- 1 - HC-KAR NC: 2025:KHC:47217-DB CEA No. 14 of 2025 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 18TH DAY OF NOVEMBER, 2025 PRESENT THE HON'BLE MR. JUSTICE B M SHYAM PRASAD AND THE HON'BLE MR. JUSTICE T.M.NADAF CENTRAL EXCISE APPEAL NO. 14 OF 2025 BETWEEN: M/S ITI LIMITED BANGALORE PLANT, DOORVANINAGAR, BENGALURU-560016 (REPRESENTED BY ITS AUTHORISED SIGNATORY, SHRI. AJAI BAJPAI S/O.SHEETLA SHANKAR BAJPAI AGED ABOUT 44 YEARS …APPELLANT (BY SRI. CHIDANANDA URS B G.,ADVOCATE) AND: COMMISSIONER OF CENTRAL EXCISE BANGALORE II COMMISSIONERATE, CENTRAL REVENUE BUILDINGS, Digitally Signed by REKHA R Location : High Court of Karnataka - 2 - HC-KAR NC: 2025:KHC:47217-DB CEA No. 14 of 2025 QUEENS ROAD, P.B.NO.5400 BENGALURU-560001. …RESPONDENT (BY SRI. UNNIKRISHNAN M.,ADVOCATE) THIS CEA IS FILED UNDER SEC. 35G OF THE CENTRAL EXCISE ACT 1944 R/W SEC.83 OF THE FINANCE ACT 1994 PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE IMPUGNED ORDER OF THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL PASSED IN FINAL ORDER NO. 20666/24 DATED 12.08.2024. THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE B M SHYAM PRASAD and HON'BLE MR. JUSTICE T.M.NADAF - 3 - HC-KAR NC: 2025:KHC:47217-DB CEA No. 14 of 2025 ORAL JUDGMENT (PER: HON'BLE MR. JUSTICE B M SHYAM PRASAD) The appellant, a Public Sector Undertaking under the aegis of the Telecommunication Department Union of India, is aggrieved by the Order dated 12.08.2024 in No.FO/A/20666/2024-EX[DB] on the file of the Customs, Excise and Service Tax Appellate Tribunal [for short, 'the Tribunal']. The Tribunal, by this impugned order dated 12.08.2024, has partly allowed the appellant's appeal against the Order-in- Original No.35/2011 dated 30.11.2011 by the Commissioner of Central Excise, Bangalore-I, Commissionerate, Bengaluru [for short, 'the Commissioner']. The appellant's grievance is not confined to the relief that is refused by the Tribunal but is to the very initiation of the proceedings with the Show Cause Notice dated 22.11.2005. 2. Sri Chidananda Urs B G, the learned counsel for the appellant, while submitting that the - 4 - HC-KAR NC: 2025:KHC:47217-DB CEA No. 14 of 2025 show cause notice does not refer to the 'classification' under the Fourth Schedule of the Central Excise Act, 1944 [for short, 'the Act'], proposes the following questions as substantial questions of law asserting that these go to the very root of the matter. [i] Whether the Tribunal is justified in law in affirming the demand from the appellant when the show cause notice does not propose the classification that forms the basis for demanding the excise duty, and [ii] Whether the proceeding initiated with such show cause notice which has culminated with the Tribunal's order is grossly opposed to the respondent’s statutory obligation to provide for the nature of goods and its classification under the Act to justify a demand. The appeal was adjourned to hear Sri M Unnikrishnan, the learned counsel on record for the respondent, and today, both Sri Chidananda Urs B G and Sri M Unnikrishnan are heard on the afore questions which are admitted for final hearing. - 5 - HC-KAR NC: 2025:KHC:47217-DB CEA No. 14 of 2025 3. The facts necessary for a decision based on the afore questions is concisely stated thus: The appellant through its R & D Unit is engaged in the production of 'prototypes' for trial and customer approval, and the Show-cause Notice dated 22.11.2005 is for a demand of excise duty on these model prototypes. The appellant has contested the notice and the Order-in-Original No.35/2011 dated 30.11.2011 in the appeal with the Tribunal contending that because the prototypes were not saleable and remain at the field/trial stage, the proceedings could not have been initiated to raise a demand based on the expenditure incurred by such R & D Unit. 3.1 The Show-cause Notice dated 22.11.2005, while recording that the appellant has manufactured excisable goods [prototypes] and has removed such goods without following the procedure, refers to the - 6 - HC-KAR NC: 2025:KHC:47217-DB CEA No. 14 of 2025 prototypes mentioned in the statement of facts as follows: "2. Whereas it appears that the R & D unit of ITIL is engaged in the production model or prototype and is clearing the same for field trial or customer approval. Whereas it appears that the model/prototype produced are excisable goods chargeable to duty under Central Excise Tariff Act, 1985 at the rate specified under the schedule to the said Tariff Act depending on its classification under a heading/sub-heading to which the model/prototype manufactured, answers by description. 3. From the charges indicated in the Statement of Facts enclosed, it appears that ITIL have contravened the provisions of Rule 4, 5, 6, 8, 10, 11, 12 and 16 of the Central Excise Rules, 2002 inasmuch as they have manufactured excisable goods [prototype/model] in their R & D unit and have removed/cleared the said goods from the factory without following the procedure prescribed under the Act, without accounting them in the daily stock account, without assessing such goods to duty, removing them without the cover of an invoice, without showing such removals in the monthly - 7 - HC-KAR NC: 2025:KHC:47217-DB CEA No. 14 of 2025 statutory returns filed with the Department and without following the procedure prescribed in respect of return of such excisable goods." 