in

service  matters  relating  to  major  punishment  by  way  of

disciplinary action, the requirement is very strict and full-fledged

opportunity is envisaged under the statutory rules as well.  On the

other hand, in those cases where there is an admission of charge,

even when no such formal inquiry is held, the punishment based

on such  admission  is  upheld.   It  is  for  this  reason,  in  certain

circumstances,  even  post-decisional  hearing  is  held  to  be

permissible.   Further,  the  Courts  have  held  that  under  certain

circumstances principles of natural justice may even be excluded

by reason of  diverse factors like time,  place,  the apprehended

danger and so on.

31) We are not concerned with these aspects in the present case as

the issue relates to giving of notice before taking action.  While

emphasizing  that  the  principles  of  natural  justice  cannot  be

applied  in  straight-jacket  formula,  the  aforesaid  instances  are

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given.  We have highlighted the jurisprudential basis of adhering

to  the  principles  of  natural  justice  which  are  grounded  on  the

doctrine of  procedural fairness,  accuracy of outcome leading to

general social goals, etc.  Nevertheless, there may be situations

wherein for some reason – perhaps because the evidence against

the individual is thought to be utterly compelling – it is felt that a

fair hearing 'would make no difference' – meaning that a hearing

would  not  change  the  ultimate  conclusion  reached  by  the

decision-maker – then no legal duty to supply a hearing arises.

Such an approach was endorsed by Lord Wilberforce in Malloch

v.  Aberdeen  Corporation20,  who  said  that  a  'breach  of

procedure...cannot give (rise to) a remedy in the courts, unless

behind it there is something of substance which has been lost by

the failure.   The court  dos not  act  in  vain'.   Relying on these

comments, Brandon LJ opined in Cinnamond v. British Airports

Authority21 that  'no  one  can  complain  of  not  being  given  an

opportunity to make representations if such an opportunity would

have availed  him nothing'.   In  such  situations,  fair  procedures

appear to serve no purpose since  'right' result  can be secured

without according such treatment to the individual.  In this behalf,

we need to notice one other exception which has been carved out

20 (1971) 1 WLR 1578 at 1595 21 (1980) 1 WLR 582 at 593 Civil Appeal Nos. 4458-4459 of 2015 Page 29 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

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to the aforesaid principle by the Courts.  Even if it is found by the

Court that there is a violation of principles of natural justice, the

Courts have held that it may not be necessary to strike down the

action  and refer the matter back to the authorities to take fresh

decision after complying with the procedural requirement  in those

cases where non-grant of hearing has not caused any prejudice

to the person against whom the action is taken.  Therefore, every

violation  of  a  facet  of  natural  justice  may  not  lead  to  the

conclusion that order passed is always  null and void.  The validity

of the order has to be decided on the touchstone of  'prejudice'.

The ultimate test is always the same, viz., the test of prejudice or

the test of fair hearing.

32) In Managing Director, ECIL (supra), the majority opinion, penned

down  by  Sawant,  J.,  while  summing  up  the  discussion  and

answering the various questions posed, had to say as under qua

the prejudice principle:

“30.  Hence the incidental questions raised above may be answered as follows:

xx xx xx

(v)  The next question to be answered is what is the effect on the order of punishment when the report of  the  enquiry  officer  is  not  furnished  to  the employee and what relief should be granted to him in such cases.  The answer to this question has to be relative to the punishment awarded.  When the

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employee  is  dismissed  or  removed  from  service and the inquiry is set aside because the report is not  furnished  to  him,  in  some  cases  the non-furnishing of  the report  may have prejudiced him gravely while in other cases it may have made no difference to the ultimate punishment awarded to  him.   Hence  to  direct  reinstatement  of  the employee with back-wages in all cases is to reduce the  rules  of  justice  to  a  mechanical  ritual.   The theory of reasonable opportunity and the principles of natural justice have been evolved to uphold the rule of law and to assist the individual to vindicate his  just  rights.   They  are  not  incantations  to  be invoked nor rites to be performed on all and sundry occasions.   Whether  in  fact,  prejudice  has  been caused to the employee or not on account of the denial to him of the report, has to be considered on the facts and circumstances of each case.  Where, therefore, even after the furnishing of the report, no different  consequence  would  have  followed,  it would  be  a  perversion  of  justice  to  permit  the employee  to  resume  duty  and  to  get  all  the consequential  benefits.   It  amounts  to  rewarding the dishonest and the guilty and thus to stretching the concept of justice to illogical and exasperating limits.   It  amounts  to  an “unnatural  expansion of natural  justice”  which  in  itself  is  antithetical  to justice.”

33) So far so good.  However, an important question posed by Mr.

