MR. NASIR-UL-MULK, C. J.--(l). This appeal has been filed under section 36(C) of the Central Excises Act, 1944, by M/s. Amin Hotel, G.T. Road, Peshawar, against the order of the Customs, Excise and Sales Tax, Appellate Tribunal, Peshawar Bench, dated 05.12.2003 and the order in original dated 13.07.1998 and the order of the Collector (Appeals), dated 25.03.1999. The subject matter of the appeal is the levy of central excise duty on the services of meals and lodging provided by the appellant to the passengers of Pakistan International Airlines Corporation (PIAC) during the period July, 1990 to June, 1995.
2. Based on the audit report, the Additional Collector of Customs and Central Excise, Custom House, Peshawar, issued notice dated 20.06.1998 to the appellant to show cause as to why central excise duty amounting to Rs. 653,476.30 alongwith additional duty and penalty be not recovered from the appellant under the Central Excise Rules, 1944. In the reply submitted by the appellant, it was pleaded that the appellant was exempt from payment of the central excise duty in terms of Section 24 of the Customs Act read with Central Board of Revenue letter dated 11.10.1992. By the said letter, the Central Board of Revenue had clarified that in view of the exemption under Section 24 of the Customs Act, central excise duty was not payable on foods and meals served to the passengers and crew of an airline on international flights. The adjudication officer did not accept this plea and held that since the passengers were provided services during their stay in the hotel, they could not claim exemption under Section 24 of the Customs Act. This judgment and order was upheld in appeal by the Tribunal, which had during the pendency of the appeal carried out extensive enquiry itself.
3. The learned counsel appearing for the appellant mainly contended that the show cause notice was barred by time under Rule 10 of the Central Excise Rules, 1944 (hereinafter called as the "Rules").
He pointed out that the show cause notice was issued on 20.06.1998, more than three years after the termination of the period in question in June, 1995. The learned counsel referred to the sub-rule
(3) of Rule 10 of the Rules and argued that the show cause notice for non-payment of central excise duty can be issued after three years under sub-rule (3) only when fraud has been alleged and proved. The learned counsel argued that neither fraud has been alleged in the show cause notice nor the same has been established. He relied upon an un-reported judgment of this Court in the case of "M/s. Paramount Paper Board (Pvt.) Ltd. Vs. The Superintendent Intelligence & Investigation and others " (SAO No. 38/2002).
4. The learned counsel representing the respondent contended that the PIAC passengers to whom the appellant provided services in the shape of meals and accommodation, are lay over passengers who had to stay in the hotel in order to get connected flights or whose flights had been delayed. That the services provided to such passengers could not be considered as services on Board on international flights. The learned counsel, therefore, argued that the appellant had clearly committed fraud by failing to pay central excise duty when there was no ambiguity about the appellant's liability.
5. The counsel for the appellant has argued merits of the case to show that the appellant was not liable at all to pay central excise duty as the appellant had been providing services to passengers to whom boarding passes had been issued and, therefore, shall be deemed to be passengers on board the flights. This contention was primarily advanced to establish that the appellant had not committed any fraud and, therefore, for the purpose of time limitation, the case would not fall under sub-rule (3) of Rule 10 of the Rules. The said Rule provides a period of 10 years for the service of notice when duty had not been levied on account of fraud, false documents etc. In case of non- payment of excise duty by the reasons of inadvertence, error or misconstruction, the period within which notice is to be given is one year under sub-rule (1) and three years under sub-rule (3) in case of misdeclaration or false information or collusion. The show cause notice issued to the appellant does not allege fraud but only states that the appellant has not issued bills of charges and thus has failed to pay central excise duty on the services provided. It only mentions violation of Rule 10 but does not specify the sub-rule thereof. The adjudication officer has also not mentioned that the appellant had committed fraud or that the case falls under sub-rule (3). He had simply concluded that the charges levelled in the show cause notice have been established. It was the Appellate Tribunal which for the first time held that by not paying the duty, the appellant has committed "wilful fraud" and thus the time limitation for the issuance of show cause notice would be ten years under sub-rule (3).
6. In the case of M/s. Paramount Paper Mills Vs. Superintendent Intelligence, referred to above, this Court had, while relying upon the judgment of the Supreme Court in the case of "Assistant Collector Customs Vs. Khyber Electronics Lamps" (PTCL 2002 CL. 1) and of the Lahore High Court in "Zamindara Paper and Board Mills Vs. Collector Central Excise & Sales Tax, Lahore" (PTCL 2004 CL. 212), held that in order to bring a case under sub-rule (3) of Rule 10 of the Rules, fraud must be specifically alleged in the show cause notice and the sub-rule also mentioned so as to enable the assessee to appropriately respond to the notice. Admittedly, in the present case, there is no allegation of fraud or any other accusation specified in sub-rule (3), in the show cause notice.
There is also no finding to that effect by the adjudication officer. The Tribunal upon its own enquiry has given a finding of fraud against the appellant. In the light of the case law afore stated, the case against the appellant cannot be brought under sub-rule (3) in the absence of allegation of fraud in the show cause notice. Additionally, there has been a serious controversy regarding the exemption under Section 24 of the Customs Act, 1969, read with Central Board of Revenue's letter dated 11.10.1992. Under Section 24 of the Customs Act, 1969, goods purchased or manufactured in Pakistan and used by the passengers and the crew in journey abroad would be exempt from the payment of excise duty etc. The Central Board of Revenue in the letter had clarified that this exemption is extended only to foods and meals served on international flights. The agreement between the PIAC and the appellant in the year 1990, which has been placed on record of the Appellate Tribunal, requires the appellant to provide services to the lay over passengers of PIAC. The lay over passengers has been defined in the Oxford Dictionary as stay somewhere for short time during long journey.
7. Without going into question as to whether services provided by the appellant to the passengers of PIAC would be covered by Section 24 of the Customs Act read with letter of the CBR, the controversy did involve the construction of relevant provision. When duty is not paid on account of misconstruction, the time within which the notice is to be issued is one year as provided by sub- rule (1) of Rule 10 of the Rules. For this reason too, the case would not fall under sub-rule (3).
8. For the reasons afore stated, we therefore, hold that the show cause notice was barred by time under Rule 10 of the Rules. Consequently, we would allow the appeal and set aside the impugned orders and judgments as well as the show cause notice.