3.2 There is no reference to the classification of the prototypes either in the Show-cause Notice or the Order-in-Original, and the appellant has taken the contention that the Show-cause Notice does not mention the classification of the telecommunication equipment models under the Fourth Schedule and the only reference is in the Tribunal's impugned order dated 12.08.2024. The Tribunal has mentioned that the prototypes fall under Chapter - 85 of the Act without elaboration. 4. Sri Chidananda Urs B G submits that it is settled law that the show cause notice forms the foundation upon which the demand is raised and if the show cause notice is itself defective, the demand must fail with the entire proceedings. The learned counsel proposes to rely upon the decision of the - 8 - HC-KAR NC: 2025:KHC:47217-DB CEA No. 14 of 2025 Apex Court in 'The Commissioner of Central Excise and Another v. Damodar Poly Fab [P] Ltd'1 to contend that Section 11A of the Act enjoins a duty on the concerned Central Excise Officer to extend an opportunity to an assessee to show cause why there should not be a levy of duty and that the show cause notice must refer to the particular chapter, Heading Sub-heading under which the classification is made. The learned counsel submits that in the case on hand, the Apex Court has observed, underscoring the importance of mentioning the chapter, Heading and Sub-heading that even if an assessee admits classification, it could still dispute the demand based on an exception that could be available to the assessee. 5. Sri M Unnikrishnan submits that this Court may consider the merits of the appellant's grievance that the Show-cause Notice does not refer 1 2018 [14] GSTL 162 [SC] - 9 - HC-KAR NC: 2025:KHC:47217-DB CEA No. 14 of 2025 to the classification under separate Heading/ Sub- heading in the light of the fact [a] that the appellant has not responded to the Show-cause Notice asserting that it was put to any prejudice because the classification is not mentioned and [b] that the assessee contested the liability to pay demand only on the ground that the goods had remained prototypes and had not been marketed to realize any value because the project had failed. The learned counsel justifies the demand based on the relevant Rules because the appellant, as asserted by it, has not produced the required documents. 6. This Court must observe that there is liability to pay the prescribed duty of excise at the rates set forth in the Fourth Schedule as contemplated under Section 3 of the Act on all excisable goods manufactured or produced. It flows from this requirement that every levy and the demand must begin with the identification of - 10 - HC-KAR NC: 2025:KHC:47217-DB CEA No. 14 of 2025 excisable goods manufactured/produced in India and the rate at which the duty must be levied and that the rate will depend on the classification under the Fourth Schedule to the Act. The reference to the classification of the goods upon which a demand is raised therefore becomes a jurisdictional fact and unless that fact is stated in the Show-cause notice, the Central Excise authorities cannot assume jurisdiction to levy demand. The controversy over the classification and the rate and even whether the goods are manufactured or produced in India could be facts in issue but an assertion that the goods are manufactured/produced in India and are subject to duty of excise at a particular rate based on certain classification would be a jurisdictional fact, and in the absence of this jurisdictional fact, the authority cannot assume jurisdiction. 7. This Court may refer to the decision of the Apex Court in 'Arun Kumar and Others v. Union of - 11 - HC-KAR NC: 2025:KHC:47217-DB CEA No. 14 of 2025 India and Others'2. As is obvious from the extracted portion of the Show-cause notice, there is no reference to the classification and the only reference is to what the law contemplates under Section 3 of the Act viz., the duty of excise would be leviable at a rate specified under the Fourth Schedule depending on the classification under the Heading/Sub-heading without mentioning the classification. Therefore, this Court is of the considered view that the Show-cause notice is defective and all proceedings subsequent thereto will have to fail. The Tribunal has referred to Chapter 85 but without elaboration on the Heading/Subheading. In the light of the afore, the substantial questions are answered in favour of the appellant and hence the following: ORDER [a] The appeal is allowed. 2 [2007] 1 SCC 732 - 12 - HC-KAR NC: 2025:KHC:47217-DB CEA No. 14 of 2025 [b] The impugned show cause notice dated 22.11.2005, the Order-in-Original dated 30.11.2011 in No.35/2011 passed by the Commissioner and the Tribunal's Order dated 12.08.2024 in No.FO/A/ 20666/2024-EX[DB] are quashed. Sd/- (B M SHYAM PRASAD) JUDGE Sd/- (T.M.NADAF) JUDGE AN/-