Sorabjee is as to whether it is open to the authority, which has to

take a decision, to dispense with the requirement of the principles

of natural justice on the ground that affording such an opportunity

will  not  make  any  difference?  To  put  it  otherwise,  can  the

administrative authority dispense with the requirement of issuing

notice by itself deciding that no prejudice will  be caused to the

person against whom the action is contemplated?  Answer has to

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be in the negative.  It is not permissible for the authority to jump

over  the compliance of  the  principles  of  natural  justice  on  the

ground  that  even  if  hearing  had  been  provided  it  would  have

served no useful purpose.  The opportunity of hearing will serve

the purpose or not has to be considered at a later stage and such

things cannot be presumed by the authority.  This was so held by

the  English  Court  way  back  in  the  year  1943  in  the  case  of

General Medical Council v. Spackman22.  This Court also spoke

in the same language in the case of The Board of High School

and  Intermediate  Education,  U.P. &  Ors.  v.  Kumari  Chittra

Srivastava & Ors.23, as is apparent from the following words:

“8.  The learned counsel for the appellant, Mr. C.B. Aggarwal, contends that the facts are not in dispute and it is further clear that no useful purpose would have been served if the Board had served a show cause notice on the petitioner.  He says that in view of these circumstances it was not necessary for the Board to have issued a show cause notice.  We are unable to accept this contention.  Whether a duty arises in a particular case to issue a show cause notice before inflicting a penalty does not depend on the authority's satisfaction that the person to be penalised has no defence but on the nature of the order proposed to be passed.”

34) In view of the aforesaid enunciation of law, Mr. Sorabjee may also

be right in his submission that it was not open for the authority to

dispense with the requirement of principles of natural justice on

22 1943 AC 627 23 (1970) 1SCC 121 : AIR 1970 SC 1039 Civil Appeal Nos. 4458-4459 of 2015 Page 32 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

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the presumption that no prejudice is going to be caused to the

appellant since judgment in R.C. Tobacco (supra) had closed all

the windows for the appellant.

35) At the same time, it cannot be denied that as far as Courts are

concerned, they are empowered to consider as to whether any

purpose would be served in remanding the case keeping in mind

whether any prejudice is caused to the person against whom the

action is taken.  This was so clarified in the case of  Managing

Director, ECIL (supra) itself in the following words:

“31.  Hence, in all cases where the enquiry officer's report is not furnished to the delinquent employee in  the  disciplinary  proceedings,  the  Courts  and Tribunals should cause the copy of the report to be furnished to the aggrieved employee if he has not already  secured  it  before  coming  to  the  Court/ Tribunal and given the employee an opportunity to show how his or her case was prejudiced because of the non-supply of the report.  If after hearing the parties, the Court/Tribunal comes to the conclusion that the non-supply of the report would have made no  difference  to  the  ultimate  findings  and  the punishment  given,  the  Court/Tribunal  should  not interfere with the order of punishment.  The Court/ Tribunal  should  not  mechanically  set  aside  the order of punishment on the ground that the report was not furnished as it  regrettably being done at present.  The courts should avoid resorting to short cuts.   Since  it  is  the  Courts/Tribunals  which  will apply their  judicial  mind to the question and give their reasons for setting aside or not setting aside the  order  of  punishment,  (and  not  any  internal appellate  or  revisional  authority),  there  would  be neither a breach of the principles of natural justice nor  a  denial  of  the reasonable opportunity.  It  is only if the Court/Tribunal finds that the furnishing of

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the  report  would  have  made  a  difference  to  the result in the case that it should set aside the order of punishment.”

36) Keeping in view the aforesaid principles in mind, even when we

find that there is an infraction of principles of natural justice, we

have to address a further question as to whether any purpose

would be served in remitting the case to the authority to make

fresh demand of amount recoverable, only after issuing notice to

show cause to the appellant.  In the facts of the present case, we

find that such an exercise would be totally futile having regard to

the law laid down by this Court in R.C. Tobacco (supra).

37) To recapitulate  the events,  the appellant  was accorded certain

benefits under Notification dated July 08, 1999.  This Notification

stands nullified by Section 154 of the Act of 2003, which has been

given  retrospective  effect.   The  legal  consequence  of  the

aforesaid statutory provision is  that  the amount  with which the

appellant was benefitted under the aforesaid Notification becomes

refundable.  Even after the notice is issued, the appellant cannot

take  any  plea  to  retain  the  said  amount  on  any  ground

whatsoever as it is bound by the dicta in  R.C. Tobacco (supra).

Likewise, even the officer who passed the order has no choice but

to follow the dicta in R.C. Tobacco (supra).  It is important to note

that as far as quantification of the amount is concerned, it is not Civil Appeal Nos. 4458-4459 of 2015 Page 34 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 35

disputed at all.  In such a situation, issuance of notice would be

an empty formality and we are of the firm opinion that the case

stands covered by 'useless formality theory'.

38) In  Escorts  Farms  Ltd.  (Previously  known  as  M/s.  Escorts

Farms (Ramgarh)  Ltd.)  v.  Commissioner, Kumaon Division,

Nainital, U.P. & Ors.24,  this Court, while reiterating the position

that rules of natural justice are to be followed for doing substantial

justice, held that,  at the same time, it  would be of  no use if  it

amounts to completing a mere ritual of hearing without possibility

of any change in the decision of the case on merits.  It was so

explained in the following terms:

“64.   Right  of  hearing  to  a  necessary  party  is  a valuable  right.   Denial  of  such  right  is  serious breach  of  statutory  procedure  prescribed  and violation  of  rules  of  natural  justice.    In  these appeals preferred by the holder of lands and some other transferees, we have found that the terms of government grant did not permit transfers of land without  permission  of  the  State  as  grantor. Remand of  cases of  a  group of  transferees who were  not  heard,  would,  therefore,  be of  no  legal consequence, more so, when on this legal question all  affected  parties  have  got  full  opportunity  of hearing before the High Court  and in this appeal before this Court.  Rules of natural justice are to be followed  for  doing  substantial  justice  and not  for completing  a  mere  ritual  of  hearing  without possibility of any change in the decision of the case on merits.  In view of the legal position explained by us above, we, therefore, refrain from remanding these cases in exercise of our discretionary powers under Article 136 of the Constitution of India.”

24 (2004) 4 SCC 281 Civil Appeal Nos. 4458-4459 of 2015 Page 35 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

Page 36

39) Therefore, on the facts of this case, we are of the opinion that

non-issuance of notice before sending communication dated June

23, 2003 has not resulted in any prejudice to the appellant and it

may not be feasible to direct the respondents to take fresh action

after issuing notice as that would be a mere formality.

40) With this we advert to the last submission of Mr. Sorabjee that the

judgment in  R.C. Tobacco (supra) (which is a two Judge Bench

decision) is in conflict  with the three Judge Bench judgment in

J.K.  Cotton  (supra).   This  argument  is  not  even  open  to  the

appellant for the simple reason that the judgment in J.K. Cotton

(supra)  was  specifically  taken  note  of  and  discussed  in  R.C.

Tobacco  (supra).   Paragraph  13  of  the  judgment  in  R.C.

Tobacco  (supra)  would  reflect  that  the  appellant  therein  had

specifically  relied upon the judgment  in  J.K.  Cotton  (supra)  in

support  of  the  submission  that  retrospectivity  was  harsh  and

excessive  since  there  is,  in  fact,  a  retrospective  imposition  of

excise  duty.   It  was  also  argued  that  justification  of  such

retrospective imposition of tax must be overwhelming and no such

overriding  consideration  had  been  disclosed.   The  submission

went to the extent of pleading that if the appellant is called upon

to pay the excise duty now it will cripple its unit.  More pertinent

Civil Appeal Nos. 4458-4459 of 2015 Page 36 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)

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(2003) 5 SCC 23 which dealt with an amendment to  Section  80-P(2)(a)(iii)  of  the  Income  Tax  Act, 1961 noted that: (SCC p.35, para 29)

“The amendment  does not  seek to touch on the  periods  of  limitation  provided in  the  Act, and in the absence of such express provision or  clear  implication,  the  legislature  clearly could not be taken to intend that the amending provisions authorizes the Income Tax Officer to commence proceedings which before the new Act came into force, had, by the expiry of the period provided become barred".  

In the present case Section 154(4) specifically and expressly allows amounts to be recovered within a period  of  thirty  days  from  the  day  Finance  Bill, 2003  received  the  assent  of  the  President.  It cannot but be held therefore that the period of six months  provided  under  Section  11-A  would  not apply.”

40A) In the aforesaid scenario, when the Court was conscious of the  

principle  laid  down in  J.K.  Cotton  (supra)  and  explained  the   

same in a particular manner while deciding the appeal in  R.C.   

Tobacco (supra), it cannot be argued that the judgment in R.C.  

Tobacco (supra) runs contrary to J.K. Cotton (supra).

41) For all these reasons, the appeals are dismissed.

.............................................J. (A.K. SIKRI)

.............................................J. (ROHINTON FALI NARIMAN)

NEW DELHI; MAY 14, 2015.

Civil Appeal Nos. 4458-4459 of 2015 Page 38 of 38 (arising out of SLP (C) Nos. 37108-37109 of 2012)